A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Citi global economist Mark Schofield warned investors about deteriorating fundamentals underneath the recent market rally in a report called “Eight Themes: Rotting Resilience” ,
“In recent months, symbiotic dynamics between the financial and real economy have emerged that give us cause for concern. The end of QE, alongside uncertainty surrounding new ‘known unknowns’ (such as trade and political instability), seem to be driving more acute market reactions to moderating real economic data. In the context of cross-national divergences and imbalances, instability and a systemic tightening of financial conditions remain notable risks … The tools we have used to manage growing leverage seem to be running out of room, potentially driving quite different economic and market dynamics going forward. Additionally, while near-term optimism has grown around trade, we suspect broader de-globalisation will continue to pose acute risks to markets and economies alike – especially among EM.”
“@SBarlow_ROB C: Rotting resilience” – (research excerpt) Twitter
“Warning signs are flashing for the emerging market rally” – Bloomberg
“China’s ghost cities: 65 m urban residences -- or 21.4% of housing -- stand unoccupied according to Dec 2018 estimate by Prof Gan Li.’ – Nikkei
“The global economy’s loss of momentum has left expansion now looking like its weakest since the global financial crisis” – Bloomberg
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There are two main positive drivers for markets recently – price momentum and hopes for a resolution of the U.S China trade dispute.
Officials from both countries meet Thursday, and the comments afterwards could be market moving in either direction,
“The talks are aimed at “achieving needed structural changes in China that affect trade between the United States and China. The two sides will also discuss China’s pledge to purchase a substantial amount of goods and services from the United States,” the White House said in a statement… The higher-level talks will start on Thursday and be led by U.S. Trade Representative Robert Lighthizer, a strong proponent of pressing China to end practices that the United States says include forced technology transfers from U.S. companies and intellectual property theft.”
“New round of U.S.-China trade talks to begin in Washington on Tuesday” – Reuters
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Merrill Lynch quantitative strategist Savita Subramanian details U.S. earnings season to date, nothing the lowest rate of aggregate earnings beats since 2011,
“395 companies (88% of S&P 500 EPS) have reported. Bottom-up EPS dropped to $41.01 from $41.12 on Insurance disappointments, and is +14% YoY (pre-tax profits +7% YoY). This represents a ~0.5% beat, the smallest since 2011 (when EPS actually missed). All sectors except Tech, Utilities and Financials have seen positive surprises, led by Comm. Svcs. and Energy. Sales are in in-line with expectations (+6% YoY). The last 12% report between now and mid-March (we’ll recap and preview 1Q at that point.) Retailers begin to report now through early March, where 4Q expectations have fallen by 1% already “
“ @SBarlow_ROB ML on earnings season: smallest beat rate in 7 years” – (research excerpt) Twitter
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Tweet of the day:
Diversion: “A virtual time machine for Venice” – YouTube
Scott Barlow