Diary of a Financier

Top Newsstuffs (November 13-19)

In Bookshelf on Sun 19 Nov 2017 at 05:36

Top reads from across the past week…

Macro (BULLISH)

Retail sales (October 2017)
by US Government Census

Although data appears to be a mixed-bag relative to expectations, these represent another acceleration, even higher above trend, given prior month’s upward revisions; the effects of Hurricanes Harvey and Irma are still positively skewing data, as manifest by building materials (+8.8% mom), gas (+7.5%), and brick & mortar retailers (+6.8% dead-cat bounce)”; still expect the deceleration to resume as easy yoy comps taper into YE…
Core (ex-autos): -0.3pp @ +4.3% yoy, +0.1% mom (miss +0.2e); prior month revised higher
Headline: +0.2pp @ +4.6% yoy, +0.2% mom (beat +0.1e); prior month revised significantly higher
Retail sales account for ~31% of US GDP (~45% of the Consumption component).
[Previously: Consumer confidence remains an extremely bullish signal & Income and consumption remain mixed/neutral signals]
#Bullish $XLY $XRT

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

Although yoy dips into contraction due to difficult comps, data beats expectations with a nice recovery and upward revisions to the prior month; albeit near trend growth, ytd data remain underwhelming due to multifamily’s headwind (-9.9% ytd), which will continue to drag on data as its cyclical boom has ended (as expected)…Housing starts 2017.10
Monthly housing starts:  -9.0pp @ -2.9% yoy, +13.7% mom @ 1.290M saar (beat 1.188e); prior months revised slightly higher
Growth rate: +2.7pp @ +5.8% 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 (October 2017)
by Bureau of Labor Statistics (BLS)

Inflation settles in right around the Fed’s 2% target; while still leading headline gains, energy’s influence is waning (+6.4% ttm) as easy yoy comps taper into YE; essentials like shelter (+3.2%) and transportation (+4.2%) are still running hot…
Core CPI (ex food & energy): +0.1 @ +1.8% ttm, +0.2% mom (meets +0.2e); remains at a 19-month low
Headline CPI: -0.2pp @ +2.0% ttm, +0.1% mom (meets +0.1e)
Yellen has said she’d even tolerate higher run-rates, so don’t expect too hawkish of a tightening cycle from the Fed.
[Previously: Yellen’s “Optimal Control Policy” could have Fed target 2.5% inflation]
#Neutral #Dovish $TIP

 

Credit (NEUTRAL)

US household debt & credit report (2017q3)
by The Federal Reserve Bank of New York (NY Fed)

Despite balances reaching another record high, impairments remain relatively low; both foreclosures & bankruptcies hit record lows…
Total Debt: +0.4pp @ +4.9% yoy, +0.8% qoq @ $12.96T
Delinquencies: +0.1pp qoq @ 4.9% of total debt (vs 7.2% LT average); up from lowest since 2007q2
    90+ days: unch qoq @ 2.4%; the continued spike in credit cards warrants monitoring, offset by student loans repairing (perhaps due to Millennials reaching prime working age?)
#Bullish #Releveraging

 

Fundamentals (BULLISH)

 

Valuations (NEUTRAL)

 

Sentiment (NEUTRAL)

Retail investor sentiment survey (2017.11.16)
by The American Association of Individual Investors (AAII)

Sentiment procyclically plunges down to extremes indicative of a contrarian bullish signal; more importantly, the neutral cohort continues to recede — a sign of both broader-based participation and the wall-of-worry’s dismantling…Retail investor sentiment- bulls 2017.11.16
Bull/Bear ratio: -75bps wow @ 0.83x (below both 1.30 historical average and 1.00 – 1.80 extremes)
Bullish: -15.8pp @ 29.3% (below both 39 avg and 30 – 45 extremes); down from ytd high; largest sequential decline since 4/2013
Bearish: +12.1pp @ 35.2% (above 30 avg, within 25 – 40 extremes)
Neutral: +3.6pp @ 35.4% (above 31 avg, within 40 extreme)
Measures respondents’ expectation for equity performance over next 6 months (through 4/2018).
[Previously: Retail allocations remain neutral, Strategist sentiment remains neutral & Quantifying the “wall of worry”; See also: Household equity allocations at postcrisis lows sends a bullish signal]
#Neutral #Contrarian

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

Global risk allocations barely remain in neutral territory, at the brink of bearish signals; US equities remain in a bullish signal, with the US/Europe allocation ratio near record lows; Europe, the Euro, and EM remain bearish signals…
– Equity: +14pp @ +49% OW (neutral signal, between +15 & +50 extremes); highest since 4/2015
– Bonds: -8pp @ -56% UW (neutral signal, above -60 extreme); back near a 3-year low
– Cash: -0.4pp @ +4.4% OW (neutral signal, below +5.0 extreme high); lowest since 10/2013
– Commodities: unch @ -4% UW (neutral signal, between -20 & +12 extremes)
Regions…
    US: +12pp @ -16% UW (bullish signal, below -10 extreme); up from lowest since 11/2007
    Europe: -7pp @ +47% OW (bearish signal, above +35 extreme); down from 3½-year highs
    Emerging Markets: -4pp @ +43% OW (bearish signal, above +40 extreme); down from a 7-year high
 Sectors…
    Bearish signal: $XLF $EZU $EUR $EEM $EWJ
    Bullish signal: $EWU
Surveys a sample of 200+ PMs with $700B+ in AUM, asking for portfolio positioning (overweight/underweight) relative to 60/30/10 benchmark.
#Neutral #Contrarian

 

Technicals (NEUTRAL)

NYSE margin debt & balances (September 2017)
by Doug Short (dshort’s Advisor Perspectives)

Margin debt levels continue acceleration to record highs, remaining in reasonable proportion to market performance, although the mounting releveraging trend bears watching due to recent decoupling; yoy comps are still misrepresentative due to a low base, but they’re now lapping that into year-end…
Nominal margin debt: +1.6% mom, +11.7% yoy @ $559.6B; a new alltime high
Net credit (“buying power”): -2.9% mom, -34.6% yoy @ -$266.0B debit; a new alltime low
[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

 

–Romeo

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