Bullish S&P, FTSE and concerns about Pokémon Go

The S&P 500 has printed a new high, but the price action is hardly inspirational and there was seemingly a level of caution in the buying.

Source: Bloomberg

The NASDAQ is still eyeing a move through the 19 April high and volume was fairly light, despite the fact any further upside from here would clearly be conducive of funds feeling the pressure of missing out.

A reasonable sell-off in US fixed income (the ten-year Treasury pushed up eight basis points) has seen some support for the USD, and there is a somewhat increased discussion around whether the Fed could actually raise rates in its December meeting (again). With the interest rate markets pricing this at a 27% chance. Technically, the USD basket (USD index) has broken a bull flag pattern, which effectively is a continuation pattern and throws increased probability that we see the USD break to a new high (though 9688) and potentially re-adopt a positive correlation with the S&P 500, similar to what we saw through most of 2015.

The index of choice still is the FTSE 100, as the market is in a raging bull market. Being long this index has meant having to hedge GBP exposure, as any gains in the index have been eroded by the fall in GBP/AUD. In saying that, we are seeing some stability in the GBP, largely as result of the market having gone a long way to price in rate cuts in this week’s Bank of England policy meeting. We even have some certainty within British politics with Teresa May having the unenviable job of navigating the UK through the EU negotiations, although she has bought herself time by saying she won’t pull the trigger on Article 50 until 2017. The dynamic of a country leaving the Union and being led by someone who wanted to remain, who by-and-large was handed the job because all her competition dropped out amid controversy, is truly bizarre. However, Teresa May does have an excellent reputation as well as diverse experience within various portfolios.

Turning to Asia, we are expecting solid gains today. Our call for the ASX 200 sits at 5380 (+0.8%), with the Nikkei likely to break through 16,000. On a sour note, volume through the ASX 200 yesterday was poor at $4.85 billion and if it weren’t for the strong gains in the Nikkei that subsequently saw buying in the S&P futures, one suspects the Aussie index could have rolled over into the close. Based on the ADRs, expect BHP to open +1%, with the banks +0.5% to 1%.

Stock-wise it’s hard to go past Nintendo at present and the scope to monetize the Pokémon Go is huge. It is a truly incredible offering. Still, as someone who missed the original Pokeman craze, I am finding the idea of millennials transfixed on their phones through the streets of Melbourne like a scene from the Walking Dead quite concerning. Shorting the AUD alone on the reduced productivity this is going to cause seems logical!

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