Sunday, April 21, 2019

Barrons weekend summary

Barrons weekend summary: cautious cover story on SPOT; cautious feature on SAM; positive on health insurers 
Cover story: Investors love Spotify because it’s a fast-growing, youth-focused, cloud-based streaming service with a visionary founder—and it’s investing heavily in podcasting, a growing business; But for the company to become indispensable for investors, the music industry’s underlying structure must change radically in the coming decade and the tech giants competing aggressively with Spotify must lose interest, an unlikely scenario; At current prices, the stock’s potential reward isn’t worth the risk.

Features: 1) Cautious on SAM: Shares of the company have climbed during the past two years while those of rivals TAP and BUD slipped, but much of the growth came from hard cider and spiked tea and seltzer, areas in which the company will soon face growing competition; 2) Podcasting appears similar to other forms of digital media that have gained prominence and big money in the era of portable, on-demand consumption, but it remains a “strange niche phenomenon” and won’t likely scale like other digital formats; 3) Positive on ANTM, CI, CVS, HUM, UNH: Shares of the leading insurers look appealing, given the long odds of an industry-killing plan such as Bernie Sanders’ Medicare for All becoming law, though the shares could “be under a cloud” until the 2020 presidential election is over; 4) Large mergers and acquisitions typically generate the most goodwill, and are the biggest destroyers of it as buyers overpay, such as in the deal that led to KHC; savvy investors should focus on companies’ return on assets, which could indicate whether a buyer is squeezing more profit out of an acquisition. 

Tech Trader: Positive on INTC: Company’s move to exit the smartphone modem business following the resolution of the AAPL–QCOM lawsuit gets the chipmaker out of a money-losing business and will allow it to focus more on core strengths. 

Trader: A drop in XLV could push investors out of defensive growth stocks, where health care makes up 57% of the universe, and into cyclical growth stocks, says Thomas Lee, head of research at Fundstrat—and the same pattern might play out in the quality universe as well; PINS may have “surged” after its debut, but since only a select institutional investors get IPO stock at the offering price, regular investors who have to buy on the secondary market didn’t see the same bump. Interview: Don Bilson of Gordon Haskett takes a less traditional approach than many of his peers with what he calls “event driven” research, though some investors prefer the term “special situations.” 

Profile: Jason Callan of Columbia Mortgage Opportunities has done well in the unloved sector of non-agency mortgage-backed securities, but he says the strategies involved have time limits and investors who fail to adapt will be left behind. 

Advisor Rankings: 1) Barron’s list of the Top 100 Financial Advisors is topped by Lyon Polk, Gregory Vaughan, Andy Chase of Morgan Stanley PWM; the ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms, and the quality of the advisors’ practices; 2) Demand for institutional consulting services has soared over the past couple of years, increasing the competition and the need for firms to cater to the more-specialized needs of institutions instead of being generalists; 3) Profile of the Jones Zafari Group, which caters to ultrahigh-net-worth individuals and serves as a “virtual family office”; 4) San Francisco-based Elaine Meyers, a managing director and financial advisor at J.P. Morgan Securities, has transformed her traditional advisory practice into one of the top family-office-style teams in the industry; 5) Lyon Polk, founder and managing director of Morgan Stanley’s Polk Wealth Management Group, has $15.4B under management and 20 employees in three areas—family and client services, investments, and business development. 

European Investor: Cautious on Lindt & Sprungli: Confectionary company’s stock is the second-most-expensive consumer stock in Europe behind Hermes; analysts are “unsure whether the company is undergoing a brief rough patch or suffering from a more serious secular downturn.”

Emerging Markets: Indonesian President Joko Widodo’s apparent re-election to a second five-year term April 17 was welcomed by investors, but the country lags peers economically and in growth, a situation that will demand structural reforms such as loosening labor restrictions and limiting minimum wage hikes. 

Commodities: Oil prices this month touched the highest levels of the year, but the market now faces a number of key tests, including tightening crude supplies and violence in Libya that could cut off the flow of more oil. 

Streetwise: “The U.S. stock market is approaching an all-time high. Relative to earnings, it is pricier than average. And in the next few weeks, we’ll learn whether first-quarter earnings have merely stalled versus a year ago, or gone into decline,” says columnist Jack Hough.

Saturday, April 13, 2019

Barrons weekend summary

Barrons weekend summary: positive cover story on CVS; positive features on CVX, ALC, PINS 
Cover story: CVS plans to expand its HealthHUB locations nationwide, making healthcare simpler and more local, part of the company’s plan to become the “new front door of health care”; Now that it has acquired Aetna, CVS is “deeply entangled in how medicine and care are administered, priced, and paid for, and how the government’s role might change”; Its assets “leave it uniquely well positioned for a future when consumers gain more control over health care, and prices fall. Time to buy the shares.” 

Features: 1) Todd Boehly’s Eldridge Industries has produced everything from annuities through its insurer to a stock it successfully spun off into the market for retail investors—the simple version of his method “is that he builds a box and then puts assets in it”; 2) Positive on Pinterest: Bulletin-board startup has an attractive high-growth business, is close to profitability, and, most important, appears willing to price the deal to sell—a form of restraint that could pay off in a sector where unicorns feel pressure to aggressively price IPOs; 3) Positive on ALC: World’s leading eye-care company, recently spun off from NVS, should be able to improve operations and financial results now that it’s independent, and investors should “raise their sights on the stock” despite its high valuation; 4) Positive on CVX: Wall Street has punished the energy giant for its move to acquire APC, but the logic of the deal makes sense, because Anadarko’s oil assets are in regions where Chevron already has a foothold, and will allow it to gain scale in crucial areas. 

Tech Trader: Positive on EA, ATVI, TTW: So-called loot boxes—treasure chests that gamers either earn through game play or buy with digital currency by spending real money—have long generated billions in high-margin profits for gaming companies, but regulators are taking a closer look, and critics say it’s akin to gambling for young people. 

Trader: The 10-year Treasury yield rose 0.057 percentage point to 2.56% this past week, its highest in nearly a month—a sign the yield curve, which briefly inverted three weeks ago, is no longer signaling a recession, at least for now; Cautious on DIS: Disney is poised for a good year with its core businesses, and the stock could continue to rise, but the long-term outlook is much cloudier; “Maintaining guidance for the full year after a weaker first quarter means companies are predicting a re-acceleration of earnings to growth later in 2019—that’s effectively a higher bar, and could mean disappointment for investors later on if earnings trends don’t reverse.”

Interview: Karina Funk, co-manager of the Brown Advisory Sustainable Growth fund, believes that companies that embed sustainability in their business can provide compelling customer value (picks: Danaher, TMO, AZPN, BLL). 

Profile: Aram Green, manager of ClearBridge Select, which invests in young, disruptive companies as well as those that have durable growth prospects (top 10 holdings: NOW, SBAC, SHOP, ROST, CSOD, MELI, AAP, WIX, CPRT, SYNH). 

European Trader: The UK has emerged as the top global location to support autonomous vehicles, according to a new analysis conducted by the Society of Motor Manufacturers and Traders, and the sector could generate $81.1B annually by 2030. 

Emerging Markets: Saudi Aramco’s bond debut “was more than a feeding frenzy for yield-starved fixed-income managers. It lifted the curtain on the secretive monopoly’s finances, which look impressive,” showing it to be the world’s most-profitable corporation. 

Commodities: “Silver has been a lackluster performer this year, but as investors’ appetite for gold improves silver might share in the yellow metal’s prosperity.”

Improving Chinese data and M&A help week finish on positive note Weekly Market Update: Improving Chinese data and M&A help week finish on positive note
Fri, 12 Apr 2019 16:09 PM EST

Markets commenced trade this week on a cautious note. The US administration threatened a new round of tariffs on European products in retaliation for what officials viewed as unfair subsidies to Boeing competitor Airbus. EU officials noted they were reviewing potential retaliatory tariffs while simultaneously meeting holding high level meetings with Chinese trade officials. Brexit negotiations dragged on in London with few signs that Labour and the PM’s government were finding new grounds of compromise. PM May was able to convince EU officials at a Wednesday summit meeting to extend a Brexit deadline by 6 months, putting the ball back into the UK’s court. The PM and MPs now have until the end of next month to reach some kind of agreement on leaving the Union or be required to participate in EU elections. Wednesday also saw the ECB meet and, as expected, hold rates and current expectations for forward guidance. Draghi also noted they were still analyzing TLTRs and tiering and would provide further commentary in the future. Rates stayed relatively heavy and stock volumes overall remained muted as trading held within a bit of a holding pattern ahead of Q1 earnings season. For the week the Dow was essentially flat, S&P and NASDQ rose ~0.5%.

