Friday, August 2, 2019

Markets digest rate cuts and new volleys in the trade war

TradeTheNews.com Weekly Market Update: Markets digest rate cuts and new volleys in the trade war
Fri, 02 Aug 2019 16:08 PM EST

Investors were inundated by headlines this week streaming in from both the macro and corporate levels. Ultimately US stocks pushed away from the recent all-time highs amid growing concerns surrounding global central bank policies and resurgent trade tensions. Despite earnings season kicking into high gear, the focus was clearly on key central meetings as the BOJ, BOE and Fed all met. Expectations were already high amidst continued disappointing data overseas, and cracks in US manufacturing numbers came alongside benign inflation readings. Wednesday’s FOMC meeting ultimately seemed a bit underwhelming when the Fed decided to cut rates for the first time in 11-years. Two dissenting votes undercut expectations for more accommodation, and Chairman Powell went on characterize the 25 bps cut as a ‘mid-cycle policy adjustment’ rather than a lengthy cutting cycle, disappointing some Fed watchers including President Trump. In the wake of the Fed rate cut, the US dollar index shot up to fresh 2-year highs and the Treasury curve flattened further, while stock markets turned decidedly lower.

On Thursday, markets were further roiled by Trump announcing his intension to put a 10% tariff on the remaining $300B in Chinese goods that have not yet been taxed. The President tweeted the announcement after receiving a disappointing briefing on last week’s trade discussions in Shanghai. The dollar weakened on the tariff news, with the notable exception of Yuan, which moved back to within a few cents of last falls all time high 6.98 in the USD/CNY exchange rate. The oil market was pummeled on concerns about slower trade and global interest rates made fresh legs lower. The US 10-year yield dropped to levels not seen since President Trump was elected and the German Bund yield tested -50 bps for the first time. Futures markets recouped lost expectations for future Fed rate hikes from Wednesday’s FOMC announcement: By Friday, a September rate cut was almost entirely priced in by traders and December futures signaled a better than 50% chance of a third cut by year end.

Friday’s jobs report was mixed but broadly consistent with market expectations. July payrolls were in line with expectations, but June payrolls were revised lower. The U6 dropped while the participation rate moved up, and wages ticked higher, but that came alongside a decline in weekly hours. Rates continued to track lower following the report and stocks stayed heavy. Also this week, the Pound fell to a two-year low as PM Johnson remained adamant that any eventual Brexit deal with the EU will have to exclude the Irish backstop. Investors also kept a wary eye on Hong Kong as reports surfaced that the Chinese army was building up troop levels on the border in preparation for a potential severe crackdown on demonstrators. The trade and political tensions sent gold prices back towards the highs of the year and copper futures approached two year lows. The VIX volatility index surged more than 50% over the course of the week as the S&P fell 3.1%, the DJIA lost 2.6%, and the Nasdaq tumbled 3.9% to notch its worst decline since December.

In corporate news this week, a slew of earnings reports dominated headlines. Apple delivered a better than anticipated top and bottom line, as its drop in iPhone revenue was somewhat offset by strong wearables and services growth. General Motors shares lifted after topping EPS expectations, as the automaker noted that healthy pickup truck and crossover sales offset a sag in income from China. AMD shares fell post-report after blaming a gap in console offerings for its cautious Q4 outlook. P&G rallied after topping earnings expectations and forecasting a strong FY20. Pinterest surged after posting a big revenue beat and raising guidance amid strong ad spending. Square’s earnings miss sent its shares sharply lower, as investors saw its merchant acquisition growth decelerating quicker than expected. Mylan announced it would combine with Pfizer's off-patent unit Upjohn in an all-stock deal to create a generic drug behemoth.


MON 7/29
HEIA.NL Reports H1 Net €1.05B v €1.08B y/y Op €1.78B v €1.9Be, Rev €11.45B v €11.5Be
SAN.FR Reports Q2 Business EPS €1.31 v €1.25e, Business Net €1.64B +4.9% y/y, Rev €8.63B v €8.4Be
*(US) JULY DALLAS FED MANUFACTURING ACTIVITY INDEX: -6.3 V -6.0E
*(JP) BOJ LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED; reaffirms forward guidance

TUES 7/30
BAYN.DE Reports Q2 Net €404M v €794M y/y, Adj EBITDA €2.93B v €3.25Be, Rev €11.5B v €11.68Be: Affirms outlook, yet increasingly ambitious
BP.UK Reports Q2 Adj Net $2.81B v $2.82B y/y, Rev $73.8B v $76.9B y/y
066570.KR Reports final Q2 (KRW) Net 106B v 326.5B y/y; Op 652B v 652.2B prelim; Rev 15.6T v 15.6T prelim
*(EU) EURO ZONE JULY BUSINESS CLIMATE INDICATOR: -0.12 V +0.08E
PG Reports Q4 $1.10 v $1.06e, Rev $17.1B v $16.9Be
*(DE) GERMANY JULY PRELIMINARY CPI M/M: 0.5% V 0.3%E; Y/Y: 1.7% V 1.5%E
*(US) JUN PCE DEFLATOR M/M: 0.1% V 0.1%E; Y/Y: 1.4% V 1.5%E
*(US) JUN PERSONAL INCOME: 0.4% V 0.4%E; PERSONAL SPENDING: 0.3% V 0.3%E
*(US) JULY CONSUMER CONFIDENCE: 135.7 V 125.0E (highest since Nov 2018)
(US) Atlanta Fed forecasts initial Q3 GDP growth at 2.0%
*(CN) CHINA JULY OFFICIAL MANUFACTURING PMI: 49.7 V 49.6E (3rd consecutive contraction or reading below 50, lowest level since Nov)

