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Morning Notes — SPX


June 29, 2020

China June PMIs are expected to stay slightly decelerate but stay in expansion territory with consensus looking for manufacturing at 50.4, down from 50.6 in May and non-manufacturing at 53.4, down from 53.6. Tomorrow’s Powell/Mnuchin testimony before the House will likely include questions on low utilization (less than 10%) of Fed liquidity measures, while Mnuchin will probably guarantee a fifth fiscal stimulus bill in July and stay vague on details. FOMC minutes on Wednesday will be closely followed for any comments on yield curve control (YCC) policies. The Fed has acknowledged they’re looking into YCC, but they’re in the very early stages. Btw, we’d expect YCC to be a positive for risk assets (probably not the consensus view) by embedding lower for longer yield expectations. Consensus for Thursday’s Jobs Report is looking for adds of +3M vs +2.509M in May, while weekly jobless claims (maybe more important) are expected to decline to 1.4M from 1.48M last week.

SPX: Light equity positioning and bearish sentiment keep the balance of risks aimed higher. Hedge fund equity beta is well below average with estimates running in the 25-30% range. We see even lower estimates of equity exposure for systematic funds like CTAs that use volatility targeting and risk parity triggers. ETF/mutual fund flow reports suggest individual investors are underweight equities and holding record amounts of cash in money markets and demand deposits. Meanwhile, individual investor sentiment (AAII) remains near bearish extremes and the CBOE equity put/call ratio is now back in elevated bearish territory at 0.74.

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