August 4, 2014 at 9:59:08 AM EDT
Sell IWM vol in the short term taking an opportunity form last week before re-loading as vol going higher in coming months… correction of some kind is coming but not necessarily the panic that people now have as a given after their 2008 experience; classic signs are there: fatigue of leaders & rally in laggards.
A caution on SPX and Earnings season – a efw articles out this AM (WSJ!) about how god earnings season has been (+4.3% top line +7.7% EPS) but still equities were largely down or have bene down as companies have bene reporting… Healthcare strong while Consumer weak; The Healthcare and Technology sectors have driven 54% of the ‘Q2 earnings growth.
China and equities can still trade higher. Investors buying non-correlation indicates concerns over sustainability of carry-trade. Higher US growth, rates, USD & ultimately a normalization of monetary policy will not lead to lower growth or financial shock.
On China: The Shanghai index continues to rip higher, closing at the highest level in almost 8 months even after the Chinese PMI services index fell to 54.2 from 55, a 6 month low. The PBOC acknowledged the free flowing credit spigot in their quarterly report by saying “the total debt level has been rising relatively quickly.” They are of course just stating the obvious but also said “it’s inappropriate to rely on aggressive expansion of credit to solve structural problems” and implied that no new monetary initiatives will take place right now.
China Non manufacturing PMI 54.2 (-0.8%) ; excess production capacity is being cut…
- MSCI Emerging markets equities were up 2.0% in dollar terms in July, outperforming Developed markets and MSCI Global equities, which were down 1.6% and 1.2% respectively in July.
- Asian markets were up 3.5% in July, with Indonesia (+8.2%) and China (+8.2%) outperforming the region. Malaysia (+0.1%), Taiwan (+0.4%) and Philippines (+0.8%) were the key laggards.
- MSCI Emerging markets are up 8.5% (in US$ terms) ytd’14, while MSCI Developed markets have gained 4.8%.
Europe:
- Watch fund flows as thee have been a primary supporter of the Euro – capital inflows and better capital account. Last week we saw huge outflows… this will continue in my view.
- ECB this week. Thurs They are not happy with the level of weakness in the Euro – they want more!
- (From DB) – German business cycle losing its shine. Economic growth probably suffered a worse setback in Q2 than initially presumed. We only expect stagnation now, but would no longer rule out a minimal decline. All in all, global economic conditions do not point to dynamic growth in H2. In particular, the tougher sanctions on Russia and the risk of further escalation of the conflict are set to weigh on business sentiment and investment activity in spite of Russia’s low share in German exports. The debate triggered by ECB and Bundesbank comments about higher wage increases in Germany is likely to have a similar impact, even though the substance of the statements is less spectacular, on closer inspection, than the media hype. As uncertainties abound we have decided to refrain for now from making a downward revision to our full-year forecast of 1.8% GDP growth.
- (From DB) Moody’s raised Greek credit rating by 2 notches to “Caa1” with stable outlook Despite the upgrade, Moody’s rating is 2 notches below Fitch’s and 1 below S&P’s
- Moody’s said that the first factor behind the upgrade was strengthened expectation that the general government debt to GDP ratio would start declining in 2015, after peaking this year at 179% of GDP, driven by progress in fiscal consolidation. Moody’s expects the government will reach its primary surplus target of around 1.6% of GDP this year and that the headline budget deficit will decline to 2.9% in 2014.
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CNBC Emerging Markets contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
