Diary of a Financier

Top Newsstuffs (June 11-17)

In Bookshelf on Sun 17 Jun 2018 at 05:09

Here are your top reads from across the past week…

Macro (BULLISH)

Retail sales (May 2018)
by US Government Census

Comps accelerate even further above trend in another truly phenomenal report, crushing consensus despite upward revisions to prior month data; data is still skewed a bit to the upside by gas stations (+17.7% yoy), which continue to rebound off a low base, but really everything is booming, including ecommerce (nonstore retailers +9.1%) and brick & mortar (misc stores +7.5%); would be nice to see income growth catch-up to consumption now…
Core (ex-autos): +1.6pp @ +6.4% yoy, +0.9 mom (beat +0.5e); prior month revised higher
Headline: +1.2pp @ +5.9% yoy, +0.8% mom (beat +0.4e); prior month revised higher
Retail sales account for ~31% of US GDP (~45% of the Consumption component).
[Previously: Consumer confidence remains an extremely bullish signal & Weak income and strong consumption combine for a neutral signal]
#Bullish! $XLY $XRT

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

Inflation accelerates even further above the Fed’s 2% target, but remains a neutral signal as the Fed is tightening and energy’s skew (+11.7% ttm) should be transitory (as long as spot prices stop rallying!); while core components like shelter (+3.5%) and transportation (+3.8) are also gaining momentum, everything else averages out right around the sweet spot…
Core CPI (ex food & energy): +0.3pp @ +2.3% yoy, +0.2% mom (beat +0.1e); rises further from a 20-month low
Headline CPI: +0.7pp @ +2.8% yoy, +0.2% mom (meet +0.2e)
FOMC minutes have warned that “inflation on a 12-month basis would likely move slightly above the Committee’s 2 percent objective for a time… a temporary period of inflation modestly above 2 percent would be consistent with the Committee’s symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations at a level consistent with that objective.”
[Previously: Powell’s Fed offsets hawkish tone with call for “symmetric inflation target”; FOMC reduces its inflation target from 2.5% to 2.0% after 5½ years; Yellen’s “Optimal Control Policy” could have Fed target 2.5% inflation]
#Neutral #Dovish $TIP

Credit (NEUTRAL)

 

Fundamentals (BULLISH)

 

Valuations (BULLISH)

 

Sentiment (BEARISH)

Retail investor sentiment survey (2018.06.07)
by The American Association of Individual Investors (AAII)

While each cohort is relatively in-bounds, composite sentiment has rallied into an extreme indicative of a bearish signal; 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: +40bps wow @ 2.06x (above both 1.30 historical average and 1.00 – 1.80 extremes)
    Bullish: +5.8pp @ 44.8% (above 39 avg, but within 30 – 45 extremes)
    Bearish: -5.0pp @ 21.7% (below both 30 avg and 25 – 40 extremes); up from near ytd lows
    Neutral: -0.8pp @ 33.5% (above 31 avg, and within 40 extreme)
Measures respondents’ expectation for equity performance over next 6 months (through 12/2018).
[Previously: Retail allocations send a bearish signal; Institutional allocations fall back 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]
#Bearish #Contrarian

Technicals (BEARISH)

Commitment of Traders (COT): S&P 500 net speculative positioning (2018.06.15)
Commodity Futures Trading Commission (CFTC)

Equity specs remain at extremes 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: +7.3k wow @ +169.4k contracts long (above -150k and +100k extremes)
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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