Sunday, April 15, 2018

Barrons weekend update

Barrons weekend update: positive feature on UBS 
Cover story: Complex supply chains “are under threat from a wave of protectionism playing out around the world, most dramatically between the U.S. and China”; The potential for billions of dollars in tariffs has already rippled through the global economy and could have an impact on commerce for years; “A decades-long drive toward globalization may have hit a wall just as the world’s leading economic powers are growing in near lockstep.” 

1) As three-quarters of S&P 500 companies report earnings during the next three weeks, the growth rate will be inflated by corporate tax cuts and higher oil prices, but results are still likely to impress; 
2) Barron’s latest Big Money Poll found that with the recent decline in stocks, a growing number of money managers say the market is undervalued, and they are bullish on the U.S., emerging markets, financials, and tech; 
3) Positive on USB: The firm has consistently generated the highest returns among the top 10 banks, but investors have punished it for earnings outlooks and government sanctions—a reaction that looks overdone. 

Tech Trader: Though FB may be a formidable business, “it is ultimately just a moment in the long evolution of the Internet,” says Tiernan Ray—and its moment will pass; New social sites that rely on blockchain, which is decentralized and allows users to control their data, could well supplant Facebook at some point. 

Trader: A doubling of the VIX doesn’t have to be a harbinger of future pain, says Leo Chen of Cumberland Advisors—but it is unlikely to return to the ultralow levels of 2017; Oil prices, which hit their highest levels in three and a half years this past week, may be high enough to make oil company stocks attractive again; Cautious on CMI: The maker of truck engines and parts is an unacknowledged Internet play because of the role trucks play in e-commerce, and it has a strong balance sheet—though a global trade war could pose problems. 

Interview: Ken Allen, manager of the T. Rowe Price Science and Technology fund, looks for what the market has missed when it unloads shares of a company generating lots of cash (picks: FB, GOOGL, AMZN, TSLA; pans: AAPL, NFLX). 

Profile: Charlie Dreifus, manager of the Royce Special Equity fund, takes a risk-averse investment approach, though this sometimes means the fund trails during bull markets (top 10 holdings: PLCE, UNF, AVX, SMP, SCHL, HUBB, MDP, TER, CPLA, WMK). 

Follow-Up: Positive on RGNX: NVS’s takeover bid for AVXS looks bullish for the company, which makes the viral delivery mechanism for AveXis’ marquee treatment for severe spinal muscular atrophy. 

European Trader: Sweden’s big-bank stocks have taken a hit over concerns about their exposure to the country’s cooling housing market, but the selloff appears overdone and could present an opportunity. 

Emerging Markets: The market’s growing interest in Mexican stocks is based on the belief Nafta will live on and Mexico’s next likely president, left-leaning Andres Manuel Lopez Obrador, will shift to the center. 

Commodities: Most analysts believe the boost in aluminum prices—the result of U.S. sanctions on Russia, including Rusal—won’t last much longer than the rift with Moscow, though its duration is hard to predict. 

Streetwise: There is reason to be skeptical of megarich benefactors such as Stephen Schwarzman of BX swooping in to save education, especially when it involves public schools.

Friday, April 13, 2018

Indices Gain on Softening Trade Rhetoric Weekly Market Update: Indices Gain on Softening Trade Rhetoric
Fri, 13 Apr 2018 16:06 PM EST

Coming into the week much of the focus remained on trade, but on Monday stock markets were initially unsettled by another chemical attack in Syria and a report the office of President Trump’s personal lawyer Cohen was raided by an FBI filter team. Speculation that China was gearing up to devalue the Yuan were quickly pushed aside by more conciliatory comments from President Xi. His speech on Tuesday opened the door for softer rhetoric from President Trump encouraging investors to step back into equity markets. Facebook shares bounced that day as well helping overall FANG sentiment as CEO Zuckerberg appeared in Washington largely deflecting key questions from Congress. Volumes remained light though, as it was another week characterized by 1%+ intraday swings in the indices largely attributed to evaporating bids and offers more so than aggressive positioning. Stocks turned lower on Friday after key bank earnings failed to maintain the rally and ongoing handwringing over the President and is growing contempt for figures at the Dept of Justice. Treasury yields moved up modestly but the curve continued to flatten. Economic data stayed on the softer side, particularly in Europe offsetting what some viewed as mildly hawkish FOMC minutes. WTI crude has consolidated above $67 and is looking at the highest weekly close since 2014 heading into the weekend and a potential Trump decision regarding Syria. For the week the S&P gained 2% led by the energy complex, NASDAQ bounced 2.8% on a tech rebound and the Dow added 1.8%.

In corporate news this week, earnings season kicked off with the release of some bank quarterly reports. JPMorgan, Citi, and Wells Fargo shares drifted lower as investors weighed modest loan growth against rising deposit betas. Delta lifted on a positive earnings release, while American and United descended after offering Q1 guidance. Shares of Bayer and Monsanto jumped when reports indicated that the DOJ was prepared to approve their merger, following the EU issuing its own approval this week of the deal’s modifications. Verifone charged forward after reaching a $3.4B deal to be taken private by Francisco Partners. Biotech firm Avexis announced it would be acquired by Novartis for $218/shr in a cash transaction valued at $8.7B, which lifted other names in the gene therapy sector. And cloud-based software provider Zuora’s IPO opened for trade on the NYSE at $20.00/shr, 42% above its pricing

MON Dept of Justice reportedly will approve Bayer/Monsanto deal in exchange for additional concessions - press
(US) FBI raids office of Trump's longtime personal lawyer Michael Cohen; search doesn't appear to be directly related to Mr. Mueller’s investigation - New York Times
PAY To be acquired by Francisco Partners for $3.4B at $23.04/shr in cash, which includes Verifone’s net debt
(CN) China President Xi: China to lower auto and auto product import tariff later this year, open sector to higher foreign ownership; China reform and opening will definitely succeed, world should push for free trade - remarks at Boao conference

*(US) MAR PPI FINAL DEMAND M/M: 0.3% V 0.1%E; Y/Y: 3.0% V 2.9%E
(EU) ECB spokesperson: Nowotny's views are his own and do not represent the view of the Governing Council
TMUS Reportedly Sprint and T-Mobile have restarted deal talks; discussions are in preliminary stage - press

TSCO.UK Reports FY17/18 adj PBT £1.30B v £145M y/y, adj Op £1.64B v £1.60Be, Rev (Inc Fuel) £57.5B v £57.7Be; declares annual dividend of 3.0p/shr
(UK) FEB INDUSTRIAL PRODUCTION M/M: 0.1% V 0.4%E; Y/Y: 2.2% V 2.9%E
FAST Reports Q1 $0.61 v $0.61e, Rev $1.19B v $1.18Be; Reports March Daily Net Sales $19.0M, +13.1% y/y
(US) President Trump tweets " Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and “smart!” You shouldn’t be partners with a Gas Killing Animal who kills his people and enjoys it!"
(US) MAR CPI M/M: -0.1% V 0.0%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI NSA: 249.554 V 249.588E
(US) Speaker of House Ryan (R-WI) reportedly will not run for re-election in November - Axios
CA.FR Reports Q1 Rev €20.8B v €20.9Be
(SY) Prime Min May reportedly orders UK submarines within range of Syria - press
BBBY Reports Q4 $1.48 v $1.41e, Rev $3.72B v $3.67Be
(CN) China said to be planning to raise fuel prices Friday; Gasoline by CNY55/ton; Diesel by CNY50/t - Chinese press

9983.JP Reports Q2 Net ¥25.6B v 26.5Be, Op ¥56.6B v ¥48.2Be
(SE) SWEDEN MAR CPI M/M: 0.3% V 0.3%E; Y/Y: 1.9% V 2.0%E
MDR Reports prelim Q1 $0.15-0.17 v $0.05e, Rev $600-610M v $591Me
DAL Reports Q1 $0.74 v $0.73e, Rev $9.76B v $9.88Be
*(EU) ECB ACCOUNT OF MARCH POLICY MEETING (MINUTES): Council broadly agreed that not enough evidence that inflation is sustained
(US) MAR IMPORT PRICE INDEX M/M: 0.0% V 0.1%E; Y/Y: 3.6% V 3.8%E
ZUO IPO opens for trade at $20.00
(US) Sen Roberts (R-KS): During meeting Trump indicated he assigned Larry Kudlow and other advisers to take another look at Trans Pacific Partnership (TPP)
*(SG) SINGAPORE MONETARY AUTHORITY (MAS) SEMIANNUAL MONETARY POLICY STATEMENT: TO 'INCREASE SLIGHTLY' SLOPE OF S$NEER POLICY BAND (vs. zero pct appreciation policy prior); First tightening measure since April 2012
*(CN) CHINA JAN-MARCH (Q1) TRADE BALANCE (CNY): +326.2B, (surplus narrows 21.8% y/y)
*(CN) CHINA MAR TRADE BALANCE (USD): -$4.98B V +$27.9BE (first deficit in 13-months)

