Showing posts with label macro. Show all posts
Showing posts with label macro. Show all posts
Monday, 29 August 2016
"Hedge funds say the Pound is sunk…which means it isn’t"
I wrote a piece titled "Hedge funds say the Pound is sunk…which means it isn’t" which was uploaded just now to the ShareProphets website. A link to the piece (free sign-up) is here.
Monday, 3 August 2015
"Macro summary: Greece plunges, Europe swoons and the US? Dull"
My latest post as a Yahoo Finance Contributor titled 'Macro summary: Greece plunges, Europe swoons and the US? Dull.' can be found here.
Tuesday, 14 July 2015
What the average fund manager thinks...(part 1)
I noted a month ago (link here) that taking a slightly contrarian stance with a well-known fund manager survey suggested that:
'during the summer the trick is to be more active despite it maybe feeling uncomfortable to be so as the beach calls'
So how about this month's offerings?
No surprises where the biggest 'tail risks' are given the macro newsflow of the last few weeks...step forward Greece (aka 'Eurozone breakdown') and China. Strikingly the 'Fed falls behind-the-curve' option has completely...fallen off a cliff. That says something about the evolution of the investment backdrop over the last month:
I have been really surprised in the recent bout of market volatility that gold has not performed better and reflecting how out of favour the shiny metal is for the first time since the depths of the financial crisis perceived on a net basis as undervalued. I would agree with this.
Pulling it all together growing consensus caution suggests the opportunity for stock level and thematic opportunities (like gold). We should not forget sectors either...but more of that in part two...
'during the summer the trick is to be more active despite it maybe feeling uncomfortable to be so as the beach calls'
So how about this month's offerings?
No surprises where the biggest 'tail risks' are given the macro newsflow of the last few weeks...step forward Greece (aka 'Eurozone breakdown') and China. Strikingly the 'Fed falls behind-the-curve' option has completely...fallen off a cliff. That says something about the evolution of the investment backdrop over the last month:
Consistent with this were also the continuing observations from last month (see the link above) that:
cash levels of 5.5 per cent are at their highest levels since December 2008, and more investors than at any point since February 2008 have taken out protection against equity market falls in the next three months.
Back to the Federal Reserve and interest rates for the next graphic and consistent with the aforementioned fading of the fear that the Fed gets behind-the-curve is the increased focus on the fourth quarter rather than the third quarter for a first interest rate increase. I would agree with this (in fact I still of the view that actually 2016 may be more accurate).
Finally the US dollar and US high yield remain the two areas with the most perceived 'crowded trades' although the latter has gained a little at the expense of the former. For me this makes perfect sense: in a world of greater creditor versus debtor tension this makes perfect sense. I am cautious of high yield too.
Monday, 13 July 2015
"Greece: today’s deal is not going to work"
My latest post as a Yahoo Finance Contributor titled 'Greece: today’s deal is not going to work' can be found here.
Friday, 10 July 2015
Translating the IMF's latest global growth projections
Macroeconomic musings at the moment are dominated by China and Greece and the update to global growth issued by the IMF yesterday could easily be missed despite some fascinating forecast evolutions as shown below including a quite large downgrade to US, Japanese and various emerging market growth hopes BUT a Russian growth increase (still FY15 growth contraction however) and both Italy/Spain upgraded too.
So using my favourite company specific tactic of finding extra insight from the conference call with company management...here are my highlights from the press conference (all emphasis is mine)...plus a translation of what I believe the IMF is trying to say (which is completely my view of course).
On Greece
'I’m not sure the word “elephant” is actually the right one as dramatic as the events in Greece are...only represents less than 2 percent of the euro zone GDP, less than one-half of a percent of world GDP...There is still I think a larger lesson to be drawn, which is that the post-crisis world is a world of high debt. And it doesn’t take much. It just takes a bad shock for the dynamics to go wrong'
Translation - this is why the IMF says that Greek debt needs to be restructured: you are getting nowhere fast otherwise.
