BNP Paribas: We Are Out Of The Woods!

The FX & Interest Rate Strategy team at BNP Paribas declared "We Are Out of the Woods" in its "Asia Trader" publication this morning. The "Call" is based on technical factors:

Equities - S$P500 Closes Above 1,000
• Asia led the way with the BKAS break higher
• S&P closes above 1,000 and Golden Cross Confirmed
• DJIA Golden Cross Just Confirmed and Testing 9422, Break Opens 10,000
• Bank stocks break out from bearish channel with imminent golden cross
• Stock volatility stays depressed, good for risk taking
• Stock volatility declines in Europe and Asia too

Bond Markets: Spread Compression Lingers
• Main Europe spread tightens dramatically
• US investment grade spread tightens further too
• Japanese investment grade spread testing trendline support
• JPM EMBI+ index back to pre-Lehman levels
• USD 10Y swap spread widening reflects mortgage hedging activity
• UST 10Y yield heading back towards 4%

Commodities: Charging Higher
• CRB index breaks trendline resistance with golden cross formed
• Gold joining the party too
• Copper flies off the handle, now targeting 6600
• Baltic Dry Index in bullish channel with golden cross intact

FX: USD Breaks Down
• Led by Asian currencies (ADXY) and remains so
• USD Index cracks 78.35 now looking 3% lower at 76.00
• Even the Fed's TWI threatens to fall off a cliff

Trend is your friend (until it is not)! Respect the market script! Markets appear to be driven by price momentum (especially looking at commodities right now ... industrial metals appear exhausting), the discount of the decline of latest US Non-Manufacturing ISM Index, that shows even sharper contraction in July, was rather short and mild so far today ... Wait, how much services contribute to GDP?

Financials save the party today! Buy on dips is still the rule!

Here are some comments on US Non-Manufacturing ISM today:
Calculated Risk
BNP Paribas