Diary of a Financier

Top Newsstuffs (May 2-8)

In Bookshelf on Sun 8 May 2016 at 05:24

Top reads from the week that was…

Macro

Purchasing Managers Index (April 2016) | Markit Economics
Global growth ticks higher again, but Emerging Markets & Asia are really struggling, despite US & EU strength…
Global PMI (Composite): +0.3 @ 51.6 (misses 53.9 LT average); continues recovery fm a 40-month low
Global PMI (Services): +0.5 @ 51.9
Global PMI (Manufacturing): -0.5 @ 50.1US ISM PMI Composite 2016.04
US ISM (Composite): +0.9 @ 55.1; a ytd high
– US ISM (Services): +1.2 @ 55.7 (beat +54.7e); another stellar report with great internals despite inventory levels remaining way too high; corresponds to +2.7% real GDP (annualized)
    New orders: +3.2 @ 59.9
    Production: -1.0 @ 58.8
    Exports: +5.0 @ 58.5
    Inventories: -1.5 @ 61.0
US ISM (Manufacturing): -1.0 @ 50.8 (miss 51.5e); appears to be a pause after last month marked the bottom in manufacturing’s contraction; corresponds to +2.4% real GDP (annualized)
    New orders: -2.5 @ 55.8
    Production: -1.1 @ 54.2
    Inventories: -1.5 @ 45.5
    Employment: +1.1 @ 49.2
    Prices: +7.5 @ 59.0
Eurozone (Composite): -0.1 @ 53.0 (meet 53.0e); corresponds to +0.3% real GDP (annualized)
Eurozone (Services): -0.1 @ 53.1 (miss 53.2e)
Eurozone (Manufacturing): +0.1 @ 51.7 (beat 51.5e); France was a material drag
UK: -1.5 @ 49.2; a 3-year low
Japan: -0.9 @ 48.2; another 3-year low
Canada: +0.7 @ 52.2
China: official -0.1 @ 50.1 (miss 50.4e); unofficial +0.3 @ 49.4
India: -1.9 @ 50.5
South Korea: +0.5 @ 50.0
Taiwan: -1.4 @ 49.7
Brazil: -3.4 @ 42.6; a 7-year low
#Neutral

Rail traffic monthly (April 2016) | Association of American Railroads (AAR)
The decline in railroad volume keeps accelerating lower; the collapse in manufacturing activity has turned into a dumpster fire, led lower by energy & materials amidst the commodity supercycle’s bust…Railtraffic monthly 2016.04
Monthly traffic: -0.8pp @ -11.8% yoy
Growth rate: -1.3pp @ -7.8% ytd
Carload groups: 5 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

Credit

Senior loan officer survey (2016q1) | Federal Reserve (Fed)
Credit fundamentals weaken across all loan types, with supply & demand fundamentals deteriorating (historically a recession indicator); a deleveraged household sector needs to start releveraging, taking take the handoff from the overleveraged corporate sector (as HY spreads have blown-out)…C&I loans- supply & demand 2016q1
Commercial & Industrial Loans (C&I): demand’s contraction continues, along with significantly tighter supply, despite costs remaining low
Commercial Real Estate (CRE/CMBS): demand continues to grow, but supply tightens significantly
Residential mortgages (RRE/MBS): demand recovers with procyclical increase, along with continued loose supply
Consumer loans: demand reaccelerates, and supply remains loose
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 cycle #Leading indicator $XLF $KBE $KRE $HYG $JNK

NYSE margin debt & balances (March 2016) | Doug Short (dshort.com)
Debt took a pause in its reversion from elevated levels, but the market rallied significantly — an important decoupling between margin debt & SPX; deleveraging maintains its trend, as expected amidst Fed tightening…NYSE margin debt vs SPX (real gross & net, 2016.03)
Nominal margin debt: +2.3% mom, -6.4% yoy @ $446B
Real margin debt: +2.1% mom; -14.0% fm record high (4/2015), but still above prior highs from 3/2000 & 7/2007′s before those bear markets
Net margin balances (“buying power”): +2.3% mom, -20.4% yoy @ -$152B debit; maintains trend recovery from record lows, but remains far above prior records from 2000, 2007 & 2011
[See also: Margin debt & SPX growth rates in lockstep, Margin debt/NYSE ratio constant since 2007 & Margin debt/SPX ratio constant since 2007]
#Neutral #Leverage #Lagging indicator

Sentiment

Retail investor sentiment survey (2016.05.05) | American Association of Individual Investors (AAII)
Sentiment falls deeper into an extreme buy signal, and an outsized neutral cohort is indicative of healthy uncertainty…
Bull/Bear ratio: -22bp wow @ 0.74 (below 1.30 historical average & 1.00 – 1.80 extremes)
Bullish: -5.0pp @ 22.3% (below 39 avg & 30 – 45 extremes)Retail investor sentiment survey- bulls & bears 2016.05.05
Bearish: +1.7pp @ 30.3% (above 30 avg & 25 extreme low)
Neutral: +3.3pp @ 47.3% (above 31 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 10/2016).
[Previously: Institutional allocations send bullish signal & Strategist sentiment still a buy signal]
#Bullish! #Contrarian #Wall of worry

Asset allocation survey (April 2016) | American Association of Individual Investors (AAII)
Allocations maintain neutral signals…
– Stocks: +0.8pp @ 64.8% (between 60% average & 70% extreme high); off lowest level since 3/2013
Bonds: +0.1pp @ 17.6% (above 16% avg & 10% extreme low); highest since 5/2013
Cash: -0.9pp @ 17.6% (below 24% avg; above 15% extreme low)
#Neutral #Contrarian $SPY $AGG

Technicals

Technical study: S&P 500 long term regression & standard deviation (inflation-adjusted, April 2016) | Doug Short (dshort)
SPX rallies back above 2 sigmas over its LT trend, but it remains off the cycle high, which level has historically marked a market top…
Historical variances:
    Currently: +3pp mom @ +83% (down fm cycle high @ +91%)
    Panic of 1907: +85%SPX long term regression & standard deviation (2016.03)
    Great Depression: +81%
    Tech Bubble: +149%
    Great Recession: +88%
– Mean: +1.79% average annual real return
Standard deviation (σ): ±40.6%
Uses $SPX real (inflation-adjusted) prices with exponential regression starting in 1871.
#Bearish #Mean reversion #Secular

–Romeo

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