Sunday, February 17, 2019

Barrons weekend summary

Barrons weekend summary: cover story on cannabis stocks; positive feature on Loews (L) 
Cover story: Investors interested in U.S. cannabis stocks face a number of challenges: Although marijuana is legal for recreational or medical use in many states, it remains illegal under federal law, so cannabis companies—with the exception of those that only sell in Canada such as CGC and TLRY—can’t list on American exchanges; Top contenders in the U.S. market include Acreage Holdings, Green Thumb Industries, MedMen Enterprises, Harvest Health & Recreation, Trulieve Cannabis, iAnthus Capital Holdings, which are pursuing varied strategies, with only Acreage and iAnthus profitable so far. 

Features: 1) The patchwork of marijuana regulation in the U.S. makes it hard for cannabis companies to manage legal issues, but a broader federal reform would result from the States Act, proposed in June 2018, that would exempt cannabis from most federal drug laws in states that have legalized it; 2) Positive on EQIX, COR, IRM, INXN: Barron’s found four leading companies in the data-center sector whose shares look compelling after an industry slowdown that weighed on investor sentiment—the shares are staging a comeback and seem poised for further growth; 3) Positive on Fanuc, ABB, Yaskawa Electric, Kuka, TER: Major robot makers offer investors a good opportunity to gain exposure to a technology that is part of what manufacturing executives say will be the next industrial revolution—and of the five, Teradyne is particularly attractive; 4) Positive on L: The home-improvement company is a $15B conglomerate that “flies under Wall Street’s radar,” and is “a conservatively run, value-oriented company, with decent growth prospects, that trades at a nice discount from its net asset value.” 

Tech Trader: An executive order from Donald Trump banning Huawei Technologies gear in the U.S. would be good for the company’s rivals—including NOK, ERIC, and Samsung Electronics—problematic for foreign telecom operators, and worrisome for U.S.-China trade relations. 

Trader: “The market’s rally has forced investors to rebuild positions they may have sold off during December’s tumble—and they may not be finished just yet,” while hedge funds and risk-controlled portfolios still have little exposure to the market relative to history and retail investors haven’t put much money back in since the downturn; Positive on YETI: Maker of outdoor gear such as coolers, jugs, wine tumblers, and more has low brand recognition, but as more people learn about it, shares could rise by as much as 60%; Cautious on XPO, FDX, UPS, KR, FAST, GWW: As AMZN “eats the economy,” its influence continues to expand, and no sector—from shipping to groceries to industrial distribution—seems safe from its disruption, leaving investors the challenge of finding which industries could benefit from its growth. 

Interview: Matt Diserio and his partners founded Water Asset Management in a bid to solve environmental problems while making good returns, but he doesn’t think all sustainable investments are winners, and he likes water more than renewable energy (picks: PRMW, AOS, RXN, Suez). 

Profile: Vivian Wohl, one of eight co-portfolio managers at the $1.7B Federated Kaufmann Small Cap fund, focuses on medical devices and healthcare software and services, spends a lot of time on Facebook following patient groups to see what users are saying about new devices and services (top 10 holdings: VEEV, INSP, DXCM, TNDM, HZD, GKOS, PRAH, NEO, IRTC, XENT). 

European Trader: Positive on AMS: Swiss company that produces 3-D sensors and laser technologies used in smartphones was one of several AAPL suppliers hit by slowing iPhone sales, but it is trying to diversify into other consumer areas and industrial applications, which should eventually boost sales. 

Emerging Markets: Chinese companies are increasingly defaulting on their bonds, a good thing in the long term, but also in the short term for investors who know what they are doing—but they can’t navigate these assets from an armchair.

Commodities: “Volatile prices make gasoline a particularly risky investment, but the fuel’s importance to drivers hasn’t wavered” and most consumers consider it to be a more important household expenditure than expenses such as health care and savings.

Streetwise: For AMZN, the decision to pull out of a planned New York headquarters is a financial nonevent. But shareholders should remember that its surging profits could invite a backlash—and from devout capitalists, not just progressive protesters.

Risk-on rally resumes on technical strength and progress in China trade talks

TradeTheNews.com Weekly Market Update: Risk-on rally resumes on technical strength and progress in China trade talks
Fri, 15 Feb 2019 16:08 PM EST

This week’s trading was predominately focused on headlines out of Beijing. Investor sentiment was buoyed by apparent progress made in trade talks culminating in positive overtures from both President Trump and President Xi. Enough progress was achieved to extend talks into next week with representatives scheduled to meet in Washington D.C. Separately, President Trump ultimately signed on to a border funding agreement hashed out on Capitol Hill, avoiding another shutdown, but he also declared a national emergency pledging to come up with roughly $8B in wall funding from various government resources. Earnings season chugged along into the latter innings and overall managements remained reluctant to go out on a limb in terms of FY19 forecasts given macro uncertainties.

Treasury yields moved up during the first few trading sessions with the positive trade vibes largely propelling risk-on flows out of bonds, only to come under some modest pressure after a very poor, delayed December US retail sales report. The largest monthly drop in that series going back to late 2009 resulted in economists substantially downgrading GDP forecasts. Overseas economic data stayed generally squishy with the relative weakness allowing the US dollar to firm up. The Dollar Index drifted up to retest the 97 mark and the S&P climbed back above its 200-day moving average. WTI crude futures moved up to the mid $50s area with both the Saudis and Russians jawboning prices by alluding to the potential of a more formal OPEC+ production arrangement in the future. For the week, the S&P gained 2.5%, the DJIA added 3.1%, and the Nasdaq rose 2.4%.

In corporate news this week, Coca-Cola shares experienced their worse day in a decade after the company guided slowing organic revenue and flat comparable earnings in the coming year, affected by FX headwinds and structural items. Investors reacted positively after Nvidia's FY forecasts came in better than expected. Newell Brands’ outlook disappointed the market again, as the consumer goods firm pointed to tariffs, commodity inflation, and FX volatility as particular hurdles. EA surged after it announced its new ‘Apex Legends’ free-to-play game surpassed 25M users, growing faster than rival game Fortnite. Toy makers Mattel and Hasbro saw shares slide sharply on Friday as they both gave strategy updates that indicated they continue to struggle in the post-Toys R Us world. Mortgage software developer Ellie Mae agreed to be acquired by PE firm Thoma Bravo for $99/share in a $3.7B all-cash deal.


SUNDAY 2/10
(CN) China Minsheng Investment halts trading of bonds, volatility cited as 2020 CNY bonds traded near record low – US financial press

TUESDAY 2/12
TKA.DE Reports Q1 Net €136M v €81M y/y, Adj EBIT €333M v €227Me, Rev €9.74B v €9.54B y/y
*(US) DEC JOLTS JOB OPENINGS: 7.335M V 6.846ME (record high)
(UK) PM May adviser Oliver Robbins reportedly was overheard saying that MPs will be given choice between PM May's deal or lengthy delay to Brexit - ITV News
(US) California Gov Newsom proposes a 'digital dividend' for state consumers that would target large tech firms - press
*(NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE UNCHANGED AT 1.75%; AS EXPECTED
(CN) China President Xi to meet with US trade delegation Friday including Lighthizer and Mnuchin in Beijing - SCMP

WEDNESDAY 2/13
HEIA.NL Reports FY18 Net €2.42B v €2.34Be, Op €3.87B v €3.84Be, Rev €22.5B v €21.9B y/y
*(US) JAN CPI M/M: 0.0% V 0.1%E; CPI (EX-FOOD/ENERGY) M/M: 0.2% V 0.2%E; CPI NSA: 251.712 V 251.617E
*(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.25%; AS EXPECTED; maintains rate path outlook
DB1.DE Reports Q4 adj €1.25 v €1.25e, Adj EBITDA €419.9M v €338.3M y/y, Rev €740.4M v €710Me
CTL Reports Q4 $0.37 v $0.36e, Rev $5.78B v $5.80Be; Cuts annual dividend 54% to $1.00 from 2.16 (new implied yield 6.8%)
*(CN) CHINA JAN TRADE BALANCE: $39.2B V $34.3BE

THURSDAY 2/14
AIR.FR Reaches agreement with Emirates on A380 fleet, order reduced from 162 to 123; consequence of reduced order largely embedded in FY18 results, will stop delivery of A380 in 2021
AIR.FR Reports FY18 Net €1.6B v €2.87B y/y, Adj EBIT €5.8B v €5.1Be, Rev €63.7B v €67.0B y/y; raises 2018 dividend 10% to €1.65
ACA.FR Reports Q4 Net €1.01B v €795Me, Rev €4.85B v €4.80Be
CSGN.CH Reports Q4 (CHF) Net 292M v -2.13B y/y, adj Pretax 4.2B v 569M y/y, Rev 4.8B v 4.75Be
*(DE) GERMANY Q4 PRELIMINARY GDP Q/Q: 0.0% V 0.1%E; Y/Y: 0.6% V 0.7%E
KO Reports Q4 $0.43 v $0.43e, Rev $7.10B v $7.06Be
AZN.UK Reports Q4 Core EPS $1.58 v $1.48e, Rev $6.42B v $6.16Be
*(EU) EURO ZONE Q4 PRELIMINARY GDP Q/Q: 0.2% V 0.2%E; Y/Y: 1.2% V 1.2%E
*(US) JAN PPI FINAL DEMAND M/M: -0.1% V +0.1%E; Y/Y: 2.0% V 2.1%E
(CN) Reportedly US/China trade talks remain deadlocked as Beijing refuses to eliminate coerced technology transfers or government subsidies to Chinese companies - WSJ
(US) Atlanta Fed cuts Q4 GDP forecast to 1.5% from 2.7%
AMZN Amazon will NOT build second headquarters in New York City after opposition; plans to move ahead with its Northern Virginia and Nashville campuses
(US) White House Press Sec Sanders: confirms Pres Trump will sign govt funding bill and declare a national emergency to build a border wall
AMAT Reports Q1 $0.81 v $0.79e, Rev $3.75B v $3.72Be
NVDA Reports Q4 $0.80 v $0.75e, Rev $2.21B v $2.37Be

FRIDAY 2/15
RBS.UK Reports Q4 Net +£436M v -£415M y/y, adj Op +£572M v -£583M y/y, Rev £3.06B v £3.06B y/y
(CN) China President Xi meets with US trade delegation in Beijing (as speculated)
(UK) JAN RETAIL SALES (EX-AUTO/FUEL) M/M: 1.2% V 0.2%E; Y/Y: 4.1% V 3.2%E
(CN) US-China trade talks to continue in Washington DC during the week of Feb 18th - press
*(US) FEB EMPIRE MANUFACTURING: 8.8 V 7.0E
(US) JAN INDUSTRIAL PRODUCTION M/M: -0.6% V 0.1%E; CAPACITY UTILIZATION: 78.2% V 78.7%E
*(US) FEB PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 95.5 V 93.7E
(US) Pres Trump: China trade talks are going extremely well; we're a lot closer than we ever were to have real trade deal with China; Confirms declaring national emergency at the border - comments at White House
(US) New York Fed Nowcast: cuts Q4 forecast to 2.2% from 2.4%; cuts Q1 forecast to 1.1% from 2.2%
MAT Guides FY19 gross sales flat y/y (cc); Q1 gross sales to be lower y/y - Toy Fair presentation

Sunday, February 10, 2019

Barrons weekend summary

Barrons weekend summary: positive feature on WAB; cautious on MYGN 
Cover story: Barron’s and Calvert Research and Management unveil their second annual list of the 100 Most Sustainable Companies, based on hundreds of environmental, social, and governance factors; The list is topped by BBY, CSCO, A, HPQ, TXN, VOYA, CLX, GWW, MSI, and MAN; Story says the “personal passions” of a company’s chief executive are a key factor in pushing it toward sustainability. 

