May-June 2018 Outlook: The Art of the Deal, Part II

TradeTheNews.com May-June 2018 Outlook: The Art of the Deal, Part II
Fri, 04 May 2018 14:31 PM EST

The new era of deal making promised by President Trump may finally bear some fruit in the months ahead if the President’s own chaotic tendencies don’t derail it. After a year of rhetorical bluster and blunders, this new kind of transactional President may be on the verge of some tangible achievements through negotiation – if things go right.

Arguably Trump’s combative style has produced movement on trade and possibly on North Korea as well. Though no decisive victories have been won yet, there appears to be a good chance of breakthroughs on these issues in the months ahead (potentially altering the bleak calculus for Republicans in the November mid-term elections). It’s less clear if the political version of ‘The Art of the Deal’ will produce positive results in the Middle East and Iran.

Deal-making remains challenging in Europe too as officials continue to wrestle with the Brexit negotiation. The deadline for a finalized deal is just six months away and the fault line between Northern Ireland and the rest of Éire has become a very tangible symbol of the divisions between the EU and UK negotiators.

Meanwhile, as fiscal stimulus is kicking in, central banks are recognizing that they have completed their ‘deal’ to rescue the global economy and have begun the process of dismantling historic monetary accommodation. Stronger inflation and rising rates have revived volatility and blunted the bull market in stocks, fraying some nerves, but credit markets remain calm for now. Cinching some of the big global agreements being contemplated right now could safeguard that calm, but if these deals start to fall through the markets will be in for a rough patch this summer.

Trump L’oeil

While debate continues over whether President Trump is truly an artful negotiator who can pull off the deals he is promising, his intentions on trade are clear. The US administration has attacked trade issues on three fronts: NAFTA talks with the immediate neighbors, intellectual property sanctions directed at China, and blanket tariffs on steel and aluminum nominally imposed on all trading partners.

Many US allies have been given exemptions from metals tariffs in exchange for minor concessions, and others have been promised the same treatment as part of larger trade negotiations like NAFTA for Canada and Mexico. To apply pressure, the Trump administration has granted a “final” one month extension of temporary tariff exemptions until June 1, but that may not be enough time to hammer out new deals with all of the US’ major trading partners.

It does however appear the talks amongst North American trading partners may meet that June deadline. As the latest round of high level talks in D.C. went into overtime, reports emerged that a deal could be sewn up by the first of May. That didn’t materialize, but negotiators are still said to be in “intense” talks and cabinet level officials will come together again on May 7 to assess progress, and ministers sound hopeful.

If a NAFTA revamp is not completed in the next few weeks, the conclusion of talks may get pushed to late in the year. That’s because the populist leader Andres Manuel Lopez Obrador is expected to be elected Mexico’s next President on July 1, with his National Regeneration Movement (MORENA) replacing the current center-right government. Lopez Obrador has pledged to abide by a new NAFTA agreement if is wrapped up before the election, but if not, he undoubtedly will want to put his own imprint on the deal after he is sworn in on the first of December. Given that Lopez Obrador has used Trump’s fiery rhetoric toward Mexico and immigrants as an effective campaign tool, the new Mexican administration may take a harder line in talks with the US, raising the risk that Trump will make good on threats of tearing up the NAFTA treaty.

As difficult as the NAFTA talks have been, reaching new trade agreements with other large trading partners in a matter of weeks may be unrealistic, raising concerns that the US tariffs could go into full effect and trigger immediate trade retaliations. The US team seems to be focused on getting automobile tariffs lowered in Europe and China for starters but may seek other trade concessions in the single-minded pursuit of paring trade deficits. The Europeans seem highly resistant to changing existing treaties so the drumbeat of a ‘trade war’ may get louder as June approaches. China appears to be a little more willing to play ball with the Trump administration, and as of early May a high level US trade delegation is in Beijing seeking a breakthrough that could keep the world’s two largest economies from devolving into an exchange of tit-for-tat tariffs.

The Nuclear Option

The only issue that may overshadow trade war concerns is the potential for sliding into a real shooting war with North Korea or Iran, whose nuclear ambitions remain high on President Trump’s foreign policy agenda, and whose fates seem intertwined. Trump’s tentative progress with North Korea could be blown apart by his treatment of the Iran nuclear treaty (JCPOA). In October Trump decertified the JCPOA saying it was not in the US national interest, but signed a waiver on US sanctions against Iran. On May 12, Trump has to decide on whether he will extend the waiver for another several months (though he stated flatly in January that he would not sign another 120 day waiver). If Trump fully withdraws from the nuclear accord – a move that European allies have said they will not follow – it will give Tehran a rhetorical talking point to put a wedge between the US and Europe, but it could also give the North Korean regime second thoughts about trusting any treaty with the Trump administration.

At a White House meeting in April, French President Macron attempted to use his warm relationship with Trump to sway the President toward a different tactic with Iran. Instead of unilaterally pulling out of the accord, Macron argued for allies to negotiate more restrictions to address concerns about Iran’s missile program. It’s unclear if the other ‘major powers’ would be willing to go along with this tactic to assuage the US administration, but discussions about an ancillary sanctions agreement may get some traction in the weeks ahead. Ever the showman, Trump told Macron “no one knows what I will do” on May 12.

Trump’s impulsive decision to agree to a summit with Kim Jong-Un appears to have opened the door for an agreement with North Korea, but it could also prove to be a political embarrassment if the high level meeting doesn’t produce a tangible treaty. The growing détente between the two Koreas has raised hopes for an eventual reconciliation, starting with promises to end the state of war that has lasted seven decades. But Trump will have his work cut out for him as negotiator-in-chief if the meeting with Kim goes forward. The US is demanding that tangible and verifiable actions to dismantle the nuclear program be taken before sanctions are lifted, giving Kim little incentive to give up his main bargaining chip. Meanwhile, the more peaceful posture of North Korea could lead China to ease its end of the sanctions regime against the Pyongyang. If no agreement comes from the summit it will be a clear victory for Kim, being politically elevated by a face-to-face meeting with the US president, even if Trump resumes name calling and blaming Kim for the failure.

Double Irish

Europe remains consumed with its own historic political and trade negotiation, where the fate of the Brexit deal may come down to the seemingly intractable Irish border issue. The status of the Irish border was supposed to be resolved last year, but continues to hang over the negotiations with no clear resolution, as Irishmen on both sides of the line have taken hardened positions. Amid these challenges the Brexit bill and Prime Minister May’s government look to be in increasing peril.

The PM is getting hemmed in by her own Parliament as the House of Lords has been voting to add restrictive amendments to the EU withdrawal bill. The upper house has a pro-European tilt and has recommended several amendments to the bill against the PM’s wishes. The Lords have so far voted to recommend keeping the UK in the Customs Union with the EU, and to give the Parliament a “meaningful say” over what the next step for the country would be if the government fails to agree on a separation plan with Brussels (or if the Parliament rejects the proposed deal). Thus if a Brexit accord isn’t achieved on schedule or if PM May threatens to walk out and take a hard Brexit, Parliament could compel the government to return to Brussels and negotiate different terms, or by some reckoning possibly call off the Brexit entirely. The PM will now have to rally her troops in the House of Commons, spending political capital to ensure the thin majority held by her Conservative party and its Northern Ireland partner (the DUP) rejects the amendments attached by the House of Lords.

Ireland’s border and the state of the customs union at that border remain a sticking point. Recently the UK’s chief Brexit negotiator bluntly stated that he is “not at all sure” if they can achieve an Irish border agreement by June. That same day the Irish PM proclaimed there is a real risk the EU will miss the October deadline on presenting a finalized Brexit withdrawal treaty if they don’t see real progress by June. The latest reports say May’s core cabinet largely opposed the PM’s preferred option of a hybrid “customs partnership”, with Britain collecting tariffs on behalf of the EU, on the grounds that it would essentially be a back door customs union relinquishing border control. Reportedly some Brexiters were ready to resign from the cabinet if the PM pushed for the customs partnership, which could have led to a leadership challenge to replace May as head of the party. That leaves the favored option of the Brexiters on the table, a maximum facilitation (‘max-fac’) proposal, which would seek to expedite trade by relying on new technology to check vehicles and goods at the border without stopping them.

However, the UK civil service has cautioned that the max-fac solution could take five years to fully implement and the Irish government has spurned this notion of an ‘invisible border.’ Ireland’s ideal scenario would be maintaining the EU customs union, or failing that, giving Northern Ireland special status to keep following EU rules – but that has been rejected by the DUP, whose support PM May needs to ratify the final deal. Ultimately, the UK government may opt to kick the can down the road again by considering extending membership in the customs union temporarily, while a successor arrangement is implemented.

Promotional Offers

Global central banks have started to realize that they can’t keep kicking the can indefinitely when it comes to unwinding unprecedented stimulus programs. The Fed has already begun the process while other central banks are starting to wrap their heads around the problem.

In early April, the market believed a BOE rate hike in May was a done deal, but some recent soft data has eroded that confidence. At the prior meeting in April, Governor Carney cast doubt on the outcome by stating that there will be “some differences of opinion” at the May 10th MPC meeting and that he was conscious that there are other rate setting meetings throughout the year. Further, he noted one should not get fixated on the exact timing of hikes, but should stay focused on the general path, and that Brexit uncertainty was still dampening investment in the UK. This walk back of expectations caused some short term volatility in the sterling, and has since erased the expectation of a May hike, and possibly any hikes this year. Reinforcing that sentiment, the UK stats agency (NIESR) has just substantially downgraded the growth forecast for 2018 to 1.5% from 1.9%, after raising its forecast two-tenths just a few months ago.

