TradeTheNews.com Weekly
Market Update: Markets Sanguine Amid Prospects of Tax Reform and Monetary
Policy Normalization
Fri, 29 Sep 2017 16:03 PM EST
US stocks finished the week at fresh all-time highs, though volumes remained
uninspiring and volatility stayed at historically low levels. Breadth expanded
with the Transports, Russell 2000 and the NASDAQ joining the S&P at new
highs. The Dow held back some, which may have been partially due to quarter-end
profit taking and rotation out of large caps. Small caps and banks, in
particular, benefited by an aggressive push by President Trump and
congressional republicans to get a tax reform package approved by the end of
this year. The growing hopes for fiscal stimulus reignited support for the
reflation trade resulting in a move higher in rates and notable bounce in the
Greenback. Treasury yields backed up and curves steepened. Central bank speak
was pervasive with officials on both sides of the Atlantic indicating a
continued willingness to push ahead with the admittedly gradual pace of
normalization. Markets appeared to be heartened on Friday, when it became clear
that President Trump will make a decision on an appointment to the Fed chairman
post in the next few weeks. The data was mixed with certain inflation readings
and housing figures missing expectations once again, while manufacturing
continued to exhibit strength highlighted by the Richmond and Chicago PMIs. WTI
crude prices reached the highest level since mid-May, which may have had some
influence on the US weekly oil rig count rising for the first time since
mid-August. For the week the DJIA gained 0.2%, the S&P500 added 0.7%, and
Nasdaq was up 1.1%.
In corporate news this week, Nike posted a big Q1 beat on its bottom line,
noting strong sales growth in its international divisions, but the apparel
giant saw waning revenue in North America. Target announced it would boost its
minimum hourly wage for employees to $11/hour this year, with an aim to reach
$15/hour by 2020. Equifax’s CEO stepped down amid ongoing blowback from its
massive data hack. The Saudi Finance Minister reportedly informed bond
investors that the Aramco IPO will go forward in 2018 as planned, despite
rumors of a delay to 2019. Bombardier shares were hit after the US announced it
would slap hefty tariffs on its jets, and the move also registered complaints
from the Canadian and UK governments.
SUN 9/24
(DE) Germany exit polls suggest Merkel's party finishes 1st in German election;
anti-migrant party to enter parliament; AFD Party to enter parliament for first
time - tweet by financial press
(NZ) New Zealand Election Results: Ruling National Party 46.6%; Labour 35.5%;
neither party wins enough seats to have a majority in parliament, will have to
use nationalist New Zealand First Party to form a coalition
MON 9/25
(DE) GERMANY SEPT IFO BUSINESS CLIMATE: 115.2 V 116.0E; CURRENT ASSESSMENT:
123.6 V 124.7E
TGT Affirms Q3 $0.75-0.95 v $0.85e, FY17 $4.34-4.54 v $4.50e; Raises min wage
base 10% to $11/hour (last $10/hr OCT16)
ARAMCO.IPO Saudi Fin Min reportedly has told bond investors that Aramco IPO
will go forward in 2018 as planned - press
(US) SEPT DALLAS FED MANUFACTURING ACTIVITY: 21.3 V 11.5E
(KR) North Korea Foreign Min: Pres Trump's comments over the weekend amount to
declaration of war - comments in NY
TUES 9/26
(FR) FRANCE SEPT BUSINESS CONFIDENCE: 109 V 110E; MANUFACTURING CONFIDENCE: 110
V 111E
EFX Chairman and CEO Richard Smith retires; Paulino do Rego Barros appointed
interim CEO; company to initiate CEO search
(US) SEPT RICHMOND FED MANUFACTURING INDEX: 19 V 13E
(US) AUG NEW HOME SALES: 560K V 585KE
(US) CONSUMER CONFIDENCE: 119.8 V 120.0E
(KR) North Korea interlocutors reportedly have approached Republican Party
analysts on how to deal with Pres Trump - Wash Post
(US) Fed Chair Yellen: it would be imprudent to leave rates on hold until
inflation reaches 2%; there are considerable odds inflation won't stabilize at
2% for next few years - comments in Cleveland
(US) Sen Roberts (R-KS): It would appear there will be no vote on the
Graham-Cassidy healthcare bill
MU Reports Q4 $2.02 v $1.84e, Rev $6.14B v $5.97Be
NKE Reports Q1 $0.57 v $0.48e, Rev $9.1B v $9.06Be
WEDS 9/27
(TH) THAILAND CENTRAL BANK (BOT) LEAVES BENCHMARK INTEREST RATE UNCHANGED AT
1.50% (AS EXPECTED)
(EU) EURO ZONE AUG M3 MONEY SUPPLY Y/Y: 5.0% V 4.6%E
(CZ) CZECH CENTRAL BANK (CNB) LEAVES REPURCHASE RATE UNCHANGED AT 0.25%; AS
EXPECTED
(US) AUG PRELIMINARY DURABLE GOODS ORDERS: +1.7% V +1.0%E; DURABLES EX
TRANSPORTATION: 0.2% V 0.2%E
(US) AUG PENDING HOME SALES M/M: -2.6% V -0.5%E; Y/Y: -3.1% V -0.5%E
(US) Atlanta Fed cuts Q3 GDP to 2.1% from 2.2% on 9/19
(US) Association of American Railroads weekly rail traffic report for week
ending Sep 23rd: 548.2K carloads and intermodal units, +1.6% y/y
(US) Pres Trump: middle class would be biggest winners under GOP tax plan; no
reason tax reform can't be bipartisan effort - prepared remarks on tax reform
(NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE (OCR) UNCHANGED
AT 1.75%; AS EXPECTED
(CN) Tianhong's Yu'e Bao money market fund said to adjust portfolio for new
liquidity rules - Chinese Press
THURS 9/28
(DE) GERMANY OCT GFK CONSUMER CONFIDENCE: 10.8 V 11.0E
(DE) GERMANY SEPT CPI SAXONY M/M: 0.2% V 0.2% PRIOR; Y/Y: 2.0% V 1.9% PRIOR
(DE) Germany Sept CPI Brandenburg M/M: 0.2% v 0.1% prior; Y/Y: 1.6% v 1.8%
prior
(DE) Germany Sept CPI Bavaria M/M: 0.2% v 0.2% prior; Y/Y: 1.8% v 1.8% prior
(DE) Germany Sept CPI Hesse M/M: 0.3% v 0.0% prior; Y/Y: 2.1% v 1.8% prior
(DE) GERMANY SEPT CPI NORTH RHINE WESTPHALIA M/M: 0.1% V 0.1% PRIOR; Y/Y: 1.9%
V 1.9% PRIOR
(EU) EURO ZONE SEPT BUSINESS CLIMATE INDICATOR: 1.34 V 1.12E; FINAL CONSUMER
CONFIDENCE: -1.2 V -1.2E
(DE) GERMANY SEPT CPI BADEN WUERTTEMBERG M/M: 0.3% V 0.1% PRIOR; Y/Y: 1.9% V
1.9% PRIOR
(DE) GERMANY SEPT PRELIMINARY CPI M/M: 0.1% V 0.1%E; Y/Y: 1.8% V 1.8%E
(US) Q2 FINAL GDP ANNUALIZED (3RD READING) Q/Q: 3.1% V 3.0%E; PERSONAL
CONSUMPTION: 3.3% V 3.3%E
(US) Q2 FINAL GDP PRICE INDEX: 1.0% V 1.0%E; CORE PCE Q/Q: 0.9% V 0.9%E
(MX) MEXICO CENTRAL BANK (BANXICO) LEAVES OVERNIGHT RATE UNCHANGED AT 7.00%; AS
EXPECTED
FRI 9/29
(FR) FRANCE SEPT PRELIMINARY CPI M/M: -0.1% V -0.2%E; Y/Y: 1.0% V 1.0%E
(DE) GERMANY SEPT UNEMPLOYMENT CHANGE: -23K V -5KE; UNEMPLOYMENT RATE: 5.6%
(record low) V 5.7%E
(UK) Q2 FINAL GDP Q/Q: 0.3% V 0.3%E; Y/Y: 1.5% V 1.7%E
(EU) EURO ZONE SEPT ADVANCE CPI ESTIMATE Y/Y: 1.5% V 1.6%E; CPI CORE Y/Y: 1.1%
V 1.2%E
(US) AUG PCE CORE M/M: 0.1% V 0.2%E; Y/Y: 1.3% V 1.4%E
(US) AUG PCE DEFLATOR M/M: 0.2% V 0.3%E; Y/Y: 1.4% V 1.5%E
(US) AUG PERSONAL INCOME: 0.2% V 0.2%E; PERSONAL SPENDING: 0.1% V 0.1%E
(US) Nevada reports Aug casino gaming Rev $989.5M, +14.9% y/y; Las Vegas strip
rev $545.5M, +21.4% y/y
(US) SEPT CHICAGO PURCHASING MANAGER: 65.2 V 58.7E (highest since June)
(US) SEPT FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 95.1 V 95.3E
(US) Pres Trump: will make Fed Chair decision in next 2 to 3 weeks
Friday, September 29, 2017
Saturday, September 23, 2017
Barrons weekend summary
Barrons weekend summary: Cover positive on gene therapy sector; Positive feature on ORCL; cautious on SIX
Cover story: “After decades of research and development, gene therapy is rapidly emerging as one of the most exciting areas in biotechnology—and generating new hope for patients with certain rare and often deadly inherited diseases” (Positive on ONCE, AVXS, RGNX, BOLD, VYGR).
Features:
1) Cautious on SIX: Shares have climbed sixfold since the company exited bankruptcy in 2010, but hitting long-range growth targets may be difficult, and competition could dent its growth potential;
2) Positive on ORCL: Tech major’s numbers indicate that its move to the cloud is on track, and that its legacy business is stabilizing after two years of declines.
Tech Trader: As the artificial intelligence trend continues to gain steam, investors such as SoftBank Group’s Masayoshi Son will keep funding companies with ties to the sector, of which the chip industry is at the epicenter; Among the companies benefiting from the AI boom are XLNX, SNPS, CDNS, LSCC.
Trader: Analysts expect to see some sort of economic pullback, perhaps sparked by North Korea, but few predict that financial conditions will deteriorate; If the government allows U.S. companies to repatriate cash at a low tax rate, those with the most cash relative to their market caps will get the biggest boost; A look at defensive stocks investors can look to for protection during a correction, suggested by Michael Belkin of the Belkin Report (long: CVX, CSOP SZSE ChiNext ETF, VXX, NEM, PAAS, XLRE, XLU, VZ; short: GOOG, SCHW, CTXS, ERIC, NVDA).
Interview: Christopher Ailman of CalSTRS can’t settle for low growth but must also protect principal; he sees opportunities in Europe, problems in the investment industry, and says the U.S. market is priced for perfection.
Profile: Matt Brill and Michael Hyman, co-managers of the Invesco Corporate Bond fund, are optimistic because U.S. economic growth is running at or above expectations, and strong corporate earnings make for creditworthy companies. Penta: A look at the turnaround of New England-based Narragansett Beer; Profile of little-known Swiss watch maker Romain Gauthier; HMC’s $200K Acura NSX supercar doesn’t have the “raw appeal” of cars from RACE; Aircraft prices are depressed, making it the perfect time to buy a used corporate jet; Women clients are reshaping private banks; America’s Top 40 wealth management firms, topped by Bank of America Global Wealth & Investment Management, grew by 19% last year; A year from now, a glut of new and old condos in Miami should present a buying opportunity; Profile of Martha Henderson, “the most powerful banker in Hollywood”; A look at tax bonuses available for people who rent out second homes.
Follow-Up: “Any optimism that Puerto Rico’s massive debt would get renegotiated in a timely fashion has been dashed by the impact of two monster storms that struck the island this month”; SharkNinja continues to gain ground on IRBT in the robotic vacuum space.
European Trader: Investors often conflate European companies, which may derive a sizable share of income from outside the region, with European countries and their slowing economic growth.
Asian Trader: Pakistan recently regained emerging market status after being a frontier market, a move that prompted many investors to sell—creating opportunities for those who see potential in the country’s stocks.
Emerging Markets: Poland, China, and Korea are the best-performing emerging markets year-to-date, while Pakistan, Qatar, and Russia are the worst, according to data from MSCI.
Commodities: “Coal’s price performance this year has outpaced that of archrival natural gas, and it’s on track to reclaim the top spot in electrical generation before long.”
Streetwise: The fundamentals for aerospace are good, says Rajeev Lalwani of MS, and manufacturers have the “upper hand” because they can dictate which suppliers to work with.
Friday, September 22, 2017
UN Meetings Ramp Korea Tensions; Fed Confirms Balance Sheet Run Off Plan
TradeTheNews.com Weekly
Market Update: UN Meetings Ramp Korea Tensions; Fed Confirms Balance Sheet Run
Off Plan
Fri, 22 Sep 2017 16:04 PM EST
Stock markets continued to press up against fresh all-time highs headlined by the S&P500 gaining a foothold above 2500 early this week, pushing the VIX volatility index back below 10. A weaker US dollar persisted, likely aiding US equity valuations. On Wednesday, the Fed confirmed that quantitative tightening is firmly on track to start in October, with rates to continue rising gradually despite still being perplexed about what has kept the pressure on inflation readings. Short rates moved up following the FOMC statement but long rates held relatively stable. By Thursday the spread between the US 5-year and 30-year treasury yield narrowed to levels not seen since 2007. The Greenback saw a brief bout of buying before sellers sent the Dollar index back towards 2.5 year lows. Cable continued to test post-Brexit highs into PM May’s highly anticipated Brexit speech on Friday. Robust European PMI numbers underscored the building momentum in many European economies and helped hold the Euro up near the 1.20 mark despite the perceived hawkishness by the FOMC. The Dow broke a 9-day winning streak on Thursday and shares trickled lower on Friday after new sanctions announced at the UN general assembly prompted North Korean to threaten an above ground nuclear test. For the week, the DJIA gained 0.4%, the S&P added 0.1%, and the Nasdaq fell 0.3%.
The week’s corporate news was bookended by two significant transactions. Monday Northrup Grumman confirmed an all-cash deal to acquire Orbital ATK at a $9.2B valuation including debt. Investors voiced support sending NOC shares up 6% on the week. After the close of trading in Japan on Friday, Calgon Carbon Corp announced an agreement to be acquired at a 60% premium by Japan’s Kuraray. FedEx reported results on Wednesday that were short of expectations and lowered the full year outlook. Nevertheless shares moved up helped by an announcement intend to raise shipping rates by ~5% on Jan 1st. Apple shares traded off 4% this week as a glitch emerged in its new untethered Apple Watch and analysts predicted iPhone 8 sales may be lackluster as consumers wait for the iPhone X release in November. The healthcare sector, HMOs and hospitals in particular, experienced bouts out selling over several sessions when it started to look like momentum was building for the Republican’s last digit effort to repeal Obamacare. But on Friday Sen. McCain (R-AZ) indicated he will once again be break with his party, likely killing the bill’s path forward. The headlines induced a reversal in some of the healthcare names.
