TradeTheNews.com Weekly Market Update: Trump and Brexit Remain Center Stage
Fri, 20 Jan 2017 16:24 PM EST
President Trump was sworn in today and gave a speech that promised more jobs for Americans, 4% growth, a boost to infrastructure spending, and putting 'America first' in energy and foreign policy. The stock markets received the speech cautiously, dropping modestly in the immediate aftermath of his inauguration remarks. Overall, the reflation trade stayed on track as US Treasuries sold off, although the dollar continued to lose some ground against major currencies. The 30-Year yield rose 17bps over the week to close today at 3.06%, while the dollar index was down 0.2% on the week. Over the four session period, the DJIA lost 0.3%, the S&P slipped 0.2%, and the Nasdaq fell 0.3%.
The ECB’s scheduled policy meeting on Thursday was uneventful, with nothing new coming from President Draghi's press conference. The central bank confirmed its asset buying program will be adjusted from €80 billion to €60 billion starting in April, and Draghi continued to insist this does not constitute “tapering.” He also made clear that the ECB will be watching core inflation closely, as higher energy prices are distorting long-term trends, but noted underlying inflation pressures remain “subdued.” No mention was made in the presentation as to which bonds would be cut back when the reduction in the program kicks in for April.
British PM May outlined UK intentions and desires for Brexit, mainly confirming previous statements that the UK would seek to leave the single market, take back immigration control, as well as legislative sovereignty at all levels. After a string of positive economic data, UK Retail Sales released Friday showed a much sharper slowdown than expected; m/m retail sales were down 2% compared to forecasts of -0.1%. Some analysts are saying this may be only the beginning of more severe fallout from the Brexit as the invocation of Article 50 looms in March.
On the corporate front, financial names began the holiday-shortened week hurt by lower bond yields and a disappointing investor reaction to Morgan Stanley, Comerica and Goldman earnings, despite generally solid quarters. Industrials showed some strength this week following news that CP's CEO may pursue an activist role with other railroads and after solid earnings from Union Pacific. IBM beat consensus estimates, and positive comments from analysts lifted shares into the weekend.
SUNDAY 1/15
(UK) PM May to deliver a speech on Tuesday, Jan 17th calling for 'clean and hard Brexit' - UK press
LUX.IT Said to have reached €50B merger agreement with Essilor; deal to be announced before the market opens today - FT
MONDAY 1/16
(US) IMF UPDATES ITS WORK ECONOMIC OUTLOOK (WEO): Maintains 2017 and 2018 global growth forecasts
RIO.AU Reports Q4 global iron ore production 73.6Mt v 72.7Mte; shipments 87.7Mt v 86.8Mte, +1% y/y
TUESDAY 1/17
RAI BAT to acquire remaining stake for ~$59.64/shr valued at $49.4B
(UK) DEC CPI M/M: 0.5% V 0.3%E; Y/Y: 1.6% V 1.4%E; CPI CORE Y/Y: 1.6% V 1.4%E (highest annual reading since July 2014)
(UK) DEC PPI INPUT M/M: 1.8% V 2.4%E; Y/Y: 15.8% V 15.5%E
(DE) GERMANY JAN ZEW CURRENT SITUATION SURVEY: 77.3 V 65.0E; EXPECTATIONS SURVEY: 16.6 V 18.4E
(UK) PM May: UK is leaving EU; will seek the best deal possible; not seeking partial or associate membership of EU (in-line with speculation); will be compromises in Brexit - Brexit
(SA) Saudi Min Energy Min al Falih: Oil market strength could end OPEC deal in 6 months; if OPEC does not extend cuts, that is a bullish sign for oil
(US) JAN EMPIRE MANUFACTURING: 6.5 V 8.5E
(CN) CHINA DEC PROPERTY PRICES M/M: RISE IN 46 OUT OF 70 CITIES VS 55 PRIOR; Y/Y: RISE IN 65 OUT OF 70 CITIES V 65 PRIOR
WEDNESDAY 1/18
ASML.NL Reports Q4 Net €524M v €416Me, Rev €1.91B v €1.77Be; Board to propose FY16 dividend at €1.20/shr from €1.05/shr in FY15
BRBY.UK Reports Q3 Retail rev £735M v £721Me; SSS +3% v +1.4%e
(UK) NOV AVERAGE WEEKLY EARNINGS 3M/Y: 2.8% V 2.6%E (highest since Sept 2015) ; WEEKLY EARNINGS (EX BONUS) 3M/Y: 2.7% V 2.6%E
(UK) NOV ILO UNEMPLOYMENT RATE 3M/3M: 4.8% V 4.8%E
(UK) DEC JOBLESS CLAIMS CHANGE: -10.1K V +5.0KE; CLAIMANT COUNT RATE: 2.3% V 2.3%E
(EU) EURO ZONE DEC CPI M/M: 0.5% V 0.5%E; Y/Y (FINAL): 1.1% V 1.1%E; CPI CORE Y/Y: 0.9% V 0.9%E
GS Reports Q4 $5.08 v $4.76e, R$8.17B v $7.43Be
C Reports Q4 $1.14 v $1.11e, R$17.0B v $17.0Be
(US) DEC CPI M/M: 0.3% V 0.3%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI INDEX NSA: 241.432 V 241.508E
(US) DEC INDUSTRIAL PRODUCTION M/M: 0.8% V 0.6%E; CAPACITY UTILIZATION: 75.5% V 75.4%E
(CA) BANK OF CANADA (BOC) LEFT INTEREST RATES UNCHANGED AT 0.50%; AS EXPECTED
(US) JAN NAHB HOUSING MARKET INDEX: 67 V 69E
(US) Association of American Railroads weekly rail traffic report for week ending Jan 14th: 516.2K carloads and intermodal units, +2% y/y
(US) Fed Chair Yellen: next rate hike will depend on economy over coming months
(US) NOV TOTAL NET TIC FLOWS: $23.7B V $18.8B PRIOR; NET LONG-TERM TIC FLOWS: $30.8B V $9.4B PRIOR
CP Reports Q4 C$3.04 v C$2.72 y/y, Rev C$1.64B v C$1.69B y/y; CEO Hunter Harrison to retire early to 'pursue opportunities involving other Class 1 Railroads'
(AU) AUSTRALIA DEC EMPLOYMENT CHANGE: +13.5K (3rd straight increase) V +10.0KE; UNEMPLOYMENT RATE: 5.8% (6-month high) V 5.7%E
THURSDAY 1/19
CA.FR Reports Q4 Rev €23.4B v €23.3Be
(MY) MALAYSIA CENTRAL BANK (BNM) LEAVES OVERNIGHT POLICY RATE (OPR) UNCHANGED AT 3.00%; AS EXPECTED
(EU) ECB LEAVES MAIN 7-DAY REFINANCING RATE UNCHANGED AT 0.00%; AS EXPECTED
*(US) INITIAL JOBLESS CLAIMS: 234K V 252KE; CONTINUING CLAIMS: 2.05M V 2.08ME
(US) DEC HOUSING STARTS: 1.226M V 1.188ME; BUILDING PERMITS: 1.210M V 1.225ME
(US) JAN PHILADELPHIA FED BUSINESS OUTLOOK: 23.6 V 15.3E
(EU) ECB's Draghi: Reiterates view that interest rates to stay low or lower for extended period - prepared remarks
(EU) ECB's Draghi: Have not discussed reducing stimulus at today's meeting (no tapering); inflation has to be sustained for the whole Euro Area - Q&A
(US) Atlanta Fed maintains Q4 GDP forecast at 2.8%, same as 1/13
*(US) DOE CRUDE: +2.3M V 0ME; GASOLINE: +6.0M V +1.5ME; DISTILLATE: -1.0M V 0ME
U.S. 5-YEAR TIPS BREAKEVEN RATE HITS 1.96 PCT, HIGHEST SINCE AUGUST 2014
(CL) CHILE CENTRAL BANK (BCCH) CUTS OVERNIGHT RATE TARGET BY 25BPS TO 3.25%; AS EXPECTED
IBM Reports Q4 $5.01 v $4.89e, R$21.8B v $21.6Be
(US) Fed Chair Yellen: sees inflation to rise to 2% over next couple of years; monetary policy stance remains modestly accommodative
(CN) CHINA DEC INDUSTRIAL PRODUCTION Y/Y: 6.0% (5-month low) V 6.1%E; 2016: 6.0% V 6.0%E
(CN) CHINA DEC RETAIL SALES Y/Y: 10.9% (1-year high) V 10.7%E; 2016: 10.4% V 10.4%E
(CN) CHINA DEC FIXED ASSETS EX RURAL YTD Y/Y: 8.1% (4-month low) V 8.3%E
(CN) CHINA Q4 GDP Q/Q: 1.7% V 1.7%E; Y/Y: 6.8% V 6.7%E (highest annual reading in 1-year)
FRIDAY 1/20
(UK) DEC RETAIL SALES (EX-AUTO/FUEL) M/M: -2.0% V -0.4%E; Y/Y: 4.9% V 7.5%E
(UK) DEC RETAIL SALES (INCLUDING AUTO/ FUEL) M/M: -1.9% V -0.1%E; Y/Y: 4.3% V 7.2%E
SLB Reports Q4 $0.27 v $0.27e, R$7.11B v $7.10Be
(US) President Trump administration updates WhiteHouse.gov website to highlight key issues and goals, starting with 'America First' foreign policy and energy policy
Friday, January 20, 2017
Saturday, January 14, 2017
Barrons weekend update
Barrons weekend update: Part 1 of annual roundtable
Cover story: The first 2017 Barron's Roundtable features comments from Scott Black, Jeffrey Gundlach, Oscar Schafer, Abby Joseph Cohen, William Priest, Meryl Witmer, Mario Gabelli, Brian Rogers, and Felix Zulauf; The panelists say that rising bond yields, rich valuations, and global turmoil could limit the market's gains, while the "regime change in Washington will push tax cutters and regulatory reformers back to power."
Features:
1) Barron's 2016 stock picks beat the market, with top pick X delivering a 120% return, and combined bullish picks returning 12.8%;
2) Despite the growing popularity of National Front candidate Marine Le Pen, the most likely winner of France's presidential election is Francois Fillon, whose pro-business stance would benefit Renault, BNP Paribas, TOT and other French companies;
3) Peabody Energy investors are upset because the company's bankruptcy reorganization plan would wipe out shareholders and give the company to management and hedge funds that own its debt.
Tech Trader: Earnings results may be fine for some Internet giants, but their shares aren't likely to move much this year amid cooling investor sentiment and regime change in Washington.
Trader: The so-called Trump trade has five stages, says DB strategist Alan Ruskin, and the market has only just moved past the first one; Under the Trump administration, the key to success for pharmaceutical investors will be finding companies with more innovation and less exposure to pricing pressures; Thomas Lee of Fundstrat Global Advisors recommends oil investors take advantage of an industry rebound with RIG, ATW, RDC, DO, HP, NBR, PTEN, and UNT.
Profile: George Cipolloni and Mark Saylor, co-managers of the Berwyn Income fund, continuously screen a wide range of assets to find price anomalies (top 10 holdings: Nintendo, TSRA, PBI, PHG, SNI, FLIR, GSK, Carlsberg, GME, GLW). Penta: Joseph Amato, chief information officer at Neuberger Berman, says the economy is still catching up to the Fed's interest rate hike, a "major shift in monetary policy that has yet to solidify."
Small Cap: Positive on REV: Compared to rivals such as COTY, EL, and L'Oreal, Revlon shares look undervalued, and the company's recession-resistant business generates stable cash flows.
Follow-Up: Positive on GS: Though investors may be tempted to take their profits on Goldman shares, which are up 72% since last summer, the firm stands to benefit from a rebounding economy, and the stock could get another 15% boost.
European Trader: Positive on UL: Consumer-products major has made smart, accretive, growth-boosting acquisitions, and is making more products in countries where they are sold, reducing transportation costs. Asian Trader: For investors in Chinese stocks, tech has long been a major draw, but infrastructure spending in China is likely to boost steel and cement companies such as Baosteel and Anhui Conch Cement.
Emerging Markets: "Mexico once advertised itself as 'The Amigo Country,' but for investors in 2017 it isn't looking like a friendly place," and the peso has yet to hit bottom.
Commodities: For most commodity watchers, the run-up in iron ore prices was the result of China's credit-fueled steel demand and speculative activity, and they predict a drop in prices when new supply hits the market.
Streetwise: With U.S.-China relations likely to hit a rocky patch when Donald Trump moves into the White House, a "honeymoon of sorts is developing between U.S. and Russia," says Joseph Quinlan of U.S. Trust, bringing "asymmetric risks" to U.S. companies.
Friday, January 13, 2017
Trump Rally" Stalled…by Trump
TradeTheNews.com Weekly Market Update: "Trump Rally" Stalled…by Trump
Fri, 13 Jan 2017 16:11 PM EST
Traders took a more realistic look this week at the incoming US Administration after two months of stronger markets built on optimism about the unified Republican government. US stock markets seemed to digest the lack of further information about policy implementation at Trump's press conference on Wednesday. After hearing little in the way of details or impetus for fiscal stimulus measures, the market sold off, locking in profits and buying bonds. Trump did however, once again allude to a significant border tax which kept concerns of a looming trade war with China from abating. For the week, the DJIA lost % and the S&P edged down %, while Nasdaq rose %, marking new record highs.
The US dollar continued to retreat from its recent highs against most major currencies. Some strong GDP growth data helped currencies like the Euro and the Pound in particular. Emerging market currencies continued to feel the bite of possible trade barriers from the new Administration as the Mexican peso reached new lows against the US dollar, trading at 22.00 peso to the dollar at one point.
Gold stayed in rally mode for a third straight week as investors sought a safe haven given the sharp increase in stock prices and rise in US dollar. Over the last part of 2016 Gold lost 12.5% from July through December, making the precious metal attractive again. US bonds finished the week to the downside as stocks become more popular again and investors demanded higher yields for fixed income; the 10-Year Treasury yield rose 3bps on Friday.
Much of the corporate news this week revolved around pharma names. On Monday, Ariad Pharma was acquired by Takeda for $24/share in a ~$5.2B all-cash deal, and at the JPMorgan Health conference both Gilead and J&J management reiterated their commitment to pipeline-expanding M&A. President-elect Trump weighed in on the drug pricing debate, opining that the pharma industry is 'getting away with murder' and that it is time to change the medical bidding structure. US regulators turned their gaze towards Fiat Chrysler this week, with the EPA accusing the company of Clean Air violations over potential diesel cheating software, similar to Volkswagen's predicament; the DOJ and Congress are also reportedly considering looking into Fiat's marketing practices of diesel vehicles. And as the week came to a close, earnings season began to rear its head. Financial names Wells Fargo, JP Morgan and Bank of America announced mixed-to-OK results, as sector analysts wait to see precisely what deregulation orders will be issued by the Trump cabinet and as more interest rate hikes lay on the horizon.
