Diary of a Financier

Top Newsstuffs (February 1-7)

In Bookshelf on Sun 7 Feb 2016 at 06:10

Top reads from the week that was…

Macro

Rail traffic monthly (January 2016) | Association of American Railroads (AAR)
Railroads continue to indicate a collapse in manufacturing activity, led lower by energy & materials amidst the commodities supercycle bust…Railtraffic monthly 2016.01
Monthly traffic: +1.6pp @ -7.3% yoy
Growth rate: ” ytd
Carload groups: 4 of 20 posted gains for the month yoy
In particular, the secular decline of coal volumes (~40% of carloads makes it the largest category) is negatively skewing the data.
#Bearish #Irrelevant? $IYT $XLB $XLE $DBC

Purchasing Managers Index (January 2016) | Markit Economics
Although remaining in firm expansion, global growth continues deceleration across-the-board with mixed internals; however, China’s deterioration continues to overshadow Developed Market stength and India’s resurgence…
Global PMI (Composite): -0.2 @ 52.5 (below 53.9 LT average)
Global PMI (Services): -0.1 @ 52.8
Global PMI (Manufacturing): +0.2 @ 50.9US ISM PMI Composite 2016.01
US ISM (Composite): -1.5 @ 52.9
– US ISM (Services): -2.3 @ 53.5 (misses 55.5e); despite the disappointing deceleration to 2-year lows, this remains a healthy expansion, weighed-down by Exports (e.g. energy price crash & strong USD), but with decent internals; corresponds to +1.8% real GDP (annualized)
    New orders: -2.4 @ 56.5
    Production: -5.6 @ 53.9
    Deliveries: +3.0 @ 53.5
    Backlog: +2.0 @ 52.0
    Inventories: -1.5 @ 51.5
    Exports: -8.0 @ 45.5
    Employment: -4.2 @ 52.1
US ISM (Manufacturing): -0.4 @ 48.2 (misses 48.3e); another surprisingly weak report with disappointing internals; corresponds to +1.6% real GDP (annualized)
    Inventories: +0.5 @ 43.5
    Backlog: -2.0 @ 41.0
    Employment: -3.2 @ 48.1
Eurozone (Composite): -0.7 @ 53.6 (beats 53.5e); corresponds to +0.4% real GDP (annualized)
Eurozone (Services): -0.6 @ 53.6 (meets 53.6e)
Eurozone (Manufacturing): -0.9 @ 52.3 (meets 52.3e); deceleration led by Italy’s fall from a 57-month high
UK: +0.8 @ 52.9
Japan: -0.3 @ 52.3; falls from 20-month high
China: official -0.3 @ 49.4 (misses 49.6e); unofficial +0.2 @ 48.4 (beats 48.0e)
India: +2.0 @ 51.1
South Korea: -1.2 @ 49.5
Taiwan: -1.1 @ 50.6
Brazil: +1.8 @ 47.4; an 11-month high
#Neutral #Green shoots $DXY $UUP

Credit

Senior loan officer survey (2015q4) | Federal Reserve (Fed)
Credit fundamentals weaken across all loan types, with supply & demand both retreating (historically a recession indicator); a deleveraged household sector needs to start releveraging, taking take the handoff from the impaired corporate sector (as HY spreads have blown-out)…
Commercial & Industrial Loans (C&I): demand contracts for 1st time since 2013, and supply tightens for 1st time since 2012, despite costs remaining low
Commercial Real Estate (CRE/CMBS): demand continues to grow, but supply continues to tighten
Residential mortgages (RRE/RMBS): demand plunges deeper into contraction, despite even looser supply
Consumer loans: demand falls to flat, aided by loose supply
Surveys net respondents’ qoq change in credit demand, spreads & lending standards.
[Previously: Commercial bank lending remains bullish & Total consumer indebtedness accelerates to bullish signal]
#Bearish #Credit expansion? #Credit cycle #Leading indicator $KBE $KRE $HYG $JNK

