Dovish Fed Ends Dollar Rally, Sends Stocks Higher

TradeTheNews.com Weekly Market Update: Dovish Fed Ends Dollar Rally, Sends Stocks Higher
Fri, 18 Mar 2016 16:09 PM EST

This mid-March week was dominated by a string of monetary policy decisions, with the key focus falling squarely on the Federal Reserve. Risk on sentiment was rewarded when the Fed apparently blinked, delivering an even more dovish statement that expected. The Fed decision got some cover from poor retail sales revisions that erased what had been strong sales data in January. US Treasury rates were touching monthly highs heading into FOMC statement after February core inflation ran hotter than expected. The 2-year yield touched 1% for the first time since early Jan before a dovish FOMC statement and press conference sent short rates forcefully lower. The curve steepened pushing the 10-2 Treasury yield spread wider by roughly 5 basis points. For the week, the DJIA gained 1.8%, the S&P500 advanced 1.3%, and the Nasdaq added 1%.

The week started off with a BOJ policy decision. The Japan central bank maintained its rate and quantitative easing targets unchanged, but it downgraded its economic assessment to reflect a slowdown in exports. Elsewhere, the Norway central bank cut its key rate by 25 basis points to 0.50%, as expected, and said it could cut further this year, but is approaching the lower bound. South Africa's SARB raised its rate 25 basis points to 7.00% citing inflation concerns. The BOE, SNB, Banixco (Mexico), and Russia central bank also had meetings this week, leaving their policies unchanged.

The FOMC decision was the most impactful monetary policy announcement of the week, and it also delivered the biggest surprise. As expected, interest rates were left unchanged, but the policy statement was more dovish that expected as the Fed refrained from restoring language about a balanced risk outlook. In addition, the Fed's rate path projections moved much closer to the market outlook, with the Fed's median projections for rate hikes cut in half from 4 to 2 for this year. The US dollar sold off and equities rejoiced with both the Dow and S&P 500 continuing their winning ways with a fifth positive week and erasing all the losses of January and February.

The USD Index hit a 5-month low. The Yen benefited from repatriation flows ahead of Japanese fiscal year-end at the end of March and saw gains throughout the week. As USD/JPY tested below 111.00, speculation reemerged that the BOJ might intervene in FX markets to combat recent yen strength. Meanwhile, several ECB members (Draghi, Praet) noted that the ECB had not run out of ammunition and rates could go lower. The verbal intervention tempered some of the post-FOMC strength seen in the Euro.

Another key story was the rebound in oil. With emerging market central banks broadly remaining accommodative, flows to riskier assets, alongside the dollar decline, benefited the oil rally. Crude gained another dollar this week, and WTI managed to peek above the $40/bbl mark for the first trading day of January. The main driver outside of the weaker Greenback this week was the potential OPEC/non-OPEC production freeze summit. It appears that producers have settled on a meeting on April 17th in Doha. About 20 nations have been invited, and officials said the summit will now take place with or without Iran attending.

Despite the strength in equity markets, the biotech sector was under pressure again this week as Valeant's woes continued. The biotech roll-up reported disappointing Q4 results on Tuesday and cut guidance, admitting that it continues to face challenges. In addition, management said that it would not be able to file its annual report in a timely manner, creating a technical breach of its debt covenants. Creditors were quick to pounce, reportedly demanding higher interest payments to grant Valeant a waiver on debt covenants. By the end of Tuesday, VRX shares had plunged 50% and other firms with a similar model were also under pressure.

In M&A news, Starwood has inspired a bidding war. A consortium led by China's Anbang raised its preliminary offer by another two dollars to $78/share in cash, putting pressure on Marriott to improve its standing offer. Another Chinese firm, Zoomlion, raised its bid for Terex by a dollar to $31/share, tempting Terex to call off its pending merger with Finland's Konecranes. Meanwhile, TransCanada reached an agreement to acquire Columbia Pipeline Group for $13B in cash.

Barron's weekend: positive on ASH, IR, KORS 

Cover story: Growth stocks, especially the so-called FANG group (FB, AMZN, NFLX, GOOGL) have led the broad market, but in recent months they've grown too rich for many investors, while value stocks are becoming too cheap to ignore; Story looks at 16 ways to play value's resurgence (C, GS, TWX, DISCA, MU, INTC, BA, CMI, AMGN, PFE, F, GM, IWD, IWN, AWSHX, TRVLX). 

Features: 
1) Positive on IR: Company "remains undervalued relative to the broad stock market and other industrials, especially considering how well its profits have held up amid a recent weak patch for the group"; 
2) Positive on KORS: Company is expanding its product lines and closely monitoring inventory; it also plans to expand in footwear and menswear and boost its presence in Asia and Europe; shares could rally 30% in the next year; 
3) Positive on ASH: Shares of motor oil and specialty chemical maker have fallen from last May's 52-week high and now look cheap, especially because of the upcoming Valvoline spinoff, which should benefit investors. 

Tech Trader: Many people on Wall Street have realized that it will be increasingly difficult for the PC sector to grow, while others remain in denial that it's a dying category; Only challengers such as AAPL and other companies that bring novel approaches to the business are likely to thrive. 

Trader: Some investors wonder if the ECB's stimulus will work amid fears that chief Mario Draghi has "thrown in the kitchen sink" and that there are few options left for boosting Europe's economy; Cautious on Z: The market is ignoring a number of factors that could send shares down, such as growing losses and the fact that the company can't make a net profit with 70% market share; Positive on ADT, ALR, ARG, CVC, RAD, TUMI: The shares prices of these acquisition targets are significantly lower their deal prices, offering investors an attractive annualized yield. 

ETF Special Report: Experts discuss the latest trends in exchange-traded funds and explain what investors need to know about "smart beta"; Picks: Larry Whistler of Nottingham Advisors (USMV, EEMV, PXF), Michael Yoshikami of Destination Wealth Management (SDY, VUG, VTV). 

Profile: Phil Davidson, portfolio manager, American Century Equity Income (top 10 holdings: Bank of American conv, Wells Fargo conv, XOM, PG, SYY, SLB, JNJ, PFE, WMT, Microchip Technology conv). 

Small Caps: Positive on HYH: Shares of surgical and infection products appear poised to double in three years as the company expands its product line through acquisitions. 

Follow-Up: Cautious on BABA: Chief Jack Ma's transfer of Alipay ownership to Ant under flimsy pretexts continues to raise issues for investors, and the company's shares could eventually become toxic; Positive on Samsonite: Luggage giant's acquisition of TUMI "offers a lot of opportunities to boost margins, revenue, and profit in the next few years." 

European Trader: The stimulus efforts announced by European Central Bank head Mario Draghi could be good news for bank stocks, and the decision to purchase corporate bonds could lead to a rally; Companies such as ISS, SAP, and Linde are potential beneficiaries. 

Asian Trader: Iron-ore prices, now nearly $58 per dry ton, could fall to the low $30s or high $20s by the end of the year and remain there until 2017 (Cautious on RIO, BHP, Vale, Fortescue). 

Emerging Markets: "Colombia is suffering from stagflation, but you wouldn't know it from the performance of the local stock market." 

Commodities; Gold isn't likely to keep going up at its current pace, says Julian Jessop of Capital Economics, and those who believe industrial metals will improve should buy silver. 

Streetwise: Mutual funds aren't happy with the SEC's proposal to force them to keep more cash on hand to meet redemptions, which is difficult because many funds are having a tough enough time beating their benchmarks.