SUN 1/8
(CN) CHINA DEC FOREIGN RESERVES: $3.011T V $3.052T PRIOR; (6th consecutive decline and lowest level in 6 years)
MCD: Citic confirms acquisition of controlling interest in McDonalds China assets in a deal valued at $2.1B
MONDAY 1/9
(EU) EURO ZONE JAN SENTIX INVESTOR CONFIDENCE: 18.2 V 12.8E (highest reading since Aug)
(EU) EURO ZONE NOV UNEMPLOYMENT RATE: 9.8% V 9.8%E (matches lowest level since Sept 2011)
ARIA: To be acquired by Takeda for $24/Shr in cash; valued at ~$5.2B
(US) Dec Labor Market Conditions Index Change: -0.3 v +2.1 m/m
ILMN: Says new 'NovaSeq' DNA sequencer will be able to sequence a human genome in one hour (vs current technology that takes over 24 hours) - JP Morgan conf comments
(CN) CHINA DEC CPI M/M: 0.2% V 0.1% PRIOR; Y/Y: 2.1% V 2.2%E
(CN) CHINA DEC PPI Y/Y: 5.5% V 4.6%E (4th straight positive print and highest level since Sept 2011)
TUESDAY 1/10
(CN) China Passenger Car Association (PCA): China Dec retail auto sales at 2.76M units, y/y: +17.1% v +19.8% prior; 2016 sales23.9M units, +15.9% y/y
2317.TW: Reports Dec Rev NT$449.6B, +9.8% y/y; 2016 Rev NT$4.36T, -2.8% y/y
(US) Atlanta Fed maintains Q4 GDP forecast at 2.9%, same as Jan 6th
(US) World Bank cuts 2017 and 2018 global growth forecasts; warns Trump tariff proposals could trigger protectionist retaliation - Global Economic Prospects report
WEDNESDAY 1/11
(UK) NOV INDUSTRIAL PRODUCTION M/M: 2.1% V 1.0%E; Y/Y: 2.0% V 0.7%E
(UK) NOV MANUFACTURING PRODUCTION M/M: 1.3% V 0.5%E; Y/Y: 1.2% V 0.4%E
(PL) POLAND CENTRAL BANK (NBP) LEAVES BASE RATE UNCHANGED AT 1.50%; AS EXPECTED
GBP/USD: Cable falls to lowest levels since Oct Brexit vote
(US) DOE CRUDE: +4.1M V +0.5ME; GASOLINE: +5.0M V +1.5ME; DISTILLATE: +8.4M V +0.5ME
(US) President-elect Trump: will be big news in next few weeks about other companies bringing jobs to the US - news conf in New York
IBB: Drops to session lows on Trump comments
(US) Association of American Railroads weekly rail traffic report for week ending Jan 7th: 441.4K carloads and intermodal units, -11.4% y/y
(BR) BRAZIL CENTRAL BANK (BCB) CUTS SELIC TARGET RATE BY 75BPS TO 13.00%; MORE THAN EXPECTED (Largest cut since Apr 2012)
THURSDAY 1/12
TSCO.UK: Reports Q3 UK LFL (ex-fuel, ex VAT) 1.8% v 1.7%e
DEB.UK: Reports Q1 LFL +3.5%
(DE) Germany 2016 asylum seekers 280K v 890K y/y
(CN) CHINA DEC M2 MONEY SUPPLY Y/Y: 11.3% V 11.4%E (5-month low)
Gartner Says Worldwide Semiconductor capital spending seen +2.9% in 2017
(US) Fed's Bullard (FOMC non-voter, Dovish): rates went up in response to election, but now the Trump administration will have to deliver - CNBC
(US) INITIAL JOBLESS CLAIMS: 247K V 255KE; CONTINUING CLAIMS: 2.087M V 2.09ME
(US) DEC IMPORT PRICE INDEX M/M: 0.4% V 0.7%E; Y/Y: 1.8% V 1.8%E
HES: Guides FY17 E&P capital budget $2.25B v $1.9B y/y, +18% y/y; Guides 2017 net production ex Libya 300-310K boed v 315-325K boed y/y
FCAU: EPA to charge that Fiat Chrysler used diesel emissions cheating software in 100K vehicles sold in the US since 2014 - press
(PE) PERU CENTRAL BANK (BRCP) LEAVES REFERENCE RATE UNCHANGED AT 4.25% (as expected)
APC: Announces sale of Eagleford Shale assets for $2.3B
(US) Fed Chair Yellen: Economy doing quite well; Inflation has picked up from low level, close to 2% target; Labor market generally strong and wage growth picking up
(KR) BANK OF KOREA (BOK) LEAVES 7-DAY REPO RATE UNCHANGED AT 1.25%; AS EXPECTED
(CN) CHINA DEC TRADE BALANCE (CNY-TERMS): 275B V 344.5BE (9-month low)
FRIDAY 1/13
BAC: Reports Q4 $0.40 v $0.38e, R$20.0B v $20.6Be; Increases stock buyback for H1 by $1.8B to $4.3B (total 1.9% of market cap)
JPM: Reports Q4 $1.71 (includes tax benefit) v $1.42e, R$23.4B v $23.2Be
(US) DEC ADVANCE RETAIL SALES M/M: 0.6% V 0.7%E; RETAIL SALES EX AUTO M/M: 0.2% V 0.5%E
(US) DEC PPI FINAL DEMAND M/M: 0.3% V 0.3%E; Y/Y: 1.6% V 1.6%E
(US) JAN PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 98.1 V 98.5E
(US) Atlanta Fed cuts Q4 GDP forecast to 2.8% from 2.9% on 1/10
(UK) PM May's Article 50 plans reportedly might be delayed for months due to Northern Ireland Assembly turmoil - British press
(US) Weekly Baker Hughes US Rig Count: 659 v 665 w/w (-0.9%) (first decline in 9 weeks)
DBRS DOWNGRADES ITALY SOVEREIGN RATING TO BBB (HIGH) FROM A (LOW); STABLE TREND
Fri, 13 Jan 2017 16:11 PM EST
Traders took a more realistic look this week at the incoming US Administration after two months of stronger markets built on optimism about the unified Republican government. US stock markets seemed to digest the lack of further information about policy implementation at Trump's press conference on Wednesday. After hearing little in the way of details or impetus for fiscal stimulus measures, the market sold off, locking in profits and buying bonds. Trump did however, once again allude to a significant border tax which kept concerns of a looming trade war with China from abating. For the week, the DJIA lost % and the S&P edged down %, while Nasdaq rose %, marking new record highs.
The US dollar continued to retreat from its recent highs against most major currencies. Some strong GDP growth data helped currencies like the Euro and the Pound in particular. Emerging market currencies continued to feel the bite of possible trade barriers from the new Administration as the Mexican peso reached new lows against the US dollar, trading at 22.00 peso to the dollar at one point.
Gold stayed in rally mode for a third straight week as investors sought a safe haven given the sharp increase in stock prices and rise in US dollar. Over the last part of 2016 Gold lost 12.5% from July through December, making the precious metal attractive again. US bonds finished the week to the downside as stocks become more popular again and investors demanded higher yields for fixed income; the 10-Year Treasury yield rose 3bps on Friday.
Much of the corporate news this week revolved around pharma names. On Monday, Ariad Pharma was acquired by Takeda for $24/share in a ~$5.2B all-cash deal, and at the JPMorgan Health conference both Gilead and J&J management reiterated their commitment to pipeline-expanding M&A. President-elect Trump weighed in on the drug pricing debate, opining that the pharma industry is 'getting away with murder' and that it is time to change the medical bidding structure. US regulators turned their gaze towards Fiat Chrysler this week, with the EPA accusing the company of Clean Air violations over potential diesel cheating software, similar to Volkswagen's predicament; the DOJ and Congress are also reportedly considering looking into Fiat's marketing practices of diesel vehicles. And as the week came to a close, earnings season began to rear its head. Financial names Wells Fargo, JP Morgan and Bank of America announced mixed-to-OK results, as sector analysts wait to see precisely what deregulation orders will be issued by the Trump cabinet and as more interest rate hikes lay on the horizon.
SUN 1/8
(CN) CHINA DEC FOREIGN RESERVES: $3.011T V $3.052T PRIOR; (6th consecutive decline and lowest level in 6 years)
MCD: Citic confirms acquisition of controlling interest in McDonalds China assets in a deal valued at $2.1B
MONDAY 1/9
(EU) EURO ZONE JAN SENTIX INVESTOR CONFIDENCE: 18.2 V 12.8E (highest reading since Aug)
(EU) EURO ZONE NOV UNEMPLOYMENT RATE: 9.8% V 9.8%E (matches lowest level since Sept 2011)
ARIA: To be acquired by Takeda for $24/Shr in cash; valued at ~$5.2B
(US) Dec Labor Market Conditions Index Change: -0.3 v +2.1 m/m
ILMN: Says new 'NovaSeq' DNA sequencer will be able to sequence a human genome in one hour (vs current technology that takes over 24 hours) - JP Morgan conf comments
(CN) CHINA DEC CPI M/M: 0.2% V 0.1% PRIOR; Y/Y: 2.1% V 2.2%E
(CN) CHINA DEC PPI Y/Y: 5.5% V 4.6%E (4th straight positive print and highest level since Sept 2011)
TUESDAY 1/10
(CN) China Passenger Car Association (PCA): China Dec retail auto sales at 2.76M units, y/y: +17.1% v +19.8% prior; 2016 sales23.9M units, +15.9% y/y
2317.TW: Reports Dec Rev NT$449.6B, +9.8% y/y; 2016 Rev NT$4.36T, -2.8% y/y
(US) Atlanta Fed maintains Q4 GDP forecast at 2.9%, same as Jan 6th
(US) World Bank cuts 2017 and 2018 global growth forecasts; warns Trump tariff proposals could trigger protectionist retaliation - Global Economic Prospects report
WEDNESDAY 1/11
(UK) NOV INDUSTRIAL PRODUCTION M/M: 2.1% V 1.0%E; Y/Y: 2.0% V 0.7%E
(UK) NOV MANUFACTURING PRODUCTION M/M: 1.3% V 0.5%E; Y/Y: 1.2% V 0.4%E
(PL) POLAND CENTRAL BANK (NBP) LEAVES BASE RATE UNCHANGED AT 1.50%; AS EXPECTED
GBP/USD: Cable falls to lowest levels since Oct Brexit vote
(US) DOE CRUDE: +4.1M V +0.5ME; GASOLINE: +5.0M V +1.5ME; DISTILLATE: +8.4M V +0.5ME
(US) President-elect Trump: will be big news in next few weeks about other companies bringing jobs to the US - news conf in New York
IBB: Drops to session lows on Trump comments
(US) Association of American Railroads weekly rail traffic report for week ending Jan 7th: 441.4K carloads and intermodal units, -11.4% y/y
(BR) BRAZIL CENTRAL BANK (BCB) CUTS SELIC TARGET RATE BY 75BPS TO 13.00%; MORE THAN EXPECTED (Largest cut since Apr 2012)
THURSDAY 1/12
TSCO.UK: Reports Q3 UK LFL (ex-fuel, ex VAT) 1.8% v 1.7%e
DEB.UK: Reports Q1 LFL +3.5%
(DE) Germany 2016 asylum seekers 280K v 890K y/y
(CN) CHINA DEC M2 MONEY SUPPLY Y/Y: 11.3% V 11.4%E (5-month low)
Gartner Says Worldwide Semiconductor capital spending seen +2.9% in 2017
(US) Fed's Bullard (FOMC non-voter, Dovish): rates went up in response to election, but now the Trump administration will have to deliver - CNBC
(US) INITIAL JOBLESS CLAIMS: 247K V 255KE; CONTINUING CLAIMS: 2.087M V 2.09ME
(US) DEC IMPORT PRICE INDEX M/M: 0.4% V 0.7%E; Y/Y: 1.8% V 1.8%E
HES: Guides FY17 E&P capital budget $2.25B v $1.9B y/y, +18% y/y; Guides 2017 net production ex Libya 300-310K boed v 315-325K boed y/y
FCAU: EPA to charge that Fiat Chrysler used diesel emissions cheating software in 100K vehicles sold in the US since 2014 - press
(PE) PERU CENTRAL BANK (BRCP) LEAVES REFERENCE RATE UNCHANGED AT 4.25% (as expected)
APC: Announces sale of Eagleford Shale assets for $2.3B
(US) Fed Chair Yellen: Economy doing quite well; Inflation has picked up from low level, close to 2% target; Labor market generally strong and wage growth picking up
(KR) BANK OF KOREA (BOK) LEAVES 7-DAY REPO RATE UNCHANGED AT 1.25%; AS EXPECTED
(CN) CHINA DEC TRADE BALANCE (CNY-TERMS): 275B V 344.5BE (9-month low)
FRIDAY 1/13
BAC: Reports Q4 $0.40 v $0.38e, R$20.0B v $20.6Be; Increases stock buyback for H1 by $1.8B to $4.3B (total 1.9% of market cap)
JPM: Reports Q4 $1.71 (includes tax benefit) v $1.42e, R$23.4B v $23.2Be
(US) DEC ADVANCE RETAIL SALES M/M: 0.6% V 0.7%E; RETAIL SALES EX AUTO M/M: 0.2% V 0.5%E
(US) DEC PPI FINAL DEMAND M/M: 0.3% V 0.3%E; Y/Y: 1.6% V 1.6%E
(US) JAN PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 98.1 V 98.5E
(US) Atlanta Fed cuts Q4 GDP forecast to 2.8% from 2.9% on 1/10
(UK) PM May's Article 50 plans reportedly might be delayed for months due to Northern Ireland Assembly turmoil - British press
(US) Weekly Baker Hughes US Rig Count: 659 v 665 w/w (-0.9%) (first decline in 9 weeks)
DBRS DOWNGRADES ITALY SOVEREIGN RATING TO BBB (HIGH) FROM A (LOW); STABLE TREND
Monday, January 9, 2017
January-February 2017 Market Outlook: Winter is Coming
TradeTheNews.com January-February 2017 Outlook: Winter is Coming
Mon, 09 Jan 2017 20:35 PM EST
The poll-defying outcome of the US election has sent ripples across the markets for the last two months. Since November 8, the dollar index is up over five percent and bond yields have spiked, as investors sold assets to buy dollar-denominated ones, betting the new US government will enact measures that boost economic growth and inflation. This shift wiped out well over $1 trillion of value in the global bond markets, even as stock indices soared to new record highs.
In the same timeframe the other late-2016 surprise - OPEC actually agreeing to a produce cut scheme - has firmed up energy prices. That along with some long overdue signs of wage growth has given some central banks the cover they need to begin contemplating pausing or even reversing their expansive monetary stimulus programs.
For various reasons, the stock market has had three bad Januarys in a row, and January 2017 may fall prey to the same pattern. The market euphoria over a Republican sweep that helped lift the DJIA to nearly 20,000 by year end was in part due to investors waiting to sell their winners until 2017 when the presumption is that capital gains will be lower under the new Administration. That could translate into delayed portfolio rebalancing in early January, and that selling may be exacerbated by traders starting to consider potential policy missteps by the Trump Administration which don't appear to have been factored in over two months since the election. At the first sign that the Republican love fest in Washington has soured investors may turn tail and run.
