This is a Real-time headline. These are breaking news, delivered the minute it happens, delivered ticker-tape style. Visit www.marketwatch.com or the quote page for more information about this breaking news.
The Market: “Good morning!! How was the long weekend?”Trader: “Great I guess, party at the in-laws. How ‘bout you?” The Market: “I spent the last 72 hours furthering my plans to cause you more pain.” Trader: “Really...Why?” The Market: “Bwaahhhhhhaaaaa….assume the position!!”We can get into the cycle of looking for where the next bounce is going to come from, or if this is the second inning of a larger market collapse. What seems clear to me is that this is what we can expect from the market--far greater swings and moves on lesser news. That is an indication that liquidity is drying up and there isn’t new money coming in to chase valuations higher. The high valuations and tight credit spreads that practically every market commentator highlighted in 2017 are finally taking their toll. Don’t take my word for it, take a look at the 5yr chat on the VIX. I can name from memory each of the events that are north of current levels. That’s not showing off my grasp on market history--it is an illustration of the fact that they were all *big* events. Or just *events”. They had a name. They had a story. This market seems like just the opposite. It is a selloff looking for a story. Is it anxiety over tech? Is it fear about the impact of a trade war? Or...is there just nobody on the bid anymore? My money is on the latter….yet what continues to befuddle me is the lack of movement or realized volatility in other asset classes. This is a regression of the vix against 3m/10yr swaption volatility. Quite frankly it is a pretty worthless regression analysis but I wanted to pull up a chart that illustrates just how low interest rate volatility is compared to equity volatility. There are also those that are looking for a USD to move higher as market stress increases. These two factors are probably two sides of the same coin. I went over some of the factors driving CAD and AUD last week. JPY has also traded by its own twisted logic...strengthening earlier this year on the back of of optimism about global manufacturing demand, local growth, and BoJ stealth tapering--and then as market stress increases, which has usually put a bid into the yen, it simply does nothing. What about the spicy stuff...high-beta EMFX? Surely the high risk/high carry currencies have sold off? Meh….not really. TRY has its own problems...if we throw that one out, the big “loser” in this chart is BRL at -1.5% YTD….a loss in the spot price you made up in carry!FTQ assets like treasuries aren’t rallying...rate vol isn’t moving much...and EMFX is showing unseasonable warmth. The rest of the picture isn’t quite adding up to me--at these levels I’d lean towards some combination of these assets--like buying receiver swaptions and selling EMFX as a better expression of a bearish view than simply selling stocks. On a more philosophical note, over the weekend I came across the excellent “Behavioural Investment” blog. It is a succinct, well-written set of posts on various investing issues that animate me--like cognitive biases, misplaced incentives, and the perils of generating alpha. The most recent post was entitled, “Things That Fund Managers Don’t Say Enough.” Here are a few of my favorites, with my editorial comments in italics: “It was a genuine mistake – our analysis was incorrect, but I will make sure I learn from this for future decisions.” CIOs don’t appreciate this level of humility from the PMs. Most would respond with “And next time I’ll make sure to hire someone that isn’t learning on my dime.” “Although the trade was profitable, the situation did not develop as I had imagined and its success was actually just a dose of good fortune” I always appreciated the bloomberg header of a good friend…”Better lucky than good!” There’s a guy that fears nothing. “I appreciate that recent market volatility feels significant, but I don’t want to focus on it because, on a ten year view, it is likely to seem meaningless”. More PMs would be willing to say this if they had a ten year lockup on their investors’ money. “I appreciate that I previously held a high level of confidence in this view, but, after careful analysis of new evidence, I realised that I was wrong”. There are dissertations to be written about this one...if you’re hired to manage money you’re self-selecting as smarter than the market--so when the market shows you that you’re wrong, it is hard to admit….because some important people think you’re smarter than the market!! How often do you see a professional athletes publicly admit they got worked by the competition? Pedro Martinez once said the Yankees treated him like they were “his Daddy,” and he literally never heard the end it. The lesson: know what you’re good at, stick to it. Stay humble, and don’t be afraid to admit mistakes within that circle of competence. And while there is good reason to stray outside of that circle from time to time--don’t allow you’re mistakes (and thus by definition, you’re successes) there to be big enough to have to be explained to someone more important that you.
