January-February 2018 Outlook: Winter Games

TradeTheNews.com TTN January-February 2018 Outlook: Winter Games
Thu, 11 Jan 2018 16:10 PM EST

The XXIII Winter Olympics start in early February, but instead of signifying a moment of global unity, these Games may present a reminder of international tensions. The Games are being held in PyeongChang, South Korea, just miles away from the world’s biggest pariah nation whose nuclear program is currently the most obvious threat to international security. Ahead of the Games, North Korea has reopened direct contact with the South, and tensions have eased somewhat. But the two Koreas have gone through cycles of detente before, only to see the North go back to its antagonistic ways.

Despite the geopolitical uncertainties, the global economic environment is on an uptrend. Equity markets have reached Olympic heights, with most equity indices posting double digit gains on the year. Treasury yields are rising, though there has been significant flattening in the yield curve, sparking some speculation about the timing of the next recession. The dollar index ended the year down about 9%, and 2018 may see more weakness in the greenback as markets speculate that other major central banks will start to tighten policy and play catch up with the Fed. Central bankers will be watching inflation which has shown some signs of life, led by WTI crude climbing above $60/barrel on better demand and surprisingly strong compliance with the OPEC production cutting deal.

As the Winter Games get underway, the gold medal scenario for markets would have the melt up continuing as businesses take advantage of the more favorable tax code to invest in capex and in workers, while a refocused Congress works on infrastructure stimulus and possibly a workable healthcare reform package. This gold(ilocks) scenario would also see inflation continue a slow rise toward target levels and gently rising rates at the Fed and other central banks over the next few years.

A less glorious outcome could see companies using tax relief to pad their dividend and share buyback programs with little new investment. Congress could get mired in partisan contests over entitlement reform and healthcare. President Trump’s trade rhetoric could turn decidedly protectionist, while the Russia probe could paralyze the White House agenda. Inflation might finally reassert its presence and spook the newly reconstituted Fed board into raising rates too fast. Or an exogenous event like a military confrontation in Korea could shake global markets.

Out Over Their Skis

The apex of political competition is in Washington D.C. where ‘Team GOP’ is riding high on the passage of its first major piece of legislation after suffering an embarrassing defeat on its healthcare initiative earlier in the year. Congressional Republicans avoided tripping over their skis this time and managed to rush tax reform through the gate before the end of the year. Unfortunately for them, the plan is unpopular with the public, which perceives it as a tax cut that largely benefits corporations and the wealthy. If this poor public perception persists, it could prove disastrous for the GOP in the 2018 election cycle, but they have 11 months to win over voters.

Public perceptions may turn in the New Year when middle income workers see less tax withholding in their paychecks. Many large US companies have also declared their intentions to spread the wealth provided by tax breaks. Several firms – most notably Walmart – have announced that they are raising the minimum wage for entry level workers and are handing out one-time cash bonuses to non-executive employees. The Republican tax cut has already given a boost to the stock market as well. All of this could turn the tax cut into a clear political victory for Republicans (at least in the short term, before the individual tax cuts start to erode over time).

Republicans will need to muster high scores from the judges’ table because they hope to tackle even more challenging issues in the New Year, eying bank deregulation, GSE reforms, and comprehensive changes in healthcare and entitlement programs. The hope is that reforms in these other major budgetary areas can help to close the fiscal gap that will be widened by the tax plan, to the tune of $1.5T over 10 years by most estimates.

The political realities will preclude Speaker Ryan’s Olympic-sized dreams of wholesale changes to entitlement programs and healthcare. Any revisions will require cooperation from the Senate, where the GOP majority has just narrowed to 51-49, and where the tax bill just barely passed after several Republican holdouts demanded significant changes. Some small efficiencies in entitlement programs may be gained if the GOP can reach out to the centrist wing of the Democratic party. A bipartisan plan for fixing some of the issues with the Affordable Care Act has been floating around Congress, but it remains to be seen if the leadership will support the idea, especially in the face of President Trump declaring that he has essentially killed Obamacare by ending the healthcare coverage mandate as part of the tax bill. An infrastructure spending plan, depending on how it is framed, is more likely to garner support from both parties and could lay a laurel wreath atop the increasingly athletic-looking economy.

Anticipation of the corporate tax cut and other possible reforms boosted stocks throughout 2017 and for the first time in history the stock market finished the year with positive performance every single month. In the days since the passage of the tax bill some large companies (such as AT&T and Comcast) have declared special bonuses for workers and some new spending plans, though it remains to be seen if these are just opportunistic public relations announcements or if more companies will actually use the tax break for increasing worker wages and capital spending as the Republican plan envisions. After getting some time to study the new tax structure, many more firms will be solidifying their spending plans and announcing guidance modifications in the next two months. Depending on the industry – and for multinationals how much US tax exposure they have – publically traded firms could paint a very rosy picture under the new tax scheme (after taking a hit from the one-time tax on stockpiled foreign profits).

While the Winter Games don’t seem to have much appeal to President Trump personally (golf is clearly his game), he has spent a lot of time at the podium congratulating Team GOP. Yet there are still many moguls ahead. Stock market volatility tends to pick up early in the New Year and that could be exacerbated by the changes in US tax code, as companies and analysts rejigger their forecasts for Q4 and 2018 results. Stocks were up for the first five trading days of the year, so the ‘January effect’ is in play, putting statistical chances of the S&P500 posting another positive year at 83%. Trump continues to pin his reputation on an advancing stock market, however, so when a correction does eventually arise it may be at least a temporary distraction for the Administration.

There are additional obstacles littered over the course of Washington politics that could create other major distractions. The US government faces another potential shutdown as the latest short term spending bill expires on January 19. The Administration wants a $100B increase in military spending while Democrats seek a similar increase in domestic spending. Reportedly negotiators were nearing a deal in late December, with DACA remaining the major sticking point. This could lead to an embarrassing government shutdown and derail hopes for other bipartisan efforts this year.

Though Russia has been banned from the Winter Games, it remains at the heart of special investigation that haunts the White House. Despite the administration's insistence that the probe will soon come to an end, there is no clarity about when it will wrap up. Indications are that Mueller's investigators are trying to leverage General Flynn and Paul Manafort into implicating officials who are still in the White House. To date, however, there is no concrete evidence that candidate Trump ordered collusion with Russia during the election, though his proxies including his namesake son had encounters with some unsavory Russian operatives in the run up to the vote last November. The latest reporting says that President Trump could agree to be interviewed by the Special Counsel before the end of January, but that Trump’s lawyers are pushing for a written questionnaire so that the President can avoid open-ended, face-to-face questioning.

Even if no more senior administration officials get caught up in the investigation, some White House advisors could make it their New Year’s resolution to retire from the administration. National Security Agency (NSA) Director Mike Rogers is already planning to step out of the arena this spring after four years at his post. Economic advisor Gary Cohn, who had a public falling out with the President over his statements about the Charlottesville incident, may take a victory lap on the passage of the tax cut and then return to private life. That would be a minor blow to Wall Street which sees Cohn as its champion in Washington, though other former financiers like Treasury Secretary Mnuchin will still be in positions of influence. Meanwhile, Secretary of State Rex Tillerson, who has been long rumored to be planning an exit amid policy conflicts with the President, is now reportedly planning to continue to serve at least through the end of 2018.

It’s All Downhill…or Cross Country

The Olympics aspire to create the highest level of competition on a fair playing field. Global trade representatives have similar aspirations, but sometimes domestic politics change the game. Sparked by the populist wave that reshaped the political landscape last year, some old trade alliances are being reshaped, for better or for worse, to meet populist demands. Cross-border trade is only one area that is impacted by this movement as populism is threatening to shake up the old order in Italy, and Catalonia takes another run at independence.

The White House expected a quick rewrite of the North American Free Trade Agreement, but Mexico and Canada pushed back against rushing a deal, and now negotiators are looking to work into March. In the meantime, Trump administration has taken a hard line, using trade reviews to slap duties on Canadian lumber and its aircraft maker Bombardier. By all accounts, the sticking points are the White House’s insistence on rules of origin and a sunset provision that would require the three countries to renegotiate their commitment to the trade deal every five years. The US wants rules of origin to require over 85% of content come from within North America (up from 62% now). Canada and Mexico argue that such a level of domestic content is not realistic in the global supply chain and that the sunset provision would hurt confidence and drive down long term investment.

At this point Canada and Mexico are not buying in on these concepts and the US does not appear to be flexible, so barring a breakthrough, the White House could announce plans to tear up NAFTA later in Q1. Six months after issuing a formal notice, the US could dissolve the trade agreement at any time. This could prove very disruptive for businesses that do significant cross border manufacturing – including the likes of Ford, GM, and GE – but presumably negotiators would start right in on bilateral trade talks. Canada and Mexico appear to be stalling, betting that the US Chamber of Commerce, farmers, and Congress will pressure the White House to retain the current NAFTA framework. The forces that support NAFTA may be bolstered by public falling out between President Trump and his former chief strategist Steven Bannon, who was seen as the biggest proponent of protectionism in the White House. Now that Bannon is on the outs, the trade rhetoric from the administration may soften. The sixth round of NAFTA talks will take place in Montreal during the last week of January.

Key trade talks are under way in Europe as well. The UK just barely managed to salvage a preliminary agreement with the EU to close out Phase I of the Brexit process, covering preliminary issues like citizen’s rights and the ‘divorce bill’ settlement. By all accounts, it will be even more difficult to get the puck across the goal line in Phase II, as talks will turn to a gloves-off trade negotiation between the bloc and its departing member.

Britain continues to talk tough, expressing certainty that a trade deal can be completed by March 2019 and threatening Europe with its mantra that “no deal is better than a bad deal.” Yet the Britons seem to want to have it both ways. Reports that the EU is making contingency plans for a ‘no deal’ Brexit scenario have upset the UK’s chief negotiator Davis, who declared that such plans are damaging to the process – even as London was said to be considering establishment of a cabinet post to manage a ‘no deal’ contingency.

A new wrinkle is further complicating the Brexit talks. Just as the EU does not compete as a bloc in the Olympics, it was revealed that they may not be acting in unison in the Brexit trade talks. In a recent press interview, French President Macron warned other EU leaders not to succumb to the "prisoner's dilemma" a paradox in game theory in which two parties act out of individual self-interest and both lose out in the process. Macron’s admonition implies a split in the EU’s united front as Phase II gets underway.

The pound sterling may experience bouts of weakness in 2018 Brexit if negotiators go crashing sideways into the boards like they did early in Phase I. Ultimately though, it is in the interest of both sides to strive for a harmonious solution rather than risk the inherent uncertainties of a ‘hard Brexit.’

Even as Brexit negotiators circle each other in the rink, Europe’s strain of populism can be heard heckling from the cheap seats. After the Catalan parliament voted to declare independence in late October, the body was thrown out by the government in Madrid. But separatists climbed out of the penalty box and regained control of the regional parliament (by a narrow margin) in December elections, threatening to reignite a political crisis in Spain. The two main separatist parties have agreed to reinstall Carles Pugidemont as the parliamentary president. This will be complicated by the fact that Pugidemont fled the country last month and is still wanted on charges of rebellion and sedition by Spanish authorities. The Catalan leader is sure to use his exile to his advantage, to raise sympathies over his ‘political persecution’ and to spotlight that some of his former colleagues are still in jail on political charges.

