Tuesday, October 2, 2018
Strong directional trends in bond, rates, and energy sectors
September was a slightly down return month for many trend-followers as the first half of the month was range bound. Our sector indicators showed most markets not having clear trends with only some slight directional tilts. During the month, the markets became more directional for bonds, rates and energy. The price action in these markets aligned with economic fundamentals. A combination of continued good economic news, higher inflation, and another Fed increase all point to negative fixed income markets not just in the US but across all developed markets. Equity market signals were less clear-cut as the combination of higher rates and strong economic growth generated crosscurrents that were less clear. Cash flows should be higher, but the discount rates are also higher.
Energy markets moved higher across the board as both crude and natural gas are suggesting upward trends. The dollar has started to move higher based on rate differentials and growth. Metals and commodities show more mixed directional bets. Overall, trend opportunities in financials look to be positive for October.