Over the weekend, we looked at the notional amount of non-financial Libor-linked debt (so excluding the roughly $200 trillion in floating-rate derivatives which have little practical impact on the real world until there is a Lehman-like collateral chain break, of course at which point everyone is on the hook), to see what the real-world impact of the recent blow out in 3M USD Libor is on the business and household sector. To this end, JPM calculated that based on Fed data, there is a little under $8 trillion in pure Libor-related debt... ... and that a 35bps widening in the LIBOR-OIS spread could raise the business sector interest burden by $21 billion. As we wondered previously, "whether or not that modest amount in monetary tightening is enough to "break" the market remains to be seen." In other words, unless the Fed - and JPMorgan - have massively miscalculated how much floating-rate debt is outstanding, and how much more interest expense the rising LIBOR will prompt, the ongoing surge in Libor and Libor-OIS, should not have a systemic impact on the financial system, or economy. What about at the corporate borrower level? In an analysis released on Monday afternoon, Goldman's Ben Snider writes that while for equities in aggregate, rising borrowing costs pose only a modest headwind, "stocks with high variable rate debt have recently lagged in response to the move in borrowing costs." Goldman cautions that these stocks should struggle if borrowing costs continue to climb - which they will unless the Fed completely reverses course on its tightening strategy - amid a backdrop of elevated corporate leverage and tightening financial conditions. Indeed, while various macro Polyannas have said to ignore the blowout in both Libor and Libor-OIS because, drumroll, they are based on "technicals" and thus not a system risk to the banking sector (former Fed Chair Alan Greenspan once called the Libor-OIS "a barometer of fears of bank insolvency"), what they forget, and what Goldman demonstrates is what many traders already know well: the share prices of companies with high floating rate debt has mirrored the sharp fluctuation in short-term borrowing costs. This is shown below in the chart of 50 S&P 500 companies with floating rate bond debt (i.e. linked to Libor) amounting to more than 5% of total. Here are some details on how Goldman constructed the screen: We exclude Financials and Real Estate, and the screen captures stocks from every remaining sector except for Telecommunication Services. So far in 2018, as short-term rates have climbed, these stocks have lagged the S&P 500 by 320 bp (-4% vs. -1%). The group now trades at a 10% P/E multiple discount to the median S&P 500 stock (16.0x vs. 17.6x). These stocks should struggle if borrowing costs continue to climb, but may present a tactical value opportunity for investors who expect a reversion in spreads. The tightening in late March of the forward-looking FRA/OIS spread has been accompanied by a rebound of floating rate debt stocks and suggests investors expect some mean-reversion in borrowing costs. Goldman also notes that small-caps generally carry a larger share of floating rate debt than do large-caps, which may lead to a higher beta for the data set due to size considerations. In any event, the inverse correlation between tighter funding conditions (higher Libor spreads) and the stock underperformance of floating debt-heavy companies is unmistakable. Finally, traders who wish to hedge rising Libor by shorting those companies whose interest expense will keep rising alongside 3M USD Libor, in the process impairing their equity value, here is a list of the most vulnerable names.
Submitted by Shant Movsesian and Rajan Dhall MSTA FXDailyterminal.com Over the past week or so, the USD has been showing a little more resilience against the persistent selling, which in fairness seems to have little behind it as intra day traders push the greenback around in established ranges. Once we hit the extremes, it is a different story, and the DXY is back testing 90.00 again with a view to challenging stronger levels from 90.40, with the sub 89.00 move last Monday proving short lived. While the FOMC rate hike last month was priced in, the overreaction to the lack of a material movement in the dot plot from 3 to 4 rate hikes this year was reversed pretty quickly, and also highlighted the short term opportunism in the market at present. That said, the median dots have actually moved higher, but at this stage and with the data at hand, the market consensus remains at 3 for this year, which in itself should see some adjustment higher in the USD given median forecasts were for 2 hikes in the very early part of this year. We have however, seen correlations with rate differentials breaking down with currencies, but this could improve if next week's data out of the US can help longer end rates retain better levels in the face of the steepening rate path which should see the Fed Funds rate at 2.0% (at least) but the end of the year. At this point it is also worth noting the USD/JPY move away from the sub 105.00 lows seen last week, with the benchmark 10yr Note relinquishing support at the 2.80% mark. Technically, 3.0% was a strong obstacle, but with recent volatility returning to the equity markets, fixed income was set to benefit to some degree, so this is more to do with the risk relationship between the JPY and stocks, with the cross rates also holding up to a larger degree. Consequently, we are looking for greater re-evaluation of the EUR and GBP against the USD in coming weeks, where we see the overstretch clearly having run its course, as we highlighted in our EUR outlook last week. Some are pointing to widening USD funding spreads (LIBOR/OIS) as a source of recent USD strength, but this relationship has been anything but consistent when looking at 3m USD LIBOR vs OIS over bot the the short and longer term horizon, and we put much of this year's USD weakness down to the heavy selling of US Treasuries out of Japan - to the tune of $22.5bln over Dec-Jan according to recent TICS data. USD strength(ening) should also see some impact on the commodity markets, but at the present time, and due more to the US-China trade spat, is only having noticeable influence on industrial metals to the chagrin of the AUD. Here we have seen better performance in the USD over recent weeks, so its seems the weightings in the USD index are more reflective of more recent weakness - a departure from the overstated view that EUR gains are significantly down to a lack of confidence in the USD. Off the back of a (seemingly) revolving door at the White House, impulsive policy decisions and limited restraint in public spending, which naturally exacerbates the view/perception on the budget deficit, any material appreciation in the USD seems hard to envisage, and to that end, the best we can expect is a staggered recovery or as we continue to see more as a correction. Even so, with a little more relative (or comparative) sense of perspective, the domestic data argues for further adjustment against the EUR, CHF and the CHF, while we can also see gains vs the SEK and NZD, but less so the AUD (as already alluded to) and the CAD. Once markets return to full strength after the Easter break, we will have received the Mar ISM manufacturing PMI data, with the non manufacturing index due midweek - both serving as a taster to the main event at the end of the week which is the Mar payrolls report. Earnings growth is expected to fluctuate inside the 0.1-0.3% range, but if we see the unemployment rate slipping towards 4.0%, if not a little lower, it should ease the conscience of the Fed to keep the normalisation path on track, if not a touch steeper. Irrespective of this, our (long awaited) view is that whether we get 3 or 4 rate hikes, the USD valuations look out of kilter based on current econometrics (relatively speaking). Sentiment can outstretch these differentials for so long, and it now looks as though the greenback has a little more fight in its belly.
