In the Americas, the US FED has grossly overestimated growth rates of the economy, and it appears that it the economic growth has slows down considerably. We start seeing in various leading indicators for the November and December 2016 data to likely be worsening.
Category Archives: Banking
Weekly Market Commentary & Charts
Again, the way we continue seeing it, the macro climate in both the US and most
of the G-10 countries is still fading, global trade still depressed, and capacity
global utilization still well under 70%, we see no rational reason as to why the
FED should raise rates this year, or in 2017.
Market Commentary & Charts
In the Americas, investors in the US are awaiting the minutes of the FOMC meeting are supposed to show the FED taking a clearer stand on when they are going to raise rates. The market is getting more convinced, one more time, like it did for the past 2 years so many times, only to be wrong, over and over again. The odds of a December rate hike increased yet again to 74.5% from 69.5%. The odds of two hikes increased from 5.5% to 7.4%.
Weekly Market Commentary & Charts
The period of uncertainty for world equity markets continues. Many equity markets,
commodities and primary sectors have returned to the top of their trading range
previously reached in mid-July. Establishment of another intermediate uptrend is
unlikely prior to the US Presidential election on November 8th. Prospects following the Presidential election are positive. Seasonal influences begin to change in the month of October.
Weekly Market Commentary & Charts
The period of uncertainty for world equity markets continues. Many equity markets,
commodities and primary sectors have returned to the top of their trading range
previously reached in mid-July. Establishment of another intermediate uptrend is
unlikely prior to the US Presidential election on November 8th.Prospects following the Presidential election are positive.
2016 Q4 Global Markets Strategy & Equities Outlook
As highlighted in our 2016 Global Investment Strategy & Outlook, the global macro fundamentals had been slowing as we anticipated, and consequently Central Banks in the US, Japan and Europe have been adding liquidity to dampen the slowdown. Contrary to most “sell-side” big firms, which had been predicting 4 rate hikes by the FED in 2016 (GS, JPM, UBS, DB to name just a few) besides “buy-siders” (of the likes of Bill Gross/Pimco/Janus, Mohammed El Erian/Allianz and too many others to name).
Morning Market Commentary
The WTO estimated global trade volume is set to grow just 1.7 percent in 2016, a much lower forecast compared with April’s 2.8%. It marks the first time in 15 years that international commerce has grown more slowly than the world economy. World trade has been in decline since 2H 2014 (totally coincides with the parabolic rise of the US$ since June 2014).
Morning Market Commentary
Not a lot of substance on differentiation of both candidates’ 4-year economic and socio-political pans. One hour into the debate, the candidates had failed communicating their priorities. There’s been no “on my first day in office …” or “the first bill I’ll sign …” or other similar promises. Trump is most animated about trade and immigration, but it’s harder to tell which issue, if any, Clinton is putting at the center of her campaign. The only noteworthy difference between both candidates highlighted in last nights debate was when they debated how to grow jobs and incomes; Trump mentioned cutting regulation, while Clinton vowed to boost manufacturing jobs; both touted their tax and trade policies.
Weekly Market Commentary & Charts
Slower than consensus economic news from the US, Japan, Brazil and smaller parts of Europe last week proved to be good news for markets. Additionally, as we were
expecting, the Federal Reserve decision to maintain the Fed Fund rate at .25%-0.50% on Wednesday afternoon boosted equity, commodity and bond prices. Economic news this week is expected to confirm an additional slowdown in US economic growth in Q3.
Market Commentary & Charts
As an immediate reaction to no policy change by the FED, we see the US$ on the precipice of needing to deflate. All the arguments and hopes and hypes which propelled the US$ to its “temporary parabolic rise in 2014” are no longer in place at this time, and surely looking out over the next 12 – 18 months:
Macro Commentary – US$ reversing its trend
The FED’s decision to keep rates unchanged comes to no surprise to us, as we have been forecasting that the FED would not raise rates at all in 2016, mainly due to evidence in our research that the US economy in aggregate was slowing since October 2015, and now since Q2 of 2016 on an accelerating basis.
Market Commentary & Charts
The OECD announced today it cut its forecasts for global and US growth.
OECD now expects global economy to grow 2.9% this year, down from forecast of
3.0% in June.
Weekly Market Commentary & Charts
The period of increased volatility and increasing weakness for world equity
markets continues until the end of October.
