September-October 2016 Market Outlook: A Disaster in the Making

TradeTheNews.com September-October 2016 Outlook: A Disaster in the Making
Tue, 06 Sep 2016 23:22 PM EST

With US Presidential candidate Donald Trump labeling the economy a "disaster" and his billionaire advisor Carl Icahn calling for a "day of reckoning" for the stock market, we look ahead to the potential upsets and near misses that might occur in the next couple of months. Stocks continue to climb the wall of worry, pushing aside every adversity from the Brexit to anemic global growth. Government paper remains a crowded trade even as central banks keeping adding to their hoards, with the key 10-year US Treasury yield still compressed near 1.50% and the German and Japanese equivalents at negative yields. WTI crude futures have seen some stabilization in the $40's as OPEC edges toward a possible agreement on an oil freeze.

Brexit related worries have subsided for the time being, but may emerge again early next year when the UK invokes article 50 to start the succession process. The BOE and other central banks are poised to expand or extend their stimulus programs in the months ahead, notwithstanding the Fed looking to take rates in the other direction. Markets will probably be able to absorb a "one and done" rate hike from the Fed in September, or more likely December. Not incidentally, between now and then the US will elect a new President and OPEC may well retake some control of the oil market.

Fed Seas Rising

With global jitters in check, the Fed has resumed making noises about a rate hike this year, perhaps within the month. The one thing all Fed members can agree on is that monetary policy remains data dependent. Unfortunately, the latest data was inconclusive. The August Nonfarm Payrolls came in below expectations, and just weak enough to lower market expectations for a September rate hike. After the jobs report was released Fed Fund futures indicated the probability of a September raise dropped from 25% to less than 20%.

Some market luminaries, including Goldman's chief economist Jan Hatzius and Janus' Bill Gross believe that the pace of job gains was still strong enough to green-light a Fed hike this month. If they are right, then the Fed will have to do significant jawboning in the next few days to prepare the markets for a policy move. In the absence of strong verbal guidance from the Fed in the next week or so, it should be inferred that the FOMC will hold its fire until December.

A more hawkish Fed could prompt renewed volatility if economic conditions start to deteriorate again. On the other hand, if conditions continue to improve, the markets might finally admit that "good news is good news" and accept that another 25 basis point Fed rate hike is a show of confidence in the economy and not an act of sabotage.

And there are indeed some signs of rebounding economic health. The Job Openings and Labor Turnover Survey (JOLTS), one of Janet Yellen's favorite employment indicators, has reached record levels in recent months. New home sales and building permits continue to rise steadily, and auto sales remain strong. Another less prominent but still interesting signal of an improving economy was the recent industry-wide hike in containerboard prices. All signs of growth and inflation at work.

The Fed appears ready to execute its second rate hike of the cycle, though Fed officials are downplaying talk about the timing and stressing that "gradual" tightening is the key takeaway. Officials concur that every meeting is "live" and that overseas developments have been a big reason why the Fed has held off on more tightening this year.

Landslide

September and October are seasonally bad months for the stock market, and there is election risk this year with two unpopular candidates. Clinton remains the odds on favorite and if she pulls out the victory it will probably be a negative for biotechs, against whom the Democratic nominee has been railing over hefty drug price increases. If Trump gets a late surge in the polls it is likely to elevate volatility on concerns about his protectionist rhetoric. Mr. Trump's political inexperience and over the top personality has led to a series of gaffs that have him down in the polls, and the Presidential debates (Sept 26, Oct 9, Oct 19) may be his last chance pull even. If Trump can score a knockout blow against Clinton during the debates - unlikely but not impossible - markets will have to recalibrate for a potential Trump Presidency. Alternatively, if Trump completely implodes, then Democrats will be salivating over the possibility that they might win enough down-ticket contests to retake the Senate and the House. Democrats would need to win at least four seats in the Senate to retake control of that body, but would need a daunting thirty seat net gain in the House to flip it back to Democratic control.

Despite assurances from Fed leaders that they will not let the Presidential race impact their monetary policy decisions, the political environment is forever intertwined with market calculus. Stock market analysts note that of the past 22 presidential elections, the direction of the S&P500 index has correctly predicted the outcome of 19 elections. That is to say, a run higher in stocks preceding the election portends a victory by the incumbent party, while a negative return usually leads to the other party taking control of the White House. Notably, the S&P500 fell about 10% in the months after the first rate hike last December, so a Fed rate hike in September could conceivably influence the election outcome, even if the Fed says its policy is divorced from politics.

The next earnings season in October will be presaged by a busy conference calendar in September. Given the mediocre quality of the just completed Q2 earning season and guidance, the bar is not set very high for Q3. That could give at least some individual companies the chance to shine in their Q3 releases, which could in turn add to the case that business and consumers are improving headed into the key holiday quarter.

Oil Spill

The energy market continues to hold out hope that OPEC will manage to agree to a production level freeze as soon as this month. Oil producers will meet at the International Energy Forum in Algeria on September 26, and could forge an agreement for a new production cap, as first proposed about a year ago. Efforts to reach a freeze deal earlier this year fell apart as Iran refused to participate before it had returned to full production and Saudi Arabia continued to vie with rivals for market share with no concern for pricing.

This time around Iran is approaching pre-sanction production levels of 4M bpd, and Saudi Arabia is pumping oil at record levels (10.48M bpd in July). Heading into the Algeria meeting, Saudi Arabia and Russia agreed to form a working group to cooperation on stabilizing the oil market, which might include a production freeze. The Russians and Saudis will meet in Moscow in October. Iranian President Rouhani also signaled he would support measures that would foster a recovery in oil prices, so the pieces could be in place for a deal. If no accord emerges from the September meeting, focus will turn to the November 30 semi-annual OPEC gathering in Vienna.

Helicopter Rescue

Outside of the US, it has been noted that global central-bank rate cuts haven't effectively weakened surging currencies despite the fact loosening monetary policy generally lowers a currency's value. Even with this frustrating dynamic in play, the ECB, BOJ and other central banks appear poised to consider ever more accommodation.

At the ECB, rates are already negative and the central bank is vacuuming up €80 billion per month in bonds for its QE program. Mr. Draghi's team has kept all options on the table including cutting rates further, or expanding the QE buying program even though it appears to already seems to be struggling to find enough worthy paper to purchase. The simplest path for the ECB appears to be the option of extending the QE program past the current tentative end date of March 2017. With the New Year coming up fast it would be prudent for the ECB to announce an extension sometime in the next few months, so that markets don't start to contemplate the QE program suddenly ending in March.

The Bank of England took measured steps to address the surprise Brexit vote. At its August meeting, the BOE followed through on an expected 25 basis point rate cut to 0.25%, and also threw in a £60 billion boost to the asset purchase facility (APF) for good measure. In the wake of the move, BOE chief economist Haldane warned that the central bank is not under any illusions that it can fully insulate against the long term effects of the Brexit vote, which will represents a structural shift in the UK economic and trading regime. Likewise, the new PM May has stated that the UK may face difficult times ahead, though she remains optimistic about the longer term.

Brexit related turmoil has calmed for the moment, so the BOE has the leeway to keep policy on hold in September. However, expectations are that the BOE is not done providing new stimulus, and that could come in November in the form of a 15 basis point cut in the bank rate, which would take it down to 0.10%.

Though Japanese officials have ruled out using "helicopter money" as stimulus, many market analysts still believe they will ultimate resort to this tactic. They point to the cozy relationship between the government and the BOJ, working closely together to beat deflation under the framework of 'Abenomics.' Even with this level of cooperation, Koichi Hamada, a key economic advisor to PM Abe has been verbally flogging officials to do more. Hamada recently asserted that the Ministry of Finance has lost credibility when it comes to intervention threats and that the MOF should "courageously" intervene in FX markets to stem the yen currency appreciation. It remains to be seen of the MOF will acquiesce, especially given that the USD/JPY has managed to hold above 100.

China remains under continued scrutiny after currency tinkering contributed to a market meltdown last August and again in January. Another shoe could drop at any time in China, but things have been quiet since the spring. Some industrial and growth data has been less than satisfactory, including a 7-year low in the Q2 GDP reading (at 6.7%, though that was one-tenth better than expected).

Earlier this year, there were concerns that China could execute another large devaluation, but speculation about such a move has died down. Instead the Chinese currency has devalued slowly to the tune of 2.5% year to date, obviating the need for another sudden one-off adjustment. But that still leaves concerns about poorly regulated and opaque investments could suddenly implode and threaten the financial system and jolt the economy.



