Higher economic growth usually translates into higher bond yields, higher stocks and rising oil prices; but, too much of a good thing is bad for stocks. Over the past few weeks, we’ve shown that our stock/bond RSI signal has triggered….
(from our Tactical of November 8th 2016) Bond yields have been rising in most countries, and yield curves have steepened across the developed world. As the top chart shows, the rise in nominal yields has come from a rise in…
Yield curves almost everywhere have been flattening. At the long end of yield curves, bonds have been rallying all year. This is to be expected in Europe, where growth remains lacklustre, inflation is very weak, and the ECB is firmly in easing mode. However, even in the UK and the US, where the market has been gingerly pricing in the beginning of (perceived) hiking cycles, long bonds have been rallying.
No-one ever said that investing was easy, but when textbook correlations start to break down it can be outright painful. Such of course has been the environment in recent couple of months with stocks and bonds falling in unison. It won’t last forever, but it may persist for a while longer.
Judging by the comments from most analysts and commentators, global equities are the place to be and equity markets are still doing well. This is certainly true if you look at Japan, but in general it is not exactly correct. On a 1 month basis, even the otherwise resilient S&P 500 is now flat and many stock markets are down significantly. Indeed, despite widespread investor optimism we are now seeing broad based weakness on a monthly basis.
Government bond yields have declined substantially in Italy on the back of ECB’s 3Y LTRO as well as the commitment of the new government to austerity. Yet, leading indicators have slumped to a post crisis lows and sustainable growth seems far away as ever.