Morning Market Commentary & Charts
Federal Reserve officials continue to gauge financial markets by controversial policy speak. Equity markets moved sharply lower on Friday on “hawkish” comments on the Fed Fund rate by Eric Rosengren. Then yesterday “dovish” officials, such as Fed Governor Brainard were implying less of a chance for an increase in the Fed Fund rate. This is the perfect parody for global financial markets.Just imagine corporate executives acting like FED officials, and coming out with controversial statements about earnings expectations all the time, this would lead to serious SEC/FAC investigations on conflicts of interest. Or just imagine another foreign central Bank, like the ECB, or BoJ or the Central Bank of China to “mislead” financial markets the way that the FED is. Unimaginable.
Morning Commentary & Charts
We continue advising investors to reduce equities exposure and buy instead 10-
Year and 30-Year US treasuries into the weakest 2 months for equities ahead.
Strategy Update
What are we likely to see in the aftermath of Brexit?
The many implications for monetary policy can all be distilled down to one simple
thought: continued accommodative monetary policy by central banks globally.
Weekly Market Commentary & Charts
Pessimism remains the dominant theme on Financials, with sentiment readings on
Insurance hitting a two-year low and Banks firmly entrenched at the low-end of their
historic sentiment range versus the market.
Morning Commentary & Charts
As we said before over the past 4 weeks, something has to give. And as of yesterday, it is the 10-Year treasuries that have started to break out, and the yield breaking support at 1,70% will likely go down towards our 2016 target of 1,40%. All short term technical indicators for the $TNX are in declining trends, RSI, MACD, 20-, 50- and 200-day moving averages.
Morning Commentary & Charts
The continuing weakness in the US$ Index helped commodities and US equity prices to rise yesterday.
Morning Commentary & Charts Memorial Day Thoughts
This year’s Memorial Day, Americans are enjoying “most memorable low gas prices” for the start of the summer driving season in over a decade, with the weighted average price of regular gas is $2.30 per gallon, -17% lower than this time last year.
Weekly Market Commentary & Charts
We are advising investors to buy US 10-Year and 30-year treasuries at current
levels, as we do expect the traditional “Sell in May & Go Away” for equities to
have a significant affect in 2016.
BMW Buy Reiteration
Muted 1Q16 EBIT results are EUR 1.76bn/9.4% for the Automotive segment and EUR 2.46bn/11.8% for the group. In 2016E-18E, we expect EPS to grow at a CAGR of 3.1% and reach EUR 10.63 in FY18E. Our YE16 target price of EUR 93 implies a 26% upside potential for BMW shares.
Weekly Market Commentary & Charts
Global equities have passed their peak of annual seasonal strength on May 11th,
we are advising investors to aggressively sell Chinese, Japanese, US and EU
equities immediately, as many macro-economic, geo-political and political risks
will likely rise over the next 2 – 4 months into the summer.
AAPL SELL Update
The short-term technical outlook for AAPL is negative, RSI and MACD are negative, and so are the 14-day, 50-day and 200-day moving averages. The head-and-shoulders topping pattern that became confirmed upon the break below the neckline around $107 had a first downside target of around $83, however, inherently increasing risks are for AAPL to test support at the open gap charted two years ago of $71.
Strategy Update – US
We suggest trimming equity exposure by taking profits in those sectors that have
outperformed over the past three months such as materials, mining and
industrials to build cash levels.
Morning Market Commentary & Charts
The bear market for global equities is well alive and showing its claws one more time. Since December, we were warning of an initial equities rout in Q1 of the magnitude of -12% to -15%, we have seen increasing deterioration of both the technical outlook for global equities, and similarly for the fundamental (macro; earnings, valuations, DDM; political environment and geo-political risks) outlook and support for global equities.
Weekly Market Commentary & Charts
Global equities have reached their peak of annual seasonal strength in late April/mid May, we are advising investors to aggressively sell Chinese, Japanese, US and EU equities immediately, as many macro-economic, geo-political and political risks will likely rise over the next 2 – 4 months into the summer.
Weekly Market Commentary & Charts
Now that global equities have reached their peak of annual seasonal strength in
late April/mid May, we are advising investors to be aggressively selling Chinese,
Japanese, US and EU equities, as many macro-economic, earnings outlook and
geo-political risks will rise over the next 2 – 4 months into the summer.
Investment Strategy Update
The significance of “Brexit” and its consequences on financial markets will surely intensify over the next 2 months. We are expecting volatility in all UK and EU asset classes, be it Foreign Exchange, Fixed Income and Equities to rise significantly before June 23rd.
APPLE SELL Commentary & Charts
AAPL shares fell more than -8% after the close in NY yesterday, to about $96 this morning in Frankfurt, and below our January 27th “Sell” on APL at $ 99.99. We reiterate our “Sell” on AAPL at the current price of $96/share.
