- Cyclicals vs Defensives — Keep an eye on EM: This is one of *the* standout charts on my radar right now. US cyclicals have been a major driving force (both on the bull side and the risk side) for US equities over the past couple of years, and so anything that provides a lead on this is going to be key to track from a risk management standpoint.
Hence we focus in on the EM (Emerging Markets) cyclicals vs defensives relative performance line. EM cyclicals were first to rollover in late 2017, and also the first to recover in late 2018. So with EM cyclicals breaking down again it’s fair to say that there could still be some water to go under the bridge. I would say we need to see at least some stabilization in EM cyclicals before calling the all-clear on US equities.
Chart Source: Global Cross Asset Market Monitor
- DM flash PMI vs US 10-Year Treasury Yield: The May round of flash PMIs brought mostly disappointment, with all the majors undershooting expectations, and falling on the month. Europe fell -0.2pts to 47.7, Japan fell -0.8pts to 49.6 and US plunged -2pts to a barely expanding 50.6. This placed the composite for developed markets down significantly, and unwound some of the green shoots in last month’s results. With the 10-year yield breaking down through a couple of key levels, the chart below certainly would suggest the odds are high that yields push further lower short-term. (source)
- Bond Valuations: I must admit though I always feel a little bit dirty when I step foot over to the bullish side for bonds. Especially so when you consider this chart which I featured in my latest Monthly Chartbook. It shows the composite valuation indicator for US treasuries and basically they’re about 1 S.D. expensive vs history. This puts the odds against the bulls medium term. But then again, as we know: expensive things can get more expensive…
- China Property and Producer Price Inflation: Something on the good news side, this chart shows average property price growth in China running at a hot pace, and (as a result) producer price inflation is picking up again. This is one of the somewhat neglected good news stories for the cyclical macro outlook in China (which has been lost amongst the doom and gloom arising from the very real and negative issue of the trade war escalation). I would not be rushing to join the thundering hoard of bears on China. (source)
- Mutual Fund Flows — Asset Allocation Funds: Last one is some food for thought for fund managers and punters alike. It shows cumulative fund flows for the various broad categories of asset allocation based mutual funds. The standout for me is the rise of “dynamic/flexible” funds in the wake of the financial crisis, where the traditional balanced fund fell by the wayside as investors became distinctly more focused on absolute returns (rather than relative to a sometimes deeply negative benchmark). Notably though flows have tapered off in recent years, and 2018 saw significant outflows.