Next Few Months (Read time 2 min)
We are spending time thinking about where markets are heading as we look toward the Autumn and the upcoming U.S. elections. Currently the pundits see a possibility for a Democratic sweep. We all know that 5 months is a long time in politics and our view is that the markets will wait until after the summer to begin to price in any potential implications of a change of power in the U.S. https://www.270towin.com/2020-polls-biden-trump/
In the mean time we think over the next couple of months:
Gold: Will perform, based on the amount of monetary and fiscal interventions, leading to rising debt levels and higher gold levels.
We look for gold to test and break the $1,760 level during the summer, but market will be volatile.
Oil: We are seeing supply destruction, strong cooperation at OPEC+. We are uncertain about demand as the global economies try to get going again. We are leaning towards oil trading higher into the Autumn as airlines and driving season contribute to prices holding the $40/$45 level. Risk is upward trending pandemic cases…
Volatility: As we noted yesterday, we think volatility is here to stay, we think the range will be 25 to 45. (VIX) Summer is often a time where we would expect volatility to drop, but our feeling is that with all that is going on it will stay elevated.
Bonds: Fixed income has always been an important part of portfolios as a counterweight to equity exposure. We think the day of Government bonds as a safe haven and portfolio stalwart, may have come to an end as we see more and more debt being created by governments globally. Do we want to own something that there is more and more and more being created?
Credit: High yield and corporate bonds in U.S. look interesting for the next few months as the Fed is committed to buying!
Equity: Will the Fed follow in the footsteps of the Bank of Japan, Swiss National Bank and start buying equities if we see an uptick in the number of cases, and a test lower in the U.S. equity markets? More than likely it is at the bottom of the toolkit as Yield Curve Control (YCC) and possibly negative rates may come before the purchasing of equities. (I would rather they buy Apple and Amazon than try negative rates and buying high yield debt, but that’s just me!
We would have exposure to equities to maintain balance and cover the risk of the market grinding higher. Be selective.
Currencies: We are waiting to see if the large increase in debt and unstable political situation will drive the USD lower or if global turbulence will lend support. We think NOK will manage well in the next few months on the back of stable oil prices, Central bank purchases, the possible troubling factor would be if we see a large drop in equity prices. EM currencies may be worth a buy at some point during the summer, bit early to dip our toes in yet.
If you are interested in a possible portfolio allocation for funds using ETF’s over the next few months, contact us for a discussion.
Some interesting graphs from our friends at Saxo:
We would highlight following slides:
#1: NASDAQ testing Highs
#2: Election polling showing odds of a Democratic party sweep of, Presidency, House and Senate
#3: Citi Economic surprise index: impressive strength of economic indicators, compared to expectations.
#10 Coffee, Sugar and Cocoa not bouncing as we would expect if global economy is recovering strength.
#11 Calendar of key events next couple of days
While the S&P illustrated by the CFD chart is also backed off the highs of the move, it has some work to do to test key support.
|Ticker||Date Opened||Entry Price||Stop||Target Price||Current Price||% Change|
|LONG Austevoll Seafood ASA (AUSS:xosl)||2020/06/02||76.75||72.00||SPREAD TRADE||74.85||-2.48%|
|SHORT Leroy Seafood Group ASA (LSG:xosl)||2020/06/02||56.75||SPREAD TRADE||SPREAD TRADE||54.80||+3.44%|
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