'Moderate growth continues'
'What you have is that moderate growth continues. You have an improving recovery in advanced economies, and you have the forecast slowdown in emerging market and low income countries. As you know the forecast that we have is 3.3 percent for 2015 for this year and 3.8 percent for next year. This is where the word I think “moderate” comes in and captures more or less the nature of that number'.
Translation - it is not the 1980s or 1990s anymore, that is clear to see. Structural reform or accept lower growth, it is as simple as that.
US fundamentals are fine
'The main unexpected development was clearly the negative growth rate in the U.S. in the first quarter... this was an accident and the rest of the year should not be very much affected. In short I think the fundamentals of the U.S. economy are very strong'.
Translation - we believe Q1's negative growth was an anomaly...
'Recovery is getting traction' (in some of the advanced economies)
'if you look at other advanced economies, Europe and the euro zone in particular is doing better. The recovery is getting traction'.
Translation - there is some growth, it is still below trend, but at least it is some growth.
Japan - 'still there is growth'
'In Japan there was very good news, very good numbers in the first quarter, but we still think that growth is going to be a bit weaker over the year than we anticipated three months ago because of slightly more fiscal adjustment, slightly weaker consumption, but still there is growth in Japan'
Translation - we are so excited growth is positive in Japan that we will ignore that it is being downgraded
China - 'unchanged...with a bit more uncertainty'
'We have left unchanged our forecast for China. Our forecast is a bit lower than some others at 6.8 percent for 2015 with a bit more uncertainty around the forecast than in April'.
'...the role of stock markets in China, the capitalization of stock markets relative to GDP, is much smaller than say in the U.S. so movements in the stock market have less effect.
our forecast for growth for China as I said this year is 6.8 percent, next year 6.3 percent, and then 6 percent in 2017'
Translation - growth slowing, we hope the stock market volatility has no effect and fingers crossed!
Brazil - 'we now forecast a recession'
'...we’ve revised Brazil’s growth down. We now forecast a recession. We already did, but the larger recession, -1.5 percent. What’s happening in Brazil is a combination of two forces. The first one is low business and consumer confidence to start, leading to low spending, low investment'.
Brazil: 'we’re predicting positive growth in 2016'
'We think we need to give time to the fiscal adjustment plan to set roots and exercise its positive effects on confidence in the Brazilian economy more generally...this is why we’re predicting positive growth in 2016. These factors should work in the right direction, but this year will be tough'
Translation - recession alert, recession alert. They had better listen to what we suggest if they want to recover in 2016/17
Russia - 'tough year'
'The other country where the numbers are very bad is in Russia. We now forecast Russia’s growth to be negative at -3.4 percent. It’s a bit better than the forecast in April...a very large negative number that will lead to a very tough year in Russia'.
Translation - Russia remains messy
Deflation - 'the risk of deflation...substantially decreased'
'the risk of deflation, which is the risk that we had emphasized in previous press conferences. It has not disappeared, but substantially decreased'.
Translation - we never really believed in deflation in any case. Recall what we said about debt above? Well a bit of inflation does wonders and with all this global money printing...
'Dangers of high debt'
'Greece and Puerto Rico, to take another example, are reminders of the dangers of high debt. So this would be the first issue that I see as relevant for quite a bit of time to come'
Translation - anyone who does not structurally reform like we suggest is asking for trouble
Challenges for the emerging markets
'the slowdown in growth; not in advanced economies but in emerging market economies. And what’s behind it? It is striking that for the last five years we have each revised the growth rate of Latin American down. And the question is should we read into this. I think we should read that the period of higher growth, which came before the crisis, was probably larger due to the increasing commodity prices which affected most of these countries, benefited most of these countries, and to very lax international financial conditions. And it probably could not go on, and these countries need to adapt to a new environment in which commodity prices are either flat or have decreased the number of cases, and where the financial conditions looking forward are going to be tighter as the Fed exists and eventually other major central banks do the same. And so there is clearly a challenge for these economies to adjust to this new environment'
Translation - without that prop of higher commodity prices, suddenly all you guys who thought you were smart emerging market investors are looking rather silly aren't you? Latam needs to listen to us more!
