.Barclays 090707

Energy moves back to the center
Energy is a focus this week as crude is rallying strongly. Both Brent and WTI oil continue to easily overcome short-term resistance areas as the WTI-Brent spread returns to its primary trend suggesting further Brent outperformance. Copper is holding a strong bid, justifying the strong seasonal bias it enjoys in the month of July. Strong bearish trends in both Europe and US fixed income are threatening to resume; we await confirmation from a breakout from multi-week range lows. Carry trades have lost none of their allure in foreign exchange, as the low volatility environment limits opportunities elsewhere. GBP/JPY and AUD/JPY currently stand out as candidates for further upside. Equities in Japan (Nikkei) and the US (Nasdaq Composite) are showing strong bullish potential. In the EM space, USD/PHP is coiling for a break, which, we believe, would signal renewed PHP strength.

Weekly focus: Bid BRIC bourses
The third quarter is often a slow time for equity markets and after the sterling performance by the BRIC markets in H1, one might expect to see some signs of profit taking. However, price action suggests otherwise. The Bovespa and Sensex indices have only recently broken higher, while the RTSI$ Index is rapidly approaching its all time high (2009). Admittedly Chinese markets are more subdued, but the Shanghai Composite is consolidating in a large contracting range, typically a trend continuation pattern (bullish in this instance). Price action across the group implies continued strong demand for risky assets.
BRIC equity markets behaving in a bullish manner