Late in the week, the tenor shifted as risk appetite expanded around improving global economic data. Chinese trade and lending data in particular provided a jolt, alongside some improving figures out of Europe. Friday saw Chevron reach a deal to acquire Anadarko, reportedly beating out Occidental Petroleum, stoking animal spirits further. Unwinding of safe haven flows pushed money away from government bonds and rotated into commodities and equities. The US 10-year and European government bond yields tracked to the highest levels in about a month. WTI crude traded back to the highs of the year before backing off. For the week

In corporate news, Boeing announced a plan to cut its 737 MAX production by 19% this year amid ongoing safety concerns, sending shares of its suppliers and industrials lower. Reports indicated Third Point had built an activist stake in Sony and is seeking a management review of several divisions across the company. Levi’s rallied after notching a profit in Q1 as part of its first post-IPO earnings report. Tesla shares dropped on a report that they along with Panasonic are freezing plans to expand the capacity of their EV battery plant Gigafactory 1. Disney soared to a record high after announcing details of its OTT plans, which included readying the November launch of its Disney Plus streaming platform at a $6.99/mo price point. Early Friday, Chevron said it would acquire Anadarko Petroleum in a blockbuster $33B cash-and-stock deal, a transaction that would expand Chevron’s U.S. shale oil and gas portfolio and value Anadarko at $65/shr.

SNE Reportedly Third Point (Loeb) has built an activist stake in Sony - press
(US) Atlanta Fed raises Q1 GDP forecast to 2.3% v 2.1% prior
(US) US Trade Representative (USTR) proposes tariffs to counter EU aircraft subsidies, releases for public comment a prelim list of EU products to be covered by additional duties, USTR estimates the harm from the EU subsidies of $11B/year

(UK) German Chancellor Merkel said to be willing to put a five year time limit on the Northern Ireland backstop - BBC reporter
(US) President Trump tweets: "The World Trade Organization finds that the European Union subsidies to Airbus has adversely impacted the United States, which will now put Tariffs on $11 Billion of EU products! The EU has taken advantage of the U.S. on trade for many years. It will soon stop!"
(IT) Italy Govt reportedly cuts 2019 GDP growth forecast from 1.0% to 0.1% (as speculated); raises budget deficit target from 2.0% to 2.5% - draft document
*IMF UPDATES ITS WORLD ECONOMIC OUTLOOK (WEO): Cuts Global GDP growth forecast from 3.5% to 3.3% (lowest level since financial crisis)

*(EU) ECB LEAVES 7-DAY MAIN REFINANCING RATE UNCHANGED AT 0.00%; AS EXPECTED; maintains forward guidance on rates
*(US) MAR CPI M/M: 0.4% V 0.4%E; CPI EX-FOOD/ENERGY M/M: 0.1% V 0.2%E; CPI NSA: 254.202 V 254.167E
(EU) ECB's Draghi: Reiterates forward guidance; provides no details on upcoming TLTRO-3 - Prepared remarks
(EU) ECB's Draghi: Too early to provide TLTRO and any possible Tiering details; need consensus for further analysis of economic outlook - Q&A
(US) Reportedly a bipartisan bill to be proposed in Senate to expand EV tax credits by 400K vehicles per manufacturer - press
(US) Association of American Railroads weekly rail traffic report for week ending April 6th: 510.2K, -2.8% y/y (has fallen for 8 consecutive weeks)
BBBY Reports Q4 $1.20 v $1.11e, Rev $3.31B v $3.33Be; Raises Quarterly dividend 6.3% to $0.17 from $0.16 (indicated yield 3.5%), updates Board refreshment
(UK) EU's Tusk confirms EU and UK have agreed to Brexit extension to Oct 31st (additional 6-months), will check on progress in June

*(DE) GERMANY FEB FINAL CPI M/M: 0.4% V 0.4%E; Y/Y: 1.3% V 1.3%E
*(US) MAR PPI FINAL DEMAND M/M: 0.6% V 0.3%E; Y/Y: 2.2% V 1.9%E

(US) NASA awarded SpaceX launch services contract for Asteroid Redirect Test Mission
JPM Reports Q1 $2.65 v $2.32e, Managed Rev $29.85B v $27.9Be
(US) New York Fed Nowcast: maintains Q1 forecast at 1.4%; raises Q2 forecast to 2.0% from 1.9%

Saturday, April 6, 2019

Barrons weekend summary

Barrons weekend summary: positive feature on FL 
Cover story: The bull market recently hit 10 years, and it could rally for another 10—in general, bearishness rests on the fact the it has lasted for so long; “The yield curve briefly inverted, but even some investors who remain cautious on the U.S. market warn against reading too much into it”; Barron’s spoke to three strategists—Thomas Lee of Fundstrat Global Advisors, Binky Chadha of Deutsche Bank, and Dubravko Lakos-Bujas of JPMorgan—each of whom makes a case for continued bullishness.

Features: 1) After interest rate increases, the one-year Treasury bill yields 2.4%, prompting the question of whether ultra-short funds, which buy high-quality bonds with durations of less than one year, can keep up—the average ultra-short fund has only a 1.2% five-year annualized return, according to Morningstar; 2) The current market is testing the resolve of even the most dedicated value investors, who haven’t lost money, but have watched growth managers steadily gain ground; over the course of this market cycle, however, the gap between value stocks and growth stocks has gotten so large, and been so persistent, that some wonder if value will ever catch up; 3) Positive on BLK, Vanguard Group, STT: Firms each offer a comprehensive line of exchange-traded funds at hard-to-beat prices, and they essentially dominate the industry, holding 80% of ETF assets in about 600 products—raising questions about whether that concentration of power is stifling competition; 4) Treasury yields have been falling, typically an indicator of a weakening economy, yet bonds issued by risky companies have been rising sharply, which usually happens when the economic outlook is bright; the confusion creates opportunity for investors who know where to look; 5) Positive on FL: The shoe chain has gotten past the problems it faced two years ago, and last year began to expand in Asia, with stores in Singapore, Hong Kong, and Malaysia—earnings per share growth could rise by 13-16% through 2023; 6) Cautious on CGC, ACB, TLRY: There are currently no bargains among hemp or marijuana stocks these days, though eventually CBD—the hemp extract cannabidiol—will be big as it joins other wellness additives in products ranging from skin cream to pet food. 

Tech Trader: Barron’s tested AT&T’s first-ever 5G smartphone feed—a live, commercial mobile network based on Release 15, an industry standard agreed upon in June—and found the service impressive, but limited; rival VZ’s 5G service is only available in select neighborhoods in Chicago and Minneapolis, and can be used only on a specific Motorola phone.

MFQ: Mutual fund managers are the new breed of activist investors—they’re taking a larger role in challenging companies to do better, but they’re doing so quietly to help the company, and its stock, over the long term; related story says that in the past, fund managers simply sold a stock if they didn’t like what a company was doing, but today they are increasingly nudging companies whose shares are trading for far less than they should be to make changes that will close the valuation gap.

Interview: Ruchir Sharma, chief global strategist and head of emerging markets at Morgan Stanley Investment Management, sees global markets at an inflection point: U.S. tech stocks and global multinationals could struggle, while emerging markets are poised for a revival 

European Trader: Cautious on Just Eat: A recent spike in shares follows agitation from an activist investor, but the firm is without a leader after Peter Plumb stepped down in January, and it faces a raft of challenges that could hurt growth.

Emerging Markets: At least eight Chinese unicorns raised more than $1B through initial public offerings in Hong Kong or the U.S. last year, offering a smorgasbord of access to the country’s burgeoning economy—but “nearly all the issues have been dogs.”

Commodities: A new deluge of rain in the Midwest looks set to hit already waterlogged soil, possibly sending wheat prices soaring; to play the strong market, investors could buy WEAT, which tracks the price of futures, or shares of FMC, which sells crop-protection products. 

Streetwise: “Interest rates are falling, growth is scarce, and there is a glut of investment dollars. That means Wall Street is setting up perfectly for a flight to nonsense,” says columnist Jack Hough in a piece about LYFT, Uber, and other money-losing startups that are going public.

Global growth shows signs of recovery as US/China trade talks advance Weekly Market Update: Global growth shows signs of recovery as US/China trade talks advance
Fri, 05 Apr 2019 16:10 PM EST

Investors pushed stock prices higher this week as lingering worries about stagnating global growth were eased by improving PMI readings out of China and continental Europe midweek. Optimism that US/China trade talks are in their final stages also contributed to the positive tone. The improving sentiment surrounding growth and trade offset continued uneasiness related to Brexit. UK PM May was forced to turn to the opposition Labour party in an effort to secure an agreement with majority support, but expectations remained low. Many Tory Brexiteers felt betrayed by the PM’s end run, while by Friday some Labour MPs suggested she offered little in the way of compromise. Friday also saw the US jobs report rebound nicely from the soft February reading, including a modest upward revision to last month’s payrolls. Trade talks appeared to make headway as China’s Vice Premier Liu spent three days in Washington, leading President Trump to speculate a deal could reach its final stages in about a month. Treasury yields backed up for much of the week as risk appetite held up and the Dollar Index was modestly higher. WTI crude broke above the 200-day moving average for the first time since last fall, but inflation concerns remained subdued. For the week, the S&P gained 2.1%, the DJIA added 1.9%, and the Nasdaq rose 2.7%.

In corporate news this week, Delta boosted the airline sector on Tuesday after raising its Q1 outlook, reporting healthy demand and less expensive non-fuel costs than it had anticipated. The widely-anticipated Lyft IPO hit the skids after a promising opening above $88, soon falling below its $72 initial pricing. Walgreens reported a miss on its quarterly numbers and cut its outlook citing continued margin pressures and consumer market challenges. Tesla Q1 deliveries disappointed investors, as the carmaker blamed the miss on 'massive backlogs' in China and Europe. Shares of Constellation Brands bubbled higher after it reported a solid earnings beat and confirmed the divestiture of 30 lower-end wine and spirits brands. Concerns about Jeff Bezos control over Amazon were put to bed after his ex-wife agreed to give him 75% of their stock and full voting control of her Amazon shares.


