Markets Made Queasy by Mounting White House Chaos and Spain Terror Attack

TradeTheNews.com Weekly Market Update: Markets Made Queasy by Mounting White House Chaos and Spain Terror Attack
Fri, 18 Aug 2017 16:18 PM EST

The week began in the fog of the latest Trump controversy, as voices from all sides chastised the President for not denouncing white supremacy more forcefully after the terrible events in Virginia last weekend. Markets didn’t really seem to notice though, as seemingly insatiable demand for higher yielding, higher profile bond offerings including those from Tesla and Amazon resulted in a bounce back in equity markets. The VIX dropped back sharply yet again as the “fire and fury” volatility of last week quickly dissipated. Market perceptions began to shift again after Tuesday’s angry press conference during which the President doubled down on what most perceived as highly divisive and inflammatory rhetoric in the wake of the disturbing images out of Charlottesville. By Wednesday, White House advisory councils that included some of the most prominent and influential US business leaders had agreed to disband in attempt to distance themselves from Trump. Thursday saw concerns that the President’s window to reach tax reform had already closed, which were exacerbated by rumors that White House economic adviser Gary Cohn was set to resign. Risk-averse flows picked up momentum after details of another disturbing terrorist ramming attack trickled out from Barcelona, Spain. Friday saw stock indices test below last Thursday’s low and US Treasury yields also reach the lowest levels since June before news broke that the White House had decided to relieve advisor Bannon from his role, stabilizing risk sentiment.

The US economic data largely surpassed expectations throughout the week, helping the Greenback consolidate the post July jobs report move for much of the first half of the week. Wednesday’s Fed minutes and Thursday’s ECB minutes were both greeted as somewhat dovish and lowered expectations heading into Jackson Hole next week. Gold, which saw prices test $1,300 for the third time this year, the Japanese Yen and the Swiss Franc all benefited from risk averse trading flows. Crude futures rallied on Friday, recouping nearly all the week’s losses, helped by a decline in the Baker Hughes rig count. The NASDAQ registered its fourth straight down week, while the small cap Russel 2000 has now dropped more than 6% from the recent high. For the week, the DJIA fell 0.8%, the S&P500 lost 0.7%, and the Nasdaq slipped 0.6%.

In corporate news this week, the focus was on retailer results as earnings season wound down. Target was boosted after reporting an increase in traffic and raising its guidance, while Dick’s shares fell on an earnings miss and increased promotional activity. Foot Locker lowered its outlook on poor results due to a shift in the retail landscape, and Limited Brands missed on same store comps and cut its full year guidance as Victoria's Secret continued to struggle. Alibaba shares lifted following a big earnings beat, boosted by steady growth in its e-commerce revenue. Amazon shares were hit after President Trump tweeted that the internet giant is “doing great damage to tax-paying retailers.”

SUNDAY 8/13
(HK) Hong Kong Financial Services Chief Chan: No plan to ease anti-property cooling steps
(CN) CHINA JUL INDUSTRIAL PRODUCTION Y/Y: 6.4% V 7.1%E; YTD Y/Y: 6.8% V 6.9%E

MONDAY 8/14
(IN) INDIA JULY CPI Y/Y: 2.4% V 2.1%E
(CN) China National Energy Administration (NEA): China Jul power consumption: 607.2B KWH, +9.9% y/y (4th consecutive rise)

TUESDAY 8/15
(CN) PBOC Adviser Sheng Songcheng: Cut of RRR is not in line with China's policy, more likely to use SLF, MLF and PSL
(DE) GERMANY Q2 PRELIMINARY GDP Q/Q: 0.6% V 0.7%E; Y/Y: 2.1% V 1.9%E; GDP NSA Y/Y: 0.8% V 0.6%E
(CN) CHINA JULY NEW YUAN LOANS (CNY): 825.5B V 800BE
(UK) JULY CPI M/M: -0.1% V 0.0%E; Y/Y: 2.6% V 2.7%E; CPI CORE Y/Y: 2.4% V 2.5%E
HD Reports Q2 $2.25 v $2.21e, Rev $28.1B v $27.8Be
(US) JULY ADVANCE RETAIL SALES M/M: 0.6% V 0.3%E; RETAIL SALES EX AUTO M/M: 0.5% V 0.3%E
(US) JULY IMPORT PRICE INDEX M/M: 0.1% V 0.1%E; Y/Y: 1.5% V 1.5%E
(US) AUG EMPIRE MANUFACTURING: 25.2 V 10.0E (highest since Sept 2014)
(US) AUG NAHB HOUSING MARKET INDEX: 68 V 64E (3 month high)
AMZN Launches $16B seven-part debt offering (upsized from around $15B) - press
(US) JUN TOTAL NET TIC FLOWS: $7.7B V $57.3B PRIOR; NET LONG-TERM TIC FLOWS: $34.4B V $91.9B PRIOR
(BR) Brazil Govt confirms to increase 2017 and 2018 fiscal deficit targets to BRL159B (from deficits of BRL139B and BRL129B respecitvely) citing decline in government revenues.

WEDNESDAY 8/16
CARLB.DK Reports H1 (DKK) adj EBIT 4.13B v 3.85Be, Rev 31.8B v 32.2Be
MAERSKB.DK Reports Q2 Net -$264M v +$507Me, EBIT $302M v $896Me, R$9.6B v $9.6Be
*(TH) THAILAND CENTRAL BANK (BOT) LEAVES BENCHMARK INTEREST RATE UNCHANGED AT 1.50% (as expected)
(IT) ITALY Q2 PRELIMINARY GDP Q/Q: 0.4% V 0.4%E; Y/Y: 1.5% V 1.4%E
(UK) JUN AVERAGE WEEKLY EARNINGS 3M/Y: 2.1% V 1.8%E; WEEKLY EARNINGS EX BONUS 3M/Y: 2.1% V 2.0%E
(UK) JULY JOBLESS CLAIMS CHANGE: -4.2K V +3.5K PRIOR; CLAIMANT COUNT RATE: 2.3% V 2.3% PRIOR
(UK) JUN ILO UNEMPLOYMENT RATE: 4.4% V 4.5%E (lowest since 1975)
(EU) EURO ZONE Q2 PRELIMINARY GDP Q/Q: 0.6% V 0.6%E; Y/Y: 2.2% V 2.1%E
700.HK Reports Q2 (CNY) Net 18.2B v 13.5Be, Rev 56.6B v 52.9Be
TGT Reports Q2 $1.23 v $1.20e, Rev $16.4B v $16.2Be
(US) JULY HOUSING STARTS: 1.16M V 1.22ME; BUILDING PERMITS: 1.22M V 1.25ME
(US) Association of American Railroads weekly rail traffic report for week ending Aug 12th: 548.8K carloads and intermodal units, % y/y (31st straight week of gains)
(US) Trump Strategy and Policy Council reportedly to disband - press
(US) FOMC MINUTES FROM JUNE 14 MEETING: SEVERAL PARTICIPANTS READY TO MOVE ON BALANCE SHEET IN JULY; OTHERS SEEKING CONFIRMATION WEAK INFLATION IS TRANSITORY BEFORE NEXT HIKE
CSCO Reports Q4 $0.61 v $0.61e, Rev $12.1B v $12.1Be
TLS.AU Reports FY17 Net A$3.89B v A$3.82Be; EBITDA A$10.7B v A$10.5B y/y; Rev A$26.0B v A$26.7B y/y; Revises dividend policy to pay out of 70-90% of underlying earnings as of FY18 v ‘almost 100% of profits prior’; Guides FY18 dividend A$0.22 , -29% y/y (new implied yield ~5.5%) suspends dividend reinvestment plan
(AU) AUSTRALIA JULY EMPLOYMENT CHANGE: +27.9K V +20.0KE (5th straight increase); UNEMPLOYMENT RATE: 5.6% V 5.6%E

THURSDAY 8/17
(UK) JULY RETAIL SALES (EX AUTO/FUEL ) M/M: 0.5% V 0.1%E; Y/Y: 1.5% V 1.2%E
(EU) EURO ZONE JULY FINAL CPI Y/Y: 1.3% V 1.3%E ; CPI CORE Y/Y: 1.2% V 1.2%E
(EU) ECB ACCOUNT OF THE MONETARY POLICY MEETING (JULY MINUTES): Officials expressed concern over risk of Euro overshoot
(US) AUG PHILADELPHIA FED BUSINESS OUTLOOK: 18.9 V 18.0E (lowest since Nov)
(US) JULY INDUSTRIAL PRODUCTION M/M: 0.2% V 0.3%E; CAPACITY UTILIZATION: 76.7% V 76.7%E
(US) JULY LEADING INDEX: 0.3% V 0.3%E
AMAT Reports Q3 $0.86 v $0.83e, Rev $3.74B v $3.69Be
GPS Reports Q2 $0.68 v $0.52e, Rev $3.80B v $3.77Be
(CH) CHILE CENTRAL BANK (BCCH) LEAVES OVERNIGHT RATE TARGET UNCHANGED AT 2.50%, AS EXPECTED
992.HK Reports Q1 Net loss $72M v profit $33Me; Rev $10.0B v $9.9Be
(CN) CHINA JUL PROPERTY PRICES M/M: RISE IN 56 OUT OF 70 CITES VS 60 PRIOR; Y/Y RISE IN 70 OUT OF 70 CITIES VS 70 PRIOR
(CN) Chinese Expert: US won’t win and cannot afford trade war against China - People’s Daily (Opinion piece)

FRIDAY 8/18
DE Reports Q3 $1.97 v $1.93e, Rev $6.83B v $6.88Be
(US) AUG PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 97.6 V 94.0E
(US) White House officials reportedly expect Trump adviser Bannon to be fired - Axios
(US) New York Fed Nowcast: raises Q3 GDP forecast to 2.1% from 2.0% on 8/11
(US) Weekly Baker Hughes US Rig Count: 946 v 949 w/w (-0.3% w/w)

Barron’s weekend update

Barron’s weekend update: Cautious cover story on NFLX; positive feature on VOW3.DE 

Cover story: NFLX, which helped create the streaming movie business, “has a plot flaw, one that could cut its share price by more than half by the end of the decade”: It doesn’t own content—even its Netflix Originals are licensed—while companies such as DIS and FB are increasingly turning into competitors. 

Features: 

1) Excerpt from Joel Tillinghast’s new book, “Big Money Thinks Small,” in which the author says the best investment risks are those that can be analyzed clearly and that offer favorable odds; 

2) Positive on Volkswagen: Automaker has the lowest price/earnings ratio in the industry, while its luxury brands—Porsche and Audi—are undervalued; as its emissions scandal recedes, shares could rise by 50%. 

