Stifel : Macro & Portfolio Strategy – January 2018

• Stifel sees a 5% SP500 correction in Q1 for SP500.
• SP500 seen at roughly current levels by EOY = Active investing environment
• Slide 2 for long term forecast !!! (Note that Stifel forecast has been quite correct in the last 6-7 years in this bull market).
• Slides 6 on long rates and SP500.
• US 10 Yields seen at 2.96% eoy

Link to the Stifel Macro & Portfolio Strategy :  Stifel 050118


EURO : Next – big – threat ? Berlusconi is back !

Talks of parallel currency gets bigger again in Italy after last weekend Berlusconi interview.

Following Citi , more than 2/3 of italian voters would support anti EUR parties.

The 3 right & centre rights parties will finalise a common program in september likely including parallel currency project.

Risk of Italy (even if low) going this way totally underestimated by FOREX markets but Italian Bonds have started to react negatively  with Bund/BTP spread  up 20 bps in the last week.


See more details in  FT’ link here below :


Italy + ECB obviously not wanting to see EURO above 1,20 + ECB potential tapering discussion in september already in EUR price + more dovish Fed priced as well = EURO/USD  to correct from current 1,18 to 1,20 range is becoming more and more likely.



Trump effect on US long rates : A good entry point ? Yes but Sell STOP above 2,50%.

10 Years Treasuries from 1,80% before election to > 2,30% today.

This move represents around 5% in price on the bond price .


10 Years Treasuries LONG term chart :

Yields are back to the top of the downtrend line that contained (around 6 touching points) yields surges in last 10 Years : The 2,35-2,40 range is significant barrier to the upside .

Bonds markets are extremely oversold at current levels and I do not believe these resistances (2,40 ultimately 2,50%) will be broken at this stage . If despite of strong resistance 2,50% is broken on the upside more bonds investors would take the exit door and quickly drive yields in the 3 % area.

In this latter case, equities markets would definitely  start to be vulnerable.

10 Years Treasuries minus 2 Years Treasuries :

Curve steepening since election : spread increase of 25 BPs since election and even 50 BPs since september shows market expectation of increased inflation and improved economic outlook and explains strong Financials stocks performances recently.



BlackRock, Pimco Issue Inflation Warnings Ahead of TIPS Auction – Bloomberg

For a low risk diversification of his bond allocation an investor could use the “AXA World Fund Global Inflation SHORT DURATION Bonds” – See Fund presentation below .

  • Inflation Protection : Via a diversified portfolio invested in Inflation Linked Bonds issued mainly by OECD governments.
  • SHORT DURATION : The Low Duration – portfolio currently has an average duration of around 3 years – will limit the impact of potential increase of long term bond yields.



US Election : The day after

  • An “unknown” has been removed : The President is known .
  • + Big hopes in term of growth outlook.
  • + Trump President to be more pragmatic vs populist Trump candidate.
  • …Global Equity rally against all odds from before election : Looks overdone but technicals are to be watched for break up/down confirmations.
  • Financial & Healtcare rallying the most (Regulations & Yield curve steepening )
  • Industrials 3rd best sector (Big Infrastructure spending expected).
  • Promised tax cuts to favour US companies in general.
  • Metals up.
  • USD (more stimulus = inflation risk = more fed hikes)  & Commodities currencies up.
  • Fear of more inflation linked to fiscal stimulus/tax cuts.
  • + Rising trade barriers is also inflationnary (supply side shock).
  • + Fear of more Bonds issue linked to increased deficit.
  • + Fear of a less independant FED / Yellen to resign ?
  • … Bond markets sell-off : 10Y treasury > 2% / more pain to come ?
  • .. depends on stimulus size ..House republicans are fiscally conservative!!
  • Risk : If too large deficits expected from policies put in place , bond yields could skyrocket and kill the growth induced by new policy .
  • Uncertainty to persist : Time lag before new administration discloses its real plans.

Stocks Climb With Metals as Trump Win Revitalizes Growth Outlook


Bond-Market Inflation Outlook Picks Up After Trump Victory




FED : NO change in interest rates

  • No surprise hike by Fed.
  • Three dissenters calling for a hike and arguing for a need to cooldown financial markets ( .. really?).
  • 1% rally in principal Us indices and Gold . Nasdaq 100 and Composite at new all time highs.
  • USD slightly weaker and bonds rallying as well at long end of curve.

Next focus for Us stocks is Q3 earnings season starting on October 10th. SP500 in 2120-2195 range are levels to watch for more down/upside. Nasdaq 100 crossing above previous highs (At the moment only a one day move ) and daily MACD crossing higher based on yesterday’s closing is giving a bullish technical signal … that is hard to justify on a fundamental basis at these levels/valuations. I would respect the bullish signal as long as 4790-4800 and more importantly 4650 are not recrossed on the downside.

The One Question That Clients Aren’t Asking Reveals Complacency in the Bond Market : What interest rate risk? / Bloomberg

No, interest rates will not stay that low for ever : the dream bond investors have lived for years will turn into a nightmare if they are not prepared.

“Year-to-date, total returns in every area of the fixed income market are strong, really positive, whether it’s Treasuries, whether it’s high yield, whether it’s preferreds, emerging markets, everything’s done great,” … “That doesn’t normally happen. You don’t normally have long Treasuries producing double digit returns and high yield at the same time.”

Yield Hunters Become the Hunted as Japan Long Debt Loses 9% / Bloomberg

  • 20 Years JGBs have lost around 9% this quarter ; Yield is at 0,45% up from minus 0,005 % record low in July. (10Y JGBs shown on chart below)
  • “The intensity of Japan’s bond selloff has sparked concern the market will become the epicenter for a global rout, just as it led a record rally in the first half of 2016.”


Pimco Bond Fund Cuts Bet as Dimon to Gundlach Warn on Rates Path – Bloomberg

  • Pimco reduces portfolio duration and has cut Government bonds holdings.
  • J. Dimon , JPM CEO : “Lets s just raise rates, …. the Fed has to maintain credibility “.
  • Gundlach said in last week fixed-income investors should reduce the duration of their positions and move money into cash. “This is a big, big moment,” Gundlach said. “Interest rates have bottomed… I think it’s the beginning of something and you’re supposed to be defensive.”