5 Things to Watch Next Week: Treasury Yields, Still Bullish Crypto Coins, Small Caps, Gold, and Jobs Friday

1.            What’s Next for the Bond Market

The rise in yields has been arguably the most important trend of this week, as the aftermath of the “historic” Fed meeting brought about a significant rise in short-dated Treasury yields. Long-term bonds were less moved by the shift and that still shows the skepticism of the market regarding the long-term growth prospects.

What’s crucial about this that the Trump administration heavily relies on the 3% long-term growth number in the calculations regarding the new tax proposal. Let’s just say that it is an optimistic view; what’s more likely is that the expansion will be slower on average in the coming years, leaving the budget short by trillions. That said, rates could still be headed higher in the coming weeks, and that could help a durable bounce in the Dollar after the lengthy downtrend in the currency.

Two-Year Government Note Futures, Daily Chart Analysis

2.           Bullish Trend in Crypto World

Cryptocurrencies acted pretty well this week, showing resilience to bad news, while rallying on the good catalysts. Bitcoin, IOTA, and NEO have been leading the way higher, and the strength of BTC is especially impressive as the other two coins are rallying off much deeper lows, while the most valuable coin is just 15% off its all-time high. As the downturn that ended with a bang after the Chinese trade ban took the segment down by 40%, the total market capitalization of the coins is still shy of the $175 billion record, but the strength shown by the majors is encouraging. Only the leaders of the previous leg higher in altcoins are weaker, but that’s natural after the monster rallies in Dash, Monero, and Litecoin.

Bitcoin, Daily Chart Analysis

3.           Are Small Caps the New Leaders?

The above-mentioned trend in yields and the skewed positive effects of the tax proposal both favored a shift towards small cap issues towards the end of September, and sure enough the Russell 2000 run circles around the large-cap benchmarks. While the big companies were enjoying the benefits of the record low yields (through large-scale stock buybacks mostly), small caps suffered more from weaker domestic growth. How long will the current shift last? We have our doubts about the durability of the small-cap surge, and we are still sellers of equities at the current elevated valuations, despite the undoubtedly bullish short-term trend.

Russell 2000, Daily Chart

4.           Gold Bottoming?

With gold exactly matching the performance of the S&P 500 in the 3rd quarter, the recent correction in the shiny metal doesn’t seem too bad after all. The dip that came after the North Korea rally reset the overly bullish sentiment, and now the metal is at a major decision point between the crucial $1300 and $1275 levels. We still think that for diversified investors gold is essential in the current environment, and although an exact bottom is hard to catch, the current levels already seem attractive, with the daily MACD headed towards oversold territory. With volatility being near all-time lows and yields being in an uptrend, short-term headwinds are still obvious for precious metals, but the long-term valuation worries and the behavior of the major central banks more than justifies holding them

Gold, Daily Chart

5.           The Fed Meeting Minutes and Jobs Friday

With no Fed meeting in the month of October, and given the recent reveal by the central bank, we expect a less pronounced reaction to economic numbers, as the Fed’s policy looks less fluid for the time being. Janet Yellen’s speech on Tuesday was also an indication that the FOMC is determined to go on with its hiking schedule. Having said all that, a huge negative surprise in the Employment Report could change the landscape, and a meaningful drop in the ISM indices would also be a cause for concern. Apart from those releases, the week will be relatively quiet regarding economic numbers, with a focus on Australia and the RBA’s rate decision.

Key Economic Releases This Week

Day Country Release Expected Previous
Monday JAPAN Manufacturing PMI 18 17
Monday JAPAN Retail Sales 24 23
Monday UK Manufacturing PMI 56.3 56.9
Monday US ISM Manufacturing PMI 57.9 58.8
Tuesday AUSTRALIA Building Approvals 1.1% -1.7%
Tuesday AUSTRALIA RBA Rate Decision
Tuesday AUSTRALIA RBA Statement
Tuesday UK Construction PMI 51.2 51.1
Wednesday UK Services PMI 53.3 53.2
Wednesday US ADP Employment Change 151,000 237,000
Wednesday US ISM Non-Manufacturing PMI 55.5 55.3
Wednesday US Crude Oil Invesntories -1.8 mill
Wednesday EUROZONE Mario Darghi Speaks
Wednesday US Janet Yellen Speaks
Thursday AUSTRALIA Retail Sales 0.3% 0.0%
Thursday AUSTRALIA Trade Balance 0.87 bill 0.46 bill
Thursday EUROZONE ECB Meeting Accounts
Thursday CANADA Trade Balance -3.0 bill
Thursday US Unemployment Claims 270,000 272,000
Thursday US Trade Balance -43.0 bill -43.7 bill
Thursday US Factory Orders 0.9% -3.3%
Friday UK Halifax HPI 0.0% 1.1%
Friday CANADA Employment Change 22,200
Friday CANADA Unemployment Rate 6.2%
Friday US Employment Change 88,000 156,000
Friday US Unemployment Rate 4.4% 4.4%
Friday US Hourly Earnings 0.3% 0.1%
Friday CANADA Ivey PMI 57.2 56.3

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.