The political situation in Italy is not as charged, but even a symbolic victory for populists in one of Europe’s largest economies could deal a blow to the push for ‘more Europe.’ Italy’s President has just moved to dissolve parliament, setting up new elections on the 4th of March. After struggling to form a government after each of the last several elections, the mainstream parties are at risk of an embarrassing loss at the hands of the populist party this winter. The populist Five Star Movement (M5S) has been leading the polls, edging out the Democratic Party (PD) led by former PM Renzi, while Silvio Berlusconi’s Forza Italia is running a distant third. Even under the newly constituted election laws that should favor the mainstream parties with their stronger local party infrastructure, the M5S looks like it could skate to victory, giving its leader, 31-year old Luigi Di Maio, the first go at forming a new government (though, as it stands, none of the other major parties would be willing to enter a coalition with M5S). Formed as a protest against the political elite, the Five Star Movement has built its appeal on fighting cronyism and corruption, but like most populist movements on the continent, it also has euroskeptic and anti-immigrant strains. Di Maio has promised to seek concessions from the EU and, that failing, would then call for a referendum on Italy’s membership in the single currency. While the party has not threatened to pursue a full Italian-style exit from the EU, a victory by M5S could put further strains on a European Union already trying to stitch up the wounds from the Brexit.

Inflation on Ice

In most of the developed world, inflation has been frozen at sub-optimal levels for the last decade or longer. The era of extremely low interest rates instituted by the global central banks has helped foster the weak inflation environment, but now that inflation is starting to thaw, rates are beginning to rise as well.

People have grown accustomed to low inflation, but as economic growth revives, inflation could finally see a resurgence. CPI readings in the US and Europe have begun to track toward the desired target levels and central banks may soon face a question they have not had to address for the last decade: what to do if inflation overshoots on the upside. Most central bankers looking at this question will state that their target CPI level is symmetric and can tolerate some periods above the desired level. But this thinking seems to presuppose that inflation will continue to move at creeping pace, not accounting for a potential quick spurt higher should the economy finally begins to see wage inflation and basic materials and energy costs start to mount.

As the major central banks contemplate policy normalization over the next few years, policy adjustments will more closely resemble the pace of a curling match than a speed skating heat. Just recently, the Bank of Japan modestly trimmed its daily JGB purchases, while the Bank of England got its feet wet with an initial rate hike in November, and improved data in Europe has the ECB on track to wrap up its QE program as soon as September. The prospects of these other central banks playing ‘catch up’ with the Fed has been enough to keep the dollar index at bay, but for the time being the focus remains on the Fed, which has now raised rates five times and is prepared for at least three more hikes this year.

The Fed team will also have a new coach in February, as Jerome Powell takes over the Chairmanship from Janet Yellen. Powell is an experienced hand at the Fed, having served on the Board of Governors since 2012, so he has a track record and is a known quantity. But changes in the Fed leadership often result in some market jitters and it will require some time to build confidence in the new Chair. That also applies to the newest members of the Fed team being added by Trump, which have so far been mainstream candidates after some fears that the President might appoint radical or even anti-Fed governors. The veteran members will take on a slightly less dovish tilt as the annual rotation of voting members moved the two December dissenters (Evans and Kashkari) to the sidelines.

Fed officials have indicated that they are not observing any real asset bubbles but they remain vigilant. Some members have worried aloud that the low interest rate environment that has existed globally for such a long time could have destabilizing effects. The implication is that it might spark ‘reach for yield’ behavior among financial investors that could be especially risky at a time when monetary or fiscal policy can’t react if a new negative shock arises. The Fed is also keeping an eye on the yield curve, which flattened throughout 2017. By year end, the spread between 2-year and 10-year narrowed to below 0.50, the lowest since before the financial crisis, and a potential early warning sign of an impending recession.

Like the Olympic flame, the torch of inflation may flicker low but it never dies. Ironically that flame may be stoked back into a full blaze by burning oil. There is growing demand for raw materials of all types, illustrated by firming prices in commodity markets, but the long-awaited rebound in energy prices is central to the case for higher inflation. Above average global crude inventories have been worked off by the OPEC/non-OPEC production agreement and could come back into balance early in the second half of 2018. Compliance with the production accord has been running at over 100% and this surprising discipline has paid off in higher energy prices, driving WTI crude above $60/barrel. Improving growth readings in most of the developed economies should bolster demand for oil and further feed into inflation.

After a decade of very slow price and wage growth in developed economies, a sudden inflation rebound might catch investors off guard in 2018. Most economists don’t expect runaway inflation, but the US could see inflation rise past the Fed’s 2% target to 2.5% or higher. How the Fed and other central banks react to the data will be key. Though some above target inflation is generally acceptable, in the Powell Fed the hawks may have more sway. Faced with a fast moving inflation scenario, the new Fed might be tempted to push rates up faster, which could stunt the vigorous growth that the administration is gunning for.

The Olympic Seoul

The world’s eyes will be turned to South Korea this February as the Winter Games get underway. There were concerns that the North Korean dictator would find this international gathering as an irresistible opportunity to get the world’s attention through ominous threats. Instead, the event appears to have engendered some détente. The North has just reopened direct lines of communication with the South for the first time in two years, leading to an agreement for the North to send a delegation of dignitaries and athletes to the Games. Building on this hopeful development, the usually hawkish President Trump has toned down his rhetoric and agreed to postpone joint military exercises during the Olympics, apparently as a sign of good faith that some good may come from the reopened talks between the Koreas.

Unfortunately, a true breakthrough in relations between the two Koreas is about as likely as reconciliation between Nancy Kerrigan and Tonya Harding. The North has exhibited a certain predictable pattern in the past: A cautious rapprochement followed soon thereafter by demands for concessions, which inevitably leads to relations chilling again.

North Korea’s latest overture may also be an attempt to dissuade President Trump from trying to flex his military muscles. Trump has been posturing for a potential military conflict with North Korea, mocking Kim Jong Un as "little rocket man" and declaring that a military solution is "fully in place, locked and loaded." Recent reports stated that the Pentagon has drawn up plans for a “bloody nose strike” against some of Pyongyang’s WMD facilities. Such an attack would seek to be severe enough to show the regime that the US is serious and capable of destroying the weapons program. A targeted military strike would be a risky strategy, however, one that was looked at and rejected by the last few US administrations. First it might merely embolden the regime which can proclaim it has “withstood” a US attack. A show of American force also risks triggering a full scale conflict on the Korean Peninsula, one that most analysts predict would result in the decimation of Seoul before the North was defeated.

As North Korea’s only ally, China may ultimately determine how the standoff is resolved. For decades Beijing has helped to prop up Pyongyang both as a buffer state between it and the US-allied South Korea and to prevent a massive refugee crisis at its border. But it appears that Chinese thinking on North Korea has shifted. By all accounts Chinese President Xi is not fond of the regime in Pyongyang and he has signaled that he would not adhere to a 1961 mutual defense treaty if North Korea provokes a conflict (in fact, Pyongyang has already violated that pact by developing nuclear weapons).

Reports in the last month indicate that China has established a number of refugee camps on the Korean border, indicating that Beijing fears the worst. Some analysts are speculating that if a shooting war breaks out in the region, China may use its growing military not to support Pyongyang, but instead to seize control of the North. Such a bold maneuver would allow China to show off its military prowess and exert its political influence over the eventual Korean reconciliation process. It would also give notice to the world that China is prepared to take on superpower status, standing on that elite podium next to the US.

Blunting US influence in the region remains a chief goal for the Chinese government, especially in light of the more aggressive stance President Trump is taking on trade issues. As President Trump seeks to make good on campaign promises about “fair” trade, he could soon decide on broad trade sanctions against China. The Commerce Department has been assessing potential restrictions on aluminum and steel trade on national security grounds, and Trump could soon announce response measures based on those findings. The US is also looking at violations of intellectual property rights and unfair technology transfers as well as anti-dumping duties on solar panels.

Imposing tariffs on Chinese exports is likely to trigger retaliatory measures, potentially opening up a full scale trade war between the world’s two biggest economies. China has a number of options to push back against threats of blanket trade barriers, perhaps the most obvious being its US treasury holdings. A recent report said some Chinese officials were recommending “slowing or halting” Treasury purchases because the US bonds have become less attractive assets as they face a bear market. While it seems unlikely that China would stop buying USTs outright, this report appears designed to give the American government second thoughts about a direct confrontation on trade issues.

Aside from geopolitics China’s leaders continue to contend with many domestic concerns. One such issue is maintaining a hold on currency flows as the growing wealth class in China seeks new ways to circumvent state currency controls to slip money offshore. This pressure has quietly made China the center of the cryptocurrency craze that has hit the public consciousness in the last few months.

The strength of the cryptocurrencies has always been their decentralized control but that now may also become their Achilles heel. In an effort to clamp down on extra-governmental currency trading China has begun to impose restrictions on bitcoin mining. Authorities are looking at strategies to discourage mining including raising electricity prices and writing new tax and environmental regulations. There are also reports that South Korea is concerned about the unregulated nature of cryptocurrencies and seek cooperation with China and Japan to curb irrational speculation. These reports have blunted the advance of the major cryptocurrencies in early January and virtual coins could see more declines if other government authorities weigh in on potential regulation. Even as nations gather to celebrate international unity at the Games, this new borderless virtual currency is at risk of a collapse, perhaps serving as an early warning for excessive risk-on sentiment in other assets classes.

CALENDAR
JANUARY
1: New Year’s Day
2: UK Manufacturing PMI; US ISM Manufacturing PMI; China Caixin Services PMI
3: UK Construction PMI; FOMC minutes
4: UK Services PMI; US ISM Non-manufacturing PMI
5: US Payrolls & Unemployment; US Trade Balance; US Factory Orders

8:
9: China CPI & PPI
10: UK Manufacturing Production; US Import Prices
11: BOE Credit Conditions Survey; US PPI; China Trade Balance (tentative)
12: US CPI; US Retail Sales; Preliminary Univ of Mich Consumer Sentiment

15:
16: UK CPI & PPI
17: US Industrial Production
18: US Housing Starts & Building Permits; China Q4 GDP; China Industrial Production
19: UK Retail Sales; US short-term government spending bill expires

22: BOJ Policy Statement
23: Philadelphia Fed Manufacturing Index; World Economic Forum in Davos begins; 6th Round of NAFTA talks begin in Montreal
24: UK Claimant Count & Unemployment; US Existing Home Sales
25: US New Home Sales
26: US Advance Q4 GDP; US Durable Goods Orders
29: US Personal Income & Spending
30: US Consumer Confidence
31: Chicago PMI; FOMC Policy Statement; China Manufacturing & Non-manufacturing PMIs; Caixin Manufacturing PMI
FEBRUARY
1: UK Manufacturing PMI; US Nonfarm Productivity; US ISM Manufacturing PMI
2: UK Construction PMI; US Payrolls & Unemployment; US Factory Orders

4: China Caixin Services PMI; Superbowl LII
5: UK Services PMI; US ISM Non-manufacturing PMI; Powell becomes new Fed Chairman
6: US Trade Balance
7:
8: BOE Inflation Report; BOE Policy Statement; China Trade Balance (tentative)
9: UK Manufacturing Production; Preliminary Univ of Michigan Consumer Sentiment; WINTER OLYMPICS opening ceremonies


12: China CPI & PPI
13: UK CPI & PPI
14: US CPI; US Retail Sales
15: US PPI; US Industrial Production; China Lunar New Year begins
16: UK Retail Sales; US Housing Starts & Building Permits; US Import Prices

19:
20: UK Inflation Hearings; Philadelphia Fed Manufacturing Index
21: UK Claimant Count & Unemployment; US Existing Home Sales; FOMC Minutes
22: UK Q2 GDP (2nd estimate)
23:

26: US New Home Sales
27: US Durable Goods Orders; US Consumer Confidence
28: US Q2 Preliminary GDP (2nd estimate); Chicago PMI; China Manufacturing & Non-manufacturing PMIs; China Caixin Manufacturing PMI
MARCH
1: UK Manufacturing PMI; US Personal Income & Spending; US ISM Manufacturing PMI
2: UK Construction PMI
3:
4: Italy elections

Risk Appetite Refreshed in the New Year

TradeTheNews.com Weekly Market Update: Risk Appetite Refreshed in the New Year
Fri, 05 Jan 2018 16:05 PM EST

The New Year started with a bang as stocks climbed aggressively and NYSE floor traders donned their ‘Dow 25,000’ hats. President Trump was quick to note the DJIA milestone, providing some distraction from a bad week of PR for the administration after his casual mention of the nuclear option in a tweet aimed at North Korea, and the release of a tell-all book about the White House that painted the President in a bad light and appeared to drive a wedge between him and former chief strategist Steve Bannon.