Tech Trader: Positive on MSFT: Tech giant has deftly managed a transformation into cloud computing without denting its profit margins, while its computer game division and LNKD acquisition add to the success story; Shares could rise by more than 20% during the next year. 

Trader: Geopolitics can create anxiety in markets, says Gluskin Sheff’s David Rosenberg, but they aren’t going to bring the U.S. economy down; The S&P 500’s forward price/earnings ratio is higher than it was three years ago, meaning a lot of good news is already priced into shares; Positive on DKS: Sporting goods chain should benefit as rivals shutter stores because of AMZN, leaving it to gain market share while finding ways to fend off the e-commerce giant. 

Interviews: 

1) Joel Tillinghast, manager of the Fidelity Low-Priced Stock fund, which has returned 13.8% a year since its launch in 1989 (picks: Japan: Dvx, Central Automotive Products; Korea: Nice Info & Telecommunications, Korea Electric Terminal; Ireland: Abbey; Norway: Sparebank 1 Oestlandet); 

2) Andy Rothman, strategist at Matthews Asia, talks about China’s economic prospects and says investors could have a great buying opportunity if the Trump administration goes after Chinese exports. 

Profile: Jenna Barnard and John Pattullo, co-managers of the Janus Henderson Strategic Income fund, generally don’t own cyclicals because of unpredictable cash flow, with the exception of financials (top 10 sectors: corporate high yield, corporate investment grade, Treasuries, bank loans, credit default swaps, ABS, government related, commercial mortgage-backed securities, short credit default swaps, cash & equivalents). 

International Trader: Cautious on Paddy Power Betfair: Analysts see double-digit percentage growth in profits and revenue during the next few years, but valuation remains a concern for some. 

Asian Trader: Hong Kong’s weakening currency could derail this year’s rally on the local Hang Seng Index, among the world’s top performing markets to date. 

Emerging Markets: The broad case for Africa isn’t as strong as it once was, says Scott Thomas of the Wasatch Frontier Emerging Small Countries fund; investors should hold diversified funds or global funds with African exposure. 

Commodities: “Oil’s recent rally has run out of steam, and the path of last resistance continues to be lower for the beleaguered market.” 

Streetwise: Ulf Lindahl, chief executive of currency management firm A.G. Bisset, believes the dollar’s decline has only begun, a situation that when combined with high stock prices creates a risky environment.

North Korea Tensions Sap Risk Appetite

TradeTheNews.com Weekly Market Update:  North Korea Tensions Sap Risk Appetite
Fri, 11 Aug 2017 16:22 PM EST

US equities had their worst week in months as global markets took a risk-off tone in response to increasingly bellicose rhetoric between President Trump and North Korea. European bourses were also hit by the multi-day selloff, with the Stoxx 600 headed for its worst week since November. Traditional safe haven currencies like the yen and Swiss franc rose, increasing volatility sent the VIX up 49% by Friday, and gold shot up to a two-month high. The Greenback had strengthened Tuesday on the back of another record high in the US JOLTS job openings data, but the dollar weakened later in the week after PPI data came in lower than expected and Fed's Dudley made remarks that sounded more cautious about the inflation outlook than he did just a couple of months ago. CPI data on Friday also came in below consensus, lowering the probability on futures markets for a Fed December rate hike to 40%, which helped to put a floor under US markets' downward drop. In South Africa, Pres Zuma survived yet another ‘no-confidence’ vote, sending the Rand sliding. For the week, the DJIA lost 1.1%, the S&P500 dropped 1.4%, and the Nasdaq dipped 1.5%.

In corporate news, earnings season wound down with a few more surprises. Disney weighed on the Dow as investors appeared reluctant to look past another quarter of disappointing results, particularly for ESPN and the media division, even as management tried to put focus on the upcoming launch of a branded streaming service. Snap breached a new low after reporting disappointing earnings, lower than expected daily usage numbers, and a slowdown in Spectacles sales. Macy’s and JC Penney’s earnings showed the woes for retailers aren’t over: shares of both mall anchors hit new 52-week lows after reporting more grim numbers weighed on by heavy promotional activity and the digestion of store closures. Meanwhile, reports emerged that Amazon is entering another new sector, this time the venue ticketing market, hitting shares of Live Nation and Stubhub’s parent eBay. Rockwell Collins was lifted on speculation that UTX is working towards a bid.


SUNDAY AUG 6
(NZ) NEW ZEALAND Q3 INFLATION EXPECTATION SURVEY: 2-YEAR INFLATION EXPECTATION 2.09% V 2.17% PRIOR

MONDAY AUG 7
TSLA Files to sell $1.5B 2025 unsecured notes (2.6% of market cap)
(CN) CHINA JULY FOREIGN RESERVES: $3.081T V $3.075TE (6th straight increase and 9-month high)
(EU) EURO ZONE AUG SENTIX INVESTOR CONFIDENCE: 27.7 V 27.6E
TATA.IN Reports Q1 (INR) Net 9.18B v 11.4Be, Rev 308B v 284.7Be
(ZA) South Africa Parliamentary speaker Mbete: parliament to hold secret ballot on Pres Zuma no-confidence vote - press
(CN) CHINA JULY TRADE BALANCE (CNY): 321.2B V 297.4BE
(CN) CHINA JULY TRADE BALANCE: $46.7B V $45.0BE

TUESDAY AUG 8
(CN) China Passenger Car Association (PCA): Jul vehicle sales 1.7M units, +5.5% y/y; YTD sales 12.5M units, +0.6% y/y
DPW.DE Reports Q2 Net €602M v €595Me, EBIT €841M v €752M y/y, Rev €14.8B v €14.2B y/y
VRX Reports Q2 (GAAP) -$0.11 v -$0.88 y/y, Rev $2.23B v $2.24Be
(US) JUN JOLTS JOB OPENINGS: 6.16M V 5.70ME (record high)
(KR) North Korea is said to have produced a miniaturized nuclear warhead that could fit inside a missile, according to US intel assessment - Wash Post
(ZA) SOUTH AFRICA PRESIDENT ZUMA SURVIVES NO-CONFIDENCE VOTE; Parliament votes against no confidence motion via secret ballot
(US) President Trump: North Korea should not make any further threats against the US, it would "be met with fire and fury"
DIS Reports Q3 $1.58 v $1.53e, Rev $14.24B v $14.4Be
(KR) North Korea state media: US war hysteria will bring a miserable end; North Korea could strike before any preemptive attack by the US, could strike Guam with mid-to-long range missiles
(CN) CHINA JULY CPI Y/Y: 1.4% V 1.5%E; PPI Y/Y: 5.5% V 5.6%E

WEDNESDAY AUG 9
(FR) BANK OF FRANCE JULY BUSINESS SENTIMENT: 105 V 103E
(US) Q2 PRELIMINARY NONFARM PRODUCTIVITY: 0.9% V 0.7%E ; UNIT LABOR COSTS: 0.6% V 1.1%E
(US) Atlanta Fed cuts Q3 GDP to 3.5% from 3.7% on 8/4
(US) Association of American Railroads weekly rail traffic report for week ending Aug 5th: 554.8K carloads and intermodal units, +4.3% y/y (30th straight week of gains)
(NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE (OCR) UNCHANGED AT 1.75%; AS EXPECTED
(CN) PBOC SETS YUAN REFERENCE RATE AT: 6.6770 V 6.7075 PRIOR (strongest setting since Sept 29th)

THURSDAY AUG 10
TKA.DE Reports Q3 adj Net €120M v €130M y/y, adj EBIT €620M v €441M y/y, Rev €10.9B v €10.5Be
(FR) FRANCE JUN INDUSTRIAL PRODUCTION M/M: -1.1% V -0.6%E; Y/Y: 2.6% V 3.1%E
(PH) PHILIPPINES CENTRAL BANK (BSP) LEAVES OVERNIGHT BORROWING RATE UNCHANGED AT 3.00%; AS EXPECTED
(UK) JUN INDUSTRIAL PRODUCTION M/M: 0.5% V 0.1%E; Y/Y: +0.3% V -0.1%E
M Reports Q2 $0.48 adj v $0.44e, Rev $5.55B v $5.50Be
(US) JULY PPI FINAL DEMAND M/M: -0.1% V 0.1%E; Y/Y: 1.9% V 2.2%E
(MX) MEXICO CENTRAL BANK (BANXICO) LEAVES OVERNIGHT RATE UNCHANGED AT 7.00%; AS EXPECTED
(KR) President Trump: Maybe my 'fire and fury' warning statement to North Korea wasn't tough enough - comments in Bridgewater, NJ
LYV Amazon reportedly has sought partner with venue owners to enter event ticketing market in the US; Amazon previously held talks with Live Nation's Ticketmaster but those conversations have stalled - press
SNAP Reports Q2 -$0.16 v -$0.14e, Rev $181.7M v $187Me
NVDA Reports Q2 $1.01 v $0.69e, Rev $2.23B v $1.95Be
(AU) RBA Gov Lowe: Not prepared to intervene at moment, but prepared to intervene in A$ in 'extreme' situations

FRIDAY AUG 11
(US) JULY CPI M/M: 0.1% V 0.2%E; CPI EX FOOD AND ENERGY M/M: 0.1% V 0.2%E; CPI INDEX NSA: 244,786 V 244.925E
(US) Weekly Baker Hughes US Rig Count: 949 v 954 w/w (-0.5% w/w)

Barron’s cover story

Barron’s cover story looks at tech giants threat to old media names; Positive features on VOYA and DAL 

Cover story: With their deep pockets, tech giants such as AMZN, FB, and GOOGL could begin to threaten the dominance of TV networks that broadcast football and other major sports; In a changing media landscape, the major broadcast networks—ABC, CBS, NBC, and Fox—are better positioned than cable rivals because of their strong in-house production operations. 

Features: 

1) A panel of experts—Jenny Van Leeuwen Harrington of Gillman Hill Asset Management, Richard Daskin of RSD Advisors, Maury Fertig of Relative Value Partners, and Michael Terwilliger of Resource Credit Income—discuss income investing and offer picks (HYD, BAB, BLW, EVG, DRA, Chimera Preferred Series B, MMP, SKT, HASI, WHF, AJX, BJ Wholesale Club Loans); 

2) Positive on DAL: Shares are inexpensive for a carrier seeking to post double-digit earnings growth in coming years, and could rise by 35% in the next year or two; 

3) Positive on VOYA: The company’s disappointing numbers mask the fact its core retirement and investment business is growing, and that management is taking steps to reduce risk. 

