Growth in the world’s largest economy, the United States, has been steadying over the last number of years, picking up from the post-crises slump and leading in terms of the global recovery. This recovery has seen business in the US regain confidence leading to a steady decline in the unemployment rate while the number of jobs added on a monthly basis have steadily increased.
US Non-Farm Payrolls
US GDP Growth Rate
Over the last 2 months, the US 10 Year Bond Yield has formed a symmetrical triangle pattern which is subsequent to the appreciation in the yield from 2.01% to the last close of 2.45%.
During yesterday’s trading session, the yield reached it’s highest level since March 2017, testing a high of 2.47%, opening up the next resistance level of 2.6%.
In the ETF space we have numerous opportunities for higher US Interest Rates. For now, we briefly look at three of them:
#1. SPDR Financial Sector Select ETF (XLF) – Long/Buy ( )
We previously recommended this ETF at an entry of $25.50. At the current level of R27.96, I believe there is still some room to move higher.
A higher 10-year yield is indicative of a stronger US economy and also supportive of the financial services sector, specifically the big banks. Valuations remain reasonable however in the short term the question is whether interest rate expectations may be priced in to a certain extent. In addition, the proposed tax cuts would be a boost for US growth, fueling confidence even further.
#2. iShares MSCI Emerging Market ETF (EEM) – Short/Sell ( )
A rise in US yields makes emerging market debt less attractive. Technically, the price has broken below the channel that has been in place since January 2017, after forming an island reversal. The last eight trading sessions has see the price re-testing the underside of the channel as well as a 50-day moving average that appears to be waning. Why not have a look at an put option trade around this ETF to benefit from a further price decline?
#3. Direxion Daily Gold Miners Bears 3x (DUST) – Buy/Long ( )
For the less conservative trader, the ETF uses leverage and is designed to benefit (rise) from a decline in the shares of gold miners. A rising USD makes commodities more expensive and could bring the Gold under pressure. The ETF price has formed a base consolidation over the last 18 months and is currently looking break the downward trend line that has been in place since January 2017. Look for confirmation of upward momentum before iniating a position.
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Whilst searching for employment after his had contract expired, he made the decision to document his ideas for his personal passion which was financial markets with a view to build a public profile and record of all work.
His passion for investment and market-related content dates back to his love for reading having started to notice the financial market data alongside the sports pages as a university student in 2004.
Lester is Trading Desk Analyst and has been with Unum Capital since July 2016.