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:
Stocks – Asia, LatAm and Technology lead the way higher
To the recent public initiatives of the US TALF, the PPIP, the softening of FASB’s mark-to-market rules we may now add the decisive G20 meeting. This appears to be reinforcing investors confidence that the global “visibility” is clearing up – not least lead by the bourses in Latin America and Asia and the recent major breakout in relative performance by the technology sector. Now, we emphasise for the second week that it is very encouraging to observe the recent stock sector rotation towards early cycle sectors as this advocates that the financial business cycle slowdown is at the bottom. Undoubtedly, the terrible macro economic situation will keep “bears” alert to any fading buy momentum, but with the Nasdaq bourse in a bullish breakout from a five-month old trading range buy momentum remains intact. Looking beyond the short to medium term we expect LatAm and Asia to fall less during setbacks and rally more subsequently and that the technology sector remains very attractive. Odds continue to improve that we have witnessed important long-term lows!
Bonds – Overexposure being removed
ECB disappointed cutting only 25bp but it appears that most market observers subsequently believe that odds are fast improving that ECB shortly will join other major central banks like Fed, BoE, SNB and BoJ in implementing quantitative easing with the purpose of “printing” new money and nursing the yield curve to stay appropriate for the housing market and high prices at which to sell enormous amounts of government bonds. However, this “manipulation” is at odds with the increasing evidence that global investors are pricing in that we are at the bottom of the financial business cycle; hence investors are now removing overexposure in bonds. Overall, two dominating investment themes still exist: 1) global recession and dovish central banks i.e. bullish bonds and 2) the fear of a major bond bubble i.e. bearish bonds. Combining these two investment themes with evidence that the financial business cycle is close to its bottom long bonds hold increasingly unattractive risk/reward relations!
Commodities – Strong outperformance by industrial metals
As you are well informed global commodities didn’t follow Western stock markets to new lows during early March, and combined with the recent evidence that the global financial business cycle slowdown is close to its bottom it is encouraging also to observe that industrial metals indices are breaking up and out from the end 2008 ranges! This not least lead by copper where speculative futures traders remain short positioned advocating that the recovery in industrial metals will continue… and gold to underperform.
Currencies – Odds of a short squeeze in GBP intensify
A turnaround in the market perception of global “visibility” has taken place during the last few weeks primarily due to public initiatives (TALF, PPIP, FASB and G20) and signalled by the encouraging evidence that the financial business cycle is close to its bottom. With investors apparently beginning to look beyond the global recession and allocating funds towards early cyclicals AUD, NZD and CAD is likely to have witnessed important low-points. With more global “visibility” and risk allocation away from the most secure financial instruments it is perhaps a surprise to observe that speculative futures traders continue to love shorting GBP! As a consequence, odds appear to be intensifying that a short squeeze in GBP will occur with most markets suggesting that light ahead of the tunnel does exist – also in UK.
Be careful!
I have been sceptical of taking care too much of household balance sheets in Latvian context, probably wrong, but there are possibly other more important issues, like - how to serve foreign denominated debt, in first instance ...? However, in the global context, i believe, it is key for any sustainable recovery.
