Diary of a Financier

Top Newsstuffs (December 18-24)

In Bookshelf on Sun 24 Dec 2017 at 05:06

Merry Christmas and Happy Holidays! Here are your top reads from across the past week…

Macro (BULLISH)

Personal income & outlays (November 2017)
by The Bureau of Labor Statistics (BLS)

Decent report slightly misses headline expectations; although there was an acceleration in comps, the problematic gap between stagnant income and growing consumption continues to narrow; these growth rates should fully recouple in coming months, as yoy comps get progressively easier for DPI and harder for PCE through 2017YE and 2018Q1, so I’m not as worried about decelerating savings…
Disposable personal income (Real DPI): +0.3pp @ +1.9% yoy, +0.1 mom; prior month revisions net out one another
Personal consumption expenditures (Real PCE): +0.1pp @ +2.7% yoy, +0.4% mom; prior month revisions net out one another
Personal savings rate: -0.3pp @ +2.9%
Consumer spending accounts for ~70% of US GDP, as this report is a broader measure than the Retail Sales reported earlier this month.
[Previously: Retail sales remain bullish]
#Neutral $XLY #Wages

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

Data crushed expectations, although sequential growth was aided by a big downward revision to prior month; having decelerated back down to trend growth, aggregate yoy and ytd data will continue to face a headwind in multifamily, as that cyclical boom has ended (as expected)…
Monthly housing starts:  +15.8pp @ +12.9% yoy, +3.3% mom @ 1.297M saar (beat 1.240e); singlefamily at highest level since 9/2007; prior months revised significantly lower
Growth rate: -2.7pp @ +3.1% 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

Manufacturers’ durable & capital goods (November 2017)
by US Department of Commerce

Despite missing expectations, core growth maintained high velocity; inventory growth is still running hot, although it’s subject to an easy comp that won’t get lapped until 3/2018’s report (released in April); these above-trend growth rates should decelerate into 2017YE and 2018Q1, as easy yoy comps taper…
– Core durable goods, new orders (ex-transportation): -0.4pp @ +7.0% yoy, -0.1% mom (miss +0.5e)
– Core capex, new orders (capital goods, ex-defense & aircraft): unch @ +8.1% yoy, -0.1% mom
– Core inventory (ex-transportation): +0.1pp @ +5.5% ytd, +0.4% mom
Durable goods account for ~8% of US GDP.
#Bullish! $XLI

Gross Domestic Product (Third estimate, 2017q3)
by Bureau of Economic Analysis (BEA)

Slight downward revision misses expectations, but growth remains high above trend; while a bump in investment led the acceleration, inventories were the biggest contributor to that; despite weighing on the aggregate, consumption and net exports outperformed their higher-frequency monthly data, although yoy comps get harder though Q4 and they lap the weak dollar…
Real GDP (Q2): revised -0.1pp @ +3.2% qoq saar (miss +3.3e)
    Inflation: Core +1.6%; Headline +2.1%
    Consumption (PCE): -0.1pp @ +2.2%
    Investment: unch @ +7.3%; Residential -4.7%; Nonresidential +4.7%
    Government spending: +0.3pp @ +0.7%; Federal +1.3%; State & local +0.2%
    Exports: -0.1pp @ +2.1%
    Imports: +0.4pp @ -0.7%
    Inventories: -1bp @ +0.79pp contribution to GDP growth rate
Real GDP per capita (Q3): +0.9pp @ 2.53% yoy; 9.3% below LT regression trend
Real GDP (2016FY): +1.5% yoy
Real GDP (2015FY): +2.9% yoy
Real GDP (2014FY): +2.6% yoy
Real GDP (2013FY): +1.7% yoy
#Bullish

Credit (NEUTRAL)

 

Fundamentals (BULLISH)

 

Valuations (NEUTRAL)

 

Sentiment (NEUTRAL)

Retail investor sentiment survey (2017.12.21)
by The American Association of Individual Investors (AAII)

Sentiment spikes again, pushing everything into a bearish signal; while the bearish cohort is barely within its normal range, bulls are at extremes and the neutral cohort continues to recede — a sign of both broader-based participation and the wall-of-worry’s dismantling…
Bull/Bear ratio: +25bps wow @ 1.97x (above both 1.30 historical average and 1.00 – 1.80 extremes)
Bullish: +5.5pp @ 50.5% (above both 39 avg and 30 – 45 extremes); highest since 2015
Bearish: -2.5pp @ 25.6% (below 30 avg, within 25 – 40 extremes)
Neutral: -3.0pp @ 23.9% (below 31 avg, within 40 extreme)
Measures respondents’ expectation for equity performance over next 6 months (through 6/2018).
[Previously: Retail allocations remain barely neutral, Institutional allocations remain barely neutral, Strategist sentiment remains neutral & Quantifying the “wall of worry”; See also: Household equity allocations at postcrisis lows sends a bullish signal]
#Bearish #Contrarian

Technicals (NEUTRAL)

 

–Romeo

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