Market Perspectives November 2016

Market Perspectives
November 2016
Nov. 16th, 2016
www.finlightresearch.com
“There is nothing more dangerous than a market of
fully invested bears.”

“Patience is not just about waiting for
something… it's about how you wait, or
your attitude while waiting.”
– Joyce Meyer
2
FinLight Research | www.finlightresearch.com

Executive Summary: Global Asset Allocation
The passing of the US election has taken a key event risk off the table.
But markets continue to digest the implications of Mr Trumps surprise
victory.
Trump’s victory has triggered a global sell-off in equities, credit and oil,
and a jump in volatility. All these moves have been short lived and
reversed the day after.
Market optimism was driven by the prospect of large fiscal stimulus,
infrastructure spending and a Republican control of both Houses. No
one seems warried anymore about the downside risk from an escalation
in protectionism and global populist backlash.
On the surface, the global economy is getting better. But, investors
should avoid complacency in such an uncertain environment
Our focus is 3Q earnings season, rising wages and their impact on
margins, expected inflation and volatile volatility.
Earnings had already been on an improving trend, with a number of key
sectors showing a dramatic turnaround. Expected inflation is ticking up.
Global bond yields too.
Not much has changed in our expectations, except for Govies and
energy
We summarize our views as follows
3

MACRO VIEW
The Good
US Election uncertainty is over.
US 3Q GDP has grown 2.9%, well above the 1.1% average growth of 1H-2016.
Global Manufacturing PMI reports improved across the board in October, going against all
recession talks. China's manufacturing PMI for the month of October recorded its highest level in 2
years (51.2)
Personal income and spending were up 0.3% and 0.5% respectively
Michigan sentiment is getting better with a reading of 91.6
The Bad
Industrial Production in China slipped to 6.1%, from an expected 6.8%
Durable goods orders appear extremely weak, pointing to a late-cycle economic stage.
The Ugly
Main systemic risk resides in China: Chinese debt bomb is ticking. Debt is used to create the
illusion of growth. The Chinese banking sector is going to end up needing a bailout.
The hard Brexit risk should be monitored closely.
Something huge is probably gathering in Japan: Abenomics has failed! Contrary to every
economic theory, debt accumulation, debt monetization and record amounts of currency creation
have resulted in a rising yen and falling prices.
4

5
The Big Four Economic Indicators
The current picture is characterized by relatively strong Employment and Income, a weak Industrial
Production (probably in recovery mode since its Mar ‘16 lows) and Real Retail Sales hovering
around a flat line.
The average of these indicators has been trending lower since Nov. ‘14, suggesting that the economy is
still moving sideways. Industrial Production has been the weakest link in the economic recovery since
the GFC. But the picture has been getting mildly better since June.

6
GS – Global Leading Indicator (GLI)
The October Final GLI came in
at 3.0% yoy (up from 2.8% in
September). Its MoM
momentum came at 0.29%
(slightly down from its last
month’s 0.31%)
The October GLI reading is
back in economic slowdown
area.
Seven of the ten underlying
components of the GLI
improved in August.
Despite the better shape of
GLI momentum, we continue
to think that the acceleration
we’ve been witnessing since
Jan. ‘15 is quite modest for
a typical expansion phase

7
US GDP Growth
On Oct. 27th, the Atlanta Fed
released its GDPNow model
forecast for 3Q real GDP
growth (seasonally adjusted
annual rate) at 2.1%
The advance 3Q GDP results
were reported at 2.9%, the
biggest gain in two years.
We expect this estimate to be
revised down from here.

8
US Capital Goods Orders
US Capital Goods Orders
have been flat to down since
2012.
Durable goods orders also
appear extremely weak,
pointing to a late-cycle
economic stage.
Despite their high margins
and profits, businesses
haven’t invested enough to
boost future productivity.
Without business investment,
it seems hard for GDP growth
to accelerate above the 1.5-
2% range

9
US Employment
In the same time, private
sector jobs growth has slipped
to a 1.5% over the past 6
months.
With weak jobs growth and
no productivity gains,
economic growth would
hardly do much better than
2% p.a.

