Wednesday, March 30, 2011

Monday, March 28, 2011

SEB's View On Equities Is "Unclear"

The painting artists at Swedish SEB have rolled out their latest Technical Week Ahead today, where their conclusion is pretty straight forward - unclear.

Click on charts to enlarge, courtesy of SEB.

Thursday, March 24, 2011

Fed Goes Heavy On Transparency PR, But Don't Audit Us!

As the MarketBeat reports, chairman Ben will be speaking more directly to the public in the coming months, via four-times-a-year press conferences, just to “further enhance the clarity and timeliness of the Federal Reserve’s monetary policy communication.”

The Federal Reserve could not possibly be more transparent. But don’t audit us!

Wednesday, March 23, 2011

Focus On Saudi And Shiite

Christopher Wood at CLSA Asia-Pacific Markets scribed yesterday:
Still as the Western politicians responsible posture, most of them with a public relations agenda rather than a military agenda, GREED & fear would continue to advise investors to focus on Bahrain, the Shiite area of Saudi and also the Shiite area of Kuwait where again hundreds of thousands of Shiites live close to the oil producing area.

Unfortunately, the odds still favour further escalation, with such escalation being encouraged by both Iran and Iraq which now has a Shiite dominated regime. This issue is a much greater threat to the near term prospects of global financial markets than radiation levels in Japan or the sideshow in Libya. Meanwhile, if Saudi starts taking on its own Shiite population in a more violent fashion, what are the “Allies” going to do? Invade Saudi!
Indeed, oil feels like natural hedge?

From Deleveraging To Derating

Gerard Minack at Morgan Stanley kinda goes deeper into the sovereign debt issue than Steven Wieting and is wrapping up today:

The most important change in borrowing in the US over the past three years was who has borrowed, not how much was borrowed. The credit super-cycle was largely a private sector activity, but the public sector has been the only borrower (in net terms) over the past two years (Exhibit 2). This swap was critical. The private sector has reduced its leverage (and increased its saving), but this has only been made possible by the unprecedented peacetime increase in leverage (and fall in saving) by the public sector. To focus in isolation on lower private sector leverage (and rising saving) as a sign of ‘healing’ misses the point that it’s only been possible due to the stretch in public sector finances.

Click on charts to enlarge, courtesy of Morgan Stanley.

While there are serious questions about real deleveraging by US households, however, the "sort of" conclusions at the end of Morgan Stanley's note sound like this:

Borrowing to buy pre-existing assets can affect the valuation of those assets. Most periods of sustained asset revaluation go hand-in-hand with sustained leverage increases (Exhibit 6). While sustained deleveraging does not imply sustained macro weakness, I think it will put downward pressure on asset valuations. I think most assets are now expensive relative to history. Deleveraging points to asset valuations falling.

I believe one should sort out what they are buying now - potential cash flows or real assets?

Lend More Money To Governments At Negative Real Rates

Some snippets from Steven Wieting, US economist at Citigroup, written on Monday:
If deficit spending hasn’t immediately boosted hiring, where did the money go? To the extent that increased government spending has not immediately been matched by private labor income, it boosted corporate profits.

The personal savings rate has risen significantly – but with the aid of income transfer payments of largely borrowed money. If, as we expect, national savings in the U.S. rises in the years ahead as fiscal easing unwinds, we believe corporate profits will rise less than the economy expands.

Increased transfer payments during the severe recent downturn were 3X the size (relative to GDP) of average recessions of the past four decades. Tax cuts, credits and rebates added up to 2% of GDP intermittently in recent years.
So, lend more money to governments that can transfer it easily into pockets of corporate shareholders. But now, when QE is destroying the foundations of private credit markets, sleep well in wealth delusion.

Tuesday, March 22, 2011

China Landing Watch

Macro strategists at Nomura are tracking the China landing today:
In recent months, China has been stepping up its efforts to slow the economy and curb inflationary pressures, with both M2 and industrial production growth slowing substantially. Looking ahead, a key question is whether Chinese policymakers can achieve a soft-landing-like scenario of trend growth and lower inflation. While on balance we are optimistic, we also admit it is too early to judge the success of China’s anti-inflation policies. With this in mind, commodity prices already look a little expensive relative to China’s growth, the case for further CNY appreciation is still compelling and it is too early to buy regional equities in our view.
Click on charts to enlarge, courtesy of Nomura.

Right, that China’s missing M2 ...

Monday, March 21, 2011

Uncertainty Shock

This is another interesting view by US economists at Goldman Sachs:

Uncertainty can cause firms or individuals to postpone irreversible big-ticket purchases or investments. The option value of waiting to get a better read on the future goes up in uncertain times, leading to “wait and see” behavior that results in a short-term decline in economic activity. Once the coast is clear, activity typically rebounds (exhibit below right). The impact of “uncertainty shocks” can therefore look quite different than the impact from forces such as monetary tightening.