Features: 1) Barron’s and Calvert’s ranked the 20 Most Sustainable International Companies, a list topped by Accenture, Brambles, Accor, Telenor, and Whitbread; 2) Positive on WAB: Shares of the passenger train equipment maker dropped after its proposed deal with GE Transportation failed to materialize, but the bearishness appears to be overdone and the shares look cheap; 3) Cautious on MYGN: Investors and scientists continue to debate the merit of the company’s GeneSight process, which analyzes genes associated with antidepressant drugs’ effectiveness, then guides doctors in the choice of treatments—and the shares aren’t likely to rise until a stronger consensus is formed; 4) Positive on BBT, STI: The banks’ tie-up makes sense: both are tightly managed and didn’t play any major role in the financial crisis, but though the deal may prompt more regionals to go shopping, suitable partners are rare; 5) The recent underperformance of Bill Gross provides raises a longstanding question about him: Was he a great investor, or just the beneficiary of a four-decade rally in the things he happened to trade, a lucky sailor on a current of declining rates and credit expansion?; 6) In a little noticed move, Steve Mandel of Lone Pine Capital, the most successful fundamental stock picker of them all, quietly stepped down after generating tens of billions of dollars in gains for his clients over the past two decades and establishing one of the best investment track records ever.

Tech Trader: Cautious on T: Telecom has been running a national advertising campaign promoting a new 5G service and is pushing to roll out the moniker to the top of smartphone screens, but new 5G chipsets aren’t available, so the company is essentially re-badging an improved 4G technology known at LTE Advanced—a move that’s bad for investors and consumers. 

Trader: One puzzle for investors comes from the bond market, where yields have been steadily falling—the 10-year Treasury yield dropped 0.058 percentage point, to 2.632% last week—even as risk appetite and economic data have started to improve; Positive on BA, EL, MTB: Companies whose earnings estimates have been rising for the first quarter and beyond could be demonstrating resilience in the face of a slowdown; “The impact of the Sino-American trade conflict could be felt in currency markets if a deal isn’t reached on schedule by March. No deal would mean higher tariffs on Chinese goods—which could also mean additional, unexpected upward pressure on the U.S. dollar.” 

Interview: Abhay Deshpande of Centerstone Investors fund will park money in cash or gold if he can’t find enticing stocks, since avoiding losses is a top priority—but he’s optimistic about stocks now, and is on a major shopping spree (picks: CIOXY, Genting, FAST, MHK, ISS, Compagnie Financiere Richemont). 

European Trader: Positive on Pirelli: The tire-maker’s stock looks set to go up during the next 12 months, propelled by rising earnings as the company shifts to higher margin products and benefits from the increased demand for performance tires.

Emerging Markets: With a nearly 16-fold gain, Indonesia has been Asia’s best-performing market over the past 20 years through January, far outpacing China and India, and it is likely to maintain its long-term lead over regional rivals this year. 

Commodities: “Lumber prices have made quite a comeback this year, climbing by 25% in January and nearly erasing the decline suffered in 2018, as the market gets a boost in demand ahead of the spring building season. Looking ahead, however, analysts urge caution.” 

Streetwise: A proposal by senators Charles Schumer and Bernie Sanders to impose tests on corporations before they engage in stock buybacks “is just one of a series of bad ideas emanating from Washington. Others include a wealth tax and a 70% top income-tax rate.”

Market rebound pauses to assess weaker data and progress on trade and other macro issues

TradeTheNews.com Weekly Market Update: Market rebound pauses to assess weaker data and progress on trade and other macro issues
Fri, 08 Feb 2019 16:08 PM EST

US indices opened to week supported by renewed buying vigor coming on the heels of the strong January jobs report. US/China trade hopes were also lifted as it became clear US officials were indeed set to travel to Beijing next week. Stock markets lost momentum though as investors continued to sift through a barrage of corporate earnings reports and as the furious five-week long rebound in equities ran up against resistance near 200-day moving averages. Global growth worries were amplified by continued softness in the economic data, particularly in Europe which coincided with the European Commission decision to slash economic growth forecasts for the region. Potentially adding the growth jitters were a series of communications from central banks, that in some cases, were unexpectedly dovish in the wake of similar posturing by the Fed and ECB last week. Risk flows turned decidedly defensive through the final two trading sessions, helped in part by US officials tempering expectations ahead of next week’s trade talks in Beijing. Government bond yields pushed lower globally. The 10-year Bund fell back below 0.1% and the Gilt to 1.15% for the first time since May. LIBOR followed up its largest daily drop since 2009 on Thursday by resetting lower once again on Friday. The US 30-year traded sub 3.00%. For the week, the S&P rose less than 0.1%, the DJIA added 0.2%, and the Nasdaq gained 0.5%.

On the corporate news front this week, the earnings season peaked, highlighted by reports from GM and Google parent Alphabet. GM impressed the market by beating estimates on both the top and bottom line, though sales in Asia showed some signs of slowing. Alphabet also beat expectations but some analysts fretted over weaker operating margins and rising costs at the search giant. In M&A news, the cloud sector was bolstered by the announcement that Ultimate Software would be acquired by an investor group led by Hellman & Friedman for about $11 billion. Meanwhile, BB&T announced a combination with SunTrust, a $66 billion transaction that would mark the largest banking merger since the financial crisis. Shares of Arconic slid into the end of the week as it further confirmed it will not pursue a sale, instead focusing on costs cuts including a dividend reduction.

MONDAY 2/4
*(EU) EURO ZONE FEB SENTIX INVESTOR CONFIDENCE: -3.7 V -1.3E (lowest since Nov 2014)
ULTI To be acquired by an investor group led by Hellman & Friedman for $331.50/share valued at ~$11B (going private)
*(US) NOV FINAL DURABLE GOODS ORDERS: 0.7% V 1.5%E; DURABLES EX-TRANSPORTATION: -0.4% V 0.0%E
GOOGL Reports Q4 $12.77 v $11.08e, Rev $31.8B (ex $7.4B TAC) v $31.3Be
*(AU) RBA LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED

TUESDAY 2/5
BP.UK Reports Q4 adj Net $3.48B v $2.64Be, Rev $75.7B v$60.7Be
*(UK) JAN SERVICES PMI: 50.1 V 51.0E (30th month of expansion but lowest since July 2016)
(EU) ECB Policymakers reportedly hesitant to change interest rate guidance as it would impact term of next ECB president - press
*(US) JAN ISM NON-MANUFACTURING INDEX: 56.7 V 57.1E
(RU) Reportedly Saudi Arabia and other Persian Gulf nations seeking to formalize partnership with Russia on oil production - press
SNAP Reports Q4 -$0.13 v -$0.08e, Rev $390M v $378Me
7203.JP Toyota reports 9M Net ¥1.42T v ¥2.01T y/y; Op ¥1.94T v ¥1.77T y/y; Rev ¥22.48T v ¥21.80T y/y

WEDNESDAY 2/6
ALO.FR EU rejects Alstom-Siemens rail merger (as speculated)
GM Reports Q4 $1.43 adj v $1.21e, Rev $38.4B v $37.0Be
(US) Q3 Nonfarm Productivity revised lower from 2.3% to 2.2%; Q4 data postponed
(IT) IMF sees Italy growth below 1% in 2019 and 2020; notes government strategy could leave them vulnerabl
*(BR) BRAZIL CENTRAL BANK (BCB) LEAVES SELIC TARGET RATE UNCHANGED AT 6.50%; AS EXPECTED

THURSDAY 2/7
*(IN) INDIA CENTRAL BANK (RBI) CUTS REPURCHASE RATE BY 25BPS TO 6.25%; NOT EXPECTED
SAN.FR Reports Q4 Business EPS €1.10 v €1.06 y/y; Business Net €1.36B v €1.40Be, Rev €9.0B v €9.04Be
*(DE) GERMANY DEC INDUSTRIAL PRODUCTION M/M: -0.4% V 0.8%E; Y/Y: -3.9% V -3.4%E
*(EU) ECB ECONOMIC BULLETIN: Incoming information has surprise to the downside; economic indicators signal a moderation in global growth momentum (in-line with Draghi press conference)
(EU) EU Commission Winter Economic Forecasts: Cuts EU-19 GDP from 1.9% to 1.3%
STI To combine with BB&T in all-stock deal valued at ~$66B
*(UK) BOE LEAVES INTEREST RATES UNCHANGED AT 0.75%; AS EXPECTED
*(UK) BANK OF ENGLAND (BOE) FEB MINUTES: VOTED 9-0 TO LEAVE INTEREST RATES UNCHANGED AT 0.75%
TWTR Reports Q4 $0.31 v $0.25e, Rev $909M v $873Me; will discontinue disclosing MAU after Q1'19
(EU) EU's Donald Tusk: No Brexit break through in sight, talks to continue
(US) Pres Trump confirms he will not meet with Xi before the March 1 tariff deadline; may meet later
*(US) DEC CONSUMER CREDIT: $16.6B V $17.0BE
HUAWEI.CN Trump likely to sign order banning Chinese telecom equipment next week - US press
*(AU) RESERVE BANK OF AUSTRALIA (RBA) QUARTERLY STATEMENT ON MONETARY POLICY (SOMP): REITERATES INTEREST RATE OUTLOOK MORE EVENLY BALANCED THAN PREVIOUSLY THOUGHT

FRIDAY 2/8
*(RU) RUSSIA CENTRAL BANK (CBR) LEAVES KEY 1-WEEK AUCTION RATE UNCHANGED AT 7.75%; AS EXPECTED
ARNC Reports Q4 $0.33 v $0.30e, Rev $3.47B v $3.41Be; issues strategy update to cut costs, cut dividend, buyback $500M in shares
AMZN Said to reconsider NYC as second headquarters site - press


Sunday, February 3, 2019

Risk assets rise on Fed’s dovish turn and as corporate guidance not as bad as feared

TradeTheNews.com Weekly Market Update: Risk assets rise on Fed’s dovish turn and as corporate guidance not as bad as feared
Fri, 01 Feb 2019 16:06 PM EST

Markets opened the week in a bit of a holding pattern ahead of several key catalysts. Earnings season took center stage and some key disappointments on Monday helped push up volatility and pressure risk assets. Some reports suggested industrial corporations have been struggling to contend with slowing growth — particularly in China — along with rising material costs and the strong US dollar, which kept FY19 forecasts on the conservative side and in some cases below analysts' consensus estimates. Some of those concerns abated after Dow component Boeing’s results soared past analyst expectations on Tuesday. Also on Tuesday the UK Parliament voted on various non-binding Brexit amendments which set the stage for what UK officials hope will be another round of negotiations with EU officials in February. Crude and gasoline prices jumped after the US announced sanctions on Venezuela and amid reports US refiners were scrambling to find crude ahead of brutally cold weather forecast to take hold of the middle and eastern parts of the US.

