Category: Countries & Regions

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US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

Employment in cyclical sectors — manufacturing, construction, transportation, and warehousing — increased slightly in January, but is still down 225,000 from its September 2024 peak. A decline of 300,000 would warn that the economy is headed for a recession, signaling risk-off.

Cyclical Sector Employment

Stock Pricing

Stock pricing declined to 97.91 percent from 98.11 percent last week, compared with the October high of 98.66 percent and the April low of 95.04 percent. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Conclusion

The bull-bear indicator at 40% warns of a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

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ASX Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when market valuations are high, but we advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 56%, from 66% three weeks ago. One of four Australian indicators and one of two Chinese indicators signal risk-off. When combined with the US Bull/Bear indicator, which has a 40% weighting, the composite indicator signals a mild bear market.

ASX Bull-Bear Market Indicator

The ASX 200 Financials Index rallied strongly off support at 9000, confirming the primary uptrend.

ASX 200 Financials Index

Stock Pricing

ASX stock pricing increased to 87.50 percent from 84.90 percent last week, compared to the August high of 92.23 percent and the April low of 67.85 percent.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator at 56% indicates a mild bear market, with signs that the Chinese economy is slowing. Stock market pricing remains extreme, indicating an elevated risk of a drawdown.

Acknowledgments

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More Jobs, No Rate Cuts

Key Points

  • The economy added 130,000 jobs in January.
  • The strong BLS labor report means that further rate cuts are unlikely in the first half of 2026.

The economy added 130,000 jobs in January 2026, according to the BLS labor report. The result far exceeded average expectations of 70,000 from economists polled by Reuters and was greeted with a fair degree of skepticism.

Employment Growth

Job growth was patchy, with increases concentrated in the Private Education and Health Services sector, which added 137,000 jobs.

Employment Growth: Private Education and Health Services

The unemployment rate fell to 4.3% in January, although the Household Survey had a below-average response rate of 64.3% due to adverse weather conditions.

Unemployment

Aggregate weekly hours worked grew by a modest 1.0% for the 12 months to January, indicating a weak economy.

Real GDP & Growth in Total Hours Worked

Employment in cyclical sectors increased by 27,000 jobs in January, primarily due to nonresidential construction of AI data centers.

Employment in Cyclical Sectors: Manufacturing, Construction, and Transport & Warehousing

Average hourly earnings grew by 0.4% in January, an annualized rate of 4.8%. The 6-month average is 3.8% annualized.

Average Hourly Earnings - Monthly

Stocks

The S&P 500 retreated from resistance at 7000 as the prospect of another rate cut in the first half of 2026 is now considered unlikely.

S&P 500

The Dow Jones Industrial Average continues to test its new support level at 50,000.

Dow Jones Industrial Average

Conclusion

We are wary of monthly job numbers because of frequent revisions and political interference. President Trump dismissed BLS Commissioner Dr. Erika McEntarfer, nominated by former President Joe Biden, alleging that she fabricated poor numbers for political reasons.

Nevertheless, January’s strong jobs report should provide the Fed with sufficient cover to hold off further rate cuts until the second half of 2026. Average hourly earnings growth remains close to 4.0%, indicating underlying inflationary pressures.

Acknowledgments

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Organized Crime

Jim Grant’s observation on the Commodity Futures Trading Commission:

A less-than-suffocating financial oversight regime is looking looser by the day, as a Monday Barron’s report details the evisceration of Chicago’s enforcement division at the CFTC: “In recent months, the office has become a ghost town,” with a 20-strong team of enforcement attorneys pared to just one. That aggressive downsizing is particularly striking in light of the office’s prominent role in major CFTC enforcement actions since its 1975 establishment, including recent civil charges against Binance CEO Changpeng Zhao and now-jailed FTX boss Sam Bankman-Fried.

“Chicago is the spiritual home of the futures markets; it’s where it all began,” former CFTC staffer David Slovick lamented to Barron’s. “To wipe out the enforcement staff. . . sends a very bad signal to market participants about whether the government is watching what they’re doing and whether or not they have to abide by the law.”

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Japan’s Debt Trap

Key Points

  • Japanese PM Sanae Takaichi led her Liberal Democratic Party to a resounding 316 out of 465 seats win in Sunday’s snap election for Japan’s lower house.
  • The Yen strengthened, and long-term bond yields declined on the result.
  • The Japanese government is in a debt trap caused by precarious debt levels, negative real interest rates, a weakening Yen, and rising inflation.