Morning Market Commentary & Weekly Charts
Economic focus this week is on the FOMC meeting on Tuesday and Wednesday. Consensus is that the Federal Reserve will maintain the Fed Fund Rate at 0.25-0.50%. However, the bond market began to respond last week to anticipation of message by the Fed that it plans to increase the Fed Fund rate soon based on incremental evidence that slow US economic growth is accelerating.
Morning Market Commentary
In the US, Housing starts gave a disappointing glimpse into an area of the economy that is typically strong into the spring. Housing starts declined by -8.8% in March to a seasonally adjusted annual rate of 1.089 MN, below consensus forecast of 1.167 MN.
Morning Market Commentary & Weekly Charts
Financial leaders from the G-20 nations said on Friday they were heartened by a recent recovery in financial markets, but warned that global growth was “modest and uneven” and threatened by weakness in commodities-based economies
Morning Market Commentary
Oil demand/supply balance is starting to adjust, pretty much as we were predicting in our 2016 Global Investment Strategy Outlook that it would by the beginning of the summer 2016.
Morning Market Commentary
One phenomenon that should worry investors in US equities is the fact that corporate debt to income is at extremely high levels with the ratio of non-financial corporate debt to national income is nearly 45%, an elevated reading that suggests corporate balance sheets are not in particularly good shape as non-financial US companies have added nearly $2 TRN in debt to their books since 2008.
Morning Market Commentary
In the US, the US federal budget balance rose less-than-expected last month, official data today in a report by the Department of the Treasury showed that US federal budget balance rose to a seasonally adjusted US$ -108.0BN, from US$-193.0BN in the preceding month (vs. economists’ consensus to rise to US$ -104.0B last month).
Morning Market Commentary & Weekly Charts
Global data: “Weak foreign economic conditions, a persistently high exchange value of the US$ and tighter financial conditions—will continue to restrain US economic growth for a time and thus collectively imply a temporarily low level for the neutral rate of interest.” Central bank limit: “financial market turbulence provided an important reminder that the ability of central banks to offset the effects of adverse economic shocks might be limited, particularly by the low level of policy interest rates in most advanced economies.”
Morning Market Commentary
In the short run the absolute level of economic activity is lower than it should be, with financial market finding it hard to advance much further without concrete proof that the economy is truly healthy. Members of the Federal Open Market Committee were concerned about the threat of slower global growth and low inflation when they voted to keep interest rates unchanged last month, the minutes of the central bank’s March 15-16 meeting revealed. Several also cautioned against an increase in April, saying it was signal a sense of urgency about the US economy that they did not think appropriate.
Morning Market Commentary
Over the past 50 years, the S&P 500 Index has closed higher in April 70% of the time, averaging a gain of 1.5%. Historically, the first trading day in April is one of the strongest days of the year for the S&P 500 Index. During the past 20 periods, the S&P 500 Index gained 0.8% per period. A major reason is money flows entering the equity market coming from pension plans on the first trading day of Q2.
Morning Market Commentary & Weekly Charts
According to the latest sentix investors’ survey, markets are less nervous on Chinese equities from a medium-term strategic perspective in recent weeks, albeit survey readings remain well down on twelve-month highs. This chimes with a wider revival in sentiment towards Emerging Equity Markets as an asset class, as well as a more upbeat view among survey participants on the outlook for Commodities.
Morning Market Commentary
In the US, the Federal Reserve left the target range for the benchmark federal funds rate unchanged at 0.25% to 0.5%, as widely expected, and scaled back its forecasts on the path of interest rates. The Fed, which lifted interest rates for the first time in nearly a decade back in December, said rate rises this year would be more gradual than expected, with two on the cards versus the four projected at the end of last year.
Weekly Market Commentary & Charts
In the US, all eyes will be on this weeks’ FOMC meeting. We are not expecting for the FED to make a change to the current rates. Nevertheless, we see the Federal Reserve is the scariest of all Central Banks. Particularly, as they failed to adequately gauge US macro shifts and reacted with incorrect policy decisions subsequently.
Morning Market Commentary
Investors did fear that further momentary accommodation could weigh a bit on the Euro, however, as we have been writing in the past 6 weeks, most of the Euro’s negative sentiment is backed into the cake, and we see the EUR/US$ to hold the next support level of 1,0680.
Weekly Market Commentary & Charts
The global economy is heading for a storm as faith in policymakers dwindles, according to a stark warning from one of the world’s most respected financial institutions. The uneasy calm in financial markets last year has given way to turbulence, the Bank for International Settlements, known as the central bank for the world’s central banks, said in its latest quarterly report
Morning Market Commentary
Global equity markets rebounded moderated over the past week. The UK’s FTSE 100 was the top performer, up 2.45%. The Shanghai Composite Index was the biggest loser, down 3.25%. India’s SENSEX 30 was the other index with a weekly loss, down 2.34%. Six of eight-index world watch list posted gains, but the average of the eight was only 0.47%, a sharp decline from the 4.51% average of the previous week.
