On January 3rd, I created a blog post with four watch list items for 2015. One month into the year, I decided to create an update.
The first indicator was the spread between the 2-year and 10-year treasury. We started the year at 150 basis points and we are now at 126 basis points. I expected the spread to reach 100 and we are well on our way.
The second indicator was the trade-weighted value of the US dollar. At the end of the year, it was at 85.1 and now is 88.9. This is the highest level it has been in the past ten years. I expect this to continue to move higher, though I doubt it even breaks 100 by the end of the year.
The third indicator is the Euro-Yen currency cross. I think there is a building currency war between the two. At the end of the year, the cross was 145.0. The ECB did announce a QE program and Japan did not immediately announce a counter. The cross ended the month at 132.9. My expectation was the cross to remain fairly stable. It hasn’t so far, but the EBC’s program will commence in February if the legal challenges do not occur.
The final indicator is the value of Bitcoin. The value at the end of the year was $319.7. I expected this to move higher as the effects of slowing economies in China, Europe, and Japan take effect. Instead, the value has decreased to $227.9. While unexpected, I will continue to keep this as an active watch list item.
I have a few other watch list items sitting by the side, but I haven’t seen a need to move any of these current ones off the list. I am beginning to read more commentary that the US Federal Reserve may hold off on raising rates. I think they should move rates in March, but I am emotionally biased against the current financial repression (hey, at least I recognize that). For February, I don’t expect any change from the Fed, I do expect the ECB to make its first market purchase, and Japan to remain on course.
The value of the dollar is having an impact on emerging countries across the planet. Combine that with the fall in the price of commodities and we are repeating the events that led to the Asian crisis in 1997.
One of those other items I am watching relates to the price of oil. There are several economies that are suffering due to fewer dollars from selling oil. I don’t know if any will announce major changes or create another market altering event, but it can’t be too many more months.
There was increased volatility in the US stock market during the second half of January. Earnings season hasn’t started out great (Apple aside) and I wonder if investors are starting to recognize some of the potential issues are more than just worry.