It is a widely accepted view that Japan’s economy will contract in Q2 and today’s data almost ensures that. This is due to the sequential fall in consumer spending as a result of demand being brought forward into Q1 to avoid higher consumption taxes.
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Economic data has generally been improving in the 2nd quarter according to the Citi Economic Surprise Index. There are, however, some notable exceptions. The United States briefly broke above the zero line earlier this week before falling back a few points.
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We came across an interesting essay today highlighting the informational usefulness of moves in the utility sector. The link to the entire report is here. The authors argue that movements in the utility sector contain important information with respect to the broader stock market.
Read MoreA few months ago in a post titled, ”How Bullish is a Bull Flattener?” we took a look at how bull flattening of the yield curve (when the long end falls faster than the shorter end) has tended to impact various assets.
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As an old friend used to say, ”Price changes create their own news flow.” This is a good way to think about all the ”stories” that have surfaced lately explaining the unexpected plunge in bond yields this year.
Read MoreWe admit that our weekly review of market breadth, in which we observe the continuing deterioration in all types of indicators that monitor the internal behavior of the world stock market, is becoming a bit repetitive.
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Pending home sales rose by only 0.4% in April vs estimates of a 1% month-over-month gain. Pending home sales are down over 9% year-over-year. If you are living in the West or the Northeast than that decline looks great compared to fall they are experiencing in those regions.
Read MoreThe US 10-year bond has dropped by 8 bps today and has slammed through what was looking like support around the 2.50% level. If it closes at current levels than this will be the lowest close since 6/20/13. The 30-10 spread has widened by 7 bps during May, however, it is still down YTD.
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Yesterday we analyzed here aggregate capital spending on tangibles for non-financial constituent companies in the MSCI World Index (90% of global investible market cap).
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Over the past 31 days, volatility in the MSCI World, as measured by the standard deviation of the daily percent change in the index, has fallen to levels last seen in November 2006. The 252-day moving average (one year’s worth of trading days) has fallen to levels last seen in August 2007.
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High-yield (junk) bonds historically have had a high correlation with stocks, and for this reason, they often serve as an early warning indicator for equity investors. In the chart below, we show 15 years of history of junk bond spreads alongside stocks. Junk bond spreads have a history of widening before stocks turn down.
Read MoreOne of the most widely publicized memes of this cycle has been the complete lack of investment by companies around the world. Confidence is still fragile and companies are not investing like they used to, so the logic goes. Well, a look at the data reveals that this belief couldn’t be farther from the truth.
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We noted earlier this month that the Energy sector was far outperforming the rest of the market for most of 2014. Over the past few weeks the rest of the market has closed the gap. QTD Energy is still atop the leaderboard (and in 2nd place YTD), however, the dispersion between sectors has narrowed significantly.
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For the last decade, TIPS yields and gold have had a negative 88% correlation. The logic is simple enough: since gold doesn’t generate any income, falling TIPS rates reduce the opportunity cost of holding gold. We can see this play out in the charts below.
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The exudes seen in bond funds last year has shown persistent signs of reversal in 2014. Indeed, over the last four weeks about $12.4bn flowed into bond funds (blue line). Meanwhile, equity funds, which saw positive flows throughout most of 2013 and the first few month of 2014, are now beginning to experience outflows.
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