*(ES) SPAIN MAR MANUFACTURING PMI: 50.9 V 49.7E (moves back into expansion)
*(UK) MAR PMI MANUFACTURING: 55.1 V 51.2E (32nd month of expansion and highest reading since Feb 2018)
*(EU) EURO ZONE FEB UNEMPLOYMENT RATE 7.8% V 7.8%E (matches lowest reading since Dec 2008)
*(EU) EURO ZONE MAR ADVANCE CPI Y/Y: 1.4% V 1.5%E; CORE CPI Y/Y: 0.8% V 0.9%E
AAPL Said to reduce prices of iPhone, iPads, Macs and AirPod models in China by as much as 6% - CNBC
(US) Atlanta Fed raises Q1 GDP forecast to 2.1% v 1.7% prior

WBA Reports Q2 $1.64 v $1.70e, Rev $34.5B v $34.9Be
(UK) PM May: We need a further extension of Article 50; will try and find an arrangement with Labour to put to EU next week

*(UK) MAR SERVICES PMI: 48.9 V 50.9E (1st contraction in 32 months and lowest since July 2016)
(US) Association of American Railroads weekly rail traffic report for week ending Mar 30th: 510K, -4.6% y/y (has fallen for 7 consecutive weeks)
(US) Conference Board March Experimental Help Wanted OnLine Index (HWOL) at 102.3 v 104.0 m/m
PPG Announces price increase on automotive refinish products in China due to higher prices for raw materials, logistics and freight
(UK) PM May reportedly to next week pave way to a longer Brexit extension if she's unable to secure her deal - UK's Telegraph
(CN) US reportedly wants to set 2025 target for China to meet trade pledges and wants timetable for purchases of goods and market access, as China Vice Premier Liu He and US Trade Rep Lighthizer begin talks - press
STZ To divest 30 brands from its wine and spirits portfolio to E&J Gallo for $1.7B

STZ Reports Q4 $1.84 v $1.71e, Rev $1.80B v $1.73Be; Raises dividend 1.4% to $0.75/shr (1.67% yield)
AMZN Mackenzie Bezos dissolves marriage with CEO Jeff Bezos, to give Jeff 75% of their Amazon stock and full voting control of her Amazon shares
(CN) Pres Trump: China trade deal could be within the next four weeks; something 'very monumental' could come soon

FRI 4/5
066570.KR Reports prelim Q1 (KRW) Op 900B v 808Be, Rev 14.9T v 15.3Te
(UK) Details of PM May letter to Tusk being released; UK to ask for an extension to Article 50 until Jun 30th (as speculated)
(US) Mar Unemployment Rate: 3.8% v 3.8%e
(US) New York Fed Nowcast: raises Q1 forecast to 1.4% from 1.3%; raises Q2 forecast to 1.9% from 1.7%
BA CEO: to temporarily slow production of 737MAX aircraft to 42/month from 52/month starting mid-April

Sunday, March 31, 2019

Brexit Anxiety Rises; Markets Calibrate to Slower Growth Expectations Weekly Market Update: Brexit Anxiety Rises; Markets Calibrate to Slower Growth Expectations
Fri, 29 Mar 2019 16:10 PM EST

Stocks managed to look past a host of worries this week and move higher. The Brexit saga rolled on, with the UK Parliament unable to coalesce around any particular way forward setting up another round of indicative votes early next week. The risk of the UK crashing out of the EU has not been taken off the table, despite MPs' insistence it will not happen. Global inflation readings continued to miss central bank targets allowing growth jitters to persist, particularly in Europe. Treasury yields slipped to fresh lows mid-week with markets continuing to fixate on inversions along the US curve and the burgeoning amount of global sovereign debt carrying negative interest rates once again. Emerging market currencies saw renewed pressures highlighted by a spike in Turkish swap rates rekindling concerns about potential contagion. Ultimately the investor anxiety, mainly emanating from Europe, was more than offset by optimism on the US China trade front. On Friday, the US Treasury Sec Mnuchin wrapped up a week of negotiations in Beijing by emphasizing discussions remained constructive and will continue in DC next week. WTI crude finished the week above $60, holding at roughly 5-month highs. The Greenback lifted and the Euro slumped. The DJ Transports had a particularly strong showing, outperforming the broader indexes in 3 of the 5 trading sessions to a 3.5% rally. For the week, the S&P rose 1.2%, the Dow added 1.7% and NASDAQ gained 1.1%.

In corporate news, Apple held a press event to announce its entrance into the video streaming market with its upcoming Apple TV+ product, as well as introducing an Apple Card digital credit card service and magazine subscription app Apple News+. Samsung weighed upon semi names after warning its Q1 will be lower than market expectations, noting a decline in memory chip and display prices that were larger than expected. Boeing shares lifted after it announced three software changes for its beleaguered 737 MAX aircraft, and the company said that the software upgrade could be installed within days following its approval from regulators. Wells Fargo CEO Tim Sloan announced he would retire, effective June 30th, while the Board pledged to find an outsider to replace him. Lyft’s long-awaited IPO opened for trade, quickly drifting below its opening price but finishing well above its $72/shr pricing.

*(US) US Attorney General Barr releases special counsel Mueller report findings: Finds no collusion with Russia on 2016 Presidential elections but falls short of calling him innocent; identifies two Russian influences
386.HK Reports FY18 (CNY) 61.6B v 51.2B y/y; Op 82.3B v 71.5B y/y; Rev 2.89T v 2.36T y/y (update)
AVYA Evaluating offer from private equity that could value the company at over $20.00/shr, or over $5B - US press

ADM Extreme weather to affect Q1 NA operations by neg $50-60M in pretax operating profits
AAPL Introduces 'Apple Card', digital credit card services as part of Apple Pay product - Apple product event
005930.KR Guides Q1 to be lower than market expectations; decline in memory chip and display prices larger than expected

BA Southwest Boeing 737 Max reportedly makes emergency landing at Orlando airport on its way to be grounded - local press
(NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE (OCR) UNCHANGED AT 1.75%; AS EXPECTED; revises forward guidance to dovish from neutral

(US) Fed's Kaplan (dove, non-voter): Too soon for Fed to consider lowering rates - press interview
LEN Reports Q1 $0.74 v $0.75e, Rev $3.87B v $4.08Be
(EU) ECB said to be working on models for tiered Deposit Rate - press
(US) Association of American Railroads weekly rail traffic report for week ending Mar 23rd: 503K, -4.5% y/y (has fallen for 6 consecutive weeks)
*(UK) PM May told Tory MPs in her Statement to 1922 Tory party committee that she'll hand over leadership once Brexit is delivered; does not offer a specific timetable for stepping down - press
BA Exec: Announces three software changes for 737 MAX; sees 737 MAX upgrade installed within days of software approval; working with regulators on a 737 MAX patch and training
(US) Pres Trump asks agencies to end conservatorship of Fannie and Freddie; will sign Trump reform memo
*(UK) UK Parliament indicative votes: no majority reached on any indicative votes (as expected); MP Letwin proposes parliament should vote again on Monday to reconsider these matters
(CN) Trump Administration Official: China tariffs will be key sticking point and will be resolved as part of the deal; no specific time frame set for trade deal, talks could conclude anytime from April to June

(DE) GERMANY MAR CPI SAXONY M/M: 0.5% V 0.3% PRIOR; Y/Y: 1.4% V 1.4% PRIOR
*(US) Q4 FINAL GDP PRICE INDEX: 1.7% V 1.8%E; CORE PCE Q/Q: 1.8% V 1.7%E
(RU) Russia and OPEC might agree to three-month extension of oil supply reductions at June meeting; Energy Min Novak said to tell Saudis he can't promise extension until end of 2019 - press
(US) Nevada reports Feb casino gaming Rev $1.01B, -0.6% y/y; Las Vegas strip Rev $591.7M, -2.0% y/y
(BR) Brazil Econ Min Guedes: pension reform will pass; has full support of Lower House President Maia
(UK) Northern Ireland's DUP party confirms they will vote against withdrawal agreement approval motion just announced - Sky News
WFC CEO and President Tim Sloan to retire, effective June 30th; Board of Directors elects General Counsel Allen Parker as interim CEO and President

(US) Treasury Sec Mnuchin: have concluded constructive talks in Beijing; looking forward to continuing the negotiations in Washington DC next week
(US) Fed's Kaplan (dove, non-voter): yield curve is indicative of skepticism on growth; did not pencil in a rate increase for 2019
(US) Atlanta Fed raises Q1 GDP forecast to 1.7% v 1.5% prior
(US) New York Fed Nowcast: maintains Q1 forecast at 1.3%; cuts Q2 forecast to 1.6% from 1.7%
LYFT IPO opens for trade at $87.24

Saturday, March 23, 2019

Barrons weekend summary

Barrons weekend summary Cover story: Nearly 80% of parents give some financial support to their adult children, costing about $500B a year, twice what parents put into retirement accounts according to surveys—and almost three-quarters of respondents acknowledged putting their children’s interests ahead of their own retirement needs; Ten years of a bull market and a growing comfort with debt have made this largesse easier to rationalize, but incurring additional costs just before or just into retirement can be problematic. 