Our own tests, following in the spirit of recent academic research on the topic, find that “uncertainty shocks” have a fast-acting, negative impact on growth, but rarely lead to recession. As expected, the effect is clearest for “big ticket” purchases or investments. A large part of the impact on the economy appears to occur via subsequent changes in financial conditions, reaffirming the usefulness of a financial conditions framework for forecasting in uncertain times.

Click on chart to enlarge, courtesy of Goldman Sachs.

European Leading Indicators & Hard Facts

Economists at Goldman Sachs look at their leading and coincident indicators:
Our survey-based GDP tracker now points to a +0.8% qoq expansion in early stages of Q1. Our leading indicators of IP is signalling a pick-up in industrial momentum.

Click on charts to enlarge, courtesy of Goldman Sachs.

And here are the hard facts of recovery as measured by industrial production.

Tohoku/Fukushima Comparable Disasters Impact On Equity Markets

Excellent chart from equity strategists at Danske Markets Equities. Click on chart to enlarge, courtesy of Danske Markets Equities.
Very sharp reaction, but fully discounted?

Thursday, March 17, 2011

BNP Paribas: Crisis And Sentiment

The economists at BNP Paribas:
We have looked at the impact of some previous episodes of disasters and financial crises on sentiment to shed some light on the possible spill-over effects.
Click on charts to enlarge, courtesy of BNP Paribas.

Wednesday, March 16, 2011

Merrill's Global Fund Managers "Wait & see"

While the world melts down with nuclear swan nests in Japan, key messages from BofA Merrill Lynch Global Fund Manager Survey are as follows:
Cash back

The March FMS shows a scaling back of investor optimism as high commodity prices sap confidence in corporate profitability and global growth. It feels like wait & see rather than risk aversion; cash is replenished but this could reverse with easing MENA geopolitics or if the ECB threat of higher rates proves over-played.

Inflation risk, but not in corporate margins
Global inflation expectations remain high at 75%. A net 31% see stronger global growth but down from 58% last month and broadly similar to the fall in profit expectations (32% from 51%); a net 24% see corporate profit margins falling compared to 10% expecting an increase back in Jan.

Gulf in rate expectations
A slight shortening in views on Fed rate hikes was trumped by wholesale buy-in toECB rate rhetoric with 72% now expecting a rate rise in Q2 (vs. 0% last month). In light of agreement being reached on an expanded EFSF, this may be premature.

Cash sell signal closed
The FMS Risk Appetite Index fell back to 41 (from 47) the lowest in six months. Hedge fund net exposure fell to 34% (from 39% in Feb) and cash increased to 4.1% up sharply from 3.5% last month. This closes the cash sell signal triggered last month since when global equities have fallen by c.3%.

Equities out, but bonds not in
Equities (45% O/W vs. 65%) and commodities (21% O/W vs. 28%) were cut in favour of cash (14% O/W from 9% U/W). However, bonds saw very little benefit with the U/W closing only modestly to 59% from 66% in Feb.

Regional conviction at lowest level in 10 years
EM exposure fell to 0% from 5% O/W. The US was cut to 23% O/W from 34%, with both EU and Japan at 8% O/W (note: the survey closed before news of the Japan earthquake). This puts regional conviction at the lowest level since Jul-01.

Pharma added, but staying pro-cyclical
Pharma had the biggest jump on the month (10% O/W from 4% U/W) but investors remain resolutely pro-cyclical with tech, energy, materials and industrials the top-4 preferred sectors.

The FMS contrarian trades
Long bonds: short cash, equity, commodities. Short tech; long utilities. Long regional dispersion.

Tuesday, March 15, 2011

Japanese Discover Their Own Black Swan's Nest That Apparently Is Nuclear

Nuclear panic, click on chart to enlarge, courtesy of (click here for up-to-date version).

Well, but Japan may solve its capacity problem (but not really the domestic demand issues), as meltdown macreconomics are in action.

Monday, March 14, 2011

Japan & China Money Supply

It is not like I would ignore the tragedy in Japan, even more now with nuclear meltdown alert. While the printed stimulus will boost the recovery in short term, Japan remains the prime candidate for sovereign crisis too. No wonder that we have Second Biggest One-Day Decline Ever for Japan ETF (EWJ) from US perspective.
Well, to judge the health of the region, it worth looking at China too. The economists at BNP Paribas are writing today:
February new loans at RMB 535.6bn, down 23.5% y/y due to credit tightening.
M2 registered growth of 15.7% y/y, lower than the government’s target of 16% y/y.
M1 growth rebounded to 14.5% y/y, less than market expectations.
Household deposit growth fell to 12.3% y/y, due to negative real deposit rates.