Wednesday saw the defining catalyst of the week when the FOMC tilted decidedly further to the dovish side in its updated policy statement. Language alluding to further rate rises was removed from the statement and Chair Powell affirmed they were prepared to adjust balance sheet normalization in light of future economic and financial developments. US stocks surged, ultimately pushing key indices back towards the 100-day moving average by Friday, while the VIX dropped precipitously. Bond markets rallied sending yields to the lowest levels in weeks as well as pressuring global interest rates. Gold prices firmed and the Greenback softened as many contended the ‘Powell put’ had been resurrected and in all likelihood the Fed was done raising rates. The improving sentiment was further aided by what appear to have been constructive high level US/China trade talks in Washington D.C. Reports even speculated that enough progress had been achieved to allow for the potential of another Trump/Xi summit in early March. Friday’s economic data was the cherry on top for most bulls when stock futures rose again following an ostensibly favorable Dec employment report before the opening bell. Non-farm payrolls came in well above expectations, topping 300K, while wages held steady and the labor force participation rate unexpectedly ticked up for the second straight month. That data was followed by a stronger than expected ISM manufacturing print, which included receding prices paid pressure. For the week, the S&P gained 1.6%, the DJIA added 1.3%, and the Nasdaq rose 1.4%.

In corporate news this week, earnings releases continued apace. Caterpillar opened the week with a miss on both its top and bottom line, while its outlook fell short of expectations. Nvidia cut its guidance, blaming deteriorating macroeconomic conditions, especially in China. Apple shares lifted despite guiding lower than anticipated after reassuring commentary from management. Boeing rocketed higher after a huge earnings beat, and the company forecast it would shatter delivery records in FY19. Facebook surged on an EPS and revenue beat, with CEO Zuckerberg noting the Instagram Stories feature now has 500M daily active users, 25% higher than six months ago. Amazon rolled over during its earnings conference call when the CFO said he would expect investment spending to increase this year.


MONDAY 1/28
(US) NABE Business Conditions survey suggests $1.5T in US tax cuts had little impact on Capex plans: 84% of respondents said they had not changed their investment or hiring plans due to the tax package (vs. 81% in Oct survey) – financial press
VALE5.BR Confirms to suspend dividend and bonuses for executives; to form two independent committees
CAT Reports Q4 $2.55 v $2.98e, Rev $14.3B v $14.4Be
(US) JAN DALLAS FED MANUFACTURING ACTIVITY INDEX: +1.0 V -2.7E
(US) US govt said to be considering release of oil from US Strategic Petroleum Reserve in order to coincide with possible sanctions imposed on Venezuela exports - Platts
WHR Reports Q4 $4.75 v $4.30e, Rev $5.66B v $5.74Be
(CN) China NDRC: To continue improving new energy vehicle (NEV) subsidy structure; to support consumption of green and smart home appliances
*(CN) CHINA PBOC PLANNING OFFSHORE YUAN (CNY) BILL SALE IN FEBRUARY - US PRESS
(CN) China press notes that recently National Development and Reform Commission (NDRC) in conjunction with 10 other govt departments, announced plans to optimize and promote steady growth private consumption

TUESDAY 1/29
SAP.DE Reports Q4 Non-IFRS EPS €1.51 v €1.55e, Non-IFRS Op €2.55B v €2.57Be, Rev €7.43B v €7.23Be
066570.KR Reports FY (KRW) Net 1.47T v 1.87T y/y, Op 2.70T v 2.47T y/y, Rev 61.3T v 61.4T y/y
LMT Reports Q4 $4.39 v $4.39e, Rev $14.4B v $13.8Be
*(US) JAN CONSUMER CONFIDENCE: 120.2 V 124.0E (lowest since July 2017)
AAPL Reports Q1 $4.18 v $4.17e, Rev $84.3B v $84.1Be
VALE CEO: Decided to deactivate all 19 dams similar to the one that burst at Brumadinho (upstream method); estimated impact of the production stoppage is about 40Mt

WEDNESDAY 1/30
SIE.DE Reports Q1 Net €1.12B v €1.01Be, Industrial Business profit €2.07B v €2.15Be, Rev €20.1B v €20.3Be
*(EU) EURO ZONE JAN BUSINESS CLIMATE INDICATOR: 0.69 V 0.77E; CONSUMER CONFIDENCE (FINAL) : -7.9 V -7.9E
(DE) Germany Economy Ministry updates its economic forecasts
BA Reports Q4 $5.48 v $4.52e, Rev $28.3B v $26.7Be
*(DE) GERMANY JAN PRELIMINARY CPI M/M: -0.8% V -0.8%E; Y/Y: 1.4% V 1.6%E
GD Guides initial FY19 $11.60-11.70 v $12.04e, Rev $38.5B v $39.0Be, operating margin 11.7% - earnings call
*(US) DOE CRUDE: +0.9M V +3ME; GASOLINE: -2.2M V +2.5ME; DISTILLATE: -1.1M V -1.5ME
(US) Association of American Railroads weekly rail traffic report for week ending Jan 19th: 543.1K, +6.9% y/y
*(US) FOMC LEAVES TARGET RANGE UNCHANGED BETWEEN 2.25-2.50%; REMOVES REFERENCE TO GRADUAL RATE INCREASES
(MX) Mexico Pres Lopez Obrador (AMLO): would like to see bank fees adjusted to global levels; we're not going to legislate fees banks charge
*(CL) CHILE CENTRAL BANK (BCCH) RAISES OVERNIGHT RATE TARGET BY 25BPS TO 3.00%; AS EXPECTED
MSFT Reports Q2 $1.08 v $1.09e, Rev $32.5B v $32.5Be
FB Reports Q4 $2.38 v $2.17e, Rev $16.9B v $16.4Be
V Reports Q1 $1.30 v $1.25e, Rev $5.50B v $5.40Be; Board authorizes $8.5B in buybacks (3% of market cap)
TSLA Reports Q4 $1.93 v $2.08e, Rev $7.23B v $7.01Be; to ramp Model 3 production to annualized 500K units by Q2 FY20
005930.KR Reports final Q4 (KRW) Net 8.3T v 10.3Te; Op 10.8T v 10.8T prelim; Rev 59.3T v 59.0T prelim

THURSDAY 1/31
ROG.CH Reports FY18 (CHF) Core EPS 18.14 v 17.80e, Core Op 20.5B v 20.3Be, Rev 56.9B v 56.4Be
NOKIA.FI Reports Q4 €0.13 v €0.12e, Op Profit €1.12B v €1.1Be, Rev €6.87B v €6.66Be
RDSA.NL Reports Q4 Basic CCS EPS $0.69 v $0.64e, adj CCS Net $5.81B v $4.40B y/y, Rev $102.2B v $86.9Be
UNA.NL Reports FY18 Core EPS €2.36 v €2.24 y/y, Op €12.5B v €8.8B y/y, Rev €51.0B v €53.7B y/y
DGE.UK Reports H1 adj Op £2.45B v £2.19B y/y, Rev £6.91B v £6.53B y/y; approves incremental share buyback of £660M
*(DE) GERMANY JAN UNEMPLOYMENT CHANGE: -2K V -10KE; UNEMPLOYMENT CLAIMS RATE: 5.0% V 5.0%E
(EU) EURO ZONE Q4 ADVANCE GDP Q/Q: 0.2% V 0.2%E; Y/Y: 1.2% V 1.2%E
*(IT) ITALY Q4 PRELIMINARY GDP Q/Q: -0.2% V -0.1%E (technical recession); Y/Y: 0.1% V 0.3%E
*(EU) EURO ZONE DEC UNEMPLOYMENT RATE: 7.9% V 7.9%E
DWDP Guides Q1 Rev down mid-single digits %, Op EBITDA down low-teens % - earnings slides
GE Reports Q4 $0.17 v $0.18e, Rev $33.3B v $32.2Be; Reached agrement with US DoJ to settle FIRREA investigation
UPS Reports Q4 $1.94 v $1.91e, Rev $20.0B v $19.9Be
GE Guides FY19 industrial organic revenue to grow low to mid single digit, with cash flow growing substantially in 2020 and 2021 - earnings call
(US) Nevada reports Dec casino gaming Rev $999.7B, +4.1% y/y; Las Vegas strip Rev $566.2M, -0.9% y/y
*(US) NOV NEW HOME SALES: 657K V 570KE
(EU) ECB's Weidmann (Germany): process of ECB policy normalization is likely to take several years; exit should be slow and we shouldn't lose time unnecessarily
(US) Atlanta Fed maintains Q4 GDP forecast at 2.7%, unchanged from 1/22
(CN) President Trump: China's Xi wrote in letter that he hopes both sides will meet each other halfway to reach early trade agreement; Xi wrote in letter that he made arrangements on agricultural product purchases

FRIDAY 2/1
DBK.DE Reports Q4 Net -€425M v -€292Me Pretax -€319M v -€345Me, Rev €5.58B v €5.73Be
*(UK) JAN PMI MANUFACTURING : 52.8 V 53.5E (30th month of expansion)
MRK Reports Q4 $1.04 v $1.03e, Rev $11.0B v $10.9Be
*(EU) EURO ZONE JAN ADVANCE CPI ESTIMATE Y/Y: 1.4% V 1.4%E; CPI CORE Y/Y: 1.1% V 1.0%E
*(US) JAN AVERAGE HOURLY EARNINGS M/M: 0.1% V 0.3%E; Y/Y: 3.2% V 3.2%E; AVERAGE WEEKLY HOURS: 34.5 V 34.5E
*(US) JAN CHANGE IN NONFARM PAYROLLS: +304K V +165KE
*(US) JAN UNEMPLOYMENT RATE: 4.0% V 3.9%E
*(US) JAN FINAL MARKIT MANUFACTURING PMI: 54.9 V 54.9E
*(US) JAN ISM MANUFACTURING: 56.6 V 54.0E ; PRICES PAID: 49.6 V 54.3E (lowest since 2016)


Barrons weekend summary

Barrons weekend summary: positive features on BPY and TW.UK; Says AMZN is unlikely to acquire FDX FT: 
Cover story: “As recently as the end of September, Wall Street analysts had been predicting 10% growth in S&P 500 earnings in 2019. Today, the latest 2019 consensus estimate is just under 6%, compared with a hefty 21% in 2018. Analysts expect S&P 500 component earnings to $170, compared with an estimated $161 for 2018. For the first quarter of 2019, the outlook is dismal”; Amid all this, investors should consider SYK, MSFT, APTV, SAVE, BUD, and BLL to “outsmart a dimming outlook for profits.” 

Features: 1) Positive on BPY: Company, one of the world’s largest property owners, has a powerful strategy and a lofty yield, and comes at a depressed price because of debt, complexity, and an expensive external management structure, as well as exposure to malls—but shrewd management should help it overcome those challenges; 2) The political pressure and a broader public backlash against drug price increases have rattled the pharmaceutical industry, and several companies that have raised rates in past years are backing off, leaving no easy path for investors paying the sector (+ MRK, REGN; +/- ABBV, NVO); 3) Exchange-traded funds pose a serious threat to actively managed mutual funds, but more important than the active versus passive debate is the issue of tax efficiency and fund structure, and the annual—but somewhat hidden—costs for actively managed mutual funds. 

Tech Trader: Positive on AMD: Chip stock could be “the next product-led story that could overcome brewing macro worries,” and the company may be just starting a multiyear roll as it continues to build the foundation for PCs, servers, and graphics cards. 

