“Things fall apart; the centre cannot hold.”
— W. B. Yeats, The Second Coming
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On the brink. That’s how the world feels right now.
From a geopolitical point of view and on the brink from a financial markets point of view.
In geopolitics, Iran and the US are going at each other again; Germany is blaming the drone attacks at Leipzig Airport on Russia; the FT reveals that Russia may be helping Iran to develop supersonic missiles; Turkey and Israel are exchanging niceties over Syria, and the China/Taiwan story does not seem to go away ever. On the brink.
In financial markets, emotions are running hot over hot-running bond yields; oil prices stubbornly refuse to go lower, and equity markets are suddenly on shaky legs. On the brink.
So, whenever emotions start taking over, it is a good idea, at least on the financial market analysis side, to dust off those charts and take a dispassionate, almost stoic view of things.
(Spoiler alert: It doesn’t get much better).
The focus continues to be on the bond market, where waking this morning we notice the highest level on the Tens since the October 2023 peak:
This is now, of course, way above Bessent’s “you shall not pass” level of two nearly three weeks ago:
And ditto now for the 30-year yield version too:
But of course are the US bond yields not the only ones reaching new cycle highs. The entire long-end of the Japanese curve is pushing relentlessly higher:
In the Eurozone, proxied via the German 10-year Bund, yields are have put in a five-day, take-no-prisoners march higher:
Here we are talking suddenly of levels not seen since the European Sovereign Debt Crisis back in 2011:
And if you dare to take the French version of Eurozone debt, you are paid nearly a percentage more!
No wonder then, that those previously seemingly stock market legs suddenly look a bit more wobbly.
The S&P 500 is about to close that gap we have been pointing to at 7,600:
When looking at the S&P 500 mini futures prices this morning, this seems a foregone conclusion and the chart looks pretty top-heavy, with a fall below support (previous resistance) becoming likely:
Simultaneously, market breadth has been showing signs of weakness, with the advance-decline ratio (bottom clip) have started to turn lower:
And it does not help either that we are moving into the “hot period” from a seasonality point of view, especially during mid-term election years:
The technology-heavy Nasdaq looks even weaker, with the recent lows of August 24th (dashed line) likely to be tested later today:
In Europe, the broad STOXX 600 index (SXXP) closed below its 50-day moving average:
Not a definite sign of an end to the rally, but, on the brink… a 5% pull-back to the 200-day moving average (black line) has just become more likely.
In currency markets, all-in-all the US Dollar is holding up “thanks” to that increased geopolitical sabre-rattling, but we still think this is an opportunity to reduce exposure in the greenback, rather than add to it:
99.75 would lend itself well as the next intermediate top on the Dollar index.
Gold’s weakness suprises us, but similar as we believe that the USD is in its latter moments of short-term strength, we think that gold is offering us another opportunity to jump on board here:
This letter has become much longer than I intended, but suddenly there are a lot of things to cover, and yes, I know, I had to forego many markets in order for this not to become gargantuanly long.
As we are in sour mood anyway already today, let me add some more fuel to the fire, or maybe better, add more fodder to the bears. Two charts from Citadel Securities below, both self-explaining:
The important economic number of this week is Friday’s non-farm payroll, but today’s ADP number may already offer a glimpse. Broadcom earnings could be of interest too.
May the Trend be with You!
André
Everything in this document is for educational purposes only (FEPO)
Nothing in this document should be considered investment advice
Investing real money can be costly; don’t do stupid shit
Leave politics at the door—markets don’t care.
Past performance is hopefully no indication of future performance
The views expressed in this document may differ from the views published by NPB Neue Privat Bank AG