Flow data highlights more risk-off:
Latest Flow Show report from BofA Merrill Lynch highlighted continuation of risk-off theme. Equities saw $5.8B of outflows, with money leaving for a sixth straight week. At the same time, $2.8B went into bonds, which have attracted capital in 11 of the last 12 weeks. In addition, precious metals saw $1.8B of inflows, the largest in 11 weeks. Getting back to equities, defensive posturing evidenced by 13 straight weeks of REIT inflows, 5 straight weeks of tech outflows and largest outflows from healthcare in 7 weeks. Report also noted that while sentiment bearish, nowhere near as bearish as back in February. Added that with no profits, no policy stimulus and less bearish positioning, it remains cautious. Still concerned about “summer of shocks”.
Brexit biggest concern at G7 meeting of finance leaders:
Several reports today have noted that Brexit has been the biggest concern at a meeting of G7 finance leaders in Sendai, Japan. According to Bloomberg, risks to financial markets and to UK growth from Bexit were singled out at a symposium of finance ministers, central bankers and economists on strategies for balanced and sustainable growth earlier today. Note that earlier this week, the BofA Merrill Lynch Global Fund Manager Survey said that Brexit was now seen by investors as biggest tail risk for global markets. Sterling boosted this week as a poll by Evening Standard and Ipsos Mori put “Remain” camp lead at 18 percentage points (55%-37). However, latest online opinion poll from TNS released today put “Out” camp at 41%, ahead of “Remain” at 38% (with 21% undecided).
Lack of consensus may be biggest takeaway from G7 meeting:
When it comes to the May 20-21 G7 meeting of finance leaders in Sendai, Japan, the biggest takeaway may be the lack of consensus on the right policy prescription to combat a slow-growth environment. Reuters said that a rift on fiscal policy and currencies is likely to set the stage for the G7 to agree on a “go-your-own-way” response to address growth risks. The article discussed the potential emphasis on structural reforms to achieve sustainable growth over short-term fiscal stimulus or monetary policy. It said this would be a blow to Japan, which has pushed for coordinated fiscal support. However, it also noted G7 officials have signaled they would not object if Japan were to call for more aggressive action using a combination of monetary and fiscal policy and structural reforms, but tailored for each country’s needs.
Yield curve concerns:
Recent batch of hawkish leaning Fedspeak and April FOMC minutes have driven some re-pricing of near-term policy normalization expectations. Market now putting a ~47% probability on another rate hike by July, up ~30 points in just the last week. While down for the week, equity markets have held up fairly well when considering all of the worries that some renewed traction behind the policy divergence theme could shift the focus back to the negative feedback loops that dominated the early-2016 narrative. However, some concerns that the continued flattening of the yield curve could be signaling worries about a policy mistake. Barron’s touched on this dynamic, noting curve now the flattest since November 2007. Pointed out S&P 500 peaked in proceeding month, while credit crisis exploded in 2008.
Bids for Yahoo! underwhelm:
YHOO-US deal saga back in the headlines. WSJ, citing people familiar with the matter, reported suitors for company’s core assets expected to bid around $2B to $3B. Pointed out that as recently as last month, core businesses was seen fetching between $4B and $8B. Bidders have reportedly lowered their expected prices following weeks of sales presentations by CEO Marissa Mayer and disclosure of data that highlighted company’s flagging prospects. Article flagged dramatic slowdown in “mavens” segment, which company has designated as its growth engine. However, paper did say that offers could still be above the $2B to $3B range, noting possible that not everyone will bid for all of the core business and that proposals will be structured differently.
Hedge funds continue to struggle, reduce risk:
Goldman Sachs out with its Hedge Fund Trend Monitor yesterday. Report said that most hedge funds have continued to struggle in 2016 amid volatile factor and sector rotations. Pointed out that after rising by 34% in 2015, firm’s long/short S&P 500 momentum factor fell by more than 20% in the first four months of 2016 (before rising 10% in last month). Also noted risk appetite has declined substantially during last 12 months. Estimated that hedge funds in aggregate now operate at 44% net long, down from a record high of 57% in early 2015 and near lowest levels since mid- 2012. Also said that hedge funds covered shorts in Q1 as market covered from early 2016 correction. Noted reduction in exposure exacerbated underperformance of most popular long positions relative to popular shorts.
