TradeTheNews.com Weekly
Market Update: Markets and Firms Respond Favorably to US Tax Cuts and Hawkish
ECB
Fri, 12 Jan 2018 16:09 PM EST
The rally in stocks extended into yet another week with 2018 looking very much
like most of 2017 thus far. The NASDAQ and banks led early on, before cyclical
groups like retailers and small caps took the lead as the week wore on. WTI
crude prices probed fresh 2.5 year highs into the mid-$60 range while Brent
approached $70/bbl. The energy complex saw a breakout to the upside with stock
prices significantly outperforming the gains in oil. Utilities, REITS and other
bond proxies lagged that of the overall market as rising Treasury yields served
as a headwind. For the week the DJIA gained 2%, the S&P500 added
1.6%, and the Nasdaq rose 1.8%.
Rates moved up globally helped by a hawkish take of the latest ECB minutes,
continued robust economic data including rising CPI figures, and upbeat
corporate sentiment predicated on the anticipated effects of fiscal stimulus.
The US 2-year Treasury yield crossed above the 2% mark for the first time since
2008 while German rates rose to levels not seen in months. Dollar weakness
extended into another week, in part on the belief robust overseas growth will
result in more aggressive policy from those central banks in an attempt to play
catch up with the US Fed. There were some gyrations in the Mexican peso and
Canadian dollar on reports that the Trump Administration may be moving closer
to giving formal notice on dissolving the NAFTA agreement. The Euro rallied to
a 3-year high with dealers citing building technical momentum for the move
above 1.21. Cable climbed to levels not seen since late 2016 in the days
following the Brexit vote. The exuberance for cryptocurrencies hit an air
pocket after reports circulated that China and South Korea were drawing up
plans to shackle trade on exchanges there.
In corporate news, the week was dominated by reports of holiday sales figures
from some key retailers and the start of the Q4 earnings season. Big box
retailer Target announced holiday SSS rose 3.4%, leading it to raise Q4
earnings guidance. Nordstrom reported holiday sales up a more modest 1.2% and
narrowed guidance, but there was also a report that the controlling family has
resumed efforts to take the company private. JP Morgan kicked off the earnings
season for banks with a strong beat on the top and bottom lines. CEO Jamie
Dimon made positive comments about the credit environment and said that tax
reform will be positive for the country. Walmart joined the growing number of
Fortune 500 companies announcing one-time bonuses and a higher minimum wage for
new employees in response to the US corporate tax cut.
SUNDAY 1/7
(CN) China Dec Foreign Reserves: $3.140T v $3.127Te (highest since Sept 2016,
11th consecutive gain, biggest gain since July)
MONDAY 1/8
066570.KR Reports prelim Q4 (KRW) Op profit 366.8B v 464Be; Rev 16.97T v
16.3Te
*(EU) EURO ZONE JAN SENTIX INVESTOR CONFIDENCE: 32.9 V 31.3E
*(EU) EURO ZONE DEC BUSINESS CLIMATE INDICATOR: 1.66 (record high) V 1.50E;
CONSUMER CONFIDENCE (FINAL): 0.5 V 0.5E
GPRO Reportedly has hired advisers to consider sale – CNBC
(US) Special Counsel Mueller reportedly likely to interview Pres Trump as part
of Russia investigation in next few weeks - Wash Post
*(US) NOV CONSUMER CREDIT: $28.0B V $18.0BE (largest gain in 16 years); Total
consumer credit annual rate +8.8% (Fastest pace in over two years)
TUESDAY 1/9
TGT Reports Nov/Dec SSS +3.4%; Raises Q4 $1.30-1.40 v $1.22e, SSS ~+3.4%
(prior $1.05-1.25, SSS 0-2%)
INTC Microsoft spokesperson: chip flaw patch may significantly slow some
servers; greatest impact on corporate data services – press
