Traders continue to cut cyclical trades

Normally a sign GDP growth is slowing

Chart of the Day

The CFTC Commitment of Traders report showed that non-commercial traders continue to cut their positions in cyclical trades. That is sometimes a sign that economic growth is also set to slow although, with traders still net long those cyclical trades overall, it seems growth, as indicated here by the ISM business surveys, will remain relatively strong.

Macro

In the UK, retail sales fell by 1.3% MoM in May. The annual growth rate is 21.7% YoY, which is high but partly due to base effects from weak sales last year.

Markets

Traders no longer hold a net short in the USD.

Traders now hold a large Russell short position.

The forward price/earnings ratios in Canada, Germany and UK have been declining as earnings estimates rise, but the forward p/e for the S&P 500 has remained quite high.

The S&P 500 dividend yield is only just higher than the 10-year bond yield.

The US dividend ratio is much lower than elsewhere.

The market cap of the S&P 500 is now equivalent to 166% of GDP, which some take as a sign of overvaluation.

The Dow Jones Transportation Average has been faring relatively poorly, which some believe to be a poor omen for the broader equity market outlook.

In the eurozone, small caps are doing much better than larger companies - up by 20% since the start of 2020, whereas large caps are only up 4%.

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