Diary of a Financier

Top Newsstuffs (January 2-8)

In Bookshelf on Sun 8 Jan 2017 at 05:53

Top reads from across the past week…

Macro

Purchasing Managers Index (December 2016)
by Markit Economics

Global growth remains resilient, with a big recovery from the US dispelling last month’s warning; the UK regained its pre-Brexit pole positing; Europe’s hanging onto decent velocity; the rest of the world is relatively stagnant…
Global PMI (Composite): +0.1 @ 53.4 (below 53.9 LT avg); a 13-month highGlobal PMI composite 2016.12
Global PMI (Services): unch @ 53.3 (below 54.3 LT avg); a 13-month high
Global PMI (Manufacturing): +0.6 @ 52.7 (above 51.3 LT avg); a 35-month high
US ISM (Composite): +0.2 @ 56.9 (above 54.6 post-recession avg); a 14-month high
– US ISM (Services): unch @ 57.2 (beat 56.8e); unexpectedly maintains high velocity, although inflation is creeping & inventories are too high; corresponds to +3.3% real GDP (annualized)US ISM PMI Composite 2016.12
    New orders: +4.6 @ 61.6
    Inventory sentiment: +1.0 @ 61.5 (“too high”)
    Prices: +0.7 @ 57.0
US ISM (Manufacturing): +1.5 @ 54.7 (beat 53.8e); another big acceleration, again without Inventories’ tailwind being manifest yet (still contracting), which suggests there’s more room to run; inflation running really hot, but respondents seems to suggest that prices are encouraging present consumption; corresponds to +3.6% real GDP (annualized)
    New orders: +7.2 @ 60.2
    Production: +4.2 @ 60.3
    Inventories: -2.0 @ 47.0
    Prices: +11.0 @ 65.5
Eurozone (Composite): +0.5 @ 54.4 (beat 53.9e); corresponds to +0.4% real GDP (annualized)
Eurozone (Services): -0.1 @ 53.7 (beat 53.1e)
Eurozone (Manufacturing): +1.2 @ 54.9 (meet 54.9e); across-the-board gains
UK: +2.5 @ 56.1; “inflation remaining among the highest seen during the survey history… linked to the increase to the [GBP] exchange rate” #Brexit
Japan: +1.1 @ 52.4; a 12-month high
China: official -0.3 @ 51.4 (miss 51.5e); unofficial +1.0 @ 51.9
Canada: +0.3 @ 51.8
India: -2.7 @ 49.6; continued impact from demonetization crackdown
South Korea: +1.4 @ 49.4
Taiwan: +1.5 @ 56.2; a 28-month high
ASEAN: -0.3 @ 49.1
Brazil: -1.0 @ 45.2
#Bullish

Trade balance (November 2016)
by US Department of Commerce

Weak report as the miss could weigh on GDP; in broader context, gross trade volumes did remain healthy and the deficit is continuing to repair on thanks to slower trade with China & declining petroleum imports…
Net exports: -10.0% yoy, -6.7% mom @ -$45.2B deficit (miss -$44.5B exp)Trade deficit 2016.10
    Exports: +1.2% yoy, -0.2% mom @ $185.8B; +12% above the precrisis peak
    Imports: +2.8% yoy, +1.1% mom @ $231.1B
The net balance of trade accounts for ~ 3-5% of US GDP (seasonally adjusted).
#Neutral #EX #IM #NX #Globalization

Rail traffic monthly (December 2016)
by The Association of American Railroads (AAR)

Another expansionary month & another acceleration starts an upward trand after years of uninterrupted declines; this is still attributable to easy yoy comps; while petroleum shipments are still collapsing (-21% yoy), coal has at least steadied (+3.3%) to end the year…
Monthly traffic: +5.8pp @ +6.9% yoyRailtraffic monthly 2016.12
Growth rate: +0.8pp @ -5.0% ytd
Carload groups: 13 of 20 posted gains for the month yoy
In particular, the secular decline of coal volumes (~40% of carloads makes it the largest category) has been negatively skewing the data.
#Bullish $IYT $XLB $XLE $DBC

Technicals

Analysis: Small Caps maintain a cyclical buy signal
by ValueWalk

Despite the massive 2016 rally out of their Q1 bear market, a multifactor analysis of Small Caps flashes a bullish signal…IWM technicals 2016ye
1/ Historical recovery from bear markets: $IWM +47.4% to date after the 2016q1 bear market trough vs +98.8% historical average rally;
2/ Small Cap Value ($IWN) > Growth ($IWO): Despite massive 2016 outperformance (IWN +31.7% vs IWO +11.3%), Value remains at historic lows relative to Growth based on trailing 10-year performance, which is near 2σ extremes akin to 1999’s;
3/ Fund flows: Countercyclical to 2016’s rally, IWM saw $38B in net outflows
#Bullish $IWM $RUT #quant

Sentiment

Retail investor sentiment survey (2017.01.05)
by The American Association of Individual Investors (AAII)

Sentiment floats higher into extreme territory, a bearish indicator of exuberance…
Bull/Bear ratio: +6bps wow @ 1.83 (above 1.30 historical average & 1.00 – 1.80 extremes)
Bullish: +0.6pp @ 46.2% (over 39 avg & 30 – 45 extremes)Retail investor sentiment- bulls 2017.01.05
Bearish: -0.5pp @ 25.2% (below 30 avg, but between 25 – 40 extremes)
Neutral: -0.1pp @ 28.6% (below 31 avg)
Measures respondents’ expectation for equity performance over next 6 months (through 6/2017).
[Previously: Institutional allocations remain a neutral signal]
#Bearish #Contrarian

Asset allocation survey (December 2016)
by The American Association of Individual Investors (AAII)

Allocations remain neutral signals; respondents were mixed on the Trump administration, with those who were bullish on his policies being offset by those who were uncertain (suggesting that the Trump rally isn’t fully-discounted or ahead of itself)…
– Stocks: -0.1pp @ 66.3% (between 60% average & 70% extreme high)
Bonds: -0.6pp @ 15.8% (between 16% avg & 10% extreme low); a 17-month low
Cash: +0.7pp @ 17.9% (between 24% avg & 15% extreme low); up from a 17-month low
#Neutral #Contrarian $SPY $AGG

–Romeo

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