Diary of a Financier

Top Newsstuffs (January 1-7)

In Bookshelf on Sun 7 Jan 2018 at 05:01

Happy New Year (for reals this time)! Here are your top reads from across the past week…

Macro (BULLISH)

Trade balance (November 2017)
by US Department of Commerce

The deficit misses again, falling back to postcrisis lows despite a really weak USD, and having lapped difficult yoy comps in 2017Q4; overall, gross trade volumes are accelerating, a sign of strong global growth and US tailwinds from a cyclically weak USD, secularly declining petroleum imports, and slower trade with China (although the deficit with China has started to mount again)…
Net exports: -8.9% yoy, -3.2% mom @ -50.5B deficit (miss -$48.3e)
    Exports: +8.3% yoy, +2.2% mom
    Imports: +8.4% yoy, +2.5% mom
The net balance of trade accounts for ~3 – 5% of US GDP (seasonally adjusted).
[Previously: GDP remains above trend]
#Bearish $DXY $UUP #EX #IM #NX #Globalization

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

Transportation volumes remain at solid velocity after their a multi-year decline; although seasonality provides a tailwind until 2/2018, we’ve now lapped easy yoy comps
Monthly traffic: +0.9pp @ +4.0% yoy
Growth rate: -0.2pp @ +3.4% ytd
Carload groups: 14 of 20 posted gains yoy; led by Coal’s recovery (+7.9% ytd) off a low yoy comp base, but offset by Motor Vehicles (-6.5% ytd) and Energy’s continued collapse (-12.2% 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

Purchasing Managers Index (December 2017)
by Markit Economics

Global growth remains a multiyear highs with broad-based participation; however, some leading indicators are worrisome, including US Services headwinds and contraction in Southeast Asia…
Global PMI (Composite): +0.3 @ 54.4 (beats 53.9 LT avg); highest since 3/2015
Global PMI (Services): +0.2 @ 53.9 (miss 54.3 LT avg)
Global PMI (Manufacturing): +0.4 @ 54.5 (above 51.4 LT avg); highest since 2/2011
US ISM (Composite): -2.5 @ 57.5; still strong growth, but the tailwind has ended
– US ISM (Services): -1.5 @ 55.9 (miss 57.6e); velocity remains decent, but another deceleration missed expectations with even worse internals, all signaling an end to the tailwind (with high inventories likely posing as a headwind); corresponds to +2.7% real GDP (annualized)
    New orders: -4.4 @ 54.3
    Inventories: -1.0 @ 53.5 (sentiment +6.5 @ 62.5 “too high”)
    Backlog: -1.5 @ 50.0
    Prices: +0.1 @ 60.8
US ISM (Manufacturing): +1.5 @ 59.7 (beat 58.0e); nice acceleration with incredible internals; inflation remains troubling, even though the transitory effects of the Hurricanes have abated (plunging USD and insular trade policy too?); corresponds to +5.2% real GDP (annualized)
    New orders: +5.4 @ 69.4
    Backlog: +1.0 @ 56.0
    Prices: +3.5 @ 69.0
    Inventories: +1.5 @ 48.5
    Customer inventories: -3.5 @ 42.0
Eurozone (Composite): +0.6 @ 58.1 (beat 58.0e); highest since 2/2011 (pre-Eurocrisis); corresponds to +0.8% real GDP (annualized)
Eurozone (Services): +0.4 @ 56.6 (beat 56.5e); highest since 4/2010
Eurozone (Manufacturing): +0.5 @ 60.6 (meet 60.6e); a record high
China: official -0.2 @ 51.6; unofficial +0.7 @ 51.5 (beat 50.6e)
Japan: +0.8 @ 53.6; highest since 3/2014
UK: -1.9 @ 56.3; down from a 51-month high
Canada: +0.3 @ 54.7
India: +2.1 @ 54.7; highest since 12/2012
South Korea: -1.3 @ 49.9; hiccups from North Korean tensions return
Taiwan: +0.6 @ 56.6; an 80-month high
ASEAN: -0.9 @ 49.9
Brazil: -1.1 @ 52.4; down from an 81-month high

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

Credit (NEUTRAL)

Loans & leases in bank credit, all commercial banks (2017.12.20)
by St. Louis Federal Reserve (FRED)

We’re finally getting a bounce off the lows, but lending growth remains ugly after a big 2017 deceleration to multi-year lows; econometrics suggest that this could be a lagged effect of 2015/16’s industrial production slowdown, which difficult comp should be lapped to start 2018…
Weekly loan growth: +43bps mom @ +4.07% yoy (below 7.3% historical average)
This is a key indicator; although the Fed’s rising rates & Trump’s deregulation jawboning should increase NIMs and corporate debt is relatively bloated, I’d still expect continued, aggregate credit expansion, since household balance sheets are more deleveraged than at any point since the 1970s.
[Previously: Households remain extremely deleveraged; See also: Senior loan officer survey expects bank credit supply & demand fundamentals to remain neutral]
#Bearish #Releveraging!? #Credit cycle $XLF $KBE $KRE

Fundamentals (BULLISH)

 

Valuations (NEUTRAL)

 

Sentiment (BEARISH)

Retail investor sentiment survey (2018.01.04)
by The American Association of Individual Investors (AAII)

Sentiment continues to spike, pushing everything deeper into a bearish signal; SPX historically underperforms from such levels of exuberance, averaging only +0.5% performance (median) in the next six months after Bullishness is this high (46 occurrences), with > 50% wins…
Bull/Bear ratio: +127bps wow @ 3.83x (above both 1.30 historical average and 1.00 – 1.80 extremes)
Bullish: +7.1pp @ 59.8% (above both 39 avg and 30 – 45 extremes); highest since 12/2010
Bearish: -5.1pp @ 15.6% (below both 30 avg and 25 – 40 extremes); lowest since 11/2014
Neutral: -2.0pp @ 24.7% (below 31 avg, within 40 extreme)
Measures respondents’ expectation for equity performance over next 6 months (through 6/2018).
[Previously: Institutional allocations remain barely neutral & Quantifying the “wall of worry”; See also: Household equity allocations at postcrisis lows sends a bullish signal]
#Bearish! #Contrarian

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

Allocations breach the extremes of a bearish signal…
– Stocks: +3.4pp @ 72.0% (above both 60 average and 70 extreme high); highest since 7/2000
Bonds: -2.6pp @ 15.0% (below 16 avg)
Cash: -0.8pp @ 13.0% (below both 24 avg and 15 extreme low); lowest since 12/1999
#Bearish #Contrarian $SPY $AGG

Strategist sentiment survey: Sell side consensus indicator (January 2018)
by Bank of America Merrill Lynch (BAML)

Despite spiking higher in 2017, the signal remains neutral, having normalized after years of running-into the wall-of-worry; average subsequent SPX return from these levels is +19% ntm…
Equity allocation: +1.4pp @ 56.8% (below 57.3 average, within 51.8 – 62.8 extremes)
Indicator measures the average recommended equity allocation of Wall Street strategists.
#Neutral #Contrarian

Technicals (NEUTRAL)

 

–Romeo

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