Gavekal Capital: 2014-01-05

Friday, January 10, 2014

Nintendo Offers Hope that Japan's Recovery May be For Real

After years of underperforming the Japanese and global stock markets and seeing four consecutive years of substantial sales declines, Japanese bellwether Nintendo seems to be righting the ship. Investors seem to be catching on as it is the best performing stock in Japan over the last week and month. The stock is also beginning to look attractive in our relative strength Point & Figure charts as the nearly four-year-long downtrend seems to be reversing. Trend changes such as this should provide at least some hope that corporate Japan still has the wherewithal to compete on the global playing field.

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Most Important Stat From Today's Employment Report

The most important statistic from the employment report is the index of aggregate hours worked.  This stat includes both the number of people working and the hours they are working.  The index of aggregate hours worked is the most comprehensive guide to the quantity of labor input in the economy.

The quarterly, annualized index of aggregate hours worked rose 1.63% for the fourth quarter as a whole. Today's report offered some concerning data for at least a couple reasons: 1) Hours worked are diverging from basic economic indicators like the Citi Surprise Index (below), and 2) looked at on a year over year basis, this stat has had a reasonable correlation with stock prices (second below).

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The Most Interesting Charts From Today's Employment Report

Given the other positive data releases that we mentioned here and here earlier in the week, today's headline payroll number is a bit of a stunner (74K vs estimates of 200k). However, the good news is the prior two month's were revised upwards by 38k and many economic watchers are blaming  poor weather across much of the country for the weak December number. The general feeling is that we will get a much higher report in January and the tapering will continue at the end of the month. Below are some of our most interesting employment related charts, including the unemployment rate which dropped to a 62-month low

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Thursday, January 9, 2014

FujiFilm Pops on New Product Introductions at the Consumer Electronics Show

Japanese camera maker, FujiFilm, was one of the best performers on the day today in Asia as it gained 3.8% even amid a broad decline in Japanese shares. The catalyst was clearly its new product offerings just announced at the ongoing Consumer Electronics Show in Las Vegas this week. The company will begin selling four new cameras this spring that range from a professional weather resistant model with super-high resolution to amateur point shoot models and the new lineup is expected to boost sales. It seems the stock caught wind of the likely sales improvement awhile back as the trend has clearly changed from negative to positive.

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Spanish Banks Start the New Year on a Positive Note

Government bond yields in Europe have declined rather rapidly in the new year-- and Spain is no exception:

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Earlier today, the country followed in the footsteps of Ireland as its first auction of 2014 produced better than expected results.
Perhaps, then, it is no surprise that the leading sector in MSCI Europe in the first week of the new year has been Financials:

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And, among the group financial companies, the top five performers include three Spanish banks, all of which have posted double-digit returns:

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Can the recent surge in performance continue?

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Utilities: A Contrarian Play

One of the ways we assess the technical strength or weakness of various areas of the stock market is by measuring the percent of stocks above a 200 day moving average.  When 80% of stocks are above their 200 day moving average, we consider this to be a symptom of an overbought market, and when only 20% of stocks are above their moving average, we consider this to be a symptom of an oversold market.  When we divide out all the region-sectors within the MSCI World index, there are only two that grab our attention as being oversold--North American and Asia-Pacific Utilities.

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More Positive US Labor Data

On the heels of a solid ADP report yesterday, we had two more above average releases this morning. Initial jobless claims fell by 15,000 and the often watched four-week moving average dropped by almost 10,000. Challenger layoffs reported the lowest level of layoffs since June 2000.

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Wednesday, January 8, 2014

Yen Shorts Watch Out - Positioning and Sentiment as Extreme as it Gets

With Fed tapering now a reality, it would seem the path of least resistance for the yen is down. It appears though from looking at trader positioning and public opinion sentiment that this thesis is now common knowledge. Indeed, speculators are as short the yen as they have ever been and public opinion is trying to crack new lows. Readings this extreme often coincide with near term rallies in the currency.

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Weak YTD Returns Are Not Just a US Phenomenon

The weak start to the year for the domestic stock market has been getting all the press, but the truth is that returns have been lackluster pretty much everywhere. Below we show the equally weighted performance by country for all developed markets and note that only four countries have managed to post YTD gains. The core of Europe is lagging badly (down about 2% so far) while the US is somewhere in the middle (down about .9%). Even last year's darling market (Japan) has posted a YTD loss.

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Further inspection also indicates that only 29% of stocks in the MSCI World Index have gained so far this year.

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European Retail Sales and Unemployment

Overall retail sales came in much higher than the expected +0.3%yoy gain:

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Meanwhile, the unemployment rate for the entirety of the region remained steady for the eighth month in a row:

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However, when we look more closely at some of the individual countries, we notice a somewhat unexpected phenomenon. One might not expect to see strong retail sales in countries afflicted by stubbornly high unemployment, but today's data out of Europe show just that.
Given the 10.8% unemployment rate in France, we would not anticipate a rise in retail sales of 2.4%yoy. Portugal's unemployment rate fell just slightly-- to 15.5%-- but it managed to post the second highest rise in retail sales (3.5%yoy).  Meanwhile, retail sales in Germany (with just 5.2% unemployment, the second lowest in all of Europe) only only grew 1.6%yoy.

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ADP Employment Report Rises To 13 Month High

ADP showed a monthly increase of 238,000 jobs in December. This was the largest gain since November 2012. Perhaps most importantly for the labor market the gain was led by small firms (1-49 employees) which hired about 108,000 people in December. This was the largest increase for small firms since February 2012.

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Tuesday, January 7, 2014

Vehicle Registrations: U.K. versus Europe

Today's release of statistics on car registrations in the U.K. continues a string of positive data releases.  The cumulative total for 2013 (2.26 million) was the highest since 2007 (2.40 million) and up considerably from the low of just 1.94 million registrations in 2011.

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The preferred brands in December were Ford, Volkswagen, and BMW-- a trend seen throughout much of the year:

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Ford's Fiesta model has seen a spike in popularity as consumers' preference has shifted from medium-sized cars to the small and mini categories.
In contrast to the strength seen in the U.K., vehicle registrations in Europe are barely growing:

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While registrations in the Netherlands, Greece, Portugal, and Spain have grown quite strongly over the last year, most European countries have shown flat or negative demand for new cars:

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Submerging Markets

While the new year is only seven days old, there is already a trend of emerging market underperformance. There are several ETFs (below) we track to measure what is going on in the emerging markets...or the submerging markets as the case may be.

1) iShares BRIC ETF

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2) iShares Emerging Europe ETF

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3) iShares Latin America ETF

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4) SPDR China ETF

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World Inflation Remains Contained

World CPI (based on the average year-over-year change in 33 countries) ticked up slightly in November from 1.76% to 1.9%. Meanwhile, World PPI (based on the average year-over-year change in 22 countries) ticked up slightly as well but still remains negative in November.

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Inflation surprises in the developed world broke down to all-time lows in December. In the emerging markets, inflation surprises are still negative but have been improving since making an all-time low in June 2013.

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Monday, January 6, 2014

Bond Funds Post Largest Yearly Outflow Since 2004

In what was the biggest bond market rout in years, bond funds saw just over $500bn of outflows in 2013 according to the Investment Company Institute (through November). Meanwhile, equity funds accumulated $128bn in new assets, making 2013 the best asset accumulation year since 2007.  

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