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

4: China Caixin Services PMI
5: UK Services PMI; US ISM Non- Manufacturing PMI; US LABOR DAY HOLIDAY
6:
7: UK Manufacturing Production; US Jolts Jobs Openings; Japan Final Q2 GDP; China Trade Balance (tentative)
8: ECB Policy Statement & Press Confernce; China CPI & PPI
9: UK Goods Trade Balance

12: China Industrial Production; Japan BSI Manufacturing Index
13: UK CPI & PPI; German Zew Economic Sentiment
14: UK Claimant Count & Unemployment
15: UK Retail Sales; Euro Zone Final CPI; BOE Policy Statement; US PPI; US Retail Sales; Philadelphia Fed Manufacturing; US Industrial Production & Capacity Utilization
16: US CPI; Preliminary University of Michigan Consumer Sentiment

19: BOJ Policy Statement
20: Various Euro Zone PMI readings; US Housing Starts & Building Permits
21: FOMC Policy Statement, Economic Projections & Press Conference
22: US Existing Home Sales
23:

26: German Ifo Business Climate; US Durable Goods Orders; US New Home Sales; International Energy Forum in Algeria; 1st US Presidential Debate
27: UK Current Account; UK Final Q2 GDP; US Consumer Confidence
28: German Unemployment
29: US Final Q2 GDP; Japan Household Spending; Tokyo Core CPI; China Caixin Services PMI
30: German Retail Sales; Euro Zone Flash CPI; Chicago PMI; China Manufacturing & Non-Manufacturing PMIs

OCTOBER
2: Japan Tankan Manufacturing & Non-Manufacturing Indices
3: UK Manufacturing PMI; US ISM Manufacturing PMI
4: UK Construction PMI; US Vice Presidential Debate
5: UK Manufacturing Production; UK Services PMI; US Trade Balance; US ISM Non-Manufacturing PMI; US Factory Orders
6: German Factory Orders; ECB Minutes
7: UK Goods Trade Balance; US Payrolls & Unemployment

9: 2nd US Presidential Debate
10: Japan Current Account
11: UK CPI & PPI; German Zew Economic Sentiment
12: JOLTS Job Openings; FOMC Minutes; China Trade Balance (tentative)
13: UK Retail Sales; BOE Policy Statement; China CPI & PPI
14: US Retail Sales; US PPI; Preliminary University of Michigan Consumer Sentiment

17: Euro Zone Final CPI; US Industrial Production & Capacity Utilization
18: US CPI; China Q3 GDP; China Industrial Production
19: UK Claimant Count & Unemployment; US Housing Starts & Building Permits; 3rd US Presidential Debate
20: ECB Policy Statement & Press Conference; Philadelphia Fed Manufacturing; US Existing Home Sales
21: Various Euro Zone PMIs

24:
25: German Ifo Business Climate; UK Preliminary Q3 GDP; US Consumer Confidence
26: US Durable Goods Orders; US New Home Sales
27: German Unemployment; Japan Household Spending; Tokyo Core CPI
28: US Q3 Advance GDP

31: BOJ Policy Statement (tentative)
NOVEMBER
1: UK Manufacturing PMI; US ISM Manufacturing PMI; China Caixin Manufacturing PMI
2: UK Construction PMI; Euro Zone Economic Forecasts; FOMC Policy Statement
3: UK Services PMI; BOE Policy Statement; US ISM Non-Manufacturing PMI; US Factory Orders; China Caixin Services PMI
4: US Payrolls & Unemployment; US Trade Balance

7: German Factory Orders; China Trade Balance (tentative)
8: US ELECTION DAY; China CPI & PPI

Barrons weekend summary

Barrons weekend summary: positive on BKS, ZTS, AMG 
Cover story: According to Barron's strategists, the "consensus outlook for U.S. stocks in the remainder of 2016 is mixed and even tinged with a bearish hue," a downgrade from optimism at the beginning of the year-though pundits are more upbeat on 2017. 

Features: 
1) Positive on BKS: "Despite the widespread perception that Barnes & Noble is getting destroyed by AMZN, the country's largest bricks-and-mortar bookseller remains solidly profitable and projects significant earnings increases in coming years"; 
2) Positive on ZTS: Maker of animal medications is benefiting from greater consumer spending on pets and growing demand for livestock products, and shares could rise 15%; 
3) Positive on AMG: Shares of the holding company have taken a hit, but the selling appears overdone, and they have the potential for 35% upside. 

Tech Trader: Positive on AVGO: Broadcom's chips are powering the growth of servers that companies such as AMZN, MSFT, and GOOGL are building at a rapid pace in multiple cities, while chipmakers such as SWKS and QRVO are tied to AAPL and other players in the slowing smartphone sector; Other players in the sector, including XLNX, CAVM, and MRVL, could be takeover targets.

 Trader: Weakness in manufacturing sometimes heralds a recession, but Michael Shaoul of Marketfield Asset Management says manufacturing is stagnating because the economy is shifting toward service jobs; UAL's reputation for late flights and lousy service is hurting its standing with corporate clients and has likely contributed to weaker performance; Positive on USG, BLDR: Building-products stocks are benefiting from the boom in single-family home construction. 

Profile: Bob Mitchell and Joe Monahan of Conestoga Small Cap Investors look for growth stocks with insider ownership and high returns on equity (top 10 holdings: OMCL, SPSC, BLKB, NEOG, LGND, MLAB, VASC, CNM, TYL, SSD). 

Interview: Morris Mark of Mark Asset Management says the firm's funds are a vehicle for capital appreciation, and thinks AMZN could be worth up to $1,200 a share (picks: ATVI, AMZN, SCHW, TOL). 

Small Caps: Positive on DSW: Disappointing second-quarter earnings and a bleak sales outlook for the second half have hurt the stock, but the company's longer-term prospects are better than many investors realize. 

Follow-Up: Positive on ARMK: Shares are still attractive at 10.6 times enterprise value to earnings before interest, taxes, depreciation, and amortization, and they could push past $42 during the next 12 months. 

European Trader: Positive on Valeo: French automotive supplier could grow faster than expected and see rising profits because of strength in reducing carbon emissions and intuitive driving, two hot auto segments. 

Asian Trader: Cautious on CNOOC, PetroChina, Sinopec: Rather than look to OPEC to gauge the direction of oil prices, investors would do well to keep an eye on China's Big Three energy companies. 

Emerging Markets: Inflows in emerging markets are up, but numbers from the private-equity sector hint that something may be wrong with the picture. 

Commodities: The surge in agricultural products to feed a growing global population, along with advancing urbanization, are pressuring the world's water supply, of which only 2.5% is fresh. 

Streetwise: Technology may be improving lives in many ways, but it's also a force of deflation, because tech companies require far fewer workers than traditional ones, creating a radical shift in the labor market.

Inconclusive Jobs Report Leaves Fed Up in the Air

TradeTheNews.com Weekly Market Update: Inconclusive Jobs Report Leaves Fed Up in the Air
Fri, 02 Sep 2016 16:03 PM EST

Another week of summer trading was punctuated by a few key data points and corporate developments. Positive data included the US August Consumer Confidence reading hitting an 11 month high, while China August Manufacturing PMI registered its first expansionary reading in 3 months and hit a 22 month high. Then on Friday, the US nonfarm payroll data missed expectations and showed some deterioration in hourly earnings and weekly hours. This led to Fed Fund futures indicating a lesser chance of a September rate hike, shifting concerns about tighter US rates to December. However, some experts including Goldman's chief economist Jan Hatzius, cautioned that the payroll gain at 151K was good enough for the Fed to greenlight a September rate hike. Hours after the data, Fed hawk Lacker tried to start that sentiment shift by stating that Fed funds rate should be considerably higher than it is now.

In corporate news, Mylan attempted to stem the tide of bad news flow by launching a generic version of its own EpiPen, but that did not deter a rare bi-partisan group of Congressmen from demanding the company appear to provide for testimony. A lackluster quarterly earnings report from Salesforce.com may be an indication that the breakneck pace of growth in the cloud sector may be starting to slow. Canadian fertilizer producers Potash Corp and Agrium confirmed they are in preliminary merger discussions, though press reports said a deal could be announced as soon as next week. Meanwhile, Mondelez dropped its pursuit of Hersey. Wynn and Las Vegas Sands saw good gains on Thursday as monthly Macau casino revenue rose for the first time in 27 months.