(BE) ECB's Smets (Belgium): Weak inflation remains a lingering concern
JPM Reports Q1 $2.37 v $2.28e, Managed Rev $28.5B v $27.7Be
C Reports Q1 $1.68 adj v $1.61e, Rev $18.9B v $18.9Be
(CN) China reportedly plans to postpone deal reviews due to US trade tensions - press
(US) Weekly Baker Hughes US Rig Count: 1,008 v 1,003 w/w (+0.5%) (highest in 3 years)

Saturday, April 7, 2018

Barrons weekend update

Barrons weekend update: positive feature on GOOGL; cautious on IAC 
Cover story: Artificial intelligence is moving from the realm of science fiction to real life, and has become the main focus of almost all money managers, including firms such as BLK, Vanguard, Fidelity, and TROW; The technology “has the potential to deliver an infinite workforce that never tires and virtually never makes mistakes.” 

Features: 1) Positive on GOOGL:Despite having Google, YouTube, and the Android operating system under its roof, investors aren’t giving the company sufficient credit for its growth outlook and franchise value; 2) An overview of the demise of Toys “R” Us, which employed a host of financial-engineering tactics in a friendly credit market and still couldn’t survive; 3) Cautious on IAC: The consortium of dot-com companies has for two decades generated higher returns than Berkshire Hathaway—but the shares are “overtly mispriced,” says Anthony DiClemente of Evercore ISI. 

Tech Trader: Cautious on SWKS, QRVO, QCOM, SYNA: A trend in which consumers hold onto their smartphones longer doesn’t bode well for chipmakers, though new players in the gadget sector, such as OLED, should remain appealing for investors. 

Trader: Tim Bray of GuideStone Capital thinks the market’s glum mood will persist and that investors have yet to experience the lows yet; Spotify’s stock price may remain volatile in the months ahead, and the company might eventually need raise more money in a traditional equity offering; Rich Gates of TFS Capital continues to face problems liquidating shares of U.S.-listed Chinese companies he had shorted, and which turned out to be frauds. 

Mutual Fund Quarterly: 1) Many of the 230 actively managed ETFs listed by Morningstar have been overlooked in the passive-investing wave despite having solid records; 2) Interview with Savita Subramanian, U.S. equity and quantitative strategist at Bank of America Merrill Lynch, who is bullish on stocks and thinks the S&P 500 could rise 14% to 3000; 3) Expense ratios for ETFs are now as low as 0.03%, but the funds are compensating by lending out securities, generating shareholder returns and manager fees; 4) Decades of research on factors, which predict handsome returns over long periods, have led to a range of related product launches, especially in the ETF space. 

Follow-Up: FB chief Mark Zuckerberg and his advisors had no real choice about testifying before Washington lawmakers, and the outcome is unlikely to be positive for them. 

European Trader: Positive on JD Sports Fashion: The company has shown it can successfully enter new markets, and investors are likely to benefit as the U.S. chain becomes British after its purchase of Finish Line. 

Emerging Markets: Andy Rothman of Matthews Asia says if an unlikely trade war between the U.S. and China were to escalate, it would hurt the U.S. more than China and create a buying opportunity for Chinese shares. 

Commodities: “An unusual confluence of factors could propel prices higher over the next couple of years, including declining output, an ethanol-led demand surge in China, and likely brutal weather.” 

Streetwise: Tech IPOs are often an exit strategy for founders and insiders, and increasingly offer little opportunities for regular investors.

Friday, April 6, 2018

Trade rhetoric overshadows March employment report Weekly Market Update: Trade rhetoric overshadows March employment report
Fri, 06 Apr 2018 16:05 PM EST

US stocks indices saw wild swings this week after trade war concerns were rekindled in earnest. The President's latest musings about potentially adding an additional $100M in Chinese tariffs sparked the latest round, and potential escalation in the back-and-fourth between the two nations. A reprisal of the good cop/bad cop roles for various administration officials steadied sentiment early on, but as the week progressed markets reacted less and less to walk backs from the President’s confidants. Friday’s March employment report did little to change the momentum after the payrolls number came in well below expectations, though many attributed the deceleration largely to poor weather. The selling intensified into and after Fed Chairman Powell spoke in Chicago late on Friday pushing the S&P towards its first weekly close below the 200-day since 2016 before bouncing back into the bell. Volumes remained relatively muted considering the outsized move by many indices with the buyback quiet period remaining in effect ahead earnings season. Treasuries sold off and the Dollar firmed early on before risk off flows pushed yields lower. For the week the S&P fell 1.4%, the Dow dropped 0.7% and the NASDAQ lost 2%.

Corporate news was relatively light this week as markets awaited the new earnings season. All eyes were on Amazon as Pres Trump dispatched a slew of negative tweets and comments about the company and its CEO Bezos, though White House advisers insist no action against Amazon is forthcoming. News resurfaced that MGM may consider acquiring Wynn if the price were right, as Wynn reels from scandals involving its now-resigned namesake CEO. Humana rose on a report of Walmart interest in acquiring the health insurer. The Big Three automakers lifted after posting big beats in their March sales figure. Tesla deliveries impressed investors despite not hitting Model 3 output expectations yet, though the company continues to expect the rate to increase “rapidly” through Q2. Viacom shares were weighed on by reports that CBS submitted a bid below their current market value.

(HK) Macau Mar Gaming Rev MOP25.9B, y/y: 22.2% v 16.6%e

*(US) MAR ISM MANUFACTURING: 59.3 V 59.7E; PRICES PAID: 78.1 V 72.5E (prices paid highest since 2011)

(EU) ECB’s Liikanen (Finland) said to have emerged as a compromise candidate for the job as head of ECB - financial press
(UK) MAR MANUFACTURING PMI: 55.1 V 54.7E (20th month of expansion)
(US) Fed confirms to name San Francisco Fed Pres Williams to New York Fed, effective June 18th
*(US) USTR announces $50B list of specific tariffs against China over IP trade violations; proposing 25% tariff on 1,300 categories of imports

(CN) China Commerce Ministry (MOFCOM): To levy reciprocal tariffs on 106 US good totaling $50B on imports - Chinese press
LEN Reports Q1 $1.11 v $0.82e, Rev $2.98B v $2.65Be
(US) Conference Board March Total online job ads 4.82M v 4.72M m/m v 4.65M y/y; New ads 2.03M v 2.02M m/m v 2.02M y/y

(CN) China Vice Fin Min Zhu Guangyao: China Govt not considering reducing its US Treasury holdings any time soon - speaking to CNBC
(UK) MAR SERVICES PMI: 51.7 V 54.0E (20th month of expansion but lowest since July 2016)
(US) FEB TRADE BALANCE: -$57.6B V -$56.8BE (widest monthly deficit since 2008)
(US) Pres Trump: Amazon does not use a level playing field and it has to be level for everyone; studying the issue and will take a serious look at changes that might affect Amazon
005930.KR Reports prelim Q1 (KRW) Op 15.6T v 14.5Te v 9.9T y/y (record high), Rev 60.0T v 61.6Te (v 50.0T y/y)
WYNN MGM Resorts said to show interest in Wynn - NY Post

(CN) China Commerce Ministry (MOFCOM): To take ‘new comprehensive’ measures to safeguard interests; willing to pay any cost and firmly fight back - comments after Trump’s call for an additional $100B in tariff
(US) Weekly Baker Hughes US Rig Count: 1,003 v 993 w/w (+1%)
(US) Treasury Sec Mnuchin: There is potential for a trade war, but we aren't there yet; administration objective is not to get into a trade war - CNBC interview

Sunday, April 1, 2018

Barrons weekend summary

Barrons weekend summary: positive on refinery names; conditionally positive on CMCSA 
Cover story: Canada hopes to become the Silicon Valley of recreational marijuana, an experiment other countries are closely watching—but a weed glut there poses a risk, and at current valuations, marijuana stocks are too expensive (Cautious on Canopy Growth, Aurora Cannabis, Aphria, MedReleaf, Cronos Group). 