A slightly subpar US December payrolls report did not deter the risk appetite in the markets, and European bourses largely outperformed on the back of more solid data including record low unemployment claims in Germany. The oil market remained bullish as the US Interior Department announced plans to open up more offshore areas to drilling. WTI crude rose to its highest level since June 2016, hitting the $62 handle, while natural gas prices paired last week’s gains as the end is in sight for the arctic freeze gripping half of the US. The bond yield curve continued to flatten, with the 2-10 year spread narrowing to under 50 basis points on Friday. That garnered a prediction from Janus’ Bill Gross that the bond market is headed for a mild bear market. The dollar index continued in last year’s trend, drifting another 0.2% lower. For the week, the S&P500 gained 2.6%, the DJIA added 2.3% and the Nasdaq rose 3.4%.

In corporate news this week, Macy’s and JC Penney reported improved sales y/y for the holiday season, and Costco also delivered strong results, handily topping Wall Street SSS estimates. Intel shares dropped after reports broke that its chips are susceptible to a hardware-based exploit and that the security patch could significantly impair performance. In M&A news, Dominion Energy agreed Tuesday to acquire Scana Corp in a deal valued at $14.6B, including debt. Brookfield Business Partners announced it would buy Toshiba’s bankrupt nuclear services company Westinghouse Electric for $4.6B, including assuming the Pittsburgh-based company’s underfunded pension plan. MoneyGram and Ant Financial had to terminate their amended merger agreement thanks to an inability to receive CFIUS approval.


MONDAY 1/1
(HK) Macau Dec Gaming Rev +14.6% v ~20%e (update)
(CN) CHINA DEC CAIXIN PMI MANUFACTURING: 51.5 V 50.7E (highest reading since Aug 2017)

TUESDAY 1/2
(UK) DEC PMI MANUFACTURING: 56.3 V 57.9E (17th month of expansion)

WEDNESDAY 1/3
(DE) GERMANY DEC UNEMPLOYMENT CHANGE: -29K V -13KE; UNEMPLOYMENT CLAIMS RATE: 5.5% V 5.5%E (record low)
SCG To be acquired by Dominion in all-stock deal valued at $7.9B
INTC Weakness attributed to The Register report: 'Kernel memory leaking' Intel processor design flaw forces Linux, Windows redesign
(US) Conference Board Dec Total online job ads 4.93M v 4.70M m/m v 4.92M y/y; New ads 2.06M v 1.82M m/m v 2.17M y/y

THURSDAY 1/4
(UK) DEC SERVICES PMI: 54.2 V 54.0E (17th month of expansion)
M Reports Nov and Dec SSS +1.0%; raises FY17 $3.59-3.69 v $3.39e (prior $3.37-3.62 prior), narrows Rev -3.9% to -3.6% y/y (prior -4.3% to -3.2%), narrows SSS -2.7% to -2.4% (-3% to -2% prior); taking actions on cost management
(US) DEC ADP EMPLOYMENT CHANGE: +250K V +190KE
(US) US govt reportedly plans healthcare law exemption for the self-employed and small businesses to allow purchase of plans that don't comply with all ACA requirements - press
6502.JP Brookfield Business Partners announces deal to acquire Westinghouse for $4.6B
(KR) President Trump and South Korean President Moon reportedly agree in phone call to delay joint military drills during Winter Olympics - Korean press
(KR) Follow Up: South Korea Unification Ministry: North Korea said it accepts offer for talks on Jan 9th; talks to include Winter Olympics and 'other issues of mutual interest'

FRIDAY 1/5
(FR) FRANCE DEC PRELIMINARY CPI M/M: 0.3% V 0.3%E; Y/Y: 1.2% V 1.2%E
(US) DEC AVERAGE HOURLY EARNINGS M/M: 0.3% V 0.3%E; Y/Y: 2.5% V 2.5%E; AVERAGE WEEKLY HOURS: 34.5 V 34.5E
(US) NOV TRADE BALANCE: -$50.5B V -$49.9BE
(US) DEC CHANGE IN NONFARM PAYROLLS: +148K V +190KE
(US) NOV FACTORY ORDERS: 1.3% V 1.1%E

Markets stay within striking distance of all-time highs as 2017 comes to a close

TradeTheNews.com Weekly Market Update: Markets stay within striking distance of all-time highs as 2017 comes to a close
Fri, 29 Dec 2017 16:19 PM EST

S&P futures for good measure once again inched out to an new intra-day high ahead of the final opening bell on the NYSE. The UK FTSE 100 finished the year at an all-time high, as well, before US indices drifted marginally lower, ending the week slightly in the red. In what has been a tough stretch for Dollar bulls, the Greenback is looking to finish out the year on another sour note. The Euro approached 1.20, which has led to the 9% decline for the Dollar Index in 2017, and gold hit a three-month high on the Dollar weakness. WTI crude ended above the $60 mark heading into 2018, and nat gas moved back towards $3. US Treasury prices traded flat to marginally higher, with buying in the belly and short end resulting in modest curve flattening. The benchmark 10-year yield looks poised to finish the year largely unchanged around 2.40%, with much of the curve holding at some of the flattest levels in a decade. For the week, the S&P fell 0.3%, the Dow lost 0.1%, and the Nasdaq dropped 0.8%.

During this holiday-shortened corporate news week, a plethora of companies disclosed how the tax bill would affect their Q4 outlook. Apple weighed on the NASDAQ early in the week after a report surfaced of potentially slow iPhone X demand. Potash and Agrium set the closing date for their merger of equals after receiving clearance from regulators. Adtran slashed its Q4 outlook, noting a slowdown in spending at a domestic Tier 1 customer. And President Trump on Friday suggested USPS should charge Amazon “much more” for delivery services.

Barrons weekend update

Barrons weekend update: positive cover on AAPL; positive feature on WDC, PCG 

Cover story: Positive on AAPL: With the tech giant poised to reach a $1T valuation, investors should re-evaluate the stock; The peak isn’t near, and the company “seems to be escaping its product supercycle peaks and troughs to post more-consistent year-to-year growth,” which could have a lasting effect on valuation. 

Feature: 1) A panel of independent financial advisors discuss how they’re preparing their clients for 2018 and looking for unloved investment opportunities in overlooked areas of the market; 2) “The new tax bill passed by Congress on Wednesday and signed into law on Friday is a major coup for U.S. corporations, but a mixed bag of give-and-take for individual taxpayers, with benefits sharply skewed to the wealthy”; 3) Positive on WDC: The company is doing much better than the stock price suggests; the shares are cheap and could have upside of as much as 50% in the coming year; 4) Positive on PCG: Company’s move to suspend its quarterly dividend and concerns about its liabilities related to wildfires in California have sent shares down, but the the drop could be a buying opportunity. 

Tech Trader: For investors looking to buy low in the tech sector, QRVO, FNSR, OLED, and CSCO are good candidates; New regulation in Washington and the European Union continues to pose a general risk for tech companies.

Trader: The Republican tax overhaul could create complications in the new year as analysts begin to tweak their numbers, even if much of what they know about the law is guesswork; Positive on UPS, FDX: “While the easy tax-reform money has been made, knock-on effects should help boost transportation fundamentals, while the technical setup is looking better than it has in a while”; There is a fundamental problem in trying to pick a bottom for bitcoin, but the greater concern may be what the recent selloff says about fledgling cryptocurrency exchanges. 

Profile: Raife Giovinazzo, manager of the Fuller & Thaler Behavioral 

Small-Cap Equity fund, buys companies with market values of less than $5B and pays close attention to how other investors react to insider buying and share buyback programs (top 10 holdings: LSTR, CENTA, UCTT, SBH, RUTH, NMIH, TREX, DSW, EXTR, PAHC). 

Follow-Up: There’s mounting evidence that the technology sector’s tax-free ride in Ireland is about to end, amid greater pressure from European regulators and changes to the U.S. tax code. 

European Trader: Cautious on Pirelli: Italian tire company, whose shares were relisted in October, faces a number of challenges, and trades at a premium to rivals Michelin and Continental. 

Asian Trader: Positive on Hyundai: “After a bad year in which its stock essentially flatlined, Hyundai might be the comeback kid of the auto world in 2018.” 

Emerging Markets: The election of Cyril Ramaphosa as president of South Africa has boosted EZA and the rand, but the new leader still faces major hurdles in turning around slow growth and high unemployment. 

Streetwise: MCK, whose shares were sold off over drug-price pressures, might have had a strong rebound were it not for the opioid crisis.

Santa brings investors plenty of holiday cheer

TradeTheNews.com Weekly Market Update: Santa brings investors plenty of holiday cheer
Fri, 22 Dec 2017 16:03 PM EST

Stock markets kept on rising into the Christmas holiday as the final passage of US tax cut legislation along with continued robust growth prospects globally gave investors little reason to sell. Before Friday’s NY open, the UK’s FTSE 100 joined most of the major US major indices to reach fresh all-time highs. Treasury markets sold off mid-week and yield curves began to steepen largely on the prospects that fiscal stimulus will likely boost growth and finally generate some inflation in 2018. Those prospects were exacerbated by news that several large, high-profile US corporations were already offering their workers wage increases and bonuses in response to the projected benefits from lower corporate tax rates. Bitcoin/blockchain mania may have hit a crescendo when a host of US micro caps surged 100% or more just on press releases suggesting a name change. Friday saw bitcoin drop 20% at one point, along with a host of cryptocurrencies and related equities. Copper moved up towards the Oct multi-year highs above $3.20 and WTI crude prices drifted back up towards $60. The Dollar index tread water and continued to consolidate around the 100-day moving average despite exhibiting strength against the Mexican peso and weakness versus the Loonie. For the week the S&P gained 0.3%, the Dow added 0.4% and the NASDAQ rose 0.3%.
In corporate news this week, Jack in the Box announced it would sell its Qdoba Mexican food unit to Apollo Global Management for $305M in cash. UnitedHealth said it would buy Chilean medical insurance provider Banmédica in a deal valued at $2.8B as part of a plan to expand its growth to South America. Liberty Global is reportedly close to a deal to sell its Austrian cable unit to Deutsche Telecom for $2B, as DT seeks to expand broadband offerings to countries with only mobile operations and Liberty reorganizes in preparation for a possible Vodafone merger. Nike reported an earnings beat well above estimates, but took a hit on gross margins from heavy price competition in the North America market. FedEx noted a top and bottom line beat in its quarterly report and projected a nearly $1.5B earnings boost from the US tax law changes.
SUNDAY 12/17
*(CN) CHINA NOV PROPERTY PRICES M/M: RISES IN 50 OUT OF 70 CITIES V 50 PRIOR