On US interest rate profile - 'for the moment, monetary policy should continue to be accommodating'
'I am always amazed by the amount of time spent by people trying to guess whether it is going to be this time or next time. I don’t think it is very important. I think what is important from our point of view is the U.S. recovery is very strong. We are not very far from the natural rate. Inflation is still too low. For the moment, monetary policy should continue to be accommodating, and as things continue, at some stage it will be time to change'.
Translation - you know we just cut US growth? Well hence don't be too aggressive in raising rates then...
On Greece
'I’m not sure the word “elephant” is actually the right one as dramatic as the events in Greece are...only represents less than 2 percent of the euro zone GDP, less than one-half of a percent of world GDP...There is still I think a larger lesson to be drawn, which is that the post-crisis world is a world of high debt. And it doesn’t take much. It just takes a bad shock for the dynamics to go wrong'
Translation - this is why the IMF says that Greek debt needs to be restructured: you are getting nowhere fast otherwise.
'Moderate growth continues'
'What you have is that moderate growth continues. You have an improving recovery in advanced economies, and you have the forecast slowdown in emerging market and low income countries. As you know the forecast that we have is 3.3 percent for 2015 for this year and 3.8 percent for next year. This is where the word I think “moderate” comes in and captures more or less the nature of that number'.
Translation - it is not the 1980s or 1990s anymore, that is clear to see. Structural reform or accept lower growth, it is as simple as that.
US fundamentals are fine
'The main unexpected development was clearly the negative growth rate in the U.S. in the first quarter... this was an accident and the rest of the year should not be very much affected. In short I think the fundamentals of the U.S. economy are very strong'.
Translation - we believe Q1's negative growth was an anomaly...
'Recovery is getting traction' (in some of the advanced economies)
'if you look at other advanced economies, Europe and the euro zone in particular is doing better. The recovery is getting traction'.
Translation - there is some growth, it is still below trend, but at least it is some growth.
Japan - 'still there is growth'
'In Japan there was very good news, very good numbers in the first quarter, but we still think that growth is going to be a bit weaker over the year than we anticipated three months ago because of slightly more fiscal adjustment, slightly weaker consumption, but still there is growth in Japan'
Translation - we are so excited growth is positive in Japan that we will ignore that it is being downgraded
China - 'unchanged...with a bit more uncertainty'
'We have left unchanged our forecast for China. Our forecast is a bit lower than some others at 6.8 percent for 2015 with a bit more uncertainty around the forecast than in April'.
'...the role of stock markets in China, the capitalization of stock markets relative to GDP, is much smaller than say in the U.S. so movements in the stock market have less effect.
our forecast for growth for China as I said this year is 6.8 percent, next year 6.3 percent, and then 6 percent in 2017'
Translation - growth slowing, we hope the stock market volatility has no effect and fingers crossed!
Brazil - 'we now forecast a recession'
'...we’ve revised Brazil’s growth down. We now forecast a recession. We already did, but the larger recession, -1.5 percent. What’s happening in Brazil is a combination of two forces. The first one is low business and consumer confidence to start, leading to low spending, low investment'.
Brazil: 'we’re predicting positive growth in 2016'
'We think we need to give time to the fiscal adjustment plan to set roots and exercise its positive effects on confidence in the Brazilian economy more generally...this is why we’re predicting positive growth in 2016. These factors should work in the right direction, but this year will be tough'
Translation - recession alert, recession alert. They had better listen to what we suggest if they want to recover in 2016/17
Russia - 'tough year'
'The other country where the numbers are very bad is in Russia. We now forecast Russia’s growth to be negative at -3.4 percent. It’s a bit better than the forecast in April...a very large negative number that will lead to a very tough year in Russia'.
Translation - Russia remains messy
Deflation - 'the risk of deflation...substantially decreased'
'the risk of deflation, which is the risk that we had emphasized in previous press conferences. It has not disappeared, but substantially decreased'.
Translation - we never really believed in deflation in any case. Recall what we said about debt above? Well a bit of inflation does wonders and with all this global money printing...