Features: 1) Technology stocks have become an increasingly dominant sector in the S&P 500, but that exposes investors to volatility when companies such as FB or other FANGs struggle; 2) Positive on Comcast: Many investors want the company to focus on its core businesses—cable TV, high-speed internet access, and NBCUniversal—and shelve its global ambitions, but the shares remain a bargain despite risks; 3) Positive on ANDV, MPC, PSX, VLO: “Gasoline sales seem to face a long-term threat from electric cars, but in the near term, the outlook for companies that turn crude into gasoline has rarely looked better.” 

Tech Trader: Artificial intelligence is about to become more pervasive as the computer circuitry that powers it grows more sophisticated; So-called intellectual property companies will thrive because they earn licensing fees from chip makers (Positive on NVDA, CEVA, INTC, SNPS, CDNS). 

Trader: Kate Warne, investment strategist at Edward Jones, remains bullish on the market, despite the fact the second quarter might be down and there are concerns about the tech sector; Positive on CCL, KHC, XOM, CI: Bernstein strategist Inigo Fraser-Jenkins screened for companies with the lowest debt-to-equity ratios in the S&P 500 and found attractively priced companies that could be an antidote to overindebted peers; If certain regulatory requirements—such as the Fed’s annual Comprehensive Capital Analysis and Review—are loosened, banks might increase their buybacks. 

Interview: Sir Michael Hintze, manager of London-based hedge-fund CQS, talks about the role of the imagination in successful investing and how investors should position themselves for a coming rise in interest rates. 

Profile: David Albrycht, manager of the Virtus Newfleet Multi-Sector Short Term Bond fund, focuses on nonagency mortgages and subprime auto loans, and is watching emerging markets (top 10 sectors: asset-backed securities, corporate high quality, non-agency residential MBS, bank loans, corporate high yield, emerging market high yield, mortgage-backed securities, non-agency commercial MBS, Yankee high quality, non-USD). 

Follow-Up: Cautious on TSLA: Some investors question whether the automaker can raise enough cash to keep going—but it should eventually improve Model 3 production and get past its current problems. 

European Trader: Cautious on DB: It’s probably premature to expect chief John Cryan to leave anytime soon, and also too soon to turn bullish on the bank’s shares. 

Emerging Markets: Cautious on Tencent Holdings, BABA: After two years of outperformance, there are strong arguments to be made for decoupling, because developing world economies are more stable than they used to be—but it’s a vain hope for now. 

Commodities: A surge in demand has ended the great commodity bear market that began in 2011, says Sal Gilbertie of Teucrium Trading, but concerns over a potential trade war are prompting mixed reactions from investors.

Saturday, March 24, 2018

Barrons weekend update

Barrons weekend update: cautious cover story on Facebook; positive feature on TWX; cautious on DBX 
Cover story: FB faces a consumer and investor backlash in the wake of the Cambridge Analytica data scandal; “With more than two billions users, Facebook is a top target for privacy concerns, and it’s almost certain that the company will not walk away unscathed”; its challenge will be how quickly and effectively it can change. 

Features: 1) Cautious on FB: Shares look tempting after a recent drop, but investors must determine whether the potential backlash against Facebook’s privacy problems is already priced in; 2) Barron’s 2018 list of Best Online Brokers is topped by IBKR, Fidelity, AMTD, SCHW, and TradeStation; 3) Positive on TWX: As the Time-Warner/T antitrust trial gets under way, the media giant’s shares look appealing based on their underlying value and the telecom’s strong chances of winning approval for the deal; 4) Cautious on DBX: “Despite its spectacular debut, it’s fair to ask whether Dropbox has made all the easy money it can, and whether the next billion will come at a higher cost.” 

Tech Trader: Positive on MDB, SEND: Among smaller cloud software companies whose shares are soaring amid renewed mergers-and-acquisitions fervor in the sector; investors want such firms in their portfolios because their outperformance helps achieve alpha. 

Trader: Investors aren’t yet worried about tariffs, and the current situation would have to get more out of hand than it is today for tariffs to have a bigger impact on the market; Cautious on GIS: Shares merit some of their recent downside, but the company’s reduction in outlook appears tied to self-inflicted miscues, says BMO analyst Kenneth Zaslow, and its valuation gives reason for optimism; Cautious on THS: Matters look grim for the maker of private-label foods, but some bullish observers expect incoming CEO Steven Oakland to put the company back on track. 

Profile: David Semple, manager of the VanEck Emerging Markets fund, avoids cyclical companies whose fates are tied to commodities or exports predicated on cheap labor (top 10 holdings: Tencent Holdings, BABA, Samsung Electronics, Ping An Insurance, Sberbank of Russia, Naspers, HDFC Bank, JD, CIE Automotive, Beijing Capital International Airport). 

Interview: Stephanie Pomboy, founder of Macromavens, says the next crisis will come from the Federal Reserve, whose march to tightening will stress tapped-out consumers and overstretched companies. 

Small Caps: Positive on LZB: Shares could rise 20% within a year or two, propelled by higher consumer spending, a new deal to sell on AMZN, and successful efforts to reach millennials. 

European Trader: Cautious on Micro Focus: Shares of the business software company plunged last week, and while bulls say the dive is overdone, bears make a convincing case that there’s little hope for a quick turnaround. 

Emerging Markets: Moscow’s relationship with the West may be deteriorating, but as long as natural-gas sales to the EU are unhindered, “nothing short of armed conflict” with Russia will deter investors. 

Commodities: China’s planned launch of a yuan-denominated crude futures contract could become a benchmark for global oil transactions, but it must overcome a range of challenges first. 

Streetwise: Double-digit growth is crucial for tech companies such as FB, and slowdown will hurt the social site—but of greater consequence will be what happens to its reputation.

Risk Appetite Dries Up as Trade War and Tech Worries Mount Weekly Market Update: Risk Appetite Dries Up as Trade War and Tech Worries Mount 

Global stock markets took a significant step back this week as investors were unable to look past a growing number of risks to equity valuations. Technology shares opened under significant pressure when Facebook found itself embroiled in a major controversy, leading many to call for the resignation of CEO Zuckerberg amid intense scrutiny from government officials in Europe as well as in Washington. The consternation surrounding a looming trade war only intensified after President Trump followed through and announced a swath of tariffs aimed at $60B in Chinese imports. The Chinese responded in kind, launching what appeared to be much more modest $3B retaliation package against the initial steel and aluminum tariffs imposed earlier this month, but suggested more reciprocal measures may be announced soon. Wednesday, the US Fed raised rates as expected, but the median forecast for the Fed funds rate for both 2019 and 2020 were ratcheted significantly higher. The next day, the BOE hinted that its next rate hike is likely to come in May. President Trump made fresh headlines on Friday by announcing another change to his inner circle, bringing on hawk John Bolton to head up his national security team. He also signed the omnibus spending bill, but not before deriding Congress for the legislation's perceived shortfalls in his eyes. 

Indicators in global bond markets offered some caution also: A global flight away from risk pushed up Treasury prices and weighed on yields. European yields touched some of the lowest levels in months, despite the BOE indicating it is indeed pulling forward its next rate hike. Treasury prices rallied despite the perception of a somewhat hawkish Fed, pushing the 10-year yield back towards last month's lows. LIBOR spreads continued to rise, along with the LIBOR-OIS spread widening to levels not seen since the European financial crisis, signaling potential issues affecting overnight funding markets. The VIX jumped back above 25 as the S&P slid back towards the Feb lows and the 200-day moving average. The US dollar fell to a 16-month low against the Japanese Yen while rallying modestly against other currencies. Gold prices jumped back towards the Feb highs, testing $1,350 once again. Sector flows were clearly defensive in nature with REITs, utilities, and energy names holding up relatively well to the carnage seen in technology. For the week, the S&P500 tumbled nearly 6%, the DJIA dropped 5.7%, and the Nasdaq fell 6.5%. 

Corporate news this week was dominated by Facebook, after a whistleblower at UK-based Cambridge Analytica told media outlets that the firm surreptitiously took vast amounts of data from 50M Facebook users to apply to their controversial consulting practice. In response to the reports, legislators on both sides of the Atlantic called for answers from the social media giant's top brass, and the stock fell 13% on the week. In other news, Uber halted its autonomous vehicle testing after a woman was struck and killed in Tempe, Arizona, by one of its supervised test cars. Citigroup announced it would restrict gun sales for some of its credit card and business partners, prohibiting the sale of firearms to customers who have not passed a background check or who are younger than 21. Nike shares bounced higher after reporting earnings, pointing to a significant trend reversal to the positive side in North America. And despite picking a difficult week in the markets for an IPO, Dropbox soared in its Nasdaq debut, ending nearly 35% above its opening level in Friday's session. 

