Saturday, 21 October 2017

Markets rise as Trump trade reignited amid “synchronized expansion” in global economy

Markets rose on Friday.

The S&P 500 rose 0.5 percent to a record high after the US Senate passed a budget blueprint for the next fiscal year to pave the way for tax cuts.

The STOXX Europe 600 rose 0.3 percent despite continuing concerns over the issue of Catalonian independence from Spain.

The Nikkei 225 rose less than 0.1 percent ahead of an election on Sunday but that was still its 14th consecutive gain.

“The Trump trade has been reignited, so it seems. Tax reform is definitely back on—if it was ever off, thanks to the Senate approving of the Republican-backed budget Thursday night,” said Neil Wilson, senior market analyst at ETX Capital, in a note.

“The global economy has now entered a synchronized expansion for the first time in many years, and the usual macro fears are largely absent,” wrote Bill Miller, portfolio manager at Miller Opportunity Trust mutual fund on Wednesday. “This has underpinned a global bull market in stocks without (yet) triggering a significant rise in interest rates.”

“Low interest rates coupled with still solid earnings growth suggest valuations can remain high amid a tame business cycle, absent an exogenous shock,” said Third Point's Dan Loeb.

Friday, 20 October 2017

Markets mixed as US stocks rebound after losses elsewhere

Markets were mixed on Thursday.

Early in the day in Asia, the Nikkei 225 rose 0.4 percent but the Hang Seng Index tumbled 1.9 percent and the Shanghai Composite fell 0.3 percent after a report showed that China's economy grew 6.8 percent in the third quarter, down from 6.9 percent in the second quarter.

The STOXX Europe 600 fell 0.6 percent as the China data combined with an escalation of political tension in Spain and disappointing corporate results to drag stocks down.

However, the S&P 500 managed to rebound from early declines to finish flat.

“While there is no question that markets are overvalued and we could see some corrections, the path of least resistance for stocks is still to go higher,” said Jack Ablin, chief investment officer at BMO Private Bank.

Thursday, 19 October 2017

Stocks rise amid positive global earnings trends and flattening yield curve

Markets rose on Wednesday.

The S&P 500 rose 0.1 percent, the STOXX Europe 600 rose 0.3 percent and the Shanghai Composite rose 0.3 percent.

“Overall, earnings are coming in very nicely,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services.

“Economic data globally is confirming positive earnings trends,” said Maris Ogg, president of Tower Bridge Advisors.

Luiz Sauerbronn, director of the investments group at Brandes Investment Partners, said that European corporate profitability is “starting to recover now” while valuations are “very attractive relative to the US”.

One risk, though, is a flattening yield curve.

CNBC reported that this week, the spread between 2-year note yields and 10-year yields in the US reached near the lowest it has been since before the financial crisis.

Wednesday, 18 October 2017

Markets mixed but US stocks edge up on positive earnings

Markets were mixed on Tuesday.

The S&P 500 edged up by less than 0.1 percent while the Nikkei 225 rose 0.4 percent but the STOXX Europe 600 fell 0.3 percent.

Positive earnings reports from major companies boosted sentiment in the US.

Karyn Cavanaugh, senior market strategist at Voya Financial, said that “the market is climbing thanks to global growth that’s been driving earnings”.

Bill McNabb, chairman of Vanguard, told the BBC that financial markets “keep reaching new highs” despite valuations being “very high” partly because they had ignored some of the political turbulence around US President Donald Trump's administration.

However, he added: “We expect there could be a decent-sized correction at some point.”

Tuesday, 17 October 2017

Stocks rise but calm markets could turn “really ugly”

Markets were mostly higher on Monday.

The S&P 500 rose 0.2 percent to another record high while the Nikkei 225 rose 0.5 percent to a 21-year high.

However, the STOXX Europe 600 was flat. The IBEX 35 weighed down the region, falling 0.8 percent after the Spanish government gave Catalonia’s separatist leaders until Thursday to drop their push for independence.

Joanne Masters, senior economist at ANZ, said in a note that while the Federal Reserve may raise interest rates in December, “if goods inflation fails to show up next year, there might not be too many more in a hurry”.

Certainly, investors do not seem too concerned with monetary policy tightening, with markets having “gotten even calmer” in the typically-volatile month of October so far, noted Frank Cappelleri, technical strategist at Instinet.

Still, some analysts are concerned, especially for the US stock market.

Goldman Sach's chief US equity strategist David Kostin said in a note on Friday that the S&P 500 is currently trading in the 88th percentile of historical valuations and expects a “modest contraction” in valuation multiples.

That would mean that for the S&P 500 to rise, fundamental factors such as earnings and book values have to improve, but “a substantial increase in profitability in 2018 will likely require policy tailwinds”.

Meanwhile, William Watts at MarketWatch ponders the possibility of another market crash.

“It’s been three decades since Black Monday, the most disastrous single day in U.S. stock market history,” he wrote on Monday. “Critics charge that fragmentation and liquidity concerns resulting from market structure changes make an eventual rerun a near certainty.”

Joseph Saluzzi, co-founder and co-head of trading at Themis Trading, warned that “when it happens, it’s going to be really, really ugly”.

Monday, 16 October 2017

China could grow influence on global markets but still at risk of financial instability

Emma O'Brien, Garfield Reynolds and Adrian Leung argue that China's influence on global markets will grow.

China makes up more than one-seventh of the global economy, yet its footprint in international portfolios is ludicrously small, with overseas investors owning less than 2 percent of its domestic stocks and bonds. But its insulated markets are slowly becoming more integrated, as President Xi Jinping loosens rules on foreign participation. That push could get further backing at the Communist Party's twice-a-decade congress this month, where the leadership will set policy priorities for the coming five years.

However, People's Bank of China Governor Zhou Xiaochuan warned recently that China is also at risk of financial instability.

“The main problem is that the corporate debt is too high,” Zhou said Sunday during a panel discussion at a Group of 30 seminar in Washington held in conjunction with the International Monetary Fund and World Bank annual meetings.

While debt servicing costs remain low, “we need to pay further effort to deleveraging and strengthen policy for financial stability,” Zhou said.