Markets are way too bullish

Economics

This week we expect US headline consumer and producer price growth for October to have picked up due to higher energy prices. Industrial production growth probably accelerated in October after weakness in previous months.

In Europe, consumer price inflation for October should be revised down slightly from a preliminary 2.5% yoy. Industrial production for the Eurozone is set to recover in September.

The Bank of Japan monthly economic report will likely conclude that economic growth has fallen to a more moderate but sustainable pace.

Foreign exchange

Euro/dollar: up to test next resistance at 1.3150/1.3250. The euro should now remain above support at 1.2840 to keep the uptrend intact and to avoid a deeper correction back to 1.2650. Dollar/yen: remains bearish towards 105.0.

Fixed Income

Long yields in the U.S. were quite stable during most of the week while European yields fell again.

The spread between the benchmark 10-year U.S. and European (German Bund) thus rose due to fears regarding the negative effects of the rising euro. Yields are expected to remain around current levels in coming days.

A weakness in the Euro could be a trigger to a moderate rise in European yields with respect to U.S. ones.

Equities

Although contradictory to the technical picture and a current strong seasonality picture, for now we stick to our cautious view on the equity markets.

Market sentiment is way too bullish, the market's glass is half-full and moreover stocks are extremely overbought at current levels. Hence a pull-back seems to be inevitable.