Macro Wrap – Tour of Major Asset Classes

by Enis February 25, 2013 8:03 am • Commentary

SPX futures are up 0.5% this morning as Europe has a strong session, likely in anticipation of a favorable result from the Italian elections later today.  With SPX futures retesting last week’s highs, I wanted to do a brief tour of how each major asset class is setting up.

First, here’s the SPX index:

SPX 1 year chart
SPX 1 year chart, Courtesy of Bloomberg

What stands out most on this chart is the declining momentum shown by the RSI in the bottom panel, a negative divergence that other technicians (like J.C. Parets for example) have pointed out as well.  That type of divergence is no guarantee that the index is headed lower, but odds are in the bears favor here.  1475 is both the breakout level and the 50 day ma, so it’s very strong support.

Turning to bonds, TLT has been quiet over the past month:

1 year chart of TLT, Courtesy of Bloomberg
1 year chart of TLT, Courtesy of Bloomberg


TLT has traced out support around 115, but the recent bounce has been tepid.  Bonds are still stuck in an intermediate term downtrend, with the 50 day ma at 119 the first obvious resistance.

The Euro has been an important risk barometer this year, as it topped around the same time as many global equity indices, like the Euro Stoxx 50 and the Hang Seng.  The 1 year chart:

1 year chart of the Euro
1 year chart of the Euro, Courtesy of Bloomberg


The Euro is bouncing with this morning’s risk-on move, back to the 50 day ma around 1.33.  1.30 is obvious psychological support.

Perhaps the most compelling chart for the equity bears here is that of copper:

1 year chart of HG2, Courtesy of Bloomberg
1 year chart of HG2, Courtesy of Bloomberg


Copper has sold off to its 200 day ma in the past week, and is in the lower half of its 1 year range.  Oil, another indicator of global industrial growth, has also pulled back a bit, but less severely.  Copper holds particular importance as a signal of Chinese economic strength (read here for more detail).  In addition to copper’s weakness, Chinese equity markets have struggled in the past couple weeks, as the Hang Seng is only up 0.75% in 2013, and the Shanghai Composite is up 2.5%.

Add it all up, and the U.S. stock market is acting better than most other asset classes from a risk perspective.  Bonds are more neutral, the dollar is signaling risk-off, and commodities are the weakest area.  The odds still favor a move lower in the stock market, but stocks have defied the bearish odds many times in the past year.

Markets overnight:

  • Japan was very strong, up 2%, after Prime Minister Abe selected a new BoJ chief perceived as quite dovish.  The rest of Asia was mixed.
  • Europe opened green and has continued to rally in a broad-based risk-on move, as the market awaits election results from Italy.
  • SPX futures up 0.5%, bonds lower, the dollar lower, and commodities higher.