Trade Tensions Escalate; Central Bank Decisions Strengthen Greenback

TradeTheNews.com Weekly Market Update: Trade Tensions Escalate; Central Bank Decisions Strengthen Greenback
Fri, 15 Jun 2018 16:06 PM EST

A turbulent week was bookended by trade war concerns: a contentious G7 meeting last weekend ended with Canadian PM Trudeau promising to meet US tariffs with an equivalent response, and then on Friday the US administration slapped $50B in new tariffs on China. The Chinese government retaliated in kind and the US has reportedly identified another $100B in tariffs, threatening to set off tit-for-tat tariffs. Markets were more pleased that the nuclear summit in Singapore apparently went smoothly, with President Trump hailing his new strong personal relationship with North Korea’s Kim.

Central bank divergence became more pronounced as the Fed moved rates up another 25 basis points, while the ECB further delayed its first rate hike. The yield curve flattened further after the Fed move, as the policy statement dropped its forward guidance and as Chairman Powell spent a lot of time discussing the potential for inflation to spend some time above the 2% target. The euro tumbled on Thursday in the wake of the ECB announcement that rates would stay at zero at least until the summer of next year, which overshadowed a concurrent announcement that the QE program will be tapered in Q4. Meanwhile emerging markets remained troubled, emblemized by the Argentine peso hitting fresh record lows despite a $50B credit agreement signed with the IMF last week. Commodity price weakness accelerated through the end of the week, as crude tumbled 3% and copper fell more than 2% on Friday. For the week the DJIA dropped 0.9%, the S&P500 was flat, while the Nasdaq gained 1.3%.

In corporate news this week, the Time Warner-AT&T merger received long-sought-after approval from a federal judge, and the two completed their transaction on Friday after the DOJ said it would not seek a stay of the ruling. Seeing an all-clear signal from the court decision, Comcast made its anticipated proposal to acquire Twenty-First Century Fox assets in an all-cash $35/share deal, in a play to outbid Disney. Construction materials firm USG accepted a $7B bid from a German construction company after several months of talks involving shareholder Warren Buffett. Tesla announced 3K layoffs, about 9% of its workforce, largely directed at the company’s salaried employees and avoiding cuts to those in the production process.

SUN 6/10
(CH) SWITZERLAND VOLLGELD REFERENDUM RESULTS: VOTERS REJECT MOTION TO ABOLISH TRADITIONAL BANK LENDING AND ALLOW ONLY MONEY CREATED BY THE SNB (as expected)

TUES 6/12
(KR) Trump/Kim Document: US and North Korea commit to working towards complete denuclearization of the Korean peninsula
(UK) APR AVERAGE WEEKLY EARNINGS 3M/Y: 2.5% V 2.5%E; WEEKLY EARNINGS (EX BONUS) 3M/Y: 2.8% V 2.9%E
(UK) MAY JOBLESS CLAIMS CHANGE: -7.7K V +28.2K PRIOR; CLAIMANT COUNT RATE: 2.5% V 2.5% PRIOR
(UK) APR ILO UNEMPLOYMENT RATE: 4.2% V 4.2%E
(DE) GERMANY JUN ZEW CURRENT SITUATION: 80.6 V 85.0E; EXPECTATIONS SURVEY: -16.1 V -14.0E
(US) MAY CPI M/M: 0.2% V 0.2%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI NSA: 251.588 V 251.570E
TSLA Plans to cut 9% of total workforce as part of reorganization plan (cuts could amount to about 3,000 employees)
TWX *US JUDGE RULES AT&T/TWX MERGER CAN GO FORWARD; IMPOSES NO CONDITIONS ON THE MERGER - PRESS

WEDS 6/13
(UK) MAY CPI M/M: 0.4% V 0.4%E; Y/Y: 2.4% V 2.4%E; CPI CORE Y/Y: 2.1% v 2.1%E (matches the lowest annual pace in a year)
(US) MAY PPI FINAL DEMAND M/M: 0.5% V 0.3%E; Y/Y: 3.1% V 2.8%E
CAT Reports May dealer statistics: Total Machines +24% y/y
(US) Association of American Railroads weekly rail traffic report for week ending June 9th: 561.1K, +4.2% y/y
(US) FOMC UPDATED ECONOMIC FORECAST FOR JUNE MEETING (V. MAR): now forecasts 4 rate hikes in 2018
(US) US govt reportedly readying a specific list of goods from China that will be subject to tariffs on Friday - press
FOXA Comcast makes all-cash $35/shr proposal to acquire Twenty-First Century Fox after spinoff of "New Fox", values 21CF at $65B

THURS 6/14
(UK) MAY RETAIL SALES (EX AUTO/FUEL) M/M: 1.3% V 0.3%E; Y/Y: 4.4% V 2.5%E
(EU) ECB LEAVES MAIN 7-DAY REFINANCING RATE UNCHANGED AT 0.00%, AS EXPECTED
(EU) ECB REVISES QE BOND BUYING PROGRAM: QE to be reduced to €15B/month from Oct until Dec
Euro gives back initial taper gains as traders focus on ECB announcement that rates to be held steady until at least summer 2019
(EU) ECB's Draghi: Decision was unanimous; did not discuss when to raise interest rates - Q&A
(KR) US govt official: major military exercises on Korean peninsula have been 'suspended indefinitely' - press
(US) Atlanta Fed raises Q2 GDP forecast to 4.8% from 4.6% prior
(CN) White House said to put tariffs on a smaller list of 800 to 900 products from China tomorrow (trimmed from original list of 1,300 products) - CNBC
AT&T reaches deal with US govt on merger with Time Warner; DOJ will not seek a stay in merger; deal removes 6-day waiting period to close merger - press
(MX) Mexico govt said to consider possible tariffs on US corn and soybean imports if trade conflict escalates - press

FRI 6/15
TSCO.UK Reports Q1 UK LFL (ex VAT, ex-fuel) +2.1% v +1.9%e
US ANNOUNCES TARGET LIST OF CHINESE GOODS; to pursue more tariffs if China retaliates in imposing new tariffs or take punitive action against American companies
(CN) US said to be nearing completion of a 2nd tariff list comprising of $100B in Chinese goods, subject to same hearing conditions of approx 60 days - financial press
(US) JUN EMPIRE MANUFACTURING: 25.0 V 18.8E
(US) MAY INDUSTRIAL PRODUCTION M/M: -0.1% V +0.2%E; CAPACITY UTILIZATION: 77.9% V 78.1%E
(US) JUN PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 99.3 V 98.5E
(CN) China govt announces $50B in retaliatory tariffs on US goods, implementation to start on July 6th - press

Barrons weekend summary

Barrons weekend summary: positive features on LUV; cautious on Lowes 

Cover story: High-power batteries, which are set to disrupt the car industry in the coming decades, are quickly multiplying across the U.S. power grid, which will allow consumers to save on energy, towns to cut pollution and add jobs, and utilities to enjoy lucrative growth. 

Feature: 1) Positive on LUV: A recent midair accident, high fuel prices, and rivals’ expansion have pushed down the carrier’s shares, but with its strong business model and share buyback plans, the dip poses an opportunity for investors; 2) Hedge funds including BlueMountain Capital, Citadel, Apollo Global Management, Elliott Management, and Anchorage Capital Partners have been working together for months to fix credit-default-swap contracts; 3) Cautious on L: Conglomerate’s disclosure it may buy out the limited partners of BWP, which it controls, has prompted angry reactions from some minority investors who fear Loews will exercise its call right at an unfair price. 

Tech Trader: “These days the difference between expensive and inexpensive tech stocks is misleading. Many companies are having a hard time holding onto any valuation premium, whether or not their shares are relatively cheap or relatively pricey.” 

Trader: Michael Hartnett, chief investment strategist at BAC/Merrill Lynch, says it’s possible markets will see the return of “1998 risk,” in which the problems in emerging markets grow and eventually force investors in the U.S. to take defensive action; Positive on AABA: The company “remains a good proxy for investors seeking exposure to BABA” because of Altaba’s 15% stake in the e-commerce giant; In a new MIT working paper, researchers say that “managers seem tempted to overstate earnings as their companies gain attention and the rewards for lying increase.” 