From Beijing to Frankfurt

TradeTheNews.com Weekly Market Update: From Beijing to Frankfurt
Fri, 11 Mar 2016 16:37 PM EST

China and the ECB set the tone for global markets this week. Last weekend, the Chinese leadership disclosed their economic projections for 2016 at the National People's Congress (NPC), unveiling a GDP target range of 6.5-7.0%, as well as a higher fiscal deficit level. China left its CPI target at +3%, and cut its fixed asset investment growth to 10.5% from 15% prior. The changes were largely in line with expectations, although enthusiasm was tempered by the very weak February China trade report out later in the week. On Thursday, the ECB launched another round of monetary policy stimulus, cutting all three of its key policy rates and adding to its monthly QE bond buying scheme. Mario Draghi warned markets that there would not be much more easing on tap from the ECB, while simultaneously claiming that the ECB was not out of ammo. Thursday was the seventh anniversary of the current bull market, as measured from the Monday following the S&P500's ominous bottom at 666 on Friday, March 6th 2009. US markets were flattish and devoid of much major news (beyond the continuing political circus of the presidential nominating contest) until Friday, when stocks surged higher. For the week, the DJIA added 1.2%, the S&P500 gained 1.1%, and the Nasdaq rose 0.7%.

Markets eyed the February China trade report with concern. China's trade balance sank to a 10-month low in yuan terms and an 11-month low in dollar terms, while yuan exports fell 20.6% y/y, their biggest annualized decline since May 2009. Chinese exports have now fallen for eight months in a row, while imports have contracted for 16 straight months. Shipments to the US, Europe and Japan were all down about 20% y/y, racking up bigger declines than high-single/low-double digit slippage seen last month. The data also explain why last weekend Premier Li decided to skip 2016 projections for the trade component of the economy. After the trade numbers, HSBC suggested that recent hopes for a global rebound need to be tempered, as the figures clearly show the downturn in global demand is not getting any better.

In its decision on Thursday, the ECB cut all three of its key rates, and expanded the QE bond buying program by €20B to €80B a month. In something of a surprise move the central bank also said that non-bank investment-grade corporate bonds will now qualify for the buying program, vastly expanding the universe of debt the ECB can choose from. Fears about the perilous state of some banks remain a big problem for the euro zone recovery. While bonds issued by banks still don't qualify for ECB buying, falling yields on other corporate debt due to ECB buying will likely inspire investors to turn to bank debt for yield. The ECB also eased bank funding costs by unveiling a new four-year TLTRO loan program, which could carry interest rates as low as the deposit rate (now cut to -0.4%). In the press conference, President Draghi suggested that there would be no further easing (unless things got much worse), which somewhat dampened the immediate response to the decisions. Draghi also took pains to reiterate that the ECB is by no means out of tools or out of ammo. Buyers snapped up Greek and Portuguese government bonds after the announcement, while most other sovereigns sold off, sending yields higher.

The final reading of the fourth quarter GDP report confirmed Japan's economy has dipped into contraction for the second time in three quarters. The final reading was a bit less bad than the preliminary data, thanks to slightly better corporate capex spending. There was more talk that the government would again push back the second round of sales tax increase from the current April 2017 target date, with a key cabinet meeting scheduled for March 16th.

Commodity prices see-sawed through the week, following the ups and downs of the Chinese economy. Chinese iron ore futures gained 19% on Monday, to multi-month highs, topping an eight week rally, after Beijing set its 2016 GDP target range, then reversed around half this rally on Wednesday after the brutal February trade report - but then reversed higher through week's end. Other major industrial commodities followed a similar trajectory. After following the run-up in commodity prices over recent weeks, mining stocks saw steep losses mid-week, although many of the global mining majors closed out the week flat, with the exception of Vale, which is down 13% thanks in part to the chaos devouring the Brazilian political leadership. Goldman Sachs published a note on Wednesday arguing that deflation, divergence and de-leveraging would reapply downward pressure on commodity prices in the near term.

The rally in crude oil prices slowed but did not stop, as WTI tested YTD highs just shy of $39 and Brent equaled November highs above $40. Maneuvering ahead of a potential oil production freeze summit continued. There had been talk that OPEC and some non-OPEC nations would meet on March 20th in Moscow to seal the deal, but officials said the inability to get Iran on board meant the meeting would most likely take place in April. Sources say Iran is demanding to be allowed to freeze production at its pre-sanctions production level of 4.0M bpd, rather than current levels, which were just over 2.9M bpd in January. The Kuwait Oil Minister said they would only join the freeze if "all major producers" signed on, and threatened to sell "every barrel Kuwait produces" if there is no deal.

Global banking giants Deutsche Bank and Citigroup both made cautious comments at industry conferences about the business environment for banks in the first quarter. Citigroup's CFO warned that revenue from equity and fixed-income trading would fall 15% y/y in the first quarter, while investment banking revenue would fall 25% y/y. Deutsche Bank's CEO said the seasonally strong first quarter might turn out to be challenging for the sector overall, given the heightened volatility in global markets.

United Continental CEO Oscar Munoz said he would return to work just two months after heart transplant, and was welcomed back by a big push by two funds to take control of the board. Holders PAR Capital (3.8% stake) and Altimeter (3.1% stake) said they would launch their own slate of six board members and nominate former Continental CEO Gordon Bethune as chairman, claiming the current board is not holding management accountable. United said they had been engaged in talks with the two firms, and also said they were disappointed the firms could not reach a deal with management.

There was talk that BASF was mulling a rival bid for DuPont, which is in a pending deal with Dow Chemical. According to reports, BASF had contacted DuPont last year, before announcing a $130 billion merger agreement with Dow. Deutsche Boerse is expected to formally announce a merger agreement with London Stock Exchange next week. TransCanda disclosed that it was discussing a "potential transaction" with an unnamed third party, following press reports that a $10B merger with Columbia Pipeline Group was under consideration.

Barron's weekend

Barron's weekend: cover story picks Clinton over Trump as better for the economy; positive on MLM, STCK, MYL; cautious on DB 

Cover story: After looking at the positions of Hillary Clinton and Donald Trump on taxes, spending, trade, and other issues, Barron's concludes that Clinton, "the strong favorite to win the Democratic nomination, seems better suited to help the markets than the Republican front-runner, Donald Trump."

Features: 
1) Positive on MLM: Earnings at the miner of rock, sand, and gravel could double this year as government infrastructure budgets grow and residential and commercial building increases; shares have a possible 35% upside; 
2) Cautious on DB: Bank has faced global sanctions for various misdeeds over the past years, and could soon lose the right to run U.S. retirement funds if a Labor Department ruling goes against it; 
3) Positive on MYL: Shares of drugmaker are down after it rejected a bid from from TEVA and embarked on a deal for Meda, but the current valuation seems to price in more problems than the company has, and the stock could rise by 30%; 
4) Positive on STCK: Shares of nation's second-largest lumber and building-materials distributor have taken a hit because of investor sentiment about the housing recovery, but they appear undervalued and could gain 20%.

Tech Trader: Cautious on GOOGL: The transition to having more self-driving cars on the road will be messy, and for a long period of time they may be segregated in separate lanes; Insurers and regulators must deal with liability issues, and there will be a debate about who owns the data the cars generate. 

Trader: For a sustained rebound, says Michael Mullaney of Fiduciary Trust, investors need to see positive earnings estimate revisions; Cautious on DNKN: With same-store sales comparisons worsening and traffic down, shares could fall 20% to around $37 from about $48; The SEC should approve IEX Group's application to be an exchange, and not try to predict the outcome of its experiment to force market makers to honor their quotes. 

Advisor Rankings: Barron's annual list of the top financial advisors by state, with profiles of the top advisors in each state. Profile: Andrew Foster, manager of the Seafarer Overseas Growth & Income fund (top 10 holdings: Bank Pekao, INFY, Hang Lung Properties, Sanlam, BBD, Samsung Electronics, Singapore Telecom, Astra International, Texwinca Holdings, Grupo Financiero Banorte). 

Interview: Amid Wadhwaney of Moerus Capital, a hedge fund that will open this summer, talks about undervalued stocks (picks: Sino Land, GTE, Global Logistics Properties, Major Drilling). 

Follow-Up: Positive on BRKA: Berkshire Hathaway "remains a solid choice for conservative investors because of the company's ample earnings power, steadily rising book value, and reasonable valuation." 

