A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Citi’s U.K.-based strategist Mark Schofield is predicting that the global business cycle, and thus the post-crisis equity market rally, will end next year,
“Risks to the global growth outlook appear increasingly tilted to the downside. Recent growth has been underpinned by strong investment. This makes it less resilient to both real and financial uncertainty.
"Increasingly heterogeneous growth; worsening trade tensions; weaker growth prospects in China; accelerating inflation risks and growing financial turbulence are all contributing to an increasingly challenging outlook. The likelihood is that the inflexion point in the current business cycle comes earlier than expected; 2019 rather than 2020. Our Asset Allocation reflects this with a ‘barbell' approach featuring high quality DM equities, hedged with long duration position in US Treasuries.”
“@SBarlow_ROB Schofield from C: " likelihood is that the inflexion point in the current business cycle comes earlier than expected; 2019 rather than 2020"” – (research excerpt) Twitter
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I’ve stated previously that I think Morgan Stanley’s Michael Wilson and Andrew Sheets have been the most accurate forecasters this year, predicting strong profits and economic growth but little investment reward. They generally agree with Citi,
“Our concerns this year were never about growth, but about Fed policy that was tightening more than appreciated and the sustainability of the strong growth. The rolling bear market we have seen YTD has reflected these concerns and we are now starting to see some dents in the macro armor for the first time .. Impending PMI & Consumer Confidence Peaks Will Not Help the Macro Story: Purchasing Manager’s Indices and U. Michigan Consumer Sentiment Index— surveys which tend to track with US equities—look particularly extreme and we see signs they could soon turn.”
“@SBarlow_ROB MS concurs, but they've been consistent all year, "Increasingly Cautious on Macro & Margins:" - (research excerpt) Twitter
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CNBC details a potential investor whiplash situation in energy markets,
“Oil demand has continued to strengthen as a primary driver of rising prices. Demand should start to ease, along with the slowing of the recent economic expansion. Thus, oil demand could be greatly inhibited if we see continued Middle Eastern tensions, which are looking to worsen rather than improve. Furthermore, the U.S. continues to saber rattle in the general direction of Iran. The short-term impact could be a devastating spike in prices, followed by a negative stock market reaction, followed by a fall in oil prices.”
“The oil market gets whiplash, and investors should expect more crude volatility” – CNBC
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A disquieting Goldman Sachs report warns that a sharp drop in equity market liquidity may have caused February’s painful spike in volatility, and that conditions have not returned to normal,
“The week before 5-Feb had some of the worst US equity index market quote depth conditions in years (median bid/ask size 50% of its late 2017/early January range). This may have left the market more vulnerable to an event like February 5’s. Months after the VIX spike, bid/ask depth is still not back to normal… reduced available trading size at a given moment potentially implies reduced liquidity in a severe sell-off scenario.”
“@SBarlow_ROB GS report on liquidity and market depth made me wince” – (research excerpt) Twitter
“Goldman warns of liquidity-fueled sell-off after ‘volmageddon’” – Bloomberg
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Tweet of the day:
Diversion: “An Enormous Study of the Genes Related to Staying in School” – The Atlantic
Scott Barlow