'Dangers of high debt'
'Greece and Puerto Rico, to take another example, are reminders of the dangers of high debt. So this would be the first issue that I see as relevant for quite a bit of time to come'
Translation - anyone who does not structurally reform like we suggest is asking for trouble
Challenges for the emerging markets
'the slowdown in growth; not in advanced economies but in emerging market economies. And what’s behind it? It is striking that for the last five years we have each revised the growth rate of Latin American down. And the question is should we read into this. I think we should read that the period of higher growth, which came before the crisis, was probably larger due to the increasing commodity prices which affected most of these countries, benefited most of these countries, and to very lax international financial conditions. And it probably could not go on, and these countries need to adapt to a new environment in which commodity prices are either flat or have decreased the number of cases, and where the financial conditions looking forward are going to be tighter as the Fed exists and eventually other major central banks do the same. And so there is clearly a challenge for these economies to adjust to this new environment'
Translation - without that prop of higher commodity prices, suddenly all you guys who thought you were smart emerging market investors are looking rather silly aren't you? Latam needs to listen to us more!
On US interest rate profile - 'for the moment, monetary policy should continue to be accommodating'
'I am always amazed by the amount of time spent by people trying to guess whether it is going to be this time or next time. I don’t think it is very important. I think what is important from our point of view is the U.S. recovery is very strong. We are not very far from the natural rate. Inflation is still too low. For the moment, monetary policy should continue to be accommodating, and as things continue, at some stage it will be time to change'.
Translation - you know we just cut US growth? Well hence don't be too aggressive in raising rates then...
Monday, 29 June 2015
"Greece: without compromise a tragedy awaits"
My latest post as a Yahoo Finance Contributor titled 'Greece: without compromise a tragedy awaits' can be found here.
Friday, 26 June 2015
"Greece’s Trojan Horse for all investors"
My latest post as a Yahoo Finance Contributor titled 'Greece’s Trojan Horse for all investors' can be found here.
Friday, 5 June 2015
A few macroeconomic charts and thoughts today
Greece – so citing the precedent of Zambia in the
late ‘70s Athens has informed the fund that it will not make a €300m loan
repayment on Friday and will instead use a rarely-used IMF rule that will allow
Greece to bundle all €1.6bn it owes in June and pay at the end of the
month. Discussions ongoing: to watch for later Greek PM Tspiras is set to
brief parliament on negotiations on Friday at 6pm Athens time, followed by a
debate. Just kicking that can…European financial markets to remain
volatile
Greece #2 – latest Varoufakis blog: comparing Greece
now to post-war Germany. Interesting strategy!
China - since a recent nadir on May 29, the Shanghai
Composite has risen 12.4 per cent. Today, it topped 5,000 for the first time in
seven years before falling back. In China this year there have been 144 IPOs,
average gain has been 539%, ave move on 1st day 44%.
Flows also remain strong...
...whilst margin debt increases remain high:
Sentiment - whilst China is characterised by high sentiment in the US market the most striking sentiment component is the neutral one...
...and companies willing to buyback materially. Look when this last peaked: 2007. Hmm.
OPEC meeting today - Saudi oil minister Naimi says
oil supply from outside OPEC has shrank; demand is improving slightly along
with the global economy. Let's see how the meeting goes...
Non-farm payrolls also out today - US jobs report for May is
expected to show growth of 226,000 jobs, up from 223,000 in April. The
unemployment rate is expected to stay at 5.4 per cent, which is the lowest
since May 2008. A figure below 150,000 or above 250,000 would force investors
to shift forecasts of when the Fed will lift interest rates. Famously
yesterday the IMF told the US to wait until 2016 to raise rates…
Wednesday, 27 May 2015
"The average US consumer should be happy and confident. Really?"
My latest post as a Yahoo Finance Contributor titled "The average US consumer should be happy and confident. Really?" can be found here.
Saturday, 16 May 2015
A few interesting Saturday macro charts
A few interesting Saturday charts.
