Mike Lenhoff

Loss of momentum in equity markets – where next? 4- Nov -2009
Equity markets - taking the FTSE All-World Index in local currency terms - are down by some 5 percent from their recent October peak. Time for a break! 29- Oct -2009
My last few notes have set out a reason or two for caution on equity markets. If you can call ‘tops’ and ‘bottoms’, then great, but I find it seldom pays to try. What lead from a loss of sector leadership? 27- Oct -2009
When in doubt, take a lead from the markets - even if they’re leaderless, as they are at present. I’ll return to this. Better to travel than arrive. 22- Oct -2009
Equity markets will react strongly when, eventually, interest rates at the major central banks go up. The natural fixation with the Federal Reserve means that the markets will be acutely sensitive to the slightest hint of a policy change though as the Fed keeps saying, ‘economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period’.     The message behind the dollar, equity markets and earnings. 13- Oct -2009
Upward sloping yield curves, particularly those that are steeply sloping, such as that shown in the chart for the US Treasury market, are usually indicative of an expansion ahead but they also convey the sense in which monetary policy is easy and needs to tighten eventually. We say eventually because in the US the yield curve has generally not begun to flatten materially before employment starts growing. A green light spells one-way traffic for equities. 11- Sep -2009
When the Vice Chairman of the Federal Reserve tells you that the Fed is developing tools for its exit strategy but that its exit strategy will not happen any time soon and also makes the point that, ‘ ... with the global economy quite weak and inflation low, a large and rapid rise (in short term interest rates) seems quite improbable ...’, it is more or less signalling the all-clear for global equity markets. Not that the Fed is not trying to talk the markets up. It is just being clever in managing expectations and the smart money has been responding. Gold – a hedge on what you can and cannot think of! 10- Sep -2009
I find it curious that, given all that has happened over the past two years and all manner of reason for gold to move well beyond the $1000 level, it has been unable to do so. The chart traces some of the more significant developments which helped the bullion price and illustrates the point.   Equities are being driven by the sweet spot of good news flow. 8- Sep -2009
Less than two months ago I wrote about the FTSE 100 entering the 4500 to 5000 range (A higher trading range for the FTSE 100, 22 July 2009). I should have stretched this to 5500 but more on this later. If you’re going to worry, worry about deflation, not inflation. 20- Aug -2009
I’m not one for spoiling a party but if you want to be bearish and you’re looking for a reason, deflation is it. A powerful message for equity markets. 13- Aug -2009
Both the Federal Reserve and the Bank of England delivered a powerful message for corporate bond and equity markets this week. Balance sheets drove growth - now growth might drive balance sheets. 10- Aug -2009
Sentiment on the prospects for the global economy has been transformed in the short space of a few months. It’s as if the issue is no longer one of recovery - the evidence points to one developing in the US this quarter - but whether a recovery will prove sturdy enough for a fully fledged expansion. I’ll return to this.   Equities look overbought but the trend is still your friend. 3- Aug -2009
In May, the major equity markets started to lose momentum. In June and for the early part of July, they traded downwards, but that changed three weeks ago - just as the second quarter earnings season was getting under way in the US. A higher trading range for the FTSE 100. 22- Jul -2009
When things move, they move fast - and we’re not just talking about markets. The picture supporting equity markets has changed markedly in a short space of time. China is leading Asia, including Japan, out of recession, and Asian GDP forecasts are being revised up. In the US the revision is marginal but still upward. Corporate debt and equity markets part company – for now. 14- Jul -2009
At a time when the major equity markets have given up a good part of their gains, corporate bond markets have continued to move ahead, as the chart shows. The oddity is the parting of the ways between the two risk assets. Recoveries deliver more earnings growth than expected. 10- Jul -2009
So here’s the way it is. Deflation is in the headline numbers for consumer or retail prices in the US, the UK, the Eurozone and, again, in Japan. A consensus on the turn. 17- Jun -2009
