Risk on Flows Push US Indices to New Highs

TradeTheNews.com com Weekly Market Update: Risk on Flows Push US Indices to New Highs
Fri, 15 Jul 2016 16:17 PM EST

For much of the week equity prices moved up aggressively as investors pointed to a variety of reasons to add risk to their portfolios. A faster than expected, relatively smooth transition of Theresa May to UK prime minister allayed some lingering Brexit fears. Speculation on the growing likelihood of aggressive BOJ and BOE stimulus later this summer coincided with a deluge of US Federal Reserve speak that indicated the Fed is still likely to keep rates at very low levels for quite some time. Finally, solid early Q2 earnings reports/commentary provided hope that US earnings growth has troughed and business on both sides of the Atlantic can withstand any negative impacts related to the UK's decision to leave the EU. The Dow and S&P each registered multiple new all-time highs as investors that have kept cash on the sidelines felt compelled to jump in, forcing valuations higher. For the week the Dow rose 2%, S&P gained 1.5% and the NASDAQ added 1.5%.

Risk-on flows also pulled money away from sovereign bond markets, sending rates higher. US Treasury supply was met with notably tepid demand early in the week spooking some bond investors. Improving US data, including some hotter than expected inflation readings, helped the US 10-year yield back up ~25 basis points to finish the week at 1.59%. The German 10-year Bund future traded without a negative yield for the first time since the UK vote.

In key data this week, analysts' eyes were on the JOLTS survey - Fed Chair Yellen's preferred gauge of US labor market health - which pulled back from the all-time high of 5.85 million job openings seen at the end of April, to 5.50 million in June. Analysts characterized the slight deceleration in openings a correction from the elevated levels of the last two months, rather than a deceleration. On Thursday, jobless claims added to the healthy labor market view, with the numbers holding steady at a three-month low of 254K, well below expectations. University of Michigan consumer sentiment came in lower so far in July's preliminary reading, as high-income consumers expressed nervousness about global events. Firming producer and consumer price figures, along with retail sales and industrial production data that topped expectations on Friday added to the view that the Fed may be able to raise rates later this year.

The Bank of England left interest rates unchanged for an 88th consecutive month, surprising markets, which had been pricing in a 75% probability of a rate cut of 25 bps to 0.25%. The British Pound surged on the news before giving back some of that ground late in the week. The policy minutes showed that most MPC member expect a rate cut at the August meeting, which will coincide with the BoE's quarterly inflation report and a press conference from Gov Carney. Also in the UK, Theresa May was named the new prime minister, after her only remaining challenger, Andrea Leadsom, pulled out of the running. PM May wasted no time in shaking up the cabinet: notably, naming Pro-Brexit MP Boris Johnson as Foreign Secretary and appointing Phillip Hammond as Chancellor of the Exchequer. The Dollar rose against the Yen late in the week on expectations for the launch of Japan PM Abe's promised big stimulus package after his party was victorious in Sunday's parliamentary election.

JPMorgan, the first big US bank to report second quarter results, did quite well in the three months to June. Net income declined very slightly, although EPS and revenue beat expectations. FICC trading revenues were up 35% y/y, widely beating consensus expectations. Shares of Alcoa saw gains after reporting a beat on top and bottom lines. The materials conglomerate affirmed global aluminum demand growth expectations and forecast improvement in H2 and 2017 on ramp-up of capacity. Data storage firm Seagate raised its guidance on Monday, citing demand for its HDD product portfolio, and Western Digital lifted in sympathy. Nintendo was up nearly 70% on the week on the surprising popularity of its new mobile game, Pokemon Go.

Barrons weekend summary

Barrons weekend summary: positive on GS, STT, ANET, GHC, NTRS, BSX; Cautious on NFLX, SJM 
Cover story: The mutual fund industry faces increasing pressure to outperform, but as that grows more difficult investors are withdrawing moneya trend the industry calls flowmageddon; Traditional mutual funds still dominate the industry despite the growth of ETFs, but Vanguard is winning with both. 

Tech Trader: Cautious on NFLX: Now that streaming has gone mainstream, founder and CEO Reed Hastings needs a new strategy to maintain the companys momentum and must continue to produce better content than rivals; otherwise, shares could drop by 40% or more.

 Trader: Dennis DeBusschere of Evercore ISI says low yields on the 10-year U.S. Treasury are a money-flow, central-banking issue and not a sign the American economy is in trouble; A number of credit-card stocks fell on earnings news at SYF, but even after last weeks rally their multiples remain low historically and relative to the S&P 500, offering downside protection; A decline in the number of pubs in the U.K. may partly lie with smoking bans and tougher drunk-driving laws. 

Mutual Fund Quarterly: 
1) Jeffrey Gundlach of DoubleLine Capital discusses the effect of the Brexit vote on the stock and bond markets; 
2) Mutual funds posted gains during the second quarter and ended the period in the black, boosted by gains in categories such as value and precious metals; 
3) Positive on GS, STT, BLK, JPM, Franklin Templeton: Among firms that are making a push into the multifactor or smart beta ETF market, which though young is growing increasingly popular with investors; 
4) Because of todays extreme currency volatility, funds that hedge back into dollars are the best bet. 

Features: 
1) Positive on ANET: Company is gaining market share in high-end network switches at the expense of CSCO, and has entered the router market; shares could climb 20% and Arista has an attractive valuation; 
2) Positive on GHC: Television and education company has undergone major changes in the past few years, and under new chief executive Tim OShaughnessy it should start to close the gap between its share price and its estimated asset value; 
3) Positive on NTRS: A recent string of deals have given the trust company more market share in a competitive sector, and fees in its wealth-management business are growing. 

Small Caps: Positive on FLWS: Companys acquisition of Harry & David extended its ability to cross-sell gifts of food and bouquets, which should boost revenue and growth. 

Follow-Up: 
1) Positive on BSX: After seeing a 41% gain, shares of the medical device maker still seem reasonably priced, and the company could grow profits at a low double-digit rate for years to come; 
2) Cautious on SJM: Any benefits from lower coffee costs arent likely to continue, and with shares stretched valuation investors may want to take money off the table. 

European Trader: A sudden and violent sellof in U.K. property assets following the Brexit vote has created value for long-term investors. 

Asian Trader: An ongoing activist investor battle at China Vanke could ultimately be bad for the companys share price. 

Emerging Markets: Entrepreneurial healthcare, tech, and consumer-discretionary companies have grown in number since 2005, but are not proportionately reflected in the MSCI Emerging Market Index. 

Commodities: Gold is strong of late, but silver is outshining itand the Brexit vote makes both more appealing to investors. 

Streetwise: As with junk, the margin of safety for stocks might not be as big as it appears, and the Brexit will call any surge in corporate profits into question

Investors Find Brexit Solace in US Equities & Government Bonds

TradeTheNews.com Weekly Market Update: Investors Find Brexit Solace in US Equities & Government Bonds
Fri, 08 Jul 2016 16:15 PM EST

Global financial markets remained volatile under the continuing influence of the UK Brexit vote two weeks ago. The 10-year UST yield sank to fresh record lows below 1.35%, and buyers of 50-year Swiss government bonds got ready to accept a negative yield this week as malaise settled over the entire global economy. The pound, which hit a 31-year low against the dollar of 1.2800 on July 6th, gave up recent gains and sank back below 1.3000, while the dollar and yen remained strong. Crude prices sank lower, with WTI back in the $45 handle and Brent back around $46. In the UK, various investment firms suspended redemptions in open-ended property funds as investors rushed to take out their cash, while investors eyed the Italian banking system with deepening concern. On Friday, the very strong June US jobs report lifted stocks broadly to flirt with all-time highs in the S&P. US Treasury yields stayed stubbornly low, as global demand for assets that offer any kind of relative yield remains unwavering. For the week, the DJIA +1.1%, the S&P500 +1.3% and the Nasdaq +1.9%.

The June US jobs report was very strong and may have been good enough to bring forward Fed rate hike expectations after the setback of Brexit. The 287K non-farm gain was way ahead of even the most optimistic estimates, although the result only brings the Q2 average up to +147K, versus +196K in Q1. Unemployment ticked up to 4.9% from 4.7%, however the household survey showed an incremental decline in labor market slack as the participation rate ticked slightly higher.