Finally - as we have noted before - observe the strong video advertising/smartphone theme all centred on the rising number of people online and/or wanting to be online when mobile too.
The information and internet theme is probably bigger now than even the rise of the Chinese (emerging market consumer) per se. Despite some of the poor earnings and QE largesse above there are still themes to believe in (and invest in).
I see a few headlines around talking about US earnings being much better than hoped in Q1. Maybe...but at 1.4% consensus growth for FY15 for the S&P 500 index (and with consensus hopes still declining versus even say 1st April) is not that good, is it?
Of course the dollar's strength is impacting. Some excellent new statistics (including sentiment indications now) on global currency positioning. Note the consensus positioning of short euro, long dollar...meaning in my view the likely next scenario is further euro strength. This will help US earnings sequentially (and knock European ones - themselves 'only' estimated to currently grow 7% in 2015).
So potentially more bad news for (strong performing in 2015 so far due to a weak euro plus QE imposition) European assets. The recent bond market push-back has not helped either. Note this interesting correlation of the German bund and oil prices showing the impact of higher inflation and changing sentiment:
Overall I still feel more stimulus is likely. As is well-documented global QE has materially increased across the world's central banks and more to come from China, Japan and Europe particularly...
...as nicely observed in this cartoon:
Useful graphic showing the BRIC countries are hardly homogenous...
...and this story in the Financial Times today indicates some specific challenges for China going forward to:
The information and internet theme is probably bigger now than even the rise of the Chinese (emerging market consumer) per se. Despite some of the poor earnings and QE largesse above there are still themes to believe in (and invest in).
Thursday, 23 April 2015
Asian macro today
Some interesting macro today out of Asia. Of course we have to start with the manufacturing PMI data which in China was the lowest for a year as shown by this chart from Zero Hedge:
However the equivalent data in Japan saw 'operating conditions worsen at Japanese manufacturers'
Gold has slipped back below US$1200/ounce but as this report shows China is still likely to be accumulating the shiny metal far faster than declared in the official numbers:
Important to look at the detail however and new export orders (just!) are still pushing forward whilst more domestically centred data is contracting. Should we be surprised then about the recent monetary policy loosening? In short...no:
So the local indices are struggling given the above? Far from it...and I note via Fast FT that this index value boom has overspilled elsewhere for example Taiwan which is approaching its own historic multi-year high. Bubbles end badly...I stay with a stock picking focus in the Asian markets.
Otherwise the firming iron ore price is catching a bit of attention although I would note that this move needs to be put into a medium-term context:
Nevertheless this is better news for the Australian iron ore miners who continue (as shown below) to build market share. I still prefer Billiton due to the proximity of the non-core operations spin-off (in about one month's time):
And finally, North Korea has what alleged range on their missiles?
Monday, 20 April 2015
A few macro and related stories today
A few stories that caught my eye today.
I noted in Sunday's Stories we should be thinking about on Greece that the gap between the country and its creditors remainsvery wide. Meanwhile I read that Syriza may sign a deal with Russia for Gazprom pipeline
project as soon as next week which could free EUR 3bln-5bln in advance funding!!
China - The reserve-requirement ratio was lowered
1 percentage point effective April 20, the People’s Bank of China said on its
website Sunday, the second reduction this year and the largest since November
2008. Economy slowing there…and surely more to go…
Meanwhile today's Daily Shot contained an excellent chart showing the extent of margin trading in the country. Can we be too surprised that the initial reaction to the interest rate cut is a negative one?
UK - Via the Telegraph, 'the UK economy has reached “escape velocity”,
according to a top forecaster, which said cheap oil and stronger pay growth
would pave the way for the biggest rise in disposable incomes for 20 years. The
EY Item Club said Britain’s recovery was entrenched and would not be blown off
course by uncertainty surrounding next month’s general election'. Am not so convinced by the escape velocity bit to be honest...
Earnings season gathers pace next week with 147
S&P 500 companies due to report earnings. Epic 'best of...' list by Bespoke below:
And finally...it is how long since...a big US storm?
Friday, 10 April 2015
Macro charts and thoughts today
A few macro and related thoughts today...