The ECB is also moving very slowly on unwinding accommodation. The latest reports about ECB thinking indicate that the policy committee feels it has room to wait until the July meeting to signal the end point of the QE program. In April, ECB President Draghi noted that the council has not had any formal discussion of a roadmap for exiting policy accommodation or a tapering plan. That struck some observers as odd based on the expectation that the ECB might provide such a roadmap in the next few months for an exit policy that might start around year end. Draghi also shot down a comment from the Austrian central banker Nowotny who mused that when rate hikes begin, the process could start with a 20 basis point hike in Deposit Rate to -0.20%.

Draghi’s comments indicate that the council is certainly not in a rush to publish a plan for reversing its policy of the last decade. The only baby step taken so far this year was the March move to drop the ECB’s explicit pledge to increase size of QE if needed. The only other policy indicators for now are the occasional leaks out of the ECB, which currently indicate the central bank is broadly comfortable with market expectations of the first rate hike in Q2 2019.

As for the Fed, at the May 2 meeting it signaled that it’s satisfied that inflation is moving to target and will stabilize around that 2% level. That keeps the policy committee on track for another rate hike in June, at which time the Fed may also take up the task of communicating its sentiment on inflation overshooting the 2% target. Since March 2017 Fed officials have emphasized that the inflation target is “symmetrical”, allowing for it to equally overshoot or undershoot 2%, but there is still some debate about the degree of overshooting that the committee would be comfortable with. The June press conference may delve into this issue, though Fed Chair Powell may not be comfortable with declaring a specific overshoot level (above 2.25%? 2.5%?) that would require a monetary policy reaction.

Almost uniformly, central banks have been surprised by how slowly inflation has recovered, but now it is finally gaining traction, in part due to rebounding energy prices. OPEC and its non-cartel partners have successfully kept production capped, with compliance on the deal consistently above 100%. That has been enough to offset rising production from North American shale producers taking advantage of rising prices. OPEC will have a check in at the regular semi-annual meeting on June 22, but by all accounts members are pleased with the results of the production agreement and are ready to keep it up through the end of the year. Some reports say that Saudi Arabia desires to see the price of Brent crude rise to $80 or even $100/barrel, though OPEC Secretary General Barkindo was quick to deny that talk and state that OPEC and their non-OPEC partners do not set any price objective. Later this year it will be worth watching the compliance levels with the production deal for any signs of slippage as it draws toward a conclusion.

US rates are on the rise and other central banks are starting to contemplate tighter policy too. But with the Fed relatively far ahead on reversing stimulus policy, the dollar has begun to strengthen – back to about where it started the year – and the Treasury yield curve continues to flatten, with the 2-10-year spread narrowing towards 40 basis points for the first time in more than a decade. This has contributed to stocks stalling out, along with some questions about earnings quality in Q1. The bullish stock market sentiment that was still dominant in January, has evaporated in the face of market staples like Caterpillar proclaiming that this quarter may be the “high water mark.”

The stock market correction has not shaken the Powell Fed off of its rate hike path, with members seeming to show some relief that ‘normal’ volatility has returned after an over a year-long absence. At this point it would appear that stocks would have to suffer a selloff more severe than a 10% correction to stir the Fed into taking a shallower rate path. Discounting the very real chance of trade or nuclear talks going wrong in the months ahead, the Fed looks to be shifting toward a four hike scenario for 2018, putting pressure on the BOE and ECB to get their monetary tightening strategies in order.

CALENDAR

MAY
1: UK Manufacturing PMI; US ISM Manufacturing
2: UK Construction PMI; Euro Zone Prelim Flash Q1 GDP; FOMC Policy Statement; China Caixin Services PMI
3: UK Services PMI; Euro Zone Flash CPI Estimate; US ISM Non-Manufacturing PMI
4: US Payrolls & Unemployment Rate

7:
8: China CPI & PPI; China Trade Balance
9: US PPI
10: UK Manufacturing Production; BOE Policy Statement; US CPI
11: Preliminary University of Michigan Sentiment

14: China Industrial Production
15: Euro Zone Flash Q1 GDP; German ZEW Economic Sentiment; UK Inflation Report Hearings; US Retail Sales
16: UK Claimant Count & Unemployment Rate; US Housing Starts & Building Permits; US Industrial Production; Japan Preliminary Q1 GDP
17: Philadelphia Fed Manufacturing Index
18:

21:
22: UK CPI & PPI
23: US New Home Sales; FOMC Minutes
24: Euro Zone Flash Manufacturing & Services PMIs; UK Retail Sales; US Existing Home Sales
25: German Ifo Business Climate; UK Second Estimate of Q1 GDP; US Durable Goods Orders

28:
29: US Consumer Confidence
30: German Preliminary CPI; US Prelim Q1 GDP (2nd reading)
31: German Retail Sales; Euro Zone Flash CPI Estimate; US Personal Income & Spending; Chicago PMI; China Manufacturing & Non-manufacturing PMIs; China Caixin Manufacturing PMI

JUNE
1: UK Manufacturing PMI; US Payrolls & Unemployment Rate; US ISM Manufacturing PMI; US steel & aluminum tariff exemptions expire

4: UK Construction PMI; China Caixin Services PMI
5: UK Services PMI; US ISM Non-manufacturing PMI
6:
7: China CPI & PPI; China Trade Balance
8: UK Manufacturing Production

11:
12: UK CPI & PPI; German ZEW Economic Sentiment; US CPI
13: UK Claimant Count & Unemployment; US PPI; FOMC Policy Statement & SEP Forecast; FOMC Press Conference; China Industrial Production
14: UK Retail Sales; ECB Policy Statement; US Retail Sales; BOJ Policy Statement; World Cup Tournament in Russia begins (through July 15)
15: Euro Zone Final CPI; US Industrial Production; Preliminary University of Michigan Consumer Sentiment

18:
19: US Housing Starts & Building Permits
20: US Existing Home Sales
21: BOE Policy Statement; Philadelphia Fed Manufacturing Index
22: Euro Zone Flash Manufacturing & Non-manufacturing PMIs; OPEC Regular Meeting

25: German Ifo Business Climate
26: US Consumer Confidence; US New Home Sales
27: US Durable Goods Orders
28: German Retail Sales; US Final Q1 GDP
29: UK Current Account; UK Final Q1 GDP; Euro Zone Flash CPI Estimate; US Personal Income & Spending; Chicago PMI
30: Fed to announce bank stress test results by June 30

JULY
1: Mexico general election

Barrons weekend summary

Barrons weekend summary: positive feature on DIS 

Cover story: Value stocks have languished for seven of the past 11 years, but the strategy isn’t dead: There are signs the market will soon turn in favor of value stocks, active management is becoming more important, and some classic measures of value aren’t working, which could lead to a broadly different definition of value. 

Features: 1) Positive on DIS: NFLX could surpass DIS in market value, and Barron’s is no longer bearish on the streaming giant, but Disney could be the better long-term bet because of its diversified business model; 2) Barron’s “Top 100 Hedge Funds” list is topped by MMCAP, Knight Vinke Institutional Partners, EQMC Development Capital—Class A, Pelham Long/Short Small Cap Ltd Class A USD, and Quantitative Tactical Aggressive LLC; 3) Cash is making a comeback as rising interest rates punish bonds and cause volatility in stocks, and yields on money-market funds and other cash sanctuaries are at nearly two percent; 4) A list created by Strategas of the companies that get the most out of their Washington lobbying efforts has outperformed the S&P 500 for nearly a decade by an average of five percentage points. 

Tech Trader: Computer chips are a tremendous source of leverage for the U.S., especially given China’s poorly developed semiconductor sector; A possible Trump administration ban on the sale of chips to China could have wide ramifications, and force China to redouble efforts to build a home-grown industry. 

Trader: The bull market isn’t over, says Jason Pride, chief investment office of Glenmede’s private client group, but it has reached a late cycle that makes every risk seem bigger than it might be; Cautious on CMG: Shares are up at the troubled food chain, which has made changes such as improving its digital ordering platform, but investors should be skeptical of buying the rebound; Negative on NETE: There’s little good news about the unprofitable processor of online payments, whose financial condition remains dire despite buzz about its blockchain technology and celebrity backers. 

Interview: Ilya Zaides and Ike Kier of KG Investments Fund study companies for years before investing and keep their number of investments low, with at most 20 names (picks: DIS, MA, V, TWX). 

European Trader: Positive on Ensco: To benefit from a surge in crude prices if Donald Trump imposes Iran sanctions, investors should consider the U.K. oil-drilling firm, which is highly levered to crude futures prices. 

Emerging Markets: China’s petro-yuan, which was established to end the dollar dominance of the $2T annual oil trade, is off to a slow start and unlikely to supplant the dollar anytime soon. 

Commodities: “Cocoa has climbed by nearly 50% this year, making it the best-performing commodity, but there might not be enough fuel left to power its price much higher.” 

Streetwise: If public pension funds used the most conservative return rate, total state and locally administered pension liabilities could be more than $6T, says Christopher Burnham of the Institute for Pension Fund Integrity.