Trader: “The Institutional View’s Andrew Addison notes that the S&P 500’s cumulative advance/decline line—a measure of the number of stocks trading up versus those trading down—hit a new all-time high last week”—and will follow its A/D to new highs eventually; Even in the age of exchange-traded funds that let people buy diverse portfolios for cheap, there may still be some appetite for buying stocks, according to BAC strategists who’ve seen clients moving to single stocks over ETFs; AMZN is unlikely to acquire FDX, says Barron’s, because of market issues and business issues—FedEx is “a completely different, economically sensitive company.” 

Interview: Steve Romick, who runs the FPA Crescent fund with Mark Landecker and Brian Selmo, is a consummate stock picker, but the fund also holds cash and bonds, reflecting broader views (picks: AIG, JEF, CHTR, CMCSA). 

Profile: Scott Moore, manager of Nuance Mid Cap Value, Nuance Concentrated Value, and Nuance Concentrated Value Long-Short, is a value investor with an intense focus on specific companies and risk control (top 10 holdings: XRAY, SAFM, SNN, TRV, EQC, SJW, RGA, UNM, APH, Edison International 5% Perpetual Preferred). 

Follow-Up: + GLW: Share of the company—which makes optical fiber, glass used in LCD display panels for TVs and computers, and Gorilla glass for cellphones—should have room to run even after recently beating Wall Street expectations. 

European Trader: + Taylor Wimpey: Shares of British homebuilder could provide a solid foundation for a portfolio, offering a double-digit dividend yield, the chance of capital appreciation, and a possible boost from the U.K. government’s favorable homeownership policy. 

Emerging Markets: In Brazil, the unorthodox presidency of Jair Bolsonaro, who took office Jan. 1, is off to a market-friendly start overall, but the market is pricing in reform more or less on the government’s terms—far from a done deal, and a potential problem. 

Commodities: “Venezuela is home to the world’s largest crude-oil reserves, but the sorry state of its oil industry means that U.S. sanctions on the country may have only a limited impact on the global crude market.”

Streetwise: “The U.S. is the most polarized it has been in 40 years (as is the United Kingdom on the issue of the European Union). The two sides are further apart than ever, and centrists are finding themselves having to stretch themselves further and further to cover the distance.”

Saturday, January 26, 2019

Barrons weekend summary

Barrons weekend summary: positive feature on DELL 
Cover story: A look at 15 companies whose facilities have the greatest exposure to climate change and extreme weather, according to market intelligence firm Four Twenty Seven; scores are based on operations risk, market risk, and supply chain risk, based on databases of corporate facilities, as well as climate and weather data (cautious on NCLH, WDC, NEE, MU, EMN, ED, STX, MRK, AMAT, PEG, D, RCL, INCY, TROW, BMY). 

Features: 1) Companies with low debt are a good bet for investors facing an environment of slowing economic growth and elevated macro risks; Barron’s screened for companies with attractive valuations and strong returns on assets, and which have more cash than debt (Positive on GILD, KLAC, TER, GNTX); 2) Positive on DELL: Company is one of the most intriguing value plays in the market today because of its 81% stake in VMW, a fast-growing software company, as well as interests in PVTL and SCWX, worth a combined $53B, or about $19B more than Dell’s current market value of $34B; 3) In a year when most tradable assets declined in value, Barron’s had a mixed record of pointing investors toward the winners and warning them away from the losers; bullish picks trailed benchmarks by about a percentage point, but bearish calls were often spot-on. 

Tech Trader: Venture capitalist Marc Andreeson’s claim that software would disrupt large portions of the economy and nearly every industry because of the transformative effects of the cloud’s cheaper computing power has proven correct—and in a tumultuous market, enterprise software firms such as CRM remain a powerful secular investment story. 

Trader: The market has already made back a large portion of its December losses, and while the easy money has been made, valuations suggest more upside, says Citigroup chief U.S. equity strategist Tobias Levkovich. 

Interview: Shawn Kravetz of Esplanade Capital Partners manages $30M and likes what he calls OUCH stocks: out-of-fashion, undiscovered or underfollowed, cheap, and hated, which has recently included gaming stocks (picks: PENN, GDEN, CNTY, AZRE). 

Profile: Dan Davidowitz, lead manager of the Polen Growth fund, one of Barron’s top-ranked sustainable mutual funds, doesn’t focus specifically on ESG investing, but looks for companies with strong financial performance that have the resources to be good stewards and employers (top 10 holdings: MSFT, GOOG, V, FB, ORLY, ADP, ADBE, NKE, SBUX, ZTS). 

Emerging Markets: Cautious on Tencent Holdings: Investors seem unconvinced that the maturing company can maintain the youthful growth spurt that its stock valuation reflects, and U.S. giants may be a better buy after their recent selloff. Economy and Policy: The Chinese economy has done an exemplary job of boosting its labor and capital inputs since Deng Xiaoping began the process of “reform and opening up” in 1978, but the long boom is over: Persistent weaknesses in productivity growth and a looming demographic catastrophe will hobble the country for decades to come.

Commodities: “Palladium started the year on a positive note, with futures prices already up by more than 10% after hefty gains in the last three years. Better yet, analysts are upbeat about the long-term prospects for the metal.”

Streetwise: CEOs in banking, manufacturing, and retail say they have made expensive operational changes to prepare for worst-case trade war and Brexit scenarios—moving production from China to Vietnam and India, or relocating London-based trading and banking operations, which are sunk costs that won’t be reversed, even if 25% tariffs or a hard Brexit don’t come to pass.

Friday, January 25, 2019

Global growth concerns mount; US government agrees to reopen

TradeTheNews.com Weekly Market Update: Global growth concerns mount; US government agrees to reopen
Fri, 25 Jan 2019 16:11 PM EST

Investor sentiment remained buoyed for much of the holiday shortened week despite the US government shutdown looming large. Amid reports of air traffic controller shortages causing airport disruptions on Friday, President Trump agreed to a three week spending bill to reopen the government and to return to the negotiating table on border security funding. Global growth concerns stayed front and center after China GDP data confirmed deceleration for that economy and the IMF took down its world growth outlook. By Thursday the ECB officially acknowledged the growing impediments to economic activity, saying risks had moved to the “downside” from balanced. On Friday, the PBOC launched its first ever perpetual bond after announcing a new bill swap program to provide additional liquidity while US press speculated Fed officials were considering an earlier-than-expected end to the bond portfolio runoff. With the US/China trade talks set to resume next week in Washington conflicting reports surfaced about behind the scenes progress and was at least partially attributed to mid-week stock volatility. Bond yields stayed confined well with in the recent ranges offering further support for stocks with most of the major US indices finding traction above their 50-day moving averages with the middle of Q4 earnings season approaching. The Greenback lost momentum into week’s end resulting in buying pressure in precious metals markets while emerging market stocks exhibited relative strength globally. For the week, the S&P fell 0.3%, and the DJIA and Nasdaq each rose 0.1%.

As earnings season got into high gear, a stream of quarterly reports led corporate headlines this week. Stanley Black and Decker topped on profit and revenue, but its 2019 guidance disappointed, pressuring the home hardware sector early on in the week. United Technologies beat estimates by a wide margin on strength in the aerospace sector. IBM’s quarter came in above consensus, and the tech giant announced solid FY19 guidance. Proctor & Gamble reported its Q2 organic sales rose 4% and saw its sales outlook rise, noting it hasn’t seen a slowdown in the China market. Starbucks beat consensus and reported better than anticipated global comp growth. Xilinx and Lam Research lifted the semis sector after posting solid earnings results and commentary, but they were somewhat undercut by cautious guidance from Intel, which blamed headwinds from geopolitics and slowing smartphone sales.


SUNDAY 1/20
*(CN) CHINA Q4 GDP Q/Q: 1.5% V 1.5%E; Y/Y: 6.4% V 6.4%E

MONDAY 1/21
IMF updates its World economic Outlook (WEO): Cuts Global GDP growth forecast from 3.7% to 3.5% citing no-deal Brexit and trade concerns (three-year low)
*(UK) PM May: Presents ‘plan B’ on Brexit
(UK) Labour leader Corbyn endorsed plans for a second Brexit referendum, and wants the govt to provide MPs the final approval next week on a second vote - Telegraph

TUESDAY 1/22
UBSG.CH Reports Q4 Net $696M v $729Me, adj Pretax $860M v $1.08B y/y; Rev $6.97B v $7.21B y/y (1st quarter reporting in USD); targeting share buyback of $1.0B in 2019
*(UK) NOV AVERAGE WEEKLY EARNINGS 3M/Y: 3.4% V 3.3%E; WEEKLY EARNINGS (EX BONUS) 3M/Y: 3.3% V 3.3%E
*(UK) DEC JOBLESS CLAIMS CHANGE: +20.8K V +24.8K PRIOR; CLAIMANT COUNT RATE: 2.8% V 2.8% PRIOR
(DE) GERMANY JAN ZEW CURRENT SITUATION SURVEY: 27.6 V 43.0E; EXPECTATIONS SURVEY: -15.0 V -18.5E
SWK Reports Q4 $2.11 v $2.11e, Rev $3.60B v $3.60Be
*(US) DEC EXISTING HOME SALES: 4.99M V 5.24ME (lowest level since Nov 2015)
(US) Trump Administration reportedly turned down Chinese offer to send ministers for preparatory trade talks - FT
(CN) White House Adviser Kudlow: earlier trade story about canceled China trade meeting is not true; there was never a planned meeting for junior ministers
IBM Reports Q4 $4.87 v $4.81e, Rev $21.8B v $21.7Be
*(CN) CHINA PBOC CONDUCTS CNY257.5B 1-YEAR TARGETED MEDIUM-TERM LENDING FACILITY (TMLF) AT 3.15% v 3.30% at last MLF (1st use of targeted MLF)
*(JP) BOJ LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED

WEDNESDAY 1/23
UTX Reports Q4 $1.95 v $1.51e, Rev $18.0B v $16.8Be
PG Reports Q2 $1.25 v $1.21e, Rev $17.4B v $17.2Be
(US) JAN RICHMOND FED MANUFACTURING INDEX: -2 V -2E
(US) Association of American Railroads weekly rail traffic report for week ending Jan 19th: 543.1K, +6.9% y/y
TSLA Spokesperson: Tesla reduced Model S, Model X production after dropping 75 Kwh version - press
CP Reports Q4 C$4.55 v C$4.25e, Rev C$2.0B v C$1.94Be
TXN Reports Q4 $1.27 v $1.24e, Rev $3.72B v $3.75Be
(AU) AUSTRALIA DEC EMPLOYMENT CHANGE: +21.6K V +18.0KE; UNEMPLOYMENT RATE: 5.0% V 5.1%E (lowest level since May 2011)