Interview: Jenny Van Leeuwen Harrington, portfolio manager and CEO of Gilman Hill Asset Management, says a company’s dividend should be sacrosanct, even in tough economic times (picks: SIX, LB, QCOM). 

Profile: Magnus Larsson, lead manager of the AMG TimesSquare International Small Cap fund, says international small-mid-cap stocks are one of the few market sectors where active management can consistency add value. The Top 100 Women Financial Advisors: Barron’s annual list is topped by Karen McDonald of Morgan Stanley Wealth Management, Kimberlee Orth of Ameriprise Financial, and Valerie Newell of RiverPoint Capital Management. 

Follow-Up: Cautious on SBUX: With chairman Howard Schultz stepping down, “the time might be right for an activist investor to push for change—and presumably push Starbucks shares higher,” a move that would have to focus on capital allocation. 

European Trader: Uncertainty related to Trump administration auto tariffs has dented shares of German car makers, but they should quickly regain lost ground. 

Emerging Markets: The real problem for the Chinese stock market isn’t U.S. tariffs, but the nearly 170% of GDP in debt piled up by Chinese corporations, five times the proportion for U.S. companies. 

Commodities: “Copper has shown promise in recent weeks, and the long-term outlook is bright as global demand gradually strengthens, but realizing that potential may take time.” 

Streetwise: A potential presidential run by departing SBUX chairman Howard Schultz would have to reckon with a crowded field, and some of his ideas don’t match up with core Democratic Party ideas.-

Investors risk appetite unfettered by G7 sparring or key events next week

TradeTheNews.com Weekly Market Update: Investors risk appetite unfettered by G7 sparring or key events next week
Fri, 08 Jun 2018 16:03 PM EST

US stock markets pushed higher this week, easily scaling a wall of worry heading into the G7 meeting this weekend. Both President Trump and his counterparts steadily escalated rhetoric heading into what are expected to be contentious trade talks between allies. Investors also had to contend with the run-up to the US/North Korea summit and Brexit negotiations that seem to be heading nowhere fast. US data, though, remained at robust levels, with manufacturing and services PMIs topping expectations, potentially giving the Trump Administration further ammunition to play hardball in trade negotiations. Major US indices broke out to the best levels since March in some cases, while the Russell 2000 and the NASDAQ continued to touch fresh all-time highs. For the week the DJIA gained 2.8%, the S&P500 rose 1.6%, and the Nasdaq added 1.2%.

US Treasury yields moved up, helped by the release of solid growth figures and receding pessimism around rising yields in Southern Europe. The US dollar continued to retreat modestly in what some viewed as positioning ahead of key central bank meetings next week. The Euro surpassed 1.18 briefly as many expect the ECB to announce an exit to QE next week. Emerging market currencies stayed in focus, with central banks in Turkey and Brazil taking aggressive actions to fight declining exchange rates. Copper prices edged higher for six straight sessions, helped by Chilean supply concerns and data that showed Chinese imports jumped to an 18-month high in May.

In corporate news this week, Microsoft announced a $7.5B acquisition of cloud source code repository GitHub, a move that signals a further warming by the software giant towards open source. AthenaHealth initiated a process to explore strategic alternatives and also announced its CEO would step down amid the company’s fight against a takeover offer from activist Elliott Management. Reports emerged that the EU is set to announce in July a fine against Google as part of its market dominance probe into Android’s mobile OS platform. Apple shares dropped after Nikkei reported that the tech giant has warned suppliers of 20% fewer component orders for iPhones debuting in the latter half of 2018. Twitter lifted on news that its stock would be added to the S&P 500 index, and the company subsequently announced a $1B convertible notes offering. Tesla CEO Musk affirmed at a shareholder meeting that the auto manufacturer would reach its Model 3 production target of five thousand units/week this month. Starbucks Chairman Schultz announced he was stepping down from his post, igniting speculation that the politically minded executive may initiate a presidential run in the near future.


SUN JUNE 3
(CN) 3rd round of trade talks between China and US end without a deal: China comments: two sides have made "concrete progress"; any move by the US to impose punitive tariffs would derail the negotiations

MON JUNE 4
(EU) EURO ZONE JUN SENTIX INVESTOR CONFIDENCE: 9.3 V 18.5E
BHP.AU Escondida mine workers reportedly have not ruled out strike action at start of wage talks - press

TUES JUNE 5
(UK) MAY SERVICES PMI: 54.0 V 53.0E (22nd month of expansion)
HDS Reports Q1 $0.70 v $0.63e, Rev $1.39B v $1.35Be; May daily net sales tracking ~ +19% y/y
*(US) MAY ISM NON-MANUFACTURING COMPOSITE: 58.6 V 57.6E

WED JUNE 6
*(IN) INDIA CENTRAL BANK (RBI) RAISES REPURCHASE RATE BY 25BPS TO 6.25%; NOT EXPECTED (1st rate hike since Jan 2014)
FAST Reports May Net Sales $431.4M, +12.5% y/y
*(US) Q1 FINAL NONFARM PRODUCTIVITY: 0.4% V 0.6%E; UNIT LABOR COSTS: 2.9% V 2.8%E
(US) APR TRADE BALANCE: -$46.2B V -$49.0BE
ATHN Initiates process to explore strategic alternatives; CEO Bush steps down, effective immediately; Jeff Immelt appointed executive chairman
(US) Association of American Railroads weekly rail traffic report for week ending June 2nd: 509.7K, +3.2% y/y
GOOGL EU reportedly set to release negative finding in its Google investigation - FT
(JP) Japan Investors Net Buying of Foreign Bonds: -¥1.67T v -¥700.2B prior week (largest net sales in over 1-year); Foreign Net Buying of Japan Stocks: -¥527.6B v -¥380.0B prior week
COST Reports May SSS (ex-gas) 8.0%; US SSS (ex-gas) 8.7% v 5.6%e

THURS JUNE 7
*(EU) EURO ZONE Q1 FINAL GDP Q/Q: 0.4% V 0.4%E; Y/Y: 2.5% V 2.5%E
(IE) UK Govt publishes backstop proposal (as anticipated): Expects future trade deal in place by Dec 2021; range of options on how time limit would be done on Irish backstop
*(US) INITIAL JOBLESS CLAIMS: 222K V 220KE; CONTINUING CLAIMS: 1.741M V 1.74ME
(US) Fed Reports Q1 Financial Accounts: Household Change in Net Worth: $1.028T v $2.076T prior
*(US) APR CONSUMER CREDIT: $9.3B V $14.0BE (smallest in seven months)
(CN) China 2018 trade surplus may narrow by about 10% (implies surplus of about $380.3B*) - China Securities Journal
(AR) Argentina signed 36-month stand-by agreement with the IMF, provides for preliminary financing amount of $50B (above the $40B credit line that was speculated)
(JP) JAPAN Q1 FINAL GDP Q/Q: -0.2% V -0.1%E; ANNUALIZED Q/Q: -0.6% V -0.4%E
ANT.IPO Series C equity funding round said to close; co. said to raise ~$14.0B (above expectations, world's largest ever fundraising) - US financial press

FRI JUNE 8
AAPL Reportedly warns suppliers of 20% fewer component orders for iPhones debuting in the latter half of 2018 - Japan press
DPW.DE Cuts FY18 EBIT €3.2B (prior €4.18B), FCF >€1.0B (prior >€1.5B), Affirms FY20 Adj EBIT >€5B; Announces restructuring to PeP division
(CH) Swiss referendum on Sunday, Jun 10th that could abolish traditional bank lending and allow only money created by the SNB
(CA) CANADA MAY NET CHANGE IN EMPLOYMENT: -7.5K V +23.5KE (2nd straight decline); UNEMPLOYMENT RATE: 5.8% V 5.8%E
(SA) Saudi Arabia reportedly has increased oil production by 100K bpd in June ahead of implementation of Iran sanctions - press

Barrons weekend summary

Barrons weekend summary: Positive feature on LNC; cautious on DLTR 

Cover story: The current situation for recent and near-retirees is dicey, even for those with solid savings; “Retirement calculators often use historical average market returns—as much as 12% for stocks and 6% for bonds—but even the rosiest of optimists don’t expect anything near that over the next decade.” 

