AM Notes: Pub?

“They are affirming our business model,” said Alibaba executive vice chairman Joe Tsai. “We feel comfortable that there’s nothing wrong with our fundamental business model as a platform company.”  

“Now the penalty is determined, the market’s uncertainty about Alibaba will be reduced,” Everbright Sun Hung Kai analyst Kenny Ng said. “Alibaba’s stock price has lagged behind the overall emerging economy stocks for some time in the past. The implementation of this penalty is expected to allow Alibaba’s stock price to regain market attention.”

 G10 volumes are generally low, with activity in USDJPY the highlight. Compared to the 5d MA, turnover is as follows:

{jn} USDJPY +8%

{eu} EURUSD -26%

{au} AUDUSD -20%

{nz} NZDUSD -13%

{ca} USDCAD -7%

{gb} GBPUSD -39%— InTouch FX (@ITCMarketsFX) April 12, 2021 

 FTSE100/GBP beta flipping positive is interesting given strong £ is a headwind to the index's large foreign earnings base. Looks to be a result of strong performance in domestic banks and GBP as part of the recovery trade, which UK is seemingly a leader in pic.twitter.com/7UFm9wLrRI— trap_zack (@ZackEiseman) April 11, 2021 

'Hidden Price Momentum'

Key Quote: Our first chance to see how US companies have been performing this year and perhaps more importantly - how they view their prospects over the next 9 months...

EARNINGS—It May be Rich to Say Equities are Rich!

US earnings season kicks off next week with twenty-four S&P500 firms releasing. The typical early focus is mostly on financials and this time will be no different. Key names will include firms like JP Morgan, Goldman Sachs, Morgan Stanley, Citigroup, BofA, Wells Fargo, BlackRock, BoNYM, and State Street. A sprinkling of nonfinancials will include Delta and PepsiCo.

The analyst community is rather upbeat on the forward path for earnings (chart 1).

The healing is continuing from the harshest results reported in the aftermath of the first wave’s shocks. Forward guidance from companies that informs this expected future path will probably be more important than actual results for Q1. In particular, watch for discussion and possible guidance around banks’ capital management plans given the flexibility granted by the Federal Reserve on dividend payouts and buybacks by June.

If the usual pattern holds, then the season might face further upside. As chart 2 demonstrates, earnings beats have been common ever since Sarbanes-Oxley legislation after which analysts turned more conservative for fear of being pilloried, ostracized or held directly liable. The vast majority of seasons have witnessed strong beat ratios defined as the share of reporting companies beating analysts’ expectations.

Enter the question of what’s priced and whether equities are overly rich.

Judged by a conventional 12-month trailing price-to-earnings ratio, equities are looking rather rich indeed with the S&P at 33.5 times earnings (chart 3).

Using Shiller’s Cyclically-Adjusted Price-to-Earnings ratio (CAPE) that compares prices to a rolling ten year earnings cycle also looks rather rich (chart 4).

Obviously, the denominators in both of these ratios are distorted by the depths of the pandemic which is no longer relevant to markets that began pricing a more upbeat outlook almost instantaneously a year ago.

They are also distorted by the prolonged post-GFC recovery.

Instead, current price to expected future earnings one-year forward stands at 23.7 times and two-years forward sits at 20.6 times (chart 5).

Forward earnings encapsulate an attempt at measuring effects of vaccines coupled with unprecedented fiscal and monetary policy stimulus.

That doesn’t strike one as particularly rich if analysts are anywhere close to the mark with their earnings calls even sans what have become fairly routine upsides to their expectations.

 🇺🇸 Goldmans | on this week's US CPI data (on Tuesday)

🔹"If bond markets can look through a stronger-than-expected Core CPI result as well, rate volatility may begin to come down, opening room for Dollar shorts vs EUR and potentially other crosses."— PiQ (@PriapusIQ) April 11, 2021 

The deluge continues on Tuesday, when the Treasury holds a $24bn auction of 30-year debt. The following week, a new wave will add to that $120bn in supply, with a $24bn sale of 20-year debt, according to analyst estimates.

The week after that, strategists forecast the Treasury will sell another $183bn of securities, with $60bn coming in two-year notes, another $61bn in five-year debt and $62bn at the seven-year mark.

That brings total supply for the month to an all-time record of $373bn, according to estimates by Gennadiy Goldberg, a rates strategist at TD Securities, once the remaining auctions for inflation-protected government securities and other notes are factored in.

“Given the enormous amount of supply continuing to hit the market every month, every Treasury auction should be viewed as a risk event,” Goldberg said.

JPMorgan's Phil Camporeale: “The auctions may not be smooth but they are going to be digestible,”

BBG:Under the current schedule, there have been two purchases a month in the 7- to 20-year sector targeting $3.625 billion

Barclays Plc strategists Andres Mok and Anshul Pradhan in a report also predicted the 7- to 20-year sector would be “the biggest beneficiary” of a rebalance by the Fed, with about $3 billion of additional purchases at the expense of other buckets.

 - Looking ahead, highlights include EZ retail sales, ECB asset purchases, ECB's Panetta, de Cos, BoE's Haldane, Tenreyro, Fed's Rosengren, 10 and 30yr supply from the US— Newsquawk (@Newsquawk) April 12, 2021 

 Really looking forward to this tomorrow pic.twitter.com/dFsk3Nww66— Tim (@VolaTim) April 11, 2021