Bullish Signs

WSJ: Foreign demand for long-term U.S. securities jumped in April, partly due to greater interest in Treasury notes and bonds, according to a Treasury Department report released Monday.

Net foreign acquisition of long-maturity U.S. securities totaled US$102.8 billion in April, following purchases of US$53.3 billion the month before, the Treasury report showed. Foreign net purchases of U.S. Treasury notes and bonds totaled US$80.3 billion in April, up from US$53.6 billion in March.

Comments: The significant jump in net inflows into US securities is crucial in assessing the global investors' mood. We have to remember that we are talking of a sub prime crisis on its last legs, but also the USD downtrend seemingly trying to reverse its persistent weakness. The net inflows is significant also as the world grapples with higher inflation and spiraling food prices. In light of all these mini waves, its a little surprising to see that there are good net inflows into US securities.

We must remember that it is very hard for other equity markets to rally if the US markets are down in the dumps. It appears that global investors by and large think that USD will remain firm to steady for the rest of the year, and possibly that they also think that the oil price bubble is more likely to ease from here onwards. Would you be buying equities if you think oil was going to US$180 this year? (Oil price is negatively correlated to USD for the past 12 months). Hence we should take these developments into account when formulating the equity strategy for the rest of the year. On balance, these are bullish signals in its infancy.

p/s photo: Nabila Syakieb