The Closer — Monday Mixer: Spreads, VIX, EMFX — 6/18/18

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Looking for deeper insight on markets?  In tonight’s Closer sent to Bespoke Institutional clients, we run through some miscellaneous charts on recent market themes: funding pressures versus investment grade debt spreads, the shape of the VIX curve, and the similarities between the Italian BTP spread blow-off and Q1’s volatility short blow-up. We also run through a series of EM currency charts given new pressures across the asset class.

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Equity Market Volatility Has Settled

After spiking to levels not seen in a couple of years back in March and April, US equity market volatility has really settled back down.  The chart below does a great job telling the story.

The chart shows the S&P 500’s average absolute daily percentage change on a rolling 50-trading day basis.  Over the last 50 trading days, the S&P has averaged a daily move of +/-0.56%.  That’s 14 bps below the bull market average daily move of +/-0.70%, and it’s half the daily move we were seeing at peak levels of vol earlier this year.

Note, however, that while volatility has indeed settled down, we’re going to need to see a continued slowdown in action throughout the summer months to get back to the historically low vol that investors got used to in 2017.  Remember, back in November 2017, there was a 50-trading day period where the S&P experienced an average daily change of just +/-0.22%!

Homebuilder Sentiment Softens

The spring selling season is beginning to wind down for the residential housing market, and homebuilder sentiment has started to soften.  For the month of June, homebuilder sentiment dropped two points, falling to 68 from May’s reading and the consensus expectation of 70.  The overall trend for sentiment is still higher, but since peaking at 74 back in December, homebuilders have been in a little bit of a funk as mortgage yields have trended higher.

Weakness in this month’s report was pretty broad-based in terms of sales and traffic with every component pulling back.  On a regional basis, however, the picture was more mixed. Sentiment in both the Midwest and South pulled back as it has been doing for some time now, while sentiment in both the West and Northeast ticked higher.  The improved sentiment in the Northeast was most notable in that this month’s level of 61 is tied for the highest monthly reading in well over a decade.

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Bespoke Brunch Reads: 6/17/18

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.


City of spies: how the battle for Catalonia divided Barcelona by Michael Stothard (FT)

An incredible piece of investigative reporting that dives into the secret police operations conducted by both sides of the Catalonian independence debates. [Link; paywall]

Two big UK banks shift some euro clearing from London to Frankfurt by Philip Stafford (FT)

In a move that signals the impact of Brexit on the City of London’s mammoth financial industry, two major banks are shifting some clearing of euro-based derivatives to Frankfurt-based Deutsche Börse. [Link; paywall]


The Psychology of Money by Morgan Housel (Collaborative Fund)

A list of 20 different behavioral mistakes investors (and people more generally) make when dealing with money. Extremely helpful as a way to evaluate your own approach to financial health. [Link]


Birth Rates Dropped Most in Counties Where Home Values Grew Most by Jeff Tucker (Zillow Research)

Zillow finds that while effects are inconsistent, fertility rates fell by about 1.5% for 25-29 year old women per 10% increase in home prices. [Link]

Time To Not Freak Out About Debt Again by Urban Carmel (The Fat Pitch)

An excellent demolition of the market meme that debt (federal, corporate, household, or whatever seems scariest at the time) is going to destroy the economy or the country as a whole. [Link]


Plume is turning home Wi-Fi into a subscription service by Jacob Kastrenakes (The Verge)

Businesses are obsessing about turning one-time sales into subscription models, with everything from clothes and groceries to dog toys and…wifi routers? [Link]

The product economy is over. Here’s how to survive in the subscription economy. by Tien Tzuo and Gabe Weisert (LinkedIn)

A more positive view of the concept of subscriptions (and their recurring revenue) which are starting to proliferate to the point of ubiquity. [Link]


Boris Becker claims CAR diplomatic immunity in bankruptcy case (BBC)

The three time Wimbledon champ declared bankruptcy, but is now claiming he’s got diplomatic immunity to avoid claims by creditors, because he has been made a sport and culture attaché to the EU on the nation’s behalf. [Link]

‘What a dream come true:’ NHL ref and cancer survivor makes his U.S. Open debut (AP/

A real heartwarmer: Garrett Rank is an NHL referee, a testicular cancer survivor, and is playing in the US open after working his way to qualifying. [Link]

Justify a deserving Triple Crown winner – but the in-race shenanigans were real by Pat Forde (Yahoo!)

