A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Markets were set to open sharply lower Monday after a bizarre press release from the U.S. Treasury secretary that formed a perfect capper to a year made strange by his boss Donald Trump.
Steve Mnuchin released a statement Sunday (while vacationing in Mexico, no less) announcing that he had spoken with the major bank CEOs and confirmed that the major financial institutions had adequate capital. The strange part of this was that investors were not worried about bank liquidity until this statement came out.
Famed economist Paul Krugman responded that “It’s as if Mnuchin was trying to create a panic’ and a twitter comedian noted that ‘Mnuchin has also confirmed that all the major hospitals have enough anti-zombie serum to go around.”
“From subprime to ridiculous” – Reuters Breakingviews
“Treasury Secretary Mnuchin held calls with the CEOs of major banks to discuss the market turmoil” – CNBC
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Credit Suisse global chief investment officer Michael Strobaek is maintaining a positive view on equities despite volatility,
“We hence anticipate the already difficult month of December to end with high volatility, bad sentiment and poor equity performance. Nevertheless, we would not consider selling equities into this bout of weakness. There are no clear signs of an imminent recession in the USA. In fact, consumer spending remains strong, as impressive retail sales data has been showing, and wage growth has picked up.”
“@SBarlow_ROB CS: “we would not consider selling equities into this bout of weakness” – (research excerpt) Twitter
“Is all data backward looking? What about the Leading Economic Indicators? It is up 4.4% over the past six months at an annualized rate.” – (chart) Twitter
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Today’s must-read column covers a stealth panic in credit markets by Bloomberg editor Tracy Alloway, writing on her personal blog.
With central bank monetary policy acting through credit markets over the past decade, it is likely that the effects of stimulus withdrawal and warnings about the next bear market will be apparent in credit markets first,
“[February’s] selloff arguable took place not in the cash market, but in derivatives attached to it including CDX indices and options on those indices. More worryingly, there is a concern among some market participants that those options end up having an impact on the underlying indices themselves during intense bouts of market action. Dealers have to rush to hedge as those price movements cause options to expire, exacerbating the price movements and potentially causing further pain… Investors used to chase assets until they became ‘overvalued,’ at which point the inflows would stop. But in a market characterized by sluggish economic growth and low yields, the way to generate outperformace was not by identifying assets with the most return potential based on fundamentals, but those most likely to attract other investors. Because you’re chasing flows and not fundamentals, the market is no longer self-limiting.”
“The Year in Credit” – Tracy Alloway
“@SBarlow_ROB Merrill Lynch: “Outflows from US leveraged loan funds and ETFs broke records again this past week, reaching $3.16bn”” – (research excerpt) Twitter
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Tweet of the day:
Diversion: “Nine charts that really bring home just how fast AI is growing” – M.I.T. Technology Review
Scott Barlow