WTI crude futures slipped about 7% on the week as OPEC notched another record high month of production and traders remained skeptical that the cartel can reach a deal on a production freeze. Most currency pairs remained in tight ranges, with the EUR/USD holding below the 1.12 level most of the week. The yen was a notable exception, rising from 102 to 104 over the course of the week, despite the yield on the bellwether 10-year Japanese government bond moving higher towards zero percent (but remaining in negative territory), reaching a 5-month highs. Policy divergence between the BOJ and the Fed contributed to the yen's underperformance. Equity indices traded sideways and for the week the DJIA rose 0.5%, the S&P500 gained 0.5%, the Nasdaq edged up 0.6%.





Mon 8/29
MYL: To launch first generic to EpiPen Auto-Injector at a list price of $300/ two-pack carton
(US) JULY PERSONAL INCOME: 0.4% V 0.4%E; PERSONAL SPENDING: 0.3% V 0.3%E
(US) JULY PCE CORE M/M: 0.1% V 0.1%E; Y/Y: 1.6% V 1.5%E
(US) JULY PCE DEFLATOR M/M: 0.0% V 0.0%E; Y/Y: 0.8% V 0.8%E
HSY: Mondelez International no longer pursuing combination with Hershey
(JP) JAPAN JULY JOBLESS RATE: 3.0% V 3.1%E; Lowest since 1995

Tues 8/30
Industrial and Commercial Bank of China Ltd (ICBC):Reports H1 Net CNY150.2B v CNY149.9Be; Op Income CNY329.0B v CNY336.7B y/y, Net Interest Income CNY234.3B v CNY252.1B y/y
Bank of China Ltd: Reports H1 Net CNY93B v CNY91.7Be, Net Interest Income CNY154.9B v CNY163.4B y/y
(EU) EURO ZONE AUG BUSINESS CLIMATE INDICATOR: 0.02 V 0.36E; CONSUMER CONFIDENCE (FINAL):-8.5 V -8.5E
(DE) GERMANY AUG PRELIMINARY CPI M/M: 0.0% V 0.1%E; Y/Y: 0.4% V 0.5%E
(US) AUG CONSUMER CONFIDENCE: 101.1 V 97.0E (highest since Sep 2015)
AGU: Agrium and PotashCorp confirm preliminary discussion regarding potential merger of equals

Weds 8/31
(EU) EURO ZONE JULY UNEMPLOYMENT RATE: 10.1% V 10.0%E
(EU) EURO ZONE AUG ADVANCE CPI ESTIMATE Y/Y: 0.2% V 0.3%E; CPI CORE Y/Y: 0.8% V 0.9%E
(US) AUG ADP EMPLOYMENT CHANGE: +177K V +175KE
(US) AUG CHICAGO PURCHASING MANAGER: 51.5 V 54.0E
(US) JULY PENDING HOME SALES M/M: 1.3% V 0.7%E; Y/Y: -2.2% V +2.2%E
(BR) Brazil Senate formally votes 61-20 to impeach President Rousseff for breaking budget laws, as expected
CRM: Reports Q2 $0.24 v $0.22e, R$2.04B v $2.02Be
(BR) BRAZIL CENTRAL BANK (BCB) LEAVES SELIC RATE UNCHANGED AT 14.25%; AS EXPECTED
(CN) CHINA AUG MANUFACTURING PMI (GOVT OFFICIAL): 50.4 V 49.8E (1st expansion in 3 months and a 22-month high)
(AU) AUSTRALIA Q2 PRIVATE CAPITAL EXPENDITURE (CAPEX) Q/Q: -5.4% V -4.0%E
(CN) CHINA AUG CAIXIN PMI MANUFACTURING: 50.0 V 50.1E

Thurs 9/1
(HK) Macau Aug casino revenue 18.8B patacas v 17.8B prior, y/y: +1.1% (first rise in 27 months) v -4.5% prior
(UK) UK AUG PMI MANUFACTURING: 53.3 V 49.0E (moves back into expansion and highest since Oct 2015)
(US) Q2 FINAL NONFARM PRODUCTIVITY: -0.6% V -0.6%E; UNIT LABOR COSTS: 4.3% V 2.1%E
(US) INITIAL JOBLESS CLAIMS: 263K V 265KE; CONTINUING CLAIMS: 2.16M V 2.15ME
(US) AUG FINAL MARKIT MANUFACTURING PMI: 52.0 V 52.1E (lowest reading since June 2016)
(US) AUG FINAL MARKIT MANUFACTURING PMI: 52.0 V 52.1E (lowest reading since June 2016)

Friday 9/2
(US) AUG UNEMPLOYMENT RATE: 4.9% V 4.8%E
(US) AUG AVERAGE HOURLY EARNINGS M/M: 0.1% V 0.2%E; Y/Y: 2.4% V 2.5%E; AVERAGE WEEKLY HOURS: 34.3 V 34.5E
(US) AUG CHANGE IN NONFARM PAYROLLS: +151K V +180KE
DAL: Reports Aug load factor 84.4% v 87.3% y/y; PRASM -9.5% y/y; Aug outage had $100M negative revenue impact
(US) Weekly Baker Hughes US Rig Count: 497 v 489 w/w (+2%)
(US) Fed's Lacker (hawk, non-voter): Fed funds rate should be considerably higher than it is now
(ES) PM Rajoy fails 2nd confidence vote in Spain legislature, as expected (vote 170 to 180)

Sideways Markets Slip on Friday After Hawkish Fed

TradeTheNews.com Weekly Market Update: Sideways Markets Slip on Friday After Hawkish Fed
Fri, 26 Aug 2016 16:04 PM EST

Markets drifted sideways most of the week as they anticipated a key policy speech from Fed Chair Yellen at Jackson Hole on Friday. Volumes were light and ranges remained narrow despite relatively heavy news flow including economic data releases and late season earnings reports. Healthcare stocks were in crosshairs for much of the week as several headlines affected trading. Pfizer's acquisition of Medivation pushed up oncology stocks early, but renewed drug price gouging concerns from Washington D.C. weighed on a swath of names competing within the US pharmacy market. After ending last week near $50/bbl, oil prices backed off early in the week exaggerated by a roll in the front month futures contract. Press reports continued to focus on the September meeting of energy producers in Algeria and the potential for coordinated action, but the likelihood of a meaningful agreement still seems low.

Friday's Jackson Hole meeting did induce some broader market volatility, but the trading flows only picked up after Fed Vice Chair Fischer came on TV to offer his explanation of what Chair Yellen attempted to lay out in her speech earlier. The US Dollar firmed and interest rates backed up while stocks came under modest pressure after the two highest ranking Fed officials illustrated their view that the economy continues to improve at a pace that has strengthened the case for at least one rate hike this year. The US benchmark 10-year yield has broken out to a three month high to close above 1.60%. In the wake of the Jackson Hole comments, the Dow swung more than 230 points, its biggest one-day move since late June. For the week, the DJIA lost 0.9%, the Nasdaq fell 0.4%, and the S&P500 dropped 0.7%.

Monday
- (UK) UK govt said to be readying multi-billion-pound post-Brexit housing stimulus - press
- MDVN: To be acquired by Pfizer for $81.50/shr in cash, valued at ~$14B

Tuesday
*(FR) FRANCE AUG PRELIMINARY MANUFACTURING PMI: 48.5 V 48.8E (6th straight contraction)
*(DE) GERMANY AUG PRELIMINARY MANUFACTURING PMI: 53.6 V 53.6E (21st month of expansion)
*(EU) EURO ZONE AUG PRELIMINARY MANUFACTURING PMI: 51.8 V 52.0E (38th month of expansion)
*(UK) AUG CBI INDUSTRIAL TRENDS TOTAL ORDERS: -5 V -10E
- BBY: Reports Q2 $0.57 v $0.42e, R$8.53B v $8.40Be; Raises FY17 guidance
*(TR) TURKEY CENTRAL BANK (CBRT) LEAVES BENCHMARK REPURCHASE RATE UNCHANGED AT 7.50%; AS EXPECTED; again narrows rate corridor
*(HU) HUNGARY CENTRAL BANK (NBH) LEAVES BASE RATE UNCHANGED AT 0.90%; AS EXPECTED
*(US) AUG PRELIMINARY MARKIT MANUFACTURING PMI: 52.1 V 52.6E
*(US) AUG RICHMOND FED MANUFACTURING INDEX: -11 V +6E
*(US) JULY NEW HOME SALES: 654K V 580KE (highest since Oct 2007)
- (IR) OPEC sources see positive signals from Iran on support for joint action to boost oil prices - press
* (US) NORTH AMERICA JULY SEMI BOOK/BILL RATIO: 1.05 V 1.00 prior