SUNDAY 3/18 (CN) China: Confirms current PBoC Dep Gov Yi Gang nominated as PBoC Gov (CN) China Housing Min: Property market remains stable overall, overly fast property price trend 'curbed'; to stick to property control measures 

MONDAY 3/19 FB Cambridge Analytica (ties to Trump campaign) said to have tapped the profiles of more than 50M users without their permission - financial press (EU) EU chief Brexit negotiator Barnier: Confirms agreement on Brexit transition terms; to present joint legal text UBER.IPO Halts autonomous vehicle testing in all cities following a fatality in Tempe, AZ - press ORCL Reports Q3 $0.83 v $0.72e, Rev $9.78B v $9.77Be (CN) Analysts said to see higher probability for PBoC to raise interest rates (timing uncertain) - China Securities Journal FB Follow Up: Senate Commerce Committee said to request briefing on user data 

TUESDAY 3/20 (UK) FEB CPI M/M: 0.4% V 0.5%E; Y/Y: 2.7% V 2.8%E; CPI CORE Y/Y: 2.4% V 2.5%E (DE) GERMANY MAR ZEW CURRENT SITUATION: 90.7 V 90.0E; EXPECTATIONS SURVEY: 5.1 V 13.0E 386.HK Reports FY (CNY) Net 6.14B v 5.9B y/y, Rev 92.0B v 77.9B y/y FDX Reports Q3 $3.79 v $3.09e, Rev $16.5B v $16.2Be; Raises Adj FY18 $15.00-15.40 v $13.51e (prior $12.70-13.30) 

WEDNESDAY 3/21 700.HK Reports Q4 (CNY) Net 20.8B v 16.6Be, Op 25.7B v 13.9B y/y, Rev 66.39B v 68.61Be (UK) JAN AVERAGE WEEKLY EARNINGS 3M/Y: 2.8% V 2.6%E; WEEKLY EARNINGS (EX BONUS) 3M/Y: 2.6% V 2.6%E (UK) FEB JOBLESS CLAIMS CHANGE: +9.2K V -1.6K PRIOR; CLAIMANT COUNT RATE: 2.4% V 2.3% PRIOR (UK) JAN ILO UNEMPLOYMENT RATE: 4.3% V 4.4%E (match the lowest since 1975) *(DE) GERMANY SELLS €2.447B VS. €3.0B INDICATED IN 0.5% FEB 2028 BUNDS; AVG YIELD: 0.60% V 0.67% PRIOR; BID-TO-COVER: 1.3X V 1.2X PRIOR *(US) FOMC RAISES TARGET RATE RANGE 25BPS TO 1.50-1.75% (AS EXPECTED) GOOGL Reportedly working on blockchain tech, developing a distributed digital ledger to help differentiate its cloud services - press *(BR) BRAZIL CENTRAL BANK (BCB) CUTS SELIC RATE BY 25BPS TO 6.50%; AS EXPECTED *(CN) PBOC RAISES RATE ON 7-DAY REVERSE REPO BY 5BPS TO 2.55% FROM 2.50% (tracks Wed's 25bps rate hike by US Fed, as speculated) 

THURSDAY 3/22 941.HK Reports FY17 (CNY) Net 114.3B v 113.8Be, EBITDA 270.4B v 269.5Be, Op Rev 740.5B v 745.4Be *(FR) FRANCE MAR BUSINESS CONFIDENCE: 109 V 109E; MANUFACTURING CONFIDENCE: 111 V 111E (FR) FRANCE MAR PRELIMINARY MANUFACTURING PMI: 53.6 V 55.5E (18th month of expansion and lowest since Mar 2017) (DE) GERMANY MAR PRELIMINARY MANUFACTURING PMI: 58.4 V 59.8E (39th month of expansion and lowest since July) *(EU) EURO ZONE MAR PRELIMINARY MANUFACTURING PMI: 56.6 V 58.1E (56th month of expansion) (DE) GERMANY MAR IFO BUSINESS CLIMATE: 114.7 V 114.6E; CURRENT ASSESSMENT: 125.9 V 125.6E *(UK) FEB RETAIL SALES (EX AUTO FUEL) M/M: 0.6% V 0.4%E; Y/Y: 1.1% V 1.2%E (UK) BANK OF ENGLAND BANK (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.50%; AS EXPECTED (UK) BOE MAR MINUTES: VOTED 7-2 TO LEAVE INTEREST RATES UNCHANGED AT 0.50% (McCafferty, Saunders dissent calling for 25bps hike) (US) INITIAL JOBLESS CLAIMS: 229K V 225KE; CONTINUING CLAIMS: 1.83M V 1.870ME ((lowest since Dec 1973) *(US) MAR PRELIMINARY MARKIT MANUFACTURING PMI: 55.7 V 55.5E (3-year high) Citigroup said to be restricting gun sales by some of its business partners - NYT (US) John Dowd resigns as Trump's lead attorney as part of Mueller probe - NYT *(US) President Trump announces $50B in tariffs over China intellectual property trade violations (as expected) - press (CN) US bullying poses a threat to the global trade system; US punitive actions are all based on outdated trade laws - China state press MU Reports Q2 $2.82 v $2.76e, Rev $7.35B v $7.23Be NKE Reports Q3 $0.68 adj** v $0.52e, Rev $8.98B v $8.84Be; Now see a significant reversal of trend in NA as momentum accelerates (US) Trump Administration National Security Adviser McMaster to resign; to be replaced by Bush Admin official John Bolton (CN) China Commerce Ministry (MOFCOM): Plans reciprocal tariffs on US steel and aluminum products; plans tariffs on $3B in US steel, aluminum, pork and wine imports; To take legal action at WTO WYNN To sell 5.3M shares newly issued shares to Galaxy Entertainment at $175/share (~5.1% of shares outstanding); Confirmed Wynn Family sold 4.1M shares at $180/share in open market, family additionally agreed to sell ~8M shares in private deals (total offering by Wynn Family ~11.7% of shares outstanding, Represents Steve Wynn’s remaining stake) 005930.KR Notes OLED demand slowed in H1 2018, seeking new source of OLED demand 

FRIDAY 3/23 KR One report indicates Target and Kroger in potential merger talks; CNBC sources say news is 'bogus' (US) FEB PRELIMINARY DURABLE GOODS ORDERS: 3.1% V 1.6%E; DURABLES EX-TRANSPORTATION: 1.2% V 0.5%E (US) FEB NEW HOME SALES: 618K V 620KE

Saturday, March 17, 2018

Barrons weekend summary

Barrons weekend summary: positive features on AGN, GPS 
Cover story: Short-term approaches to elderly caregiving can “stretch into years, upending lives, taking family dysfunction to new levels, and blowing up otherwise solid retirement plans,” making long-term care one of the biggest challenges of aging; Barron’s provides an overview of the stages of care to help people craft a plan that works best for all family members. 

Features: 1) Positive on AGN: Growing competition for Botox and the surprise loss of patent exclusivity for dry-eye treatment Restasis have prompted worry, but the concerns are overdone, and the stock “is ready for a major face-lift”; 2) Positive on GPS: Retailer’s Old Navy brand is seeing fast sales growth and plump profit margins, has exposure to strong areas such as activewear—and could end up boosting Gap shares by 25%; 3) Interview with Hedgeye Risk Management healthcare analyst Tom Tobin, who says medical costs could begin falling for the first time in more than half a century. 

Tech Trader: Now that the Trump administration has thwarted AVGO’s plan to acquire QCOM, Wall Street is focusing on what chief Hock Tan’s plan B deals will be; the two most likely targets are XLNX and MU, but others are conceivable, including MCHP, MRVL, MXIM, and ADI. 

Trader: There’s a good chance that if the market tumbles even more, it won’t be because of higher bond yields and concerns about inflation, says Michael Shaoul of Marketfield Asset Management; Investors shouldn’t be surprised if there are more highs ahead for banks, because the current environment seems right for a rally. 

The Financial Crisis 10 Years Later: 1) Jeffrey Gundlach of DoubleLine Capital, one of the few experts who predicted the financial crisis, doesn’t see any disasters in the offing, unmitigated or otherwise—but says that’s no reason to relax; 2) Ten years after the collapse of Bear Stearns, it’s clear that “no regulatory apparatus can be erected against complacency or the normal ebb and glow of the business cycle.” 