Features: 

1) Political risks aside, Europe’s fundamentals look decent, and the loss of confidence in the euro could be a boon for the region’s multinational corporations, lifting exports and profits; 

2) Positive on LNC: Despite an industry downturn, the firm, which specializes in variable annuities, has delivered respectable returns, and shares remain a bargain; 

3) Cautious on ETCG, GBTC: Digital currency securities have made millions for investors who got in early, but they trade at huge premiums to their underlying net asset value and could be affected by future regulatory shifts; 

4) Cautious on AAPL: At this year’s Worldwide Developers Conference, Apple could unveil augmented reality, artificial intelligence, and cross-platform app features that might allay investor concerns about the iPhone. 

Tech Trader: “Cloud computing is altering how the Street looks at company financials and what it will pay for stocks;” The upside is that companies can sell more to the same customers over years, but the risk is that firms become too inward looking and miss new trends. 

Trader: One of the problems the market faces is that leadership is too narrow, says Satya Pradhuman of Cirrus Research, noting the high valuation of the best-performing large-cap stocks relative to the market; Cautious on DLTR: Shares are down, and while investors could hold on in hopes of a bounce, they may be better off cutting their losses and closing out their positions; The promise of managed-futures strategies in a portfolio is that they generate uncorrelated returns, but that doesn’t matter if returns are consistently negative. 

Interview: Rob Arnott, founder of Research Affiliates, says index-fund managers can do better by going after overlooked alpha, and that AAPL shouldn’t be in the S&P 500. 

Profile: Eddie Yoon, manager of Fidelity Select Medical Technology and Devices Portfolio (FSMEX) and Fidelity Select Health Care Portfolio (FSPHX), doesn’t view healthcare as a defensive sector and invests for “secular growth” (FSPHX top 10 holdings: UNH, BDX, BSX, HUM, AMGN, VRTX, AZN, SYK, BAX, ISRG). 

Follow-Up: Positive on CRM: One of Salesforce’s strengths is that its customers are “sticky” because the software pairs so well with so many applications from other vendors. 

European Trader: Many of the world’s largest metal producers already have operations in the U.S. and can shift production there to avoid Donald Trump’s recently imposed tariffs, and they have substantial markets elsewhere to draw on. 

Emerging Markets: Very little is clear about Brazil’s short-term outlook, given years of corruption scandals affecting all of the established political parties, but many investors still aren’t fleeing. 

Commodities: “The Atlantic hurricane season has just begun, raising the potential for disruptions in a variety of commodities markets, from oil and natural gas to crops such as oranges and cotton.” 

Streetwise: Banks should avoid getting involved in social causes such as gun control, says Vito Racanelli, and their fiduciary duty is to earn the best return for shareholders by servicing legal businesses.

European Political Upheaval and Trump Trade Spat No Problem for Humming US Economy

TradeTheNews.com Weekly Market Update: European Political Upheaval and Trump Trade Spat No Problem for Humming US Economy
Fri, 01 Jun 2018 16:04 PM EST

Investors returned from the US holiday break to find markets under siege from threats in the European political apparatus. Italy looked headed for another election and Spanish PM Rajoy’s fate looked bleak sparking a risk off rally out of stocks into the core European and US Treasury bonds. The president stoked trade war concerns when he suggested they were moving forward with the process that will result in $50B in tariffs on additional Chinese products ahead of talks in Beijing . The administration doubled down on Thursday slapping steel and aluminum tariffs on partners in Europe and North America. The decision sparked swift backlash and counter tariffs announcements from friends on both sides of the Atlantic, but the market reaction was relatively muted. By Friday the political winds laid down after Italian politician obtained approval for a populist government to take the reins and Spain saw socialist leader Sanchez ascend to PM.

US indices briefly tested the 50-day moving average on Tuesday before navigating through global trade headlines for much of the week. Friday’s stronger than expected May employment report and solid ISM data gave investors increased confidence that the US economy has gained momentum and is unlikely to be deterred by geopolitics. The US 10-year yield careened towards 2.75% in the Italy induced safe have flows before backing up above 2.9% post jobs report. The Dollar largely stabilized at higher levels as European inflation figures showed some signs of life but questions remain on how the political winds in Europe will affect ECB thinking. Crude oil prices consolidated near 1.5 month lows ahead of this month’s highly anticipated OPEC producers meeting. For the week the S&P rose 0.5%, the Dow backtracked 0.5% and the NASDAQ gained 1.6%.

In corporate news, a report early in the week that Apple was set to employ only OLED screens in its future iPhone models sent OLED names higher, though analysts quickly cast doubt on the feasibility of such a move. Michael Kors shares slipped after reporting and guiding its SSS flat, despite beating on top and bottom line guidance. GM rose on a report that SoftBank Vision Fund planned to invest $2.25B in its GM Cruise self-driving unit. American steel names saw late-week strength on the US administration's implementation of tariffs against major allies. May US auto sales topped expectations, continuing to be buoyed by SUV and pickup demand. And Petrobras shares sputtered Friday on news that its CEO resigned in response to the government’s move to lower diesel prices amid trucker strikes.

SUNDAY 5/27
(IT) Italy President Mattarella said to have blocked the formation of a new government amid concerns that the coalition could hurt the country's membership in the Euro; Italy President and Cottarelli expected to meet on Monday - US financial press
(CN) PBOC RAISES OPEN MARKET OPERATION (OMO ) RATE ON 28-DAY REVERSE REPO BY 5BPS TO 2.85% FROM 2.80% (AS EXPECTED)

MONDAY 5/28
(IT) ITALY DEBT AGENCY (TESORO) SELLS €1.75B VS. €1.25-1.75B INDICATED RANGE IN ZERO COUPON MAR 2020 CTZ; AVG YIELD: +0.35% V -0.275% PRIOR; BID-TO-COVER: 1.86X V 1.58X PRIOR
(ES) Spain Ciudadanos Party leader Rivera (opposition): Legislature is over; has abandoned his agreement with PM Rajoy (as expected) - speech
(EU) EU Industrial policy chief Bienkowska: Seeing the end of the road for diesel cars, European Union consumers may do as much as regulators to propel the the region's car sector into the electricity-powered age - press

TUESDAY 5/29
(CN) White House to proceed with plans to impose 25% tariffs on $50B worth of imported goods from China - press
(US) MAY DALLAS FED MANUFACTURING ACTIVITY: 26.8 V 23.0E
CRM Reports Q1 $0.74 v $0.43e, Rev $3.01B v $2.94Be

WEDNESDAY 5/30
(FR) FRANCE Q1 PRELIMINARY GDP Q/Q: 0.2% V 0.3%E; Y/Y: 2.2% V 2.1%
(DE) GERMANY MAY CPI SAXONY M/M: 0.5% V 0.0% PRIOR; Y/Y: 2.2% V 1.6% PRIOR
(ID) INDONESIA CENTRAL BANK (BI) RAISES 7-DAY REVERSE REPO RATE BY 25BPS TO 4.75%; AS EXPECTED
(DE) GERMANY MAY UNEMPLOYMENT CHANGE: -11K V -10KE; UNEMPLOYMENT CLAIMS RATE: 5.2% (record low) V 5.3%E
(EU) EURO ZONE MAY BUSINESS CLIMATE INDICATOR: 1.45 V 1.29E; CONSUMER CONFIDENCE (FINAL): 0.2 V 0.2E
(IT) ITALY DEBT AGENCY (TESORO) SELLS TOTAL €3.571B VS. €2.5-4.0B INDICATED RANGE IN 5-YEAR AND 10-YEAR BTP BONDS
(DE) GERMANY MAY PRELIMINARY CPI M/M: 0.5% V 0.3%E; Y/Y: 2.2% V 1.9%E
(US) MAY ADP EMPLOYMENT CHANGE: +178K V +190KE
(US) Q1 PRELIMINARY GDP ANNUALIZED Q/Q: 2.2% V 2.3%E; PERSONAL CONSUMPTION: 1.0% V 1.2%E
(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATE UNCHANGED AT 1.25%; AS EXPECTED
(US) Conference Board May Total online job ads 4.70M v 4.75M m/m v 4.80M y/y; New ads 1.87M v 2.01M m/m v 2.01M y/y
(US) Association of American Railroads weekly rail traffic report for week ending May 26th: 565.5K, +4.4% y/y
(US) FEDERAL RESERVE BEIGE BOOK: ECONOMIC ACTIVITY ROSE AT A MODERATE OR BETTER PACE IN ALL 12 FED DISTRICTS
(EU) US said to plan to go ahead with tariffs on European Union steel and aluminum - press
(HK) Press speculates that Macau gaming Rev in May will be +15% y/y

