The Enhanced Investor Weekly Macro
February 20, 2017
ENHANCED INVESTOR WEEKLY WRAP & UPDATE Market Wrap and Update Hey everyone! The global financial markets will focus on Wednesday’s minutes of the Federal Reserve’s latest policy meeting for further hints on the timing of the next U.S. rate hike. Market players will also keep an eye out on U.S. housing data to gauge if a recent increase in consumer spending and inflation is translating into higher home prices and a pick-up in home sales. Generally, it takes between 6 to 12 months for these indicators to push momentum enough to reflect inflationary pressure. Meanwhile, in the U.K., traders will be looking ahead to a second reading on British growth data for further indications on the continued effect that the Brexit decision is having on the economy. In the euro zone, investors will await flash survey data on euro zone business activity for fresh clues on the health of the region’s manufacturing and services sector. Elsewhere, traders will be looking to retail sales and inflation data from Canada to gauge the health of the economy. 1.
Fed FOMC Meeting Minutes
The Federal Reserve will release minutes of its most recent policy meeting on Wednesday at 2:00PM ET (19:00GMT). The Fed held interest rates steady following its meeting on February 1 and painted a relatively upbeat picture of the economy, although it gave no firm signal on the timing of its next rate move. Fed Chair Janet Yellen raised market expectations for a near-term rate hike last week after saying it would be “unwise” to keep interest rates lower for longer. Fed fund futures priced in a less than 20% chance of a rate hike in March, while JP Morgan Chase and Goldman Sach are anticipating a June hike at The Enhanced Investor Weekly Macro
The Federal Reserve increases the money supply with the banking system by reducing reserve requirements, QE (discount rates), and managing the Fed Funds Rate (open market operations).
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The Enhanced Investor Weekly Macro
February 20, 2017
70%. 2. U.S. Housing Data for January The National Association of Realtors is to release data on existing home sales for January at 10:00AM ET (15:00GMT) on Wednesday, amid forecasts for a gain of 1.0% to 5.55 million, following a decline of 2.8% a month earlier. On Friday, the Commerce Department is to publish a report on January new home sales at 10AM ET (15:00GMT). The data is expected to show a jump of 7.2% to 575,000, following a drop of 10.4% in December. Besides the housing-related data, this week's holiday-shortened calendar also features U.S. data on initial jobless claims and a revised reading on Michigan consumer sentiment. Markets in the U.S. will remain closed on Monday for President’s Day. Headlines from Washington will most likely remain in focus in the week ahead, as traders await further details on President Donald Trump's promises of tax reform, deregulation and infrastructure spending. Earnings from big-time retailers, included Wal-Mart (NYSE:WMT), Home Depot (NYSE:HD) and Tesla (NASDAQ:TSLA). 3. U.K. Fourth Quarter GDP - Second Estimate The Office for National Statistics is to produce a second estimate on U.K. fourth-quarter economic growth at 09:30GMT (4:30AM ET) on Wednesday. Federal Funds Rate = Open Market Committee Discount Rate = Reserves lent to banks Prime Rate = Banks Loans to Blue-chip corps. Mortgage Rates = Loans for homes (up to 30 yrs) Auto Loans (Auto financing) Consumer Installment Credit = Loans for gen. purposes Credit Cards = Financing credit
The report is forecast to confirm the economy grew 0.6% in the final three months of last year, underlining the view that the British economy remains on a solid footing.
Nominal rate = Inflation Rate + Real Rate (This has a direct correlation to your take-home pay)!
On a year-over-year basis, the economy is forecast to grow by 2.2%, also unchanged from an initial estimate.
