Sunday, 28 August 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 was the Jackson Hole Symposium for you?  Well the general consensus from Janet Yellen's comments on Friday were that a rate rise has become more likely and certainly this was quantified in the markets as Fast FT noted:

"Federal funds futures see a 42% chance that the Fed would raise rates in September, up 10% pts from the previous day"

And the impact of this?  A higher US dollar...

(h/t @David_Scutt)

(As I noted on Twitter: 'Much to think about... $DXY so critical for the risk-taking environment, a bounce likely to overhang EMs/commodities' )

...and bond markets backing up:

(h/t @JLyonsFundMgmt)

Big times for asset allocation given the US dollar and bond markets above plus the large inflows - as shown below - into zero rate hope areas:

For what it is worth, my view is that the next US rate rise will be in December and that bonds remain highly valued...and that means you will find more value in the more grisly higher beta names which - as shown below - are offering better value...
 (h/t @PlanMaestro)

...after all just look at the yield pick-up on offer: 

Elsewhere in the world the conclusion from Jackson Hole is an unsurprising one: more reform required...and more QE. European Central Bank executive board member Benoit Coeure said on Saturday.

Since the crisis began, governments have undertaken "a series of half-baked and half-hearted structural reforms...That does not help supporting inflation expectations," 

I liked this via @Harriet Torry:

ECB's Coeure gets a laugh at Jackson Hole, says efforts to get inflation to 2% are working: "Inflation doubled last month-from 0.1% to 0.2%".  

As I noted on Twitter: 'Gallows humour when you are missing a work target that badly...'

Meanwhile thinking about Japan the head of the Bank of Japan has a clear view - more stimulus is very much on the agenda:

“There is no doubt that there is ample space for additional easing in each of the three dimensions,” Kuroda said Saturday, referring to the BOJ’s package of asset buying, monetary-base guidance, and negative interest rates.

Turning to Europe, earlier today I published this @ShareProphets "Hedge funds say the Pound is sunk…which means it isn’t" (link here). 

And adding to the notion that "the experts" don't always have it right.  I thought this was fascinating in The Sunday Times'Property is a better bet than a pension, according to The Bank of England’s chief economist' (link here - paywall however).  Here's my favourite paragraph: 

In an interview with The Sunday Times, Haldane also said he does not consider himself wealthy, despite a basic salary of more than £180,000, owning two homes and having the gold-plated pension that will increase in value if he continues to work at the Bank.

I mentioned some of the madness associated with ultra-low bond yields above, so kudos to @johnauthers for a great pensions debate article (link here). A must read as hinted to by the charts below: 

Turning to the Eurozone at least there is some loan growth (but not enough to stop further stimulus in due course)...
Generally though all eyes on the 16 September meeting: 

In the run-up to this conference, no surprises the Greek PM said the EU is sleepwalking toward cliff and wants debt relief by end 2016 (link here). 

In Asia, China is still the focus for regional fintech investments...
...a good thing given patchy financing flows...

(h/t @jsblokland, @AdroitInvestor)

...and corporate outflows: 
(h/t @WorthWray)

Put that together and it feels like more stimulus action to me...

Meanwhile ahead of the G20 in Hangzhou in a week's time I liked this (link here) from @Bkerrybrown which concludes: 

'While each nation has particularities in its issues with globalization, from China to the United States and Australia, the acknowledgement that inequality, unequal development and public uneasiness need to be addressed cannot be avoided. A new kind of global dialogue about globalization and its impacts needs to start. What was regarded by some as unambiguously positive over most of the last two decades is now looking more complex'.

Free trade should never be associated with weakness.  Loved these statistics showing how many of the countries the US has free trade agreements with it also has a trade surplus: 

(h/t @TradeNewsCentre)

Elsewhere, I would agree with this: 'Unless global markets crash, I say that year of $60-plus oil will be 2017' (link here). 

Meanwhile 'temperature deviation from normal: World maps for every year from 1850 to 2016. See a trend?' (link here)

(h/t @Sustainable2050)

Sector and companies: 

September is typically a patchy months for markets...
(h/t @Callum_Thomas)

Meanwhile rotation starting to be apparent as 'XLF financial-stock ETF traded today at highest since December as Yellen talks rate hike. Banks WANT higher rates' (h/t @tpetruno)

Also some fascinating statistics on the Energy sector 

mkt cap as % of total now 6.25%.
In Jan, bottomed out at 5.5%.
14.2% in 2008
3.75% 1999 

(h/t @WarrenPies)

Kind of interesting if we get a return to a US$60+ oil price as mooted above...

And finally...

Well would you be afraid?

Have a good week 

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