This is the time of year when fund managers tend to get sweaty. Nine months have gone by, year-end looms and market-wise December is usually a write-off. So, they’ve got just 35 working days (less in North America because of Thanksgiving) to sweat their assets, beat benchmarks and outperform their peers. British and Japanese firms have another quarter to go as financial year-end is March.
As a technical analyst, I look forward to the end of each quarter as it gives me the chance to take a long hard look at markets from a secular point of view. The 1st of October is especially interesting as stock market upsets have happened in this month. Last week I cranked up my charting software expecting to see some interesting moves in September, building into something bigger during Q3 2018.
To my surprise, only a handful of markets had seen major shifts. Massive currency weakness in Argentina and Turkey, and lumber futures contracts halving in value, admittedly from a massive new record high. Weakness in the South African rand reversed in good part last month, with the Australian and New Zealand dollars, Indian rupee and Indonesian rupiah ending lower.
Precious metals and most agricultural commodities traded in Europe and the US were broadly unchanged and, while Brent crude has made headlines breaking above the $80 per barrel level, it currently trades exactly half-way between 2008’s record high and 2016’s interim low.
While global interest rates remain at or close to record lows, US 10-year Treasury Note yields closed above 3.00 per cent, worrying some. Data from the Commodity Futures Trading Commission (CFTC) in the US show that funds increased their net short US Treasury futures positions to a record high during September, double the amount they had sold at the beginning of July. Sounds like a crowded trade and the yield curve is as flat as it was in 2007; tread carefully. UK 10-year gilt yields broke immediate trend-line resistance, partly a function of moving sideways; this break was not confirmed by very long-dated sovereigns. Perhaps we’re moving into another extended sideways move, as we saw between 4 and 6 per cent from 1998 to 2008.
Stock markets were a mixed bunch, Middle Eastern ones barely budging, several Europeans holding at recent highs, Italy off 17 per cent from May’s interim high, Hong Kong’s Hang Seng down 21 per cent into what is officially termed bear market territory. This has been the case for many mainland Chinese stock markets, which have struggled this year to keep up with President Trump’s tactics.
Despite relatively weak currencies, other Asian indices struggled, admittedly many at or close to record highs. India is a case in point, Mumbai’s Sensex forming a strong shooting star candle these past three months, losing 8 per cent of face value all too quickly. Australian All-Ordinaries has a smaller version of the same thing, despite the Reserve Bank of Australia keeping its key rate at a record low 1.5 per cent. These candles suggest that neither market will break higher by year-end.
As you have no doubt heard many times, US indices have done exceptionally well this year, trading at record highs, the Dow Jones Industrial Average steaming ahead, up nearly 20 per cent so far. Quite something for a mature rally of well-established companies. Keep a very close eye here.