The Bank of England raised its forecasts for growth and inflation earlier this month, but appeared in no rush to raise interest rates. 4. February Flash Euro Zone PMIs
The Enhanced Investor Weekly Macro
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The Enhanced Investor Weekly Macro
February 20, 2017
The euro zone is to publish preliminary data on manufacturing and service sector activity for February at 09:00GMT (4:00AM ET) on Tuesday, amid expectations for a modest decline. Ahead of the euro zone PMI’s, France and Germany will release their own PMI reports at 08:00GMT and 08:30GMT respectively. Other data out of the euro zone this week include final inflation and consumer confidence figures. In addition, market participants will be focusing on Wednesday’s IFO survey data on German business confidence to gauge sentiment in the euro zone's largest economy. 5. Canadian Retail Sales & Inflation Figures Canada is to release December retail sales figures at 8:30AM ET (13:30GMT) Wednesday. The consensus forecast is that the report will show retail sales rose 0.1%, after rising 0.2% in October. Core sales are forecast to climb 0.8% in December, after ticking up 0.1% a month earlier. On Friday, Canada is to publish data on consumer price inflation for January at 8:30AM ET (13:30GMT). The data is expected to show that inflation increased 0.3% last month, after falling 0.2% a month earlier. On a yearly base, CPI is projected to climb 1.6%. Long-Term Stock Ideas As I said last week; I like Morgan Stanley. With a P/E over 16 and strong growth, MS could have a significant leg up. I also like Morgan Stanley because I’m currently speaking to them about bringing me on prior to the Summer Session. Otherwise, keep an eye on the energy sector. As I’ve noted plenty of times before, oil is in a ten-week base pattern and a breakout will push USO/UCO/RIG higher. Gold sector consolidating, a move over $1,250 in Gold will push NUGT and other ETF’s much higher Biotech sector nearing big resistance - Watch out. ETF’s: ERX if Oil breaks over $54; & FAS (3x Bull Financial)
The Enhanced Investor Weekly Macro
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The Enhanced Investor Weekly Macro
February 20, 2017
ACIA - Optical equipment maker reports after the bell on Thursday. Large customer ZTE had been causing some concerns but are close to settling with government, this pushed the stock up late in week. ACIA trades at 20x earnings with huge growth rates. MBLY - MobileEye continues secular growth in the autonomous driving tech sector. 6 week base breakout, earnings Wednesday. ASGN - Staffing firms are in new uptrend, low unemployment rate, these firms are in higher demand. BEAT - The cardiovascular and remote patient monitoring area. Worth a look. GOL - Foreign Airline, a bit extended but Buffet now praising the sector for first time. Education As we know, the modern central bank seeks to manage the activity in the economy by printing money by increasing money in economy and decreasing money (by selling assets such as treasury bonds) less activity. This is called “open market operations”. It also serves as a “Lender of Last Resort” for commercial banks and financial institutions. Here we have a lesson on QE: Quantitative easing (QE) breaks with the central bank’s tradition of targeting an interest rate. The central bank can still print money even if the interest rate is stuck at zero. Quantitative easing = Large Scale Asset Purchases the central bank prints money, and uses it to buy assets, securities, debt from financial institutions it has been also used to target longer term interest rates - forcing more interest rates to zero instead of just treasury bonds, corporate debt, mortgage backed securities, etc.
The Enhanced Investor Weekly Macro
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The Enhanced Investor Weekly Macro
February 20, 2017
QE works through many different channels, some of which are very technical. It’s a credible signal that interest rates will stay low (or Fed faces losses) When the Fed buys longer-term assets, the supply to be shared by the rest of the market falls this drives price up, or equivalently, the interest rate down rate of return = payment received in period 2 amount paid in period 1 (price) If the Fed buys many safe assets (treasuries), then more risky assets become more attractive (and thus have lower interest rates). It simply increases the liquid assets (reserves) institutions have on hand If QE is expected to be effective, markets think companies less likely to fail, so interest rates on their debt fall QE raises inflationary expectations - so the real interest rate can go lower even if the nominal rate is zero.
The Enhanced Investor Weekly Macro
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The Enhanced Investor Weekly Macro
February 20, 2017
QE first appeared in Japan in 2001 as they dealt with a Zero-lower-bound The Fed launched QE1, QE2, QE3 in the US from 2008-2012, totaling $4.5 trillion Bank of Japan started in 2010 and is still purchasing ¥80 trillion per year UK totaled £375 billion from 2009-2012 ECB totaled over €1 trillion from 2009 And the market says…
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The Enhanced Investor Weekly Macro
February 20, 2017
The Enhanced Investor Weekly Macro
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The Enhanced Investor Weekly Macro
February 20, 2017
As you can see, the markets love low-interest rates and QE. Next week, we’ll dive into some emerging market opportunities at the forefront of the economic landscape! Additional Info For any newcomers who don’t know me, I’ve been contributing via the Enhanced Investor Weekly Macro Reports under #WatchList for almost a year. As I noted last week, given the recent market action and my in-depth knowledge of bubbles relative to political shifts and global economics, I’ve decided that it was simply not enough for beginners, or even intermediate traders because in order to have the ability to synthesize what’s truly happening - you need to be operating at the MBA/PhD level. Unfortunately, some PhD’s forget the basics. Anyway, as I said a few weeks ago, it’s not fair for me to assume that all of you have what those at investment banks call “financial sophistication”, but that’s why we’re working together here at Enhanced Investor. Combatting Wall Street and gaining the upper edge is why we do this. Anyway, I am more than happy to help, so if for some reason I don’t receive a tag in the #mainstockchat, or you don’t direct message me on Discord, please feel free to email here adamwood@fas.harvard.edu or you can tag me on StockTwits @ EILeadMacroAnalyst. Don’t fear the bubble. We do not fear bubbles here at Enhanced Investor. Why? Because we’re armed with the strategic, tactical, and historical knowledge of every major bubble that has ever occurred. From the Tulip Mania of 1637 to the Housing Crisis of 2008 and the current market conditions - we’re prepared.
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