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EURGBP: Deteriorating Rate Differentials

(from our Weekly Update of 14th February 2017) Rising inflation in the eurozone is driving real rates lower, widening the rate differential between the EUR and other DM currencies. We look at risk-adjusted real-rate differentials by dividing real-rate differentials by...

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The Dark Side of Reflation

Higher economic growth usually translates into higher bond yields, higher stocks and rising oil prices; but, too much of a good thing is bad for stocks. Over the past few weeks, we’ve shown that our stock/bond RSI signal has triggered. We now have an Inflationary...

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No Margin Support for Equities

P/E expansion has been an important driver of US equity returns in recent years. The left chart shows the disaggregation of returns in 5 year blocks going back to 1996. As we can see, in the years 2011-2016, 55% points of the 79% return of the S&P in that period...

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Australian Banks: A Shorting Opportunity

The housing-driven downturn we have discussed through last year continues to develop, albeit at a slower pace than we originally expected. The situation is deteriorating, though, with building permits - the best leading indicator for housing - now falling at more than...

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Oil Goes from Tailwind to Headwind

In most economic cycles, commodities rally very late in the business cycle, and often oil doubles in price before downturns.  Our leading economic indicators are not forecasting an immediate economic downturn, but we are very definitely late cycle on a lot of...

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Good Entry Point to add to Gold Longs

(from our Tactical report of 10th January 2017) The major sell-off in gold in 4Q16 offers a great tactical entry to buy gold.  Gold has seen significant outflows over the past 3 months: Also January is a seasonally strong month for gold: The macro picture also remains...

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Financials Rally at Odds with Credit Cycle

Financials have been the biggest winners since the Trump election  The S&P Bank ETF KBE has rallied 29% since the election.  We’ve written about financials over the past few weeks, but it is worth highlighting again. While we may see financials rally in the short...

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