Macro
(Washington)
Fed chief Yellen’s future is in doubt as President Trump may name a different person to lead the Fed later this year. Chief Yellen and all the major central bank chiefs are currently in Jackson Hole, Wyoming for their annual conference, and Yellen is set to make a speech. She is expected to deal with financial stability issues directly, which means her statements could potentially be very disruptive to markets, especially if she signals that the market is overvalued.
FINSUM: We doubt Yellen will do anything to rock the boat given her usually reserved demeanor, but it is certainly not outside the realm of possibility. Perhaps the greatest risk is an accidental misstep that markets take in a different way than she intended.
(New York)
Let’s face it, the market is expensive across the board. This is a reality investors will need to live with in the immediate term. But how does one make good investing decisions in the current environment? The WSJ has published an article citing recommendations from a number of top firms. Russell Investments, for instance, is recommending being underweight US stocks and overweight European and EM ones. “The corporate credit market is overvalued”, says an MD from Brean Capital, particularly in the high yield space. Another commentator argues US stocks will jump higher because of a potentially strong economy in 2018, a reality that many investors aren’t ready for.
FINSUM: We have mixed feelings on US stocks. On the one hand they do seem to be overvalued, but on the other, companies appear to be in a good position to capture margin expansion if we see a good economy next year.
(New York)
Morgan Stanley has put out some new investment recommendations. The bank thinks right now is a time when investors can enjoy some big gains, as the economic backdrop is the most positive since the Financial Crisis; at least until the whole picture changes next year. “Synchronous self-sustaining growth, contained inflation and well-telegraphed, gradual withdrawal of policy should drive more animal spirits”, says the bank. Morgan Stanley thinks that in typically late cycle behavior, companies will be investing more and more buyers will be drawn into the stock market. Some of the bank’s current picks include US and Japanese equities over European ones, but the Euro as a currency. Emerging market currencies should do well, so too should Chinese stocks. In US credit, investment grade should outperform high-yield.
FINSUM: Some broad picks here from MS. It looks like they are short-term bullish in a number of areas.
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(Washington)
Trump made a monumental decision yesterday and the press is all over him for it. President Trump announced that the US would be leaving the Paris Climate Accord, the landmark supranational climate agreement made under the Obama administration. Trump argues that remaining part of the deal would cost the US millions of jobs and hurt GDP growth. The media has responded by covering scorn towards the president from CEOs and other world leaders, arguing that leaving sets a bad precedent. Many of the US’ top allies have expressed “disappointment’ at Trump’s decision.
FINSUM: To be completely frank, we think the Paris Climate Accord is too little too late and are skeptical of any climatic agreement that is not principally market-driven. That said, we do think this was a political blunder as we will lose the confidence of some close allies and tarnish the US’ reputation overseas.
(Washington)
Many have been betting on multiple Fed rate hikes this year, and given the latest word out of the Fed, it looks like that might hold true. The minutes are out from the last Fed meeting, and they show that the central bank is close to pulling the trigger on another hike. So long as the economy remains on track, they will hike “soon” say the minutes. The Fed last hiked in March and said it expects two more hikes in 2017. The economy was not great in the first quarter and inflation has been sluggish, but central bankers have been bullish on the economy.
FINSUM: The Fed continues to be very positive on the economy, so it does seem like they will hike again soon. One wonders if it is will start to affect the housing market given inevitably rising mortgage rates.
Source: Financial Times
(Beijing)
In a major piece of news regarding one of the world’s largest economies, Moody’s has just cut its rating of China for the first time since 1989. The country saw its rating drop from A1 to Aa3. Moody’s said the country’s financial strength will wane as its debt continues to grow and its economic growth slows. The country’s credit rating is now the same as Japan, Saudi Arabia, and Israel. China’s total debt now amounts to 253% of GDP, up from 149% in 2008.
FINSUM: China seems to have been teetering on the brink for years, but at least from the outside, still appears to be carrying on just fine. It is very hard to predict how things will precede there as the economic, cultural, and political paradigms are simply so different.
Source: Wall Street Journal