10
US Labor Cost
The US labor market is late
in the cycle and should
drive wages up.
YoY growth in average hourly
earnings rose to 2.8% in
October, its highest level since
May 2009!
Higher labor costs would
weigh on corporate margins
and already stagnating
productivity.
Inflation is probably the next
indicator to watch at.

11
Inflation Expectations
Forward inflation has
picked up in recent weeks.
The move has been
accentuated by the surprise
victory of Mr. Trump, given
his announced policy of fiscal
spending and trade
protectionism.
The policy mix has shifted in
the direction of more inflation
The reflation trade is finally
back!

12
EQUITY
Our equity outlook remains cautious. We see the market more vulnerable than ever to growth,
earnings and policy disappointments.
The US equity valuation picture has hardly changed since last quarter. Whatever metrics we consider,
US stocks look expensive, making the pressure to deliver a positive earnings growth very substantial
Trump’s victory has triggered a global sell-off in equities, credit and oil, and a jump in volatility. All these
moves have been short lived and reversed the day after
Earnings momentum is picking up in Q3. The earnings picture, while slightly worsened by energy,
looks fine, even if many firms have commented on the potential risk to profit margins from higher wages
US equities seem priced for a rebound in earnings growth, but hardly for a stronger dollar, nor for
higher treasury yields…
Equity risk premium for US stocks has declined with Trump’s victory, which seems at odds with the lack
of certainty we have on the new president’s economic plans…
We still think that key fundamental data will eventually matter… in a BIG BIG way. For now, investors
are buying the rumor of better future earnings. One day, they will be selling the news of bad effective
earnings.

13
EQUITY
We remain Neutral on S&P 500 but with a bearish bias as we see headwinds from the resumption of
the Fed rate hike cycle and a strong Dollar.
We remain UW Europe into year-end because of elevated political uncertainty (from Brexit and the
Italian referendum) and uncertainty on ECB policy
Nevertheless, we believe equities are likely to outperform bonds over the next 12 months

14
EQUITY
The main question: Is the market consolidating gains, or is that a top forming?
Our scenarios are unchanged.
Our main scenario from here (70% chance) : A massive top forming around 2170-2190
Equities remain expensive, earnings growth poor and profit margins are showing increasing
evidence of peaking. On Price/Sales metric, equities are trading at the top of the historical range.
A resumption of earnings growth going into 2017 will be necessary for equities to move higher.
Our alternative scenario (30% chance) : The S&P500 breaks the 2170-2190 resistance, opening
the way to 2225 - 2300. Such a breakout would need a new round of stimulus and/or a new impulse
to macro fundamentals
A pull back below 2060 is needed in order to confirm our primary scenario!
Above 2200-2225, we’ll be obliged to recognize the alternative scenario is in.

15
EQUITY
Bottom line :
De-risking should continue. A higher allocation to cash is sensible in this late-stage stock bull.
We adjust our positioning rules on the S&P 500 as follows:
We remain Neutral above 2090
To switch to OW again, we need a material break higher than 2170 - 2190
We will switch to UW as soon as the 2090 level is materially broken to the downside.
Any clean break below the ‘09 trend would make us move massively UW
We like the low US beta. We remain Neutral Japan and UW Europe vs. US.
We remain UW in US small caps vs large caps.
We expect the rising trend in bond yields and inflation to hurt defensives and support the
outperformance of cyclicals. But given their relative valuation, we choose to stay OW defensives
vs. cyclicals
We also move Neutral value vs growth stocks.
In our previous report, we expressed the view that low vol/min vol stocks are increasingly
vulnerable. We maintain this view.
A stronger USD, rising yields and a potential headwind to global trade (with more protectionism)
are expected to hurt the relative performance of EM. LatAm is the most vulnerable EM region to
these factors, specially US dollar strengthening. We remain UW EMs vs DMs.

