A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
I wrote a column about the importance of Friday’s retail sales data that were released at 8:30 a.m. ET.
Overall, month-over-month retail sales came in at negative 0.1 per cent when negative 0.3 per cent was forecast by economists. Core results were less positive as retail sales less autos was announced at negative 0.5 per cent when a negative 0.3-per-cent month-over-month decline was expected.
CIBC published an early reaction,
“The slight increase in volumes will see monthly GDP tracking forecasts around the 0.0% mark for December, which isn't great, but is better than what we had been fearing heading into the week. With real sales flat for the fourth quarter as a whole though, consumption won't be much of a contributor to overall growth in next week's GDP release. The modest positive surprise has been somewhat supportive of the loonie.”
“@SBarlow_ROB CM on retail sales: - (retail excerpt) Twitter
“Why investors need to pay attention to Friday’s Canadian retail sales report” – Barlow, Inside the Market
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Citi strategists believe the Federal Reserve will determine the path of equity markets and other risk assets,
“We see the continuation of a dovish Fed and PBoC as essential if risk assets are to deliver the mid-single digit returns that usually occur in slower growth/ lowflation scenarios. Let’s hope the Fed see it this way too. We think they overtightened to December with predictable results for risk assets and economic data. If the Fed follow the normal historical path – pause begets easing – risk will be ok. If they try to tighten again we only see risk holding up if trade talks go spectacularly well.”
“@SBarlow_ROB C: "We think they overtightened to December with predictable results for risk assets and economic data."” – (research excerpt) Twitter
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A research report from DBRS outlined the dangers of household debt through Home Equity Lines of Credit (HELOCs),
“The highlights from the commentary include: In Canada, HELOCs now represent about 11.3% of total household credit. Since 2017, HELOCs have grown faster than residential mortgages. HELOCs provide borrowers with financial flexibility, making it easier for a borrower to increase their financial leverage . While HELOCs allow borrowers to consolidate high debt loads, this may make it difficult for lenders to identify emerging credit problems . Use of HELOCs in a downturn to sustain household spending and other debt may contribute to financial system vulnerabilities. DBRS estimates that aggregate undrawn commitments on HELOCs at the large Canadian banks were almost $120 billion as at October 31, 2018.”
In my view, HELOC abuse could cause numerous personal bankruptcies which is unfortunate and will limit aggregate consumption, but I don’t see the trend causing major systemic issues in credit markets.
“ @SBarlow_ROB DBRS warns on HELOCs” – (research excerpt) Twitter
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Merrill Lynch summarized client asset flows in a research report called Green Shoots and Greed, but, unfortunately, I only have the short-form summary which is abbreviated to the point of unintelligibility in some spots,
“Green shoots checklist: BofAML Global EPS growth model correctly predicted EPS recession; model shows EPS beats +2% consensus next 12 months if a. US 2s10s yield curve steepens to 50bps from 16bps, b. Asia export growth up 7% YoY from -2%, c. global PMI up above 53.0 from 50.7 (Feb survey data poor), d. China financial conditions index (CHBGMCI) up to 95 from 84.
Green shoots lead indicators: KOSPI, ADXY (Asia FX), SOX, XHB (homebuilders), CL1 (oil) all trending right direction for bulls … ; weaker US$ missing risk-on signal right now as DXY lower would show higher dollar liquidity is easing global financial conditions. Greed via 1998/99 redux: max upside via replay of late 90s speculative fervor”.
“ @SBarlow_ROB ML sees 'Green Shoots and Greed'” – (research excerpt) Twitter
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Tweet of the Day:
Diversion: “Absorbing Vincent: Van Gogh goes immersive in Paris exhibition” – (video) Reuters
Newsletter: “29 Rules About Money” – Globe Investor
Scott Barlow