Follow-Up: GS, recently humbled by a trading slump, has created something of a hedge with its apparent choice of David Solomon, a lender and investment banker, to replace chief Lloyd Blankfein; The SEC’s recent action against Theranos is an attempt to address the Silicon Valley hype machine, and could begin to foster more truth and accountability among startups. 

European Trader: Positive on Umicore: For investors looking for a promising bet on the rising demand for electric vehicles, the Belgium-based battery-materials company could fit the bill. 

Asian Trader: Many investors see the potential meeting between Donald Trump and North Korean leader Kim Jong-un as a turning point for South Korea and its perennially cheap stock market. 

Emerging Markets: Investors concerned about the long-term outlook for emerging markets can compromise by seeking out funds that dampen the volatility of the asset class. 

Commodities: “Import tariffs announced by the Trump administration threaten to spark a global trade war that could put a dent in the U.S. agricultural market, and domestic soybean prices could suffer the most.” 

Streetwise: The Trump administration’s move to block the AVGO-QCOM deal may have been misguided, because Broadcom is really a collection of U.S. businesses, but what was more troubling was that it came without any signal government policy had changed.

Friday, March 16, 2018

Political Uncertainty and Weak Data Stall Markets Weekly Market Update: Political Uncertainty and Weak Data Stall Markets
Fri, 16 Mar 2018 16:05 PM EST

Equity markets had a tough time getting out of their own way this week as headlines coming out of Washington DC continued to keep investors unsettled. The week began with news that the President blocked Broadcom from acquiring Qualcomm on national security grounds, sending a chill over potential M&A activity going forward. There was also another bout of turnover at the White House as Trump finally sacked Secretary of State Rex Tillerson as it was long speculated he would. The abrupt manner in which the firing transpired led to litany of rumors handicapping the odds of more changes to the President’s inner circle in the near future. Trump formally added Larry Kudlow to his economic advisory council replacing Gary Cohen, but that failed to squelch trade war worries on speculation that another round of broad ranging Chinese tariffs could be announced as soon as next week. Adding to the geopolitical cocktail, the poisoning of a former Russian spy in England was laid at the feet of Russian President Putin by western intelligence agencies, leading to tit for tat sanctions between the UK and Russia.

The economic data was generally unable to offset much of the uneasiness emanating from geopolitics. European data, particularly out of Germany, softened, while US retail sales and housing starts missed expectations, leading many forecasters to revise their Q1 GDP estimates below 2%. Commentary from the BOJ and ECB largely held the current line of thinking suggesting neither Central Bank was rushing towards accelerating normalization time tables ahead of the FOMC and its expected rate hike next week. Rates moved lower for much of the week and yield curves flattened as the inflationary data held firm, keeping upward pressure on short rates, while buying at the long end pushed those yields lower. The US 2-10 year spread dipped back below 55 basis points bringing into view the decade lows seen in January. For the week the S&P500 lost 1%, the DJIA fell 1.6%, and the Nasdaq dropped 1.3%.

In corporate news, the week started off with the announcement that President Trump will block Broadcom’s attempted takeover of Qualcomm, citing national security grounds, leading Broadcom to abandon its bid. Optical names saw some strength Monday when Lumentum announced it would acquire Oclaro for $9.99/share in a $1.8B deal. Master Limited Partnership names fell on Thursday after FERC said it would no longer allow MLPs natural gas and oil pipelines to recover an income tax allowance in their cost of service. Toys R Us confirmed it would seek to wind down its US business and informed its 31K employees that it would liquidate or close all of its 790 stores.

(US) White House expected to later today make announcement related to gun proposals – US press

QCOM White House announces President Trump will not allow Broadcom takeover of Qualcomm - press

VOW3.DE Reports FY17 Net €11.4B v €11.4B prelim , adj op €17.0B v €17.0B prelim, Rev €230.7B v €230.7B prelim
HDS Reports Q4 $0.49 v $0.44e, Rev $1.18B v $1.16Be; Feb prelim net daily sales +11.7%
*(US) FEB CPI M/M: 0.2% V 0.2%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI NSA: 248.991 V 248.933E
*(US) Pres Trump has removed US Secretary of State Rex Tillerson; nominates current CIA Director Mike Pompeo to be new Secretary of State - press
CAT Reports Feb dealer statistics: Total Machines +33% y/y
(US) Business Roundtable CEO Q1 Economic Outlook Index at 118.6 v 96.9 q/q (highest level since 2002)
(BR) Reportedly Brazil is preparing response to US metals tariffs; tariffs could threaten deal between Boeing and Embraer - press
(CN) Trump admin reportedly considering imposing $60B in tariffs on Chinese goods - press (earlier reports said Trump wanted over $30B in tariffs)

(US) FEB PPI FINAL DEMAND M/M: 0.2% V 0.1%E; Y/Y: 2.8% V 2.8%E
(RU) UK PM May: Russia is yet to give satisfactory response to poisoning of Russian agent; Russia's action must be met with a 'robust response'

(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.50%; AS EXPECTED; brings forward its 1st potential rate hike
(US) FEB IMPORT PRICE INDEX M/M: 0.4% V 0.2%E; Y/Y: 3.5% V 3.5%E
(US) FERC to ban tax allowance cost recovery in master limited partnership (MLP) pipeline rates
(US) Special Counsel Mueller subpoenas Trump Organization demanding documents about Russia - NYT
(UK) UK and EU officials agree to take part in 'intensive talks' to resolve Irish border issue - financial press

(JP) Japan Lower and Upper Houses of Diet approve BoJ Gov Kuroda to additional 5-year term; also approve Amamiya and Wakatabe as Dep Governors
SHL.DE IPO opens for trade at €29.10/shr; IPO Price €28/shr
TIF Reports Q4 $1.67 v $1.63e, Rev $1.33B v $1.30Be
ZS IPO opens for trade at $27.50; priced at $16/shr

Sunday, March 11, 2018

Barrons weekend update

Barrons weekend update: positive feature on CCE 
Cover story: As employers scramble to rebuild their workforces in the wake of the recession, industries as varied as trucking, construction, retailing, fast food, oil drilling, technology, and manufacturing are having difficulty finding qualified help. 

Features: 1) Automation is revolutionizing industries from trucking to medicine and will eliminate jobs, but other positions will be created by the need to handle higher-level work that robots can’t perform; 2) Barron’s Best Fund Families of 2017 list is topped by Natixis Investment Managers, Vanguard Group, T. Rowe Price, TIAA Investments, and Fidelity Management & Research; 3) Cautious on MTW, CAT, OSK, NAV, TEX, GM, F: Companies are among those that could lose some percentage of earnings next year if they can’t pass along to customers a rise in steel prices that are the result of Trump administration tariffs; 4) Positive on CCE: Company’s success in the low-growth beverage business, where it has emphasized drinks with few or no calories, isn’t reflected in its stock price. 

Tech Trader: Companies such as IBM and ADSK are taking a cue from younger tech firms such as CRM by increasingly using financial jargon that isn’t found in traditional accounting—and the lingo is leading to sometimes startling effects, including share price pops. 

Trader: A heavy weighting in technology and a lack of exposure to the sectors such as utilities and staples have given the Nasdaq a boost, but the S&P 500 and the Dow are likely to climb higher as well; Consumer staples in the S&P 500 are expected to grow earnings by 11.4% this year, but investors need to be selective, given fundamental risks—STZ is better positioned than many others; “Good things may come in small packages, but small-company stocks still don’t have the heft necessary for their recent outperformance to continue.” 

Interview: Ed Yardeni of Yardeni Research discusses insights from his long career, bitcoin—which he thinks face greater regulation—and why he’s still bullish. 

Advisor Ranking: Most of the advisors in Barron’s Top 1,200 Financial Advisors ranking “see a bull market that, in its ninth year, is getting long on the tooth, but they aren’t concerned about a bear market or a recession in the near future.” 

European Trader: Bullish investors say Portugal still offers a good deal, because the country is benefiting from a greatly improved economic backdrop and stocks are cheap relative to global peers. 

Asian Trader: Asia has been reducing its reliance on trade as it boosts domestic demand; intraregional trade accounts for 60% of all Asian trade and is growing faster than commerce with the rest of the world. 