Morning Market Commentary & Weekly Charts
Over in the US, Q4 GDP was marked up slightly to 1%, but that was mainly because of a bigger stockpiling of inventories that could weigh on the economy in early 2016, and reflects a slowdown in growth that set in during the waning months of 2015. The US grew 2.4% for the second year in a row, failing to reach 3% for the 10th straight year. We see the outlook for 2016 deteriorating further. Economists predict the US will stick to its current rate of growth, held in check by a strong dollar, weak exports and slack business investment. We maintain our 2016 target of 1.6% for the US GDP.
Morning Market Commentary & Weekly Charts
We stand firmly to our point that the December FED rate hike was a policy mistake proven by the increasing volatility and deterioration in asset prices in the world since. Hence why we do not expect the FED to continue in 2016 with further tightening, on the contrary, as we do expect the US economy to show a negative GDP print in either the current quarter, possibly also in Q2, we are anticipating for the FED to resume its QE program later in 2016.
Market Commentary
This morning the Organization for Economic Cooperation and Development cut its global growth forecast for 2016 from 3.3% to 3.0% and warned that some emerging markets are at risk of exchange-rate volatility. The downgrade in forecasts is broadly due to disappointing incoming data for Q4 of 2015 and the recent weakness and volatility in global financial markets, which are affecting some emerging markets are particularly vulnerable to sharp exchange-rate movements and the effects of high domestic debt. The OECD’s revised global growth outlook is still to optimistic in our view, and we are expecting for major organizations like the OECD and IMF to continue to downgrade global GDP over time to our forecasted 2.4% levels for 2016.
Morning Market Commentary & Weekly Charts
Global credit analysis has been a much better gauge for financial market analysis for the past 4 decades. Although our firm’s balance of experience and expertise is stemming from equity markets and products, we have been applying a more asset class agnostic research mantra, being totally currency and financial asset category agnostic. Over the past 13 years in particular, we have taken more and more lead from the credit side, and it has helped us and our clients to be ahead of the herd, particularly when it comes to global asset allocation recommendations and making clear alpha choices.
Strategy Update US
The Federal Reserve has gone to great lengths to assure the public that the contemplated rise in interest rates will be gradual while the overall tenor of monetary policy remains accommodative. As proof, the Fed points to its balance sheet that hasn’t shrunk in size by continually rolling over maturing debt on its books. But if that’s so, why has the market been in such disarray since December’s rate hike? After all, liquidity is the lifeblood of the market and if liquidity is not being constrained shouldn’t risk assets continue to levitate higher? We believe that they would if that last statement was true. In reality, de facto tightening has been underway as liquidity is being drained from the system.
Market Commentary
Over the past ten days, the risk perception has shifted from the Energy & Oil sector toward the banks sector, both in the Emerging markets but also in Europe, spreading to the US lately.
Morning Market Commentary & Weekly Charts
The OECD today announced it sees evidence of further slowdown as its gauges of future economic activity, with its composite leading indicator for its 34 members, fell to 99.7 from 99.8 in December and continue to point to slowdowns in the US, the UK and Russia, however recent readings show steady growth in the Eurozone, and an acceleration in India.
Morning Market Commentary & Charts
Since 2008, excessive quantitative easing tools were used, and implicitly reserve balances with federal reserve banks have ballooned in aggregate to over US$% TRN for the FED in, conveniently targeting to inflate equity prices in the process. As soon as these stimulus programs came to an end 6 weeks ago, so too did the rise in stocks. The recent equity market weakness can be linked directly to the decline in liquidity now that the Fed has entered a tightening cycle.
Asian Equity Markets Commentary & Charts
With the start of February, Asian equity markets have entered their period of seasonal strength, which starts in February and typically lasts into late April. As Japanese equities have retraced significantly from their highs in 2015, the BoJ on Friday surprised financial markets with a monetary policy change towards negative rates. The BoJ’s aim was to inflate assets, and to devalue the Yen further, and hence why we are seeing a good investment rational for investors to re-enter Japanese equities at current prices. A closer technical look at the Nikkei-225 shows that is in process of a clear reversal. Our 3- 6 months price target for the $NIKK is 20,150.
Morning Market Commentary & Weekly Charts
Economic focuses this week are on the January ISM report on Monday and the January US and Canadian employment reports on Friday. Technical signs of a bottom and start of an intermediate uptrend in most equity indices, commodities and sectors appeared last week. However, as anticipated, volatility remains high, but declining: another technical sign of improving intermediate prospects.
