Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
Bloomberg's Tracy Alloway and Isobel Finkel published what amounts to "Five reasons for investors to be worried." The column features a number of charts suggesting a market correction in the near term, covering topics like market uncertainty, investors ignoring Washington D.C.-related policy anxieties, the cost of portfolio insurance in the futures and options markets, and recent strength in gold prices. For me, the most interesting segment of the piece dealt with declining inter-market correlations hiding underlying volatility,
"One theory as to why the VIX has been muted recently is that stocks are increasingly moving in different directions under President Trump, suppressing realized correlation and with it, index volatility. Those looking for evidence of market nervousness must look at the CBOE Skew Index, which measures the price of buying protection against more dramatic moves in the S&P 500. On that basis, investors appear to be concerned about tail risks."
This implies that stocks moving in increasingly different directions are netting out their effects on index performance.
As I mentioned in Friday's (free!) GlobeInvestor newsletter , there are also clear signs of speculative excess in futures markets in oil, copper and Treasury bond markets.
"Five Charts That Say All Is Not Well in Markets" – Bloomberg
"@business Investors have never loved OPEC as much bloom.bg/2kDW6zb – (chart) Twitter
"@MaleehaMBCC 5yr chart showing speculative positioning in 10yr #us #treasury #bonds. From extreme overbought to extreme oversold! Source @admisi_uk $tlt " – (chart) Twitter
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Oil prices have been range bound in recent days but it's not because of investor complacency. The commodity price is being pulled in different directions by equally (so far) forces. OPEC production cuts and talk of new U.S. trade sanctions on Iran are supporting higher WTI levels, and rising U.S. crude production is limiting commodity price upside,
"On the supply-side, the Organization of the Petroleum Exporting Countries (OPEC) and other producers like Russia are trying to reduce a global fuel supply overhang by cutting their output by an average of almost 1.8 million barrels per day (bpd) during the first half of 2017. Despite this, crude was held back by rising U.S. drilling activity, where 17 oil rigs were added in the week to Feb. 3, bringing the total up to 583, the most since October 2015, according to Baker Hughes on Friday."
"Oil prices rise as investors pour fresh cash into crude futures" – Reuters
"Top Trader Vitol Sees Oil Rattled as Trump Makes Market Fret" – Reuters
"@chris1reuters OECD #oil inventories to fall as #OPEC cuts output, drop below 2.7 billion barrels by 2018, says SEB Markets #Brent #WTI #shale #gas #OOTT" – (chart) Twitter
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Morgan Stanley strategists have joined Goldman Sachs economists in predicting that the second half of 2017 might be difficult for investors,
"We think good global growth data, better earnings, rising inflation and lower correlations keep risk appetite supported for now. Concerns that those factors weaken from 2Q and US policy ultimately disappoints drive our view that 1Q may be as good as it gets."
Earlier, Goldman's prominent economist Jan Hatzius wrote,
"One month into the year, the balance of risks is somewhat less positive in our view, for three reasons. First, the recent difficulty congressional Republicans have had in moving forward on Obamacare repeal does not bode well for reaching a quick agreement on tax reform or infrastructure funding, and reinforces our view that a fiscal boost, if it happens, is mostly a 2018 story. n Second, while bipartisan cooperation looked possible on some issues following the election, the political environment appears to be as polarized as ever, suggesting that issues that require bipartisan support may be difficult to address. Third, some of the recent administrative actions by the Trump Administration serve as a reminder that the president is likely to follow through on campaign promises on trade and immigration, some of which could be disruptive for financial markets and the real economy."
"@SBarlow_ROB MS joins GS with "bullish now, but not for long"" – (research excerpt) Twitter
"@SBarlow_ROB GS: "balance of risks is somewhat less positive in our view, for three reasons" – (research excerpt) Twitter
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Tweet of the Day: "@SBarlow_ROB Good chart from MS: U.S. Wage growth: losing its breadth" – Twitter
Diversion: Loved this short video, "The Map of Mathematics" – Youtube
Scott Barlow