Diary of a Financier

Top Newsstuffs (May 7-13)

In Bookshelf on Sun 13 May 2018 at 05:21

Here are your top reads from across the past week…

Macro (BULLISH)

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

After a weak start to the year, volumes have recovered and maintained velocity just above trend; however, expect headwinds in coming months as we’ve now lapped easy yoy comps…
Monthly traffic: +0.1pp @ +5.1% yoy
Carload groups: 15 of 20 posted gains yoy
   Motor vehicles: -3.5% ytd
   Energy: +2.9% ytd; continues recovery amidst increasingly 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.
#Bullish $IYT $XLB $XLE $DBC

Inflation: Consumer Price Index (April 2018)
by Bureau of Labor Statistics (BLS)

Inflation remains above the Fed’s 2% target, but energy’s positive skew (+7.9% ttm) on headline should continue to wane as easy yoy comps taper throughout 2018H1; despite shelter (+3.4% ttm) and transportation (+4.1% ttm) remaining hot, everything else averages out right around the sweet spot…CPI inflation- core & headline (%yoy 2018.04)
Core CPI (ex food & energy): unch @ +2.1% ttm, +0.1% mom (meet +0.1e); remains at a 20-month low
Headline CPI: +0.1pp @ +2.5% ttm, +0.2% mom (meet +0.2e)
FOMC minutes have returned the Fed’s target to 2%, rescinding their 2.5% temporary increase made in 12/2012.
[Previously: Yellen’s “Optimal Control Policy” could have Fed target 2.5% inflation]
#Neutral #Dovish $TIP

Credit (NEUTRAL)

Loans & leases in bank credit, all commercial banks (2018.04.25)
by St. Louis Federal Reserve (FRED)

Lending growth remains soft after a big 2017 deceleration down to multi-year lows, but it is starting to recover, as expected, now that we’re lapping difficult comps left in the wake of 2015/16’s industrial production slowdown
Weekly loan growth: -9bps mom @ +4.45% 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 (BULLISH)

 

Sentiment (NEUTRAL)

Retail investor sentiment survey (2018.05.10)
by The American Association of Individual Investors (AAII)

Sentiment continues to get whipsawed, procyclically recovering back into neutral territory; the Neutral remains in extremes that manifest a healthy, renewed wall-of-worry; we can still expect outperformance since the depths reached at the beginning of April, after which “[such] unusually low levels of optimism [and] unusually high levels of pessimism have historically been followed by above-average 6- and 12-month returns for the S&P 500″…
Bull/Bear ratio: +37bps wow @ 1.31x (above 1.30 historical average, but within 1.00 – 1.80 extremes)
    Bullish: +5.1pp @ 33.5% (below 39 avg, but within 30 – 45 extremes)
    Bearish: -4.7pp @ 25.5% (below 30 avg, but within 25 – 40 extremes)
    Neutral: -0.4pp @ 41.0% (above both 31 avg and 40 extreme)
Measures respondents’ expectation for equity performance over next 6 months (through 11/2018).
[Previously: Retail allocations revert back to a neutral signal; Institutional allocations return to a neutral 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 (2018.05.04)
Commodity Futures Trading Commission (CFTC)

After an unprecedented spike back up to extremes last week, equity specs wade deeper into historical highs indicative of a bearish signal; this indicator was one of the major imbalances that dislocated the market in Q1 — which disequilibrium produced an SPX correction…
Net speculative positioning: +18.2k wow @ +229.2k contracts long (beyond -150k & +100k extremes); up from lowest level since 12/2016
Measures difference between non-commercial longs & shorts in SPX futures (# contracts) as of Tuesday’s trade date.
[Previously: EUR net speculative longs remain a bearish signal for US risk assets]
#Bearish $ES_F $SP_F $SPY

–Romeo

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