Japanese Prime Minister Sanae Takaichi delivered the country’s first post-war supermajority in Sunday’s snap election. Her Liberal Democratic Party won 316 out of 465 seats in Japan’s powerful lower house.

The arch-conservative leader has pledged to suspend the 8% sales tax on food, called for a return to the large-scale fiscal stimulus deployed by former Prime Minister Shinzo Abe (2006-2007 and 2012-2020), and wants to revise Japan’s pacifist constitution. (Reuters)

The Japanese Yen strengthened against the Dollar, but remains in a long-term downtrend. The Yen has weakened considerably since Takaichi’s appointment in October 2025. However, currency markets hope that Takaichi’s resounding victory will ease pressure to adopt populist policies.

Japanese Yen

Japan has struggled to recover since industrial production plateaued in the 1990s.

Japanese Industrial Production

Japanese fiscal debt ballooned as the government ran large deficits to stimulate the economy. Now, fears of rising inflation have driven up long-term interest rates, threatening a fiscal crisis as debt-servicing costs rise.

Japanese Fiscal Debt to GDP

Takaichi seeks to follow a fiscal path similar to that of Japan’s longest-serving prime minister, Shinzo Abe, with large-scale fiscal stimulus now known as “Abenomics.” However, inflation is much higher than during Abe’s tenure, which ended in 2020. Japanese core CPI excluding food and energy (termed “core core” in Japan), remains stubbornly high at 2.9%.

Japanese CPI Inflation Excluding Food & Energy

The Bank of Japan has slow-walked the pace of increases in its policy rate, which remains deeply negative at -2.15% (0.75% minus 2.9%), heightening fears of high inflation.

Bank of Japan Policy Rate

Rising Japanese interest rates, accompanied by a weakening Yen, have alerted bond markets to a potential fiscal crisis. Rising rates typically strengthen the domestic currency by attracting inflows of foreign capital. The weakening Yen warns of the opposite: capital outflows despite higher interest rates, as bond markets are wary of inflation risk.

Bond markets are demanding increased compensation for inflation risk, with the 30-year Japanese bond yield climbing above 3.75% before retracing to test support at 3.5% after the snap election result.

30-Year JGB Yield

Japanese stocks have also soared on expectations of higher inflation, with the Nikkei 225 index in a strong uptrend.

Nikkei 225 Index

Conclusion

Japanese Prime Minister Sanae Takaich’s resounding victory in Sunday’s snap election provides her with the political cover needed to make the tough decisions necessary to avoid a fiscal crisis. Whether she is sufficiently pragmatic to seize this opportunity will become evident in the months ahead.

Japan is in a debt trap.

The pursuit of large fiscal stimulus risks a budgetary crisis as higher inflation drives up bond yields, threatening a budget blowout. Intervention by the Bank of Japan to suppress long-term interest rates through large bond purchases would risk a currency crisis, with a collapse of the Yen.

Japan’s long-term bond yields are artificially low, supported by the Bank of Japan’s large-scale bond purchases. The chart below from Robin Brooks compares JGB 30-year yields (JP) with the yield on Germany’s 30-year Bund (DE). Both bonds offer similar yields despite substantial differences in the two countries’ debt-to-GDP ratios.

30-Year JGB Yield vs. German 30-Year Yield

We expect that the Yen will continue to weaken until the above disparity is rectified, with capital flowing out of Japan into more secure markets.

A weak Yen, or higher Japanese interest rates, has far-reaching implications beyond Japan’s domestic bond market. Japanese investors hold $11 trillion of international investments. Rising domestic interest rates, a falling Yen, or attempts to support the Yen by selling reserve assets — can destabilize international capital markets, driving up long-term bond yields.

Acknowledgments

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US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The National Financial Conditions Index from the Chicago Fed rose to -0.557, and the previous week was revised upwards to -0.56 from -0.60. Easy financial conditions persist; however, Bitcoin’s fall below $70,000 suggests that financial markets are becoming risk-averse.

Chicago Fed National Financial Conditions Index

The decline in heavy truck sales continues, with the 12-month moving average falling to 34,500 units. This is the seventh month in which sales are more than 10% below their September 2023 peak, signaling risk-off.

Heavy Truck Sales

Stock Pricing

Stock pricing decreased to 98.11 percent from 98.19 percent last week, compared with the October high of 98.66 percent and the April low of 95.04 percent. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

The S&P 500 price-to-sales ratio is at a record high of 3.31, almost 83% above the long-term average of 1.81.

