Darius Dale: On the sectors, Financials (XLF) led the losers yesterday down -1.3% with the market down -0.8%. Utilities were down -0.2%. Pretty red day across the board.
The Financials are down -6.3% in the August to date alone versus Utilities +3.5%. Full cycle returns since we made the pivot on #GrowthSlowing back in the end of September of last year for those two particular sectors down -5% for the Financials and +19% for Utilities. That’s on a non-total return basis so you’ve got to give the dividend yield to Utes as well.
You continue to see investor complacency with respect to the Financials with an implied volatility discount relative to 30-day realized volatility of -20%. That’s extremely complacent. We would be looking to add to our XLF short at the top end of the range.
Dale: The second thing this morning is Italy. You have a reprieve in the Italian political situation that’s driving U.S. equity futures FOMO. Giuseppe Conte, the prime minister, resigned there to alleviate some of the concerns about a consternated government and consternation with the European Union. The FTSE MIB index was up +1.8% on that versus a wet Kleenex situation in Asia.
If you think about where you are in global Quad terms, look at South Korean net exports down -13.3% year-over-year.
We continue to get data that suggests the global economy is in Quad 4. If you look at the top 20 economies in our Global GIP model 65% of global economies are Nowcasting themselves into Quad 4 in Q3.
That compares with the most recent high number of 70% in 4Q 2018. We obviously saw what happened to financial markets in 4Q 2018.
Now when you broaden that out to the 50 economies that we track around the world you’ve got 53% of the countries we follow Nowcasting themselves into Quad 4. That’s tied for the same ratio in 4Q 2018. You have to go all the way back to the second quarter of 2012 to find a higher ratio of global economies in Quad 4.
So that’s a really big risk.