THURSDAY 5/31
(FR) FRANCE MAY PRELIMINARY CPI M/M: 0.4% V 0.3%E; Y/Y: 2.0% V 1.9%E
GM SoftBank Vision Fund to invest $2.25B in GM Cruise, the company's self-driving unit
(US) INITIAL JOBLESS CLAIMS: 221K V 228KE; CONTINUING CLAIMS: 1.726M V 1.73ME
(US) APR PERSONAL INCOME: 0.3% V 0.3%E; PERSONAL SPENDING: 0.6% V 0.4%E
(US) Nevada reports April casino gaming Rev $953.7M, +7.6% y/y; Las Vegas strip Rev $499.5M, +5.1% y/y
(US) Commerce Sec Ross: Trump administration imposes metal tariffs on Canada, Mexico and EU as of midnight (as speculated)
(US) APR PENDING HOME SALES M/M: -1.3% V +0.4%E; Y/Y: +0.4% V -4.3% PRIOR
(US) Atlanta Fed raises Q2 GDP forecast to 4.7% from 4.0% prior
(IT) Five Star official: League and Five Star parties have reached agreement on coalition govt - press
COST Reports Q3 $1.70 v $1.68e, Rev $31.6B v $31.7Be
(JP) BoJ announcement related to daily bond buying operation; Trims planned 5-10 year JGB purchase to ¥430B v ¥450B prior

FRIDAY 6/1
(HK) Macau May Gaming Rev MOP25.49B, Y/Y: 12.1% v 17%e
(UK) MAY MANUFACTURING PMI: 54.4 V 53.5E (22nd month of expansion)
(US) MAY CHANGE IN NONFARM PAYROLLS: +223K V +190KE
(CA) Pres Trump tweets: "Canada has treated our Agricultural business and Farmers very poorly for a very long period of time. Highly restrictive on Trade! They must open their markets and take down their trade barriers! They report a really high surplus on trade with us. Do Timber & Lumber in U.S.?"

North Korea Summit Sidetracked; Euro Fate Back on the Radar

TradeTheNews.com Weekly Market Update: North Korea Summit Sidetracked; Euro Fate Back on the Radar
Fri, 25 May 2018 16:04 PM EST

- Investors opened the week bidding up risk assets on news that the Trump administration had at least for now, put on hold $150B in tariffs aimed at Chinese goods. The positive vibes were short lived though. Wednesday the administration revealed they were studying a plan for new tariffs on imported vehicles, based on national security grounds that could run as high as 25%. Then the next day Trump disclosed he had notified North Korean officials that the June summit was off for now, sparking speculation that China hawks would use the setback as ammunition to take a harder line in ongoing trade negotiations. Wednesday’s FOMC minutes were viewed in a more dovish light than many had expected and that along with the consternation surrounding geopolitics resulted in a significant decline in US Treasury yields sending the 10-year back below 3%. By Thursday risk off flows had gained momentum as uneasiness surrounding the incoming populist government in Italy continued to send Italian bond yields higher. By Friday the contagion had spread to Spain as questions around PM Rojoy’s government sent spreads to German government bond yields to some the widest levels seen since the European debt crisis early this decade. The Euro dropped below 1.17 for the first time since Dec. Crude prices were slammed late in the week, falling 4% on Friday alone, as oil producers all but confirmed they were likely to allow production rates to rise next month when they meet in order to keep markets balanced. For the week the S&P rose 0.3%, the Dow added 0.2% and the NASDAQ was up more than 1%.

- In corporate news this week, Wabtec rose on plans to merge with GE’s Transportation unit, in a deal valued at $11B. Comcast shares fell after confirming it was readying a bid to rival Disney's for Fox assets. Micron surged towards all-time highs on a buyback announcement and a guidance raise. In the retail space, Tiffany beat consensus and reported 9% America comp sales growth; Best Buy shares were hurt by lackluster guidance; L Brands fell on a disappointing outlook; and Gap missed on its bottom line. Deutsche Bank said it planned to cut back its US and CEMEA equities groups, with overall job reductions that could reach 10,000 positions. Foreign automakers were weighed down by reports that the White House was looking into new tariffs on imported vehicles. And Fiat Chrysler dropped on Friday after announcing a 4.8M vehicle recall in the US due to malfunctions with its cruise-control software.

SUNDAY 5/20
(US) Treasury Sec Mnuchin: planned tariffs on Chinese steel and aluminum, as well as $150 billion worth of other Chinese goods, would be put on hold as talks with China proceed - press
(US) Treasury Sec Mnuchin: President Trump is more interested in striking a good deal with Canada and Mexico than quickly finishing NAFTA talks in order to get a vote from Congress this year - press

MONDAY 5/21
WAB Confirms to merge with GE transportation in deal valued at $11.1B; To receive $2.9B in cash upfront
(TW) Chipmakers expected to raise prices for 8NM process - Digitimes

TUESDAY 5/22
(CN) China Govt plans to cut the import duty on cars from 25% to 15%, effective July 1st - financial press
(US) MAY RICHMOND FED MANUFACTURING INDEX: 16 V 10E
(CN) Treasury Sec Mnuchin: steel and aluminum tariffs will remain in force against China - remarks in congressional hearing
FB CEO: Facebook is ready to make significant investments to keep people safe; improvements will significantly impact profitability - remarks to EU
(CN) President Trump: not pleased with how trade talks went with China; talks were a start but am not satisfied
(US) FDA Commissioner Gottlieb: FDA could allow for easier path for gene therapy approval; first focus to be on hemophilia products in pipeline
Reportedly OPEC may consider raising production at the June meeting to offset production decline in Venezuela and Iran export disruptions due to US sanctions - press
(US) President Trump said to aim for 10% cut in European steel and aluminum exports to the US - press

WEDNESDAY 5/23
*(FR) FRANCE MAY PRELIMINARY MANUFACTURING PMI: 55.1 V 53.7E (20th month of expansion)
*(DE) GERMANY MAY PRELIMINARY MANUFACTURING PMI: 56.8 V 57.9E (41st month of expansion)
(EU) EURO ZONE MAY PRELIMINARY MANUFACTURING PMI: 55.5 V 56.1E (58th month of expansion)
(UK) APR CPI M/M: 0.4% V 0.5%E; Y/Y: 2.4% V 2.5%E; CPI CORE Y/Y: 2.1% V 2.2%E (lowest annual reading in a year)
TGT Reports Q1 $1.32 v $1.38e, Rev $16.8B v $16.5Be
TIF Reports Q1 $1.14 v $0.84e, Rev $1.03B v $961Me; Authorizes $1B share repurchase program (7.8% of market cap)
(US) Casino workers union votes to authorize a strike at any time starting June 1st (first time in 3 decades)
(US) MAY PRELIMINARY MARKIT MANUFACTURING PMI: 56.6 V 56.5E (44-month high)
(US) APR NEW HOME SALES: 662K V 680KE
PPB.UK Announces combination of Betfair US with FanDuel; to contribute its existing US assets along with $158M in cash
(TR) Turkey Central Bank held extraordinary rate meeting to evaluate developments in recent period - press
(US) Association of American Railroads weekly rail traffic report for week ending May 19th: 546.4K, +3.6% y/y
(TR) Turkey Central Bank (CBRT): raises Late Liquidity Window (LLW) by 300bps to 16.50% (intra-meeting move)
(IR) Iran Supreme Leader announces 7 conditions for European nations if they want Iran to remain in the nuclear accord
(US) US President Trump: Confirms has given Commerce Dept the order to consider probe on auto imports under Section 232 review (as speculated)
*(KR) BANK OF KOREA (BOK) LEAVES REPO RATE UNCHANGED AT 1.50%; AS EXPECTED

