January 26, 2018.
Markets Are About to Get Ugly According to These Charts
Optimism has peaked, according to two widely followed measures of U.S. economic sentiment. If history is any guide, bouts of equity volatility and plunging Treasury yields will soon follow. The U.S. Citi Economic Surprise index — the rate at which data exceeds analyst expectations — has started to fall after reaching a five-year high in December. Meanwhile, the Federal Reserve’s index of the public’s uncertainty about the outlook for monetary policy is climbing after reaching a three-year low in November. Though the economy remains strong, unbounded enthusiasm has run too far, according to Canaccord Genuity Inc.’s Tony Dwyer. Reality will catch up to interrupt the widespread investor optimism and strong bullish trends imbuing nearly every corner of financial markets, he said. “We are not suggesting the data is going to get weak, just that expectations have become overly aggressive relative to what is likely to come out,” the equity strategist wrote in a note to clients this week.
U.K. Economy Remains a Laggard Even as GDP Beats Forecasts
The U.K. economy ended 2017 on a stronger-than-expected note, but it’s moving at a pedestrian pace given the global acceleration that’s taking place. The 0.5 percent expansion in the fourth quarter announced on Friday was better than the 0.4 percent forecast by economists in a Bloomberg survey. For the full year, growth slowed to 1.8 percent, the weakest in five years, as consumers and companies felt the repercussions of the 2016 vote to the leave the European Union. While the economy has performed better than some predicted before the Brexit vote — growth in the fourth quarter was the strongest in a year — Britain has failed to latch on to a global upswing that’s propelling its Group of Seven peers. Estimates suggest that it’s lagging well behind Germany and the U.S., while Bank of England Governor Mark Carney noted Friday that Brexit has cost the economy tens of billions of pounds in lost output. Growth last year was a “particular disappointment given the rapidly improving global economy,” said Suren Thiru, head of economics at the British Chambers of Commerce. The pound, which was higher on the day before the report, briefly extended an advance before falling back. The currency was 0.8 percent higher at $1.4257 as of 11:31 a.m. London time.
Stocks Advance in Europe as Dollar Resumes Drop: Markets Wrap
European equities headed higher after a mixed session in Asia, while the dollar resumed a decline that was briefly interrupted when President Donald Trump said he expected a stronger greenback. Treasuries ticked lower and gold rose. The Stoxx Europe 600 Index climbed, led by LVMH after the luxury-goods maker’s quarterly sales beat estimates. U.S. equity futures inched higher. Earlier in Asia, Japanese stocks fell while those in South Korea and Hong Kong climbed. The Bloomberg Dollar Spot Index dropped to three-year low as the euro advanced. Sterling gained after the U.K. economy expanded faster than expected.
2,000% Stock Gains Vanish From Hong Kong
The world’s most volatile new stocks are vanishing from Hong Kong after regulators tightened oversight of the city’s small-cap Growth Enterprise Market. Stocks debuting on GEM in the past 12 months rose an average 23 percent on their first day of trading, down from an eye-popping 605 percent for the year through January 2017, according to data compiled by Bloomberg. The performance in the recent period is more in line with the main exchange’s first-day gain of 18 percent.A crackdown by Hong Kong Exchanges & Clearing Ltd. and the Securities and Futures Commission helped rein in extreme volatility and speculation in Hong Kong’s small-caps, said Daniel So, a strategist at CMB International Securities Ltd. Three GEM stocks surged more than 20-fold on their debuts in the year through January 2017, before authorities tightened listing requirements and probed how new shares were allocated, among other efforts. Amid the push, several initial public offering applicants shelved their plans. “The risk of investors getting burned in violent ups and downs has been contained,” said. So GEM-listed Luen Wong Group Holdings Ltd. was one of the world’s best-performing debuts in 2016, rising 1,438 percent on its first day of trading and ending the year up 8,515 percent from its listing price. The civil-engineering contractor now trades at 31 Hong Kong cents a share, up just 19 percent from the IPO.
Japanese Inflation Continues Rising But 2% Target Is Still Far Off
Japan’s key price gauge rose at the same pace in December as in November, underscoring challenges for the Bank of Japan as it attempts to get faster inflation toward its 2 percent target. Core consumer prices, excluding fresh food, rose 0.9 percent in December from a year earlier (estimate 0.9). Stripping out fresh food and energy, prices climbed 0.3 percent (estimate 0.4 percent). Overall prices gained 1 percent (estimate 1.1%)