MON 9/18
*(EU) EURO ZONE AUG FINAL CPI Y/Y: 1.5% V 1.5%E; CPI CORE Y/Y: 1.2% V 1.2%E
*(US) SEPT NAHB HOUSING MARKET INDEX: 64 V 67E
*(US) JULY TOTAL NET TIC FLOWS: -$7.3B V +$5.9B PRIOR; NET LONG-TERM TIC FLOWS: $1.3B V $34.4B PRIOR
TUES 9/19
(IR) Iraq Oil Min Al-Luaibi: Current oil production cuts are going fine; prices and global markets are improving
*(DE) GERMANY SEPT ZEW CURRENT SITUATION SURVEY: 87.9 V 86.2BE; EXPECTATION SURVEY: 17.0 V 12.0E
*(HU) HUNGARY CENTRAL BANK (NBH) LEAVES BASE RATE UNCHANGED AT 0.90%; AS EXPECTED
(HU) Hungary Central Bank (NBH) cuts Deposit Rate further into negative territory by 10bps
*(US) AUG HOUSING STARTS: 1.180M V 1.174ME; BUILDING PERMITS: 1.30M V 1.22ME
*(US) AUG IMPORT PRICE INDEX M/M: 0.6% V 0.4%E; Y/Y: 2.1% V 2.2%E
(US) Trump admin reportedly plans to ease rules on overseas sales of guns, including assault rifles – press
FDX Reports Q1 $2.51 v $3.17e, Rev $15.3B v $15.4Be
BBBY Reports Q2 $0.78 (ex-items) v $0.95e, Rev $2.90B v $3.01Be; Cuts FY17 EPS ~$3.00 v $4.02e
WED 9/20
TKA.DE Agree to European Steel 50/50 JV with Tata Steel, sees synergies of €400-600M
DGE.UK Trading Update: Affirms FY16-19 of mid-single digit top line growth and 175bps of organic operating margin improvement; expect our organic operating margin expansion will be weighted towards H2
*(UK) AUG RETAIL SALES (EX AUTO/FUEL) M/M: 1.0% V 0.1%E; Y/Y: 2.8% V 1.4%E
(UK) BOE Agents Summary: Impact of Sterling drop on goods inflation may have peaked
(EU) OECD Economic Outlook; Maintains 2017 Global GDP forecasts at 3.5% Raises 2018 Global GDP forecasts from 3.6% to 3.7%
*(US) AUG EXISTING HOME SALES: 5.35M V 5.45ME
AAPL Rosenblatt analyst: preorders for iPhone 8 are much lower than they were for iPhone 6 and 7
*(US) FOMC HOLDS TARGET RATE RANGE AT 1.00-1.25%, AS EXPECTED; confirms start of balance sheet reduction in Oct; hurricanes could temporarily boost inflation (as expected)
*(US) FOMC UPDATED ECONOMIC FORECAST FOR SEPT MEETING: Cuts Median forecast for Long Run rate to 2.75%
(US) 2-year Treasury yield rises above 1.43% for the first time since late 2008 post FOMC statement
(US) Fed Chair Yellen: hurricanes may have a substantial impact on Sept payrolls data - FOMC press conf
*(JP) BANK OF JAPAN (BOJ) LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED
THRS 9/21
CCC To be acquired by Japan's Kuraray for $21.50/shr cash valued at $1.11B (63% prem)
*(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.50% (AS EXPECTED)
*(PH) PHILIPPINES CENTRAL BANK (BSP) LEAVES OVERNIGHT BORROWING RATE UNCHANGED AT 3.00% (AS EXPECTED)
(CN) S&P cuts China to A+ from AA-; Outlook stable; Rating now inline w/Fitch & Moody's
*(TW) TAIWAN CENTRAL BANK (CBC) LEAVES BENCHMARK INTEREST RATE UNCHANGED AT 1.375%; AS EXPECTED
*(US) SEPT PHILADELPHIA FED BUSINESS OUTLOOK: 23.8 V 17.1E
*(ZA) SOUTH AFRICA CENTRAL BANK (SARB) KEEPS INTEREST RATE ON HOLD AT 6.75% (NOT EXPECTED)
*(US) AUGUST LEADING INDEX: 0.4% V 0.3%E
*(EU) EURO ZONE SEPT ADVANCE CONSUMER CONFIDENCE: -1.2 V -1.5E
(US) Fed reports Q2 Financial Accounts: Household Change in Net Worth: $1.698T v $2.327T prior
(KR) President Trump: confirms expanded sanctions surrounding North Korea
(KR) North Korea countermeasure may mean H-bomb test in Pacific - South Korean Press
FRI 9/22
*(FR) FRANCE Q2 FINAL GDP Q/Q: 0.5% V 0.5%E; Y/Y 1.8% V 1.7%E
*(FR) FRANCE SEPT PRELIMINARY MANUFACTURING PMI: 56.0 V 55.5E (11TH MONTH OF EXPANSION)
*(DE) GERMANY SEPT PRELIMINARY MANUFACTURING PMI: 60.6 V 59.0E (34TH MONTH OF EXPANSION)
*(EU) EURO ZONE SEPT PRELIMINARY MANUFACTURING PMI: 58.2 V 57.2E (50TH MONTH OF EXPANSION)
*(UK) SEPT CBI INDUSTRIAL TRENDS TOTAL ORDERS: 7 V 13E
(US) Weekly Baker Hughes US Rig Count: 935 v 936 w/w (-0.1%)
Fri, 22 Sep 2017 16:04 PM EST
Stock markets continued to press up against fresh all-time highs headlined by the S&P500 gaining a foothold above 2500 early this week, pushing the VIX volatility index back below 10. A weaker US dollar persisted, likely aiding US equity valuations. On Wednesday, the Fed confirmed that quantitative tightening is firmly on track to start in October, with rates to continue rising gradually despite still being perplexed about what has kept the pressure on inflation readings. Short rates moved up following the FOMC statement but long rates held relatively stable. By Thursday the spread between the US 5-year and 30-year treasury yield narrowed to levels not seen since 2007. The Greenback saw a brief bout of buying before sellers sent the Dollar index back towards 2.5 year lows. Cable continued to test post-Brexit highs into PM May’s highly anticipated Brexit speech on Friday. Robust European PMI numbers underscored the building momentum in many European economies and helped hold the Euro up near the 1.20 mark despite the perceived hawkishness by the FOMC. The Dow broke a 9-day winning streak on Thursday and shares trickled lower on Friday after new sanctions announced at the UN general assembly prompted North Korean to threaten an above ground nuclear test. For the week, the DJIA gained 0.4%, the S&P added 0.1%, and the Nasdaq fell 0.3%.
The week’s corporate news was bookended by two significant transactions. Monday Northrup Grumman confirmed an all-cash deal to acquire Orbital ATK at a $9.2B valuation including debt. Investors voiced support sending NOC shares up 6% on the week. After the close of trading in Japan on Friday, Calgon Carbon Corp announced an agreement to be acquired at a 60% premium by Japan’s Kuraray. FedEx reported results on Wednesday that were short of expectations and lowered the full year outlook. Nevertheless shares moved up helped by an announcement intend to raise shipping rates by ~5% on Jan 1st. Apple shares traded off 4% this week as a glitch emerged in its new untethered Apple Watch and analysts predicted iPhone 8 sales may be lackluster as consumers wait for the iPhone X release in November. The healthcare sector, HMOs and hospitals in particular, experienced bouts out selling over several sessions when it started to look like momentum was building for the Republican’s last digit effort to repeal Obamacare. But on Friday Sen. McCain (R-AZ) indicated he will once again be break with his party, likely killing the bill’s path forward. The headlines induced a reversal in some of the healthcare names.
MON 9/18
*(EU) EURO ZONE AUG FINAL CPI Y/Y: 1.5% V 1.5%E; CPI CORE Y/Y: 1.2% V 1.2%E
*(US) SEPT NAHB HOUSING MARKET INDEX: 64 V 67E
*(US) JULY TOTAL NET TIC FLOWS: -$7.3B V +$5.9B PRIOR; NET LONG-TERM TIC FLOWS: $1.3B V $34.4B PRIOR
TUES 9/19
(IR) Iraq Oil Min Al-Luaibi: Current oil production cuts are going fine; prices and global markets are improving
*(DE) GERMANY SEPT ZEW CURRENT SITUATION SURVEY: 87.9 V 86.2BE; EXPECTATION SURVEY: 17.0 V 12.0E
*(HU) HUNGARY CENTRAL BANK (NBH) LEAVES BASE RATE UNCHANGED AT 0.90%; AS EXPECTED
(HU) Hungary Central Bank (NBH) cuts Deposit Rate further into negative territory by 10bps
*(US) AUG HOUSING STARTS: 1.180M V 1.174ME; BUILDING PERMITS: 1.30M V 1.22ME
*(US) AUG IMPORT PRICE INDEX M/M: 0.6% V 0.4%E; Y/Y: 2.1% V 2.2%E
(US) Trump admin reportedly plans to ease rules on overseas sales of guns, including assault rifles – press
FDX Reports Q1 $2.51 v $3.17e, Rev $15.3B v $15.4Be
BBBY Reports Q2 $0.78 (ex-items) v $0.95e, Rev $2.90B v $3.01Be; Cuts FY17 EPS ~$3.00 v $4.02e
WED 9/20
TKA.DE Agree to European Steel 50/50 JV with Tata Steel, sees synergies of €400-600M
DGE.UK Trading Update: Affirms FY16-19 of mid-single digit top line growth and 175bps of organic operating margin improvement; expect our organic operating margin expansion will be weighted towards H2
*(UK) AUG RETAIL SALES (EX AUTO/FUEL) M/M: 1.0% V 0.1%E; Y/Y: 2.8% V 1.4%E
(UK) BOE Agents Summary: Impact of Sterling drop on goods inflation may have peaked
(EU) OECD Economic Outlook; Maintains 2017 Global GDP forecasts at 3.5% Raises 2018 Global GDP forecasts from 3.6% to 3.7%
*(US) AUG EXISTING HOME SALES: 5.35M V 5.45ME
AAPL Rosenblatt analyst: preorders for iPhone 8 are much lower than they were for iPhone 6 and 7
*(US) FOMC HOLDS TARGET RATE RANGE AT 1.00-1.25%, AS EXPECTED; confirms start of balance sheet reduction in Oct; hurricanes could temporarily boost inflation (as expected)
*(US) FOMC UPDATED ECONOMIC FORECAST FOR SEPT MEETING: Cuts Median forecast for Long Run rate to 2.75%
(US) 2-year Treasury yield rises above 1.43% for the first time since late 2008 post FOMC statement
(US) Fed Chair Yellen: hurricanes may have a substantial impact on Sept payrolls data - FOMC press conf
*(JP) BANK OF JAPAN (BOJ) LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED
THRS 9/21
CCC To be acquired by Japan's Kuraray for $21.50/shr cash valued at $1.11B (63% prem)
*(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.50% (AS EXPECTED)
*(PH) PHILIPPINES CENTRAL BANK (BSP) LEAVES OVERNIGHT BORROWING RATE UNCHANGED AT 3.00% (AS EXPECTED)
(CN) S&P cuts China to A+ from AA-; Outlook stable; Rating now inline w/Fitch & Moody's
*(TW) TAIWAN CENTRAL BANK (CBC) LEAVES BENCHMARK INTEREST RATE UNCHANGED AT 1.375%; AS EXPECTED
*(US) SEPT PHILADELPHIA FED BUSINESS OUTLOOK: 23.8 V 17.1E
*(ZA) SOUTH AFRICA CENTRAL BANK (SARB) KEEPS INTEREST RATE ON HOLD AT 6.75% (NOT EXPECTED)
*(US) AUGUST LEADING INDEX: 0.4% V 0.3%E
*(EU) EURO ZONE SEPT ADVANCE CONSUMER CONFIDENCE: -1.2 V -1.5E
(US) Fed reports Q2 Financial Accounts: Household Change in Net Worth: $1.698T v $2.327T prior
(KR) President Trump: confirms expanded sanctions surrounding North Korea
(KR) North Korea countermeasure may mean H-bomb test in Pacific - South Korean Press
FRI 9/22
*(FR) FRANCE Q2 FINAL GDP Q/Q: 0.5% V 0.5%E; Y/Y 1.8% V 1.7%E
*(FR) FRANCE SEPT PRELIMINARY MANUFACTURING PMI: 56.0 V 55.5E (11TH MONTH OF EXPANSION)
*(DE) GERMANY SEPT PRELIMINARY MANUFACTURING PMI: 60.6 V 59.0E (34TH MONTH OF EXPANSION)
*(EU) EURO ZONE SEPT PRELIMINARY MANUFACTURING PMI: 58.2 V 57.2E (50TH MONTH OF EXPANSION)
*(UK) SEPT CBI INDUSTRIAL TRENDS TOTAL ORDERS: 7 V 13E
(US) Weekly Baker Hughes US Rig Count: 935 v 936 w/w (-0.1%)
Sunday, September 17, 2017
Barrons weekend summary
Barrons weekend summary: Positive feature on CFR
Cover story: “Research suggests the combination of better-than-predicted earnings and revenue, followed by a quick, positive price reaction, tends to predict market-beating performance for months to come”; CAT and ADI are among companies with such potential upside.
Feature: Positive on CFR: Texas-based bank looks like a bargain for patient investors, with strength based on good loan underwriting and a conservative approach to allocating capital.
Tech Trader: Story profiles special purpose acquisition company Social Capital Hedosophia, which “could conceivably execute a promising acquisition, drive up the share price, and walk away with a profit,” but no company is guaranteed to succeed just because it has gone public through an IPO or a SPAC, says Tiernan Ray.
Trader: “Traders are increasingly confident that another rate hike is coming this year, with the market pricing in a 47% chance”; GS, rarely seen as an underdog, may be one now, but because the decline is due to its own missteps it should be able to fix its problems; Cautious on FDX: Few analysts expect the delivery giant’s earnings report to be good—instead, the question among many is just how bad it will be.
Interview: Sarah Ketterer, founder of Causeway Capital Management and manager of the Causeway International Value fund, looks for cheap, financially sound, and contrarian plays that can weather a downturn (picks: PDCE, ECA, CHL, Akso Nobel, Volkswagen).
Profile: Fabio Paolini of the AMG Managers Pictet International fund looks for companies that can grow cash flow and deploy it wisely (top 10 holdings: BUD, GSK, Japan Tobacco, BBVA, Inmarsat, Nestle, Vinci, CK Hutchison Holdings, SoftBank Group, Orpea).
Advisor Rankings: Barron’s list of the top independent financial advisors is led by Spuds Powell of Kayne Anderson Rudnick Investment Management, Robert Clarfeld of Clarfeld Financial Advisors, and Greg Miller of Wellesley Asset Management; Barron’s list of the top 30 RIA Firms is led by Creative Management, Mariner Holdings, and Edelman Financial Services; Story says large players dominate the RIA industry, but small firms can still carve out a successful niche.
European Trader: German chancellor Angela Merkel appears likely to win a fourth term, which could provide investing opportunities even if her electoral win isn’t a major market mover.
Asian Trader: Indonesia has been the best performing market in Asia after the region’s financial crisis in the late 1990s, though its benchmark Jakarta Composite Index lags India’s and China’s—a situation that could change.