One truly welcome piece of news over the past weeks has been the upgrading of expectations for growth in the Asia-Pacific region. Among the more notable upward revisions in May’s consensus forecasts for GDP growth for this year (as published by Consensus Economics Inc) were those for China and South Korea, but there were also modest upward adjustments in the forecasts for a few other regional economies. So what are bond markets telling us? 29- May -2009
Bond markets may be telling us to expect inflation but, more importantly, I think they are telling us that policy makers the world over will succeed with their efforts to reflate the global economy. One can quibble about what we mean by reflation but I would take it to mean the implementation of policies designed to support aggregate demand or money GDP in a way that is eventually consistent with sustaining non-inflationary growth - the Fed’s coveted objective - or achieving central bank inflation targets - as in the UK and the eurozone. As the chart for the US bond markets shows, the trend of yields on corporate debt has been down and that on Treasuries up implying diminishing risk premiums - which is just what you would expect if markets are banking on recovery. The other heads up. 11- May -2009
If you’ve been through a bear market or two then you have probably heard of the Coppock Indicator. Unlike Relative Strength Indicators and various other technical oscillators designed primarily to identify a short term trading opportunity, the Coppock Indicator was designed specifically to provide a strategic buy signal. A heads up.    8- May -2009
While investors fret over whether the rebound in equity markets from their March lows is for ‘real’, or just another damp squib in the making, it is worth noting three developments that might be of tactical rather than strategic significance.    Re-pricing risk means risk assets outperform. 30- Apr -2009
If risk is being re-priced - the point of a recent note (see Re-pricing risk - for a sustainable recovery? April 16 2009) - risky assets should outperform. That risk is being re-priced is evident in the narrowing of the yield spreads at the risky end of the bond markets, notably the high yield or below investment grade market for corporate debt as well as emerging market debt, and in the gain in relative momentum of the non-defensive areas of the equity markets. Re-pricing risk - for a sustainable recovery? 16- Apr -2009
In commenting on Wall Street’s recent performance in an interview with the Financial Times (April 16 2009), the chief executive of the NYSE Euronext expressed doubts over whether investors had regained confidence in the fundamentals of the market and questioned whether the rebound from the March low was ‘real’, i.e., in the sense of whether it could be trusted. Mr Geithner’s judge and jury. 24- Mar -2009
If there is a test of whether Mr Geithner’s Public Private Partnership Investment Program will provide the financial stability investors are looking for, it probably lies with the corporate bond market, where risk and liquidity premiums are sensitive to the winds of change. If the US Treasury Secretary’s initiative stands a good chance of success, this will most likely be reflected in a narrowing of the spreads in the corporate bond markets well ahead of the event. And being acutely sensitive to the winds of change, the high yield spread is probably the best judge of them all. QE and CE and what they could mean for equities. 20- Mar -2009
There is one difference between what the Fed will be attempting with its QE (quantitative easing) and what the BoE intends. Equity market leadership shifts away from defensives 13- Mar -2009
When the news flow is so staggeringly bad, as it is now, what better time to scour the equity market for where it might be mostly discounted. A sector or two may be attempting to look across the valley The gold price - what’s driving the bandwagon? 18- Feb -2009
If it’s not one thing it’s something else but whatever it is, it’s a reminder that the policy makers still face great difficulty in their attempt to restore the functioning of the financial system. Fed might have to buy Treasuries sooner rather than later 30- Jan -2009
Fed might have to buy Treasuries sooner rather than later. FTSE 100 – a case for a rebound in 2009. 6- Jan -2009
A year of false starts, damp squibs, constant disappointment and much consternation, not to mention all that wealth destruction, is enough to make any stale bull hesitant about calling the upside to equity markets. Buyers’ markets – but no buyers 26- Nov -2008
Japan’s policy response to the forces of contraction unleashed by the bursting of its asset bubble at the end of 1989 was just so agonizingly slow. By the time a zero interest rate policy - ZIRP - was introduced in the spring of 1999, Japan had been in the economic wilderness for a decade already.  Coordinated cuts 31- Oct -2008
