Rudi's View | May 02 2019
In this week's Weekly Insights:
-Late April 2019: Selected Charts
-Orora And Xero
-Rudi On TV
-Rudi On Tour
By Rudi Filapek-Vandyck, Editor FNArena
Late April 2019: Selected Charts
Weekly Insights this week is built around a selection of charts from recently released research and strategy reports, interspersed with brief market commentary to illustrate the current status of equity markets globally.
The framework for sending this story out via email is smaller than for display on the website. In case some of the charts included are difficult to decipher, subscribers can revisit this story on the website from Thursday morning onwards, with all charts in larger format.
Low volatility has swiftly returned to global equity markets, allowing key indices to resume recovery and uptrends, with US indices reaching for new all-time record highs while the Australian share market has posted a fresh 11.5-year high.
From inside the broad church on Wall Street passers-by can hear the same gleeful sermon echoing onto New York corners and streets every Sunday morning: Thank you Jerome Powell, thank you Federal Reserve.
Last week central banks in Canada and Australia further joined the world's Big Four -the US, Europe, China and Japan- by leaning towards further accommodation and, if required, monetary stimulus. Instantly, equity markets have discovered there is more optimism available, pushing share market indices higher, irrespective of the many troubles and question marks that were so prominent only five months ago.
There is no room for second guessing as to why financial assets globally are back into a buoyant mood. Probably the best way to illustrate the difference between late 2018 and the first four months of 2019 is through Morgan Stanley's line up of asset performances per annum below.
Markets have gone from "almost everything works" back in 2017, to "nowhere to hide" in the second half of 2018, to now back to "everything shall be all right".
Behind the apparent swift return of broad market optimism though, a painful conundrum has opened up for many a professional investor: when and where to deploy all or parts of the overweight in cash that is still sitting on the sidelines?
Algos, robots and short term traders have been licking their fingers since the week after Christmas, but most investors have remained cautious, if not sceptical, and kept a large portion of their portfolio in cash.
Investors would have been waiting for pull backs since mid-February, only to see equity markets grind their way higher. Further adding to this year's dilemma are the fact that earnings forecasts ex-USA are still sliding -in particular true in Australia ex-resources- while many a strategist cannot see much more lasting upside from present levels, unless bond yields go much lower (and stay there) or earnings forecasts can rise soon.
A hard core worry wart would add: and what if/when inflation starts to pick up in a meaningful manner? Better watch out! But so far the data are painting the opposite story. See also the latest CPI read in Australia. It's why a larger number of market participants is now convinced the RBA is ready to start cutting the cash rate, sooner rather than later.
The market approach below from Shaw and Partners CIO Martin Crabb is certainly not universal, but it shows today's dilemma for investors: the "fair value" for the Australian share market (which is seldom crossed for a prolonged time; see April 2015) suggests there really is not much left for further returns ex-dividends, in a broad, general sense, but that doesn't mean markets are about to fall into a heap either. There is still so much cash on the sidelines...
Meanwhile, analysts at Citi report their proprietary Bear Market Check List essentially remains in "no worries" territory. Share markets will have to rise a lot further and for a lot longer to start troubling their bear market indicator, say the analysts.