Rising Rates and Inflation Diminish Solid Earnings

TradeTheNews.com Weekly Market Update: Rising Rates and Inflation Diminish Solid Earnings
Fri, 27 Apr 2018 16:19 PM EST

Stocks opened the week with less than enthusiastic responses to a deluge of Q1 earnings reports. Significant top and bottom line growth for many key Dow and S&P components along with improving outlooks were mostly overlooked, and hand wringing over rising raw material costs and potentially peaking margins moved to the forefront of some traders’ minds. Also the US 10-year yield finally broke above 3% providing potential competition for marginal investment dollars as well. The US Dollar Index climbed to nearly the best levels of the year helped by the back up on US Treasury yields and relatively softer European data.

By the second half of the week investors were reacting decidedly more positive to key tech earnings in particular, driving money back into the FANGs and indices in general. Treasury rates backed off as well, after the ECB stayed the course while slightly downgrading their growth depiction. Economic data on both sides of the pond, particularly in Europe, continued to come up short of expectations before US Q1 GDP topped estimates on Friday. Nevertheless US yields slipped into week’s end tracking yields in Europe as well as responding to very hopeful images coming from the Korean Peninsula. Copper prices dropped back to the 200-day moving average and oil prices drifted lower. For the week, the S&P500 was about flat, the DJIA dropped 0.6%, and the Nasdaq fell 0.4%.

The pace of quarterly earnings reports accelerated this week and corporate commentary greatly influenced the direction of the stock market. Caterpillar executives blunted a rally in industrials on Tuesday as they declared that the company’s strong Q1 results would be the “high water mark” for the year. Boeing staunched the bleeding on Wednesday with an uplifting report, easily beating quarterly estimates and raising its guidance despite the specter of a Chinese trade dispute. Facebook led the tech sector higher on Thursday after it posted solid results that threw off concerns about privacy issues destroying its business model. Amazon posted a stellar quarter, crowing about its growing ad business and continued strength in AWS, and announced a 20% price increase for its Prime services.


MONDAY 4/23
UBSG.CH Reports Q1 (CHF) Net 1.51B v 1.38Be, adj Pretax 1.97B v 1.85Be, Rev 7.70B v 7.64Be
(FR) FRANCE APR PRELIMINARY MANUFACTURING PMI: 53.4 V 53.5E (19th month of expansion but lowest since Mar 2017)
*(DE) GERMANY APR PRELIMINARY MANUFACTURING PMI: 58.1 V 57.5E (40th month of expansion)
(EU) EURO ZONE APRIL PRELIMINARY MANUFACTURING PMI: 56.0 V 56.1E (57th month of expansion but lowest since Feb 2017)
(US) APR PRELIMINARY MARKIT MANUFACTURING PMI: 56.5 V 55.2E
GOOGL Reports Q1 adj $9.93* (ex $3.40 accounting adj) v $9.21e, Rev $24.9B (ex $6.29B TAC) v $24.2Be
CAT Reports Mar dealer statistics: Total Machines +26% y/y

TUESDAY 4/24
SAN.ES Reports Q1 Net €2.05B v €2.0Be, Rev €12.15B v €12.0B y/y
SAP.DE Reports Q1 Non-IFRS Net €708M v €887M y/y, non-IFRS Op €1.24B v €1.2Be, Rev €5.26B v €5.31Be
(FR) FRANCE APR BUSINESS CONFIDENCE: 108 V 108E; MANUFACTURING CONFIDENCE: 109 V 110E
(DE) GERMANY APR IFO BUSINESS CLIMATE: 102.1 V 102.8E; CURRENT ASSESSMENT: 105.7 V 106.0E
GLW Reports Q1 $0.31 v $0.30e, Rev $2.50B v $2.51Be
CAT Reports Q1 $2.82 adj v $2.11e, Rev $12.9B v $11.6Be
LMT Reports Q1 $4.02 v $3.41e, Rev $11.6B v $11.3Be
FCX Reports Q1 $0.46 v $0.58e, Rev $4.87B v $4.76Be
MMM Reduction of high end eps range largely reflection of trimming of organic growth expectations - conf call
US 10-year Treasury yield hits 3% for the first time since January 2014
(US) APR RICHMOND FED MANUFACTURING INDEX: -3 V 16E
(US) MAR NEW HOME SALES: 694K V 630KE
*(US) APR CONSUMER CONFIDENCE: 128.7 V 126.0E
CAT Expect Q1 to be the high water mark for the year - earnings call comments
(US) TREASURY SELLS $32B IN 2-YEAR NOTE AUCTION; DRAWS 2.498%; BID-TO-COVER RATIO: 2.61 V 2.91 PRIOR AND 2.87 AVG OVER THE LAST 12 (lowest BTC since Dec)
TXN Reports Q1 $1.35 v $1.11e, Rev $3.79B v $3.65Be

WEDNESDAY 4/25
CSGN.CH Reports Q1 (CHF) Net 694M v 596M y/y, adj Pretax 1.21B v 1.10Be, Rev 5.64B v 5.53B y/y
LLOY.UK Reports Q1 Net £1.15B v £890M y/y, Underlying profit £2.0B v £2.08B y/y, Rev £4.58B v £4.41B y/y; affirms targets
TWTR Reports Q1 $0.16 v $0.12e, Rev $664.9M v $609Me
FB Reports Q1 $1.69 v $1.36e, Rev $12.0B v $11.5Be
V Reports Q2 $1.11 v $1.01e, Rev $5.10B v $4.78Be; Raises FY18 guidance
F Reports Q1 $0.43 v $0.41e, Rev $39B v $37.0Be
005930.KR Reports Final Q1 (KRW) Net 11.6T v 11Te; Op 15.64B v 15.6B prelim; Rev 60.56T v 60.0T prelim

THURSDAY 4/26
ROG.CH Reports Q1 (CHF) Rev 13.6B v 13.3Be
NOKIA.FI Reports Q1 adj €0.02 v €0.02e, adj Op €239M v €341M y/y, Rev €4.93B v €5.14Be
DBK.DE Reports Q1 Net €120M v €575M y/y, Pretax €432M v €878M y/y, Rev €6.98B v €7.27Be
ORA.FR Reports Q1 EBITDA €2.6B v €2.6Be, Rev €10.1B v €10.1Be
066570.KR Reports final Q1 (KRW) Net 730B v 500Be; Op 1.1T v 1.1Te; Rev 15.1T v 15.1Te; Confirms to acquire 70% stake in ZKW for KRW1.0T
(DE) GERMANY MAY GFK CONSUMER CONFIDENCE: 10.8 V 10.8E
RDSA.NL Reports Q1 adj Net $5.32B v $5.20Be, basic CCS EPS $0.69 v $1.24e, Rev $89.2B v $81.0Be
BARC.UK Reports Q1 Net £1.17B v £209M y/y, adj Pretax (ex litigation) £1.73B v £1.71B y/y, Core Net Rev £5.36B v £5.60Be
VOW3.DE Reports Q1 adj Net €3.30B v €3.37B y/y, Op €4.21B v €4.38Be, Rev €58.2B v €58.4Be
(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED -0.50%; AS EXPECTED; pushes back its 1st potential rate hike by a few months
GM Reports Q1 $1.43 v $1.22e, Rev $36.1B v $34.1Be
UPS Reports Q1 $1.55 v $1.54e, Rev $17.1B v $16.4Be
(US) MAR PRELIMINARY DURABLE GOODS ORDERS: 2.6% V 1.6%E; DURABLES EX-TRANSPORTATION: 0.0% V 0.5%E
(EU) ECB’s Draghi: Reiterates view that rates will remain low well past the end of bond buying; inflation will converge towards target - prepared remarks
(EU) ECB’s Draghi: Did not discuss monetary policy per se; confidence in inflation is unchanged - Q&A
AMZN Reports Q1 $1.48 v $1.22e, Rev $51B v $50.2Be
MSFT Reports Q3 $0.95 v $0.85e, Rev $26.8B v $25.7Be
BIDU Reports Q1 $2.60 v $1.73e, Rev $3.33B v $3.26Be
*(JP) BANK OF JAPAN (BOJ) LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%, AS EXPECTED
(JP) BOJ Quarterly Outlook for Economic Activity and Prices: Removes wording on reaching 2% inflation target around FY19/20
(KR) South Korea President’s Office Official: Confirms North Korea leader Kim said he would visit South Korea’s presidential house at any time

FRIDAY 4/27
AIR.FR Reports Q1 adj EBIT €14M v loss €15.7Me, Rev €10.0B v €9.80Be
(FR) FRANCE Q1 ADVANCE GDP Q/Q: 0.3% V 0.4%E; Y/Y: 2.1% V 2.3%E
SAN.FR Reports Q1 Business EPS €1.28 v €1.17e, Business Net €1.60B v €1.79B y/y, Rev €7.90B v €8.65B y/y; starts share €1.5B buyback
RBS.UK Reports Q1 Net £884M v £386M y/y, Adj Op £1.29B v £759M y/y, Rev £3.30B v £3.06B y/y
(DE) GERMANY APR UNEMPLOYMENT CHANGE: -7K V -15KE; UNEMPLOYMENT CLAIMS RATE: 5.3% V 5.3%E
(UK) Q1 ADVANCE GDP Q/Q: 0.1% V 0.3%E; Y/Y: 1.2% V 1.4%E (slowest annual pace since 2012)
(KR) Two Koreas agree to end 7-decade war and pursue complete denuclearization
3988.HK Reports Q1 (CNY) Net 49B v 46.6B y/y, Op Income 126.1B v 129.5B y/y
(EU) EURO ZONE APR BUSINESS CLIMATE INDICATOR: 1.35 V 1.28E; CONSUMER CONFIDENCE(FINAL): 0.4 V 0.4E
*(RU) RUSSIA CENTRAL BANK (CBR) LEAVES KEY 1-WEEK AUCTION RATE UNCHANGED AT 7.25%; AS EXPECTED
(US) Q1 ADVANCE GDP ANNUALIZED Q/Q: 2.3% V 2.0%E; PERSONAL CONSUMPTION: 1.1% V 1.1%E
(US) Q1 ADVANCE GDP PRICE INDEX: 2.0% V 2.2%E; CORE PCE Q/Q: 2.5% V 2.5%E
(US) APR FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 98.8 V 98.0E

Barrons weekend update

Barrons weekend update: Cover story on ‘FAANG’ stocks; positive feature on GIS 

Cover story: The FAANG stocks—FB, AMZN, AAPL, NFLX, and GOOGL—have long been seen as a unified trade, but while they are each disrupters, investors are overlooking substantial differences in their business models; In the wake of Facebook’s data scandal, ignoring those differences could be a risky bet. 

