Sunday, 31 July 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:

So how should we thinking about the world?



Well this article in the Financial Times talks about 'glimmers of improvement' which is certainly of a more optimistic bent...


Let's start with the US. Well if you have been investing for the last couple of generations in the S&P500 then potentially you have made x100 your money so patience and a longer-term focus has certainly been rewarded...

(h/t @TMFHousel)

...and even recently investors have done well: "The S&P 500′s 3.6 per cent climb in July was its best performance since March" as noted by Fast FT on Friday evening.  However shorter-term GDP growth is not exactly great in the US:


But even here sometimes the devil can be in the detail.  As @EconomistLake noted 'Look below the hood and it's much healthier: consumer spending at 4.2% in Q2. Inventories reduced more than a percentage point from growth'

And the scope for the US markets to continue going up?  Well via this chart highlighted by @Callum_Thomas you could argue that more margin debt capability may lead to higher markets...



...as always sentiment and fundamentals will play a role.  The former has risen from the lows of a few months ago (over pessimism indicating opportunity) and as per the latter...well that's all about the quarterly results season (which so far feels opportunistic - more on that later). 

In terms of other big issues kicking around the world then we have to look at the European bank stress tests.  Of course the key is who is...stressed.  Here are the top eleven: 
Which one of these would I invest in?  Barclays of course.  On Financial Orbit Stocks I appraised the company's set of quarterly numbers on Friday and, in my view, x0.6 price: tangible book is too low all considered. Even Deutsche Bank has improved ever so slightly over the last couple of years...


...but you cannot say the same thing about credit default swaps.  Too much fear?  Well selected banks as per the above are in trouble...


...and the Euro area has a large banking system versus the US...but not as large as China: 

(h/t @WorthWray)

Talking about the Middle Kingdom, I found this a fascinating report:

'Merge Hong Kong and Shenzhen in 2047 for a stronger economy...Beijing should consider such a merger, as it would provide the financial support needed for its One Belt, One Road vision amid a slower pace of renminbi internationalisation'

Still at least China is not Japan.  Such a high (and rising) equity risk premium is not a good signal...


Back to Europe and European stocks and as per this except from the Weekend FT the 'voting machine' is clearly negative but the 'weighing machine' for European stocks I would rate as opportunistic:

A key macro event for next week are the thoughts from the Bank of England about the UK economy.  As I noted earlier in the weekend on Twitter: 

'So @thetimes talking about BoE will say 0% '17 growth whilst @thesundaytimes observe 'Carney lines up support package'. Rate cuts/QE Thurs?'

A big moment for the UK economy...


Did you notice too that the price of gold in Sterling terms has risen to over £1000 per ounce?


(h/t @MarkTOByrne) 

Talking about commodities the recent shift of oil prices back to bear market territory is not the greatest news for Saudi Arabia FX reserves...


...and of course commodities are deeply influential for the Brazilian economy too which is starting to lap some easy comps (just in time for the Olympics!): 


Sector and companies: 

I mentioned the importance of the currently quarterly earnings round a couple of times above.  Of course for a more definitive insight you should subscribe to Financial Orbit Stocks (see the tabs at the top of the page) but it is useful to see collectively that the S&P 500 positive revenue progression drought is potentially over...


...as I noted above: opportunistic (even if earnings growth is set to remain low in 2016). 

Google was one of the earnings winners during the last week helped by AI...

...and elsewhere I mused about the company linking up with Twitter: 


'Buy versus build musing for $GOOGL re $TWTR ?  Even with 30-50% premium think there are worse ways they can use cash'



A few more corporate stories from today's Sunday Times

'The maker of Budweiser (Anheuser-Busch InBev) is this weekend scrambling to find enough support among SAB Miller shareholders to ensure it can buy the FTSE 100 brewer for £79bn'

Cobham set to jettison boss' - well that's what happens when you have a surprise money raising

'Two building supplies giants could reveal a slowdown on construction sites in their results this week...pipes-to-tools company Travis Perkins and brickmaker Ibstock are due to post first-half profits and will shed light on the mood among the nation's tradesmen' 

Next is braced for another fall in sales...clothing chains have been wrong-footed by the burst of hot weather which came too late to stop them having to discount aggressively' 


And finally...

Amazing what a 5p charge for a plastic bag can do for plastic bag demand: 


Wow, look how much more sunshine parts of the US get compared to Europe: 


(h/t @paul1kirby)


Have a good week 

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