Когда трейдеры с трепетом смотрят на продолжающееся сглаживание кривой доходности, так как 2s10s падает ниже 50 б.п. … с доходностью десятилеток США, упавшей до 7-недельного минимума под 2,74% и сообщением, что, если ФРС не проведет параллельный сдвиг в кривой, то ФРС Пауэлла создаст рецессию еще двумя повышениями ставки, поскольку кривая инвертирует, снова остается в центре внимания рынок непокрытого фондирования в долларах, где 3M USD Libor только что сделал то, чего он не делал 13 лет. В 8am ET Libor увеличился с 2.3080% до 2.3118%, поднявшись 37-й день подряд и показал самую длинную полосу роста с 50-дневной полосы, которая закончилась в ноябре 2005 года. Libor вырос на 62 б.п. с конца 2017 года, шаг, который намного более острый, чем сдвиг фьючерсов на федеральные фонды или двухлетних трежерей. Кроме того, неумолимый рост в спреде Libor-OIS продолжает сигнализировать о том, что обычные пути финансирования по-прежнему частично блокируются — по техническим или системным причинам — даже при том, что overnight Libor-OIS снизилась до 59 б.п. с 59,3 б.п. днем раньше. В последней попытке объяснить рост в Libor, Goldman сегодня утром отметил, что всплеск ставки межбанковского кредитования был обусловлен падением спроса или озабоченностью потенциальным снижением «для краткосрочных активов банками-богатыми компаниями после принятия законодательства о налоговой реформе в декабре, «то, что мы говорили с октября прошлого года, и именно поэтому мы больше не считаем, что это объяснение достаточно, поскольку на рынке будет более чем достаточно времени, чтобы не только оценить влияние налоговой реформы, но и воспользоваться очевидным арбитражем; кроме того, как показано в приведенной ниже таблице, недавний поток выпуска T-Bill — еще одна причина, широко цитируемая для объяснения роста в Libor-OIS — вот-вот исчезнет.Другими словами, если Libor не сможет начать снижаться в апреле, можно с уверенностью предположить, что есть дополнительные факторы, которые определяют этот рынок. Между тем, еще одна потрясающая инверсия наблюдается на рынках, где на прошлой неделе 3-месячный Libor поднялся выше доходности двухлетних трежерей ...… инверсия, которая редко бывает когда-либо ...… и который предполагает, что, возможно, следует больше сосредоточиться на кривой Libor-10Y, чем крутизне / инверсии 2Y-10Y в качестве предвестника следующей рецессии.Наконец, возвращаясь к нынешнему уровню Libor, является ли причина его резкого движения системной или технической, остается нерелевантным в контексте общей картины: что имеет значение, как мы говорили более месяца назад, заключается в том, что более 300 триллионов долларов долговых инструменты, которые ссылаются на Libor, теперь платят гораздо больший процент, чем раньше, при этом двойным ударом стал резкий всплеск, что добавляет боли от движения. Более того, тот факт, что этот рост в Libor и Libor-OIS был намного длиннее, чем прогнозировали все так называемые эксперты, свидетельствует о том, что ужесточение денежно-кредитных условий намного больше, чем предполагает текущий уровень S&P. Действительно, один взгляд на цену акций Deutsche Bank, или рост в банковских CDS подтверждает это. Что вызывает вопрос: какой ещё рост Libor смогут переварить банки, рынки и ФРС, прежде чем что-то щелкнет, и ФРС вынуждена будет снизить ставки или возобновить QE? И, что еще более важно, должен ли Libor продолжать расти в апреле (или ускоряться), чтобы Уолл-стрит был вынужден признать, он действительно не знает, что стоит за ростом Libor (и Libor-OIS aka «межбанковский стресс»). перевод отсюда
Former Lloyds chief secures share of £2.3m bonus withheld in 2012
With traders looking in awe at the ongoing flattening in the yield curve, as the 2s10s drops below 50bps... ... with the 10Y sliding to a 7 week low under 2.74% and telegraphing that unless the Fed manages a parallel shift in the curve, that Powell Fed will create a recession with just 2 more rate hikes as the curve inverts, the action again remains squarely focused on the unsecured dollar funding market, where 3M USD Libor just did something it hasn't done in 13 years. At its 8am ET fixing, Libor increased from 2.3080% to 2.3118%, rising for the 37th straight day, and marking the longest consecutive string of advances since a 50-day streak that ended in November 2005. Libor is now up a whopping 62 bps since the end of 2017, a move that is far more acute than the shift in either Fed Fund futures or 2Y TSYs. Additionally, and as shown on this website, the relentless blowout in the Libor-OIS spread continues to signal that conventional funding pathways remain at least partially blocked - for either technical or systemic reasons - even if overnight Libor-OIS narrowed fractionally to 59bp from 59.3bp a day earlier. In the latest attempt to explain the move in Libor, Goldman this morning noted that the surge in the interbank lending rate has been driven by a drop in demand, or concern over a potential decline, "for short-duration assets by cash-rich companies following the passage of the tax reform legislation in December," something we have said since last October, which is also why we no longer believe this explanation is sufficient as the market will have had more than enough time to not only price the impact of tax reform, but also to take advantage of the gaping arb; furthermore, as shown in the chart below, the recent flood of T-Bill issuance - another reason widely cited for the blow out in Libor-OIS - is about to disappear. In other words, should Libor fail to tighten in April, one can safely assume that there are additional factors involved, which are also beyond the Base Erosion Anti-Abuse Tax or BEAT considerations, proposed recently by Zoltan Pozsar, which also will have