The Capital Observer

The Capital Observer is a unique and forward looking research service comprising of a monthly market newsletter as well as access to the “Decider” on-line platform focused on market timing and trend analysis of global markets (http://www.mjtsa.com, web-based, live and continuously updated 24/7).

The focus of The Capital Observer combines in depth macro analysis (supported by macro and liquidity flow models) with a seasoned trend monitoring methodology focused on trend direction, market timing and the calculation of price targets. The scope of The Capital Observer is multi asset: Market and Sector Indices globally, Commodities, Bonds Indices and interest rates, Foreign Exchange as well as related ETFs. The investment horizons, which are actively considered offer a perspective ranging from several weeks to several quarters.

The Capital Observer is dedicated to asset managers, pension funds, treasurers and family offices who would need additional strategic support to take decisions regarding their global asset exposures and their price movements as well as understanding and anticipating the macro fundamentals behind their evolution. 

In depth macro analysis (supported by macro and Liquidity  flow models)

Extract from the December 2017 Issue:

Risk assets are reaching a trough as financial conditions ease further; cyclical sectors should lead the way forward into Q1 2018

Easier financial conditions have been accompanied by falling longterm yields, weaker US Dollar, low market volatility (as proxied by the VIX), and still tight credit spreads (see first chart above). With the jobless rate already near levels that many economists see as consistent with the historical onset of strong consumer inflation, the easier conditions will naturally provoke questions whether the Fed can manage to keep the economy from overheating. But that is the wrong question – the easier financial conditions are also keeping US Core CPI correspondingly tame. But members of the FOMC seems to have missed the implications. William Dudley, head of the New York Fed, said in recent remarks that the looser 8 8 / Risk assets are reaching a trough as financial conditions ease further; cyclical sectors should lead the way forward into Q1 2018 financial conditions could be an indication that further tightening in policy is necessary: He said: “When financial conditions ease—as has been the case recently—this can provide additional impetus for the decision to continue to remove monetary policy accommodation.” Dudley believes that economy was close to full employment, which should fuel wage gains over time that will eventually filter into broader price pressures and help push inflation back up toward the central bank’s 2% inflation target. The current US loose financial conditions, we believe, will contribute to the Fed`s decision to go ahead with the rate hike at FOMC meeting later this month. Be that as it may, the very loose financial conditions are sparking a rally in

cyclicals – the crucial element being the weakening of the US Dollar (after a lag). Moreover, we believe that the US Dollar will continue to weaken over the next few weeks, following the lead of the looser financial conditions (see 2nd chart above). That should also strengthen the incipient rally in cyclicals, which slightly lag behind the USD weakness (by about two weeks). We continue to see healthy numbers from the economy. The positive outlook has been underlined 8 9 by the series of positive economic surprises (when the actual economic data has been better than expected by economists) as depicted by the Citibank Economic Surprise Index. This series has recovered from deep plunge during the middle of the year to a sharp recovery suggesting positive activity in the nearterm, at least (during Q1 2018). See graph below. The expect the tailwind from recent good economic numbers in the US to continue to provide further support for cyclical assets, going into Q1 next year.

Technical Analysis focusing on cross-asset rotation and market timing

Extract from the July 2017 Issue:

Oil is building a base, late Summer could see it rising again

Technical Analysis focusing on cross-asset rotation and market timing

Extract from the January 2017 Issue:

A switch back to Defensive and Growth assets during H1 2017

XLV - Health Care Select Sector SPDR Fund / SPY-SPDR S&P500

(Daily graph or the perspective over the next 2 to 3 months)

Focusing on Defensives, US Healthcare is another sector that on a relative basis may be anticipating a slowdown in reflation. The downtrend sequence on our long term oscillators (lower rectangle) has reached a Low Risk zone and Impulsive targets down have been achieved (“I”; right hand scale). The medium term oscillators (upper rectangle) could still justify a last sell-off into late January, yet there is little time left to achieve new lows.

In depth macro analysis (supported by macro and Liquidity  flow models)

Extract from the January 2017 Issue:

As US growth is at risk of decelerating, possible roadmap through a distribution period for key assets. Inflection point may happen mid Q1 2017

As mentioned above, we have several issues with the market perception that the Donald Trump effect will continue to be the most significant market and economic driver during the early part of 2017. The first issue, as we said earlier, has something to do with the timing of the impact of whatever salubrious measures the administration of Mr. Trump may take in restructuring regulations, cutting taxes and rebuilding public infrastructure. Despite Republican Party control of both houses of Congress and a majority of State governorship, passage of Mr. Trump’s agenda does not appear to be a slam dunk insofar as Congress is concerned. We seriously doubt some market participants’ characterization of the Republican-controlled Congress as a rubber-stamp entity, as even now some Republican politicians look like having cold-feet with regards to the size of the budget deficits that Mr. Trumps  infrastructure projects entail, during a time when taxes  will be cut as well.  Massive  budget  deficits, in the scale proposed by Mr. Trump

during his election campaign, do not go well with the natural, conservative bent of many Republican congressmen and senators. In fact, it was this miserly attitude which may contribute to the growth hiccup that we expect during  H1 2017 and for most of the year thereafter, until early 2018. Simply put, the US economy was starved of sufficient funds by trimming down the budget deficit as from 2012, even as the economy struggled to reach take-off velocity. Lower deficits reduce systemic liquidity, and that does impact the economy after 8 to 12 quarters -- there is some sense of proportionality between the size of the deficit that was trimmed and the size of subsequent dislocations in growth.