A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Global economic data overnight saw stabilization in Chinese manufacturing activity that sent metals prices higher but also depressing results for European growth.
At 8:30 a.m. ET, U.S. retail sales for February were reported well below economists’ expectations at a decline of 0.2 per cent (versus a forecast of a 0.2-per-cent rise) overall and a 0.4-per-cent drop ex-autos (0.3-per-cent gain expected).
Where China data is concerned, I prefer to use South Korean activity to verify China’s official numbers (South Korea is a major trade and technology hub for the region) and unfortunately, those reports were also terrible.
“Eurozone Manufacturing PMI ⬇️ to 47.5 (49.3 - Feb), signalling sharpest downturn for almost 6 yrs. Germany and Italy were notable contributors” – Markit
“ @Birdyword I'm not saying the Chinese PMI is wrong. Maybe it's got a lead. But other data just today: South Korea exports: -8.2% March YoY. Germany manufacturing PMI March: 44.1, worst since July 2012. Japan Tankan March: Sentiment of large manufacturers at 6yr low” – Twitter
“@Jim_Edwards EZ manufacturing - it's bad all over” – (research excerpt) Twitter
“ China March factory activity grows for first time in four months, but exports weak” – Reuters
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Taken as a whole, the global economic reports support some of the more bearish market forecasts, like that of Morgan Stanley’s U.K.-based strategists Andrew Sheets,
“Cycle peak imminent – time to tilt defensive: Our updated US market cycle indicator is still in expansion, the phase it's flagged since we initiated coverage in 2014. But we now estimate that there is a ~70% likelihood that this will shift to downturn over the next 12 months. Such turns do not necessarily mean recession, but do correspond to materially worse return environments for credit and equities… We've adjusted our methodology to account for the breadth of data improvement/deterioration when classifying phase changes, which improves the ability of the model to work in real time. We note that indicators outside our model's scope also flag late-cycle risks – a trough in credit spreads, declining ISM, rising wage growth and peak US equity margins. If downturn arrives, stocks, HY and USD are among the most vulnerable.”
“@SBarlow_ROB MS’s Sheets: Countdown to downturn” – (research excerpt) Twitter
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Citi strategist Mark Schofield’s outlook is also not encouraging for investors,
“ Our Global Macro Strategy team argue investors should now begin preparing for a further economic slowdown. Trade headwinds are intensifying. Protracted US-Sino negotiations are leading some to second guess their initial optimism. Issues surrounding USMCA ratification and US-EU trade are also fostering additional concerns. Strong domestic labor markets seem unlikely to remain sufficient as a driver of global resilience. Concerns surrounding trade are increasingly being compounded by broader policy uncertainty, resulting in lower degrees of domestic resilience. Policy traction is likely to be key going forward. In China and Europe especially, policy efficacy will be key to restoring broader confidence.”
“@SBarlow_ROB C’s Schofield: Beginning of the End?” – (research excerpt) Twitter
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Domestically, Bank of Montreal chief economist Doug Porter struck an interesting tone in his weekly report released Friday. Mr. Porter initially quotes CNBC’s Jim Cramer , “ “Every once in a while, the market does something so stupid it takes your breath away”, to underscore his surprise that equity markets have remained resilient faced with slowing economic and profit growth. At the same time, last week’s strong gross domestic product reports has BMO raising growth forecasts for 2019,
“Wait… what?—a massive bond rally in the face of a uniform risk-on move everywhere else? Making the move even more curious is the fact that the slide in yields was heavily concentrated in a steep drop in real yields … The combined market message appears to be that growth globally will keep grinding ahead, but it has taken a big step down from above potential in the past two years to below potential, probably for a few years. .. , the large high-side surprise prompted us to revise up our GDP growth call for both Q1 (from zero to a 0.7% annualized gain) and for 2019 (from 1.3% to 1.5%).”
“@SBarlow_ROB Reading btw the lines, BMO's Porter is (understandably) struggling to get his forecasting bearings” – (research excerpt) Twitter
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Tweet of the Day:
Diversion: “The Day the Dinosaurs Died: A young paleontologist may have discovered a record of the most significant event in the history of life on Earth.” – New Yorker