16
US Earnings
The S&P500 is finally getting out
of its earnings recession.
For Q3 2016, the blended earnings
growth rate for the S&P 500 is
2.9% (+6.2% if the Energy sector is
excluded). If the index reports
growth in earnings for the quarter,
it will mark the first time the index
has seen year-over-year growth in
earnings since Q1 2015 (0.5%).
For all of 2016, the estimated S&P
500 growth rate is now projected at
+0.2% for earnings and +2.2% for
revenues
The forward 12-month P/E ratio is
now 16.7, which is well above the
5-year (15.0) and 10-year (14.3)
averages.
Analysts still expect earnings
growth to return in Q4 2016

17
US Earnings
The earnings picture, while slightly blemished by energy, seems to be on a good trend from here.

18
S&P500 – A Long-Term Perspective
Equity markets still appear at
lofty valuations on virtually
any and every historical
valuation metric
At the end of October, the
average of the 4 indicators we
use stands at 71%, not far
below its interim peak of 78% in
Feb. ‘15
All these indicators suggest a
cautious long-term outlook and
weak long-term return
expectations These
measures are consistent with
flat (0%) 12 year S&P 500
nominal total returns

19
S&P500 – A Long-Term Perspective
Indicators like P/E10
ratio (26.5) and Real
S&P distance from its
LT trend (85%) are also
pointing to sky high
valuations;

20
S&P500 – Equity Risk Premium
The only long-term relative value measure that is still (seemingly) bullish is provided by the gap between
dividend yields and treasury yields
If government yields increase (which is our main scenario), the S&P 500 is bound to decline in order to
continue offering the same risk premium. Higher interest rates will clearly lower the demand for high-
yielding stocks.
Equity risk premium for US stocks has declined since Trump’s victory. We feel concerned about this
drop given the uncertainties surrounding Trump’s economic plans.

21
S&P500 – A Medium-Term Perspective
The run up in S&P500
since just before US
elections, has been
impulsive.in nature.
In a few days, the index
was able to break its
series of lower highs
since August
The levels to watch
from here are : the
trendline through the
lows since Feb. ‘16
(currently around 2180)
and the 200-dma
(currently around 2090).
Reintegrating the
uptrend since Feb
lows would give a
clearly bullish signal.

22
S&P500 – A Short-Term Perspective
After a long period of inactivity, our prop. Short-Term trading model has switched to mildly short since
Nov 7 (@ 2131).
5 systems are targeting a break below 2103, 2083 and 2062. Next level to watch on the upside: 2189
Bottom line: Mildly bearish
0
0.25
0.5
0.75
1
1900.0
1950.0
2000.0
2050.0
2100.0
2150.0
2200.0
2250.0
2300.0
112
375
356
100
224
343
328
333
351
269
172
340
271
373
250
285
165
164
217
254
177
400
34
31
UpProba&NextMove(1=Up/0=Down)
Lower/UpperBound
System ID
Lower
Bound
Upper
Bound
Next Digit Up
Proba
600.0
800.0
1000.0
1200.0
1400.0
1600.0
1800.0
2000.0
2200.0
2400.0
39000.0
41000.0
43000.0
45000.0
47000.0
49000.0
51000.0
53000.0
janv.-06 sept.-08 juin-11 mars-14 déc.-16
S&P500
NAV
Quant Model
S&P500

23
S&P500 – Short-Term Breadth
As a result of the US election, the downtrend line in 50-dma breadth has been broken to the upside.
This is unambiguously a bullish ST signal.

24
US Stocks – VIX Indicators
Our long vol
positioning has
proved to be
profitable.
The VIX is now back
to its “relaxed” levels.
The same is true for
the VXV-VIX ratio: the
futures curve slope
has rebounded from
its lows (panic levels),
but hasn’t reached yet
euphoric levels.
The Trump’s victory
induced move is going
too high to fast.
We keep an eye on
both indicators,
looking for
complacency.

25
US Stocks – Tail Risk Hedging
Tail risk hedging could be (loosely) quantified by vol of vol and skew.
Now that the wall of worry is down and despite the remaining uncertainties (on growth, Fed’s policy,
geopolitics…), both indicators have come back down.
Investors are now doing very little to hedge tail risks; another reason to keep an eye on volatility,
volatility of volatility and skew…

26
Stocks, Earnings and IPOs
In the past 2 years, more than 70% of
companies that went into IPOs had
negative earnings.
Its similar to the 2000 bubble, but
fortunately on lower volumes.
Most of this distortion is due to the
biotech sector.

