Each
month we look at the major trends in market sectors to determine the current
macro signals within prices and the effectiveness of trend following. Last
month, our view was that monetary policy uncertainty left the markets with few
clear trends. October looks like a potentially good market in the fixed income,
rates, and commodities. The best market potential for October as of the start
of the month is in base metals and the energy complex. Nevertheless, the trend
signals in base metals are significantly at odds with bond signals and with the
talking head stories that global growth will continue to be modest. Maximum
opportunity and risk occur when trends are at odds with general market
commentary or conventional wisdom. The energy complex is trending higher on
OPEC news, but the ability for these trends to last will be subject to OPEC
members holding to some production limits.
Global
rates have headed higher based on Fed expectations. The continuation of these
trends will be based on any further actions by the BOJ and ECB. Bonds have
moved higher albeit with higher volatility. Generally bond trends are not
connected with short-term rate moves without a common catalyst.
Opportunities
in commodities are concentrated outside the grain markets. Unfortunately active
trend-followers often do not place significant risk weights in these markets.
In precious metals, there are strong opposing trends in platinum and palladium.
Gold has been more muted since a post-BREXIT surge.
Equity
indices do not show any strong signals even with some gains after the FOMC
meeting. Global bonds have trended higher after the FOMC but have moved lower
since the beginning of the month. Signals are becoming mixed.
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