European Trader: "European stocks-bank shares in particular-could continue to rebound as long as central bankers don't pull any surprises this week"; Positive on Capita: Shares of London-based advisory, administration, and transaction services could gain 20% in the next 12 months. 

Asian Trader: Western consumer brands seeking to expand in India could take a hit from the growing trend of Indian consumers buying natural products using ingredients from the ayurveda tradition (+/- CL, Nestle). 

Emerging Markets: "For emerging market equities, the worst may be over as central banks go all-out to boost global growth"; BAC's Ajay Singh Kapur and Ritesh Samadhiya favor cyclical stocks, and suggest selling defensive staples such as healthcare, utilities, and telecoms. 

Commodities: Erratic weather patterns around the world are affecting coffee production, which is concentrated in a small number of countries, including Colombia, Vietnam, and parts of Brazil. 

Streetwise: Cautious on WLL: C analyst Jeanine Wai says company would need to sell $3.5B in new shares, more than twice its current market value, to bring its debt "below the dividing line separating good balance sheets from the bad."

Recession? What Recession?

TradeTheNews.com Weekly Market Update: Recession? What Recession?
Fri, 04 Mar 2016 16:04 PM EST

US and European equity markets saw their third straight week of gains as stronger crude prices and the prospect of more easing kept the rebound on track. The ECB has all but guaranteed more easing at its policy meeting on March 10th, and President Draghi reiterated that the ECB has no limits on policy tools that are within its mandate, highlighting the growing downside risks to the euro zone outlook. Russia, Saudi Arabia and an ad-hoc group of other OPEC producers continue to discuss a meeting later this month to finalize plans on freezing crude production at current levels, helping push crude futures close to YTD highs. In China, the PBoC kept the yuan strong and cut the RRR ratio for the first time since 2009. There was a raft of dodgy US economic data, but the very good February jobs report provided a strong counterweight, and by Friday markets were pricing in at least one Fed rate cut this year, as well as a small chance of second rate hike by the fourth quarter. For the week, the DJIA rose 2.2%, the S&P500 gained 2.7%, and the Nasdaq added 2.8%.

US economic data out this week included more subpar manufacturing sector reports (the Feb Chicago PMI), weak January home sales numbers and even a Feb ISM services report that raised questions about the consumer-driven side of the economy, but the strong February US jobs report trumped them all. February non-farm payrolls rose by 242K, the 72nd straight month of uninterrupted job gains, by far the longest streak on record. December and January payrolls were revised higher, putting monthly job gains over the past three months at a very healthy average of 228K. Unemployment remained at 4.9%, equal to the eight-year low seen in January. Somewhat offsetting these very positive components, wages fell by 0.1% versus the 0.5% increase in January, for a 2.2% bump in the annual gain. The Fed's beige book was split, with half the Fed districts reporting economic growth and the other half showing flat to slightly down conditions.

China's PBoC resumed its easing cycle on Monday, cutting the reserve requirement ratio (RRR) by 50 bps, taking the ratio to 17% for the nation's biggest lenders. It was the first cut in the key policy rate since last October, and comes as somewhat of a surprise given that the PBoC had previously said it would rely more on short-term cash injections to maintain liquidity. The PBoC did conduct open-market operations on Monday, however the RRR cut suggests that the short-term liquidity operations have not been as successful as hoped. Note that the announcement came just after the government said 1.8 million workers would be laid off from the steel and coal sectors, in an effort to curb overcapacity, and just ahead of the annual meeting of the National People's Congress, which will discuss the continuing implementation of President Xi's plan for deep structural reforms.

The G20 last weekend met the very low expectations, as leaders agreed yet again that monetary policy was no longer sufficient to address the ills of the world economy and promised to refrain from competitive FX devaluation. China specifically used its role as host of the event to reassure its global partners that it did not intend to further devalue the yuan. The PBoC raised the yuan reference rate to a three-week high by Friday even as they pumped more cash into the domestic economy. After the G20, Chinese officials kept up a steady drumbeat of commentary to the effect that the yuan would remain steady and that another big devaluation was "impossible."

Polling ahead of Britain's June referendum on continued European Union membership appears more or less deadlocked. An ICM poll saw support for and against the EU tied at around 41%, while an ORB poll saw 52% in favor of leaving and 48% saying they would vote to remain in the EU. Prime Minister Cameron began amping up his rhetoric in favor of the "stay" option, highlighting the unknown and possibly very high costs that would come with the choice to leave the EU, just a week after his conservative rival Boris Johnson threw his weight behind the "go" camp. After peaking above 1.4650 at the beginning of February, cable bottomed around 1.3850 on Monday then firmed somewhat, closing out Friday around 1.4250.

The ongoing political and economic crisis in Brazil reached a head on Friday, as police raided the home of Luiz Incio Lula da Silva, the former president who is under investigation in the colossal "Car Wash" graft scheme involving national oil company, Petrobras. Lula was taken into custody for questioning, just a day after reports claimed that Delcdio do Amaral, a senior senator in Lula's Workers' Party, was negotiating a plea deal to testify that Lula was deeply implicated in the scandal. Current President Dilma Rousseff is already facing impeachment proceedings, and it appears that Amaral has the goods on her as well, greatly increasing the risks to her office. Nationwide anti-government protests are scheduled for mid-March, and many analysts suggest the government may not survive for much longer. As the socialist government unravels, markets like what they're seeing: the Bovespa has rallied more than 40% since its January low, adding nearly 18% this week alone. The real has strengthened around 7% on the week, with USD/BRL dropping to around 3.72, its strongest level since last August. Shares of Petrobras rallied ~50% this week.

Crude prices probed YTD highs as futures racked up their third straight weekly gain, with Brent topping $38 and WTI approaching $36. Russia confirmed that the oil production freeze summit will take place later this month, featuring the participation of 15 major OPEC and non-OPEC producers, although parties to the deal were taking pains to reiterate that no production cuts are under discussion - only the production freeze. Markets remained optimistic despite another stunning set of gains in US weekly inventories, with the DoE build about four times the expected amount. Meanwhile, US natural gas futures settled at a 17-year low on Thursday around $1.68 thanks to oversupply and the warm winter in North America.

February auto sales data was relatively strong, providing a counterpoint to the weak US manufacturing theme that continues to obsess US participants. Fiat Chrysler and Ford sales were very strong, although General Motor's headline figure widely missed the mark due to some specific company factors. Ford led the way with a 20.4% gain thanks to an uptick in its fleet business, while sales at Fiat rose 11.8%. GM's sales fell 1.5% due to a decrease in rental sales, although this was largely the result of a planned reduction in rental deliveries.

In M&A news, Intercontinental Exchange said it would compete with Deutsche Boerse to acquire the London Stock Exchange. ICE hasn't given a formal offer to LSE, and no decision has yet been made as to whether to pursue such an offer. Last week, shares of LSE soared 17% after Deutsche Boerse proposed an all-stock deal. Theater chain AMC Entertainment reached a deal to acquire Carmike Cinemas for $30/share in cash, in a total deal valued at $1.1 billion. Honeywell formally abandoned its pursuit of United Technologies, citing the latter's unwillingness to engage in negotiations.

March-April 2016 Outlook

TradeTheNews.com March-April 2016 Outlook: March Madness
Thu, 03 Mar 2016 23:05 PM EST

Leonardo DiCaprio's now infamous run-in with a bear may have been a harbinger for the markets early this year. Just a couple of days into the New Year, it was apparent that global markets were going to test the resolve of central bank policy makers. Stocks and oil prices were mauled, currencies saw outsized daily movements, and bond yields experienced renewed downward pressure - all signaling discontent in the markets.

