A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Global markets are unlikely to do much of anything Wednesday until U.S. Fed chairman Jerome Powell announces the central bank’s stance on monetary policy at 2:00 p.m. ET.
A 25 basis point cut in the policy rate is expected, and the wording of the accompanying statement will be closely parsed for signs of further cuts.
A “wait and see” statement after a cut would probably not be greeted positively by equity investors.
The Financial Times provided a helpful guide to Fed Day,
“The Fed chairman has been stressing many of the risks to the US outlook in recent public appearances, but if he reverts to emphasising the central bank’s reliance on hard data, it may signal that the central bank is not yet convinced of the need for a full cycle of deeper cuts… Dissent could come from Esther George of the Kansas City Fed or Eric Rosengren of the Boston Fed, who have suggested the threshold for monetary easing has not yet been met… Should the Fed fail to signal clearly its willingness to ease monetary policy in line with market expectations, investors will be quick to show their disappointment — a lesson outgoing European Central Bank president Mario Draghi learnt last week”
“Five things to watch in the Fed decision” – Financial Times (paywall)
“Bank of Canada unlikely to follow any Fed rate cut, experts say” – BNN Bloomberg
“A Fed interest rate cut is in the bag. What then?” – Reuters
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Bloomberg’s Dani Burger explains the dangers of “value traps” – U.S. stocks with high yields for good reason.
Ms. Burger explains that while many companies with big payouts will do fine, dividend yields well above government bonds can also signal higher risk or “companies very likely to slash their dividends or go out of business”.
“Dividend plays are hot hot hot with yields as low as they are. But if you buy the highest yielders, you’re stuck with names like Macy’s and Kohl’s” – Bloomberg
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Merrill Lynch quantitative strategist Savita Subramanian is my pick for the best source of analysis on U.S. earnings season, so readers will likely see her name a lot in the coming weeks.
On Tuesday, the strategist warned about weak U.S. profit guidance,
“Despite better-than-expected earnings, 2H estimates have fallen 1% since the start of July on weak guidance. Our three-month ratio of above- vs. below-consensus earnings guidance (GR) fell to 0.56, below-average and a 3.5-year low. The one-month GR is also the worst for July since 2013. The three-month earnings revision ratio (ERR) has also weakened, falling back below average (0.86) to 0.84 following a temporary rise to 1.0 in May-June . The sales revision ratio (SRR) also deteriorated in July and has been below its long-term average since Oct 2018.”
“@SBarlow_ROB U.S. EPS guidance at 3 1/2 year low” – (research excerpt) Twitter
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Trade negotiations between china and the U.S. have concluded and the lack of any announcements suggests little or no progress was made.
“China and the U.S. conclude their trade talks without signaling any progress” – Bloomberg
“Chinese profit warnings signal more gloom for the economy’ – Bloomberg
“Analysts cut copper forecasts on worries about Chinese demand: Reuters poll” – Reuters
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Tweet of the day:
Diversion: “Japan Approves Scientist’s Plan to Create World’s First Humanimals” – Gizmodo
Scott Barlow