Results for search of category: Financials

Two Red Flags from China

China’s stock market is always subject to official intervention, so the signals need to be interpreted carefully. However, there are two new red flags in our equity sector model, relating to Technology and Financials. Technology has suddenly started to deteriorate, which has historically been a good lead indicator for the US Tech sector. Financials are heading for a multi-year low relative to the index, which could have important implications for China’s FX policy regime.   [Read More... ]

The Calm Before the Storm

Before the ECB’s announcement today, nothing very important had happened in financial markets for several weeks. We get nervous when it’s this quiet, so we prepared a list of issues to worry about. They range from the benign, like a melt-up in risk assets caused by a sell-off in US Treasuries to the borderline catastrophic, like a Eurozone banking crisis. Our main point is that the current directionless environment is likely to end in the near future. Whether investors believe in any, or all, of the scenarios listed below is up to them.  [Read More... ]

Whistle-Stop Tour

We finally have the bounce in risk assets that we expected in the run-up to Christmas, but it is not yet strong enough to break any of the downtrends that developed earlier in Q4. We are at maximum underweight in all our equity vs bond models and similar levels of risk aversion apply in our fixed income and equity sector models. The only exception is that we have an overweight on Emerging Markets in our global equity model and may be about to downgrade the US to underweight.  [Read More... ]

Top and Bottom Agree

Our new stock-specific models cover the US, UK and the Eurozone and they have an uncomfortable message regarding the outlook for global equities. We looked at eight companies in the US and the UK, whose profits are geared to global equity markets. Seven of them have a very low probability of beating their host index on a risk-adjusted basis, and their scores are lower than the Financials sector as a whole. Equity investors appear to believe that the outlook for equities is difficult and that agrees with our top-down models.  [Read More... ]

Red Flags

Our recommended underweights for Eurozone Financials and EM Equities are at the sort of levels we saw just before major crises such as 2008 and 2010-12. We think that both can be traced back to tightening financial conditions and restricted dollar liquidity. What concerns us is that neither the Fed and the ECB are prepared to admit there may be a problem or that these two themes could feed off each other. We also worry that further devaluation of the Chinese renminbi could put additional pressure on EM Equities and bring a potential flashpoint closer.  [Read More... ]

Financial Rotation

The new big idea is that Financials are responding to the prospect of a co-ordinated tightening of monetary policy which will steepen yield curves round the world. At a sector level, there is some superficial evidence to support this, but when we look are individual stocks, particularly in Europe, we see that there are other and better explanations.  [Read More... ]

The Missing Piece of Chewing Gum

We don’t have the killer chart that says China is going to blow up or shoot the lights out. Our models are curiously inconclusive, which is unusual for China, and the underlying data are trading in a very narrow range. All of which makes us nervous.  [Read More... ]

Forecast Blindness

Our charts suggest that US Treasuries are oversold and that equity sectors like US Financials are overbought. Even if forecasts of the new Trumpflation era are correct, investors still need to price the risk of non-delivery. Where better than in those assets which reacted strongest when the new era dawned?  [Read More... ]


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