Morning Market Commentary & Weekly Charts
When it comes to 2015 and our predictions, we were heavily countered by a lot of investors in the US & the UK with disbelief, as we had been most concerned about an increasing slowdown in GDP economic activities in both China and the US. Even as we speak, this morning the IMF downgraded global GDP expectations for 2016 from 3.6% to now a reduced 3.4%. We have 2.9% as a forecast for 2016, and believe that there will be continued concern by financial market participants throughout the 1H of 2016, whether this number can be met.
Morning Market Commentary & Charts
The Russell 2000 Small Cap index was down -20.4% from the peak in June 23rd 2015, crossing the -20% bear market threshold. The $RUT is already below support that represents the neckline of its head-and-shoulders topping pattern. Downside potential is to the 2007 and 2011 highs around 860. The breakdown falls within the period of seasonal strength for small cap companies that runs through to the start of March. Risk aversion is weighing on the notorious January effect when investors tend to take on risk at the start of the year. The $RUT has been underperforming the $SPX since early 2014, seemingly as “leading indicator”.
Morning Market Commentary & Weekly Charts
Our weekly investment strategy advice for investors is: To wait until the dust settles， following last week’s shock events, which we wee predicting as an immediate consequence to Ms. Yellen’s ill timed, rate rise.
Morning Market Commentary & Weekly Charts
Economic data this week is expected to confirm slowing economic growth in the US. Data will be sufficient to prompt the Fed to increase the Fed Fund rate for the first time in a decade. As indicated earlier, an increase in the Fed Fund rate will set the stage for a significant recovery in North American equity markets over the next three months.
Morning Market Commentary & Weekly Charts
Economic news this week focuses on November Retail Sales. El Nino type weather through this winter is expected to have a positive impact on Industrial Production and the S&P 500 Index (i.e. an extra 3% gain during El Nino winters). The month of December is the strongest month of the year for North American equity indices. However, strength tends to be concentrated during the last two weeks of the month (i.e. Christmas rally period).
Morning Market Commentary & Weekly Charts
International events will dominate all asset classes, as terrorism in several parts of the world remains a focus. Economic news this week is expected to be slightly positive relative to previous reports. US Thanksgiving holiday is on Thursday. US markets are open on Friday, but trading will be exceptionally thin.
Morning Market Commentary & Weekly Charts
For the past 10 months, the global economy has fared increasingly disappointing. And, we continue to see no encouraging signs for the coming 6 – 9 months for any of the major economies, be it in Asia, Europe or the Americas. Additionally, the most tragic events over the weekend in Paris, and the to be anticipated responses by French and European and allies’ intelligence forces are going to put additional stress into families, societies and consumers. We are anticipating significant government retaliatory and future pre-empting measures, which collectively are surely not going to affect the psychologies of European and foreign consumers and tourists and travelers in a positive way.
Morning Market Commentary
On average during the past 50 years, the S&P 500 Index reached its annual low on October 27th and entered into a period of seasonal strength that lasted until early May. However, exact date for the annual low varies each year by approximately one month either before or after October 27th. The charts below demonstrate.
Morning Market Commentary & Weekly Charts
Economic data this week focuses on the FOMC meeting on Wednesday. Consensus is that the FOMC wants to increase the Fed Fund rate to reflect improving economic conditions, but wants more evidence of sustainable growth. We remain convince that there is not enough US intrinsic macro strength, besides global macro weakening, for the FED to raise rates in 2015, and very likely the same for 2016
Morning Market Commentary & Weekly Charts
International news is expected to be relatively quiet this week. Economic data focus in the US this week is on the housing industry.The easy money in equity markets and economic sensitive sectors has been made already for the current intermediate up cycle. Beyond the earnings report season, seasonal influences for equities turn positive. Short and intermediate technical indicators are overbought, but have yet to show signs of rolling over. Preferred strategy is to accumulate seasonally attractive equities and economic sensitive sectors on weakness between now and the end of the month.
Morning Market Commentary & Weekly Charts
Seasonality Trends February and September have historically been the weakest months for the European major indices, and also for the S&P 500, with December as the strongest. May – September is seasonally weaker for returns as compared to upticks seen in October – May. (Look at page 9 – 13 for the major equities benchmark seasonality charts)
Morning Market Commentary
The reality is that growth has been slowing all year, and that’s a fact. Global trade is still decelerating, in spite of massive and accelerating currency devaluation schemes by most G-10 members. Now, with increasing and sufficient macro economic evidence of US GDP slowing, the FED is caught in a quagmire, which we have been predicting steadfast since March 2013.
