Bonds & Interest Rates
Greece faces another big deadline.
By tomorrow, the debtor nation par excellence must come up with €750 million ($836 million), which it owes in loan repayments to the International Monetary Fund.
If it doesn’t come up with the cash, it joins the ranks of Somalia, Zimbabwe and Sudan in being late repaying IMF loans.
This has prompted another emergency meeting in Brussels by Greece’s creditors to discuss the “Greece problem.”
Maybe Greece will default. Maybe it won’t. But if it does, it hardly spells doom for the euro zone.
After all, Greece contributes all of 2% of the 19-country euro zone’s GDP.
And the total value of Greek debt is just €340 billion ($378 billion). So, if it decided not to pay a cent of that back – highly unlikely even in the event of some form of default – the other 18 euro-countries could cover the fallout by borrowing 3% more collectively.
Meanwhile, as we’ve been pounding the table on lately, the real story is that European stocks continue to handily outperform US stocks this year.
As you can see above, the Euro Stoxx 50 Index, which tracks 50 of the largest blue-chip European stocks, is up 16% so far in 2015 versus a 2% gain for the Dow.
USDCAD Overnight Range 1.2075-1.2140
USDCAD has given up all its overnight gains and is probing the lows despite modestly softer oil prices. A lack of Canadian data today and for the week will leave USDCAD at the mercy of general US dollar direction and oil prices. Friday’s weak Canadian employment report will ensure traders keep a negative bias towards the Loonie.
Kiwi took it on the beak to start the week with traders unnerved by NZ banks predicting further RBNZ rate cuts, some as early as next month. And speaking of rate cuts, the PBoC announced a 0.25% rate cut to 1 year loan and deposit rates.
EURUSD losses in Asia turned to gains during the European session. There was a definite shortage of Eurozone data, but no shortage of Greek headlines, which provided trading fodder. Greece needs to pay €750 million to the IMF on Tuesday to keep emergency funds flowing.
USDCAD technical outlook
The intraday technicals are bullish while trading above 1.2080 but struggling with resistance at the 1.2150-60 area. A break of this level would extend gains to 1.2280. For today, USD support is at 1.2080 and 1.2040. Resistance is at 1.2140, 1.2160 and 1.2210
Today’s Range 1.2040-1.2120
Chart: USDCAD 1 hour with suggested trading band until Wednesday
Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,140, and profit target at 1,980, S&P 500 index)
Our intraday outlook is bearish, and our short-term outlook is bearish:
Intraday outlook (next 24 hours): bearish
Short-term outlook (next 1-2 weeks): bearish
Medium-term outlook (next 1-3 months): neutral
Long-term outlook (next year): bullish
The U.S. stock market indexes gained 1.3-1.5% on Friday, retracing their recent decline, as investors reacted to better-than-expected monthly jobs report release. The S&P 500 index got closer to its April 27 all-time high of 2,125.92. The nearest important resistance level is at around 2,120-2,125, and level of support is at 2,100, among others. There have been no confirmed negative signals so far, however, we can see negative technical divergences:
Expectations before the opening of today’s trading session are virtually flat, with index futures currently down 0.1%. The main European stock market indexes have been mixed between -1.3% and +0.3%. The S&P 500 futures contract (CFD) trades within an intraday consolidation, as it fluctuates following Friday’s rally. The nearest important level of support is at 2,100, and resistance level is at 2,110, among others, as the 15-minute chart shows:
The technology Nasdaq 100 futures contract (CFD) follows a similar path, as it fluctuates in a relatively narrow trading range. However, it remains relatively weaker than the broad stock market. The nearest important level of resistance is at 4,450-4,460, as we can see on the 15-minute chart:
Concluding, the broad stock market has managed to retrace most of its recent move down on Friday, as investors reacted to economic data announcements. There have been no confirmed negative signals so far. However, we continue to maintain our speculative short position (2,098.27, S&P 500 index), as we expect a downward correction or an uptrend reversal. Stop-loss is at 2,140, and potential profit target is at 1,980. You can trade S&P 500 index using futures contracts (S&P 500 futures contract – SP, E-mini S&P 500 futures contract – ES) or an ETF like the SPDR S&P 500 ETF – SPY. It is always important to set some exit price level in case some events cause the price to move in the unlikely direction. Having safety measures in place helps limit potential losses while letting the gains grow.
Thank you.
This week, KeyStone published a Special Canadian Focus BUY Quarterly Report. The report updates what was a very successful start to 2015 for our Canadian Small-Cap Recommendations.
In total we have had 5 new additions to our Focus BUY Portfolio including the top performing software and technology stock on the entire Toronto stock exchange over the first quarter. The company has gained 143% since our original recommendation this year. Out top ranked Canadian Specialty Pharmaceutical stock based on its value and growth proposition has jumped 65% and still ranks in our coverage universe as the cheapest Canadian Specialty Pharmaceutical company.
Other recent editions are also performing well. The “laggard” of the group, a unique royalty based financing company, is now up 30%. The gains compare very favourably to the S&P TSX index which is up a mere 3.7% year-to-date in 2015.
This year, and more acutely over the past month, we have seen a sharp uptick in a number of the energy related stocks in our Coverage Universe from the lows experienced after the oil price shock which began this past fall. As oil prices have shown strength in recent weeks, investors have bid up depressed energy shares, particularly in some of the quality names KeyStone covers. While some of the gains are deserved as the price declines are typically over done as panic sets in, we do see some risk in the segment as capital spending has ground to a halt in some areas. Crude is now well above its lows but still remains 35% lower than the levels we saw at this time last year and by most reports, the world remains rather awash in oil at the moment.