THURSDAY 5/24
992.HK Reports Q4 Net $33M v $107M y/y, Rev $10.6B v $9.60B y/y
DB Finalizes equities business review; to reduce Equities Sales & Trading business headcount by ~25% (total full-time positions to fall from over 97K to well below 90K (over 7K in cuts, in-line with earlier reports)
(DE) GERMANY JUN GFK CONSUMER CONFIDENCE: 10.7 V 10.8E
*(DE) GERMANY Q1 FINAL GDP Q/Q: 0.3% V 0.3%E; Y/Y: 2.3% V 2.3%E; GDP NSA Y/Y: 1.6% V 1.6%E
(FR) FRANCE MAY BUSINESS CONFIDENCE 106 V 108E; MANUFACTURING CONFIDENCE: 109 V 108E
(US) Department of Justice (DOJ) said to weigh criminal probe of Bitcoin price rigging - press
*(UK) APR RETAIL SALES (EX AUTO FUEL) M/M: 1.3% V 0.5%E; Y/Y: 1.5% V 0.1%E
(NK) North Korea said to have carried out the demolition of one of its nuclear test sites - financial press
BBY Reports Q1 $0.82 v $0.75e, Rev $9.11B v $8.78Be
(US) INITIAL JOBLESS CLAIMS: 234K V 220KE; CONTINUING CLAIMS: 1.741M V 1.75ME
(KR) President Trump sends letter to North Korea's Kim: says inappropriate to have June 12th summit at this time; looks forward very much to meeting some day
GPS Reports Q1 $0.42 v $0.45e, Rev $3.78B v $3.61Be; affirms FY18 guidance
(KR) North Korea Vice Foreign Min Kim Kye Gwan: Willing to talk with US at 'any time'; no change in will to do the best for peace - KCNA
486.HK Says Oleg Deripaska resigns as non-executive board member; effective May 25 2018

FRIDAY 5/25
MAERSKB.DK Said to introduce 'emergency' bunker surcharge in order to deal with the higher costs of marine fuel - FT
(ES) Spain Ciudadanos Party said to be willing to back a no-confidence measure unless PM Rajoy calls for a snap election
(US) APR PRELIMINARY DURABLE GOODS ORDERS: -1.7% V -1.3%E; DURABLES EX TRANSPORTATION: 0.9% V 0.5%E
FCAU To recall 4.8M vehicles in the US over software in powertrain control modules; in certain vehicles drivers 'could be unable to cancel cruise-control'
(KR) Pres Trump: we'll see what happens about Korea summit after North Korea's 'nice statement'; summit could still be on for June 12th
(US) MAY FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 98.0 V 98.8E
763.HK Pres Trump reportedly has reached 'tentative deal' with China over ZTE - Fox Business
(US) Atlanta Fed cuts Q2 GDP forecast to 4.0% from 4.1% prior

Barrons weekend summary

Barrons weekend summary: positive on consumer stocks PEP, KO and PG 

Cover story: Profile of Jack Bogle, founder of the Vanguard Group and inventor of the index fund; Bogle addresses criticisms that indexing has destabilized the market, suggests how the ETF might come to an end, and says that if the market faces a long bout of underperformance, the necessity of lower costs will increase. 

Features: 1) Profile of Donald Trump’s chief economic advisor, Larry Kudlow, who “may be the last great hope for those still trying to reconcile Trump’s policies with old-school conservative economic principles”; 2) Asset managers, proprietary trading firms, bitcoin miners, and retail investors are growing more comfortable with bitcoin, despite a recent price drop of 58% since December; 3) Positive on PEP, KO, PG: Consumer stocks make sense for income-hungry investors—with the potential for mid-single-digit earnings growth ahead and decent yields, ten percent one-year total returns are within reach. 

Tech Trader: ROKU is shifting from a hardware company to a graphical user interface for TV brands that don’t want to make their own software, becoming a home page for viewers and a portal for 6,000 channels; its shares are a bet on the future of TV. 

Trader: A good part of the recent improvements in the market, such as supercharged earnings growth, may already have been baked into the market high of January 26; Cautious on LOW: Company has trailed rival HD in important metrics such as same-store sales and profit margins, but is taking steps in the right direction, such as the addition of three new board members; Cautious on AVAV, KTOS: Drone makers face a range of challenges, including a whistleblower suit at AeroVironment and cash-flow problems at Kratos, and activist investor Ben Axler has criticized both companies. 

Profile: Andrew Mattock, lead manager of the Matthews China fund, who says China demands that investors be open to new ideas, and be nimble amid constant change in the country (top 10 holdings: BABA, Tencent, Agricultural Bank of China, China Construction Bank, China Life Insurance, Sino Biopharmaceutical, Ping An Insurance Group, China National Building Material, BIDU). 

Follow-Up: A deal between CBS and VIA seems remote, but CBS still holds significant value for shareholders, with NFL games and top-rated prime-time shows both popular by today’s TV standards. 

European Trader: Positive on William Hill, GVC Holdings, 888 Holdings: U.K. companies are a good way for investors to benefit from legalized sports betting, and all likely to see gains ahead. E

merging Market: The complicated and uncertain political situation in Malaysia, where events “are weird even by contemporary global standards,” makes investing in the country difficult. 

Commodities: “Prices for diesel fuel may revisit records within the next year or two affecting many markets, from refiners to transportation to agriculture.” 

Streetwise: Donald Trump deserves more credit than he gets for the strength of the U.S. economy, says Brett Arends, despite the erratic nature of his approach to governing.

Stocks Weather a Breakout in Treasury Yields and Burgeoning Dollar Momentum

TradeTheNews.com Weekly Market Update: Stocks Weather a Breakout in Treasury Yields and Burgeoning Dollar Momentum
Fri, 18 May 2018 16:12 PM EST

Equity markets leaned into several stiff headwinds this week, but ultimately held up relatively well. Indices experienced some turbulence on Tuesday when US Treasury yields finally broke out to fresh multi-year highs highlighted by the benchmark 10-year surpassing the 2014 high of 3.03%. Tuesday also saw the May Empire manufacturing data jump and solid April retail sales figures solidify expectations that the Fed remains on a gradual path to normalization despite another soft first quarter. Subsequently, the greenback saw upside momentum accelerate, which continued to result in pain for a host emerging market currencies and relative weakness in their regional stock markets. European Union jitters re-emerged with the formation of a more populist government in Italy, which once again manifest in the widening of peripheral bond spreads, hearkening back to the Greek crisis earlier this decade. The trade news out of Washington DC wasn’t particularly positive, either: House Speaker Ryan’s imposed NAFTA deadline came and went without any concrete agreements to speak of, while President Trump himself noted he was doubtful China trade talks would be successful just hours before meeting Vice Premier Liu He at the White House. Nevertheless, the Russell 2000 was the first of the US indices to retake fresh all-time higher territory, and for the week the Dow fell 0.5%, S&P lost 0.5%, and the Nasdaq dropped 0.7%.

