Macro Markets Risk Index: US Business Cycle Risk Eases

US economic risk has eased in recent days, according to a markets-based estimate of macro conditions. The Macro-Markets Risk Index (MMRI) closed at +3.9% yesterday (Oct. 8) after slipping into mildly negative territory for brief periods since late-August. MMRI’s recent readings in the red mark the first run of negative values since early 2012. It’s important to note that while a markets-based view of the business cycle has turned cautious lately, there’s no confirming support in the hard economic data–at least not based on published numbers to date. Although some indicators are flashing warnings, the majority of key macro indicators are still trending positive for the US.
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US Jobless Claims Fall, Moving Closer To Multi-Decade Low… Again

US jobless claims continue to cast a positive glow on the outlook for the labor market. Today’s weekly update shows that new filings for unemployment benefits fell a solid 13,000 to a seasonally adjusted 263,000 for the week through Oct. 3. That leaves claims only modestly higher than the four-decade low of 255,000 that was touched back in July. In short, this leading indicator is effectively telling us that the recent worries about the macro trend are excessive.
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Is The Recent Pop In Foreign Equities A Sign Of Things To Come?

Foreign equities have had a strong run over the past week (5 trading days), with most of the major regional markets besting US stocks, based on a set of ETFs in unhedged US-dollar terms. Is this a sign that the ex-US equity space is due to outperform? Maybe, although there’s still plenty of ground to cover to catch up with the long-dominant American stock market. There’s also the macro factor lurking–slower global growth.
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Initial Guidance | 8 October 2015

● US consumer borrowing in Aug rises at slowest pace in 6 mos. | Bloomberg
● Gallup’s US Job Creation Index unchanged at 7-year high in Sep | Gallup
● Strong demand for US 10yr Note auction | Reuters
● US mortgage applications soar on regulation worry | CNBC
● German exports tumble in August | Bloomberg
● BoJ Monthly Report: Japan’s moderate recovery will continue | RTT

Global Macro Trend Slips Closer To The Dark Side

If it wasn’t already obvious, two updates this week warn that a slowdown in global economic growth is underway. It’s still debatable if the weaker trend will continue and unleash a new worldwide recession. The US economy is certainly vulnerable, but it’s premature to say that an NBER-defined contraction is fate for the world’s biggest economy. But one thing is clear: macro risk has ticked higher, as new reports from Markit Economics and Fulcrum Asset Management remind.
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Initial Guidance | 7 October 2015

● US trade gap widens in Aug as exports slump | LA Times
● Gallup’s US Economic Confidence Index flat in Sep vs. Aug | Gallup
● Redbook: US store sales fell 1.6% in Sep vs. Aug | DJ
● German industrial output slides in August–biggest drop in a year | Reuters
● UK industrial output up more than forecast in Aug | RTT
● Spain’s industrial output tumbles 1.4% in August | INE

Research Review | 6 Oct 2015 | Portfolio Risk Management

How Do Investors Measure Risk?
Jonathan Berk and Jules H. Van Binsbergen
October 1, 2015
We infer which risk model investors use by looking at their capital allocation decisions. We find that investors adjust for risk using the beta of the Capital Asset Pricing Model (CAPM). Extensions to the CAPM perform poorly, implying that they do not help explain how investors measure risk.
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