Showing posts from 2018

We've Been Here Before?

Sometimes, history does repeat itself. However, three years in front of 2015, the economy faces the triple threat of high valuations, rising rates, and geopolitical trade tensions. First Trust Portfolio's comparison suggests the pattern could be bullish. After all, a correction happens every 18 months shedding on average 10-19%. A little deja vu might help to calm things down, but this time fundamental pressure feels heavier. 

Bureau of Labor Statistics: Employment Breakdown

The jobs report came out for July 2018, and the numbers disappointed expectations. Employment rose by 157,000, below the consensus estimates of about 190,000 for the month of July. Despite lower gains, the unemployment rate continued to fall to 3.9 percent. Total unemployed individuals fell by 284,000 and about 9,000 joined the civilian labor force for the month.

More specific breakdowns include a slightly higher reduction in the unemployment of older males than the rest of the demographics. Adult males (ages 20+) saw their unemployment fall by 0.3 percent while adult women (ages 20+) saw no change in their unemployment. Teenagers (ages 16-19) saw unemployment rise by 0.5 percent being on the weaker end of the report.

Broken down by ethnicity, every category saw unemployment tick downward except for Black which saw a slight increase. The Black category is known for having a higher unemployment rate, but it has fallen at the same rate as other ethnicities. This is true even though the…

MAGNA: Digital Advertising Takes Center Stage

Alphabet (GOOGL) released on Monday, July 23rd and surprised the world with a significant beat over earnings estimates. Reported earnings per share was $11.75 beating the Wall St estimate of $9.45 and representing a year-over-year growth in income of 32 percent. Revenue came in much higher as well beating estimates of $25.6 billion by about $600 million. Many thought Google, the main arm of Alphabet, had beat the digital advertising business model to death, and therefore, the company would start to see some slowing in growth. However, that was not the case.

MAGNA Global releases data on the global advertising industry and, in particular, releases its seasonal updates of its “MAGNA Advertising Forecasts” that feature many key findings. The latest report was released on June 18th and would have prompted an optimistic view on Alphabet earnings if it had been read before the event.

In its latest report, MAGNA forecasted net advertising revenues to be 6.4 percent higher at $551 billion aft…

FTR Trucking: The Economic Engine Keeps its Pace

Freight and trucking conditions are known for being good barometers of the overall economic health of a country. Freight Transportation Research Associates provides data and reports on the conditions for the trucking and shipping industries. The company provides its Trucking Conditions Index (TCI) which combines analysis on “load volumes, the capacity environment, rates, costs, and the truck driver situation” to give an overall opinion on the industry.

The most recent monthly report reports an optimistic picture for the month of May. In 2018, the TCI has suggested that truckers have maintained full capacity utilization with ratings well above the same month a year ago. As the freight season enters its peak, FTR sees “the TCI reading growing further through the calendar year and likely into 2019.” Overall, the reading suggests a continued sense of optimism in the industry despite fuel costs rising. FTR’s truckload rate forecast for the year is reported at 13 percent.

The trend in order…

Big Banks Report Earnings

Four big banks kicked off earnings season last Friday and this Monday. J.P Morgan (JPM), Citibank (C), Bank of America (BAC), and Wells Fargo (WFC) were all part of the fun that lead to sizeable gains in Monday's trading session. Banks tackled issues such as rising interest rates and trade tensions in conference calls while discussing earnings numbers with investors. Overall, the data show one clear loser and mixed strength from the other three.

The clear loser was, and continues to be, Wells Fargo. The bank saw a contraction in all key indicators. An drop of 3 percent in revenue was accompanied by an 8 percent drop in debit and credit card spend, a 2 percent drop in deposits, and a 1 percent drop in loan growth. The only inkling of positivity came from a large drop in nonperforming loans of -19 percent. Despite a poor earnings report, shares of WFC still jumped almost 3 percent on strength in the sector.