been priced in by now. Meanwhile, another stunning inversion is being observed in the markets, where in the past week, 3-Month Libor has now also blown wide of 2Y Treasurys... ... an inversion that rarely if ever happens... ... and which suggests that one should perhaps be more focused on the Libor-10Y curve, than the steepness/inversion of the 2Y-10Y as a harbinger of the next recession. Finally, going back to the current level of Libor, whether the reason for its sharp move is systemic or technical remains irrelevant in the context of the big picture: what is relevant as we said over a month ago, is that over $300 trillion in debt instruments which reference Libor, are now paying far more in interest than they used to, with the double whammy being the sharp spike higher, which adds to the pain from the move. Furthermore, the fact that the move wider in both Libor and Libor-OIS has been far longer than all of the so-called experts predicted, suggests that the tightening in monetary conditions is far greater than the prevailing level of the S&P suggests. Indeed, one look at the stock price of Deutsche Bank, or the blow out in bank CDS confirms this. Which begs the question: how much more upside in Libor can banks, markets and the Fed stomach, before something snaps, and the Fed is forced to cut rates or proceed with more QE? And, even more importantly, should Libor continue to drift wider (or accelerate) in April, which is just around the corner, something which Forward Rate Agreement say will not happen, then the entire "technical" justification for the move in Libor can be thrown out, as Wall Street is forced to admit - once again - that aside from sounding confident and wearing an expensive suit to give the impression it knows what's going on, it really has no clue what is behind the Libor (and Libor-OIS aka "interbank stress") blow out.
Yesterday's bloodbath in markets - after such exuberance on Monday - is set to continue if historical precedents are anything to go by. Nomura's cross-asset-strategy chief Charlie McElligott notes that yesterday’s equities pain via a brutal factor-unwind resembles one of the most violent performance drawdowns in recent history - that of Jan / Feb 2016 - and seemingly "idiosyncratic risk" is now turning more "systemic" in crowded Tech "data" plays as "death-by-paper-cut" now becoming a longer-term regulatory overhang of their core "data commodity." Worrying words indeed. McElligott first breaks down just what happened yesterday - and where the real "cataclysmic" pain was felt - before moving on to 'what happens next'? SUMMARY The -4.1 z-score move in “Cash / Assets” factor - the best performing factor strategy of the past 2 years - speaks to likely forced capitulation / book blowouts, similar to what we experienced back in Feb 2016 as “equities market-neutral” performance was crushed in a violently-short period of time “Cash / Assets” is important because it is a pure proxy of the “Growth over Value” theme which has been the dominant reality of the post-GFC period and has accelerated in the past two years to look a lot like “Momentum” factor The analogs of similarly extreme prior drawdowns in “Cash / Assets” (again effectively a “Growth over Value” AND expression in its current-form) give us both “good” and “bad” forward-looking news The “good” - said prior “extreme drawdowns” with this particular “Growth over Value” proxy ( “Cash / Assets” factor) have seen mean-reversion HIGHER at the SPX level on average from a 1w to 3m basis The “bad” - “Cash / Assets” factor typically continues to underperform primarily due to the outperformance of the “short” leg from here (“defensives”) This then is an equities performance risk because “Cash / Assets” is effectively “Momentum” long-short and thus, mirrors general Equities Hedge Fund Long-Short positioning Further squeeze in the “short leg” of “Cash Assets” too squeezes the “short leg” of “Momentum” via the broad equities fund underweight / short in the “duration-sensitives” like REITs and Utilities This in turn only puts MORE pressure on the March CPI print to “come through” and hit the expected uptick off the back of the “Telco Service” roll-off mathematical boost, likely putting rates / USTs back under pressure Otherwise, further rates rally / short-squeeze will only perpetuate the pain being felt across equities underweights / short-books OVERNIGHT: The Bund / UST “flight to safety” rally and “seeming” short squeeze is further extended as yesterday’s equities-centric risk-unwind (un-packed in gory-detail below) chops ‘risk’ asset price-action overnight. Blocks buys in RX earlier which printed at session highs set-up the next level for Bunds looks to be a retest of Dec ’17 contract highs, while TY too clears the 38.2% retrace of the YTD selloff move (121-18 is 50% next level). Our rates team notes big real money demand overnight and “BIG” receiving flows in the 5Y through 15Y sector. UST 30Y yields at 3.01 should act as a reminder to investors that YES, ‘long duration’ still works as a “risk off” hedge into this current softer economic growth backdrop, as opposed to the inadequate state of “duration as a hedge” back during the Feb vol spike. That scenario was driven by the very contrary acceleration in “growth” economic data—especially wage- and inflation- kind--that in turn dictated the fixed-income selloff that drove the behavior which didn’t allow USTs to work as a hedge. This time truly IS different, it seems...at least until the potential for March CPI headline to hit at 2.4% and the “bear raid” on fixed-income will take another “go” at USTs. To this point, 3m $LIBOR sets +0.6, and despite the insane rally in fixed-income yday (front ED$ a 2.3 standard