Out in the Cold (War)
The reflation rally may have more legs, but it will have to climb a steeper wall of worry. Aside from potential blunders by the rookie President, a new American leader is often tested by foreign powers early in his first term. Given Trump's campaign rhetoric questioning ties with old allies including the financing structures for NATO, the early antagonist may be Russia. Early in the New Year, President Putin may want test whether his deferential treatment of Trump has bought him any latitude in exerting Russian power in Syria, the Ukraine or even the Baltic states.
North Korea is another likely trouble spot. In recent weeks, South Korean officials have indicated that they expect a new provocation from the North, possibly in the form of a new nuclear weapons test (which would be the North's 6th such test). The North itself has proclaimed that it could also test launch an ICBM at "any time." Whether its North Korea, Iran, China, or Russia that prods Trump, it may reveal how he will behave as Commander-in-Chief - either following the established doctrine of proportional response or simply going with the gut instincts that seem to dominate his decision making process.
Inauguration Day is January 20, bringing with it the first US government controlled by a single party since President Obama's first two years in office. Republicans appear to be energized by their proposed agenda and may have learned a few things from the mistakes that bogged down the Democrats in the early Obama years. But it remains to be seen if the GOP can execute its big ideas, including the repeal of Obamacare, deregulation, and major tax reform. All of these ideas appeal to the party base, but executing the legislation well will be difficult in the sausage factory that is Washington DC, and Republicans leaders may have to woo Democratic votes to navigate around Senate filibuster rules.
There is already talk that it will take years of complex negotiating to replace Obamacare, so the repeal vote that Republicans plan in the early days of the new Congress will only be symbolic. Meanwhile the public will continue to get accustomed to the benefits received under the ACA and may get upset with changes in a future Republican healthcare plan. The same may be true of tax reform and deregulation efforts - the policy wonks in Washington will hail their own efforts but the ordinary citizen might not understand the intricacies of legal changes until they see some effect on their own pocketbooks years later (or until the first scandal breaks in a 'deregulated' industry).
Any goodwill toward the Republican agenda may come down to President Trump communicating the benefits of the changes he wants. During the campaign his simplistic messaging was good enough to get voters to sweep him into office as a 'change' candidate, but when he assumes the office, the American public may demand more details about Trump's plans than just a handful of adjectives about being "great" or "the best." Trump's first full press conference since the election will be held on Jan 11 and could be an indication of whether Washington has started to moderate the President-elect or if he will continue to shoot from the hip.
In the global picture, Mr. Trump's nationalist bent, and apparent belief that geopolitics is no different from business deal making, may leave a vacuum that rival powers seek to fill. Notably, Chinese Premier Li will headline the World Economic Forum in Davos later this month. Li's appearance is symbolic of China's efforts to gain more influence in the West, while consolidating its influence in East Asian after the death of the Trans-Pacific Partnership trade deal.
The Winter of Our Discount Rate
With political change afoot and with some governments finally looking at providing new fiscal measures to help their economies, many central banks are contemplating pulling back some monetary stimulus. That trend is being led by the Fed, which raised rates for the second time in December and promises to start normalizing rates in earnest this year, forecasting rates will go up another 75 basis points in the next twelve months.
The Fed may be in a wait and see mode during the early part of 2017, watching for the new Republican controlled government to follow through on promises of an assertive fiscal policy. As it stands, a lack of 'shovel ready' projects and clashes with fiscal conservatives may ultimately whittle down Trump's infrastructure spending plans.
If, however, substantive fiscal policy does materialize, the Fed may seize the opportunity to begin normalizing monetary policy. The latest Summary of Economic Projections from the Fed's December meeting predicted three rate hikes in 2017, but the Fed may surprise markets with an even more aggressive tightening schedule if the economy continues to gain its footing and has the added stimulus of an infrastructure investment plan and tax reform out of Washington.
Much of the Fed board now sees the US at essentially full employment (though some still see a bit of slack) and their attention is shifting toward the inflation mandate. Wages rebounded strongly in the December jobs data. Should that continue in early 2017 it could mean wage inflation is finally taking hold, perhaps due in part to many US states taking it upon themselves to bump up the minimum wage. And if OPEC can keep a floor under oil prices that could remove another nettlesome drag on prices that has weighed down inflation forecasts for the last two years.
Ironically the Fed could begin tightening more eagerly even as the voting memberships rotates out 2016's three dissenting hawks in favor of a decidedly more dovish group of Fed presidents. The FOMC will still be under the guidance of Chair Yellen until early 2018, but President Trump will get his chance to influence the seven-member board which still has two vacancies. Even as he has criticized Fed policy, Trump has declared himself to be a "low rate" guy, so its not yet clear what type of Fed governors he will nominate.
The rise in interest rates since the election is likely adding to the debate at the Fed. The doves may worry that the interest rate spike could raise borrowing costs and become a drag on economic activity. The hawks will counter that the increase in yields was a natural shift in the economic outlook in light of the election outcome, which could put the Fed at risk of falling behind the curve.
Despite all the anticipation of a tighten cycle after the December move, the Fed is not likely to take any new action at its February 1 policy meeting. At most the February statement will lay the groundwork for a possible hike in March, the next meeting with a scheduled press conference.
Winter Forexland
The ECB and BOE are also showing signs that stimulus efforts may be exhausted. The BOE surprised the markets in November by moving into a neutral stance (from easing), but given the overall trend of post-Brexit UK data beating expectations, the BOE is expected to hold policy steady in early 2017. Many analysts now believe that Governor Carney's next move could be a rate hike down the road as UK inflation edges its way back towards target.
Meanwhile, the ECB decided in December to prolong QE, but at a reduced pace. President Draghi said the committee had discussed continuing at the €80 billion pace for six more months but ultimately decided to cut it to €60 billion. He said there was "very broad consensus" on the decision, indicating that the doves made some concessions to German-led faction that sees a need to start ratcheting down monetary stimulus. Draghi however refused to call this action 'tapering' (suggesting that bond purchases could easily be restored to €80 billion) and said there was no discussion of taking QE to zero. In a nod to doves, he also implied that the accommodative policy framework could continue past 2019, as he noted the 1.7% CPI forecast for 2019 is "not really close" to the 2% inflation target.
In contrast to their western counterparts, officials at the Bank of Japan are still adamantly pushing stimulus. The post-US election shift in the bond market weakened the yen and pushed the yield on 10-year Japanese government bonds above zero for the first time in a couple months. That runs counter to the goals of the BOJ, which under 'Abenomics' has strove to end over a decade of debilitating deflation by buying JGBs to keep bond yields down.
Four years into the program, the BOJ has had little success at kindling inflation, despite boosting the annual QE program to ¥80 trillion and cutting the key rate to -0.1%. BOJ governor Kuroda has blamed low oil prices and weak emerging markets, perhaps ignoring Japan's burgeoning demographic issues. His critics have formulated the uphill battle this way: "Kuroda can print money, but not people." After some speculation that the BOJ might reverse course on its aggressive easing strategy, Kuroda boldly promised in a speech last fall that he would keep the 10-year JGB yield at near zero until inflation surpasses the 2% target rate. "It is often argued that there is a limit to monetary easing but I do not share such a view," he declared. As rising Fed rates shift global conditions, Kuroda's promise will become harder to achieve, but for now it appears he is unwavering.
One central bank that may be open to additional easing is the PBoC. Though the Chinese central bank's official monetary policy stance remains at "prudent", the China Banking Regulatory Commission (CBRC) recently proposed that the Reserve Ratio Requirement (RRR) for commercial banks be cut at an "appropriate time." The last RRR cut came in October 2015, so a new cut might be timed to help boost liquidity ahead of the Spring festival Golden Week holiday that begins on Jan 29. As ever it remains difficult to tell if officials would actually implement a fresh rate cut or if this CBRC rhetoric is another ploy by the Chinese government to keep the investor class off balance as it battles capital flight.
For the time being there is not much standing in the way of the strong dollar trend, which is reflective of US monetary policy getting out of the trenches before other central banks, thanks to the relative strength of the American economy. The dollar has pushed the euro to a 14-year low below 1.04 as robust US economic data have outstripped any signs of recovery in the Euro Zone. A more concrete demonstration that corporate tax reform will become a reality in the Congress could extend the reign of King Dollar in early 2017. Many currency analysts are now eyeing EUR/USD parity, which was last tested in December 2002.
The pound sterling may also weaken further against the greenback as the starting gun for the Brexit process is set to be fired in March. After the Brexit vote squashed GBP/USD to a 30-year low, the pound is wending its way toward the 1.1950 low it hit during a still unexplained 'flash crash' in early October (still a long way from the all-time GBP/USD of 1.05 set in February 1985 at the height of the Reagan/Volcker era).
Indeed the movement in the forex market since the election has raised alarm bells at the IMF, whose chief economist Obstfeld is concerned about it sparking a crisis in emerging markets, which have much of their debt priced in dollars. Weaker domestic currencies could make those debts harder to pay. Already we have seen Mexico central bank raise rates by a surprise 50 basis points in December and then openly intervene in FX markets trying to defend the peso (without much success, as the peso swoons after each Trump tweet on a business moving from Mexico to the US).
Oil Freeze
The prospects for less easy central bank policy may depend on energy prices finally rebounding, meaning monetary officials are to some extent counting on OPEC's production scheme to pan out. OPEC confounded many predictions when it actually pulled together a deal to cut oil production by 1.2 million bpd within the cartel. The promised output cuts went into effect on the first of the year and many non-OPEC producers have agreed to follow suit with over half a million more bpd in cuts, led by Russia ramping down its production over several months. Anticipation of the initial six month agreement has already boosted oil prices back into the mid-$50's range, and if producers follow through, crude could push toward $60/barrel.
The problem is, as former Saudi Oil Minister Al-Naimi said candidly right after the deal was struck, "we tend to cheat." Historically, OPEC members have exceeded production quotas on a routine basis, and if that occurs this time it could undermine the hard-won agreement. To limit cheating, the signatories of the production deal have agreed to establish a monitoring council that will meet regularly starting in mid-January.
The fact that the Saudi's agreed to shoulder about half of the OPEC production cuts while allowing their biggest political rival, Iran, to slightly increase output seems to indicate that the Kingdom is serious about the agreement. That combined with the establishment of the monitoring committee should keep the production deal on track for its initial six month trial period. Oil analysts are generally expecting to see 75% compliance, which should be enough to prevent crude prices from suffering another collapse. If the accord is successful OPEC could extend the agreement another six months through year end. The upshot is that the declarations of the monitoring committee will be followed closely and if it uncovers unacceptable amounts of cheating, it could scuttle the chances for the output cuts to continue past mid-year.
CALENDAR
JANUARY
2: New Year's Day (observed US, UK); Euro Zone Manufacturing PMI; Japan Manufacturing PMI
3: Euro Zone Unemployment; UK Manufacturing & Construction PMIs; US ISM Manufacturing PMI
4: UK Services PMI; Euro Zone Flash CPI Estimate; US ISM Non-Manufacturing PMI; FOMC Dec Minutes
5: ECB Dec Minutes
6: German Factory Orders; German Retail Sales; US Payrolls & Unemployment; US Factory Orders
8: China CPI & PPI
9:
10: US JOLTS Job Openings
11: UK Manufacturing Production
12: US Import Prices; China Trade Balance (tentative)
13: BOE Credit Conditions Survey; US Retail Sales; US PPI; US Prelim UofM Consumer Sentiment
16: China Q4 GDP; China Industrial Production; MLK Jr. Day Holiday (US)
17: UK CPI & PPI; German ZEW Economic Sentiment; US Empire Manufacturing; Davos conference (4 days)
18: UK Unemployment & Claimant Count; US CPI; US Industrial Production & Capacity
19: ECB Policy Decision and Press Conference; US Housing Starts & Building Permits; US Philly Fed Manufacturing Index
20: UK Retail Sales; US Presidential Inauguration
23: Euro Zone Manufacturing & Services PMIs
24: US Existing Home Sales; Italian constitutional court ruling on election law
25:
26: UK Prelim Q4 GDP; US New Home Sales; Tokyo Core CPI
27: US Advance Q4 GDP; US Durable Goods Orders
29: China Spring Festival Golden Week holiday (through Feb 2)
30: US Personal Income & Spending; BOJ Policy Statement
31: German Retail Sales; German Unemployment; Euro Zone Flash CPI; Euro Zone Flash GDP; US Chicago PMI; US Consumer Confidence; China Manufacturing & Non-Manufacturing PMIs
FEBRUARY
1: UK Manufacturing PMI; US ISM Manufacturing PMI; FOMC Policy Statement (no press conf)
2: UK Construction PMI; BOE Policy Decision; BOE Inflation Report; US Non-farm Productivity
3: UK Services PMI; US Payrolls & Unemployment
6: German Factory Orders
7: US Trade Balance; US JOLTS Jobs Openings; China Trade Balance
8: China CPI & PPI
9:
10: UK Manufacturing Production; US Prelim UofM Consumer Sentiment; US Mortgage Delinquency Report (tentative)
12: Japan Preliminary Q4 GDP
13:
14: German Preliminary Q4 GDP; UK CPI & PPI; Euro Zone Q4 Flash GDP; German ZEW Economic Sentiment; US PPI
15: UK Unemployment & Claimant Count; US CPI; US Retail Sales; US Empire Manufacturing Index; US Industrial Production & Capacity Utilization
16: ECB Jan Minutes; US Housing Starts & Building Permits; US Philly Fed Manufacturing
17: UK Retail Sales
20: President's Day Holiday (US)
21: UK Inflation Report Hearings
22: Euro Zone Flash Manufacturing & Services PMIs; Euro Zone Fina CPI; US Existing Home Sales; FOMC Jan Minutes
23: UK Q4 GDP (second estimate); US Housing Starts
24: US New Home Sales
27: US Durable Goods
28: Euro Zone Flash CPI Estimate; US Prelim Q4 GDP (second estimate); US Consumer Confidence; China Manufacturing & Non-manufacturing PMIs
MARCH
1: UK Manufacturing PMI; US Personal Income & Spending; US ISM Manufacturing PMI
2: UK Construction PMI; Tokyo Core CPI
3: UK Services PMI; US ISM Non-Manufacturing PMI
Mon, 09 Jan 2017 20:35 PM EST
The poll-defying outcome of the US election has sent ripples across the markets for the last two months. Since November 8, the dollar index is up over five percent and bond yields have spiked, as investors sold assets to buy dollar-denominated ones, betting the new US government will enact measures that boost economic growth and inflation. This shift wiped out well over $1 trillion of value in the global bond markets, even as stock indices soared to new record highs.
In the same timeframe the other late-2016 surprise - OPEC actually agreeing to a produce cut scheme - has firmed up energy prices. That along with some long overdue signs of wage growth has given some central banks the cover they need to begin contemplating pausing or even reversing their expansive monetary stimulus programs.