Wednesday
*(DE) GERMANY Q2 FINAL GDP Q/Q: 0.4% V 0.4%E; Y/Y: 1.8% V 1.8%E; GDP NSA Y/Y: 3.1% V 3.1%E
- GLEN.UK: Reports H1 Adj Net $300M v $254Me, Adj EBITDA $4.02B v $3.87Be, R$69.4B v $74.8Be
*(UK) JULY BBA LOANS FOR HOUSE PURCHASE: 37.7K V 38.0KE (lowest since Jan 2015)
*(US) JULY EXISTING HOME SALES: 5.39M V 5.51ME
- MYL: US Democratic Presidential candidate Hillary Clinton calls Epipen price hike 'outrageous', calls for Mylan to immediately cut price - press

Thursday
*(DE) GERMANY AUG IFO BUSINESS CLIMATE: 106.2 V 108.5E; CURRENT ASSESSMENT: 112.8 V 114.9E
- 494.HK: Reports H1 Net $72M v $149M y/y, Op $156M v $182M y/y, Rev $8.07B v $8.63B y/y
- 3328.HK: Reports H1 Net CNY37.6B v CNY37.3B y/y, NII CNY68.1B v CNY71.1B y/y
- MYL: Plans to cut patient Epipen cost through use of savings card; Reducing patient cost by 50% off Mylan list price
- 939.HK: Reports H1 Net CNY133.4B v CNY132.5Be
- (IR) Iran Oil Min Zanganeh plans to attend the OPEC meeting in Algeria on Sept 26th
*(US) INITIAL JOBLESS CLAIMS: 261K V 265KE; CONTINUING CLAIMS: 2.15M V 2.16ME
*(US) JULY PRELIMINARY DURABLE GOODS ORDERS: 4.4% V 3.4%E; DURABLES EX TRANSPORTATION: 1.5% V 0.4%E
- (US) Atlanta Fed GDPNow: lowers Q3 GDP forecast to 3.4% from 3.6% on Aug 16th
- (SA) Saudi Energy Minister: Have not discussed specific action regarding a production freeze; Has been no discussions of substance on OPEC production levels - press interview
*(JP) JAPAN JULY NATIONAL CPI Y/Y: -0.4% V -0.4%E; CPI EX FRESH FOOD (CORE) Y/Y: -0.5% V -0.4%E

Friday
*(DE) GERMANY SEPT GFK CONSUMER CONFIDENCE: 10.2 V 10.0E (matches highest level since Oct 2001)
*(EU) EURO ZONE JULY M3 MONEY SUPPLY Y/Y: 4.8% V 5.0%E
*(UK) Q2 PRELIMINARY GDP Q/Q: 0.6% V 0.6%E; Y/Y: 2.2% V 2.2%E
*(US) Q2 PRELIMINARY GDP ANNUALIZED Q/Q: 1.1% V 1.1%E; PERSONAL CONSUMPTION: 4.4% V 4.2%E
- RAX: Agrees to be taken private by Apollo Global at $32.00/shr all cash in $4.3B deal
*(US) AUGUST FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 89.8 V 90.4 PRELIM
- (US) Fed Chair Yellen: case for rate hike has strengthened in recent months - Jackson Hole speech
- (US) Weekly Baker Hughes Rig Count: 489 v 491 w/w (-0.4%) (breaks streak of 8 weeks of increases)
* (US) Fed Vice Chair Fischer: notes strong job reports recently and seeing more evidence the economy has strengthened; emphasizes Fed remains data dependent and thus a rate hike or hikes is possible this year

Barron's weekend

Barron's weekend: positive on FB 
Cover story: Donald Trump and Hillary Clinton's views on free trade are wrong, since they don't take into account the benefits cheap imports bring, including jobs that more costly imports can destroy; nor do they see that a widening trade deficit correlates with prosperity while a shrinking one is tied to slumps and recessions. 

Features: 
1) Profile of Paul Britton, founder of the Capstone Volatility Master fund, uses an unusual alternative strategy that seeks to profit from volatility spikes and which involves owning only a few underlying securities; 
2) Positive on FB: Wall Street analysts predict the social site's shares could hit $153 in a year, for a further gain of 20%, with profits growing steadily and stronger advertising sales; 
3) Positive on Liberty Braves Group: Shares of the stock that tracks the Atlanta Braves could benefit from increased ticket sales and concessions when the team moves into a new stadium, and deliver 20% returns; 
4) A look at what top investors, including George Soros, Warren Buffett, David Einhorn, Jeffrey Ubben, and Carl Icahn, are betting on, with AIG, C, GS and MS being favorites and all but Buffett dumping AAPL; 
5) Review of a new book, "Winning at Active Management," explains why it's hard for investors to beat the index, and how they can go about doing so.

Tech Trader: Cautious on CSCO: Recently announced layoffs at the networking major are sign that its market opportunity is being eroded by the shift of computing activity to cloud services run by AMZN, MSFT, and others. 

Trader: In the markets, "plenty of cash remains on the sidelines, but a 2% to 3% pullback could draw in folks who have been either short or have missed this latest rally over the past six weeks," says Andrew Ahrens of Ahrens Investment; Positive on C: Shares of bank look cheap for investors with long-term horizons, and they could provide a double-digit percentage annual return during the next two years; The rising popularity of various derivatives, such as options, among others, has stolen volume from equities. 

Interview: Stephanie Pomboy, founder of MacroMavens, continue to like government bonds because economic growth won't be a catalyst to push rates higher, and she says investors should look for a repricing of credit risk. 

Follow-Up: Positive on MAT: Barron's foresees a strong holiday season for the toymaker, and a further 20% return during the next year, including dividends; Cautious on HAIN: Company "may eventually find an acquirer, but until the cloud dispels from its books, the stock is going nowhere"; + LafargeHolcim: Cement giant has delivered synergies following the merger of Lafarge and Holcim last year and has cut staff and trimmed fat, all of which should help the shares rise. 

European Trader: Positive on SpareBank 1 SR Bank and SpareBank 1 SMN: Norwegian regional savings banks are among the firms doing well in the troubled European banking sector, partly because Norway's economy, though tied to oil, is thriving. 

Asian Trader: China may not be as scary as some investors have made it out to be, but its stocks can't have a reasonable rally less bank shares participate. 

Emerging Markets: The MSCI Emerging Markets index is up about 35% from its January low and should continue to rally, according to Calamos Investments. 

Commodities: Gold has made an impressive comeback, and investors hope the rally will continue as many of the factors that have driven it remain in force. 

Streetwise: Positive on CRL, APC, WLL: Guggenheim's Subash Chandra says these energy companies may be on the verge of seeing gains because of higher production targets.

Markets Drift Sideways, Looking Ahead to Jackson Hole

TradeTheNews.com Weekly Market Update: Markets Drift Sideways, Looking Ahead to Jackson Hole
Fri, 19 Aug 2016 16:07 PM EST

Major equity indices retreated slightly from record highs in light summer trading, while the 10-year Treasury yield crept up toward 1.6% this week. Crude futures continued to march higher with Brent breaking above $50/bbl for the first time since early July and WTI topping $48/bbl, even as the Baker Hughes rig count rose for the eighth straight week. The greenback hit seven-week lows against the Yen and Euro before mounting a small recovery on Friday. For the week, the DJIA lost 0.1%, the S&P500 slipped less than 0.1%, and the Nasdaq edge up 0.1%.

The economic data this week was mostly unremarkable, though US July core CPI came in one-tenth weaker than expected. Meanwhile UK inflation data saw some fallout from the Brexit vote and post-referendum sterling fall: July CPI hit a 20-month high at 0.6% y/y and manufacturers saw the biggest jump in PPI in 3 years. On Friday, a report said that Prime Minister May would invoke EU Article 50 and start the 2-year Brexit process by next April.

In corporate news, Cisco beat earnings expectations but was weighed on by a 7% workforce reduction announcement. Private prison operators Corrections Corp and Geo Group were subject to hard time this week after the DOJ said it would phase out their contracts, hitting their shares by as much as 50% on Thursday.

