In today’s briefing:
- Steno Signals #73 – An Abysmal Impulse for 2024
- Extended Fed Policy Pause Puts Focus on US Equity-Bond Valuation Imbalance
- Five Bullish Risk Reversals You May Have Missed
- Will Narrow Leadership Unravel the ZBT Buy Signal?
- Comment on Exchange Rate EUR/USD October 27, 2023
Steno Signals #73 – An Abysmal Impulse for 2024
- Happy Sunday and welcome to our flagship editorial! As per usual we take you for a chart-heavy guided macro tour around major asset classes.
- Conclusions up front: – The credit impulse for 2024 looks abysmal– Rates volatility is likely going to rise sharply again– Equities still look (too) expensive on most parameters – JPY and CNY trends to continue worsening– Oil bulls have less to cheer about than Nat Gas bulls
- Momentum in 2023 saw a positive impulse from 1) lower input costs for production due to lower commodity and energy prices than in 2022 and 2) Easing financial conditions due to higher multiples and an easing momentum in rates.
Extended Fed Policy Pause Puts Focus on US Equity-Bond Valuation Imbalance
- The US Treasury’s reliance on T-bill issuance has been embraced positively by risky assets, but any sustained rally will require the return of disinflation supported by economic fundamentals.
- The arrival of positive real interest rates enhances the chances of disinflation returning, but Fed policy is on an extended holding period into 2024, notwithstanding the political calendar
- Private sector imbalances in the US economy are not particularly large by historic standards. Financial asset valuation imbalances remain intact, notably a low equity risk premium versus Treasury bonds.
Five Bullish Risk Reversals You May Have Missed
- We’re old enough to remember how the market was panicked about a U.S. recession and a rising term premium in the Treasury market.
- Since then, a series of positive technical, macro and fundamental reversals have occurred to alleviate those concerns.
- These reversals of an extremely bearish psychology are bullish for risk assets.
Will Narrow Leadership Unravel the ZBT Buy Signal?
- The market action in the wake of the recent Zweig Breadth Thrust buy signal has been characterized by narrow leadership and poor breadth.
- A historical analysis of market breadth shows that it can take two or more years of negative breadth divergences before a market tops out.
- Today’s market conditions indicate that the current megacap growth leadership is not extended and can rise much further.
Comment on Exchange Rate EUR/USD October 27, 2023
- During the period under consideration, i.e. September 27th – October 27th, 2023, the EUR/USD exchange rate fluctuated between 1.049 and 1.061 until October 22nd, 2023, but thereafter it followed an instantaneous daily uptrend on October 23 to finally secure the price of 1.0668.
- However, at the finish of October, the Euro notched a slight drop, but it was still trading higher than the levels at the end of September.
- According to Graph 1, during the first 18 trading days of the period under consideration, the pair showed a consolidation pattern mainly along the range of 1.05-1.0593 (except 2 sessions).
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