For various reasons, the stock market has had three bad Januarys in a row, and January 2017 may fall prey to the same pattern. The market euphoria over a Republican sweep that helped lift the DJIA to nearly 20,000 by year end was in part due to investors waiting to sell their winners until 2017 when the presumption is that capital gains will be lower under the new Administration. That could translate into delayed portfolio rebalancing in early January, and that selling may be exacerbated by traders starting to consider potential policy missteps by the Trump Administration which don't appear to have been factored in over two months since the election. At the first sign that the Republican love fest in Washington has soured investors may turn tail and run.
Out in the Cold (War)
The reflation rally may have more legs, but it will have to climb a steeper wall of worry. Aside from potential blunders by the rookie President, a new American leader is often tested by foreign powers early in his first term. Given Trump's campaign rhetoric questioning ties with old allies including the financing structures for NATO, the early antagonist may be Russia. Early in the New Year, President Putin may want test whether his deferential treatment of Trump has bought him any latitude in exerting Russian power in Syria, the Ukraine or even the Baltic states.
North Korea is another likely trouble spot. In recent weeks, South Korean officials have indicated that they expect a new provocation from the North, possibly in the form of a new nuclear weapons test (which would be the North's 6th such test). The North itself has proclaimed that it could also test launch an ICBM at "any time." Whether its North Korea, Iran, China, or Russia that prods Trump, it may reveal how he will behave as Commander-in-Chief - either following the established doctrine of proportional response or simply going with the gut instincts that seem to dominate his decision making process.
Inauguration Day is January 20, bringing with it the first US government controlled by a single party since President Obama's first two years in office. Republicans appear to be energized by their proposed agenda and may have learned a few things from the mistakes that bogged down the Democrats in the early Obama years. But it remains to be seen if the GOP can execute its big ideas, including the repeal of Obamacare, deregulation, and major tax reform. All of these ideas appeal to the party base, but executing the legislation well will be difficult in the sausage factory that is Washington DC, and Republicans leaders may have to woo Democratic votes to navigate around Senate filibuster rules.
There is already talk that it will take years of complex negotiating to replace Obamacare, so the repeal vote that Republicans plan in the early days of the new Congress will only be symbolic. Meanwhile the public will continue to get accustomed to the benefits received under the ACA and may get upset with changes in a future Republican healthcare plan. The same may be true of tax reform and deregulation efforts - the policy wonks in Washington will hail their own efforts but the ordinary citizen might not understand the intricacies of legal changes until they see some effect on their own pocketbooks years later (or until the first scandal breaks in a 'deregulated' industry).
Any goodwill toward the Republican agenda may come down to President Trump communicating the benefits of the changes he wants. During the campaign his simplistic messaging was good enough to get voters to sweep him into office as a 'change' candidate, but when he assumes the office, the American public may demand more details about Trump's plans than just a handful of adjectives about being "great" or "the best." Trump's first full press conference since the election will be held on Jan 11 and could be an indication of whether Washington has started to moderate the President-elect or if he will continue to shoot from the hip.
In the global picture, Mr. Trump's nationalist bent, and apparent belief that geopolitics is no different from business deal making, may leave a vacuum that rival powers seek to fill. Notably, Chinese Premier Li will headline the World Economic Forum in Davos later this month. Li's appearance is symbolic of China's efforts to gain more influence in the West, while consolidating its influence in East Asian after the death of the Trans-Pacific Partnership trade deal.
The Winter of Our Discount Rate
With political change afoot and with some governments finally looking at providing new fiscal measures to help their economies, many central banks are contemplating pulling back some monetary stimulus. That trend is being led by the Fed, which raised rates for the second time in December and promises to start normalizing rates in earnest this year, forecasting rates will go up another 75 basis points in the next twelve months.
The Fed may be in a wait and see mode during the early part of 2017, watching for the new Republican controlled government to follow through on promises of an assertive fiscal policy. As it stands, a lack of 'shovel ready' projects and clashes with fiscal conservatives may ultimately whittle down Trump's infrastructure spending plans.
If, however, substantive fiscal policy does materialize, the Fed may seize the opportunity to begin normalizing monetary policy. The latest Summary of Economic Projections from the Fed's December meeting predicted three rate hikes in 2017, but the Fed may surprise markets with an even more aggressive tightening schedule if the economy continues to gain its footing and has the added stimulus of an infrastructure investment plan and tax reform out of Washington.
Much of the Fed board now sees the US at essentially full employment (though some still see a bit of slack) and their attention is shifting toward the inflation mandate. Wages rebounded strongly in the December jobs data. Should that continue in early 2017 it could mean wage inflation is finally taking hold, perhaps due in part to many US states taking it upon themselves to bump up the minimum wage. And if OPEC can keep a floor under oil prices that could remove another nettlesome drag on prices that has weighed down inflation forecasts for the last two years.
Ironically the Fed could begin tightening more eagerly even as the voting memberships rotates out 2016's three dissenting hawks in favor of a decidedly more dovish group of Fed presidents. The FOMC will still be under the guidance of Chair Yellen until early 2018, but President Trump will get his chance to influence the seven-member board which still has two vacancies. Even as he has criticized Fed policy, Trump has declared himself to be a "low rate" guy, so its not yet clear what type of Fed governors he will nominate.
The rise in interest rates since the election is likely adding to the debate at the Fed. The doves may worry that the interest rate spike could raise borrowing costs and become a drag on economic activity. The hawks will counter that the increase in yields was a natural shift in the economic outlook in light of the election outcome, which could put the Fed at risk of falling behind the curve.
Despite all the anticipation of a tighten cycle after the December move, the Fed is not likely to take any new action at its February 1 policy meeting. At most the February statement will lay the groundwork for a possible hike in March, the next meeting with a scheduled press conference.
Winter Forexland
The ECB and BOE are also showing signs that stimulus efforts may be exhausted. The BOE surprised the markets in November by moving into a neutral stance (from easing), but given the overall trend of post-Brexit UK data beating expectations, the BOE is expected to hold policy steady in early 2017. Many analysts now believe that Governor Carney's next move could be a rate hike down the road as UK inflation edges its way back towards target.
Meanwhile, the ECB decided in December to prolong QE, but at a reduced pace. President Draghi said the committee had discussed continuing at the €80 billion pace for six more months but ultimately decided to cut it to €60 billion. He said there was "very broad consensus" on the decision, indicating that the doves made some concessions to German-led faction that sees a need to start ratcheting down monetary stimulus. Draghi however refused to call this action 'tapering' (suggesting that bond purchases could easily be restored to €80 billion) and said there was no discussion of taking QE to zero. In a nod to doves, he also implied that the accommodative policy framework could continue past 2019, as he noted the 1.7% CPI forecast for 2019 is "not really close" to the 2% inflation target.
In contrast to their western counterparts, officials at the Bank of Japan are still adamantly pushing stimulus. The post-US election shift in the bond market weakened the yen and pushed the yield on 10-year Japanese government bonds above zero for the first time in a couple months. That runs counter to the goals of the BOJ, which under 'Abenomics' has strove to end over a decade of debilitating deflation by buying JGBs to keep bond yields down.
Four years into the program, the BOJ has had little success at kindling inflation, despite boosting the annual QE program to ¥80 trillion and cutting the key rate to -0.1%. BOJ governor Kuroda has blamed low oil prices and weak emerging markets, perhaps ignoring Japan's burgeoning demographic issues. His critics have formulated the uphill battle this way: "Kuroda can print money, but not people." After some speculation that the BOJ might reverse course on its aggressive easing strategy, Kuroda boldly promised in a speech last fall that he would keep the 10-year JGB yield at near zero until inflation surpasses the 2% target rate. "It is often argued that there is a limit to monetary easing but I do not share such a view," he declared. As rising Fed rates shift global conditions, Kuroda's promise will become harder to achieve, but for now it appears he is unwavering.
One central bank that may be open to additional easing is the PBoC. Though the Chinese central bank's official monetary policy stance remains at "prudent", the China Banking Regulatory Commission (CBRC) recently proposed that the Reserve Ratio Requirement (RRR) for commercial banks be cut at an "appropriate time." The last RRR cut came in October 2015, so a new cut might be timed to help boost liquidity ahead of the Spring festival Golden Week holiday that begins on Jan 29. As ever it remains difficult to tell if officials would actually implement a fresh rate cut or if this CBRC rhetoric is another ploy by the Chinese government to keep the investor class off balance as it battles capital flight.
For the time being there is not much standing in the way of the strong dollar trend, which is reflective of US monetary policy getting out of the trenches before other central banks, thanks to the relative strength of the American economy. The dollar has pushed the euro to a 14-year low below 1.04 as robust US economic data have outstripped any signs of recovery in the Euro Zone. A more concrete demonstration that corporate tax reform will become a reality in the Congress could extend the reign of King Dollar in early 2017. Many currency analysts are now eyeing EUR/USD parity, which was last tested in December 2002.
The pound sterling may also weaken further against the greenback as the starting gun for the Brexit process is set to be fired in March. After the Brexit vote squashed GBP/USD to a 30-year low, the pound is wending its way toward the 1.1950 low it hit during a still unexplained 'flash crash' in early October (still a long way from the all-time GBP/USD of 1.05 set in February 1985 at the height of the Reagan/Volcker era).
Indeed the movement in the forex market since the election has raised alarm bells at the IMF, whose chief economist Obstfeld is concerned about it sparking a crisis in emerging markets, which have much of their debt priced in dollars. Weaker domestic currencies could make those debts harder to pay. Already we have seen Mexico central bank raise rates by a surprise 50 basis points in December and then openly intervene in FX markets trying to defend the peso (without much success, as the peso swoons after each Trump tweet on a business moving from Mexico to the US).
Oil Freeze
The prospects for less easy central bank policy may depend on energy prices finally rebounding, meaning monetary officials are to some extent counting on OPEC's production scheme to pan out. OPEC confounded many predictions when it actually pulled together a deal to cut oil production by 1.2 million bpd within the cartel. The promised output cuts went into effect on the first of the year and many non-OPEC producers have agreed to follow suit with over half a million more bpd in cuts, led by Russia ramping down its production over several months. Anticipation of the initial six month agreement has already boosted oil prices back into the mid-$50's range, and if producers follow through, crude could push toward $60/barrel.
The problem is, as former Saudi Oil Minister Al-Naimi said candidly right after the deal was struck, "we tend to cheat." Historically, OPEC members have exceeded production quotas on a routine basis, and if that occurs this time it could undermine the hard-won agreement. To limit cheating, the signatories of the production deal have agreed to establish a monitoring council that will meet regularly starting in mid-January.
The fact that the Saudi's agreed to shoulder about half of the OPEC production cuts while allowing their biggest political rival, Iran, to slightly increase output seems to indicate that the Kingdom is serious about the agreement. That combined with the establishment of the monitoring committee should keep the production deal on track for its initial six month trial period. Oil analysts are generally expecting to see 75% compliance, which should be enough to prevent crude prices from suffering another collapse. If the accord is successful OPEC could extend the agreement another six months through year end. The upshot is that the declarations of the monitoring committee will be followed closely and if it uncovers unacceptable amounts of cheating, it could scuttle the chances for the output cuts to continue past mid-year.
CALENDAR
JANUARY
2: New Year's Day (observed US, UK); Euro Zone Manufacturing PMI; Japan Manufacturing PMI
3: Euro Zone Unemployment; UK Manufacturing & Construction PMIs; US ISM Manufacturing PMI
4: UK Services PMI; Euro Zone Flash CPI Estimate; US ISM Non-Manufacturing PMI; FOMC Dec Minutes
5: ECB Dec Minutes
6: German Factory Orders; German Retail Sales; US Payrolls & Unemployment; US Factory Orders
8: China CPI & PPI
9:
10: US JOLTS Job Openings
11: UK Manufacturing Production
12: US Import Prices; China Trade Balance (tentative)
13: BOE Credit Conditions Survey; US Retail Sales; US PPI; US Prelim UofM Consumer Sentiment
16: China Q4 GDP; China Industrial Production; MLK Jr. Day Holiday (US)
17: UK CPI & PPI; German ZEW Economic Sentiment; US Empire Manufacturing; Davos conference (4 days)
18: UK Unemployment & Claimant Count; US CPI; US Industrial Production & Capacity
19: ECB Policy Decision and Press Conference; US Housing Starts & Building Permits; US Philly Fed Manufacturing Index
20: UK Retail Sales; US Presidential Inauguration
23: Euro Zone Manufacturing & Services PMIs
24: US Existing Home Sales; Italian constitutional court ruling on election law
25:
26: UK Prelim Q4 GDP; US New Home Sales; Tokyo Core CPI
27: US Advance Q4 GDP; US Durable Goods Orders
29: China Spring Festival Golden Week holiday (through Feb 2)
30: US Personal Income & Spending; BOJ Policy Statement
31: German Retail Sales; German Unemployment; Euro Zone Flash CPI; Euro Zone Flash GDP; US Chicago PMI; US Consumer Confidence; China Manufacturing & Non-Manufacturing PMIs
FEBRUARY
1: UK Manufacturing PMI; US ISM Manufacturing PMI; FOMC Policy Statement (no press conf)
2: UK Construction PMI; BOE Policy Decision; BOE Inflation Report; US Non-farm Productivity
3: UK Services PMI; US Payrolls & Unemployment
6: German Factory Orders
7: US Trade Balance; US JOLTS Jobs Openings; China Trade Balance
8: China CPI & PPI
9:
10: UK Manufacturing Production; US Prelim UofM Consumer Sentiment; US Mortgage Delinquency Report (tentative)
12: Japan Preliminary Q4 GDP
13:
14: German Preliminary Q4 GDP; UK CPI & PPI; Euro Zone Q4 Flash GDP; German ZEW Economic Sentiment; US PPI
15: UK Unemployment & Claimant Count; US CPI; US Retail Sales; US Empire Manufacturing Index; US Industrial Production & Capacity Utilization
16: ECB Jan Minutes; US Housing Starts & Building Permits; US Philly Fed Manufacturing
17: UK Retail Sales
20: President's Day Holiday (US)
21: UK Inflation Report Hearings
22: Euro Zone Flash Manufacturing & Services PMIs; Euro Zone Fina CPI; US Existing Home Sales; FOMC Jan Minutes
23: UK Q4 GDP (second estimate); US Housing Starts
24: US New Home Sales
27: US Durable Goods
28: Euro Zone Flash CPI Estimate; US Prelim Q4 GDP (second estimate); US Consumer Confidence; China Manufacturing & Non-manufacturing PMIs
MARCH
1: UK Manufacturing PMI; US Personal Income & Spending; US ISM Manufacturing PMI
2: UK Construction PMI; Tokyo Core CPI
3: UK Services PMI; US ISM Non-Manufacturing PMI
Saturday, January 7, 2017
Barrons weekend update
Barrons weekend update: positive on KKR, EXPE
Cover story: Barron's looks at funds that had a rough time in 2015, fared better in 2016, and are likely to continue to outperform as market conditions grow more favorable for active managers (Positive on PNEAX, DFLVX, DODGX, GOODX, SSHFX, PRFDX, VUVLX); Returns for index investing could underwhelm in the near future, while value managers should benefit.
