Q4 GDP advance estimate in-line with consensus:The U.S. economy expanded 2.1% (annualized) in Q4 according to the advance estimates, same as in Q3. Net trade
made the biggest contribution to growth as imports fell, while consumer spending slowed sharply. Private inventory
and nonresidential fixed investments also contributed negatively.
Author: Sambit Mohanty
Economic Summary
Q1 GDP growth confirmed at 3.1%.
Real GDP expanded 3.1% y/y in Q1, according to the third estimate released by the Bureau of Economic Analysis,
compared with 2.2% growth in the previous quarter. Nonresidential and residential fixed investment, exports, and
state and local government spending were revised higher, while there was a downward revision in personal
consumption expenditure.
APAC Market Update
We are downgrading Hong Kong to a Downtrend as the Hang Seng undercut September lows and closed at new lows for the year. This is the second failed follow-through day since August and the fourth failed attempt to rally above the 50-DMA since July for the Hang Seng. The 50-DMA continues to serve as consistent resistance as the number of stocks breaking out remains near historical lows. Moreover, we believe selling has been orderly thus far, leaving the market at risk to capitulation, which would involve accelerated declines on heightening investor fears.
Global Financial Sector
U.S.
After false starts in 2017, hampered by a lack of policy change progress and uncertainties in the direction of the economy, the U.S. banks sector broke out of a year-long consolidation in November on the back of the impending tax reform. We believe 2018 is the start of a sustained period of outperformance by banks.
Banks on the Focus List are currently actionable. SIVB, however, may be extended from a perfect entry.
Our top picks are PYPL, SIVB, and ESNT.
EMEA
European banks are underperforming on a short- and long-term basis, largely due to Spanish banks coming under pressure from political issues related to Catalonia.
Our top picks are WDIX.DE, TEMN.CH, and NOFI.NO.
APAC
Indian banks look set to outperform again on the back of a favorable macro backdrop. Indian banks continue to be a bright spot globally with +25% loan growth, +19% ROE, and very low net NPAs.
Our top picks are HFC.IN, IEZ.IN, and DWH.IN.
Global Focus Developed Long
Australia’s ASX All-Ordinaries Index gained 0.5%, rising for a second week. Despite the bounce, we kept the market condition Under Pressure as the index remains about 0.7% below its 10-WMA and about 3% off 52-week highs with four distribution days in the past five weeks.
Global Focus Emerging Long
Mainland Chinese markets fell for a second consecutive week and are retesting year lows. The market is performing the worst in APAC and arguably the worst globally. The Shenzhen is by far the worst, down nearly 10% YTD, while the Shanghai is down only 0.03% for the year. There is clear resistance at the 21-DMA for the Shenzhen. A break below 1,740 could lead to a move to 2016 lows or near 1,650, 8% lower.
Global Focus Frontier Long
Global Focus Developed Long
Australia’s ASX All-Ordinaries Index gained 0.4%, bouncing a bit after hitting two-month lows last week. It remains below its 50-DMA this week and is Under Pressure, although it did lose two distribution days due to time and now has four over the trailing five weeks. The Financial, Energy, and Material sectors are dragging on the index, but others like Cyclicals and Health Care are improving.
Global Focus Emerging Long
Mainland Chinese markets fell back into a Downtrend after briefly moving into a Rally Attempt last week. The move from the Shenzhen is concerning. The market fell more than 2% this week and undercut this year’s low. Next support could be 4% lower, near 1,740 or May 2016 lows. Furthermore, there is noticeable resistance at the 21-DMA (1,840). Going forward, we will be looking to see if it can rise above that level for a short-term change in trend. The Shanghai market is faring better, with support near 3,000. It is 6% off 52-week highs, versus 16% for the Shenzhen. Resistance lies at the 40-WMA, or 3,150.