Looking back, the last two months of retrenchment were not entirely unexpected after the rough start seen in the opening days of 2016. As predicted, the markets didn't have much appetite for the Fed's tightening message, and expectations are growing that the Fed will take an even slower rate tightening path. The fourth quarter earnings season was subpar, as retailers continued to struggle against ecommerce at Christmas, a number of tech firms failed to justify their large multiples, and Apple appeared to turn the corner from a growth stock to a value stock. The US Presidential race has been pared down, with only three viable GOP candidates left, and a likely Clinton versus Trump general election moving toward a reality. Meanwhile, the PBoC refrained from any new big currency moves, as expected, and even pushed the value of the yuan up over most of February to discourage speculative trading.

For the time being, the optimism about the US recovery that led the Fed to raise rates in December has been dampened by a fresh round of global uncertainties ranging from persistent low inflation to an unprecedented political environment. These problems are being magnified as Europe and Asia are still struggling to right themselves.

The question for this spring is how bad the current economic environment will become. It may just be another short lived "tantrum" caused by the Fed starting a tightening cycle years before other central banks can follow suit. Or it could be the prelude to a recession, which is a growing minority opinion. In the worst case scenario, it could be a global deflationary wave eroding confidence in central banks set to trigger a fresh financial crisis at a time when central banks are low on ammunition.

Marching to a Different Drummer

Stubbornly low inflation remains at the heart of the current economic malaise. Central bankers in the US, Europe, and Japan would roll out the red carpet for any sign that consumer and industrial demand was starting to edge inflation up toward target levels. But inflation has so far defied numerous predictions that an upturn is just around the corner, leaving economists and central bankers to repeatedly push out their forecasts for rising prices.

While other factors are certainly at play, oil prices have been emblematic of the low inflation problem. Crude futures have surrendered all of their speculative froth, while the Fed has been describing the effects of low oil prices as "transitory" since December 2014. The two-year long collapse in energy prices has still not seeded any of the consumer spending that economists were counting on, and razor thin margins are pummeling the energy extraction industry, resulting in dramatic capex cuts and the loss of many high paying jobs.

Despite some high cost wells being shuttered, all indications are that crude still has lots of excess inventory to work off. Cushing crude stocks continue to hit fresh record highs almost every week and the big refinery turnaround season underway in the next two months will exacerbate the glut. In another anecdotal indication of oversupply, a recent report said that port of Rotterdam has 50 tankers awaiting unloading, the highest number since 2009 and double the normal amount. To top that off Middle Eastern oil supplies will expand as Iran ramps up its production as sanctions are lifted.

Russia and Saudi Arabia have raised hopes for an end to the misery in the oil market by striking a tentative deal to freeze output levels. Under the agreement brokered by Qatar and Venezuela, participants would freeze production at January levels. This would not eliminate the supply and demand imbalance any time soon, but could create the prospect for a more wide reaching production accord when participating nations meet to discuss the freeze sometime during March (the meeting date has not been specified yet).

Mounting global uncertainties are also contributing to the low inflation environment, as consumers fear overspending when they can't predict if the economic recovery will continue or if recession is around the corner. One inescapable source of uncertainty is the strange dynamic of the US Presidential race. A year of populist revolt has seen the rise of Donald Trump as the now likely GOP nominee and a strong challenge from Bernie Sanders against Hillary Clinton. The untimely death of Justice Scalia may become the deciding factor as President Obama's Supreme Court nomination in the next few weeks will draw out partisans on both sides (assuming Obama can find a sacrificial lamb willing to expose her life to the political circus with little chance of ever being rewarded with a confirmation hearing).

The other major ongoing political story is the UK referendum on remaining in the European Union, with a vote now scheduled for June. PM Cameron came back from Brussels with a reform deal to keep the UK in the union, but some high profile members of his own party, including a number of cabinet members and the flamboyant London mayor, have come out in support of a Brexit. The uncommitted vote is still large enough to swing the referendum in either direction, so Cameron will have to campaign hard, and the polling will be watched very closely between now and June.

The other prickly topic in Europe these days is the continuing flood of migrants fleeing the Syrian conflict. The EU and Turkey will hold a summit on March 7th to discuss the flow of refugees through Turkey and into Europe. There has already been a backlash in many EU states and the burden for Greece -- being on the front line of the migrant influx -- is causing complications in Athens' ongoing debt discussions with European creditors. The issue has even given some Euro-skeptics ammunition to suggest that the Schengen agreement, a cornerstone of the Union which allows unhindered travel between states, should be suspended.

PREDICTIONS: Crude prices have been behaving better in the last couple weeks, showing tentative signs of stabilization. Russia and Saudi Arabia have made a good show of their oil freeze accord, but it won't make much difference if the agreement doesn't bring in other large oil producers. So far, Iraq has expressed support for the idea but has not agreed to sign on to it, and Iran's oil minister declared the production freeze to be "a joke."

Saudi drew its line in the sand on production two years ago and it will take some time for shrinking capex budgets to trickle down into a tighter oil supply. The good news is that the gyrations in oil prices may be more about the oil market itself than about a prospective global downturn. Economists note that recessions tend to be proceeded by rising energy prices, not falling prices. They also still hold out the hope that consumers will start spending their energy savings more readily when some of the uncertainties that have led them to save the money start to dissipate.

For the markets, the ultimate question will be how far ahead we can anticipate the eventual rebound in oil prices. Some optimistic OPEC ministers are hoping for better prices in the second half of this year, but more conservative estimates see prices finding somewhat higher levels in 12 to 18 months. Oil market speculators could push up that timetable in anticipation a more balanced market, so late 2016 might indeed be a better time for oil prices and energy companies.

The major political campaigns of this spring will continue to create uncertainties for the voters and the markets. The Presidential race looks poised to enter the general election campaign with two highly flawed candidates, marked by some of the highest negative polling ratings in history. Dreams of a white knight at a contested Republican convention (Mitt Romney) or a miraculous third party entrant (Mike Bloomberg) could keep stirring the political pot for months to come. Meanwhile in the UK, an affirmative Brexit vote is still seen as the outlying case. However, if the polling should drift toward that result in the weeks ahead, it should be noted that an HSBC analyst has predicted that a Brexit would wipe 20% off the pound sterling.

Beware the Ides of March

A lot of central bank activity will converge around mid-March. For more than a month, the ECB has been teasing new measures at its March 10th meeting. The BOJ will hold its monthly conclave a few days later, and then on the 16th the Fed will take its turn in the spotlight.

The ECB has all but guaranteed more stimulus at its upcoming policy meeting. At the last meeting, President Draghi promised to fully review and "reconsider" policy in March alongside the release of updated economic projections. He said the council would weigh a full range of policy options and gave assurances that there are still many monetary policy tools at their disposal as well as the required "power, willingness and determination to act."

There must be some concern, however, that the ECB is no longer getting the bang for its buck (or rather, the 'effect for its euro'). The new measures announced just last December disappointed markets to some extent. Though the key rate was cut another 10 basis points to negative 0.30% and the scope of QE was expanded in both duration and composition, the monthly size of QE purchases was not increased. Reports at the time indicated that a northern European block objected to going further and indeed there were five dissenting votes on the council (led by the Bundesbank's Lautenschlaeger and Weidmann).

The German contingent has led the hawks throughout Europe's navigation of the financial crisis, but this time they may sit on their hands when Draghi calls for new stimulus because Germany's largest bank is at the center of the latest financial storm. Negative rates and a still slow loan environment have been especially tough on Deutsche Bank, which has prided itself on providing the entire menu of banking services, even at the expense of the bottom line. The ECB's Coeure recently indicated that the council is sensitive to the burden that negative rates are putting on European banks and hinted that the next stimulus package could include provisions to help banks deal with adverse consequences of prolonged negative rates. If true, that could convert prior dissenters into affirmative votes.

Even as the ECB has been telegraphing its next policy moves, Asian central banks have tried a different tactic. The BOJ shocked almost everyone with its decision to match Europe's negative rate posture. And in China, the PBoC continues to utilize the element of surprise in its efforts to thwart the speculators that the government vilifies.