S&P 500 Price-to-Sales Ratio

Conclusion

The bull-bear indicator at 40% warns of a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

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ASX Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when market valuations are high, but we advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 56%, from 66% three weeks ago. One of four Australian indicators and one of two Chinese indicators signal risk-off. When combined with the US Bull/Bear indicator, which has a 40% weighting, the composite indicator signals a mild bear market.

ASX Bull-Bear Market Indicator

The ASX 200 Financials Index respected support at 9000 and remains in a primary uptrend, indicating risk-on.

ASX 200 Financials Index

The OECD China Leading Composite Index declined to 98.8, the second month below the risk-off threshold of 99.0.

OECD: China Leading Composite Index

Stock Pricing

ASX stock pricing increased to 84.90 percent from 82.80 percent last week, compared to the August high of 92.23 percent and the April low of 67.85 percent.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

The ratio of ASX Stock Market Capitalisation to GDP increased to 1.19, which is 15.5% above the long-term average of 1.03.

ASX Stock Market Capitalisation/GDP

Conclusion

The ASX bull-bear indicator at 56% indicates a mild bear market, with signs that the Chinese economy is slowing. Stock market pricing remains extreme, indicating an elevated risk of a drawdown.

Acknowledgments

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Bitcoin Plunge Signals Risk-Off

Key Points

  • Bitcoin plunged to $71,200, warning that financial markets are becoming risk-averse.
  • Brent crude surged to nearly $70 per barrel amid heightened US-Iran tensions.
  • Volatility following the CME margin hike, effective Monday, triggered a broad selloff in precious metals and energy transition metals.

Bitcoin2 (BTC) broke support at 85,000, the steep decline warning that financial markets are shedding risk assets.

Bitcoin (BTC)

The S&P 500 index retreated below 6900, but long tails and a rising Trend Index indicate strong buying interest.

S&P 500

However, the Roundhill Magnificent 7 ETF (MAGS) is headed for a test of primary support at 63, while Trend Index peaks at zero warn of selling pressure. A breach of support would be a strong bear signal.

Roundhill Magnificent 7 ETF (MAGS)

10-year Treasury yields are testing resistance at 4.3%. A breakout would offer a short-term target of 4.4%.

10-Year Treasury Yield

Dollar & Gold

The US Dollar Index is testing resistance at 98, but remains in a long-term downtrend. Respect of resistance will likely signal another decline.

Dollar Index

Gold is testing resistance at $5,000 per ounce after Friday’s sharp fall.

Spot Gold

The primary reason for the sharp fall in copper and precious metals was not Trump’s nomination of Kevin Warsh as the next Fed Chair. On January 29, the CME announced that it was again increasing margin requirements on futures contracts, effective Monday, February 2.

Comex Margin Increase

Comex Margins

The increase in CME margin requirements is intended to discourage leveraged speculation in key contracts that show signs of overheating.

Silver had a higher speculative interest, making it more susceptible to the margin hike, with the metal testing support at $70 per ounce.

Spot Silver

Energy & Energy Transition Metals

Brent crude is testing resistance at $70 per barrel on heightened US-Iran tensions.

Brent Crude

The Dow Jones Global Oil & Gas index is in a strong uptrend, with rising Trend Index troughs reflecting buying pressure.

Dow Jones Global Oil & Gas Index

Copper

The margin hike had less effect on copper, which retreated to $13,000 per tonne from its recent peak of $13,500 per tonne.

Copper

Copper miners were more susceptible to the risk-off shift in financial markets, with Sprott Copper Miners ETF1 (COPP) testing support at 40.

Sprott Copper Miners ETF (COPP)

Uranium

Uranium was not directly affected by the CME margin hike but was caught up in the broader selloff, with the Sprott Uranium Miners ETF1 (URNM) testing support at 70.

Sprott Uranium Miners ETF (URNM)

Lithium

Lithium suffered a similar fate, with Sprott Lithium Miners ETF1 (LITP) breaking support at 14.

Sprott Lithium Miners ETF (LITP)

Critical Minerals

Critical materials experienced a similar selloff, with Sprott Critical Materials ETF1 (SETM) testing support at 34.

Sprott Critical Materials ETF (SETM)

Conclusion

The CME margin hike, which took effect on Monday, was intended to cause a correction in copper and precious metals. However, the selloff spread to uranium, lithium, and critical materials. Risk aversion also spread to financial markets, as evidenced by a steep fall in risk assets such as Bitcoin.

Mega-cap technology stocks have experienced a selloff, with the Roundhill Magnificent 7 ETF (MAGS) approaching its primary support level. A breach of support would be a strong bear signal for the broader S&P 500 index, with market leaders falling behind their second-tier counterparts.

