Diary of a Financier

Top Newsstuffs (March 23-29)

In Bookshelf on Sun 29 Mar 2015 at 05:12

Top reads from the week that was…

Macro

Rail traffic weekly (Week 11, 2015) | Association of American Railroads (AAR)
Decent upward creep, albeit slow progress; this is a tepid report due to a difficult yoy comp base; next week really needs to show a faster snap-back as evidence of pent-up demand:
Weekly traffic: +0.4pp @ +1.9% yoyRailtraffic weekly 2015 week 10
Growth rate: +0.2pp @ +0.3% ytd
Carload groups: 3 of 10 posted gains for the week yoy
    Grain: +21.9%
    Motor vehicles/parts: +3.1
    Minerals: +1.4
    Farm: -0.3
    Chemicals: -1.8
    Petroleum: -2.0
    Forestry: -5.7
    Coal: -6.7
    Metals: -11.0
2014 & 2015 both share the hindrance of record snowfalls (2014 being nationwide & 2015 limited to the Northeast), and 2015 added the dislocation of California port closures — all of which have now been resolved.
#Neutral $IYT

Gross Domestic Product: Third estimate (2014q4) | Bureau of Economic Analysis (BEA)
Growth unrevised misses expectations, but remains a perfect report, forcing Fed to delay rate hikes due to sub-optimal growth & sneaking deflation; a big downward revision for inventory swings to a tailwind for Q1, although the benefit of easy yoy comps seems unlikely, due to record snowfalls in the Northeast & California port shutdowns:
Real GDP (Q4): unrevised @ +2.2% saar (misses +2.4e)Real GDP (qoq saar, 2014q4 third estimate)
     Inflation: Core unch @ +0.7%; Headline unch @ -0.1%
    Consumption (PCE): +0.2 @ +4.4
    Government spending: -0.1 @ -1.9%; Federal +0.2 @ -7.3%; State & local -0.4 @ +1.6%
    Investment: -1.4 @ +3.7%; Intellectual property -0.6 @ +10.3%
    Exports: +1.3 @ +4.5%
    Imports: +0.3 @ +10.4%
    Private inventories: -22bps @ -0.10pp contribution to GDP growth rate
Real GDP per capita (Q4): -0.4pp @ +1.4%; 9.1% below LT regression trend
Real GDP (FY14): unrevised, +0.2pp yoy @ 2.4%
    Inflation (FY14): Headline unrevised, +0.1pp yoy @ 1.4%
[Previously: 2014FY & Q4 GDP (second estimate); See also: Relax about Q4 GDP & investment, “There are legitimate concerns about a strong dollar, and weak economic activity overseas, impacting U.S. exports and GDP growth… However, overall, the Q4 GDP report was solid.”]
#Neutral #Perfect?

Inflation: Consumer Price Index (February 2015) | Bureau of Labor Statistics (BLS)
Core beats consensus & stabilizes, albeit beneath Fed’s 2.0% target; energy price collapse is still weighing on headline, which teeters on bring of deflation:
Headline CPI: -0.1pp @ unch ttm, +0.2 mom (meets expectations)Core inflation- PCE, CPI, Median CPI, trimmed mean CPI 2015.02
    Energy: -18.8% ttm, +1.0% mom; comp worsens, but sequential drag stabilizes
Core CPI (ex food & energy): +0.1pp @ +1.7% ttm, +0.2% mom (beats +0.1e)
#Neutral #Deflation

Manufacturers’ durable & capital goods (February 2015) | US Department of Commerce
Another poor report with misses across the board & prior month revised down, continuing a deceleration in yoy comps, as ytd growth rates still dip further below trend GDP; core capex @ -7.6% qoq saar suggests that shipments @ -1.8% could fall further; next month will progress beyond the low hurdle with easy yoy comps from 2014’s extreme winter:Core durable & capital goods orders 2015.02
Core durable goods (ex-transportation)
    Orders: -1.0pp @ +0.5% ytd, -0.4% mom (misses +0.3e)
    Shipments: -0.4pp @ +1.7% ytd, -0.1% mom
Core capex (nondefense, ex-aircraft capital goods)
    Orders: -0.3pp @ unch ytd, -1.4% mom (misses +0.3e)
    Shipments: unch @ +3.6% ytd, +0.2% mom (misses +0.3e)
Inventory
    Inventories: +0.1pp @ +6.1% ytd, +0.3% mom @ $413.0B SA (SA & NSA set record highs again)
#Bearish #Deceleration

