A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Merrill Lynch chief investment strategist Michael Harnett writes that markets are already experiencing a global earnings recession,
“We are in a global EPS recession: Asian export growth -4% YoY consistent with negative global EPS growth ; BofAML Global EPS model forecasts 0% EPS growth in the next 12 months (versus 6% consensus); no new highs for stocks, lows for spreads without inflection point higher in corporate profits. Signs the global EPS recession is over: US 2s10s yield curve steepens (> 50bps); global PMI up from 51 to 53; Asian export growth rebounds (signaled by ADXY >108, KOSPI 2300, copper >$300); China financial conditions ease more substantially as policy makers U-turn on deleveraging of $20tn shadow banking system & stop rising defaults in $3tn corporate bond market”
Mr. Hartnett’s report “Only China can end global EPS recession” is an indication of how important the country’s slowdown has become for global investors.
“@SBarlow_ROB ML: We are in a global EPS recession” – (research excerpt) Twitter
“Global shipping rates slump in latest sign of economic slowdown” – Reuters
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Citi’s global asset allocation team has a much different view than Mr. Hartnett’s, arguing that profit growth fears are overdone,
“According to Citi’s Global Equity Strategists, markets are now pricing 1% EPS contraction in 2019, which would be the worst YoY% change in EPS since 2015, yet Citi economists, expect GDP growth to be much higher in 2019 than 2015. .. forward valuations indicate much tighter financial conditions than what is currently implied. Our thinking is that if the Fed does ‘take the foot off the brakes’ and turn off the ‘auto-pilot’ on policy normalization, then these forward valuations could begin to look reasonably cheap.”
“@SBarlow_ROB C: EPS fears overdone” – (research excerpt) Twitter
The Citi report also presents a terrifying chart for investors, implying 40-per-cent downside for global equities, but argues that the correlation depicted is spurious,
“ @SBarlow_ROB C: “We are reluctant to extrapolate QT “ – (charts) Twitter
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Merrill Lynch energy strategist Doug Leggate sees the U.S. energy market as oversupplied and North American crude prices will be determined by export levels for the near future,
“Crude stocks increased by 8.0 mm bbls vs a negligible draw expected (278mb) and above the API’s reported build (6.55mmb). US refinery runs fell for the 3rd straight week – too early for Spring maintenance and suggesting some run cuts may be the response to margin weakness. Still, planned maintenance above 1.5mm b/d means the US will be long crude by 7-10mm bbls / week leaving exports as the primary balancing mechanism.”
“@SBarlow_ROB ML on crude: U.S. oversupply, inventories dependent on exports” – (research excerpt) Twitter
“Column: Oil prices in 2019? It's all about the economy” – Kemp, Reuters
“Last year, the US government predicted American oil production would average 11.95 million barrels a day in 2042. U.S. drillers are now forecast to reach that target this year - some 23 years ahead of schedule.” – Bloomberg
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Tweet of the Day:
Diversion: “The real reason active funds attract more media coverage” – TEBI