Global currency markets remained under pressure from the Brexit vote. Sterling slid lower on Monday and Tuesday, then appeared to stabilize around 30-year lows in the second half of the week, but remained firmly below 1.3000. The yen remained a safe haven, with funds flowing into the Japanese currency despite some weak economic data reports. USD/JPY had traded back up to 103.25 last week, but as of Friday the pair was back to the critical 100 level, which was briefly breached during the Brexit vote panic and subsequently held unchallenged. The volatility prompted Vice Finance Minister & FX Chief Asakawa to warn the government was "closely watching" FX markets with urgency and would act promptly if there were "speculative moves." EUR/USD was steadier and held above the 1.100 level.

The second-order effects of the Brexit vote further dampened confidence. Seven UK investment firms suspended trading in property funds this week, freezing £15 billion of assets since Monday, out of a total of £24 billion invested in UK open-end real estate funds. Many comparisons were made to the failure of Bear Stearns' hedge funds in the summer of 2007, although the total amount held in such property funds is extremely modest. Press reports asserted that funds Henderson, Columbia Threadneedle and Aberdeen were maintaining positive cash balances but chose to halt withdrawals to "protect" investors.

The ongoing selloff in the Italian bank stocks continued apace, leading the nation's market regulators to ban short selling of shares of Banca Monte Paschi for three months. Italy's banks are burdened by €360 billion of non-performing loans, the equivalent of a fifth of the country's GDP. Collectively they have provisioned for only 45% of that amount. With shares sinking faster post-Brexit vote, there is building pressure for more bail-in funding for the system, and there were reports the government would set up a second fund - dubbed Atlante 2, with €3-5 billion in capital, after the Atlante fund set up earlier this year - to help clean up the mess.

The yuan weakened for the fifth week in a row, marking the longest losing streak for the Chinese currency this year. USD/CNY has risen to 6.6873, the yuan's weakest setting against the greenback since the first quarter of 2010. The June China FX report disclosed the biggest one-month gain in reserves in over 12 months, leading many participants to speculate that the PBoC has halted its regular FX market interventions and allowed the yuan to weaken in its quest to revive economic growth. The currency also saw its biggest weekly drop against a trade-weighted basket of 13 currencies in four weeks, another sign that Beijing has become tolerant of further declines. There was little hard data out this week - the Hong Kong PMI contracted for the 16th straight month in June as conditions deteriorated to their worst level since last summer - but speculation about PBoC rate cuts heated up and many analysts are saying another cycle of RRR cuts is in the offing in the second half of 2016.

The contagion of political uncertainty has infected another major economy, this time Australia. Last Sunday, Australians went to the polls to elect a new federal parliament, and almost a week later, Liberal/National Coalition and Labor remain basically deadlocked. The Australian Electoral Commission is recounting all ballots before announcing the official result, and as of Friday the conservative National Coalition is leading with 74 seats, followed by the Labor Party with 71, with the former ceding at least 16 seats to the latter. It appears that National Coalition will most likely be forming a government, but S&P lowered their outlook on Australia's AAA rating to negative from stable on Thursday as the lack of a strong mandate potentially dinged the future government's prospects for reining in the budget deficit.

Retailers reported much improved sales comps for the month of June. The Father's Day holiday on June 19, a calendar shift reporting the sales of Memorial Day weekend in June and good weather all contributed to boosting the month's business. Gap disclosed its first positive monthly comps report of 2016, with Old Navy posting a +5% comp. After flattish April and May SSS, L Brands posted an increase of 6%. The numbers may herald a third month of good total US retail sales (the June US retail sales report drops next Friday), after much better than expected April and May retail sales. However, many other retail comp sales reports remained deep in the red, with Zumiez, Buckle and Cosi reporting terrible numbers.

July-August 2016 Outlook: Summer Break

TradeTheNews.com July-August 2016 Outlook: Summer Break
Tue, 05 Jul 2016 18:17 PM EST

A traditionally quiet summer for the markets was about to begin. Then Britain surprised the world with its decision to leave the EU, turning the summer doldrums into a summer break.

Before the fateful vote, our forecasts were lining up nicely: the Fed held off on a rate hike one more time; the ECB remained in wait-and-see mode and the German Constitutional Court affirmed its OMT powers; the Japanese PM delayed a sales tax increase; and crude had eased off of recent highs. Then the Brexit vote came in, shocking most financial experts and even Britains vaunted bookies. The high-quality bond trade got even more crowded and gold hit a 15-month high as the sterling got pounded down by a double digit percentage overnight. Stocks tumbled for two days and European banks were especially hard hit on concerns about interest rates remaining near zero for even longer and about the chilling of financial relations between the UK and the continent.

In the aftermath of the Brexit vote, the trajectory of everything in the financial world has been altered. The Fed, once poised to raise rates imminently, is now likely to sit on its hands for the rest of the year. European and Asian economies struggling to regain momentum may have to resort to even bigger and more exotic stimulus schemes. And the UK has the greatest uncertainty ahead as it reshapes its position in the European political and economic structure.

Bon Voyage Britain

What did Britons get for their Brexit vote? An economic slowdown, a weaker currency, and some multinational businesses threatening to pull out. The UK, which had been on a good path toward recovery, could now quite possibly suffer a recession and a severe case of Bremorse.

The BOE is already giving serious consideration as to how it can ease the blow. A few days after the referendum, BOE Governor Carney laid out a measured reaction. He said that the central bank will give an assessment of options at its upcoming July 14 meeting, with the intention to take action at the following meeting (on August 4). Carney signaled that a rate cut is likely this summer, which would take the key rate below 0.50%, where it has sat for the last seven years. The post-Brexit stimulus package may also involve boosting the BOEs Asset Purchase Target from the current £375B. In his speech, Carney attempted to look at the bright side, saying the UKs highly flexible economy can handle change and will adjust: The question is not whether the U.K. will adjust, but how quickly and how well." He also warned that the monetary policy could not carry the entire burden of easing the adjustment, urging political leaders toward forceful policy actions.

Unfortunately the government will be in limbo for the next two months as the ruling party decides on a new leader. Prime Minister Cameron will step down after a large majority of Conservative Party voters flouted his advice to vote Remain. Tory MPs are now mulling over five candidates, and will whittle them down to two before a wider party vote selects the new PM.

In a surprising turn, Brexit poster-boy Boris Johnson was outmaneuvered by an ambitious ally and is already out of the race for PM. The man who turned the tables on Johnson, Michael Gove, is now the leading candidate from the euro-skeptic wing of the party. In early polling, Gove is trailing Home Secretary Teresa May who was a lukewarm supporter of Remain during the referendum.

There was some early speculation that, if selected, May might look for a backdoor to reverse the Brexit vote, but as she formally announced her candidacy, she made it clear that she would abide by the peoples mandate. Meanwhile, Gove is making the case that the next PM should be from the winning side of the referendum. The eventual winner will be announced on September 9, but both May and Gove have said they would not trigger Article 50, the event that starts a two year clock on leaving the EU, until next year at the earliest.

The rest of Europe is already growing impatient with the secession process Britains ship of state is waving goodbye but its still tied up at the dock. Though top European leaders have discouraged taking retribution against the UK for leaving, much of the continent is seething over the troubling fallout from the Brexit vote. How the UK handles its invocation of Article 50 will greatly influence the tone of treaty re-negotiations with its former EU partners. If the new PM in London pushes for preconditions before starting the clock, the political tensions and uncertainties created by the Brexit could be extended by several additional months.

EU leaders worry that prolonged uncertainty about the Brexit process could poison the economy. International trade could slow and business planning could be chilled. It could also bolster populist movements ahead of general elections in France and Germany next year in which voters may express similar frustration with the current political path in Europe. Euro-skeptics playing a longer game are looking ahead to 2019 when, Mario Draghis term as ECB president ends. The thinking is that Germany will almost certainly get the nod for the Presidency after the Bundesbank candidate opted out in 2011, leading to Italys Draghi taking the post. A German at the helm of the ECB will be less prone to central bank largesse.

Eventually the Brexit could spell the end of the United Kingdom itself. Scotland has made noises about reviving its own referendum for independence so that it can rejoin the EU. In their own bid to regain European status, Northern Ireland politicians are openly discussing the reunification of Ireland. Such moves would certainly diminish the UKs economic clout and may make it harder to get good terms in renegotiated trade agreements.

As the BOE goes to battle stations, other central banks may bide their time for now. Markets have been volatile since the Brexit vote, but they have remained orderly, with no real signs of panic. If conditions stay relatively calm, global central bankers may breathe a sigh of relief.