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2015 Q4 Global Investment Strategy
Stocks have the seasonal tendency to outperform bonds from mid-November until the end of March, a trend that we see to continue in 2015. As in prior reports, we do think that the current stagnation-type economic environment, impacting two-thirds of the global economy, namely the US and Europe, and Japan, is going to provoke most long-term investors to conduct a major switch from “negative-return based” bond investments into high-yield equities with stable and defensive cash flow generative outlook.
Morning Market Commentary & Weekly Charts
Bond proxies like utilities and REITS gained ground, while banks and insurers sold off sharply. It was a bad week for risk assets leading to the bigger question of whether the August prices plunge was a normal correction or something more serious. A bounce off that low was expected, but has now run its course. We are still expecting for markets to retest the summer lows between September and October.
Morning Market Commentary & Weekly Charts
Risks related to international events remain quiet with most focus on China. Volatility in Chinese equity markets remains extreme. Economic news this week (other than the FOMC news on Thursday) is expected to be mixed. FOMC news on Thursday is by far the most important equity market-moving event this week. Polls say that chances of an increase in the Fed Fund rate are 25%. Knee jerk reaction to an increase likely will be negative. However, weakness will provide a buying opportunity.
Morning Market Commentary & Charts
We believe that both $WTI and individual company stock prices in the current market represents a historic buying opportunity. The period of strength for the sector ahead is from October to early December as thereafter demand for oil declines.
Morning Market Commentary & Weekly Charts
We continue to advise investors to reduce weightings towards US equities and add aggressively towards equities markets such as Europe, (Germany, France, Netherlands; Spain) and Asia, (Japan, China, India, Vietnam, Indonesia; Philippines) and Latin America (Brazil, Mexico).
Morning Market Commentary & Charts
For the month, the S&P 500 and Dow are lower by over -6%, both closing below their respective 20-month moving average for the first time since September 2011. August’s return is a significant divergence from the average return for the market, according to the S&P 500 Index. The technical status of the broad market has notably deteriorated, suggesting stocks may not be free of further downside risk, as of yet.
Morning Market Commentary & Weekly Charts
Economic news this week is expected to show accelerating US economic growth in Q3, a scenario that likely will raise concerns about timing of the first increase in the Fed Fund rate. International events also could influence equity markets this week Hot spots include China, Russia, Venezuela and selected Middle East countries.
Morning Market Commentary 2015 Global Equity Indices in danger of breaking
Global equity markets are in danger of breaking below major support levels, Global Bonds still outperforming.
Morning Market Commentary & Weekly Charts
Chinese inflation grew +1.6% y-o-y in July, up from +1.4% the previous month and
ahead of estimates of +1.5%. Talks between Greece and its international creditors are progressing and hopes are that a third bailout deal could be agreed by 20th August. The outlook for Ireland has been amended to positive from stable by the credit ratings agency Fitch. In the US, data from the Labor Department showed employers added 215,000 jobs in July, missing the consensus forecast of 225,000. Lastly, the global economies are getting relief from Oil prices declining to new lows.
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Morning Market Commentary
For the month of August, we are expecting for a historical repeat for bond prices around the world to have their best month of the year. So far, for the past week, investors have been evaluating the deteriorating macro news, and re-allocated new money into the bond markets, just as we were predicting. Strength in the bond market, utilities and real estate over the past week signaled that investors are coming around to our views that the Federal Reserve is likely to postpone its first increase in the Fed Fund rate beyond September, which in return, will be a positive influence for equity markets.
Morning Market Commentary & Weekly Charts
As we had highlighted in several publications since March 2015, Global GDP Growth is set to slow across a growing number of the world’s largest economies, including the US and China. China’s worries have spread to oil, which is adding to last week’s -5% drop. Global economic growth slowed during June, led by a significant contraction in emerging market output. The global economy is struggling with secular stagnation. Too much fiscal and monetary intervention by governments an their central banks and now with even more of these policies, things will get increasingly worse, not better. For now, we are expecting for Europe to temporarily slow over the next 2 months again, before gaining macro momentum in late September until the end of the year.
Morning Market Commentary
US inflation continues to run below the Fed’s 2% target, which policymakers view as a “temporary result of the strong US$ pressuring commodity prices”. However, maybe the FED should rethink their definition of “temporary” for the US$ strength, and the inherent tremendously negative impacts on the US economy, the negative impacts on competitiveness of US companies, and negative impact on imports, exports, negative impacts on US inflation, or better, the lack thereof. We just cannot see the rational for the FED to raise interest rates, when macroeconomic momentum, and the negative impacts of a strong US$ are already at unsustainable levels, nevertheless with risks of a rate hike going to exacerbate and make things much worse.