When a trainer has multiple horses in a high-stakes race, significant shenanigans sometimes result, and that appears to have been what happened in the Belmont Stakes race that earned Justify a Triple Crown. [Link; auto-playing video]

Trade Wars

O Canada by Brad W. Setser (Council on Foreign Relations)

Even if you take as a given that the US should be introducing tariffs to reduce its trade deficits versus other countries, Canada makes an odd choice to target. [Link]

NAFTA la vista, baby by Jamie Powell (FTAV)

Drawing heavily on an analysis from ETM Analytics analyst Horacio Coutinho [note: keep an eye out for our Bespokecast conversation with Horacio due out next week], the clock looks to be running out when it comes to NAFTA re-negotiations. [Link; registration required]


DeepMind’s AI can ‘imagine’ a world based on a single picture by Chelsea Whyte (New Scientist)

Using a single two-dimensional picture, a new application of neural networks renders an entire three-dimensional construction of the space pictured. [Link]

Citi Wants Analysts to Add Python to List of Languages on Resume by Jennifer Surane (Bloomberg)

In order to become an investment banking analyst at Citi, you’ll now need to be familiar with Python. Don’t worry, though: incoming analysts will get an overview via summer training classes. [Link; soft paywall]

Uber applies for patent to spot drunk passengers (BBC)

In order to prevent clashes between inebriated passengers and their drivers, Uber wants to use machine learning to keep its patrons from hailing when they’ve had too much to drink. [Link]

Delusions of Grandeur

Instagram’s Wannabe-Stars Are Driving Luxury Hotels Crazy by Taylor Lorenz (The Atlantic)

In a bid to earn free hotel stays at some of the swankiest resorts in the world, Instagram “influencers” are offering promotions. Sometimes, the difference between working with a hotel and getting ignored is how professional the pitch being made to add value is. [Link]

The Balloonfest That Went Horribly Wrong by Nathan Truesdell (The Atlantic)

A brilliant cut-up of local news clips which document a stunt involving the release of millions of balloons, with some unfortunate consequences. [Link]


Tether Used to Manipulate Price of Bitcoin During 2017 Peak: New Study by Matt Robinson and Matthew Leisig (Bloomberg)

University of Texas finance professor John Griffin has identified a series of extremely suspicious transactions between Bitcoin and Tether which suggest a pattern of price manipulation. [Link; soft paywall, auto-playing video]


AP World History gets a makeover, and high school teachers rebel by Benjamin Wermund (Politico)

The Advanced Placement standard has decided to move to a much shorter time-frame and much narrower scope when it comes to the history of the world. [Link]


How Reuters reported the AT&T-Time Warner ruling first (Reuters)

Some inside baseball on how Thomson-Reuters managed to get the scoop (by all of 10 seconds) on the biggest story in M&A. [Link]

Netflix and Alphabet will need to become ISPs, fast by Danny Crichton (TechCrunch)

The combination of the AT&T/Time Warner merger with the repeal of net neutrality rules suggests that companies that rely on content (or services like search) will soon be at a disadvantage if they can’t use their own pipes to deliver it. [Link]

US podcast ad revenues hit record $314 million in 2017 by Sarah Perez (TechCrunch)

The nascent podcast industry is starting to pull in real money as well as real attention from listeners, with revenues almost doubling from 2016 to 2017. [Link]


Rocks Under I-95 Present Odd, and Scary, Threat to Power Grid by Brian K Sullivan (Bloomberg)

A specific blend of 300 million-year-old rock that lies beneath the surface of the eastern seaboard doesn’t allow solar radiation to pass through it, meaning major sun storm could lead to big problems for the electrical grid. [Link; soft paywall]

Document Recovery

Meet the guys who tape Trump’s papers back together by Annie Karni (Politico)

Because the President has an odd habit of tearing up paper he is finished with and a legal requirement to archive documents used in his office, a government employee is responsible for putting back together the bits with Scotch tape before archiving them. [Link]


The strange appeal of Toto’s Africa – and why it’s cover-proof by Michael Hann (FT)

Why is it that “Africa” (what should a forgettable bit of the 1980s) is so enduring? An investigation. Bonus content: this dog dancing to Africa is going to make you smile. [Link; paywall]

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Have a great Sunday!

The Closer: End of Week Charts — 6/15/18

Looking for deeper insight on global markets and economics?  In tonight’s Closer sent to Bespoke clients, we recap weekly price action in major asset classes, update economic surprise index data for major economies, chart the weekly Commitment of Traders report from the CFTC, and provide our normal nightly update on ETF performance, volume and price movers, and the Bespoke Market Timing Model.  We also take a look at the trend in various developed market FX markets.

Below is a snapshot from today’s Closer highlighting weekly intraday price charts for major equity indices and other asset classes.  If you’d like to see more, start a free trial below.


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The House of the Future: Kitchen-less!

It used to be that if you walked into any house, there was always a formal dining room and living room.  As life has become more modern and informal, though, the formality of a living room, where everything had to be pristine and seemed to be meant for anything besides ‘living’ in, has become less important.  Similarly, in many more modern or newly renovated houses, formal dining rooms are less common.  Instead, dining rooms have become part of the kitchen to create one bigger more informal gathering room.  After looking at this month’s Retail Sales report, we wonder if the house of the next generation will even have a kitchen at all!

