Global Macro Markets Report (May 28, 2012 – June 1, 2012)

Dear Reader(s),

The volatility in the global markets have eased over the past week with major downside tail-risk events held to a minimum.  The retail and housing data from the U.S. did not surprise however the lack of negativity in the data given the global slowdown in growth was perceived as a positive.  The increase in housing starts is a positive economic sign of stability in the upper-middle class (single & married).  In U.S. equity markets, the Dow closed up  0.69% for the week,  with major buying on Monday (1.09%), traded sideways until Wednesday and sold off on Friday.  The S&P500 1.74% (closed up 1.60% Monday) traded marginally higher until Thursday, light selling Friday.  Over the past month, the bottom 400 stocks (stocks non-inclusive of the S&P 100) have outperformed from April 25 through May 3rd.  Over the period of May 16 through May 18,  broader market declined, the S&P 100 outperformed (more resilient) the S&P 500, as the market increased from May 18 to May 21, the S&P 500 on a percentage basis increased over the S&P 100.  The S&P indices converged over the May 16 through May 24 period.  The Nasdaq closed up 2.11% on the week ; closed up 2.46% on Monday & had an 11pt trading range through Thursday, and traded down marginally on Friday.

The U.S. markets did not experience the possible downside volatility as a function of previous weeks and of global uncertainty.  The argument of value reflected in current U.S. market valuation was broadly reflected given the movement in the indices.  The S&P 500 and Nasdaq reflected the most upside volatility.  The Dow is normally the index w/a higher beta than the S&P 500 and should see the buying volatility.  However, that was not the case.  To me, this implies the U.S. as the growth story with exposure to overseas market expected to not increase growth as quickly or as much as exposure to the U.S. & Americas.

The U.S. markets are closed for Memorial Day so much is predicated regarding U.S. market reaction on what occurs in Asia & Europe on Monday.  The likely scenario is additional buying on the open Tuesday with a sell-off of the intraday gains. The U.S. markets will likely trade higher over the coming week with the Dow closing near 0.3%, the Nasdaq up 1.1% & and S&P 500 up .8% (alpha .2).  A stronger dollar will continue to enable U.S. indices and U.S. earnings as well as provide a lower costing international supply chain for U.S. based production, fueling earnings.

The U.S. Federal Reserve will likely extend ‘Operation Twist’ however further direct liquidity injections into the market is not necessary at the moment.  The European Central Bank is the logical choice for western hemispherical central bank liquidity.  A stronger euro denominated into the market will provide a stronger backstop than quantitative easing from the federal reserve.  Additionally, extending the bond buyback program will strengthen the fed’s balance sheet thus increasing principal gained as a percentage for each percentage drop in interest rate yield.


JBHT – JB Hunt Transport Services

JHX – James Hardie Industries SE

DM – The Dolan Company

Central America & South America

IPC (Mexico) closed up 1.66% on the week.  The major buying occurred on Monday with the index closing on Friday at approximately the level the index closed at on Monday.  This is to say, the market kept the gains experienced on Monday’s buying; a bullish sign going into the markets next week.  The Americas continue to be the markets to park investor capital.

The IBOVESPA (Sao Paulo) closed down -0.09% for the week overall with the index up 3.81% on  Monday’s close followed with a sell-off of  4.47% from Tuesday to Thursday and buying on Friday (0.74%).  The MERVAL (Buenos Aires) closed up significantly 9.62% with the trading pattern showing a linear trend line throughout the trading week.  Brazilian markets remain popular with investors as the IBOVESPA has seen significant upside tail-risk buying in the past, which has now switched north to Buenos Aires.  The MERVAL is likely to redistribute gains back to the IBOVESPA this upcoming week.


The FTSE closed up 1.59% for the week after a wild ride with volatile swings.   The index closed Tuesday up 2.58%, then giving back nearly all the gains on Wednesday closing down -2.53%, then gaining 1.59% on Thursday.  Clearly, the FTSE is responding to global macro uncertainties.  The BEL-20 (Brussels) closed up 2.20% over the week with the same established pattern of buying on Monday and Tuesday followed by a sell-off on Wednesday.  Buying on Thursday and Friday pushed the index higher.  The DAX closed up 1.10% on the week with buying on Monday & Tuesday (up 2.62% Tuesday’s close), index gives nearly all of the gains back, closing down -2.33% Wednesday, closed up 0.86% Thursday & Friday.  As the ECB is seen as the next logical backstop, the FTSE & BEL-20 will continue to experience bidirectional volatility.

The CAC 40 closed up 1.33% for the week, with buying on Monday & Tuesday (closing up 2.53% on Tuesday), followed with a sell-off on Wednesday (closing down -2.62%), with buying on Thursday & Friday (closing up 1.49%).   The ATX (Vienna) closed up 1.43% for the week with buying on Monday & Tuesday (3.95%) and a sell-off on Wednesday (-2.47%), the ATX closed on Friday about where the index opened on Thursday.  The SMI (Swiss) closed up 1.16% over the week as buying Monday and Tuesday (1.94%) proceeding a sell of on Wednesday (-1.56%).  The index saw buying  Thursday & Friday (0.81%), leading to the green close.  The markets over the coming week are expected to trend lower with volatility between 1.00% & 2.00% (alpha .20)

Middle East

The TA-100 (Tel Aviv) closed down -2.65%, which makes the third consecutive week the index closed down.  Major selling on Monday and Wednesday with marginal movement the rest of the week.

