REBOUND IN GLOBAL BOND YIELDS AND BRITISH POUND ACCELERATE RISK ON TRADE AS GOLD AND YEN SELL OFF -- EMERGING MARKETS ACHIEVE BULLISH BREAKOUT -- SO DO ALL COUNTRY WORLD INDEX ISHARES
TREASURY YIELDS REBOUND ALONG WITH STERLING... A surge in global bond yields is contributing to a rotation out of safe havens and into riskier assets. Chart 1 shows the 10-Year Treasury Yield gapping 9 basis points higher to 1.52%. That puts the TNX back above its July 2012 closing low at 1.40%. Yields are jumping all over the developed world. Canadian and German yields are up 8 basis points, while the British 10-Year yield rose 7 basis points. At the same time, the British Pound has gained 2% as shown in Chart 2. Britain's choice of a new Prime Minister is the likely cause of the surge in UK optimism. The jump in yields is causing heavy profit-taking in sovereign bond prices. It's also weighing on the price of gold and the Japanese yen. Chart 3 shows the Japanese yen tumbling nearly 2% for its biggest drop in two months. The falling yen is giving Japanese stocks a big lift as well as other stock markets around the globe. Money is flowing back into commodity-related currencies like the Aussie and Canadian Dollars along with their stocks. Economically-sensitive commodities like copper and oil (along with stocks tied to them) are also having a strong day. Stronger commodity prices are also helping make emerging markets global leaders.
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Chart 1
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Chart 2
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Chart 3
EMERGING MARKET ISHARES SCORE UPSIDE BREAKOUT... Chart 4 shows the MSCI Emerging Markets iShares (EEM) jumping to the highest level in eight months. The EEM has cleared a "neckline" drawn over its October/April highs. That's a bullish sign for that group which is highly dependent on rising commodity prices. Big gainers are Brazil, Russia, India, and China (along with the rest of Asia). Developed markets are also jumping. Chart 5 shows EAFE iShares (EFA) gapping back above its moving average lines. Big gains in Europe and Japan are the main reason why. Australian stocks are also having a strong day.
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Chart 4
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Chart 5
MSCI ALL COUNTRY WORLD ISHARES BREAK OUT... Chart 6 shows the MSCI All Country World Stock Index iShares (ACWI) moving above its June highs to touch the highest level since last August. The MSCI includes stocks in emerging and developed countries (including the U.S.). Today's upside breakout appears to be confirming that the global stock market correction that started last May has been completed and that a more bullish trend has begun.
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Chart 6
NYSE COMPOSITE INDEX AND SMALL CAPS ACHIEVE BULLISH BREAKOUTS... The upside breakout in foreign stocks may also be contributing to a similar upside breakout in the NYSE Composite Index. Chart 7 shows the NYSE Index finally breaking through a neckline extending back to last November. The NYSE includes a number of foreign stocks which have been holding it back. Stronger foreign stocks are now working in its favor. The same is true with smaller stocks. Chart 8 shows the Russell 2000 Small Cap Index surging to the highest level since last August. That's also giving a boost to the NYSE Index which includes a higher number of smaller stocks.
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Chart 7
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Chart 8
ENERGY AND MATERIAL STOCKS SURGE... In another sign of optimism, stocks tied to economically-sensitive commodities are rising strongly. Chart 9 shows the Materials Sector SPDR (XLB) up 2% and nearing an upside breakout. The biggest gainers are copper, aluminum, and steel stocks. Copper gained 3% today; steel prices jumped in China. Chart 10 shows the Energy Sector SPDR (XLE) gaining 2.5% and nearing a challenge of its November high.
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Chart 9
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Chart 10
FINANCIALS AND TRANSPORTS TURN UP... They say a market (like a chain) is only as strong as its weakest links. Two of those weak links turned up today. Chart 11 shows the Financial Sector SPDR (XLF) climbing back above its moving average lines. Financials like banks and brokers got a big lift from rising global bond yields. Chart 12 shows the Dow Transports also having a strong day. A 4% climb in airlines was the main reason why. The fact that weaker stock groups are now turning higher (while safe havens like bonds, gold, staples and utilities are selling off) is another sign that market sentiment around the world has turned a lot more positive. The S&P 500 is hitting a record high for the second day in a row, while the Dow is on track to hit a record closing high.
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Chart 11