Latest Flow Show report from BofA Merrill Lynch highlighted continuation of risk-off theme. Equities saw $5.8B of outflows, with money leaving for a sixth straight week. At the same time, $2.8B went into bonds, which have attracted capital in 11 of the last 12 weeks. In addition, precious metals saw $1.8B of inflows, the largest in 11 weeks. Getting back to equities, defensive posturing evidenced by 13 straight weeks of REIT inflows, 5 straight weeks of tech outflows and largest outflows from healthcare in 7 weeks. Report also noted that while sentiment bearish, nowhere near as bearish as back in February. Added that with no profits, no policy stimulus and less bearish positioning, it remains cautious. Still concerned about “summer of shocks”.
Brexit biggest concern at G7 meeting of finance leaders:
Several reports today have noted that Brexit has been the biggest concern at a meeting of G7 finance leaders in Sendai, Japan. According to Bloomberg, risks to financial markets and to UK growth from Bexit were singled out at a symposium of finance ministers, central bankers and economists on strategies for balanced and sustainable growth earlier today. Note that earlier this week, the BofA Merrill Lynch Global Fund Manager Survey said that Brexit was now seen by investors as biggest tail risk for global markets. Sterling boosted this week as a poll by Evening Standard and Ipsos Mori put “Remain” camp lead at 18 percentage points (55%-37). However, latest online opinion poll from TNS released today put “Out” camp at 41%, ahead of “Remain” at 38% (with 21% undecided).
Lack of consensus may be biggest takeaway from G7 meeting:
When it comes to the May 20-21 G7 meeting of finance leaders in Sendai, Japan, the biggest takeaway may be the lack of consensus on the right policy prescription to combat a slow-growth environment. Reuters said that a rift on fiscal policy and currencies is likely to set the stage for the G7 to agree on a “go-your-own-way” response to address growth risks. The article discussed the potential emphasis on structural reforms to achieve sustainable growth over short-term fiscal stimulus or monetary policy. It said this would be a blow to Japan, which has pushed for coordinated fiscal support. However, it also noted G7 officials have signaled they would not object if Japan were to call for more aggressive action using a combination of monetary and fiscal policy and structural reforms, but tailored for each country’s needs.
Yield curve concerns:
Recent batch of hawkish leaning Fedspeak and April FOMC minutes have driven some re-pricing of near-term policy normalization expectations. Market now putting a ~47% probability on another rate hike by July, up ~30 points in just the last week. While down for the week, equity markets have held up fairly well when considering all of the worries that some renewed traction behind the policy divergence theme could shift the focus back to the negative feedback loops that dominated the early-2016 narrative. However, some concerns that the continued flattening of the yield curve could be signaling worries about a policy mistake. Barron’s touched on this dynamic, noting curve now the flattest since November 2007. Pointed out S&P 500 peaked in proceeding month, while credit crisis exploded in 2008.
Bids for Yahoo! underwhelm:
YHOO-US deal saga back in the headlines. WSJ, citing people familiar with the matter, reported suitors for company’s core assets expected to bid around $2B to $3B. Pointed out that as recently as last month, core businesses was seen fetching between $4B and $8B. Bidders have reportedly lowered their expected prices following weeks of sales presentations by CEO Marissa Mayer and disclosure of data that highlighted company’s flagging prospects. Article flagged dramatic slowdown in “mavens” segment, which company has designated as its growth engine. However, paper did say that offers could still be above the $2B to $3B range, noting possible that not everyone will bid for all of the core business and that proposals will be structured differently.
Hedge funds continue to struggle, reduce risk:
Goldman Sachs out with its Hedge Fund Trend Monitor yesterday. Report said that most hedge funds have continued to struggle in 2016 amid volatile factor and sector rotations. Pointed out that after rising by 34% in 2015, firm’s long/short S&P 500 momentum factor fell by more than 20% in the first four months of 2016 (before rising 10% in last month). Also noted risk appetite has declined substantially during last 12 months. Estimated that hedge funds in aggregate now operate at 44% net long, down from a record high of 57% in early 2015 and near lowest levels since mid- 2012. Also said that hedge funds covered shorts in Q1 as market covered from early 2016 correction. Noted reduction in exposure exacerbated underperformance of most popular long positions relative to popular shorts.
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