Emerging Markets: “If lithium, the metal used in electric-car batteries, is the new oil, then Chile is pushing to be its Saudi Arabia,” a process that could prove difficult. 

Commodities: U.S. steel prices have already gotten a boost from the Trump administration’s proposed tariffs, which should keep prices high and domestic demand strong this year. 

Streetwise: The regime of Venezuelan president Nicolas Maduro will eventually falter as the country continues to deteriorate, leading to the possibility the military may intervene.

Markets Sanguine on Strong US Jobs Data, Cooling Trade Rhetoric, and North Korean Overture Weekly Market Update: Markets Sanguine on Strong US Jobs Data, Cooling Trade Rhetoric, and North Korean Overture
Fri, 09 Mar 2018 16:05 PM EST

It was another eventful week for US markets culminating in a goldilocks Feb employment report that catalyzed investors’ willingness to move into risk assets, namely stocks. Stocks indices were already moving higher Monday on indications the President was walking back some of the tough trade rhetoric aimed at North American neighbors last week. By Thursday his decision to exempt both Canada and Mexico from the hotly debated steel and aluminum tariffs breathed a sense of relief into overall sentiment and offset protectionist concerns that had been exacerbated by the Tuesday announcement that Gary Cohn was leaving the White House. The BOJ and ECB held policy meetings this week and each central bank avoided spooking markets by indicating improving growth and inflation prospects have not yet moved up their timetables for removing accommodation.

Friday’s February employment report was the catalyst that accelerated equity markets, sending the NASDAQ composite back to all-time highs. The economy generated more than 300K job gains last month with a large boost from the retailing segment, but also showed solid gains across most sectors. The participation rate moved up three-tenths of a percent while the unemployment rate held steady at 4.1% as more people came off the sidelines to look for work. Wage gains moderated including a January revision lower, quelling some concerns about overheating, but total hours improved. The overall tone of the report was decidedly positive, giving the Fed plenty of scope for tightening this month even though the softness in wages suggested there is no particular urgency about doing so. Treasury yields rose modestly but still have not closed above 2.9% on a weekly basis since 2014. The Peso and Loonie rose late in the week basking in the President's decision to exempt them from steel and aluminum tariffs while the Yen softened on the surprise news that President Trump accepted an offer to meet with North Korea's Kim Jong Un. Doctor copper neared the February low before the move into risk assets pushed up a host of commodities late in the week. For the week the S&P500 gained 3.5%, the DJIA added 3.3%, and the Nasdaq climbed 4.2%.

In corporate news this week, Nordstrom shares were volatile on Monday after the board rejected an initial $50/share offer from the founding family and a subsequent report that said that the family was having trouble raising funds for an improved bid. Amazon was reported to be in early-stage discussions to offer a checking-account-like product with JP Morgan, aiming to reach new customers and to potentially shake up the financial industry. Shares of big box retailer Target slipped after it saw expenses rise and margins get squeezed in the fourth quarter. Reports that Toys R Us may liquidate its US operations weighed on toy-makers Hasbro and Mattel. Express Scripts confirmed it would be acquired by Cigna in a cash and stock deal worth $67B, as the healthcare industry continues its wave of consolidations.

(CN) China Premier Li: Set 2018 GDP growth target around 6.5% (compared to 6.9% growth rate in 2017; as speculated); Leaves CPI at ~3%, to maintain 'prudent and neutral' monetary policy and 'proactive' fiscal policy in 2018 - China National People's Congress

(UK) FEB SERVICES PMI: 54.5 V 53.3E (19th month of expansion)
AMZN Reportedly in talks with JPMorgan over checking accounts (targeting younger customers and those without bank accounts) - press
JWN Special Committee announces receipt and rejection of $50/shr indicative proposal from Nordstrom family; price proposed is inadequate

(KR) North and South Korea to hold 3rd summit in late April at the border; North Korea said to be open to denuclearize if regime safety is guaranteed
TGT Reports Q4 $1.37 v $1.39e, Rev $22.8B v $22.5Be
(CN) China regulators confirm lowering bad loan coverage requirement - Chinese press
(US) White House economic adviser Gary Cohn to resign (long speculated) - NYT

DPW.DE Reports Q4 Net €837M v €841M y/y, EBIT €1.18B v €1.11B y/y, Rev €16.1B v €16.2Be; Raises dividend 9.5% to €1.15/shr
(UK) FEB HALIFAX HOUSE PRICES M/M: 0.4% V 0.4%E; 3M/Y: 1.8% V 1.6%E (slowest annual pace in 5 years)
(EU) EURO ZONE Q4 FINAL GDP Q/Q: 0.6% V 0.6%E; Y/Y: 2.7% V 2.7%E
(EU) EU Trade Min Malmstrom: Alarming that Trump is targeting allies with tariffs; EU will react if US enacts steel tariffs
XOM Guides initial FY18 Capex $24B ,+9.1% y/y; FY19 $28B +17% y/y - analyst meeting comments
(US) JAN TRADE BALANCE: -$56.6B V -$55.0BE (widest deficit since Oct 2008)
(US) Conference Board Feb Total online job ads 4.72M v 4.90M m/m v 4.55M y/y; New ads 2.02M v 2.15M m/m v 1.95M y/y
(US) Atlanta Fed cuts Q1 GDP estimate to 2.8% from 3.5% on 3/1
(US) Association of American Railroads weekly rail traffic report for week ending March 3rd: 544.2K, +5.8%
(US) White House spokesperson Sanders: there could be potential carve outs for Canada and Mexico, and could extend to other countries as determined on a national security basis
COST Reports Q2 $1.42* (ex $0.17 tax benefit) v $1.45e, Rev $33.0B v $32.7Be
(US) Lawmakers in Florida pass bill to raise legal age for buying rifles; The bill also imposes a 3-day waiting period for all gun sales and permits the arming of certain school personnel.

ESRX Confirms to be acquired by Cigna in cash and stock deal worth $67B
(EU) ECB’s Draghi: Reinvestment will help to deliver the appropriate stance - Prepared remarks
(EU) ECB’s Draghi: Decision on language regarding change on QE expansion was unanimous; not much discussion on other policy shifts - Q&A
(US) Fed reports Q4 Financial Accounts: Household Change in Net Worth: $2.076T v $1.645T prior
(US) Pres Trump steel and aluminum tariffs reportedly to take effect in 15 days, with Mexico and Canada exempted indefinitely - AP
(UK) UK govt officials reportedly don't see reaching a Brexit deal until next year - press
Toys R Us reportedly may liquidate US operations - CNBC
(KR) North Korea Leader Kim Jong Un said to invite US President Trump to meeting - Fox News
(KR) South Korea Envoy Chung-Eui-Yong: North Korea to 'refrain further missile tests'; US President Trump and North Korea leader Kim Jong Un to meet by May
(CN) CHINA FEB M2 MONEY SUPPLY Y/Y: 8.8% V 8.7%E; M1 MONEY SUPPLY M1 Y/Y: 8.5% V 11.0%E
*(CN) CHINA FEB CPI Y/Y: 2.9% V 2.5%E (highest reading since Dec 2013* but attributed to Lunar New Year distortions)

UBSG.CH Publishes FY17 Annual Report: Reports final FY17 (CHF) Net 1.05 v 3.2B y/y (inc further CHF112M in provisions), Op 5.27B v 4.09B y/y, Op Income 29.1B v 28.3B y/y
(JP) BOJ Gov Kuroda: Reiterates view that expects inflation to move towards the 2% target; to make adjustments as needed - post rate decision press conference
*(UK) JAN INDUSTRIAL PRODUCTION M/M: 1.3% V 1.5%E; Y/Y: 1.6% V 1.9%E

Tuesday, March 6, 2018

March-April 2018 Outlook: The Shape of Water March-April 2018 Outlook: The Shape of Water
Mon, 05 Mar 2018 23:21 PM EST

For two years, equity markets rose steadily, matching the longest streak ever without a correction. This extended one-way market was devoid of volatility and became very predictable. That period ended abruptly in February when global stock indices tumbled into a correction brought on by worries about higher interest rates and exacerbated by complacency (manifested in a complete malfunction in some of the financial instruments used to bet on volatility). Before last month, the markets were like a flood tide steadily inching higher and raising all boats, but now predicting the market is suddenly like describing the shape of water: amorphous and inconstant.

The prospect of a trade war has prolonged the volatility into March and may wash over market sentiment for months to come, potentially sending ripples through the delicate negotiations over NAFTA and the Brexit. Further, the threat of a wider trade war or even a shooting war with North Korea may alter the calculus of central banks as they plot their return to normalized policy. These political challenges along with concerns about rising interest rates will continue to churn markets for the foreseeable future.