Features:
1) Positive on KKR: Investors need to reconsider their take on the private equity firm, which may be hard to understand but which could benefit greatly from Donald Trump's proposed tax reductions; Positive on EXPE: Shares haven't risen too much during the past year and a half, but they have a 25% upside as the hotel sector improves and company's acquisitions pay off.
Tech Trader: As smartphone sales slow, the tech industry increasingly sees automobiles as the next big opportunity; Developing smarter cars is likely to give tech firms a boost, especially incumbent auto-chip suppliers such as NXPI and NVDA.
Trader: JPM head of U.S. equity strategy Dubravko Lakos-Bujas says the rally in the S&P 500 has boosted its valuation to 17.1 times earnings, a sign investors are betting on better earnings in the months ahead; Cautious on M, KSS, JWN, ASNA, UA: Americans haven't slowed down their shopping, but they've moving from department stores to online retailers such as AMZN; Under the Trump administration, Japanese automakers could face risks, says Alain Bokobza of Societe Generale, while Jeffrey Miller of Eight Bridges Capital Management says it will be hard to figure out how to play the winners.
Small Caps: The column looks back on its hits (ESL, CFX, SBCF, HCHC, CUB) and misses (HMHC, RELY, JLL, PDCO, EPC) from 2016.
Mutual Fund Quarterly:
1) Morningstar analyst John Rekenthaler discusses how to invest in the Trump era and provides advice about the mutual fund industry, Dodd-Frank, fees, and the fiduciary rule;
2) Chris Davis of Davis Advisors hope the launch of three new actively managed exchange traded funds will prove such funds can succeed despite the daily transparency required by regulators;
3) Eleven mutual funds have survived since the crash of 1929, four of which are lesser-known than their bigger peers but continue to offer respectable performance, high payouts, and big discounts (Positive on ADX, CET, GAM, TY);
4) JNS, the poster child for active management, has been getting into the ETF sector, an inexpensive move but one which probably won't boost the firm's bottom line by much;
5) "U.S. mutual funds enjoyed a strong fourth quarter, helped by an increasingly bullish outlook for the domestic economy-causing many small-company, value, and financial portfolios to shine.
Follow-Up: Cautious on BKS: Following a weak holiday season, company faces a challenge stabilizing its book business amid a tough retail sector and an ongoing threat from AMZN-but a low valuation and 5.5% yield are attractive; Cautious on UPS: "The shipping company's shares look to have peaked for now, given growth strains and likely protectionist measures."
European Trader: Positive on CS: The Swiss bank "has struggled to restructure its business and address costly legacy issues in recent years," but investors seem to believe its on the right path, and shares could gain as much as 13%.
Asian Trader: Cautious on AirAsia: Southeast Asian budget carrier performed well in 2016, but a decline in Malaysia's currency coupled with the absence of growth catalysts could send shares down by 20%.
Emerging Markets: Experienced stockpickers are the best alternative for fund investors seeking value and portfolio diversification in markets such as Pakistan, Nigeria, and Kuwait.
Commodities: The natural-gas rally probably isn't over, because colder winter temperatures are still possible, making the recent price drop temporary; investors may want to consider ETFs to play the sector.
Streetwise: Vanguard chief executive Bill McNabb says investors need to prepare for uncertainty, save more, safeguard assets, and stay well-informed.
Friday, January 6, 2017
Dollar Rally Stalls, DJIA Falls Short of 20K
TradeTheNews.com Weekly Market Update: Dollar Rally Stalls, DJIA Falls Short of 20K
Fri, 06 Jan 2017 16:26 PM EST
After a slow start to the New Year, the stock market closed the week on an up-note, with NASDAQ and S&P posting new highs; the DJIA was flirting with the 20,000 barrier again. Investor sentiment over the past week saw a stark change from how the year closed 2016. The markets saw some unwinding of the post-election reflation trade mid-week as buying bonds became popular again, pressuring Treasury yields and the greenback. Big retailers like Macy's and Kohl's revealed holiday season results fell short of expectations, but large-cap tech stocks found renewed favor, with FANG stocks leading the NASDAQ to fresh highs. For the week, the Dow gained 1%, the S&P climbed 1.7% and the Nasdaq rose 2.6%.
The US dollar retreated from 14-year highs against most major currencies, as profit-taking and concerns on the pace of Fed hikes prompted traders to close long-dollar positions. Friday's non-farm payrolls came in at a healthy 156k, although less than expected, which helped the US dollar get back on course, sending it to higher levels for the day. The data also propelled the US stock market higher on the back of solid improvement in wages, but US Treasuries ended the week lower on concerns the salary data could spark faster inflation gains. The 10-Year Notes yield was up by 7bps at 2.42%.
China took steps to protect its currency from further devaluation -- simply mentioning the possibility of market intervention was enough to send the Yuan higher by 2.5% over two days. There was talk of the government having plans to obligate State Owned Enterprises to buy yuan to prop up the currency. In Mexico, the central bank actively intervened in defense of the peso, as the local currency reached new all-time lows against the US dollar. The central bank sold over $1 billion to dampen the effects on the peso following President-elect Trump's comments cautioning auto manufacturers from building plants in Mexico.
Fri, 06 Jan 2017 16:26 PM EST
After a slow start to the New Year, the stock market closed the week on an up-note, with NASDAQ and S&P posting new highs; the DJIA was flirting with the 20,000 barrier again. Investor sentiment over the past week saw a stark change from how the year closed 2016. The markets saw some unwinding of the post-election reflation trade mid-week as buying bonds became popular again, pressuring Treasury yields and the greenback. Big retailers like Macy's and Kohl's revealed holiday season results fell short of expectations, but large-cap tech stocks found renewed favor, with FANG stocks leading the NASDAQ to fresh highs. For the week, the Dow gained 1%, the S&P climbed 1.7% and the Nasdaq rose 2.6%.
The US dollar retreated from 14-year highs against most major currencies, as profit-taking and concerns on the pace of Fed hikes prompted traders to close long-dollar positions. Friday's non-farm payrolls came in at a healthy 156k, although less than expected, which helped the US dollar get back on course, sending it to higher levels for the day. The data also propelled the US stock market higher on the back of solid improvement in wages, but US Treasuries ended the week lower on concerns the salary data could spark faster inflation gains. The 10-Year Notes yield was up by 7bps at 2.42%.
China took steps to protect its currency from further devaluation -- simply mentioning the possibility of market intervention was enough to send the Yuan higher by 2.5% over two days. There was talk of the government having plans to obligate State Owned Enterprises to buy yuan to prop up the currency. In Mexico, the central bank actively intervened in defense of the peso, as the local currency reached new all-time lows against the US dollar. The central bank sold over $1 billion to dampen the effects on the peso following President-elect Trump's comments cautioning auto manufacturers from building plants in Mexico.
Saturday, December 31, 2016
Barrons weekend summary
Barrons weekend summary: positive on PNC, USFD; cautious on WAAS
Cover story: Barron's looks at the best and worst places for investors to find income in a rising-rate world in sectors that include European dividend stocks and funds (FDD, VGK, VOD, RDSA), electric utilities (UTG, DUK, SRE, XLU), U.S. dividend stocks and funds (NOBL, VYM, KO, BUD, PFE), junk bonds (OSTIX, HYT, VTA, JNK), municipal bonds (NAD, BTT, VWIUX, PHMIX), real estate investment trusts (SPG, BXP, EQR, VNQ), preferred stock (BAC Pfd L, PFF, JPI), Treasuries (TIP, TLT), telecom (T, VZ), and MLPs (EPD, AMLP, BWP).
Features:
1) Positive on PNC: Bank has a steady mix of fee income and a solid strategy for loan growth, and shares could generate a return of 15% during the next 12 months;
2) Positive on USFD: Company, the second-largest food distributor in the U.S., has focused on small chains and independent restaurants, which are faster growing than larger rivals, and shares could rise 14% in 2017;
3) Cautious on WAAS: Tampa-based group of desalination plants and water-cooler providers is unprofitable and its "water-as-a-service" concept remains questionable, both of which should be of concern to investors.
Tech Trader: Looking back on 2016, columnist Tiernan Ray says his bullish case on AMZN, NFLX, GOOGL, and FB was wrong, while he underappreciated AMD and NVDA, two of the best-performing stocks of the year.
Trader: Fourth-quarter results will show better growth for the first time in five quarters, says Bucky Hellwig of BB&T Wealth, thanks to strength in the energy sector and an improved U.S. economy; Fears in January that China's economic growth would materially slow proved unfounded; The column's "many bullish reviews of financial stocks, particularly big banks, panned out" in 2016, while healthcare stocks were a weak spot.
Interview: Ron Eptsein of Merrill Lynch predicts growth in defense spending in 2017, but urges caution in the commercial-jet sector (picks: GD, TXT, TDG, RTN).
Profile: Anton Schultz, manager of the RMB Mendon Financial Services fund, says that based on his current portfolio of around 60 stocks, smaller banks are the way to earn money (top 10 holdings: BNCN, YDKN, ACBI, OCFC, OPB, FBK, TBK, FFWM, LION, ABCB). Penta: BNY Mellon Wealth Management chief investment officer Leo Grohowski says the real play in the municipal bond sector is with riskier second-tier offerings.
Follow-Up: Positive on AMD: Stock was the best-performing in the Russell 2000 in 2016, and could add 15% or more during the next year, though there might be a brief pullback.
European Trader: "Eurozone stock markets appear to have suffered more from Brexit than the U.K. on concerns that other members might follow suit, potentially destroying the EU and taking the currency with it."
Asian Trader: Asia strategist Mixo Das of Nomura sees more pain ahead for the region's markets, but thinks India could distinguish itself from other countries with strong gains.
Emerging Markets: Donald Trump's presidential victory, higher U.S. interest rates, and a strong dollar have weakened the prospects for global trade and emerging-market exporters.
Commodities: "Zinc, nickel, and copper were the biggest winners as Donald Trump's presidential victory in early November kindled fresh optimism about U.S. infrastructure spending and economic growth."
Streetwise: The column looks back at 2016, noting it made good picks in industrials, energy, and infrastructure but was wrong on financials and biotech.
Friday, December 30, 2016
The Reflation Trade Exhales Into Year End
TradeTheNews.com Weekly Market Update: The
Reflation Trade Exhales Into Year End
Fri, 30 Dec 2016 16:10 PM EST
The last week of trading saw a mixed global reaction to the year's end. The FTSE managed to reach new all-time highs and closed the week up 1.4%, while the Shanghai and Hang Seng also finished up on the week. The US instead had a hard time during the last four sessions of the year as profit taking and pension fund rebalancing, in a high vacation period, took its toll. Trading volumes have reflected the absenteeism with average volumes on the NYSE at 35% below the 3 month average. For the week, after getting to within 20 points of the 20,000 milestone the DJIA lost 0.8%, while the Nasdaq dropped 1.5%, and the S&P500 fell 1.1%, causing the S&P to fall just short of a double digit percentage gain on the year.
US Treasury yields have declined as investors bought low-risk fixed income assets, sending 10-Year Treasury yields to a 2-week low. However, going short continues to be the smart-money play. As the market continues to short sell Treasuries, Repo rates for some specific bonds have become extremely expensive, reaching negative yields on many parts of the curve.
The US dollar reached new highs not seen for 14 years against various currencies before retracing to lower prices on Friday. Against the Euro, at one point the US dollar had lost 1.6%. Various FX brokers reported a lack of liquidity during Asian trading hours causing automatic orders to be set off. As price continued to move higher, stop loss orders to cover shorts were sparked, increasing the upward momentum.
China has had a hard week defending its currency against further devaluation, as the Yuan is set to finish the year with its biggest 1-year decline since 1994. The government has said it will redesign the Yuan currency basket to include another 11 currencies in an attempt to water down the effect of the US dollar and camouflage the ongoing capital outflows.
The Italian government eventually did need to step in to save the oldest banking institution in the world, Monte dei Paschi, mainly to avoid the NPL crisis of Italian lenders from spreading any further. The lender was unable to find private backing to re-capitalize and was given an estimate of €8.8 billion of funding by the ECB. The Italian central bank has said it sees the cost of saving Paschi at €6.6 billion, lower than the ECB estimate, but higher than the €5 billion sought by Paschi initially.
In a slow corporate news week, a few headlines stood out. On Tuesday, Amazon reported over 1 billion items shipped with Prime this holiday season worldwide, noting their Echo Dot was the best-selling, most gifted item on Amazon.com. It was reported on Wednesday that Kate Spade was mulling a sale, and analysts noted that Coach and Michael Kors both have adequate cash to fund a potential acquisition. And on Friday, Nikkei estimated that Apple would reduce its iPhone production by 10% in Q1 due to sluggish sales, sending shares of some Apple suppliers lower to end the week.
MON 12/26
6502.JP: May take an extraordinary loss of ¥100B ($860M) on US nuclear ops - Nikkei
*(JP) JAPAN NOV NATIONAL CPI Y/Y: 0.5% V 0.5%E (2nd straight rise); CPI EX FRESH FOOD (CORE) Y/Y: -0.4% V -0.3%E
TUE 12/27
*(US) DEC RICHMOND FED MANUFACTURING INDEX: 8 V 5E
*(US) DEC CONSUMER CONFIDENCE: 113.7 V 108.5E (highest since Aug 2001)
WEDS 12/28
*(UK) NOV BBA LOANS FOR HOUSE PURCHASE: 40.7K V 41.4KE
(US) Association of American Railroads weekly rail traffic report for week ending Dec 24th: 496.6K carloads and intermodal units, +27% y/y
(CN) China Commerce Ministry (MOFCOM) Spokesperson Shen: More concerned about future Fed rate hikes; Expect to see slower growth in auto sales in 2017
KATE: Reportedly considering sale of the company; has hired advisers to contact potential buyers - press
THURS 12/29
*(EU) EURO ZONE NOV M3 MONEY SUPPLY Y/Y: 4.8% V 4.4%E
*(US) INITIAL JOBLESS CLAIMS: 265K V 265KE; CONTINUING CLAIMS: 2.10M V 2.03ME
FRI 12/30
(RU) Russia President Putin refutes earlier reports that Russia will expel diplomats in retaliation; will consider Trump's actions on any measures
(US) DEC CHICAGO PURCHASING MANAGER: 54.6 V 56.8E
AAPL: May reduce iPhone production by 10% in Q1 due to sluggish sales - Nikkei
Fri, 30 Dec 2016 16:10 PM EST
The last week of trading saw a mixed global reaction to the year's end. The FTSE managed to reach new all-time highs and closed the week up 1.4%, while the Shanghai and Hang Seng also finished up on the week. The US instead had a hard time during the last four sessions of the year as profit taking and pension fund rebalancing, in a high vacation period, took its toll. Trading volumes have reflected the absenteeism with average volumes on the NYSE at 35% below the 3 month average. For the week, after getting to within 20 points of the 20,000 milestone the DJIA lost 0.8%, while the Nasdaq dropped 1.5%, and the S&P500 fell 1.1%, causing the S&P to fall just short of a double digit percentage gain on the year.