The BSE (India) closed up 0.40% as buying on Thursday pushed the index into positive territory to close in the green for the week.

Asia & Far East

Shanghai exchange closed down -0.47% for the week as buying on Monday & Tuesday proceeded a major sell off from Wednesday through Friday (-1.68%).  The HSI (Hang Seng) closed down -2.54% for the week with a sell-off on Monday, buying on Wednesday, and further selling Thursday & Friday.  Nikkei 225 closed down -0.36% for the week with buying on Monday followed by a sharp rise in buying on Tuesday (closed up 1.10%) and closed down -1.98% on Wednesday with marginal buying Thursday & Friday.

Hang Seng closed down -1.26% for the week, trading higher on Monday & Tuesday, falling -1.96% Wednesday & Thursday with marginal buying on Friday.  Straits Times closed down -0.23% on the week as the buying on Monday (1.61%) was given back immediately on Tuesday (-1.53%) with marginal selling on Friday.  The TSEC (Taiwan) closed down 1.11% for the week as the index gave back all the gains on Wednesday accrued over Monday & Tuesday followed with selling on Thursday and a major sell-off on Friday.  The JKSE (Jakarta) closed down -1.96% for the week with a 40pt drop Monday & Wednesday and major buying on Tuesday followed with major selling on Friday (-2.07%).  The NZX 50 (New Zealand) closed down -0.43% as major buying on Tuesday (1.04%) proceeded a sell-off from Wednesday through Friday (-1.24%).

Continued weakness in Asia has made Europe a more attractive market for investors.  The global macro picture going forward is for smaller Asian economies to outgrow the larger, more established Asian economies.  For instance, Vietnam will outgrow Japan as a function of underlying market value relative to GDP.  This is to say, expect Vietnam to grow its market index, as a percentage of GDP, at a higher rate than Japan relative to the Nikkei and to marginal GDP growth.


From May 21 through May25, NYMEX Crude is down -1.76 ; Gold is down -2.28%; Copper is down 1.44%; Orange Juice is up 5.30% (OJ fell to $100.55 which is a certain buy, closed the week at $109.25) the price for O.J. is expected to increase.; Cotton closed down -6.32% and is expected to trend downward; Corn is down -8.90% and demand is expected to decrease as stockpiles of major buyers are large.

Oil is expected to trend downward however upside volatility is to be expected given the global macro political dynamic with Iran.  Additionally, growth increases the Brent & WTI premium to which WTI $92/bbl  (Brent $110/bbl) makes sense over the next week.  However, a slowdown in Asia and investment into alternative fuels is also likely to push WTI lower to below $89/bbl. (Brent $103/bbl).  Iran is critical here as I see WTI more toward $92/bbl, Brent $110/bbl.


The U.S. 10yr continues to trade below 1.80% although demand at its current yield of 1.74% is not tremendous given principal market value relative to par value.  The U.S. 30yr yield remains below 2.90% at 2.84% with the principal market value remaining unchanged as the yield falls.  The U.S. 10yr and U.S. 30 yr rise & fall in the yield continue to correlate.

The Canadian 10yr continues to fall with a yield slightly higher (1.81%) than the U.S. 10yr however the Canadian 10yr bond is in higher demand relative to yield than the U.S. 10 yr.  The Italian 10yr (5.64%, $95.70) and Spanish 10yr (6.27%, $96.85) continue to rise and fall however the Spanish 10yr has not traded below 6.0% since May 10 & Italian 10 yr has not traded below 5.50% since May 11… – The interest on each bond will rise with continued talk of Greece exiting the euro zone (even w/a sound plan in place).  This is why there is plenty of talk regarding a non-exit…

Of the ‘safe’ economy 10yr bonds, the Australian 10yr is in highest demand relative to yield (3.19%, $121.97)  The yield is not expected to rise beyond 3.30% over the next week.  For yield, investors continue to actively trade Mexico, Brazil, & Columbia bonds.  The Swedish 10yr bond remains a safe haven trade (1.42%, $119.22) & German yields fall below 1.40% (1.37%, $103.57).  German yields are falling so low that demand is approaching par either due to the low yield or due to speculation regarding rising German debt and responsibility over downward spiraling euro zone finances.  The Japanese 10yr yield is rising (0.89% from 0.86%, $100.15).


The euro dollar fell to the target $1.25 as confidence continues to build in the dollar and in the belief of a U.S. led global growth story.  The euro dollar forecast for the following week is to hit $1.215 (alpha .05).  The Swissie is seen as the safe trade for euro holders however the dollar has appreciated $0.06 since May 3.  The dollar should continue to remain strong against the Swiss Franc however perhaps not at current levels.  The currency pair may trade down over the next week in favor of the Swissie as fear pushes euros into Swiss francs.  The GBP continues to weaken against the dollar however the GBP is not expected to weaken below $1.50 as growth concerns continue in the U.K. economy.  The euro will see marginal decreases against the yen with euro yen forecast to be €99.70.  The dollar yen is not likely breach ¥80.00 (alpha .05).  The U.S. dollar is expected to continue to strengthen against the Aussie and Canadian dollar.

Thank you for reading.

For U.S. readers, please stay safe and enjoy your Memorial Day & the rest of the Memorial Day weekend.  Enjoy the rest of the week.

Best Regards,

Vidia Ramdeen (Founder, President, CEO/CIO) – Ricochet Alternative Asset Management




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