Saturday, March 24, 2018

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