A raft of Fed speakers set a somewhat more hawkish tone as markets look ahead for signals about rate tightening at the Jackson Hole symposium next week. Most notably, the normally dovish NY Fed President Dudley said the time for a rate hike is getting closer and would not rule out a September move. The minutes of the July FOMC meeting released this week indicated that Fed members are still divided on the future course of action and wanted more data before making a decision.

Monday
(US) AUG EMPIRE MANUFACTURING: -4.2 V +2.0E
(US) AUG NAHB HOUSING MARKET INDEX: 60 V 60E
(US) JUNE TOTAL NET TIC FLOWS: -$202.8B V -$11.0B PRIOR; NET LONG-TERM TIC FLOWS: -$3.6B V +$42BE

Tuesday
BLT.UK: Reports FY16 Net loss $6.39B v profit $1.91B y/y, Underlying profit $1.22B v $1.04Be; Rev $30.9B v $52.3B y/y
(UK) JULY CPI M/M: -0.1% V -0.1%E; Y/Y: 0.6% (20-month high) V 0.5%E; CPI CORE Y/Y: 1.3% V 1.4%E
(UK) JULY RPI M/M: +0.1% V -0.1%E; Y/Y: 1.9% V 1.7%E
(UK) JULY PPI INPUT M/M: 3.3% V 1.0%E; Y/Y: 4.3% V 2.0%E (largest annual rise since July 2013)
(DE) GERMANY AUG ZEW CURRENT SITUATION SURVEY: 57.6 V 50.2E; EXPECTATIONS SURVEY: 0.5 V 2.0E
HD: Reports Q2 $1.97 v $1.96e, R$26.5B v $26.4Be
(US) JULY CPI M/M: 0.0% V 0.0%E; CPI EX FOOD AND ENERGY M/M: 0.1% V 0.2%E; CPI NSA: 240.647 V 240.805E
(US) JULY HOUSING STARTS: 1.211M V 1.180ME; BUILDING PERMITS: 1.152M V 1.160ME
TJX: Reports Q2 $0.84 v $0.80e, R$7.88B v $7.87Be
(US) JULY INDUSTRIAL PRODUCTION M/M: 0.7% V 0.3%E; CAPACITY UTILIZATION: 75.9% V 75.6%E
(US) Fed's Dudley (dove, FOMC voter): Getting closer to the time for a rate hike, Sept rate hike is possible; Bond market is looking a bit stretched, 10-year yield is looking a bit low, given the circumstances - TV interview
(US) Fed's Lockhart (moderate, non-voter): would not rule out at least one rate hike this year; not committed to any particular timing on rate hike
(US) Atlanta Fed GDPnow: raises Q3 GDP forecast to 3.6% from 3.5% on Aug 12th
(US) EPA finalizes greenhouse gas requirements for medium and heavy duty trucks; 2027 model year trucks to be 25% more efficient
F: Targets fully autonomous vehicle for ride sharing in 2021

Wednesday
CARLB.DK: Reports H1 adj Net DKK1.41B v DKK1.80B, EBIT DKK3.45B v DKK3.54Be, Rev DKK31.2B v DKK31.5Be
(UK) JULY JOBLESS CLAIMS CHANGE: -8.6K V +9.0KE; CLAIMANT COUNT RATE: 2.2% V 2.2%E
(UK) JUN ILO UNEMPLOYMENT RATE 3M/3M: 4.9% V 4.9%E
(UK) JUN AVERAGE WEEKLY EARNINGS 3M/Y/Y: 2.4% V 2.4%E; WEEKLY EARNINGS (EX BONUS) 3M/Y/Y: 2.3% V 2.3%E
700.HK: Reports Q2 Net CNY10.7B v CNY9.52Be, Rev CNY35.7B v CNY23.4B y/y
MON: Reportedly allows Bayer limited access to confidential company information; Bayer has not yet signed confidentiality agreement with Monsanto and ongoing talks described as "difficult" - press
(PT) Canadian ratings agency DBRS analyst: agency is 'comfortable' with current Portugal BBB rating - press
(US) FOMC MINUTES FROM JULY 26-27TH MEETING: FED OFFICIALS SPLIT, WANT MORE DATA BEFORE DECISION ON RATE HIKE
CSCO: Reports Q4 $0.63 v $0.60e, R$12.6B v $12.5Be; to eliminate up to 5.5K positions (7% of global workforce)
992.HK: Reports Q1 $0.02 v $0.01e; Net $173M v $111Me, Rev $10.1B v $9.9Be
(CN) CHINA JULY PROPERTY PRICES M/M: FALL IN 16 OUT OF 70 CITIES VS FALL IN 10 PRIOR; Y/Y: FALL IN 11 OUT OF 70 CITIES V FALL IN 12 PRIOR
(AU) AUSTRALIA JULY EMPLOYMENT CHANGE: +26.2K V +10.0KE; UNEMPLOYMENT RATE: 5.7% V 5.8%E

Thursday
(UK) JULY RETAIL SALES (EX AUTO FUEL) M/M: 1.5% V 0.3%E; Y/Y: 5.4% V 3.9%E
(UK) JULY RETAIL SALES (INCLUDING AUTO FUEL) M/M: 1.4% V 0.1%E; Y/Y: 5.9% V 4.2%E
(EU) EURO ZONE JULY CPI M/M: -0.6% V -0.5%E; Y/Y: 0.2% V 0.2%E V 0.2% ADVANCE; CPI CORE: 0.9% V 0.9%E
(US) INITIAL JOBLESS CLAIMS: 262K V 265KE; CONTINUING CLAIMS: 2.175M V 2.14ME
(US) AUG PHILADELPHIA FED BUSINESS OUTLOOK: 2.0 V 2.0E
HOG: US regulators file suit over emission control defeat devices, claims Harley Davidson violated Clean Air Act - press
(US) Dept of Justice to end its use of private prisons due to safety and security issues - Washington Post
(US) Fed's Williams (moderate, non-voter): calls for rate hike sooner rather than later; raising interest rates makes sense
AMAT: Reports Q3 $0.50 v $0.47e, R$2.82B v $2.83Be
GPS: Reports Q2 $0.60 v $0.58e, R$3.85B v $3.81Be

Friday
(UK) JULY PUBLIC FINANCES (PSNCR): -£2.1B V +£13.5B PRIOR; PUBLIC SECTOR NET BORROWING: -£1.5B V -£2.2BE
(ID) INDONESIA CENTRAL BANK (BI) LEAVES 7-DAY REVERSE REPO RATE (new benchmark rate) UNCHANGED AT 5.25% (not expected)
(UK) UK govt reportedly likely to trigger Brexit by April 2017 - press
(US) Weekly Baker Hughes Rig Count: 491 v 481 w/w (+2%) (8th straight week of increase)

Barron's weekend update

Barron's weekend update: positive on BKD 

Cover story: A Hillary Clinton win in the presidential race "would be easily digested by markets because of her mostly moderate instincts and predictable policy prescriptions"; U.S. multinationals such as GE, MON, and DE would likely benefit because Clinton has shown no signs of being a protectionist. 

Features: 
1) Sectors including biotech, energy, and even defense stocks could benefit from a Donald Trump presidency, because he is calling for less regulation on a variety of industries; 
2) Positive on VOD, Deutsche Telekom, NVS, Nestle, NGG: Five European stocks have yields ranging from 2-5%, and could get a boost as European investors seek alternatives to ultralow, or negative, government bond yields; 
3) Positive on BKD: Company faces a number of issues, including a slowdown in new construction in senior housing, but shares already appear to reflect these concerns, and they could rise 30% or more. 

Tech Trader: Cautious on IBM: Tech company has contributed to the impression that it's failing in the cloud sector because it doesn't indicate what cloud revenue is new business; A lack of information from players such as MSFT and GOOGL about their cloud businesses has forced analysts to compile their own estimates. 

Trader: "The more stocks go up, the more those sitting on the sidelines will be forced to capitulate and join in," says Douglas Cote of Voya Investment Management; A rise in three names-MMM, IBM, and UNH-accounted for almost 50% of the Dow's 7% gain as of Thursday; Cautious on PAY: Company's valuation is near an all-time low, with the stock trading at big discounts to its own history, rivals, and the market; Positive on AMZN: Retailer is likely to benefit from back-to-school shopping-22% of respondents to a Civic Science poll say they'll do a quarter or more of their shopping online. 

