Just as Societe Generale’s Albert Edwards considers going uber-bullish, Marc Ostwald at Monument Securities interprets current sharp fluctuations in the US Treasury curve as implying an imminent end to Quantitative Easing-inspired rallies.
In a note on Thursday he sets out the following warnings signals:
1) Short-term govt yield trends: the attached Govt Bond Review charts have one very obvious common
theme, namely that 10-yr yields have risen too rapidly and appear ripe for a correction, even if the trend to ever steeper curves and higher yields remains an extant medium theme.This can be seen in the following chart (click to enlarge):
But there is more (another six points no less):
2) The confluence of this event with the oversold level of the USD, and the timing of the Asian central banks’ apparent vote of (perhaps reluctant) confidence in the USD and US Treasuries ….
3) the dangerously high level of speculative flows into commodities, particularly softs ….
4) the proximity of major resistance in Gold at $1000 ….
5) equity markets having run into stern resistance in many countries, despite the vociferous camp of green shooters and optimists continuing to talk up risk tolerant assets ….
6) the sharp drop in volatility appearing to have run its course (particularly with the imminence of quarterly futures and options expiry in equity indices) which should bring to an end the ‘volocaust’ (i.e. the slaughter of long volatility players, especially over recent weeks) ….
7) the fading of protection purchases in equities (e.g. put open interest in EuroStoxx) and the low volume of open interest in equity futures (e.g. S&P 500) ….
All of which Ostwald says indicates the QE sponsored liquidity rally in risk tolerant assets may be close to running aground.
Related links:
Albert Edwards, uber bull – FT Alphaville
Is that a buy from the Coppock indicator? - FT Alphaville