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Ahead of the Curve provides you with analysis and insight into today's global financial markets. The latest news and views from global stock, bond, commodity and FOREX markets are discussed. Rajveer Rawlin received his MBA in finance from the Cardiff Metropolitan University, Wales, UK. He is an avid market watcher having followed capital markets in the US and India since 1993. His research interests includes areas of Capital Markets, Banking, Investment Analysis and Portfolio Management and has over 20 years of experience in the above areas covering the US and Indian Markets. He has several publications in the above areas. The views expressed here are his own and should not be construed as advice to buy or sell securities.

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Showing posts with label bond yield. Show all posts
Showing posts with label bond yield. Show all posts

Wednesday, 14 March 2018

Bitcoin Signalling Major Risk Off Trade?

A look at the relationship between bitcoin returns and other asset class returns over the last year throws up some interesting details. There is a weak inverse relationship between bitcoin returns and the 10 year bond yield changes but the relationship between other asset class returns and bitcoin returns is not statistically significant. This suggests a continued melt down in bitcoin is a precursor to higher bond yields which could trigger a move out of risky assets:

Bitcoin Returns Vs Other Asset Class Returns
Correlation
Significance
S & P 500
0.156
0.273
Ten Year Bond Yield
-0.340
0.015
Euro
0.034
0.813
Gold
0.047
0.743
Copper
-0.160
0.261
Crude
-0.180
0.207

A look at the relationship of bitcoin itself with other asset classes over the last year reveals some additional info. We can see that bitcoin shows a strong positive relationships with most asset classes and the ten year bond yield and a strong negative relationship with copper. This suggests that the recent sell off in bitcoin could be a precursor to a major risk off trade:

Bitcoin Vs Other Asset Classes
Correlation
Significance
S & P 500
0.860
0.000
Ten Year Bond Yield
0.530
0.000
Euro
0.673
0.000
Gold
0.476
0.000
Copper
-0.879
0.000
Crude Oil
0.800
0.000


Saturday, 10 March 2018

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning March 12

Indicator
Weekly Level / Change
Implication for
S & P 500
Implication for Nifty*
S & P 500
2787, 3.54%
Bullish
Bullish
Nifty
10227, -2.21%
Neutral **
Bearish
China Shanghai Index
3307, 1.62%
Bullish
Bullish
Gold
1324, 0.05%
Neutral
Neutral
WTIC Crude
62.04, 1.29%
Bullish
Bullish
Copper
3.14, 0.37%
Neutral
Neutral
Baltic Dry Index
1201, 0.42%
Neutral
Neutral
Euro
1.2307, -0.09%
Neutral
Neutral
Dollar/Yen
106.77, 0.98%
Bullish
Bullish
Dow Transports
10740, 3.94%
Bullish
Bullish
High Yield (ETF)
36.09, 0.25%
Neutral
Neutral
US 10 year Bond Yield
2.89%, 1.30%
Bearish
Bearish
Nyse Summation Index
164, 1023.97%
Bullish
Neutral
US Vix
14.64, -25.27%
Bullish
Bearish
Skew
128
Neutral
Neutral
20 DMA, S and P 500
2714, Above
Bullish
Neutral
50 DMA, S and P 500
2742, Above
Bullish
Neutral
200 DMA, S and P 500
2571, Above
Bullish
Neutral
20 DMA, Nifty
10420, Below
Neutral
Bearish
50 DMA, Nifty
10606, Below
Neutral
Bearish
200 DMA, Nifty
10140, Above
Neutral
Bullish
India Vix
14.52, 3.22%
Neutral
Bearish
Dollar/Rupee
64.93, -0.39%
Neutral
Neutral


Overall


S & P 500


Nifty

Bullish Indications
10
6
Bearish Indications
1
6
Outlook
Bullish
Neutral
Observation
The S and P 500 rallied and the Nifty fell last week. Indicators are mixed.
The markets have made important tops. Time to watch those stops.
On the Horizon
New Zealand – GDP, China – Industrial production, Euro Zone – German ZEW economic sentiment, CPI, Switzerland – SNB rate decision, U.S – CPI, Retail sales, Oil inventories, Canada – Poloz speech
*Nifty
India’s Benchmark Stock Market Index
Raw Data
Courtesy Google finance, Stock charts, investing.com
**Neutral
Changes less than 0.5% are considered neutral


stock market signals march 12
Image from marketwatch.com

The S and P 500 rallied and the Nifty sharply under performed last week. Indicators are mixed for the upcoming week. Quantitative tightening by the FED is yet to be priced in fully. The markets are still trading well over 3 standard deviations above their long term averages from which corrections usually result. Divergences in high yield and surging bond yields are flashing warning signs. An interest rate shock can’t be ruled out. Indian market volatility is still below US market volatility so there is complacency and some catch up left on the down side. The critical levels to watch are 2800 (up) and 2775 (down) on the S & P and 10300 (up) and 10150 (down) on the Nifty. A significant breach of the above levels could trigger the next big move in the above markets. You can check out last week’s report for a comparison. Love your thoughts and feedback.

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My Asset Allocation Strategy (Indian Market)

Cash - 40%
Bonds - 20%
Fixed deposit - 20%
Gold - 5%
Stocks - 10% ( Majority of this in dividend funds)
Other Asset Classes - 5%

My belief is that stocks are relatively overvalued compared to bonds and attractive buying opportunities can come along after 1-2 years. In a deflationary scenario no asset class does well other than U.S bonds, the U.S dollar and the Japanese yen, so better to be safe than sorry with high quality government bonds and fixed deposits. Cash is the king always. Of course this varies with the person's age.