Commentary:
The market correction continued today, but hedge fund stop outs was not a sufficient explanation, as the Nasdaq 100 was roughly inline with the S&P performance. The S&P, as well as the NDX/SPX ratio have staged a failed break higher and is now back to its nominal range:
As I noted last week, there remains no real ‘excuses’ for a panicked sell off, so I anticipate a stabilization and rebound once the short term players are out. short term oscillators are not yet at levels that suggest a strong bounce, but we are close.
Separately, ANZ notes a divergence between EMB (EM bond ETF) shares outstanding and US yields:
My personal take as a non-EM specialist is that the EM FX depreciation we’ve seen over the past 12 months has been sufficient to stabilize things. Expectations for higher US yields are priced in, as are a slowdown due to the monetary tightening delivered so far. The FX depreciation in the majority of the ‘problem’ cases are likely to deliver substantial improvements in the current account balance based on historical relationships. I suppose the other way to say this is that the bar for a disappointment is now a fair bit higher. White this certainly doesn’t preclude a further move lower, the risk / reward remains tilted toward the upside in the coming months.
Separately, GS has noted that average office space per worker has continued to fall, with the vacancy rate still elevated. I’m not sure if this supports or is unrelated to the skills-mismatch theory for the number of unemployment, but it’s worth noting.
Notable:
- GS on US banks: Set up for 1Q14 earnings is challenging – Bank stocks are up 5% YTD despite negative EPS revisions and 1Q14 earnings are unlikely to push out-year estimates higher. Trends will be mixed as loan growth is tracking below trend (consumer driven), a lower day count is set to pressure NII, FICC trading is tracking down 20%+ YoY and other fee income will be seasonally weak (mortgage originations -25% QoQ). That said, C&I/CRE loan growth was the strongest since pre-crisis and reserve releases could be more than expected… We introduce 2016 EPS estimates for the group; these imply 17% EPS growth (vs. 2015) and 12.5% ROTCE.
Upcoming Data:
- Mon: Australia NAB Business Confidence, Japan Eco Watchers Survey
- Tue: BoJ, Canada Housing Starts,
- Wed: German trade Balance, USDA Report, Fed Minutes, Australia Employment
- Thu: BoE, US Jobless Claims
Global Macro Trading 