THURSDAY 1/24
(FR) FRANCE JAN PRELIMINARY MANUFACTURING PMI: 51.2 V 50.0E (moves back into expansion)
*(DE) GERMANY JAN PRELIMINARY MANUFACTURING PMI: 49.9 V 51.5E (1st contraction in 49 months and lowest since Nov 2014)
(EU) EURO ZONE JAN PRELIMINARY MANUFACTURING PMI: 50.5 V 51.4E (67th month of expansion but lowest since Nov 2014)
(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.75%; AS EXPECTED
*(EU) ECB LEAVES 7-DAY MAIN REFINANCING RATE UNCHANGED AT 0.00%; AS EXPECTED
(CN) China PBoC to introduce bills swap to provide liquidity support to perpetual bonds
FCX Reports Q4 $0.11 v $0.21e, Rev $3.68B v $3.85Be
(EU) ECB’s Draghi: Risks moved to the downside from broadly balanced; Reiterates forward guidance - Prepared remarks
*(US) JAN PRELIMINARY MARKIT MANUFACTURING PMI: 54.9 V 53.5E (2-month high)
*(US) DOE CRUDE: +8.0M V -0.5ME; GASOLINE: +4.1M V +2.5ME; DISTILLATE: -0.6M V +0.5ME
(CN) China PBOC: Banking system liquidity at 'relatively high' level after second stage of RRR cut

FRIDAY 1/25
VOD.UK Reports Q3 Rev £11.0B v £11.8B y/y; Service Organic Rev +0.1% v -0.7%e; affirms outlook
SNP Reports prelim FY18 Net CNY 62.4B v 51.2B y/y, Rev 2.88T v 2.36T y/y
(US) Fed official said to weigh earlier-than-expected end to bond portfolio runoff - financial press
(US) US President Trump former adviser Roger Stone arrested in Florida as part Mueller investigation this morning - statement
(US) FAA reportedly halts some flights into LaGuardia Airport in NYC due to air traffic controller staff shortages – press
(US) Atlanta Fed cuts Q4 GDP forecast to 2.7% from 2.8% prior
*(US) PRES TRUMP: WE HAVE REACHED DEAL TO END SHUTDOWN AND REOPEN FEDERAL GOVT for 3 weeks to allow negotiation on border security funding


Sunday, January 20, 2019

Barron’s weekend summary

Barron’s weekend summary: positive on gold miners, select healthcare and office REITs 
Cover story: In the second installment of Barron’s Roundtable, 10 investors discuss the big-picture outlook for the economy, interest rates, financial markets, and concerns about tech disruption and government debt; Picks include EDU, NOC, Recruit Holdings, TRP, ICLN (Abby Joseph Cohen); EEM, GDX, VSGBX (Jeffrey Gundlach); WCN, MTN, SSNC (Henry Ellenbogen); HXL, LIN, Takeda, GOOGL, DWDP (William Priest); CCK, SEE, DLTR, ANIP (Oscar Schafer); Lanxess, PKG, OEC, Dart Group (Meryl Witmer); BATRA, FOX, HRI, MGM, NAV, GFF, ENR (Mario Gabelli); USB, ABBV, DIS, LMT, HTGC (Scott Black); CHL, Michelin, GILD, Roche Holding, Telefonika Deutschland (Rupal Bhansali); CDNS, SNPS, CERN, LIN, DIS (Tood Ahlsten). 

Features: 1) Positive on NEM, GOLD: Newmont’s acquisition of GG and the merger between Barrick Gold and Randgold Securities creates the two largest gold miners in the world, offering hope for one of the worst-performing sectors over the past seven years; 2) Positive on ILMN, TMO, DHR, A, TECH: Five companies are a good way for investors to play the healthcare sector—they are poised to capitalize on medical innovation and demand for care in emerging markets; 3) Positive on KRC, VNO: Though office REITs have faced pressure recently, Kilroy Realty and Vornado Realty Trust have solid prospects amid a U.S. economy that continues to grow, buoyed by strong job numbers and a low unemployment rate. 

Tech Trader: Epic Games’ hugely popular Fortnite videogame has stolen the spotlight from EA and ATVI—both of which have underperforming game pipelines and are down nearly 40% from last year’s highs—and even has NFLX concerned. Trader: The S&P 500’s rally has taken the index back above its 50-day moving average, and now it just has to stay there, says Randy Watts of William O’Neil; Positive on COST: Retailer has a voracious fan base and a renewal rate of more than 90%, and a slump in the shares since September creates a good buying opportunity; With GE shares up 18% year to date and up 34% from a 52-week low, investors seem happy with the company’s pace of change for the time being. 

Profile: Mark McKenna manages the BlackRock Event Driven Equity fund, which profits off mergers, spinoffs, restructurings, management changes, and other events, a strategy that succeeds because it is largely uncorrelated to the market. 

European Trader: Positive on BAE Systems: Shares of the U.K.-based defense system have taken a hit because of ties to Saudi Arabia, but the drop presents an opportunity for investors to buy shares with good prospects for capital gains and dividend growth. 

Emerging Markets: Cautious on Tencent Holdings: Though the company has a billion regular users and just issued a major upgrade to WeChat, investors aren’t convinced it can maintain the growth spurt its valuation reflects. 

Commodities: “Palladium started the year on a positive note, with futures prices up by more than 10% after hefty gains in the last three years,” and analysts remain upbeat about the metal’s long-term prospects. 

Streetwise: Columnist Lawrence Strauss discusses why he doesn’t bet on sports even as the gaming landscape evolves to include online and mobile-phone platforms.

Saturday, January 19, 2019

Relief rally continues, fueled by trade hopes and early earnings reports

TradeTheNews.com Weekly Market Update: Relief rally continues, fueled by trade hopes and early earnings reports
Sat, 19 Jan 2019 15:46 PM EST

The 2019 recovery in equity markets continued this week and upside momentum accelerated into the long holiday weekend for the US markets. Major US indices retook their 50-day moving averages, which has been an overhead resistance level for months. Investors looked past the ongoing US government shutdown which saw the vitriol between the President and top Democrats ratcheted up considerably. Choosing instead to focus on reports that US and Chinese officials were exploring new avenues that could ultimately lead to some sort of trade d├ętente. Earnings season commenced in earnest and initial trading has suggested the heavy discounting seen in equity valuations late last year may have already priced in slower earnings growth and rising uncertainties facing corporations in 2019. Oil prices continued to recoup a portion of their Q4 losses, showing particular strength late in the week. Dr copper rose back above its 50-day moving average for the first time since early December. Both commodities were helped by the improving narrative around US/China trade as well as growing speculation Chinese officials will provide further fiscal, and perhaps monetary policy stimulus to stem weakening growth. For the week, the S&P rose 2.9%, the DJIA added 3%, and the Nasdaq gained 2.7%.

This week in corporate news, major banking names reported earnings, with all firms noting sharp reductions in their bond-trading revenues. Morgan Stanley bore the brunt of the drop, as its fixed-income division posted its worst quarterly results in three years. Bank of America reported beats on both top and bottom line, while Goldman saw solid gains in its investing and lending unit. Netflix shares lost a little ground after reporting a Q4 miss on its revenue, but the company noted solid subscriber growth numbers ahead of an anticipated price increase this year. Miner Newmont scooped up its smaller rival Goldcorp in a $10B deal that would form the world’s largest gold producer. Fiserv announced it would acquire First Data in a $22B all-stock deal in one of the largest acquisitions ever in the fintech sector. PG&E filed notice for bankruptcy protection as it potentially faces over $30B in wildfire damage liabilities, though holder Blue Mountain argued the filing decision was too hasty. Tesla announced it would reduce its full-time staff by 7% in order to cut costs to produce the Model 3 more inexpensively.


SUNDAY 1/13
*(CN) CHINA 2018 TRADE BALANCE: $351.8B v $422.5B y/y
*(CN) CHINA DEC TRADE BALANCE: $57.1B V $51.6BE (largest surplus since 2015)
*(CN) CHINA DEC TRADE BALANCE (CNY-TERMS) 394.9B V 345.0BE

MONDAY 1/14
(CN) China Dec vehicle sales y/y: -13% v -13.9% prior; 2018 vehicle sales -2.8% y/y (1st annual drop since 1990) - Industry Association CAAM
GG To combine with Newmont in all-stock deal valued at $10B
PCG Confirms to file for Chapter 11 bankruptcy
C Reports Q4 $1.61 v $1.55e, Rev $17.1B v $17.5Be

TUESDAY 1/15
(IT) Italy Debt Agency (Tesoro) opens book to sell EUR-denominated Mar 2035 BTP bonds via syndicate; guidance seen +20-22bps to mid-swaps
JPM Reports Q4 $1.98 v $2.20e, Managed Rev $26.8B v $26.7Be
DAL Reports Q4 $1.30 v $1.27e, Rev $10.7B v $10.8Be
*(US) JAN EMPIRE MANUFACTURING: 3.9 V 10.0E (Lowest since May 2017)
*(US) DEC PPI FINAL DEMAND M/M: -0.2% V -0.1%E; Y/Y: 2.5% V 2.5%E
NFLX Reportedly raising its prices in the US by 13-18% for 58M subscribers - press
(US) Sen Grassley (R-IA): US Trade Rep Lighthizer told me he saw little progress in last week's talks with China on structural issues and IP protections

WEDNESDAY 1/16
(TR) TURKEY CENTRAL BANK (CBRT) LEAVES ONE-WEEK REPO RATE UNCHANGED AT 24.00%; AS EXPECTED
F Reports prelim Q4 $0.30 v $0.33e, FY18 $1.30 v $1.35e, Rev $160.3B; CFO sees potential for improving metrics in 2019 - DB auto conf
BAC Reports Q4 $0.70 v $0.63e, Rev $22.7B v $22.2Be
FDC To combine with Fiserv for ~$22.74/shr in all stock transaction valued at $22B (0.303 shares per share)
GS Reports Q4 $6.04 v $5.37e, Rev $8.08B v $7.90Be
(US) JAN NAHB HOUSING MARKET INDEX: 58 V 56E
*(US) DOE CRUDE: -2.7M V -2ME; GASOLINE: +7.5M V +2.5ME; DISTILLATE: +3M V +1ME
(US) Atlanta Fed maintains Q4 GDP forecast at 2.8%
(UK) EU officials reportedly considering plans to delay Brexit until 2020 after Germany and France have indicated willingness to extend talks - UK's Times
*(US) FEDERAL RESERVE BEIGE BOOK: ECONOMIC ACTIVITY EXPANDED IN MOST OF THE US, WITH 8 OF 12 DISTRICTS REPORTING MODEST TO MODERATE GROWTH
*(UK) PM MAY SURVIVES 'NO-CONFIDENCE' VOTE IN PARLIAMENT (as expected); Vote 325 for May and 306 against
(US) Association of American Railroads weekly rail traffic report for week ending Jan 12th: 555.1K, +8.4% y/y
CSX Reports Q4 $1.01 v $1.01e, Rev $3.14B v $3.13Be; authorizes $5B share buyback (9% of market cap)
AA Reports Q4 $0.66 v $0.32e, Rev $3.34B v $3.35Be
AAPL Reportedly planning to reducing hiring in some divisions (unclear which yet) as iPhone sales slow - press citing his meeting with employees