Emerging Markets: Although inflation in Argentina has been hard for free-market reform president Mauricio Macri’s administration to tame, there are signs of progress.
Commodities: If lumber benefits from the recovery efforts under way following a string of recent storms, prices could reach a level they haven’t seen in a decade.
Streetwise: “Thanks to immense changes in the equity markets over the years, public investors, such as individuals, face diminishing odds of buying stakes in companies early in their growth cycles,” and there may never again be another AMZN for investors.
Friday, September 15, 2017
Markets Blow Off Real and Geopolitical Storms, Still Eying Tax Reform
TradeTheNews.com com
Weekly Market Update: Markets Blow Off Real and Geopolitical Storms, Still
Eying Tax Reform
Fri, 15 Sep 2017 16:12 PM EST
US stock markets forged ahead to fresh all-time highs this week as investors maintained a healthy risk appetite despite a host of ongoing risks. Massive Florida power outages following landfall from Hurricane Irma, fallout from the unprecedented Equifax credit breach, more provocative actions from the North Korean regime, and another terrorist attack in London did little to impede sentiment. Washington taking further baby steps towards tax reform likely offset some of those risks. The President's perceived willingness to reach across the aisle on key issues like immigration spurred hopes for a tax deal, while Republicans pledged to release a detailed reform package by the end of the month. For the week, the the DJIA gained 2.2%, the S&P500 rose 1.6%, and the Nasdaq added 1.4%.
Treasury yields moved up alongside three disappointing auctions and a host of corporate supply announcements. Bond sellers appeared to be rewarded by a hotter than expected US August CPI print, but despite a 15+ basis point move in UST, yields remained at depressed levels. The Bank of England met and indicated the recent data may force them to begin withdrawing accommodation faster than the market currently anticipates despite the uncertainty surrounding Brexit talks that are moving along at a glacial pace. Cable traded to the highest levels since the days after last summer’s Brexit vote, while the Dollar index tried to bottom along with the upswing in rates. Copper prices retreated some 7% from recent highs, helped by softer than expected Chinese industrial production data.
The major corporate news this week came from Apple’s product event, where the tech giant introduced its next-gen Apple Watch 3 with cellular capability and confirmed the release of its premium iPhone X (‘ten’) product with improved graphics and face ID technology. Oracle reported a Q1 beat on earnings and cloud revenue, but shares fell after the company guided Q2 numbers below consensus. Nordstrom shares popped this week on reports that the founding family was moving closer to a going private deal. Steel producer Nucor guided its Q3 earnings below Street estimates, noting import pressures have not allowed pricing to keep pace with increasing raw material costs.
MON 9/11
(FR) BANK OF FRANCE AUG BUSINESS SENTIMENT: 104 V 106E
*(KR) UN SECURITY COUNCIL VOTES IN FAVOR OF INCREASING SANCTIONS AGAINST NORTH KOREA; Sanctions now impact more than 90% of all reported exports
(UK) Parliament votes against opposition labor party attempt to block EU withdrawal bill; passes first parliamentary hurdle
TUES 9/12
(UK) AUG CPI M/M: 0.6% V 0.5%E; Y/Y: 2.9% V 2.8%E; CPI CORE Y/Y: 2.7% V 2.5%E (annual pace matches highest level since Jun 2013)
(IN) INDIA AUG CPI Y/Y: 3.4% V 3.2%E
(US) JULY JOLTS JOB OPENINGS: 6.17M V 6.00ME (record high)
JWN Nordstrom family reportedly nearing deal with PE firm to take company private - CNBC
AAPL Introduces next gen Apple Watch 3 (available Sept 22): confirms it includes built in cellular (untethered from iPhone); can receive calls on the same number as your phone; Introduces iPhone 8 and 8 Plus (Prices start at $699 and $799, shipping Sept 22) - iPhone 8 event
WEDS 9/13
(UK) JULY AVERAGE WEEKLY EARNINGS 3M/Y: 2.1% V 2.3%E; WEEKLY EARNINGS EX BONUS 3M/Y: 2.1% V 2.2%E
(UK) AUG JOBLESS CLAIMS CHANGE: -2.8K V -2.9K PRIOR; CLAIMANT COUNT RATE: 2.3% V 2.3% PRIOR
(UK) JULY ILO UNEMPLOYMENT RATE: 4.3% V 4.4%E (lowest level since 1975)
(US) AUG PPI FINAL DEMAND M/M: 0.2% V 0.3%E; Y/Y: 2.4% V 2.5%E
(US) Association of American Railroads weekly rail traffic report for week ending Sep 9th: 486.5K carloads and intermodal units, +0.8% y/y
ARAMCO.IPO May delay IPO to 2019 - financial press
THURS 9/14
RMS.FR Reports H1 Net €605M v €603Me, Op profit €931.3M v €919Me, Rev €2.71B v €2.44B y/y
(CH) SWISS NATIONAL BANK (SNB) LEAVES SIGHT DEPOSIT RATE UNCHANGED AT -0.75%; AS EXPECTED
(UK) BOE LEAVES INTEREST RATES UNCHANGED AT 0.25%; AS EXPECTED
(UK) BOE SEPT MINUTES: MPC VOTED 7-2 TO LEAVE INTEREST RATES UNCHANGED AT 0.25%
(TR) TURKEY CENTRAL BANK (CBRT) LEAVES BENCHMARK REPURCHASE RATE UNCHANGED AT 8.00%; AS EXPECTED
VZ CEO: We have moved on from looking at cable companies; Big content deal coming by end of Sep - Goldman conf
(US) AUG CPI M/M: 0.4% V 0.3%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI NSA: 245.519 V 245.350E
(UK) Bank of England's (BOE) Carney: May need to adjust BOE interest rate in the coming months (in-line with Sept policy statement)
ORCL Reports Q1 $0.62 v $0.61e, Rev $9.21B v $9.02Be
*(CL) CHILE CENTRAL BANK (BCCH) LEAVES OVERNIGHT RATE TARGET UNCHANGED AT 2.50%; AS EXPECTED
(KR) North Korea fires a missile from Pyongyang towards the east, missile passes over Japan - South Korea press
(KR) UN Security Council to meet at 3 pm EDT on Friday, Sept 15thregarding the most recent North Korea missile test
FRI 9/15
*(CN) CHINA AUG NEW YUAN LOANS (CNY): 1.09T V 950.0BE
*(CN) CHINA AUG AGGREGATE FINANCING (CNY): 1.48T V 1.280TE
(UK) BOE’s Vlieghe (dove): May need to adjust BOE interest rate in the coming months (in-line with MPC majority) - comments from London
(RU) RUSSIA CENTRAL BANK (CBR) CUTS 1-WEEK AUCTION RATE BY 50BPS TO 8.50%; AS EXPECTED
*(US) AUG ADVANCE RETAIL SALES M/M: -0.2% V +0.1%E; RETAIL SALES EX AUTO M/M: 0.2% V 0.5%E
*(US) SEPT EMPIRE MANUFACTURING: 24.4 V 18.0E
(US) AUG INDUSTRIAL PRODUCTION M/M: -0.9% V +0.1%E; CAPACITY UTILIZATION: 76.1% V 76.7%E
NUE Guides Q3 $0.75-0.80 v $1.06e
(US) SEPT PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 95.3 V 95.0E
(US) New York Fed Nowcast: cuts Q3 GDP forecast to 1.3% from 2.1% on 9/8; cuts Q4 GDP forecast at 1.8% from 2.6% on 9/8
(US) Atlanta Fed cuts Q3 GDP to 2.2% from 3.0% on 9/6
(UK) Prime Min May: raising national threat level to 'critical' from 'severe'; category indicates a further attack may be imminent
Fri, 15 Sep 2017 16:12 PM EST
US stock markets forged ahead to fresh all-time highs this week as investors maintained a healthy risk appetite despite a host of ongoing risks. Massive Florida power outages following landfall from Hurricane Irma, fallout from the unprecedented Equifax credit breach, more provocative actions from the North Korean regime, and another terrorist attack in London did little to impede sentiment. Washington taking further baby steps towards tax reform likely offset some of those risks. The President's perceived willingness to reach across the aisle on key issues like immigration spurred hopes for a tax deal, while Republicans pledged to release a detailed reform package by the end of the month. For the week, the the DJIA gained 2.2%, the S&P500 rose 1.6%, and the Nasdaq added 1.4%.
Treasury yields moved up alongside three disappointing auctions and a host of corporate supply announcements. Bond sellers appeared to be rewarded by a hotter than expected US August CPI print, but despite a 15+ basis point move in UST, yields remained at depressed levels. The Bank of England met and indicated the recent data may force them to begin withdrawing accommodation faster than the market currently anticipates despite the uncertainty surrounding Brexit talks that are moving along at a glacial pace. Cable traded to the highest levels since the days after last summer’s Brexit vote, while the Dollar index tried to bottom along with the upswing in rates. Copper prices retreated some 7% from recent highs, helped by softer than expected Chinese industrial production data.
The major corporate news this week came from Apple’s product event, where the tech giant introduced its next-gen Apple Watch 3 with cellular capability and confirmed the release of its premium iPhone X (‘ten’) product with improved graphics and face ID technology. Oracle reported a Q1 beat on earnings and cloud revenue, but shares fell after the company guided Q2 numbers below consensus. Nordstrom shares popped this week on reports that the founding family was moving closer to a going private deal. Steel producer Nucor guided its Q3 earnings below Street estimates, noting import pressures have not allowed pricing to keep pace with increasing raw material costs.
MON 9/11
(FR) BANK OF FRANCE AUG BUSINESS SENTIMENT: 104 V 106E
*(KR) UN SECURITY COUNCIL VOTES IN FAVOR OF INCREASING SANCTIONS AGAINST NORTH KOREA; Sanctions now impact more than 90% of all reported exports
(UK) Parliament votes against opposition labor party attempt to block EU withdrawal bill; passes first parliamentary hurdle
TUES 9/12
(UK) AUG CPI M/M: 0.6% V 0.5%E; Y/Y: 2.9% V 2.8%E; CPI CORE Y/Y: 2.7% V 2.5%E (annual pace matches highest level since Jun 2013)
(IN) INDIA AUG CPI Y/Y: 3.4% V 3.2%E
(US) JULY JOLTS JOB OPENINGS: 6.17M V 6.00ME (record high)
JWN Nordstrom family reportedly nearing deal with PE firm to take company private - CNBC
AAPL Introduces next gen Apple Watch 3 (available Sept 22): confirms it includes built in cellular (untethered from iPhone); can receive calls on the same number as your phone; Introduces iPhone 8 and 8 Plus (Prices start at $699 and $799, shipping Sept 22) - iPhone 8 event
WEDS 9/13
(UK) JULY AVERAGE WEEKLY EARNINGS 3M/Y: 2.1% V 2.3%E; WEEKLY EARNINGS EX BONUS 3M/Y: 2.1% V 2.2%E
(UK) AUG JOBLESS CLAIMS CHANGE: -2.8K V -2.9K PRIOR; CLAIMANT COUNT RATE: 2.3% V 2.3% PRIOR
(UK) JULY ILO UNEMPLOYMENT RATE: 4.3% V 4.4%E (lowest level since 1975)
(US) AUG PPI FINAL DEMAND M/M: 0.2% V 0.3%E; Y/Y: 2.4% V 2.5%E
(US) Association of American Railroads weekly rail traffic report for week ending Sep 9th: 486.5K carloads and intermodal units, +0.8% y/y
ARAMCO.IPO May delay IPO to 2019 - financial press
THURS 9/14
RMS.FR Reports H1 Net €605M v €603Me, Op profit €931.3M v €919Me, Rev €2.71B v €2.44B y/y
(CH) SWISS NATIONAL BANK (SNB) LEAVES SIGHT DEPOSIT RATE UNCHANGED AT -0.75%; AS EXPECTED
(UK) BOE LEAVES INTEREST RATES UNCHANGED AT 0.25%; AS EXPECTED
(UK) BOE SEPT MINUTES: MPC VOTED 7-2 TO LEAVE INTEREST RATES UNCHANGED AT 0.25%
(TR) TURKEY CENTRAL BANK (CBRT) LEAVES BENCHMARK REPURCHASE RATE UNCHANGED AT 8.00%; AS EXPECTED
VZ CEO: We have moved on from looking at cable companies; Big content deal coming by end of Sep - Goldman conf
(US) AUG CPI M/M: 0.4% V 0.3%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI NSA: 245.519 V 245.350E
(UK) Bank of England's (BOE) Carney: May need to adjust BOE interest rate in the coming months (in-line with Sept policy statement)
ORCL Reports Q1 $0.62 v $0.61e, Rev $9.21B v $9.02Be
*(CL) CHILE CENTRAL BANK (BCCH) LEAVES OVERNIGHT RATE TARGET UNCHANGED AT 2.50%; AS EXPECTED
(KR) North Korea fires a missile from Pyongyang towards the east, missile passes over Japan - South Korea press
(KR) UN Security Council to meet at 3 pm EDT on Friday, Sept 15thregarding the most recent North Korea missile test
FRI 9/15
*(CN) CHINA AUG NEW YUAN LOANS (CNY): 1.09T V 950.0BE
*(CN) CHINA AUG AGGREGATE FINANCING (CNY): 1.48T V 1.280TE
(UK) BOE’s Vlieghe (dove): May need to adjust BOE interest rate in the coming months (in-line with MPC majority) - comments from London
(RU) RUSSIA CENTRAL BANK (CBR) CUTS 1-WEEK AUCTION RATE BY 50BPS TO 8.50%; AS EXPECTED
*(US) AUG ADVANCE RETAIL SALES M/M: -0.2% V +0.1%E; RETAIL SALES EX AUTO M/M: 0.2% V 0.5%E
*(US) SEPT EMPIRE MANUFACTURING: 24.4 V 18.0E
(US) AUG INDUSTRIAL PRODUCTION M/M: -0.9% V +0.1%E; CAPACITY UTILIZATION: 76.1% V 76.7%E
NUE Guides Q3 $0.75-0.80 v $1.06e
(US) SEPT PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 95.3 V 95.0E
(US) New York Fed Nowcast: cuts Q3 GDP forecast to 1.3% from 2.1% on 9/8; cuts Q4 GDP forecast at 1.8% from 2.6% on 9/8
(US) Atlanta Fed cuts Q3 GDP to 2.2% from 3.0% on 9/6
(UK) Prime Min May: raising national threat level to 'critical' from 'severe'; category indicates a further attack may be imminent
Thursday, September 14, 2017
September-October 2017 Маркет Outlook
TradeTheNews.com TTN
September-October 2017 Outlook: Hurricane Watch
Thu, 14 Sep 2017 14:42 PM EST
The 2017 Atlantic Hurricane Season has already been one of the most active and destructive in years, and the rare occurrence of three simultaneous hurricanes seems an apt metaphor for the geopolitical, monetary, and fiscal storm fronts churning around the fringes of the global economy. Like their real world counterparts, these metaphoric storms could make landfall with serious consequences to the economy, but they are inherently unpredictable and could also blow harmlessly out to sea or in some cases even provide a healthy tailwind.