The table below shows the various groups that comprise retail sales and what share each sector accounts for in terms of total sales.  Topping the list at over 20% is Motor Vehicles and Parts, but right behind Motor Vehicles is Food and Beverage Stores at 12%.  Everyone has to eat, so it makes perfect sense that Food & Beverage Stores account for such a large chunk of total sales.  While everyone has to eat, where they eat is another story, and not far behind Food & Beverage Stores in terms of total sales is Bars and Restaurants at 11.7%.

The chart below compares the historical share of total sales that eating in (Food and Beverage Stores) and eating out (Bars and Restaurants) have accounted for.  With “Eating In” accounting for 12.31% of total sales and “Eating Out” accounting for 11.73%, the 0.58 percentage point gap between the two categories is the narrowest it has ever been.  What’s even more fascinating about the shift in eating trends over the last 20+ years is the fact that even as Americans have changed where they eat (out vs home), the percentage of total sales that “food and beverage” account for has held steady.  Combined, the two categories currently account for 24.05% of total retail sales, and that compares to a historical average of 23.64% going all the way back to 1995.

In the house of the future, what will replace the kitchen?

Sweet Sixteen For Empire Manufacturing

Today’s Empire Manufacturing report for the month of June came in higher than expected with the headline General Business Conditions Index hitting its highest level since October. While economists were forecasting the headline number to come in at a level of 18.8, the actual reading came in at 25.0. This month’s report also marked the 16th straight month that the Empire Manufacturing report has been positive.  As the chart below indicates, the index for current conditions (dark blue line) is just over three points below its high for the cycle.  Meanwhile, expectations for six months from now, which had cratered in March, has since rebounded nearly all of the ground it originally lost.

The second chart below shows plans for CapEx and Technology Spending over the next six months.  Unlike the expectations index for general business conditions, which has bounced back, these two indices continue to drift lower.  In fact, plans for Technology spending haven’t been lower than they are now since last August.

The table below breaks down the internals of this month’s report by each of the index’s sub-components.  As shown, the indices for current conditions mostly increased in June, while expectations for six months from now weren’t quite as strong.  The biggest increases in the current conditions index came from Number of Employees, which saw its largest one-month increase since last September.  Also, while the magnitude of the increases wasn’t nearly as large, both New Orders and Shipments saw sizable increases.


Longer Term Asset Class Total Returns

Below is an updated look at total returns for various asset classes using key ETFs traded on US exchanges.  We cover three time frames — the last year, the last five years, and since the bull market began on March 9th, 2009.

Over the last year, we’ve seen double-digit percentage gains across the board for US index ETFs.  Note that small caps have handily outperformed large caps, while the Nasdaq 100 (QQQ) has done much better than SPY and DIA.

From a sector perspective, we’ve seen defensive sectors (Staples, Utilities, Telecom) actually fall over the last year, while Technology and Consumer Discretionary have led the way.

International equity market ETFs have been weaker than US index ETFs on a relative basis.  The Global 100 (IOO) and EAFE (EFA) ETFs are up 13.44% and 8.64% over the last year, while countries like Brazil (EWZ), Spain (EWP), and Mexico (EWW) are in the red.

The oil ETF (USO) has actually been the top performing asset class over the last year in the entire matrix with a gain of 46.48%.  Since the bull market began, though, USO is still down more than 52%!

In terms of commentary, we’ll skip past the 5-year returns and next look at bull market returns.  The results are eye-popping.

The S&P 500 (SPY) ETF is now up 394.6% since the bull market began on March 9th, 2009.  The Nasdaq 100 (QQQ) is up much more at +656.9%!

Looking at sectors, Consumer Discretionary (XLY) leads the way with a total return of more than 700%, followed by Tech (XLK) and Financials (XLF), which have both posted gains of more than 530%.  The Energy sector (XLE) is up the least since the bull market began at +140%.

Returns are much lower for country ETFs since 3/9/09.  The best country in our matrix is Hong Kong (EWH) with a gain of 285.9%, which is more than 100 percentage points less than the S&P 500.

The worst performing asset class in the matrix since the bull market began is natural gas (UNG), which is down 95%.

The Closer — ECB Recap, EZ Wages, Brazil Troubles, Import Price Trundles — 6/14/18

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Looking for deeper insight on markets?  In tonight’s Closer sent to Bespoke Institutional clients, we talk about the huge decline in EUR. Ending QE, but not dovishly: that was the story of the ECB meeting today. We recap that event, the market reaction, and the acceleration in Eurozone wages reported yesterday. We also discuss the situation in Brazil and the ongoing acceleration in US import prices reported today.

See today’s post-market Closer and everything else Bespoke publishes by starting a 14-day free trial to Bespoke Institutional today!

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