27
US Stocks – Growth vs Value
Value stocks have been
outperforming Growth stocks
since Feb. ‘16
Market-neutral value factor has
posted its best month since 2014
This is typical of optimistic times
with investors becoming more
positive on the economy and the
market.
We are now more cautious about
this move as we see a lot of
question marks around growth,
yields, US dollar and Fed’s policy.
We move from OW to Neutral on
value stocks vs growth stocks.
Source: Goldman Sachs

28
US Stocks – Cyclicals vs Defensives
The rally in Cyclicals that began mid-
year has been accentuated by
Trump’s surprise election.
The move was driven by Financials
versus Utilities.
The move may be explained by rising
inflation expectations, rising interest
rates, better growth perspectives, more
fiscal spending and potentially reduced
regulation under Trump’s
administration.

29
US Stocks – Cyclicals vs Defensives
Looking forward, Cyclicals
outperformance may persist.
However, and given Cyclicals relative
(extreme) over-valuation vs.
Defensives, we stay OW defensives
vs. cyclicals

30
FIXED INCOME & CREDIT
GOVIES
Bonds had their worst month in a while. Ten-year US Treasury yields jumped by nearly 40 bp this
week and now yield 2.2%, up from 1.8% at the end of last week.
Yields were led by a bounce in inflationary expectations, a more resilient economic growth, and the
potential for an increase in the volume of debt issuance needed to fund more planned fiscal spending.
Expectations of a more hawkish Fed have also lifted real rates.
We continue to expect the Fed to hike in December, followed by two or three hikes in 2017
We’ve turned to UW on 10y-USTs since the 1.85 resistance was breached.
The sell-off in Govies should continue as bond valuations are still stretched, inflation is expected to
rise, and Central Banks outlook appears less supportive for duration. ECB/BoJ QE programs may be
replaced by fiscal policies.
We also expect the curve to steepen. We did right by getting out of our long flatteners positions, a
month ago.
Trump’s victory should increase the focus on political risk in Europe as it provides another evidence of
a global populist backlash. The rise in the US would likely exert upward pressure on other
European yields.
We remain Underweight US 10-year bonds vs. Germany as reflation pressures are much more
focused on the US.

31
INFLATION-LINKED
Wage pressures have affected inflation expectations. Since late June, 10-year breakeven inflation
has jumped from 1.3% to 1.7%.
We remain to OW 10y-TIPS. We are bullish on US breakevens given the supportive macroeconomic
backdrop and record retail demand for TIPS
We remain Neutral HICP Inflation as we see breakevens trading sideways

32
CORPORATE CREDIT
Credit is expensive relative to the fundamentals . fundamentals continue to deteriorate, with EBITDA
growth continuing to decline and net leverage rising further (especially in the US). But central
bank QE from Europe and Japan remains a support.
We still see significant demand for US spread products given the low level of Euro HG credit
yields. Surprisingly, the demand for USD credit remains strong, despite the rising cost of FX risk
hedging, suggesting appetite for unhedged exposure
Concerns around European banks, combined with a hard Brexit stance from the UK make European
credit markets riskier than their US counterparties.
We remain overweight US vs EUR credit (more on IG than HY) because of our fundamentally
bearish view on European credit, the relative yield disadvantage and the fact that the re-leveraging
cycle looks more mature in the US.
In high yield, we keep our bias towards higher quality. Any unpriced rate hike (and/or dollar
strengthening) would weigh on low quality bonds (High Yield and EM debt). We remain UW on HY
and Neutral on IG.