Tech Trader: Positive on FNSR, LITE, IIVI, VIAV: Companies are among those that stand to benefit from the next version of AAPL’s iPhone, which is expected to include new technology such as augmented reality. 

Trader: One stock, especially a high-priced one, can have an outsized impact on the Dow Jones Industrial Average, meaning it isn’t really a valid reflection of the market; Positive on SO: Shares haven’t done well this year, but the company’s nuclear reactor projects could make it a good bet for investors willing to take on more risk following the Westinghouse bankruptcy; The energy sector faces problems, but certain stocks should do well for investors despite industry turmoil (Positive on SU, CVX, CNQ, HCLP). 

Profile: Todd Beiley, co-manager of the Virtus KAR Small-Cap Growth fund, seeks companies with durable businesses and significant competitive barriers (top 10 holdings: OLLI, ATHM, FOXF, IBKR, Heico, ODFL, MELI, Natonal Research, ABAX, CPRT). 

Follow-Up: Cautious on TSLA: The company’s cars may be good investments, but investors should be wary of the shares, “which have outrun most analysts’ reasoned cases for buying.” 

European Trader: San Diego-based Brandes Investment Partners consider Brexit fears overdone, and are investing in British retailers and property-services companies (Positive on TSCO, SBRY, MRW, MKS, DEB, KGF, LSL CWD). 

Asian Trader: London-based, Asia-focused banks Standard Chartered and HSBC pose different opportunities for investors, but the latter’s immediate prospects look better, and its business is more profitable. 

Emerging Markets: Individual investors are increasingly moving into bonds that emerging markets issue in their own currencies, which offer strong yields but come with risk because of the dollar’s volatility. 

Commodities: Copper is enjoying its biggest rally in months amid growing global confidence and a weaker U.S. dollar, but some investors suggest waiting to see if the optimism is justified. 

Streetwise: Mike O’Rourke of Jones Trading says that “Failing to recognize the structural shift in the U.S. economy at the turn of the century, the Fed has been mistakenly chasing 20th century 3.5% GDP growth in a 2% GDP growth economy.”

Dollar Weakens Again, Then Reverses After Strong Jobs Report; Earnings Remain Solid

TradeTheNews.com Weekly Market Update:  Dollar Weakens Again, Then Reverses After Strong Jobs Report; Earnings Remain Solid
Fri, 04 Aug 2017 16:03 PM EST

The Dow and the S&P spent much of the week chopping wood at or just below all-time highs, while -- similar to July’s action -- the Transports, Russel 2000 and Nasdaq languish behind. Earnings season made the turn and the back nine revealed similar corporate themes to what has been seen prior. More firms have been beating top line growth expectations, and managements remain upbeat on second half growth even if it is becoming more difficult to squeeze out further margin improvement.

The greenback also served as a tailwind with the Dollar Index falling to fresh 14-month lows led by broad strength in the Euro. Rates dipped led by Treasury yields as the data continued fall in line with a goldilocks scenario: Strong enough growth to support a healthy employment market and rising equity valuations, but benign enough inflation readings allow central banks remain on extremely gradual paths toward normalizing policy. Similar to last week’s ECB policy statement, the BOE announcement on Thursday surprised markets to some degree by revealing an unwillingness of a majority of policy makers to change course yet on rates. Friday’s stronger than expected July US jobs print did little to change the overall narrative but it did produce a bounce in the greenback. Gold prices came off $1,275 while crude oil prices have consolidated the recent run up to $50. For the week the DJIA gained 1.2%, the S&P500 added 0.2%, and the Nasdaq slipped 0.4%.

In corporate news this week, Yelp and Grubhub shares surged after announcing a new tie-up that would see Grubhub acquire the Eat24 business and see Yelp integrate online ordering onto its platform. Discovery confirmed it would acquire Scripps for $14.6B in cash and stock to form a television content behemoth that would potentially control 20% of the ad-supported pay TV audience in the US. Apple shares ran up on a top and bottom line earnings beat that noted strong service revenue growth ahead of the iPhone 8 launch. Tesla charged up 6% post earnings and after CEO Elon Musk commented that there is no doubt they will reach 10K/units week production goals by the end of next year. Sprint shares rallied on raised guidance and renewed M&A hopes. And auto makers moved lower on weaker than expected July sales reports.

SUNDAY 7/30
(CN) CHINA JULY MANUFACTURING PMI (Govt Official): 51.4 V 51.5E (12th month of expansion)

MONDAY 7/31
HEIA.NL Reports H1 Net €1.04B v €1.03Be, Op €1.81B v €1.76Be, Rev €10.5B v €10.5Be
SAN.FR Reports Q2 Business EPS €1.35 v €1.31e, Business Net €1.70B v €1.55B y/y, Rev €8.66B v €8.14B y/y
(EU) EURO ZONE JULY ADVANCE CPI ESTIMATE Y/Y: 1.3% V 1.3%E; CPI CORE Y/Y: 1.2% V 1.1%E
(EU) EURO ZONE JUN UNEMPLOYMENT RATE: 9.1% V 9.2%E (lowest level since 2009)
(EU) EU Commission said to consider measures in draft policy proposal dated July 10th which would allow banks to temporarily stop withdrawals to prevent bank runs - financial press (UPDATE)
SNI To be acquired by Discovery Comms for $90/shr valued at $14.6B, inline w speculation last week(s)
(US) JULY CHICAGO PURCHASING MANAGER: 58.9 V 60.0E
(US) JUN PENDING HOME SALES M/M: 1.5% V 1.0%E; Y/Y: 0.7% V 0.5% PRIOR
(US) Fed Q2 senior loan officer survey: demand for commercial and industrial loans weakened in Q2, demand for residential real estate loans grew in Q2
(US) President Trump reportedly removes Anthony Scaramucci from Communications Director position at the request of new White House Chief of Staff Kelly - press

TUESDAY 8/1
(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED
(HK) Macau July Gaming Rev MOP23.0B v MOP19.99B prior; 29.2% y/y v 22.8%e
(IN) INDIA JULY MANUFACTURING PMI: 47.9 V 50.9 PRIOR 1st contraction in 7 months and (lowest since Feb 2009)
BP.UK Reports Q2 Net $144M v -$1.42B y/y, Underlying replacement cost profit $684M v $518Me, Total Rev $57.4B v $47.3B y/y
(DE) GERMANY JULY NET UNEMPLOYMENT CHANGE: -9K V -5KE; UNEMPLOYMENT RATE: 5.7% V 5.7%E
(DE) GERMANY JULY FINAL MANUFACTURING PMI: 58.1 V 58.3E (confirms 32nd month of expansion)
(UK) PMI JULY PMI MANUFACTURING: 55.1 V 54.5E (12th month of expansion)
(EU) EURO ZONE Q2 ADVANCE GDP Q/Q: 0.6% V 0.6%E; Y/Y: 2.1% V 2.1%E
(US) JUN PERSONAL INCOME: 0.0% V 0.4%E; PERSONAL SPENDING: 0.1% V 0.1%E
(US) JUN PCE CORE M/M: 0.1% V 0.1%E; Y/Y: 1.5% V 1.4%E
(US) JUN PCE DEFLATOR M/M: 0.0% V 0.0%E; Y/Y: 1.4% V 1.3%E
(US) S&P announces companies with multiple share classes will no longer be able to join S&P 500 index; existing constituents will be able to remain - press
GM Reports July US sales -15% y/y, 226.1K units v 238.5Ke; Expect H2 to be stronger than H1
AAPL Reports Q3 $1.67 v $1.57e, Rev $45.4B v $44.7Be
(HK) Hong Kong Chief Exec Lam: H1 property prices +9.3% y/y; to set up panel to discuss land supply

WEDNESDAY 8/2
GLE.FR Reports Q2 Net €1.06B v €1.06Be, Op €1.52B v €2.4B y/y, Adj Rev €5.20B v €5.50Be; to take additional €300M charge for disputes
BA.UK Reports H1 Underlying EPS 19.8p v 19.1pe, EBITA £945M v £849M y/y, Rev £9.57B v £8.71B y/y
RIO.UK Reports H1 Underlying profit $3.94B v $4.26Be, underlying EBITDA $9.04B v $5.37B y/y, Rev $19.3B v $15.5B y/y; Announces additional $1.0B share buyback; Raises dividend 144% to $1.10
STAN.UK Reports H1 adj pretax profit $1.92B v $1.81Be, op income $7.2B v $7.23Be; Declares no dividend
(IN) INDIA CENTRAL BANK (RBI) CUTS REPURCHASE RATE BY 25BPS TO 6.00%; AS EXPECTED
(US) JULY ADP EMPLOYMENT CHANGE: +178K V +190KE
(US) Association of American Railroads weekly rail traffic report for week ending July 29th: 550.4K carloads and intermodal units, +2.5% y/y (29th straight week of gains)
(RU) Russia PM Medvedev: Trump signing new sanctions was tantamount to full-scale trade war; means an end to hopes for better ties with Trump administration
TSLA Reports Q2 -$1.33 v -$1.94e, Rev $2.79B v $2.55Be
(AU) AUSTRALIA JUN TRADE BALANCE (AUD): 856M V 1.8BE (8TH CONSECUTIVE SURPLUS)

THURSDAY 8/3
ACA.FR Reports Q2 Net €1.35B v €1.02Be; Rev €4.71B v €4.74B y/y
DTE.DE Reports Q2 adj Net €1.20B v €1.25Be, adj EBITA €5.94B v €5.81Be, Rev €18.9B v €18.7Be
SIE.DE Reports Q3 net profit €1.46B v €1.36Be, industrial business profit €2.25B v €2.33Be, Rev €21.4B v €21.8Be; Extends CEO Joe Kaeser contract to 2021
BMW.DE Reports Q2 Net €2.21B v €1.95B y/y, EBIT €2.93B v €2.81Be, Rev €25.8B v €25.9Be
(UK) BANK OF ENGLAND (BOE) QUARTERLY INFLATION REPORT (QIR)
(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.25%; AS EXPECTED
(UK) BOE AUG MINUTES: VOTED 6-2 TO LEAVE INTEREST RATES UNCHANGED AT 0.25% (McCafferty and Saunders dissent)
(CZ) CZECH CENTRAL BANK (CNB) RAISES 2-WEEK REPURCHASE RATE BY 20BPS TO 0.25%; AS EXPECTED (1st rate hike since 2008)
TEVA CFO: expect generics drug price erosion to accelerate through rest of FY17 (expect high single digits) - earnings call comments
FDX Announces holiday season surcharge for oversized shipments (follows UPS surcharge)
(US) JULY FINAL MARKIT SERVICES PMI: 54.7 V 54.2E (Highest since Jan)
(US) JUN FINAL DURABLE GOODS ORDERS: 6.4% V 0.0%E; DURABLES EX TRANSPORTATION: 0.1% V 0.2% PRELIM
(US) SHRM Jul New-Hire Compensation Index (Services): 25.6% v 23.6% y/y (all time high)
(US) Atlanta Fed initial Q3 GDP estimate 4.0%
(AU) RBA QUARTERLY STATEMENT ON MONETARY POLICY: REITERATES RECENT AUD (A$) RISE HAD MODEST EFFECT ON GDP FORECASTS
YELP Grubhub to acquire Yelp's Eat24 business for $287.5M in cash; Yelp to integrate online ordering from all Grubhub restaurants