Initial surveys of economists show most believe the ECB won't cut its already negative deposit rate any further over the coming months. President Draghis team is still crunching the numbers on impacts of new stimulus added earlier this year, and wont overreact to the unknown extent of the Brexit fallout. If markets do take a turn for the worse, the ECB could muster another token 10 basis point cut to bring its deposit rate down to -0.50 percent.

The BOJ appears patient as well, even in the face of the Brexit strengthening the yen back toward uncomfortable levels. Many currency analysts see a USD/JPY level of 100 as an obvious point for the central bank to try and hold the line with interventions. But the BOJ is still assessing the effects of the negative interest rate policy (NIRP) it instituted in February and has stuck with verbal interventions. Before the Brexit turmoil a key economic advisor to PM Abe said that Japan would have to intervene in FX market if yen strengthened to 90-95 area even if the US objected, so that level may be the actual line in the sand.

NIRP has had a modest stimulative effect, but its skeptics are legion. The unprecedented combination of negative interest rates at the BOJ, ECB and other central banks, fear of Brexit, and deep uncertainty about Fed rate hikes have fostered an extraordinary low yield environment. The Japanese 10-year benchmark yield has slid to -0.25% and the German 10-year bund has now joined the sub-zero club. With the Brexit adding to the compression, yields have fallen so far that approximately $11.7 trillion of government debt worldwide is now trading with negative yields. Thats up more than 15% from a month ago when Bill Gross declared that the huge pile of negative-yielding sovereign debt a "supernova that will explode one day."

Most banks have suffered silently after the Brexit blew away any sign of higher interest rates over the horizon, but some are starting to show signs of disgust with NIRP. In a clear demonstration of its frustration with negative rates, the Bank of Tokyo-Mitsubishi UFJ announced it might stop acting as a primary dealer of Japanese government bonds. In the same vein, Germanys Commerzbank is said to have considered pulling its cash from the ECB and physically storing it in vaults. These warnings should cause the ECB and BOJ to think twice before submerging rates further.

PREDICTIONS: The BOE is poised for a rate cut in August, but its unclear if Governor Carney is prepared to delve into negative rates. If the economic assessment in July finds the adverse scenario isnt materializing, then a more modest 25-50 basis point cut may serve for the time being. That may be followed up in the autumn with a quantitative easing package on the order of £75B or more.

In the short-term, Europe and the rest of the global economy will have to deal with waiting for Britain to choose its leader, and for that leader to decide when the Brexit will actually begin. This waiting game opens the door for more nervous volatility in markets for the next two months.

Markets should not count on splashy new stimulus plans in the near term. Central bankers are still assessing the results of NIRP, and there is little room left to cut rates.

The reaction in the markets will ultimately depend on how much separation anxiety develops in the wake of the Brexit. The precedent set by the UK referendum could inspire other EU countries to reconsider issues of sovereignty, and if that movement snowballs it might eventually threaten to unravel the EU or EMU.

The Boys (and Girls) of Summer

Across the pond, the surge of populism that ushered in the affirmative Brexit vote is a ray of hope for the Donald Trump campaign. Trump has had a series of stumbles lately, and is trailing Clinton in the national polls and in money-raising headed into the party conventions in July. The Republican National Convention will be held July 1821, followed by the Democrats convention a week later, giving both candidates a chance to reset the tone of their campaigns.

While there are similarities between the Brexit vote and the Trump campaign, its not clear if that will be enough to propel Trump to a Brexit-like upset. Much like the Leave voters, many Trump supporters are focused on issues of immigration and globalization, and demographically they tend to be older and white. But the Presidential election also involves a choice of leadership style, and polls show the majority of Americans have a poor view of Trumps temperament and competence. Another hurdle for the GOP nominee is that the US electorate is about 30% non-white, about twice the percentage of the UK minority population. The identity politics built in to the prospect of electing the nations first female President is yet one more notch in Mrs. Clintons favor.

Janet Yellen, perhaps the second most prominent female official in the US, has many challenges ahead. In June, she gave the impression that although interest rates stayed on hold, there were still probably a couple of hikes coming soon. In the aftermath of the Brexit, the Fed will have to reassess. The market has already voted, pushing the Fed Funds futures forecast for the next rate hike out into early 2017.

Recent Fed commentary has been mostly non-committal. Fed Vice Chair Fischer forecast very little impact on US trade from the UK referendum, but noted that predicting the full impact of Brexit is difficult because it will unwind over a long period of time. That means the Fed will probably be waiting at least until Britain actually invokes Article 50 no sooner than September before it even begins considerations on the next rate move.

The Fed will also have new data to look at over the next few months. Economic growth and consumer confidence data have been solid. Employment figures have been mostly good too, though the unexpectedly sharp drop in the May payrolls report was a concern. If the payrolls continue to peter out over the next two months, it could further dampen the outlook for Fed policy normalization. However, other labor indicators do remain strong, including the sub-five percent unemployment and recent record levels in the JOLTS Job Openings, a favorite indicator of Chair Yellen.

Corporate earnings will also begin rolling in over the next two months. Second quarter earnings are expected to be solid but guidance may be clouded by ripples from the Brexit, including recent big shifts in the currency market.

PREDICTIONS: Eight days of wall-to-wall coverage of the party conventions will make it impossible to avoid thinking about the outcome in November. The mud-slinging generated by Trump, Clinton, and their supporting super PACs will keep both candidates favorable ratings low, giving them both a shot at victory.

As the conventions get underway in late July the race will draw more attention that it has so far, which could stir some market jitters, especially from forecasters who believe Trumps proclamations on trade could be a disaster for the economy. Clinton remains the likely winner in November, which could hold negative implications for certain businesses. She already made a dent in the pharmaceutical sector earlier this year as she pressed hard on the issue of excessive price hikes by drug makers. Weakness in the stock market usually undermines the incumbent party, something Clinton will have to be aware of as she squeezes her Wall Street donors for funds.

Electioneering aside, the US markets will soon switch their focus to the Q2 earnings season starting in mid-July. Even if the Brexit turmoil fully subsides by then, US corporate earnings reports could be challenged as the second half outlook will be weighed upon by renewed dollar strength that resulted from sterling losing its shine.

The Fed is on hold indefinitely, and what was once expected to be a close call at the July 27 FOMC meeting is now a definite no. Meanwhile the minutes of the last monetary policy meeting, to be released on July 6, might suddenly sound quite hawkish after the Brexit surprise. Global central bankers gathering at the Jackson Hole symposium in late August may use it as a moment to provide a reassessment of global monetary policy in the post-Brexit world.

As a side note, the Rio Olympic Games (August 5-21) may prove a distraction for already light markets during the peak vacation period. However, the triumphs of human athletic achievement could be marred if it turns out Brazils troubled government falls down in its hosting duties. The Zika virus could also get renewed attention, possibly stoking pandemic fears, though not on the scale of the 2014 Ebola scare.

Happy Summer!

CALENDAR
JULY
4: UK Construction PMI; China Caixin Services PMI; US 4th of July holiday
5: UK Services PMI; BOE Financial Stability Report; US Factory Orders
6: German Factory Orders, US Trade Balance; US ISM Non-Manufacturing Index; FOMC minutes
7: UK Manufacturing Production; Japan Current Account
8: UK Goods Trade Balance; US Payrolls & Unemployment
9: China CPI & PPI

11:
12: UK Inflation Report Hearings; US JOLTS Job Openings; China Trade Balance (tentative)
13: BOE Credit Conditions
14: BOE Policy Decision; US PPI; China Q2 GDP; China Industrial Production
15: Euro Zone Final CPI; US CPI; US Retail Sales; US Industrial Production; Prelim University of Michigan Sentiment

1821: Republican National Convention

19: UK CPI; German ZEW Sentiment; US Housing Starts & Building Permits
20: UK Claimant Count & Unemployment
21: Various Euro Zone Flash Manufacturing & Services PMIs; ECB Policy Statement & Press Conf; US Philly Fed Manufacturing Index; US Existing Home Sales
22:

25: German Ifo Business Climate
26: US Durable Goods Orders; US Consumer Confidence; US New Home Sales
27: UK Prelim Q2 GDP; FOMC Policy Statement; Japan Retail Sales; BOJ Policy Statement (tentative)
28: German CPI; German Unemployment; Japan Household Spending; Tokyo CPI
29: BOJ Outlook Report; German Retail Sales; Euro Zone Flash CPI estimate; Euro Zone prelim Q2 GDP; US Advance Q2 GDP; Chicago PMI
31: China Manufacturing & Non-manufacturing PMIs; China Caixin Manufacturing PMI