As global economies are starting to reach a stage of sustainable economic recovery, geopolitical disturbances have flared up, most notably the tempest brewing over North Korea. Amid these tensions and a sudden flurry of natural disasters striking North America, central bankers are putting their fingers in the wind, left to guess whether they can continue to remove accommodation or if they need to take a pause. Meanwhile, fiscal authorities remain bogged down in political disputes, most visibly over tax and spending policies in the US and in the Brexit negotiations between the UK and EU.
Inherit the Wind
In the final accounting, hurricanes Harvey and Irma will have dealt tens of billions of dollars in damage to homes and businesses, and have already caused significant disruption to the regional economy. Some economists have estimated that by itself Harvey will hit Q3 GDP by about three-tenths of a percentage point. Irma may double that temporary economic dampener. The silver lining, if any, is that the GDP hit is expected to be more of a deferral as the rebuilding effort on the Gulf coast should provide a small boost to Q1 GDP next year.
The storms that have battered Texas and Florida are overshadowing the usual hot air swirling out of Washington, D.C. For the time being, the focus is on relief efforts across the south, which has quieted party politics in Washington, and provided President Trump an opportunity to show leadership in a non-partisan moment when the country is drawn together to address on the aftermath of the hurricanes.
In the eyes of some of his fellow Republicans, Trump may have carried this spirit too far when he snubbed his own party’s advice and embraced a Democratic proposal for a three month extension of the debt ceiling and government funding as part of a package to provide disaster relief. It’s not clear if this rapprochement with the Democrats is signaling a new governing style from Trump, but it could theoretically allow him to reposition himself as a neutral arbiter of ideas in a still dysfunctional Washington. After months of the President goading his own party to action with little success, Republicans can no longer assume that Trump will stick to their talking points on the legislative agenda. Yet it’s also unlikely that the President will stay on friendly terms with Democrats for long, given his bluster and mercurial loyalties.
In any event, the three month deal gave the minority party some leverage heading into legislative negotiations this fall. With the GOP off balance, Democrats could find themselves with more influence in the tax reform debate. Democrats might get on board with tax simplification, but there are strong interest groups standing guard over various deductions, so it may be a tough battle to strip down itemization even if the Republican plan includes a doubling of the standard deduction, as reported. Since the debt ceiling deal, Speaker Paul Ryan has conceded that a 22.5% tax rate for corporations is a “realistic” goal (as opposed to the Freedom Caucus proposal of taking the corporate rates from 35% down to 16%, and the President’s opening bid of 15%). Ryan asserts that Congress has made good progress on fleshing out the thumbnail proposal the White House produced earlier this year, and that their plan will be unveiled in late September with the hope of passing legislation before year end. The stock market continues to anticipate that some major reform legislation will get through Congress this year, and equities could resume their surge higher if such a bill passes, especially if it is the much-sought tax reform package.
On another front, the Trump Administration is hoping to fulfill its promises on revitalizing trade. Commerce Secretary Ross has set the goal of renegotiating NAFTA by year end, and there have been a few meetings already with high level Mexican and Canadian delegations. Mexican finance minister Meade recently proclaimed that the trade talks are progressing as expected, and Canadian PM Trudeau has said he wants to use this opportunity to make progress on labor and climate issues. It should become clear in the next couple of months if the three-party talks are indeed making any headway. If not, expect President Trump to renew threats of withdrawing from NAFTA altogether, which could exert fresh headwinds on North American currency pairs.
Across the Atlantic, an even more complex and contentious negotiation is under a dark cloud. The Brexit clock is ticking: under the Article 50 provision of the EU charter, there are now less than 20 months to sort out the UK’s divorce from the European Union. To date, negotiators have had three rounds of talks but have not made any tangible progress. Following the third round in late August, the EU’s chief negotiator Barnier stated that they had not made enough progress on the early issues including the Irish border to move on to free trade discussions in October.
In an effort to maintain pressure on EU negotiators, UK Prime Minister May has kept up the public refrain that no Brexit deal is better than a bad deal. The next round of talks has reportedly been pushed back a week to accommodate a speech that PM May is planning to make on the issue on September 22 from Florence. The PM’s office has been vague about the details of the address, and is calling it an “update” on the Brexit negotiations that will “underline the government’s wish for a deep and special partnership with the European Union once the UK leaves the EU.” This could be the most important moment of May’s tenure as her words will act as a barometer for the negotiations. The speech will be closely watched for any sign of softening in Britain’s stance.
For their part, EU negotiators have taken a tough line, chiding their UK counterparts for producing incomplete position papers and threatening to delay the next stage of scheduled talks by two months to December. That decision will likely come at the conclusion of the fourth round of preliminary talks in late September, and such a delay would be a blow to the UK and its hopes of disentangling itself from the EU within the prescribed two year window. If a more constructive tone is not established in the next few months it could reignite speculation about a ‘Hard Brexit’ scenario, which could roil markets, especially in the UK.
So far the UK has been spared the gale force economic headwinds that were predicted before the Brexit vote, but as talks have begun in earnest the economic realities of leaving the EU bloc may take hold. The UK reported final Q1 GDP growth of only 0.2% q/q, the slowest rate in a year, and the preliminary Q2 reading was only slightly better. The direst predictions for a nearly 10% drop in GDP through 2030 may not come to pass, but uncertainty could grow as the process drags on and cause UK consumers to moderate their spending in the months ahead.
Elsewhere in Europe, German national elections will be held on September 24, selecting the members of the Bundestag, Germany’s federal parliament. Chancellor Merkel appears to be on track to win reelection, as her center-right CDU party is consistently leading the Social Democrats (SPD) by double digits in the polls. The same polling suggests that Germans are content with their current government, a grand coalition of the CDU and SPD, which may lead to another term under that structure. The CDU could also seek a renewed alliance with the conservative Free Democratic Party (FDP), which acted as its junior coalition partner during Merkel’s 2009-2013 term. Barring another polling snafu (a la Brexit), Merkel’s fourth term as Chancellor appears to be secure, which should be a calming influence at the center of Europe after the wave of surprising voting outcomes last year.
Winds of War
More stability in Europe will be welcome given that security situation in Asia is deteriorating. North Korea’s repeated missile and bomb tests have put the Hermit Kingdom at the center of the geopolitical stage, and Pyongyang’s aggressive posture has even unnerved its traditional state ally in Beijing. It is notable that China has declined to veto recent UN Security Council sanctions against North Korea, though it remains to be seen if China will choose to enforce sanctions that could cripple the North’s economy.
President Trump has taken a tough rhetorical stance with North Korea, culminating in his unscripted “fire and fury” threat, which was subsequently supported by Defense Secretary Mattis in other very direct language. North Korea’s state press has responded with more frequent declarations about annihilating the US. So far, the markets have not concluded that a shooting war is imminent, but that could change at any time with the Trump administration apparently resolved that the status quo on the Korean peninsula is no longer tolerable.
The Trump administration has also had its sights set on Iran. The President has made it clear he thinks the nuclear agreement with Iran (JCPOA) was a “bad deal”, and has directed his cabinet to look for evidence it can use to revoke the accord. Congress requires the administration certify Iran’s compliance every 90 days, and the Trump White House has given that certification twice so far. During the July review, however, Secretary of State Tillerson said that his department will “evaluate whether suspension of sanctions related to Iran pursuant to the JCPOA is vital to the national security interests of the United States."
There is some speculation that the State Department may be prepared to declare a finding of non-compliance at the next review in mid-October. That would put the US at odds with the UN’s nuclear watchdog (the International Atomic Energy or IAEA) which is in charge of verifying that Iran is meeting its obligations to pursue only peaceful applications of nuclear energy. That may leave the White House on thin ice, likely having to assert that Iran is violating the ‘spirit’ of the accord with its ballistic missile tests and continued support of terrorist organizations, though those bad behaviors are not specifically barred by the agreement.
A confrontation with Iran could set off speculative activity in the energy market. Heightened tensions in the Persian Gulf could send oil prices higher even as the Gulf of Mexico’s refinery row is still recovering from Hurricane Harvey.
For the first time since Katrina devastated New Orleans in 2005, a hurricane has caused significant damage to the Gulf Coast and disrupted its key energy assets. Hurricane Harvey parked itself over Houston for half a week, causing serious property damage with record flooding. The Houston petro-chemical complex got through the storm with minimal damage, but about 15% of the nation’s refinery capacity has been taken off line, and it appears that it will take several weeks to normalize operations.
For the last two months, WTI crude prices have remained in a fairly tight range in the high $40’s. Crude prices have stabilized as OPEC and its non-cartel partners have maintained strong compliance with their production cutting deal, and as the rise in the US shale oil rig count has finally leveled off. The production accord was already extended by nine months to March of 2018, and now major producers are said to be pushing for another extension of at least three more months. That would provide more time for oil market imbalances to subside. Recently, OPEC Secretary General Barkindo noted progress on this front, observing that OECD commercial oil stocks stood at 195M bbl above the 5-year average in July, down from 340M bbl above average in January. Barkindo also forecast that higher oil demand in the second half of the year will contribute to additional declines in oil stocks.
Shelter from the Storm
As geopolitical forces swirl and fiscal policy reform moves at a glacial pace, global central banks are still providing significant shelter from the storm. A sea change is underway, however, as the Fed will soon announce a balance sheet reduction plan while the ECB has begun considerations on how to end its long-standing QE program.
Of the major central banks, the Fed has made the most progress toward normalizing policy after a decade of extreme accommodation, but the devastation caused by Harvey and Irma may be enough to give the Fed pause in considering its third rate hike this year. Prior to the storms materializing, the central bank appeared to be firmly on track to raise rates one last time in December, following an expected announcement about balance sheet reduction at the September 20 FOMC meeting. At this point, not even the category 5 winds of Irma could blow the balance sheet announcement off course, but if the storm damage meets some of the worst case estimates, the Fed may err on the side of caution and hold off on another rate hike.
The policy statement has made it clear that pace of tightening will be “gradual,” and Fed members have observed that the current neutral rate is much lower than historical levels, with some officials reckoning it to be well below 3.00%. In addition, inflation remains stubbornly low despite continued strong jobs growth. Fed members have no good explanation for the absence of any real signs of inflation pressure (notwithstanding the new $1,000 iPhone X), and merely describe the low unemployment, low inflation environment as “puzzling.” Given these points, the central bank will not rush to tighten rates through the last months of the Yellen era, unless incoming inflation data starts to blow the doors off of expectations.
Earlier this year, the Fed proved it can change expectations quickly and effectively if needs be. In the course of one week, Fed speakers unleashed a barrage of hawkish language that shifted fed funds futures from seeing little chance of a March rate move to a near certain expectation of a hike, all without creating a ripple in the markets. That experience should give the Fed confidence that the markets will pay heed if the Fed ramps up the dovish rhetoric after assessing hurricane damage or responding to geopolitical uncertainties.
The question of who will lead the Fed through this critical period becomes more momentous as more of the current board steps aside. The early resignation of Fed Vice Chair Fischer has opened up yet another seat on the Board of Governors, giving President Trump an unprecedented opportunity to put his stamp on the central bank. So far, however, the Trump has not made filling the Fed vacancies a priority, with only one nominee put forward so far (Randal Quarles who is set to get Senate approval this month). The latest reports say that White House staffers are vetting Fed governor candidates that include bankers and economists, but that President Trump is not deeply involved in the process.
Even with several board seats remaining open, most of the speculation has been around who the next Fed Chair will be. The leading candidate had been economic advisor Gary Cohn, but he is now on the outs after he publically criticized the President’s statements on Charlottesville. The former Goldman COO Cohn is a Wall Street darling and is seen as a stabilizing force in the White House economic policy, and for the time being he is said to be focused on putting together a viable tax reform plan. Reports say that at least a half-dozen candidates are being considered for the Fed Chair post.
The historic precedent of new Presidents reappointing Fed Chairs regardless of party for the sake of continuity does not seem to suit Trump’s style, but there has been some speculation about an outlying scenario in which Janet Yellen gets reappointed. Though Yellen has not commented on her tenure beyond saying that she intends to stay through the end of her term in February, even if Trump offered her a chance at a second term, this scenario seems unlikely after Vice Chair Fischer resigned and given the political pressure being exerted on Yellen to decline on the grounds that staying could be taken as an endorsement of Trump.
The European Central Bank is also preparing for the reversal of its historically easy monetary policy, now that the economic recovery in Europe has taken hold. Notably euro zone unemployment has reached an eight year low at 9.1%, even though inflation continues to lag the near 2% target. Amidst the improved data, the euro has strengthened nearly 15% this year, an FX move that some analysts equate to as much as 50 basis points of monetary policy tightening. The currency appreciation may also be in anticipation of an ECB announcement on the wind down of its quantitative easing program that has been operating since early 2015.
At this month’s ECB policy meeting, President Draghi expressed comfort with the expected October timing on a QE announcement, though he gave himself some wiggle room in the event of unexpected macroeconomic events that could cause a postponement. Market watchers will have to gauge events and data over the next month to determine whether they believe Draghi has the resolve to begin dismantling the QE program without further delay.
It’s still not entirely clear whether the ECB will provide a full accounting of the plan at the October 26 meeting or just give broad strokes that can be fleshed out by the mid-December meeting. The latest press reports say that the ECB governing council has been discussing four scenarios for QE including a possible 6-month or 9-month extension of the program (from the tentative December end date), as well as a reduction in the bond buying pace to €40B/month (from current level of €60B). Concurrent reports say that the 2018-2019 inflation forecast will be cut slightly, perhaps signaling no great rush to unwind accommodation.
The winds are shifting at other central banks as well. Though the Bank of Japan has maintained its soft pledge to increase Japan government bond (JGB) holdings at a pace of roughly ¥80T annually, in reality it has been slowing the pace of purchases all year. The BOJ has the flexibility to increase bond purchases – as it did in early July to respond to a spike in the 10-year JGB yields to 0.105% – but the overall trend remains downward. Meanwhile the Bank of England is making noises about rate policy again. Since its March meeting, the BOE has had at least one hawkish dissenter calling for a rate hike. Governor Carney punctuated the September meeting by stating that a rate adjustment may be needed in the coming months, so the BOE may now be on track to raise rates even before the Fed tightens again.