FRIDAY 8/4
RBS.UK Reports Q2 Net £680M v -£1.08B y/y, adj Op £1.69B v £1.04Be, Rev £3,71B v £3.00B y/y; Affirms will not make profit in FY17
FAST Reports July Net Sales $350.0M +12.9% y/y*
(US) JULY UNEMPLOYMENT RATE: 4.3% V 4.3%E
(US) JULY AVERAGE HOURLY EARNINGS M/M: 0.3% V 0.3%E; Y/Y: 2.5% V 2.4%E; AVERAGE WEEKLY HOURS: 34.5 V 34.5E
(CA) CANADA JULY NET CHANGE IN EMPLOYMENT: +10.9K V +12.5KE; UNEMPLOYMENT RATE: 6.3% V 6.5%E
(US) JUN TRADE BALANCE: -$43.6 V -$44.5BE
(US) JULY CHANGE IN NONFARM PAYROLLS: +209K V +180KE
(US) Atlanta Fed cuts Q3 GDP to 3.7% from 4.0% on 8/3
(US) Weekly Baker Hughes US Rig Count: 954 v 958 w/w (-0.4% w/w)

Barrons weekend update

Barrons weekend update: positive on Citigroup, AAP, HON; cautious on TWTR 

Cover story: The robo-advisory business is maturing, and it’s hard to underestimate the impact upstarts such as Betterment have had on wealth management; Firms such as SCHW, Fidelity, Merrill Lynch, AMTD, ETFC, GS, JPM, and MS are either already in the game or planning to get in. 

Features: 

1) Positive on C: Shares could rise by 50 percent, because the bank “offers the combination of a low valuation and what could be the highest earnings growth rate among its peers in the years to come”; 

2) Positive on HON: Under new chief executive Darius Adamczyk, shares could return 15% during the next year, backed by a rising P/E ratio and the industrial giant’s big bet on software; 

3) Positive on AAP: Shares of the auto-parts retailer are down on fears AMZN may disrupt the sector, but the stock’s valuation already takes into account bad news, and ignores the potential for a boost in profit margins and earnings; 

4) Cautious on TWTR: Shares are nearly as expensive as those of FB, where revenue and profit are growing, meaning Twitter must improve its situation, be acquired, or suffer further stock declines—the most likely outcome. 

Tech Trader: Cautious on GOOGL, AMZN: Alphabet has failed to diversity its business away from advertising, while Amazon faces political pressure over its dire effect on Main Street commerce; Investors should “take a breather on both these stocks despite the companies’ phenomenal achievements.” 

Trader: June payroll data and AAPL’s earnings could shake up the market, though Ian Winer of Wedbush Securities says it “appears bulletproof”; Positive on UTX, LII, MMM, IR, BA, DE: The economic environment remains conducive for industrials, says Ed Yardeni of Yardeni Research, and the sector could continue to rally this year; Investors should be wary of merger deals made by companies under intense pressure to make structural changes to their businesses, some of which come with high price tags.

 ETF Special Report: Choosing between active and passive funds doesn’t have to be an an all-or-nothing decision; certain funds are the best option for certain asset classes—bonds, for example, are best handled by an actively managed fund. 

Follow-Up: Positive on FB: Though the social site may soon struggle to keep growing its ad-based business, likely by stealing business from AAPL, GOOGL, MSFT, and AMZN, shares could rise to $200 in a year, a 16% gain. 

European Trader: Cautious on Ryanair: Carrier has done well for its investors, but as it sheds some of its no-frills elements, it could face growing pains as it pushes to reach 200M passengers, leading to a drop in share price. 

Asian Trader: Reliance Industries’ launch of the low-price JioPhone will be a loss leader, but gives the company a foothold in a key sector in what will eventually be the world’s second-biggest economy. 

Emerging Markets: “Emboldened after the failed coup one year ago and a referendum giving the president sweeping power this spring, Turkey’s government is drifting from democracy,” damping the economy. 

Commodities: The natural-gas rally is slowing down, and the bull case rests on the fact the market has been undersupplied this year. 

Streetwise: Story digs into three key questions for investors: Are crude-oil prices finally turning up? Are regulators breathing down the neck of big tech companies? Will the global arms race peak?

Earnings Season Shakes Up Big Tech; Data Strengthens Euro

TradeTheNews.com Weekly Market Update:  Earnings Season Shakes Up Big Tech; Data Strengthens Euro
Fri, 28 Jul 2017 16:10 PM EST

Despite an extremely eventful week of news flow, the S&P finished largely flat, with volatility retrenching to the lowest levels in more than two decades before bouncing. Outside of latest failure on healthcare reform in Washington DC, most of the fireworks occurred in the NASDAQ, which remained prone to market moving swings emanating out from the mega-cap ‘FANG’ names. Q2 earnings season hit its high watermark on Thursday with a deluge of European and US corporate reports. European economic data continued to largely overshadow that of the US, and combined with a perceived relatively dovish FOMC statement, both perpetuated an emerging narrative that the ECB will look to play catch-up by joining the Fed in commencing and exit from QE in the second half. To that end, the Dollar index dropped to the lowest level since April 2016, with the Euro briefly trading above the 2015 high. Rates moved up on a global basis, helped by an early move into risk assets after the IMF raised its China growth outlook on Sunday. Copper broke out to the best levels since early 2015. Oil prices pressed higher, helped by continued drawdowns in stockpiles, with Brent gaining a foothold above $50 for the first time since late May. For the week the S&P500 was about flat, the DJIA added 1.2%, and the Nasdaq lost 0.2%.

In corporate news, as earnings season shifted into top gear, a few of the high-flying names sold off on decent earnings, having been seemingly priced to perfection. Investors in tech took profits off the table this week despite strong earnings reports from Alphabet and Facebook. Twitter plunged after reporting flat monthly active user growth, while Amazon was hit by a big earnings miss. Roughly three-quarters of earnings reports beat on the top line, which is higher than normal, but this occurred amid disturbing macro trends continuing to eat away at many brick-and-mortar companies. A notable example was Starbucks, which saw its shares drop 10% after earnings. In addition to issuing cautious financial guidance, Starbucks reported slowing growth in membership for its rewards card program and announced it would close all of its nearly 400 Teavana retail stores. Meanwhile, cigarette makers got rolled on Friday as the FDA announced plans for a ‘dialogue’ about lowering nicotine to non-addictive levelsin tobacco products.On the M&A front, Michael Kors announced it would acquire accessory fashion house Jimmy Choo for nearly $1.2B, and Scripps reportedly came to agreement with Discovery on an offer to be acquired for at least $90/share, mostly in cash.


SUNDAY 7/23
(HK) Hong Kong Monetary Authority (HKMA) said to have checked property developers' loans
IMF updates its World Economic Outlook (WEO): Maintains both 2017 and 2018 global GDP growth forecasts

MONDAY 7/24
*(FR) FRANCE JULY PRELIMINARY MANUFACTURING PMI: 55.4 V 54.6E (9th month of expansion and highest since Apr 2011)
*(DE) GERMANY JULY PRELIMINARY MANUFACTURING PMI: 58.3 V 59.2E (32nd month of expansion)
*(EU) EURO ZONE JULY PRELIMINARY MANUFACTURING PMI: 56.8 V 57.2E (48th month of expansion)
(US) JULY PRELIMINARY MARKIT MANUFACTURING PMI: 53.2 V 52.3E (highest since March)
(US) JUN EXISTING HOME SALES: 5.52M V 5.57ME
GOOGL Reports Q2 $8.90* v $8.15e, Rev $26.0B* (includes $5.09B in TAC) v $25.6Be
000660.KR Reports Q2 (KRW) Net 2.47T v 2.32Te; Op 3.05T v 2.93Te; Rev 6.69T v 6.82Te

TUESDAY 7/25
(FR) FRANCE JULY BUSINESS CONFIDENCE: 108 V 106E; MANUFACTURING CONFIDENCE: 109 V 108E
(DE) GERMANY JULY IFO BUSINESS CLIMATE: 116.0 V 114.9E (post-German reunification high); CURRENT ASSESSMENT: 125.4 V 123.8E
(UK) JULY CBI INDUSTRIAL TRENDS TOTAL ORDERS: 10 V 12E
C Targets 2020 EPS CAGR 15-20%, Rev CAGR 3%+/-, ROTCE ~11%; ROTCE ex-DTA around 13% - comments ahead of analyst day
GM Reports Q2 $1.89 v $1.72e, Net Rev $37.0B v $37.4B y/y
CAT Reports Q2 $1.49 v $1.26e, Rev $11.3B v $10.9Be
GM Exec: Will cut Q3 and Q4 North America production by 150K vehicles compared to H1 - media call
FCX Reports Q2 $0.17 v $0.20e, Rev $3.71B v $3.68Be
C CEO: Believe have crossed inflection point on path to growth and stronger returns - analyst day
(US) JULY RICHMOND FED MANUFACTURING INDEX: 14 V 7E
*(US) JULY CONSUMER CONFIDENCE: 121.1 V 116.5E
(US) Senate has sufficient votes to approve motion to proceed on GOP healthcare legislation
TXN Reports Q2 $1.03 v $0.95e, Rev $3.69B v $3.55Be
(US) Pres Trump: steel dumping measures are coming 'fairly soon'; steel tariffs may be waiting until we finish up health care, taxes and infrastructure - financial press interview (update)
(AU) AUSTRALIA Q2 CONSUMER PRICES (CPI) Q/Q: 0.2% V 0.4%E; Y/Y: 1.9% V 2.2%E; TRIMMED MEAN Q/Q: 0.5% V 0.5%E ; Y/Y: 1.8% V 1.8%E