AUGUST
1: UK Manufacturing PMI; US ISM Manufacturing PMI
2: UK Construction PMI; US Core PCE Price Index; US Personal Spending; China Caixin Services PMI
3: UK Services PMI; US ISM Non-Manufacturing PMI
4: BOE Inflation Report; BOE Policy Statement & Press Conf; US Factory Orders
5: US Payrolls & Unemployment; US Trade Balance
5-21: Rio Olympics

7: Japan Current Account; China Trade Balance (tentative)
8: China CPI & PPI
9: UK Manufacturing Production; UK Goods Trade Balance
10:
11: China Industrial Production
12: Euro Zone Flash Q2 GDP; US Retail Sales; US PPI; US JOLTS Job Openings; US Prelim University of Michigan Sentiment

14: Japan Prelim Q2 GDP
15:
16: UK CPI & PPI; German ZEW Sentiment; US Housing Starts & Building Permits; US CPI; US Industrial Production
17: UK Claimant Count & Unemployment; FOMC Minutes
18: UK Retail Sales; ECB Minutes; US Philly Fed Manufacturing Index
19:

22: Various Euro Zone Flash Manufacturing & Services PMIs
23: US Durable Goods Orders; US New Home Sales
24: US Existing Home Sales
25: German Ifo Business Climate; Japan Household Spending; Tokyo CPI; Jackson Hole Symposium begins (tentative)
2528: Democratic National Convention
26: UK Q2 GDP Second Estimate; US Prelim Q2 GDP (second estimate)

28: Japan Retail Sales
29: US Core PCE Price Index; US Personal Spending
30: US Consumer Confidence
31: Euro Zone Flash CPI Estimate; Chicago PMI; China Manufacturing & Non-manufacturing PMIs; China Caixin Manufacturing PMI

SEPTEMBER
1: UK Manufacturing PMI; US ISM Manufacturing PMI
2: UK Construction PMI; US Payrolls & Unemployment; US Trade Balance; US Factory Orders

9: UK Conservative Party selects new PM

Barrons weekend summary

Barrons weekend summary: positive on large US financials, select EU names oversold on Brexit, LUV, THS 

Cover story: In the upcoming elections, Democrats seem well-positioned to reclaim the Senate from the GOP, and a net gain of just four seats would give them the 50 necessary to take control, assuming a Democratic vice president is there as a tie-breaker; Regardless of who takes the White House, individual tax rates arent likely to go up, and legislative gridlock should ease. 

Tech Trader: In a tech market dominated by giants such as AMZN and FB, smaller companies that arent likely to grow will increasingly consolidate or sell themselves, as seen by prominent deals such as MSFTs acquisition of LNKD and GCIs bid for RLOC. 

Trader: Near-term, the market will look for any potential Europe-derived fallout in U.S. corporate earnings, according to David Donabedian of Atlantic Trust; Positive on AXLL, CVT, LNKD, QLIK, RDEN, VA: Companies are being acquired in all-cash deals, but their stock prices are significantly below the offer prices, offering investors an attractive annualized yield; Positive on UTHR: Shares of biotech are down 40% over the past year, but the company has a strong balance sheet and is improving of some of its treatments; now could be a good entry point for investors.

 Profile: Scott Davis, manager, Columbia Dividend Income fund, looks for A-rated-or-better balance sheets, consistent cash flow from operations, and yield (top 10 holdings: MSFT, XOM, JNJ, JPM, MRK, HD, PM, CMCSA, VZ, PFE). 

Interview: Harry Nimmo, manager, Standard Life Investments UK Smaller Companies fund, one of Britains top-performing small-cap funds (picks: Fevertree Drinks, First Derivatives, Fuchs Petrolub, Hota Industrial Manufacturing, Jungheinrich, Rational, Rightmove, Ted Baker, Voltronic Power Technology). 

Features: 
1) Positive on GS, C, JPM, BAC, MS: Despite a rally in the financial services sector, shares of large firms are down an average of 20% so far this year, making banks and asset managers one of the best values in the market; 
2) Positive on Ryanair, GSK, SAP, Abertis Infraestructuras, Rexel, ARMH, Persimmon, Howden Joinery: Companies are among those in Europe that took a hit following the Brexit vote, but investors have overreacted, making these particular shares a bargain; 
3) Positive on LUV: Carrier operates almost exclusively in the U.S., and though it faces challenges because of higher oil prices and slackening demand, it has little exposure to the U.K. and Europe and the share price could rise by 35%; 
4) Positive on Safran: French aerospace and defense contractor is likely to benefit from the airline industrys long-term outlook, which looks bright as a growing middle class embraces air travel. 

Small Caps: A look at the best- and worst-performing stocks from this column during the past 12 months (Best: CFX, PETN, MTW, MPW, TOWN, RAVN, CIR, ENR, DRII, FELE; Worst: PAH, ESL, PICO, DSW, HMHC, JLL, FLWS, PB, CUB, VSI). 

Follow-Up: Positive on Volkswagen: If the troubled automaker shows signs of serious cost-cutting and the global auto market doesnt collapse, shares could rise by about €150 in a year; Positive on THS: Companys $2.7B purchase of CAGs Ralcorp business made it the leader in private-label food, while doubling its sales and boosting earnings powerand shares could rise by 17%. 

European Trader: Rob Bartenstein of Kestra Private Wealth Services says that in the wake of the Brexit vote, internationally diversified British companies are likely to do well in the coming months, and that continued downward pressure on the British pound will be a short-term boon for some U.K. companies. 

Asian Trader: A stronger dollar, propelled by Brexit, is putting downward pressure on the yuan, says John Woods of CS, and the fall will likely become a subject of debate this summer, which wont be good for stocks. 

Emerging Markets: Not even Brexit could keep the emerging markets down this year; the best-performing emerging markets in the first half include Peru, Brazil, and Colombia; the worst-performing include Greece, Poland, China, and Egypt. 

Commodities: Gasoline prices look set to trade in a sideways range over the summer, but there are profits to be made for investors willing to play the options market, which will require them to take significant risk selling rather than buying them. 

Streetwise: Columnist Ben Levisohn says Britain might never invoke Article 50 of the Treaty of Lisbon and leave the European Union, while the EU might undertake structural changes that lead to improvements; As long as policy makers prevent the current political crisis from becoming a financial one, there is no reason for a repeat of previous instances when the U.S. Economic Policy Uncertainty Index surged to peak levels.

Brexit Turmoil Fades, For Now

TradeTheNews.com Weekly Market Update: Brexit Turmoil Fades, For Now
Fri, 01 Jul 2016 16:30 PM EST

Global markets began the week under a dark cloud of uncertainty in the wake of the UK voters' decision to leave the EU. On Monday investors continued to flee from risk assets as ratings agencies cut the UK's sovereign ratings, European banking stocks got pummeled, and the British Pound hit new 30 year lows. Uncertainty persisted about the timing and path forward on separation from the European Union, and the leadership transition in the Conservative Party (and perhaps also the Labour Party) dominated the conversation in London along with the markets' reaction. The S&P traded down through the 200 day moving average for the first time since March and money surged into global bonds markets sending US Treasury yields to levels not seen since 2012. The Brexit vote propelled gold to a new 15-month high above $1,300, and pound sterling remained under pressure. Cooler heads prevailed by the end of the week and stocks reversed higher. For the week the DJIA gained 3.1%, the S&P500 rose 3.2%, and the Nasdaq added 3.3%, while the UK's FTSE-100 surged over 7%, notching its best performing week in nearly five years.

At the opening bell on Tuesday, though, confidence was resurfacing as investors took a step back to fully evaluate the landscape. Despite somewhat tougher talk by European officials it was becoming clear that the UK government had no intention of invoking article 50 before a new PM is installed. Hope built that the resulting 2+ years before any agreement needs to be reached should allow cooler heads to prevail and officials to hammer out a mutually beneficial trade pacts. Policymaker responses also went a long way to underpin improving sentiment. Central bankers from around the world chimed in they were prepared to take measures to ensure liquidity and proper functioning of financial markets. South Korea announced a $17B stimulus package and China's president Li pledged he won't allow a rollercoaster ride in Chinese capital markets. Importantly, despite the surge in volatility there were no reports of dislocations in the capital markets or the global banking system. On Thursday the BOE's Carney plainly stated that further easing was likely this summer and that only solidified the growing belief the US Fed was likely on hold through year end. The notion the UK vote would keep central banks rates lower for even longer than previously thought helped fuel a dramatic rebound in equity markets.

