The #BeliefSystem that central planners can arrest economic gravity is breaking down.
Takeaway: All equity categories experienced withdrawals last week while investors sought shelter in IG fixed income and municipal bonds.
Emerging market equities put up their 5th consecutive week of outflow with a cumulative -$2.3 billion having come out of the category since the week ending March 16th. While EM received some fanfare as a "generational buying opportunity" in mid-February, equity prices and flows haven't broken their down trend and are in again in retreat. Importantly, the recent +20% rally in the MSCI index is not uncharacteristic as there have been eight 20%+ (short covering) rallies in the 4 year price action starting in 2011.
Investment Company Institute Mutual Fund Data and ETF Money Flow:
Investors pulled funds from all equity categories last week with both funds and ETFs experiencing redemptions totaling -$4.7 billion. Additionally, high yield and global fixed income lost -$419 million and -$820 million respectively while investors sought shelter in investment grade and municipal bonds; IG fixed income took in +$2.1 billion with municipal bonds collecting +$910 million. Finally, money market funds lost another -$8 billion to outflows, as tax season finished up during the week.
In the most recent 5-day period ending April 13th, total equity mutual funds put up net outflows of -$4.6 billion, trailing the year-to-date weekly average outflow of -$1.4 billion and the 2015 average outflow of -$1.6 billion.
Fixed income mutual funds put up net inflows of +$2.8 billion, outpacing the year-to-date weekly average inflow of +$1.6 billion and the 2015 average outflow of -$475 million.
Equity ETFs had net redemptions of -$75 million, outpacing the year-to-date weekly average outflow of -$957 million but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$493 million, trailing the year-to-date weekly average inflow of +$1.9 billion and the 2015 average inflow of +$1.0 billion.
Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.
Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2015 and the weekly year-to-date average for 2016:
Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.
Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:
Sector and Asset Class Weekly ETF and Year-to-Date Results: While ETF flows were fairly mild last week, the long duration treasury TLT saw the largest percentage flow; investors pulled -2% or -$211 million from the fund.
Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.
The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$8.0 billion spread for the week (-$4.7 billion of total equity outflow net of the +$3.3 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is -$746 million (negative numbers imply more positive money flow to bonds for the week) with a 52-week high of +$20.2 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)
Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:
Jonathan Casteleyn, CFA, CMT
Joshua Steiner, CFA
Takeaway: The high end and low end of the Housing market are slowing down. Other than that, everything's good.
Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.
Today's Focus: March Existing Home Sales
Back to a Tie Game between EHS & PHS: We essentially got exactly what we expected out of EHS in March as existing sales fully recoupled to Pending Sales (first chart below).
In a Nutshell:
Existing Home Sales were up 5% sequentially in March after being down 7% in February, and decelerated to +1.5% YoY (roughly in-line with Feb's +2.2% YoY growth).
On the commentary side, Lawrence Yun, NAR’s chief economist, made the following points (emphasis added):
Buyer demand remains sturdy in most areas this spring and the mid-priced market is doing quite well. However, sales are softer both at the very low and very high ends of the market because of supply limitations and affordability pressures.
Additionally, a segment of would-be buyers at the upper end of the market appear to have been spooked by January's stock market correction.
With rents steadily rising and average fixed rates well below 4 percent, qualified first-time buyers should be more active participants than what they are right now. Unfortunately, the same underlying deterrents impacting their ability to buy haven't subsided so far in 2016. Affordability and the low availability of starter homes is still a major barrier for them in most markets.
Effectively what Yun's describing is a barbell issue, where the low end and high end are both slowing down - one out of necessity and the other out of fear. We've detailed both these issues at length in our Themes deck.
Supply Stagnation: On the inventory side, unit supply rose +6% sequentially to 1.98MM but remained -1.5% YoY (note: inventory is non-seasonally adjusted). The net of volume rising 1.5% and supply falling 1.5% drove inventory on a months-supply basis to 4.5-months, down from 4.6-months a year earlier, though up from 3.9mos, 4.0mos and 4.4mos in Dec, Jan, Feb, respectively. As a reminder, markets are generally regarded to be in balance (in balance means that HPI equates to zero in real terms) at a supply level of around 6 months.
Looking Ahead: As EHS are essentially just PHS on a 1-2mo lag, we’re more interested in the Pending Home Sales data (Mar release = next Wednesday, 4/27) as the cleaner, more real-time read on the underlying trend in purchase demand in the existing market. Historically, we've used MBA purchase application volume as the leading indicator, but for reasons not entirely clear, MBA's usefulness has declined as it has increasingly decoupled from the trends in PHS/EHS over the past year.
As it stands, PHS have largely decelerated for 10-months off the April 2015 RoC peak and we continue to expect sales in the existing market to decelerate throughout 1H16 with a strong possibility for negative volume growth against peak PHS comps in April/May.
About Existing Home Sales:
The National Association of Realtors’ Existing Home Sales index measures the number of closed resales of homes, townhomes, condominiums, and co-ops. Existing home sales do not take into account the sale of newly constructed homes. Existing home sales account for 85-95% of all home sales (new home sales account for the remainder). Therefore, increases in existing home sales tend to signify increasing consumer confidence in the market. Additionally, Existing Home Sales is a lagging series, as it measures the closing of homes that were pending home sales between 1 and 2 months earlier.
The NAR’s Existing Home Sales index is published between the 20th and the 22nd of each month. The index covers data from the prior month.
Joshua Steiner, CFA
Christian B. Drake
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.
Takeaway: Two words .. be careful.
Below are five charts and brief analysis from Hedgeye Financials analyst Jonathan Casteleyn. Spoiler Alert ... all is not well in credit markets, equities and the U.S. economy.
You can follow him on Twitter @hedgeyeJC.
Global growth is on fire for sure!
S&P 500 earnings to be up +11% for 2018? Giddy up (not)!
Upgrade to Downgrade ratios in corporate credit has ALWAYS lead equity prices and the ratio is declining again
The current short squeeze in EM stocks is right within the +20% gain which has happened 8 times since '11
U.S. distressed rates lead defaults and the distressed category is again breaking out for a new bankruptcy cycle
In this brief excerpt from The Macro Show, Hedgeye Senior Macro analyst Darius Dale discusses how the U.S. economy has entered the toughest part of the cycle and why our growth estimate remains so bearish.
If only the truth were black and white.
Here's analysis in a note sent to subscribers this morning in which our Macro team pieces together recent comments from the PBoC and the country's state-owned news agency Xinhua to arrive at some interesting conclusions:
"The Shanghai Composite Index dropped -2.3% overnight despite the PBoC injecting 250B of liquidity into the banking system, which represents the largest such injection since February 26th. Weighing on sentiment was a Xinhua report that monetary policy will likely be more prudent in 2016 than it was last year, according to sources close to the PBoC, as well as PBoC Chief Economist Ma Jun commentary about future monetary policy needing to guard against financial risks.
With Chinese corporate leverage high and getting higher (166% of GDP) and property prices running up 30% YoY in first tier cities, we expect the PBoC to rein in the liquidity provision meaningfully from here now that economic stabilization is in the rear view mirror."
More from China's state-owned news agency Xinhua:
"China will continue to implement a prudent monetary policy this year, and, in the context of the economic slowdown, top officials have described the prudent policy as one 'with a slight easing bias.'
As the economy is yet to fully restore its strength, China will not shy away from using the ample tools at its disposal to bolster the economy. But it will be more careful to prevent the easing from going too far."
Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.