The US Dollar (USD) has turned against the Euro…check. It has turned against the GBP…check. It has turned against the Yen…check. It has turned against the Swiss franc…check. And, lastly it has turned against gold…check.
The BOJ balance sheet has increased some 39% over the last year and the monetary base has increased about 46%. But, like in the US, the Japanese banks have just been parking their excess reserves right back at the BOJ.
Over the next 4 years, the Energy sector has the highest hurdle to clear in terms of growth expectations of any sector in the MSCI North American index. Looking back at the past 10 years, the double-digit sales growth expectation seems feasible.
Inflation in the Spain and Italy is plunging at rates reminiscent of 2008-2009. From StreetAccount:Draghi says ECB guidance allows rate cuts on volatility: Bloomberg cited comments from ECB President Draghi, who said that the central bank’s pledge to maintain rates at low levels explicitly allows for cuts in lending costs if market volatility resumes.
Over the last three months, the ”beta trade” has been on. We slice all 1,600 companies in the MSCI World index into deciles from lowest beta to highest, and then we measure the performance of each decile.
While all major European markets are currently positive so far this year, equity performance has been led by Greece, Ireland, and Spain:
Over the last 3 months, every bank in Europe has outperformed the MSCI World Index, some by 50-70%. Two-thirds of the companies sell for below book value.
Even after the non-taper and government shutdown, TIPS yields are holding at an elevated level relative to recent trends. Have TIPS yields reset to a new range?
Over the last month, the European telecom, utility and financial sectors have been the leadership groups within the MSCI Europe Index. Interestingly, these three sectors are the highest yielding sectors in Europe. Stock performance seems to reflect the strength in the Euro/USD.
We often group stocks into either cyclical or counter cyclical baskets based on their GICS sector, and then measure the attributes of each group. The below chart shows the 20 day volatility of the counter cyclical basket of stocks relative to the cyclical basket.