In corporate news, optical names rallied early in the week on a potential about-face by President Trump to perhaps loosen US sanctions against China’s ZTE. CBS sought to prevent Shari Redstone’s National Amusements from blocking a shareholder vote to dilute her voting power in the company, but a judge denied CBS’s motion for a temporary restraining order, sending CBS shares sharply lower Thurs. Home Depot earnings surprised to the upside, but revenue was weaker than expected, hampered by a long winter. Macy's jumped on an earnings beat and raised guidance, while Nordstrom fell on disappointing outlook. Deere beat and raised its net income outlook amid strengthening demand. Abaxis surged on a $2B Zoetis offer to buy the veterinary point of care instrument manufacturer for $83/shr. Kroger shares popped after inking a partnership deal with the UK’s Ocado Group.
MON MAY 14
(IQ) Nationalist cleric Moqtada al-Sadr (rival to PM Abadi) is leading in Iraq’s parliamentary election (surprise comeback for a Shi’ite leader who had been sidelined by Iran-backed rivals)
(US) No NAFTA meetings are reportedly scheduled before the May 17th deadline set by US Congress - press

TUES MAY 15
TKA.DE Reports Q2 Net €253M v -€870M y/y, adj EBIT €500M v €500Me, Rev €10.8B v €10.7Be
ACA.FR Reports Q1 Underlying Net €788M v €880Me, Rev €4.91B v €5.02Be
VOD.UK Reports FY17/18 Adj EBIT €4.83B v €3.97B y/y, adj EBITDA €14.74B v €14.62Be, Rev €46.6B v €47.6B y/y
*(UK) MAR AVERAGE WEEKLY EARNINGS 3M/Y: 2.6% V 2.6%E; WEEKLY EARNINGS (EX-BONUS) 3M/Y: 2.9% V 2.9%E
(UK) APR JOBLESS CLAIMS CHANGE: 31.2K V +15.7K PRIOR; CLAIMANT COUNT RATE: 2.5% V 2.4% PRIOR
*(UK) MAR ILO UNEMPLOYMENT RATE: 4.2% V 4.2%E
(EU) EURO ZONE Q1 PRELIMINARY GDP Q/Q: 0.4% V 0.4%E; Y/Y: 2.5% V 2.5%E
(DE) GERMANY MAY ZEW CURRENT SITUATION SURVEY: 87.4 V 85.2E; EXPECTATIONS SURVEY: -8.2 V -8.2E
HD Reports Q1 $2.08 v $2.06e, Rev $24.9B v $25.2Be
(US) MAY EMPIRE MANUFACTURING: 20.1 V 15.0E
(US) Atlanta Fed raises Q2 GDP forecast to 4.1% from 4.0% prior
(KR) North Korea cancels Weds high-level talks with South Korea; threatens to cancel Trump-Kim summit over US-South Korea military drills - Korean press
(US) MAR TOTAL NET TIC FLOWS: -$38.5B V $44.7B PRIOR; NET LONG-TERM TIC FLOWS: $61.8B V $49.0B PRIOR
(JP) JAPAN Q1 PRELIM GDP Q/Q -0.2% V % 0.0%E; ANNUALIZED Q/Q: -0.6% V -0.1%E (first contraction in 9 quarters)

WEDS MAY 16
(IT) Italy Five-Star Movement and League Party said to urge a rethink of EU economic governance - financial press
700.HK Reports Q1 (CNY) Net 23.3B v 17.4Be; Rev 73.5B v 70.8Be
M Reports Q1 $0.42 v $0.36e, Rev $5.54B v $5.43Be; raises outlook, ends China JV
(US) APR HOUSING STARTS: 1.287M V 1.310ME; BUILDING PERMITS: 1.352M V 1.350ME
(US) APR INDUSTRIAL PRODUCTION M/M: 0.7% V 0.6%E; CAPACITY UTILIZATION: 78.0% V 78.4%E
CSCO Reports Q3 $0.66 v $0.65e, Rev $12.5B v $12.4Be
(BR) BRAZIL CENTRAL BANK (BCB) LEAVES SELIC TARGET RATE UNCHANGED AT 6.50%; NOT EXPECTED (1st pause in its year-long easing cycle)

THURS MAY 17
(ID) INDONESIA CENTRAL BANK (BI) RAISES 7-DAY REVERSE REPO RATE BY 25BPS TO 4.50%, AS EXPECTED (1st hike since Nov 2014)
*(US) INITIAL JOBLESS CLAIMS: 222K V 215KE; CONTINUING CLAIMS: 1.707M V 1.78ME
(US) MAY PHILADELPHIA FED BUSINESS OUTLOOK: 34.4 V 21.0E (12 month high)
CBS Judge denies motion for temporary restraining order in CBS v National Amusements
(US) Pres Trump: doubts China trade talks will be successful
AMAT Reports Q2 $1.22 v $1.13e, Rev $4.57B v $4.41Be
(CN) Reportedly China trade delegation offers package to reduce US trade deficit by $200B annually - press

FRI MAY 18
AZN.UK Reports Q1 Core EPS $0.48 v $0.58e, Rev $5.18B v $5.34Be
(IT) Italy 5-Star Movement leader Di Maio: Confirms agreement on govt contract with League
(US) Weekly Baker Hughes US Rig Count: 1,046 v 1,045 w/w (+0.1%) (7th straight rise)

Barrons weekend summary

Barrons weekend summary: positive features on KR, ANET 

Cover story: The growing wave of share buybacks is a good reason for investors to be in stocks at this time; Buybacks offer investors an effective yield of about 3%, which when combined with the 1.9% current dividend yield, provides nearly 5%—which holds up well against alternatives. 

Feature: 1) Positive on KR: Despite AMZN’s move into the grocery sector, Kroger has gained market share in recent years, and remains a top-three player in almost all its market; Consumers tend to prefer a supermarket to other formats, such as grocery delivery; 2) More oil-price increases could be on the horizon as additional Trump administration sanctions on Iran curtail its ability to supply markets, while problems in Venezuela could mean further cuts in production there; 3) Positive on T, XOM, PG, KMB, KO, ED, CAH, LEG, CVX, TGT, FRT, PEP: These 12 stocks have dividend yields of at least 3.3%, well above the S&P 500 average of about 2%, and because many have been beaten down, some could be attractive value plays; 3) Story looks at hedge fund manager Whitney Tilson’s Kase Learning, an educational company that teaches people who to be better investors; 4) Positive on ANET: Company is entering CSCO’s dominant franchise: switches that connect computers on corporate networks, and its success or failure could determine whether its pricey shares continue to rise. 

Tech Trader: Positive on ANET, Innovium: The startups are set to disrupt the dominance of CSCO and AVGO in networking equipment and the chips that power them; As more corporations connect to cloud-computing data centers, they will look to move past decades-old technologies, benefiting Arista and Innovium. 

Trader: Volatility is dormant, not dead, says Andrew Slimmon of Morgan Stanley Investment Management, and there is a good chance the S&P 500 will finish roughly flat after seeing large gains; Amid the growth of computer-generated trading, investors are almost guaranteed to see a short-term response to a “death cross” when one finally occurs; Cautious on SEAS: With 12 parks in the U.S., the company has a “fundamentally attractive set of assets,” but has yet to get past bad publicity related to allegations of poor treatment of whales. 

Profile: Jason Brady is manager of the Thornburg Limited Term Income fund, which is structured as a laddered portfolio, holds bonds to maturity, and reinvests them back into the portfolio (top 10 sectors: corporate bonds, asset-backed securities, Treasuries, collateralized mortgage obligations, cash and equivalents, commercial MBS, government agency, municipal bonds, mortgage pass through, foreign treasuries). 

Interview: Chuck Clough and Vince Lorusso of the Clough Global Long/Short fund, “an old fashioned fundamental research asset manager with a global perspective,” make the case for shorting tech and buying India. 

Follow-Up: California’s rule that developers must install solar panels on new residential buildings won’t do much for manufacturers, many of which are overseas, but will boost the installation and development industry. 

European Trader: Investors worried about the performance of major European and American stock benchmarks should consider a broad bet on U.K. stocks, say Bank of America Merrill Lynch strategists ( Positive on BP, BBL, FKU, HEWU). 

Emerging Markets: Investors in China will soon be able move past tech giants BABA, Tencent Holdings, and BIDU as half-a-dozen multibillion-dollar IPOs from the country’s tech sector launch this year—but rewards won’t come without risk. 

Commodities: Lumber prices have risen by more than 300% this year to reach their highest level on record amid tight supplies, but analysts say the trend isn’t likely to last, and a 50% drop could be on the horizon. 

Streetwise: Recent revelations about corporate payments to Donald Trump’s personal attorney, Steven Cohen, underscore that current campaign-finance disclosure laws aren’t enough to ensure good behavior.

