Investor Agenda

Charting The Market

Our chart expert, Jordan Kotick, Global Head of Technical Strategy at Barclays weekly Q&A session.

Q - Through Q3 and Q4 last year, you were aggressively pointing out that the markets were suggesting growing problems in the Eurozone but now, you think the charts are changing again?

A - What is starting to diverge is inflation expectations in Europe. For much of last year, inflation expectations, as seen through the Breakeven charts, were aligned in the UK, US and Europe. Now, while generally speaking, US and UK breakevens are still trending higher, breakevens in Europe, such as the Italian 10 year breakeven, are rolling to the downside. This suggests that the market is potentially pricing in a different trajectory of inflation expectations in Europe vs the US and UK.

Italian 10 Year Breakevens

Q - And what are the implications?

A - If you have fixed income exposure in Europe, it may suggest the out performance of European bonds over, for example UK bonds. We have our eye on the UK specifically since both 2y and 5 yr yields, given the aggressive sell off last week, went right up to important support levels. These levels have held for now but a move through these topside support levels would probably kick-start a more aggressive sell off in UK bonds.

U.K. 2 & 5 Year Yields

Q - But overall, you do not think potential inflation expectations of the market will hurt equities?

A - The message of the market seems to be not yet. We have argued for a correction in equities, not a collapse. This is supported by many factors. For example, some markets around the world are barely correcting at all. The Tel Aviv 25 is right near its highs from last year. And it is not the only market to be trading well. This is symptomatic of, thus far, a corrective move lower since it has yet to be either aggressive or uniform throughout all global indices.

Tel Aviv 25



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