Still Life in the Old US Equity Bull Yet

Binky Chadha, Deutsche Bank’s global strategist, notes that the current rally for US equities has been the third-longest without at least a 3% pull-back since World War II. He remains optimistic on the outlook for the US equities and reiterates his year-end target of 2600 for the S&P 500, given continued upside for global growth momentum, strong earnings growth and the scope for renewed inflows into US equity funds. DB clients can read the full note on the bank’s research portal. Click below


US-North Korea Military Conflict Unlikley

Scott Seaman from Eurasia Group, the geopolitical specialists, places a low probability of military conflict between North Korea and the US following the recent nuclear tests. Seaman argues that these recent tests will trigger serious Chinese pressure on North Korea and will prompt Beijing to further squeeze Kim Jong-un’s regime, including a limited cutoff of crude oil. Meanwhile, the US will seek more UN Security Council sanctions on Pyongyang and impose more secondary sanctions, but it will delay plans to pull out of the KORUS trade pact, adds Seaman. For the full note or to take a trial of the Eurasia Group’s extensive geopolitical coverage, click below.

 


Central Bank Sentiment; Who Knew?

Prattle is an interesting research firm that has harnessed natural language processing (NLP) to measure central bank sentiment. To get the best possible results, Prattle have created a unique lexicon of language for each individual central bank, which is then used to assess each new communication. They have backtested decades of communications. The results are impressive. Their analysis has an accuracy reading of 98%-99% versus the combined futures market of 90%. Click here to read this presentation where they cite (Page 4) a study from the San Francisco Fed.The SF Fed study demonstrates that Prattle’s analytics more effectively predicted when treasury yield volatility would be high, thereby making Prattle data a stronger indicator of tradable opportunities. They publish a weekly report on central bank sentiment entitled: Cyborg Analyst. Click the below link to request samples of their reports.


Data Capital – Global Big Data and AI Primer

Back in May JPMorgan published a big report entitled: ”Big Data and AI Strategies Machine Learning and Alternative Data Approach to Investing.” The report got a lot of attention at the time and has been cited by multiple sources. BAML’s Thematic Investing Research team have just published their own extensive opus on big data and AI, that adds to their already extensive and impressive body of work, entitled: ”Data Capital – Global Big Data and AI Primer.” Recommended reading. BAML clients can view the full note on BAML Mercury. Click below.


Semiconductors Stake Claim as a Leading Indicator

SouthBay Research focuses delivering actionable data and insight on labor and capital goods markets, the core elements of business and economic activity. For capital goods, they track the semiconductor sector. During the industrial age oil and steel were the universal common denominators of economy, silicon is the equivalent in the digital age. Simply put, what happens in the semiconductor world typically foreshadows what is about to happen in the rest of the economy. Indeed, semiconductors accurately predicted US 2Q GDP. The obvious question is what it saying about 3Q? It’s in the report, and SouthBay can provide complimentary access to this analysis. Click below to enquire.


Tail Risks Galore

Jared Dillian of the DailyDirtNap writes one of the most engaging daily newsletters we read here at Substantive. He always strikes a great balance between lightness of prose and an instinct for shifts in market sentiment, well ahead of consensus. For instance, he was very early (2015) to predict a bubble in the Canadian property market. Typically his views are incorporated into his own trading portfolio. This week Dillian writes about tail risks, and the fragile state of bubbly markets amid the acceleration in tensions between the US and North Korea. Tail risk then manifests itself in the VIX, a market that has become the poster child of all bubbly markets. Dillian reckons that there is significant gamma in the VIX around 25-30. Above 30, people will not be smashing VIX anymore. They will be covering. So he thinks moves in vol (and spot) have the potential to get very exaggerated. If there is a shock big enough to get VIX over 25-30, Dillian believes it has the potential to be one of the biggest shocks in market history. And Dillian knows a thing or too about market shocks, he was trading ETFs at Lehman in 2008. Click below to request a trial to his daily note.


Six Reasons Why a Soft Brexit is Now More Likely

With more evidence emerging that a hard Brexit wouldn’t compensate the economy, Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, focuses on six developments in the Brexit negotiations. These have increased the likelihood that the government will make concessions required to preserve access to the single market after formally leaving the EU in March 2019. Looking into macroeconomic indicators in recent quarters, public concern about immigration falling, and negotiation time running out, Tombs reiterates his long-standing conviction of a “Soft Brexit.” If you would like access to the full report. Click below to request from PantheonMacro directly.


Hawkishness Will Come to Nothing

Llewellyn Consulting provides a consistant, succinctly and  tightly written research on a range of macroeconomic themes. They’ve just launched a new research series in response to the number of requests for periodic detailed analysis by theme. The series called ”Blue Book” will be on a specific theme that affects economies and markets; each will draw together everything important that they know and have written upon about the subject, generally over a run of years. Their first edition is on the interest rates theme where their essential argument is that the world will remain in an historically low interest rate configuration for the foreseeable future. Their reasoning is that world slow-growth environment seems likely to endure, while contributory factors include legacy effects from 2008 and broader structural considerations which are all explored here. It’s a excellent piece bring together a wide body of work, which is well worth exploring.


Uberfication – Global Sharing Economy Primer

With disruptive business models based on rental, on-demand, gig, access, collaboration, platform, circular and P2P, Felix Tran, thematic investing analyst at BAML, introduces the challenges and opportunities within the companies transforming 21st-century business. These tech-focused models are unlocking the value of unused and under-used assets, driving a shift from asset-heavy to asset-light businesses and enabling access over ownership, says the BAML report. This increasingly growing business model is estimated to be a market of US$250bn but the potential addressable market at US$785bn in the US, US$645bn in Europe and US$500bn in China. By comprehensively explaining sharing economy as an umbrella term which describes a range of market activity transacted over online platforms, BAML highlights the sectors that are more likely to be disrupted: 1) Transportation; 2) Travel, Leisure & Workspace; 3) Food; 4) Retail; 5) Media; 6) Financials. It additionally sets out the challenges including regulation, taxes, workers’ rights and inequality. The Sharing Economy will eventually disrupt most sectors, with more companies needing to re-examine how they create value, argues BAML, believing that many Sharing Economy companies could eventually address trillion+ rather than billion+ dollar markets in the most bullish scenario.


Equities; Appetite for Disruption

In January the Credit Suisse equity strategy team published ‘’Global Equity Themes: Appetite for disruption.’’ Their analysts provided their view on disruptive risk faced by c2700 companies globally. In this short update they review the performance of the stocks selected at the time and update their “cheap & undisruptable” versus “expensive & disruptable” baskets. Their framework assesses risk faced by companies from 3 specific disruptive forces. These are 1) Competition/globalisation: e.g. “China as a threat” vs. the impact of a “multi-polar world” 2) Regulation: e.g. “Petrol and Diesel cars no longer allowed’’ 3) Technology: e.g. Automation to make 1 in 2 jobs redundant. The report looks to address the following question: Who’s at risk and is the market seeing this too. CS clients can view the full note on CS Plus.