33
EM DEBT
The dollar strengthening is on track and would weigh on EM debt
We remain Neutral on EM bonds, because of all the macro challenges facing the EM economies at a
time when the Fed is likely to be more hawkish
Bottom line : UW Govies, UW US vs Eurozone Govies, long steepeners on the US yield curve,
remain short duration in 2y USTs, UW credit mainly through HY and Neutral on IG (duration hedged),
UW Eurozone vs US in IG & HY credit, OW 10y-TIPS breakevens and Neutral HICP Inflation, UW High
Yield vs High Grade, Neutral on EM sovereigns with a little preference for hard currencies bonds.

34
US Govies – 10y UST
With Trump’s surprise election, the
10y-UST yields jumped by nearly 40
bps to reach 2.20%.
This sharp move was mostly
driven by inflation expectations
With Trump’s announced plans of
fiscal spending, tax cuts and
infrastructure investment, the market
is betting on an increase in US debt
issuance

35
The rise in yields will induce a
substantial loss in real wealth.
According to a Goldman Sachs
estimate, a 100bp increase in 10y
yields would translate into a
$1.1tn market value loss for the US
Aggregate Bond Market Index
Such a rise would no doubt have an
impact on yields in the Eurozone,
specially in high debt markets (Italy,
for instance).
We expect the JGB market to remain
immune, at this stage.

36
According to our positioning
rule, we’ve moved from
Neutral to UW 10y USTs as
the 10y yield breached 1.80.
With Trump’s surprise victory,
the 10y-UST yield has broken
through the January ‘14
downtrend and reached 2.23
The downside move seems
damaged.
Our positioning rules are
adjusted a follows:
Remain UW above 2.00
Neutral between 1.65 and
2.00
OW below 1.65
Move to Neutral again
around 1.25-1.28
The next important level to
watch is 2.23

37
3-month correlation between bond
futures and equity prices is typically
negative
Bond-equity correlation turned
positive in September, and has
remained in positive territory since
then.
Last times we’ve seen this positive
correlation, bond markets sold off.

38
US Credit - Fundamentals
US balance sheet fundamentals and
credit quality continue to deteriorate.
We see more debt when earnings
and revenues are struggling
Net leverage ratios are now at
levels similar to those reached in
the late 1990s.
The picture is concerning but in
some way smoothed by the still high
interest coverage .
With rising yields, focus would
eventually go back to balance
sheet fundamentals
This picture is US specific. Despite
the CSPP, we see no sign of
releveraging in European non-
financials.

39
US Credit – HY Default Rate
The 12-month trailing HY default rate
continues to increase. But most of its
move is due to Oil & Gas and Metals
& Mining
When these sectors are excluded,
the default rate seems more
flattish around 1.9%.
Any contagion from Energy, Metals
and Mining to the rest of the HY
market looks improbable as far as
the recession risk remains under
control.

40
US Credit – HY Default Rate
The 5-year cumulative default rate is
just above its lows, and should
continue its move higher towards
2008/2009 peaks.

41
US Credit – Rating Drift
The rating drift for US / European issuers has shown some signs of improvement with downgrades
slowing over the last months.

42
US / EUR Credit
The compression we’ve seen in the HY/IG spread ratios seems to be exhausted.
The CSPP impact is already in prices.
We continue to prefer IG to HY on a risk-adjusted basis, even in the EUR credit complex

43
EXCHANGE RATES
Central banks remain the key driver of foreign exchange, We remain structural Dollar bulls. Our
rationale was that divergence would drive rate differentials in favor of the Dollar.
As expected, the dollar is now supported by the Fed’s hawkish rhetoric and bets on a rate hike in Dec
‘16. But it is not soaring as it should be.
Dollar Looks Bullish, But Needs To Break Out
The DXY index is now close to its 15’ highs, coming into significant resistance near 100
Our first target of 1.07 has been reached on EUR-USD. The spot is now testing the critical support
area of 1.07-1.06
We remain UW for the moment. We will move to Neutral above 1.14, and to OW if the spot breaks
above the 1.15 resistance (the ceil of the triangle pattern formed since Mar. ‘15) to target 1.18
Our positioning rules remain unchanged:
Move to Neutral within the 1.14 - 1.15 range
Move to OW if the spot breaks above the 1.15 resistance to target 1.18
Remain UW below 1.14.
Over the medium-term (Q4-2016 and H1-2017), we maintain our downside projections towards
1.04-parity. For that, we need a clean break through the strong support area of 1.06 (the floor of the
triangle pattern).