US Treasury yields have declined as investors bought low-risk fixed income assets, sending 10-Year Treasury yields to a 2-week low. However, going short continues to be the smart-money play. As the market continues to short sell Treasuries, Repo rates for some specific bonds have become extremely expensive, reaching negative yields on many parts of the curve.
The US dollar reached new highs not seen for 14 years against various currencies before retracing to lower prices on Friday. Against the Euro, at one point the US dollar had lost 1.6%. Various FX brokers reported a lack of liquidity during Asian trading hours causing automatic orders to be set off. As price continued to move higher, stop loss orders to cover shorts were sparked, increasing the upward momentum.
China has had a hard week defending its currency against further devaluation, as the Yuan is set to finish the year with its biggest 1-year decline since 1994. The government has said it will redesign the Yuan currency basket to include another 11 currencies in an attempt to water down the effect of the US dollar and camouflage the ongoing capital outflows.
The Italian government eventually did need to step in to save the oldest banking institution in the world, Monte dei Paschi, mainly to avoid the NPL crisis of Italian lenders from spreading any further. The lender was unable to find private backing to re-capitalize and was given an estimate of €8.8 billion of funding by the ECB. The Italian central bank has said it sees the cost of saving Paschi at €6.6 billion, lower than the ECB estimate, but higher than the €5 billion sought by Paschi initially.
In a slow corporate news week, a few headlines stood out. On Tuesday, Amazon reported over 1 billion items shipped with Prime this holiday season worldwide, noting their Echo Dot was the best-selling, most gifted item on Amazon.com. It was reported on Wednesday that Kate Spade was mulling a sale, and analysts noted that Coach and Michael Kors both have adequate cash to fund a potential acquisition. And on Friday, Nikkei estimated that Apple would reduce its iPhone production by 10% in Q1 due to sluggish sales, sending shares of some Apple suppliers lower to end the week.
MON 12/26
6502.JP: May take an extraordinary loss of ¥100B ($860M) on US nuclear ops - Nikkei
*(JP) JAPAN NOV NATIONAL CPI Y/Y: 0.5% V 0.5%E (2nd straight rise); CPI EX FRESH FOOD (CORE) Y/Y: -0.4% V -0.3%E
TUE 12/27
*(US) DEC RICHMOND FED MANUFACTURING INDEX: 8 V 5E
*(US) DEC CONSUMER CONFIDENCE: 113.7 V 108.5E (highest since Aug 2001)
WEDS 12/28
*(UK) NOV BBA LOANS FOR HOUSE PURCHASE: 40.7K V 41.4KE
(US) Association of American Railroads weekly rail traffic report for week ending Dec 24th: 496.6K carloads and intermodal units, +27% y/y
(CN) China Commerce Ministry (MOFCOM) Spokesperson Shen: More concerned about future Fed rate hikes; Expect to see slower growth in auto sales in 2017
KATE: Reportedly considering sale of the company; has hired advisers to contact potential buyers - press
THURS 12/29
*(EU) EURO ZONE NOV M3 MONEY SUPPLY Y/Y: 4.8% V 4.4%E
*(US) INITIAL JOBLESS CLAIMS: 265K V 265KE; CONTINUING CLAIMS: 2.10M V 2.03ME
FRI 12/30
(RU) Russia President Putin refutes earlier reports that Russia will expel diplomats in retaliation; will consider Trump's actions on any measures
(US) DEC CHICAGO PURCHASING MANAGER: 54.6 V 56.8E
AAPL: May reduce iPhone production by 10% in Q1 due to sluggish sales - Nikkei
Friday, December 23, 2016
Markets Go Quietly Into Holiday Weekend
TradeTheNews.com Weekly
Market Update: Markets Go Quietly Into Holiday Weekend
Fri, 23 Dec 2016 16:02 PM EST
US indices largely marked time heading into the final trading sessions of 2016. Volumes were commensurate with the seasonal slowdown associated with holiday trading schedules, running significantly below their 3-month averages. The hope that has manifested itself as the 'Trump bump' appears to be fading as the reality sets in that his administration is only week's away from taking the reins. Concerns about a potential trade war with China and Trump's tweet about expanding the nuclear arsenal raised questions about how aggressive the new government will be in global affairs, nevertheless the VIX volatility index moved below the July low in a continued sign of investor complacency. Stocks remain just below the recent all-time highs while the Dollar index seems to have stalled out around 1.03. In general, currencies, fixed income, and commodities remain confined within their recent ranges with the US 10-year yield consolidating in the mid 2.5% range. Central Banks including the BOJ and Riksbank kept policy on course at their scheduled meetings and it appears the ECB is likely to wait until after Germany's October election before making any significant policy moves. FedEx and Nike headlined the late December earnings reports and neither generated much in the way of excitement, but Micron shares surged and helped put a bid under other names in the semiconductor space after beating Q1 expectations forecasting Q2 results well above the analyst's consensus. For the week the DJIA rose 0.5%, the S&P500 gained 0.2%, and the Nasdaq added 0.5%.
SUN 12/18
*(AU) AUSTRALIA MID-YEAR ECONOMIC AND FISCAL OUTLOOK (MYEFO): Maintains FY20/21 target for return to surplus; Cuts FY16/17 & FY17/18 GDP Outlook
*(CN) CHINA NOV PROPERTY PRICES M/M: RISE IN 55 OUT OF 70 CITIES VS 62 PRIOR; Y/Y: RISE IN 65 OUT OF 70 CITIES V 65 PRIOR
MON 12/19
*(DE) GERMANY DEC IFO BUSINESS CLIMATE: 111.0 V 110.6E (highest since Feb 2014); CURRENT ASSESSMENT: 116.6 V 115.9E
DB: Reportedly nearing DOJ settlement on RMBS case; agreement could come as early as Weds; set to pay less than $14B settlement - press
*(US) DEC PRELIMINARY MARKIT SERVICES PMI: 53.4 V 55.2E (lowest since Sept)
(TR) Russia Ambassador to Turkey Andrey Karlov reportedly has been shot in Ankara, with his condition unknown - press
(DE) Several dead, at least 50 reportedly injured after truck drives into Christmas market in Berlin, Germany; local police spokesman points to terrorism as motive - press
*(JP) BOJ LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED; Maintains 10-year JGB yield target around ~0%
TUES 12/20
*(TR) TURKEY CENTRAL BANK (CBRT) LEAVES BENCHMARK REPURCHASE RATE UNCHANGED AT 8.00%; AS EXPECTED
NKE: Reports Q2 $0.50 v $0.43e, R$8.18B v $8.08Be
FDX: Reports Q2 $2.80 v $2.91e, R$14.9B v $14.9Be
WED 12/21
*(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.50%; AS EXPECTED; EXTENDS QE BOND BUYING PROGRAM BY 6 MONTHS IN AMOUNT OF SEK30B
*(US) NOV EXISTING HOME SALES: 5.61M V 5.50ME (highest since Feb 2007)
MU: Reports Q1 $0.32 v $0.28e, R$3.97B v $3.78Be
(US) President-elect Trump and transition team said to be considering a 5% tariff on foreign imports - financial press
THRS 12/22
*(US) Q3 FINAL GDP ANNUALIZED Q/Q: 3.5% V 3.3%E; PERSONAL CONSUMPTION: 3.0% V 2.8%E
*(US) NOV PCE CORE M/M: 0.0% V 0.1%E; Y/Y: 1.6% V 1.7%E
(US) US President Elect Trump tweets U.S. must greatly expand nuclear capabilities until world comes to senses regarding nukes
DBK.DE: Reaches settlement in principal with DoJ on RMBS; $3.1B penalty and $4.1B in consumer relief in US; Sees Q4 pretax charge of ~$1.17B
FRI 12/23
CSGN.CH: Reaches settlement in principle with US DOJ on RMBS; Will pay $5.3B in Mortgage accord
*(DE) GERMANY JAN GFK CONSUMER CONFIDENCE: 9.9 V 9.9E (3rd straight reading below the 10 level)
*(UK) Q3 FINAL GDP (3RD READING) Q/Q: 0.6% V 0.5%E; Y/Y: 2.2% V 2.3%E
Fri, 23 Dec 2016 16:02 PM EST
US indices largely marked time heading into the final trading sessions of 2016. Volumes were commensurate with the seasonal slowdown associated with holiday trading schedules, running significantly below their 3-month averages. The hope that has manifested itself as the 'Trump bump' appears to be fading as the reality sets in that his administration is only week's away from taking the reins. Concerns about a potential trade war with China and Trump's tweet about expanding the nuclear arsenal raised questions about how aggressive the new government will be in global affairs, nevertheless the VIX volatility index moved below the July low in a continued sign of investor complacency. Stocks remain just below the recent all-time highs while the Dollar index seems to have stalled out around 1.03. In general, currencies, fixed income, and commodities remain confined within their recent ranges with the US 10-year yield consolidating in the mid 2.5% range. Central Banks including the BOJ and Riksbank kept policy on course at their scheduled meetings and it appears the ECB is likely to wait until after Germany's October election before making any significant policy moves. FedEx and Nike headlined the late December earnings reports and neither generated much in the way of excitement, but Micron shares surged and helped put a bid under other names in the semiconductor space after beating Q1 expectations forecasting Q2 results well above the analyst's consensus. For the week the DJIA rose 0.5%, the S&P500 gained 0.2%, and the Nasdaq added 0.5%.
SUN 12/18
*(AU) AUSTRALIA MID-YEAR ECONOMIC AND FISCAL OUTLOOK (MYEFO): Maintains FY20/21 target for return to surplus; Cuts FY16/17 & FY17/18 GDP Outlook
*(CN) CHINA NOV PROPERTY PRICES M/M: RISE IN 55 OUT OF 70 CITIES VS 62 PRIOR; Y/Y: RISE IN 65 OUT OF 70 CITIES V 65 PRIOR
MON 12/19
*(DE) GERMANY DEC IFO BUSINESS CLIMATE: 111.0 V 110.6E (highest since Feb 2014); CURRENT ASSESSMENT: 116.6 V 115.9E
DB: Reportedly nearing DOJ settlement on RMBS case; agreement could come as early as Weds; set to pay less than $14B settlement - press
*(US) DEC PRELIMINARY MARKIT SERVICES PMI: 53.4 V 55.2E (lowest since Sept)
(TR) Russia Ambassador to Turkey Andrey Karlov reportedly has been shot in Ankara, with his condition unknown - press
(DE) Several dead, at least 50 reportedly injured after truck drives into Christmas market in Berlin, Germany; local police spokesman points to terrorism as motive - press
*(JP) BOJ LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED; Maintains 10-year JGB yield target around ~0%
TUES 12/20
*(TR) TURKEY CENTRAL BANK (CBRT) LEAVES BENCHMARK REPURCHASE RATE UNCHANGED AT 8.00%; AS EXPECTED
NKE: Reports Q2 $0.50 v $0.43e, R$8.18B v $8.08Be
FDX: Reports Q2 $2.80 v $2.91e, R$14.9B v $14.9Be
WED 12/21
*(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.50%; AS EXPECTED; EXTENDS QE BOND BUYING PROGRAM BY 6 MONTHS IN AMOUNT OF SEK30B
*(US) NOV EXISTING HOME SALES: 5.61M V 5.50ME (highest since Feb 2007)
MU: Reports Q1 $0.32 v $0.28e, R$3.97B v $3.78Be
(US) President-elect Trump and transition team said to be considering a 5% tariff on foreign imports - financial press
THRS 12/22
*(US) Q3 FINAL GDP ANNUALIZED Q/Q: 3.5% V 3.3%E; PERSONAL CONSUMPTION: 3.0% V 2.8%E
*(US) NOV PCE CORE M/M: 0.0% V 0.1%E; Y/Y: 1.6% V 1.7%E
(US) US President Elect Trump tweets U.S. must greatly expand nuclear capabilities until world comes to senses regarding nukes
DBK.DE: Reaches settlement in principal with DoJ on RMBS; $3.1B penalty and $4.1B in consumer relief in US; Sees Q4 pretax charge of ~$1.17B
FRI 12/23
CSGN.CH: Reaches settlement in principle with US DOJ on RMBS; Will pay $5.3B in Mortgage accord
*(DE) GERMANY JAN GFK CONSUMER CONFIDENCE: 9.9 V 9.9E (3rd straight reading below the 10 level)
*(UK) Q3 FINAL GDP (3RD READING) Q/Q: 0.6% V 0.5%E; Y/Y: 2.2% V 2.3%E
Sunday, December 18, 2016
Barrons weekend summary
Barrons weekend summary: cautious on DIN, NKE
Cover story: Barron's suggests that president-elect Donald Trump should take steps to make U.S. trade policy freer than it is now after a backslide during the past 15 years; Any aggressive push by Trump to hike tariffs will face resistance from a Republican-dominated Congress that has traditionally supported trade liberalization.
Features:
1) Story says the bull market has legs, and that after a strong post-election really, Wall Street's top strategists see stocks rising by 5% in 2017;
2) Cautious on DIN: Shares and profits are down this year on sluggish traffic and menu misfires, and the stock could lose up to 30% more during the next year as management implements a turnaround.
Tech Trader: Consumer technology is faltering, while the building of what's known as infrastructure for companies to use for data processing is on the rise-and 2007 should see a sharper divided than usual between the two sectors.
Trader: "Stocks look ready to deliver double-digit gains in 2016, but 2017 could be the year of living dangerously"; Since 1928, a Republican has taken the White House from a Democrat four times, and after each occurrence the market fell by about 10% during the new president's first year; Cautious on NKE: Apparel giant seems unable to keep pace with a changing footwear landscape, and could find itself on the wrong side of Donald Trump's policy goals; A strong dollar puts U.S. investors in a bind when it comes to global investing.
Profile: Tom Bohjalian, manager of the Cohen & Steers Real Estate Securities fund, screens REITs to identify those with the highest standard deviations, based on price-to-net-asset value and price-to-dividend-discount (top 10 holdings: SPG, PLD, UDR, HCP, BRX, AIV, EQIX, DLR, ESS, ARE).
Interview: Robert Willens, a leading tax and financial-accounting expert on Wall Street, talks about the potential impact of Donald Trump's tax cut proposals on individuals and corporations.
Small Caps: Barron's top picks for 2017 include, AMC, SSP, HMHC, RELY, EQC-the sole holdover from last year's list-all of which are likely to deliver gains for investors. Follow-Up: Positive on CBS: Investors should hold onto the network's shares, which could return another 10% during the next year, but sell VIA shares, which are likely to go down.
European Trader: "The outlook for European equities is surprisingly bright going into 2017, given the political clouds gathering around the eurozone and the broader European Union" (Positive on Wolsely, BTI, Inditex, EUFN).
