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OPEC Insight | McMonigle: Saudis May Seek Oil Policy Change In 2017

Hedgeye Potomac Senior Energy Policy Analyst Joe McMonigle is on the ground in Vienna ahead of tomorrow's OPEC meeting. In the interview below with Leslie Hayward from Energy Fuse, McMonigle provides key insights ahead of the meeting and discusses why Saudi Arabia may seek an OPEC oil policy change in 2017.

 

Click below to watch.


An Update On Global Growth Slowing & Wall Street's False Narratives

Takeaway: Recently reported PMIs and revisions to the OECD's growth outlook spell out what we've long know here at Hedgeye. Global growth is slowing.

An Update On Global Growth Slowing & Wall Street's False Narratives - wall st

 

Wall Street storytelling about the stock market is at an all-time high. And one of those tall tales completely unravelled this week, Hedgeye CEO Keith McCullough writes in a note sent to subscribers this morning: 

 

"One narrative (for almost a year now) has been that “PMIs have bottomed” – and, clearly, post yesterday’s Chicago PMI of 49.3, last night’s China PMI of 50.2, and this morning’s 3 month low Eurozone PMI of 51.5, they have not – neither has copper and/or 'Chinese demand.'"

 

 

MORE EVIDENCE OF GLOBAL #GROWTHSLOWING THIS MORNING

 

The OECD announced it is lowering its global growth forecasts yet again, while our Macro team has been steadfastly predicting global #GrowthSlowing for well over a year now.

 

 

Here's the breakdown of the OECD's revisions:

 

  • Forecast for combined economy of 34 OECD countries is 1.8% this year and 2.1% in 2017 versus 2.2% and 2.3% respectively in November;
  • Similarly, the U.S. economy is expected to grow 1.8% this year and 2.2% in 2017, versus 2.5% and 2.4% in November;
  • The Eurozone economy is forecast to grow 1.6% this year from 1.3% in February. For 2017, the eurozone forecast was held flat at 1.7%;
  • Japanese growth is expected to be 0.7% this year and 0.4% in 2017 versus the 0.8% and 0.6% predictions in February;

 

An Update On Global Growth Slowing & Wall Street's False Narratives - China cartoon 05.06.2016 normal

 

Then there's this fabrication from China, relayed through state-owned media outlet the China Securities Journal.

 

 

All of this boils down to a simple reality.

 

Here's the key takeaway from our outspoken CEO Keith McCullough:

 


The Canary In China's Coal Mine

Takeaway: A collapse in Chinese Steel remains our canary.

Editor's Note: This is a brief excerpt from a recent institutional research note written by Hedgeye analyst Josh Steiner. Email sales@hedgeye.com for more information.

The Canary In China's Coal Mine - China cartoon 07.07.2015

 

Chinese steel prices resumed their collapse last week. They fell 7.4% w/w and have now retraced approximately 2/3 of their rally since February. We continue to view China's reflationary credit push in 1Q as the proximate cause for much of the broader-based commodities/EM rebound.

 

So it's relevant that Steel prices are collapsing again.

Chinese Steel

Steel prices in China fell 7.4% last week, or 185 yuan/ton, to 2317 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy. 

 

Click to enlarge.

The Canary In China's Coal Mine - z chi steel

 

Bonus chart ... Chinese Non-Performing Loans

Chinese non-performing loans amount to 1,392 billion Yuan as of March 31, 2016, which is up +41.7% year over year. Given the growing focus on China's debt growth and the potential fallout, we've decided to begin tracking loan quality. Note: this data is only updated quarterly. 

 

Click to enlarge.

The Canary In China's Coal Mine - z chi loans

 

More insight from Steiner below on The Macro Show


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[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust

Takeaway: Defensive bond flows continued to outpace equity by $8.3 B last week, although slightly less than $12.3 B in the prior week.

Editor's Note: Below is a complimentary research note originally published May 26, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email sales@hedgeye.com.

 

*  *  *  *

 

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Fund flows in the 5-day period ending May 18th were directionally the same as the prior week as investors continued to make defensive allocations, although the spread between bond and equity flows eased somewhat with bond flows outpacing equity by $8.3 billion, slightly less than $12.3 billion in the previous week. Leading this defensive trend over the past 15 weeks has been the price of Federated Investors stock (FII). As the leading public money fund manager in money funds and other short term fixed income instruments, Federated benefits from defensive allocatoins, and its stock price has risen +31% since February 1st and is up +13% year-to-date before a solid +3% dividend yield. Federated Investors has been a Best Ideas long since December 2014 and remains on our top ideas list in Financials.

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI1 2 normal 6 1

 

All domestic equity categories continued to bleed last week, losing -$2.0 billion. Equity ETFs also continued their string of losses with -$2.0 billion in outflows. Meanwhile international equity mutual funds took in +$844 million. In fixed income, investment grade, other, and tax-free bond funds all continued last week's inflows, taking in +$2.6 billion, +$1.6 billion, and +$2.2 billion respectively. Additionally, fixed income ETF flows accelerated to +$1.5 billion. Meanwhile, high yield and global bond funds lost -$695 million and -$2.0 billion respectively. Finally, investors shored up +$4 billion of cash in money funds last week.


[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI19

 

In the most recent 5-day period ending May 18th, total equity mutual funds put up net outflows of -$1.2 billion, outpacing the year-to-date weekly average outflow of -$2.1 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$3.7 billion, outpacing the year-to-date weekly average inflow of +$2.4 billion and the 2015 average outflow of -$475 million.

 

Equity ETFs had net redemptions of -$2.0 billion, trailing the year-to-date weekly average outflow of -$1.4 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$1.5 billion, trailing the year-to-date weekly average inflow of +$1.6 billion but outpacing 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:

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI2

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI3

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI4

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI5

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI6



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.

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI12

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI13

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI14


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:

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI7

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors pulled -$568 million or -4% from the health care XLV ETF.

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI9


Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$8.3 billion spread for the week (-$3.1 billion of total equity outflow net of the +$5.2 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 -$1.7 billion (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.)

  

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI10

 


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:

 

[UNLOCKED] Fund Flow Survey | In Federated (Investors) We Trust - ICI11


Daily Market Data Dump: Wednesday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Wednesday - equity markets 6 1

 

Daily Market Data Dump: Wednesday - sector performance 6 1

 

Daily Market Data Dump: Wednesday - volume 6 1

 

Daily Market Data Dump: Wednesday - rates and spreads 6 1

 

Daily Market Data Dump: Wednesday - currencies 6 1


CHART OF THE DAY: Investor Consensus = Bearish On Bonds & U.S. Dollar... WHY?

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Senior Macro analyst Darius Dale. Click here to learn more.

 

"... One such incongruence that needs to work its way through markets is the relatively bearish position on both Treasuries (across the curve) and the U.S. Dollar Index in the futures and options markets.

 

Specifically, the +11.2k net long position on the latter represents a -1.7 z-score on a 1Y basis, while the -148.9k net short position in 2Y notes and -93.5k net short position in 10Y bonds represent z-scores of -1.4 and -1.6, respectively. How can investor consensus be that bearish on bonds amid a hawkish Fed, but not commensurately bullish on the dollar?"

 

CHART OF THE DAY: Investor Consensus = Bearish On Bonds & U.S. Dollar... WHY? - Chart of the Day 6 1


Early Look

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