Equities – A Chink in the Armor?

Using my data off Bloomberg, there was a chink in the armor of the stock market yesterday when the number of NYSE stocks that closed at a 52 week low exceeded the number that closed at a 52 week high for just the 2^nd time since November 4^th (and thus before the election). It wasn’t by much at 19 issues but that exceeds the only other time of a net 8 stocks on January 30^th. Also, the Russell 2000 closed at a level seen 3 months ago as did the Transportation index. In addition, comparing last night’s close with the one 3 months ago, there were 32 NYSE 52 week highs yesterday with the S&P 500 closing at 2375. On December 8^th there was 484 stocks that ended at 52 week highs when the S&P 500 closed at 2246. That’s called thinning out. Whether it’s the Fed rate hike next week or growing questions about what form of tax changes we’ll eventually see or just a bullish sentiment extreme that needs some cooling off or something else, we may actually be on the cusp of some sort of consolidation of the incredible gains we’ve seen post election. Thanks to my friend Helene Meisler for pointing this out.

China’s FX reserves in February got its 3 handle back with a total of $3.005T, up from $2.998T in January and $36b higher than expected. Chinese authorities have been fighting tooth and nail via a variety of capital flows to stem the search for overseas homes (literally and figuratively). In particular on the acquisition front, I’ve seen an estimate that foreign deals year to date have fallen by 74% y/o/y. The Chinese continue to struggle with their desire to internationalize the yuan via eventual full convertability but at the same time they hate large fluctuations and now the persistent yuan weakness. A PBOC official today said that they “encourage companies to invest overseas” but these investments “need to be watched.” They don’t like to see construction companies buying soccer teams. The official said $3T in reserves is still “very high…but not inexhaustible.” The yuan response was mixed as the offshore yuan is higher while the onshore yuan traded lower. The Shanghai comp was higher by .3% and the H share index was up by .6% but…

China can’t help themselves when it comes to manipulating markets. The National People’s Congress doesn’t want to see stock market weakness in this important week of their get together. So, they are tapping the large mutual funds on the shoulder and saying ‘no net stock sales for you!’

House price growth in the UK continues to moderate though still are running well above the rate of inflation and income growth. In February prices grew 5.1% y/o/y, the slowest pace of gain in at least a year. This figure printed 10.1% last March. Halifax which releases the data said “A sustained period of house price growth in excess of pay rises has made it increasingly difficult for many to purchase a home. This development, together with signs of reduced momentum in the jobs market and squeezed consumer spending power, is expected to curb house price growth during 2017.” The pound is falling to the lowest level since mid January. The UK is experiencing all types of inflation now at the same time, consumer prices, asset prices and still robust home price inflation (which the last two they’ve been dealing with for a while).

 German factory orders in January bombed. They fell 7.4% m/o/m, well worse than the estimate of down 2.5% and the y/o/y pace went negative at -.8% vs the estimate of up 4.3%. The declines vs December were in every major category but I’m going to give Germany the benefit of the doubt here and chalk it up to what is a very volatile number month to month. The economic Ministry said “The weak start to the year should be manageable. Business confidence in manufacturing is significantly brighter than the long term average, so that a revival in manufacturing can still be expected.” That said, if there is one country (in addition to China) that is laser focused on what US tax policy will be and whether a border adjustment tax will be part of it, it is Germany.

The Reserve Bank of Australia had some nice things to say about the world today as they left rates unchanged as expected and thus implied rates will remain steady at current levels. “Conditions in the global economy have continued to improve over recent months.” As they are a China proxy, they do seem to have eyes wide open on China as while they acknowledge in China that “growth is being supported by higher spending on infrastructure and property construction”, “this composition of growth and the rapid increase in borrowing mean that the medium term risks to Chinese growth remain.” Higher commodity prices have been a nice lift to the Australian economy over the past year. The Aussie$ is higher and the ASX closed up by .3%.