Features: 1) Barron’s Top 100 Financial Advisors list is topped by Lyon Polk, Gregory Vaughan, and Andy Chase of Morgan Stanley Private Wealth Management; A list of the Top 50 Institutional Consultants is led by UBS Institutional Consulting, Retirement Benefits Group, and Graystone Consulting, Dobbs Group; 2) Master limited partnerships may have burned some investors, but the oil industry is rebuilding and rebounding, energy production is thriving, and MLP valuations appear cheap, making the investments worth another look; 3) Investors have good reason to remain cautious on Russia, which faces a host of sanctions; while equities could rebound, the country’s sovereign debt looks like a better, safer bet; 4) Positive on GIS: General Mills is among the bargains in the consumer staples sector, with sales trends improving, new product launches, and a potentially high payoff for niche brands such as Blue Buffalo; 5) Positive on DAL, GT, LNC, NAVI: Companies are in the bargain bin, but they don’t face obvious threats of structural decline, and don’t appear to be hitting cyclical peaks, at least not by Wall Street estimates. 

Tech Trader: Cautious on INTC, NVDA: Tension between the chipmakers and the world’s largest tech companies is set to grow as the latter increasingly embrace artificial intelligence, and decide—as FB has—to build their own chips tailored to their specific needs. 

Trader: Many investors are wondering if Treasury yields are rising in anticipation of better growth or accelerating inflation, and the market will continue to be volatile until the answer is clear; Despite threats from AMZN, NFLX, and others, the consumer-discretionary sector continues to perform well amid an economic recovery, and the sector looks attractive; Cautious on GE: Bulls were encouraged by the most recent earnings report, but the stock doesn’t look cheap, given operational and financial challenges not faced by rivals HON and UTX. 

Profile: Jim Barrineau, manager of the Hartford Schroders Emerging Markets Multi-Sector Bond fund, invests broadly across emerging market debt (top 10 issuers: Indonesia Treasury, Republic of Poland Government, Lebanon Government International, Petrobras Global Finance, Ukraine Government International, Ecuador Government International, Eskom Holdings SOC, Provincia de Buenos Aires, Republic of South Africa Government, Russian Federal). 

Interview: Tax policy expert Arthur Laffer discusses the ideal tax policy, universal basic income, and other elements of the Republican tax platform. 

Follow-Up: Positive on TPR: The parent of luxury goods maker Coach, its flagship brand, “has stitched together a strong recovery, with plenty of room for more growth.” 

European Trader: Cautious on Siemens Healthineers: The healthcare company spun off from Siemens “is promising on many counts, but some analysts don’t view the stock as a bargain.” 

Commodities: Oil prices have rallied so far this year amid OPEC’s efforts to erase a surplus, but “the market may soon face a shortage of crude that would support further price gains.” 

Streetwise: As Donald Trump’s tweets about companies such as AMZN show, politics is intruding on business as never before, and the trend will only grow.

Early Earnings Focus Fades in Face of Rising Rates

TradeTheNews.com Weekly Market Update: Early Earnings Focus Fades in Face of Rising Rates
Fri, 20 Apr 2018 16:13 PM EST

US stocks indices caught a bid to begin the week as focus shifted largely away from trade, geopolitics and Washington headlines and onto corporate earnings announcements. Another blowout Netflix quarter helped resurgent FANG names and technology shares in general lead the way higher. By Wednesday all the major indices had retaken their 50-day moving averages and traded at roughly a one month high. WTI crude prices tracked towards $70 a barrel for the first time since 2015, helped by jawboning from OPEC and non OPEC producers heading into a meeting in Saudi Arabia. Relatively benign CPI figures on both sides of the Atlantic fostered stubborn buying at the long end of the government Treasury curves sending yields lower. The flattening saw the US 2-10-year spread narrow towards 40 basis points for the first time in more than a decade and kept banks and financials from rallying.

The tone shifted though later in the week. Rising commodity prices and robust manufacturing surveys resulted in a sentiment reversal and bond prices sold off sending yields higher. Stocks fell in tandem with Treasury prices led by weakness in the homebuilding names. Technology shares also reversed course as high profile decisions by both US and China regulatory bodies cast a pall over equity markets as many noted this was another potential theater in a US/China trade war. Consumer staples and dividend focused stocks slumped into Friday while financials outperformed. The US dollar firmed up helped by the higher rates and more soft economic data out of Europe. The FTSE rallied into Friday after BOE officials tempered rate hike expectations for the remainder of 2018. For the week, the S&P500 gained 0.5%, the DJIA added 0.4%, and the Nasdaq rose 0.6%.

Earnings season ramped up with more reports from key financial, industrial and technology names. Goldman Sachs and Bank of America modestly beat expectations but still don’t seem to be reaping great benefits from rising rates. GE’s stock rebounded off of recent lows as it reported a ‘kitchen sink’ quarter and restated results for the last two years on accounting changes. Netflix reinvigorated the tech sector and its shares surged to fresh all-time highs after demonstrating it is still growing its subscriber base at a rapid rate. IBM shares fell as it reported disappointing growth rates in its storage and cognitive solutions segments. Pinnacle Foods traded up nearly 10% on Friday following Jana’s disclosure that it has built an activist stake and plans to push for a sale of the packaged food company.


MONDAY 4/16
BAC Reports Q1 $0.62 v $0.59e, Rev $23.1B v $22.9Be
*(US) APR EMPIRE MANUFACTURING: 15.8 V 18.6E
*(US) MAR ADVANCE RETAIL SALES M/M: 0.6% V 0.4%E; RETAIL SALES EX AUTO M/M: 0.2% V 0.2%E
000063.CN US govt said to ban US companies from selling to ZTE for 7 years for violations related to Iran and North Korea - financial press
(US) Pres Trump to nominate Richard Clarida as Fed Vice Chair and Kansas banking regulator Michelle Bowman to Fed Board - press
04/16 (RU) Pres Trump reportedly halts plan to implement new sanctions on Russia - Washington Post
NFLX Reports Q1 $0.64 v $0.63e, Rev $3.7B v $3.69Be

TUESDAY 4/17
*(UK) FEB AVERAGE WEEKLY EARNINGS 3M/Y: 2.8% V 3.0%E (fastest pace in 3 years); WEEKLY EARNINGS (EX BONUS) 3M/Y: 2.8% V 2.8%E
*(UK) MAR JOBLESS CLAIMS CHANGE: +11.6K V +15.1K PRIOR; CLAIMANT COUNT RATE: 2.4% V 2.4% PRIOR
*(UK) FEB ILO UNEMPLOYMENT RATE: 4.2% V 4.3%E lowest since 1975)
*(DE) GERMANY APR ZEW CURRENT SITUATION SURVEY: 87.9 V 88.0E; EXPECTATIONS SURVEY: -8.2 V -1.0E
*(CN) CHINA PBOC CUTS RESERVE RATIO REQUIREMENT (RRR) BY 100BPS FOR QUALIFIED BANKS (targeted cut); effective Apr 25th
GWR Reports Mar same-railroad carloads 279.9K, -3.9% y/y, dragged down by EU/UK
GS Reports Q1 $6.95 v $5.67e, Rev $10.0B v $8.89Be; Raises dividend 6.6% to $0.80/shr
*(US) MAR HOUSING STARTS: 1.319M V 1.267ME; BUILDING PERMITS: 1.354M V 1.321ME
*(US) MAR INDUSTRIAL PRODUCTION M/M: 0.5% V 0.3%E; CAPACITY UTILIZATION: 78.0% V 77.9%E
CSX Reports Q1 $0.78 v $0.66e, Rev $2.88B v $2.83Be
IBM Reports Q1 $2.45 v $2.40e, Rev $19.1B v $18.7Be

