Bylov: Inter-Markets Trading View

Jan Bylov, chief analyst at Nordea Markets, is a "rare specie" among analysts, as he is looking himself at all asset classes and uses inter-market approach in analyzing the markets. He writes in the summary today:

Equities – Little global coordination

We all know that the economic situation is extremely challenging and the lack of coordinated intervention by G7 will do little to nurse investors’ fear that things may evolve in favour of the doomsday prophets. Still, during “unprecedented” times I believe that we are better off relying on our common sense based on how extreme cheap money and huge fiscal packages ultimately will influence our animal spirits! Consequently, I maintain that it is encouraging that few asset classes/instruments are trading at new “bear” extremes as this observation advocates that the economic reality is well discounted; hence, the unprecedented global public intervention should be given the benefit of the doubt. I’ll be waiting for a new selling climax or other well-known signals which advocate attractive odds for buying S&P500 once again.

Bonds – A major trading range

While the poker game with Fed continues to pressure US treasuries the European dire economic situation with an ECB generally considered well behind the curve of events have generated strong buying of German and UK bonds. Now, combining the recent strong buying of e.g. German Bunds with the hefty sell pressure during January then we have most likely witnessed the emergence of a new wide trading range between 121.33 – 125.56! Overall, market themes remain dominated by 1) dovish central banks putting a hand behind long bonds in support of cheap house financing and attractive prices to issue bonds, and 2) the perception that we are facing a major bond bubble due to supply fear. Being away on vacation I missed the recent buy signal, but I’ll be looking to buy on a potential weak setback within the overall range.

Commodities – Quiet

Outperformance by precious metals continue even in the aftermath of the December/early January best recovery in commodities since the 2008 collapse. That recovery continues to argue that the general commodity collapse has come to a halt, and I expect prolonged range trading ahead of the next major directional price move. Further, I maintain that the transient investment theme of “global deflation and economic recession” very well could have been discounted by the price extremes experienced during late 2008.

Currencies – Wide trading ranges emerging everywhere

Asian USD currencies (“trading”/commerce currencies) are trading within a well-defined range since October 2008… as are AUD and CAD (commodity currencies) and other developed currencies (savings currencies), and interestingly cross rates like EUR/SEK and EUR/GBP recently appeared to be joining such a ranging behaviour (strong buying in EUR/SEK near 10.40 and EUR/GBP cementing a reaction low on 10 February via a bullish Key Day Reversal pattern). Unfortunately, the latter price pattern caused my short EUR/GBP to be stopped out at a loss. Now, the presence of such wide trading ranges evolving is probably tightly related to markets trapped between two themes: 1) economic doomsday prophets turning out being right and 2) unprecedented cheep money and fiscal packages will ultimately revitalise economic growth. The trading ranges suggest that investors are undecided what to believe in. Finally, as a consequence of this I chose to cash in profits from my long USD/JPY position as successful range trading is depended on counter-trading the range extremes.

Consider as a probability ...