Macro Briefing: 6 December 2018

CFO of Chinese telecoms giant Huawei arrested in Canada: BBC
Does Huawei arrest threaten Trump-Xi trade truce? Reuters
US stock index futures drop sharply in early trading on Thursday: Bloomberg
Global greenhouse gas emissions rising at accelerating pace: NY Times
UK Parliament restrains Prime Minister May’s Brexit plan. What’s next? Vox
N. Korea reportedly expands a long-range missile base, defying US: Independent
Former President George H.W. Bush honored at National Cathedral funeral: CBS
One part of the US yield curve inverted this week: Reuters
Fed’s Beige Book: economy still growing but headwinds are noted: MW
German 10-year yield fell to 0.25% on Wed–lowest in more than a year:

Treasury Market Flashing A Warning For US Economy

Recession risk remains low for US, based on the latest economic data overall, but the Treasury market is pricing in a higher probability that growth will slow and perhaps lead to a downturn at some point in 2019. It’s still unlikely that output will contract in the near term, although a combination of political and economic risk factors has unleashed a repricing of the macro outlook for the year ahead.
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Macro Briefing: 5 December 2018

Stocks trade sharply lower on trade worries and economic outlook: Reuters
China vows fast action on trade commitments to US: BBC
Trump: no immediate plans to impose tariffs on German cars: NY Times
GOP senators say Saudi Crown Prince responsible for Khashoggi killing: The Hill
Former President George H.W. Bush to be honored at today’s state funeral: CNN
Political risk is a key threat for global economy in 2019: Bloomberg
Eurozone growth continued to slow in Nov, according to PMI data: IHS Markit
10yr-2yr Treasury yield spread tumbles to 11 basis points: CNBC

ADP Employment Report: Trend Outlook (Nov. 2018)

Thursday’s release of ADP’s estimate of US private payrolls for November looks set to deliver another sign that US economic activity has peaked. The projected year-over-over increase (due on Dec. 6) still aligns with a healthy pace of jobs creation, but the mild deceleration trend appears to be on track to continue in the months ahead. A downturn in payrolls growth will align with numbers from other corners of the economy that point to a softer macro trend for the foreseeable future relative to the strong gains posted earlier this year.
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Macro Briefing: 4 December 2018

Trump advisers struggle to explain president’s trade deal with China: Bloomberg
OPEC working on plan to cut oil output: Reuters
Congress moves to delay threat of a gov’t shutdown: Politico
French gov’t reportedly set to suspend controversial fuel-tax hike: CNBC
EU lawyers: UK gov’t can unilaterally halt Brexit process: CNN
Parts of Treasury yield curve invert: MW
Global Mfg PMI indicates subdued growth in Nov: IHS Markit
Construction spending in US slipped for third month in Oct: TT
US Mfg PMI ticks down to moderately firm growth pace in Nov: IHS Markit
US ISM Mfg Index increased in Nov after touching 5-month low: MW

Macro Briefing: 3 December 2018

Trump tweets that China agrees to cut tariffs on US-made cars: Bloomberg
China says it’s working with US to remove all tariffs: Reuters
Trump plans to leave NAFTA before Congress OKs its replacement: NY Times
Qatar announces it’s leaving OPEC: CNN
Eurozone mfg growth slips to weakest pace in more than two years: IHS Markit
Eurozone y-o-y inflation slipped to 2.0% in Nov after a near-6yr high: Reuters
UK mfg activity ticked up in Nov but sector growth remains ‘subdued’: IHS Markit
Chicago PMI popped to 11-month high in November: Chicago PMI
10yr-2yr Treasury yield spread falls to 21 basis points — lowest since mid-Sep:

Book Bits | 1 December 2018

The Model Thinker: What You Need to Know to Make Data Work for You
By Scott E. Page
Essay by author via Harvard Business Review
Without models, making sense of data is hard. Data helps describe reality, albeit imperfectly. On its own, though, data can’t recommend one decision over another. If you notice that your best-performing teams are also your most diverse, that may be interesting. But to turn that data point into insight, you need to plug it into some model of the world — for instance, you may hypothesize that having a greater variety of perspectives on a team leads to better decision-making. Your hypothesis represents a model of the world.
Though single models can perform well, ensembles of models work even better. That is why the best thinkers, the most accurate predictors, and the most effective design teams use ensembles of models. They are what I call, many-model thinkers.
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Research Review | 30 November 2018 | Risk Factors

Factor Investing: Get Your Exposures Right!
François Soupé (BNP Paribas Asset Management), et al.
October 26, 2018
This paper is devoted to the question of optimal portfolio construction for equity factor investing. The first part of the paper focusses on how to make sure that a given equity portfolio has the targeted factor exposures, even before imposing any constraints. We show that such portfolios can be derived from mean-variance optimization using stock expected returns as inputs provided these are built in a robust way from information about the factors. We propose a framework to build those robust stock expected returns and show that the targeted factor exposures are retained by the portfolios both before and after applying realistic constraints, e.g. long-only. Other more simplistic approaches fail. In the second part of the paper we illustrate the application of the framework to a practical case where the objectives are, first, to decide about the risk budget allocation to factors in some pragmatic way; and second, to construct a long-only constrained portfolio that retains the targeted exposures to four factors from well-known asset pricing equity models, namely High-minus-Low (HML), Robust-minus-Weak (RMW), Conservative-minus-Aggressive (CMA) and Momentum (MOM).
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