With only a month gone by since its surprise rate move, the BOJ is not expected to do more than jawbone at its March meeting. The government, however, may be on the move again. Reports say that Prime Minister Abe's cabinet has begun to consider new emergency economic measures to provide additional support. This comes as corporate profits deteriorated last quarter, leaving many Japanese firms bracing for further weakness as a stronger yen has undermined the PM's growth initiatives.

China got a lot of the blame for the market retrenchment in the New Year on escalating fears that policy makers were losing control of the currency. The Chinese central bank has refrained from any more jarring currency moves like the sudden devaluation that caught markets off guard last summer, but further yuan weakness in early January raised some questions about whether monetary officials were still in control. The PBoC has since firmed up the yuan to thwart currency speculators, and to assuage concerns of foreign partners that China might export deflation to the world. Furthermore, at the G20 meeting of financial ministers that was just hosted by China, Beijing gave assurances that it would not initiate more sudden movements in its currency.

Over the first half of March, China's National People's Congress will hold its annual meeting to introduce major policy initiatives and set new targets for growth and inflation (announcements expected March 5). Going into the congress, reports say that the CPI target is likely to be maintained at 3% and the M2 money supply target could be raised one percentage point to 13%. The GDP target could step down another notch as PBoC officials are forecasting growth between 6.0-7.0% this year after 2015 came in just under the target of "around 7.0%." Additionally, the PBoC statistics department has called for the fiscal deficit to be increased by one percentage point more than previously planned to 4% of GDP. Presumably that would promote greater government spending on stimulative public works projects.

Back in the US, the Fed has to consider scaling back its plans for higher rates. At the March FOMC meeting, the policy statement probably will not change drastically after the economic outlook was downgraded earlier this year. In the January statement, the Fed said it now expects inflation to remain low in the near term and it deleted a reference to being "reasonably confident" about inflation being on track. Commentary about global concerns was also intensified, as the Fed struck language about the outlook for economic activity being balanced. Altogether these changes signaled the Fed would probably be on hold for a while.

In their individual speeches, Fed officials have tried to create the impression that they have an open mind about the March meeting, with many of them saying every meeting is still "live" for potential rate hikes. However, the Fed's data dependent stance won't leave much room for policy action in March, because the data has not been particularly good.

Though payrolls have been solid, a lot of the job creation has been in low paying entry level jobs. It's true that unemployment has edged below five percent, but the economy has been near full employment for the better part of a year, so the low jobless rate has lost some of its positive psychological impact. Wage inflation is still elusive, and that, coupled with continued weak industrial production data, should give the Fed enough cover to keep rates on hold in March.

The Fed's updated Summary of Economic Projections (SEP) will be the most closely scrutinized part of the FOMC release. In December, the SEP predicted a central forecast of four rate hikes in 2016, which would be a pace of every other meeting. Global economic conditions clearly no longer warrant such an aggressive tightening schedule, and the dot chart is expected to reflect this in March.

PREDICTIONS: The periodic application of fresh stimulus has kept markets in a risk on mode for most of the last several years, but there is growing evidence of diminishing returns. Markets retrenched throughout the first two months of the year despite the ECB's expansion of QE in December (and the promise of more in March) and the BOJ's surprise rate move. The experimental use of negative rates pioneered by the ECB, shows central banks can continue to innovate, though it has also created some misgivings.

The ECB President may hear fewer dissenting voices if he brings out the bazooka again, possibly completing the QE trifecta announced in December by increasing the pace of monthly bond purchases from the current €60B/month. For good measure, the ECB may also cut rates another 10 to 15 basis points into negative territory, as long as they find a way to shield commercial banks from the blow. After pledging new action for the last six weeks, anything less would surely disappoint markets.

For the time being, Japanese officials will probably choose rhetoric over additional action, taking time to assess if negative rates are having the desired effect. Yet, now that the BOJ has crossed the threshold to experiment with negative rates, it seems likely that further cuts will be forthcoming eventually. In the meantime, the government may provide a supplementary budget with targeted stimulus, or give more consideration to postponing the next phase of a planned consumption tax hike.

Growing pessimism about the prospects of the world's second largest economy demand that China keeps up its ad hoc stimulus initiatives. The People's Congress will set achievable targets as it continues to ease the economy into a consumer driven model. Further monetary easing is likely to be proposed and executed periodically to help cushion the pain of reform efforts.

In the US, the Fed can afford to be patient on any further tightening. Uncertainty abounds, and another rate hike at this fragile moment could tip things in the wrong direction. Also, other central banks are cutting rates, which is the equivalent of the Fed tightening - so, relatively speaking, the Fed can essentially tighten just by standing still.

Fed Funds Futures aren't fully pricing in the next Fed rate hike until early 2017, way out of line with the December dot charts that predicted FOUR more hikes this year. Clearly something has got to give and that will probably be the Fed forecast, which could be trimmed to three hikes or even two, but certainly won't give up on the notion that the tightening cycle should continue. In giving this ground Chair Yellen will reprise her warning that a slower start to the cycle is apt to lead to steeper hikes later on.


CALENDAR
MARCH
1: UK Manufacturing PMI; Euro Zone Unemployment; US ISM Manufacturing PMI; Super Tuesday Primaries & Caucuses in 12 states
2: UK Construction PMI; China Caixin Services PMI
3: US ISM Non-Manufacturing PMI; US Factory Orders
4: US Unemployment & Payrolls; US Trade Balance
5: China National People's Congress annual meeting

7: German Factory Orders; EU Summit on Refugees; Japan Final Q4 GDP; China Trade Balance (tentative)
8:
9: UK Manufacturing Production; China CPI & PPI
10: ECB policy statement and press conference; US JOLTS Job Openings
11: US Preliminary University of Michigan Confidence
12: China Industrial Production

13: BOJ policy statement
14:
15: US PPI; US Retail Sales
16: UK Claimant Count & Unemployment; US Housing Starts & Building Permits; US CPI; US Industrial Production; FOMC policy statement & press conference
17: Euro Zone Final CPI; BOE policy statement; BOJ Minutes
18: Philadelphia Fed Manufacturing

21: Various Euro Zone Flash Manufacturing readings; US Existing Home Sales
22: UK CPI & PPI; German ZEW Economic Sentiment
23: German Ifo Business Climate; US New Home Sales
24: UK Retail Sales; US Durable Goods Orders; Tokyo CPI
25: US Final Q4 GDP

28: US Personal Income & Spending; Japan Retail Sales & Household Spending
29: German Retail Sales; German Unemployment; US Conf Board Consumer Confidence
30: German CPI; US ADP Employment
31: UK Final Q4 GDP; Euro Zone Flash CPI; ECB Minutes; US Chicago PMI; Japan Tankan Manufacturing & Non-Manufacturing; China Manufacturing & Non-Manufacturing PMI; Caixin Manufacturing PMI

APRIL
1: UK Manufacturing PMI; Euro Zone Unemployment; US Unemployment & Payrolls; US ISM Manufacturing PMI

4: UK Construction PMI; US Factory Orders
5: German Factory Orders; US Trade Balance; US ISM Non-Manufacturing PMI; China Caixin Services PMI
6: FOMC Minutes
7: US JOLTS Job Openings
8: UK Manufacturing Production

10: China CPI & PPI
11:
12: UK CPI & PPI; China Trade Balance (tentative)
13: US PPI; US Retail Sales
14: Euro Zone Final CPI; BOE policy statement; US CPI; China Q1 GDP; China Industrial Production
15: US Industrial Production; US Prelim University of Michigan Consumer Sentiment

18:
19: German ZEW Economic Sentiment; US Housing Starts & Building Permits
20: UK Claimant Count & Unemployment; US Existing Home Sales
21: Various Euro Zone Flash PMI readings; ECB policy statement & press conference; US Philadelphia Fed Manufacturing
22: German Ifo Business Climate

25: US Durable Goods Orders; US New Home Sales
26: US Conf Board Consumer Confidence; BOJ policy statement
27: UK Prelim Q1 GDP; FOMC policy statement; Japan Household Spending; Tokyo CPI; Japan Retail Sales
28: German CPI; US Advance Q1 GDP
29: BOJ Outlook Report; German Retail Sales; Euro Zone Flash CPI; Euro Zone Unemployment; US Personal Income & Spending; Chicago PMI
30: China Manufacturing & Non-Manufacturing PMIs

Barron's Saturday summary: Positive on JCP, WMT, MDT, CHKP/FTNT/PANW 
Cover story: Profile of AQR Capital Management, a distinctive investment manager with $141B in assets that seeks to translate academic insights about finance and the marketssuch as the appeal of value and momentum investing into winning quantitative strategies for institutional and retail buyers; Nearly all the firms liquid-alt mutual funds are in the black since late July, including the $11B AQMIX. 

