A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
BMO economist Doug Porter asks the important question on why everyone expects the Fed to cut rates with unemployment low and equity markets hitting all-time highs,
“The answer can be pretty much boiled down to one word – trade. It has become readily apparent that the ongoing global trade frictions, and the never-ending threat of more, have clipped the world economy more than initially thought… Markets had a short-lived celebration over the U.S./China trade truce following the G20 meetings, but we’re really only back to where we were six months ago … Meantime, measures of factory activity continue to spill lower, whether sentiment, orders, or exports.’
“@SBarlow_ROB BMO: "Why is the market so dead certain the Fed will cut rates at this stage?’ – (research excerpt) Twitter
“One year into U.S.-China trade war, few can see light at the end of the tunnel” – South China Morning Post
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The U.S. earnings outlook is making a turn for the positive according to Citi U.S. equity strategist Tobias Levkovich. I noted last week that full-year S&P 500 earnings estimates were being cut but recent days have seen an uptick for second quarter results,
“Second quarter earnings will be reported shortly, and expectations could be too low once again. As was the case with 1Q19, the investment community has lowered estimates meaningfully, with 2Q19 shifting from 2 per cent growth to 2 per cent-plus declines over the past three months… with lowered hurdles, the possibility of upside surprises increases.“
“@SBarlow_ROB C: Q2 EPS outlook improving” – (research excerpt) Twitter
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An interesting analytical column by the Financial Times’ Rana Foroohar described a potential ‘fracturing’ of the global economy,
“[Global executives are] busy preparing for a new world order that many believe will involve a stand-off not between two countries (the U.S. and China) but between three systems – liberal democracy and free markets, state-run capitalism and cyber-libertarianism… CEOs agreed that we will not return to the open markets of the 1990s. They see the U.S.-China trade conflict as the beginning of a clash of civilizations that will last for decades and divide the world. Beijing’s state-run model was the object of both envy and skepticism. Many western CEOs expressed the former, contrasting China’s long view with the pressures they faced due to quarterly earnings reports and increasing pressure from activist shareholders… executives from developing countries worried about the price they would pay for dependence on mercantilist Beijing.”
“The fracturing of the global economic consensus’ – Financial Times (paywall)
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Cloud computing stocks, along with health care, have been my top two secular growth stories for years, but there’s increasingly reason for concern regarding corporate spending on migrating to the cloud, as noted by Citi analyst Jim Suva,
“Vendor revenue from sales of IT infrastructure products (server, enterprise storage, and Ethernet switch) for cloud environments, including public and private cloud, grew 11.4 per cent year over year in C1Q 2019, reaching US$14.5-billion. This year over year growth was a sharp slowdown when compared to 30 per cent plus year over year growth CAGR [compound annual growth rate] recorded in prior seven quarters. IDC now expects total spending on cloud IT infrastructure in 2019 to grow by just 1.6 per cent year over year to US$66.9-billion (down from US$70-billion in the prior forecast.”
This could just be part of the general slowdown in capital expenditure caused by global trade uncertainty but previously my hope was that cloud stocks were among the most immune sectors to the global economy.
“@SBarlow_ROB C: 'Cloud Infrastructure Sales Slow Down Significantly'” – (research excerpt) Twitter
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Tweet of the day: ”@fwred The problem is external demand, i.e. the global (Chinese) manufacturing cycle still not picking up. Demand from other euro area countries remains sluggish as well.” – Twitter
Diversion: “If You Solve This Math Problem, You Could Steal All the Bitcoin in the World” – Gizmodo
Scott Barlow