MONDAY 12/18
(US) Sen Collins (R-ME): I will vote for tax bill

TUESDAY 12/19
(UK) Ineos Spokesman: still assessing repair options for Forties oil pipeline; timescale for repairs remains 2-4 weeks from Dec 11th - press
(DE) GERMANY DEC IFO BUSINESS CLIMATE: 117.2 V 117.5E (moves off record level); CURRENT ASSESSMENT: 125.4 V 124.7E
(US) NOV HOUSING STARTS: 1.297M V 1.250ME; BUILDING PERMITS: 1.298M V 1.270ME
(US) House Min Whip Hoyer (D-MD): stopgap spending bill is headed to an impasse in the House; Democrats have been asked to vote no on stopgap bill
(US) HOUSE PASSES TAX REFORM BILL (AS EXPECTED)
FDX Reports Q2 $3.18 v $2.87e, Rev $16.3B v $15.7Be; Qualifies FY18 GAAP EPS guidance to be significantly different if Tax Cuts and Jobs Act is enacted

WEDNESDAY 12/20
*(US) SENATE VOTES TO PASS REPUBLICAN TAX LEGISLATION; FINAL VOTE 51 TO 48
(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.50%; AS EXPECTED (ends QE program, but maintains heavy presence in bond markets)
BBBY Reports Q3 $0.44 v $0.36e, Rev $3.0B v $2.90Be
(JP) BANK OF JAPAN (BOJ) LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED

THURSDAY 12/21
(FR) FRANCE DEC BUSINESS CONFIDENCE: 112 V 111E; MANUFACTURING CONFIDENCE: 112 V 113E
(TW) TAIWAN CENTRAL BANK (CBC) LEAVES BENCHMARK INTEREST RATE UNCHANGED AT 1.375%; AS EXPECTED
(CZ) CZECH CENTRAL BANK (CNB) LEAVES REPURCHASE RATE UNCHANGED AT 0.50%; AS EXPECTED
(US) Q3 FINAL GDP ANNUALIZED Q/Q: 3.2% V 3.3%E; PERSONAL CONSUMPTION: 2.2% V 2.3%E
*(US) Q3 FINAL GDP PRICE INDEX: 2.1% V 2.1%E; CORE PCE Q/Q: 1.3% V 1.4%E
(CA) CANADA NOV CPI M/M: 0.2%E V 0.1% PRIOR; Y/Y: 2.1% v 2.0%E
(US) DEC PHILADELPHIA FED BUSINESS OUTLOOK: 26.2 V 21.0E
NKE Reports Q2 $0.46 v $0.39e, Rev $8.55B v $8.39Be

FRIDAY 12/22
(DE) GERMANY JAN GFK CONSUMER CONFIDENCE: 10.8 V 10.7E
*(FR) FRANCE Q3 FINAL GDP Q/Q: 0.6% V 0.5%E; Y/Y: 2.3% V 2.2%E
(UK) Q3 FINAL GDP Q/Q: 0.4% V 0.4%E; Y/Y: 1.7% V 1.5%E
*(US) NOV PRELIMINARY DURABLE GOODS ORDERS: 1.3% V +2.0%E; DURABLES EX-TRANSPORTATION: -0.1% V 0.5%E
(US) NOV PCE DEFLATOR M/M: 0.2% V 0.3%E; Y/Y: 1.8% V 1.8%E
(US) NOV NEW HOME SALES: 733K V 655KE (highest level since 2007)
(US) Pres Trump: "Will be signing the biggest ever Tax Cut and Reform Bill in 30 minutes in Oval Office. Will also be signing a much needed 4 billion dollar missile defense bill."
XPO Home Depot reportedly mulled internally a bid for XPO in order to keep it away from Amazon - Recode

Barrons weekend summary

Barrons weekend summary: Cover story positive on MUNIS; positive on ALK; cautious on DIS/FOXA deal and expect more industry consolidation 

Cover story: The tax changes proposed by Congressional Republicans have targeted several categories of bonds, which will lose their tax exemptions so the government can increase its revenue; Despite that, “the relatively high after-tax yields of munis still make them attractive for investors.” 

Features: 1) The high valuation of NFLX—shareholders pay $47 for every $1 of cash flow it generates, a multiple no other media company has—has rivals scrambling to catch up, and more consolidation should come after the DIS-FOXA tie-up; 2) “Even after this year’s broad rally in stocks and bonds, plenty of income-oriented investments remain enticing” including MLPs, telecoms, REITs, and high-dividend stocks in the U.S. and Europe; 3) Positive on ALK: Investors have a number of concerns, including the carrier’s steps to absorb Virgin America, fare pricing, and cancellations, but its balance sheet is healthy and growth potential is robust, and shares should rise in 2018; 4) Cautious on DIS, FOXA: Disney’s proposed acquisition of assets from 21st Century Fox “is a murky web of deals within deals” that one analyst said is the “most complex transaction she’s ever had to analyze.” 

Tech Trader: Cautious on AAPL: The tech giant continues to release phones with dazzling new features, but software bugs increasingly require updates to fix; There is no sign of a user exodus, but a loss of faith in Apple’s software could curb growth. 

Trader: The end of crisis-level monetary stimulus will eventually affect what investors are willing to pay for riskier assets, says JPM strategist Marko Kolanovic; Utilities are sitting out the latest rally, another reason investors should be cautious when looking for opportunities in this dividend-heavy sector; “At some point, earnings growth will tail off, a recession will hit, and this bull market will end. That doesn’t make it a bubble.” 

Profile: Sammy Semnegar, manager of the Fidelity International Capital Appreciation fund, looks for international companies benefiting from global megatrends; the fund has returned an average of 11.3% annually during the past five years (top 10 holdings: Tencent, BABA, TSM, UL, British American Tobacco, Naspers, SAP, AIA Group, LVMH Moet Hennessy Louis Vuitton, DEO). 

Interview: Mike Kirby, chairman and director of research at Green Street Advisors, the leading independent research firm in the REIT sector, talks about valuations, New York commercial real estate, and WeWork. 

European Trader: Cautious on Steinhoff International Holdings: Though shares of the global retail giant have been marked down by about 80%, bargain hunters should be wary of diving in until management takes concrete steps to fix problems. 

Asian Trader: Investors in China need to monitor the pace of monetary tightening, real estate values, and A-shares in the MSCI emerging markets index if they hope to get a solid outlook for the country in 2018. 

Emerging Markets: Greece has seen three straight quarters of economic growth, unemployment is down, and the budget has a surplus, improvements that have benefited bondholders and bode well for investors. 

Commodities: “The Bitcoin craze may have helped dull some of gold’s shine in recent weeks, but the cryptocurrency is no substitute for the precious metal.” 

Streetwise: XOM’s move to disclose more about what tightening climate-change regulations might do to the long-term value of its assets will prompt rivals to follow suit, creating the potential for major change in the industry.

Markets salivate over US tax breaks; Fed tightens, while other major central banks on hold

TradeTheNews.com Weekly Market Update: Markets salivate over US tax breaks; Fed tightens, while other major central banks on hold
Fri, 15 Dec 2017 16:09 PM EST

US stock markets looked to finish the week at all-time highs once again despite lingering concerns around handful of Republican Senators’ willingness to support the final terms of the tax bill. Friday’s rally, fueled by options expiration and an S&P rebalance, was largely predicated on the belief the Republicans will ultimately prove to be successful in pushing a tax cut package through Congress next week. The economic data remained robust supporting the FOMC’s decision to raise rates on Wednesday, as was expected. Thursday’s stronger than expected retail sales numbers had economists revising Q4 GDP expectations higher into the mid 3% range. A host of other key central banks met as well, largely matching market expectations by indicating they were staying the course on stimulus. European officials pushed to ball forward in terms of Brexit, but a high profile political defeat for PM May only solidified expectations that round two of the negotiations will be even more complicated.

US Treasury note sales were met with healthy demand ahead the Fed meeting but rates still rose relative to Europe’s, while the US yield curve continued to flatten, led by better buying at the long end. The 5-30 year yield-spread narrowed to under 55 basis points for the first time since 2007. The Dollar index finished largely flat, helped by firming late in the week and weakness in the Pound, in particular. Bitcoin mania spread as a host of other cryptocurrencies saw eye popping gains after bitcoin futures trade commenced on the CBOE on Sunday. Natural gas prices remained under significant pressure despite a cold blast into the Northeast US and an explosion at Austria’s largest gas hub. WTI crude oil prices remained within striking distance of the recent highs, while Brent touched levels not see in more than 2-years after the North Seas Forties pipeline was shut for immediate repairs to fix a growing crack. For the week the DJIA gained 1.3%, the S&P500 rose 0.9%, and the Nasdaq added 1.4%.

This week in corporate news, Disney confirmed it would acquire 21st Century Fox assets in at $52B deal. Bitcoin-tied stocks saw their momentum continue, with many of the small cap companies associated to cryptocurrencies moving higher still this week. Boeing climbed on its annual capital returns announcement. Mattel lowered its expectations and announced a high yield offering to replace its revolving credit facility. Caterpillar shares hit an all-time high and powered the Dow on Wednesday after disclosing a 26% rise in total machine sales in its latest monthly dealer statistics. Teva confirmed a reorganization plan that cuts its Israeli workforce in half and closes an R&D center in Netanya. Oracle shares dropped on a disappointing forecast for Q3 cloud services.


SUNDAY 12/10
XBT Bitcoin futures open at $15,000 on CBOE
MAERSKB.DK CCO: Global freight rates will be ‘fragile’ going into 2018, warned on softer demand

MONDAY 12/11
MAT Guides FY17 Gross Rev to decline by at least mid to high single digits y/y; updates cost reduction plans - filing
12/11 (US) New York Mayor de Blasio: earlier explosion in NYC subway was terrorist attack; there are no known, credible or specific threats to NYC right now

TUESDAY 12/12
(UK) Ineos issues update on North Sea Forties Pipeline (450K bpd): Says the pipeline is now closed down for additional inspections, no timeframe yet for restart
(UK) NOV CPI M/M: 0.3% V 0.2%E; Y/Y: 3.1% V 3.0%E; CPI CORE Y/Y: 2.7% V 2.7%E (highest annual pace since March 2012)
(US) NOV PPI FINAL DEMAND M/M: 0.4% V 0.3%E; Y/Y: 3.1% V 2.9%E
(US) GOP reportedly in talks to lower top income tax rate from 39.6% to 37% as part of final tax bill - Wash Post

WEDNESDAY 12/13
(UK) OCT AVERAGE WEEKLY EARNINGS 3M/Y/Y: 2.5% V 2.5%E; WEEKLY EARNINGS (EX BONUS) 3M/Y: 2.3% V 2.2%E
(UK) NOV JOBLESS CLAIMS CHANGE: +5.9K V +6.5K PRIOR; CLAIMANT COUNT RATE: 2.3% V 2.3% PRIOR
(UK) OCT ILO UNEMPLOYMENT RATE: 4.3% V 4.2%E (matches low from 1975)
(US) NOV CPI M/M: 0.4% V 0.4%E; CPI EX FOOD AND ENERGY M/M: 0.1% V 0.2%E; CPI INDEX NSA: 246.669 V 246.816E
CAT Reports Nov dealer statistics: Total Machines +26% y/y
TMUS Acquires TV tech firm Layer3 TV, Inc.; no terms disclosed; plans to launch pay TV service in 2018
(US) House and Senate leaders said to have reached an agreement in principle on tax reform bill - press
(US) FOMC RAISES TARGET RATE RANGE 25BPS TO 1.25-1.50% (AS EXPECTED)
(UK) UK govt loses vote on EU withdrawal bill amendment by 309-305; House of Commons votes to give lawmakers final say on Brexit deal - press
(CN) PBOC RAISES INTEREST RATE ON REVERSE REPO AND MLF OPERATIONS BY 5BPS (move follows the Fed move on rates earlier)