With few exceptions, monetary policy is now geared to mitigating the severity of the downturn in the cycle. And now the recession – that equity markets are discounting 10- Oct -2008
In less than a month, probably from around the time when Lehman Brothers filed for chapter 11, the character of the credit crisis has changed dramatically. Not only has its chemistry become more pernicious than before but there is also a sense in which its course has been moving to the point of a climax.   Welcome to Frantic - or Freaky - Friday 19- Sep -2008
Are happy days here again? The ban by the Financial Services Authority on the short selling of Financials is a welcome short term measure. Lower gilt yields should help high yielding UK equities 15- Aug -2008
What was significant about this week’s UK inflation figures, which were higher than expected, was the response of the gilt market. Yields all round continued to fall. Index-linked have now recovered all the ground they lost last month and conventionals are continuing to rebound. A boost for ‘high yielders’ in the UK equity market. 6- Aug -2008
In the UK, index-linked government stocks have been one of the best performing asset classes over the past year. This is not just in relative terms but also in absolute terms as the chart shows. A catalyst that could boost equity markets 18- Jul -2008
As a colleague likes to put it, the cascading sequence of lower highs and lower lows shown in the chart of the FTSE 100 ex resources is as good a way as any of visualizing what it means to be in a bear market. High yielders for value investors 18- Jul -2008
It says a lot about the beast out there when equity markets can’t find the wherewithal to sustain a rally from a technically oversold condition, particularly an extreme oversold condition, such as that for the UK equity market. We’ll come back to that another time. Revising down my year-end FTSE 100 forecast 9- Jul -2008
Having gone below their mid-March lows, the major equity markets are, with the exception of Japan, deeply oversold. The chart illustrates the point for the UK equity market and shows that the oversold condition is more extreme than ever. It may be talk the talk but is it walk the walk? 17- Jun -2008
This time last year, Oil & Gas and Mining accounted for a little over a fifth of the UK equity market. Today, these two sectors account for a third. On the profit-taking in bond and equity markets 2- Jun -2008
Yields in government bond markets are rising for at least three reasons. One is that inflation is surprising on the upside. Equity Markets Gain as Flight to Quality Abates! 28- Apr -2008
The chart shows the yield spread on below investment grade US corporate debt (solid line) as well as the ratio (dotted line) of upgrades to downgrades in the consensus earnings estimates for the S&P 500 - in this case, the 12-month forward earnings estimates.  75 bps Tomorrow - and Maybe Even 100! 17- Mar -2008
Is it the ‘beginning of the end’ or ‘the end of the beginning’ when counterparty relationships crumble? UK Equities Challenge Key Resistance! 4- Mar -2008
Two countervailing forces weigh on the global economy. One, originating in the developed world, is the disinflationary impact of the credit crisis. Where to for the FTSE 100 – 5000 or less or 6000 and beyond? 18- Feb -2008
Japanese equities have retraced 50 percent of their bull market gain. Maybe it’s time to buy Japan.  Building in Risk Premium – When Enough is Enough! 30- Jan -2008
Is it likely that Marks & Spencer will never sell another pair of socks or underwear again - even if Jeremy Paxman won’t be a buyer? Let’s Lighten Up - For a While at Least! 19- Dec -2007
In looking back, we were cautious but optimistic about the prospects for equity markets in 2007. Better to Have Travelled than Arrived? 18- Dec -2007
Does the Fed know something the markets don’t? Like maybe there isn’t the urgency, reflected by the bond markets, to cut rates.  More Value in Equities than Bonds 30- Nov -2007
In pushing for a rate cut it is looking like the bond market will get its way and that the Fed will cut the Funds rate by at least a quarter point at the next FOMC meeting. Time for Insurance – No Time for Big Bets! 12- Nov -2007
In thinking about the momentum behind the bull market that started over four and a half years ago, the strength of corporate earnings is one feature, among others, that has stood out. Double or Quits! 29- Oct -2007
When it comes to investing in equities, anyone who doubles their money in a four and half year span is doing well. As the chart shows, FTSE’s All-World Developed Markets Index has doubled in value since the Spring of 2003. Earnings May Disappoint but the Fed Won’t! 26- Oct -2007
For the first time in a long while corporate earnings in the US are coming in well below expectations. This is probably a harbinger of what lies in store elsewhere. What Downside for Earnings, What Upside for Equity Markets? 26- Sep -2007