THURSDAY 1/17
2330.TW Reports Q4 (NT$) Net 99.9B v 99.1Be; Op 107.1B v 108Be; Rev 289.8B, +4.4% y/y
GLE.FR Announces Q4 performance impacted by disposals and a challenging environment in global capital markets
(HK) Jiayuan International [2768.HK] has declined by over 70%; US dollar denominated (USD) bonds due 2020 trade at record low
*(EU) EURO ZONE DEC FINAL CPI Y/Y: 1.6% V 1.6%E; CPI CORE Y/Y: 1.0% V 1.0%E (Headline CPI back below the ECB target for 1st time in 7 months)
*(US) JAN PHILADELPHIA FED BUSINESS OUTLOOK: 17.0 V 9.5E
(CN) Treasury Sec Mnuchin said to support lifting China trade tariffs to break stalemate and calm markets, but Trade Rep Lighthizer is pushing back against easing tariffs - press
NFLX Reports Q4 $0.30 v $0.24e, Rev $4.19B v $4.21Be
RIO.AU Reports Q4 Pilbara Iron Ore production 86.6 Mt, -1% y/y; Shipments 87.4 Mt v Mte v 90.0Mt y/y
(HK) Jiayuan International [2768.HK] rebounds over 30% on today's session amid report of note repayment; Sunshine 100 [2608.HK] rises over 39%
(US) US President Trump said to have told his attorney Cohen to lie to Congress about Moscow tower project - Buzzfeed

FRIDAY 1/18
TSLA Reports prelim Q4 GAAP profit lower q/q; To cut full time positions by 7% along with a production increase aimed at getting Model 3 starting price to $35K - Tesla blog
*(UK) DEC RETAIL SALES (EX AUTO/FUEL) M/M: -1.3% V -0.8%E; Y/Y: 2.6% V 3.8%E
TIF Reports Holiday SSS -2% (two months ended Dec 31st)
SLB Reports Q4 $0.36 v $0.36e, Rev $8.18B v $8.06Be
STT Reports Q4 $1.68 v $1.71e, Rev $2.99B v $2.98Be; Initiated new $350M Expense Savings Program; Cuts senior management stuff by 1.5K positions (15% of total)
*(US) DEC INDUSTRIAL PRODUCTION M/M: 0.3% V 0.2%E; CAPACITY UTILIZATION: 78.7% V 78.5%E
*(US) JAN PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 90.7 V 96.8E (lowest since Oct 2016)
(CN) China reportedly offered a 6-year $1T import boost at Jan talks in order to eliminate US trade imbalances; US trade officials said to be skeptical


Saturday, January 12, 2019

Barrons weekend summary

TradeTheNews.com Barrons weekend summary: Positive feature on BMY; positive on airline sector; Speculates Apple should make a big acquisition like Nintendo 
Cover story: Almost none of the members of Barron’s 2019 Roundtable expect a recession this year; they also believe the economy will continue to grow, that Donald Trump and Xi Jinping will strike a trade deal, and that the Fed will apply a light touch to monetary policy—all of which should add up to a good year for stocks. 

Features: 1) Positive on BMY: Investors worry the CELG deal will do little to improve prospects for the drugmakers, but a recent selloff makes Bristol shares inexpensive, and they could rally as the Street warms to the tie-up, or if the company becomes an acquisition target; 2) “The global interest-rate benchmark Libor could be going away after a manipulation scandal that rocked the big banks, but it threatens to cause problems for investors long after it dies”; 3) Investors are becoming more sensitive to risk, and fund managers who invest with an eye toward it could do well; five funds have generated returns and curbed losses in various market cycles (Positive on YACKX, IAUTX, PRBLX, NBGNX, VSEAX); 4) The days of low volatility and central banks working in tandem may be a thing of the past, posing challenges for investors loaded up on risk—but some overlooked funds may be the answer (Positive on MWTRX, PTTAX, SGENX, NEWFX); 5) The annual CES show in Las Vegas featured big themes such as artificial intelligence, smart homes, and robotics, but also lesser-known efforts such as DAL’s rollout of biometrics technology to help passengers navigate airports; 6) Positive on DAL, AAL: Weak pricing updates have stoked fears that a downturn is coming and that airline profits will suffer, but the outlook for the airline sector isn’t as bad as many think, and brave investors will find value. 

Tech Trader: Amid growing fears about iPhone growth, AAPL may need an acquisition to spark its next phase, and while NFLX and TSLA are possible candidates, the best fit might be Nintendo, which has “mountains of cash, gushing profits, beloved brands, loyal customers, and sticky ecosystems of software and services.” 

Trader: The market’s January effect is in full swing, says Chris Harvey of Wells Fargo Securities, and recent events suggest the same mindset that caused last year’s fourth-quarter selloff—rather than a shift in the fundamentals—is helping boost the market now; Positive on ICE, NDAQ, CBOE: A move by nine brokers and market makers to form a new exchange shouldn’t hurt existing players any time soon, though their long-term success hinges on their ability to evolve away from equity trading; Positive on AOS: Milwaukee-based maker of residential and commercial water heaters and boilers is growing faster than peers and targets seven percent topline growth in the future. 

Profile: Kristian Heugh, manager of the Morgan Stanley International Opportunity Portfolio, believes in concentrated long-term investing, and aligns his own financial future with fund shareholders (top 10 holdings: Moncier, TAL, HDFC Bank, DSV, BKNG, Reckitt Benckiser Group, EPAM Systems, Hermes International, Fevertree Drinks, Chocoladefabriken Lindt & Spruengli). 

International Investor: Positive on Legal & General: Firm, which specializes in general insurance, asset management, and mortgages, offers a fat dividend yield at a compelling valuation, and is an opportunity for investors amid Brexit-related problems. 

Emerging Markets: Emerging market stocks in aggregate are trading at a 27% discount to developed market peers on a price-to-forward-earnings basis, which could mean investors should expect some outperformance—though not everybody agrees. 

Commodities: The government shutdown is taking a toll on agricultural markets, preventing farmers and traders from accessing key pieces of U.S. government data they need to market and trade soybeans and other crops. 

Streetwise: Though the public probably won’t benefit from the creation of the new MEMX stock exchange, brokers and trading firms will get something they have long wanted: a seat at the regulatory table.

Friday, January 11, 2019

Risk Assets Continue Rebound On Hopes for Trade Deal

TradeTheNews.com Weekly Market Update: Risk Assets Continue Rebound 

On Hopes for Trade Deal Stocks markets continued to ride a wave of positive momentum throughout much of the first full week of the New Year. US and Chinese officials met in Beijing on Monday and Tuesday and, though details were limited, sentiment improved as future meetings were put on the calendar for later this month. Treasury yields and oil prices also continued to rebound providing a sense of relief for those worried that the recent declines portended an oncoming recession. Reports circulated that the Saudis were going to significantly curtail exports to prop up crude prices, while a deluge of Fed speak, along with the FOMC minutes, affirmed Powell’s recent shift and suggested the Fed consensus is now centered on a ‘wait and see’ approach on rates. The greenback was generally weaker as the US government shutdown dragged on with no endgame in sight as both parties dug further in. The Euro briefly topped a key 1.15 technical level and the Yuan firmed to the best levels since last summer helped by growing expectations for more stimulus from the Chinese government. The British Pound lifted late in the week despite heightened uncertainty heading into next week’s Brexit vote in Parliament. On Friday, investors pulled back from some of those risk assets heading into the weekend and stocks finished lower for the first time in six sessions. For the week, the S&P rose 2.5%, the DJIA gained 2.4%, and the Nasdaq added 3.5%. 

In corporate news this week, Eli Lilly announced it would acquire Loxo Oncology for $8B in order to boost its cancer drug portfolio. Ratings agencies delivered humbling news for PG&E, downgrading the electric utility several notches amid reports of extraordinary wildfire liabilities and a potential bankruptcy. Constellation Brands shares tumbled on disappointing guidance related to their wine and spirits division. Retail names saw some volatility this week as Macy's cut its outlook and Kohl’s noted some disappointing holiday SSS, though Target saw a year-end sales surge and Bed Bath & Beyond announced its tracking ahead of long-term financial goals. GM surged on Friday after raising profit guidance as the automaker sharpens its focus on light truck production. Midstream energy firm Targa Resources offered the first high-yield bond deal to hit the markets since November. Reports indicated Amazon may be gearing up to enter the game streaming service space, potentially competing with similar future offerings from Google and Microsoft. 

MONDAY 1/7 (EU) EURO ZONE JAN SENTIX INVESTOR CONFIDENCE: -1.5 V -2.0E (lowest reading since Dec 2014) LOXO To be acquired by Lilly for $235.00/shr in all cash deal valued at $8.0B Wall Street firms reportedly plan new exchange to challenge NYSE, Nasdaq - press PGC Reportedly liabilities from 2017-18 fires could reach at least $30B - CNBC *(US) DEC ISM NON-MANUFACTURING INDEX: 57.6 V 58.5E (SA) Saudi Arabia reportedly to cut crude exports to 7.1M bpd - press 005930.KR Reports Prelim Q4 (KRW) Op 10.8T v 13.8Te, Rev 59.0T v 63.6Te (IT) Italian govt to freeze 90% of motorway tariffs; will review in June - Italian Press 

TUESDAY 1/8 066570.KR Reports prelim Q4 (KRW) Op 75.3B v 387Be, Rev 15.8T v 16.3Te *(EU) EURO ZONE DEC BUSINESS CLIMATE INDICATOR: 0.82 V 1.00E; CONSUMER CONFIDENCE: -6.2 V -6.2E *(US) NOV JOLTS JOB OPENINGS: 6.888M V 7.050ME (lowest since June) (US) Atlanta Fed raises Q4 GDP forecast to 2.8% from 2.6% prior *(US) NOV CONSUMER CREDIT: $22.1B V $17.5BE (US) Reportedly Pres Trump wants a China trade deal soon to boost markets - press 

WEDNESDAY 1/9 STZ Reports Q3 $2.37 v $2.04e, Rev $1.97B v $1.91Be EUR/USD Tests above 1.15 for the first time since Nov; US Dollar index drops below 95.50 *(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATES UNCHANGED AT 1.75%; AS EXPECTED (US) Conference Board Experimental Help Wanted OnLine Index (HWOL) at 101.7 v 99.3 m/m (reverses Oct and Nov declines) *(US) DOE CRUDE: -1.7M V -2ME; GASOLINE: +8.1M V +2ME; DISTILLATE: +10.6M V +1ME (US) Association of American Railroads weekly rail traffic report for week ending Jan 5th: 436.1K, +4.8% y/y *(US) FOMC MINUTES FROM DEC 19TH MEETING: OFFICIALS EXPRESSED LESS CERTAINTY ABOUT 'TIMING AND SIZE' OF FUTURE RATE INCREASES BBBY Reports Q3 $0.18 v $0.16e, Rev $3.03B v $3.04Be 

THURSDAY 1/10 F Reportedly to cut thousands of European jobs; mulls exiting several unprofitable European markets - FT TGT Reports No/Dec SSS +5.7% v 3.4% y/y; CFO Cathy Smith to retire M Reports Nov/Dec SSS +1.1% (owned plus licensed), Cuts FY18 $3.95-4.00 v $4.21e, Rev ~ flat y/y (prior +0.3-0.7%) AAL Cuts FY18 $4.40-4.60 v $4.62e (prior FY18 $4.50-5.00); Cuts Q4 TRASM +1.5% (prior +1.5-3.5%) MGM Starboard said to have built stake and intends to take activist role - press (US) Atlanta Fed maintains Q4 GDP forecast at 2.8% (US) Fed Chair Powell: We have ability to be patient, flexible, and watch patiently at this time; Fed balance sheet will end up "substantially smaller" - comments in Washington AMZN Reportedly developing a game streaming service, could launch in 2020 or later - The Information TRGP Prices $1.5B in senior notes due 2027 and 2029 (upsized from $750M); notes were priced at par (US) US Treasury Sec Mnuchin: China Vice Premier Liu He will most likely visit Washington later in Jan for trade talks 

FRIDAY 1/11 (UK) Cabinet Ministers say that Brexit to be delayed beyond March 29th as likely - financial press GM Raises FY18 EPS to 'high end with potential upside' $5.80-6.20 v $6.27e, auto FCF ~$4B - capital markets event GM Guides initial FY19 $6.50-7.00 v $5.86e, adj FCF $4.5-6.0B, capex $8.0-9.0B CZR CNBC's Faber: Icahn has built stake in Caesars; Tilman Fertitta remains interested in pursuing deal, as well

Saturday, January 5, 2019

Barrons weekend summary

Barrons weekend summary: Positive feature on AAPL; positive on DXC, MS, MYL, T 
Cover story: Barron’s list of best income investments for 2019 includes picks from 11 sectors that should deliver yields from three to 10 percent: MLPs, junk bonds, European dividend stocks and funds, U.S. dividend stocks and funds, preferred stock, REITs, telecoms, municipal bonds, utilities, investment-grade bonds, Treasuries. 