Small Cap: Positive on SSP: Broadcaster faces slower-than-expected political spending this year, but a recent selloff looks like an opportunity, and long-term prospects are good. 

Follow-Up: Positive on CAT: An earnings recovery could take two more years to begin, but when it happens it should be strong, and patient investors should stick with the shares; Positive on BDX: Shares of medical-equipment maker could rise by 10% during the next 12 months following a string of strong revenue and earnings gains; Cautious on ECL: Shares are up 48% during the past three years, but with sluggish growth and some industry headwinds, it could be time for investors to take their profits. 

European Trader: Positive on FirstGroup: Shares of transport group have rebounded following a drop in the wake of the Brexit vote, and its profit picture shows signs of brightening. 

Asian Trader: Cautious on Idea Cellular: Indian consumers have embraced smartphones, but they shy away from high-priced data plans, a problem for the country's No. 3 carrier. 

Emerging Markets: With state-run deficits amounting to 10% of GDP for three years straight and failures by the central bank to prop up its currency, Egypt badly needs a bailout from the IMF. 

Commodities: Easing concerns about the global economy this year have halted the long slide in copper prices-though the support isn't likely to last. 

Streetwise: Profits in technology and healthcare continue to grow at double-digit rates, and it wouldn't take much outperformance for them to attract momentum investors, which would give them a boost.

Risk-On Rules Despite Doubtful Data

TradeTheNews.com Weekly Market Update: Risk-On Rules Despite Doubtful Data
Fri, 12 Aug 2016 16:03 PM EST

The DJIA and the S&P500 both notched fresh all-time highs this week and the Nasdaq came very close to record levels as markets kept melting up in the August heat. Crude prices saw their second week of gains off the late July low, providing an assist to higher US equity valuations, while the dollar is gradually softening. Trading volumes were about 20% below average. In the US, decent retail sector earnings were seen, with the quarterly earnings season coming to a close. Economic data was less than stellar, with the July retail sales report flat after three months of solid gains. Both the July PPI report and the import prices data showed inflation losing steam again. The focus in both Japan and China was on the possibility of fresh central bank action to help prop up growth, while in the UK, the Bank of England had trouble finding enough bonds to purchase under its restarted QE program. For the week, the DJIA gained 0.2%, the S&P500 edged up less than 0.1% and the Nasdaq added 0.2%.

The bounce back in crude prices continued this week, with WTI reaching its 200-day moving average at around $44 and Brent back to $47/bbl. Further inventory builds in weekly crude stocks reports undercut prices midweek, but that impact was more than offset after OPEC confirmed that its member would hold an informal meeting in Algiers on the sidelines of an energy forum on Sept 26-28, consolidating talk that Russia, Saudi Arabia and Iran might be able to set aside their differences and put in place some sort of production ceiling.

Economic data out of China further called into question the ability of Beijing to meet even the +6.5% low end of its 2016 growth target. July industrial production and retail sales growth decelerated, while new bank loans fell significantly in July from the prior month and widely missed expectations. Pressure is building on the PBoC to further ease policy, but the central bank has stalled and simply repeated its standing promise to keep policy slightly loose to meet growth targets. Once again, repeated reports made it clear that very high debt levels across the economy and murky bank balance sheets are making policy-makers very nervous about asset bubbles. With that in mind, regulators this week ordered a large-scale review of the nation's banking system, including inspections of deposits, outstanding loans, interbank business and bonds.

Last month, the Bank of Japan launched a comprehensive review of its policies in the era of Abenomics. Reports circulating this week suggest a preliminary outline of the review has identified sharp declines in oil prices, a prolonged hit to growth from the 2014 sales tax hike and the nation's inability to shake off its deflationary mindset as the main obstacles to achieving its 2% inflation target. Analysts were quick to point out the BoJ is only blaming external factors for disappointing inflation gains, and appears to have avoided a frank reckoning with the implications of its own policy decisions. In any case, the BoJ is expected to announce a big new easing plan next month to complement the government's latest stimulus package. Markets expect the bank to change the parameters of the inflation target, cut rates further and possibly expand asset purchases.

In an ominous sign for ambitious quantitative easing programs across the globe, the Bank of England's restart of QE bond purchases ran into trouble on its second day, as it failed to find enough sellers of bonds. The first auction on Monday went off without a hitch, but on Tuesday the bank fell £52 million short of its target to buy £1.17 billion in long-dated government debt. The BoE issued a statement asserting that would be able to make up the shortfall later this year, but with lower and lower yields forcing funds and other investors to hold more and more bonds to maintain returns, it appears that the bank has a real problem on its hands. In the wake of the failed BOE operation, the 10-year gilt yield touched a record low of 0.55%, while the bund yield dove to -0.16%, within range of the all-time low of -0.20% seen in early July. Separately, BoE hawk McCafferty acknowledged that further easing will likely be necessary to further cushion the shock of the Brexit vote on the UK economy.

On Thursday, the Reserve Bank of New Zealand (RBNZ) met expectations and cut rates to new record low of 2.00%. This is the bank's sixth policy easing since 2015, and analysts expect the RBNZ to cut at least one or two more times, bringing the rate to 1.50%. The policy statement added a focus on house price inflation becoming "more broad-based across the regions, adding to concerns about financial stability." As for headline inflation, the statement foresees growth resuming in Q4. The RBNZ specifically stated that "further policy easing will be required" to get inflation to the middle of its target range.

Bank of Korea remained at 1.25% for the second straight month after a surprise rate cut earlier this summer, though expectations of more easing down the line have been sustained after BoK Governor Lee acknowledged the continuing strength of the currency. Also note that South Korea's credit rating was increased to AA from AA- by Standard & Poor's, which cited the nation's steady economic performance, sound fiscal position and flexible fiscal and monetary policies.

Shares of Delta Airlines fell as much as 4% from last Friday's close after a major system-wide network outage massively impacted its flights worldwide. The computer problem was caused by a power outage at its headquarters in Atlanta. The airline cancelled nearly 2,000 flights Monday to Wednesday, and there were further technical issues even after the systems were brought back online, which slowed down the recovery process.

The judge overseeing the review of the Aetna/Humana merger said the trial would begin on November 7th, favoring requests from the Aetna/Humana team. The DOJ had moved for the trial to be held in 2017. This comes just a week after the court agreed to separate consideration of the Aetna/Humana and Anthem/Cigna mergers into two separate trials. The judge in the Anthem/Cigna case said that trial would start by late November, but that she would not likely rule until early next year.

After a week of rumors, Walmart confirmed it reached a deal to acquire online retailer Jet.com. Walmart will pay $3 billion in cash plus about $300 million of Walmart shares for the site. The two operations will maintain separate branding for now, and the deal is expected to greatly boost Walmart's attempts to compete with Amazon. Walmart has generated about $14 billion in annual e-commerce sales, compared with Amazon's annual run rate at over $100 billion.

Barrage of Data Gives Mixed Signals for Second Half

TradeTheNews.com Market Update: Barrage of Data Gives Mixed Signals for Second Half
Fri, 29 Jul 2016 16:27 PM EST

This week investors digested a deluge of corporate earnings reports and key economic data while oil prices continued retreat. The S&P500 finished out near another all-time high, while the DJIA was weighed down by weak earnings commentary from several component names. The advance Q2 US GDP estimate showed the US economy has grown at less than a 2% pace for three straight quarters. Expectations for Japanese stimulus ratcheted up and the same went for the BOE. The US Federal Reserve hinted towards an increasing willingness to raise rates later this year, but market reaction/expectations suggest the consensus view is the Fed remains firmly in a wait and see mode. For the week, the DJIA fell 0.8%, the S&P500 slipped 0.1%, while the Nasdaq rose 1.2%.

The first estimate of the second quarter US GDP did not see the bump higher that was widely expected. Analysts were calling a healthy rise in Q2 GDP to +2.5% after the anemic +1.1% in Q1. There was no bounce, however, and the advance reading came in at +1.2%, while final Q1 GDP was revised down to +0.8%. Inventory declines continued to drag on GDP, while nonresidential fixed investment declined at a 2.2% y/y pace, the third straight quarterly drop. There were strong components in the report: personal consumption expanded at a 4.2% rate, while outlays on goods advanced 6.8%. And the decline in inventories is apt to deliver a big boost later in the year.

