Diary of a Financier

Top Newsstuffs (February 5-11)

In Bookshelf on Sun 11 Feb 2018 at 05:17

Here are your top reads from across the past week…

Macro (BULLISH)

Prime working-age population (January 2018)
by The Bureau of Labor Statistics (BLS)

The US’s prime working age population (25-54 years old) has finally reached a new alltime high, surpassing 2007’s peak after having bottomed in 2012.
This cohort should continue to grow +0.5% per year before spiking higher in 2020 (although BLS doesn’t adjust for the Census Bureau’s downward revisions in net migration, inclusive of which this cohort is at a +0.2 – 0.3% run-rate).
Organic population demographics now provide a secular tailwind for the country.
[Previously: Downward revisions to US net migration mitigate the demographic tailwind (before Trump effects); Millennials’ economic activity is displacing Baby Boomers’Global population demographics enter tailwind thanks to India and US (despite China and rest of OECD)]
#Bullish! #laborforce #employment #human capital

Trade balance (December 2017)
by US Department of Commerce

The deficit misses again, widening to its worst postcrisis level despite a really weak USD, historically narrow energy deficit, 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: -19.1% yoy, -5.3% mom @ -$53.1B deficit (miss -$51.9e); prior month revised down
   Exports: +7.3% yoy, +1.8% mom
   Imports: +9.5% yoy, +2.5% mom
The net balance of trade accounts for ~3 – 5% of US GDP (seasonally adjusted).
#Bearish! $DXY $UUP #EX #IM #NX #Globalization

Rail traffic monthly (January 2018)
by The Association of American Railroads (AAR)

Although transportation volumes seem weak, they accelerated into month-end after bad calendar effects impacted the first week of the year; expect them to return to trend in February, although we’ve now lapped easy yoy comps
Monthly traffic: -3.9pp @ +0.1% yoy
Carload groups: 8 of 20 posted gains yoy
   Motor vehicles: -10.1% ytd
   Coal: -5.8% ytd; now post-recovery, having lapped its easy comp
   Energy: +6.4% ytd; starts recovery as it enters easy yoy comps
In particular, the secular decline of coal volumes (~40% of carloads makes it the largest category) has been negatively skewing the data.
#Neutral $IYT $XLB $XLE $DBC

Credit (NEUTRAL)

Loans & leases in bank credit, all commercial banks (2018.01.24)
by St. Louis Federal Reserve (FRED)

Lending growth remains ugly after a big 2017 deceleration down 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: -13bps mom @ +3.77% 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 (2018.02.01)
by The American Association of Individual Investors (AAII)

After an unprecedented spike to start the year, sentiment has more than retraced, now down to the lower bounds of a neutral signal thanks to this procyclical plummet alongside Monday’s flash crash; nevertheless, SPX historically underperforms from levels of exuberance reached around the New Year, averaging only +0.5% median performance (46 occurrences with >50% hit-rate) in the next six months (ending 6/2018)…
Bull/Bear ratio: -50bps wow @ 1.06x (below 1.30 historical average, but between 1.00 – 1.80 extremes)
    Bullish: -7.7pp @ 37.0% (below 39 avg, but between 30 – 45 extremes); further descent from highest level since 12/2010
     Bearish: +6.3pp @ 35.0% (above 30 avg, but between 25 – 40 extremes); further rise from lowest level since 11/2014
     Neutral: +1.5pp @ 28.0% (below 31 avg, within 40 extreme)
Measures respondents’ expectation for equity performance over next 6 months (through 6/2018).
[Previously: Retail allocations are a bearish signal; Institutional allocations are a bearish signal; Strategist sentiment remains neutral; Quantifying the “wall of worry”; See also: Household equity allocations at postcrisis lows sends a bullish signal]
#Neutral #Contrarian

Technicals (BEARISH)

Commitment of Traders (COT): S&P 500 net speculative positioning (2018.02.06)
Commodity Futures Trading Commission (CFTC)

Equity spec positioning wades higher into historically extreme levels, indicative of a bearish signal; note that this data is from last Tuesday and provides evidence of big technical imbalances in the stock market, which precipitated the extreme volatility this week; this data will get very noisy in coming week(s), but should show mean reversion from these extremes soon thereafter…
Net speculative positioning: +6.3k wow @ +172.8k contracts long (beyond -150k & +100k extremes); near postcrisis highs
Measures difference between non-commercial longs & shorts in SPX futures (# contracts) as of Tuesday’s trade date.
#Bearish $ES_F $SP_F $SPY

Commitment of Traders (COT): Euro net speculative positioning (2018.02.06)
Commodity Futures Trading Commission (CFTC)

The European Monetary Union’s currency speculators return to alltime highs, indicative of a contrarian bearish signal; this imbalance is procyclical, since EURUSD continues to spike higher amidst recent weak-dollar rhetoric and policy…
Net speculative positioning: +4.0k  wow @ +148.7k contracts long (beyond -85k & +65k extremes); another new alltime high
Measures difference between non-commercial longs & shorts in SPX futures (# contracts) as of Tuesday’s trade date.
#Bearish! $EUR $FXE $HEDJ $FEZ $EZU $DXY $UUP

–Romeo

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