The remaining three banks each saw their share price grow more than WFC by …

Bracing for Impact: How the Tariffs Affect the States

The hot-button issue of tariffs has everyone on the edge of their seat including some disgruntled government agencies. In opposition to the tariffs, the Chamber of Commerce published data showing the impact of tariffs on the different states in the country. The original data was broken down into very specific categories which have been manually grouped for convenience. The source of the raw data can be found here.

2018 Q2 Manufacturers' Outlook Survey: Positive Sentiment Before Trade War Begins

Manufacturers in the United States continue to be on edge as trade tensions materialize into established policies. The National Association of Manufacturers (NAM) is one organization that represents the industry and publishes data reflecting the outlook of manufacturing companies. In NAM’s “2018 Second Quarter Manufacturers' Outlook Survey,” the most recent industry outlook is provided for the second quarter of 2018. The survey was conducted from May 22nd to June 5th and included 568 participants.

Based on an overall outlook, NAM determined that 95.1 percent of respondents saw a positive outlook for their companies in the next 12 months. Included in this statistic were 97.9 percent of large manufacturers having a positive outlook and 89.5 percent of small manufacturers having a positive outlook. Interestingly, this disparity was reversed in the first quarter where 93.8 percent of large manufacturers had a positive outlook and 94.5 percent of small manufacturers had a positive outl…

Central Bank of Turkey: Rampant Inflation in Turkey

Choppy trading continues for the Turkish lira after President Recep Tayyip Erdogan was elected once again on Monday. As the status quo was kept, the lira strengthened about 4.0 percent early in the trading day but quickly capitulated to weakness giving back most of the progress it had made on the US dollar. The depreciating lira is leading to troubling trends in Turkey’s core inflation and price indexes. The Turkish Central Bank discusses this in its “Monthly Price Developments.

In general, May consumer prices grew by 12.15 percent on an annualized basis, 1.3 points higher than the April number of 10.8 percent. The Turkish central bank saw two main forces on prices in this period. Primarily, the depreciation of the lira deteriorated purchasing power for consumers as imported goods have become more expensive. Besides the direct threat of currency deflation, the central bank also pointed to rising commodity prices affecting inputs on most major consumer goods.
D - CPI excluding unproce…

Airbus, Boeing: Long-Term Aerospace Industry Growth Outlook

Last year, Boeing and Airbus published market outlooks through the year 2036. In their report, Boeing described the industries long-term demand as “robust” with an average annual passenger growth of 4.7 percent over the next 20 years while Airbus forecasted a 4.4 percent rate of growth. Boeing noted that over the next two decades China’s fast growth will make it the largest domestic market in the world while the rest of Asia will become the largest market for travel.
From Boeing and Airbus
Expected new deliveries by Airbus in the next 20-years fall just short of the 35,000 mark. With an existing produced fleet of just 18,890 aircraft as of Q1 2017, this growth appears substantial. Airbus is expecting to replace 12,936 aircraft in their fleet by 2036 and is expecting new growth to reach 21,230. Boeing is forecasting new deliveries to more than double over the next two decades. In order to meet the demand, they are forecasting a need for over 41,000 new deliveries. This will accommodate…

Small Business Credit Outlook: Loan Strength Fuels Russell Rally

Since the beginning of the year, the Russell 2000 small-cap index has been one of the bright performers out of the indices. With YTD returns of 10.13 percent on June 20th, only the NASDAQ, at 11.06 percent, has outpaced it since January 2nd. In comparison, the S&P 500 large-cap index and S&P 400 mid-cap index have returned 2.65 percent and 4.4 percent so far this year. Investors have made it clear they have preferred shares of smaller companies so far in 2018.
Data from the Thomson Reuters/PayNet small business reports present data that suggests stronger credit trends in the small business sector could explain some of the bullishness. The pair of data analytics companies aggregates lending data from firms that represent “Main Street” and presents its findings in their “Small Business Credit Outlook” and “Small Business Credit Monthly Report.” The PayNet website also includes historical data sets for the Small Business Lending Index (SBLI) and Small Business Delinquency Index

CaixaBank: Focus on Fragile Emerging Economies

Caixa Bank Research’s latest report on the international economy provided insight on the fragility of emerging markets. On June 14th, 2018, the Argentine Peso and the Brazilian Real lead the weakness in emerging market currencies falling 6.1 percent and 2.2 percent on the day. A down day that comes just a day after the Federal Reserve raises rates and reaffirms its hawkishness through the rest of the year.