WEDNESDAY 7/26
PTR Guides H1 (CNY) Net 9-11B v 528M y/y
(UK) Q2 ADVANCE GDP Q/Q: 0.3% V 0.3%E; Y/Y: 1.7% V 1.7%E
F Reports Q2 $0.56 v $0.44e, Rev $39.9B v $37.9Be
*(US) JUN NEW HOME SALES: 610K V 615KE
(US) Association of American Railroads weekly rail traffic report for week ending July 22nd: 534.2K carloads and intermodal units, +1.1% y/y (28th straight week of gains)
*(US) FOMC HOLDS TARGET RATE RANGE AT 1.00-1.25%, AS EXPECTED; BALANCE SHEET UNWIND TO START 'RELATIVELY SOON'
FB Reports Q2 $1.32 v $1.14e, Rev $9.32B v $9.17Be
*(BR) BRAZIL CENTRAL BANK (BCB) CUTS SELIC TARGET RATE BY 100BPS TO 9.25%; AS EXPECTED
005930.KR Reports final Q2 (KRW) Net 10.8T v 9.8Te; Op 14.07T v 14.0T prelim; Rev 61.0T v 60.0T prelim; to buy back KRW1.67T of shares

THURS 7/27
ROG.CH Reports 1H (CHF) Net 5.58B v 5.47B y/y; Core Op 10.1B v 9.86Be, Rev 26.3B v 26.1Be
BAS.DE Reports Q2 EPS €1.63 v €1.19 y/y, EBIT (before items) €2.25B v €2.20Be, Rev €16.3B v €16.3Be
NOK1V.FI Reports Q2 adj Net €441M v €171M y/y, adj Op €574M v €460Me, Rev €5.63B v €5.62Be
MT.NL Reports Q2 Net $1.32B v $1.11B y/y, EBITDA $2.11B v $2.20Be, R$17.2B v $16.9Be
ABI.BE Reports Q2 $0.95 adj v $1.14e, EBITDA $5.35B v $5.28Be, R$14.2B v $14.5Be
AIR.FR Reports Q2 EPS €1.16 v €0.76e; Adj EBIT €859M v €878Me, Rev €15.72B v €15.99Be
ORA.FR Reports Q2 EBITDA €3.38B v €3.3Be, Rev €10.21B v €10.1Be
BAYN.DE Reports Q2 Net €1.22B (adj) v €1.38B y/y, EBITDA adj €3.06B v €2.99Be, Rev €12.2B v €12.6Be
BN.FR Reports H1 Net €1.05B v €935M y/y, Op Profit €1.72B v €1.48B y/y, Rev €12.13B v €11.1B y/y
SU.FR Reports H1 adj EBITA €1.72B v €1.67Be; Rev €12.17B v €12.2Be
(DE) AUG GFK CONSUMER CONFIDENCE: 10.8 V 10.6E (highest since Oct 2001)
RDSA.NL Reports Q2 adj Profit $3.71B v $3.36Be, basic CCS EPS $0.44 v $0.40e, Rev $72.1B v $58.4B y/y
AZN.UK Reports Q2 Core EPS $ 0.87 v $0.80e, Rev $5.05B v $5.00Be
LLOY.UK Reports Q2 PBT £2.41B v £1.98Be, Underlying profit £4.9B v £4.16B y/y, Total Income £9.30B v £8.87B y/y
DGE.UK Reports FY17 EPS 108.5p v 89.4p y/y, EBIT £3.60B v £3.60Be, Rev £12.1B v £11.96Be; Approves £1.5B sharebuyback; Raises final dividend 5% to 62.2p/shr
(EU) EURO ZONE JUN M3 MONEY SUPPLY Y/Y:5.0 % V 5.0%E
POT Reports Q2 $0.16 adj* v $0.17e, Rev $1.12B v $936Me
DOW Reports Q2 $1.08 v $1.01e, Rev $13.8B v $13.7Be
*(TR) TURKEY CENTRAL BANK (CBRT) LEAVES BENCHMARK REPURCHASE UNCHANGED AT 8.00%; AS EXPECTED
TWTR Reports Q2 $0.08 v $0.05e, Rev $573.9M v $537Me
UPS Reports Q2 $1.58 v $1.47e, Rev $15.8.B v $15.5Be
(UK) BOE names David Ramsden as Dep Gov for Markets and Banking
NESN.CH Exec:Seeing week consumer environment in NA and Europe - analyst call
*(US) JUN PRELIMINARY DURABLE GOODS ORDERS: 6.5% V 3.7%E; DURABLES EX TRANSPORTATION: 0.2% V 0.4%E
NYT Reports Q2 $0.18 v $0.13e, Rev $407.1M v $394Me
(US) Atlanta Fed raises Q2 GDP to 2.8% from 2.5% on 7/19
AMZN Reports Q2 $0.40 v $1.40e, Rev $38.0B v $37.2Be
BIDU Reports Q2 $2.36 adj v $1.42e, Rev $3.08B v $2.78Be
SBUX Cuts FY17 $2.05-2.06 adj v $2.10e, Rev to low end of 8-10% y/y, implies low end of R$23-23.4B v $22.7Be (prior 2.08-2.12, Rev +8-10%) - earnings call
(US) US House Speaker Ryan: Prepared to go to conference on healthcare bill; Senate must vote first on any conference agreement produced
(CN) China banks said to be increasing rates on mortgages - Economic Information Daily

FRI 7/28
(US) Senate votes on amendment to healthcare bill; lacks vote on Skinny repeal plan - financial press
BNP.FR Reports Q2 Net €2.4B v €1.91Be, Rev €10.9B v €11.3B y/y
*(FR) FRANCE Q2 ADVANCE GDP Q/Q: 0.5% V 0.5%E; Y/Y: 1.8% V 1.6%E
BARC.UK Reports Q2 adj net £354M v £803M y/y, adj pretax £1.4B* v £1.2Be, Core Net rev £5.1B v £5.23Be
(FR) FRANCE JULY PRELIMINARY CPI M/M: -0.3% V -0.4%E; Y/Y: 0.7% V 0.7%E
(DE) GERMANY JULY CPI SAXONY M/M: 0.3% V 0.2% PRIOR; Y/Y: 1.7% V 1.7% PRIOR
(DE) GERMANY JULY CPI NORTH RHINE WESTPHALIA M/M: 0.4% V 0.1% PRIOR; Y/Y: 1.8% V 1.6% PRIOR
*(EU) EURO ZONE JULY BUSINESS CLIMATE INDICATOR: 1.05 V 1.14E; CONSUMER CONFIDENCE: -1.7 V -1.7E
(DE) GERMANY JULY PRELIMINARY CPI M/M: 0.4% V 0.2%E; Y/Y: 1.7% V 1.5%E
(RU) RUSSIA CENTRAL BANK (CBR) LEAVES 1-WEEK AUCTION RATE UNCHANGED AT 9.00%; AS EXPECTED
MRK Reports Q2 $1.01 v $0.87e, Rev $9.93B v $9.79Be; Cyber attack from June still impacting operations
*(US) Q2 EMPLOYMENT COST INDEX (ECI): 0.5% V 0.6%E
(US) Q2 ADVANCE GDP ANNUALIZED Q/Q: 2.6% V 2.7%E; PERSONAL CONSUMPTION: 2.8% V 2.8%E
*(US) Q2 ADVANCE GDP PRICE INDEX: 1.0% V 1.3%E; CORE PCE Q/Q: 0.9% V 0.7%E
(US) FDA plans to begin dialogue about lowering nicotine levels in combustible cigarettes to non-addictive levels; new enforcements to also affect newly-regulated tobacco products such as cigars and e-cigarettes
*(US) JULY FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 93.4 V 93.2E
(US) New York Fed Nowcast: raises Q2 GDP forecast to 2.1% from 2.0% on 7/21; cuts Q3 GDP forecast to 1.9% from 2.0% on 7/21
(US) Weekly Baker Hughes US Rig Count: 958 v 950 w/w (+0.8% w/w)
(KR) US military spokesman: Joint Chiefs and head of Pacific Command spoke to South Korean counterparts, discussed military response optionsto North Korea ICBM test

Barrons weekend summary

Barrons weekend summary: Cover story positive on select energy names; positive feature on WHR 

Cover story: Eight energy stocks look tempting after a bad performance by the sector this year; these companies are restraining capital spending and focusing on earnings and free cash flow (Positive on CVX, XOM, CNQ, SU, APA, EOG, COG, RRC). 

Features: 

1) Positive on WHR: Shares have gained by about 90% since the end of 2012, but they remain a bargain given the company’s rising free cash flow and strong execution; 

2) European regulations known as MiFID II could reduce overall spending on the analysis of stocks and bonds, narrow the coverage of small stocks, and force large brokers to downsize analyst teams; 

3) Stocks recommended in bullish Barron’s stories this year have trailed their benchmarks, but investors who heeded warnings about risky stocks did well. 

Tech Trader: Cautious on MU: The market this year for memory chips has been strong, giving Micron a major boost, but shares trading at five times projected 2018 earnings aren’t a bargain—they’re a sign the good times can’t last. 

Trader: “Any lingering view that the Fed might raise rates in September is nearly gone, and December is now the earliest point at which markets look for another hike”; Positive on CSCO: Hardware giant is seen as “old tech” and thus not likely to benefit from the move to the cloud, but shares could provide a double-digit annual return with little downside during the next 24 months; Cautious on Verint Systems: Company’s revenue growth has dropped steadily and non-GAAP earnings numbers can’t hide the worsening performance. 

Profile: Ford O’Neil of Fidelity Total Bond says interest rates are likely to rise modestly as inflation inches higher, but strong demand for fixed income should have a stabilizing effect (top 10 categories: U.S. Treasuries, corporate investment grade, Agency MBS, corporate high yield, TIPS, leveraged loans, emerging markets, CMBS, other government). 

Interview: Jason Kritzer and Samantha Pandolfi, co-managers of the Eaton Vance Worldwide Health Sciences fund, talk about where they see innovation and investment value (picks: VRTX, ZTS, SHPG, ISRG, GILD). 

Small Caps: Positive on OEC: Company, the smallest of the three major carbon-black specialty firms, is in a growing market and is substantially more profitable than its peers, CBT and Aditya Birla. 

Follow-Up: Positive on VC: Auto-electronics manufacturer is thriving this year amid a focus on six key markets following its bankruptcy, and shares, already up this year, have more room to go. 