We can expect further CME margin hikes as the exchange seeks to curb speculative excesses. Volatility will likely discourage speculation but have minimal impact on the secular rise in demand for gold, copper, uranium, lithium, and critical materials.

Acknowledgments

Notes

  1. We analyze exchange-traded funds (ETFs) to determine market sentiment towards a specific sector, industry, or commodity. The analysis is not a recommendation to buy or sell, nor is it a commentary on the merits of the particular ETF.
  2. We analyze Bitcoin (BTC) — the most volatile risk asset — to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell, for which we are ill-equipped to express an opinion, nor is it a commentary on the merits of the cryptocurrency.
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RBA Admits Its Mistake

Key Points

  • The RBA raised its cash rate target by 25 basis points to 3.85%.
  • The consumer price index jumped to 3.8% for the 12 months to December 2025.
  • The unemployment rate fell to a seasonally-adjusted 4.1%.
  • The ASX 200 found support at 8800.

The RBA increased its cash rate target by 25 basis points to 3.85%, citing stubborn inflationary pressures and a labor market that is “a little tight.”

The trimmed mean, the RBA’s preferred measure of underlying inflation, increased slightly to 3.3% for the 12 months to December 2025, up from 3.2% in November. However, a jump in the consumer price index to 3.8% from 3.4% in November spooked the central bank into a speedy reversal of its recent accommodative monetary policy.

Australian CPI & Trimmed Mean CPI

The 0.25% rate increase comes less than 12 months after the RBA commenced rate cuts on 19 February last year. The cumulative 75-basis-point rate-cut cycle is the shallowest in the past 35 years, an acknowledgment that it cut too soon.

RBA Cash Rate Target

The seasonally adjusted unemployment rate fell to 4.1% in December from 4.3% in November, indicating a tighter labor market.

Australia: Unemployment

The S&P Global Composite PMI for Australia jumped to 55.7 in January 2025, the highest level in more than 3 years.

S&P Global Composite PMI

Also, the ANZ-Indeed job ads average increased to 4.4% in January 2026, but remains in a long-term downtrend.

Australia: Job Ads

However, aggregate monthly hours worked grew by 1% over the 12 months to December 2025, suggesting low real GDP growth in the year ahead.

Australia: Aggregate Hours Worked

Over the same 12 months, credit and broad money grew at rates of 7.6% and 7.2%, respectively. The wide margin of more than 6.0% between credit/money growth and actual hours worked suggests strong underlying inflationary pressures.

Australia: Credit and Broad Money Growth

The ASX 200 shrugged off the rate increase, respect of support at 8800 signaling another test of 9000.

ASX 200 Index

The large ASX 200 Financials index indicates increased buyer interest, with a higher Trend Index trough.

ASX 200 Financials Index

The ASX 300 Metals & Mining index continues in a strong uptrend, and recovery above 8000 would indicate a fresh advance, with a short-term target of 8750.

ASX 300 Metals & Mining Index

Conclusion

The RBA faces a dilemma.

On the one hand, economic growth is slowing. Aggregate monthly hours worked grew just 1.0% in 2025, while real GDP growth slowed to 0.4% in the third quarter.

Australian Real GDP Growth

On the other hand, inflation is rising due to high government spending, loose monetary policy, and high immigration, crush-loading the housing rental market.

Hiking rates will further slow the economy, but the central bank is already late in tightening monetary policy and will need to hike aggressively to bring inflation back under control.

For now, the stock market shrugged off the rate increase. However, the RBA will need to inflict some pain to achieve its goal.

Acknowledgments

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US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The National Financial Conditions Index from the Chicago Fed eased to -0.60, indicating loose financial conditions similar to 2021. However, Bitcoin’s fall below $85,000 suggests that financial markets are becoming increasingly risk-averse.

Chicago Fed National Financial Conditions Index

Continued unemployment claims slumped to 1.827 million, confirming the recent fall in the unemployment rate to 4.4%. Both measures are below the typical threshold for a recession.

Continued Unemployment Claims

Stock Pricing

Stock pricing increased to 98.19 percent from 98.15 percent last week, close to the October high of 98.66, compared with a low of 95.04 percent in April. The extreme pricing warns that stocks are at risk of a significant drawdown.

US Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.

Conclusion

The bull-bear indicator at 40% warns of a bear market ahead, while extreme price levels increase the risk of a significant drawdown.

Acknowledgments

Notes

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