WEDS 7/31
AIR.FR Reports H1 Net €1.2B v €496M y/y, adj EBIT €2.53B v €1.16B y/y; Rev €30.9B v €25.0B y/y
CSGN.CH Reports Q2 (CHF) Net 937M v 647M y/y, Rev 5.58B v 5.34Be; expect usual seasonal Rev slowdown in Q3
BA.UK Reports H1 Underlying EPS 25.0p v 14.8p y/y, EBITA £999M v £874M y/y, Rev £9.42B v £8.82B y/y
*(DE) GERMANY JULY UNEMPLOYMENT CHANGE: +1.0K V +2.0KE; UNEMPLOYMENT CLAIMS RATE: 5.0% V 5.0%E
*(IT) ITALY Q2 PRELIMINARY GDP Q/Q: 0.0% V -0.1%E; Y/Y: 0.0% V -0.1%E
GE Reports Q2 $0.17 adj v +$0.12e, Rev $28.8B v $28.9Be
*(US) JULY CHICAGO PURCHASING MANAGER INDEX (PMI): 44.4 V 51.0E (lowest since Dec 2015)
(US) FOMC CUTS TARGET RANGE BY 25BPS TO 2.00-2.25% (AS EXPECTED); REITERATES FED WILL ACT AS APPROPRIATE TO SUSTAIN EXPANSION; TWO MEMBERS DISSENT
(US) Fed Chair Powell: outlook for US economy remains favorable; want to support faster return to 2% inflation objective - post rate decision press conference
(US) Fed Chair Powell: Sees 25bps rate cut as a 'midcycle policy adjustment' - Q&A
(JP) Japan Investors Net Buying of Foreign Bonds: -¥162.2T v ¥1.03T prior week; Foreign Net Buying of Japan Stocks: +¥37.5B v -¥109.9B prior week

THURS 8/1
SIE.DE Reports Q3 Net €1.14B v €1.18Be, Industrial Business EBITDA €1.94B v €2.19Be, Rev €21.3B v €21.2Be
MT.NL Reports Q2 -$0.44 v $1.84 y/y, EBITDA $1.56B v $1.61Be, Rev $19.3B v $19.0Be
RDSA.NL Reports Q2 CCS EPS $0.43 v $0.60e, Adj CCS Net $3.46B v $4.69B y/y, Rev $90.5B v $91.6Be; announces next tranche of share buyback programme
RIO.AU Reports H1 Underlying Net $4.93B v $4.86Be; underlying EBITDA $10.3B v $10.1Be; Rev $20.7B (+9% y/y); announces special dividend of $1.0B
*(ES) SPAIN JULY MANUFACTURING PMI: 48.2 V 48.0E (2nd straight contraction)
*(UK) JULY MANUFACTURING PMI: 48.0 V 47.6E (3rd straight contraction and lowest since July 2012)
VZ Reports Q2 $1.20 v $1.20e, Rev $32B v $32.4Be
*(UK) BANK OF ENGLAND (BOE) JULY MINUTES: VOTED 9-0 TO KEEP INTEREST RATE UNCHANGED AT 0.75%; maintains forward guidance assuming a smooth Brexit scenario
GM Reports Q2 $1.64 adj v $1.43e, Rev $36.1B v $35.6Be
*(US) JULY ISM MANUFACTURING: 51.2 V 52.0E; PRICES PAID: 45.1 V 49.0E (Manufacturing reading lowest since Aug 2016)
*(US) JUN CONSTRUCTION SPENDING M/M: -1.3% V 0.3%E
(US) Atlanta Fed raises Q3 GDP growth to 2.2% from 2.0% prior
(US) Pres Trump says U.S. will put a "small" additional tariff of 10% on the remaining $300B of goods and products coming from China on Sept 1st
(US) Pres Trump: not concerned about drop in the Dow stocks; we'll be 'taxing' China until US can reach a trade deal with them
*(US) President Trump: New China 10% tariffs can be raised BEYOND 25% is progress remains stalled
FLR Reports Q2 -$3.96 v $0.52e, Rev $4.1B v $4.56Be; withdraws guidance; commenced comprehensive operational and strategic review
(VE) Pres Trump: considering a quarantine or blockade of Venezuela

FRI 8/2
7203.JP Reports Q1 Net ¥683.0B v ¥657.3B y/y; Op ¥741.95B v ¥682.69B y/y; Rev ¥7.65T v ¥7.36T y/y
ACA.FR Reports Q2 Net €1.22B v €1.22Be, Rev €5.15B v €5.10Be
(US) Fox's Edward Lawrence: China is not backing down or adding back any of the concession language in the agreement. The Chinese told the US Trade Rep the US will have to just trust them that China will enforce intellectual property protections.
RBS.UK Reports H1 Net £1.33B v £707M y/y, adj Op £1.7B v £1.0B y/y, Rev £4.08B v £3.6Be; announces special dividend of 12p/shr
ARNC Reports Q2 $0.58 v $0.50e, Rev $3.69B v $3.64Be
*(US) JULY CHANGE IN NONFARM PAYROLLS: +164K V +165KE
*(US) JULY FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 98.4 V 98.5E
(US) Atlanta Fed cuts Q3 GDP growth to 1.9% from 2.2% prior