deviation move relative to 1Y returns), Darren Shames astutely notes that ED open interest STILL barely budged (Whites +36k/ Reds -3k/ Greens +46k/Blues -3.8k). High conviction from the ‘bearish / paying rates’ crowd, indeed. Not surprisingly, “growth-y” and tech-heavy Asian equities markets were hit hard overnight, although in pretty ‘sane’ fashion—TOPIX -1.0%, Nikkei -1.3%, HIS -2.3%, SHCOMP -1.4%, KOSPI -1.3%. USD is only marginally firmer against G10, as the lower UST yields act to drag the currency down despite the “risk-off” nature of the recent trade. Nonetheless, both Industrial Metals (iron ore -1.1%, copper -0.8%) and Crude (WTI -1.0% after last night’s surprise API inventory build at 6x’s the expected estimate—jarring the recent ‘demand-driven’ bounce theme) are both struggling and also feeding into the lower nominal- and ‘real-‘ yield dynamic that we currently see. Spooz currently working their way back to overnight session highs with a Shire Pharma bid and a Walgreen’s earnings beat / raise. But the damage of yesterday will loom for an extended period of time, I’d imagine. COMMENTARY: Let’s skip right to the chase: the behavior within particular recent factor- and thematic- “winners” within the US equities space yesterday was so violent / so “tail” that the scale of the drawdown was reminiscent of the brutal market-neutral quant factor unwind period of Jan / Feb 2016. For the unitiated, that particular episode of whiplash forced a number of heavily-leveraged “platform books” to liquidate around the Street,in turn destroying performance for many over the balance of that particular year, despite an almost immediate “snapback higher” in both relevant factors and broad SPX over the following weeks. Yesterday was particularly stunning because it occurred with “Cash / Assets” factor--the “biggest factor winner” since July of 2016--which also happens to be the period marking the “cyclical lows” in UST yields before the past nearly two years of grinding higher. In fact, Nomura’s “Cash / Asset” factor made 5 year lows on June 27th 2016, four days before UST 10Y yields made all-time lows on June 30th, 2016 (point-being, “quant factors” are just another tool to “see” shifts in the fundamental and macro landscape potentially sooner than other traditional methods). The key here is this, as noted by our phenomenal Quant Strat Joe Mezrich in a piece from mid-February: “Amid the rise in interest rates since July 2016, sectors with high cash/total assets and low debt/equity—tech, financials (ex-banks) and industrials—have also outperformed, while sectors with the opposite characteristics—telecom, utilities, real estate and staples—have underperformed.” So to me, this factor is an almost “pure” proxy of “Growth vs Value,” which has probably been the biggest theme within the entire equities since the GFC. “CASH / ASSETS” AS A PURE EXPRESSION OF “GROWTH VS VALUE”: Source: Bloomberg Amidst all the ongoing questions with Tech / Growth “crowding,” the potentially massive regulatory implications of these “New Tech” companies--whose “revenue commodity” is data in the midst of this current #deletefacebook panic—is just simply enormous. So extremely crowded conditions are met with now “large and slow-moving” regulatory overhang due to seemingly “idiosyncratic risk,” which perversely has now apparently turned into “systemic risk” for the “data” space (see Axios piece today noting a White House acceleration of negativity around Tech universe—both on tax and regulatory). On top of the ongoing and ugly Facebook situation, you then incredibly “pile-on” with yesterday “short sale” report on Twitter (a stock +47% last year and what had been +33% YTD through Monday’s close) being “most exposed” to a similarly murky “data exposure” scenario, and then the “pure idiosyncratics” of mega-“high flyer” graphics-chip maker NVDA’s -7.8% 1d move (but +26% YTD through Monday’s close) after its involvement in the Uber car crash - while too TSLA (a stock +46% last year) slumped 8.2% yesterday as investors also question their own recent fatal car crash….you simply have the makings for one of the most “freak” blow-ups I’ve seen in my 17 years in the business. Source: Bloomberg Many of these companies, as shown by 1Y and YTD returns, are clear “Momentum” longs. Many of these same companies are clear “Growth” longs. The two biggest “drags” within the aforementioned and critical “Cash / Assets” factor long blowup yesterday? TWTR -12.0% and NVDA -7.8%. Third worst? ADBE -6.6%, a huge “CLOUD DATA” player. Fifth worst? ANET, a “CLOUD DATA” player -6.4% on the day. I could go on. NOMURA ‘CASH / ASSETS’ FACTOR LARGEST LAGGARD % MOVERS YDAY—‘LIGHTS OUT’: Source: Bloomberg A HISTORY LESSON: This is where it gets “familiar,” and not in the “good” way. “Cash / Assets” market-neutral factor experienced a brutal -2.9% absolute move yesterday, which relative to the absurdly high Sharpe of this factor strategy over the last year was an even more amazing -4.1 z-score move. That is CATACLYSMIC. Source: Bloomberg The last time we saw moves that extreme in this pure “Growth” factor expression? February 5th, 2016—which was the day that still super-crowded “CLOUD DATA” play Tableau Software (ticker ‘DATA’ is the most meta-ironic thing I think I’ve ever seen in my life BTW) absolutely blew the market-neutral buyside to smithereens, as the stock traded -49.4% after a relatively benign “miss” caused a knock-on effect across the “cloud” theme which was an “ultra long” across tech books and growth funds around the Street. Let’s take a trip down memory lane. The investor masses by-and-large were set-up “long growth” in equities (Tech, Fins, Energy) / short fixed-income to start the year 