Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

Federal Reserve Chairperson Jerome Powell’s pre-prepared opening <a href="https://www.federalreserve.gov/newsevents/speech/powell20210827a.htm" target="_blank" rel="noopener">speech</a>at the Jackson Hole Symposium on Friday afternoon was a key litmus test for the central bank. Powell took yet another small step towards an eventual tapering this year of the Fed’s asset purchases and a tightening of arguably extremely loose monetary policy while pouring cold water on any talk of policy rate hikes, broadly in line with our expectations. Price action in US rates, equity and FX markets in the past four days would suggest that Powell has successfully cleared yet another important hurdle. US Treasury yields across the maturity spectrum are down since Thursday’s close in the bottom half of their post 16th June Fed policy meeting range, the US Dollar has weakened about 0.7% to a 3-week low and the S&amp;P 500 is hovering near a record-high (see Figure 1). <a href="https://www.chicagofed.org/publications/nfci/index" target="_blank" rel="noopener">National financial conditions</a> remain very easy and supportive of domestic economic growth. Notably recent market moves have been orderly, with volatility still pretty modest. Perhaps unsurprisingly given low US Treasury yields and buoyant US (and global) equities, Emerging Market currencies, particularly high-yielders, have outperformed in the past month.The next hurdle for the Fed and financial markets is the 22nd September policy meeting, with the spike in market volatility following the 16th June meeting still fresh in their minds. We think the Fed will refrain from giving a more specific timeline for the start of its taper and do so only at its <a href="https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm" target="_blank" rel="noopener">3rd November</a> meeting to retain some data-dependent policy flexibility. However, we expect the Fed’s updated dot-chart to show a further hawkish shift in terms of the appropriate timing for policy rate hikes. Whether this jars, even if temporarily, with Powell’s disassociation between QE and interest rate policy is open to debate.We are for now sticking to our core scenario that the Fed will only start hiking its policy rate in 2023 but that the gap between the start of the taper and the start of the rate hiking cycle will be smaller than the 23 months gap in 2014-2015.Nevertheless, the Fed will want to engineer a slow landing – music to the ears of doves and bulls but arguably a concern for hawks fearful of the Fed and financial markets stalling.

Federal Reserve Chairperson Jerome Powell’s pre-prepared opening speechat the Jackson Hole Symposium on Friday afternoon was a key litmus test for the central bank. Powell took yet another small step towards an eventual tapering this year of the Fed’s asset purchases and a tightening of arguably extremely loose monetary policy while pouring cold water on any talk of policy rate hikes, broadly in line with our expectations. Price action in US rates, equity and FX markets in the past four days would suggest that Powell has successfully cleared yet another important hurdle. US Treasury yields across the maturity spectrum are down since Thursday’s close in the bottom half of their post 16th June Fed policy meeting range, the US Dollar has weakened about 0.7% to a 3-week low and the S&amp;P 500 is hovering near a record-high (see Figure 1). National financial conditions remain very easy and supportive of domestic economic growth. Notably recent market moves have been orderly, with volatility still pretty modest. Perhaps unsurprisingly given low US Treasury yields and buoyant US (and global) equities, Emerging Market currencies, particularly high-yielders, have outperformed in the past month.The next hurdle for the Fed and financial markets is the 22nd September policy meeting, with the spike in market volatility following the 16th June meeting still fresh in their minds. We think the Fed will refrain from giving a more specific timeline for the start of its taper and do so only at its 3rd November meeting to retain some data-dependent policy flexibility. However, we expect the Fed’s updated dot-chart to show a further hawkish shift in terms of the appropriate timing for policy rate hikes. Whether this jars, even if temporarily, with Powell’s disassociation between QE and interest rate policy is open to debate.We are for now sticking to our core scenario that the Fed will only start hiking its policy rate in 2023 but that the gap between the start of the taper and the start of the rate hiking cycle will be smaller than the 23 months gap in 2014-2015.Nevertheless, the Fed will want to engineer a slow landing – music to the ears of doves and bulls but arguably a concern for hawks fearful of the Fed and financial markets stalling. 

Powell Put in Play but Greater Challenges Ahead

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Market conditions have started to improve, and the bottom line is that all Sectors and major indexes remain above critical supports. The absence of breakdowns continues to support our overall constructive outlook, and we are watching the 10-year Treasury yield, small-caps (IWM), Financials (XLF), and Industrials (XLI) closely for signs that a new broad-based rally is upon us.

Market conditions have started to improve, and the bottom line is that all Sectors and major indexes remain above critical supports. The absence of breakdowns continues to support our overall constructive outlook, and we are watching the 10-year Treasury yield, small-caps (IWM), Financials (XLF), and Industrials (XLI) closely for signs that a new broad-based rally is upon us.