Corrections come and go. I know I’ve said that a half dozen times at least over the past four or more years - probably each time there’s been a correction. Action Speaks Louder Than Words! So What Now? 20- Sep -2007
By standing fully behind the decision to cut half a point off the Funds rate - the decision was unanimous - the FOMC has sent main street, Wall Street and the markets generally a clear and forceful message that it is prepared, indeed determined, to help stabilize the economy and that by doing so, it is doing no more, no less, than fulfilling the role expected of it. Momentum, Excesses, Greed and Fear! 7- Aug -2007
To think of equity markets as having been liquidity driven these past four, going on five, years, is to downplay the fundamentals and to leave behind two distinct and not necessarily correct impressions: first, that a liquidity driven market inevitably creates excesses and second, that a bull market ends when liquidity becomes less readily available. It’s All About Earnings and Valuations but Mostly About Interest Rates! 17- Jul -2007
If it's not one thing, it's something else, and there's always a crisis. That’s the wall of worry that bull markets climb. The crisis, or crisis in the making, may be US subprime related, but in the end, or at the start, depending on where one’s picking up on the story, it's all about something fundamental - like interest rates. Bond market vigilantes – they’re back! 2- Jul -2007
Yikes - just look at that chart! Although the central banks have not made a big deal of rising commodity prices - apart from their reference to the increase in the cost of energy - it’s no wonder they are worried that ‘inflation will fail to moderate as expected’, to quote the Fed. Bond Markets – Key Risk for Equity Markets! 4- Jun -2007
So China is wobbling, or correcting, but the risk to the major equity markets lies elsewhere. The Risk is Being Out of Equity Markets - Not in Them! 31- May -2007
Who’s worried about the Chinese stock market - aside the former Fed Chairman, that is? The Chinese authorities are. But is the Chinese punter? Probably not! We’ll come to that in a moment. Triumph for Equity Markets! 27- Apr -2007
When the Dow went through 12000 last October, the move was slightly downplayed. Thirty big international stocks going through some arbitrary level? So what’s the big deal? Stagflation's Not Back! The Cycle's Back! 20- Apr -2007
Stagflation, that uneasy combination of high inflation and slow growth, is not back as we knew it, neither in substance nor even in degree. Tight Credit Spreads – Smart Money or an Accident Waiting to Happen? 12- Apr -2007
Credit market spreads are largely determined by default risk. In this sense emerging market government debt has more in common with higher yielding corporate debt than with the debt guaranteed by, say, the US Treasury. There's more to volatility than angst! 20- Feb -2007
Volatility creates angst. It stirs up talk about the re-pricing of risk. The VIX gets lots of attention and there’s plenty of reference to the quality spreads at the less liquid end of the corporate bond markets. Equity Markets Get More 'Welly'! 12- Feb -2007
It’s a whole new ball game. Or at least it feels that way as the FTSE 100 climbs to a high not seen since the latter stages of 2000. Knock, Knock … Hello … Is Anyone There? 26- Jan -2007
Rising bond yields and earnings downgrades are an unwelcome combination for equity markets, or so we thought. But who’s bothered? On the Back Foot or on the Wrong Foot? 15- Jan -2007
We shall find out soon enough the rationale for yesterday’s surprise move on base rates. The equity market responded defiantly, though Wall Street helped, thus putting those, like ourselves, who are a little cautious, on the back foot. Mid Caps and Small Caps Steal the March! 3- Jan -2007
One of the enduring features of the four-year bull market has been the outperformance globally of the second liners and the small caps. Caution on Wall Street – Risks for 2007! 22- Dec -2006
In less than a month, US companies will announce their earnings for the final quarter of 2006. Downbeat, Upbeat or Off Beat - the UK Equity Market in 2007! 15- Nov -2006
As the chart shows, headline inflation in the UK is above target and rising. That is despite sterling’s strength, which ought to be disinflationary and which ought ultimately to limit the scope for higher interest rates. On the Funds Rate and the S&P 500 for 2007! 12- Nov -2006
We no longer feel that the Fed will cut the Funds rate next year (see 2007 – A year of Grinding Onwards! 7 December 2006) and here are the reasons. Equity Market on a Mission or X-Factor Driving Wall Street? 7- Nov -2006
One of the fascinating features of the recovery in global equity markets is a phenomenon that has been confined largely to Wall Street and is illustrated in the chart.