JWN Reports Nov/Dec combined net sales +2.5% y/y, SSS +1.2% y/y
DPZ CEO Patrick Doyle plans to leave company in June; Richard Allison
named CEO; Russell Weiner as COO; effective June 30th
WEDNESDAY 1/10
*(FR) FRANCE NOV INDUSTRIAL PRODUCTION M/M: -0.5% V -0.5%E; Y/Y: 2.5% V 2.6%E
*(UK) NOV INDUSTRIAL PRODUCTION M/M: 0.4% V 0.4%E; Y/Y: 2.5% V 1.8%E
(CN) China Officials: Said to view treasuries as less attractive; Recommends
slowing or halting Treasury buying
*(US) DEC IMPORT PRICE INDEX M/M: 0.1% V 0.4%E; Y/Y: 3.0% V 3.1%E
NVDA Announces world’s first functionally safe AI self-driving platform
(US) Association of American Railroads weekly rail traffic report for week
ending Jan 6th: 415.9K carloads and intermodal units, -4.6% y/y
(CA) Canada officials reportedly increasingly convinced Pres Trump will soon
announce a withdrawal from NAFTA – press
*(CN) CHINA FX REGULATOR SAFE: REPORT THAT CHINA IS CONSIDERING REDUCING OR
STOPPING PURCHASES OF US TREASURIES COULD BE BASED ON WRONG INFORMATION -
financial press
THURSDAY 1/11
TSCO.UK Reports Q3 UK LFL (ex-fuel, ex VAT) 2.3% v 2.4%e; Christmas
Trading period UK SSS ex fuel and ex vat +1.9%
DAL Reports Q4 $0.96 v $0.89e, Rev $10.2B v $10.2Be
WMT To raise U.S. wages, provide $1,000 bonus and expand hourly
maternity and parental leave
*(US) DEC PPI FINAL DEMAND M/M: -0.1% V +0.2%E; Y/Y: 2.6% V 3.0%E
*(US) TREASURY'S $12B 30-YEAR BOND REOPENING DRAWS 2.867%; BID-TO-COVER RATIO:
2.74 V 2.53 PRIOR AND 2.33 AVG OVER THE LAST 8 SALES (highest BTC since Dec
2014)
AMD Spokesperson: chip vulnerabilities are applicable to AMD processors;
two exploits uncovered apply to AMD chips – press
(US) US Commerce Sec Ross: Submitted results of probe into national security
impact of steel imports to President Trump
*(CN) CHINA 2017 TRADE BALANCE (CNY): +2.87T V +3.35T Y/Y
*(CN) CHINA DEC TRADE BALANCE ($): 54.7B V 37.0BE (highest monthly surplus
since Jan 2016*)
*(CN) CHINA DEC TRADE BALANCE (CNY) 362.0B V 235.2BE
FRIDAY 1/12
(DE) German coalition negotiations said to have achieved a breakthrough; still
working on a final deal - financial press
JPM Reports Q4 adj $1.76 v $1.69e, Rev $25.5B v $25.0Be
*(US) DEC ADVANCE RETAIL SALES M/M: 0.4% V 0.5%E; RETAIL SALES EX AUTO M/M:
0.4% V 0.3%E
*(US) DEC CPI M/M: 0.1% V 0.1%E; CPI EX FOOD AND ENERGY M/M: 0.3% V 0.2%E; CPI
NSA: 246.524 V 246.372E
JWN Reportedly family members will resume efforts to take company
private later this year - CNBC
Friday, January 12, 2018
Thursday, January 11, 2018
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
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
Friday, January 5, 2018
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
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
Friday, December 29, 2017
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.
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.
Sunday, December 24, 2017
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.
Friday, December 22, 2017
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
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
Sunday, December 17, 2017
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.
Friday, December 15, 2017
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
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
Saturday, December 9, 2017
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.”
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.
Friday, December 8, 2017
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
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
Friday, December 1, 2017
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
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
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