Monetary Policy: “Get Out”

The Fed and other central banks have patiently waited for the moment when they could begin to get out of their extraordinarily accommodative stance and finally normalize monetary policy. After a decade of near- or sub-zero rates and an array of experimental quantitative easing measures, we are entering the era of 'quantitative tightening' (as dubbed by bond baron Jeffrey Gundlach). The Fed has started to shrink its balance sheet and has been raising rates for more than a year, while the ECB and BOE are starting to plan their own exit strategies. In the years ahead, the great unwind of government bond holdings by central banks will distort yield curves as central banks reduce their holdings of global sovereign bonds from the current 33% back toward a pre-crisis sovereign holdings that were less than half that percentage.

The Fed is leading the cycle and as its new Chairman Jay Powell takes office, he faces the task of removing accommodation in such a way as to lift inflation back to the 2% target level without extinguishing growth prospects (by raising rates too fast) or letting the economy overheat (by raising too slowly). In his first appearance before Congress, the plain speaking Fed Chair unnerved markets with his hawkish demeanor (relative to former Chair Yellen). Powell said he has no concern about the flattening yield curve and sees little chance of a recession in the next two years. Further, he stated that the data and fiscal stimulus enacted since December made him more confident that inflation is moving to target and that the Fed now must “strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis.” The choice of the word “overheated” firmed up market expectations for three Fed rate hikes this year (as reflected in Fed funds futures), and got some market participants thinking about a four-hike year.

Better growth, higher wages, and firming oil prices could collaborate to spark faster inflation in 2018, presenting a challenge for Fed policy. GDP forecasts from the New York and Atlanta Fed Banks both see 3% or better growth in the first quarter. Average hourly earnings were better than expected in January, rising 2.9% year on year, matching the highest wage inflation since 2009. And there is growing demand for commodities: Copper and WTI crude prices have recently touched 3-year highs. Outside of exogenous events, a Fed overreaction to these improving trends could be the biggest risk to the building economic cycle. If inflation makes a sudden resurgence it could spook the Fed into raising rates faster to blunt it. Markets that have gotten so used to cheap credit could tighten up as borrowing rates hit milestones not seen in a decade.

Fed fund futures show the markets are anticipating rate hikes in March, June and then December. The persistent weakness in the greenback confirms that this rate path is baked in and at this point any monetary policy surprises will probably come from the other global central banks. For the most part, those other central banks are holding their policy steady, with only minor tweaks to lessen accommodation. The European Central Bank is debating whether it should clarify when rates will rise (likely not till 2019), the Bank of England could raise a second time in May, and the Bank of Japan remains committed to ultra-loose policy even though economic conditions have improved.

The demise of the deflationary threat to Japan has some market watchers thinking about when the Bank of Japan will start to unwind its extraordinary accommodation. A surprise cutback in Japanese government bond purchases in early January sparked some speculation that the BOJ was preparing its exit strategy. Contributing to that sense, there have also been a few BOJ policy board members questioning the necessity of the BOJ’s buying of exchange traded funds (ETFs) in the midst of a global rally in stocks. These notions were quashed in a recent speech by BOJ Governor Kuroda. Having secured a second 5-year term, Kuroda stood his ground, emphatically stating that the BOJ will continue “powerful monetary easing” to achieve its price goal. Though headline CPI hit its highest level in nearly three years at 1.4% in January, it remains well short of the target. Still Kuroda does have an eye toward the future, saying that easing will not continue once CPI reaches 2% in “stable manner,” and that normalization, once it begins, will be very gradual.

The BOE took back one 25 basis point cut last November, lifting the base rate to 0.50%. At the same meeting the BOE established that future rate hikes would be “gradual and limited,” now a familiar phrase from central banks. Then in February, after some better than expected growth data, the BOE took a more hawkish lean, hinting that more rate hikes may necessarily occur earlier and to “a greater extent” than envisioned just three months ago. That reckoning sent the pound sterling to its strongest level against the dollar since the June 2016 Brexit vote. In the days since the BOE’s February statement, the bank’s chief economist Haldane has put a finer point on the policy. Haldane noted the central bank is in “no rush” to raise rates, and that rates won't remotely go back to levels seen in the past, but any inflationary threat to the cost of living will be met with more rate hikes. With that said markets are now betting that the next 25 basis point hike will arrive in May.

In the euro zone, the ECB remains satisfied with the effects of its policy on improving growth and investment. As for normalization, the governing council is unanimous in its view of policy sequencing, saying that interest rates will not be hiked before the bond buying (QE) program is completed. The devil is always in the details as members are now debating whether to clarify the current interest rate guidance that rates will stay at current levels “well past” the end of the QE program, which would be in September at the earliest, and is likely to stretch to year end. Some board members see the “well past” language as too vague and worry that it will generate unwanted volatility. The counterargument is that setting a clearer date for rate liftoff in Europe could stifle the economic progress that’s been made, as industry and markets worry about a date certain for higher rates. Whatever the decision, the ECB has to be cautious about constructing its exit strategy because it must account for a scenario in which the Brexit is not well managed.

Brexit Talks: “Dunkirk”

It’s not certain that this is another Dunkirk moment for the UK, but many Britons already feel regrets about the referendum that began the nation’s 21st century retreat from continental Europe. Though not under direct fire from the Germans this time around, Britain looks indecisive at times and the exit talks are getting bogged down. This may have contributed to the February market correction that saw European bourses post their worst month since June 2016, when Brexit referendum shocked the world.

A Eurogroup meeting on March 12 will be a key moment for the Brexit negotiations. At this meeting the Europeans will set the guidelines for their transition-period discussions with the UK, aiming for a fully crafted withdrawal agreement by October or November. Both sides are still talking tough: the European’s chief negotiator has said that a transition is NOT a given if disagreements persist, while the UK Brexit Minister’s refrain continues to be that “no deal is better than a bad deal.” Substantial differences do remain on trade issues such as the arbitration mechanism, and the thorny Irish border issue is still not fully resolved.

Even the length of the Brexit transition period remains in dispute, and this may be the next milestone to watch for in the talks. So far, the Europeans have argued for the transition period to be as short as possible, favoring a 21 month stretch ending after 2020, which coincides with the end of a multi-year budget round, simplifying financial matters. On the other side of the table, the Britons are pushing for a more flexible Brexit implementation period of two-years or more to ensure they can make all the necessary preparations, including an overhaul of physical port infrastructure to cope with a dramatic increase in customs checks (work that has not begun yet, nearly two years after the referendum). The EU has signaled it may grant some flexibility on this issue, but that will require the UK to give some concessions such as withholding restrictions on free movement of EU citizens in the country during the transition. If dealmakers can’t forge an acceptable agreement on this timing issue, it will undoubtedly set back the even more complex trade talks that need to take place.

Trade War: “Phantom Thread”

The ‘invisible hand’ in economic theory that brings markets into equilibrium has been manipulated for the last ten years by central banks showering the global economy with massive stimulus packages. But just as that era is beginning to end, a very visible hand is tugging at a phantom thread that could unravel the entire global trade apparatus that has been painstakingly woven together over the last seven decades.

Since entering office over a year ago, President Trump has railed against “unfair” trade deals, but there was little action beyond lip service. In February, however, the Commerce Department issued its long awaited analysis on industrial metals trade, and the President pounced. Without much apparent consultation with advisors or Congressional leaders, Trump announced tariffs on steel and aluminum that were even higher than the Commerce Department’s minimum recommendations (at 25% and 10% versus the proposed 24% and 7.7%). Notably Trump chose a global tariff scheme over other proposals that would have set import quotas or used more targeted tariffs to punish problem producers. Commerce Secretary Ross defended the plan, saying the tariffs need to be global to ensure the worst offenders get squeezed and arguing the impact on consumer prices will be negligible, perhaps raisings costs by 1% on products from cans to cars.

President Trump’s decision to impose tariffs on industrial metal imports was a boon for the US steel and aluminum industry, but it has already sent a chill through in the broader markets on worries about higher basic materials costs and the threat of a trade war. The plan has been panned by many economists who equate tariffs with taxes, the WSJ described it as “folly”, and the stock market that Trump uses as his personal performance indicator dropped markedly. Shortly after President Trump cavalierly leaked his decision on tariffs, senior officials from the EU, Canada and other trading partners condemned the plan and assured there will be consequences if the US follows through. The EU indicated that it would impose duties on popular US brands such as Levi’s and Harley Davidson as well as on bourbon, a major export from Senate majority leader McConnell’s home state.