Features: 1) Cautious on LYFT: The ride-hailing startup’s upcoming initial public offering is likely to be a hit, and with a float of just 12% of the shares outstanding and high revenue growth, the stock could pop on its debut—but investors should take a pass until the company proves it has a path to profitability; 2) Activist investors have generally become accepted by the investing community, but there is evidence their strategies don’t work as well as one might think: Activist hedge funds trailed the market by about five percentage points a year since the end of the financial crisis, and trailed the broader hedge fund industry by about five percentage points a year since the end of 2016; 3) Nearly 19 million Americans suffer from substance-use disorder, and overdoses are the leading cause of accidental death—yet affluence not only offers no protection, it can make matters worse as people with money spend vast sums in a largely unregulated treatment industry; 4) Even small investors can think like activists by looking at stock in terms of acquisition potential and studying cash conversion—the time it takes for a product sale to turn into cash—and asset turnover, the amount of sales generated by an asset; 5) Story looks at how parents can put their adult children on better financial footing without creating an air of entitlement or damaging their own financial situations. 

Tech Trader: Positive on GOOGL: Google's rollout of Stadia, which enables gamers to play streamed games on their computers, televisions, and smartphones without the need for a separate console, is the latest example of the tech battle moving to the cloud, which offers quicker scalability, cost efficiencies, and a closer connection to the customer. 

Trader: The yield-curve inversion might not be signaling a recession yet, but there are other reasons to worry, says Richard Farr of Merion Capital Group, who says earnings season, which gets under way in April, is a primary concern; Positive on IIPR: As the only U.S.-listed REIT serving the cash hungry cannabis industry, IIP has turned its cost-of-capital advantage into steady growth and a generously-valued stock; Positive on CAT: Changes the company made to its manufacturing system are improving operating margins and preparing the company for the next downturn, but investors so far don’t seem impressed—shares are trading at a 35% discount to the broader market. 

Interview: Rod Lache and Don Galves of Wolfe Research say the automotive landscape will change dramatically during the next five to 10 years, creating opportunities and disruption (picks: APTV, BWA, GM, LEA, TSLA). 

Profile: Samantha Lu, co-manager of the AB Small Cap Growth Portfolio and co-chief investment officer of small and SMID growth strategies at AllianceBernstein looks for small companies that can grow faster than the market expects, and seeks to minimize the opportunity cost of owning stocks that stumble (top 10 holdings: ETSY, IWO, FIVE, PLNT, TTD, IRTC, OLLI, NGVT, NEWR, LHCG). 

European Trader: Positive on RELX: Low-profile giant formerly known as Reed Elsevier—which owns properties as diverse as The Lancet and Comic Con—is transforming itself from a tired media stock into a high-margin tech player leveraging technologies such as artificial intelligence, sending the share price up. 

Emerging Markets: Emerging market currencies look undervalued, says Rob Neithart of Capital Group, while inflation is dropping in many places, positioning central banks to cut rates, after having hiked them to defend their currencies. 

Commodities: With a more than 30% jump in prices so far this year, rhodium—which is corrosion resistant, is used in catalytic converters and as an electrical contact material—now costs more than twice what gold or palladium do, but hasn’t attracted much attention from investors.

Streetwise: As Americans increasingly turn to streaming, they are paying more for it than cable or satellite—and “If there’s a safe bet in media right now, it’s that the market can’t stay this fragmented, because streaming fatigue isn’t much more appealing than bundle burnout.”

Friday, March 22, 2019

Investor worries grow after Fed doubles down and data disappoints Weekly Market Update: Investor worries grow after Fed doubles down and data disappoints
Fri, 22 Mar 2019 16:20 PM EST

US stock markets managed to scale the proverbial wall of worry for much of this week, helped by another prod from the US Federal Reserve. CPI figures continued to miss expectations here in the US and elsewhere, while global economic data both here and abroad suggested deceleration. Brexit worries were dragged out as PM May went to Brussels and appears to have at least secured a short-term extension to this month’s deadline, but a resolution remains up in the air and it is contingent on yet another round of vital votes in Parliament next week. Friday saw key European manufacturing figures move further into contractionary territory, suggesting Brexit and trade uncertainty has further pressured economic growth there. Risk appetite dried up as investors looked to unload assets while buying up government bonds in the final session of the week. Stocks gave back all the post-FOMC meeting gains. Volatility picked up notably after the yield on the US 3-month T-bill inverted by going above that of the US 10-year yield for the first time since 2007.

The Fed came out Wednesday with what was essentially a dovish double-down to the pivot announced earlier this year. The FOMC dot plot went from a median of two expected rate hikes this year to zero, while also announcing quantitative tightening of the balance sheet would likely come to an end by September at a size of ~$3.5T. In his press conference, Chairman Powell emphasized that risk factors to growth, namely overseas, as well as inflation readings persistently backing off from the Fed's 2% target make it the right time to be patient. He further opined that patience means there is no need to rush to judgment, and it may be some time before the outlook calls for a policy change. Rates fell globally and the US Treasury yield curve flattened in the wake of the news. The short end of the US curve further inverted and by Friday the German 10-year bund yield dipped into negative territory for the first time since 2016. The Greenback initially saw selling pressure in the wake of the Fed, but buyers returned quickly, particularly against the Euro and emerging markets, most notably Turkey. Crude briefly topped $60 helped by drawdowns in US stockpiles before backing away from those 4-month highs on growth concerns. Gold moved to a fresh 1-month high helped by the Fed, and the VIX shot up almost 20% on Friday. For the week, the S&P dropped 0.8%, the Dow shed 1.3%, and the Nasdaq lost 0.6%.

In corporate news this week, Boeing slipped further as questions about its MAX 737 aircraft mounted, as did scrutiny from regulators and Congress. FedEx pressured the transports sector after releasing disappointing results and an outlook that raised global growth concerns. Nike released underwhelming results and noted it saw FX headwinds weighing on their growth in the near term. The biotech space took a hit after Biogen and Eisai announced they were discontinuing Phase 3 ENGAGE and EMERGE Trials of aducanumab in Alzheimer’s Disease. Banks and financials fell sharply after a more dovish than anticipated Fed announcement and as the spread between the 3-month Treasury bill yield and the 10-year note yield dropped to the narrowest level seen since 2007.

LYFT Files to sell 30.7M IPO shares between $62.00 and $68.00 on NASDAQ - filing
(UK) Northern Ireland's DUP party spokesperson: DUP leader Foster has no current plans to travel to London; Deputy Leader Dodds continues to lead talks with govt
(UK) Parliament Speaker Bercow: PM May must change Brexit deal to hold third 'meaningful vote'; May CANNOT put the same Brexit deal to a third vote
(UK) EU to formally agree on Brexit delay this week potentially until July 1st - Guardian

(CN) China said to be considering excluding 737 Max aircraft from US trade deal - press
(CN) Some US officials reportedly see China walking back trade offers; some officials said to see China moves as normal part of the process - press
FDX Reports Q3 $3.03 v $3.10e, Rev $17.0B v $17.6Be

WP Becomes first card acquirer to enable Amazon Pay
(US) Association of American Railroads weekly rail traffic report for week ending Mar 16th: 501K, -6.8% y/y (has fallen for 5 consecutive weeks)
(US) Pres Trump: We are talking about leaving tariffs on China for a long period of time to ensure China complies with the trade deal
*(US) FED: Balance Sheet Normalization Plans: to slow reduction of holdings starting in May and conclude run off in Sept
(UK) PM May: UK will not leave EU on time on March 20th as previously expected; not ready to delay Brexit any further than June 30th
MU Reports Q2 $1.71 v $1.73e, Rev $5.84B v $5.92Be

941.HK Reports FY18 (CNY) Net 117.8B v 114.3B y/y, EBITDA 275.5B v 270.4B y/y; Rev 736.8B v 741B y/y
700.HK Reports Q4 (CNY) Net 14.2B v 17.6Be, Adj EBITDA 29.7B v 29.6B y/y, Rev 84.9B v 83.4Be
*(UK) FEB RETAIL SALES (EX AUTO/FUEL) M/M 0.2% V -0.4%E; Y/Y: 3.8% V 3.5%E
BIIB Biogen and Eisai to discontinue Phase 3 ENGAGE and EMERGE Trials of aducanumab in Alzheimer’s Disease; futility analysis suggests primary endpoint unlikely to be met, EVOLVE Phase 2 safety study and LT extension of PRIME Phase1b study of aducanumab also to be discontinued
*(UK) BANK OF ENGLAND (BOE) MAR MINUTES: Voted 9-0 to leave rates unchanged
(BR) Former Brazil President Temer arrested as part of 'Carwash' probe - Brazil press
FB Reportedly stored hundreds of millions of user passwords in plain text for years - Krebs on Security
NKE Reports Q3 $0.68 v $0.63e, Rev $9.61B v $9.54Be
(EU) EU Tusk on Leader Summit draft conclusions: EU can agree on Brexit extension until May 22nd with extension conditional on Withdrawal Agreement approved by UK parliament during week of Mar 25th (next week)

CSGN.CH Publishes FY18 Annual Report: Reports final FY18 (CHF) Net +2.02B v -983M y/y, Rev 21.6B v 21.8B y/y
(FR) FRANCE MAR PRELIMINARY MANUFACTURING PMI: 49.8 V 51.4E (back into contraction for 1st time in 3 months)
(DE) GERMANY MAR PRELIMINARY MANUFACTURING PMI: 44.7 V 48.0E; (3rd straight contraction)
*(EU) EUROZONE MAR PRELIMINARY MANUFACTURING PMI: 47.6 V 49.5E (2nd straight contraction and lowest since Apr 2013)
(CN) US President Trump: Reiterates deal with China coming along very well; will probably happen and getting very close - TV interview
TIF Reports Q4 $1.60* adj v $1.60e, Rev $1.32B v $1.34Be

Saturday, March 16, 2019

Barrons weekend summary

Barrons weekend summary: Positive feature on BA and on US steel industry 
Cover story: Regardless of how U.S.-China trade talks play out, the global system of trade is being realigned as a decades-long drive toward free trade across borders begins to reverse and globalization increasingly becomes overwhelmed by populism, nationalism, and protectionism. 

