February 8, 2019

What happened this week?  Not as much as the volatility would make it seem. The CQ4 earnings season wrapped up (results were mixed but the ’19 S&P 500 consensus remains within the $172-173 range) and investors are now looking towards the January-end season (which kicks off with CSCO and NTAP Wednesday night). MCHP, a relatively large semiconductor firm with a diverse range of end markets that investors consider an important gauge for the whole industry, said Tuesday night the semi cycle would bottom during Q1 (those remarks sparked a huge SOX rally during the Wednesday session). Trump’s State of the Union address didn’t alter the macro narrative one way or the other (and the Trump-Powell dinner Monday night at the White House was similarly uneventful). The U.S.-China trade outlook suffered a (perceived) setback but a compromise still seems much more likely than not (note that mainland Chinese markets were closed all week owing to the New Year holiday). The most incremental U.S.-China trade development didn’t happen Thursday morning on Fox Business but was instead the encouraging WSJ article out Thursday night. The growth backdrop in Europe deteriorated with sluggish German data (including IP and factory orders although trade numbers were solid) and a forecast cut from the EU (economic data from China and the U.S. was pretty minimal). The biggest macro development of the last five sessions (by far) was the huge Bund rally (and all the negative signals this sends). While Eurozone forecasts overall are moving lower, Italian growth estimates in particular are moving lower and this is reviving the fiscal concerns from a few weeks back (as investors worry another adjustment may be needed in order for Rome to hit is budget promises to Brussels). Nothing major occurred out of the FOMC but several international central banks shifted policy and/or rhetoric in a dovish direction (including the BoE, RBA, and RBI). The biggest U.S. bank merger since before the financial crisis was struck (BBT bought STI) and analysts expect this could unleash a wave of regional consolidation (the Fed released the 2019 CCAR criteria and the scenarios for this year’s bank stress tests stayed tough).
There isn’t anything particularly major on the calendar this week. Some economic data will be in focus, including from China (FX reserves Monday morning, imports/exports Thursday morning, and CPI Friday morning) and the U.S. (CPI Wednesday morning and Empire, retail sales, and Michigan Friday morning). A delegation of U.S. officials (including Lighthizer and Mnuchin) will travel to China this week for the next round of trade negotiations. The January-end earnings season kicks off (CSCO/NTAP Wednesday night, AMAT/NVDA Thursday night, and DE Friday morning) and Fannie/Freddie will be in focus with the Calabria confirmation hearing on Thursday, February 14. The U.S. Commerce Department will likely grant Trump the authority to impose auto tariffs on national security grounds (this is due by February 17; note that Trump is unlikely to actually exercise this authority) and while parts of the budget are set to expire on Friday, February 15 (although another shutdown is very unlikely).
Your BSD Global Tech investment mandate is 51% invested across 15 single stock tech vendors and technology end-users, together with 5 technology sector ETFs, while carrying a 71% short equity indice derivatives position (on the notional value of the stock portfolio) to protect us from those inevitable market drawdowns. If the market’s fundamental / technical / capital flow foundations suffer a material change, We will adjust our long/short stock and ETF portfolio, and our short derivatives hedge.