Markets Are a Little Overextended: IG Group's Kelly

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July 4 (Bloomberg) -- Brenda Kelly, market strategist at IG Group, discusses the outlook for the currency market and global equities with Anna Edwards and Mark Barton on "Countdown." (Source: Bloomberg)

High, above 17,000 for the first time yesterday.

Will there be a spillover into the european equity markets?

We are joined by brenda kelly for more.

Looking at the futures of european equity markets, no might be the short answer to the question.

Some of that already factored in?

I think that is the case.

We will see low trade volumes with the u.s. being closed for independence day.

I think the investors have been waiting some time to see the footsie retarget -- to see the ftse retarget those highs.

There are some catalysts that could send the ftse back up and threw it.

It was 1999 when we had the highest level of the ftse.

It'sa noy now 6865. the cyclical sector makes up the majority of the stocks.

We have seen a six-week high for manufacturing utility.

China had the decent jobs report, the extremely dovish draghi, and it comes together in the sense that we are more or less likely going to see the ftse go higher.

I think we will see a rotation from the dividend-paying stocks into the more cyclical sector.

We are seeing that in the u.s. at the moment.

I think the spillover is due to come to the ftse.

The main issue is the strength of the pound, which could be something that will temper that.

You talked about the positive correlation between the pound, dollar, and the euro-dollar.

Why can't we ignore that, brenda?

I don't think you can.

You have a dovish draghi, yet there are great expectations they will hike interest rates in the last part of this year.

Despite the fact that we have a very dovish draghi, he has a load of measures in place with the exception of quantitative easing.

The euro is still not any lower than it was back when he first made his announcement on june 4. we are looking at a six-year high, and i think it's more a function of the u.s. dollar we are seeing the euro weak yesterday.

There really wasn't a reaction to draghi yesterday.

We have the correlation between where the pound and the euro goes against the dollar, but both against the dollar, when we have different trajectories for the interest rate expectations.

Exactly, and something has to give, whether we see a correction.

We are kind of heading towards the top end of this particular extension.

We could see something of a pullback.

But i don't think will be a permanent fixture.

I feel the target for me is 173 or 173.50. beyond the methodology of the long-term loan within the ecb yesterday, what was the takeaway?

Rates will stay low for an extended time?

Obviously more complicated, a complex explanation as to whether or not that will actually work.

I still see the markets holding out for quantitative easing.

Until we see that, we will see the euro-dollar in a tight range between 1.35 and 1.37. i think the pivotal level for the euro is 1.3740. if we break through that, we could rally towards 1.38 or 1 .39. the dow jones going through 17,000, talk of whether the s&p 500 will go through 2000. is this all in the hands of the fed right now?

Are we still vulnerable to a shakedown as a result of the fed giving us a heads up on interest rates at some point later in the year?

The fed got us this far and i think the markets are a little overextended, a little frothy.

But we have been thinking that four or five years, trying to find a reason for the market to fall back.

We will probably see the retail investor come back into the market.

That could be the beginning of the end.

It will move from the stocks and bonds into the more cyclical sector, the more risky assets.

That is something i think is due to happen.

If you look at the aaii investor sentiment survey, we saw bullishness increase by 1.3%. it is still below the long-term average.

Below the long-term average in a particular survey, yet all-time highs in the market.

Exactly, which makes you think we are forming a base near the top with a further extension before the pullback.

And volatility picks up when we have that pullback?

That is the red light, the volatility being at the all-time lows.

Not just the equity market, but there are a few warning signals at the moment.

I feel we still have a little further to go before -- not the crash, but the correction takes place.

And mergers and acquisitions could take us higher i guess.

Interesting trend with m&a, but the companies acquired and those doing the acquiring.

It has been an interesting dynamic.

You normally expect one to do well and a pullback in the other.

Saving money on taxes.

Exactly, and i don't think that is over yet.

When you see the competing interest from the u.s., i think m&a will continue, more than likely in the pharamma sector.

I don't think the astrazeneca deal is over yet.

I don't think the story is done yet.

That could be a positive force on the market, particularly in

This text has been automatically generated. It may not be 100% accurate.


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