Global Macro Perspectives
The S&P 500 hit the new high for the year yesterday, but it didn’t sparked interest from the mainstream media. The market looks as it is looking for clues in which direction to move. Its similar like in June/July, everything was pointing to move lower but all went in the other direction on “better than expected” earnings. Earnings season is months away and I’m feeling tempted to start a short position.
All chips in for the Barrick Gold. The largest gold producer in the world plans to issue new equity to terminate hedging contracts. Brave. We will see if it pays off. Reuters story: Barrick to sell $3 billion in stock to buy back hedges
Major news yesterday was consumer credit decline. Reuters story: July consumer credit falls a record $21.6 billion It’s obvious that consumer credit/spending fueled recovery is not at the moment on the table.
Optimism is a flavor of the day. Nice article by Bloomberg showing disparity between analysts and economists. Bloomberg link: Stocks Show Why Analysts Dismiss Economists on Growth. Not that I think that either of them will be right at the end of the day, but it’s interesting to look at the dilemmas the market is in. Its pretty obvious, given the run we had, no analyst wants to look like an idiot having bearish reports so they are chasing the market. On the other side you have economists who are analytical guys; who don’t want to believe that anything beside predicted by their models will happen and those prospects don’t look good. And we have also corporate insiders who are selling and companies that are issuing shares. Bloomberg link: Mobius Spurns Brazil Share Offers as Gol Seeks Sale. (disregard Mr. Mobius statements as he probably trades opposite his statements). Being skeptical and contrarian by nature the market looks overly optimistic to me, but given the sentiment it could go further higher.
The short term top I wrote about in earlier posts evolved to nothing more than just a dip buying opportunity and it looks like we are going to stay range bound unless we have some surprise news. The economic data from the last week was boring, nothing interesting even a bit, and nothing that would change my views. Only piece of data that occupied my mind (for few second at least) was unemployment report. Non farm payrolls for August came at -216k vs -230k consensus and -276k in July (as usual revised downwards from -247k). Unemployment rate hit 9.7% vs. 9.5% consensus. Obviously the pace of job losses has slowed down, but with such high unemployment the recovery is not just around the corner. Off course, media can find optimism in the worst piece of data. According to Bloomberg this is positive for company earnings. Yeah, sure…. Bloomberg link: U.S. Recovery Leaving Workers Jobless May Spur Company Profits
The market has come down slightly in last few days. Again, major theme was health of world banking sector.
Shanghai Composite down -6.7% today. No comment needed.
Same as the day before, yesterday we saw mostly “better than expected” data from the US. Most notably new home sales were up 9.6% in July. Durable goods orders came 4.9% higher in July vs. 3% consensus and -2.5% the month before. Better than expected orders were mostly result of US government “cash for clunkers” program from which, by the way, mostly benefited Japanese auto makers. Durable goods ex transportation came at 0.8% vs. 0.9% consensus and 2.5% the month before.
Despite better than consensus data on US housing suggesting recovery in housing prices and better than consensus consumer confidence the market failed to rally.
We have had some spectacular runs from the recent lows both in the equity arena and among commodities. As I am writing this introductory post markets are hitting new highs for the year. Common to these diverse markets is that we have seen little or no material improvement in underlying fundamentals only consolidation at initially depressed levels.