Monday, March 17, 2014

Equity Concepts

For the equity markets, we continue to look towards the east at the Nikkei and yen, as their reversionary tendencies this year have roughened the one-way path traveled for many in the last. 

As expected, Japanese equity indexes made strong downside pivots last week, while the yen rallied sharply as risk appetites broadly waned.

We continue to look for the Nikkei to make its way lower through the balance of the month and into the start of Q2, after completing another brief retracement bounce this week

While it seems increasingly likely that the BOJ will eventually double-down on Abenomics, we see the Nikkei first coming back to ~ 13000 by early spring. 

Since the start of the year (see Here) we held an outlier opinion that the euro was going to breakout, while the rally in European equity markets would begin to roll-over. Over the past few weeks this dynamic has started taking shape - much to the chagrin of ECB watchers and pontificators. Similar to our thoughts in Japan, we expect the ECB will eventually intervene which could arrest the euro's ascent, but do not expect any measures in the near-term. 

Emerging markets - as well as Chinese equities, continue to languish in the doldrums of a transitioning market environment. With that said, emerging markets relative to the SPX has been following the precious metals and broader commodity sector with ~ a quarter lag. Our expectations are that similar to the cyclical low that was made in Q4 in the precious metals and commodity sectors, emerging markets relative to the SPX will find a longer-term low in Q1.