2016, after the Fed had just begun their hiking-cycle the month prior in Dec ’15 on the basis of “economic escape velocity.” Higher rates from “real economic growth” was about to begin, and it was time to get long the stuff that responds in this sort of expansion, against paying rates / short USTs. However, we immediately saw a BRUTAL mean-reversion / pension fund rebalancing trade to start ’16 as the “deflation scare” absolutely NUKED Tech, Financials and Crude / the Energy space while the “bearish / paying rates” set-up saw “bond proxy” defensives RIP HIGHER as USTs rallied. The crowded “growth” trade was absolutely defenestrated then, against a whalloping fixed-income / duration / “low vol” rally… January 2016 % return: SPY -5.0% QQQ -6.9% SMH -6.7% KRE -12.6% KBE -12.6% XLF -8.9% XLE -3.5% XLP +0.5% XLU +4.9% UST +6.6% TLT +5.6% EDV +8.4% With this already brutal backdrop in January forcing multi-manager platform team blowouts and book unwinds across this heavily-leveraged equity market-neutral universe (“tight stop” risk management), the Tableau print at the start of February was the straw that broke the strategy’s back, “daisy-chaining” capitulation everywhere. That lone stock blow-up sent the entire HFR Equities Market Neutral Index -3% in one day! Source: Bloomberg What’s the punchline? Some people really got hurt yesterday—in a BAD way. When the buyside goes that quiet...you know things went “wrong.” WHAT HAVE PRIOR BLOW-UPS IN THIS FACTOR MEANT FOR FUTURE RETURNS? So to be fair, the positioning-angle of this current iteration of the “secular growth” trade has “only’ been this extreme for the past few years—meaning that analogs of prior blow-ups in “Cash / Assets” are not “apples to apples” per se. But it still matters because this type of volatility, forced “stop-outs” and book capitulations only further weigh on my recent talking point since February, being the “damaged psyche” of risk- / equities- investors, who have been conditioned to ‘buy the dip’ time and time again to their benefit over the past 5+ years. Now, there is a HARSH re-training occurring, as we’ve clearly transitioned to a TRADER’S MARKET from an EASY-CARRY / HIGH SHARPE / ‘SET IT AND FORGET IT’ one. The daily stop-outs and drawdowns are also becoming too much for the institutional set, as almost every other day since the start of February, we see “shorts / underweights” outperforming “longs / overweights.” GROSS-DOWN, again(and FWIW, I think at least part of the reason a lot of this isn’t being expressed purely in Prime Broker data is because so much of the hedging is done via Futures right now, and that data is sitting at Clearing Brokers): Source: Bloomberg The issue here is that there is “spill-over” into popular macro and systematic positioning as well: Source: Bloomberg So how about the good news first at the SPX-level, which is where cross-asset / macro is going to care. The analogs dating-back to 2010 of prior extreme drawdowns with this particular “Growth over Value” proxy / theme (that being the “Cash / Assets” factor I’ve concentrated on above) have seen mean-reversion (HIGHER) at the SPX level—take a look at the following data run by my colleague Eric Passmore last night: Source: Nomura Now for the bad news—“Cash / Assets” factor typically continues to underperformprimarily due to the outperformance of the “short” leg from here (the “long” basket of “Growth” holds positive with a 60% ‘hit rate’ 2w out and a 50% hit rate 1m out). So what’s in that “short leg” of the “Cash / Asset” basket which per the analog continues to squeeze painful higher and sap the returns of your ‘long’ leg? All of the “Value” long stuff, the defensives / duration-sensitives / bond-proxies that nobody owns and frankly makes up the majority of the “Momentum” short as well—i.e. strategies that are running a “mirror” of “Momentum” long-short (broad equities HF long-short) are likely in for more downside chop over the coming month. Source: Bloomberg “CASH / ASSETS” LOOKS A LOT LIKE “MOMENTUM” BECAUSE OF THE “GROWTH VS VALUE” ATTRIBUTES: Source: Bloomberg ANALOGS SHOW THAT ‘CASH / ASSETS’ CONTINUES TO STRUGGLE OVER THE NEXT 1M AS THE ‘SHORT’ LEG (REITs, UTES) SQUEEZES HIGHER: Source: Nomura Below are the case-by-case prior returns since 2010:
Two months after the Nikkei reported that Apple will halve its production target for the iPhone X in the three-month period from January from over 40 million units to around 20 million, in light of slower-than-expected sales in the year-end holiday shopping season in key markets such as Europe, the U.S. and China, and after JPM similarly warned that production of Apple's flagship phone would plunge of 50%, "even larger than the decline of the iPhone 8/8+" and noted that the "weakness will continue in 1H18 as high-end smartphones are clearly hitting a plateau this year"... ... this morning Goldman joined the Apple skeptics when the bank's analyst Rod Hall wrote that demand expectations for March and June quarters are already weak but early Q1 demand indicates "even lower actual numbers than consensus is modeling" and as a result, he is trimming his replacement rate expectations in response to what has been weak replacement consumer behavior this cycle. Below is the gist of the note: We reduce our replacement rate assumption for FY’18 by ~2pp to 33% from 35% earlier due to weaker than expected demand for the iPhone X. We have cut our Chinese replacement rate by 3pp to 19% for FY18 and also reduced our ex. China replacement rate by 1pp to 38%. Further, we cut FY’19 and FY’20 replacement rates by 1pp each to 32% and 29% respectively. We note that our assumptions for FY19 could prove conservative if larger format devices drive a better cycle in