Sentiment

Retail investor sentiment survey (2016.02.03) | American Association of Individual Investors (AAII)
The extreme buy signal persists as sentiment is mired in a procyclical collapse amidst global market turmoil, as neutral cohort returns to extreme highs in a sign of healthy uncertainty…
Bull/Bear ratio: +5bp wow @ 0.80 (below 1.00 extreme & 1.30 historical average)AAII retail investor sentiment survey- bulls 2015.02.03
Bullish: -2.2pp @ 27.6% (below 30 extreme & 39 avg); 48th consecutive week under avg
Bearish: -5.3pp @ 34.7% (above 30 avg)
Neutral: +7.5pp @ 37.7% (above 31 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 6/2016).
[Previously: Institutional allocations neutral, Net short speculators positions a buy signal & Strategist sentiment still a buy signal]
#Bullish! #Contrarian

Asset allocation survey (January 2016) | American Association of Individual Investors (AAII)
Allocations maintaining neutral signal…
– Stocks: -2.8pp @ 62.5% (between 60% average & 70% extreme high); both the biggest drop & lowest level since 8/2013
Bonds: +0.2pp @ 17.3% (above 16% avg & 10% extreme low)
Cash: +2.6pp @ 20.2% (below 24% avg; above 15% extreme low); both the biggest rise & highest level since 8/2013
#Neutral #Contrarian $SPY $AGG

Technicals

Commitment of Traders (COT): S&P 500 net speculative positioning (2016.02.05) | Commodity Futures Trading Commission (CFTC)
Extreme short positioning continues procyclical plummet amidst market correction, wading deeper into short-covering range…SPX futures- net speculative positions (non-commercial longs less shorts) 2016.02.05
Net speculative positioning: -94k wow @ -225.9k contracts short; entering range from 10/2014’s low (-278.2k)
Measures difference between non-commercial longs & shorts in SPX futures (# contracts).
#Bullish! $ES_F $SP_F

Technical study: S&P 500 long term regression & standard deviation (January 2016) | Doug Short (dshort)
During the postcrisis bull market, SPX has persistently remained over 2 sigmas from its LT trend — price levels which have historically marked a top…
– Mean: +1.78% average annual real returnSPX long term regression & standard deviation (2015.11)
Standard deviation (σ): ±40.6%
Variances:
    Currently: +4pp mom @ +89%
    Panic of 1907: +85%
    Great Depression: +81%
    Tech Bubble: +149%
    Great Recession: +88%
Uses $SPX real (inflation-adjusted) prices with exponential regression starting in 1871.
#Bearish #Mean reversion #Secular

Interests

Homebuilder fundamentals (December 2015) | Calculated Risk
A composite of 7 publicly-traded homebuilders’ data indicates strong economic activity for the month…
New orders (monthly): +11.7% yoyHomebuilder fundamentals 2015.12
Backlog: +18.3% yoy
Sale prices: +5.4% yoy
#Bullish $XHB $ITB $DRH $PHM $NVR

Fed’s banking system stress tests: The complete guide to the Fed’s future playbook | Business Insider
In the Fed’s Dodd Frank bank stress tests, its assumptions for policymakers’ dynamic response to the worst case scenario provides a forecast for future, extraordinary monetary policy mechanisms: negative short term interest rates (but no mention of QE)…
Severly adverse scenario (2016YE):
GDP -6.25% → unemployment @ 10% → CPI @ 1.25% → SPX -50% → VIX @ 40+ → RRE -25% → CRE -30% → IRX @ -50bps → TNX @ 25bps → FFR @ -50bps
When the Fed stress tests banks, it uses 3 scenarios (baseline/adverse/severely adverse).
[Previously: BoJ announces negative interest rates & Denmark’s failed experiment with negative policy rates]
#Fed Funds Rate $TNX $IEF $TLT

–Romeo

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