THURSDAY 12/14
(FR) FRANCE DEC PRELIMINARY MANUFACTURING PMI: 59.3 V 57.2E (15th month of expansion and highest since Sept 2000)
(PH) PHILIPPINES CENTRAL BANK (BSP) LEAVES OVERNIGHT BORROWING RATE UNCHANGED AT 3.00%; AS EXPECTED
(CH) SNB LEAVES SIGHT DEPOSIT INTEREST RATE UNCHANGED AT -0.75%; AS EXPECTED
(DE) GERMANY DEC PRELIMINARY MANUFACTURING PMI: 63.3 V 62.0E (37th month of expansion and a record high)
(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.50; AS EXPECTED (brings forward its 1st planned rate hike)
(EU) EURO ZONE DEC PRELIMINARY MANUFACTURING PMI: 60.6 V 59.7E (53rd month of expansion and record high)
(TR) TURKEY CENTRAL BANK (CBRT) LEAVES BENCHMARK REPURCHASE RATE UNCHANGED AT 8.00%; AS EXPECTED
(UK) BOE VOTED 9-0 TO LEAVE INTEREST RATES UNCHANGED AT 0.50%
(EU) ECB LEAVES MAIN REFINANCING RATE UNCHANGED AT 0.00; AS EXPECTED
(US) NOV ADVANCE RETAIL SALES M/M: 0.8% V 0.3%E; RETAIL SALES EX AUTO M/M: 1.0% V 0.6%E
(US) NOV IMPORT PRICE INDEX M/M: 0.7% V 0.7%E; Y/Y: 3.1% V 3.2%E
(EU) ECB Draghi: Reiterates that interest rates to remain at present level well past end of QE; favorable financing conditions still needed - Prepared remarks
(US) Atlanta Fed raises Q4 GDP estimate to 3.3% from 2.9% on 12/8
(US) Speaker of House Ryan (R-WI) considering retiring from Congress after 2018 - Politico
(US) FCC VOTES TO REPEAL NET NEUTRALITY RULES IN 3-2 VOTE (AS EXPECTED)
(MX) MEXICO CENTRAL BANK (BANXICO) RAISES OVERNIGHT RATE BY 25BPS TO 7.25%; AS EXPECTED
ORCL Reports Q2 $0.70 v $0.68e, Rev $9.63B v $9.56Be; raises share repurchases by $12B (6% of market cap)
(CL) CHILE CENTRAL BANK (BCCH) LEAVES OVERNIGHT TARGET RATE UNCHANGED AT 2.50%; AS EXPECTED
COST Reports Q1 $1.45 v $1.35e, Rev $32B v $31.5Be

FRIDAY 12/15
SIE.DE Guides initial FY18 R&D expenditures €5.6B v €5.2B y/y - analyst day
(RU) RUSSIA CENTRAL BANK (CBR) CUTS 1-WEEK AUCTION RATE BY 50BPS TO 7.75%; MORE-THAN-EXPECTED
(UK) EU Tusk's: EU leaders formally declare that sufficient progress has been made in Brexit talks to advance into phase 2; approve the start of Brexit transition talks (as expected)
(US) DEC EMPIRE MANUFACTURING: 18.0 V 18.8E (lowest since July)
(US) NOV INDUSTRIAL PRODUCTION M/M: 0.2% V 0.3%E; CAPACITY UTILIZATION: 77.1% V 77.2%E

Barrons weekend summary

Barrons weekend summary: Cautious feature on MBI 

Cover story: Outlook 2018 feature includes forecasts from Wall Street investment strategists, who expect U.S. stocks to head higher next year, propelled by economic growth and earnings gains; they’re bullish on financials and technology, but cautious on consumer staples and utilities; the S&P 500 could hit 2840; Barron’s 10 favorite stocks for 2018 are GOOGL, DAL, Berkshire Hathaway, Volkswagen, PXD, AMAT, EPD, ALLY, ANTM, USFD. 

Features: 1) Cautious on MBI: Company’s $250M buyback returned money to long-suffering investors, but the shares were bought by the firm’s regulated insurance subsidiary, which has taken a hit in Puerto Rico ; 2) Apps such as Acorns, Stash, and Robinhood offer fractional-share ownership of a short, curated list of ETFs and encourage saving via automated deposits, and their low barriers to entry have boosted user numbers; 3) Barron’s 2017 stock picks topped the market during the past 12 months, returning 29.8% against 22.8% for the S&P 500, with TOL, AAPL, and UL the best performers; 4) Positive on GOOGL, FB, MSFT, IBM, AMZN: Among tech giants making bets on artificial reality, which is expanding beyond gaming to find uses in a range of businesses—with the potential for far-reaching implications for corporations and consumers. 

Tech Trader: Positive on DISH, SNY, GOOGL, Hulu: For cord cutters, multichannel video programming distributors, or MVPDs, bring back the ability to watch news, sports, and other events in real time, and there is growing demand for the services. 

Trader: “There’s not much to scare the market now at year end”; Michael Darda of MKM Partners says growth momentum remains above recovery averages, but not so much as to create an inflation panic at the Fed; “There is tremendous uncertainty heading into the year, at a time when zero fear is being priced in,” says David Rosenberg of Gluskin Sheff; Consumers still want to spend, but their buying habits have changed too much for most of the legacy retailers to return to their former glory. 

Interview: Omar Selim of Arabesque Asset Management talks about S-Ray, an intelligent database that monitors the sustainability of 7,000 companies around the world, combining about 200 ESG metrics from more than 50,000 sources. 

Profile: Sreeni Prabhu manages the Angel Oak Multi-Strategy Income fund, of which more than 60% of assets are nonagency residential mortgage-backed securities, with commercial mortgage-backed securities coming in a distant second. 

Follow-Up: Cautious on CVS, AET: Leerink Partners analyst Ana Gupte says it’s unlikely the combined entity will pocket cost savings the companies say will result from eliminating $750M in annual operating expenses. 

European Trader: Positive on Deutsche Post, Cinci: Shipping company and toll-road and construction firm are among transportation stocks that could pay off for investors as Europe’s economy continues to recover. 

Asian Trader: With the MSCI AC Asia ex Japan index up 41% and Japan’s Nikkei 225 up 18% so far this year, fund managers and sell-side analysts expect Asian markets to power ahead in 2018. 

Commodities: “After an unimpressive year, the 2018 outlook for commodities looks more promising, particularly for crude oil and industrial metals.” 

Streetwise: In a reversal of the usual process in which Wall Street spots a trend and mom-and-pop investors follow later, leading to a crash, banks are only now getting into Bitcoin almost a decade after it was invented; even with new exchanges, Wall Street won’t be able to control the market for the cryptocurrency.

Brexit Talks Push Past Border Issue; Tech and Bitcoin Gyrations Distract Traders

TradeTheNews.com Weekly Market Update: Brexit Talks Push Past Border Issue; Tech and Bitcoin Gyrations Distract Traders
Fri, 08 Dec 2017 16:09 PM EST

US stock indices finally encountered some turbulence this week, though Monday did once again see another round of fresh highs. Rotational flows evident last week carried over early on, playing a significant role as high growth sectors, namely technology, experienced considerable relative selling. The high beta FANG names traded down 5% or more for the recent highs while the NASDAQ composite fell almost 3% from the top before buyers stepped in and shares recovered into week’s end. Some noted the parabolic rise in bitcoin, which at one point neared 19K, as potential culprit that could have been sucking oxygen away from equities. In Washington, Republicans pressed onward with efforts to reconcile the House and Senate tax bills and remain hopeful that legislation can reach the President’s desk by Christmas. Friday delivered the November employment report which offered little in way of surprises. The labor market continued to expand but the tightening slack remains slow to manifest in rising wages. Treasury yields drifted higher after the jobs report in a week that saw the benchmark spread narrow to 51 bps at one point. For the week the DJIA and S&P500 each added 0.4%, while the Nasdaq slipped 0.1%.

Back and forth surrounding the ongoing Brexit negotiations played the dominate role in FX trading this week. Disagreements surrounding the Irish border issue spurred some speculation that Prime Minister May’s eroding support could result in a leadership changed as early as next year. Those fears were temporarily allayed by a late week breakthrough in the talks that appears to have the support of factions on both sides of the border going into the EU leaders’ summit next week. The Pound stayed in a downward trend though, as focus now shifts towards what could be even tougher talks in phase two of the Brexit process.

In corporate news this week, reports indicated Disney is nearing a deal to acquire 21st Century Fox’s non-core assets, which could be accompanied by an agreement for Disney CEO Bob Iger to stay on past 2019 in order to facilitate a the integration of Fox divisions. CVS agreed on a $207/share asking price to acquire Aetna, valuing it at $77B, in a deal that would put a pharmacy, an insurer, and a PBM all under one roof. United Health's Optum unit announced it would acquire DaVita’s Medical Group division for $4.9B in cash, as DaVita pivots its focus to the kidney care sector. Lululemon shares are up 13% on the week after reporting a beat on its top and bottom line and boosting its outlook. GE announced it would cut 12K jobs from its power GE Division, mostly affecting professional and production workers based outside of the US, as the company struggles with a downturn in the gas and coal power markets. Teva is reportedly considering cutting 18% of its global workforce as it tries to pare $2B in expenses.


SUNDAY 12/3
AET Confirms to be acquired by CVS for $207/shr ($145/shr cash and 0.8378 in CVS shr) for ~$69B

MONDAY 12/4
(EU) EURO ZONE DEC SENTIX INVESTOR CONFIDENCE: 31.1 V 33.4E
(EU) Portugal Fin Min Mario Centeno wins Eurogroup chairmanship race; term starts in Jan - press
5401.JP To reduce orders accepted for steel pipes by 20-30% as production cannot keep up with the increase in demand from large-scale projects ahead of the 2020 Tokyo Olympics
*(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED (16th consecutive hold in the current easing cycle)
Roark Capital reportedly raising $2B to acquire additional restaurant chains - Axios

TUESDAY 12/5
(UK) NOV SERVICES PMI: 53.8 V 55.0E (16th month of expansion)
(PL) POLAND CENTRAL BANK (NBP) LEAVES BASE RATE UNCHANGED AT 1.50%; AS EXPECTED
(UK) DUP party leader Foster: Believes that DUP remains far away from a border agreement - financial press
(US) OCT TRADE BALANCE: -$48.7B V -$47.5BE
(US) Atlanta Fed cuts Q4 GDP estimate to 3.2% from 3.5% on 12/1
(CN) US Commerce Dept to collect duties up to 265.79% on China origin steel imported from Vietnam