European Trader: Positive on Adidas: With the stock up 40% investors might think it’s time to take profits, but some analysts think shares still have significant upside, especially if Adidas can boost profit margins. 

Asian Trader: Analysts remain split on whether Cosco Shipping Holdings or Orient Overseas shareholders will benefit more from their tie-up. 

Emerging Markets: A look at high-quality income stocks from Societe Generale’s monthly emerging-market quality income screen, each of which offers a dividend yield of greater than 4% (Positive on VIV, ASX, EOCC, OMAB). 

Commodities: “Red-hot dry heat in the western part of the Upper Midwest is threatening the corn crop and could spark a big rally.” 

Streetwise: Movie-theater stocks will remain volatile as studios seek new distribution channels, “and while they might retreat to levels that justify short-term bounces, the long-term pressure remains.”

Equity Rally Holds while US Data Disappoints and Central Banks Stay the Course for Now

TradeTheNews.com Weekly Market Update: Equity Rally Holds while US Data Disappoints and Central Banks Stay the Course for Now
Fri, 14 Jul 2017 16:11 PM EST

Equity markets moved up early in the week while interest rates appeared to stabilize. Stocks quickly brushed aside volatility induced by the latest revelations out of Washington D.C. that President Trump’s son met with Russian operatives during the 2016 election. By Wednesday, Fed Chair Yellen’s testimony was seen largely in a dovish light when she noted the federal funds rate would not have to rise all that much further to get to a neutral policy stance. Global bond prices continued to rise even in the face of various press reports suggesting the ECB is close to signaling its own QE taper. By Friday, soft readings for both US consumption and consumer prices cemented the week's tone of a lower US dollar, stabilizing global rates, and rising equity valuations. The Dollar index finished the week at its lowest level since September, while gold prices rose to the highest point in about 2 weeks. WTI crude prices rose 5% helped by larger than expected draw downs in US inventories. By Friday, the VIX dipped back below 10, closing near a record low, while the Transports, S&P 500 and Russel 2000 all finished the week at an all time closing high. The NASDAQ had its best week in almost 3 months. For the week the S&P gained 1.4%, Dow added 1% and the NASDAQ jumped 2.6%.

In corporate news this week, Target raised its Q2 guidance and indicated a broad-based improvement in traffic, giving a much-needed boost to the beaten-down retail sector. Amazon saw a huge spike in Echo sales during its annual Prime Day promotion, with demand for the smart speaker reaching seven times last year’s levels. And as banks kicked off earnings season, JPMorgan reported profits came in well above consensus, and CEO Dimon pointed to strong loans and deposits growth, as well as double-digit boosts to card sales and merchant processing volumes. Citi posted an earnings beat on notable strength in its fixed-income segment. Wells Fargo earnings also topped Street estimates, but disappointed on revenues and warned costs may remain inflated in the short term.

SUNDAY 7/9
07/09 (US) Reportedly Donald Trump Jr set up a meeting in June 2016 between top Trump campaign aides and Russian lawyer Natalia Veselnitskaya – US press
*(CN) CHINA JUN CPI M/M: -0.2% V -0.1% PRIOR; Y/Y: 1.5% V 1.6%E
*(CN) CHINA JUN PPI Y/Y: 5.5% V 5.5%E

MONDAY 7/10
*(FR) BANK OF FRANCE MAY BUSINESS SENTIMENT: 103 V 106E
*(EU) EURO ZONE JULY SENTIX INVESTOR CONFIDENCE: 28.3 V 28.1E
(US) June Labor Market Conditions Index Change: 1.5 v 2.5e
(CN) China Passenger Car Association (PCA): Jun vehicle sales +4.6% y/y; YTD sales -0.2% y/y

TUESDAY 7/11
(UK) PM May: Reiterates her commitment to Britain - London speech on reform
*(US) MAY JOLTS JOB OPENINGS: 5.67M V 5.95ME
(US) Donald Trump Jr posts email chain in which Russian govt intermediaries offer to help Trump campaign and Trump Jr agrees to arrange meeting - press
(US) Fed's Harker (hawk, voter): still considering if third rate increase is appropriate this year; inflation below target gives pause to policy path - press interview
(US) Atlanta Fed cuts Q2 GDP to 2.6% from 2.7% on 7/6
(US) Senate planning to cancel first 2 weeks of Aug recess to give more time to work on legislation - press
(US) White House reportedly increasingly unlikely to re-nominate Fed Chair Yellen to second term; White House adviser Gary Cohn reportedly top candidate to replace her - Politico

WEDNESDAY 7/12
BRBY.UK Reports Q1 Retail Sales £478M v £471Me
PMO.UK Announces significant new 1 Billion barrel oil discovery offshore Mexico
*(UK) JUN JOBLESS CLAIMS CHANGE: 6.0K V 7.3K PRIOR; CLAIMANT COUNT RATE: 2.3% V 2.3% PRIOR
*(UK) MAY AVERAGE WEEKLY EARNINGS 3M/Y/Y: 1.8% V 1.8%E; WEEKLY EARNINGS (EX BONUS) 3M/Y/Y: +2.0% V 1.9%E
(UK) May ILO Unemployment Rate 3M/3M: 4.5% v 4.6%e (lowest level since 1975)
*(IN) INDIA JUN CPI Y/Y: 1.5% (record low) V 1.6%E
(US) Fed Chair Yellen: Inflation running below goal, has declined recently; Reiterates gradual rate increases will be needed to sustain economic expansion - Congressional testimony text
AMZN Reports 'Prime Day' 2017 up 60% y/y with sales by small business and entrepreneurs grew by even more
*(UK) ONS ISSUES CORRECTION ON CLAIMANT COUNT RATE DATA: CLAIMANT COUNT: +5.9K (REVISED FROM +6.0K)
*(CA) BANK OF CANADA (BOC) RAISES INTEREST RATES BY 25BPS TO 0.75%; AS EXPECTED
(US) Fed Chair Yellen Q&A: focused on trying to achieve 2% inflation target and there has been no discussions on raising it
NVS FDA advisory panel votes 10-0 in support of approval for personalized CAR-T therapy for cancer
*(KR) BANK OF KOREA (BOK) LEAVES REPO RATE UNCHANGED AT 1.25%; AS EXPECTED (12TH CONSECUTIVE HOLD)
*(CN) CHINA H1 TRADE BALANCE CNY1.28T, -17.7% y/y
*(CN) CHINA JUN TRADE BALANCE: $42.8B V $42.7BE

THURSDAY 7/13
*(ES) SPAIN JUN FINAL CPI M/M: 0.0% V 0.0%E; Y/Y: 1.5% V 1.5%E
TGT Raises Q2 above "high end of prior" $0.95-1.15 v $1.03e, SSS 'modest increase" (prior "low single digit decline")
DAL Reports Q2 $1.68 v $1.65e, Rev $10.8B v $10.8Be
*(EU) Reportedly ECB's Draghi could discuss plans for winding down QE at the Fed's Jackson Hole symposium in late August - press
(DE) ECB sends trial balloon as German 10-year Bund futures fall from session highs after ECB sourced reports indicate the ECB could announce a QE unwind in Sept after Draghi attends the Jackson Hole meeting in August
*(US) JUN FINAL DEMAND PPI M/M: 0.1% V 0.0%E; Y/Y: 2.0% V 1.9%E
(US) Fed Chair Yellen: Volcker rule is complicated and we could find ways to ease its burden - testifies before Senate Banking Panel
(US) Medicare Independent Payment Advisory Board (IPAB) cost cut board was not triggered in trustees report, as had been anticipated last year - press
(CL) S&P cuts Chile long-term foreign currency rating one notch to A+ from AA-; outlook Stable
*(SG) SINGAPORE Q2 ADVANCED GDP Q/Q: 0.4% V 1.1%E; Y/Y: 2.5% V 2.7%E
*(CN) FITCH AFFIRMS CHINA SOVEREIGN RATING AT A+; OUTLOOK STABLE

FRIDAY 7/14
EZJ.UK Update on European airline AOC; Co's positioning ahead of Brexit outcomes
JPM Reports Q2 $1.82 v $1.57e, Rev $26.4B (managed) v $24.8Be
C Reports Q2 $1.28 v $1.21e, Rev $17.9B v $17.3Be
*(US) JUN ADVANCE RETAIL SALES M/M: -0.2% V +0.1%E; RETAIL SALES EX AUTO M/M: -0.2% V 0.2%E
*(US) JUN CPI M/M: 0.0% V 0.1%E; CPI EX FOOD AND ENERGY M/M: 0.1% V 0.2%E; CPI INDEX NSA: 244.955 V 245.105E
(US) Jun Industrial Production M/M: 0.4% v 0.3%e; Capacity Utilization: 76.6% v 76.8%e
(US) JULY PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 93.1 V 95.0E
(US) New York Fed Nowcast: cuts Q2 GDP forecast to 1.9% from 2.0% on 7/7; maintains Q3 GDP forecast at 1.8%, unchanged from 7/7
(US) Atlanta Fed cuts Q2 GDP to 2.4% from 2.6% on 7/11

Barrons weekend summary

Barrons weekend summary: Positive on Oil, APA, AVGO, FNSR, ADSK, ALXN, EA, SLAB, BWA; Cautious on Volatility, Macau, Steel, ORLY 

Cover story: The active/passive debate in the investing world hasn’t focused on the issue of whether, or how, increased indexing will affect the market; “Indexing works because it can piggyback on the wisdom of the crowd, but its very rise shrinks the crowd whose decisions help make the market.” 

Tech Trader: Positive on AVGO, FNSR: Rampant spending by tech giants such as GOOGL, AMZN, BIDU, FB, MSFT, and AAPL on streaming, artificial intelligence, and other technologies has led to the need for greater Internet infrastructure, boosting chipmakers and fiber-optic suppliers. 

Trader: “With rates rising and multiples under pressure due to tighter monetary policy, it might take more than your run-of-the-mill earnings beat to send stocks higher,” says UBS strategist Julian Emanuel; Since the financial crisis, investors seem to have confused low volatility with low risk, but at this point volatility has become almost completely disconnected from fundamentals; During the first half, picks from the Trader column returned 6.9%, beating the S&P 500’s average gain of 3% during the same period. 

