Bond markets remain in focus after recent curve inversion
Market Outlook 30.6.14 (Work Projects)
1. Market Outlook (Week beginning 30/6/14)
US markets had a strong close on Friday with all major indices and
treasury yields finishing strong. Some major movers who had a good
run were Netflix and Facebook. Both have advanced 12% in the last
quarter. The Standard & Poor’s 500 indexclimbed 4.7% to 1,960.96 for the3
months, poised for a sixth quarterly gain, the longest stretch since1998. The Dow
Jones IndustrialAverage(INDU) also posted a gain of 2.4% to finish at 16,851.84.
The NASDAQ Composite Index also recorded gains of 4.7%. Allthree charts below
for the indices show a steady uptrend with some limited consolidation. Volatility
is evaporating amid stock gains, as the Chicago Board Options ExchangeVolatility
Index(VIX) touched a seven year low. During the past week, Treasury Bonds
pullback but still posted a weekly rally as can be observed fromthe chart below.
However a critical point to be noted is the last candle on the Treasury Bonds chart
was a mid-sized ‘abandoned baby’ or ‘shooting star’ which can signify a strong
reversal. The growth in bond yield is good indication on forecasting economic
growth and interest rates. The bond yields being experienced are consistent with
growth data and the expectation of mild inflation.
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5. The MSCI All-Country World Indexhas climbed 4.1% sinceMarch, reaching a
record on June 19. The Stoxx Europe 600 Index has rallied 2.3%. In theEast, the
MSCI Asia Pacific Indexis up 5.1%, leading the pack. The FTSEwas in mild
correction but still on the track of a major downtrend as indicated by the chart
below. However the FTSEmight havebottomed out as two candles prior wesee a
quasi‘dragonfly’ or ‘long legged doji’. This is a strong indication of a trend ending
and consolidation. The data coming out of Europe and Japan is consistentwith
analystforecaston the upturn in the global economy. However a point to be
noted is Europe’s recovery is still lagging. Economic data coming out of Japan was
mixed. The Nikkei Averageretreated 1.4%. However Japan’s officialdata showed
the country’s unemploymentdata dropped to 3.5% in May, the lowest level since
1997. Thus the jury is still out on Abeconomics.
6. Precious metals were trading sideways all of last week. Most of the major FX pairs
followed suit. Gold and Silver showing signs of consolidation based on the charts
below. However the last candle on the Silver chart is a good size doji. However as
neither is it at a top or bottom, thus it carries less significance. The price of crude
oil is in mild decline as depicted by the chart below due to the continued unrestin
the Middle East. Most of the major currency pairs traded in consolidation within
limited ranges during the week. Based on the USD/JPYchartbelow, the pair has
been in a downtrend for severalweeks. However based on fundamentals, further
material downsiderisk is limited.
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10. For the coming week we can expect somematerial equities and currencies
movement as there are a number of significant Economic data releases. This data
release should bring somemuch needed volatility into the markets. We should
also see more price action in the FX markets. The VIX or volatility index will be a
good monitor on breakouteconomic activity. A bullish week to look forward to
marring any shock events.
Sources credited:
www.morningstar.com
www.bloomberg.com