Trump Dumps JCPOA; Equities, Oil and the Dollar Lift

TradeTheNews.com Weekly Market Update: Trump Dumps JCPOA; Equities, Oil and the Dollar Lift
Fri, 11 May 2018 16:04 PM EST

US stock indices moved out to the best levels since March this week, after inflation readings remained relatively benign, keeping a lid on Treasury yields and lingering inflationary concerns. Regardless, WTI crude finished the week with a $70 handle for the first time since 2015 after Trump made good on his campaign promise to pull out of the Iran nuclear deal. The Greenback continued to melt up causing consternation for several emerging market currencies and resulted in various central bank interventions. The BOE met and, as expected, ratcheted back expectations for further hikes this year. Brexit, NAFTA, and China trade negotiations wore on with little concrete progress to speak of. North American trading partners met in D.C. and remained hopeful that some kind of agreement can be reached by next week's self-imposed deadline, with some speculation that negotiators might shift toward a ‘skinny’ NAFTA deal as a starting point. For the week the S&P500 rose 2.4%, the DJIA added 2.3%, and the Nasdaq gained 2.7%.

In corporate news this week, Walmart confirmed an agreement to acquire 77% of India’s Flipkart for $16B in order to accelerate its move into commerce in South Asia. Nestle and Starbucks announced a $7.2B partnership to market, sell, and distribute Starbucks’ coffee brands, excluding the ready-to-drink products. AthenaHealth received an unsolicited $160/share cash offer from holder Elliott Management, who see promise for the company in the healthcare IT industry. Nvidia posted a beat on revenue and earnings in its quarterly report, but warned investors that their cryptocurrency-related chip sales will be reduced substantially this quarter. Disney earnings also exceeded top and bottom line estimates thanks to a slew of blockbusters that drove 21% rev growth in its studio division. Wendy's and Papa John’s lost ground following disappointing results once again.


MONDAY MAY 7
(EU) EURO ZONE MAY SENTIX INVESTOR CONFIDENCE: 19.2 V 21.0E
*(US) MAR CONSUMER CREDIT: $11.6B V $15.2BE

TUESDAY MAY 8
DPW.DE Reports Q1 Net €600M v €633M y/y, EBIT €905M v €972Me, Rev €14.8B v €14.9B y/y
(AR) Argentina Pres Macri: have started negotiations with IMF for a flexible credit line
(US) Federal Reserve Apr Senior Loan Officer Survey: banks reported weaker demand for auto and credit card loans; banks eased standards on CRE loans due to competition
DIS Reports Q2 $1.84 v $1.68e, Rev $14.5B v $14.2Be
(KR) China Premier Li: Urges concerned parties to seize opportunity to promote denuclearization, maintain peace and stability on the Korean Peninsula - Xinhua

WEDNESDAY MAY 9
DTE.DE Reports Q1 adj Net €1.19B v €939M y/y, adj EBITDA $5.55B v $5.51Be, Rev €17.9B v €18.1Be
SIE.DE Reports Q2 Net €2.0B* v €1.14Be, Industrial Business profit €2.25B v €2.07Be, Rev €20.2B v €20.5Be
ABI.BE Reports Q1 $0.73 v $0.79e, EBITDA $5.0B v $4.81B y/y, Rev $13.1B v $12.8Be
9984.JP Reports FY17/18 Net ¥1.04T v ¥1.43T y/y, Op ¥1.30T v ¥1.28Te, Rev ¥9.16T v ¥8.90T y/y
(US) APR PPI FINAL DEMAND M/M: 0.1% V 0.2%E; Y/Y: 2.6% V 2.8%E
(IR) Pres Trump: if Iran restarts its nuclear program there will be very severe consequences
(US) Atlanta Fed maintains Q2 GDP forecast at 4.0%, unchanged from May 3rd
(US) Association of American Railroads weekly rail traffic report for week ending May 5th: 545.9K, +7.5% y/y

THURSDAY MAY 10
(PH) PHILIPPINES CENTRAL BANK (BSP) RAISES OVERNIGHT BORROWING RATE BY 25BPS TO 3.25%; AS EXPECTED
(UK) MAR INDUSTRIAL PRODUCTION M/M: 0.1% V 0.2%E; Y/Y: 2.9% V 3.1%E
(UK) BANK OF ENGLAND (BOE) QUARTERLY INFLATION REPORT
(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.50%; AS EXPECTED
*(UK) BOE MAY MINUTES: VOTED 7-2 TO LEAVES INTEREST RATES UNCHANGED (McCafferty, Saunders dissent calling for 25bps hike)
(US) APR CPI M/M: 0.2% V 0.3%E; CPI EX FOOD AND ENERGY M/M: 0.1% V 0.2%E; CPI NSA: 250.546 V 250.700E
NVDA Reports Q1 $2.05 v $1.65e, Rev $3.21B v $2.91Be

FRIDAY MAY 11
MT.NL Reports Q1 $1.17 v $0.98 y/y, EBITDA $2.51B v $2.36Be, Rev $19.2B v $18.5Be
(US) UBS Asset Management's Briscoe: Close to the end of Fed rate hike cycle
*(IT) ITALY DEBT AGENCY (TESORO) SELLS TOTAL €6.75B VS. €5.25-6.75B IN 2021, 2025 AND 2033 BTP BONDS
(US) APR IMPORT PRICE INDEX M/M: 0.3% V 0.5%E; Y/Y: 3.3% V 3.9%E
(CA) CANADA APR NET CHANGE IN EMPLOYMENT: -1.1K V +20.0KE; UNEMPLOYMENT RATE: 5.8% V 5.8%E
CAT Reports Apr dealer statistics: Total Machines +28% y/y
(US) MAY PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 98.8 V 98.3E
(US) Weekly Baker Hughes US Rig Count: 1,045 v 1,032 w/w (+1.3%) (6th straight rise)
(US) Pres Trump: expects 'much lower prices on drugs' taking effect 'very soon'; the middlemen won't be so rich anymore

Barrons weekend summary

Barrons weekend summary: Cover story on XOM; Cautious feature on WWW 

Cover story: At a time when renewable energy is on the rise, XOM is doubling down on oil and natural-gas production, while rivals are curtailing capital investment and returning cash to shareholders; To capitalize on oil and natural gas, Exxon “has an ambitious plan to increase its energy output by 25% and more than double its earnings by 2025.” 

Features: 1) The current dealmaking boom has gone on for nearly eight years by some estimates, but booms are cyclical and investors are starting to question how long the current cycle will last; 2) Positive on VNQ, BKLN, MUB, NOBL, XLU: As the Fed raises interest rates, income-generating assets may be pressured, but these plays offer decent yields and relative safety; 3) Positive on AEB Pfd, JPM Pfd H, MS Pfd E, KKR Pfd A, APO Pfd A, SSW Pfd E: Amid shifting 10-year Treasury yields and changing corporate and industry credit conditions, these six preferred-stock issues offer high yields and strong protections; 4) “Utility stocks and rising bond yields don’t mix well, but investors can still find companies capable of fighting that headwind with solid growth prospects”; 5) Cautious on WWW: Company has set aside $35M to cover legal and remediation costs for the leak of Scotchguard chemicals into wells and aquifiers, but investors wonder if that amount will be enough. 

Tech Trader: Cautious on AAPL: Warren Buffet’s stake in the company is less a tech investment than an appreciation of cash flow, and the company’s current lineup of products “represents a kind of stagnation for Apple and the mobile tech industry”; “The tech world feels like it’s poised on the edge of its next great leap, but the elements to make that possible are not yet available.” 

Trader: Stifel’s Barry Bannister thinks the market will decline to around 2520 by the end of September as global growth slows, the dollar rises, and the 10-year yield falls—after which it will rise by 10% by year-end; Positive on BA: Aerospace giant is moving more into the aircraft interiors and avionics sector, and could become a major player when it rolls out the B797; Positive on SRPT: Company’s exon-skipping program is going faster than anticipated, says JMP Securities analyst Liisa Bayko. 

Interview: Silicon Valley venture-capital titan John Doerr talks about a corporate approach based on “objectives and key results,” or OKRs, which he would like to bring to government, schools, and nonprofits. 

Follow-Up: Positive on AAPL: While Wall Street worries about iPhone growth, the company is diversifying its business in areas such as the cloud, iTunes, and digital content. 

European Trader: Positive on Continental: Tire company is also a big player in powertrain manufacturing, brake systems, interior-electronics, and other auto components—and should see sturdy growth ahead. 

Emerging Markets: The Fed probably won’t choke off demand for risk assets this time, says Eamon Aghdasi of State Street Global Markets, and currencies will probably remain range-bound with more volatility. 

