2016/05/26 TrendView VIDEO: Global View (early)
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TrendView VIDEO ANALYSIS & OUTLOOK: Thursday, May 26, 2016 (early)
[GENERAL UPDATE Market Observations & other notes updated Friday morning]
Global View: All Markets
As noted earlier this week, the ‘Normalcy Bias’ Bunch at the Fed are back in full force after the recent somewhat stronger than expected US economic data. While they might be entitled to still speak of more FOMC rate hikes this year, they seem charged up about the aggressive nature of what is necessary. That is spite of significant weakness in quite a bit of the global economic data. As a sign of that, just look at the global Advanced PMI’s for Manufacturing on Monday and Services on Wednesday. Outside of Germany, those were fairly disappointing indications (even including the US.) Even this morning’s totally over-the-top headline US Durable Goods Orders data turns out to be based on very strong (yet erratic) airplane orders.
The subsets beginning with the Ex-Transportation figure tell a different story. Especially the Non-Defense Capital Goods Order ex-Aircraft figures maintained the weakness since the top of the year. That is the proxy for business investment, and the April number coming in at -0.80% (versus a +0.30% estimate) highlights a lack of business investment. And that is ultimately the font from which stronger hiring and wages must flow.
That said, any positive data of the sort the US has seen of late seems to vindicate the hawks at the Fed for now. Even if their latest pronouncements on at least two and maybe three more rate increases this year are more ‘data dependent’ than they would like to admit, the next rate move now being up seems to be the prevailing psychology. In a world that previously had a ‘Fear of Fed’, it finally seems that ‘good news is good news’!
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Video Timeline: It begins with macro (i.e. fundamental influences) discussion of some of the factors noted above as well as key end-of-month data coming Friday right before the long holiday weekends in the UK and US. There has also been quite a bit of weak data elsewhere, even if that was recently buffered by surprisingly (even suspiciously) strong Japanese GDP. There was also strength in UK Employment figures in spite of weak CBI Trends Total Orders and this morning’s UK GDP and its subsets (especially Trade.)
It moves on to S&P 500 FUTURE ‘Quick Take’ up to 02:00 followed by the short-term at 04:00 and intermediate term view at 06:15, with OTHER equities from 09:00, GOVVIES beginning at 11:45 (with the BUND FUTURE at 14:15 including implications of the early March expiration rollover) and SHORT MONEY FORWARDS from 16:00. FOREIGN EXCHANGE covers the US DOLLAR INDEX at 18:30 EUROPE at 20:30 and ASIA at 22:45, followed by the CROSS RATES at 26:30 and a return to S&P 500 FUTURE short term view at 30:00. We suggest using the timeline cursor to access analysis that is most relevant.
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Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion and TrendView Video Analysis and General Update. Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion.
NOTE: Back on the evening of December 8th we posted our major Extended Perspective Commentary. That reviews a broad array of factors to consider Will 2016 be 2007 Redux? For many who believe that the US economy is really strengthening and can once again lead the rest of the world to more extensive recoveries, this may seem a bit odd.
Yet there are combined factors from many areas we have been focused on since the early part of last year which are less than constructive for the global economy and equity markets. We suggest a read if you have not done so already.
We pointed out in December that in the face of another likely Santa Claus Rally this was not an actionable view during the year-end equities rally. Yet it was (and remains) important background to utilize in 2016. This is much like our major late 2006 perspective on Smooth Rebalancing? …or… The Crash of ‘07? (even though the actual crash was deferred into 2008.)
▪ The Trade component of those UK GDP statistics continue our focus on weak international merchandise trade. Even the positive Japanese Trade Balance on Monday was on more significant weakness than already predicted in Imports compared to also weaker-than-expected Exports. This overall weakness in global trade has been apparent in almost all countries’ figures. It is also a key element of future weakness that the Organization for Economic Cooperation and Development has warned about in all of its recent World Economic Outlooks. While the US may be attempting to lead the way higher on both economics and equity markets, the question now is whether it can do so on its own? Or will the global weakness be the more prominent influence?
There is good reason why diminished global trade (serial weak import figures even for economies running positive trade balances) and sinking corporate earnings (even if they always beat manipulated estimates) are a problem. See our previous letter the Editor at the Financial Times was kind enough to publish for a very brief overview on that combined negative impact.
▪ The weakness for some of the major developed economies in the most recent OECD Composite Leading Indicators (CLI) is another sign that years (and in Japan’s case decades) of QE and recently sustained very low interest rates are not restoring the robust growth from prior to the 2008-2009 financial crisis.
Possibly the US is the outlier for now. Recently stronger data seems to vindicate the various regional Federal Reserve Bank presidents’ more aggressive outlook for the US economy and future FOMC rate hikes. However, that remains subject to more extensive confirmation based upon continued economic strength. With the OECD CLI still pointing out the potential for out the possibility of the US lapsing back into weaker economic performance over the next several months, the Fed along with the markets will remain (as Chair Yellen has so aptly put it in the past) ‘data dependent’.
Especially the recent stronger performance for key indications like Retail Sales and Durable Goods and a return to stronger Employment data after the April figures weakness will need to be maintained. Just how much the global economic weakness will influence that is yet to be seen. Yet only further overt improvement there will likely fully liberate the US economy and equities to fully accelerate.
There have been some highlights along the way (especially from the US.) Yet there have also been quite a few weak indications, not least of which on the Japanese All Industry Activity in spite of strong Leading Indicators. German ZEW Sentiment (the forward view) was also very weak, even if countered by Wednesday’s stronger IFO readings.
It all tends to reinforce the degree to which the global economic data is still mixed with the more consistent US strength. That said, the equities bears have still been plagued by quite a bit of positive Fed-speak this week. That will all culminate with Fed Chair Yellen’s Friday morning (09:30 CDT) speech at Harvard’s Radcliffe Day. Will the previously more circumspect Fed head once again focus on the ‘data dependent’ nature of future FOMC moves, or will she finally reinforce the sentiments of her many more hawkish cohorts?
▪ Any return to somewhat weaker economic data in the context of a more hawkish Fed also still fits in with the broader scenario we have anticipated for a while. Previous equities weakness in spite of the still quite accommodative central bank positions outside of the US is likely the denouement of the extended multi-year central bank efforts to rescue economies that climaxed in the recent US equities rally. Yet that was without essential assistance from structural reforms from the political class. As emphasized ever since our February 9th Fear & Loathing in Marketland post:
The next financial crisis will occur when the investment and portfolio management community (and ultimately the investing public) realizes that the central banks alone cannot restore the robust growth from prior to the 2008-2009 financial crisis.
▪ The extensive analysis of the broader ‘macro’ background in previous posts (especially the Thursday, April 28th Special Alert: Equities Critical) has already explored all of the reasons the equities might still be at the top of a more major bear phase in spite of the recent improvement in the US economic data. We refer you back to those for that insight. That Thursday morning Special Alert: Equities Critical also refers back to meaningful previous ‘macro’ analysis of the economic data, central bank efforts, and the risks in the lack of structural reform from the political class.
The TrendView VIDEO ANALYSIS & OUTLOOK is accessible below.
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