WEDNESDAY 12/6
(IN) INDIA CENTRAL BANK (RBI) LEAVES REPURCHASE RATE UNCHANGED AT 6.00%; AS EXPECTED
FAST Reports Nov Rev $365.5M, +15.4% y/y
(US) NOV ADP EMPLOYMENT CHANGE: +190K V +190KE
(US) Q3 FINAL NONFARM PRODUCTIVITY: 3.0% V 3.3%E; UNIT LABOR COSTS: -0.2% V +0.2%E
(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATES UNCHANGED AT 1.00%; AS EXPECTED
(US) Association of American Railroads weekly rail traffic report for week ending Dec 2nd: 572.8K carloads and intermodal units, +3.5% y/y
(US) Sen Franken (D-MN) said to plan announcement tomorrow following resignation calls from nearly a dozen Democratic Senate colleagues - press
(US) President Trump: recognizes Jerusalem as Israel's capital (as expected); believes it's in the best interests of the US and the pursuit of peace between Israelis and Palestinians
(BR) BRAZIL CENTRAL BANK (BCB) CUTS SELIC RATE TARGET BY 50BPS TO 7.00%; AS EXPECTED

THURSDAY 12/7
(CN) CHINA NOV FOREIGN RESERVES: $3.119T V $3.124TE (10th straight month of increases)
(EU) EURO ZONE Q3 FINAL GDP Q/Q: 0.6% V 0.6%E; Y/Y: 2.6% V 2.5%E
GE GE Power division cuts 12K jobs (18% of of Workforce)
(UK) Sticking point in Brexit talks on European Court of Justice is said to have been resolved - press
(EU) ECB's Draghi: confirms Basel III is completed; it's a great day and a major milestone
(US) Fed reports Q3 Financial Accounts: Household Change in Net Worth: $1.742T v $1.698T prior
(US) Trump admin reportedly preparing infrastructure plan announcement in Jan - press
(US) Senate passes stopgap spending measure that will keep the govt funded through Dec 22nd; vote 81 to 14
(JP) JAPAN Q3 FINAL GDP Q/Q: 0.6% V 0.4%E; ANNUALIZED SA Q/Q: 2.5% V 1.5%E; NOMINAL Q/Q: 0.8% V 0.7%E
(CN) CHINA NOV TRADE BALANCE (CNY-DENOMINATED): 263.6B V 240.8BE
(CN) CHINA NOV TRADE BALANCE: $40.2B V $35.0BE

FRIDAY 12/8
(EU) EU Commission : Reaches breakthrough in Brexit negotiations; ready for second phase of negotiations
(FR) FRANCE OCT INDUSTRIAL PRODUCTION M/M: +1.9% V -0.1%E; Y/Y: 5.5% V 2.9%E
(UK) OCT INDUSTRIAL PRODUCTION M/M: 0.0% V 0.0%E; Y/Y: 3.6% V 3.5%E
(US) NOV AVERAGE HOURLY EARNINGS M/M: 0.2% V 0.3%E; Y/Y: 2.5% V 2.7%E; AVERAGE WEEKLY HOURS: 34.5 V 34.4E
(US) NOV CHANGE IN NONFARM PAYROLLS: +228K V +195KE
(US) DEC PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 96.8 V 99.0E
WFC Pres Trump tweets: "Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be droppe... but will be pursued and, if anything, substantially increased. I will cut Regs but make penalties severe when caught cheating!"
(US) Atlanta Fed cuts Q4 GDP estimate to 2.9% from 3.2% on 12/5

Tax Plan Euphoria Blunted by Russia Probe Developments

TradeTheNews.com Weekly Market Update: Tax Plan Euphoria Blunted by Russia Probe Developments
Fri, 01 Dec 2017 16:13 PM EST

Stock indices moved further into uncharted territory this week on the belief tax cuts are coming from Washington DC. A mid-week rotation out of tech raised some eyebrows when high beta growth stocks fell sharply for a session. The Dow, S&P and Russell all charged ahead largely unabated, except for bouts of selling into Friday. A delayed Senate vote Thursday caused mild consternation heading into the session. Then on Friday, a report that former NSA Michael Flynn was prepared to testify against President Trump as part of plea deal caused flurry of risk off trade midway through the session. By the end of the day, markets recovered much of those losses, and for the week the DJIA gained 2.9%, the S&P500 added 1.5%, and the Nasdaq dropped 0.6%.

Oil prices drifted lower into Thursday’s OPEC meeting. As expected, Ministers and non OPEC producers ultimately agreed on a 9-month extension through 2018 and to start capping Nigeria and Libya production beginning in January. WTI crude finished the week about $1 off the recent two year highs while weekly data showed rig counts have ticked higher. Treasury markets were little changed on the week. Yields moved higher early on in the week, spurred by robust global economic data along with the belief that fiscal stimulus and forward movement in the Brexit negotiations could force Central banks to raise rates faster than the market currently anticipates. The Dollar remained on soft footing as Cable pressed out to two month highs. The Dollar index drifted back towards 93.

M&A activity dominated this week’s corporate news. Network security firm Barracuda agreed to be taken private by PE firm Thoma Bravo for $1.6 billion in cash. Publisher Time Inc reached a long-speculated deal to be acquired by Meredith Corp for $2.8B, which aims to combine the reach of its local TV business with the content available from Time’s media creators. Buffalo Wild Wings was acquired for $157/share in cash by Arby’s owner Roark Capital, which intends to make the sports bar chain a privately held unit of Arby's operated as an independent brand.


SUN 11/26
(US) According to Adobe Analytics, Black Friday and Thanksgiving online sales totaled $7.9B (record), +17.9% y/y – financial press
(US) According to ShopperTrak, shopper visits to brick-and-mortar retail stores on Thanksgiving Day and Black Friday -1.6% y/y (combined)330.HK Landlord for test store may lower rent by 30% - HK Press
TIME Meredith confirms to acquire Time for $18.50/share cash for $2.8B

MON 11/27
(US) OCT NEW HOME SALES: 685K V 625KE
CUDA Agrees to be acquired by Thoma Bravo for $27.55/sh in cash for total of $1.6B
(US) Sen Johnson (R-WI): will vote against tax bill in Budget Committee on Tues unless my issues are resolved
(US) Adobe: Confirms data shows Cyber Monday is largest online sales day in history with $6.59B in sales, +16.8% y/y as of 10:00 pm ET

TUES 11/28
*(DE) GERMANY DEC GFK CONSUMER CONFIDENCE: 10.7 V 10.7E
(US) NOV RICHMOND FED MANUFACTURING INDEX: 30 V 14E; Volume of new orders 35 v 17 prior
(US) NOV CONSUMER CONFIDENCE: 129.5 V 124.0E
(US) Senate Budget Committee advances the tax bill

WEDS 11/29
(FR) FRANCE Q3 PRELIMINARY GDP Q/Q: 0.5% V 0.5%E; Y/Y: 2.2% V 2.2%
(DE) GERMANY NOV CPI SAXONY M/M: 0.3% V 0.0% PRIOR; Y/Y: 2.0% V 1.8% PRIOR
(EU) EURO ZONE NOV BUSINESS CLIMATE INDICATOR: 1.49 V 1.51E; CONSUMER CONFIDENCE (FINAL): 0.1 V 0.1E
TIF Reports Q3 $0.80 v $0.76e, Rev $976M v $960Me
(DE) GERMANY NOV PRELIMINARY CPI M/M: 0.3% V 0.3%E; Y/Y: 1.8% V 1.7%E
(US) Q3 PRELIMINARY GDP PRICE INDEX: 2.1% V 2.2%E; CORE PCE Q/Q: 1.4% V 1.3%E
(US) Q3 PRELIMINARY GDP ANNUALIZED Q/Q: 3.3% V 3.2%E; PERSONAL CONSUMPTION: 2.3% V 2.5%E
(US) Association of American Railroads weekly rail traffic report for week ending Nov 26th: 463.6K carloads and intermodal units, +2.4% y/y
(KR) BANK OF KOREA (BOK) RAISES 7-DAY REPO RATE BY 25BPS TO 1.50%, AS EXPECTED
(CH) CHINA NOV OFFICIAL GOVT MANUFACTURING PMI: 51.8 V 51.4E, NON-MANUFACTURING PMI: 54.8 V 54.3 PRIOR

THURS 11/30
CSGN.CH Affirms FY18 targets; announces 2019-2020 objectives; aims to pay 50% of net in buybacks, dividends
(FR) FRANCE NOV PRELIMINARY CPI M/M: 0.1% V 0.1%E; Y/Y: 1.2% V 1.2%E
(DE) GERMANY NOV UNEMPLOYMENT CHANGE: -18K V -10KE; UNEMPLOYMENT RATE: 5.6% V 5.6%E
(US) OCT PCE DEFLATOR M/M: 0.1% V 0.1%E; Y/Y: 1.6% V 1.5%E
(US) OCT PCE CORE M/M: 0.2% V 0.2%E; Y/Y: 1.4% V 1.4%E
(US) OCT PERSONAL INCOME: 0.4% V 0.3%E; PERSONAL SPENDING: 0.3% V 0.3%E
(US) Nevada reports Oct casino gaming Rev $988.7M, +0.3% y/y; Las Vegas strip rev $528.7M, -6.0% y/y
(US) Atlanta Fed cuts Q4 GDP estimate to 2.7% from 3.4% on 11/22
(CN) CHINA NOV CAIXIN MANUFACTURING PMI 50.8 V 50.9E (5-month low)
(HK) Macau Nov Casino Rev MOP23.0B +22.6% y/y v +19%e


FRIDAY 12/1
(BR) BRAZIL Q3 GDP Q/Q: 0.1% V 0.3%E (3rd straight quarter of growth); Y/Y: 1.4% V 1.3%E
(DE) GERMANY NOV FINAL MANUFACTURING PMI: 62.5 V 62.5E (confirms its 36th month of expansion and highest since Feb 2011)
(CA) CANADA NOV NET CHANGE IN EMPLOYMENT: +79.5K V +10.0KE; UNEMPLOYMENT RATE: 5.9% V 6.2%E
(US) NOV ISM MANUFACTURING: 58.2 V 58.3E; PRICES PAID: 65.5 V 67.0E
(US) MICHAEL FLYNN SAID TO BE WILLING TO TESTIFY AGAINST PRESIDENT TRUMP - ABC news
(US) Senator Collins (R-ME): deal was reached to include property tax deduction amendment in tax bill
(US) Sen Corker (R-TN): there are probably enough votes to pass the Senate tax bill - press
(US) NBC sources say that Jared Kusher was the "senior transition official" that discussed Russia contacts with Flynn at Mar-a-Lago in Dec 2016

Barrons weekend summary

Barrons weekend summary: Positive features on VZ, MDLZ 

Cover story: Four emerging market stock fund managers discuss the best sectors for investors, identify risks that could be of concern, and offer stock picks: Taizo Ishida of MPACX and MEASX (BZUN, Indus Motor, Shenzhou Intl Group Holdings, China Lodging Group, PC Jeweller), Rejiv Jain of GOGPX (Sberbank of Russia, Bank Central Asia, Qualicorp, Interglobe Aviation), Howard Schwab of DREGX (Titan, Samsung Electronics, China Shenhua Energy), and Leon Eidelman of JFAMX (BABA, Kroton Educacional, Hangzhou Robam Appliances, JD). 

Feature: 1) Positive on VZ: Price wars with rivals have sent down shares, but company is on track to bring in about as much revenue this year as 2016, and could return to modest growth, making the shares a bargain; 2) Positive on VMC, FLR, MLM, ACM, JEC, GVA, EXP, USCR, CAT: Among companies that would benefit if the Trump administration manages to get a $1T infrastructure building program under way, or even a compromise measure on a smaller scale; 3) Positive on MDLZ: Investors think the packaged-food company could return to growth under new chief executive Dirk Van de Put, especially if it leverages its strength in Europe and developing economies. 

Tech Trader: AMZN, MSFT, and GOOGL dominate cloud computing, but a rapidly evolving new “serverless” technology pioneered by AMZN called Lambda requires far less work from programmers, gets dramatically better results--and could either solidify their position, or undermine it. 