Tech Trader: The traditional SIM card used in phones and other devices may soon be replaced by an embedded version called an eSIM, which can be re-programmed, allowing users to easily switch among carriers; manufacturers include Gemalto and Giesecke & Devrient. 

Trader: Jeffrey Kleintop, chief global investment strategist at SCHW, says the economic data might not be enough to influence Fed chair Janet Yellen or change the central banks recent signals that rates might be temporarily on hold; Cautious on LVS, IP, WDC, AES, EMR: With utility and consumer stocks growing more expensive as investors seek safety, these high-yielding stocks may offer a cheaper approach to defense; Positive JCP: In a contrarian stance, Bernie McGinn of McGinn Investment Management likes the retailer, which is turning around under chief Marvin Ellison and regaining market share. 

Interview: Doug Ramsey, chief investment officer of Leuthold Group, says the odds of a recession during the next 12 months are about 40%, much higher than the consensus view (picks: ACN, RE, MA, TRV, AMGN, UNH, CAH, CVS, NOC, DAL, AAL). 

Features: 
1) Positive on WMT: Retailers muscular efforts to reignite growth could bear fruit in the next two years, rescuing the stock from the bargain bin; company is increasing pay, enhancing the customer experience, and bolstering its e-commerce side; 
2) Positive on MDT: Medical device maker carries the statistical traits of a safe-haven stock, but with better growth potential and a better valuation, and shares could rise 20% during the next year; 
3) Positive on CHKP, FTNT, PANW: The recent pullback in cybersecurity stocks is a good opportunity for investors to get in the door at three companies with solid long-term outlooks. 

Small Caps: Positive on ATRO: Shares of aerospace-parts maker are down for a number of reasons, including the delay of a major order from one of its largest customers, but the steep drop is a buying opportunity. 

Follow-Up: Cautious on SO, ED, DUK, AEP, D, PCG, NEE, EIX, XLU: Utility shares are upthe sector has been the second-best-performing in the S&P 500 this yearand are no longer a bargain, though bulls say they offer nice yields at a time of ultralow interest rates. 

European Trader: Amid uncertainty about the U.K.s continuing membership in the European Union, British markets are likely to remain choppy for several months, but there are still opportunities for investors (Positive on UL, ARMH). 

Asian Trader: Positive on LG Household Healthcare: Korean company is the rising star in the thriving Chinese skin-care market, which is set to defy anything but the most severe economic slowdown. 

Emerging Markets: A number of prominent investment managers suggest buying emerging market debt despite some concerns, with countries such as Mexico and Indonesia offering bargains. 

Commodities: The sharp price swings buffeting the oil market are likely to continue until excessive supply eases in the second half of the year. 

Streetwise: Shares of banks are cheap because of their exposure to falling energy companies and other concerns, but they arent a bargain; investors should instead seek bank bonds and preferred stocks that pay large dividends (Positive on PFF).- 

Oil Prices and Policy Stimulus Hopes Elevate Markets

TradeTheNews.com Weekly Market Update: Oil Prices and Policy Stimulus Hopes Elevate Markets
Fri, 26 Feb 2016 16:13 PM EST

Higher oil prices, soothing central bank/G20 commentary and better US economic data all helped European and US equities climb higher this week. On Friday, the S&P500 tested above the key 1950 level that has repeatedly provided strong resistance over the last several weeks as global markets looked to put the rough start to 2016 in the rear view mirror. Treasury demand remained noticeably firm into month end, especially in light of the improving risk appetite by investors and a string of stronger than expected US data later in the week. Sovereign bond prices did slip on Friday, but have still largely consolidated the safe haven bids seen here in early 2016, keeping the US 10-year around 1.75%. All three of the major indexes closed about 1.5% higher for the week.

Data out this week painted a somewhat confusing picture of the real condition of the US economy. The February preliminary Markit factory PMI reading told us what we already knew: US manufacturing faces very tough sledding. The survey sank to 51.0, its lowest reading since late 2012. But it was Markit's February preliminary services PMI that really freaked people out: the index sank into contraction at 49.8, and Markit Chief Economist Chris Williamson warned the survey data show a significant risk of the US economy falling into contraction in the first quarter. February consumer confidence fell to the lowest level in seven months, with notable declines in the present situation and future expectations components.

On the more positive side, the preliminary January durable goods orders came in at +4.9%, the strongest gain in nearly a year, more than reversing the -4.6% plunge seen in December. The revisions to fourth quarter GDP were a mixed bag, with the headline figure better but spending a bit lower. The second reading of Q4 US GDP defied expectations to the upside, rising to +1.0% from the +0.7% advance figure. Most of the revision higher was attributed to the volatile inventories and trade components. The January personal consumption measure remained very healthy at +2.0%, and personal income accelerated +0.5% from the flat December reading. Core PCE - the Fed's preferred ruler for measuring inflation - was surprisingly strong in January, rising to +1.7% from +1.5% in December, the fastest m/m acceleration seen since late 2012.

January inflation data out of the euro zone suggested the disinflation predicted by ECB Vice President Constancio last week was at hand. The total euro zone measure was a mere +0.3% y/y, while preliminary February readings from Spain, France and four major German states saw negative y/y readings. The readings further strengthened the case for more easing from the ECB next month, even as markets express more and more uneasiness with negative rate policies. The strengthening dollar seen over the prior two weeks continued this week, with the relatively strong US GDP and PCE data on Friday pushing EUR/USD back below 1.0950 and back into the range seen in December and January.

Expectations have been building for weeks if not months that Beijing would be forced to add additional stimulus of some kind in order to deal with the continuing Chinese slowdown. Guessing has focused on RRR cuts, more medium-term liquidity injections and possible fiscal policy moves. There were reports that PBoC staff were recommending the government increase the fiscal deficit to 4%/GDP from the 3%/GDP currently targeted in 2016, although finance ministry officials tempered these hopes. Until Thursday, the Shanghai Composite had remained more or less calm since late January. Tightening liquidity conditions, driven by a spike in short-term money market rates - the overnight repurchase rate spiked by 16 basis points to 2.12% - sparked a 6.4% decline in Shanghai. Interestingly, the sell-off did not travel to Europe and the US, with equities in both regions up sharply on Thursday.

Saudi Arabia, Russia and other major OPEC producers worked hard to consolidate support for the proposed oil production freeze agreement announced last week. Iraq remains non-committal, while Iran ramped up its negative rhetoric. Iran Oil Min Zanganeh called the plan "a joke," while various OPEC officials conceded that Iran might need individual attention in negotiations for a freeze. Parties to the agreement will meet in mid-March to negotiate a formal deal. On Friday, Brent tested as high as $37 and WTI briefly ticked above $34.50 for three-week highs, but by and large prices were well contained within the ranges seen through the month of February.

Cable made fresh seven-year lows every day this week, closing out Friday around 1.3850, forced lower by nervousness about the upcoming referendum on the UK's continued membership in the EU. Political jawboning and constant polling kept the subject of Brexit in headlines, but the biggest development was London Mayor and Conservative Party stalwart Boris Johnson backing the anti-EU camp. Citigroup suggested that Brexit risk rises to 30-40% from 20-30% prior with Johnson's endorsement. Polls were very tight: a BMD/Standard poll on the EU Referendum showed 44% of respondents opting to stay in the EU, while 41% wanted to leave, while a YouGov poll saw 37% in favor of staying versus 38% for Brexit.