By Friday most major stock indices had returned to levels seen heading into the UK vote but the flow of money into government bond markets had yet to really subside. The FTSE was the first to recapture its post Brexit losses while the GBP remained devalued by ~13%. The 10-year GILT went for wild ride and by weeks end the yield touched record lows below 0.9%. German Bund yields fell further into the negative territory while the Euro rebounded from a 1.09 low to stabilize around 1.11. US stocks surged into the end of the quarter aided calming words from central banks and a slew of M&A announcements. The US 10-year yield slipped more than 10 basis points since Friday's close to trade sub 1.5%, and remains down more than 20 basis points from where it stood before the UK vote. The US Dollar index is holding up about 2.5% since the Brexit vote.

Asia's FX flows were just as volatile as the Brexit effects played out. The USD/JPY after briefly trading below 99 on Friday, retraced back above 103 on improving risk sentiment. Verbal intervention remained heavy in Japan, where PM Abe held a meeting with BOJ Deputy Governor Nakaso and Finance Minister Aso. The PBoC's first fixing after the Brexit set the Yuan at 6.65, the lowest setting since Dec 2010. An intraday spike up above 6.70 sparked rumors that PBOC officials were willing to tolerate USD/CNY as high as 6.75.

Data for the week was mixed and ultimately overshadowed by the Brexit news in terms of any market-moving effect, but some key data points were notable. The US Markit services PMI report was a bit more subdued than estimated, noting any rebound in the economy from the weak first quarter was largely confined to April, and that growth has since faded again. The Commerce Department revised first quarter GDP growth upwards from an annual rate of 0.8% to 1.1%, which is still the weakest pace in a year, portending the US economy remains vulnerable to global externalities. On the other hand, the Chicago PMI reading surged in June to its highest reading since January 2015, with managers noting improved production and new orders. US initial jobless claims came in slightly above estimates but remained at a level consistent with a healthy labor market, as the reading remained below 300K for the 69th consecutive week. US consumer confidence rebounded in June according to the Conference Board; however, it's important to note this data was gathered up to a week before the Brexit vote.

In deal news this week, it was disclosed that Hershey was in talks with Mondelez but it rejected a $107/share offer of equally proportioned cash and stock and determined that the offer "provided no basis for further discussion." Nevertheless, shares of Hershey and other US foods producers rose sharply on Thursday on the prospects of more M&A in the sector. After years of winking at each other Lionsgate and Starz finally tied the knot, in a $4.4B merger deal creating a bigger player in the content world. Private equity also got into the act this week as Apollo Global bought Diamond Resorts for $2.2B, paying a 26% premium.

Barrons weekend summary

Barrons weekend summary: positive on TSCO and GS 

Cover story: Shock waves from the Brexit are likely to rattle markets and economies around the globe for some time; Felix Zulauf of Zulauf Asset Management says the Brexit isn't an isolated happening, but a swing against the political establishment and probably the beginning of the disintegration of the EU; "Whatever central banks do or don't do, global markets face a prolonged stretch of political and economic uncertainty, which will tend to reinforce each other." 

Features: 
1) The drop in U.S. stock indexes following the Brexit vote doesn't signal the end of the bull market, since U.S. stocks remain more insulated from global developments than those in any other major equity market; 
2) "For investors bullish on Puerto Rico's prospects, the best bet is its $12.7B of general-obligation bonds, plus some $5.7B of less-liquid commonwealth-guaranteed debt"; 
3) Positive on TSCO: Company is one of this year's most successful retailers because two megatrends-aging baby boomers and the craze for organic food-has led to a boom in hobbyist farming; 
4) Positive on GS: Firm's ability to cut costs, along with a strong balance sheet, should help it in the current downturn, and its reasonably priced shares could gain 30%. 

Tech Trader: Positive on AMZN, GOOGL, MSFT: Cloud computing will continue to make these tech giants increasingly powerful, while FB will benefit from the shift in ad dollars from TV, radio, and print to online; Cautious on FIT: Company's step trackers and smartwatches face fierce competition from AAPL, GRMN, and Samsung. 

Trader: The Brexit will favor North American financial stocks over European ones, says Brian Belski of BMO Capital Markets; Positive on UNF: Along with WFM, company is one of the few sizeable pure plays in organic food; a turnaround focused on faster-growing and higher-margin foods make the stock attractive. 

Retirement Investing: Barron's list of the Top 50 Annuities for 2016 looks at how new rules, lower interest rates, and longer lives are set to affect the sector. 

Profile: Marcus Hughes of the LHC Capital Australia High Conviction fund; the firm owns just 10 stocks and has average annual gains of more than 23%. 

Interview: Bruce Geller of New York money manager Dalton Greiner Hartman Maher looks for stocks that have been forgotten because they're too small or their performance and potential is hidden for some reason. 

Small Caps: Positive on AFI: Company may not be as strong as rival AWI, but with leading market share in most hardwood floors and management working to turn around the business, shares have upside. 

European Trader: The U.K. may end up paying a heavy price for its departure from the EU, as foreign direct investment slows, unemployment rises, and consumer spending falls. 

Asian Trader: With the departure of SoftBank Group president Nikesh Arora and the decision of Masayoshi Son to remain as CEO, the Japanese company "increasingly looks like a debt-fueled venture capital firm that's reluctant to sell its investments." 

Emerging Markets: Among the countries hardest hit by the global selloff following the Brexit were the volatile developing nations of Greece, Poland, South Africa, and Turkey. 

Commodities: A global shortage of zinc has sent prices up, making it one of this year's best performing metals. 

Streetwise: "Bigger dividends and stock buybacks won't solve banks' profitability problem, but at least it eases the pain while investors await a solution."

UK Voters Fancy a Brexit, Global Markets Left in the Lurch

TradeTheNews.com Weekly Market Update: UK Voters Fancy a Brexit, Global Markets Left in the Lurch
Fri, 24 Jun 2016 16:08 PM EST

On Friday, the UK voted to quit the European Union after more than four decades of membership, upending global markets and sending the pound to its weakest levels since the mid 1980s. The stunning rejection of Europe's political and economic order prompted Prime Minister Cameron to resign, and global central banks were scrambling to ensure markets continue functioning normally. Asian equity markets cratered, with the Nikkei closing down nearly 8% on Friday and the yen surged, with USD/JPY briefly dipping below 100 for the first time in three years. The CAC fell nearly 8% and the DAX declined nearly 7%, while in the UK the FTSE was only off 2.2% as the surge in gold prices helped hold up the index - where many of the largest global gold miners trade. Gold surged to two-year highs around $1,325. The 10-year Bund yield dipped as low as -0.17%, while the German 30-year yield nearly went negative. The reaction in the States was a bit less harsh, but nonetheless share prices plunged and Treasury prices surged along with the US Dollar. For the week the Dow closed down 1.6%, Nasdaq -1.9%, and the S&P lost 1.6% to finish at a three month low.

The final results of the UK referendum show 51.9% voted to leave the EU versus 48.1% to stay in the union, with London and urban areas strongly favoring 'stay' and northern and more rural areas voting 'leave'. PM Cameron will step down within three months, saying the UK needs fresh leadership. "We should have a new prime minister in place by the Conservative party conference in October," said Cameron. Boris Johnson, former Conservative mayor of London and a leader of the 'leave' camp, appears to be in the front running to lead a new government. The framework of the UK's new relationship with the EU, including trade agreements, will be negotiated over a period of years. Scottish nationalist leader Nicola Sturgeon has said that the Scottish National Party will begin to prepare legislation to allow a new Scotland referendum to take place before the UK leaves the EU. Scotland decisively voted to remain in the EU with 62% voting for 'stay' compared to 38% for 'leave'.

Leading central banks firmly repeated their commitments to strongly support the normal functioning of financial markets. The Fed and other said they would activate existing swap lines to provide adequate liquidity in all cases. Bank of England Governor Carney said the BoE was ready to provide up to £250B of extra funds and foreign currency to stabilize markets and would consider additional policy action in coming weeks. The ECB warned of contagion risks and loss of confidence, with a potential spread to the banking system. The Fed and BoJ both face involuntary policy tightening as funds flee to the greenback and the yen. There is little hope that the Fed will be able to raise rates more than once this year, with a September hike looking less possible and even December a real question. With the yen dropping to parity with the dollar, the Bank of Japan will likely intervene in FX markets ahead of new monetary easing measures, even after Japan Finance Minister Aso said the threshold for an intervention remains very high.

