US: Better ISM Data Coupled with Weaker GDP and Profit Concerns - MUFG
US: Better ISM Data Coupled with Weaker GDP and Profit Concerns - MUFG
Derek Halpenny, European Head of GMR at MUFG, suggests that the US data
continues to provide mixed signals on the outlook for the economy that
would appear at least for now to back up the need for caution, expressed
by Chair Yellen.
Key Quotes
“There has
been a lot of attention given to the corporate profit data that was
released with the last GDP data for the final quarter of 2015. The data
confirmed a US “earnings recession” with two consecutive quarters of
decline in the annual rate of growth in corporate profits. In Q4, the
drop was 11.5% - the largest since the worst point of the financial
crisis in Q4 2008, when profits fell 30.8%.
Our own internal
valuation model for the S&P 500 does suggest scope for a correction
lower to the tune of 10-15% - not an outlandish divergence and similar
to the correction we’ve already had between December last year and
February. Market participants certainly seem well prepared for that
potential correction though – Bloomberg is reporting today of a USD 1trn
short position in the S&P 500 and that mutual fund managers are the
most pessimistic since at least 2010. A short position of that size
surpasses the shorts at the worst point in investor pessimism following
the collapse of Lehman Brothers (Sept 2008) in March 2009.
These
concerns leave rate expectations well anchored and certainly positive
ISM reports (Friday and yesterday) or a decent jobs report are probably
not enough to see investors shift their thinking on the Fed. That leaves
US dollar at weaker levels – certainly on a DXY basis – with the index
still 3.6% down on early March levels and only marginally above the low
hit a few days ago.”
(Market News Provided by FXstreet)
