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Equities and Bonds have not been as closely correlated as today in the last 15 years
Week and YTD cross-asset
Tariff effect summarized in 1 chart
Since Jan 1, 1983, SPX has closed:
At All Time Highs 5.0% of the time
In a Bear Market 22.5% of the time
In a Correction 14.5% of the time
yield curve has predicted 9 out of the last 5 recessions…
NYT yield curve mentions
The Italian discount
Why not 50%?
(No) new orders
Bears in fashion.
AAII bears still elevated....
Bulls still evaporated.
AAII bulls in hibernation.
GS on the USD - risks skewed to the upside
Global growth vs. the Fed:
Throughout 2019, the broad Dollar has been buffeted by two opposing forces:
(i) weakness in global growth and resulting flight-to-quality flows, and
(ii) a dovish pivot by the Federal Reserve and narrower rate differentials between the US and other major markets.
The same issues are in focus ahead of the Fed’s annual Jackson Hole conference this week.
The Dollar exhibits an inverse correlation between global growth and risky assets, so any further fallout from the trade war in global economic data or financial markets could boost the currency over the near-term.
History shows the Dollar does occasionally decline during periods of growth weakness and heightened market volatility, but essentially only when the Fed is easing meaningfully (see here for more detail).
Therefore, the near-term Dollar outlook will hinge on Fed communication next week and through the September FOMC meeting.
Given decent US data, policymakers may not be ready to cut rates quite as much as discounted by markets—e.g. our economists anticipate 50bp of cuts from the Fed, compared to the 100bp or so priced in.
We therefore see risks to the Dollar as skewed to the upside for now, especially against EUR and CAD
Reports of an extension of another 90 days might be a surprise, but Huawei bonds have been doing nothing since July....
High Net Worths going more defensive
Another 90 days for Huawei according to Reuters.
Interest in UK assets by acquirers remains high
Why are (global) investors looking at the UK?
Goldman sees several reasons why:
1. GBP is building a significant uncertainty premium - our FX strategists argue that, beyond the short term, it is no longer obvious that ‘no deal’ is the asymmetric outcome for GBP. The risk-reward in long GBP/USD on a 12-month basis looks attractive, in their view.
2. UK equities are on a sharp discount, and interest in UK assets, especially in terms of inward M&A (foreign companies buying domestic companies), remains high.
3. Traditionally the UK has been a defensive equity market; risks are rising elsewhere too. The beta of the UK equity market (vs. MSCI World) briefly rose to above one in the period around the referendum but has recently fallen again to a more typical 0.6.
4. The prospect of a looser fiscal programme in the UK if and when a deal on Brexit is passed.
BoJo Brexit break-trough or breakdown in Biarritz....that´s the question
1998 (Russian default)
2007 (sub-prime crisis)
2011 (US debt ceiling, EMU Crisis)
2015 (CNY devaluation, S&P500 flash crash)
all you need to know about Q2 earnings
Overall in the S&P 500, 2Q19 earnings season served as a confirmation of the lower growth trend that began in 1Q19, delivering a second consecutive quarter of negative growth. That said, the numbers still came in better than expected, with % of companies that beat EPS estimates running well above the historical average and the YoY EPS growth estimated to finish -78bps for 2Q vs -3% at the start of the quarter. Performance wise, cautiousness seems to have been embedded into investor expectations, as the companies that missed on both earnings and sales were “punished” less severely than in past quarters ( down only -1.5% vs the average of -3.0% since 2010). Despite last week’s incremental improvement, forward earnings revision breadth for the S&P 500 remains within negative territory. 3Q19 earnings season will kick off in mid-October.
China IP trend weakest since 1990
98% of all companies covered by chinese sell-side analysts received a buy rating
Boss Besos winning the real game though...
Total Returns, Last 5 Years...
S&P 500: +61%
Boss Bezos not used to be 3rd....
not a bull market everywhere...
Pakistan Equity market -44.70% from its high in May 2017 -64.50% in USD terms.
Claims in key manufacturing states have started to rise
Bulls still evaporated.
AAII bulls in hibernation.
Bull in currency wars....
GS: risk/reward to owning US duration is increasingly poor
1. The sharpness of the rally has swung our tactical options-implied positioning indicator (OPI) from neutral to close to overbought territory.
2. This switch in positioning metrics is occurring just as UST 10s are hovering around our 1.5% overshoot level.
3. Bonds could of course stay overbought for a while, particularly with event risks next week including the Jackson Hole conference and a potential Italian no-confidence vote, but we think the risk/reward to owning US duration is increasingly poor.
If this was a bond related sell off, then watch the VIX vs TYVIX closely.