Features: 1) Positive on BA: Previous crashes involving the aerospace giant’s planes have sent shares down, only for the market to see them rise again, precedents today’s shareholders can look to as a reason not to panic about the recent Ethiopian Airlines Max jet crash—though they shouldn’t count on a quick recovery; 2) Positive on NUE, STLD, X, CMC: Shares of the four leading U.S. steel producers trade well below historical averages, and given the industry’s volatile history, investors should be cautious on the stocks—among potential catalysts is the fact the U.S. is short of steel production and needs imports to satisfy demand, making imports the price setters; 3) Members of Barron’s 2019 energy roundtable say certain integrated oil-and-gas companies are poised to benefit as projects long in the planning finally come on-line, and they don’t foresee a big surge this year in oil prices—though $60 crude shouldn’t hamper well-managed companies. 

Tech Trader: Cautious on SQ: Company was among the first to see an opportunity helping small businesses accept credit-card payments, but its move into lending, cryptocurrencies, and software raises the question of whether it should leave its roots behind and become part software provider, part bank. 

Trader: Though much of the recent economic data has been weaker than expected, Torsten Sl√łk of DB says he sees very early signs of a possible recovery in both the economy and corporate earnings; Solar demand is back on the upswing, and solar stocks have already responded—TAN is up 30% this year, nearly erasing all of its 2018 drop; There are several factors working in favor of small-cap stocks, which still look cheap relative to large-caps, says Lori Calvasina of RBC Capital Markets. 

Profile: Natasha Sibley, co-manager of the $250M AlphaGen Castor Fund at JHG believes that European stock dividends are trading too cheaply and that a surer way to make money amid the political uncertainty is to capitalize on the discrepancy between the price of European stock dividends.

European Trader: Positive on Phoenix Group Holdings: Brexit-weary investors in European stocks might want to take refuge in the firm—which acquires closed lines of pensions and life insurance and winds down the books of business—whose shares have limited downside and the potential for lasting income. 

Emerging Markets: After a strong January, emerging market stocks are once again underperforming their U.S. peers, but conditions remain ripe for a further rally in the sector as macro risks that have frightened investors appear to recede. 

Commodities: Oil is among the biggest commodity gainers in 2019, with prices up by more than 20%—but cuts may run head-on into the effects of increased U.S. shale production and more output from other sources. 

Streetwise: Columnist Jack Hough comments on the recent college-admission scandal, noting that anyone with a reasonable shot of completing a college degree should do so—but the fact that so many kids will lose money on a product that ought to be cheap is the real scandal about which people should be concerned.

Friday, March 15, 2019

Risk appetite not dampened by delays for Brexit and trade deals, or by Boeing crash Weekly Market Update: Risk appetite not dampened by delays for Brexit and trade deals, or by Boeing crash
Fri, 15 Mar 2019 16:15 PM EST

The bulls retook control this week sending stock markets to the highest levels of the year. The S&P finally found the legs to climb back above 2815 area, a level that has served as repeated resistance going back to the stock market's break last fall. It was hard to pinpoint the underlying factors for this week’s rally, as there really wasn’t much to get excited about on either the trade or Brexit fronts. Despite repeated assurances from the White House, reports suggested that a final trade deal with China is still weeks away, if at all. Meanwhile, PM May suffered a series of defeats on her EU separation proposal, but markets saw the silver lining as the Parliament voted to forbid a ‘no deal’ Brexit and to delay the Brexit date from March 29th until June 30th (though the EU27 still must unanimously approve the extension).

Economic data remained spotty with continued softness in Chinese figures garnering significant attention once again. US January new home sales decelerated and an early March US manufacturing reading touched the lowest level in two years. The soft data helped keep the pressure on Treasury yields. US rates moved back to the lowest levels of the year with the 10-year testing below 2.6% on Friday. Helping end the week on a positive note, the February Jolts jobs openings data hit a record high for the second month in a row. WTI crude broke out new highs for the year trading back to levels not seen since November alongside the renewed momentum in stocks.

Corporate headlines didn’t appear to provide much of a tailwind either. Boeing was mired in negative headlines after the troubling crash of an Ethiopian Airlines 737 MAX 8 last weekend. The crash was eerily similar to the Lion Air crash from late last year suggesting a software malfunction potentially resulted in another catastrophe for the company’s new workhorse aircraft. After pressure from civil authorities around the world the FAA followed suit and grounded all 737 MAX planes indefinitely. Boeing shares served a significant anchor for the Dow through much of the week. For the week, the DJIA gained 1.6%, the S&P jumped 2.9%, and the Nasdaq surged 3.8%.

In other corporate news this week, the board of Deutsche Bank reportedly agreed to explore a potential merger with Commerzbank, merely awaiting the nod from German Chancellor Merkel. Nvidia agreed to acquire Mellanox Technologies for $6.9B -- its biggest ever purchase -- in order to increase its capacity for chip production for data centers. In a bumpy week for Facebook, federal prosecutors were said to launch a criminal probe into the company’s data deals that it made with large tech companies, and long-time executive and Chief Product Officer Chris Cox departed over disagreements about product direction. Smith & Nephew announced it would buy Osiris Therapeutics for $660M in a bolt-on acquisition to enhance its strength in the regenerative medicine market. Steel producer Nucor cut its Q1 guidance due to a drop in steel mills profit and some shipment delays, but the company said it was encouraged by the impact of recent price increases.

03/10 BA Ethiopian Airlines flying a new Boeing 737 Max, crashes shortly after takeoff, killing 157 people (2nd crash of the new 737 Max recently)

BA Exec: investigation is in its early stages; engaged customers and regulators on concerns they may have
(US) Atlanta Fed cuts Q1 GDP forecast to 0.2% from 0.5%
(EU) EU Juncker/ PM May joint statement: UK committed to finding an alternative arrangement to the backstop by the end of 2020

*(UK) ATTORNEY GENERAL COX LEGAL ADVICE ON REVISED BACKSTOP: Believe the joint instrument has binding legal effect as a document; reduces risk of being trapped in backstop
*(US) FEB CPI M/M: 0.2% V 0.2%E; CPI (EX-FOOD/ENERGY) M/M: 0.1% V 0.2%E; CPI NSA: 252.776 V 252.812E

*(US) FEB PPI FINAL DEMAND M/M: 0.1% V 0.2%E; Y/Y: 1.9% V 1.9%E
BA Pres Trump confirms US to ground 737 MAX 8 and MAX 9 aircraft effective immediately - press
*(CN) CHINA FEB INDUSTRIAL PRODUCTION YTD Y/Y: 5.3% V 5.6%E (slowest pace since early 2002)

*(DE) GERMANY FEB FINAL CPI M/M: 0.4% V 0.5%E; Y/Y: 1.5% V 1.6%E
(US) China-US trade meeting between Trump and Xi to sign an potential agreement to end their trade war not likely until April at the earliest - financial press
GE Guides initial FY19 Adj $0.50-0.60 v $0.65e, Industrial Segment Organic Rev to grow low to mid single digits, Adj Industrial FCF -$2.0B to $0B - Management Outlook Call
*(UK) PARLIAMENT PASSES GOVT MOTION TO EXTEND ARTICLE 50: delaying the Brexit date from March 29th until June 30th
ORCL Reports Q3 $0.87 v $0.84e, Rev $9.62B v $9.61Be; Raises dividend 26% to $0.24 from $0.19 (indicated yield 1.81%)
US President Trump: We'll have 'news' on China trade deal in the next 3-4 weeks
(CN) China Premier Li: China economy faces new downward pressure; won't let growth slide out of reasonable range; 6.6% growth [in 2018] was hard-won; To cut VAT April 1st
(NK) North Korea Dep Foreign Min: No intention to yield to US demands; North Korea said to mull suspending denuclearization talks with US, according to Russia Media
(NK) North Korea: Says Leader Kim Jong Un rethinking launching and test moratorium - Russian press

UBSG.CH Publishes FY18 Annual Report: Adjusts final FY18 Net $4.52B v $4.90B prelim v $969M y/y, Op $5.99B v $6.37B prelim v $5.35B y/y, Op Income $30.2B v $29.6B y/y
*(US) MAR EMPIRE MANUFACTURING: 3.7 V 10.0E (lowest since May 2017)
*(US) JAN JOLTS JOB OPENINGS: 7.58M V 7.225ME (record high, second month in a row)
(US) New York Fed Nowcast: maintains Q1 forecast at 1.4%; maintains Q2 forecast at 1.5%
GOOGL State Attorneys General reportedly taking preliminary steps towards investigation into Google practices - press

Saturday, March 9, 2019

Barrons weekend summary

Barrons weekend summary: positive features on DAL and select offshore drilling names 
Cover story: The top firms on Barron’s annual list of Best Fund Families “did what they were supposed to do—beat their benchmarks and outperform their respective Lipper peers”; Taking the top spot is American Funds, up from No. 36 in the previous ranking, followed by MainStay Funds and Eaton Vance. 