U.S. Equity Strategy: Conditions Improving; Watching Cyclicals, 10-Yr Yield. Buying Casinos, Semis

Wisdomtree Japan Hedged Eq / Technical Analysis

Market dynamics continue to send mixed signals, but the bottom line is that not one MSCI ACWI Sector is breaking down, and important price support levels are holding in the US, Europe, and Japan. Additionally, the MSCI ACWI, ACWI ex-US, and EAFE indexes all remain above critical support levels. Until supports start to break we cannot be bearish. It is also worth noting that various indicators could be making a turn for the better, including early signs of interest rates bottoming in the US and Germany, a potential false breakdown in crude oil, and high yield spreads leveling-out.

Market dynamics continue to send mixed signals, but the bottom line is that not one MSCI ACWI Sector is breaking down, and important price support levels are holding in the US, Europe, and Japan. Additionally, the MSCI ACWI, ACWI ex-US, and EAFE indexes all remain above critical support levels. Until supports start to break we cannot be bearish. It is also worth noting that various indicators could be making a turn for the better, including early signs of interest rates bottoming in the US and Germany, a potential false breakdown in crude oil, and high yield spreads leveling-out.

Critical Supports Holding in the US, Europe, & Japan; Buying Health Care, Utilities, Materials, Tech

Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

Even though EM rate curves have been flattening in line with the US, rates in EM have underperformed the rally in the US. The main difference is unlike the US, and DM more generally, emerging countries have broadly started tightening monetary policy. Real rates in EM are thus much higher than in the US. We continue to find the spread of EM to the US attractive, especially with EM rates volatility dropping below its long-term average.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Even though EM rate curves have been flattening in line with the US, rates in EM have underperformed the rally in the US. The main difference is unlike the US, and DM more generally, emerging countries have broadly started tightening monetary policy. Real rates in EM are thus much higher than in the US. We continue to find the spread of EM to the US attractive, especially with EM rates volatility dropping below its long-term average.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Higher Real Rates in EM than in DM

US Treasury (10 Yr Generic) / Technical Analysis

Charts Highlighted: XLE, RYE, WTI Crude Oil, XLF, XLB, XLI, RCD, EEM, XLU, XLP, AWK, AEE, WMT, PEP, NUE, STLD, X, CMC, SMSMY, SCHN, RYI, TMST, MT, TX, MTL, ETR, FTS, CMS, CNP, LNT, NI, OGE, BKH, NEE, DUK, SO, and AEPCyclical value areas including Financials, Materials, Manufacturing, Transportation, and equal-weighted Discretionary display short-term improvement as interest rates show signs of a potential bottom at 1.13%. This is encouraging, however we are still neutral yet constructive overall. As we noted last week, we need to see the 10-year Treasury yield breach, and hold above, 1.45%, as well as sustained price improvement by small-caps (i.e., IWM above $234.50) before we can declare a new broad-based bull market.

Charts Highlighted: XLE, RYE, WTI Crude Oil, XLF, XLB, XLI, RCD, EEM, XLU, XLP, AWK, AEE, WMT, PEP, NUE, STLD, X, CMC, SMSMY, SCHN, RYI, TMST, MT, TX, MTL, ETR, FTS, CMS, CNP, LNT, NI, OGE, BKH, NEE, DUK, SO, and AEPCyclical value areas including Financials, Materials, Manufacturing, Transportation, and equal-weighted Discretionary display short-term improvement as interest rates show signs of a potential bottom at 1.13%. This is encouraging, however we are still neutral yet constructive overall. As we noted last week, we need to see the 10-year Treasury yield breach, and hold above, 1.45%, as well as sustained price improvement by small-caps (i.e., IWM above $234.50) before we can declare a new broad-based bull market.

10-Year Treasury Yield Below Key Resistance; Buying Utilities, Consumer Staples, and Steel Stocks

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US Treasury (10 Yr Generic) (GT10 GOVT)

Powell Put in Play but Greater Challenges Ahead

Powell passed Jackson Hole test - market vol has remained subdued, rates have fallen and equities rallied. But Fed faces sterner tests as it ambles...

Olivier Desbarres

U.S. Equity Strategy: Conditions Improving; Watching Cyclicals, 10-Yr Yield. Buying Casinos, Semis

We are watching the 10-year Treasury yield, small-caps (IWM), Financials (XLF), and Industrials (XLI) closely for signs that a new broad-based...

Vermilion Research

Critical Supports Holding in the US, Europe, & Japan; Buying Health Care, Utilities, Materials, Tech

Various indicators are making a turn for the better, including early signs of interest rates bottoming in the US and Germany, a false breakdown in...

Vermilion Research

Rates 10y Dashboard: Higher Real Rates in EM than in DM

Real rates in EM are much higher than in the US, making the spread of EM local debt to the US attractive, especially with EM rates volatility...

Gautam Jain, PhD, CFA

10-Year Treasury Yield Below Key Resistance; Buying Utilities, Consumer Staples, and Steel Stocks

Cyclical value areas are improving, but so are defensives. In order to get more bullish, we need to see the 10-year Treasury yield break above...

Vermilion Research

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