Features: 

1) “The price of crude oil could touch $60 a barrel before the end of the year, as demand exceeds supply”; traders have had difficulty interpreting the effect on price of recent events in the market, says Citigroup’s Eric Lee; 

2) Positive on APA: Shares of Apache, one of the worst-performing stocks in the market this year, could double as the company’s value is realized by the market or a sale, and some institutional investors are buying; Positive on ADSK, ALXN, EA, SLAB: Companies look attractive on the metric of selling, general, and administrative expenses (SG&A), which academics have linked to future stock returns. 

Mutual Funds Quarterly: 

1) Evidence from the last proxy season indicates the largest passive investors are becoming more active; 

2) Research carried out during the past several years suggests that companies scoring well on gender equality have a tangible edge over less-diverse peers; 

3) Providers of so-called multi-factor exchange traded funds say they should replace funds based on broad-market indexes, but the jury is still out; 

4) A look at leaders and laggards in the second quarter across a range of fund types. 

Follow-Up: Cautious on ORLY: Auto-parts supplier still needs time to get back on track, and shares are down after poor quarterly performance, but investors should hold on to them; Positive on BWA: Company should see increased revenue as automakers sell a higher mix of gasoline models that need to meet fleet efficiency requirements. 

European Trader: UBS chief Sergio Ermotti’s move to shrink the investment bank to focus on wealth management has “made the firm a strange beast in the financial-services jungle”—and difficult to value. 

Asian Trader: “Investors have been all-in for Macau’s gaming stocks this year, but now it looks like a good time to take some money off the table.”

Emerging Markets: As the U.S. and Mexico undertake the renegotiation of NAFTA, “the more complex subjects of labor mobility and taxes will prove vexing,” leading to a pause in the peso’s rise, some Mexican stock weakness, and an upside for some Mexican bonds. 

Commodities: “China’s economic slowdown, a U.S. bid to halt imports, and a strong dollar are likely to stagnate steel’s price in the near term.” 

Streetwise: The column asks four questions about the stock market: Who is afraid of rising yields? What do Q2 results say about future earnings power? Will earnings peak this year? Is bullish positioning excessive? 

Rising Rates Hold Investors' Focus

TradeTheNews.com Weekly Market Update: Rising Rates Hold Investors' Focus
Fri, 07 Jul 2017 16:10 PM EST

- For the second straight week rising interest rates continued to overshadow global trading and geopolitical developments. North Korea's successful test of an ICBM on the July 4th holiday may have spurred some risk off sentiment when trading resumed on Wednesday, but most pointed to a sustained rise in Treasury yields as the culprit. The European economic data continued to surpass expectations broadly, resulting in the German 10-year Bund yield moving back above 0.5% to levels not seen since early last year. US rates tracked European yields higher and in a move that appeared justified by the release of another robust June jobs report on Friday. The Euro moved to a 1-month high while the Pound suffered after UK economic releases significantly lagged that of continental Europe's. The Dollar also rose to the highest level since early May against the Yen, and buyers were rewarded on Friday when the BOJ was forced to offer an unlimited amount of bids in its fixed-rate bond operation to stem the rise in JGB bond yields. Crude oil prices rolled over mid-week giving back half of gains seen since the June 21st low while by Friday gold prices dropped to levels not seen since March likely hurt by the back up in rates.
- Banks and financials maintained a leadership role as higher rates and steepening curves kept demand strong. The XLF closed the week above 25 for the first time since late 2007 heading into next week's Q2 bank earnings reports. The Dow Jones Transports hit a fresh all time highs for the first time since early March though Dow theorists were quick to point out the Industrials were unable to confirm with a new high of its own. The energy complex largely served as a headwind slipping along with oil prices. The NASDAQ maintained entrenched in a notably skittish trading pattern. After under performing early in the week technology shares exhibited significant relative strength to close out trade. For the week the S&P was up less than 0.1%, the Dow gained 0.3% and the NASDAQ rose 0.2%.
- In terms of corporate news during this holiday-shortened week, the auto industry reported another drop in sales for the month of June, though GM said it expects the second half of 2017 will be stronger than the first. Tesla disappointed investors with Q2 deliveries that came in below consensus estimates, though CEO Musk forecasts Model 3 production at 20K vehicles per month in December. Volvo said it plans to completely phase out vehicles with conventional engines, moving towards production of hybrid and battery-powered models only by 2019. Berkshire Hathaway announced it would acquire Energy Future Holdings, the parent company of Oncor Electric, in a $9B all-cash transaction, which would give Berkshire control of one of the largest electricity transmission firms in the US.

SUNDAY 7/2
*(JP) JAPAN Q2 TANKAN LARGE MANUFACTURING INDEX: 17 V 15E; MANUFACTURERS OUTLOOK: 15 V 14E; ALL-INDUSTRY CAPEX: 8.0% V 7.2%E
(HK) Macau Jun casino revenue 19.99B Patacas, y/y: 25.9% v 30%e (update)

MONDAY 7/3
(DE) GERMANY JUN FINAL MANUFACTURING PMI: 59.6 V 59.3E (31th month of expansion)
(UK) JUN MANUFACTURING PMI: 54.3 V 56.3E (11th month of expansion, 3-month low)
(EU) EURO ZONE MAY UNEMPLOYMENT RATE: 9.3% V 9.3%E
(UK) FSB Chairman Carney: Calls on G20 to 'Urgently' complete new Basel Bank Capital rules; Reform fatigue poses threat to crisis response
GM Reports June US sales -4.7% y/y, to 243.2K units v 250.7Ke
*(US) JUNE FINAL MARKIT MANUFACTURING PMI: 52.0 V 52.1 PRELIM (lowest since Sep 2016)
(US) Atlanta Fed raises Q2 GDP to 3.0% from 2.7% on 6/30
TSLA Reports Q2 deliveries just over 22.0K v 24.2Ke v just over 25.0K q/q (update)
(HK) Macau Monetary Authority says Unionpay cardholders can only get cash at KYC ATMs in Macau, effective from July 4th
(HK) Hong Kong Jun Homes Sales (HK$): 59.1B v 32.6B y/y

TUESDAY 7/4
(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 1.50% (AS EXPECTED)
(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.50%; AS EXPECTED; MAINTAINS QE BOND BUYING PROGRAM (As decided in April)
(CN) China PBoC: Economic downward pressure remains large in 2017; Affirms to pursue prudent neutral monetary policy - PBOC 2017 report
*(CN) CHINA JUN CAIXIN PMI SERVICES: 51.6 V 52.8 PRIOR (13-month low)

WEDNESDAY 7/5
*(TH) THAILAND CENTRAL BANK (BOT) LEAVES BENCHMARK INTEREST RATE UNCHANGED AT 1.50%; AS EXPECTED
*(FR) FRANCE JUN FINAL SERVICES PMI: 56.9 V 55.3E (confirms 12 months of expansion)
(ZA) South Africa ANC party leader Godongwana: proposal to make SARB state-owned is not imminent; there is no fiscal space to pay SARB owners
*(US) MAY FINAL DURABLE GOODS ORDERS: -0.8% V -1.0%E; DURABLES EX TRANSPORTATION: -0.3% V +0.1% PRELIM
(US) Association of American Railroads weekly rail traffic report for week ending July 1st: 546.4K carloads and intermodal units, +3.2% y/y (25th straight week of gains)
VOLVA.SE Plans all post-2019 vehicle models to be either hybrid or battery powered - press (update)
*(US) FOMC MINUTES FROM JUNE 14 MEETING: OFFICIALS DIVIDED OVER WHEN TO START BALANCE SHEET RUNOFF
(JP) 30-yr JGB yield highest since late Feb at 0.875%
*(AU) AUSTRALIA MAY TRADE BALANCE (A$): +2.47B V +1.0BE (7th consecutive surplus)

THURSDAY 7/6
*(ES) SPAIN DEBT AGENCY (TESORO) SELLS TOTAL €3.65B VS. €3.0-4.0B INDICATED RANGE IN 2022, 2040 AND 2046 BONDS
*(EU) ECB ACCOUNT OF THE MONETARY POLICY MEETING (JUN) MINUTES: ECB OFFICIALS DISCUSSED DROPPING QE EASING BIAS IN JUNE, BUT DECIDED PRUDENCE REMAINED WARRANTED
*(US) JUN ADP EMPLOYMENT CHANGE: 158K V 188KE
*(US) MAY TRADE BALANCE: -$46.5B V -$46.3BE
*(US) JUN FINAL MARKIT SERVICES PMI: 54.2 V 53.0E (highest since Jan)
(US) Atlanta Fed lowers Q2 GDP to 2.7% from 3.0% on 7/3
(US) Illinois House overrides Gov veto of budget bills; enacting $5B tax hike into law; passes budget for first time in over two years
005930.KR Guides Q2 Op profit KRW14.0T (quarterly record) v KRW13.0Te, Rev KRW60.0T v KRW58.4Te
(JP) BoJ Offers to buy unlimited amount in fixed-rate bond operation, gets No Bids again; Details amounts to buy in upcoming QE operation

FRIDAY 7/7
*(FR) FRANCE MAY INDUSTRIAL PRODUCTION M/M: 1.9% V 0.6%E; Y/Y: 3.2% V 1.4%E
*(UK) JUN HALIFAX HOUSE PRICE M/M: -1.0% V +0.2%E; 3M/Y: 2.6% V 3.1%E
*(CN) CHINA JUN FOREIGN RESERVES: $3.057T V $3.061TE (5th straight increase)
(UK) MAY INDUSTRIAL PRODUCTION M/M: -0.1% V 0.4%E; Y/Y: -0.2% V 0.2%E
*(US) JUN UNEMPLOYMENT RATE: 4.4% V 4.3%E
(US) JUN CHANGE IN NONFARM PAYROLLS: +222K V +178KE
*(CA) CANADA JUN NET CHANGE IN EMPLOYMENT: +45.3K V +10.0KE; UNEMPLOYMENT RATE: 6.5% V 6.6%E
*(US) JUN AVERAGE HOURLY EARNINGS M/M: 0.2% V 0.3%E; Y/Y: 2.5% V 2.6%E; AVERAGE WEEKLY HOURS: 34.5 V 34.4E
(MX) MEXICO JUN CPI M/M: 0.3% V 0.3%E; Y/Y: 6.3% V 6.3%E; CORE CPI Y/Y: 0.3% V 0.3%E
(US) FED RELEASES JULY 2017 MONETARY POLICY REPORT: FURTHER GRADUAL REMOVAL OF ACCOMMODATION IS APPROPRIATE
(US) New York Fed Nowcast: raises Q2 GDP forecast to 2.0% from 1.9% on 6/30; raises Q3 GDP forecast to 1.8% from 1.5% on 6/30

July-August 2017 Market Outlook

July-August 2017 Outlook: On the CB (Central Bank)
Mon, 03 Jul 2017 6:48 AM EST

The beginning of the financial crisis is now nearly ten years in the rear view mirror, but central banks keep on trucking at or near historic levels of easy policy. However, with the global economy improving and the threat of deflation subsiding, the CBs are crackling with chatter about downshifting from emergency accommodation. But as long as the conversation is still focused on what the central banks are providing, the improving economic fundamental will not get their due attention.

