Weekly Cross Asset Strategy

TVC:UKX   UK 100 Index
There has been no change in the past week, with Global equity markets maintaining a positive tone. The outperformer remains the UK FTSE , as prices continue to post new highs and put focus on strong psychological resistance at 7500. However, overstretched studies continue to warn of elevated profit-taking risks, with further gains expected to prove difficult to maintain. The US markets, however, are consolidating recent gains, but a push to new highs cannot be discounted, as the VIX continues to pressure supports. European markets are also rangebound and at increased risk of a corrective pullback. The Hong Kong Hang Seng Index and the China Shanghai Composite Index are diverging – Hong Kong is behaving as a western market and extending gains, whilst the mainland Chinese indexes settle back into consolidation.

In the coming weeks, we remain cautious of further equity gains, and anticipate a corrective pullback as money managers reduce their global equity allocations.

However, we are constructive in the longer term, as underlying strength suggests investors are currently maintaining a buy-into-weakness strategy.

The USD DXY Index is under pressure, with falling momentum studies highlighting downwards pressure. This is expected to keep the USD on the backfoot, with money managers to continue reducing their USD exposure.

Once again, the obvious beneficiary will be the EUR, with EUR/USD now posting the anticipated corrective bounce. USD/CHF and USD/JPY are following the USD lower. The commodity currencies, AUD and CAD, continue to strengthen, with AUD/USD expected to push marginally higher whilst USD/CAD tracks steadily lower.

GBP/USD has not maintained the test of significant lows, and is settling back into range. However, the dominant bearish tone is intact, highlighting fresh downside risks in the coming weeks.

Collectively, this suggests investors will maintain a bearish USD stance, and look for further strength in the commodity currencies. GBP/USD will likely remain under pressure.

Finally, the commodities space continues to show signs of improvement, although there are short-term downside risks appearing in Oil . Gold prices continue to rally, and expected to remain bullish into the coming week. However, momentum studies are becoming overstretched, suggesting potential for consolidations as prices approach USD1250.
Copper and Corn prices are showing signs of improvement, and investors are expected to continue increasing exposure in Base Metals and Agriculture.

All in all, we see increased downside risks in global equities and further USD and GBP weakness. The commodities space is expected to continue benefiting from cross asset rotation, as money managers move their extra USD into Gold , Copper and Corn .