St. Louis Fed’s Smoothed Recession Probabilities

A Monday Dozen [CHART PACK]

Be a disciplined rational investor. Follow logic and analysis rather than sales pitches, whims, or emotion. Assume you may have an edge only when you can make a rational affirmative case that withstands your attempts to tear it down. Don’t gamble unless you are highly confident you have the edge. As Buffett says, “Only swing at the fat pitches. ~ Ed Thorp

Good morning!

We’ve got decelerating global growth and falling earnings but flush liquidity, EMs turning a possible corner, their central banks pivoting hard, a potential EMFX long, and low recession probabilities + much more. Let’s jump in…

1) BofAML’s Global EPS model is predicting an ongoing earnings recession.

2) Global PMI and New Orders are now below 50 (contracting), global trade growth fell further in June, US ISM New Orders Index is “catching down” to the rest of the world, and DM PMIs continue to dip… (charts via MS)

3) Global Real GDP growth slowed sharply over the past year and looks set to continue to do so (chart via MS).

4) But liquidity (ie, financial conditions) remain very loose.

5) And this is interesting… EM manufacturing is outperforming DM for the first time in over 7-years (chart via HSBC).

6) After significant tightening last year, financial conditions in emerging markets are now starting to ease (chart via HSBC).

7) No doubt being helped along by a significant turn in EM monetary policy over the last 6-months (chart via HSBC).

8) Yet, fund flows into EM remain weak (chart via HSBC).

9) If EM is bottoming then I like the Mexican peso here (short USDMXN). It’s a technically nice looking setup. We may see a break lower this week, keep your eyes peeled.

10) Plus, MXN offers a LOT of positive carry right now.

11) The US Conference Board Employment Trend Index is starting to bleed (chart is month-over-month %). It’s not signaling that its time to sell your stocks, grab your children, and run for the hills quite yet. But it’s something we should keep an eye on.

12) The St. Louis Fed’s Smoothed Recession Probabilities indicator says we’re not in the “danger zone” at the moment. The indicator is “a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales.”

All content on our website, emails, social media posts, comments on other websites or other material generated by Macro Ops is intended for general information purposes only. None of our content should be considered to be an invitation to buy or sell securities. No content from Macro Ops should be considered individual investment advice. Macro Ops cannot guarantee accuracy of information on the site. Contributors to Macro Ops may have trading or investing positions in the securities mentioned. You should assume that we are likely to take trading positions in the stocks, options, futures or other securities we write about. Macro Ops does not have an obligation to inform readers of a change of opinion on securities mentioned or on a change in our trading positions on securities mentioned. Macro Ops assumes no liability for losses incurred from readers trading securities that are mentioned in any of our content. Copyright © 2016 Foundation Alpha LLC. All rights reserved. - powered by Enfold WordPress Theme