Earnings season is winding down with reports from the largest US retailers. Decent results from Macys, Kohls, Best Buy and JC Penny helped boost the shares of a broad spectrum of retail names. Macy's topped its recent guidance for the quarter and offered FY guidance that was slightly ahead of expectations. Comps were down more than 4%, but again this slightly beat consensus views. Kohls raised its dividend and managed to deliver (barely) positive sales comps. Best Buy's comps were negative, although it also launched a big new buyback and raised its dividend. Lowe's and Home Depot both had positive quarters, aided by continuing strength in the housing market. Shares of Hewlett-Packard sold off hard after the firm disclosed ugly revenue declines with its first-quarter results.

After years of negotiations, fallen Japanese titan Sharp reached a deal to sell itself to Chinese firm Foxconn (formally known as Hon Hai Precision Industry) for around $6 billion. But then in a very rapid reversal, shares of Sharp gave up the 15% or so they had gained over the last month on talk the deal was finally closing when Foxconn said it would postpone the arrangement until it had clarified some "new material information" from Sharp, reportedly sizable undisclosed liabilities. Honeywell and United Technologies confirmed press reports that the two companies had discussed a potential merger deal but talks stalled given very significant regulatory hurdles and considerable customer concerns. UTX's CEO went as far as to appear on CNBC to say that a merger with Honeywell just "ain't going to happen." Honeywell confirmed that it had offered $108/shr in cash and stock, and would continue to pursue a combination. London Stock and Deutsche Boerse said they were holding talks about a potential merger of equals, which would create a combined group worth nearly $28 billion.

Barron's Saturday summary: Positive on LGF, SYF, PDCO 

Cover story: The economy is in a growth pause, not the pause before the onset of recession; Favorable fundamentals at this stage in the expansion should dominate, with economic growth running at an annual rate of 2.8% through the first half and 3.2% by the second half. 

Tech Trader: Cable companies are worried about a potential FCC plan to unlock cable boxes, allowing viewers to use devices from other companies to watch TV; Comcast has worked hard to improve its set-top box, and it thinks few of its customers would use third-party devices. 

Trader: Bernie McGinn of McGinn Investment Management says that for the stock market to regain its equipoise, energy and financial stocks need to show strength; Positive on LGF: Many of the studios problems appear to be discounted in the stock price, and shares could rise 50% during the next 24 months just by returning to form; Ned Davis Research says investors should seek out GARP, or stocks offering growth at a reasonable price; among companies meeting the criteria are MOH, WEX, SOHU, AMG, OMF, AAPL, GILD, ESRX, HCA, VMW. 

Interview: Donn Vickrey and Herb Greenberg of Pacific Square Research make a bearish case for BABA, Home Capital Group, and SIG. 

Profile: Neil Hennessy and Brian Peery, portfolio managers, Hennessy Cornerstone Mid Cap 30, discuss their focus on mid-caps that are large enough to weather economic downturns and small enough to be strategically nimble; firm has outpaced 86% of its peers during the past decade (top 10 holdings: CASY, W, SBGI, SNX, HA, INGR, ATO, NVR, OMI, IPG). 

Features: 
1) Positive on SYF: Company has gained 12 points of market share since 2004; shares are down 17% in the past year, but that appears overdone, and they could rise 40% as steady loan growth boosts the P/E multiple; 
2) Austin, Texas-based Hoisington Investment Management has ridden the secular decline in government bond rates and the handsome concomitant rise in bond prices to annual compounded returns of 7.9%; 
3) Positive on LafargeHolcim: Stock price is down amid disappointing earnings and worries about the global economy, but the selloff seems overdone, and shares are likely to rise this year as new opportunities extend the brand. 

Small Caps: Positive on PDCO: Global distributor of dental and veterinary products has simplified operations, and shares are inexpensive for a market leader. 

Follow Up: The year is only two months old, and high volatility and a punishing stock market correction have already taken a painful toll on the most recent predictions made by strategists in Barrons annual market outlook; Positive on AMD: Chip designer should have better days ahead as it launches new high-end desktop chips and moves into the server sector. 

European Trader: Positive on Exor: Italian financial holding company whose assets including FCAU, RACE, and CNHIis a good way to by those companies at a discount. 

Asian Trader: As Chinas bad debt reaches levels not seen in a decade, investors are pondering a crucial question: Do Chinas commercial banks have enough of a capital cushion to absorb all those delinquent loans? 

Emerging Markets: Katie Koch of Goldman Sachs Asset Management says Indias real GDP growth could move from about 7.5% today to 10% within the next several years, but the benefit of the uptick wont be reflected in funds that buy GEMAX. 

Commodities: Gold has defied naysayers with a sharp rally, but the jury is still out on whether the gains will last.

Inflation, Crude Surprises Herald an Early Spring for Markets

TradeTheNews.com Weekly Market Update: Inflation, Crude Surprises Herald an Early Spring for Markets
Fri, 19 Feb 2016 16:10 PM EST

The heightened volatility of early February gave way to slightly calmer global markets this week. The biggest story was the joint effort between Venezuela, Saudi Arabia and Russia to freeze crude production levels and put a floor under the market. A provisional agreement was reached on Tuesday, although without much buy-in from Iran. China returned from the week-long Lunar New Year holiday without any major market upsets and guided the Yuan notably higher, and a handful of more positive inflation and loan data helped calm nerves. More monetary easing looks to be on tap in both Japan and the euro zone next month. Meanwhile in the US, January PPI and CPI inflation readings came in hotter, further complicating the outlook for the FOMC on rates. The week saw the first 3 day rally for US indices this year while Treasury markets largely consolidated last week's move higher keeping the benchmark 10-year yield pegged near 1.75%. WTI can't get much if any traction above $30 and natural gas is fallen back towards the Dec low to trade at $1.80. For the week, the DJIA gained 2.6%, the S&P rose 2.8%, and the Nasdaq added 3.8%.

There were no big surprises in the minutes from the January FOMC meeting. As expected, the committee expressed deepening concerns that the ongoing decline in commodity prices and the rout in financial markets posed more risks to the US economic outlook. However, the members "judged that the overall implications of these developments for the outlook for domestic economic activity were unclear." Markets took the minutes overall to indicate officials are increasingly reluctant to raise rates in March and possibly the first half of 2016. This week Fed fund futures were pricing less than a 50% chance of any further rate hikes this year.

In a bid to stabilize an oversupplied market, Russia and OPEC members Saudi Arabia, Venezuela and Qatar reached a preliminary deal on Tuesday to freeze production at January levels, provided that other major producers followed suit. Iran reacted tepidly to the deal, issuing non-committal statements of support for the agreement while still insisting they would continue to target returning to the pre-sanction level of oil production. Iraq also said it "supported" the effort, but said it would not formally commit to the production freeze until other major producers did. As reports on the negotiations emerged, crude prices had momentary gains - Brent lunged for $36 a few times and WTI almost broke above $32 - however prices closed out Friday flat on the week, without sustaining any of these short-lived gains.

In Japan, the week kicked off with a very weak GDP figure and a huge gain for equities. Fourth-quarter GDP saw its biggest drop in 12 months, as the headline q/q figure hit -0.4% and the y/y measure was -1.4%. The bad news further strengthened expectations that the Bank of Japan would be forced to offer more stimulus, driving the Nikkei up 7.2% on Monday, its biggest one-day gain in three years. PM Abe's advisor Honda addressed the terrible GDP print later in the week, noting that in addition to possibility of more BoJ policy easing, he would also recommend a fiscal stimulus package of around ¥5T and also the postponement of the second round of sales tax increase until April 2019. Subsequent press reports indicated that Abe was not keen on more government stimulus or delaying the tax increase. USD/JPY had lifted off the 15-month lows around 111 last week, weakening to 114.8 early this week, then strengthened back to around 112.50 by Friday.