Morning Market Commentary & Weekly Charts
We are seeing increased technical evidence that world equity markets and most sectors remain in a corrective phase since mid-May. Short and intermediate technical indicators for most equity markets and sectors are oversold but continue to trend down. The latest survey of investors’ sentiment conducted by sentix has revealed that investors’ feel relief after the turn in the Greek debt drama. From an already high level, sentix Sentiment rises once more by over 10 percentage points and signals a party mood. In contrast, commodities command investors’ respect. Here, fears that the whole sector is in a free fall dominate. Meanwhile, the US$ benefits.
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Morning Market Commentary & Weekly Charts
The EU and Greece have secured debt restructuring and medium-term financing. We are not expecting for “Greece’s no vote” to have a substantial impact for equities, either for bonds or foreign exchange. For both equities and bonds, early signs of a peak in summer volatility have appeared. Now is the time to prepare for seasonal buying opportunities. However, we are seeing increased technical evidence that world equity markets and most sectors remain in a corrective phase since mid-May. Short and intermediate technical indicators for most equity markets and sectors are oversold but continue to trend down.
Morning Market Commentary & Weekly Charts
Valuations for European equities are even more very favorable since the usual sell-off in May began, both on an absolute and on a relative basis. We are expecting for the ECB to make a decision whether to continue providing emergency liquidity assistance (ELA) to Greece at a meeting today. Consequent to the continued geo-political uncertainty in Europe regarding Greece and implications on the rest of the Eurozone, and the US, we do continue to expect for the US Federal Reserve not to raise the Fed Funds rate in 2015.
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2015 Q3 Global Investment Strategy & Equities Outlook
10-Year US and European Bond yields will turn lower one more time. The US$ will decline further. Oil & Commodities will move higher. Global Equities will correct,
but then recover sharply towards end of Q3 into Q4. EAFE to continue to outperform US equities.
Stocks have the seasonal tendency to outperform bonds from mid-November until the end of March, a trend that we see to continue in 2015. As in prior reports, we do think that the current stagnation-type economic environment, impacting two-thirds of the global economy, namely the US and Europe, and Japan, is going to provoke most long-term investors to conduct a major switch from “negative-return based” bond investments into high-yield equities with stable and defensive cash flow generative outlook.
Morning Market Commentary & Weekly Charts
European 10-Year government bonds are entering their period of seasonal strength from mid-May until end of August. After the short-term current correction in US, European and Japanese 10-Y
treasuries, which we expect to last for another few days, we are expecting for further yield compression between French, Italian, Portuguese, Spanish 10-Y Government bonds and the German bunds to materialize over the coming 2 – 3 months, and are advising for investors to increase their weightings into Spanish, Italian, Portuguese, Irish 10-Year bonds into the current correction.
Morning Market Commentary
The Eurogroup meeting here in Luxembourg today has been touted as the “last chance” for Greece to agree a deal in time of the end of June. Athens must repay EUR 1.6BN due to the IMF by 30th June but has admitted that it has insufficient funds to do and that compromising to unlock frozen aid would be a necessity. We would not be surprised that there would be a positive outcome for the Greek Saga today in Luxemburg, which then consequently would cause both European equities and the Euro to snap back considerably.
Morning Market Commentary
Housing starts for May were reported yesterday at a seasonally adjusted annual rate of 1.036 MN, down over -11% from the previously revised annual rate of 1.165 MN reported in April. A glimmer of hope is present in the Building Permits competent of the report, perceived as a leading indicator.
US Strategy Update: The Economy Finally Begins To Put Upward Pressure On Interest Rates
Workers typically don’t quit their job without an expectation of getting a better higher paying one and the number of quits has continued to trend higher over the past year with the largest rises concentrated in higher paying sectors such as durable goods manufacturing, finance & insurance and health care. The trend in quits and the surge in job openings bode well for a rise in real income.
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Morning Market Commentary & Weekly Charts
Economic focus this week in the US is on the FOMC meeting results to be released on Wednesday. Earnings and sales by S&P 500 companies during the next two quarters remain a concern. Intermediate and technical indicators for most equity markets and sectors remain overbought and trending down. Short-term technical indicators (mainly momentum indicators) for most equity markets and sectors are trending up.
Morning Market Commentary
As we predicted since our 2014 Global Investment Strategy, the $SSEC has been the star performer in 2014 and 2015 y-t-d, hitting our very aggressive 2015 price target of 4,900 last Friday, outperforming the S&P 500 Index by around 40%.
