Live Markets: It pays to pay well

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15/09/2021 15:08

* Major U.S. indexes claw their way into positive territory 
    * Energy leads S&P 500 sector gainers; cons disc weakest
group
    * Euro STOXX 600 index down ~0.4%
    * Dollar, gold down; crude, bitcoin up
    * U.S. 10-Year Treasury yield ~1.30%

    Sept 15 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
    
    
    IT PAYS TO PAY WELL (1008 EDT/1408 GMT)
    With workers in short supply and inflation on everybody's
mind, Barclays head of investment sciences Ryan Preclaw finds
that companies that rely on paying low wages have underperformed
higher-paying counterparts.
    So the firm recommends selling stock in the companies most
exposed to the low-wage factor as the biggest wage gains are
occurring in the lowest-paying industries.
    In the past four months they observe that the lowest-paying
companies have underperformed with a "statistically significant
relationship between the share of a company’s employees being
paid well below the median wage and stock performance since the
end of April 2021," citing data from Revelio. 
    Companies lagging include those with more than 80% of
workers making less than $87,000. Barclays also cautions against
 hope that the end of federal unemployment insurance supplement
in August would lead to an influx of workers, saying that "the
evidence suggests otherwise."
    Barclays suggests tilting away from low-paying companies or
pairing "shorts in names more exposed to low wages with longs in
similar names that pay at the higher end of the scale." 
    It says to sell a basket of the 150 low-paying names, which
has lagged the S&P 1500 by about 3% since the end of April and
is expected to keep underperforming as wage pressures intensify.
    For example, it suggests selling Cracker Barrel Old Country
store  CBRL.O  and buying Starbucks Corp  SBUX.O , selling Addus
Homecare  ADUS.O  and buying Mednax  MD.N , selling Heartland
Express  HTLD.O  and buying Union Pacific  UNP.N  selling
Illinois Tool Works  ITW.N  and buying Rockwell Automation
 ROK.N  and says to sell MGM Resorts International  MGM.N  and
buy Host Hotels & Resorts  HST.O .
    
    (Sinéad Carew)
    *****
    
    
    THAT SINKING FEELING AGAIN (0941 EDT/1341 GMT)
    The latest bout of weakness in U.S. stocks is following a
pattern that has become all too familiar to options market
watchers. 
    While stocks have traded higher for months now, scaling one
record after another, it has not been without the occasional
wobble, most of which have occurred around options expiration
weeks.
    Once a month, on the third Friday of every month, millions
of options contracts on stocks, ETFs and indexes expire, leading
to a change in options dealers' trading behavior. 
    Options dealers are considered long or short gamma depending
on whether they have bought or sold options. To manage their
risk they may continuously hedge by buying and selling stocks,
futures and options.
    When dealers are long S&P 500 index gamma, rising stocks
lead them to sell equities or futures, while a falling index
would lead them to buy stocks or futures. This tends to dampen
volatility.
    With expiring options changing dealers' gamma profile,
volatility can potentially rise.
    People are more understanding of options' impact on the
market and are just trying to "front-run it," Kris Sidial
co-chief investment officer at volatility arbitrage firm Ambrus
Group, said.
      
    
    While increased volatility around options expiration is
nothing new, growth in options trading volume and increased
awareness of this dynamic has led to a more noticeable uptick in
stock gyrations during options expiration weeks this year.  
    Of the 13 weeks this year that the S&P 500 logged a weekly
loss, 7 have been options expiration weeks. All but the April
expiration saw stocks head lower. 
    The SPX is now down around 0.4% for the week.
    
    (Saqib Ahmed)
    *****   
    
    CAN A POLICY BOOST FIX CHINA'S SUMMER SLOWDOWN (0920
EDT/1320 GMT)
    China's summer slowdown is having a sizeable impact on
today's session in Europe with luxury goods makers well in the
red and France's LVMH  LVMH.PA  and Kering  PRTP.PA  taking the
most points off of the STOXX 600.
    Mikael Jacoby, head of continental European sales trading at
Oddo notes that Beijing's policy shift to close the wealth gap
in the country had prompted fears among investors of "hunt the
rich" policies would obviously hit European luxury giants. 
    Moreover, with China providing the bulk of the growth for
these groups, the latest macro data and Covid-19 infections were
a clear worry. 
    More cracks appeared indeed in China's growth story after
today's batch of disappointing retail sales while supply
bottlenecks and raw material shortage dent factory output and 
social restrictions weigh on service.  urn:newsml:reuters.com:*:nL4N2QH0XZ  urn:newsml:reuters.com:*:nZRN002Q01
    Meanwhile, debt-laden China Evergrande's  3333.HK  liquidity
crisis and the country's recent regulatory crackdown add to the
unease.
    What could brighten the picture, some economists believe, is
some good old monetary stimulus.
    "Today's weak data and the cumulative impact of policies
mean the economy needs more liquidity to lessen the impact of
rising credit premiums," analysts at ING said in a note.
    They called for a 50 basis point cut to the reserve
requirement ratio by the country's central bank in October as
did Standard Chartered.
    Both banks also said they would downgrade China's annual
growth projections if the situation did not improve.
    
    (Anushka Trivedi with Julien Ponthus)
    *****
    
    NASDAQ ON THE ROPES VS COMMODITIES? (0835 EDT/1235 GMT)
    The Nasdaq Composite  .IXIC  relative to the
Refinitiv/CoreCommodity CRB index  .TRCCRB  appears to be at an
important juncture on the charts:
  
  
    The Nasdaq/CRB ratio, on a weekly basis, hit a record high
of 80.54 in early November last year. Since then, however, the
tech-laden Nasdaq has underperformed the index of materials and
things. In fact, the ratio hit a 14-month low at 65.69 in early
June.
    Although it has since clawed its way back up some and is now
at 67.88, the ratio has been flirting with what appears to be
significant support in the form of a log-scale trend line from
its 2011 trough, now around 67.85, as well as the 100-week
moving average (WMA), now around 67.30.
    The ratio did fiddle with the support line in late 2018.
However, with the market's December bottom that year, it quickly
reversed to the upside without breaking the 100-WMA. The
trendline then contained weakness in 2019, and again in early
2020.
    Of note, the ratio has been on a record run versus its
100-WMA. In fact, it is on pace for its 512th-straight weekly
close above this long-term moving average. This current run
above the 100-WMA absolutely dwarfs the ratio's 155-week streak
that lasted into the Y2K "tech-bubble" top.
    However, the ratio is now only 0.8% above the 100-WMA, which
is the tightest disparity since it crossed back above it in
early December 2011.
    Thus, it may now be time for tech  .SPLRCT , and FANGs
 .NYFANG  for that matter, to once again step up in order to
underpin a renewed Nasdaq advance relative to commodities.
    A ratio weekly close below support can add credence to the
view that a sea change in trend is underway. A deeper decline to
threaten the March 2000 high at 28.9 could see the ratio lose
more than half its value from current levels.  urn:newsml:reuters.com:*:nL1N2QG2JC
    
    (Terence Gabriel)
    *****
    
    FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0835 EDT/1235
GMT - CLICK HERE:  urn:newsml:reuters.com:*:nL1N2QH0QI
    

    
    
    
    
    
    

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IXICTRCCRB09152021B    https://tmsnrt.rs/3Enj4Au
That sinking feeling again    https://tmsnrt.rs/3tEhVQp
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 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)