Diary of a Financier

Top Newsstuffs (October 2-8)

In Bookshelf on Sun 8 Oct 2017 at 05:15

Top reads from across the past week…

Macro (BULLISH)

Trade balance (August 2017)
by US Department of Commerce

The deficit beats expectations, but is still recovering from postcrisis lows despite a really weak USD; difficult yoy comps will last through September data; overall, gross trade volumes are healthy, with tailwinds from a cyclically weak USD, secularly declining petroleum imports, and slower trade with China…
Net exports: +3.1% yoy, +2.7% mom @ -$42.4B deficit (beat -$42.5e)
    Exports: +4.2% yoy, +0.4% mom
    Imports: +4.0% yoy, -0.2% mom
The net balance of trade accounts for ~3 – 5% of US GDP (seasonally adjusted).
[Previously: GDP returns to bullish trend]
#Neutral $DXY $UUP #EX #IM #NX #Globalization

Purchasing Managers Index (September 2017)
by Markit Economics

Global growth remains a multiyear highs; this was perhaps a better report than meets the eye, with not only aggregate internals indicative of a strong tailwind for coming months, but also broad-based participation; however, inflation needs to be watched, because it’s now manifest as a material problem…
Global PMI (Composite): unch @ 54.0 (beats 53.9 LT avg); highest since 4/2015
Global PMI (Services): -0.1 @ 54.0 (below 54.3 LT avg); down from a 2-year high
Global PMI (Manufacturing): unch @ 53.2 (above 51.4 LT avg); remains at a 75-month high; first time in history every major component was in expansion
US ISM (Composite): +4.5 @ 59.8
(above 54.6 post-recession avg); highest since 8/2005
– US ISM (Services): +4.5 @ 59.8 (beat 55.4e); underwhelms expectations despite the nice bump; internals are decent for coming months and the headwind from spiking inventories is waning, but hot inflation is a creeping problem; corresponds to +4.2% real GDP (annualized)
    New orders: +5.9 @ 63.0
    Inventories: -2.0 @ 51.5 (sentiment -2.5 @ 58.5 “too high”)
    Backlog: +2.5 @ 56.0
    Prices: +8.4 @ 66.3
US ISM (Manufacturing): +2.0 @ 60.8 (beat 58.0e); another huge acceleration, and internals couldn’t be a bigger tailwind, although inflation accelerates to an even more troubling level (heating-up due to plunging USD and insular trade policy?); corresponds to +5.5% real GDP (annualized)
    New orders: +4.3 @ 64.6
    Backlog: +0.5 @ 58.0
    Prices: +9.5 @ 71.5
    Inventories: -3.0 @ 52.5
    Customer inventories: +1.0 @ 42.0
Eurozone (Composite): +1.0 @ 56.7 (meet 56.7e); corresponds to +0.7% real GDP (annualized)
Eurozone (Services): +1.1 @ 55.8 (beat 55.6e)
Eurozone (Manufacturing): +0.7 @ 58.1 (miss 58.2e); highest since 2/2010
China: official +0.7 @ 52.4 (beat 51.3e); unofficial -0.6 @ 51.0; official reaches highest since 2012
Japan: +0.7 @ 52.9; optimism remains near alltime highs due to 2020 Tokyo Olympics
UK: -0.8 @ 55.9; inflation is threatening production, as expected in the wake of Brexit
Canada: +0.4 @ 55.0
India: unch @ 51.2
South Korea: +0.7 @ 50.6; first expansion in over 14-months, after a Presidential scandal and North Korean tensions
Taiwan: -0.1 @ 54.2
ASEAN: -0.1 @ 50.3
Brazil: unch @ 50.9

#Bullish! $ACWI $EFA $EEM $DXY $UUP

Rail traffic monthly (September 2017)
by The Association of American Railroads (AAR)

Another decent month maintains a solid velocity recovering from a multi-year decline, although it’s still attributable to easy yoy comps that will be a tailwind until 2/2018…
Monthly traffic: -1.8pp @ +0.7% yoy
Growth rate: -0.4pp @ +3.6% ytd
Carload groups: 8 of 20 posted gains yoy; led by Coal’s recovery (+12% ytd) from a low yoy comp base, albeit tempered by Motor Vehicles (-7% ytd) and Energy’s continued collapse (-15% ytd)
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

 

Credit (BEARISH)

 

Fundamentals (BULLISH)

 

Valuations (NEUTRAL)

 

Sentiment (BULLISH)

Strategist sentiment survey: Sell side consensus indicator (September 2017)
by Bank of America Merrill Lynch (BAML)

Despite spiking higher ytd, the signal remains neutral, having merely normalized after years of running-into the wall-of-worry…
Equity allocation: -1.0pp @ 55.4% (below 57.7 average, within 51.8 – 63.6 extremes)
Indicator measures the average recommended equity allocation of Wall Street strategists.
#Neutral #Contrarian

Asset allocation survey (September 2017)
by The American Association of Individual Investors (AAII)

Allocations remain neutral signals, although all asset classes are near extremes that would be a bear signal; investors citing #TINA (due to low interest rates) as the cause of their risk-on posture…
– Stocks: +1.9pp @ 68.7% (between both 60 average + 70 extreme high); back up near a 12-year high
Bonds: -2.2pp @ 15.1% (below 16 avg)
Cash: +0.2pp @ 16.2% (between 24 avg + 15 extreme low); up more from the lowest level since 1/2000
#Neutral #Contrarian $SPY $AGG

Retail investor sentiment survey (2017.10.05)
by The American Association of Individual Investors (AAII)

Sentiment remains a neutral signal, nearing a contrarian bull signal at the bottom-end of its normal range; the neutral cohort has returned to average — a sign of both broader-based participation and the wall-of-worry’s dismantling…
Bull/Bear ratio: -7bps wow @ 1.09 (below 1.30 historical average, within 1.00 – 1.80 extremes)
Bullish: +2.3pp @ 35.6% (below 39 avg, within 30 – 45 extremes)
Bearish: +4.1pp @ 32.8% (above 30 avg, within 25 – 40 extremes)
Neutral: -6.3pp @ 31.6% (above 31 avg, below 40 extreme)
Measures respondents’ expectation for equity performance over next 6 months (through 3/2018).
[Previously: Institutional allocations maintain bullish signal for US risk & Quantifying the “wall of worry”]
#Neutral #Contrarian

 

Technicals (NEUTRAL)

 

–Romeo

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