A strange smorgasbord today.
First up, some speed data from analysts at Barclays who have been diligently watching UK spending trends. They’ve just released spend total signals upto 14 may (not capturing the 17 May reopenings) and the good news is that they “continue to trend higher, albeit having levelled off slightly (Figure 7) as increased offline spending has been partially offset by decreased online spending. We expect last week’s reopenings of indoor hospitality to lead to a further boost in overall spending driven by increased offline spend, but it is unclear to what extent this will be offset by rotation from online. Online spending for restaurants to mid-May was resilient despite hospitality being open for outdoor dining since mid-April, which may start to reverse in signals capturing the 17 May reopenings, as already suggested by the sharp increase in seated diners on the Opentable network last week”.
See the two charts below which seem to show that restaurants have been enjoying May so far. Get out there and EAT for Britain.
Spend Trends: Restaurants
Seated diners at restaurants on OpenTable network
Next up, we turn to rather weightier, global matters. Researchers at Cross Border have been peering into their models and they think they’ve spotted a peak credit signal.
Their “ Global Credit Cycle measures the riskiness of investing in the corporate credit markets. It is partly a derivative of the broader Global Liquidity Cycle and partly determined by investor positioning. We extract this data and show how it consistently leads the returns from both US and non-US high yield credit markets. Our research [currently] suggests:
- (a) the US credit cycle is running around 3 months ahead of other economies, and
- (b) the Global Credit Cycle is around its peak.
This is not yet a signal to exit credit markets, rather a warning that conditions don’t get much better than this.”
Lastly, equity analysts at EM specialists at Renaissance Capital nicely summed up the bull case for EM equities thus:
- “The dollar has been on a weakening trend since the beginning of April;
- February-March’s very rapid rise in US yields came to an abrupt end in early April (1Q saw 10-year yields reprice from 0.9% to 1.75%, but they have since fallen back and stabilised at around 1.6% for the past six weeks);
- EM and DM economic surprise indicators are both still firmly in positive territory;
- Fed tightening is not on the agenda – the US is still nowhere near full employment, the Fed is considering current inflation to be transitory and other DM central banks (and most EM central banks) are still willing to look through short-term inflationary pressures;
- Catch-up potential – since mid-February EM has declined by 11% vs a 3% rally for DM, opening up a 14-ppt performance differential over the last three months; and
- Valuation – Trading on a 12M FWD PER of 13.6x, EM equities have hit a 31% discount to DM equities. Over the past decade EM has only been cheaper vs DM 4.3% of the time.”
I would agree with all of these points and I would dearly like to we are at the turning point for EM, but I have my doubts. My sense is that until we see ten-year US Treasuries yield 1.8% or 2% we’ll continue to see weakness in EM equities.