Diary of a Financier

Top Newsstuffs (May 8-14)

In Bookshelf on Sun 14 May 2017 at 05:32

Top reads from across the past week…

Macro (BULLISH)

Retail sales (April 2017)
by US Government Census

This was a good report, missing expectations only due to significant upward revisions to prior month data; yoy growth remains firmly above trend GDP due to easy yoy comps (i.e. energy’s low base), which will slowly taper into YE; carnage among brick & mortar retailers continues…
Core (ex-autos): -0.5pp @ +4.5% yoy, +0.3% mom (miss +0.4e)
Headline: -0.7pp @ +4.5% yoy, -0.4% mom (miss +0.6e); prior month revised significantly higher
Retail sales account for ~31% of US GDP (~45% of the Consumption component).
[Previously: Consumer confidence remains extremely bullish signal & Income/consumption remain bullish signals]
#Bullish $XLY $XRT #tailwind

Inflation: Consumer Price Index (April 2017)
by Bureau of Labor Statistics (BLS)

Prices stabilize after last month’s big drop, but core inflation decelerates to the lowest level since 2015; energy’s still lapping its low base for yoy comps, which tailwind will wane steadily into YE; regardless, inflation is right around the Fed’s 2% target, and Yellen has said she’d tolerate higher run-rates, so don’t expect too hawkish of a tightening cycle from the Fed…
Core CPI (ex food & energy): -0.1pp @ +1.9% ttm, +0.1% mom (miss +0.2e); a 19-month low
Headline CPI: -0.2pp @ +2.2% ttm, +0.2% mom (meet +0.2e)
[Previously: Yellen’s “Optimal Control Policy” could have Fed target 2.5% inflation]
#Bullish #Dovish $TIP

Credit (NEUTRAL)

Loans & leases in bank credit, all commercial banks (2017.04.26)
by St. Louis Federal Reserve (FRED)

Lending growth remains weak, having decelerate to multi-year lows in March, although econometrics suggest that this could be a lagged effect of 2015/16’s industrial production slowdown, which difficult comp doesn’t get lapped until 2017YE…
Weekly loan growth: -10bps wow @ +4.20% yoy (below 7.3% historical average)
This is a key indicator; although the Fed’s rising rates & Trump’s deregulation increase NIMs, I’d expect continued credit expansion due to household & corporate balance sheets being more deleveraged than at any point since the 1970s.
[Previously: Consumer indebtedness remains a bullish signal, Banks’ future credit supply & demand fundamentals expected to remain neutral & Households remain extremely deleveraged]
#Neutral #Releveraging? #Credit cycle $XLF $KBE $KRE

Sentiment (BULLISH)

Retail investor sentiment survey (2017.05.11)
by The American Association of Individual Investors (AAII)

Sentiment drops, but remains a neutral signal; the neutral cohort spiked, suggesting renewed uncertainty, which was exactly what respondents said, citing the Trump administration and low volatility as big concerns…
Bull/Bear ratio: -19bps wow @ 1.08 (below 1.30 historical average, but between 1.00 – 1.80 extremes)
Bullish: -5.3pp @ 32.7% (below 39 avg, but between 30 – 45 extremes)
Bearish: +0.3pp @ 30.2% (near 30 avg & between 25 – 40 extremes)
Neutral: +5.1pp @ 37.1% (above 31 avg); a post-Election high
Measures respondents’ expectation for equity performance over next 6 months (through 11/2017).
[Previously: Institutional allocations send bullish signal for US securities, Retail allocations remain neutral & Quantifying the “wall of worry”]
#Neutral #Contrarian

Valuations (NEUTRAL)

Fundamentals (BULLISH)

Technicals (NEUTRAL)

–Romeo

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