44
EXCHANGE RATES
On USD-JPY, we’ve moved from Neutral to OW around 104 on Oct. 11, targeting 104.8 and 108
Our target is already reached and exceeded. Next levels to watch: 111 and 113
We adjust our positioning rules on USD-JPY as follows:
Remain OW above 108
Move to Neutral below 108
Only a break below the downtrend from Jan. ‘16 and bearish momentum, would make us move to
UW
EM currencies have weakened since the middle of August as Fed risks have been repriced.
We maintain our view that pressure on EM currencies will resume and continue until we see a more
constructive / fundamental improvement for global growth and commodities supply/demand
imbalances.
We remain UW EM and Commodity FX

45
US Dollar
The Dollar continues to be driven by 2-
year rate US vs G10 differential.
The difference between the inflation
picture in US vs Europe and Japan is
also playing for US dollar.
Thus, we maintain our view of more
dollar upside from here.

46
US Dollar
The DXY is back
close to its 15’ highs,
coming into
significant resistance
near 100
A break above the
previous highs would
open the way towards
103.

47
EUR-USD
Our first target of 1.07 has been
reached on EUR-USD.
The spot is now testing the
critical support area of 1.07-1.06
We remain UW for the moment.
We will move to Neutral above
1.14, and to OW if the spot
breaks above the 1.15 resistance
(the ceil of the triangle pattern
formed since Mar. ‘15) to target
1.18
Over the medium-term (Q4-2016
and H1-2017), we maintain our
downside projections towards
1.04-parity. For that, we need a
clean break through the strong
support area of 1.06 (the floor of
the triangle pattern).

48
USD-JPY
We’ve moved from
Neutral to OW around 104
on Oct. 11, targeting 104.8
and 108 (Please see our
previous reports)
Our target is already
reached and exceeded.
Next levels to watch: 111
and 113
We adjust our positioning
rules on USD-JPY as
follows:
Remain OW above 108
Move to Neutral below
Only a break below the
downtrend from Jan.
‘16 and bearish
momentum, would
make us move to UW

49
COMMODITY
We continue to view upward moves since Jan. ‘16 more as technical adjustments than as a
fundamentally-driven ones.
The collapsing cost of many commodities is still driving prices downward
We don’t see any sustainable recovery without a pick-up in global growth or a material
tightening on the supply side. It is likely that supply destruction (due to pull-back in capital
investment) will be the main catalyst for the next sustainable recovery in prices.
We also expect a considerable volatility along the way
We remain UW commodities over 3-6 months
The supply side has adjusted but still has a way to go in many commodities before erasing
current imbalances. In order to get more cuts in supply, we think there needs another leg
down in prices to force capitulation
US dollar strengthening should weigh on prices. Dollar will dictate both direction and velocity
in commos. We expect the stronger dollar to put downward pressure on commodities despite
supportive fundamentals for some of them

50
COMMODITY
Bottom Line :
Energy:
Crude oil prices have given back all of their recent gains as cracks appear in the Algerian deal, calling
into question the planned production cuts. OPEC output jumped.
EIA numbers were even more bearish, as they showed a massive build in inventories.
We think that the bottom is in for oil, but we don’t expect a significant rally from here. Any growing
evidence that the downtrend in U.S. crude production is ending, would induce another sharp drop in
prices. Crude prices path will remain bumpy!
$40-$50 per barrel is the range for WTI over the short-term. Only an unexpected exogenous event
could cause oil to break out of it, on one side or the other..
We actually expect the spot to test again the 25-30 area before putting in a permanent rebound. At this
stage, we watch a few key levels ($40, $36, $31, $25). We need to see how the price behaves around
these levels to make our projections.
Our bearish bias is still intact. Only a material break above 52.5 would open scope for a rally.
According to our positioning rules, we turned from Neutral to UW on WTI as the spot broke bellow the
$49.8-$50 area
Our tactical rules are adjusted as follows:
Remain UW below $49.8-$50
Turn Neutral when the triangle formed since June is reintegrated
Move to OW above $52.5 (to target 60 – 65) or below $29 (to play the rebound).