There was little market-moving news beyond the Brexit vote this week. Fed Chair Yellen gave her semi-annual monetary policy testimony before Congress. Yellen offered very cautious remarks, warning that considerable uncertainty about economic outlook remains and that the Fed is concerned that slower productivity growth could continue for some time. Some analysts detect an even softer tone in Yellen's remarks, noting that she seemed to suggest the Fed is looking to see whether there is more improvement in the US economy, not when improvement may arrive. "Proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess whether growth is returning to a moderate pace, whether the labor market will strengthen further, and whether inflation will continue to make progress toward our 2 percent objective," Yellen said.

In the US, the June Markit Manufacturing PMI report suggested the healing has begun for the manufacturing industry. The May reading of 50.7 was the lowest in 6.5 years, making June's relatively anemic figure of 51.4 look pretty good. The annualized rate of May existing home sales rose to the highest level in nearly a decade. Strong sales contrasted with lower inventories and higher prices. May new home sales were slightly below the April rate, which was revised lower. Nevertheless, both the April and May reports show rapid growth in sales, with the latest three-month average of 553K up at an annual rate of +19% from the previous three months (Dec through Feb) and up 11% from the same period a year ago.

A spectrum of transport names offered guidance ahead of the June quarter earnings season. Canadian Pacific warned that revenue had declined 12% y/y in its second quarter due to lower-than-anticipated volumes in bulk commodities, such as grain and potash, the unexpected and devastating wildfires in northern Alberta and a strengthening Canadian dollar. United Airlines slightly improved its passenger unit revenue outlook for its second quarter. Executives also hinted that prior capacity reductions had reduced the airline's market share. Southwest reaffirmed its outlook for very modest RASM growth in its second quarter, but warned that RASM would face challenges in the second half of the year. Trucking names Werner Enterprises and Covenant Transportation both offered very soft earnings guidance, citing sluggish demand and higher labor costs.

Elon Musk confounded Wall Street once again and launched a bid for Tesla to acquire SolarCity. Tesla offered to buy SolarCity for 0.122-0.131 shares per share, in a deal valued at $26.50-28.50/shr or $2.5-3.0B in total. The premium was 20-30% over SolarCity's closing price, although it's worth keeping in mind that shares of SCTY have plummeted by 60% over the last year. Musk said he would like to build Tesla into a one-stop shop for electric cars, solar panels and home batteries. The rationale behind the deal would be for SolarCity to save big on sales and marketing costs, and gain access to new customers as part of Tesla, although analysts suggest the plan is nothing more than a bailout of SolarCity's sinking fortunes. Citron Research's Andrew Left warned that if the Tesla deal doesn't go through than shares of SolarCity would go to zero. Investors will scrutinize the deal very closely: Solar City CEO Lyndon Rive and Musk are cousins, and Musk is the biggest shareholder in both SolarCity (22.2% stake) and Tesla (26.5% stake).

Barrons weekend summary

Barrons weekend summary: positive on CELG, DLPH; Cautious on SQ 
Cover story: A look at the best watches of 2016, which must be new models and house a mechanical movement made either in-house or exclusively for the brand; The list is topped by the Patek Philippe World Time Chronograph, which costs $73,700. 

Features: 
1) "Based on valuations and dividend yields, foreign stocks look more attractive than their U.S. counterparts," and they could rally if the U.K decides to remain in the European Union; 
2) Positive on CELG: Company may depend on a single drug, Revlimid, but demand is rising and it has about a decade of remaining patent protection, including promise in combination therapies; 
3) Cautious on SQ: Silicon Valley unicorn is at least a year away from making a profit, and the recent expiration of a lockup of more than 250M shares means there's a huge overhang of stock and a sizable short position; 
4) Positive on DLPH: "Investor concerns about peaking vehicle sales in the U.S. and China have created an attractive opportunity to buy Delphi stock at multiples well below the company's expected earnings growth rate."

Tech Trader: Cautious on MSFT: Though the price Microsoft is paying for LNKD isn't expensive, it's still worth asking why the tech giant agreed to add a 50% premium to LinkedIn's share price; There is probably some wishful thinking on chief Satya Nadella's part that should give investors pause in light of past Microsoft deals. 

Trader: Although a potential Brexit appears to be holding U.S. stocks hostage, Aaron Clark of GW&K Investment Management says an EU exit may already be priced in; Positive on BAC: Shares appear cheap, creating a good entry point for investors, who could see a 20% or more gain once the bank gets past current problems; another potential plus is the sale or spinoff of Merrill Lynch; Cautious on WTR: Company's stock now trades near levels that previously preceded steep declines, a sign its recent run may be mostly over. 

Profile: Jamie Wilhelm, manager of Touchstone Focused fund and a follower of Warren Buffet's investment philosophy, seeks to find businesses that have a significant and sustainable competitive advantage, then buy when shares fall below intrinsic value (top 10 holdings: Berkshire Hathaway, BK, MDLZ, AMZN, SYY, NVS, GE, AAPL, ORCL, CSCO). 

Interview: Russell Napier, publisher of the global macroeconomic and strategy report "The Solid Ground," shares his views on the Brexit referendum. 

Follow-Up: Barron's debunks some of writer Michael Lewis' claims in "Flash Boys," finding that he and many proponents of IEX conflated legitimate concerns about computer front-running with a broader fear that small retail traders were getting nicked; Cautious on OPK: Shares are down as investors continue to question the acquisition of Bio-Reference Laboratories; the combined company remains unprofitable and its market valuation too high. 

European Trader: Positive on Adidas, Roche: Companies "are all-weather businesses with strong balance sheets that generate plenty of cash," and should continue to provide solid returns regardless of how the Brexit vote plays out. 

Asian Trader: Story on how a Brexit would affect Asia notes that the region has the advantage of distance, and that not many Asian companies to sell to Britain. 

Emerging Markets: Observers expect Turkey's real GDP to expand by about 3.5% this year, which is partly why foreign investors don't seem overly concerned about the country's geopolitical problems. 

Commodities: Hog prices have soared on demand from China, but experts say the market is getting top-heavy, and that making a case for future gains is difficult. 

CEO Spotlight: Profile of HSIC chief executive Stanley Bergman, who has built a multinational distributor of dental, veterinary, and medical products with investment returns twice those of Berkshire Hathaway. 

Streetwise: Positive on NFLX, NKE, DE, ESRX, QCOM should start to benefit from the reversal of a trend in which the most labor-intensive companies outperformed the lest labor-intensive ones; Cautious on SYF, DFS, AXP, COF: Earnings for the consumer-finance industry have plateaued, and the trend isn't likely to change soon.

Will They Stay or Will They Brexit?

TradeTheNews.com Weekly Market Update: Will They Stay or Will They Brexit?
Fri, 17 Jun 2016 16:04 PM EST

Brexit fever gripped global markets this week, as uncertainty about the June 23rd referendum on the UK's continued membership in the European Union inspired a big rotation into safer sovereign paper. Four major central banks - US Federal Reserve, the Bank of Japan, the Bank of England and the Swiss National Bank - left policy unchanged at meetings this week, however their most impactful moves appeared to be jawboning about Brexit, largely via warnings about the chaos that would follow the UK seceding from the EU. Meanwhile, the US presidential campaign and the nation at large was rocked by the worst mass shooting incident in US history at an Orlando, Florida gay nightclub a lone-wolf terrorist, with a death toll of over four dozen people. Brexit fears eased temporarily in the latter half of the week after another shooting death: the murder of a British MP by a nationalistic extremist led to a three-day suspension in campaigning on the referendum and delayed the release of new polls. Sovereign bond yields see-sawed through the week, with European benchmark paper dipping into and then out of negative territory, while the 10-year UST yield tested three-and-a-half year lows below 1.60%. Gold hit its highest mark since August 2014 and then pulled back on Friday. Stocks mostly trended lower, and for the week the DJIA lost 1.1%, the S&P500 dipped 1.2%, and the Nasdaq fell 1.9%.

Citing uneven economic data and the potential uncertainty surrounding next week's UK referendum, the FOMC left rates unchanged and also lowered its median forecast for the Fed funds rate in 2017, 2018 and over the long run. The number of members who saw only one rate hike in 2016 jumped to six from one at the last meeting. At her post-decision press conference, Fed Chair Yellen warned economic headwinds could persist for some time and confirmed the committee was worried about a potential Brexit.

