Market Notes

• Recent Merrill Lynch Fund Managers Survey showed that 8 out of 10 fund managers expect ECB to engage into QE engage into QE by the end of the year, while 5 out of 10 expect Fed to re-start QE. Also to note was that managers increased equity exposure to overweight, increased exposure to commodities from underweight to neutral and finally decreased exposure in both cash and bonds.
• Bulls well and truly dominate the media space (CNBC, Bloomberg). That is usually what happens when US equities rise for six straight weeks and EU equities rise for 11 straight weeks. NYSE 10 day TRIN breadth measure has now become extremely low and joins other indicators like the VIX in signalling maximum complacency.
• Treasury Inflation Protection securities (TIPs) have done amazingly well in recent years. We have seen a very strong correlation with the overall business cycle since early 2009. TIPs have tracked the improvement in equity prices, industrial production and weekly jobless claims perfectly. Fast forward to today and we see TIPs breaking down. What is the message for other risk assets?
• Global risk appetite is usually best represented by the Aussie Yen exchange rate cross. Australian central bank is seen as a super hawkish inflation fighter during economic upturns, while capital naturally finds its way into Japanese Yen during downturns as a safe haven – a perfect risk on / risk off barometer. Aussie Yen cross continues to send a warning signal for other risk assets