A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Markets are climbing despite drastic reductions in earning expectations and there’s a limit to how long that can go on. Citi global strategist Robert Buckland writes,
‘Downgrades to 2019 consensus analyst EPS forecasts have accelerated in the last couple of weeks. Expected global EPS growth is now below 7 per cent compared to 8 per cent at the start of the year and 10 per cent three months ago. Top down, Citi strategists expect 4 per cent. This suggests that EPS downgrades are likely to continue, although we suspect that the market has already moved to price in a mild EPS contraction. These downgrades are worrying but not unusual. In the current cycle, analysts have been downgrading in every year except 2017 and 2018. The 3 per cent cut to 2019E EPS is not yet as severe as seen in 2015 and 2016. Of course, the key risk is that the current downgrades indicate the onset of a full-blown global recession. After all, the 2008 EPS trajectory looked similar to now.”
“@SBarlow_ROB C: EPS Downgrades, Everywhere” – (research except) Twitter
“ @SBarlow_ROB C (trading strategy): "It’s not all calm below the surface though ... CETS would note that the team’s proprietary overbought signal (CGUSOVER) triggered on Friday, suggested at the very least a pause in risk assets over the next few weeks." – Twitter
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Merrill Lynch offered similar sentiments to Citi, with a slightly more positive spin,
“The sell-off at the end of last year triggered risk-on signals from our tactical models and markets have bounced accordingly. We took some profits on our risk-off trades last week, tilting our strategy more pro-risk, which we maintain today. The earnings season price action and our FMS (Fund Manager Survey) suggests investors have become quite bearish and defensively positioned, which means this should have further to run. We remain long SPX, EM Asia and U.S. industrials. Nevertheless, we have to acknowledge that markets have already bounced significantly off of their lows and for this rally to continue investors need to become more comfortable about the outlook for global growth. Given this backdrop, we maintain our direct equity hedges.”
“@SBarlow_ROB ML: rally to continue , but need macro” – (research excerpt) Twitter
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Almost all of the coverage on the energy industry has been the same for weeks, some form of “oil climbs despite global growth concerns.” Today’s reports are no different,
“U.S. oil production growth combined with a slowing global economy will put oil prices under downward pressure in 2019, … the International Energy Agency said on Friday. The IEA, which coordinates the energy policies of industrial nations, said it was keeping its estimate of oil demand growth for this year unchanged at 1.4 million barrels per day, close to 2018 levels. ‘The impact of higher oil prices in 2018 is fading, which will help offset lower economic growth,’ the Paris-based IEA said in its monthly report."
“U.S. crude gains, slowing global economy challenge oil market in 2019: IEA” – Report on Business
“ Bad bets on oil, gas spark wave of energy-fund closures” – Report on Business
“ Energy body points to ‘gradual’ rebalancing of oil market” – Financial Times (paywall)
“The world economy is slowing. Oil demand is growing anyway, the IEA says” – Bloomberg
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Canadian investors in commodity stocks should keep a close eye on the economic and market volatility in China,
“China’s version of ‘cakeism,’ he says, centers around the leadership’s conflicting commitments to de-risking the financial system on one hand and on the other, hitting elevated growth targets north of 6 per cent. ‘You can’t really have a determined effort to deleverage the economy and not expect it to have a material impact on economic growth,’ points out Magnus.
Since the global financial crisis, China has racked up an enormous amount of domestic debt. Led by non-financial corporations, China’s gross debt surged from roughly 170 to nearly 300 per cent of GDP in the 10 years since 2008.”
“China's case of 'cakeism'” – FT Alphaville (free to read with registration)
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Tweet of the Day: (Re U.S. market performance relative to non-U.S. equities) “@katie_martin_fx Blimey. From BAML:” – (chart) Twitter
Diversion: “ Is Sunscreen the New Margarine?” – Outside
Newsletter: The trend is not investors' friend right now - Globe Investor
Scott Barlow