The BoJ largely sustained its policy stance with a bit of tinkering. It upgraded its view of housing investment and public spending, and revised its outlook for inflation to allow for "slightly negative" CPI from the prior view of "about 0%." The strengthening yen is an obvious concern, but Japanese officials were skittish about discussing the potential for FX intervention. Finance Minister Aso refused to say whether another round of intervention was being considered, only reiterating that abrupt, one-sided FX moves were still very undesirable. The Finance Ministry, the BoJ and the FSA met this week to discuss the international situation, although the only details that emerged were that officials agreed volatility was on the rise. Some analysts said that Tokyo would be forced to intervene if USD/JPY broke below 100 in the event of Brexit.

With rates on hold, the BoE took the opportunity to ring emergency bells over the EU referendum. The BoE warned that big economic decisions were already being delayed by uncertainty over the vote, slowing economic growth and sending shockwaves through the global economy, and called the referendum the biggest immediate risk to UK markets. "On the evidence of the recent behaviour of the foreign exchange market, it appears increasingly likely that, were the UK to vote to leave the EU, sterling's exchange rate would fall further, perhaps sharply," read the BoE statement. Cable tested below 1.4050 after the decision, for fresh 10-week lows.

Before the Brexit campaign was violently interrupted by the murder of Labour MP Jo Cox on Thursday, market participants were increasingly unnerved by each subsequent poll on the UK referendum. The 'leave' camp continued to maintain its narrow lead in polls last weekend and in the first days of this week. ORB/Independent and Sky News polls had 'leave' support in the mid 50% range, while others had the two camps a few points apart in the mid 40s - although the undecided respondents continued to be in the double digits in nearly every poll. Fears were amplified as major UK tabloid newspaper The Sun backed the 'leave' camp, becoming the first major UK newspaper with a formal endorsement. By Thursday, cable was plummeting toward 1.4000 and funds were pouring into safer assets. On that day, Jo Cox was shot and stabbed to death in Yorkshire, by a suspect with links to a far-right group that has long advocated for Britain to leave the EU. Both 'stay' and 'leave' camps suspending campaigning, further polling was delayed and market participants shifted their attention to bookmakers, where odds were favoring the UK to vote to remain in the EU. By Friday, GBP/USD was rebounding above the 100-day moving average around 1.4350 in the absence of Brexit campaign rhetoric.

The Swiss National Bank kept its negative interest rate policy unchanged despite safe-haven trading that has further strengthened the franc, raising fears that it was running out of policy options to cope with an overvalued currency. The SNB warned it was keeping a close watch on the UK's EU referendum, and reiterated its familiar mantra that the franc remains "significantly overvalued." Switzerland's 30-year yield dipped into negative territory for the first time after the decision, meaning almost the entire market for Swiss government debt now trades below zero.

Two June regional Fed factory surveys suggested there has been something of a recovery in the US manufacturing. Both the Empire State and Philly Fed manufacturing indexes were much, much better than expected. The new orders and shipments components of the New York Fed's Empire survey rose from negative territory to +10.9 and +9.3, respectively. The weak components of the Philly Fed survey contrasted sharply with the very strong headline. Both orders and shipments were slightly more negative than in May. Advance retail sales were stronger than expected in May, although not nearly as good as the April sales. Retail sales increased 0.5% last month after surging by an unrevised 1.3% in April. Core sales, used for calculating GDP, were up 0.4% after a revised 1.0% gain in April. The good report could see economists raising their Q2 GDP growth estimates, which are currently around a 2.5% annualized rate.

China's May economic data were generally in line or softer than expected. Most notably, fixed urban investment growth slowed to multi-year low as property sales value and construction activity saw the most pronounced declines. China industrial output was more mixed - power generation recovered from last month's decline and crude steel output showed slightly higher growth, even though the headline numbers were as expected. The China Stats Bureau noted overall employment is steady and investment is growing, though the economy is still faced with uncertainties. The IMF warned markets about the deterioration in China's credit markets, stating "mounting corporate debt is a key fault line in the economy" particularly with many SOEs already "on life support."

For the third year in a row, stock index firm MSCI declined to add China mainland A-shares to its emerging market index. Among the reason behind the decision, MSCI cited insufficient reforms of financial markets on the mainland, including continued monthly repatriation limits that impede redemptions as well as pre-approval restrictions on launching financial products. However, MSCI suggested an off-cycle announcement on A-shares could not be ruled out. Currently, shares from China listed in the MSCI emerging market index are all traded in either Hong Kong or the US. Chinese officials were not happy with the decision, and suggested there would not be many more reforms in financial markets given the remaining downside risks in markets over the near term.

Shares of Apple were weighing on broader indices, down more than 3% on the week, after series of iPhone setbacks. First there were press reports that annual sales of iPhones would decline for the first time ever in 2016 due to lukewarm demand, with shipments seen around 210-220M. Over the last six months, Nikkei had reported that Apple could lower its production of iPhone 6 in the first two quarters of the year, based on significantly lower component orders among Taiwan tech suppliers. Then on Friday, a Beijing patent court ruled that Apple violated a competitor's IP and ordered the company to halt sales of the iPhone 6 in China. Apple downplayed the ruling and filed an appeal, saying it continues to sell smartphones in the China market.

In M&A news, Microsoft announced a $26.2 billion cash deal to acquire LinkedIn, priced at $196/share, in one of the most expensive tech acquisitions in history. Jeff Weiner will stay on as CEO of LinkedIn and will report to Microsoft CEO Satya Nadella. Symantec announced a deal to buy Blue Coat Systems for $4.65B amid further consolidation in security space. Ariad Pharmaceuticals announced it had completed a three-month long strategic review for creating shareholder value, opting to undertake more cost cutting with no mention of possible M&A.

Barron's weekend summary

Barron's weekend summary: positive on WSM, MCK, LYB 

Cover story: Barron's 2016 Midyear Roundtable offers investment advice from Scott Black (DHI, WHR), Abby Joseph Cohen (Toto, SEE, NKE, SYK), Mario Gabelli (SNE, MIICF, SSP, CST, EPC, HRS, TXT), Jeffrey Gundlach (10-Year Treasury, GDX), William Priest (AGN, FIS, GOOGL), Brian Rogers (HRS), Oscar Schafer (COMM, ANIP, NOMD), Meryl Witmer (WYN), and Felix Zulauf (short U.S. dollar, long Argentine peso). 

Features: 
1) Positive on WSM: Retailer's shares have fallen with the sector, but it has differentiated itself with a strong Internet operation, and can compete with AMZN because it controls its inventory, which is exclusive to its brand; 
2) Positive on MCK: Though bears say the drug wholesale is in secular decline, it has strong cash flow, significant bargaining power, new clients, and a strong position in specialty-drug wholesaling; shares could have 15% upside during the next year; 
3) Positive on LYB: A selloff creates a buying opportunity for bargain hunters, who could see the chemical maker's shares rebound and return more than 20%; 
4) Baruch Lev and Feng Gu say accounting hasn't kept pace with the growth of companies with intangible assets like research, which differ from tangible assets like property, and they call for changes to GAAP.

Tech Trader: The expanding constellation of Internet of Things devices has led to complexity that doesn't benefit consumers; it may be time for AAPL, GOOGL, and other players to cooperate on the creation of a set of industry standards that work for everybody. 

Trader: U.S. stocks' inability to break through previous highs isn't worrisome short-term, says Michael Shaoul of Marketfield Asset Management, but if the market isn't able to get through, it will become an issue; Fed futures continue to forecast the Fed's rate action, or lack thereof, accurately, but they will get it wrong someday; Barron's admits it should have paid closer attention when DWRE chief Thomas Ebling, who had mainly been selling company shares, established a 10b5-1 plan to acquire them on the open market before the CRM deal; Positive on FFIV: Even without an acquisition, shares of the company should continue to be rewarding. 

Profile: Ralph Bassett, co-manager of Aberdeen U.S. Small Cap Equity, says speaking with management is a crucial part of his stock-picking efforts. 

Follow-Up: Dell will likely go public again, at which point it will be clear how lucrative Michael Dell's leveraged buyout of the company was; the company's financial performance since the deal supports the idea that Dell and Silver Lake "stole the company"; Positive on HLF: Despite a few recent hurdles after its move to separate its properties into a REIT and spin off its time-share business, momentum is now in the company's' favor. 