The Shanghai Composite played catch-up with last week's global volatility as it reopened for trading after a week-long break for the Lunar New Year holiday, falling more than 2% on Monday. However, some less bad economic data through the week helped lift the index and dispel some anxiety about China's economic prospects. January new loans hit a record high level and the January M2 money supply hit a 19-month high, although analysts rightly point out that this came as the PBoC pumped record amounts of liquidity into the system ahead of the holidays, fearing an epic cash crunch. Moreover, many expect these positive reports will not likely diminish the chance of another RRR cut sometime in the first quarter. January CPI rose at a healthy +1.8% y/y rate, a five-month high, driven mainly by higher food prices. The data hinted that persistent disinflationary forces may be waning, but many analysts said much of the better data could be ascribed to seasonal holiday factors.

It is looking more and more likely that the ECB will ease monetary policy again at its March meeting. Multiple ECB speakers addressed the issue in speeches this week. Draghi reiterated that the subject would be under consideration at the meeting, and added that Europe is facing significant challenges and increasing concerns about the global economy. ECB Vice President Constancio said action would be taken if it was determined that conditions have delayed the expected rise in inflation later this year, warning there could be another bout of disinflation in the first half of 2016. The Bank of Italy's Visco had the strongest take, calling on the ECB to act pre-emptively before a dramatic fall in inflation expectations took hold.

The European Union's negotiations with the UK crept closer to a deal to keep Britain in the union. UK PM Cameron held all-night negotiations on Thursday with top EU officials and a handful of leaders with specific objections to the draft text, mostly concerning welfare payments to immigrants. By late Friday, reports indicated a tentative deal had been reached. The UK referendum on EU membership will likely take place in mid-June, and a TNS poll out on Friday showed 36% of respondents said they would vote to leave the EU while only 34% said they would vote to remain in the union. Separately, Greece and its European creditors continued negotiations over bailout compliance, and managed not to produce any more of the market-moving headlines seen last week.

Mexico's central bank took action to shore up the peso, delivering a surprise rate hike on Wednesday. Banxico raised its overnight rate by 50 bps to 3.75% at an intra-meeting decision and said that peso weakness was threatening inflation expectations, forcing action. Recall that Banxico raised rates at a scheduled meeting back in December for the same reason. USD/MXN has plunged about 9% this year and more than 30% over the past year and a half to record lows, the biggest losses against the dollar among leading emerging market currencies in the current cycle. As a major oil producer, Mexico has been battered by falling oil prices, which Banxico Governor Carstens also discussed in justifying the move. USD/MXN gained 4% in the wake of the decision. Separately, the Bank of Korea held rates steady at its scheduled meeting, but the bank issued a statement warning that recent won currency weakness was "excessive" and warned against intensifying "herd behavior."

Earnings season is slowly drawing to a close, with the major retailers among the last to discloses quarterly results. Shares of Walmart closed out the week down 2.5% after it disclosed y/y declines in earnings and revenue, and a FY outlook that was weaker than the qualitative view offered at the annual investor day last fall. Sales comps were lower than expected.

In a long-expected development, Yahoo's board has formed a committee to explore strategic alternatives. The company has hired advisors, and said one focus will be the Alibaba sale via a reverse spinoff. Recall that earlier this month, the company launched a fresh round of restructuring, including a plan to lay off 15% of the workforce. Reports have indicated that close to two dozen public and private firms have expressed interest in various Yahoo assets and on Friday the board is said to have started returning some of their calls.

In M&A news, home security firm ADT agreed to be acquired by Apollo Global Management for nearly $7 billion, or $42/share in cash, a 56% premium the prior closing price. Apollo intends to merge ADT with another home security firm it owns, Protection 1. Chinese aviation and shipping conglomerate HNA Group reached a deal to buy electronics distributor Ingram Micro for about $6 billion, or $38.90/share in cash. This is the latest in a string of overseas buys by Chinese companies, which have been aggressively splurging on foreign acquisitions to sidestep slowing domestic growth.

Barron's Saturday summary: Positive on DWN.DE, CUB, ESL, KEY, BMY; Cautious on VIA, LNKD, JPM, RACE, CS 

Cover story: The rise of Donald Trump and Bernie Sanders in the presidential race "could be one more reason why stock markets are under pressure and could remain so for awhile"; Investors, who are generally more comfortable with establishment candidates, have reason to be nervous about the campaign's direction. 

Tech Trader: Amid the recent rout in the tech sector, mega-cap companies such as AAPL, CSCO, GOOGL, and FB remain powerful in their markets, while smaller players such as QLIK, DATA, and LNKD are feeling the pain, partly because of high valuations and expectations. 

Trader: When the Chinese market gets back in the swing of things next week after the Asian New Year break, there could be volatility if growth slowdown fears return; Cautious on VIA: Nothing much is likely to change at the company as long as Sumner Redstone remains a presence, and long-term oriented investors who find the shares attractive because they're undervalued may have to wait some time for a payoff; Cautious on LNKD: Amid skepticism and worry in the tech market, company's growth is likely to keep decelerating, shares remain overvalued, and margins are declining. 

Profile: Mammen Chally, lead manager, Hartford Core Equity fund, looks for three traits in a company: improving quality via capital structure or competitive situation; business momentum; and lower-than-average valuation (top 10 holdings: GOOGL, MSFT, CVS, JPM, COST, MDLZ, AAPL, AGN, MO, PNC). 

Interview: Don Morgan, chief investment officer at Brigade Capital, says the risk/return ratio in the bond market is favorable relative to other asset classes, and that high-yield bond prices could rise sharply (picks: Albertson's 7.45% due 2029, AMD 7.75% due 2020, Consol Energy 5.875% due 2022, Savine Pass (Cheniere) 5.75% due 2024, Puerto Rico 5% GO due 2041). 

Features: 
1) Positive on BMY: Company's cancer-fighting medicine Opdivo has earned FDA approval and has the potential for $8-9B in annual sales, making the pharma giant's shares a good bet for long-term investors; 
2) Positive on KEY: Shares of bank look cheap by historical standards, and its acquisition of FNFG could prove more lucrative than investors expect; firm's 2.9% dividend payout could go up this year, and shares could return 30% or more; 
3) Positive on CORE: Wholesale distributor is benefiting as the stores it serves see more foot traffic, but its customers remain vulnerable to growing competition from WMT and DG, and to the severity of tobacco-sale restrictions. 

Small Caps: Positive on CUB: Shares of the maker of fare-collections systems for transit services have fallen, but the resultant selloff looks like an overreaction, and a buying opportunity for investors; Positive on ESL: Selloff following a poor earnings report in February offers an opening for investors; company has an attractive franchise, and an activist investor could take interest. 

Follow-Up: Cautious on JPM: Chief Jamie Dimon's decision to buy shares gave them a boost, but investors in the banking sector still worry about potential problems in the global economy and trouble with European firms; Cautious on CS: Despite a plunge in shares, bargain hunters should take a pass and seek safer firms that trade cheaply; the bank continues to face heat from regulators related to tax evaders; Cautious on RACE: Shares are selling far below their IPO price, and are likely to stay there until the bull market returns. 

European Trader: "Bloodletting in the European banking sector may not be over despite last week's brutal selloff," and uncertainty remains amid negative interest rates and other issues in the eurozone; Positive on Deutsche Wohnen: German property stock is worth a look for investors. 

Asian Trader: Some investors wonder if all the bad news in Thailand is already reflected in the market, paving the way for bargain hunting, but that view is premature. 

Emerging Markets: Venezuela's "political disarray and shortage of dollars have put its bonds in a tinderbox," and though default may not be imminent, many observers see it as an eventuality. 

Commodities: Orange juice is no longer the consumer staple it once was, and a case can be made that its futures market "will go the way of the dodo." 

CEO Spotlight: UA founder and chief executive Kevin Plank says the "athleisure" trend is here to stay, and that the company plans to expand internationally to ease its dependence on North America and gain ground on rival NKE