Cold markets with brisk trading when it needs to be done otherwise its Easter holday rules with no one interested in taking on anything big or clever. The focus of trading swirls around the ongoing Russia, Ukraine, EU and US talks today – with violence in Eastern Ukraine getting worse. The other focus is still squarely on rates particularly those in the US post the new forward guidance from Yellen. Yield curve to watch remains 5/30Y with risk of more flattening despite the dovish tilt from the FOMC Chair. The last worry and probably the most important comes from earnings. The banks report today – Morgan Stanley just beat and Goldman is next – but the bigger story is in industrials this time with the open question being GE. The bulls want to have a simple and clean rally into the holiday but it may be more a market of stocks than a stock market into the close as differentiation dominates. As for FX markets – the Yellen effect on the USD remains clear – weakness pervades with GBP at 4 ½ year highs, EUR flirting again with 1.39 and JPY dancing back towards 102 support. No one is sure about commodities – with oil up and gold down – it’s a world that believes in better growth ahead despite the jitters from geopolitics.

This was taken as a dovish speech by the markets and the US equity market rallied another 1.0% April 16 in part because of her stance. However, rates were mixed as the 5Y yield is up 3bps to 1.65% and the 10Y was flat at 2.63%. The US dollar index was flat on the day at 79.82 with the EUR, JPY and CHF all lower. GBP and AUD led G10 gains. The key point for investors remains in the risk of policy change and the timing for that risk. The 5Y bond remains the pivotal barometer for the delta of policy volatility. This became clear in Yellen’s other comments today. “As the recovery proceeds and healing occurs, it's obvious that we will need to tighten monetary policy to avoid overshooting our target,"

The demise of some global macro and CTA funds in 2013 and the difficult start to 2014 leaves open the question of what works for trading markets in the next year. Many are waiting for a great rotation trade out of bonds and into stocks - but with equity market performance flat to down in most places in 1Q globally, the simple formulas for making money out of market inefficiency or momentum seems stretched. Even worse, trading markets via a system has tinges of mysticism linked back to HFT. Discretion over models hasn't been much better. This piece tries to answer the question most asked about systematic trading - will it work when rates go up?

The following is excerpted from a recent Asbury Research presentation. • Near term, the S&P 500 is at a key inflection point from which its 2013 advance must aggressively resume if still intact. • More intermediate term, extremes in investor sentiment and 56 years of seasonality data warn of a 2nd Quarter US broad market correction. • Corrections aside, intermarket relationships suggest that there is at least an additional 11% in the 2013 US broad market advance before a more sustainable peak may emerge. • Our work suggests an upcoming rise in both long dated US Treasuries and gold prices, which also indirectly support a 2nd Quarter US stock market correction. • The Energy Sector is poised to outperform during the 2nd Quarter, and Health Care is vulnerable to relative underperformance during this period.