51
COMMODITY
Precious Metals:
Outlook for precious metals continues to be dominated by Fed rhetoric, macroeconomic and political
uncertainties and the subsequent impact on US dollar, real yields and sovereign credit.
Our baseline outlook for gold / silver prices has not changed. We are bullish precious metals over the
long-term , no matter what happens (on US dollar, China, growth…)!
From a long-term perspective,we don't think gold has fully from its historical highs. A 4-year correction
doesn’t seem proportional to the previous bear market of 1980-2000.
Thus, we still think that lower lows can be seen before the next bullish phase takes place.
Over the short-term, we expect the precious metal to trade lower over the next months as US dollar
rates go higher. Gold prices could head towards $1,100-1,150 ($12.5 - $13 for silver)
Applying our positioning rules (please have a look to our previous Reports), we remain Neutral on Gold
as long as the spot stays between 1200 and 1300
Our positioning rules remain unchanged:
Remain Neutral between 1200 and 1300
Go OW above 1300, targeting 1380 and even 1430
Turn UW if the spot breaks below 1200 and go OW again below 1070

52
COMMODITY
Base Metals: .
The rally in industrial metals was much stronger than anticipated. Our UW positioning has proved
dramatically wrong.
A series of Chinese activity data showed a surprising strength, pulling all the base complex higher.
Copper prices in particular have experienced a strong week (with more than 11%).
We do not think that Trump’s announced fiscal / infrastructure spending would be a fundamental game
changer to industrial metals.
Despite the recent impressive rally, we remain UW on base metals on continuing excess supply, weak
prospects for demand and cost deflation.
We believe that lower prices are still needed to induce more supply adjustments.
From a longer-term point of view, we believe that metals prices are headed for multi-year declines
as the current China-driven super-cycle appears to have peaked
Agriculture:
The technical rebound in grain prices (2-4% in October, despite the fact that we’re entering peak harvest
season) may be partially due to money investors stopping their shorts at the end of 3Q.
Despite more evidence of consumption growth, sizable inventories should keep grain prices in a low
trading range through the winter. Grains prices are, however, nearing a floor
We choose to remain Neutral on Agris, as we have no conviction at this stage and given big
uncertainties around forecasts for 2016-17

53
Gold – Vs Dollar and USTs
At end-October, the comparison between gold and 30yr T-bonds divided by the dollar was
showing a short-term divergence
Given the move in UST yields and US dollar, closing the gap would clearly need a gold
retracement.

54
Gold – Tech. Perspective
Applying our positioning rules
(please have a look to our
previous Reports), we remain
Neutral on Gold as long as the
spot stays between 1210 and
1300
Our positioning rules remain
unchanged:
Remain Neutral between
1200 and 1300
Go OW above 1300,
targeting 1380 and even
1430
Turn UW if the spot breaks
below 1200 and go OW
again below 1070
The next level to watch is
1203. We may see a base
forming there. But a break
through would open the way to
another leg down (target ~1100
– 1150).

55
Gold – Vs Silver
The Gold-to-Silver ratio reached
its highs in Feb. ‘16. Since then,
it has receded and broken from
the primary uptrend from the
Nov. ‘12 lows
Technically, the ratio seems
ready for another impulsive
decline in Silver’s favor

56
Crude – Tech. Perspective
According to our positioning
rules, we’ve turned from
Neutral to UW on WTI as the
spot broke below $49.8-$50
Next level to watch: 42.60.
Breaching this level would
increase the likelihood of a
move lower towards $40.0
Our tactical rules are adjusted
as follows:
Remain UW below
$49.8-$50
Turn Neutral when the
triangle formed since
June is reintegrated
Move to OW above
$52.5 (to target 60 – 65)
or below $29 (to play the
rebound).