Given this widely held view, it is unclear as to whether a continued uptick in oil is sustainable. What we do know is that capital spending will be significantly lower in the energy segment for at least 12-months time. As such, we are not looking to add to our exposure in this group and took the opportunity to cut a couple individual stocks from our BUY recommendations (selling the stocks) this past week. Nearly all of these companies will be facing significantly lower year-over year results for the next 12-18 months minimum.
Our choice to hit the SELL button on each company also held company specific reasons. For example, in the case of our top rated international light oil stock, we continue to see the company as “best-of-breed” on the TSX – we just see the stock as fair to richly valued at present. Of course, if oil continues to move higher, these stocks will perform well. But at this stage the supply/demands situation is tenuous. We just do not feel it is necessary to be overexposed to this volatile segment at present. For unique exposure to the segment we do continue to recommend one international energy service stock, which pays a strong dividend and is well positioned to post cash flow growth in 2015 when most in the segment will face significant declines.
At this stage, we prefer to be very focused in our exposure to the energy segment and the recent uptick in stock prices in the sector has allowed us to trim a couple names and focus on the strongest in our portfolio.
The US dollar has been the world’s reserve currency since Bretton Woods – about 70 years. The power and importance of Middle-East oil and the US economy and military have supported the dollar for about 40 years. Quick story:
- The world buys oil in dollars. (Thank you Saudi Arabia and Kissinger.)
- Therefore the world must purchase (support) dollars to obtain oil.
- The US supports the oil producing nations with military might.
- The oil producing nations collect dollars in exchange for oil and recycle those petrodollars back into US T-bonds and equities thereby supporting the dollar and the US stock and bond markets.
The process works exceedingly well for the US since, as Bernanke noted, we have a printing press and can “print” the dollars to pay for oil and other imported goods.
But how much longer can the US maintain this dollar support process? Consider:
FUNDAMENTAL ISSUES:
- AIIB: The Asian Infrastructure Investment Bank is clearly a threat to dollar dominance. Over 50 nations joined, including the UK, France, Germany, and Australia. This will weaken the dollar’s importance in world trade.
- China has purchased and imported a massive amount of gold bars in the past 5 years. The magnitude of the gold migration from the west to Asia has been obscured intentionally. Clearly the western central banks and governments do not want the world to know how much gold they have sold to China. China does not want to announce how much gold they have purchased, which might panic the gold market and elevate prices, making additional purchases more expensive. China’s gold hoard will become a threat to the reserve currency status of the dollar, a fiat currency backed only by “faith and trust.”
- China will announce their gold holdings when it is convenient and beneficial to China. They might even tell the truth. Worse, they might demand the US and the UK tell the truth and produce auditable reports on their remaining gold. An audit could be catastrophic for the relative value of the dollar. Since consequences might be destructive to all parties, a “trust me” solution will probably be found unless China is ready for an all-out assault on the dollar. The dollar is clearly in danger if China announces total gold holdings close to or larger (likely) than the official US gold stockpile.
- Reasonable analysis by many individuals and organizations suggests that much of the gold supposedly held by the US and UK is gone. Do not expect official confirmation. Regardless of denials and obfuscation, gold is important for confidence in all currencies. Admitting most of the US gold has been “leased,” sold, or stolen will create a danger zone for the dollar.
- “He who has the gold makes the rules.”
- We no longer hear, “The dollar is as good as gold.” Could that change in the next decade to “The yuan is as good as gold?”
CHART ANALYSIS
For a long term perspective, examine the monthly chart of the dollar index.
For an intermediate term perspective, examine the weekly chart.
What I see in the charts:
The dollar index made major turns in 1995, 2001, 2008 and 2015, about every 6.5 years. Note the vertical blue lines on the chart and the following comments regarding changes in the S&P 500 Index:
- 1995: The S&P began a major move from about 470 to about 1,570.
- 2001: The S&P peaked in 2000 above 1,500 and corrected from there.
- 2008: The S&P crashed in 2008 and bottomed in early 2009.
- 2015: The S&P made a new all-time high in early 2015.
The monthly dollar index has moved too far and too fast. Further, major turns in the dollar are often associated with turns in the S&P and general economic activity. Be cautious.
The weekly chart of the dollar index (April 29) has broken the up trending red support line, as I have drawn it. This could be the start of a major dollar index downturn. Be cautious.
Could the dollar index strengthen and rally further? Almost anything is possible in central bank managed currency, bond, and equity bubbles, but this looks like a danger zone for the dollar.
HEADLINES – More Danger Zone Concerns:
“Boston Fed Admits There is No Exit” If the Fed can’t exit QE and has to “print” to infinity (“QEfinity”) that indicates long-term weakness ahead for the dollar.
“Going the Way of the Mayans – End Game of Global Debt Addiction” (Blame the policy makers.)
“$3 Trillion in negative-yielding Eurobonds are a time bomb so buy gold”
“World Faces New Collapse Under Strong Dollar: ‘We’re Going to Have Another Financial Crisis’”
“Correction Ahead? Investors Exit Stocks”
Gary Christenson
The Deviant Investor
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