Features: 1) Baron’s list of the Top 1,200 Financial Advisors, which “recognizes outstanding advisors from all 50 states, plus the District of Columbia. It’s our largest, most comprehensive listing, and it encompasses everyone from independents, who own and operate their own practices, to employees of the big Wall Street firms”; 2) Positive on DAL: Delta is the best-managed U.S. airline, and its stock trades cheaply—at about $50, shares fetch less than eight times projected 2019 earnings of $6.51 a share, and its dividend yield of 2.8% is the highest among its peers”; 3) Positive on RIG, ESV, DO, Borr Drilling: The offshore drilling business has suffered its deepest downturn in 30 years, as investment capital pours into land-based shale, but there are early signs of a return to the sea, and investors who dive in now could profit nicely; 4) Revitalization efforts in Detroit appear to be finally taking hold—ten years after it was hit by the financial crisis and the near-collapse of the auto industry, new investment has made the city home to thriving start-ups, hotels, and coffee shops. 

Tech Trader: Positive on INTC: Chip maker’s stock hasn’t moved much despite impressive 2018 financials, primarily over concerns about a long-lasting CEO search and rising competition—but the risks appear overblown, and are already priced into the stock. 

Trader: Economic volatility has been low since the financial crisis and growth has been slow and steady, preventing inflation from rising too quickly or corporate spending from getting overheated—making it difficult for the economy to slip into a recession; “The economy today isn’t in the same spot as it was back in 2000 and 2001, when the dot-com bust helped trigger a mild recession. But we might be at a tipping point for decelerating growth”; Cautious on DWDP: As the company prepares to break into three, investors must decide which parts to keep or sell—and the answer will depend on their investment goals and what they need for industry exposure. 

Interview: Christopher Wood of CLSA Asia-Pacific Markets and author of the “Greed & Fear” newsletter makes a case for avoiding U.S. stocks and buying Asia instead. 

Profile: David Eiswert, manager of the T. Rowe Price Global Stock Fund, has access to all of TROW’s 158 global equity analysts, and he looks anywhere in the world for opportunities (top 10 holdings: GOOGL, Essity, AMZN, Tencent Holding, BDX, SRE, BABA, ISRG, NEE, PYPL). 

Follow-Up: Cautious on DLTR: Company’s announcement that it will move faster to fix its business and close a number of Family Dollar stores is a gift for investors—but while the sense of urgency has promise, the turnaround process remains a risky work in progress. 

European Trader: Cautious on Aston Martin Lagonda: Automaker’s shares crashed after it went public, but the company is on a mission to prove doubters wrong, and all signs indicate it’s taking the right steps. 

Emerging Markets: Rumors of a U.S.-China trade deal are boosting Chinese stocks, but Beijing has also helped by tilting away from deleveraging and towards economic stimulus. 

Commodities: “Coffee has fallen below a dollar a pound to trade close to its lowest level in more than a decade, but a global glut that pushed prices down for the past two years may finally come to an end in 2019.”

Streetwise: Daniel Ives of Wedbush sees 25% upside for MSFT during the next year as it increasingly sheds its underdog status and better competes with AMZN and other rivals in areas such as cloud computing.

Weaker data and aggressive ECB response weighs on outlook Weekly Market Update: Weaker data and aggressive ECB response weighs on outlook
Fri, 08 Mar 2019 16:07 PM EST

Stock markets rolled over this week as optimism on the China trade front waned to some degree, and worries about global growth resurfaced. Initial optimism over a weekend report that Beijing and Washington were nearing a final trade deal quickly melted away on concerns that the deal might not include enough structure changes in how China conducts business, and subsequent reports that China was getting cold feet. Risk assets in particular saw softening after the ECB surprised markets by acting aggressively in reviving stimulus. The ECB slashed forecasts, pushed back rate hike expectations and introduced and new TLTRO loan program. Just a day before, the Federal Reserve’s Beige book indicated marginal cooling in some districts. Friday saw February non-farm payrolls come in well below expectations but the details of the report suggested that the drop was likely due to transitory factors while affirming that strong underlying labor market trends remain intact. Overseas economic data remained particularly troublesome forcing investors to ponder just how much slowing outside of the US was beginning weigh on growth expectations here.

Interest rates fell notably on both sides of the Atlantic. The German 10-year bund yield slipped back towards 5 bps for the first time since 2016 while the US 10-year dropped back below 2.65%. The Greenback rallied, pushing the Dollar index back above 97 which has served as a significant resistance level. The pound weakened as Brexit negotiations continued without real progress and PM May reportedly rejected a new compromise proposal from the EU just days ahead of expected votes in the UK Parliament. Oil and other commodities tied to growth slipped late in the week as well. The S&P dipped back below its 200-day moving average for the first time in nearly a month. The DJ Transports declined for 11 straight sessions, the longest such streak since the early 1970s. The VIX volatility index rose to levels not seen in more than a month, briefly topping 18. For the week, the S&P and DJIA each lost 2.2%,while the Nasdaq fell 2.5%.

Some key retailer earnings highlighted this week in corporate news. Target shares surged after its holiday quarter beat analyst expectations on comps and the company saw its strongest traffic growth in over a decade. Kohl’s topped estimates on its earnings and same store sales, and also announced a new partnership with Planet Fitness to leverage space adjacent to select Kohl's stores for new gym locations. Kroger shares plummeted after its earnings fell short and margins contracted amid competition from Amazon and Walmart. Shares in Costco jumped after the wholesaler crushed earnings estimates, and the company announced another employee pay hike, its second wage increase in a year. Biogen bolstered its pipeline with an $800M acquisition of clinical-stage gene-therapy company Nightstar Therapeutics for $25.50/share. Eli Lilly said it would sell a half-price version of Humalog amid renewed scrutiny from Congress on rising insulin costs. Shares of cloud services firm Citrix tumbled on Friday after the revelation that it was the victim of a cyberattack, likely by an Iranian-affiliated hacker group.

(CN) China said to have offered US to lower tariffs on US farm goods, autos and other goods; US considering removing most if not all of the sanctions imposed against Chinese products since last year; close to a final agreement on trade - US press
(CN) China Hainan planning to phase out petrol and diesel vehicles - press

OPEC sources: Unlikely to make any output policy decision at its April meeting; more likely to do so in June - press
(US) Atlanta Fed maintains Q1 GDP forecast at 0.3%, unchanged from prior
CRM Reports Q4 $0.70 v $0.56e, Rev $3.60B v $3.56Be
LLY To introduce Lower-Priced Insulin
NITE To be acquired by Biogen for $25.50/shr in ~$800M all-cash deal
*(CN) CHINA NATIONAL PEOPLE'S CONGRESS (NPC): SETS 2019 GDP TARGET AT 6.0-6.5% v ~6.5% in 2018; CPI ~3.0% v ~3.0% in 2018 (both inline with expectations); Fiscal policy to be proactive, monetary policy to be prudent; cuts VAT for some sectors and top bracket
*(AU) RBA LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED (27th straight pause in the current easing cycle)

(GR) Greece Debt Agency (PDMA) opens book to sell 10-year bond via syndicate; yield guidance seen 4.125%
*(UK) FEB SERVICES PMI: 51.3 V 50.0E (31st month of expansion)
TGT Reports Q4 $1.53 v $1.53e, Rev $23.0B v $23.1Be
(UK) Govt said to be unlikely to publish no-deal tariffs before meaningful vote - financial press
KSS Reports Q4 $2.24 v $2.17e, Rev $6.30B v $6.79Be; Raises Quarterly dividend 9.8% to $0.67 from $0.61 (indicated yield 4.03%)
GE CEO: Sees free cash flow in negative territory this year - JP Morgan conf
NIO Reports Q4 (CNY) Adj EPS -3.20 v -71.47 y/y, Rev 3.44B v n/a y/y

THO Reports Q2 -$0.10* v +$0.88e, Rev $1.29B v $1.48Be
XOM Targets Earnings to increase $4B, Cash flow to grow >$5B from 2019 to 2020 - investor presentation
(EU) ECB reportedly to hold discussions on design of new targeted loans (TLTRO); To cut inflation projections through 2021 - press
(US) Conference Board Experimental Help Wanted OnLine Index (HWOL) at 104.0 v 103.7 m/m
(US) Atlanta Fed raises Q1 GDP forecast to 0.5% from 0.3%
(US) Association of American Railroads weekly rail traffic report for week ending Mar 2nd: 528.2K, -3% y/y (has fallen for 3 consecutive weeks)
(US) Kansas City Fed economist's paper: Fed is starting to consider when to halt decline in reserves and grow the balance sheet
(US) Centers for Medicare & Medicaid Services seeks recommendations that allow Americans to purchase health insurance across state lines

