Sunday, 10 April 2016

Stories we should be thinking about

Ahead of the new working week here are a few finance and related stories to be thinking about.

Macro matters:

Not the easiest week on the world's equity markets...

...but at least the US market is up on the year...and the UK's FTSE-100 is at its high for the year (although still slightly negative): 

(both of the above charts sourced from here

However earnings are still underperforming price moves...

...good job then that the US dollar has slipped recently which has buoyed risks assets.

(h/t @STAWealthMgmt)

How much further can this go on for?  Well I see that net future positioning has just turned negative.  My experience is that a full capitulation is a lot worse than this.  On this basis still an opportunistic environment for risk assets.  

(h/t @JohnKicklighter)

And a lower US dollar is also good for the emerging markets. As I noted on Twitter: 'Not yet euphoric and compares to pretty lousy last couple of years for EM flows so not a sell sign IMO'

Especially true as the headline emerging market statistics remain mixed with Russia and Brazil's current malaise bringing down the overall emerging market growth contribution: 

And of course the world economy is hardly fixed.  This from Sunday's Financial Times website: 

'The world economy is beset by feeble growth and a recovery that is “weak, uneven and in danger of stalling yet again,” according to the latest Brookings Institution-Financial Times tracking index.

In a publication ahead of the spring meetings of the International Monetary Fund and World Bank this week, the index provides sober reading, highlighting sluggish capital investment, falling industrial production and declining business confidence'

A lower US dollar helps counter some of this...but as one currency goes down others go up.  In an earlier chart we saw the Japanese yen's strength...but look at the impact it has on the Japanese market: 

(h/t @andreacseh)

And my guess it that the Japanese authorities are not going to sit down idly for too long judging by history which makes me wonder again about foreign currency earners (but Japanese listed) companies: 

"Japan cares about its currency. According to BNY Mellon it has intervened roughly once every 20 trading days since 1993" via @johnauthers

A very interesting read for anyone interested in the future of Europe arguing, in short, that other institutions need to join the ECB in helping out:  

'Policy-makers, including in Germany, can no longer shirk their responsibility for the current economic situation in large parts of Europe. That calls for growth-friendly fiscal policy, structural reforms to open up new markets and consolidation and restructuring of the financial sector. We in Germany, above all, must look in the mirror, because we need the majority of these reforms just as urgently as our European neighbours do'

I would agree with this - the governments of Europe have to do more.  Of course there may be some changes in government composition over the next year...but probably not as radically-sounding as this potential one from Iceland:

'From a minor offshoot of the international anti-copyright Pirate movement, the Icelandic Pirates have, in less than four years, become by far its most successful standard-bearers. Polls showing voter support for the Pirates at more than 40 per cent, making them easy favourites to lead the nation after elections promised for autumn by a ruling coalition battered by Panama Papers revelations of ministers’ ties to offshore finance'. (FT)

I was surprised about the extent of this property market differential in London...

...but not surprised via this very interesting read here that the UK's planning regulations have pushed up property prices.  Liberalise these - and as shown below - property prices would be lower: 

Rising property prices have been one reason that many younger people have struggled to get onto the housing ladder.  That and the shocking rise in the cost of college as shown below:
(h/t @planmaestro) 

Neither debt burden increases elements are good for overall economic balance. 

Sector and companies: 

Earnings season starting in earnest this week...note as per below how lowered expectations are generally beaten (and also that the earnings growth trajectory has noticeably slowed in the US - another reason why they need a lower dollar to help out):

I like this yield table on the US market.  Of course dividend cover / gearing levels all important for sustainability here but pick stocks that exhibit these characteristics correctly and you will be rewarded given the low level of bond yields out there: 

And Apple could be one of those dividend increasing stocks out there...but Barrons highlighted other opportunities of a more capital growth nature: 

'The stock could return 40% due to strong recurring revenue from Apple’s growing services business.
Apple stock could hit $150 in a year, for a return of 40%, including dividends. Two Wall Street reports agreed on that point this past week, for different reasons. One argues that a rising portion of profit is coming from services, adding to how big Apple can become. The other says Apple enjoys the long and lucrative customer relationships typical of cable companies, and so shouldn’t be priced like a mere gadget hustler'.

Some changes in Chinese luxury goods legislation could have an impact on one maligned sector of the market: 

'new policy put a 2,000 yuan (HK$2,400) cap on the amount consumers are allowed to buy in a single purchase without incurring a tariff. This is expected to prompt mainlanders to buy luxuries at home and when they travel overseas (link here)'

Another under pressure sector of the market are financials as shown by the share price chart of Deutsche Bank...
...or three UK banks (this time only over the last year). 

I see more value in the latter group personally. 

Themes can often be influential in investment and the upcoming Euro 2016 football tournament has inspired some stock picks from Societe Generale as discussed at the link here 
(h/t @DavidInglesTV)

Some interesting names there...

As I noted on Twitter: 'BMW are a classic medium-term operator realise the threat from Uber and autonomous driving'

And moving onto Disney I liked this from Seeking Alpha

'BTIG analyst Richard Greenfield has the answer to both problems: Disney should buy Netflix (NFLX -0.6%). Then it gets a future leader with a creative streak in Netflix's "visionary CEO" Reed Hastings, as well as a substantial established stake in on-demand video.
"Netflix is already a great friend of Disney," Greenfield says. "In fact, Iger has repeatedly acknowledged how they are in part responsible for Netflix’s success. Disney continues to sell more and more content to Netflix spanning movies and television series, while at the same time struggling to get their own direct-to-consumer content business off the ground in the UK."

And finally...

If you mapped the world by the number of internet users by country it would look something like this:

(h/t @LindaRegber) 

Have a good week

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