The suspense continues in Tokyo, where neither Abe's government nor the Bank of Japan provided concrete details on their plans for big new stimulus packages. The government has confirmed its stimulus will total ¥28 trillion, however the policy mix making up this humongous plan remains unclear. There was press speculation - later denied - that the government would sell 50-year JGBs, the longest maturity of postwar era, although they did suggest that around 25% of the plan would be new spending. The government did confirm that the new plan would be disclosed in full next Tuesday. Expectations were running high ahead of Friday's BoJ meeting, with analysts debating whether the bank would pursue expanded asset purchases, deeper interest rates cuts, or both. In the event, the bank merely boosted its ETF buying program to ¥6 trillion from ¥3.3 trillion and doubled the size of its dollar lending program to $24 billion. The weaker yen trend seen since the election reversed this week, with USD/JPY dipping back below the 102 handle by Friday.

The Fed held pat on Wednesday, as expected, and tweaked the statement just enough to suggest a slightly more hawkish outlook. The dollar modestly sold off, with EUR/USD trading back up to the high end of its most recent four-week range, closing out the week around 1.1150, suggesting the market now sees the prospect of another rate hike this year as good for risk appetite. The capsule summary of economic conditions was sweetened to reflect improved economic data, while the second paragraph gained a line saying "near-term risks to the economic outlook have diminished." Similar changes in April were thought to herald a June hike (before the Brexit disaster), and analysts suggest the new additions this time indicate a September hike is on the table. Before the statement, fed funds futures showed roughly 30% odds of a rate hike in September and a 48% chance by December. The futures were more or less unchanged after the statement.

UK economic data is starting to expose the negative impact of Brexit on the UK economy, and the Bank of England is gearing up to cut rates and expand its QE program next week. Second quarter UK GDP was ok, however July reports on consumer confidence, retailing and industrial trends all sank deep into the red. The GFK consumer confidence index sank to a two-year low, while the business optimism component of the CBI industrial trends report was stunningly pessimistic. The BoE's Weale told the FT that the Brexit vote had rattled the economy more than he expected. The consensus is that the BoE will cut rates by at least 25 bps and increase QE by £50-75 billion. Other European data was more upbeat, with the German July IFO business confidence survey holding up very nicely, and other measures of Continental consumer confidence not flagging nearly as much as feared. With the euro zone looking solid, many commentators expect the ECB to continue with its wait-and-see policy for a while yet.

Crude prices saw another week of sustained losses, as both WTI and Brent sank toward the $40 level amid persistent reports of oversupplied markets. The Baker Hughes rig count has marched higher for five weeks in a row, with total rigs working on North American drilling up about 10% in a month. US crude inventory reports showed more gains in oil stores, and supply disruptions are being resolved in Libya, Nigeria and Canada. Cheap crude has led refiners to produce lots of refined products, which has pushed down margins worldwide, while anemic global growth is not delivering robust demand. There was a slight bounce higher at week's end as short-covering kept WTI and Brent from dipping into the 30s. In second-quarter earnings out this week, Exxon and Chevron both took a severe beating, with Exxon's profits down 60% y/y, while revenue at both firms fell more than 20% as refining margins were pressured.

Earnings from global manufacturers Ford and Caterpillar carried pronounced warnings about the global economy. Ford warned there were risks that could keep it from achieving its FY guidance, and the CEO cautioned that the US economy remains under pressure. Cat said "world economic growth remains subdued and is not sufficient to drive improvement in most of the industries and markets we serve." Consumer names continued to indicate some problems: McDonald's headline results were good, but the firm's sales comps were way below expectations, as analysts had predicted a much bigger bump from the firm's big all-day breakfast push. Google, Amazon and Facebook all widely beat expectations and saw continued huge rates of growth in their core internet services. Apple saw its second consecutive quarter of lower revenue and lower iPhone sales, however shares of the tech giant saw solid gains on optimism about the next smartphone cycle.

Yahoo reached a deal to sell off its core operations, with Verizon agreeing to pay $4.83 billion in cash to acquire its internet assets. The sale did not include Yahoo's cash, its shares in Alibaba Group, its ownership stake in Yahoo Japan, and the non-core patent portfolio. These will continue to be held by Yahoo, which will change its name at closing and become a publicly traded investment company. Verizon plans to combine Yahoo with its AOL unit. Oracle reached a deal to acquire NetSuite for about $9.3 billion, or $109 per share in an all-cash deal. While their service offerings are similar, NetSuite offers Oracle access to companies sized smaller than its traditional client base, and could also give it some additional competitive edge in taking on primary rival Salesforce.

Barrons weekend summary

Barrons weekend summary: cautious on pharmacy benefits managers; positive on mortgage insurers 
Cover story: There are a number of reasons for investors to be concerned about the prospects of pharmacy-benefit managers, which haven't been effective in keeping rising drug costs contained, a task some top corporations are taking on themselves (Cautious on ESRX, CVS, UNH). 

Features: 
1) Positive on ATVI, AHS, ANET, FB, SWHC, SPLK: Estimize, a crowdsourcing platform for earnings and revenue estimates, says Wall Street has underestimated the earnings potential of these six companies; 
2) Positive on MTG, RDN, NMIH, ESNT: Shares of mortgage insurers are down from a year ago, but some analysts expect them to rebound when the housing market gains steam; 
3) For the second year in a row, a survey from the National Association of Realtors shows Chinese nationals dominating the ranks of international home buyers in the U.S.

Tech Trader: The financial technology sector, or FinTech, is moving beyond a focus on payments driven by early players such as PYPL and SQ and into robo-advisors, exchanges, trading platforms, and financial-data companies. 

Trader: Issues such as the Brexit and the U.S. elections should be capping market enthusiasm, says Mark Luschini of Janney Montgomery Scott, but the market doesn't seem to care; Positive on CSCO, IBM, APD, PX, OXY, VZ: These six laggard stocks should begin to outperform once the economy picks up, according to research from Fundstrat; Positive on AIG: "If rates don't go up, AIG's warrants could take a while to be in the money, but as the insurer executes on its plans, there's plenty of time for the warrants to grow." 

Interview: John Wilson, managing director and senior equity portfolio manager, Columbia Threadneedle focuses on new-product pipelines where the Street's estimates might not be properly modeled (picks: BMY, CMCSA, FB, MDT, SWK, TJX). 

Small Caps: Positive on CSW: Company recently spun off from Capital Southwest "has an opportunity to improve profit margins by better integrating its manufacturing platform, and it could drive growth by cross selling." 

Alternative Investments: Charles Royce, manager of the Royce Pennsylvania Mutual Fund, is looking at alternative investment management companies such as ARES, KKR, and APO. 

European Trader: Portfolio managers who run U.S. mutual funds that invest in British stocks have been fairly upbeat despite the Brexit vote, and there is an overall sense that U.K. shares are stabilizing. 

Asian Trader; Defensive stocks in Asia have become expensive, and even income investors should look elsewhere, especially toward the financial industry. 

Emerging Markets: "Recently considered a good idea, investing in Turkey has quickly turned into a nightmare as the government uses increasingly autocratic methods to purge its society following a failed coup." 

Commodities: Natural gas prices in the U.S. have risen since winter, and they may still have room for gains. 

Streetwise: "Investors looking for safety and income have driven utility stocks to pricey levels and low yields," and though the rally has yet to wind down, investors should take profits.

Markets continue rally on solid data and corporate earnings

TradeTheNews.com Weekly Market Update: Markets continue rally on solid data and corporate earnings
Fri, 22 Jul 2016 16:04 PM EST

Political developments and quarterly earnings were the main focus this week, although incessant speculation surrounding foreign, Central Bank intervention swung investor risk sentiment. Thursday broke a string of record closing highs on the DJIA and S&P500, but by Friday the S&P was back at all-time highs. The Republican Party gathered in Cleveland to officially nominate Donald Trump as their presidential candidate, while in Turkey an attempted coup by the military was put down, adding to the endless turmoil in the Middle East. Crude prices retreated back below $45, marking six weeks of contraction after key benchmarks topped out above $50 in early June. About a fifth of the S&P500 have reported quarterly earnings, with average profits a bit lower y/y and revenue a shade higher. While tech and financials have been generally impressive, consumer discretionary stalwarts have hit a wall, and Starbucks CEO went as far as to cite deteriorating global conditions - terrorism, and Brexit included - as driving a cooling in consumer confidence. After another solid swath of US economic data, US Treasury prices moved marginally higher, but yields largely consolidated just below the recent one-month highs. For the week, the DJIA gained 0.3%, the S&P500 rose 0.6% and the Nasdaq added 1.4%.

