US REPATRIATION FLOWS DWINDLE TO A TRICKLE

The wave of money repatriated back by US companies, following Trump's tax reforms implemented at the start of the year, is slowing to a ripple, according to new estimates from JPMorgan's Flows and Liquidity team:

Assuming the deceleration pattern between Q1 and Q2 continues over the coming quarters, it looks like that the current repatriation episode will cumulatively reach an amount of between 20%-25% of the stock of offshore cash or between $400bn-$500bn. And given that 16% or $330bn of repatriation took place already in H1, this assessment implies a significant slowing of the repatriation flow into the second half of the year.

The wonks note a sequential decline in repatriated cash, which stood at an estimated $330bn for the first half of the year, around 16 per cent of the $2.1tn held offshore. If the trend continues, expect to see a further $190bn wash up in the US by Christmas. The extent of the slowdown is perhaps best visualised by this chart showing foreign earnings retained abroad by US non-financial companies:

A drop off in returning dollars could have implications for the US stock market, because so much of the cash has been used to buyback stock. A practice which helps to boost a company's earnings per share figure — the 'E' in the famous 'PE' ratio — as a smaller number of shares splits a businesses' profits.

JPMorgan reckon of the $270bn repatriated cash deployed through June, 46 per cent, or $124bn, has been spent on repurchasing shares. In total, $340bn over the same period was spent on buybacks, suggesting the overseas cash contributed around a third to this much debated corporate activity. Early estimates for buybacks for the year, such as Goldman's $650bn figure in February, seem right on track.

But shrinking amount of cash for buybacks may put the breaks on the American stock market indices, which have so far outperformed the rest of the globe:

Readers may wonder where the rest of the $270bn has been deployed. Well, 49 per cent is likely to have been used to shore up balance sheets by retiring corporate debt, JPMorgan note that investment grade bond issuances have fallen $150bn, to $250bn, versus the first half of 2017. That leaves a pithy 5 per cent — 14bn or so — for capital expenditures.

So listed companies spent roughly ten times as much money on buybacks as re-investing in their businesses. A sharp counterpoint to the idea at the end of last year, at least among some quarters of the American political commentariat, that the returning cash would herald an investment boom. It seems instead we've have a boom for investors.