The World from different Perspectives

They call it the Trump effect, the sharp and mostly unexpected rebound that, from the lows of early November, gave a boost to the equity markets worldwide. Not all the markets reacted the same and the swings were also influenced by volatile currencies. Just think at the big correction of the Japanese yen that dropped more than 10% against the Greenback in a few days.

The U.S. markets played a leading role in this rally that, after three weeks, is gradually fading, profit taking of course, but meanwhile the main indexes of Wall Street reached new highs. The highs, for the European markets, are still far away, we know well how they are laggard.

Which the technical scenario for the markets worldwide? What are the charts telling about the global indexes? Not all the world indexes look the same, we are going to examine a few of them and we’ll discover how they can be different depending on their characteristics.

Let’s start with the Morgan Stanley World Index calculated in local currencies, a basket of more than 1600 equities quoted in the developed countries. This index is not influenced by the currencies fluctuations and it has reached new highs this November (Figure 1). The pattern of this index is quite bullish and broke the highs sustained by a rising progression of lows above the 40 weeks moving average.

Figure 1:  Morgan Stanley World Index Net return – Local currencies – Weekly data 2012-2016 –  Source Tomaselli-Vivanti Analysis – Chur

But a glance at Figure 2, representing the same index where the stocks belonging to the USA have been excluded, reveals that most of the recent bullishness is due to Wall Street. In fact, the same index in the ex USA version, is still building an accumulation but didn’t signal a breakout yet.

Figure 2:  Morgan Stanley World Index Net return Ex USA– Local currencies – Weekly data 2012-2016 –  Source Tomaselli-Vivanti Analysis – Chur

The following charts in Figures 3 and 4 are also interesting. They show the same indexes described above, but in this case the prices are translated into US dollars. None of them made a new high so far. It means that a strong dollar, as we have witnessed in these recent weeks, depresses the value of the stocks outside the U.S. The world index, even if expressed in dollars, is still showing a positive technical pattern but if we translate into dollars the ex U.S. index, then the scenario is a quite less encouraging. In fact, in this case (Figure 4) not only the index has not reached the highs yet, they are still almost 15% far away, but it is still subdued by the descending trendline, originated by the 2015 high, that hinders a new uptrend.

Figure3:  Morgan Stanley World Index Net return in US dollars – Weekly data 2013-2016 –  Source Tomaselli-Vivanti Analysis – Chur

Figure 4:  Morgan Stanley World Index Net return Ex USA– in US dollars – Weekly data 2012-2016 –  Source Tomaselli-Vivanti Analysis – Chur

In conclusion, the so-called Trump Rally of November 2016 is not yet a global phenomenon and the progresses in the world index are dragged by Wall Street. The other markets are lagging and failed to show the same significant breakouts until now. Furthermore, the dollar is strong and this explains the weakness of the index representing the world equities outside the U.S when expressed in dollars (Fig. 4). The recent bullish signals are very interesting and can still anticipate further progresses but should be confirmed worldwide. 

Alberto VIVANTI
SAMT Vice President – Graubünden and Liechtenstein Chapter– alberto.vivanti@samt-org.ch

Disclaimer: the above article is for general information and educational purposes only.  It is not intended to be investment advice.  Seek a duly licensed professional for investment advice.