Stress Indicators - Politisk risk, Italy... and weak labor market in US is incoming

 

 

There has been major rally off the lows in equity risk and fixed income has continued to move from strength to strength… No doubt a lot of the big moves up has been investors chasing the momentum and trying to get back risk mandates, but…week two past Brexit we will see more openess towards UK position as dictated by Merkel's response, and Juncker (fairly so… ) is probably out by end of year at EU Commission……meaning the battle between Germany and Club Med is on…and its going to be nasty..

 

 

Tina Fordham at Citi has crafted super interesting piece on how Italy and Hungary is bigger risks than Brexit. A view I not only share, but of course significantly more elequent expressed by Ms. Fordham.

 

Overall I have moved my risk back to neutral risk parity model (25% equity, 25% fixed income, with small overweight of commodities over cash/real estate.

 

This week will be about non-farm number from US, where I expect worse than consensus number, driven by labor market chart below.

 

Please find attached overview from Morgan Stanley on political event risk – and copy/paste summary on Ms Fordham's Italy/Hungary pice from Breitbart.

 

Happy 4^th July to all my American friends,

 

Safe travels,

 

Steen Jakobsen

 

 

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Non-farm payroll on Friday – consensus +175K but.. Fed's own "broad index on labor market indicators" continues to new LOWs!

 

 

 

Leading Indicator – Conference Board paints the same picture..

 

 

Lower potential growth and scare mongering yet to have an impact on High Yield and Investment grades (..of course Fed backing down yet again help….)

 

 

The funding cost of government debt for world three largest economies has falled from 3.00% in 2011 to less than 60 bps!!!

 

 

AUD vs. JPY – my ultimate indicator on Risk ON or OFF.. continues to point down despite rally in equities and fixed income….

 

US real rates have dropped from -35 bps to -45 bps – peaking the upmove in May….

 

 

Considering ALL the negative predictions of economic fall out – the ECONOMIC Surprise index from Citigroup continues to move… .UP!