Features: 1) Positive on AAPL: Despite the company’s recent guidance bombshell, investors should hold onto their shares—the stock is currently tied to iPhone sales, but its future is tied to a lucrative installed base of about 1.3B devices; 2) Positive on T, DXC, MS, MYL: These four humbly price stocks are worth a look by bargain hunters—they have single-digit P/E ratios, and have received fresh Buy recommendations from analysts during the past three months; 3) Roy Johnson, known for his success at reinventing AAPL’s stores and his failure to rejuvenate JCP, is running a Silicon Valley startup called Enjoy that hopes to make online shopping less impersonal; 4) A growing number of companies are working to build more inclusive and diverse workplaces, bolstered in party by an expanding body of research about the benefits of such efforts; 5) “As sustainable investing evolves, it looks more and more like good, old-fashioned stock picking.” 

Tech Trader: The Consumer Electronics Show, which kicks off in Las Vegas on January 6, comes “against a backdrop of a shaky stock market, tariff talks with China, and threat of a recession roiling the tech and chips markets.” Trader: The stock market isn’t at the ‘end of bear market’ cheap, says Jim Paulsen of Leuthold Group, but is at a level that offers some potential upside again, provided inflation and interest rates stop rising; Columnist Ben Levisohn says his best call last year was a recommendation on March 3 to sell LB, shares of which continued to fall amid changing consumer tastes; “Utility stocks lived up their reputation as a solid defensive play in 2018, and they have the potential to keep outperforming, especially if more volatility ensues.” 

Mutual Fund Quarterly: 1) Given enough time and positive shifts in corporate policy, ESG investors should be able to forgives companies that have engaged in egregious behavior; 2) Q&A with Carson Block, founder of Muddy Waters, who talks about his approach to investing according to environmental, social, and governance factors; 3) Barron’s list of the top 20 sustainable mutual funds—all of which beat the market by focusing on good corporate governance—is topped by Polen Growth, Fidelity Focused Stock, and Calvert Equity; 4) Jerome Dodson, founder of Parnassus Investments and a major player in sustainable investing, takes far more than three or four metrics into account when deciding whether to buy a stock, and he rarely wavers from his own strict guidelines; 5) Of the 78 actively managed U.S. stock funds that have a sustainability goal of some sort, 54 did not make Barron’s list of the most sustainable funds, some because of their small size, others because they had an average or below-average sustainability rating. 

European Investor: Positive on Fugro: Netherlands-based company is a good contrarian play: a small cap hit hard by the drop in oil prices and Europe’s yearlong economic and geopolitical woes. 

Emerging Markets: Geopolitics are top of mind for emerging markets investors this year, but national politics in countries such as Brazil—where newly elected president Jair Bolsonaro may push through market reforms—also loom large. 

Commodities: “African swine flu, possibly brutal winter weather, and falling beef production could propel prices for cattle futures more than 15% higher over the next two quarters or so.”

January-February 2019 Outlook: New Year’s Resolutions

TradeTheNews.com January-February 2019 Outlook: New Year’s Resolutions
Fri, 04 Jan 2019 7:41 AM EST

The New Year has started on unsteady footing, tipsy from swallowing months of uncertainty about the global economy; market sentiment has shifted and thrust many stock indices into an official bear market. The bugaboos that have haunted the markets all year – Brexit, slowing global growth, dysfunctional politics, dwindling central bank largesse, and trade conflicts – have finally taken their toll and shaken the risk-on regime that has held sway for most of the last decade.

2018 was the worst year for US stocks in ten years, seeing the S&P500 contract by more than six percent. With traders looking to technical levels and other guideposts for sentiment, the adage ‘As January goes, so go the markets’ may seem more relevant this year. The last time US stocks fell in January was in 2016, and should it happen again this year the stock market pain could create a self-reinforcing downward spiral, bleeding into confidence indicators and even the hard data. Investors are now trying to suss out if corporate earnings peaked for the cycle in 2018, and await fundamentals to reassert themselves in commodity and stock markets, hoping to overcome the eroding sentiment that has dragged down asset prices in the last couple of months.

Many of the big picture issues overhanging the markets will finally be resolved in 2019…for better or for worse. If enough fall on the happy side of the resolutions ledger, the global economy and markets could put their party hats back on and revel in more prosperity in the New Year. If not, these issues could linger as an unshakable hangover, and 2019 will be characterized by a bear market and possibly recession in some economies.

Global Trade: The Clock Strikes Midnight

The S&P500 has tumbled more than 10% since President Trump declared himself a “tariff man” in early December, and a self-imposed clock is ticking down to early March when a temporarily postponed tariff increase could go into effect, opening up an all-out trade war. Market optimism about the US reaching a trade deal with China has faded and its becoming clearer that tariffs are contributing to a slowdown in China that is spilling over into the global economy. The latest sign was the December reading of the China Caixin manufacturing PMI, which entered contraction for the first time in 19 months. A holiday quarter earnings warning from Apple added to the angst about the health of the Chinese economy. It also raises the question of how many other companies, especially in tech, will follow suit with lowered guidance in the weeks ahead, laying blame on China and trade tensions.

We will get a read on the state of the trade discussions on January 7 when a delegation from the US will meet with counterparts in China. The US group is being led by a deputy of the US Trade Representative, so no breakthroughs are expected, but it could set the table for higher level talks. Expectations for this “mid-level” meeting are low, giving it the potential for a positive surprise should delegates come away with evidence to support the so-far unsubstantiated optimistic tone Presidents Trump and Xi have cast on negotiations.

US Politics: New Year, Same Old Problems

With mounting political woes at home, President Trump may be eager to claim a big victory on trade, even if it means reaching a deal with China that is suboptimal. Both countries are starting to feel the effects of the trade war and would like to alleviate that economic pain, but unlike President-for-life Xi, Trump is subject to domestic political pressures as he plots his run for reelection in 2020. A breakthrough on trade relations with China would be just the thing to win back any wavering Trump voters, but the deadline of three months from the December 1st G-20 meeting means things will have to move quickly. The White House has a poor record on meeting its own time tables and will be adjusting to a new political landscape in Washington as the Democratic-controlled House will convene three days into the New Year.

The first test for the new Congress will be the government funding standoff over border security funding, and it will quickly clarify how the next two years will play out in Washington. Neither the President nor the Democrats appear willing to give any ground, and Trump has conceded that the shutdown could last a “long time” though the pressure will build over the weeks as constituents begin to complain about missing government services (and Wall Street laments missing government economic data). The President will get to make his case directly to the people during the State of the Union address (Jan 22). On Capitol Hill, it appears that Republican Senators will content themselves with seating conservative federal judges, while the House Democrats may be tempted to use their subpoena powers to open new probes of the Trump administration, even as they eagerly await the findings of the Mueller investigation.

Ahead of the Mueller report, the White House needs to work on its communication strategy. Trump’s unprecedented jawboning of monetary policy is poking at central bank independence, even as the President’s own tariff policy could conceivably drive up inflationary pressures that would give the Fed more reason to raise rates. Then there was the ill-conceived Christmas Eve statement from Treasury Secretary Mnuchin that spawned new concerns about the credit markets that no one had been contemplating until that moment. This came amid reports that Trump was talking to aides about potentially firing the Fed Chair after the December rate hike.

Central Banks: The Party’s Over

Markets have had an adverse reaction to the notion that they are losing the support of central banks as the Fed said rates would continue higher into the neutral zone and the ECB wrapped up its QE program buying. Central bankers have responded with the message that monetary policy will move very deliberately, staying attuned to incoming data as they work to normalize policy after a decade of extraordinary accommodation. These efforts by the central banks to slowly take away the punch bowl may be impeded by the softer economic outlook for this year and warning cries from the markets.

Wall Street operators that had pinned their hopes on an extension of the ‘Fed put’ were disappointed with Fed Chair Powell’s December press conference performance, in which he indicated that the central bank will not necessarily ride to the rescue if the stock market weakens. Powell also gave the impression he would keep the Fed balance sheet off the table as a potential policy tool, saying the balance sheet reduction would continue on ‘auto-pilot,’ draining another $600B from the reserves this year. By some estimates that will add the equivalent of three 25 basis point rate hikes in addition to any FOMC interest rate hikes. Days later NY Fed President Williams tried to massage the message, providing assurances that the Fed does listen to market participants, but with little effect. The markets want to hear Powell revise the communication himself.

Powell will have his first chance to reconsider his messaging on January 4, when he participates in panel discussion with the predecessors who created the policies he is working to unwind, Chairs Yellen and Bernanke. If Powell takes a more conciliatory tone toward the worries that are buffeting the markets, it could alleviate some bearish sentiment. This might come in the form of walking back the ‘auto pilot’ comment, perhaps simply by indicating that the Fed stands ready to use all available tools if the situation requires it. On the other hand, Powell might feel he has already thrown a bone to the markets by ratcheting back the rate hike forecast for 2019 from three to two, especially if he is convinced that economic growth remains on a solid track.

Speculation about whether President Trump might actually try to fire the Fed Chair has added some uncertainty. The Administration does have the authority to remove the Chairman “for cause,” but that suggests some type of malfeasance, so it seems unlikely that the President could find grounds for a firing. If he still tried to sack Powell it could lead to an unprecedented legal battle between the White House and the Fed that would only undermine confidence and market sentiment. This seemed to be the conclusion drawn by White House economic advisor Kevin Hassett when he declared just after Christmas that Powell’s job is “100% safe,” even though the President never publically denied the report that he contemplated firing Powell.

The European Central Bank will soon undertake its own leadership change (though by contrast it is planned). ECB President Mario Draghi’s term expires on October 31, which might spark some uncertainty about the continuity of ECB monetary policy. Draghi has been a steady hand and markets appreciated his strong language (“whatever it takes”) at key points during the financial crisis, but it will be up to his successor to tackle the task of normalizing monetary policy over the next few years. Germany was due for its turn to lead the ECB, but Berlin now has its sights set on securing the EU Presidency, diminishes the chances that Bundesbank President Weidmann will be tapped to lead the ECB.