China – CPI unch at 1.4% but strikingly producer
prices deflated for a 37th consecutive month in March at -4.6%. Still
plenty of room for stimulus in my view...
(chart via Fast FT)
HK market – frenzy of last couple of days abated a bit with index flattish. However Hong Kong Exchange & Clearing CEO says will definitely increase the quota for stock connect
Japan – Nikkei 225 breached 20,000 in early trading. Great comment from Japan EcoMin Amari: ‘If Stocks Are A Mini Bubble I Would Welcome It’. Of course helped by the yen/$ rate back above 120…
Lower for longer – striking months to first rate hike
chart. 50 months for the EZ!
(chart via @MktOutperform)
Europe -
Came across the statistic via @PredictedMarkets
A close on Friday below 1.0635 in EUR/USD would make this
the biggest weekly drop for at least 187 weeks.
Looking quite plausible
so far…
Hence this too from the same source:
'Eurostoxx futures end Thursday at the highest closing level
seen in the front month contract since 30th May 2008, 358 weeks earlier'
However… ‘By any valuation metric, the recent surge in
markets has driven constituents up to (P/B) or well above (P/CF, P/S, P/E)
historic peaks’. Great link and charts here:
My view: you may have stimulus and lower for longer but the fundamentals always win out. Keep watching earnings season!
UK election – striking image on the front page of the
FT today re Sterling/cost of insurance against volatility
Meanwhile as this link in the Telegraph notes:
Foreign investors are slashing holdings of British gilts
at a record pace on concerns over electoral gridlock and the long-term
stability of sterling.
Data from the Debt Management Office show that
non-residents sold a net £14bn of gilts over the two months of January and
February, an even bigger sell-off than during the white heat of the financial
crisis in early 2009.
The bid-to-cover ratio at gilt auctions has been slipping
relentlessly across all maturities for the past nine months, dropping to a
six-year low of 1.19 at a sale of five-year debt on Wednesday.
Surely nothing to do with the Labour/SNP combo still being the most likely coalition scenario...
Saturday, 4 April 2015
A few Easter Saturday macro thoughts
Who enjoyed that little interlude on Good Friday with the non-farm payroll numbers? As discussed yesterday they were hardly the strongest (link here). What are the odds on another year of as the year goes on GDP downward revisions?
Such are the outcomes maybe when mass QE is apparent and important parts of the world are still struggling - the average European economy for example has not recovered to its 2008 output level yet (even if you extrapolate out to 2016!)
That is not to say there is no impact from QE (as this report shows money supply expansion is helping to boost at the margin the European economy) but add on those FX related fears from the strong US dollar and the latest earnings data for this year for the S&P 500 looks rather shabby...
...so push the US dollar now then...and stymie the European earnings level (which itself has reduced in growth terms by 5% points since 1 January already despite the strong US dollar...)
The non-farm payrolls certainly encourage a thinking towards 'lower for longer' which has made it rational at a certain level to buy bonds...except at the current tiny yields the risk-reward for such fixed principal investments is now surely pretty bad. Nevertheless as these statistics show, 'investors worldwide poured $8.5 billion into fixed-income funds in the week ended April 1, marking the first three months of this year as the biggest first quarter for fixed-income inflows since 2001'
So current equity caution is driving an allocation preference? Um...well there are not many equity bears either:
Such are the outcomes maybe when mass QE is apparent and important parts of the world are still struggling - the average European economy for example has not recovered to its 2008 output level yet (even if you extrapolate out to 2016!)
That is not to say there is no impact from QE (as this report shows money supply expansion is helping to boost at the margin the European economy) but add on those FX related fears from the strong US dollar and the latest earnings data for this year for the S&P 500 looks rather shabby...
...so push the US dollar now then...and stymie the European earnings level (which itself has reduced in growth terms by 5% points since 1 January already despite the strong US dollar...)
Not too many decisions out there...maybe everyone should join China's new Development Bank? Pretty impressive join list so far.
The deadline to be an inaugural member is not too far off..
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