WEDNESDAY 4/18
*(UK) MAR CPI M/M: 0.1% V 0.3%E; Y/Y: 2.5% V 2.7%E; CPI CORE Y/Y: 2.3% V 2.5%E (slowest annual pace in a year)
*(DE) GERMANY SELLS €2.456B VS. €3.0B INDICATED IN 0.05% FEB 2028 BUNDS; AVG YIELD: 0.51% V 0.60%; BID-TO-COVER: 1.4X V 1.3X PRIOR
*(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATE UNCHANGED AT 1.25%; AS EXPECTED
(CA) Bank of Canada's Poloz: rates may need to remain below neutral range, economy not yet able to stay at full capacity on its own; deliberations are focused on appropriate pace of rate hikes
(UK) House of Lords votes for Brexit amendment that would keep the UK in the Customs Union with the EU (as expected); vote was 348-225, going against PM May's wishes
(US) US reportedly targeting NAFTA deal in 3 weeks - CNBC
*(US) FEDERAL RESERVE BEIGE BOOK: REITERATES ACTIVITY EXPANDED AT MODEST TO MODERATE PACE; Price rises expected in steel and building materials due to tariffs
AA Reports Q1 $0.77 v $0.60e, Rev $3.09B v $3.17Be; Supply deficit to worsen, citing China
AMZN CEO: Amazon Prime has exceeded 100M members (+ ~11% from last reported 90M in Sept 2017); continue to invest in expanding customer base - letter to shareholders
(CN) China NDRC: Has cut commercial and industrial electricity prices by avg of 10%, part of plan to lower costs for companies

THURSDAY 4/19
UNA.NL Reports Q1 Rev €12.6B v €12.95Be; affirms outlook; raises dividend 8%; to start €6B share buyback in May
*(UK) MAR RETAIL SALES (EX-AUTO/FUEL) M/M: -0.5% V -0.4%E; Y/Y: 1.1% V 1.4%E
SHP.UK Takeda reportedly to make £46.50/shr offer in cash and stock - press
QCOM Confirms withdrawal and refiled NXPI notice of acquisition at MOFCOM request
*(US) APR PHILADELPHIA FED BUSINESS OUTLOOK: 23.2 V 21.0E
(UK) Bank of England (BOE) Gov Carney: should prepare for a few interest rate hikes over next few years; expect there will be differences of opinion at May policy meeting - BBC interview
(US) Reportedly Pres Trump is telling associates that he does not need to remove Mueller, Deputy AG has told Trump that he is not the target of the Special Counsel's Russia probe - press
(UK) EU said to comprehensively reject UK Brexit proposals for solution on Irish border – press
PF Jana discloses 9.5% stake, will push for a sale - 13D filing
*(JP) JAPAN MAR NATIONAL CPI Y/Y: 1.1% V 1.1%E; CPI EX FRESH FOOD (CORE): 0.9% V 0.9%E

FRIDAY 4/20
5423.JP Tokyo Steel reports FY17/18 Parent Net ¥11.3B v ¥11.1B y/y, Op ¥10.5B v ¥10.5B y/y, Rev ¥164.1B v ¥121.8B y/y; To buy back up to 1.61% of shares for ¥2.0B
941.HK China Telecom reports Q1 (CNY) Net 25.8B v 26.0Be, Rev 185.5B v 184.0B y/y
WFC OCC and CFPB confirm Wells Fargo to pay $1B settlement of violations in auto insurance and mortgages
GE Reports Q1 $0.16 v $0.11e, Rev $28.7B v $27.9Be
SLB Reports Q1 $0.38 v $0.38e, Rev $7.83B v $7.85Be
(EU) Reportedly ECB sees room to wait until July to signal end of QE program - press

Barrons weekend update

Barrons weekend update: positive feature on UBS 

Cover story: Complex supply chains “are under threat from a wave of protectionism playing out around the world, most dramatically between the U.S. and China”; The potential for billions of dollars in tariffs has already rippled through the global economy and could have an impact on commerce for years; “A decades-long drive toward globalization may have hit a wall just as the world’s leading economic powers are growing in near lockstep.” 

Features: 

1) As three-quarters of S&P 500 companies report earnings during the next three weeks, the growth rate will be inflated by corporate tax cuts and higher oil prices, but results are still likely to impress; 

2) Barron’s latest Big Money Poll found that with the recent decline in stocks, a growing number of money managers say the market is undervalued, and they are bullish on the U.S., emerging markets, financials, and tech; 

3) Positive on USB: The firm has consistently generated the highest returns among the top 10 banks, but investors have punished it for earnings outlooks and government sanctions—a reaction that looks overdone. 

Tech Trader: Though FB may be a formidable business, “it is ultimately just a moment in the long evolution of the Internet,” says Tiernan Ray—and its moment will pass; New social sites that rely on blockchain, which is decentralized and allows users to control their data, could well supplant Facebook at some point. 

Trader: A doubling of the VIX doesn’t have to be a harbinger of future pain, says Leo Chen of Cumberland Advisors—but it is unlikely to return to the ultralow levels of 2017; Oil prices, which hit their highest levels in three and a half years this past week, may be high enough to make oil company stocks attractive again; Cautious on CMI: The maker of truck engines and parts is an unacknowledged Internet play because of the role trucks play in e-commerce, and it has a strong balance sheet—though a global trade war could pose problems. 

Interview: Ken Allen, manager of the T. Rowe Price Science and Technology fund, looks for what the market has missed when it unloads shares of a company generating lots of cash (picks: FB, GOOGL, AMZN, TSLA; pans: AAPL, NFLX). 

Profile: Charlie Dreifus, manager of the Royce Special Equity fund, takes a risk-averse investment approach, though this sometimes means the fund trails during bull markets (top 10 holdings: PLCE, UNF, AVX, SMP, SCHL, HUBB, MDP, TER, CPLA, WMK). 

Follow-Up: Positive on RGNX: NVS’s takeover bid for AVXS looks bullish for the company, which makes the viral delivery mechanism for AveXis’ marquee treatment for severe spinal muscular atrophy. 

European Trader: Sweden’s big-bank stocks have taken a hit over concerns about their exposure to the country’s cooling housing market, but the selloff appears overdone and could present an opportunity. 

Emerging Markets: The market’s growing interest in Mexican stocks is based on the belief Nafta will live on and Mexico’s next likely president, left-leaning Andres Manuel Lopez Obrador, will shift to the center. 

Commodities: Most analysts believe the boost in aluminum prices—the result of U.S. sanctions on Russia, including Rusal—won’t last much longer than the rift with Moscow, though its duration is hard to predict. 

Streetwise: There is reason to be skeptical of megarich benefactors such as Stephen Schwarzman of BX swooping in to save education, especially when it involves public schools.

Indices Gain on Softening Trade Rhetoric

TradeTheNews.com Weekly Market Update: Indices Gain on Softening Trade Rhetoric
Fri, 13 Apr 2018 16:06 PM EST

Coming into the week much of the focus remained on trade, but on Monday stock markets were initially unsettled by another chemical attack in Syria and a report the office of President Trump’s personal lawyer Cohen was raided by an FBI filter team. Speculation that China was gearing up to devalue the Yuan were quickly pushed aside by more conciliatory comments from President Xi. His speech on Tuesday opened the door for softer rhetoric from President Trump encouraging investors to step back into equity markets. Facebook shares bounced that day as well helping overall FANG sentiment as CEO Zuckerberg appeared in Washington largely deflecting key questions from Congress. Volumes remained light though, as it was another week characterized by 1%+ intraday swings in the indices largely attributed to evaporating bids and offers more so than aggressive positioning. Stocks turned lower on Friday after key bank earnings failed to maintain the rally and ongoing handwringing over the President and is growing contempt for figures at the Dept of Justice. Treasury yields moved up modestly but the curve continued to flatten. Economic data stayed on the softer side, particularly in Europe offsetting what some viewed as mildly hawkish FOMC minutes. WTI crude has consolidated above $67 and is looking at the highest weekly close since 2014 heading into the weekend and a potential Trump decision regarding Syria. For the week the S&P gained 2% led by the energy complex, NASDAQ bounced 2.8% on a tech rebound and the Dow added 1.8%.

In corporate news this week, earnings season kicked off with the release of some bank quarterly reports. JPMorgan, Citi, and Wells Fargo shares drifted lower as investors weighed modest loan growth against rising deposit betas. Delta lifted on a positive earnings release, while American and United descended after offering Q1 guidance. Shares of Bayer and Monsanto jumped when reports indicated that the DOJ was prepared to approve their merger, following the EU issuing its own approval this week of the deal’s modifications. Verifone charged forward after reaching a $3.4B deal to be taken private by Francisco Partners. Biotech firm Avexis announced it would be acquired by Novartis for $218/shr in a cash transaction valued at $8.7B, which lifted other names in the gene therapy sector. And cloud-based software provider Zuora’s IPO opened for trade on the NYSE at $20.00/shr, 42% above its pricing

MON APRIL 9TH
*(CN) CHINA TO STUDY CNY CURRENCY (YUAN) DEVALUATION AS A TOOL IN TRADE SPAT - financial press
*(EU) EURO ZONE APR SENTIX INVESTOR CONFIDENCE: 19.6 V 20.8E
MON Dept of Justice reportedly will approve Bayer/Monsanto deal in exchange for additional concessions - press
(US) FBI raids office of Trump's longtime personal lawyer Michael Cohen; search doesn't appear to be directly related to Mr. Mueller’s investigation - New York Times
PAY To be acquired by Francisco Partners for $3.4B at $23.04/shr in cash, which includes Verifone’s net debt
(CN) China President Xi: China to lower auto and auto product import tariff later this year, open sector to higher foreign ownership; China reform and opening will definitely succeed, world should push for free trade - remarks at Boao conference

