Hey Folks, these markets continue to offer up its tricks and head fakes as we saw a large rotational shift from momentum to value. What was working stopped all brought to you by rapidly rising US Treasury yields.
This week’s Market Sound-bites:
• We are seeing a monetary shift in Central Bank policies with interest rates reaching lows not seen in decades…over the past few weeks we’ve seen a very large shift in yields as they moved rapidly higher…the ECB cut rates by 10 bps for deposits at the ECB and issued a new round of refinancing ops up to 20B Euro’s monthly… Germany responded negatively even calling Draghi “Count Draghila”…
• After the ECB rate cut and more bond purchasing we’ll see what is up with the US FEDs when they issue their Policy Statement this coming Wednesday afternoon with almost a 90% probability of a 25 bps rate cut and followed the next day by the BOE and the BOJ with their intentions…
• During the month of August we saw 10 Yr. US Treasuries move down to 1.47% with predictions of it moving down to all-time lows…this was on top of the over $17 Trillion in worldwide negative yielding Gov Securities…
• This past week was one where everything that was working, stopped working…behind all these Central Bank “Master’s of the Universe” moves we saw a fast rotation and shift underneath the surface of US Stocks from momentum stocks into value stocks…during this past week we saw momentum stocks sell off by over 10% and value stocks moving higher by over 7%…Before this rotational shift, money appeared to be betting that bond yields would continue to fall and this trade has worked nicely for months…both momentum and low-volatility baskets are loaded with defensive stocks that tend to rise as rates fall…so this was a very crowded trade….well, no longer – the 10 Yr. has moved higher to 1.903% while the yield curve, which had been inverted has steepened…so most of these rotational shifts are being caused by the fixed income market…
• And this rotational change came along with the rising rates in US Treasuries…why the sudden shift? Many theories are being thrown out by analysts and TV pundits on what are the reasons, but at the end of the day, this shift does point to a market that could be seeing the light at the end of the tunnel for possibly higher price action…If you were to listen to the pundits and some analysts when asked if this rotation will continue I have heard; -absolutely, probably and not really!
Enjoy this week’s Weekly Round-Up
Don’t Be A Rat Brain Trader – Be the Red Striped Zebra !!
Trade Smart !!
hpb