SEPTEMBER
1: US Payrolls & Unemployment; ISM Manufacturing PMI
4: UK Construction PMI; US Memorial Day holiday
5: UK Services PMI
6: US Trade Balance
7: ECB Policy Statement & Press Conf; Japan Final Q2 GDP; China Trade Balance (tentative)
8: UK Manufacturing Production; UK JOLTS Job Openings; China CPI & PPI
11:
12: UK CPI & PPI
13: UK Claimant Count & Unemployment; US PPI; China Industrial Production
14: UK Retail Sales; BOE Policy Statement; US CPI
15: US Retail Sales; US Industrial Production; Prelim University of Michigan Confidence
18: Euro Zone Final CPI
19: German ZEW Economic Sentiment; US Housing Starts & Building Permits
20: US Existing Home Sales; FOMC Policy Statement & Press Conf
21: BOJ Policy Statement & Press Conf; Philadelphia Fed Manufacturing Index
22: Various EU Flash Manufacturing and Services PMIs; PM May’s speech on Brexit from Florence
23: New Zealand elections
24: German federal election (Bundestag)
25: German Ifo Business Climate
26: US Consumer Confidence; US New Home Sales
27: US Durable Goods Orders
28: US Final Q2 GDP; China Caixin Manufacturing PMI
29: German Retail Sales; UK Current Account; UK Final Q2 GDP; Euro Zone Flash CPI; US Personal Spending; Chicago PMI; China Manufacturing & Non-Manufacturing PMIs
OCTOBER
1: Japan Tankan Manufacturing & Non-Manufacturing Indices
2: UK Manufacturing PMI; US ISM Manufacturing PMI
3: UK Construction PMI
4: US Services PMI; US ISM Non-Manufacturing PMI
5: ECB Minutes; US Trade Balance; US Factory Orders
6: US Payrolls & Unemployment
9:
10: UK Manufacturing Production; UK Goods Trade Balance; US JOLTS Jobs Openings
11: FOMC Minutes
12: US PPI; China Trade Balance (tentative)
13: US CPI; US Retail Sales; Prelim University of Michigan Sentiment
15: China CPI & PPI
16: US Empire State Manufacturing
17: UK CPI & PPI; German ZEW Economic Sentiment; US Industrial Production
18: UK Claimant Count & Unemployment; US Housing Starts & Building Permits; China Q3 GDP; China Industrial Production; China 19thNational Congress of the Communist Party of China opens
19: UK Retail Sales; Philadelphia Fed Manufacturing Index
20: US Existing Home Sales
23: Various EU Flash Manufacturing & Non-Manufacturing PMIs
24:
25: German Ifo Business Climate; UK Prelim Q3 GDP; US Durable Goods Orders; US New Home Sales
26: ECB Policy Decision & Press Conf
27: US Advance Q3 GDP (1st reading)
30: German Retail Sales; US Personal Spending; China Manufacturing & Non-Manufacturing PMIs; BOJ Policy Decision & Press Conf
31: Euro Zone Flash CPI Estimate; Euro Zone Prelim Q3 GDP; US Employment Cost Index; Chicago PMI; US Consumer Confidence; China Caixin Manufacturing PMI
NOVEMBER
1: UK Manufacturing PMI; US ISM Manufacturing PMI; FOMC Policy Decision
2: UK Construction PMI; BOE Policy Decision & Press Conf
3: UK Services PMI; US Payrolls & Unemployment; US ISM Non-Manufacturing PMI; US Factory Orders
Thu, 14 Sep 2017 14:42 PM EST
The 2017 Atlantic Hurricane Season has already been one of the most active and destructive in years, and the rare occurrence of three simultaneous hurricanes seems an apt metaphor for the geopolitical, monetary, and fiscal storm fronts churning around the fringes of the global economy. Like their real world counterparts, these metaphoric storms could make landfall with serious consequences to the economy, but they are inherently unpredictable and could also blow harmlessly out to sea or in some cases even provide a healthy tailwind.
As global economies are starting to reach a stage of sustainable economic recovery, geopolitical disturbances have flared up, most notably the tempest brewing over North Korea. Amid these tensions and a sudden flurry of natural disasters striking North America, central bankers are putting their fingers in the wind, left to guess whether they can continue to remove accommodation or if they need to take a pause. Meanwhile, fiscal authorities remain bogged down in political disputes, most visibly over tax and spending policies in the US and in the Brexit negotiations between the UK and EU.
Inherit the Wind
In the final accounting, hurricanes Harvey and Irma will have dealt tens of billions of dollars in damage to homes and businesses, and have already caused significant disruption to the regional economy. Some economists have estimated that by itself Harvey will hit Q3 GDP by about three-tenths of a percentage point. Irma may double that temporary economic dampener. The silver lining, if any, is that the GDP hit is expected to be more of a deferral as the rebuilding effort on the Gulf coast should provide a small boost to Q1 GDP next year.
The storms that have battered Texas and Florida are overshadowing the usual hot air swirling out of Washington, D.C. For the time being, the focus is on relief efforts across the south, which has quieted party politics in Washington, and provided President Trump an opportunity to show leadership in a non-partisan moment when the country is drawn together to address on the aftermath of the hurricanes.
In the eyes of some of his fellow Republicans, Trump may have carried this spirit too far when he snubbed his own party’s advice and embraced a Democratic proposal for a three month extension of the debt ceiling and government funding as part of a package to provide disaster relief. It’s not clear if this rapprochement with the Democrats is signaling a new governing style from Trump, but it could theoretically allow him to reposition himself as a neutral arbiter of ideas in a still dysfunctional Washington. After months of the President goading his own party to action with little success, Republicans can no longer assume that Trump will stick to their talking points on the legislative agenda. Yet it’s also unlikely that the President will stay on friendly terms with Democrats for long, given his bluster and mercurial loyalties.
In any event, the three month deal gave the minority party some leverage heading into legislative negotiations this fall. With the GOP off balance, Democrats could find themselves with more influence in the tax reform debate. Democrats might get on board with tax simplification, but there are strong interest groups standing guard over various deductions, so it may be a tough battle to strip down itemization even if the Republican plan includes a doubling of the standard deduction, as reported. Since the debt ceiling deal, Speaker Paul Ryan has conceded that a 22.5% tax rate for corporations is a “realistic” goal (as opposed to the Freedom Caucus proposal of taking the corporate rates from 35% down to 16%, and the President’s opening bid of 15%). Ryan asserts that Congress has made good progress on fleshing out the thumbnail proposal the White House produced earlier this year, and that their plan will be unveiled in late September with the hope of passing legislation before year end. The stock market continues to anticipate that some major reform legislation will get through Congress this year, and equities could resume their surge higher if such a bill passes, especially if it is the much-sought tax reform package.
On another front, the Trump Administration is hoping to fulfill its promises on revitalizing trade. Commerce Secretary Ross has set the goal of renegotiating NAFTA by year end, and there have been a few meetings already with high level Mexican and Canadian delegations. Mexican finance minister Meade recently proclaimed that the trade talks are progressing as expected, and Canadian PM Trudeau has said he wants to use this opportunity to make progress on labor and climate issues. It should become clear in the next couple of months if the three-party talks are indeed making any headway. If not, expect President Trump to renew threats of withdrawing from NAFTA altogether, which could exert fresh headwinds on North American currency pairs.
Across the Atlantic, an even more complex and contentious negotiation is under a dark cloud. The Brexit clock is ticking: under the Article 50 provision of the EU charter, there are now less than 20 months to sort out the UK’s divorce from the European Union. To date, negotiators have had three rounds of talks but have not made any tangible progress. Following the third round in late August, the EU’s chief negotiator Barnier stated that they had not made enough progress on the early issues including the Irish border to move on to free trade discussions in October.
In an effort to maintain pressure on EU negotiators, UK Prime Minister May has kept up the public refrain that no Brexit deal is better than a bad deal. The next round of talks has reportedly been pushed back a week to accommodate a speech that PM May is planning to make on the issue on September 22 from Florence. The PM’s office has been vague about the details of the address, and is calling it an “update” on the Brexit negotiations that will “underline the government’s wish for a deep and special partnership with the European Union once the UK leaves the EU.” This could be the most important moment of May’s tenure as her words will act as a barometer for the negotiations. The speech will be closely watched for any sign of softening in Britain’s stance.
For their part, EU negotiators have taken a tough line, chiding their UK counterparts for producing incomplete position papers and threatening to delay the next stage of scheduled talks by two months to December. That decision will likely come at the conclusion of the fourth round of preliminary talks in late September, and such a delay would be a blow to the UK and its hopes of disentangling itself from the EU within the prescribed two year window. If a more constructive tone is not established in the next few months it could reignite speculation about a ‘Hard Brexit’ scenario, which could roil markets, especially in the UK.
So far the UK has been spared the gale force economic headwinds that were predicted before the Brexit vote, but as talks have begun in earnest the economic realities of leaving the EU bloc may take hold. The UK reported final Q1 GDP growth of only 0.2% q/q, the slowest rate in a year, and the preliminary Q2 reading was only slightly better. The direst predictions for a nearly 10% drop in GDP through 2030 may not come to pass, but uncertainty could grow as the process drags on and cause UK consumers to moderate their spending in the months ahead.
Elsewhere in Europe, German national elections will be held on September 24, selecting the members of the Bundestag, Germany’s federal parliament. Chancellor Merkel appears to be on track to win reelection, as her center-right CDU party is consistently leading the Social Democrats (SPD) by double digits in the polls. The same polling suggests that Germans are content with their current government, a grand coalition of the CDU and SPD, which may lead to another term under that structure. The CDU could also seek a renewed alliance with the conservative Free Democratic Party (FDP), which acted as its junior coalition partner during Merkel’s 2009-2013 term. Barring another polling snafu (a la Brexit), Merkel’s fourth term as Chancellor appears to be secure, which should be a calming influence at the center of Europe after the wave of surprising voting outcomes last year.
Winds of War
More stability in Europe will be welcome given that security situation in Asia is deteriorating. North Korea’s repeated missile and bomb tests have put the Hermit Kingdom at the center of the geopolitical stage, and Pyongyang’s aggressive posture has even unnerved its traditional state ally in Beijing. It is notable that China has declined to veto recent UN Security Council sanctions against North Korea, though it remains to be seen if China will choose to enforce sanctions that could cripple the North’s economy.
President Trump has taken a tough rhetorical stance with North Korea, culminating in his unscripted “fire and fury” threat, which was subsequently supported by Defense Secretary Mattis in other very direct language. North Korea’s state press has responded with more frequent declarations about annihilating the US. So far, the markets have not concluded that a shooting war is imminent, but that could change at any time with the Trump administration apparently resolved that the status quo on the Korean peninsula is no longer tolerable.
The Trump administration has also had its sights set on Iran. The President has made it clear he thinks the nuclear agreement with Iran (JCPOA) was a “bad deal”, and has directed his cabinet to look for evidence it can use to revoke the accord. Congress requires the administration certify Iran’s compliance every 90 days, and the Trump White House has given that certification twice so far. During the July review, however, Secretary of State Tillerson said that his department will “evaluate whether suspension of sanctions related to Iran pursuant to the JCPOA is vital to the national security interests of the United States."
There is some speculation that the State Department may be prepared to declare a finding of non-compliance at the next review in mid-October. That would put the US at odds with the UN’s nuclear watchdog (the International Atomic Energy or IAEA) which is in charge of verifying that Iran is meeting its obligations to pursue only peaceful applications of nuclear energy. That may leave the White House on thin ice, likely having to assert that Iran is violating the ‘spirit’ of the accord with its ballistic missile tests and continued support of terrorist organizations, though those bad behaviors are not specifically barred by the agreement.
A confrontation with Iran could set off speculative activity in the energy market. Heightened tensions in the Persian Gulf could send oil prices higher even as the Gulf of Mexico’s refinery row is still recovering from Hurricane Harvey.
For the first time since Katrina devastated New Orleans in 2005, a hurricane has caused significant damage to the Gulf Coast and disrupted its key energy assets. Hurricane Harvey parked itself over Houston for half a week, causing serious property damage with record flooding. The Houston petro-chemical complex got through the storm with minimal damage, but about 15% of the nation’s refinery capacity has been taken off line, and it appears that it will take several weeks to normalize operations.
For the last two months, WTI crude prices have remained in a fairly tight range in the high $40’s. Crude prices have stabilized as OPEC and its non-cartel partners have maintained strong compliance with their production cutting deal, and as the rise in the US shale oil rig count has finally leveled off. The production accord was already extended by nine months to March of 2018, and now major producers are said to be pushing for another extension of at least three more months. That would provide more time for oil market imbalances to subside. Recently, OPEC Secretary General Barkindo noted progress on this front, observing that OECD commercial oil stocks stood at 195M bbl above the 5-year average in July, down from 340M bbl above average in January. Barkindo also forecast that higher oil demand in the second half of the year will contribute to additional declines in oil stocks.
Shelter from the Storm
As geopolitical forces swirl and fiscal policy reform moves at a glacial pace, global central banks are still providing significant shelter from the storm. A sea change is underway, however, as the Fed will soon announce a balance sheet reduction plan while the ECB has begun considerations on how to end its long-standing QE program.
Of the major central banks, the Fed has made the most progress toward normalizing policy after a decade of extreme accommodation, but the devastation caused by Harvey and Irma may be enough to give the Fed pause in considering its third rate hike this year. Prior to the storms materializing, the central bank appeared to be firmly on track to raise rates one last time in December, following an expected announcement about balance sheet reduction at the September 20 FOMC meeting. At this point, not even the category 5 winds of Irma could blow the balance sheet announcement off course, but if the storm damage meets some of the worst case estimates, the Fed may err on the side of caution and hold off on another rate hike.
The policy statement has made it clear that pace of tightening will be “gradual,” and Fed members have observed that the current neutral rate is much lower than historical levels, with some officials reckoning it to be well below 3.00%. In addition, inflation remains stubbornly low despite continued strong jobs growth. Fed members have no good explanation for the absence of any real signs of inflation pressure (notwithstanding the new $1,000 iPhone X), and merely describe the low unemployment, low inflation environment as “puzzling.” Given these points, the central bank will not rush to tighten rates through the last months of the Yellen era, unless incoming inflation data starts to blow the doors off of expectations.
Earlier this year, the Fed proved it can change expectations quickly and effectively if needs be. In the course of one week, Fed speakers unleashed a barrage of hawkish language that shifted fed funds futures from seeing little chance of a March rate move to a near certain expectation of a hike, all without creating a ripple in the markets. That experience should give the Fed confidence that the markets will pay heed if the Fed ramps up the dovish rhetoric after assessing hurricane damage or responding to geopolitical uncertainties.
The question of who will lead the Fed through this critical period becomes more momentous as more of the current board steps aside. The early resignation of Fed Vice Chair Fischer has opened up yet another seat on the Board of Governors, giving President Trump an unprecedented opportunity to put his stamp on the central bank. So far, however, the Trump has not made filling the Fed vacancies a priority, with only one nominee put forward so far (Randal Quarles who is set to get Senate approval this month). The latest reports say that White House staffers are vetting Fed governor candidates that include bankers and economists, but that President Trump is not deeply involved in the process.
Even with several board seats remaining open, most of the speculation has been around who the next Fed Chair will be. The leading candidate had been economic advisor Gary Cohn, but he is now on the outs after he publically criticized the President’s statements on Charlottesville. The former Goldman COO Cohn is a Wall Street darling and is seen as a stabilizing force in the White House economic policy, and for the time being he is said to be focused on putting together a viable tax reform plan. Reports say that at least a half-dozen candidates are being considered for the Fed Chair post.
The historic precedent of new Presidents reappointing Fed Chairs regardless of party for the sake of continuity does not seem to suit Trump’s style, but there has been some speculation about an outlying scenario in which Janet Yellen gets reappointed. Though Yellen has not commented on her tenure beyond saying that she intends to stay through the end of her term in February, even if Trump offered her a chance at a second term, this scenario seems unlikely after Vice Chair Fischer resigned and given the political pressure being exerted on Yellen to decline on the grounds that staying could be taken as an endorsement of Trump.