TUES APRIL 10TH
*(US) MAR PPI FINAL DEMAND M/M: 0.3% V 0.1%E; Y/Y: 3.0% V 2.9%E
(EU) ECB spokesperson: Nowotny's views are his own and do not represent the view of the Governing Council
TMUS Reportedly Sprint and T-Mobile have restarted deal talks; discussions are in preliminary stage - press

WEDS APRIL 11TH
TSCO.UK Reports FY17/18 adj PBT £1.30B v £145M y/y, adj Op £1.64B v £1.60Be, Rev (Inc Fuel) £57.5B v £57.7Be; declares annual dividend of 3.0p/shr
(UK) FEB INDUSTRIAL PRODUCTION M/M: 0.1% V 0.4%E; Y/Y: 2.2% V 2.9%E
FAST Reports Q1 $0.61 v $0.61e, Rev $1.19B v $1.18Be; Reports March Daily Net Sales $19.0M, +13.1% y/y
(US) President Trump tweets " Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and “smart!” You shouldn’t be partners with a Gas Killing Animal who kills his people and enjoys it!"
(US) MAR CPI M/M: -0.1% V 0.0%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI NSA: 249.554 V 249.588E
(US) Speaker of House Ryan (R-WI) reportedly will not run for re-election in November - Axios
CA.FR Reports Q1 Rev €20.8B v €20.9Be
(SY) Prime Min May reportedly orders UK submarines within range of Syria - press
BBBY Reports Q4 $1.48 v $1.41e, Rev $3.72B v $3.67Be
(KR) BANK OF KOREA (BOK) LEAVES 7-DAY REPO RATE UNCHANGED AT 1.50%; AS EXPECTED
(CN) China said to be planning to raise fuel prices Friday; Gasoline by CNY55/ton; Diesel by CNY50/t - Chinese press

THURS APRIL 12TH
9983.JP Reports Q2 Net ¥25.6B v 26.5Be, Op ¥56.6B v ¥48.2Be
(SE) SWEDEN MAR CPI M/M: 0.3% V 0.3%E; Y/Y: 1.9% V 2.0%E
(IT) ITALY DEBT AGENCY (TESORO) SELLS TOTAL €9.17B VS. €7.25-9.25B INDICATED RANGE IN 2021, 2025, 2038 AND 2048 BTP BONDS
MDR Reports prelim Q1 $0.15-0.17 v $0.05e, Rev $600-610M v $591Me
DAL Reports Q1 $0.74 v $0.73e, Rev $9.76B v $9.88Be
*(EU) ECB ACCOUNT OF MARCH POLICY MEETING (MINUTES): Council broadly agreed that not enough evidence that inflation is sustained
*(US) INITIAL JOBLESS CLAIMS: 233K V 230KE; CONTINUING CLAIMS: 1.871M V 1.84ME
(US) MAR IMPORT PRICE INDEX M/M: 0.0% V 0.1%E; Y/Y: 3.6% V 3.8%E
ZUO IPO opens for trade at $20.00
(US) Sen Roberts (R-KS): During meeting Trump indicated he assigned Larry Kudlow and other advisers to take another look at Trans Pacific Partnership (TPP)
(MX) MEXICO CENTRAL BANK (BANXICO) LEAVES OVERNIGHT RATE UNCHANGED AT 7.50%; AS EXPECTED
*(SG) SINGAPORE MONETARY AUTHORITY (MAS) SEMIANNUAL MONETARY POLICY STATEMENT: TO 'INCREASE SLIGHTLY' SLOPE OF S$NEER POLICY BAND (vs. zero pct appreciation policy prior); First tightening measure since April 2012
*(CN) CHINA JAN-MARCH (Q1) TRADE BALANCE (CNY): +326.2B, (surplus narrows 21.8% y/y)
*(CN) CHINA MAR TRADE BALANCE (USD): -$4.98B V +$27.9BE (first deficit in 13-months)
*(CN) CHINA MAR TRADE BALANCE (CNY): -29.8B V +160.0BE

FRI APRIL 13TH
(BE) ECB's Smets (Belgium): Weak inflation remains a lingering concern
JPM Reports Q1 $2.37 v $2.28e, Managed Rev $28.5B v $27.7Be
C Reports Q1 $1.68 adj v $1.61e, Rev $18.9B v $18.9Be
*(US) APR PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 97.8 V 100.5E
(CN) China reportedly plans to postpone deal reviews due to US trade tensions - press
(US) Weekly Baker Hughes US Rig Count: 1,008 v 1,003 w/w (+0.5%) (highest in 3 years)

Barrons weekend update

Barrons weekend update: positive feature on GOOGL; cautious on IAC 

Cover story: Artificial intelligence is moving from the realm of science fiction to real life, and has become the main focus of almost all money managers, including firms such as BLK, Vanguard, Fidelity, and TROW; The technology “has the potential to deliver an infinite workforce that never tires and virtually never makes mistakes.” 

Features: 1) Positive on GOOGL:Despite having Google, YouTube, and the Android operating system under its roof, investors aren’t giving the company sufficient credit for its growth outlook and franchise value; 2) An overview of the demise of Toys “R” Us, which employed a host of financial-engineering tactics in a friendly credit market and still couldn’t survive; 3) Cautious on IAC: The consortium of dot-com companies has for two decades generated higher returns than Berkshire Hathaway—but the shares are “overtly mispriced,” says Anthony DiClemente of Evercore ISI. 

Tech Trader: Cautious on SWKS, QRVO, QCOM, SYNA: A trend in which consumers hold onto their smartphones longer doesn’t bode well for chipmakers, though new players in the gadget sector, such as OLED, should remain appealing for investors. 

Trader: Tim Bray of GuideStone Capital thinks the market’s glum mood will persist and that investors have yet to experience the lows yet; Spotify’s stock price may remain volatile in the months ahead, and the company might eventually need raise more money in a traditional equity offering; Rich Gates of TFS Capital continues to face problems liquidating shares of U.S.-listed Chinese companies he had shorted, and which turned out to be frauds. 

Mutual Fund Quarterly: 1) Many of the 230 actively managed ETFs listed by Morningstar have been overlooked in the passive-investing wave despite having solid records; 2) Interview with Savita Subramanian, U.S. equity and quantitative strategist at Bank of America Merrill Lynch, who is bullish on stocks and thinks the S&P 500 could rise 14% to 3000; 3) Expense ratios for ETFs are now as low as 0.03%, but the funds are compensating by lending out securities, generating shareholder returns and manager fees; 4) Decades of research on factors, which predict handsome returns over long periods, have led to a range of related product launches, especially in the ETF space. 

Follow-Up: FB chief Mark Zuckerberg and his advisors had no real choice about testifying before Washington lawmakers, and the outcome is unlikely to be positive for them. 

European Trader: Positive on JD Sports Fashion: The company has shown it can successfully enter new markets, and investors are likely to benefit as the U.S. chain becomes British after its purchase of Finish Line. 

Emerging Markets: Andy Rothman of Matthews Asia says if an unlikely trade war between the U.S. and China were to escalate, it would hurt the U.S. more than China and create a buying opportunity for Chinese shares. 

Commodities: “An unusual confluence of factors could propel prices higher over the next couple of years, including declining output, an ethanol-led demand surge in China, and likely brutal weather.” 

Streetwise: Tech IPOs are often an exit strategy for founders and insiders, and increasingly offer little opportunities for regular investors.

Trade rhetoric overshadows March employment report

TradeTheNews.com Weekly Market Update: Trade rhetoric overshadows March employment report
Fri, 06 Apr 2018 16:05 PM EST

US stocks indices saw wild swings this week after trade war concerns were rekindled in earnest. The President's latest musings about potentially adding an additional $100M in Chinese tariffs sparked the latest round, and potential escalation in the back-and-fourth between the two nations. A reprisal of the good cop/bad cop roles for various administration officials steadied sentiment early on, but as the week progressed markets reacted less and less to walk backs from the President’s confidants. Friday’s March employment report did little to change the momentum after the payrolls number came in well below expectations, though many attributed the deceleration largely to poor weather. The selling intensified into and after Fed Chairman Powell spoke in Chicago late on Friday pushing the S&P towards its first weekly close below the 200-day since 2016 before bouncing back into the bell. Volumes remained relatively muted considering the outsized move by many indices with the buyback quiet period remaining in effect ahead earnings season. Treasuries sold off and the Dollar firmed early on before risk off flows pushed yields lower. For the week the S&P fell 1.4%, the Dow dropped 0.7% and the NASDAQ lost 2%.

Corporate news was relatively light this week as markets awaited the new earnings season. All eyes were on Amazon as Pres Trump dispatched a slew of negative tweets and comments about the company and its CEO Bezos, though White House advisers insist no action against Amazon is forthcoming. News resurfaced that MGM may consider acquiring Wynn if the price were right, as Wynn reels from scandals involving its now-resigned namesake CEO. Humana rose on a report of Walmart interest in acquiring the health insurer. The Big Three automakers lifted after posting big beats in their March sales figure. Tesla deliveries impressed investors despite not hitting Model 3 output expectations yet, though the company continues to expect the rate to increase “rapidly” through Q2. Viacom shares were weighed on by reports that CBS submitted a bid below their current market value.