Emerging market currencies have not just had a weak past 24 hours. Since the beginning of May, Caixa reports that “the Argentine peso has depreciated nearly 20% against the US dollar, the Turkish lira more than 10%, and a large number of currencies (including the Polish zloty, the Brazilian real, the Mexican peso, the Chilean peso and the Colombian peso) have depreciated by between –6% and –4%.” The numbers are quite staggering and suggest the hawkish trend in U.S. interest rates is viewed as a crisis-level threat to the stability of emerging markets’ financial systems. Caixa descr…

World Trade Organization Data: Import and Export Trade Profiles

Using the World Trade Organization's Trade in Commercial Services bulk data set, the graphic shows each country's available trade data for each category and calculates the top 5 similar countries based on their trade profiles. Each country has an "export" and an "import" profile as well as 5 similar countries for each type of profile. Similar countries will have similar distributions based on the trade categories normalized for size.

Check out the viz on the official Tableau page here.

World Trade Outlook Indicator: On the Brink of a Trade War

This week, President Donald Trump announced multiple tariffs on some of the United States most active trading partners. Temporary tariff assignments were set to expire on Thursday, and following that expiration, a confirmation that a 10 percent tax on aluminum imports and a 25 percent tax on steel imports was released. Responses were mostly negative on domestic and international fronts with the exception of a positive reception by U.S. aluminum and steel producers. The consensus is that the costs will be passed on to consumers as tariffs will reduce the amount of foreign competition in domestic markets.

Two weeks before the trade announcements, the World Trade Organization’s (WTO) “World Trade Outlook Indicator” suggested a world trade environment that was contracting slightly. The reading fell from 102.3 in February to 101.8 in March.

Six components are used to make up the indicator. All of the data points measure trading activity of different means and different products between cou…

Moody's Credit Markets Review and Outlook: Bullish Default Rates and Treasury Yields

Moody’s is one of the big three credit rating agencies besides Standard & Poor’s and Fitch Group. Investors around the world look to Moody’s to properly assess the financial health of U.S. companies and therefore the risk in U.S. equities. The well-respected organization also posts weekly reports and analysis on various rates and credit data. Weekly, it outlines the biggest issues in the credit and risk in its “Credit Markets Review and Outlook” typically written by its chief economist, Jon Lonski. This week, the report highlights some dynamics in the equity market that show some sensitivity to certain indicators in the credit market. Since the beginning of 2018, the market has been relatively volatile coming off highs in late January. The worst seems to be over, but the S&P 500 appears to be locked into a trading range. Moody’s analysis suggests the market will resume its growth based on falling default rates.
Moody’s states that “roughly 88 percent of the 209 year-over-year…

Iran's Economy: A Statistical Profile

Recently, President Donald Trump has announced the jarring decision to pull out of the Joint Comprehensive Plan of Action (JCPOA) also informally known as the Iranian nuclear deal. Since his campaign, he has suggested the deal was a poor one for the United States, and that if he was elected president, he would look to rework the deal. To the dismay of the other members of the United Nations Security Council who signed the deal, he followed through on his promise.
In the deals place, President Trump has reintroduced the idea of economic sanctions on Iran which were lifted at the beginning of 2016. The lifting was supposed to help propel Iran to new economic growth allowing oil exports to resume and foreign money to flow. In a paper written by an IMF economist, three benefits were supposed to take effect:
Exports of oil and gas would resume and cause a “positive external demand shock to the Iranian economy.”Accessibility to financial services, specifically “restored access to the intern…

Commodity Futures Trading Commission: LNG Market Report

The U.S. Commodity Futures Trading Commission (CFTC) produces data and reports on the futures, options, and swaps reports. On May 16th, 2018, it released research and developments in the Liquefied Natural Gas (LNG) market. The paper provides broad background information as well as a look forward into projections for U.S. exports and productions. Combining perspectives from organizations around the world, the CFTC is able to develop a holistic view from different forecasting models.