The Fed has taken the lead in moving rates off the zero bound and starting the discussion about shrinking a balance sheet that was quadrupled during the crisis. To varying degrees over the last year, other central banks have also been broadcasting that the era of ever higher stimulus is done. The delicate task ahead for the CBs is to tap the brakes on extraordinary accommodation gently enough to prevent the global economy from jackknifing in the middle of the process.

Today’s undulating political landscape, exemplified by the Brexit, could still throw up new and unexpected roadblocks that could change the course of monetary policy. But it appears that the convoy of monetary stimulus is rolling into its final destination, preparing to unload its accommodation and start the process of normalization.

Fed: “Over and Out”

The US economic recovery has been motoring ahead of most other major economies. Amid this improved economic footing the Fed‘s accommodative stance is starting to shift, even as the woman in the driver’s seat, Janet Yellen, will be out of office by February.

But a lot of policy changes are still expected to occur before Chair Yellen signs off from the CB. For now, the policy path seems to be locked in on a two step process later this year: a likely September announcement on the balance sheet reduction plan, and then a third rate hike predicted for December.

The public discussions of the balance sheet normalization process have showed a fairly collegial view at the Fed about the process. The consensus at the Fed is that it should start this year and that it should work via a roll off of maturing instruments, rather than actively selling holdings, so that the process can operate quietly in the “background.” This gradual process should work the $4.5 trillion balance sheet down over several years toward a new normalized level that is around half its current size. A recent NY Fed paper suggested this process might take until late 2021, at which point the balance sheet could be trimmed to some $2.8 trillion in bonds and a smattering of MBS.

Markets have taken all of this normalization talk without a hitch – a sign of general confidence in the Fed roadmap. Clear communication will be more important than ever to ensure that markets are not taken off guard by the unwinding process.Aside from the July 26 FOMC policy announcement (which has no scheduled press conference), Yellen will have a few other opportunities to broadcast her intentions. On July 12, she will appear before the House Financial Services Committee, and will convene with a Senate committee the next day. She might also use the annual Jackson Hole symposium (August 24-26) to give color on the balance sheet plan. The theme of this year’s symposium is "Fostering a Dynamic Global Economy."


The Trump circus in Washington may influence how Fed decisions play out. All year the Fed has been cautious about the D.C. agenda, with FOMC members deferring the addition of potential new fiscal policy measures into their monetary policy calculus. Fed officials have repeatedly cautioned that the timing and scope of fiscal policy is too uncertain to calculate yet.

It appears that level of caution was warranted as the legislative agenda of the Trump administration has been delayed by party infighting and harried by weekly revelations in the Russia probe, dashing the early promises of rapid fire reforms. The Senate healthcare bill is the latest item to hit a stumbling block. The bill, centered on a major tax cut, has found critics on the conservative and moderate sides of the Republican Party, causing party leaders to delay a vote by at least a week as they seek enough support for passage. GOP senators are between a rock and a hard place as the unpopular bill could hurt many working-class constituents, while they remain dead set on their longstanding promise to repeal Obamacare.

Currently the healthcare bill appears more likely to fail than to pass, which would leave another hole in the Trump agenda. It would also erode confidence in the potential for passage of the most important policy issue for the markets, namely tax reform, which stuck in first gear at the moment. The White House tried to kick off its tax reform campaign with a press conference in April, but the underwhelming one-page list of bullet points didn’t add any new information. Since then, the administration has rolled back expectations of a tax reform bill from this summer, and is now tentatively hoping to see legislation by the end of the year.

Therefore the earliest we may see the impacts of fiscal reform on the economy will be later in 2018. So far markets have taken the setbacks in stride, but it remains to be seen if additional delays in the Republican legislative agenda or deeper intrigues in the Russia case will be met with calm.

BOE: “Mayday, May Day”

The Bank of England was once only a step behind the Fed in considering removal of accommodation, but any action in that regard was sidetracked by the surprising affirmative Brexit vote last June. Now, a year later, the BOE is looking over the horizon at a path toward normalizing policy. Late last month, the BOE’s chief economist Haldane said that while rates are at an appropriate level for the moment, the bank needs to take a serious look at tightening policy. He suggested that it would be prudent to remove some of last year’s stimulus in second half of 2017.

That was not idle commentary, as the monetary policy committee (MPC) saw two more voters join a hawkish dissent at the June 8 meeting (Forbes, and now McCafferty and Saunders joining). That 5-3 vote to raise rates off of 0.25% demonstrates that the BOE is not far from a decision to follow the Fed down the off-ramp toward normalization.


Since that vote, BOE governor Carney has confirmed that the committee will debate issues around raising rates in coming months. He has stipulated that the decision on the central bank’sreadiness to raise rates depends on how much weaker consumption is offset by business investment, as well as and unit labor costs and the economy's reaction to Brexit. Carney also made it clear that if the MPC agrees to tighter rates, any change would be limited and gradual.

To an even greater extent than the Fed, the BOE will be boxed in by political events. Last month’s snap election meant to strengthen Prime Minister May’s grip on the wheel ahead of Brexit negotiations had the opposite effect. Thanks to a bungled campaign and perhaps some Brexit vote remorse (aka ‘Bremorse’), the Conservatives lost their outright majority and were forced into a dubious alliance with Northern Ireland’s DUP. Thus, PM May goes into the Brexit talks with a weaker hand than before. This could ultimately lead toward a “bad deal” or out of political desperation a “no deal” scenario, uncertainties which could roil markets. The PM’s days at the head of government may also be limited. There have already been some rumblings within the Conservative Party that May should be tossed to the curb after the embarrassing setback in the snap election. Though support has not coalesced around a clear successor yet, some political analysts believe May’s days at Number 10 Downing Street are numbered, speculating that she could be out within six months. The guessing game about UK leadership will add another layer of uncertainty to the already difficult and unprecedented Brexit process. 

ECB: “Breaker, Breaker” The Brexit vote last year tested the resilience of the EU, raising concerns that the cornerstone of European cooperation could come undone. Since then, the populist movement in Europe has experienced some setbacks – most notably the defeat of Marine Le Pen in the French election – and economic data has improved. That has eased concerns about the EU unraveling. Now the ECB has turned a corner, breaking with a decade of dovish talk. In a late June speech ECB President Draghi essentially declared the threat of deflation dead. Draghi announced that the factors impacting inflation “are on the whole temporary and should not cause inflation to deviate from its trend over the medium term, so long as monetary policy continues to maintain the solid anchoring of inflation expectations.” This echo of the Fed’s language on “transitory” factors surrounding weak inflation was enough to send the euro to a six-month high against the dollar as markets took Draghi’s statement to mean he is ready to contemplate the end of the era of extreme accommodation. The immediate one percent move in the EUR/USD in reaction to what was a fairly subtle shift in language by Draghi leaves us with the question of how much are central banks at the mercy of the markets. The European version of the ‘taper tantrum’ could be the next traumatic event for the markets, as they anticipate an end to the ECB’s quantitative easing program in 2018. To that point, earlier this year Janus' Bill Gross switched on the hazard lights, warning that when the ECB starts to taper QE it may signal the end of the bull market. So we will have to watch for outsized moves in response to policy shifts. If the markets are still stimulus addicted then there could be some surprising volatility (and maybe even some opportunities to back up the truck). Even before Draghi’s more hawkish remarks, the early June ECB policy meeting was a blaring horn sounding a possible lane change in monetary policy. Based on data confirming stronger economic momentum, the ECB revised its policy stance with an eye toward the road to normalization. The key move was a revision in the description of the risks to growth, now seen as “broadly balanced” (revised from “tilted to the downside”). Still the ECB continues to provide extensive accommodation with the quantitative easing program set to continue at a €60 billion per month pace at least through December and interest rates remaining at the present level “well past” the end of QE. Geopolitics could sideswipe the ECB’s policy schemes as the G20 meeting in early July may put more stresses on old alliances. Chancellor Merkel, the host of the leaders’ summit (July 7-8), has tried to put a good face on the meeting after the frictions felt during President Trump’s last European trip which ended in the US withdrawing from the Paris climate accord. Russian President Putin will also be stalking the sidelines of the G20, meeting with other heads of state, no doubt looking to drive more wedges between NATO allies. 

BOJ: “Keep on Trucking” Following the trend seen in most G7 nations lately, political uncertainty is taking a toll in Japan. Since assuming office in 2012, Prime Minister Abe has generally enjoyed strong poll numbers as he brought stability to a government that had seen nearly annual turnover in leadership for several years. His ambitious ‘three arrows’ plan for beating deflation and revitalizing the economy won him broad support from the electorate. But four years into the plan, core CPI readings are only just edging into positive territory and Q1 annualized GDP hit a three quarter low of only 1.0%. With the data still not validating ‘Abenomics’ the PM’s poll numbers have slipped. Approval ratings for the cabinet dropped by double digits in June, falling below 50% for the first time more than a year. If they continue to slip toward 40% – the low hit in the summer of 2015 amidst a currency devaluation and stock market swoon in neighboring China – it could send confidence in Japanese markets downhill as well. For its part the BOJ is still riding ‘hammer down’ on easy policy. In his latest commentary BOJ governor Kuroda noted there is still a “long way to go” before achieving the 2% inflation target, and that perhaps they are only half way there. The governor does claim progress, with the Japanese economy on firmer footing and the financial system still stable. Yet the slow headway on inflation confirms that strong easing remains warranted in Kuroda’s eyes. Indeed reports say that the BOJ is contemplating a cut in the inflation outlook at its next meeting (July 19). Even with Kuroda’s foot still firmly all the way down on the accelerator, the BOJ is reportedly feeling the pressure of all the CB chatter about normalization. A press report in early June said that the BOJ was looking at a recalibration of communications to acknowledge the increasing global discussion of reversing accommodation. Such a communication would reportedly entail a declaration the BOJ is conducting simulations about ending QE, but also to convey that it will not be on the policy agenda any time soon. This sort of monetary ‘double clutching’ will require skillful communication from the CB.