SUNDAY APRIL 1
(HK) Macau Mar Gaming Rev MOP25.9B, y/y: 22.2% v 16.6%e

MONDAY APRIL 2
*(US) MAR ISM MANUFACTURING: 59.3 V 59.7E; PRICES PAID: 78.1 V 72.5E (prices paid highest since 2011)

TUESDAY APRIL 3
(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED
(EU) ECB’s Liikanen (Finland) said to have emerged as a compromise candidate for the job as head of ECB - financial press
(UK) MAR MANUFACTURING PMI: 55.1 V 54.7E (20th month of expansion)
(US) Fed confirms to name San Francisco Fed Pres Williams to New York Fed, effective June 18th
*(US) USTR announces $50B list of specific tariffs against China over IP trade violations; proposing 25% tariff on 1,300 categories of imports

WEDNESDAY APRIL 4
(CN) China Commerce Ministry (MOFCOM): To levy reciprocal tariffs on 106 US good totaling $50B on imports - Chinese press
LEN Reports Q1 $1.11 v $0.82e, Rev $2.98B v $2.65Be
*(US) MAR ADP EMPLOYMENT CHANGE: +241K V +210KE
(US) Conference Board March Total online job ads 4.82M v 4.72M m/m v 4.65M y/y; New ads 2.03M v 2.02M m/m v 2.02M y/y

THURSDAY APRIL 5
(CN) China Vice Fin Min Zhu Guangyao: China Govt not considering reducing its US Treasury holdings any time soon - speaking to CNBC
(UK) MAR SERVICES PMI: 51.7 V 54.0E (20th month of expansion but lowest since July 2016)
(IN) INDIA CENTRAL BANK (RBI) LEAVES REPURCHASE RATE UNCHANGED AT 6.00%; AS EXPECTED
*(US) INITIAL JOBLESS CLAIMS: 242K V 225KE; CONTINUING CLAIMS: 1.81M V 1.84ME
(US) FEB TRADE BALANCE: -$57.6B V -$56.8BE (widest monthly deficit since 2008)
(US) Pres Trump: Amazon does not use a level playing field and it has to be level for everyone; studying the issue and will take a serious look at changes that might affect Amazon
(CN) US PRESIDENT TRUMP ORDERS USTR TO CONSIDER $100B IN ADDITIONAL CHINA TARIFFS
005930.KR Reports prelim Q1 (KRW) Op 15.6T v 14.5Te v 9.9T y/y (record high), Rev 60.0T v 61.6Te (v 50.0T y/y)
WYNN MGM Resorts said to show interest in Wynn - NY Post

FRIDAY APRIL 6
(CN) China Commerce Ministry (MOFCOM): To take ‘new comprehensive’ measures to safeguard interests; willing to pay any cost and firmly fight back - comments after Trump’s call for an additional $100B in tariff
(US) MAR CHANGE IN NONFARM PAYROLLS: +103K V +185KE
(CA) CANADA MAR NET CHANGE IN EMPLOYMENT: +32.3K V +20.0KE; UNEMPLOYMENT RATE: 5.8% V 5.8%E
(US) Weekly Baker Hughes US Rig Count: 1,003 v 993 w/w (+1%)
(US) Treasury Sec Mnuchin: There is potential for a trade war, but we aren't there yet; administration objective is not to get into a trade war - CNBC interview

Barrons weekend summary

Barrons weekend summary: positive on refinery names; conditionally positive on CMCSA 

Cover story: Canada hopes to become the Silicon Valley of recreational marijuana, an experiment other countries are closely watching—but a weed glut there poses a risk, and at current valuations, marijuana stocks are too expensive (Cautious on Canopy Growth, Aurora Cannabis, Aphria, MedReleaf, Cronos Group). 

Features: 1) Technology stocks have become an increasingly dominant sector in the S&P 500, but that exposes investors to volatility when companies such as FB or other FANGs struggle; 2) Positive on Comcast: Many investors want the company to focus on its core businesses—cable TV, high-speed internet access, and NBCUniversal—and shelve its global ambitions, but the shares remain a bargain despite risks; 3) Positive on ANDV, MPC, PSX, VLO: “Gasoline sales seem to face a long-term threat from electric cars, but in the near term, the outlook for companies that turn crude into gasoline has rarely looked better.” 

Tech Trader: Artificial intelligence is about to become more pervasive as the computer circuitry that powers it grows more sophisticated; So-called intellectual property companies will thrive because they earn licensing fees from chip makers (Positive on NVDA, CEVA, INTC, SNPS, CDNS). 

Trader: Kate Warne, investment strategist at Edward Jones, remains bullish on the market, despite the fact the second quarter might be down and there are concerns about the tech sector; Positive on CCL, KHC, XOM, CI: Bernstein strategist Inigo Fraser-Jenkins screened for companies with the lowest debt-to-equity ratios in the S&P 500 and found attractively priced companies that could be an antidote to overindebted peers; If certain regulatory requirements—such as the Fed’s annual Comprehensive Capital Analysis and Review—are loosened, banks might increase their buybacks. 

Interview: Sir Michael Hintze, manager of London-based hedge-fund CQS, talks about the role of the imagination in successful investing and how investors should position themselves for a coming rise in interest rates. 

Profile: David Albrycht, manager of the Virtus Newfleet Multi-Sector Short Term Bond fund, focuses on nonagency mortgages and subprime auto loans, and is watching emerging markets (top 10 sectors: asset-backed securities, corporate high quality, non-agency residential MBS, bank loans, corporate high yield, emerging market high yield, mortgage-backed securities, non-agency commercial MBS, Yankee high quality, non-USD). 

Follow-Up: Cautious on TSLA: Some investors question whether the automaker can raise enough cash to keep going—but it should eventually improve Model 3 production and get past its current problems. 

European Trader: Cautious on DB: It’s probably premature to expect chief John Cryan to leave anytime soon, and also too soon to turn bullish on the bank’s shares. 

Emerging Markets: Cautious on Tencent Holdings, BABA: After two years of outperformance, there are strong arguments to be made for decoupling, because developing world economies are more stable than they used to be—but it’s a vain hope for now. 

Commodities: A surge in demand has ended the great commodity bear market that began in 2011, says Sal Gilbertie of Teucrium Trading, but concerns over a potential trade war are prompting mixed reactions from investors.

Barrons weekend update

Barrons weekend update: cautious cover story on Facebook; positive feature on TWX; cautious on DBX 

Cover story: FB faces a consumer and investor backlash in the wake of the Cambridge Analytica data scandal; “With more than two billions users, Facebook is a top target for privacy concerns, and it’s almost certain that the company will not walk away unscathed”; its challenge will be how quickly and effectively it can change. 

Features: 1) Cautious on FB: Shares look tempting after a recent drop, but investors must determine whether the potential backlash against Facebook’s privacy problems is already priced in; 2) Barron’s 2018 list of Best Online Brokers is topped by IBKR, Fidelity, AMTD, SCHW, and TradeStation; 3) Positive on TWX: As the Time-Warner/T antitrust trial gets under way, the media giant’s shares look appealing based on their underlying value and the telecom’s strong chances of winning approval for the deal; 4) Cautious on DBX: “Despite its spectacular debut, it’s fair to ask whether Dropbox has made all the easy money it can, and whether the next billion will come at a higher cost.” 

Tech Trader: Positive on MDB, SEND: Among smaller cloud software companies whose shares are soaring amid renewed mergers-and-acquisitions fervor in the sector; investors want such firms in their portfolios because their outperformance helps achieve alpha. 

Trader: Investors aren’t yet worried about tariffs, and the current situation would have to get more out of hand than it is today for tariffs to have a bigger impact on the market; Cautious on GIS: Shares merit some of their recent downside, but the company’s reduction in outlook appears tied to self-inflicted miscues, says BMO analyst Kenneth Zaslow, and its valuation gives reason for optimism; Cautious on THS: Matters look grim for the maker of private-label foods, but some bullish observers expect incoming CEO Steven Oakland to put the company back on track. 

Profile: David Semple, manager of the VanEck Emerging Markets fund, avoids cyclical companies whose fates are tied to commodities or exports predicated on cheap labor (top 10 holdings: Tencent Holdings, BABA, Samsung Electronics, Ping An Insurance, Sberbank of Russia, Naspers, HDFC Bank, JD, CIE Automotive, Beijing Capital International Airport). 

Interview: Stephanie Pomboy, founder of Macromavens, says the next crisis will come from the Federal Reserve, whose march to tightening will stress tapped-out consumers and overstretched companies. 

Small Caps: Positive on LZB: Shares could rise 20% within a year or two, propelled by higher consumer spending, a new deal to sell on AMZN, and successful efforts to reach millennials. 

European Trader: Cautious on Micro Focus: Shares of the business software company plunged last week, and while bulls say the dive is overdone, bears make a convincing case that there’s little hope for a quick turnaround. 

Emerging Markets: Moscow’s relationship with the West may be deteriorating, but as long as natural-gas sales to the EU are unhindered, “nothing short of armed conflict” with Russia will deter investors. 

Commodities: China’s planned launch of a yuan-denominated crude futures contract could become a benchmark for global oil transactions, but it must overcome a range of challenges first. 

Streetwise: Double-digit growth is crucial for tech companies such as FB, and slowdown will hurt the social site—but of greater consequence will be what happens to its reputation.

