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A Bird's Eye View Blog

Fireside Charts: Dovish FED report, earnings expectations still declining, China's economic slowdown beyond the trade war

By:BCM Investment Team | Date:Feb22, 2019 | Category: Equity, Economics, Market Highlights, Fireside Charts

We are saying "TGIF" after a momentous week for the markets. Between the Federal Reserve's Meeting Minutes indicating it will end the shrinking of its $4 trillion balance sheet and meetings between the U.S. and Chinese officials indicating the outline of a trade truce is underway, this week has put many investors on edge. S&P earnings expectations have dipped to half of what they were in last 6 months. Existing home sales tanked last month all while manufacturing continues to produce bleak reports. Are record-low temperatures contributing to these downward slides? The People’s Bank of China engineered an unofficial rate cut. Just how bad is China's economy? Some analysts indicate China's slowdown goes well beyond the trade war.

 

 

1. Some great relative data... 

 

2.22 chart 8

 Source: Thomson Reuters; as of 2/21/19

 

 

2. If the stock market is a leading economic indicator, what does it know versus the other data?

 

 2.22 chart 11

Source: Oxford Economics, as of 2/22/19

 

 

3. Another distortion from a market-cap weighted index...

 

2.22 chart 1

Source: Wells Fargo Investment Institute, as of 2/14/19

  

  

4. An update on earnings expectations...they have been halved in the last 6 months...

 

2.22 chart 2

Source: Bloomberg; as of 2/21/19

 

 

5. "Dr. Copper" has broken out of its 9 month trading range.

 

 2.22 chart 4

Source: WSJ Daily Shot, as of 2/20/19

 

 

6. A less-considered effect of rising interest rates.

 

 2.22 chart 3

Source: Federal Reserve, as of 2/21/19

 

 

7. Another bad print from a regional FED survey.  Big caveats are the polar vortex and the government shutdown

  

2.22 chart 9-1

Source: WSJ Daily Shot, as of 2/22/19

 

 

  

8. No one goes house hunting when it is -20 degrees or colder!

 

2.22 chart 10

Source: WSJ Daily Shot, as of 2/21/19

   

 

9. If the U.S. is "iffy", the rest of the world is not...

 

2.22 chart 12

Source: Gavekal Data, as of 2/20/19

 

 

10. European manufacturing, as a whole, is now contracting.

 

 2.22 chart 13

Source: WSJ Daily Shot, as of 2/21/19

 

  

11. Just how bad is the Chinese economy?

 

 2.22 chart 5

Source: Pantheon Macroeconomics, as of 2/21/19

 

 

12. Here we go again...a negative yield means you have to pay more for the bond than you will get back in principal and interest! Why would you pay someone to hold your money for ten years with a known negative return? Negative yields are not a rational investment over the long term.

 

 2.22 chart 6-1

Source: WSJ Daily Shot, as of 2/20/19

 

 

13.  The trend continues and Japan's manufacturing is now contracting.

 

 2.22 chart 7-1

Source: WSJ Daily Shot, as of 2/20/19

   

 

Upon the Federal Reserve's announcements this week to remain "patient" with raising interest rates and to continue trimming its balance sheet of $4 trillion, it is a far cry from last year's 4x rate hikes and aggressive policy stance. 

 

A year into Fed Chairman Jerome Powell’s term, what would you say to his performance and efficacy if you had the chance? BCM Portfolio Manager does just that in our latest piece, An Open Letter to Jerome Powell. 

 

An Open Letter to Jerome Powell By: BCM Portfolio Manager Dave Haviland  

 

Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.