Diary of a Financier

Top Newsstuffs (June 12-18)

In Bookshelf on Sun 18 Jun 2017 at 06:33

Top reads from across the past week…

Macro (BULLISH)

Retail sales (May 2017)
by US Government Census

The deceleration continues with this sizable miss, but growth remains above trend and is merely coming back down to earth as easy yoy comps taper into YE; carnage among brick & mortar retailers continues…
Core (ex-autos): -0.9pp @ +3.8% yoy, -0.3% mom (miss +0.2e); prior month revised higher
Headline: -0.8pp @ +3.8% yoy, -0.3% mom (miss +0.1e); prior month revised 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

Housing permits, starts & completions (May 2017)
by US Government Census

Another ugly report missed expectations, marred even more by downward revisions to prior months, although the trend is hanging in there as next month will exit a stretch of difficult yoy comps; weakness was mostly attributable to a collapse in multifamily, continuing the category’s choppy trend now that its boom has ended (as expected)…
Monthly housing starts:  -3.1pp @ -2.4% yoy, -5.5% mom @ 1.092M saar (miss 1.221e); prior month revised lower
Growth rate: -2.1pp @ +3.2% ytd
Residential investment accounts for 3-5% of US GDP, part of housing’s 15-18% total contribution to growth.
[Previously: The future is still so bright; See also: BAML says housing starts will accelerate & return to historical average in 2016/17 & Homebuilder confidence remains near 11-year highs]
#Neutral $XHB $ITB

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

Inflation misses expectations across the board, mostly due to big upward revisions to the prior month; but core inflation sinks to the lowest level since 2015; energy (+5.4% ttm) is still lapping its low base for yoy comps, which will wane steadily into YE; unfortunately, this slips further below the Fed’s 2% target (and Yellen has said she’d even tolerate higher run-rates, so I don’t expect too hawkish of a tightening cycle from the Fed)…
Core CPI (ex food & energy): -0.2pp @ +1.7% ttm, +0.1% mom (miss +0.2e); a 19-month low
Headline CPI: -0.3pp @ +1.9% ttm, -0.1% mom (miss +0.1e)
[Previously: Yellen’s “Optimal Control Policy” could have Fed target 2.5% inflation]
#Neutral #Dovish $TIP

Credit (NEUTRAL)

Loans & leases in bank credit, all commercial banks (2017.05.31)
by St. Louis Federal Reserve (FRED)

Lending growth remains weak, decelerating back to multi-year lows, 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: -20bps mom @ +4.00% 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

Fundamentals (BULLISH)

 

Valuations (NEUTRAL)

 

Sentiment (BULLISH)

Retail investor sentiment survey (2017.06.15)
by The American Association of Individual Investors (AAII)

Sentiment remains in neutral territoy…
Bull/Bear ratio: -11bps wow @ 1.09 (below 1.30 historical average & between 1.00 – 1.80 extremes)
Bullish: -3.2pp @ 32.3% (below 39 avg & between 30 – 45 extremes)
Bearish: unch @ 29.5% (below 30 avg & between 25 – 40 extremes)
Neutral: +3.2pp @ 38.2% (above 31 avg); down from a post-Election high
Measures respondents’ expectation for equity performance over next 6 months (through 12/2017).
[Previously: Retail allocations are still neutral & Quantifying the “wall of worry”]
#Neutral #Contrarian

Global fund manager allocation survey (May 2017)
by Bank of America Merrill Lynch (BAML)

Risk allocations remain in neutral territory, but internally, US equities are flashing a bullish signal, while bonds are on the threshold of a bull signal, as USD bearishness wanes and inflation expectations remain near 13-year highs; confidence in the economy and corporate profits remain near 2 and 7-year highs, respectively…
– Equity: -5pp @ +40% OW (neutral signal, between +15 & +50 extremes); remains near a 24-month high
– Bonds: -1pp @ -58% UW (neutral signal, above -60 extreme); back near a 3-year low
– Cash: +1pp @ +5.0% OW (bullish signal, meets +5.0 extreme high)
– Commodities: -12pp @ -15% UW (neutral signal, between -20 & +12 extremes); a 1-year low
– Regions…
    US: +2pp @ -15% UW (bullish signal, below -10 extreme); still near a 9-year low
    Europe: -1pp @ +58% OW (bearish signal, above +35 extreme); down from a 26-month high
    Emerging Markets: +1pp @ +42% OW (bearish signal, above +40 extreme); near a 5-year & alltimevhigh
 Sectors…
    Bearish: $EZU $XLF
    Bullish: $GBP
Surveys a sample of 200+ PMs with $700B+ in AUM, asking for portfolio positioning (overweight/underweight) relative to 60/30/10 benchmark.
#Bullish ($SPY) #Contrarian

Technicals (NEUTRAL)

 

–Romeo

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