The current frontrunner to replace Draghi is Erkki Liikanen, who just recently stepped down as Governor of the Bank of Finland after 14 years in the post. Liikanen is also a veteran of European politics, having entered the Finnish parliament at age 21, eventually serving as the country’s finance minister before taking a stint as a member of the European Commission. Surveys of economists depict him to be a strong compromise candidate, who can mediate between the demands of nations like Germany to begin the wind down of extraordinary stimulus as soon as possible, and countries like Italy that are concerned their economies could teeter without ongoing monetary support. If he is the eventual selection for the post, Liikanen’s political and monetary policy experience should help him navigate the north-south antagonisms in the euro zone.

The ECB also must continue to keep a watchful eye on Italy. After the populist government in Rome backed down in its budget standoff with Brussels, Italy is still contending with weakness in its banks, which are suffering from the bad decisions that created a mountain of non-performing loans. Banca Carige, Italy’s tenth largest bank, is drawing a lot of attention as it struggles with its NPL problems. The bank has been placed under temporary administration by the ECB, and the Italian PM and Economy Minister say they are watching developments at the bank “personally.” It’s not 2008 again, but further erosion of confidence in the banking system in Italy could spread across borders quickly in Europe, creating headaches for other enfeebled banks including Deutsche Bank.

Heading for the Brexit

Another lingering problem for Europe is the UK’s planned withdrawal from the EU, which could see a make or break moment mid-month. On January 15, the House of Commons is set to hold its “meaningful vote” on PM May’s Brexit proposal, and by all accounts she is short by dozens of votes. Efforts to get further assurances about the backstop from Brussels have won over many uncertain Conservative party members, but many Euroskeptics remain fixed against the deal on the table. The remaining three dozen or so MPs that May needs want her to convince the EU to grant the UK the power to unilaterally leave the backstop. There’s no real chance that Brussels will budge on that issue, as the EU has firmly held solidarity with Ireland. If PM May’s efforts get her close to the vote count she needs, there is an outside chance that the March Brexit date could be delayed to give her more time to lobby MPs, but that would require agreement from all 27 EU states and May has asserted that she will not tolerate a delay.

That leaves only a few options for May’s government as the vote approaches. Some supporters are reportedly urging the PM to call the vote as many times as needed to wear down MPs and get a majority, perhaps voting on the issue dozens of times in succession. The other proposal being mulled would have May announce a specific date on which she would resign, allowing new leadership to take on the next step of negotiating future trade relations with the EU. Both strategies are uncertain at best, and chances of a ‘hard Brexit’ appear to be rising quickly as March 29 approaches.

A final option has been opened by the European Court of Justice. Late last year the ECJ ruled that the UK can unilaterally cancel the Brexit process without consulting the other EU 27 members. This opens the possibility for the UK government to give up on the treacherous implementation of the non-binding Brexit referendum. This course back to the status quo is unlikely, however, as PM May has vowed to move forward with “the will of the people” and even the ‘loyal opposition’ Labour party has remained loyal to the cause, with only a handful of MPs publically calling for a new referendum. This unwavering support for Brexit increases the likelihood that the UK will crash out of the EU with no governing agreement if the Parliament rejects May’s negotiated deal.

Inflation: Watching the Ball Drop

Upward inflation pressure has not been an issue for central banks in the developed economies, as wages growth has remained slow and new tariffs have not had a major impact on price pressures yet. The fading price of oil will help keep inflation in check, but it may have other implications.

Crude prices were almost halved during Q4 as North American production continued to ramp, offsetting the output constraints implemented by OPEC and its partners. The precipitous price drop has created concerns about the debt load in the energy sector. If WTI crude should slide below the $40/bbl level, it could induce a panic that some energy sector firms will default, which would send ripples across the debt market.

The next OPEC Monitoring Committee meeting on January 18 will give an early gauge on how the new 2019 production targets are progressing. A new round of cutbacks began on January 1, but their impact may vary based on how fast some members fully implement them, particularly Russia, which has said it could take months for its private oil firms to achieve their targets.

RESOLUTIONS

The stock market looks like it may lose some more ‘weight’ in early 2019, as many national economies will shed tenths of GDP due to tariffs, political disputes, and slightly tighter monetary policy tipping the scales of growth to the downside. The major banks will kick of earnings season in the third week of January, and analysts at those same banks have already slashed their forecasts for earnings growth to single digits, while the selloff in the S&P500 has essentially priced in zero profit growth for 2019. The stock market has come off the boil, but with the US economy still solid, bargain hunters may nibble at equities early this year, and could turn bullish again if some of the major uncertainties are lifted.

The collapse of crude oil prices has been a strong indicator of market sentiment, signaling downbeat expectations for the 2019 economy. But the energy market could help restore some confidence if the OPEC cuts establish a floor or actually push prices higher. The last time oil prices dipped this low central banks were content to attribute it to ‘temporary factors’ (factors that lasted for well over a year), but an absence of any significant energy inflation could contribute to a more dovish rate policy outlook.

Those voices calling for the Fed to put policy on hold in December weren’t realistic in thinking the central bank could turn policy on a dime. Chair Powell simply couldn’t justify going from expectations for several more hikes to none in a single meeting. But by slow increments Powell could move toward more dovish messaging if incoming data prescribe it. After the adverse reaction to the December rate announcement, the Fed may shift to a “pause” at one of the FOMC meetings during Q1. The tightening already exhibited by the markets coupled with the ongoing uncertainty about the global economy and the impact of escalating tariffs would give the Fed cover to formally change its policy stance.

The expansion of FOMC press conferences to eight from four per year will provide Powell with greater flexibility in his communication strategy, allowing for more rapid course corrections. If the market’s bellyaching turns out to be more than just indigestion, Powell will show more temperance. Some market gauges are fostering speculation that the Fed could actually cut rates in early 2020 as it starts sniffing out a recession. That would imply the FOMC continuing to turn more dovish over the course of this year.

China’s central bank may look to create more liquidity via additional cuts in its reserve ratio requirement after four RRR cuts last year amid slowing growth. The PBoC could also take the more drastic measure of cutting its key one-year lending and deposit rates, which have not been lowered since a series of cuts in 2015 amid the Shanghai stock market bubble bursting after a surprise devaluation of the yuan [**Note: On Jan 4, the PBoC cut RRR by 100bps].

In Europe, the ECB will tread cautiously in light of downside risks which unofficially include the installation of a new central bank President. Meanwhile, the Brexit has no real upside for markets, only the risk of more uncertainty if it fails to get legislative approval. In the end PM May could have to sacrifice her political future to get approval, and the next Tory leader will take up the even more difficult task of negotiating the shape of future relations and trade with the Continent.

Back in Washington, the longer the partial government shutdown drags on and the more bitter the dispute, the greater the chance it will start hurting growth and confidence. The ultimate resolution may come in some version of the deal discussed a year ago that would exchange border security funding for a resolution of the DACA (‘Dreamers’) immigration issue.

Among the global concerns that could see some resolution in the next few months, resolving the trade dispute between the world’s two largest economies is paramount and would be the best catalyst for markets this year. President Trump’s impulsive communication style could work against him during this sensitive period of the trade talks, especially if he is distracted by domestic political skirmishes and the turnover in his cabinet. The 90 day grace period on imposing new tariffs ends in March so the time table is short, but if there is demonstrable progress in talks those tariffs could be postponed again, which is probably the best case scenario for now. On the other hand, if talks go nowhere, a jump to 25% tariffs on most Chinese goods coming into the US could well trigger a recession by the next New Year.

CALENDAR
JANUARY
2: UK Manufacturing PMI
3: US ISM Manufacturing PMI; New US Congress convenes
4: UK Services PMI; EU Flash CPI Estimate; US Payrolls & Unemployment; Fed Chair Powell speaks

7: US ISM Non-manufacturing PMI; China Trade Balance
8:
9: FOMC Minutes
10: BOE Credit Conditions Survey; ECB Minutes
11: UK Nov GDP; UK Manufacturing Production; US CPI; Preliminary University of Michigan Consumer Sentiment

14: Fed Chair Powell Testifies before Congress
15: UK Parliament vote on Brexit plan; US PPI; China Industrial Production
16: UK CPI; US Retail Sales; China Q4 GDP
17: Philadelphia Fed Manufacturing Index; US Housing Starts & Building Permits
18: UK Retail Sales; OPEC Monitoring Committee meetings

21: MARTIN LUTHER KING DAY HOLIDAY (US)
22: German Ifo Business Climate; UK Unemployment; German ZEW Economic Sentiment; World Economic Forum (Jan 22-25); BOJ Policy Decision; US State of the Union Address (tentative)
23: Various EU Flash Manufacturing and Services PMIs
24: ECB Policy Decision
25: US Durable Goods Orders

28:
29: US Consumer Confidence
30: German Preliminary CPI; US Advance Q4 GDP; FOMC Policy Decision; China Manufacturing & Non-Manufacturing PMIs
31: EU Flash Q4 GDP; US Personal Income & Spending; US Core PCE; US Employment Cost Index; Chicago PMI
FEBRUARY
1: UK Manufacturing PMI; EU Flash CPI Estimate; UK Payrolls & Unemployment; US ISM Manufacturing PMI

4:
5: UK Services PMI; US ISM Non-manufacturing PMI
6: EU Economic Forecasts
7: BOE Policy Decision
8: Preliminary University of Michigan Consumer Sentiment

11: UK Manufacturing Production; UK Preliminary Q4 GDP
12: China Trade Balance
13: UK CPI; US CPI; Japan Preliminary Q4 GDP
14: Germany Preliminary Q4 GDP; EU Flash Q4 GDP; OPEC Monitoring Committee meeting; US PPI
15: UK Retail Sales

18: PRESIDENT’S DAY HOLIDAY (US)
19: UK Unemployment; German ZEW Economic Sentiment
20: US Housing Starts & Building Permits; FOMC Minutes
21: Various EU Flash Manufacturing and Services PMIs; UK Inflation Report (tentative); ECB Minutes; Philadelphia Fed Manufacturing Index
22: German Ifo Business Climate

25:
26: US Consumer Confidence
27: US Durable Goods Orders; China Manufacturing & Non-manufacturing PMIs
28: German Preliminary CPI; US Preliminary Q4 GDP (2nd reading); Chicago PMI
MARCH
1: UK Manufacturing PMI; EU Flash CPI Estimate; US Personal Income & Spending; US ISM Manufacturing PMI

4:
5: UK Services PMI; US ISM Non-Manufacturing PMI
6:
7: ECB Policy Decision; China Trade Balance
8: US Payrolls & Unemployment; Preliminary University of Michigan Confidence

11:
12: UK Q4 GDP; UK Manufacturing Production; UK Annual Budget (tentative); US CPI
13: OPEC Monitoring Committee meetings; US PPI; China Industrial Production
14: US Retail Sales; BOJ Policy Decision
15:

18:
19: UK Unemployment; German ZEW Economic Sentiment; US Building Permits
20: UK CPI & PPI; FOMC Policy Decision
21: UK Retail Sales; BOE Policy Decision; Philadelphia Fed Manufacturing Index
22: Flash Manufacturing & Services PMIs for various EU states; German Ifo Business Climate

25:
26: US Durable Goods Orders; US Consumer Confidence
27:
28: German Preliminary CPI;US Final Q4 GDP
29: UK BREXIT; UK Final Q4 GDP; EU Flash CPI; US Personal Income & Spending; Chicago PMI