Last week contained several surprises. European bonds were crushed as the realization of negative yields was acknowledged. This acknowledgement was the catalyst for a sharp selloff in US Treasuries. Oil advanced to its highest level of the year while the dollar fell from its lofty perch. Equities ended lower. Generally speaking, the data was decidedly weak.
Commenting further about last week, earnings exceeded dumbed down expectations however the question is now being asked were forecasts dropped to low thus suggesting forward looking outlooks as essentially meaningless.
As evidenced by sovereign bond yields, the financial system is awash with stimulus yet liquidity appears to be absent. Is this a function of changes in trading and positioning of bonds as mandated by regulatory entities? What happens if selling commences in earnest because of stronger than expected data? Could we argue this lack of liquidity was a cause of last week’s sharp drop in sovereign debt?
Many times I have opined when everyone owns something, who is left to buy when selling commences. The inverse of the above, if everyone has already sold, who will sell when buying commences?
I can argue commodities are vastly oversold and underweighted. Last week the CRB crossed over its 100 day moving average, up over 10% from its mid-March multi year low. Are commodities about to enter in a bull market after a punishing 35% plunge from last June’s multiyear peak?
As noted above, Treasuries increased in yield at the same time commodities rose in price. The data was decidedly weak which negatively impacted equities. Against this backdrop, can I suggest demand pull inflation is potentially developing? The markets think yes.
If last week is a start of a trend, yesterday’s must owned technology and bio tech stocks would greatly underperform commodity based concerns. Will last week’s trends continued.
This week can also be of significance given the host of top tier statistics that are released. Data includes several regional manufacturing indices, ISM non-manufacturing, trade data and various employment surveys including Friday’s posting of the BLS report.
Last night the foreign markets were up. London was up 0.36%, Paris up 1.05% and Frankfurt up 1.38%. Japan was up 0.06% and Hang Sang down 0.03%.
The Dow should open quietly higher ahead of big data week. European stocks rebounded as some deflationary pressures eased in April. The 10-year is off 3/32 to yield 2.12%.
