From the desk of Steve Strazza @Sstrazza
Every week we publish performance tables for a variety of different asset classes and categories, along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the relative strength trends at play and give our outlook, as well as some of the things we're watching for in the month ahead.
With July just coming to a close, we're going to focus on that month's returns for insight into the near-term and analyze a variety of monthly charts in order to view the recent performance within the context of the underlying trends.
This week, we'll highlight the broad-based bullish performance across just about every asset class in July, as well as one of the tailwinds for this which was the weak US Dollar.
Here is our list of International Indexes. We continue to see outperformance from the US, China, and other areas of Asia such as Taiwan (which is not shown in the table, but made new all-time highs this month). The Shanghai Composite and Wilshire 5000 are outperforming their peers with significant gains over every timeframe.
Although on balance, most of the major International Indexes have begun to show deterioration in the face of sideways structural trends and waning momentum.
In a post earlier today, Tom Bruni showed this chart of the FTSE 100 and said, "the weakest markets like the United Kingdom are already breaking down."
As you can see, a retest of the March lows would require the FTSE to drop 1,000 points lower or roughly -17% from current levels.
Now let's zoom way out for a better view of the structural trend. Here is a monthly chart of the FTSE 100 going back over 30-years.
Prices breaking down after forming a long-term topping pattern... There's nothing bullish about this index from either a short or long-term timeframe.
Read the rest of Bruni's post here - it has all you need to know about what's going on in Equity Markets outside of the US.
Outside of our Global Index table, you're going to notice a lot of these tables are basically painted green, with strong returns over the trailing one and three month periods. Much of this can be attributed to the weak US Dollar over these timeframes, but that can't be the only driver.
Remember, unlike International ETFs (shown below), Global Indexes are priced in their local currencies.
The bottom line is asset prices are trending higher, particularly those denominated in US Dollars. Notice the difference between the performance of these International ETFs compared to their local currency counterparts, above.
Every ETF is positive except for Frontier Markets $FM over the trailing one and three months... even Europe. How about that outperformance from Emerging Markets $EEM and Latin America $ILF?
Here's Latin America. Back above support at former lows, but still a complete mess with a downward bias over the long-term.
Although, over the trailing year, the true leader is the S&P Global 100 $IOO. This makes sense as it is a large-cap diversified international index with about 60% exposure to the US.
The Global 100's performance is a reflection of two of the strongest secular relative trends currently in place... US over World and Large-Cap over Small.
New monthly closing highs are definitely not bearish, but the potential momentum divergence could be... Price would need to fall below 49.50 to confirm it, which is still a long way away. Equity bulls want to see this index make a sustained move above 57. This would give us a clear line of support at the 161.8% extension and year-to-date highs with which to define our risk.
Here is our currency table.
Staying on theme, notice the extreme weakness from the US Dollar Index $DXY over the trailing month and quarter. Meanwhile, the Euro, Franc, and Aussie Dollar have been trending higher and each recently registered fresh 52-week highs vs USD.
This is broad-based, as plenty of other pairs outside the major currencies are working higher against the Dollar as well.
Here is the Australian Dollar/US Dollar cross breaking above resistance after carving out a long-term bottom at key prior lows.
Risk is very well-defined here; price just made a fast move following a failed breakdown at a logical level; and it just confirmed a multi-year bullish momentum divergence. We like the Aussie Dollar long against the 0.70 level.
Due to the Commodity-centric nature of the Australian economy, the Australian Dollar has a high positive correlation with many Commodities.
We can see this relationship playing out in our Commodities table as just about everything is working right now. Even Natural Gas finally broke out above the key $2 level we've been watching today. Commodities are on fire, and this continues to be a healthy sign for risk-appetite and economic growth in general.
Crude Oil, Silver, and Lumber are all up over 50% over the trailing three months.
What about Fixed Income? Same story... higher across the board on just about every timeframe. Here's the table.