Credit growth and money supply weakened further due to record high RRR slowing credit creation, the restrictive property control also slow asset reflation and leveraging process; though real rates remain negative, however tight liquidity situation approaching PBOC target of 16% M2 and 10% drop of credit, this suggest economic slowdown in 2H and stabilization of inflation, asset prices.
Click on charts to enlarge, courtesy of BNP Paribas.
Does this matter when Japan is going to flood markets?

Friday, March 11, 2011

Chart Of The Week: DAX & M1 Money Growth

As far back as end of December of last year here was the warning, but the equity strategists at Commerzbank have the chart for us today. Click on chart to enlarge, courtesy of Commerzbank.

Not perfect, but who cares about couple of months here or there ...

Thursday, March 10, 2011

Wednesday, March 09, 2011

Ugly China Auto Sales In February

From the equity analysts at UOB Kay Hian today:
Worse-than-expected wholesale sales in February. China automobile sales in Feb 11 came in lower than both our and consensus expectations with flat yoy wholesale sales of passenger vehicles (PV). The Chinese New Year (CNY) holiday is not an excuse for the poor sales. In Jan-Feb 11, PV sales only grew 9% yoy, vs consensus 10-15% for the full year.

Sedan and mini-bus underperformed. The sluggish sales were dragged down by sedan and mini-bus, which respectively saw a sales growth of - 2% yoy and -12% yoy in Feb 11 and 7% yoy and -5% yoy in Jan-Feb 11.

SUV and MPV remained robust. Due to a low base, sales of SUV and MPV grew 17% yoy and 46% yoy in Feb 11 and 23% yoy and 58% yoy in Jan-Feb 11 respectively, making them the best-performing segments among PVs.

Retail sales. According to China Passenger Vehicle Association, retail sales of automobiles fell both mom and yoy in Feb 11.
Click on charts to enlarge, courtesy of UOB Kay Hian.

Chinese New Year holiday is not an excuse?

Tuesday, March 08, 2011

If Oil Price Spikes Still Matter

The European equity strategists at Morgan Stanley opine in a report yesterday that:
... the best performing sectors during, and after, such spikes have traditionally been Energy, Telecoms, Healthcare and Utilities while Consumer Discretionary performs worst in such periods. 
Click on chart to enlarge, courtesy of Morgan Stanley.

Monday, March 07, 2011

Hot Holiday Destinations In CIS

While CIS definitely is not MENA, but the sun of coming summer may make some brains suffering in oily heat. Excellent guide by economists at Commerzbank.

Click on chart to enlarge, courtesy of Commerzbank.

Friday, March 04, 2011

Relative Importance Of Oil

Nice and informative charts by economists at Deutsche Bank. Click on charts to enlarge, courtesy of Deutsche Bank.

While it may look like oil is not even the half of sources for energy, but "near-perfect synchronization of prices" of three major sources is stunning.

Enjoy the Mid-East and tell yourself it is not your problem.

Thursday, March 03, 2011

Who Cares About Brent Crude At 115 USD?

From the monthly client survey at Nomura:
More than half of our clients (57%) think that oil prices need to rise to levels of $150 or higher in order to materially increase risks to global growth; only 7% think that current levels pose significant risks.

Click on chart to enlarge, courtesy of Nomura.

So, some $20-25 higher should goe easily?
Well, the survey was conducted last week or so, I suppose, when Brent was about $10 lower?

Wednesday, March 02, 2011

US Bonds Returned In Favour While PIMCO Asks Who Will Buy Treasuries

The bond king Bill Gross asks today: Who will buy Treasuries when the Fed doesn’t? At the same time strategists at Societe Generale deliver charts with latest data on US bond mutual fund flows.

Click on charts to enlarge, courtesy of Societe Generale.

Well, it may be not enough ...

Tuesday, March 01, 2011

Don't Worry About Commodity Prices

While the Ben Bernanke Plays Down Gas-Price Rise today, the economists at BNP Paribas believe that higher commodity prices reduce demand for services in the United States:
The latest personal spending report suggests that higher commodity prices represent a risk of creating a "taking from Peter to give to Paul" situation. In the absence of a robust pick up in wages consumers have to cut on services to pay for more expensive goods.
Click on chart to enlarge, courtesy of BNP Paribas.
Hmmm, discretionary spending ... BTW, who is that Ben Bernanke, the expert on subprime being contained?

Do Emerging Markets Love Oil?

Equity strategists at Citigroup are looking at Global Emerging Markets (GEM) via the prism of Net Oil Balance as % GDP. The following charts should provide kind of hint who is more and less vulnerable to oil shocks.

Click on charts to enlarge, courtesy of Citgroup Global Markets.

Well, if not afraid of short-term correction?