The new tariffs could be the last nail in the coffin of the North American Free Trade Agreement. The seventh round of NAFTA trade talks is underway in early March, and the negotiations remain tense amid reports the US is making onerous demands that Canada and Mexico seem unwilling to concede to. The imposition of a flat global tariff on steel and aluminum from the US’ two closest trading partners could be enough to extinguish hopes for a NAFTA renegotiation.

There may still be a glimmer of hope if the Trump administration shows some flexibility. Already industry voices ranging from Alcoa to the United Steelworkers Union are calling on the White House to exempt Canada from the new tariffs. An exemption would not be unprecedented as Canada and Mexico were spared from steel tariffs the last time the US resorted to the tactic in 2002, during the Bush administration. The auto industry is applying pressure too, worried about higher materials costs, but more importantly concerned that its longstanding and intricate cross border supply chain won’t be disrupted. Senior Republicans in Congress, including Speaker Ryan, as well as some major campaign donors are also urging the President to reverse or modify his decision.

But it may be hard to deter Trump as he pursues his vision of revitalizing the US steel industry. His initial reaction to the criticism was to tweet "trade wars are good, and easy to win." Trump may be gambling that corporations will absorb higher costs from their tax cut profits and that trading partners will fear losing access to the world’s biggest market. Unfortunately it appears other nations are ready to call his bluff, and Trump has responded to this by threatening to raise duties on automobiles shipped from Europe. A worst case scenario would be a trade war escalating to the point where the Trump administration withdraws from the WTO, an organization whose members largely comply with its rules, which are the cornerstone for most global trade agreements. Unraveling the WTO would lead to major disruptions in global trade that could set off a new recession.

Geopolitics: “Darkest Hour”

The darkest hour for the global economy and markets is not likely to come in disputes between the US and its allies, but in confrontations with enemies and rival powers. So far, President Trump has not applied that same bravado toward conventional wars as in trade wars, but he does seem bent on finding adversaries to measure himself against. Conflicts with China, North Korea, Iran and Venezuela all have the potential to disrupt orderly global markets.

So far China has taken a typically understated tone in response to the US tariff threat, responding that it may take measures to protect its own interests. The new metals tariffs won’t put a dent in the US trade deficit with China, which directly supplies less than 3% of US steel imports. Critics of the President’s plan say it should be more targeted, aimed squarely at China’s exports and its violations of intellectual property. Even though China does not want a trade war, if it finds itself singled out in this way, it is likely to retaliate. One option for China could be to slow purchases of US treasuries, which have already become less attractive assets as the face a bear market (with the 10-year yield approaching the a key 3.00% level and the 30-year testing major resistance at 3.22%). But whatever the response, it would invite further tit for tat escalations between the world’s two largest economies, an unwelcome scenario for the global outlook.

Tangling with China on trade is also counterproductive to contending with the nuclear threat from North Korea. The spectacular Winter Games in PyongChang brought with it a period of d├ętente, as athletes and delegates from the North joined the festivities. Skeptics see the easing of tensions as the same old script from the North: conducting provocative tests of its WMD programs until sanctions are enacted, and then making conciliatory gestures in an effort to gain relief. The South Korean government is taking the lead for the moment, exploring talks with Pyongyang. But as the aura of the Olympic moment fades, chances for a political breakthrough dim along with it. Annual joint military exercises between the US and South Korea that were postponed as a good faith gesture for the Olympics will resume sometime after the Paralympic Games end on March 18. Meanwhile the Pentagon continues to refine plans for a potential military strike on the North’s weapons facilities.

The other remaining member of the once so-called “Axis of Evil,” Iran, will also be getting new attention from the White House in the months ahead. In mid-January President Trump signed another 90-day waiver on Iran sanctions, but stated that it would be the last time he will extend the waiver. To keep the US as a participant in the nuclear accord the White House is demanding that the deal be reopened to make the terms tougher and permanent with no sunset clause. Having set a countdown clock, President Trump says he will withdraw from the Iran nuclear deal immediately if he believes a revised agreement is not within reach. US officials say they are working with European partners on new provisions for the nuclear deal but there are no signs that any real progress is being made or that any allies want to revisit the nuclear agreement at this time. The Trump Administration’s end game appears to be goading the Iranians into tearing up the treaty and restarting their weapons program, giving the US an opportunity to confront Iran, but Tehran is more likely to use the US move as a talking point and perhaps as an excuse to cheat around the edges of the accord.

Venezuela may also become a political flashpoint as long-simmering tensions could come to a head around the April 22 presidential election. The political opposition has already said it will not participate in what it considers a sham election after President Maduro reorganized the government to ensure he would hold on to power. The violent protests seen last year may flair up again around the election, which could lead to disruptions in Venezuela’s two million barrels-per-day supply of oil. Recent reports citing unnamed US officials say the White House is mulling sanctions aimed at pressuring Maduro. This could involve restricting insurance on oil shipments or even a complete US embargo on Venezuelan oil – a measure that would cause at least a short term oil market shock.

President Trump also imagines enemies within US borders. His original deadline to end DACA renewals for the so-called “Dreamers” was set for March 5, but a federal court has blocked that move, ordering renewals to continue. In the meantime Congress has made no visible progress on a broader immigration deal after the President torpedoed a bipartisan effort last month. The issue continues to be entangled with government funding measures and the latest stopgap spending bill will run out on March 22. If the administration and the Democrats can’t come to terms on immigration before then, a longer government shutdown may result. Estimates are that each week of a shutdown can shave a tenth of a percent off of quarterly GDP. That would squander much of any effect from the tax cut that is so far Trump’s signature political achievement.

4: China Caixin Services PMI
5: UK Services PMI; ISM Non-Manufacturing PMI
7: UK Annual Budget Release; China Trade Balance
8: ECB Policy Decision & Press Conf; BOJ Policy Decision
9: UK Manufacturing Production; US Payrolls & Unemployment

12: Eurogroup March Meeting
13: German ZEW Economic Sentiment; US CPI; China Industrial Production
14: US Retail Sales; US PPI
15: Philadelphia Fed Manufacturing Index
16: Euro Zone Final CPI; US Housing Starts & Building Permits; US Industrial Production; Preliminary Univ of Michigan Consumer Sentiment

20: UK CPI & PPI
21: UK Claimant Count & Unemployment; US Existing Home Sales; FOMC Policy Statement & Press Conf
22: Euro Zone Manufacturing & Services PMIs; German Ifo Business Climate; UK Retail Sales; BOE Policy Statement
23: US Durable Goods Orders; US New Home Sales; US stopgap spending measure expires

27: US Consumer Confidence
28: US Final Q4 GDP
29: German Preliminary CPI; UK Current Account; UK Final Q4 GDP; US Personal Income & Spending
30: Chicago PMI; China Manufacturing & Non-manufacturing PMIs

1: China Caixin Manufacturing PMI
2: UK Manufacturing PMI; US ISM Manufacturing PMI
3: German Retail Sales; UK Construction PMI; China Caixin Service PMI
4: UK Services PMI; Euro Zone CPI Estimate; US ISM Non-Manufacturing PMI
5: ECB Minutes
6: US Payrolls & Unemployment

10: German ZEW Economic Sentiment; US PPI; China CPI & PPI; China Trade Balance
11: UK Manufacturing Production; US CPI; FOMC Minutes
12: BOE Credit Conditions Survey; US Import Prices
13: Preliminary Univ of Michigan Consumer Sentiment

16: US Retail Sales
17: UK CPI & PPI; US Housing Starts & Building Permits; US Industrial Production; China Q1 GDP; China Industrial Production
18: UK Claimant Count & Unemployment; Euro Zone Final CPO
19: UK Retail Sales; Philadelphia Fed Manufacturing Index

22: Venezuela presidential election
23: Euro Zone Flash Manufacturing & Services PMIs; US Existing Home Sales
24: German Ifo Business Climate; US Consumer Confidence; US New Home Sales
26: ECB Policy Decision & Press Conf; Durable Goods Orders; BOJ Policy Decision
27: UK Prelim Q1 GDP; US Advance Q1 GDP

30: German Retail Sales; US Personal Income & Spending; Chicago PMI; China Manufacturing & Non-Manufacturing PMIs; China Caixin Manufacturing PMI