A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
CIBC’s interest rate strategist Ian Pollick started his bank of Canada meeting preview by noting that “By all accounts, Canada's [economic] activity indicators have been on fire” and then discusses the anomalous fact that the Canadian yield curve is more inverted than any G7 nation,
“Today, most of the front-end of our curve (i.e. the sequential micro-rolls up to 2022) is inverted, as are some of the ‘bigger’ curves like 2s5s, 2s10s and 3m-bills/10s [the difference in yield between two-year and five-year bond yields, and difference between three-month bills and 10-year bond yields]. In fact, Canada has more ‘main curve’ inversion than any other market in the G7 right now. For a central banker, the breadth of inversion would suggest three things: i) the market expects some type of inflation shortfall; ii) the market is looking for a slowing in growth that would necessitate more stimulus, and; iii) extant pressure in either risk or funding markets is forcing a flight-to-quality in fixed-income. The problem of course is that Canada is not running any shortfall in inflation relative to target.”
“@SBarlow_ROB More CM BoC preview” – (research excerpt) Twitter
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Richard Koo, Nomura’s globally prominent chief economist, has been fact finding in Washington D.C. and now believes U.S. President Donald Trump has lost some control over trade negotiations,
“Mr. Trump’s negotiating strategy … involves making numerous demands of the other party and then abandoning some of them once negotiations begin in an attempt to reach an agreement … Trump unable to lower his raised fist… growing anti-China sentiment in both the U.S. Congress and Washington in general is making it difficult for Mr. Trump to abandon any of his initial demands. When U.S. Trade Representative Robert Lighthizer recently testified before the House Ways and Means Committee, both Republicans and Democrats on the committee asked him to maintain the administration’s tough stance on China.”
“@SBarlow_ROB Koo: "outcome of the US-China trade war remains very much up in the air. If anything, conditions may have grown even more severe ... President Trump, who fired the first salvo in the war, is starting to lose control over the negotiations.” – (research excerpt) Twitter
“The world’s largest supplier of consumer goods says China’s factories are getting ‘urgent and desperate’ ” – Bloomberg
“Economists share blame for China’s ‘monstrous’ turn” – Financial Times (paywall)
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Global research firms are very much at odds over earnings projections for second quarter S&P 500 profits. Citi’s Tobias Levkovich believes earnings will surprise to the upside but UBS strategist Francois Trahan published a decidedly more pessimistic view,
“S&P 500 earnings are slowing more rapidly than the economic data suggests. While tariffs and trade issues have seeped in to forward EPS [earnings per share], most of the accelerated slowdown in earnings this year is explained by the roll-off effect of 2018′s corporate tax cuts. This phenomenon should be completed in the coming months and allow apples-to-apples earnings comparisons to resume... A decline in EPS could usher in a more challenging backdrop for U.S. equities. A decline in S&P 500 forward earnings growth below 0 per cent would likely bring an end to the ‘bad news is good news’ dynamic that allowed equities to rally this year.”
“@SBarlow_ROB UBS: "S&P 500 Earnings Are Slowing More Rapidly Than The Economic Data Suggests" – (research excerpt) Twitter
“@SBarlow_ROB CS: "margins are contracting across the majority of sectors " – (table) Twitter
“ @SBarlow_ROB CS: "Buyback Contribution to EPS Growth"’ – (chart) Twitter
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Tweet of the Day: “@HelenCRobertson Oil in New York jumps the most in a week following a report indicating falling U.S. inventories and rising tension in the Middle East bloomberg.com/news/articles/… “ – (chart) Twitter
Diversion: “Arresting Jeffrey Epstein Is Just the Start: A series of high-profile prosecutions highlights the impunity that the rich have long enjoyed” – The Atlantic
Scott Barlow