Trader: Nomura Instinet analyst Joseph Mezrich says the market is expecting earnings growth of 11.7%, well above the long-term average of 7%, a sign the market is overvalued and may undergo a correction; With quantitative easing ending, borrowing costs should rise, and high stock valuations mean companies will get less bang for their buck with buybacks; A market “melt up” would cause concern because it could entail a sharp climb followed by a painful drop. 

Profile: Daniel Chace, manager of the Wasatch Micro Cap fund, picks through the less-trafficked corners of the market and focuses on about 80 potential growth companies (top 10 holdings: SGC, LGIH, HQY, IBP, V-Mart Retail, FRPT, ENSG, ENV, TREX, EXAS). 

Follow-Up: Cautious on HPE: Chief Meg Whitman has made improvements at the company, but many of the challenges it faced after she took over remain, despite her efforts to reshape the business. 

European Trader: Positive on Hapag-Lloyd: With the global container shipping industry seeing an uptick, the German company appears to be a good way for investors to play the revival. 

Asian Trader: Positive on Tencent Holdings: Chinese giant is the world’s best-performing large-cap stock this year, bypassing the FANGS, and the shares still look good as the company continues to grow. 

Commodities: “A brutal cold snap in December is likely, according to some forecasters, and it could lift winter wheat prices higher than $5 a bushel, up more than a dollar from recent prices.” 

Streetwise: Uber’s decision to delay releasing news of a data breach last years is the latest example of its history of playing by its rules—and that isn’t likely to change as long as it remains a private company.-

Investors Have Plenty to be Thankful for as Stock Markets Extend Higher

TradeTheNews.com  Weekly Market Update: Investors Have Plenty to be Thankful for as Stock Markets Extend Higher
Fri, 24 Nov 2017 13:11 PM EST

- US stock markets probed fresh all-time highs once again in a holiday shortened week. European markets shrugged off political concerns in Germany when Chancellor Merkel remained unable to force a coalition government. European economic data continued to outshine, overshadowing slogging Brexit negotiations and supporting the Euro. The Dollar remained under broad pressure, touching a 9-week low against the Euro. Treasury yield curves continued to flatten, pushing the US 2-10 year spread below 60 bps for the first time since 2007. Crude prices rose to 2-year highs heading into next week’s OPEC meeting. The Fed’s Yellen offered some slightly dovish commentary surrounding low inflation readings, setting the stage for Powell’s confirmation hearings next week. For the week the Dow and S&P gained 0.9% while the NASDAQ added another 1.6%.
- In what was a slow corporate news week, Cavium Networks confirmed an agreement to be acquired by Marvell for ~$80/shr in cash and stock in a $6B deal, as Marvell aims to expand its capacity in the networking equipment sector. Uber disclosed a cybersecurity breach that allowed hackers to access personal data from 57 million riders and drivers last year, an incident which Uber unsuccessfully tried to cover up. And Macy’s CEO said he has seen a good start to Black Friday, with traffic slightly better year-on-year so far.

11/19 SUNDAY
(CN) CHINA OCT PROPERTY PRICES M/M: RISES IN 50 OUT OF 70 CITIES V 44 PRIOR; Y/Y RISE IN 60 CITIES OUT OF 70 CITIES V 67 PRIOR (update)

11/20 MONDAY
CAVM Confirms agreement to be acquired by MRVL for ~$80/shr in cash and stock in ~$6B deal, as speculated
(DE) German President Steinmeier statement: Country faces an unprecedented situation following the failure of the coalition talks; should not return mandate to voters
(US) Janet Yellen to resign from Fed Board of Governors, effective upon the swearing in of her successor as Chair

11/21 TUESDAY
PYPL Announced move into "robo investing" with Acorns Grow Inc
(MX) Mexico business representative: NAFTA negotiators are nearing agreement on telecom, energy and e-commerce issues - press
UBER.IPO Reportedly hid a cyberattack that exposed data on 57M people, including 600K US driver's license numbers - press
(US) Fed Chair Yellen: Uncertain weak inflation is transitory; Some hint inflation expectations may be drifting down; Don't think expectations have drifted down very much - speaking in New York; We expect [inflation] to move back up over the next year or two, but I will say I'm very uncertain about this"
(CN) China Ministry of Housing and Urban-Rural Development, the Ministry of Land Resources and PBOC in a joint meeting stressed regulations to curb property sector risks must not be relaxed
(CN) China to give priority to reducing property bubble – Xinhua
(CN) China Q3 overseas real estate investments $2.5B, -51% y/y (lowest level since Q4 2013)

11/22 WEDNESDAY
(UK) Chancellor of Exchequer Hammond (Fin Min) Autumn Budget Speech
(US) OCT PRELIMINARY DURABLE GOODS ORDERS: -1.2% V +0.3%E; DURABLES EX TRANSPORTATION: 0.4% V 0.5%E
(US) Association of American Railroads weekly rail traffic report for week ending Nov 28th: 554.1K carloads and intermodal units, +1.2% y/y
(US) FOMC MINUTES FROM NOV 1 MEETING: MANY FED POLICYMAKERS SAW NEAR-TERM RATE HIKE AS WARRANTED; SOME OPPOSED NEAR-TERM HIKE DUE TO WEAK INFLATION
(HK) Macau Q3 GDP Y/Y: 6.1% v 11.5% prior
(HK) Macau Oct Tourist Arrivals y/y: 7.9% v 2.4% prior
(US) Weekly Baker Hughes US Rig Count: 923 v 915 w/w (+0.9%) (3rd weekly rise in a row)

11/23 THURSDAY
TKA.DE Reports FY17 (cont ops) adj EBIT €1.72B v €1.8Be, Net Rev €41.4B v €41.5Be
(DE) GERMANY Q3 FINAL GDP Q/Q: 0.8% V 0.8%E; Y/Y: 2.8% V 2.8%E; GDP NSA Y/Y: 2.3% V 2.3%E
(FR) FRANCE NOV BUSINESS CONFIDENCE: 111 V 109E; MANUFACTURING CONFIDENCE: 112 V 111E
(FR) FRANCE NOV PRELIMINARY MANUFACTURING PMI: 57.5 V 55.9E (14th month of expansion and highest since Apr 2011)
(DE) GERMANY NOV PRELIMINARY MANUFACTURING PMI: 62.5 V 60.4E (36th month of expansion and highest since Feb 2011)
(EU) EURO ZONE NOV PRELIMINARY MANUFACTURING PMI: 60.0 V 58.2E (52nd month of expansion and highest since Apr 2000)
(UK) Q3 PRELIMINARY GDP (2nd reading) Q/Q: 0.4% V 0.4%E; Y/Y: 1.5% V 1.5%E
(EU) ECB ACCOUNT OF THE MONETARY POLICY MEETING (NOV MINUTES): Some members were concerned that any QE end date would cause tightening
(ZA) SOUTH AFRICA CENTRAL BANK (SARB) LEAVES INTEREST RATE UNCHANGED AT 6.75%; AS EXPECTED

11/24 FRIDAY
(DE) GERMANY NOV IFO BUSINESS CLIMATE: 117.5 V 116.7E (record high); CURRENT ASSESSMENT: 124.4 V 125.0E
M CEO: Seeing a good start to Black Friday; traffic slightly better than last year - CNBC

Barrons weekend summary

Barrons weekend summary: positive features on IBM and select big box retailers 

Cover story: Initial public offerings were once a goal for so-called unicorns, companies worth more than $1B, but these startups are taking longer to go public; “The maturation of IPOs has generally been a good thing, taking the risk out of the system,” but it also reduces potential investor rewards; Leading mutual funds aren’t waiting for IPOs, and are investing in private markets. 

Features: 1) Positive on IBM: The unloved company could be the next slumbering giant to fetch a higher valuation as its large investments in analytic and cloud products increasingly win over customers; 2) Positive on M, WMT, TGT: Retailers have long taken a hit from online rivals, especially AMZN, but experts believe the shopping rush that starts on Black Friday will be the first in which their online arms begin to gain ground. 

Tech Trader: Cautious on CSCO: Tech giant’s fixation on its own balance sheet doesn’t bode well for its competitiveness in years to come, and chief Chuck Robbins has failed to articulate how the company can gain ground in the Internet of Things and the cloud. 

Trader: Higher volatility, instead of scaring investors away from the stock market, could be bringing them in, a situation that would lead to a longer bull market; GE may be giving up on BHI, but investors shouldn’t, though without GE the company “requires a different narrative”; “While the Nafta discussions aren’t due to be settled for months, they have the potential to upend sectors of the market—and make life miserable for investors.” 

Profile: Michael Grant, manager of the Calamos Phineus Long/Short fund, uses “risk regime,” or the kind of hand the market is dealing, as the starting point for investment decisions (top 10 long stocks: AAPL, GS, JPM, MS, PYPL, C, JNJ, RDN, BAC, UBS). 

Interview: Ajay Kapur, Asia-Pacific and emerging markets strategist at Bank of America Merrill Lynch, became bullish on Asia ex-Japan and emerging markets in February after being bearish for five years. ETF 

Special Report: Exchange traded fund experts David Nadig, Barry Ritholtz, Corey Hoffstein, and Ben Fulton discuss innovation in the sector and other topics. 

Follow-Up: The battle over Nelson Peltz’s bid for a PG board seat continues, and a win for the activist investor would be good for the stock. 

European Trader: Cautious on Vestas Wind Systems: The U.S. market, a key one for the company, “is at risk of turning into a turkey, depending on how Washington’s tax-reform plan plays out.” 

Asian Trader: Positive on LG Chem, Samsung SDI, Panasonic: The three companies, which make batteries for electric vehicles, trail rivals in the sector, but continue to merit investor attention. 

Emerging Markets: Venezuela may muddle through its debt crisis with help from Russian and China, so nervous bondholders aren’t likely to band together and seek accelerated bond repayments. 

Commodities: The shutdown of the world’s largest uranium mine, owned by Cameco, has rallied prices and could help revive the market. 

Streetwise: Universities pay steep fees to outside managers, but have balked at allocating money to Warren Buffett’s Berkshire Hathaway, the world’s most successful investor.

Volatility Returns Before the House Passes Tax Reform

TradeTheNews.com Weekly Market Update: Volatility Returns Before the House Passes Tax Reform
Fri, 17 Nov 2017 16:03 PM EST

US stocks rolled over early this week nudged by pressure coming from overseas. The first three sessions of the week saw futures trade lower in the premarket along with European bourses, only to see buyers step in after the opening bell in New York. An aggressive increase in corporate debt offerings may have caused some indigestion. Monday saw ~$2.5B in junk-rated bond deals brought to market compared to ~$1.5B the previous week. By Wednesday risk barometers jumped, with the VIX rising above 14 for the first time since this summer, while the high yield bond ETF (HYG) neared the March 2017 lows. The backdrop also featured a continued flatting of Treasury yield curve. Spreads between the short and long ends of the US curve continued to probe the narrowest levels since early 2007, causing further consternation for some investors. Brexit and US tax reform were most often sited along with carryover from a technical reversal in the DAX last week as contributing factors holding back sentiment and raising volatility.
Thursday saw a significant snapback in stock prices though, as the US House of Representatives finally passed a long awaited tax reform bill. The Russel 2000 led a bounce that recouped much of the first three sessions’ losses for US indices. By week’s end, equity prices were drifting lower once again despite a swath of strong retail earnings reports and management commentary that observed business activity accelerating late in the quarter and into Q4. Supply was likely a factor yet again with six US IPOs opening for trading on Friday alone, to what can be best described as a lukewarm reception by investors. The dollar remained relatively soft probing five-week lows against the Yen and gold broke out to a one-month high on Friday. US rates continued to move lower outside of the 2-year note. For the week, the DJIA lost 0.3%, the S&P500 dropped 0.1%, while the Nasdaq added 0.5%.

