Diary of a Financier

Top Newsstuffs (June 25 – July 1)

In Bookshelf on Sun 1 Jul 2018 at 05:10

Here are your top reads from across the past week…

Macro (BULLISH)

Personal income & outlays (May 2018)
by The Bureau of Labor Statistics (BLS)

Decent report maintains a solid velocity despite slight decelerations; that problematic gap between low-velocity income and high-velocity consumption is persisting, although it should narrow in coming months as yoy comps get progressively easier for DPI and harder for PCE through 2018H1 — not to mention an eventual bump from tax reform…
Disposable personal income (Real DPI): -0.3pp @ +1.7% yoy, +0.2% mom
Personal consumption expenditures (Real PCE): -0.3pp @ +2.3% yoy, unch mom; prior months revisions offset
Personal savings rate: +0.2pp @ +3.2%; prior month revised slightly lower
Consumer spending accounts for ~70% of US GDP, as this report is a broader measure than the Retail Sales reported earlier in the month.
[Previously: Retail sales remain a bullish signal; See also: Expect fiscal stimulus to manifest starting with 2018q4 data]
#Neutral $XLY #Wages

Consumer confidence survey (June 2018)
by Conference Board

Although data missed expectations, it was largely due to an upward revision to the prior month, and sentiment remains near generational highs…
Consumer confidence index: -2.4 mom @ 126.4 (miss 127.6e); remains near highest level since 11/2000; prior month revised upward
[Previously: Retail sales remain an extremely bullish signal]
#Bullish $XLY

Manufacturers’ durable & capital goods (May 2018)
by US Department of Commerce

Although the report was directionally mixed and missed expectations, growth velocity remains high; inventory growth is still running a bit hot, although it’s now starting to lap its low comp; these above-trend growth rates should continue to decelerate as 2018Q2/Q3 progress, since easy yoy comps will taper…
– Core durable goods, new orders (ex-transportation): +1.1
pp @ +7.8% yoy, -0.3% mom (miss +0.5e)
– Core capex, new orders (capital goods, ex-defense & aircraft): -0.9pp @ +6.1% yoy, -0.2% mom
– Core inventory (ex-transportation): +2.5pp @ +8.2% ytd, -0.3% mom
Durable goods account for ~8% of US GDP.
#Bullish! $XLI

Gross Domestic Product (Third estimate, 2018q1)
by Bureau of Economic Analysis (BEA)

Although revisions miss expectations, growth remains at trend; the Investment component really buoyed the data (e.g. Intellectual Property +13.2%), beyond which the internals look bleak; as expected, Consumption is decelerating due to tough yoy comps, which will get progressively harder throughout 2018 as they lap the weak dollar and energy prices recover
Real GDP (Q1): revised -0.2pp @ +2.0% qoq saar (miss +2.2e)
    Inflation: Core +2.6%; Headline +2.2%
    Consumption (PCE): -0.1pp @ +0.9%
    Investment: +0.3pp @ +7.5%; Residential -1.1% (due to huge price inflation); Nonresidential +10.4%
    Government spending: +0.2pp @ +1.3%; Federal +1.7%; State & local +1.0%
    Exports: -0.6pp @ +3.6%
    Imports: +0.4pp @ +3.2%
    Inventories: -14bp @ -0.10pp detraction from GDP growth rate
Real GDP per capita (Q1): +1.5% qoq saar (9.2% below regression trend)
Real GDP (2017FY): +2.3% yoy
Real GDP (2016FY): +1.5% yoy
Real GDP (2015FY): +2.9% yoy
Real GDP (2014FY): +2.6% yoy
Real GDP (2013FY): +1.7% yoy
#Neutral

Credit (NEUTRAL)

Loans & leases in bank credit, all commercial banks (2018.06.06)
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: +6bps mom @ +4.27% 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: Household credit fundamentals remain bullish; 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)

 S&P 500 valuation update: Growth rates continue to accelerate (2018.06.16)
by Fundamentalis

The unprecedented acceleration in forward earning expectations appears to be ending; this remarkable run had manifest the new tax plan’s tailwind, which was extended by solid Q1 earnings beats and raises; the 2018q1 market correction compressed valuation multiples, which have have returned to long term averages and will continue to be aided by a recovery in Energy (EPS +70% yoy 2018FYe) and an acceleration in Financials (+28.5%)…
EPS (ntm): -0.14 mom @ $163.97
PE ratio (fw): +0.5 mom @ 17.0x
PEG ratio: +2bps mom @ 0.78x
Earnings yield: -15bps mom @ 5.90%
EPS growth rate (ntm): +2bps mom @ 21.77%
[See also: Modern capital markets warrant higher valuation multiples]
#Bullish #Fundamentals $SPY $XLE $XLB

Sentiment (NEUTRAL)

Retail investor sentiment survey (2018.06.28)
by The American Association of Individual Investors (AAII)

Sentiment procyclically collapsed, now an extremely bullish signal, alongside the increase in market volatility that respondents attribute to political backdrop and trade wars…
Bull/Bear ratio: -78bps wow @ 0.70x (below both 1.30 historical average and 1.00 – 1.80 extremes)
    Bullish: -10.3pp @ 28.5% (below both 39 avg and 30 – 45 extremes)
    Bearish: +14.6pp @ 40.8% (below both 30 avg and 25 – 40 extremes)
    Neutral: -4.4pp @ 30.7% (below 31 avg, but 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]
#Bullish! #Contrarian

Technicals (BEARISH)

Commitment of Traders (COT): S&P 500 net speculative positioning (2018.06.29)
Commodity Futures Trading Commission (CFTC)

Equity specs remained at extremes to open this past week, 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 — although next week’s report should be interesting given the recent volatility and collapsing sentiment (above)…
Net speculative positioning: +9.8k wow @ +189.2k contracts long (above -150k and +100k extremes)
Measures difference between non-commercial longs and shorts in SPX futures (# contracts) as of Tuesday’s trade date.
[Previously: EUR net speculative positions fall to neutral (vs prior bear signal)]
#Bearish $ES_F $SP_F $SPY

–Romeo

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