From Chris Weston at IG,
The US financials space will get attention above all other sectors this earning season, not just because the analysts’ consensus is for earnings-per-share growth of 21.5%, but because for those more macro-focused traders, what CEOs say about the potential for a further boost to net interest income (from a steeper yield curve) from potential fiscal stimulus matters.
The fact that all of the big US banks have moved in unison since Trump became President-elect tells you that the banks are simply being used as a vehicle to trade the reflation thematic. So, rather than select one bank, my preference has been to focus on the sector, which we can do easily through the KBE ETF (SPDR S&P Bank ETF).
It’s interesting that despite a pullback in US treasury yields of late, the US banks have held firm and we can see the KBE has simply traded in a range of $44.56 to $42.83 in the last 23 trading sessions. I am happy to trade a breakout either side of this range, and this will tell me everything I need to know about how traders read earnings. The probability (given the strong trend higher from September to December) is that the banks break to the upside, but patience is required.
The big talking point remains on whether US fixed income yields will continue to fall, which in turn will pull down the USD and hold implications for markets like precious metals, which are really just a second derivative of other markets. It’s interesting that the US ten-year treasury is holding key support at 2.28%, and in fact, we have seen selling start to creep into price which is supporting the USD from moving down too aggressively.
In my opinion, 2.28% (on the US ten-year treasury) is the key line in the sand, so for those who think the Trump train has derailed, you should watch moves from here and a break of 2.28% suggests the market is warming to that view.
I am not so sure that will happen and think the fact that gold has rallied from $1122 to $1207, the USD index has pulled back 3% (from the December highs) and the US ten-year treasury has dropped from 30 basis points, means that markets simply don’t go up or down in a straight line and this is a healthy position adjustment from overstretched levels.