Turning point indicators #2 – Financials to utilities ratio Turning point indicators #2 – Financials to utilities ratio Turning point indicators #2 – Financials to utilities ratio

Turning point indicators #2 – Financials to utilities ratio

Equities 2 minutes to read
Peter Garnry

Head of Saxo Strats

Summary:  The current financials to utilities ratio has actually bounced off recent lows but given the recent volatility and bad liquidity in US Treasuries investors should be careful drawing conclusions just yet that the equity market has bottomed.


This is our second turning point indicators research notes. In our first research note we looked at the VIX futures term structure and volatility markets can help indicate market bottoms. In this research note we look at the financials to utilities spread ratio. Why is this spread interesting and relevant?

Financials and utilities are interesting against each other because both sectors are the most sensitive to changes and levels in interest rates, but importantly they react opposite to interest rates. Higher interest rates are negative for utilities as their long-term and very predictable cash flows get a lower present value. Financials gain from higher long-term interest rates as it steepens the yield curve and thus help banks expand their net interest margin improving profitability. Because these two sectors are so sensitive to interest rates but with the opposite force the spread ratio provides a very fast signal to investors from policy changes and their impact on interest rates and markets.

The current ratio is a bit higher than the recent bottom and could suggest a bottom in equities. However, with the extreme volatility and liquidity issues in the US Treasuries market we would be hesitant in drawing conclusions. A good sign would be to see an improvement in the volatility market. In the SaxoTraderGO the financials to utilities spread can be tracked by adding two instruments tracking the two sectors and then create a “Ratio” under the “Indicators” menu.

Source: Saxo Group


Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.