The CFTC sees three major market forces in the LNG futures market. As natural gas is the only fossil fuel with “a growing share of global energy,” global demand for it and LNG is expected to expand. The lower costs of producing natural gas and LNG, a result of rampant shale production, enable demand increases to be met with increases in exports. Because producing and exporting LNG require infrastructure, the level of investment in that infrastructure will be a huge force in determining the complexion of th…

FactSet Earnings Insight: 2018 First Quarter Earnings in Review

The FactSet Earnings Insight report provides summary statistics for the latest trends in the earnings of the S&P 500 companies. The dynamic paper that is constantly updated to stay with the most recent earnings trends addresses earnings estimates, earnings guidance, revenues, and more. The report is available here and will remain updated on that link, so be sure to check back every quarter to see the new data posted by FactSet.

From FactSet
Earnings season for the first quarter of 2018 is coming to a close with 93 percent of S&P 500 companies having already reported. Looking back, the first earnings season of the year proved to be a success despite broad volatile trading. According to FactSet, 78 percent of S&P 500 companies reported a positive EPS surprise and 77 percent reported a positive sales surprise. If the 78 percent number holds, it will be the highest recorded by FactSet.

So far, on average companies are posting earnings 7.5 percent above what is expected. This s…

2018 Rating Global Leaders: Trump's Trade Policy Disappoints

Gallup is famous for its presidential approval rating surveys in the United States with numbers that are cited often by politicians in campaigns and interviews. The Rating World Leaders report is an expansion of that survey where Gallup opens up the question of approval to the rest of the world. Country-by-country, the survey determines approval ratings for almost every country in the world on an annual basis. In the 2018 report, the Trump administration is put on the stage. Here are some highlights of the report.

To start, here’s a visual of the world ratings which are represented as a percentage of individuals who “approve,” “don’t approve,” or abstain. The map above shows some interesting trends. The entirety of the Western hemisphere across the Atlantic Ocean is in red. The Trump administration’s insistence on reevaluating NAFTA probably must do a lot with disapproval in this area. However, the fact that there is no green is more telling than anything. Most of Europe is in red, w…

Quarterly Report on Federal Reserve Balance Sheet: Fed Diet Starts

Recently, the Federal Reserve released the March 2018 edition of the Quarterly Report on Federal Reserve Balance Sheet Developments a document that provides updates on the changes in assets and liabilities of the central bank and how they coexist with the changes in interest rate policy. With the FOMC announcing an interest rate increase at the first meeting led by the new chairman, Jerome Powell, some changes in open market operations are expected to be the result.
The February 28th, 2018 balance sheet was released at the end of March 28th and showed the result of the Federal Reserves first attempt at shrinking the balance sheet.

ItemChange (in billions)PercentTotal Assets-$68-1.5%U.S. Treasury securities-$41-1.7%mortgage-backed securities-$11-0.6%
The table above shows the two areas the Federal Reserve drew from (both included in the total asset draw). U.S. Treasuries were understandably the largest decrease on the asset side with an almost 2 percent decrease. Mortgage-backed securi…

Bureau of Economic Analysis' Personal Income and Outlays: Inflation Ticks Up

On Thursday, March 29th, the Bureau of Economic Analysis (BEA) released the monthly readings of personal income and outlays for the month of February 2018 as well as revisions of January 2018 numbers. Raw data from the past five months is published for personal income, disposable personal income, personal consumption expenditures and PCE price index.
Readings were mostly flat in February with personal income growing 0.4 percent for the third straight month and disposable personal income growing 0.4 percent as well after an abnormal January. The BEA noted that the increase in personal income was caused by "an increase in wages and salaries," an optimistic note as wage growth over the past couple of years has been much needed. Personal consumption expenditures remained growing at a 0.2 percent pace and continued to underperform the last three months of 2017 (although that might be due to seasonality trends). With tax reform passed, eyes will be on this number to grow as consu…