European Trader: Following the European Central Bank's move into Europe's corporate credit markets, pushing returns even lower, there are still strategies investors can use to gain, especially in high-yield debt. 

Asian Trader: Five picks from Hong Kong-based brokerage firm CLSA (Positive on Macquarie Group, AIA Group, Samsung Electronics, Seven & i Holdings, and Tencent Holdings). 

Emerging Markets: Peru's next president, mostly likely former World Bank economist Pedro Pablo Kuczynski, will inherit the emerging world's hottest 2016 stock market. 

Commodities: "La Nina is likely to result in increased production of cocoa-the key ingredient in chocolate, across the globe-putting pressure on prices that have run up on an anticipated deficit this season." 

Streetwise: Positive on POT: Most investors don't consider fertilizer producer a quality company, but large potash producers are more disciplined than the market gives them credit for, and margins could recover.

Caution Abounds Ahead of FOMC, Brexit Vote

TradeTheNews.com Weekly Market Update: Caution Abounds Ahead of FOMC, Brexit Vote
Fri, 10 Jun 2016 16:10 PM EST

Global markets were volatile this week as risk assets first recovered from the let-down of last week's May US jobs report and then succumbed to global jitters as funds rotated into fixed income. The ongoing oil market recovery propelled both WTI and Brent firmly back over $50 early in the week, helping boost the broader energy sector. Solidifying belief that the Fed will need to hold off on rate hikes at least little bit longer has helped gold and silver prices reach one month highs as well. In a widely anticipated speech on Monday, Fed Chair Yellen said nothing at to upset the apple cart, and there is a sense that a Fed rate increase in September is emerging as the new favorite view, although July is still touted as a 'live' meeting as well. The dollar arrested its decline without testing the lows seen in early May. Mid-week the DJIA and S&P500 approached but did not hit new all-time highs, as Brexit fears and interest rate jitters took over and pushed risk assets lower. For the week, the DJIA gained 0.3%, the S&P slipped 0.1%, and the Nasdaq fell 1%.

Treasury prices soared globally as panicky investors plowed into fixed income assets this week. The toxic combination of negative interest rates at the Bank of Japan, the ECB, and several other European central banks, fear of Brexit, and deep uncertainty about Fed rate hikes have fostered an extraordinary low yield environment. On Friday, the yield on the German 10-year bund sank to an all-time low of 0.025%, and some analysts suggested it could go to zero soon. Yields have fallen so far that more than $10 trillion of government debt worldwide is now trading with negative yields - Bill Gross took to Twitter to call the huge pile of negative-yielding sovereign a "supernova that will explode one day." The Japanese 10-year benchmark yield touched a record low of -0.15%. The 10-year UST yield fell as low as 1.649%, while the 30-year yield is at its lowest point since February 2015, at 2.45%, further flattening the yield curve to levels not seen since 2007. The 2-year/10-year UST spread has sunk below 90 bps, driving big losses this week in US financial stocks. Bond market analysts commented that the sustained level of demand for US Treasuries at this week's 10- and 30-year reopenings largely appeared to be driven by foreign buyers desperate for yield.

Some better US jobs data helped balance the narrative of a slowing labor market that emerged after last week's dire May payrolls report. The April JOLTS survey - Fed Chair Yellen's preferred gauge of US labor market health - saw an all-time high of 5.8 million job openings, up slightly from 5.76 million openings at the end of March. April hires fell to 5.1 million, slightly lower than the previous month's 5.3 million, while the key quits rate fell to 2.0% from 2.1% prior. Meanwhile, the jobless claims data showed the number of Americans filing for benefits unexpectedly fell in the week ended June 4th. Initial claims fell much more than expected, while continuing claims dropped 77,000 to 2.10 million, the lowest level since October 2000.

The annual US-China bilateral summit in Beijing saw tough rhetoric from both sides, with economic concerns taking a back seat to the tense situation in the South China Sea. Chinese officials blamed tensions in the South China Sea on the provocations of "certain countries for their own selfish interests." Secretary of State Kerry responded that China's plans to set up an air defense identification zone in area would be "a destabilizing act." Relations were smoother on the economic front, but there was still some tension. US Treasury Secretary Lew said good progress was made in currency talks and said China appeared committed to moving in an orderly way to a more market-oriented exchange rate. Lew pressed China to keep reforming bloated industrial sectors, especially steel, and told his Chinese counterpart that offloading excess capacity on the rest of the world was damaging global markets. Chinese officials stressed that Lew's critique only told half the story, as China's steel overcapacity resulted largely from the post-crisis stimulus plans, which themselves contributed to more than half of global growth in the 2009-11 period, helping lessen the impact of the Great Recession.

The China May trade report held good news and bad news for the world's second-largest economy. The bad: exports in dollar-denominated terms tanked 4.1% y/y, more than double April's 1.8% decline and slightly worse than estimates. The good: imports declined a mere 0.4% y/y, much improved from April's 10.9% slide and way ahead of expectations for a 6% decline. Softening global demand was clearly responsible for the worse exports component, while the ongoing recovery in commodities pricing and demand dovetailed nicely with the surprisingly robust imports component. In yuan terms, the trade report looked more positive, with exports up 1.2% y/y and imports 5.1% higher. The divergence with the dollar figures reflected the interruption of CNY's long-term appreciation trend against the dollar. Chinese Premier Li Keqiang once again reiterated this week that Beijing will be able to keep the yuan at a reasonable equilibrium level over the long term.

In Japan, the second and final reading of Q1 GDP confirmed the economy averted a technical recession, though concerns remain that the impact of Kumamoto earthquake could plunge the country back into contraction in the second quarter. Key components were better, with private consumption adjusted slightly higher to +0.6% from the preliminary +0.5%, and capex spending much improved to -0.7% from -1.4% in the preliminary. Skeptical analysts are quick to note that the data included an extra Leap Year day, and growth would have been slower if adjusted for that impact.

The referendum on the UK's further membership in the European Union is only two weeks away and a handful of polls this week have indicated the race is still too close to call. Three polls on Monday showed the 'stay' and 'leave' camps within a few points of each other, and the undecided camp remains in the double digits. Then on Friday an online poll from the Independent showed the 'leave' vote rising to 55%, further weakening the pound sterling. The pound continues to suffer from the heightened level of uncertainty, with GBP/USD dropping back toward 1.4200, for its lowest levels since late April. Last week there were reports that the ECB and the Bank of England were making provisional plans to provide liquidity guarantees for markets in the event of a vote in favor of Brexit, and this week BoE Chief Carney said that the Fed and BoJ are also looking to coordinate responses in case of excessive market volatility. In Parliament, a caucus of MPs in favor of remaining in the EU (totaling 454 MPs versus 147 in the 'leave' camp) is reportedly developing a plan to use their majority in the Commons to delay Brexit and keep UK within the single market because the 'leave' camp has refused to spell out what relationship it wants the UK to have with the EU in the future.

Three central banks around the Pacific Rim tinkered with their policy positions this week. The Bank of Korea surprised markets by cutting its seven-day repurchase rate by 25 basis points to 1.25%. The BOK statement expressed concern with rising household debt, slowing inflation, weakening consumption and declining exports. Analysts expect more BOK cuts are possible. The Reserve Bank of Australia signaled it was in no rush to cut interest rates again (it eased policy at the prior meeting) and kept the cash rate on hold at a record low 1.75%. The RBA acknowledged the recent recovery in trade, stating that exports and "areas of domestic demand" are expanding above trend. In New Zealand, the RBNZ kept on hold at 2.25%, while post-decision comments from Governor Wheeler indicated another rate cut was still built into projections. The statement emphasized inflation would strengthen, reflecting accommodative monetary policy, higher fuel and commodity prices, and a weaker NZD.

In M&A news, Westlake clinched a deal to acquire Axiall Corp, with the latter agreeing to be acquired for $33/share in cash. The deal values Axiall at $3.8 billion. The combined company will be the third-largest chlor-alkali producer and the second-largest PVC producer in North America, with expected combined pro forma revenues of $7.6 billion. Polycom received a competing acquisition offer to its deal with Mitel Networks. According to a Polycom filing, an unidentified private equity firm offered $12.25/share in cash, valuing the company at $1.66 billion. Back in April, Mitel agreed to acquire Polycom for $3.12/share in cash and 1.31 Mitel common shares for each share of Polycom. Weisman Group offered to acquire Ashford Hospitality Group for a $20.25/share, in a deal valued at $1.48 billion.