United States
Quantifying the amazing and relentless tax cut hope induced run in the small cap Russell 2000 has the 7 (at 96) and 14 day (at 85) relative strength index for both at the most overbought situation since October 1997 where these figures typically trend between 20 and 80. Impressive and no coincidence that the CNN Fear/Greed index yesterday closed at 89 vs 65 last week and 49 one month ago (//money.cnn.com/data/fear-and-greed/).
Europe
Well, at least on the wholesale pricing side the ECB is getting what it wants as August PPI for the eurozone rose .3% m/o/m and 2.5% y/o/y vs the estimate of up .1% and higher by 2.3%. The rise in energy prices was the main reason but prices were still up 2.2% y/o/y ex energy. Of course the ECB is only focused on CPI but we are seeing some selling in European sovereign bonds in response with the German 10 yr yield in particular higher by 3.5 bps to .49%. This also joins another day of weakness in US Treasuries where the US 10 yr yield is at 2.35% for the 1st time in almost 3 months. Also, the 40 yr JGB yield closed at 1.10%, matching the highest level in 20 months. There was however no change in the euro inflation 5 yr 5 yr swap which sits at 1.64% but still is at a 5 month high. The euro is modestly higher but Spanish bonds and stocks remain under pressure.
….
I hear Sweden is a really nice country and I’d love to go one day. While its economy is very small and has no bearing on global business activity, its monetary policy has been as extreme as one can get. They have a benchmark rate of -.50%, negative rates out 4 years, a 10 yr yield at .96% and a balance sheet that is up 140% over the past 5 years. This at the same time inflation in August printed up 2.3% y/o/y and they too have a housing bubble on its hands (see chart). I read these comments today from the Riksbank Governor Stefan Ingves and he’s also acknowledging the consumer debt bubble they have too (which is of course in part tied to high mortgage debt): “Debt level issue is an urgent issue for Sweden…High consumer debt levels can cause future problems” BUT it’s “too early to make policy less expansionary” and he reiterates that it’s “important the Krona doesn’t rise too quickly.”
I bring this up because it’s happening in so many other places where monetary extremism has taken place and where huge debt has been accumulated (with coincident housing bubbles) which then in turn makes it so difficult for central banks to remove accommodation without causing trouble. Sweden in particular has traded one problem for a multitude of others.
The AVERAGE SWEDISH HOME PRICE in KRONA – they have basically tripled over the past 17 years and they still have NIRP
Asia
After being closed yesterday, the Hang Seng and H share index celebrated the RRR cut over the weekend from the PBOC as they jumped 2.3% and 3.6% respectively. The Shanghai comp remained closed for the holiday.
Lastly, and in my reverence for Tom Petty, I’ll include this quote from one of his songs today: “I rolled on as the sky grew dark. I put the pedal down to make some time. There’s something good waitin’ down this road. I’m pickin’ up whatever’s mine. Yeah runnin’ down a dream. That never would come to me. Workin’ on a mystery, goin’ wherever it leads. Runnin’ down a dream.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.