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Int'l Macro Vision: Sector Synopsis

Int'l Equity Strategy



We have had a neutral yet constructive outlook on global equities since March, however we are getting many bullish risk-on signals that have us moving toward an outright bullish outlook. In recent weeks we have noted that most of our concerns stem from EM and, more specifically, mega-caps in China (Tencent, Alibaba, etc.). Now, we are beginning to see bullish RS reversals for MSCI EM/China as prices attempt to bottom. Additionally, Hong Kong's Hang Seng is on the cusp of a bullish short-term reversal. If MSCI EM/China and the Hang Seng are indeed bottoming (which is our opinion), it would mean that one of our few concerns is becoming a tailwind, which would be very bullish for global equities. Below we detail why we are moving toward an outright bullish outlook.

Moving toward an outright bullish outlook. (1) Important supports on the broad global indexes continue to hold, including $99 on ACWI-US, $54 on ACWX-US, and $76.50-77 on EFA-US. (2) Europe's EURO STOXX 50 remains above 3875. (3) High yield spreads have leveled-out in Germany/Europe, and are on a multi-month narrowing path in the US. (4) Defensive Sectors including MSCI ACWI Utilities and Staples are hitting new YTD RS lows. (5) MSCI ACWI cyclical Sectors including Energy, Financials, and Consumer Discretionary are breaking out to new YTD price highs and are making bullish RS inflections. (6) Small-caps continue to outperform outside of the US, and show early signs of outperformance in the US as well. (7) The US dollar (DXY) is below critical long-term resistance at $94.70-$95. (8) Global sovereign bond yields have found a floor and are moving higher. (9) Broad commodities (Bloomberg Commodity index) remain bullish, WTI crude oil prices display a big breakout, and Dr. Copper displays a bullish reversal. (10) The biggest prior “problem areas” display early signs of price and/or relative strength bottoms, including for MSCI EM (EEM-US), MSCI China (MCHI-US), and Hong Kong's Hang Seng. These items suggest risk appetites are strong/improving, and they are all consistent with historical bull markets. As a result, we are moving toward an outright bullish outlook for global equities, but we are waiting for confirmation in the form of breakouts or bullish price inflections on the ACWI-US, ACWX-US, EFA-US, and EEM-US in order to turn bullish. On the other hand, we would only turn more cautious if the aforementioned metrics start reversing course.