The European Central Bank is also preparing for the reversal of its historically easy monetary policy, now that the economic recovery in Europe has taken hold. Notably euro zone unemployment has reached an eight year low at 9.1%, even though inflation continues to lag the near 2% target. Amidst the improved data, the euro has strengthened nearly 15% this year, an FX move that some analysts equate to as much as 50 basis points of monetary policy tightening. The currency appreciation may also be in anticipation of an ECB announcement on the wind down of its quantitative easing program that has been operating since early 2015.
At this month’s ECB policy meeting, President Draghi expressed comfort with the expected October timing on a QE announcement, though he gave himself some wiggle room in the event of unexpected macroeconomic events that could cause a postponement. Market watchers will have to gauge events and data over the next month to determine whether they believe Draghi has the resolve to begin dismantling the QE program without further delay.
It’s still not entirely clear whether the ECB will provide a full accounting of the plan at the October 26 meeting or just give broad strokes that can be fleshed out by the mid-December meeting. The latest press reports say that the ECB governing council has been discussing four scenarios for QE including a possible 6-month or 9-month extension of the program (from the tentative December end date), as well as a reduction in the bond buying pace to €40B/month (from current level of €60B). Concurrent reports say that the 2018-2019 inflation forecast will be cut slightly, perhaps signaling no great rush to unwind accommodation.
The winds are shifting at other central banks as well. Though the Bank of Japan has maintained its soft pledge to increase Japan government bond (JGB) holdings at a pace of roughly ¥80T annually, in reality it has been slowing the pace of purchases all year. The BOJ has the flexibility to increase bond purchases – as it did in early July to respond to a spike in the 10-year JGB yields to 0.105% – but the overall trend remains downward. Meanwhile the Bank of England is making noises about rate policy again. Since its March meeting, the BOE has had at least one hawkish dissenter calling for a rate hike. Governor Carney punctuated the September meeting by stating that a rate adjustment may be needed in the coming months, so the BOE may now be on track to raise rates even before the Fed tightens again.
SEPTEMBER
1: US Payrolls & Unemployment; ISM Manufacturing PMI
4: UK Construction PMI; US Memorial Day holiday
5: UK Services PMI
6: US Trade Balance
7: ECB Policy Statement & Press Conf; Japan Final Q2 GDP; China Trade Balance (tentative)
8: UK Manufacturing Production; UK JOLTS Job Openings; China CPI & PPI
11:
12: UK CPI & PPI
13: UK Claimant Count & Unemployment; US PPI; China Industrial Production
14: UK Retail Sales; BOE Policy Statement; US CPI
15: US Retail Sales; US Industrial Production; Prelim University of Michigan Confidence
18: Euro Zone Final CPI
19: German ZEW Economic Sentiment; US Housing Starts & Building Permits
20: US Existing Home Sales; FOMC Policy Statement & Press Conf
21: BOJ Policy Statement & Press Conf; Philadelphia Fed Manufacturing Index
22: Various EU Flash Manufacturing and Services PMIs; PM May’s speech on Brexit from Florence
23: New Zealand elections
24: German federal election (Bundestag)
25: German Ifo Business Climate
26: US Consumer Confidence; US New Home Sales
27: US Durable Goods Orders
28: US Final Q2 GDP; China Caixin Manufacturing PMI
29: German Retail Sales; UK Current Account; UK Final Q2 GDP; Euro Zone Flash CPI; US Personal Spending; Chicago PMI; China Manufacturing & Non-Manufacturing PMIs
OCTOBER
1: Japan Tankan Manufacturing & Non-Manufacturing Indices
2: UK Manufacturing PMI; US ISM Manufacturing PMI
3: UK Construction PMI
4: US Services PMI; US ISM Non-Manufacturing PMI
5: ECB Minutes; US Trade Balance; US Factory Orders
6: US Payrolls & Unemployment
9:
10: UK Manufacturing Production; UK Goods Trade Balance; US JOLTS Jobs Openings
11: FOMC Minutes
12: US PPI; China Trade Balance (tentative)
13: US CPI; US Retail Sales; Prelim University of Michigan Sentiment
15: China CPI & PPI
16: US Empire State Manufacturing
17: UK CPI & PPI; German ZEW Economic Sentiment; US Industrial Production
18: UK Claimant Count & Unemployment; US Housing Starts & Building Permits; China Q3 GDP; China Industrial Production; China 19thNational Congress of the Communist Party of China opens
19: UK Retail Sales; Philadelphia Fed Manufacturing Index
20: US Existing Home Sales
23: Various EU Flash Manufacturing & Non-Manufacturing PMIs
24:
25: German Ifo Business Climate; UK Prelim Q3 GDP; US Durable Goods Orders; US New Home Sales
26: ECB Policy Decision & Press Conf
27: US Advance Q3 GDP (1st reading)
30: German Retail Sales; US Personal Spending; China Manufacturing & Non-Manufacturing PMIs; BOJ Policy Decision & Press Conf
31: Euro Zone Flash CPI Estimate; Euro Zone Prelim Q3 GDP; US Employment Cost Index; Chicago PMI; US Consumer Confidence; China Caixin Manufacturing PMI
NOVEMBER
1: UK Manufacturing PMI; US ISM Manufacturing PMI; FOMC Policy Decision
2: UK Construction PMI; BOE Policy Decision & Press Conf
3: UK Services PMI; US Payrolls & Unemployment; US ISM Non-Manufacturing PMI; US Factory Orders
Saturday, September 9, 2017
Barrons weekend summary
Barrons weekend summary: cautious cover story on NKE; positive feature on AABA, CG; cautious on VIAB
Cover story: Shares of NKE have dropped 16% since the end of 2015 and could fall by another 10% as the company loses traction with customers amid a changing e-commerce landscape and a rebound in the U.S. market by Adidas.
Features:
1) Positive on AABA: Shares of the former Yahoo!, whose 15% stake in BABA is valued at $65B, are a cheap way to play the Chinese e-commerce giant, and aren’t likely to suffer from liabilities related to data breaches at Yahoo;
2) Positive on CG: A number of problems, including an ill-advised move into hedge funds, have left the private-equity giant’s shares looking cheap just as it launches a $100B fundraising effort that could boost fee-related earnings;
3) Cautious on VIAB: Media giant is trying to reinvent itself, but the effort may not be enough to reverse a declining trend in which networks lose ground as consumers embrace new streaming paradigms;
4) Story looks at six things people need to know about Social Security, which is far more complicated than it appears;
5) Health savings accounts, “an oft-overlooked savings tool, can help with what will probably be the biggest cost in retirement—healthcare—and help people save on taxes now and later.”
Tech Trader: Positive on AAPL: The next version of the Apple Watch could include a new technology called an embedded SIM that allows the device to access the Internet without being connected to a phone, leaving mobile phone providers out of the loop.
Trader: The markets seem unfazed by global turmoil, and investors are looking forward to strong third quarter earnings, a case of good news being celebrated and bad news ignored; A market correction, were it to occur, would start with something small, such as a drop below the S&P 500’s 200-day moving average; Companies are increasingly snubbing activist investors, and some are greeting them with mockery—a major change in attitude from just a few years ago.
Interview: Jonathan Atkin, an analyst at RBC Capital Markets in San Francisco, “is enthusiastic about the prospects for cell-tower and data-center industries,” but cautious on most cellular plays (picks: AMT, CCI, GDS, DLR, EQIX, ATUS, CHTR, TMUS).
Profile: Jeffrey Sherman manages DoubleLine Capital’s DoubleLine Shiller Enhanced CAPE fund, which gains additional returns via an actively managed fixed-income portfolio that serves as collateral for a strategy that uses total-return swaps to access the S&P 500.
European Trader: For investors who think the run-up in FANG stocks appears overdone, European companies such as ASML Holding and SAP might fit the bill, while investors should avoid Nokia and ERIC because of their close ties to the telecom industry.
Asian Trader: “Long seen as a laggard in an economically dynamic region, the Philippines has staged a comeback. Its economy is one of the fastest growing in Asia.”
Emerging Markets: Positive on Ping An Insurance, Bank of China, Huatai Securities, China Construction: Analysts say taking positions in large, conservative institutions with diverse businesses is a good way to deal with the changes facing China’s banking industry.
Commodities: “As the recovery for the energy market in the Gulf of Mexico takes hold, post-Hurricane Harvey, Irma, and other storms promise to fuel volatility for oil and keep gasoline prices high in the weeks ahead.”
Streetwise: The Fed faces a difficult task, says Morgan Stanley’s Ellen Zentner, because if it does nothing in the current environment of low unemployment and easing financial conditions, it runs the risk of having to raise rates quickly later on.
Friday, September 8, 2017
North Korea and Mother Nature Menace Market Sentiment
TradeTheNews.com Weekly
Market Update: North Korea and Mother Nature Menace Market Sentiment
Fri, 08 Sep 2017 16:04 PM EST
Many investors returned from summer breaks to find a host of issues weighing upon the market. The holiday-shortened week began with traders aggressively paring back risk in light of the escalating tensions in North Korea surrounding its latest nuclear test. With the post-hurricane recovery in Texas still just getting underway, the potentially catastrophic hurricane Irma barreled towards Florida. Economists began to downgrade Q3 growth forecasts, believing near term business activity and productivity will surely be depressed by these two historic storms, though the Fed's Dudley noted that hurricane effects are transitory and likely to reverse by early 2018 as reconstruction gets underway.
Treasury markets surged, pushing yields to the lowest levels of the year, while the US Dollar slumped to the lowest levels since early 2015. Stock prices recovered from Monday’s lows on surprise word that President Trump cut a deal with the Democrats to keep the government open, fund hurricane recovery efforts, and raise the debt ceiling. The Euro moved to a new high above 1.2070 after the ECB left rates and QE unchanged on Thursday. ECB President Draghi did not alter expectations, indicating the central bank would likely unveil its plans on exiting the asset purchase program in October. The Chinese Yuan surged to the highs of the year, testing the 200-week moving average, sparking speculation officials in Beijing were stepping in and attempting to stabilize the currency at these levels. By Friday, investors' jitteriness was only exacerbated by disclosure of an enormous data breach at credit giant Equifax, and solidifying forecasts for a direct hit in South Florida with a path that will take Irma straight up the spine of the entire state. Gold prices drifted higher, ending the week at levels not seen since right after the November election. Oil prices recovered some of last week’s losses related to Harvey, while gasoline prices retreated. For the week, the DJIA lost 0.9%, the S&P500 dipped 0.6%, and the Nasdaq fell 1.2%.
In corporate news this week, insurance stocks, notably Aspen Insurance Holdings and Everest Re, were hit as the clean-up in Texas from Hurricane Harvey continued and Irma ravaged the Caribbean, threatening a weekend landing in south Florida. A swath of regulators and politicians announced plans to probe the causes of and reaction to Equifax’s massive data breach that may have affected up to 143 million American consumers. And United Technologies announced plans to acquire manufacturer Rockwell Collins for $140/share in a $30B cash and stock deal, one of the biggest mergers in aerospace industry history.
MONDAY 9/4
(UK) PM May set to approve a politically explosive Brexit bill of up to £50B after the Conservative Party conference in October - financial press
*(EU) EURO ZONE SEPT SENTIX INVESTOR CONFIDENCE: 28.2 V 27.0E
TUESDAY 9/5
*(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED
*(UK) AUG SERVICES PMI: 53.2 V 53.5E (13th month of expansion)
WEDNESDAY 9/6
(PL) POLAND CENTRAL BANK (NBP) LEAVES BASE RATE UNCHANGED AT 1.50%; AS EXPECTED
*(US) JULY TRADE BALANCE: -$43.7B V -$44.7BE
(US) AUG FINAL MARKIT SERVICES PMI: 56.0 V 56.9E
(US) Fed Vice Chair Fischer to step down on or around Oct 13th, cites personal reasons - letter to President Trump
(US) Democrats say President Trump and Congressional leaders have agreed to pass Harvey aid along with a short term debt limit and govt funding bill - press
(US) Reportedly Pres Trump is unlikely to nominate Gary Cohn as next Fed Chairman - financial press
(BR) BRAZIL CENTRAL BANK (BCB) CUTS SELIC TARGET RATE BY 100BPS TO 8.25%; AS EXPECTED
USD/CNY *(CN) PBOC SETS YUAN REFERENCE RATE AT: 6.5269 V 6.5311 PRIOR (9th consecutive stronger setting, longest run since 2011)
(AU) AUSTRALIA JULY TRADE BALANCE (A$): 460M V 1.0BE
THURSDAY 9/7
*(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.50%; maintains Repo Rate Path (as expected)
*(CN) CHINA AUG FOREIGN RESERVES: $3.0915 V $3.095TE (7th month of increase)
(EU) EURO ZONE Q2 FINAL GDP Q/Q: 0.6% V 0.6%E; Y/Y: 2.3% V 2.2%E&NBSP
FAST Reports Aug Net Rev $411.5M +12.8% y/y
(EU) ECB LEAVES MAIN 7-DAY REFINANCE RATE UNCHANGED AT 0.00%; AS EXPECTED
*(US) Q2 FINAL NONFARM PRODUCTIVITY: 1.5% V 1.3%E; UNIT LABOR COSTS: 0.2% V 0.3%E
(EU) ECB Chief Draghi: Reiterates that interest rates to remain present level well past end of QE; medium term outlook broadly for both growth and inflation
(EU) ECB Chief Draghi: Meeting did discuss growth, inflation and exchange rate - Q&A
AAPL New iPhone reportedly experienced some production problems earlier this summer; could affect supply chain and may delay shipping - press
EFX Announces cybersecurity incident involving consumer information; potentially impacts 143M US consumers; credit card numbers for 209K consumers were accessed
(JP) JAPAN Q2 FINAL GDP SA Q/Q: 0.6% V 0.7%E; ANNUALIZED: 2.5% V 2.9%E
(CN) CHINA AUG TRADE BALANCE (CNY): 286.5B V 335.7BE
(CN) CHINA AUG TRADE BALANCE: $42.0B V $48.5BE
FRIDAY 9/8
(FR) FRANCE JULY INDUSTRIAL PRODUCTION M/M: 0.5% V 0.5%E; Y/Y: 3.7% V 3.6%E
*(UK) JULY INDUSTRIAL PRODUCTION M/M: 0.2% V 0.2%E; Y/Y: 0.4% V 0.4%E
(CA) CANADA AUG NET CHANGE IN EMPLOYMENT: +22.2K V +15.0KE; UNEMPLOYMENT RATE: 6.2% V 6.3%E
(US) Fed's Dudley (dove, FOMC voter): hurricanes push down economic activity, but those effects are transitory; longer term effect is actually an economic positive on the rebuilding activity
(US) New York Fed Nowcast: cuts Q3 GDP forecast to 2.1% from 2.2% on 9/1; sees Q4 GDP forecast at 2.6%
TGT Lowering prices on thousands of items - corporate blog
(US) Atlanta Fed raises Q3 GDP to 3.0% from 2.9% on 9/6
Fri, 08 Sep 2017 16:04 PM EST
Many investors returned from summer breaks to find a host of issues weighing upon the market. The holiday-shortened week began with traders aggressively paring back risk in light of the escalating tensions in North Korea surrounding its latest nuclear test. With the post-hurricane recovery in Texas still just getting underway, the potentially catastrophic hurricane Irma barreled towards Florida. Economists began to downgrade Q3 growth forecasts, believing near term business activity and productivity will surely be depressed by these two historic storms, though the Fed's Dudley noted that hurricane effects are transitory and likely to reverse by early 2018 as reconstruction gets underway.
