1.Earnings…Positive Sales Surprise Slow Down.

Jefferies

3Q earnings did not materialize as the positive catalyst investors were hoping for following Powell PBS, Pence China speech & US-China sentiment deterioration, PPG pre-announcement, IMF global growth downgrade, etc – all in early October.

The qualitative commentary from Q3 included slowing demand in China/EM/Europe (particularly auto), margin pressure, and trade war impact.

The average sales surprise was the lowest going back to 1Q17 – breaking a largely positive surprise trend over the prior 6 quarters.

Source: Jefferies Trading Desk

Through and following Q3 earnings, 2019 consensus EPS has been revised lower.

Again, the trend is more worrisome than the dollar amount – thus far – reduced.

Source: Jefferies Trading Desk
Percy Allison vix
Equity Trading, Desk Strategist
Jefferies LLC

Continue reading →

1.Who Is Going to Buy $1.3 Trillion in New U.S. Government Debt?

Asian investors are proving less and less eager to buy U.S. government bonds, even as the Treasury Department prepares to sell $1.3 trillion of new debt in the new fiscal year.

Foreigners increased their holdings of Treasurys by $78 billion in the first eight months of this calendar year, according to the Treasury. That is just over half of what they bought in the same period last year.

Holdings have particularly stagnated in a number of emerging Asian economies—including South Korea, Singapore, Thailand and Taiwan—which have prized U.S. government debt as a capital bulwark since the 1997 Asian currency crisis.

Many observers assume the U.S. has no trouble finding demand for its debt in the vast pool of world-wide governments, financial institutions, mutual funds and individual investors who want to own the world’s major risk-free asset. Yet the Treasury is finding fewer buyers in some parts of the world, leaving domestic investors such as mutual funds to pick up the slack.

Where to Find Treasury Buyers? Not Asia

The erosion of demand in emerging Asian markets reflects their maturation into more stable economies

https://www.wsj.com/articles/where-to-find-treasury-buyers-not-asia-1541422801?reflink=e2twmkts.\

Continue reading →

1.Growth Continues To Crush Value This Year For US Equity Factors

The sharp swings in the stock market in recent weeks haven’t dented the year-to-date performance edge that’s prevailed for large- and small-cap growth stocks in the US over their value counterparts, based on a set of exchange-traded funds through yesterday’s close (Nov. 7).

Large-cap growth still holds the lead for The Capital Spectator’s set of US equity factor ETFs so far in 2018. The iShares S&P 500 Growth (IVW) is up a strong 11.5% year to date. Running slightly behind in second place is iShares S&P Small-Cap 600 Growth (IJT), which is ahead by 10.9% so far in 2018.

Value, by comparison, is far behind in this year’s equity factor horse race. Dead last for year-to-date results at the moment: iShares S&P Mid-Cap 400 Value (IJJ), currently posting a slight 1.3 gain. The second-weakest performance this year: iShares S&P 500 Value (IVE), which is ahead by 1.5%.

Meanwhile, the broad market this year is up 6.7%, based on the SPDR S&P 500 (SPY).

The Capital Spectator
https://www.capitalspectator.com/growth-continues-to-crush-value-this-year-for-us-equity-factors/

Continue reading →

1.We are in Third Dollar Super Cycle Since 1973

Vanguard.

If past is prologue, the dollar will weaken

We can therefore expect the dollar super-cycle to come to a close over the next few years. Here are 4 fundamental factors, not mutually exclusive, that I’ll be watching for:

1. Narrower growth differentials between the U.S. and other countries.The U.S. economy is much further along in the business cycle than other developed markets are, its labor market is much tighter, and inflation is much closer to the central bank’s target, which in the U.S. is 2%. Since economic growth normally slows late in the cycle, current growth differentials between the U.S. and other economies are expected to shrink. The next slowdown in the U.S. may be exacerbated when the recent fiscal stimulus wears off. We estimate that the stimulus, injected through the tax cuts and spending bill enacted at the beginning of the year, will deliver an extra push to U.S. economic growth of about 40 basis points this year and next.
2. Higher U.S. bond yields, but narrowing interest rate differentials. Higher bond yields in the U.S. today imply depreciation in the U.S. dollar relative to other major currencies in the future. This market expectation may come to pass in the current global monetary cycle as the gap in rates between the U.S. and other major markets narrows. The Fed may stop raising rates as soon as 2019 while other central banks (notably the European Central Bank and the Bank of England) continue to play catch-up.
3. Higher inflation in the U.S.Higher inflation in the U.S. relative to other developed markets could put downward pressure on the nominal U.S. dollar exchange rate.
4. A larger U.S. trade deficit.For all the noise about tariffs and trade deficits, the natural way for trade imbalances to correct over time is through market-driven currency adjustments. Widening U.S. trade deficits translate into higher demand for foreign currency (to pay for the additional imports), which exerts downward pressure on the dollar. The trade deficits themselves are caused in part by rising government budget  shortfalls, which spill over to more foreign purchases of U.S. debt, and in part by strong U.S. consumer spending, which, bolstered by tax cuts, results in more purchases of imported goods, given that they constitute about 18% of the typical consumer basket.

What’s behind the latest surge in the dollar?Roger Aliaga-Diaz

https://vanguardblog.com/2018/09/04/whats-behind-the-latest-surge-in-the-dollar/

Continue reading →