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Sentiment 01/2019

 

" The market scenario is further complicated not only for the large losses recorded on almost all assets,  exception for  gold and US government bonds, but due to the contrasting signals coming from various indicators and recent macroeconomic  data"”

This we wrote about the December closing.  But the market, with unexpected strength, has reversed the situation and  share prices, closing a brilliant January not dissipating , however, the fears on the growth of the economies.

In a scenario with many shadows and some glimmer of light we try to define future strategies by analyzing our usual indicators, starting from the analysis of the "Sentiment index" (all.1), which already provides a valid explanation of such a sudden change of trend.

The negativity  in December was correctly  represented by our indicator which scored a significant minimum coinciding, among other things, with the important lows of 2012 and 2015 from which the SP500 index started up.

With perfect synchronism, the SP500 index (annex 2) has tested  the important level of 2490, repeatedly reported by us as a watershed between the end of the uptrend or its continuation. As can be seen, the significant support has contained, at least for now, the fall in the index and the renewed trust  has been transmitted to all other international indices.

At the end of January, our Global Stock Exchange index (all.3), which includes the performance of 34 financial markets, remains in uptrend with only the IBEX index still under performing.

Positive signals also come from the SOX Index (all.4), which we remember to have been an excellent indicator of the 2000 crisis. Here too, the recovery in prices was immediate, bringing the index back to the top . The positive effect of overcoming absolute maxima is quite evident.

Unfortunately we cannot post our M.Q. Index due to the closure of the US federal offices, many economic data have not been published, so we will postpone its publication when the situation is normalized.

So far the positive data but the shadow of the recession looms over the world economies.

In Europe we watched  a series of data (CPI, GDP, trust) in contraction for several months. Same dynamics in the US and the Recession Indicator (all.5) is reaching  the minimum levels seen during the last major crisis started in 2006. Now we add a new chart, the Ratio 5yr-Fed Fund (all.6) , which represents the differential between the rates of government bonds with those of the FED. As is evident, the spread reached the level of spread seen in 2006.

Governors of Central Banks, aware of how  the moment is  difficult for global economies, could slow down, or suspend (ECB), the expected rate hikes or, alternatively, invent a new instrument to inject liquidity into the market.

From the arguments presented, we do not change our vision on the markets by confirming the "Neutral" opinion on the US and "Underweight" markets on other markets, but with a warning: the tensions on stock prices have calmed down  we no excluding  that the foundations  of a new uptrend  are being created;  so the suggestion is to remain invested, but only on value stocks.  Unchanged our preferences for T Bond and Gold and in addition we suggest the Platinum on which our management started the coverage.

 

Giorgio Giovannoni

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