China this coming December quarter though we believe that data so far suggests that a more cautious approach is prudent. We now forecast the overall replacement rate to drop by 7pp over the three years from FY’17-FY’20 similar to what we calculate occurred from FY’14-FY’17. This may appear overly conservative on its face but we point out that replacement cycles in emerging markets where iPhone base growth is highest tend to be materially lower than in developed markets where most Apple analysts reside. In light of this, Hall cut his iPhone sales estimates for the March and June quarters by 1.7 million and 3.2 million units to 53 million and 40.3 million units respectively. He also cut his 2019, 2020 iPhone revenue and net income forecasts: Goldman now sees revenues decrease by 2.4% and 2.7% to $256.6bn and $272.5bn for FY’18 and FY’19 respectively; the company's revised revenue estimates for FY’18 and FY’19 are 2.2% and 0.4% below consensus, while its net income estimate for FY’18 is 2.2% below consensus and for FY’19 is 1.2% ahead. On a shipment and ASP basis, Goldman cut its FY’18, FY’19 and FY’20 iPhone shipments forecasts by 3.5%, 4.0% and 1.8% to 217.3m, 223.8m and 223.4m units respectively - below consensus estimates of 221.3m, 226.8m and 238.3m units. However, the bank's ASP estimates for FY’19 and FY’20 are 1.6% and 4.0% ahead of consensus "due to proprietary bottom up modeling" that suggests consensus continues to underestimate the impact of a mix shift toward higher priced phones "even as we now assume that Apple reduces prices somewhat in the high end." Hall warned that AAPL will have "material channel inventory" to clear in June in order to prepare for rollout of new products this fall, and has modeled just 1MM units of inventory build into the June quarter. Unleashed, the Goldman analyst also reduced his ASP estimate for the June quarter by 2.3% due to above-average forecast inventory burn of 6.0 million units. There was some good news: the Goldman analyst said that while replacement rates continue to decline in our model, the growing installed base provides support for the Y/Y growth in replacement shipments. We estimate that the primary installed base, made up of only first-hand iPhone owners, stands at 631m units in FQ1’18 and is growing strongly at 12% Y/Y. Goldman's conclusion: iPhone demand expectations for March and June are already weak but we believe that early CQ1 demand indications suggest even lower actual numbers than consensus is modeling. We are slightly reducing our March unit expectation and make a larger reduction in our June quarter unit and ASP forecast. We now model 1m units of inventory build into June which is atypical. This leaves Apple with material channel inventory to clear in June to prepare for the launch of new products this Fall. We also are trimming our replacement rate expectations looking forward in response to what has been weak replacement consumer behavior this cycle. We reduce our March and June QTR units by 1.7m and 3.2m to 53.0m and 40.3m units respectively. Due to an above average forecast inventory burn of 6.0m units in the June QTR we are also reducing our ASP forecast for that QTR by 2.3%. Looking forward we are also reducing replacement rate expectations which brings our FY19 and FY20 unit forecasts down by 4.0% and 1.8% respectively to 224m and 223m units. Finally, Hall also cut his Neutral-rated Apple price target by $2 to $159, the second lowest on the Street, which has a median PT $195. Apple stock was modestly lower on the news.
Honeywell International (HON) introduces two state-of-the-art satellite communications systems to strengthen its leading position in the Aerospace market.
(компания / тикер / цена / изменение ($/%) / проторгованый объем) 3M Co MMM 222.78 2.54(1.15%) 2564 ALTRIA GROUP INC. MO 59.89 0.29(0.49%) 8773 Amazon.com Inc., NASDAQ AMZN 1,568.32 12.46(0.80%) 53378 Apple Inc. AAPL 173.69 0.92(0.53%) 200945 AT&T Inc T 34.98 0.29(0.84%) 68913 Barrick Gold Corporation, NYSE ABX 12.61 -0.15(-1.18%) 42512 Boeing Co BA 331.65 2.68(0.81%) 15863 Caterpillar Inc CAT 150.3 1.11(0.74%) 6098 Cisco Systems Inc CSCO 44.48 0.42(0.95%) 25624 Citigroup Inc., NYSE C 70.1 0.32(0.46%) 14047 Exxon Mobil Corp XOM 74.29 0.29(0.39%) 6643 Facebook, Inc. FB 158.71 -1.35(-0.84%) 654766 FedEx Corporation, NYSE FDX 242 2.15(0.90%) 200 Ford Motor Co. F 10.89 0.06(0.55%) 26992 Freeport-McMoRan Copper & Gold Inc., NYSE FCX 17.92 0.17(0.96%) 6202 General Electric Co GE 12.98 0.09(0.70%) 398911 General Motors Company, NYSE GM 36.11 0.12(0.33%) 5347 Goldman Sachs GS 255.75 0.87(0.34%) 3973 Google Inc. GOOG 1,061.09 7.88(0.75%) 8932 Home Depot Inc HD 177.66 1.28(0.73%) 1096 Intel Corp INTC 53 0.52(0.99%) 164987 International Business Machines Co... IBM 154.5 1.13(0.74%) 2540 Johnson & Johnson JNJ 127.75 0.36(0.28%) 2150 JPMorgan Chase and Co JPM 110.95 0.64(0.58%) 23772 Merck & Co Inc MRK 54.18 0.14(0.26%) 150 Microsoft Corp MSFT 94.74 0.96(1.02%) 163184 Nike NKE 66.23 0.33(0.50%) 810 Pfizer Inc PFE
Box office results show that the film has earned a record-breaking total of $630.9m so far, taking it to No 5 on the all-time US list Black Panther has overtaken The Avengers to become the highest-grossing superhero film at the US box office, taking a total of $630.9m (£443.5m) on its sixth weekend of release. The Avengers – also a Marvel production – finished on $623.4m in its home market in 2012. The record-breaking result, in which Black Panther added an estimated $16.6m to its previous week’s total of $614.3m, came as it was dethroned from its five-week run as the box office No 1, having been overtaken by monster movie Pacific Rim: Uprising, which managed $28m on its debut. Continue reading...
