FINSUM

FINSUM

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Thursday, 23 May 2019 08:34

Fed Confirms There is No Rate Cut Coming

(Washington)

The market shave been hoping, clinging, to the idea that the Fed will cut rates soon. Bond markets have all but assumed it with pricing, and even equities seem to favor the odds. However, the release of the most recent Fed minutes have all but put to bed those hopes. The notes clearly show that while the Fed is willing to leave rates where they are for some time, there is no appetite to cut.


FINSUM: One important caveat to these minutes is that the meeting was held just before the big blowup in US-China trade talks. At the time of the meeting, it looked like it would be smooth sailing to a deal.

Thursday, 23 May 2019 08:33

Big Trouble Brewing in Retail

(New York)

The retail sector had a terrible 2017, the “retailpocalypse”, only to recover and have a strong bounce back in the first half of last year. Now things are looking bleak once again. Top retailers like Nordstrom and Urban Outfitters have already fallen 25%+ in the last year. Each business has its own issues, but the general trend in the sector has been bearishness. Some may think with valuations very low it is a good time to buy in. Think again. Retailers are having to invest heavily to update their models and offerings in the face of digital disruption to the industry. Further, tariffs from the trade war will wound the sector.


FINSUM: The bruising period retail has been going through is not over and it does not seem like a wise time to invest.

Wednesday, 22 May 2019 08:55

BAML Warns of Big Losses for FANG Stocks

(San Francisco)

Investors probably won’t see it coming, but big losses are likely on the way for FANG stocks. The bank says that the group of companies is about to be “smacked down” by regulators. Savita Subramanian, Head of US equity strategy at BAML, says that the risk for investors is heavily skewed to the downside. “These companies are about to be smacked down from a regulatory perspective … Look at the fact that Mark Zuckerberg was testifying before Congress a year ago. That’s exactly what all the financial CEOs were doing 10 years ago”. Subramanian likens the coming losses to what happened to financial stocks in 2008-2009.


FINSUM: We doubt any forthcoming losses will be Financial Crisis-like but the regulatory risk is surely a big one. Will new regulations be related to anti-trust or data protection? Or both?

Wednesday, 22 May 2019 08:53

3 Reasons Not to Panic Over the Trade War

(New York)

The trade war is very scary for everybody. From politicians to executives to investors (in both nations), everyone is afraid of the implications of the trade war. However, there are some good reasons not to be. Firstly, while there are fears of a market tailspin, the reality is that the dovish Fed should provide a safety net. Secondly, many worry the trade war could bring the economy to a standstill, but remember that only 2.4% of US economic output is at risk of Chinese tariffs. Finally, many fear China could dump its $1.1 tn of Treasuries. The truth is that doing so is very unlikely, and even if they do, it is a small portion of the $22 tn market.


FINSUM: The general theme to take away here is that China is not as big a part of the US economy and markets as many seem to assume it is. That said, the secondary effects of a trade war, such as the psychological impact on business and the effect on the rest of the world, could be considerable.

Wednesday, 22 May 2019 08:52

Stocks to Drop 20% say Money Markets

(New York)

Bonds and stocks are at odds right now. Yields have dropped considerably as the bond market is predicting pain to come. Stocks have sold off, but are still around all-time highs. If you look at how money markets are currently priced they imply a whopping 20% decline in stocks. There is not a much macro data to support the money markets’ pricing, but it is certainly a sign to pay attention to. “The rates market has probably overreacted relative to other asset classes in the last two weeks. However, the macro backdrop is fundamentally more uncertain today”, says Deutsche Bank, continuing “The renewed trade tensions create downside risks which were deemed to be negligible 2 months ago”.


FINSUM: Stocks are going to react to economic data and the trade war, so the current forecasts for stock prices are only as good as one’s ability to prognosticate those factors.

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