Inversion, inversion, inversion, but does Spuz really care?
Longer term chart of the Eurostoxx 50 volatility index for some perspective.
The index has basically gone from 12 to 22 in a straight line. As so often, people confuse pace with direction when it comes to hedging.
Loading up on volatility here is basically believing in a crash.
Recall that 1% move is aprox 16% implied vol....
Very interesting hammer candle in the making in US 10 year. Was the "weird" move earlier the capitulation move that will "feed" over?
Huawei - people still talk about it, but as a crisis indicator it is of no use these days, or is Huawei signalling all is fine?
Huawei bonds vs the Yuan.
Hedge Fund exposure to US sectors
Financials net exposure at the 0th percentile since 2010. Financials was the most net sold sector in July
Not a typo but the reality.
You can always lend money to Austria with maturity date Sep 2117 and receive below 0.7% or lend it for 50 years to Switzerland and be sure to lose 0.4%....
99% of commenting is that China equities closed marginally up, but not many pointing out the major inidces rebounded almost 2% from open lows and all indices putting in the biggest bullish candles in a long time.
China equities on the other hand are not a great indicator for the rest of the world, but at least now you know.
CSI 300 bounced on huge supports.
So what usually happens when "this" inversion happens. Below by the great macro team at Nordea:
"Based on past four inversions, $DXY may gain 3% over next 3 mths. S&P500 by 5% next 2 mths, and curve could keep flattening for 2 mths"
Highest close for the VIX futures spread since the December crash.
Chart of the 2 vs 8 month futures.
Fear is high, but liquidity is not.
Note the equities bar....
VIX futures spread.
This is one of our preferred risk indicators and should be obseved closely.
The 2 vs 8 month futures spread is hitting rather big levels here as short term protection is in high demand.
The spread traded small higher last week when the SPX decided bouncing. Note where it traded during the December collapse.
What is a bit unusual this time is the fact that "stress" came back so quickly, ie the spread is trying recent highs.
The chart showing the VIX futures spread vs SPX.
What is 1.59% and 1520 that used to be 3.2% and 1200 less than a year ago?
Talk about inversion....
US 10 year vs Gold chart...
The future of EU Banks (#1)
Natixis can then imagine two possible scenarios for euro-zone banks:
1. The low level of their RoE prevents them from raising capital, they contract and there will inevitably be a disintermediation of the financing of the economy or, a shift to financing of the euro-zone economy by US banks
2. The excessive weakness of their market capitalisation will make them easy preys for US banks.
conclusion: really worrying....
here comes the Private Equity bid
Richard Ramsden, banking star analyst at Goldman, sees sponsor activity on the rise:
1. Sponsor volumes look to accelerate as valuations become more attractive, financing costs fall and dry powder is at record levels.
2. With LBO dry powder of $740bn that likely needs to be deployed by 2024, we anticipate more sponsor purchases ahead, with July volumes already inflecting, up 3% vs. down 6% in 1H19.
Private Equity joining the "buyback bid".....its like Ronaldo joining Messi in Barcelona....
TSLA: Model 3 crushes premium competition in the U.S
in 8 of the last 12 months,the Model 3 has outsold allits competitors combined, capturing 63% of its direct addressable market in June!
Argentina's turkey moment.
Remember the Thanksgiving turkey being fed, all happy, until the black swan finally hits?
Recent turmoil in Argentina a la Taleb.
VIX term structure saw moves lower post the trade war news yesterday, especially the short end of the curve.
Current slpoe is still "stressed" although not extreme.
We have had some big swings over past weeks, but with some perspective, the SPX has not done much at all.
While everybody is prepared and hedged we ask ourselves whether or not markets need a consolidation here, especially as everyone seems to believe we are up for huge moves....
Immigration and the US workforce
Super-star legendary analyst grandma Abby Joseph Chohen is out with a massive report looking at immigration and the US workforce. some observations:
1. Immigrants comprise roughly 17% of the US workforce but are more heavily represented in highly skilled areas such as IT, mathematics, engineering, financial services and healthcare.
2. In 2017, international students were awarded approximately 50% of the doctorate degrees granted by US universities in mathematics and 58% of those granted in IT and engineering. They were also awarded 67% of the master's degrees in IT and 56% of those in mathematics and engineering. These individuals have become a crucial source of talent for US companies
3. Approximately 45% of the companies in the Fortune 500 were founded by immigrants or their children. Over the last five years, more than half of the US Nobel laureates were born abroad. Since the 1930s, about one-third of all US Nobel laureates were immigrants.
We will continue showing our top volatility video, a reminder that vol moves up and down, representing the great "game" of greed and fear....
Link to video,