Fresh off its big election win last week, the government of Japan PM Abe has been crafting yet another huge stimulus program to revive the domestic economy and slay deflation. Three years of Abenomics, promises of sweeping legislative reform and negative rates have failed to do the job, and this week press reports suggested Abe's people are designing a fiscal package valued up to ¥20-30 trillion ($186-280 billion) - well ahead of the ¥10T discussed in the immediate aftermath of the election, given that some of the government guarantees and other off-budget measures will run into 2017 and beyond. There has been plenty of talk that the Bank of Japan will also pursue additional measures, and Kuroda has repeatedly said the BoJ is prepared to push rates lower, although the most recent speculation has fixated on the possibility the bank might pursue direct financing of government fiscal measures, widely referred to under Bernanke's formulation as "helicopter money." Kuroda strongly pushed back against that idea again this week, reiterating that there is neither the need for or the possibility of helicopter money, having already emphasized several times that the approach would be illegal under Japanese law. The yen pushed out to six-week lows around 107.60 on speculative press reports about helicopter money, but Kuroda's denials pushed USD/JPY back toward the 105 handle on Friday.

Top Chinese planning agency NDRC forecasted China 2016 CPI to be around 2% - well below the 3% official target - and GDP in a range of 6.5-6.8%, compared to the official 6.5-7.0% forecast. The agency warned that China was still facing increasing difficulties in stabilizing growth with investment and the possibility of overheating home prices. Fitch released a report that cautioned measures by policymakers in Beijing to reduce debt-servicing costs were fueling the ongoing credit boom, warning that "risks of asset quality and liquidity shocks to the banking system will continue to grow the longer that total leverage grows." Fitch estimates that total loans to the private sector have almost doubled since the 2008 crisis, reaching 243% of GDP in 2015, likely to rise to 253% by the end of 2016.

An attempt by a faction of the Turkish armed forces to overthrow the government of President Erdogan late last Friday rattled investor sentiment coming into the week. The coup attempt saw violent confrontations in the Turkish capital of Ankara and in Istanbul and produced a sharp reversal in risk assets, but the uprising was contained and the market impact was fairly limited. Erdogan's government has detained thousands of military officers suspected of treason and dismissed tens of thousands of teachers and civil servants in a wide-ranging purge of those believed to be sympathetic to Fethullah Gulen, a US-based cleric and political oppositionist being blamed for the coup. Turkey declared a state of emergency for three months and tensions with the US are rising as the government demands the extradition of Gulen.

The first big batch of post-Brexit European economic data showed minimal impact on the Continent from the UK vote. France and Germany preliminary July Markit composite PMIs beat expectations. Meanwhile, the UK July Markit composite PMI sank into contraction and saw its lowest reading in seven years. The new UK government has gotten to work with minimal snafus, although given his gaffe-filled record the appointment of Boris Johnson as foreign secretary has raised some eyebrows. Prime Minister Teresa May reiterated her government would not invoke Article 50 to leave EU before the end of 2016. Cable remained in a fairly tight range after the volatility of the prior two weeks, with GBP/USD bouncing around between 1.3315 and 1.3065.

The overall tone of the June quarter earnings reports has been lukewarm, with banks and tech showing real pockets of strength and revenue levels seeing very modest growth. Bank of America, Goldman Sachs and Morgan Stanley managed to beat expectations, but all three had some problems in the quarter, with lower ROE levels on falling interest rates. Both GS and MS saw lower y/y revenues. In tech, Microsoft is seeing very strong growth in its cloud business, offsetting the declines in the Windows unit. IBM's revenue and earnings declined less than expected (although IBM's revenue has now fallen for 17 straight quarters). Qualcomm saw very good gains on strong outperformance.

Airlines got hit by problems in Southwest's earnings. Higher fuel prices are looming on the horizon for the industry, and while Southwest's quarterly numbers were good, the firm's outlook for Q3 anticipates fuel costs rising back above $2/gallon for the first time in a while and RASM in contraction. Results from American and United Continental beat expectations, although both firms said RASM levels would be lower in the second half of the year. Germany's Lufthansa also had a mixed earnings report, and predicted weakness in Q3 unit revenues.

Industrial firms Honeywell and General Electric had mixed results. GE reported lower quarterly profits and revenue in its core industrial business, weighed down by its underperforming oil equipment division. Honeywell cut its 2016 sales forecast amid sluggish global growth and lower demand for energy-related products. Meanwhile, General Motors raised its FY outlook and posted record second-quarter earnings, beating analysts' estimates by a wide margin as truck sales increased in North America and its European business managed a small profit.

The Department of Justice sued to block the Anthem-Cigna and Aetna-Humana mega mergers. US Attorney General Lynch warned that US consumers would suffer if the Big Five health insurance names became the Big Three and said her department would vigorously enforce anti-trust laws. Press reports early in the week hinted about the development, forcing shares of all four firms lower, although the confirmation of the DoJ's suit and statements issued by the firms promising to vigorously defend the deals helped the stocks regain all their losses. In other M&A news, after years of takeover speculation and a 70% decline in its stock price over the last half a decade, Joy Global agreed to be acquired by Japan's Komatsu for $28.30/share in cash, in a total deal valued at $3.70 billion. Japan's Softbank reached a deal to acquire UK technology company ARM Holdings for £17/share in a £24B deal, as the Japanese telco conglomerate aims to capture opportunities in the IoT market.

Barrons weekend summary

Barrons weekend summary: Positive on GILD, MSG, KW, CI 

Cover story: Positive on Royal Dutch Shell: After its acquisition of BG Group, oil major slashed spending on projects and sold low-return businesses, and announced a capital plan that calls for more asset sales and a limit on capital spendinga makeover that could raise shares by 20% in a year. 

Tech Trader: Virtual reality devices such as FBs Oculus Rift may offer powerful hardware, but the software still feels rudimentary; Theme parks such as SIX are ramping up efforts to integrate VR into their rides; Cycling game Zwift may have a transformative impact on the VR industry. 

Trader: Tradition Capital Management chief investment officer Benjamin Halliburton says that its hard to see significant upside in the stock market going forward; Positive on GILD: The pharma company faces a number of concerns, but if just one or two fall away the stock could rise about 25% during the next two years; Positive on TSN, MDLZ, MSFT, ACN, INTU, XL, HIG: U.S. blue-chip dividends are expected to rise 7% in the third quarter, down from the 11.6% third-quarter growth seen over the past three years. 

Profile: Jim Cullen and Jennifer Chang, co-managers, Cullen High Dividend Equity fund, take a value investing approach that focuses on low P/E stocks with the potential to raise their dividends (top 10 holdings: NEE, T, JNJ, RTN, HCN, CSCO, MO, KMB, GE, MRK). 

Interview: Charles de Vaulx and Chuck de Lardemelle of International Value Advisors take a value-oriented approach with a focus on absolute, not relative, value (picks: BAC, Astellas Pharma, Samsung Electronics). 

Features: 

1) Positive on MSG: Companys assets include two prime sports teams, a refurbished sports arena, and substantial air rights, but despite these trophy properties, shares are sharply undervalued; 

2) Barrons first-half stock picks beat the S&P 500 but trailed, as a group, the benchmarks against which they were tracked; 

3) Positive on CI: Managed-care provider could have plenty of upside, even if its merger with ANTM doesnt go through, with the potential for a 27% gain during the next 12 months. 

Small Caps: Positive on KW: Company has a $2B real estate portfolio, including multifamily buildings in the U.S., Japan, and Europe, and an impressive track record of creating value from of out-of-favor properties. 

Follow-Up: Positive on Nintendo: The impact of the companys Pokemon Go game could go far beyond mobile, giving bricks-and-mortar stores a boost through sponsorships and paving the way for similar games on wearables. 

European Trader: European banks are too risky for many investors, and Italys hold more danger than most, even after a sharp drop in their share prices in 2016. 

Asian Trader: Positive on Charoen Pokphand Foods: Agribusiness and food company has a vertically integrated operation, and should benefit from surging pork prices and a better shrimp business. 

Emerging Markets: The military coup attempt in Turkey will take a toll on stocks and put the countrys bankswhich already faced concerns about bad debt at further risk. 

Commodities: Gas prices have started to drag down oil prices, and that could continue through the third quarter. 

Streetwise: The lunge at defensive stocks might seem like a contrarian signal that buying power isnt yet exhausted, though Doug Ramsey of Leuthold Group isnt so sure.