57
Copper – Tech. Perspective
In our previous report, we said:
“… from a technical perspective,
we think the metal will soon find
a near-term support around
4620 (the floor of the current
triangle pattern). We switch to
Neutral with a bullish bias, for
now. We’ll move to OW if the
spot breaks up (above 4950,
target ~5400 where we’ll move
massively UW) and to UW again
if it breaks down (below 4620)”
The move on Copper was
impulsive.
As stated above, we’ve moved
to OW as the spot broke above
4950, reached our target of 5400
and moved to UW again
Next important levels to watch :
5330 and 5950!

Bottom Line: Global Asset Allocation
The passing of the US election has taken a key event risk off the table.
But markets continue to digest the implications of Mr Trumps surprise
victory.
Trump’s victory has triggered a global sell-off in equities, credit and oil,
and a jump in volatility. All these moves have been short lived and
reversed the day after.
Market optimism was driven by the prospect of large fiscal stimulus,
infrastructure spending and a Republican control of both Houses. No
one seems warried anymore about the downside risk from an escalation
in protectionism and global populist backlash.
On the surface, the global economy is getting better. But, investors
should avoid complacency in such an uncertain environment
Our focus is 3Q earnings season, rising wages and their impact on
margins, expected inflation and volatile volatility.
Earnings had already been on an improving trend, with a number of key
sectors showing a dramatic turnaround. Expected inflation is ticking up.
Global bond yields too.
Not much has changed in our expectations, except for Govies and
energy.
We summarize our views as follows
58

59
Disclaimer
This writing is for informational purposes only and does not constitute an
offer to sell, a solicitation to buy, or a recommendation regarding any
securities transaction, or as an offer to provide advisory or other services
by FinLight Research in any jurisdiction in which such offer, solicitation,
purchase or sale would be unlawful under the securities laws of such
jurisdiction. The information contained in this writing should not be
construed as financial or investment advice on any subject matter.
FinLight Research expressly disclaims all liability in respect to actions
taken based on any or all of the information on this writing.

About Us…
FinLight Research is a research-centric company focused on Asset Allocation from a top-down
perspective, on Portfolio Construction, and all related quantitative aspects and risk management issues.
Our expertise expands along 3 axes:
Asset Allocation with risk control and/or risk budgeting techniques
Allocation to alternative investments : Hedge funds, rule-based strategies (momentum, value,
carry, volatility), real assets (real estate, infrastructure, farmland, timberland and natural resources).
Private equity and venture capital should be the next step…
Allocation with a factorial approach built on the understanding (profiling) of the risk/return drivers of
the different asset classes
FinLight Research is an innovation-oriented company. We target to fill the gap between the
academic research and the investment community, especially on real assets and alternatives. We survey
on a continuous basis the academic literature for interesting published and working papers related to
quantitative investing, non-linear profiling, asset allocation, real assets...
60

Our Standard Offer
Provide tailor-
made quantitative
analysis of your
portfolios in terms
of asset allocation,
risk profiling and
risk contribution
Provide tailor-
made quantitative
analysis of your
portfolios in terms
of asset allocation,
risk profiling and
risk contribution
•Risk Profiling
Offer a turnkey 3-
step factor-based
process in GAA
with factor
selection, risk
budgeting and
dynamic portfolio
protection
Offer a turnkey 3-
step factor-based
process in GAA
with factor
selection, risk
budgeting and
dynamic portfolio
protection
•Factor-based GAA Process
Provide assistance
with alternative
investments
(including real
assets) in terms of
profiling, and
integration in a
GAA
Provide assistance
with alternative
investments
(including real
assets) in terms of
profiling, and
integration in a
GAA
•Alternative Investments
Provide assistance
with asset
allocation and
related risk control
and/or risk
budgeting
techniques
Provide assistance
with asset
allocation and
related risk control
and/or risk
budgeting
techniques
•Global Asset Allocation
(GAA)
61

Market Perspectives November 2016

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Andere mochten auch

Andere mochten auch (15)

Ähnlich wie Market Perspectives November 2016

Ähnlich wie Market Perspectives November 2016 (15)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Market Perspectives November 2016