Treasury markets surged, pushing yields to the lowest levels of the year, while the US Dollar slumped to the lowest levels since early 2015. Stock prices recovered from Monday’s lows on surprise word that President Trump cut a deal with the Democrats to keep the government open, fund hurricane recovery efforts, and raise the debt ceiling. The Euro moved to a new high above 1.2070 after the ECB left rates and QE unchanged on Thursday. ECB President Draghi did not alter expectations, indicating the central bank would likely unveil its plans on exiting the asset purchase program in October. The Chinese Yuan surged to the highs of the year, testing the 200-week moving average, sparking speculation officials in Beijing were stepping in and attempting to stabilize the currency at these levels. By Friday, investors' jitteriness was only exacerbated by disclosure of an enormous data breach at credit giant Equifax, and solidifying forecasts for a direct hit in South Florida with a path that will take Irma straight up the spine of the entire state. Gold prices drifted higher, ending the week at levels not seen since right after the November election. Oil prices recovered some of last week’s losses related to Harvey, while gasoline prices retreated. For the week, the DJIA lost 0.9%, the S&P500 dipped 0.6%, and the Nasdaq fell 1.2%.
In corporate news this week, insurance stocks, notably Aspen Insurance Holdings and Everest Re, were hit as the clean-up in Texas from Hurricane Harvey continued and Irma ravaged the Caribbean, threatening a weekend landing in south Florida. A swath of regulators and politicians announced plans to probe the causes of and reaction to Equifax’s massive data breach that may have affected up to 143 million American consumers. And United Technologies announced plans to acquire manufacturer Rockwell Collins for $140/share in a $30B cash and stock deal, one of the biggest mergers in aerospace industry history.
MONDAY 9/4
(UK) PM May set to approve a politically explosive Brexit bill of up to £50B after the Conservative Party conference in October - financial press
*(EU) EURO ZONE SEPT SENTIX INVESTOR CONFIDENCE: 28.2 V 27.0E
TUESDAY 9/5
*(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED
*(UK) AUG SERVICES PMI: 53.2 V 53.5E (13th month of expansion)
WEDNESDAY 9/6
(PL) POLAND CENTRAL BANK (NBP) LEAVES BASE RATE UNCHANGED AT 1.50%; AS EXPECTED
*(US) JULY TRADE BALANCE: -$43.7B V -$44.7BE
(US) AUG FINAL MARKIT SERVICES PMI: 56.0 V 56.9E
(US) Fed Vice Chair Fischer to step down on or around Oct 13th, cites personal reasons - letter to President Trump
(US) Democrats say President Trump and Congressional leaders have agreed to pass Harvey aid along with a short term debt limit and govt funding bill - press
(US) Reportedly Pres Trump is unlikely to nominate Gary Cohn as next Fed Chairman - financial press
(BR) BRAZIL CENTRAL BANK (BCB) CUTS SELIC TARGET RATE BY 100BPS TO 8.25%; AS EXPECTED
USD/CNY *(CN) PBOC SETS YUAN REFERENCE RATE AT: 6.5269 V 6.5311 PRIOR (9th consecutive stronger setting, longest run since 2011)
(AU) AUSTRALIA JULY TRADE BALANCE (A$): 460M V 1.0BE
THURSDAY 9/7
*(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.50%; maintains Repo Rate Path (as expected)
*(CN) CHINA AUG FOREIGN RESERVES: $3.0915 V $3.095TE (7th month of increase)
(EU) EURO ZONE Q2 FINAL GDP Q/Q: 0.6% V 0.6%E; Y/Y: 2.3% V 2.2%E&NBSP
FAST Reports Aug Net Rev $411.5M +12.8% y/y
(EU) ECB LEAVES MAIN 7-DAY REFINANCE RATE UNCHANGED AT 0.00%; AS EXPECTED
*(US) Q2 FINAL NONFARM PRODUCTIVITY: 1.5% V 1.3%E; UNIT LABOR COSTS: 0.2% V 0.3%E
(EU) ECB Chief Draghi: Reiterates that interest rates to remain present level well past end of QE; medium term outlook broadly for both growth and inflation
(EU) ECB Chief Draghi: Meeting did discuss growth, inflation and exchange rate - Q&A
AAPL New iPhone reportedly experienced some production problems earlier this summer; could affect supply chain and may delay shipping - press
EFX Announces cybersecurity incident involving consumer information; potentially impacts 143M US consumers; credit card numbers for 209K consumers were accessed
(JP) JAPAN Q2 FINAL GDP SA Q/Q: 0.6% V 0.7%E; ANNUALIZED: 2.5% V 2.9%E
(CN) CHINA AUG TRADE BALANCE (CNY): 286.5B V 335.7BE
(CN) CHINA AUG TRADE BALANCE: $42.0B V $48.5BE
FRIDAY 9/8
(FR) FRANCE JULY INDUSTRIAL PRODUCTION M/M: 0.5% V 0.5%E; Y/Y: 3.7% V 3.6%E
*(UK) JULY INDUSTRIAL PRODUCTION M/M: 0.2% V 0.2%E; Y/Y: 0.4% V 0.4%E
(CA) CANADA AUG NET CHANGE IN EMPLOYMENT: +22.2K V +15.0KE; UNEMPLOYMENT RATE: 6.2% V 6.3%E
(US) Fed's Dudley (dove, FOMC voter): hurricanes push down economic activity, but those effects are transitory; longer term effect is actually an economic positive on the rebuilding activity
(US) New York Fed Nowcast: cuts Q3 GDP forecast to 2.1% from 2.2% on 9/1; sees Q4 GDP forecast at 2.6%
TGT Lowering prices on thousands of items - corporate blog
(US) Atlanta Fed raises Q3 GDP to 3.0% from 2.9% on 9/6
Monday, September 4, 2017
Barrons weekend summary:
Barrons weekend summary: Cover article argues that the bull market may continue, but interest-rate backdrop combined with high valuations suggest risk to bull market is higher now versus any time in the past 8 years
- Cover Story: Suggests most bull markets are derailed by recessions, as opposed to valuations or political issues; Suggests while Fed policy will not lead to a bear market, if rates are hiked more or faster than expected it could weigh on markets; Allen Root, Baird senior analyst said some think the next bear market will come from some form of central bank liquidation.
- Does not expect Harvey impact will be large enough to ‘meaningfully’ change commercial and reinsurance pricing and hurt the large capital bases of P&C insurers. Suggests insurance companies could start providing preliminary loss estimates in the coming weeks. KBW analyst reiterated positive comments on Chubb (CB). Says companies includingAllstate (ALL), Berkshire Hathaway (BRK.B) andProgressive (PGR) can all comfortably absorb auto-related losses.
Nathan’s Famous (NATH) mentioned positively by Gravity Capital Management. Suggests the company may not be being properly understood given its low analyst coverage. Suggests the stock is trading below intrinsic asset value. Positive on the value of Nathan’s trademarks and royalty business. Has a failure value estimate of $80-85/share (current price: $56.95)
Barons Capital is positive on Gartner (IT), Priceline (PCLN), Verisk Analytics (VRSK), FactSet Research (FDS), Vail Resorts (MTN) and TransUnion (TRU).
- Tech Trader: Suggests in the future artificial-intelligence (AI) could be used to help in the development of products, which could benefit software-tool makers such as New Relic (NEWR) and Ansys (ANSS) and manufacturer Flex (FLEX). Says the next wave will be using smart software to test and refine products before humans are involved.
Speaking of Dividends: Kian Salehizadeh, sr analyst at Reality Shares, suggests retailers TJX (TJX) and Home Depot (HD) have the ability to sustain dividend payments amid their ratios of free cash flow to annualized dividend payments. Suggests Ross Stores (ROST), Costco (COST) and Wal-Mart (WMT) have also sustainable dividends; Salehizadeh suggests Macy’s (M) dividend carries risks. Macy’s has a dividend yield of over 6%
Finding Opportunity in High Yield Bonds: Mainstay High Yield Corporate Bond Fund is positive on Netflix (NFLX) corporate bonds, cites high market cap versus outstanding debt level and strategic value from its large global customer base. The fund did not purchase the bonds most recently issued by Tesla (TSLA) because of factors including the company’s lack of free cash flow and the lack of covenants related to the bonds. Did not purchase any of the bonds recently issued by Staples (SPLS).
- European Trader: Suggests it could be time to consider taking profits in Antofagasta (ANTO.UK) which has risen over 50% in 2017, outperforming BHP and Fresnillo, as some bears are cautious on outlook for copper prices amid some questions over whether gains in the metal have been more driven by fundamentals or speculation. Liberum believes copper prices need to rise sharply vs current levels in order to justify Antofagasta’s current price. The firm has a sell rating on the copper miner with a price target of 420p (current price is 1,058p)
- Asian Trader: Believes Japanese equities are ‘cheap’ based on forward earnings vs equites in Europe and the US. Chief strategist at Nomura believes Japanese corporate earnings may grow faster than US earnings. The strategist favors Japanese REITs, cites loose monetary policy and yield demand. He also says Japanese automakers are increasing their global market shares.
- Emerging Markets: Co-manager at Henderson Global Equity Income Fund says the dividend trend for large emerging market companies seems to be improving. Notes various EM tech companies have raised dividends including Tencent (700.HK), Samsung Electronics (005930.KR) and Taiwan Semi (2330.TW). Other companies that have either restored or increased dividends include Vale, Sberbank, Wal-Mart de Mexico and Thailand’s PTT.
Commodities: Comments on the strength in industrial metals in 2017, driven by factors including the weaker US dollar, supply cuts by miners, production reductions in China, and an overall rise in demand. S&P GSCI Industrial Metals spot index has risen 22%YTD (vs. ~19% rise in 2016). Palladium prices have risen over 40% YTD amid growth in auto production and supply deficit, says Edward Egilinsky (managing director, Direxion Investments). Prices of the metal in the future could be weighed down by move to electric cars, suggests Christopher Ecclestone (mining strategist, Hallgarten & Co). Copper has risen ~24% this year. Expects additional, although more limited, gains for certain industrial metals on concerns about tight supplies and more optimism regarding global growth. China’s proposed ban on the import of scrap metal will increase demand for copper concentrate, also prices could gradually rise as finding additional copper supplies becomes more costly, says Nico Pantelis (head of research, Secular Investor); Zinc prices on the LME recently hit close to 10-year high, as China reduced capacity and various large mines have shut down over past few years. Zinc prices longer term could have more upward than downward pressure, positive on Galway Metals (GWM.CA) and Tinka Resources (TK.CA), says Brent Cook (co-author of Exploration Insights). Iron-ore -3.2% YTD near $77.10/mt amid recent decline in steel prices, which could temporarily cap further gains, suggests prices could remain in the $70s if China’s steel production remains relatively strong.
Friday, September 1, 2017
Stocks shrug off biblical floods and North Korean hostility, helped by weaker US dollar
TradeTheNews.com Weekly
Market Update: Stocks shrug off biblical floods and North Korean hostility,
helped by weaker US dollar
Fri, 01 Sep 2017 16:10 PM EST
Stock markets moved higher this week in continued thin, late summer trading conditions. Investors once again quickly looked past the concerning escalation of hostility by the North Korean regime, and catastrophic floods in the Houston area brought about by the historic rains of Hurricane Harvey. A narrative emerged that politicians in Washington would be more likely to come together and pass legislation in order to support Texas in its hour of need, rather than bicker over raising the debt ceiling when they return to work next week. Wednesday, the President kicked off what is expected to be an all-out press to get major tax reform signed into law by the end of the year at a address in Missouri. By Friday reports circulated that Trump was going to request $5.9B in Harvey aid while also pulling back on a threat of a forced government shutdown over border wall funding. Major US indices rose back to within striking distance of all time highs, lead by the NASDAQ, while the VIX fell 10% to sit just above 10 once again. For the week the S&P rose 1.4%, the Dow added 0.8% and the NASDAQ gained 2.7%.
The US Dollar fell to fresh two-year lows, leading to a print above 1.20 in the Euro which rekindled speculation the ECB could hold back when they lay out expected plans to start moving away from QE. The economic data remained solid, headlined by a Q2 GDP print of 3% and a host of robust manufacturing PMIs, while inflation readings remained soft but within recent ranges. Friday's jobs report caused a little bit of indigestion when most components came in below expectations. The markets response though quickly indicated few were expecting the Aug data to have a material impact on the Fed’s economic outlook. Metals markets moved to fresh multi-year highs, in many cases helped by the softer Greenback and healthy growth prospects. Energy markets were pushed around by refinery/pipeline outages resulting from flooding in Texas and Louisiana. Gasoline futures rose on expected shortages in refined product coming to markets east of the Rockies, while crude prices remained heavy on the notion that a crude glut would grow as Permian and Eagle Ford shale oil would have to find storage until flows into key Gulf refineries could be reopened.
In corporate news, the week started off with the announcement that Gilead would acquire Kite Pharma for $180/shr in an $11B deal to bolster its cancer treatment portfolio. Best Buy posted a solid earnings report and raised its revenue outlook, but shares fell after it warned that the bounce in margins seen this period would moderate in coming quarters. Building material names were buoyed for the week on predicted upcoming reconstruction funds for the Texas region post-Hurricane Harvey.
MONDAY 8/28
*(EU) EURO ZONE JULY M3 MONEY SUPPLY Y/Y: 4.5% V 4.9%E
(JP) JAPAN GOVT ISSUES WARNING TO PEOPLE IN NORTHERN PART OF COUNTRY OVER POSSIBLE INCOMING MISSILE LAUNCHED FROM NORTH KOREA - Japan press
TUESDAY 8/29
(DE) GERMANY SEPT GFK CONSUMER CONFIDENCE: 10.9 V 10.8E (highest since Oct 2001)
(FR) FRANCE Q2 PRELIMINARY GDP Q/Q: 0.5% V 0.5%E; Y/Y: 1.7% V 1.8%E
BBY Reports Q2 $0.69 v $0.63e, Rev $8.94B v $8.66Be
(US) AUG CONSUMER CONFIDENCE: 122.9 V 120.7E
(KR) UN Security Council: Condemned North Korea's firing of a ballistic missile over Japan as an "outrageous" act and demanded that Pyongyang not launch any more missiles and abandon all nuclear weapons and programs
WEDNESDAY 8/30
1398.HK Reports H1 (CNY) Net 153B v 153Be, Net Interest Income 250.9B
3988.HK Reports H1 (CNY) Net 103.7B v 94.7Be, Total Op Income 248.4B v 262.6B y/y
(EU) EURO ZONE AUG BUSINESS CLIMATE INDICATOR: 1.09 V 1.05E; FINAL CONSUMER CONFIDENCE: -1.5 V -1.5E
939.HK Reports H1 (CNY) Net 138.3B v 133.4B y/y; Op Income 303.1B v 295.7B y/y
(DE) GERMANY AUG PRELIMINARY CPI M/M: 0.1% V 0.1%E; Y/Y: 1.8% V 1.8%E
(US) AUG ADP EMPLOYMENT CHANGE: +237K V +185KE
(US) Q2 PRELIMINARY GDP PRICE INDEX: 1.0% V 1.0%E; CORE PCE Q/Q: 0.9% V 0.9%E
(US) Q2 PRELIMINARY GDP ANNUALIZED (2nd reading) Q/Q: 3.0% V 2.7%E; PERSONAL CONSUMPTION: 3.3% V 3.0%E
(US) President Trump tweets: "The US has been talking to North Korea, and paying them extortion money, for 25 years. Talking is not the answer!"