Asian Trader: "In 2017, conversations about Asia will be dominated by the Japanese yen and the Chinese yuan, as Asia's two most important currencies continue their race to the bottom," offering opportunities in both the Nikkei and China's A shares.
Emerging Markets: The one near-certainty for emerging markets is that there will be volatility, providing equity investors with buying opportunities.
Commodities Corner: "Commodities should deliver their best annual performance in years, and traders think the rally will roll on in 2017."
Streetwise: Uncertainty next year could be further complicated if the unwinding of a 35-year bond bull market becomes unruly.
Friday, December 16, 2016
FOMC Charts 2017 Course, Trump Administration Fills In
TradeTheNews.com Weekly
Market Update: FOMC Charts 2017 Course, Trump Administration Fills In
Fri, 16 Dec 2016 16:13 PM EST
The week opened with US stock markets riding at fresh all-time highs ahead an all but certain FOMC rate hike. Global economic readings continued to improve led by better than expected readings in the US which only solidified Fed expectations, as well as kept upward pressure on interest rates and the Dollar. Though the 25 basis point hike was widely telegraphed, markets still spent much of the latter half of the week calibrating to what it heard from Chair Yellen in the FOMC statement and her press conference. Most FOMC members now expect three rate hikes in 2017 from two previously. By emphasizing she never favored running high pressure economy some perceived the news was ultimately a bit more hawkish then what markets were expecting. The Dollar Index extended to fresh 14 year highs and the US 10-year yield topped 2.6% while stocks sold off into Wednesday's close as aggressively as we had seen since the Nov election. Buyers though quickly returned when concerns surrounding the rising US dollar and higher interest rates were pushed aside by another round of accelerating economic data and performance chasing into years end. Friday's options expiration saw generally muted trade as Treasury prices stabilized and the Dollar rally lost momentum. The Euro closed the week at the lowest levels seen in more than 13-years and gold prices finished below $1150 for the first time since February. For the week the Dow rose 0.4%, while the S&P and NASDQ finished marginally lower.
In corporate news, Donald Trump again took center stage to start the week, tweeting on Monday that Lockheed's F-35 costs were 'out of control' and he planned to save 'billions' from the aircraft program, sending LMT down 4%. In less contentious fashion, Trump met midweek with prominent tech leaders, promising he's here to help the industry and will make trade deals 'fair.' Also on the regulatory front, gaming names were boosted this week when the Japanese parliament gave final passage to its casino bill, setting the stage for potentially large-scale investment into Japanese casinos in the coming decade. Shares of General Motors and Ford took a hit Wednesday when a Chinese official said the government was considering penalties on an unnamed US automaker for monopolistic behavior. Many key names reported or held Analyst Days as well this week: Athena Heath shares surged on its initial 2017 outlook, where it guided strong bookings and revenue growth. Adobe reported a strong finish to FY16 but its guidance came in slightly below consensus due to FX headwinds.
In M&A news, the long-running Viacom-CBS merger saga came to an abrupt end when Shari Redstone on Monday called off the deal, choosing instead to support CEO Bakish's plans to turn Viacom around. In addition, Sumner Redstone announced he would no longer vote in Viacom board meetings and would step down from board in Feb. Rupert Murdoch's 21st Century Fox agreed to a £10.75/shr bid for European TV provider Sky, taking advantage of the weaker pound to grow Fox's global media reach. And foreign press reports of a Kraft Heinz bid for Mondelez were denied by the company, but a New York Post report indicated Brazil's 3G Capital may be raising funds to pursue Mondelez.
SUNDAY 12/11
BA: Boeing and Iran Air announce agreement for 80 airplanes with estimated value of $16.6B
MONDAY 12/12
Four major cities (Paris, Mexico City, Madrid and Athens) move to ban diesel vehicles by 2025 (update)
(CN) China Association of Automobile (CAAM) Nov Vehicle Sales y/y: 2.59M units, +16.6% v +18.7% prior; YTD: 24.9M units, +14.1% v +3.3% y/y - CAAM
*(CN) CHINA NOV INDUSTRIAL PRODUCTION Y/Y: 6.2% (3-month high) V 6.1%E; YTD Y/Y: 6.0% V 6.0%E
*(CN) CHINA NOV RETAIL SALES Y/Y: 10.8% (11-month high) V 10.2%E; YTD Y/Y: 10.4% V 10.3%E
TUESDAY 12/13
*(UK) NOV CPI M/M: 0.2% V 0.2%E; Y/Y: 1.2% (highest since summer 2014) V 1.1%E; CPI CORE Y/Y: 1.4% V 1.3%E
*(UK) NOV PPI INPUT M/M: -1.1% V -0.5%E; Y/Y: 12.9% V 13.5%E
*(DE) GERMANY DEC ZEW CURRENT SITUATION: 63.5 V 59.0E; EXPECTATIONS SURVEY: 13.8 V 14.0E
(US) Both UPS and Fedex said to be struggling to keep up with record holiday shipping demand - financial press
*(US) NOV IMPORT PRICE INDEX M/M: -0.3% V -0.4%E; Y/Y: -0.1% V 0.0%E
*(CL) CHILE CENTRAL BANK (BCCH) LEAVES OVERNIGHT RATE TARGET UNCHANGED AT 3.50%; AS EXPECTED
*(JP) JAPAN Q4 TANKAN LARGE MANUFACTURING INDEX: 10 (1-year high) V 10E; MANUFACTURERS OUTLOOK: 8 (1-year high) V 9E; ALL-INDUSTRY CAPEX: 5.5% (3-quarter low) V 6.1%E
(CN) NDRC to penalize an un-named US automaker for monopoly - China Daily
WEDNESDAY 12/14
(CN) China end of Nov Yuan forex positions CNY22.3T, lower by CNY382.7B m/m (Largest monthly drop this year and marks the 13th consecutive month of decline)
*(UK) OCT AVERAGE WEEKLY EARNINGS 3M/Y: 2.5% V 2.3%E; WEEKLY EARNINGS (EX BONUS) 3M/Y: 2.6% V 2.6%E
*(UK) NOV JOBLESS CLAIMS CHANGE: +2.4K V +6.5KE; CLAIMANT COUNT RATE: 2.3% V 2.3%E
*(UK) OCT ILO UNEMPLOYMENT RATE 3M/3M: 4.8% V 4.8%E
*(US) NOV ADVANCE RETAIL SALES M/M: 0.1% V 0.3%E; RETAIL SALES EX AUTO M/M: 0.2% V 0.4%E
*(US) NOV PPI FINAL DEMAND M/M: 0.4% V 0.1%E; Y/Y: 1.3% V 0.9%E
*(US) NOV INDUSTRIAL PRODUCTION M/M: -0.4% V -0.3%E; CAPACITY UTILIZATION: 75.0% V 75.1%E
(US) Atlanta Fed cuts Q4 GDP forecast to 2.4% from 2.6% on Dec 9th
(US) US govt reportedly files first criminal charges in generic drug price fixing investigation - press
(US) Association of American Railroads weekly rail traffic report for week ending Dec 10th: 538.9K carloads and intermodal units, -1.1% y/y
*(US) FOMC RAISES FED FUNDS TARGET RANGE 25BPS TO 0.50-0.75% (AS EXPECTED); Average Fed official looking for three hikes in 2017
*(US) FOMC UPDATED ECONOMIC FORECAST FOR DEC MEETING
MDLZ: Kraft Heinz said to consider acquiring Mondelez; Berkshire, Lemann may join acquisition - Swiss press
YHOO: Identifies data security issues concerning certain Yahoo user accounts; believes 3rd party stole data from 1B user accounts in Aug 2013
*(AU) AUSTRALIA NOV EMPLOYMENT CHANGE: +39.1K (1-year high) V +17.5KE; UNEMPLOYMENT RATE: 5.7% V 5.6%E
*(KR) BANK OF KOREA (BOK) LEAVES INTEREST RATE UNCHANGED AT 1.25%; AS EXPECTED (6th consecutive month of holding rates)
THURSDAY 12/15
*(FR) FRANCE DEC PRELIMINARY MANUFACTURING PMI: 53.5 V 51.8E (3rd month of expansion and highest since May 2011)
*(CH) SWISS NATIONAL BANK (SNB) LEAVES SIGHT DEPOSIT INTEREST RATE UNCHANGED AT -0.75%; AS EXPECTED
*(DE) GERMANY DEC PRELIMINARY MANUFACTURING PMI: 55.5 V 54.5E (25th month of expansion)
*(EU) EURO ZONE DEC PRELIMINARY MANUFACTURING PMI: 54.9 V 53.7E (42nd month of expansion and fastest pace since April 2011)
*(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.50%; AS EXPECTED; maintains rate path
*(UK) NOV RETAIL SALES EX-AUTO/FUEL M/M: 0.5% V 0.0%E; Y/Y: 6.6% V 6.0%E
*(UK) NOV RETAIL SALES (INCLUDING AUTO/FUEL) M/M: 0.2% V 0.0%E; Y/Y: 5.9% V 5.9%E
EUR/USD: *EURO MOVES BELOW $1.0460 FOR ITS LOWEST LEVEL SINCE JAN 2003
*(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.25%; AS EXPECTED
*(UK) BOE DEC MINUTES: VOTED 9-0 (UNANIMOUS) TO LEAVE POLICY UNCHANGED AT 0.25%
*(US) INITIAL JOBLESS CLAIMS: 254K V 255KE; CONTINUING CLAIMS: 2.02M V 2.00ME
*(US) NOV CPI M/M: 0.2% V 0.2%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI INDEX NSA: 241.353 V 241.413E
*(US) DEC EMPIRE MANUFACTURING: 9.0 V 4.0E
*(US) DEC PHILADELPHIA FED BUSINESS OUTLOOK: 21.5 V 9.1E (highest since Nov 2014)
*(US) DEC PRELIMINARY MARKIT MANUFACTURING PMI: 54.2 V 54.5E (highest since March 2015)
*(US) DEC NAHB HOUSING MARKET INDEX: 70 V 63E (largest one month gain in 20 years)
*(MX) MEXICO CENTRAL BANK (BANXICO) RAISES OVERNIGHT RATE BY 50BPS TO 5.75%; MORE THAN EXPECTED
*(US) OCT TOTAL NET TIC FLOWS: +$18.8B V -$152.9B PRIOR; NET LONG-TERM TIC FLOWS: +$9.4B V -$26.2B PRIOR
ORCL: Reports Q2 $0.61 v $0.61e, R$9.07B v $9.11Be
*(PE) PERU CENTRAL BANK (BCRP) LEAVES REFERENCE RATE UNCHANGED AT 4.25%; AS EXPECTED
*(US) NORTH AMERICA NOV SEMI BOOK/BILL RATIO: 0.96 V 0.91 PRIOR; 2nd straight month below parity
FRIDAY
*(EU) EURO ZONE NOV CPI M/M: -0.1% V -0.1%E; Y/Y (FINAL): 0.6% V 0.6%E; CPI CORE Y/Y (FINAL): 0.8% V 0.8%E
*(RU) RUSSIA CENTRAL BANK (CBR) LEAVES 1-WEEK AUCTION RATE UNCHANGED AT 10.00%; AS EXPECTED
*(UK) DEC CBI INDUSTRIAL TRENDS TOTAL ORDERS: 0 (nil) V -5E
*(US) NOV HOUSING STARTS: 1.09M V 1.230ME; BUILDING PERMITS: 1.20M V 1.240ME
(US) Atlanta Fed raises Q4 GDP forecast to 2.6% from 2.4% on Dec 14th
(CN) China Navy reportedly seizes unmanned underwater US Navy vehicle in South China Sea international waters - press
(US) Weekly Baker Hughes US Rig Count: 637 v 624 w/w (+2.1%) (5th straight weekly increase)
(US) Fed's Bullard (FOMC voter, Dovish): in a revision to policy view, now sees an additional rate hike in 2017
Fri, 16 Dec 2016 16:13 PM EST
The week opened with US stock markets riding at fresh all-time highs ahead an all but certain FOMC rate hike. Global economic readings continued to improve led by better than expected readings in the US which only solidified Fed expectations, as well as kept upward pressure on interest rates and the Dollar. Though the 25 basis point hike was widely telegraphed, markets still spent much of the latter half of the week calibrating to what it heard from Chair Yellen in the FOMC statement and her press conference. Most FOMC members now expect three rate hikes in 2017 from two previously. By emphasizing she never favored running high pressure economy some perceived the news was ultimately a bit more hawkish then what markets were expecting. The Dollar Index extended to fresh 14 year highs and the US 10-year yield topped 2.6% while stocks sold off into Wednesday's close as aggressively as we had seen since the Nov election. Buyers though quickly returned when concerns surrounding the rising US dollar and higher interest rates were pushed aside by another round of accelerating economic data and performance chasing into years end. Friday's options expiration saw generally muted trade as Treasury prices stabilized and the Dollar rally lost momentum. The Euro closed the week at the lowest levels seen in more than 13-years and gold prices finished below $1150 for the first time since February. For the week the Dow rose 0.4%, while the S&P and NASDQ finished marginally lower.
In corporate news, Donald Trump again took center stage to start the week, tweeting on Monday that Lockheed's F-35 costs were 'out of control' and he planned to save 'billions' from the aircraft program, sending LMT down 4%. In less contentious fashion, Trump met midweek with prominent tech leaders, promising he's here to help the industry and will make trade deals 'fair.' Also on the regulatory front, gaming names were boosted this week when the Japanese parliament gave final passage to its casino bill, setting the stage for potentially large-scale investment into Japanese casinos in the coming decade. Shares of General Motors and Ford took a hit Wednesday when a Chinese official said the government was considering penalties on an unnamed US automaker for monopolistic behavior. Many key names reported or held Analyst Days as well this week: Athena Heath shares surged on its initial 2017 outlook, where it guided strong bookings and revenue growth. Adobe reported a strong finish to FY16 but its guidance came in slightly below consensus due to FX headwinds.
In M&A news, the long-running Viacom-CBS merger saga came to an abrupt end when Shari Redstone on Monday called off the deal, choosing instead to support CEO Bakish's plans to turn Viacom around. In addition, Sumner Redstone announced he would no longer vote in Viacom board meetings and would step down from board in Feb. Rupert Murdoch's 21st Century Fox agreed to a £10.75/shr bid for European TV provider Sky, taking advantage of the weaker pound to grow Fox's global media reach. And foreign press reports of a Kraft Heinz bid for Mondelez were denied by the company, but a New York Post report indicated Brazil's 3G Capital may be raising funds to pursue Mondelez.