DPW.DE Reports Q4 Net €813M v €837M y/y, EBIT €1.1B v €1.18Me, Rev €16.9B v €16.1B y/y
*(EU) EURO ZONE Q4 FINAL GDP Q/Q: 0.2% V 0.2%E; Y/Y: 1.1% V 1.2%E
SUP Reports Q4 $0.61 v -$0.50 y/y, Rev $378.8M v $361.8M y/y
*(EU) ECB LEAVES MAIN 7-DAY REFINANCING RATE UNCHANGED AT 0.00%; AS EXPECTED; announces new TLTRO, extends forward guidance
(EU) ECB’s Draghi: Took decisions to help lift inflation to target; ECB is ready to adjust all instruments - Prepared remarks
(EU) ECB’s Draghi: New ECB measures are adding accommodation; decisions taken following the revised Staff Projections to increase resilience of Euro Zone - Q&A
(US) Fed Reports Q4 Financial Accounts: Household Change in Net Worth: -$3.73T v $2.07T prior
(EU) Reportedly ECB opted for more radical easing measures today only after growth projections showed a bigger than feared economic slowdown - press
(CN) Chinese officials reportedly becoming wary of quick trade deal; persuading Pres Xi to attend Mar-a-Lago summit is 'no easy task' - NY Times
KR Reports Q4 $0.48 v $0.53e, Rev $28.1B v $28.0Be
*(CN) CHINA FEB TRADE BALANCE: $4.1B V $26.2BE (smallest trade balance since March 2018)

(US) FEB AVERAGE HOURLY EARNINGS M/M: 0.4% V 0.3%E; Y/Y: 3.4% V 3.3%E (highest annual reading since 2009); AVERAGE WEEKLY HOURS: 34.4 V 34.5E
(US) Atlanta Fed maintains Q1 GDP forecast at 0.5%, unchanged from prior
(UK) EU Brexit Negotiator Barnier: I briefed EU27 Ambassadors and EP today on the ongoing talks with UK; following the EU-UK statement of 20 Feb, the EU has proposed to the UK a legally binding interpretation of the Brexit Withdrawal Agreement
(UK) Reportedly the EU's latest Brexit offer has been rejected by the UK - pressCTXS Discloses investigating unauthorized access to internal network; it appears that the hackers may have accessed and downloaded business documents

Wednesday, March 6, 2019

March-April 2019 Outlook: Best Picture March-April 2019 Outlook: Best Picture
Tue, 05 Mar 2019 15:28 PM EST

The markets appear to have overcome late 2018 worries about a global recession and have resumed a narrative of cautious optimism that growth can continue and extend the aging bull market. The same macroeconomic stories that have projected uncertainty on to the markets for the past two years continue to linger, despite some hard deadlines that were supposed to offer resolution during the first quarter of 2019. By this point, market watchers are saying “haven’t we seen this already” and wondering when this storyline is going to end.

It now appears the Brexit will be pushed back from March 29, with no clear solution to the seemingly irreconcilable dispute over how to handle the Irish border issue. Meanwhile the Trump administration has postponed higher tariffs on China slated for March in light of trade talk progress. But even if a US/China accord is reached, more tough trade negotiations lie ahead with Japan and Europe, while the ‘new NAFTA’ has yet to be ratified.

Slowing growth remains a headwind, and persistent strength in the greenback is moderating gains for the US economy, which has been the star of the global recovery. Piecing together the outcomes of these disparate macro issues, we can form the best picture of which way the global economy will move over the months ahead.

Green Book

If the stock market is to be used as an indicator, then the early 2019 economy (especially in the US) is a blockbuster compared to recent years. The accumulated uncertainties that knocked the S&P500 into correction in December have eased, and Wall Street is seeing a lot of ‘green’ books after the breathtaking rally in stocks through February.

The extent to which this market rebound will continue may depend on the strength of the US consumer, who is facing some troubling indicators. December advance retail sales saw their biggest drop in almost ten years, and the National Retail Federation reported that holiday sales were substantially below initial rosy expectations. Early 2019 auto sales have also been mediocre, with February marking the lowest industry sales rate (SAAR) since August 2017, while auto loan delinquencies are at the highest level since they peaked in 2010, presenting a possible early warning sign. The same holds true for the housing market, as uncertainty over where mortgage rates are heading contributed to January existing home sales dropping below five million, to the slowest rate since November 2015. It remains to be seen if the weak December retail sales and other data were an anomaly driven by the government shutdown as the White House suggests. Clearly auto and home sales need to show improvement to evidence that consumers aren’t turning cautious, and the spring selling season may give a better read on how the housing market is doing amid the prospect of higher rates.

Though the rapid dovish evolution in Fed policy ignited the stock market rebound, the sustained rally is largely attributed to growing hopes for a US/China trade deal. The White House is said to be aiming for an agreement within weeks so that a signing ceremony can be held by late March, and the latest reports say that China is offering to lower tariffs on US farm goods and autos, and that the US may reciprocate as they close in on a final deal. Negotiations could still hit a snag (e.g. frictions over Huawei or an allegation of currency manipulation in the Treasury’s upcoming semiannual report), but market optimism that a deal will get done remains high.

The question is how much of this optimism is already built into the market and whether a China trade deal could be a “sell the news” moment. The answer will depend on the actual structure of the final China trade deal. Recent reports highlight offers for deficit reduction through China buying more US goods, but the key will be the extent of the structural changes that China agrees to in order to protect intellectual property, reduce subsidies for state owned enterprises (SOEs), and allow US monitoring and enforcement of compliance. That may only be answered by an analysis of what concessions are in the final document.

Assuming the China deal gets signed, there is still another looming round of trade talks that can impact market sentiment as the White House gets into bare knuckle negotiations with trading partners in Europe and Japan, largely focused on the automobile industry. The US Commerce Department has reportedly furnished the White House with a menu of options ranging from a 10% or 25% across the board levy to more targeted customs duties on specific automotive technologies. It may be a couple months before President Trump makes a final decision regarding auto tariffs.

For its part China is definitely feeling the impact of the US tariff regime on its economy, and has initiated a number of stimulus efforts to counteract the effects as the negotiations wear on. Beijing’s latest plan to help the economy is said to be a $90B cut in VAT for manufacturers. In addition, the annual meeting of the People’s Congress just affirmed that fiscal policy will be “proactive” and monetary policy will remain “prudent” this year, targeting GDP growth of 6.0-6.5% compared to about 6.5% last year. Given these numbers, if the terms of the US trade deal leaves the Chinese economic outlook in worse shape, it could amplify the global slowdown that is already troubling forecasters.

The Favourite

In the UK, economic malaise has persisted in the face of all the uncertainties around the Brexit. PM May is certainly no one’s favourite, but she continues to single-mindedly focus on implementing “the will of the people.” The odds are that the Brexit is still going to happen, though now it appears that the exit date will be pushed back, in what is being couched as a “short technical extension.”

In the weeks leading up to the March 29 deadline, the EU has made it clear it does not want to reopen Brexit negotiations over the UK Parliament’s objections to the Irish border backstop. The last month of discussions haven’t made any significant headway, as the EU has stood fast to its stance that it can only provide “assurances” in a political declaration on future UK/EU ties, but will not reopen negotiations on the exit agreement that the British parliament subsequently rejected. In the most recent overture to end the deadlock, EU negotiator Barnier suggested that he would be willing to give further assurances that the backstop is only temporary, potentially via a commitment to limit the backstop through an agreement on the future relationship between UK and EU (which is to be negotiated next). It’s unclear if this will be enough to win over Parliament.

Meanwhile PM May has toned down her implied threats that the UK is willing to crash out of the EU in a ‘no deal’ Brexit, helping to strengthen the pound sterling over the last few weeks. The PM has laid out a plan for a series of votes that appear likely to result in the Brexit date being pushed back a few months. By March 12, the Parliament will have its ‘meaningful vote’ on whether to support the negotiated Brexit agreement on the table. That failing, MPs would then hold votes on blocking a ‘no deal’ Brexit and ultimately on extending Article 50, which would push back the exit date.

This plan got a lukewarm reception from the EU, who welcomed PM May’s efforts to get her house in order, but also warned Britain not to kick-the-can just because the problem is difficult. The EU wants to see a realistic endgame from Britain.


Despite all of the focus on Brexit, it is not Europe’s only concern. Italy, after struggling last year with its budget plan and a banking system still thick with non-performing loans, recently reported its second contractionary quarter in a row, entering a technical recession. Italy’s lack of growth was emblematic of worse than expected data across much of Europe, and even the vaunted German economic engine showed zero quarter-over-quarter growth in the fourth quarter.

The coalition government in Rome continues to suffer from internal disputes over how to shore up the ailing domestic economy. This was exemplified by reports that the Northern League had drafted a proposal for a Constitutional change that would allow the government to sell gold reserves, an idea that was subsequently poo-pooed by the Italian central bank and then denied by party officials.

