TME Weekend: Tail risks

Dropping 5 weeks in a row

The value of global bonds drop another $400bn this week – the 5th weekly loss in a row.

Source: Bloomberg

Real swap rate reaches multi-year high

Real swap rate reaches multi-year high, first break above 1.25% in this rate hike cycle.

Source: Macrobond

Growth explains much of long-end repricing

Improved growth outlook and policy expectations explain much of the repricing in long-end yields, but a significant residual remains.

Source: Goldman

Tail risk #1: is this debt level sustainable if yields stay high?

For decades, rising debt levels have been supported by falling yields – not anymore.

Source: Macrobond

Is it summer ‘08 or spring ‘12?

Timing of decisive policy reaction is key to outcome.

Source: Macrobond

Source: Macrobond

First concrete signal that corporates are seeing more ebb than flow

A couple of notable items to point out from earnings season:

1. positive EPS adjustments have continued their upward trend and companies tweaked up 3Q outlooks well-ahead of the historical rate

2. revenue tweaks are going the other direction with the fewest positive adjustments, proportionately, since the ‘15/’16 slowdown. This is really the first concrete signal we have gotten in months that corporates are seeing more ebb than flow for top lines, suggesting a slowdown might finally be on the horizon. (Jefferies)

Overall positioning is down sharply

"Overall positioning is down sharply, driven largely by discretionary investors even as systematic strategy positioning remains elevated"

Source: Deutsche Bank

Discretionary unwind

"Discretionary positioning is now slightly below neutral, having unwound most of the post-May surge"

Source: Deutsche Bank

Not impossible

Tavi Costa is making the bear case for FANG (stairs up, elevator down). "The double-top formation on the FANG+ index has become more evident. As of today, the aggregate P/E for these companies is approximately 45x, or 29x the estimated earnings for next year."

Source: Tavi Costa

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