SUNDAY 12/11
BA: Boeing and Iran Air announce agreement for 80 airplanes with estimated value of $16.6B
MONDAY 12/12
Four major cities (Paris, Mexico City, Madrid and Athens) move to ban diesel vehicles by 2025 (update)
(CN) China Association of Automobile (CAAM) Nov Vehicle Sales y/y: 2.59M units, +16.6% v +18.7% prior; YTD: 24.9M units, +14.1% v +3.3% y/y - CAAM
*(CN) CHINA NOV INDUSTRIAL PRODUCTION Y/Y: 6.2% (3-month high) V 6.1%E; YTD Y/Y: 6.0% V 6.0%E
*(CN) CHINA NOV RETAIL SALES Y/Y: 10.8% (11-month high) V 10.2%E; YTD Y/Y: 10.4% V 10.3%E
TUESDAY 12/13
*(UK) NOV CPI M/M: 0.2% V 0.2%E; Y/Y: 1.2% (highest since summer 2014) V 1.1%E; CPI CORE Y/Y: 1.4% V 1.3%E
*(UK) NOV PPI INPUT M/M: -1.1% V -0.5%E; Y/Y: 12.9% V 13.5%E
*(DE) GERMANY DEC ZEW CURRENT SITUATION: 63.5 V 59.0E; EXPECTATIONS SURVEY: 13.8 V 14.0E
(US) Both UPS and Fedex said to be struggling to keep up with record holiday shipping demand - financial press
*(US) NOV IMPORT PRICE INDEX M/M: -0.3% V -0.4%E; Y/Y: -0.1% V 0.0%E
*(CL) CHILE CENTRAL BANK (BCCH) LEAVES OVERNIGHT RATE TARGET UNCHANGED AT 3.50%; AS EXPECTED
*(JP) JAPAN Q4 TANKAN LARGE MANUFACTURING INDEX: 10 (1-year high) V 10E; MANUFACTURERS OUTLOOK: 8 (1-year high) V 9E; ALL-INDUSTRY CAPEX: 5.5% (3-quarter low) V 6.1%E
(CN) NDRC to penalize an un-named US automaker for monopoly - China Daily
WEDNESDAY 12/14
(CN) China end of Nov Yuan forex positions CNY22.3T, lower by CNY382.7B m/m (Largest monthly drop this year and marks the 13th consecutive month of decline)
*(UK) OCT AVERAGE WEEKLY EARNINGS 3M/Y: 2.5% V 2.3%E; WEEKLY EARNINGS (EX BONUS) 3M/Y: 2.6% V 2.6%E
*(UK) NOV JOBLESS CLAIMS CHANGE: +2.4K V +6.5KE; CLAIMANT COUNT RATE: 2.3% V 2.3%E
*(UK) OCT ILO UNEMPLOYMENT RATE 3M/3M: 4.8% V 4.8%E
*(US) NOV ADVANCE RETAIL SALES M/M: 0.1% V 0.3%E; RETAIL SALES EX AUTO M/M: 0.2% V 0.4%E
*(US) NOV PPI FINAL DEMAND M/M: 0.4% V 0.1%E; Y/Y: 1.3% V 0.9%E
*(US) NOV INDUSTRIAL PRODUCTION M/M: -0.4% V -0.3%E; CAPACITY UTILIZATION: 75.0% V 75.1%E
(US) Atlanta Fed cuts Q4 GDP forecast to 2.4% from 2.6% on Dec 9th
(US) US govt reportedly files first criminal charges in generic drug price fixing investigation - press
(US) Association of American Railroads weekly rail traffic report for week ending Dec 10th: 538.9K carloads and intermodal units, -1.1% y/y
*(US) FOMC RAISES FED FUNDS TARGET RANGE 25BPS TO 0.50-0.75% (AS EXPECTED); Average Fed official looking for three hikes in 2017
*(US) FOMC UPDATED ECONOMIC FORECAST FOR DEC MEETING
MDLZ: Kraft Heinz said to consider acquiring Mondelez; Berkshire, Lemann may join acquisition - Swiss press
YHOO: Identifies data security issues concerning certain Yahoo user accounts; believes 3rd party stole data from 1B user accounts in Aug 2013
*(AU) AUSTRALIA NOV EMPLOYMENT CHANGE: +39.1K (1-year high) V +17.5KE; UNEMPLOYMENT RATE: 5.7% V 5.6%E
*(KR) BANK OF KOREA (BOK) LEAVES INTEREST RATE UNCHANGED AT 1.25%; AS EXPECTED (6th consecutive month of holding rates)
THURSDAY 12/15
*(FR) FRANCE DEC PRELIMINARY MANUFACTURING PMI: 53.5 V 51.8E (3rd month of expansion and highest since May 2011)
*(CH) SWISS NATIONAL BANK (SNB) LEAVES SIGHT DEPOSIT INTEREST RATE UNCHANGED AT -0.75%; AS EXPECTED
*(DE) GERMANY DEC PRELIMINARY MANUFACTURING PMI: 55.5 V 54.5E (25th month of expansion)
*(EU) EURO ZONE DEC PRELIMINARY MANUFACTURING PMI: 54.9 V 53.7E (42nd month of expansion and fastest pace since April 2011)
*(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.50%; AS EXPECTED; maintains rate path
*(UK) NOV RETAIL SALES EX-AUTO/FUEL M/M: 0.5% V 0.0%E; Y/Y: 6.6% V 6.0%E
*(UK) NOV RETAIL SALES (INCLUDING AUTO/FUEL) M/M: 0.2% V 0.0%E; Y/Y: 5.9% V 5.9%E
EUR/USD: *EURO MOVES BELOW $1.0460 FOR ITS LOWEST LEVEL SINCE JAN 2003
*(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.25%; AS EXPECTED
*(UK) BOE DEC MINUTES: VOTED 9-0 (UNANIMOUS) TO LEAVE POLICY UNCHANGED AT 0.25%
*(US) INITIAL JOBLESS CLAIMS: 254K V 255KE; CONTINUING CLAIMS: 2.02M V 2.00ME
*(US) NOV CPI M/M: 0.2% V 0.2%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI INDEX NSA: 241.353 V 241.413E
*(US) DEC EMPIRE MANUFACTURING: 9.0 V 4.0E
*(US) DEC PHILADELPHIA FED BUSINESS OUTLOOK: 21.5 V 9.1E (highest since Nov 2014)
*(US) DEC PRELIMINARY MARKIT MANUFACTURING PMI: 54.2 V 54.5E (highest since March 2015)
*(US) DEC NAHB HOUSING MARKET INDEX: 70 V 63E (largest one month gain in 20 years)
*(MX) MEXICO CENTRAL BANK (BANXICO) RAISES OVERNIGHT RATE BY 50BPS TO 5.75%; MORE THAN EXPECTED
*(US) OCT TOTAL NET TIC FLOWS: +$18.8B V -$152.9B PRIOR; NET LONG-TERM TIC FLOWS: +$9.4B V -$26.2B PRIOR
ORCL: Reports Q2 $0.61 v $0.61e, R$9.07B v $9.11Be
*(PE) PERU CENTRAL BANK (BCRP) LEAVES REFERENCE RATE UNCHANGED AT 4.25%; AS EXPECTED
*(US) NORTH AMERICA NOV SEMI BOOK/BILL RATIO: 0.96 V 0.91 PRIOR; 2nd straight month below parity
FRIDAY
*(EU) EURO ZONE NOV CPI M/M: -0.1% V -0.1%E; Y/Y (FINAL): 0.6% V 0.6%E; CPI CORE Y/Y (FINAL): 0.8% V 0.8%E
*(RU) RUSSIA CENTRAL BANK (CBR) LEAVES 1-WEEK AUCTION RATE UNCHANGED AT 10.00%; AS EXPECTED
*(UK) DEC CBI INDUSTRIAL TRENDS TOTAL ORDERS: 0 (nil) V -5E
*(US) NOV HOUSING STARTS: 1.09M V 1.230ME; BUILDING PERMITS: 1.20M V 1.240ME
(US) Atlanta Fed raises Q4 GDP forecast to 2.6% from 2.4% on Dec 14th
(CN) China Navy reportedly seizes unmanned underwater US Navy vehicle in South China Sea international waters - press
(US) Weekly Baker Hughes US Rig Count: 637 v 624 w/w (+2.1%) (5th straight weekly increase)
(US) Fed's Bullard (FOMC voter, Dovish): in a revision to policy view, now sees an additional rate hike in 2017
Saturday, December 10, 2016
Barron's weekend summary
Barron's weekend summary: positive on GT, DVA, JNJ
Cover story: The Dow Jones Industrial Average has risen by 8% since Donald Trump won the presidential election, and the index is up 13% for the year, topping the S&P 500 and the Nasdaq-and is rapidly approaching the historic 20,000 mark, which it could soon hit; The rally has been led by GS, UNH, and CAT.
Features:
1) Positive on GT: Key concerns about the stock seem overstated and more than priced in, and while low materials costs are helping the company, efficiency gains are the key driver; shares could rise by 25%;
2) Positive on JNJ: Company has a diverse range of businesses, steady earnings growth, and a dividend yield near 3%-and shares could rally by 20% as operating improvements spark earnings growth;
3) Stock picks from the Sohn Investment Conference include CHTR, MBLY, ALV, Leonardo-Finmeccanica, Ferrrovial, and Euro Disney, all of which should see gains next year;
4) Positive on DVA: Shares of kidney dialysis machine maker are down on worries its operating income will be cut by new CMS guidelines, making them cheap for a company that continues to spin out cash.
Tech Trader: Positive on CSCO: With company's traditional networking gear business slowing, Cisco is focusing on the security sector, where it has sizable revenue and sales growth; its subscription-based network-security software could give shares a 25% boost.
Trader: If Donald Trump's tax cuts and spending plans become reality, a virtuous cycle could result in which "the gain in animal spirits could amplify the boost to the economy from fiscal stimulus," says BAC's Michelle Meyer; When markets are moving fast, some stocks become mispriced, says Societe Generale strategist Alain Bokobza, meaning next year "will be the kingdom of stockpickers"; "Without something new to propel the stocks higher, banks remain at risk of a sharp pullback"; among those with $50M or more in total assets, KWB analyst Frederick Cannon recommends JPM, BK, COF, and CFG.
Interview: Value investor Mohnish Pabrai of Pabrai Investment Funds likes autos and airlines, including GM, FCAU, and LUV.
Profile: Nick Kaiser and Scott Klimo of shariah-focused Saturna Capital won't hold stocks that derive more than 5% of sales from alcohol, tobacco, gambling, pornography, or pork processing (top 10 holdings: ADBE, AAPL, CHD, INTU, AMGN, TJX, LOW, EL, QCOM, LLY). Penta: Profile of Fiduciary Trust's new chief executive, John Dowd, who wants to double the number of clients and assets under management during the next five years through tapping next-gen clients, digitization, global expansion, and rebranding; The IRS is closing wealthy families' biggest tax break, the ability to pass on shares of family-owned businesses, LLCs, and/or limited partnerships to heirs at a discounted value.
Follow-Up: Cautious on X: Earnings estimates are widely scattered, and investors may want to take profits now and wait until the anticipated infrastructure steel boom turns into something realistic.
European Trader: Italy's rejection of proposed constitutional reforms hasn't sparked a crisis, mainly because pollsters predicted the outcome and because of the country's improving economic prospects.
Asian Trader: Positive on Samsung: South Korea's presidential corruption scandal could be a blessing in disguise for the electronics giant, pushing it further toward the restructuring called for by Elliott Management.
Emerging Markets: The key focus for growth at a revamped AVP is mostly in emerging markets such as Brazil, Mexico, Russia, Colombia, and Turkey-and a turnaround effort is already showing promising signs.
Commodities: "Silver may have been clobbered in recent months, but the price of the widely used metal is likely to strengthen gradually over the next year or two."
Streetwise: "Rates are rising from extraordinarily low levels," says JPM chief global strategist David Kelly, "and fixed-income investors will not have the buffer of juicy yields" to protect against capital depreciation of falling bond prices.
Cover story: The Dow Jones Industrial Average has risen by 8% since Donald Trump won the presidential election, and the index is up 13% for the year, topping the S&P 500 and the Nasdaq-and is rapidly approaching the historic 20,000 mark, which it could soon hit; The rally has been led by GS, UNH, and CAT.
Features:
1) Positive on GT: Key concerns about the stock seem overstated and more than priced in, and while low materials costs are helping the company, efficiency gains are the key driver; shares could rise by 25%;
2) Positive on JNJ: Company has a diverse range of businesses, steady earnings growth, and a dividend yield near 3%-and shares could rally by 20% as operating improvements spark earnings growth;
3) Stock picks from the Sohn Investment Conference include CHTR, MBLY, ALV, Leonardo-Finmeccanica, Ferrrovial, and Euro Disney, all of which should see gains next year;
4) Positive on DVA: Shares of kidney dialysis machine maker are down on worries its operating income will be cut by new CMS guidelines, making them cheap for a company that continues to spin out cash.
Tech Trader: Positive on CSCO: With company's traditional networking gear business slowing, Cisco is focusing on the security sector, where it has sizable revenue and sales growth; its subscription-based network-security software could give shares a 25% boost.
Trader: If Donald Trump's tax cuts and spending plans become reality, a virtuous cycle could result in which "the gain in animal spirits could amplify the boost to the economy from fiscal stimulus," says BAC's Michelle Meyer; When markets are moving fast, some stocks become mispriced, says Societe Generale strategist Alain Bokobza, meaning next year "will be the kingdom of stockpickers"; "Without something new to propel the stocks higher, banks remain at risk of a sharp pullback"; among those with $50M or more in total assets, KWB analyst Frederick Cannon recommends JPM, BK, COF, and CFG.
Interview: Value investor Mohnish Pabrai of Pabrai Investment Funds likes autos and airlines, including GM, FCAU, and LUV.
Profile: Nick Kaiser and Scott Klimo of shariah-focused Saturna Capital won't hold stocks that derive more than 5% of sales from alcohol, tobacco, gambling, pornography, or pork processing (top 10 holdings: ADBE, AAPL, CHD, INTU, AMGN, TJX, LOW, EL, QCOM, LLY). Penta: Profile of Fiduciary Trust's new chief executive, John Dowd, who wants to double the number of clients and assets under management during the next five years through tapping next-gen clients, digitization, global expansion, and rebranding; The IRS is closing wealthy families' biggest tax break, the ability to pass on shares of family-owned businesses, LLCs, and/or limited partnerships to heirs at a discounted value.
Follow-Up: Cautious on X: Earnings estimates are widely scattered, and investors may want to take profits now and wait until the anticipated infrastructure steel boom turns into something realistic.
European Trader: Italy's rejection of proposed constitutional reforms hasn't sparked a crisis, mainly because pollsters predicted the outcome and because of the country's improving economic prospects.
Asian Trader: Positive on Samsung: South Korea's presidential corruption scandal could be a blessing in disguise for the electronics giant, pushing it further toward the restructuring called for by Elliott Management.
Emerging Markets: The key focus for growth at a revamped AVP is mostly in emerging markets such as Brazil, Mexico, Russia, Colombia, and Turkey-and a turnaround effort is already showing promising signs.
Commodities: "Silver may have been clobbered in recent months, but the price of the widely used metal is likely to strengthen gradually over the next year or two."
Streetwise: "Rates are rising from extraordinarily low levels," says JPM chief global strategist David Kelly, "and fixed-income investors will not have the buffer of juicy yields" to protect against capital depreciation of falling bond prices.
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