The ECB has its eye on Italy and says it’s not a threat at this time, but central bank officials have acknowledged that the economic slowdown across Europe has been sharper and broader than expected. Weakening growth in Europe has already prompted speculation that the ECB will have to reconsider its plans for policy normalization and instead launch fresh stimulus efforts to prevent recession from expanding beyond Italy. To that end, the ECB has already discussed the possibility of a new TLTRO program to bolster banks that are facing a funding cliff as the last round of cheap 4-year TLTRO loans doled out from 2014 to 2017 start maturing. However, the ECB will probably put off major policy changes for a while longer, leaving the big decisions to the yet-to-be-named new ECB President, who will be appointed later this year.

“Nothing Really Matters” (Bohemian Rhapsody)

When it comes to Federal Reserve monetary policy, ‘nothing’ really does matter as the central bank has decided to pause and assess at least through the first six months of the year. In the last couple months it seemed that Fed policy would go ‘anyway the wind blows’, as the rate forecast was cut back from three additional hikes in 2019. In one of the swiftest outlook changes in central bank history, Chair Powell appeared to take his cue from the bearish December stock market, lowering his estimation of the ‘neutral’ rate and suggesting that the Fed balance sheet reduction is not on auto-pilot and could finish within the year. That would cut short the Fed’s own prior estimate of balance sheet reductions by over $300 billion.

The wholesale changes made to the FOMC statement in January demonstrated that the Fed Chair’s new practice of holding a press conference at every meeting means that every meeting is ‘live’ for potential policy moves. The key change in January was to the forward guidance, taking it from “some further gradual increases” being warranted, to a “patient” stance. It also removed a reference to risks being “roughly balanced’, implying that global uncertainties are tilting to the downside.

The March 20 FOMC meeting will give the Fed another chance to revise its script as it releases the updated Summary of Economic Projections. With several Fed officials now specifying that they see only one or less rate hikes this year the ‘dot plot’ could be ratcheted down further towards what Fed funds futures are predicting. Market pundits are now debating whether the Fed will hold fast to forecasts for rate hikes to continue later this year, or as Fed fund futures indicate, keep rates on hold or even reverse course with a cut. Currently, Fed funds futures predict only a 10% chance of one rate hike by December, and many Wall Street forecasters are laying odds on a cut as growth slows this year.

The hawkish wing of the Fed could make a cautious comeback later this year if some macro concerns like China trade and global growth dissipate, but it appears more and more likely that US monetary policy could be on hold for most if not all of 2019. But even with that and the balance sheet reduction being cut short, some Wall Street wise men like Jim Grant have warned that monetary policy normalization will have consequences for an economy that has been capitalized for ultra-low interest rates.


Much has been made of President Trump’s unprecedented criticism of the Fed Chair that he appointed over tighter rates and the strong dollar. It exemplifies the “dysfunction” that has become Washington DC’s most obvious vice. Another prime example is the record-long government shutdown that has already put a cloud over first quarter GDP. The gamesmanship over the government shutdown may only be a prelude to a potentially more dangerous legislative battle over the debt ceiling.

The debt ceiling was suspended in 2017 by legislative decree, but was just reinstated on March 2 at the current $22 trillion level. The Treasury has already confirmed that it will utilize its ‘extraordinary measures’ which the CBO has estimated can prevent the government from hitting the debt ceiling until late in the current budget year, which ends on September 30.

During the Obama administration, conservative congressional Republicans used brinkmanship on the debt ceiling to extract certain budgetary concessions. Taking a cue from this, President Trump may see the debt ceiling as a new opportunity to leverage Congress to endorse his policy agenda. Unfortunately that would create new uncertainties for global markets which would have to factor in the risk of a US government default, however remote. Ratings agency Fitch has already warned that if the debt ceiling becomes a problem it will have to consider whether America’s ‘AAA’ sovereign debt rating is “consistent”.

Fractious politics are also threatening the USMCA treaty, Trump’s main achievement in trade so far. Among other changes, Democrats are demanding stronger labor standards as part of the agreement. The President already tried to apply pressure on Congress in early December when he pledged to formally withdraw from NAFTA, which would give lawmakers a six month window to ratify the new trade treaty or end up with no agreement at all, potentially wreaking havoc on North American supply chains. Some press reports suggest Trump could ultimately offer an infrastructure spending package as a sweetener for Democrats to get on board with the USMCA.

The drama of the Mueller report also continues to hang in the toxic atmosphere of Washington, distracting the President and causing some Democrats to unrealistically dream about impeachment (which, even if successful, would simply install Trump’s ‘Vice’ Mike Pence in the Oval office). If reports are true, the Special Counsel could submit his findings to the Justice Department within weeks, creating fodder for the news media for weeks, especially if the DOJ withholds the full report and it subsequently leaks out piecemeal. As recent House investigative hearings have shown, the Mueller report is also likely to inspire more probes into various aspects of the Russian interference case, continuing to nettle the Trump administration as the new Presidential election season gets underway.


Political pressure has also been at play in the energy markets, with particular focus on Venezuela and Iran. Sanctions, on top of years of mismanagement of the domestic energy industry, have slowed Venezuelan exports to a trickle – oil sales are at a three decade low and production is at its lowest since the 1940’s. Under scrutiny from the international community, demands are growing for the Maduro government to hold free and fair elections, which appears to be driving Venezuela toward a regime change that could further disrupt its oil industry.

The Trump administration’s economic sanctions on Iran’s nuclear program also continue to crimp oil supplies. Although the US granted waivers to eight countries including China, India, Japan and South Korea, allowing them to wean themselves off of imports of Iranian oil, those waivers end in June. India is said to be in talks for an extension and others may be granted on an ad hoc basis, but Iranian supplies continue to get squeezed out of the market.

President Trump has also been jawboning the broader energy market, recently tweeting that oil prices are getting too high and calling on OPEC to “relax and take it easy.” Reportedly OPEC and their partners were not moved by his exhortations, and plan to urge members toward even greater compliance with the production cutting agreement, which has been effective in firming up energy prices. A rare extraordinary meeting of OPEC members on April 17-18 will review the progress made under the production cutting plan, but no decision on modifying the agreement is expected until the regular OPEC meeting in Vienna on June 25.

And the winner is…?

Given the aforementioned events what is the best picture we can form about the months ahead? Starting with monetary policy, the Fed, along with other global central banks pondering normalization, can stay on the sidelines until inflation or reinvigorated growth emerge, both of which don’t seem to be in the cards in the near term. Firming energy prices should keep a floor under inflation, but even greater compliance from OPEC+ isn’t likely to drive oil futures and the pass through to consumers much higher this year.

The pause in Fed policy should support a reasonable risk-on environment for the next few months, and a meaningful Sino-US trade deal would bolster positive sentiment. But other trade battle still loom ahead, and the Brexit process has no end in sight, which may be enough to fuel continued uncertainty in the macroeconomic picture. Europe can stave off recession, possibly with a little well timed assistance from the ECB, and assuming the UK doesn’t crash out of the EU.

Rising political tensions within the Washington beltway will also contribute to uncertainty, but the strife would have to reach unprecedented proportions to drive the US into a serious test of the debt limit. Ultimately there are a lot of paths to losing scenarios for the global economy, but it would take some serious missteps by the leading actors to completely derail a promising season for the markets.

5: UK Services PMI; US ISM Non-manufacturing PMI
7: ECB policy decision & press conference; China Trade Balance (tentative)
8: US Payrolls & Unemployment; Preliminary Univ of Michigan Confidence

12: UK Manufacturing Production; US CPI
13: US PPI; China Industrial Production
14: US Retail Sales; BOJ policy decision

19: UK Unemployment; German ZEW Economic Sentiment; US Housing Starts & Building Permits
20: UK CPI & PPI; FOMC policy decision & press conference
21: UK Retail Sales; BOE policy decision; US Philadelphia Fed Manufacturing Index
22: Various European Flash Manufacturing & Services PMIs; German Ifo Business Climate

26: US Durable Goods Orders; US Consumer Confidence
28: US Final Q4 GDP
29: UK Current Account; UK Final Q4 GDP; Euro Zone Flash CPI; Chicago PMI
30: China Manufacturing & Non-manufacturing PMIs

1: UK Manufacturing PMI; US ISM Manufacturing PMI
3: UK Services PMI; US ISM Non-manufacturing PMI
4: ECB Minutes
5: US Payrolls & Unemployment

10: UK Manufacturing Production; ECB policy decision & press conference; US CPI; FOMC Minutes
11: US PPI; OPEC extraordinary meetings
12: Preliminary University of Michigan Confidence

15: China Q1 GDP
16: UK Unemployment; German ZEW Economic Sentiment; US Retail Sales; China Industrial Production
17: UK CPI & PPI; US Housing Starts & Building Permits
18: UK Retail Sales; US Philadelphia Fed Manufacturing Index

22: German Ifo Business Climate
24: Various EU Flash Manufacturing & Services PMIs; BOJ policy decision
25: US Durable Goods Orders
26: US Advance Q1 GDP

29: US Core PCE; US Personal Income & Spending; China Manufacturing & Non-manufacturing PMIs
30: Euro Zone Flash Q1 GDP; Chicago PMI; US Consumer Confidence
**US Treasury Currency Manipulator Report tentatively due in April
1: US ISM Manufacturing PMI; FOMC policy decision & press conference
2: UK Manufacturing PMI; BOE policy decision
3: UK Services PMI; Euro Zone CPI Flash Estimate; US Payrolls & Unemployment