Commodities: “In a few days, the U.S. will decide whether to extend waivers on economic sanctions against Iran. If it doesn’t, the global market could lose about one million barrels of oil a day” 

Streetwise: Commenting on TSLA, Ben Levisohn says that “when management feels the need to ply investors with made-up metrics and visionary arrogance, they shouldn’t forget that investors have a choice too: they don't have to buy the stock.”-

Indices roller coaster ride ends after unemployment rate finally drops below 4%

TradeTheNews.com Weekly Market Update: Indices roller coaster ride ends after unemployment rate finally drops below 4%
Fri, 04 May 2018 16:06 PM EST

Investor uneasiness towards equities showed throughout much of the trading week. A confluence of decelerating growth readings, particularly in Europe, along with lingering concerns about US trade relations and the new headwind of a suddenly appreciating US dollar led to an increase in volatility. Earnings season rolled on with many of the same themes holding; companies that missed or offered disappointing outlooks got punished while firms like Apple where expectations had already been downgraded significantly saw relief rallies when results topped expectations. The FOMC’s change of inflation language only confirmed the expectation the Fed will be hiking at least two more times this year, including at the next meeting. After touching 3.3% last week the US 10-year yield backed off below three percent when money flowed away from stocks and into bonds. By midweek both the Dow and S&P had retested their respective 200-day moving averages for the second and third times. Buyers stepped in aggressively following the Fed meeting and into Friday’s jobs report which failed to fan an inflation fears while indicating slack in the US job market continues to come out. The Dollar Index closed the week above 92.5 for the first time since mid- December, while WTI crude finished the week at the highest level going back to 2015. For the week the S&P fell 0.2%, the Dow lost 0.2% and the NASDAQ gained 1.25%.

In corporate news this week, markets digested a spate of M&A news. The US’s third- and fourth-largest wireless companies, T-Mobile and Sprint, came to a merger agreement after years of talks, and Sprint CEO Legere intends to take over as CE0 of the new entity. Walmart shares were boosted after reaching a deal to merge Asda with Sainsbury's in a deal valuing Asda at £7.3B. Twitter announces a live programming agreement with Disney that may include new content from ESPN, ABC, Disney Channel and Marvel. Facebook announced it would add new dating features to its platform, which roiled Match Group and IAC shares. Snap disappointed investors by reporting anemic quarterly daily active user growth and a sequential drop in revenue. Kellogg and Kraft were rare earnings bright spots for consumer staples, while Tesla fell after its Q1 report and subsequent confrontational conference call.

SUNDAY APR 29
Sprint confirms agreement to merge with T-Mobile in all stock transaction with enterprise value of $146B; John Legere named CEO

MONDAY APR 30
(HK) Macau Mar Hotel Occupancy Rate: 87.0%, +4.3ppts y/y
WMT Confirms to merge Asda with Sainsbury's in a deal valuing Asda at £7.3B; Walmart to receive £2.98B in cash and hold 42% of combined company
ANDV Confirms be acquired by Marathon Petroleum Corp for ~$152.27/shr in cash or stock deal valued at $23.3B
(DE) GERMANY APR PRELIMINARY CPI M/M: 0.0% V -0.1%E; Y/Y: 1.6% V 1.5%E
(US) MAR PERSONAL INCOME: 0.3% V 0.4%E; PERSONAL SPENDING: 0.4% V 0.4%E
(US) Nevada reports March casino gaming Rev $1.02B, +3.4% y/y; Las Vegas strip Rev $573.9M, +9.1% y/y
(US) MAR PENDING HOME SALES M/M: 0.4% V 0.5%E; Y/Y: -4.4% V -4.7% PRIOR
(US) APR DALLAS FED MANUFACTURING ACTIVITY: 21.8 V 25.0E
(US) Atlanta Fed forecasts initial Q2 GDP at 4.1%
(IR) Israel PM Netanyahu: tonight we will reveal Iran's secret nuclear files: Iran lied about its weapons program after signing the nuclear accord - remarks in Tel Aviv
TWTR Announces live content and ad agreement with Disney; to announce specific live shows in development this week

TUESDAY MAY 1
(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED
CARLB.DK Reports Q1 (DKK) Rev 12.7B v 12.8Be
(HK) Macau Apr Gaming Rev MOP25.7B v MOP24Be, y/y: 27.6% v 20.2%e (21st consecutive month of growth)
BP.UK Reports Q1 Adj Net (underlying RC profit) $2.59B v $2.12Be, Total Rev $68.2B v $67.8B y/y
(UK) APR MANUFACTURING PMI: 53.9 V 54.8E (21st month of expansion but lowest since Nov 2016)
MRK Reports Q1 $1.05 v $0.99e, Rev $10.0B v $10.1Be
AUD/USD AUD currency moves below the 0.75 level, lowest since Jun 2017 - dealers
(US) APR ISM MANUFACTURING: 57.3 V 58.4E; PRICES PAID: 79.3 V 78.5E
(US) Atlanta Fed maintains Q2 GDP forecast at 4.1%
FB CEO: To add features to Facebook around dating and building long-term relationships - F8 conf comments
SNAP Reports Q1 -$0.17 v -$0.17e, Rev $230.7M v $249Me
AAPL Reports Q2 $2.73 v $2.69e, Rev $61.1B v $61.1Be; Raises dividend 16%; Adds $100B to buyback plan (11.6% of market cap), prior $210B buyback to be completed in Q3

WEDNESDAY MAY 2
STAN.UK Reports Q1 Adj Pretax profit $1.26B v $1.3Be, Op Income $3.87B v $3.9Be
(EU) EURO ZONE Q1 ADVANCE GDP Q/Q: 0.4% V 0.4%E; Y/Y: 2.5% V 2.5%E
(US) APR ADP EMPLOYMENT CHANGE: +204K V +198KE
(US) Treasury's to sell $31B 3-year, $25B 10-year notes and $17B 30-year bonds - quarterly refunding announcement
Euro breaks below 200-day exponential moving average
(US) Conference Board April Total online job ads 4.75M v 4.82M m/m v 4.62M y/y; New ads 2.01M v 2.03M m/m v 1.99M y/y
(UK) UK core cabinet said to make no decision on post-Brexit customs during ministers meeting; Hybrid customs union idea appears dead - press
TSLA Reports Q1 -$3.35 v -$3.37e, Rev $3.41B v $3.17Be

THURSDAY MAY 3
BAYN.DE Reports Q1 adj €2.28 v €2.08e, adj EBITDA €2.9B v €2.8Be, Rev €9.14B v €9.3Be
(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.50%; AS EXPECTED
(UK) APR SERVICES PMI: 52.8 V 53.5E (21st month of expansion)
(US) Q1 PRELIMINARY NONFARM PRODUCTIVITY: 0.7% V 0.9%E; UNIT LABOR COSTS: 2.7% V 3.0%E
(US) MAR TRADE BALANCE: -$49.0B V -$50.0BE
NYT Reports Q1 $0.17 v $0.11 y/y, Rev $413.9M v $398.8M y/y
(US) Mar Factory Orders: 1.6% v 1.4%e
(US) APR ISM NON-MANUFACTURING COMPOSITE: 56.8 V 58.0E (4 month low)
(US) Atlanta Fed cuts Q2 GDP forecast to 4.0% from 4.1% prior

FRIDAY MAY 4
GLE.FR Reports Q1 adj Net €1.20B v €1.39B y/y, Op €1.57B v €1.83B y/y, Rev €6.29B v €6.48Be
BAS.DE Reports Q1 Adj €1.93 v €1.97e, EBIT €2.51B v €2.50Be, Rev €16.6B v €16.9Be
(US) APR NON-FARM PAYROLLS: +164K v +192Ke
(AR) ARGENTINA CENTRAL BANK RAISES 7-DAY REPO REFERENCE RATE BY 675BPS TO 40.00% (third hike within past week)

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

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

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

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

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

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

Trump L’oeil

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

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

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

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

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

The Nuclear Option

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

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

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

Double Irish

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

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

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

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

Promotional Offers

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

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

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

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

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

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

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

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

CALENDAR

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

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

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

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

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

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

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

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

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

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

JULY
1: Mexico general election