Risk Appetite Dries Up as Trade War and Tech Worries Mount

TradeTheNews.com Weekly Market Update: Risk Appetite Dries Up as Trade War and Tech Worries Mount 

Global stock markets took a significant step back this week as investors were unable to look past a growing number of risks to equity valuations. Technology shares opened under significant pressure when Facebook found itself embroiled in a major controversy, leading many to call for the resignation of CEO Zuckerberg amid intense scrutiny from government officials in Europe as well as in Washington. The consternation surrounding a looming trade war only intensified after President Trump followed through and announced a swath of tariffs aimed at $60B in Chinese imports. The Chinese responded in kind, launching what appeared to be much more modest $3B retaliation package against the initial steel and aluminum tariffs imposed earlier this month, but suggested more reciprocal measures may be announced soon. Wednesday, the US Fed raised rates as expected, but the median forecast for the Fed funds rate for both 2019 and 2020 were ratcheted significantly higher. The next day, the BOE hinted that its next rate hike is likely to come in May. President Trump made fresh headlines on Friday by announcing another change to his inner circle, bringing on hawk John Bolton to head up his national security team. He also signed the omnibus spending bill, but not before deriding Congress for the legislation's perceived shortfalls in his eyes. 

Indicators in global bond markets offered some caution also: A global flight away from risk pushed up Treasury prices and weighed on yields. European yields touched some of the lowest levels in months, despite the BOE indicating it is indeed pulling forward its next rate hike. Treasury prices rallied despite the perception of a somewhat hawkish Fed, pushing the 10-year yield back towards last month's lows. LIBOR spreads continued to rise, along with the LIBOR-OIS spread widening to levels not seen since the European financial crisis, signaling potential issues affecting overnight funding markets. The VIX jumped back above 25 as the S&P slid back towards the Feb lows and the 200-day moving average. The US dollar fell to a 16-month low against the Japanese Yen while rallying modestly against other currencies. Gold prices jumped back towards the Feb highs, testing $1,350 once again. Sector flows were clearly defensive in nature with REITs, utilities, and energy names holding up relatively well to the carnage seen in technology. For the week, the S&P500 tumbled nearly 6%, the DJIA dropped 5.7%, and the Nasdaq fell 6.5%. 

Corporate news this week was dominated by Facebook, after a whistleblower at UK-based Cambridge Analytica told media outlets that the firm surreptitiously took vast amounts of data from 50M Facebook users to apply to their controversial consulting practice. In response to the reports, legislators on both sides of the Atlantic called for answers from the social media giant's top brass, and the stock fell 13% on the week. In other news, Uber halted its autonomous vehicle testing after a woman was struck and killed in Tempe, Arizona, by one of its supervised test cars. Citigroup announced it would restrict gun sales for some of its credit card and business partners, prohibiting the sale of firearms to customers who have not passed a background check or who are younger than 21. Nike shares bounced higher after reporting earnings, pointing to a significant trend reversal to the positive side in North America. And despite picking a difficult week in the markets for an IPO, Dropbox soared in its Nasdaq debut, ending nearly 35% above its opening level in Friday's session. 

SUNDAY 3/18 (CN) China: Confirms current PBoC Dep Gov Yi Gang nominated as PBoC Gov (CN) China Housing Min: Property market remains stable overall, overly fast property price trend 'curbed'; to stick to property control measures 

MONDAY 3/19 FB Cambridge Analytica (ties to Trump campaign) said to have tapped the profiles of more than 50M users without their permission - financial press (EU) EU chief Brexit negotiator Barnier: Confirms agreement on Brexit transition terms; to present joint legal text UBER.IPO Halts autonomous vehicle testing in all cities following a fatality in Tempe, AZ - press ORCL Reports Q3 $0.83 v $0.72e, Rev $9.78B v $9.77Be (CN) Analysts said to see higher probability for PBoC to raise interest rates (timing uncertain) - China Securities Journal FB Follow Up: Senate Commerce Committee said to request briefing on user data 

TUESDAY 3/20 (UK) FEB CPI M/M: 0.4% V 0.5%E; Y/Y: 2.7% V 2.8%E; CPI CORE Y/Y: 2.4% V 2.5%E (DE) GERMANY MAR ZEW CURRENT SITUATION: 90.7 V 90.0E; EXPECTATIONS SURVEY: 5.1 V 13.0E 386.HK Reports FY (CNY) Net 6.14B v 5.9B y/y, Rev 92.0B v 77.9B y/y FDX Reports Q3 $3.79 v $3.09e, Rev $16.5B v $16.2Be; Raises Adj FY18 $15.00-15.40 v $13.51e (prior $12.70-13.30) 

WEDNESDAY 3/21 700.HK Reports Q4 (CNY) Net 20.8B v 16.6Be, Op 25.7B v 13.9B y/y, Rev 66.39B v 68.61Be (UK) JAN AVERAGE WEEKLY EARNINGS 3M/Y: 2.8% V 2.6%E; WEEKLY EARNINGS (EX BONUS) 3M/Y: 2.6% V 2.6%E (UK) FEB JOBLESS CLAIMS CHANGE: +9.2K V -1.6K PRIOR; CLAIMANT COUNT RATE: 2.4% V 2.3% PRIOR (UK) JAN ILO UNEMPLOYMENT RATE: 4.3% V 4.4%E (match the lowest since 1975) *(DE) GERMANY SELLS €2.447B VS. €3.0B INDICATED IN 0.5% FEB 2028 BUNDS; AVG YIELD: 0.60% V 0.67% PRIOR; BID-TO-COVER: 1.3X V 1.2X PRIOR *(US) FOMC RAISES TARGET RATE RANGE 25BPS TO 1.50-1.75% (AS EXPECTED) GOOGL Reportedly working on blockchain tech, developing a distributed digital ledger to help differentiate its cloud services - press *(BR) BRAZIL CENTRAL BANK (BCB) CUTS SELIC RATE BY 25BPS TO 6.50%; AS EXPECTED *(CN) PBOC RAISES RATE ON 7-DAY REVERSE REPO BY 5BPS TO 2.55% FROM 2.50% (tracks Wed's 25bps rate hike by US Fed, as speculated) 

THURSDAY 3/22 941.HK Reports FY17 (CNY) Net 114.3B v 113.8Be, EBITDA 270.4B v 269.5Be, Op Rev 740.5B v 745.4Be *(FR) FRANCE MAR BUSINESS CONFIDENCE: 109 V 109E; MANUFACTURING CONFIDENCE: 111 V 111E (FR) FRANCE MAR PRELIMINARY MANUFACTURING PMI: 53.6 V 55.5E (18th month of expansion and lowest since Mar 2017) (DE) GERMANY MAR PRELIMINARY MANUFACTURING PMI: 58.4 V 59.8E (39th month of expansion and lowest since July) *(EU) EURO ZONE MAR PRELIMINARY MANUFACTURING PMI: 56.6 V 58.1E (56th month of expansion) (DE) GERMANY MAR IFO BUSINESS CLIMATE: 114.7 V 114.6E; CURRENT ASSESSMENT: 125.9 V 125.6E *(UK) FEB RETAIL SALES (EX AUTO FUEL) M/M: 0.6% V 0.4%E; Y/Y: 1.1% V 1.2%E (UK) BANK OF ENGLAND BANK (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.50%; AS EXPECTED (UK) BOE MAR MINUTES: VOTED 7-2 TO LEAVE INTEREST RATES UNCHANGED AT 0.50% (McCafferty, Saunders dissent calling for 25bps hike) (US) INITIAL JOBLESS CLAIMS: 229K V 225KE; CONTINUING CLAIMS: 1.83M V 1.870ME ((lowest since Dec 1973) *(US) MAR PRELIMINARY MARKIT MANUFACTURING PMI: 55.7 V 55.5E (3-year high) Citigroup said to be restricting gun sales by some of its business partners - NYT (US) John Dowd resigns as Trump's lead attorney as part of Mueller probe - NYT *(US) President Trump announces $50B in tariffs over China intellectual property trade violations (as expected) - press (CN) US bullying poses a threat to the global trade system; US punitive actions are all based on outdated trade laws - China state press MU Reports Q2 $2.82 v $2.76e, Rev $7.35B v $7.23Be NKE Reports Q3 $0.68 adj** v $0.52e, Rev $8.98B v $8.84Be; Now see a significant reversal of trend in NA as momentum accelerates (US) Trump Administration National Security Adviser McMaster to resign; to be replaced by Bush Admin official John Bolton (CN) China Commerce Ministry (MOFCOM): Plans reciprocal tariffs on US steel and aluminum products; plans tariffs on $3B in US steel, aluminum, pork and wine imports; To take legal action at WTO WYNN To sell 5.3M shares newly issued shares to Galaxy Entertainment at $175/share (~5.1% of shares outstanding); Confirmed Wynn Family sold 4.1M shares at $180/share in open market, family additionally agreed to sell ~8M shares in private deals (total offering by Wynn Family ~11.7% of shares outstanding, Represents Steve Wynn’s remaining stake) 005930.KR Notes OLED demand slowed in H1 2018, seeking new source of OLED demand 

FRIDAY 3/23 KR One report indicates Target and Kroger in potential merger talks; CNBC sources say news is 'bogus' (US) FEB PRELIMINARY DURABLE GOODS ORDERS: 3.1% V 1.6%E; DURABLES EX-TRANSPORTATION: 1.2% V 0.5%E (US) FEB NEW HOME SALES: 618K V 620KE