There will be two key themes for investors seeking to shake off the abysmal “as goes January” blues:
- The first is that as earnings season comes to a close, companies will gradually emerge from their quiet periods and resume buybacks, even if the investment grade market is now far less conducive to making equity stakeholders richer through incremental leverage. As such it will be interesting to see how single stocks react to new buyback announcements over the coming weeks;
- The second, and even more important theme, will be that after a turbulent on the central bank news front month, February will unveil an eerie quiet emerging from the world’s central planners. As Bloomberg notes, “February lacks a single scheduled opportunity for the Federal Reserve, European Central Bank or Bank of Japan to reset monetary policy, in part because some policy makers decided last year to meet less frequently.” Kazuhiko Ogata, chief Japan economist at Credit Agricole SA in Tokyo said that “February is like an air pocket as no major central bank is scheduled to hold a meeting”
First, here is Goldman’s David Kostin explaining that it is only a matter of days before corporations take controls of their own stock price using the method we all know so well: stock buybacks:
Corporates appear on track to resume buyback activity in early February, providing an important source of demand for US equities. Just 4% of repurchases happen in January, making it the slowest month of the year for buyback executions (see Exhibit 4). This lack of demand has contributed to recent market weakness and volatility, in our view, particularly with investor positioning at extremely low levels. After registering a 3 on a scale of 0-100 last week, this week our Sentiment Indicator came in at a 6. By February 5, more than 75% of S&P 500 equity cap will have reported earnings and will be able to resume discretionary buybacks. Management teams have continued to express their commitment to share repurchases during 4Q earnings calls, providing evidence that corporates remain confident despite near-term economic uncertainty. Recent buyback announcements include SLB ($10 bn), GM ($4 bn), and FDX ($3 bn), while AIG announced it plans to return $25 bn to shareholders in the next two years through a combination of buybacks and dividends.
Of course, saying that there has been no buyback activity in January would be a lie: as Credit Suisse’ trading desk admitted in late January, “Our Buyback Desk Is Very Busy.” The question then becomes how many companies violated their quiet period and pulled forward buybacks which would have otherwise taken place in February. We will find out soon.
In any event, that was the good news. The bad news is that after a blistering January filled with constant central bank jawboning (Draghi), inaction (Yellen) and action (Kuroda), February will bring 4 weeks in which central banks will no longer hold the market’s hand. This is what Bloomberg said:
February lacks a single scheduled opportunity for the Federal Reserve, European Central Bank or Bank of Japan to reset monetary policy, in part because some policy makers decided last year to meet less frequently. That leaves investors to navigate any new threat to the global economy on their own after central bankers helped to limit losses in the worst January for stocks since 2009.
Unless central banks spring surprise action this month, investors are prey to any further slide in commodities or ructions emanating from China, beset by deteriorating growth and a lack of clarity on policy makers’ intentions.
The gap will give [central banks] more time to ascertain just how their economies will be affected by the recent slide in stocks and commodities, as well as China’s economic slowdown. Between now and March, if market convulsions subside, focus could turn to underlying signs of stability in the top economies. Fed officials said last Wednesday they are “closely monitoring global economic and financial developments.”
Leaving investors to their own devices for a few weeks could also be in order given that some central bankers themselves have questioned the potency of even more monetary stimulus. They also argue that it’s not their job to prop up asset markets — even if they have the reputation for doing so.
The reduction in meetings was in part so that the ECB and BOJ could act more transparently by publishing more reviews of their economies and decision-making. ECB President Mario Draghi also said last April that the previous “frequency of our meetings leads the public and the market to expect action.”
According to some, the central bank silence could be good news:“When you’re approaching central bank meetings, their proximity is frequently a source of volatility and uncertainty, but if there’s no imminent meeting you don’t get quite so worked up,” said ING Bank international economist Rob Carnell. “Markets can get confused over direction, so look for a steer — but I’d like to hope things settle down and they aren’t as hung up on whatever the data tends to be and what it means.”
Others disagree: ““February is like an air pocket as no major central bank is scheduled to hold a meeting,” said Kazuhiko Ogata, chief Japan economist at Credit Agricole SA in Tokyo. “That creates a risk of further wild ups-and-downs in global markets.””
There is a wild card: the People’s Bank of China doesn’t have scheduled policy meetings, leaving it out as a wild card – though its actions have sometimes roiled global stock markets rather than helped them. In case the furious selloff in the Shanghai Composite continues, as it did overnight following the worst January in years, expect China’s central bank to pull a BOJ and “surprise” with at least some intervention, although just like the BOJ, whose action halflife is now measured in hours, this too latest panic by a central bank to “calm” markets will achieve an initial bounce, followed by an even far more pronounced selloff as credibility of central bankers around the globe evaporates with every passing day.
via Zero Hedge http://ift.tt/1P0ScHy Tyler Durden