In corporate news this week, some large M&A deals are brewing on the horizon. Both Comcast and Verizon are said to have been in talks to acquire assets from 21st Century Fox, following reports last week that Disney also harbored interest in some part of the media giant. Toymaker Mattel is said to have turned down a takeover approach from Hasbro, but terms of the offer are still not publically known. Earnings season slowed down considerably this week, but on the retail front, apparel stores showed some signs of life. Both Gap and Ross Stores posted same store sales above analyst expectations, and sports footwear names bounced in response to better than expected earnings from Shoe Carnival and Foot Locker. On Thursday, Walmart impressed Wall Street with better than expected numbers supported by its surging ecommerce metrics, sending shares up about 10% and adding nearly $30B in market cap. GE ran in the opposite direction during its investor meeting on Monday, where CEO Flannery announced a 50% dividend cut and a restructuring plan which spooked investors, sending GE shares below the $20/share support level, in the stock’s worst day since 2009. Tesla unveiled its long-awaited electric semi truck (and threw in a Roadster announcement for good measure), despite nagging questions that remain about Model 3 production capacity.

MONDAY 11/13
*(CN) CHINA OCT NEW YUAN LOANS (CNY): 663.2B V 783BE
(IN) INDIA OCT CPI Y/Y: 3.6% V 3.4%E
(CN) CHINA OCT AGGREGATE FINANCING (CNY): 1.040T V 1.100TE
GE Guides FY18 framework adj EPS $1.00-1.07 v $1.15e, Organic Rev 0-3% y/y, FCF $6-7B - investor slides
BWLD Reportedly receives >$150/shr takeover offer from Roark Capital - press
REN Announces withdrawal of proposed offering of $550M in 2025 senior notes ;cites 'broader market conditions'
(UK) PM May has granted parliament full vote on Brexit deal - FT
(HK) According to Credit Suisse analysts Macau Nov 1-12th gaming Rev +20-22% y/y v 15%e
(CN) China Oct Home Sales Value Y/Y: -3.4% (biggest decline in approx 3-years)
(HK) Macau Gaming Regulator's Chan: To continue existing regulations on junkets, have banned over 200 people entering casino this year

TUESDAY 11/14
(DE) GERMANY Q3 PRELIMINARY GDP Q/Q: 0.8% V 0.6%E; Y/Y: 2.8% V 2.3%E; GDP NSA Y/Y: 2.3% V 2.0%E
VOD.UK Reports H1 Adj EBIT €2.46B v €2.05B y/y, adj EBITDA €7.39B v €7.09B y/y, Rev €23.1B v €24.1B y/y
(IT) ITALY Q3 PRELIMINARY GDP Q/Q: 0.5% V 0.5%E; Y/Y: 1.8% V 1.7%E
(UK) OCT CPI M/M: 0.1% V 0.2%E; Y/Y: 3.0% V 3.1 %E; CPI CORE Y/Y: 2.7% V 2.8%E
(EU) EURO ZONE Q3 PRELIMINARY GDP Q/Q: 0.6% V 0.6%E; YY: 2.5% V 2.5%E
HD Reports Q3 $1.84 v $1.81e, Rev $25B v $24.5Be
(US) OCT PPI FINAL DEMAND M/M: 0.4% V 0.1%E; Y/Y: 2.8% V 2.4%E
Noting a number of cross currents in newsflow thru the EU session to current time
(US) Fed's Bostic (non-voter, dove): Reiterates gradual Fed hikes are appropriate over next couple of years; US is nearing full employment
(CA) Canada govt files legal challenge of US softwood lumber duties under NAFTA provisions - press
(CL) CHILE CENTRAL BANK (BCCH) LEAVES OVERNIGHT RATE TARGET UNCHANGED AT 2.50%; AS EXPECTED
9064.JP Offers to increase pay for workers by 33% y/y to ¥2,000/hour in December in order to help meet rise in demand – Japanese Press

WEDNESDAY 11/15
700.HK Reports Q3 (CNY) Net 18.0B v 15.7Be, Rev 65.2B v 61Be
(UK) SEPT AVERAGE WEEKLY EARNINGS 3M/Y/Y: 2.2% V 2.1%E; WEEKLY EARNINGS EX BONUS 3M/Y: 2.2% V 2.2%E
(UK) SEPT ILO UNEMPLOYMENT RATE: 4.3% V 4.3%E (matches lowest level since 1975)
(UK) OCT JOBLESS CLAIMS CHANGE: +1.1K V +2.6K PRIOR; CLAIMANT COUNT RATE: 2.3% V 2.3% PRIOR
(DE) GERMANY SELLS €2.475B VS. €3.0B INDICATED IN 0.50%B AUG 2027 BUNDS; AVG YIELD: 0.36% V 0.48% PRIOR; BID-TO-COVER: 1.2X (technically uncovered) V 1.7X PRIOR
(US) OCT ADVANCE RETAIL SALES M/M: 0.2% V 0.0%E; RETAIL SALES EX AUTO M/M: 0.1% V 0.2%E
(US) NOV EMPIRE MANUFACTURING: 19.4 V 25.1E
(US) OCT CPI M/M: 0.1% V 0.1%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI INDEX NSA: 246.663 V 246.646E
(US) Association of American Railroads weekly rail traffic report for week ending Nov 11th: 547.5K carloads and intermodal units, +1.2% y/y
(US) Senator Ron Johnson (R-WI) says he will vote Against the Senate tax bill - press
(US) SEPT TOTAL NET TIC FLOWS:-$51.3B V $125.0B PRIOR; NET LONG-TERM TIC FLOWS: $80.9B V $67.2B PRIOR
CSCO Reports Q1 $0.61 v $0.60e, Rev $12.1B v $12.1Be
MAT Reportedly rejects latest Hasbro acquisition bid - press
(CN) China Banks are conducting stress tests related to loans to property developers - Chinese Press
(AU) AUSTRALIA OCT EMPLOYMENT CHANGE: +3.7K V +18.8KE; UNEMPLOYMENT RATE: 5.4% V 5.5%E
(US) Christie's auction sells last privately held Leonardo da Vinci painting entitled 'Salvator Mundi' sold for record $450.3M (expected $100M+)

THURSDAY 11/16
(UK) Renewed speculation that UK PM May to increase her Brexit financial settlement (divorce bill) in Dec to help kick-start trade talks - financial press
(UK) OCT RETAIL SALES (EX AUTO FUEL) M/M: 0.1% V 0.0%E; Y/Y: -0.3% V -0.4%E
BBY Reports Q3 $0.78 v $0.79e, Rev $9.32B v $9.35Be
WMT Reports Q3 $1.00 v $0.97e, Rev $123.2B v $121.1Be
APC Guides initial FY18 oil production 385-405 MBOPD (implies +14% y/y); capex $4.2-4.6B ('17 plan 4.5-4.7B)
(NO) Norway Sovereign Wealth Fund proposes to divest oil and gas stocks (valued around $35B)
(US) OCT IMPORT PRICE INDEX M/M: 0.2% V 0.4%E; Y/Y: 2.5% V 2.5%E
(US) NOV PHILADELPHIA FED BUSINESS OUTLOOK: 22.7 V 24.6E
(US) OCT INDUSTRIAL PRODUCTION M/M: 0.9% V 0.5%E; CAPACITY UTILIZATION: 77.0% V 76.3%E
(US) NOV NAHB HOUSING MARKET INDEX: 70 V 67E
(US) Judge in Sen Menendez (D-NJ) corruption trial grants mistrial - press
(US) House of Representatives passes GOP tax reform bill (as expected)
AMAT Reports Q4 $0.93 v $0.91e, Rev $3.97B v $3.93Be
GPS Reports Q3 $0.58 v $0.55e, Rev $3.84B v $3.77Be
FOXA Comcast reportedly approached Fox over possible bid; not clear if Comcast sought all of Fox or only some assets - press
FOXA Verizon reportedly also considering acquiring assets from Fox - press
TSLA Unveils prototype electric 'big rig' truck (as expected); production to begin in 2019
(IN) MOODY'S RAISES INDIA SOVEREIGN RATING TO BAA2 FROM BAA3 (1st hike in 14 years); Outlook revised to Stable from Positive

FRIDAY
(CA) CANADA OCT CPI M/M: 0.1% V 0.1%E; Y/Y: 1.4% V 1.4%E
(US) OCT HOUSING STARTS: 1.29M V 1.19ME; BUILDING PERMITS: 1.30M V 1.25ME

Barrons weekend summary

Barrons weekend summary: 

Cover story on growing competition for TSLA in EV market; positive feature on SNE; cautious on consumer staples Cover story: With electric cars increasingly likely to supplant gas-powered models, major automakers are working on new technologies and initiatives that could benefit customers and shareholders, a sign TSLA will face growing competition. 

Features: 1) Positive on SNE: Japanese electronics giant is finally thriving, with sales of camera chips for smartphones, videogame systems, and software up, while profits from its TV and music divisions are strong; 2) Cautious on PG, CL, KO, UN: Investors who could once count on consumer staples’ slow and steady earnings growth and high dividends can no longer do so as industry trends drag on stalwarts. 

Tech Trader: The success of FB “has made it easy to forget that social networking remains a challenging business model,” leaving many companies—including SNAP and TWTR—struggling to find footing. 

Trader: “There are plenty of reasons to worry the Fed will continue to raise interest rates, which would explain the 0.064-percentage-point increase in the 10-year Treasury on Friday”; The yield curve is the big issue for banks right now, but investors may be making too much of it, says Chris Verrone of Strategas Research Partners; Many of the moves in high-yield bonds last week were as much a matter of catching up to stock moves as something dire lurking under the surface, according to Evercore ISI. 

Profile: Scott Kimball of the BMO TECH Core Plus Bond fund doesn’t hitch the portfolio to sweeping macroeconomic views or use derivatives (top 10 corporates: IBM, ABT, ATVI, GS, HNZ, Coach, EBAY, BDX, Mexichem Sab). Health & Wealth Roundtable: At Barron’s fifth annual gathering, four top advisors—Kathleen Weber of Weber Russo Group, Ann Marie Etergino of RBC Wealth Management, Barbara Archer of High-Tower, and Rob Vinder of The Vinder Group—discuss how to have a healthy and stress-free retirement. 

Follow-Up: Positive on PYPL: Payments company has had a strong year, with shares up 87%, but despite the surge there’s likely more upside ahead. 

European Trader: Positive on AMS: Company’s sensor technology helps power the AAPL iPhone X’s face identification feature, and though shares have tripled this year, they still have room to rise.. 

Asian Trader: Positive on Nintendo: The company’s move to ramp up production of its Switch console and the addition of new games for its devices should help it during the holiday season, and shares could rise by 25%. 

Emerging Markets: “The dramatic arrests of prominent Saudis by their own government has unnerved some investors and raised questions about the timing and structure” of the Saudi Aramco IPO. 

Commodities: Oil prices are set to rise during the next few months, even though West Texas Intermediate crude has already reached a two-year high. 

Streetwise: Reverberations from the palace coup in Saudi Arabia are likely to be felt for a long time, complicating the difficulty investors already face trying to understand the “opaque workings” of the government.