The site will open for the first time 80 years after a local businessman left it to the cityThe remains of a monastery founded in 1385 by Richard II, and the spectacular wall paintings added in later centuries, will open to the public for the first time almost 80 years after being left to the people of Coventry by a wealthy local businessman.A grant of £4.3m from the heritage lottery fund to be announced on Monday will leave the preservation trust which now owns the Charterhouse, a complex of medieval and later Grade I listed buildings surrounded by 70 acres of parkland, within sight of its fundraising target for restoration. It is planned to open in 2020 with a visitor centre, cafe, and recreations of the modest cells of the Carthusian monks, in the run-up to Coventry taking on the City of Culture title in 2021. Continue reading...
Guggenheim's Scott Minerd became the latest respected investor to declare that the widening Libor-OIS spread (which we've been pointing to for the past month) is the most overlooked trend in markets right now. In his interview outlining his bearish view on markets, Minerd explained how US corporations that embarked on a debt binge during the ZIRP era are headed for a rude awakening as interest rates rise. And the canary in the coal mine, so to speak, will be the rising Libor rate. As it continues to climb, companies could soon start experiencing difficulties in borrowing money and servicing debt. "The thing I'm concerned about is this rise in Libor and the repricing of bank loans. If my view of the world is right, a year from now we're going to have interest rates up 100 basis points and Libor somewhere around 3.5% or 3.25%. And believe it or not that would begin to soak up a lot of the free cash flow for below investment grade companies," he said. "There are a lot of companies that are zombie companies that survived the last cycle," he said. "We just saw iHeart - any number of comapnies. As these companies have their debt repriced by the market with rates going up, it's going to be harder and harder (for them) to stay alive." Adding to the stress on highly levered firms, Minerd explained, would be the Trump tax reform plan, which limits companies' ability to deduct their interest costs. Circling back to the flattening yield curve, Minerd explained that the Fed's insistence on hiking will send short-term rates on a crash course with long-term rates, which are anchored. "The 10-year note is already 3% as we're sitting here so there's not a lot of room for the long end to move up. Guggenheim is, Minerd said, is "moving away" from high-yield debt and bank loans - just as the credit risk for some of the world's largest banks is flashing red. The Libor-OIS spread has risen to its widest level in nine years this week, rising to 54.6 bps or the most since May 2009 after 3M USD Libor rose for the 30th consecutive day from 2.2225% to 2.2481%. And as we pointed out earlier, the stress in money markets in the US, UK and Europe is rippling across the globe...
Bank chief received $28.3m last year, 364 times more than median worker
Yesterday we exposed the globally contagious spread of funding market distress into the credit risk of major US banks, and today it has accelerated, spreading to Europe's banks as their stocks crashed to the lowest in 11 months... Deutsche Bank is leading European banking's collapse... But this is a serious move for the broad EU financial system... Credit risk is breaking out... As Credit diverges extremely bearishly from stocks... And it's about to get even worse... As three-month dollar Libor extended its streak to 32 straight increases, though the rise in the setting is the smallest since March 8. The crucial USD Libor-OIS spread rises to 56.8bp, widest level since May 2009 (as 3M Libor at 2.2856% is the highest since November 2008, vs 2.2711% prior session). As we noted yesterday, the key is whether rising Libor rates will fuel a funding crisis - something we have been worrying about all year (as we detailed above with the blowout in the Libor-OIS spread)... “We usually don’t see this kind of divergence in rates without some sort of credit issue,” said Margaret Kerins, head of fixed-income strategy at BMO Capital Markets Corp., referring to Libor’s rise versus OIS. “At what point does all this become damaging and how far does it go? That is the issue.” It appears to be damaging now.. “There has been sort of the perfect storm of factors tightening financial conditions,” said Russ Certo, head of rates at Brean Capital in New York. “Banks do have tremendous liquidity still, but it’s at a higher price.” But, but, but... "fortress balance sheets"?
United Technologies' (UTX) Kidde recalls 425,000 faulty fire alarms. Also, the company takes necessary actions to ensure consumer safety.