Study: US consumer spending is about to surge | Pantheon Macroeconomics
The effective “tax cut” for consumers due to a 50% collapse in energy prices has not flowed-through to higher consumption, but that historically takes 6-months to manifest itself in economic data:Gas prices vs consumption, invested & lagged 6-mos (% qoq)
“The jump in the savings rate is only temporary and the next few months should bring a surge in spending. [There’s historically] a lag effect between low gas prices and their impact on the consumer… about six months — longer than markets seem to think — then the next few months should see spending surge.”
[Previously: Retail sales continue to disappoint]
#Bullish $XLY $XLP $XLE

Sentiment

Investor sentiment survey (2015.03.25) | American Association of Individual Investors (AAII)
Sentiment swings wildly higher into historically average territory, maintaining a massive swell in the neutral cohort that’s indicative of healthy uncertainty:
Bull/Bear ratio: +71bps wow @ 1.57 (back above 1.28 historical average, but below 1.8 extreme high)
Bullish: +11.3pp @ 38.4% (under both 39.0 avg & 45 extreme high)
Bearish: -7.1 @ 24.4% (under both 30.5 avg & 25 extreme low)
Neutral: -4.2 @ 37.2% (far over 30.5 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 9/2015).
[Previously: Retail allocations are neutral & Strategist sentiment remains a bullish signal]
#Netural #Contrarian

Interests

European countries join Asian Infrastructure Investment Bank (AIIB) | The UK Guardian
Defying the US government’s wishes, EU nations were the latest American allies to join the AIIB, a lending-body formed by China.  The US has explicitly questioned the fund’s “standards of governance and environmental & social safeguards”; implicitly it’s another sign of China as a rising superpower.
The following EU components joined as founding-members:
1. Britain (UK)
2. France
3. Germany
4. Italy
The following are considering membership:
1. Japan
2. South Korea

3. Switzerland
4. Luxembourg
[See also: China wants to buy Europe]
#Foreign policy #Geopolitics $GXC $FXI $EFA $EZU $FEZ

Study: Global economic & financial convergence | Bank of England (BoE)Inflation rates- inter-country comovements, Bretton Woods era vs. Post financial crisis
A combination of globalization & central banks’ extraordinary post-crisis monetary policy (i.e. ZIRP/QE) appear to have all the world’s nations highly economically & financially correlated, especially the developed markets:
1. Inflation rates: comovements between countries’ inflation rates are nearly homogenous today vs. Bretton Woods era
2. Interest rates: Interest rates- inter-country comovements, spot rates & forwards (US v UK v Germany, 1995-2014)comovements between countries’ interest rates are nearly homogenous today vs. precrisis, especially on long-end of yield curve
“Is a common driver sitting behind it all? Secular stagnation is one possible answer .”
The irony is that CBs are supposed to be decoupling in 2015, with ECB & BoJ increasing stimulus while the Fed & BoE are withdrawing.
[Previously: Modernity & the Procrustean Bed (the dangers of unnatural smoothing)]
#Great moderation #Unintended consequences #DM $EFA $EEM $ACWI

–Romeo

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  1. […] Looking forward, the US economy’s last chance to re-accelerate arrive in May/June, at which time we’d expect the effective tax cut from lower energy prices to manifest itself in consumption data* (a 6-month lag historically). […]

  2. […] of pent-up demand from a weak Q1 and leaving the onus on May’s data to show evidence of “consumer stimulus” from lower energy prices: – Headline: -0.4pp @ +0.9% yoy, unch mom (miss +0.2e); miss due to […]

  3. […] upward revisions; below-trend growth remains disappointing, especially given the tailwind of “consumer stimulus” from lower energy prices: – Headline: -0.4pp @ +2.2% yoy, +0.2% mom (miss +0.3e); prior month […]

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