CA.FR Reports H1 adj net €154.0M v €235.0M y/y, EBIT €621M v €675Me, Net Rev €38.5B v €36.3B y/y
(US) Association of American Railroads weekly rail traffic report for week ending Aug 26th: 551.8K carloads and intermodal units, +2.3% y/y (33rd straight week of gains)
(US) Colonial Pipeline update: Main gasoline line from Gulf Coast to US northeast to shut Thursday
(CN) CHINA AUG OFFICIAL GOVT MANUFACTURING PMI: 51.7 V 51.3E (13th month of expansion)
(KR) BANK OF KOREA (BOK) LEAVES REPO RATE UNCHANGED AT 1.25%; AS EXPECTED (14th straight pause in the current easing cycle)
COST Reports Aug Total SSS (ex gas) 5.9%; US SSS (ex gas) +6.1% v +3.9%e
THURSDAY 8/31
(FR) FRANCE AUG PRELIMINARY CPI M/M: 0.5% V 0.5%E; Y/Y: 0.9% V 0.9%E
(DE) GERMANY AUG NET UNEMPLOYMENT CHANGE: -5K V -6KE ; UNEMPLOYMENT RATE: 5.7% V 5.7%E
(EU) EURO ZONE AUG ADVANCE CPI ESTIMATE Y/Y: 1.5% V 1.4%E; CPI CORE Y/Y: 1.2% V 1.2%E
(EU) EURO ZONE JULY UNEMPLOYMENT RATE: 9.1% V 9.1%E (matches lowest level from Feb 2009)
EUR/USD (EU) Euro currency strength concerns said to be a growing concern among ECB members thus raising the chance its asset purchases will be phased out only slowly - financial press citing several sources familiar with discussions
(US) JULY PERSONAL INCOME: 0.4% V 0.3%E; PERSONAL SPENDING: 0.3% V 0.4%E
(US) JULY PCE DEFLATOR M/M: 0.1% V 0.1%E; Y/Y: 1.4% V 1.4%E
(US) JULY PCE CORE M/M: 0.1% V 0.1%E; Y/Y: 1.4% V 1.4%E
(US) AUG CHICAGO PURCHASING MANAGER: 58.9 V 58.5E
(US) JULY PENDING HOME SALES M/M: -0.8% V +0.3%E; Y/Y: -0.5% V +0.5%E
(US) Atlanta Fed cuts Q3 GDP to 3.3% from 3.4% on 8/25
(CN) CHINA AUG CAIXIN PMI MANUFACTURING 51.6 V 51.0E (Highest since Feb)
FRIDAY 9/1
(IN) INDIA AUG MANUFACTURING PMI: 51.2 V 47.9 PRIOR
(HK) Macau Aug Gaming Rev MOP22.7B, +20.4% y/y
(UK) AUG PMI MANUFACTURING: 56.9 V 55.0E (13th month of expansion)
(US) AUG UNEMPLOYMENT RATE: 4.4% V 4.3%E
(US) AUG AVERAGE HOURLY EARNINGS M/M: 0.1% V 0.2%E; Y/Y: 2.5% V 2.6%E; AVERAGE WEEKLY HOURS: 34.4 V 34.5E
(US) AUG CHANGE IN NONFARM PAYROLLS: +156K V +180KE
(EU) ECB said to see chance of QE plan not fully ready until Dec - financial press
GM Reports Aug US vehicle sales +7.5% y/y, at 275.6K units v 261.2Ke
Fri, 01 Sep 2017 16:10 PM EST
Stock markets moved higher this week in continued thin, late summer trading conditions. Investors once again quickly looked past the concerning escalation of hostility by the North Korean regime, and catastrophic floods in the Houston area brought about by the historic rains of Hurricane Harvey. A narrative emerged that politicians in Washington would be more likely to come together and pass legislation in order to support Texas in its hour of need, rather than bicker over raising the debt ceiling when they return to work next week. Wednesday, the President kicked off what is expected to be an all-out press to get major tax reform signed into law by the end of the year at a address in Missouri. By Friday reports circulated that Trump was going to request $5.9B in Harvey aid while also pulling back on a threat of a forced government shutdown over border wall funding. Major US indices rose back to within striking distance of all time highs, lead by the NASDAQ, while the VIX fell 10% to sit just above 10 once again. For the week the S&P rose 1.4%, the Dow added 0.8% and the NASDAQ gained 2.7%.
The US Dollar fell to fresh two-year lows, leading to a print above 1.20 in the Euro which rekindled speculation the ECB could hold back when they lay out expected plans to start moving away from QE. The economic data remained solid, headlined by a Q2 GDP print of 3% and a host of robust manufacturing PMIs, while inflation readings remained soft but within recent ranges. Friday's jobs report caused a little bit of indigestion when most components came in below expectations. The markets response though quickly indicated few were expecting the Aug data to have a material impact on the Fed’s economic outlook. Metals markets moved to fresh multi-year highs, in many cases helped by the softer Greenback and healthy growth prospects. Energy markets were pushed around by refinery/pipeline outages resulting from flooding in Texas and Louisiana. Gasoline futures rose on expected shortages in refined product coming to markets east of the Rockies, while crude prices remained heavy on the notion that a crude glut would grow as Permian and Eagle Ford shale oil would have to find storage until flows into key Gulf refineries could be reopened.
In corporate news, the week started off with the announcement that Gilead would acquire Kite Pharma for $180/shr in an $11B deal to bolster its cancer treatment portfolio. Best Buy posted a solid earnings report and raised its revenue outlook, but shares fell after it warned that the bounce in margins seen this period would moderate in coming quarters. Building material names were buoyed for the week on predicted upcoming reconstruction funds for the Texas region post-Hurricane Harvey.
MONDAY 8/28
*(EU) EURO ZONE JULY M3 MONEY SUPPLY Y/Y: 4.5% V 4.9%E
(JP) JAPAN GOVT ISSUES WARNING TO PEOPLE IN NORTHERN PART OF COUNTRY OVER POSSIBLE INCOMING MISSILE LAUNCHED FROM NORTH KOREA - Japan press
TUESDAY 8/29
(DE) GERMANY SEPT GFK CONSUMER CONFIDENCE: 10.9 V 10.8E (highest since Oct 2001)
(FR) FRANCE Q2 PRELIMINARY GDP Q/Q: 0.5% V 0.5%E; Y/Y: 1.7% V 1.8%E
BBY Reports Q2 $0.69 v $0.63e, Rev $8.94B v $8.66Be
(US) AUG CONSUMER CONFIDENCE: 122.9 V 120.7E
(KR) UN Security Council: Condemned North Korea's firing of a ballistic missile over Japan as an "outrageous" act and demanded that Pyongyang not launch any more missiles and abandon all nuclear weapons and programs
WEDNESDAY 8/30
1398.HK Reports H1 (CNY) Net 153B v 153Be, Net Interest Income 250.9B
3988.HK Reports H1 (CNY) Net 103.7B v 94.7Be, Total Op Income 248.4B v 262.6B y/y
(EU) EURO ZONE AUG BUSINESS CLIMATE INDICATOR: 1.09 V 1.05E; FINAL CONSUMER CONFIDENCE: -1.5 V -1.5E
939.HK Reports H1 (CNY) Net 138.3B v 133.4B y/y; Op Income 303.1B v 295.7B y/y
(DE) GERMANY AUG PRELIMINARY CPI M/M: 0.1% V 0.1%E; Y/Y: 1.8% V 1.8%E
(US) AUG ADP EMPLOYMENT CHANGE: +237K V +185KE
(US) Q2 PRELIMINARY GDP PRICE INDEX: 1.0% V 1.0%E; CORE PCE Q/Q: 0.9% V 0.9%E
(US) Q2 PRELIMINARY GDP ANNUALIZED (2nd reading) Q/Q: 3.0% V 2.7%E; PERSONAL CONSUMPTION: 3.3% V 3.0%E
(US) President Trump tweets: "The US has been talking to North Korea, and paying them extortion money, for 25 years. Talking is not the answer!"
CA.FR Reports H1 adj net €154.0M v €235.0M y/y, EBIT €621M v €675Me, Net Rev €38.5B v €36.3B y/y
(US) Association of American Railroads weekly rail traffic report for week ending Aug 26th: 551.8K carloads and intermodal units, +2.3% y/y (33rd straight week of gains)
(US) Colonial Pipeline update: Main gasoline line from Gulf Coast to US northeast to shut Thursday
(CN) CHINA AUG OFFICIAL GOVT MANUFACTURING PMI: 51.7 V 51.3E (13th month of expansion)
(KR) BANK OF KOREA (BOK) LEAVES REPO RATE UNCHANGED AT 1.25%; AS EXPECTED (14th straight pause in the current easing cycle)
COST Reports Aug Total SSS (ex gas) 5.9%; US SSS (ex gas) +6.1% v +3.9%e
THURSDAY 8/31
(FR) FRANCE AUG PRELIMINARY CPI M/M: 0.5% V 0.5%E; Y/Y: 0.9% V 0.9%E
(DE) GERMANY AUG NET UNEMPLOYMENT CHANGE: -5K V -6KE ; UNEMPLOYMENT RATE: 5.7% V 5.7%E
(EU) EURO ZONE AUG ADVANCE CPI ESTIMATE Y/Y: 1.5% V 1.4%E; CPI CORE Y/Y: 1.2% V 1.2%E
(EU) EURO ZONE JULY UNEMPLOYMENT RATE: 9.1% V 9.1%E (matches lowest level from Feb 2009)
EUR/USD (EU) Euro currency strength concerns said to be a growing concern among ECB members thus raising the chance its asset purchases will be phased out only slowly - financial press citing several sources familiar with discussions
(US) JULY PERSONAL INCOME: 0.4% V 0.3%E; PERSONAL SPENDING: 0.3% V 0.4%E
(US) JULY PCE DEFLATOR M/M: 0.1% V 0.1%E; Y/Y: 1.4% V 1.4%E
(US) JULY PCE CORE M/M: 0.1% V 0.1%E; Y/Y: 1.4% V 1.4%E
(US) AUG CHICAGO PURCHASING MANAGER: 58.9 V 58.5E
(US) JULY PENDING HOME SALES M/M: -0.8% V +0.3%E; Y/Y: -0.5% V +0.5%E
(US) Atlanta Fed cuts Q3 GDP to 3.3% from 3.4% on 8/25
(CN) CHINA AUG CAIXIN PMI MANUFACTURING 51.6 V 51.0E (Highest since Feb)
FRIDAY 9/1
(IN) INDIA AUG MANUFACTURING PMI: 51.2 V 47.9 PRIOR
(HK) Macau Aug Gaming Rev MOP22.7B, +20.4% y/y
(UK) AUG PMI MANUFACTURING: 56.9 V 55.0E (13th month of expansion)
(US) AUG UNEMPLOYMENT RATE: 4.4% V 4.3%E
(US) AUG AVERAGE HOURLY EARNINGS M/M: 0.1% V 0.2%E; Y/Y: 2.5% V 2.6%E; AVERAGE WEEKLY HOURS: 34.4 V 34.5E
(US) AUG CHANGE IN NONFARM PAYROLLS: +156K V +180KE
(EU) ECB said to see chance of QE plan not fully ready until Dec - financial press
GM Reports Aug US vehicle sales +7.5% y/y, at 275.6K units v 261.2Ke
Saturday, August 26, 2017
Barrons weekend summary
Barrons weekend summary: Cover story positive on suppliers for military space tech; positive features on PYPL, MDT, YUMC, VNO, SLG
Cover story: With rocket launch costs falling during the past decade and tech billionaires pouring money into space ventures, a “new space age” is here; Private startups such as Arianespace, Blue Origin, OneWeb, and SpaceX pose a risk to incumbent satellite companies, but companies that cater to the military, such as BA, LMT, OA, and VSAT, are safer bets for investors.
Features:
1) Positive on VNO, SLG: Continued growth in commercial real estate development in Manhattan has dinged the shares of the two REITs, but industry pressure is already priced in, and each looks inexpensive;
2) Positive on MDT: Shares are down amid investor skepticism about the medical-device company’s ability to deliver continued growth, but the concern seems overblown, and new product launches should boost margins;
3) Positive on YUMC: As China’s middle-class population continues to grow the company is set to add 15,000 locations during the next 15 years, boosting profit growth and creating the possibility for a 30% return over the next year or two;
4) Positive on PYPL: Payment company’s deals with V and MA and its Choice feature have paid off, and new innovations it plans to release could send shares up by another 16%.
Tech Trader: Positive on INTC: Sectors in which the tech giant once dominated, including servers and personal computers, have slowed down, but after missing the mobile revolution it could still gain ground in the computer-networking area dominated by CAVM, NXPI, QCOM, and Imagination Technologies.
Trader: The upcoming U.S. payrolls report could go a long way toward determining whether the Fed will raise rates, as the futures market is predicting, or keep tightening; Value stocks have lagged so badly during the past 10 years that may now be time to buy them; Canadian Tire—“a blend of SHLD, WMT, and TGT rolled into one”—has so far avoided being disrupted by AMZN, partly because Canada is a low-density market.
Profile: Mike Buckius and Paul Stewart of Gateway fund, one of the largest and oldest alternative mutual funds, employ an options strategy to get around high asset prices and geopolitical tension.
Interview: Doug Ramsey of Leuthold Group believes a short-term downturn is ahead, to be followed by an uptick in 2018 that could be the bull market’s last.
Follow-Up: Positive on AVGO: Shares still have room to run as the chipmaker benefits from AAPL’s new iPhone and ANET’s ongoing success, and for now the shares are reasonably priced.
European Trader: The rally in Polish stocks doesn’t seem likely to end yet; valuations remain attractive and the country’s economic and monetary policy backdrop is helping.
Asian Trader: Shares of South Korean stocks have taken a hit amid growing tensions between the U.S. and North Korea, presenting a buying opportunity for investors who can look past the situation.
Emerging Markets: Positive on INFY: Despite the recent board shakeup, company’s shares are “too cheap to ignore,” and several catalysts—including a major buyback—could push them higher.
Commodities: “When it comes to major oil producers’ market-share struggle against their U.S. shale rivals, there has been no clear winner—and that could keep prices stuck between $40 and $50 a barrel for the rest of the year.”
Streetwise: Fundstrat’s Thomas Lee expects companies to respond to tightening labor markets by spending more on technology and automation, and suggests investors look at “wage insensitive” companies with large market caps and sales per employee (Positive on Liberty Media, FB, OLED, AAPL, SBAC, ABMD)
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