IMF Says China’s Currency No Longer Undervalued
We noted in a previous report that the steeper the ascent, the deeper the correction. The Shanghai composite index has hit CGI’s target of 4,900 and is vulnerable to around 4,400 or even 4,100 should selling volume sustain itself after yesterday’s decline on record volume. Those with a short-term trading orientation may consider trimming positions or taking profits. However, we believe that the ‘A’ shares can still push higher after a period of consolidation. We reiterate that we believe the greater risk for long-term investors is one of not participating and missing out on China’s continued bull run.
Morning Market Commentary & Weekly Charts
Seasonally, rates typically decline during the summer months as investors “de-risk” from equity markets, however, the potential for the Fed to raise rates sometime this year has the market fleeing this asset class, putting some temporary uncertainty into the success of this seasonal phenomena.
See The Chinese Forest Through The Trees
Although domestic loan demand has been trending below expectations, further reductions in the RRR in conjunction with new monetary and fiscal policy initiatives could lead to resurgent economic activity. We believe that China has at least two more years to pursue aggressive stimulative monetary policy given the current state of the global economy and generally accommodative monetary policy enacted by most central banks. In our view, it will be at least that long before accommodative global monetary policy transitions to a tightening cycle. Meanwhile, the world is awash in rising central bank driven liquidity.
Don’t Buy The Avoid China Argument—Buy The Shares Instead
It’s no surprise that many commentators perpetually warn off potential investors in China shares. Those warnings have become even more strident after the 104% run up in the Shanghai Exchange over the past twelve months. Beijing is managing the impact of economic reform by selectively implementing additional monetary stimulus.
Morning Market Commentary & Weekly Charts
Total global debt is up 40% since 2007 to US$ 199 TRN according to a study by Mc Kinsey. As a percentage of GDP, debt is now higher in most nations than it was before the crisis of 2008/2009. On average globally, it is 286% now vs. 269% in 2007. Despite the economic rebound since 2009, the debt of households, corporations and especially governments continues to rise. Governments in advanced economies have borrowed heavily to fund bailouts in the crisis and offset demand in the recession. The danger is far larger and more imminent than commonly admitted, as evidenced in the chart below.
Morning Market Commentary
Seasonally, inflationary pressures are the strongest in Q1, attributed to the seasonal rise in commodity prices. Investors should keep in mind though, that there is increasing macro evidence, as today’s disappointing ADP data, whereas the US created 169,000 private- sector jobs in April, after a downwardly revised 175,000 jobs were created in March. Companies with 500 or more employees had the slowest growth, the firm said. The economist consensus is for the US to report 233,000 nonfarm jobs created in April on Friday.
Morning Market Commentary
The average unfavorable period return over the past 20 years was –0.25%; the average changes slightly to –2.04% when unfavorable periods following below average favorable periods are isolated. Declines between May and October are definitely not a certainty, but it often is prudent to be conservative in equity allocations by reducing beta and correlation versus the market during this period of random performance.
Morning Markets Commentary & Charts
US equities, even at current extremely high valuations, still have DDM support. The present dividend yield of the S&P 500 sits around 1.95%, almost double what it was at the start of the century. For the first time since the 1950’s, the dividend yield of the S&P 500 benchmark is higher than the 10-year Treasury yield (1.92%), increasing the appeal of the equity market. Whatever the use of enormous corporate cash balances, there remain many reasons to be enticed by the equity market over the long-term. Defensive sectors like utilities (+25%) and healthcare (+24%) are leading the US sector higher last year, and we believe that the low growth environment keeping the FED monetary policies on hold will bode well again for these sectors in 2015.
Morning Market Commentary & Weekly Charts
European, US and Japanese equity markets period of seasonal strength is starting now. Hence, why we recommend reducing equity weightings in those markets, and advising investors to wait for better prices for re-allocating money in late summer.
Morning Markets Commentary & Charts
Historically, when stock prices went up, bond prices went down and when stock prices went down, bond prices went up. This market phenomenon did not hold true in the past 7 years, since most global central banks have been turning up the floodgates. Thanks to most Central banks monetary policies around the world, financial markets are booming in virtually all corners of the world. Most global equity markets are trading at all-time record highs. Global real estate is booming at the same time, with record valuations in many countries, including both residential and commercial properties. Art collecting too is in vogue among the world’s wealthiest citizens.
Morning Markets Commentary & Charts
US stocks ended mixed yesterday with the Dow Jones Industrial Average and the Nasdaq Composite closing on opposite sides of the flat line. Q1 US company earnings so far are beating expectations, which is positive (albeit from a much reduced level as 3 months ago), but they are coming up light on revenue, which is bothersome. Not all of the shortfalls are attributable to the translational impact of the stronger US$, which makes even more for a sup-par grade for this earnings season.