TradeTheNews.com Weekly
Market Update: Markets don’t see any reason why they would(n’t) rally
Fri, 20 Jul 2018 16:04 PM EST
US stocks and the dollar rose in tandem for much of the first half of the week.
President Trump’s widely criticized performance at a press conference with
President Putin on Monday and the subsequent walk back of comments by the White
House on Tuesday had little apparent effect on market psychology. The S&P
500 pushed back above the 2,800 level, clearing a resistance level that has
been in place since trade war rhetoric fired up in February. The Dollar index
pressed up against one year highs. US economic data continued to outperform
that of Europe and elsewhere leading some to place bets predicated on
‘divergent’ central bank policies and the relative outperformance in the
States. The US yield curve remained pinned at the flattest levels in more than
a decade as the 2-10 year spread dipped below 25 basis points. Trade concerns
persisted with the US administration ratcheting up rhetoric directed at Chinese
President Xi in particular, and European trading partners in general. Copper
dropped below a key technical level and the Chinese Yuan and stock market
weakness persisted in the wake of the ongoing trade rift. Crude prices dropped
early on before leveling off after weekly EIA inventory data revealed US crude
production crossed the 11M bpd threshold for the first time ever.
President Trump’s remarks on the Federal Reserve, rates and the dollar opened
the door for a trend reversal on Thursday. The greenback came off recent highs
when Trump indicated he wasn’t a fan of the Fed path of rate rises, in
particular how it pushed the dollar higher offsetting some the fiscal and
structural measures his administration has championed to enhance economic
growth. By Friday, rates lifted and the US yield curve steepened while the
greenback continued to soften. US indices continued to edge higher looking past
the blustery trade talk and lingering geopolitical concerns in Europe. Equity
markets lost steam by mid-week and ended flat: the S&P was unchanged, the
DJIA gained 0.2%, and the Nasdaq slipped 0.1%. Dow Theorists took heart that
the Transports surged nearly 2% this week.
Second quarter earnings have been solid so far, but among the marquee names
this week, results were decidedly mixed. Netflix started the week off on a sour
note, with subpar subscriber numbers and weak guidance, but the market shook it
off as company-specific. Microsoft kept its share price rising by notching a
strong quarter, highlighting double digit growth in its Azure and Intelligent
Cloud business lines. After last Friday’s banking sector reports were not well
received, Goldman Sachs and Bank of America put a better foot forward this
week, beating estimates on the top and bottom line, and Goldman also solidified
its succession plan. In Europe, Deutsche Bank also put up good quarterly
numbers, quieting some critics for the time being. Shares of Alcoa fell more
than 10% after it drastically cut its FY18 EBITDA forecast. Alphabet shares
lingered near all-time highs ahead of next week’s earnings despite the EU
issuing a record $5B fine against Google for abuse of its dominance in the
Android OS.
MON 7/16
DBK.DE Reports Q2 prelim Net €400M v €159Me, IBIT €700M v €321Me, Rev
€6.6B v €6.4Be
BAC Reports Q2 $0.63 v $0.57e, Rev $22.6B v $22.5Be
(RU) Russia President Putin: Time has come for substantive bilateral talks -
Helsinki Trump-Putin Summit
*(US) JULY EMPIRE MANUFACTURING: 22.6 V 20.0E
*IMF updates its World Economic Outlook (WEO): maintains global 2018, 2019
growth estimate at 3.9%; cuts EU and Latin America forecasts
(US) Atlanta Fed raises Q2 GDP forecast to 4.5% from 3.9% prior
NFLX Reports Q2 $0.85 v $0.79e, Rev $3.91B v $3.94Be; misses net adds
forecast
TUES 7/17
*(UK) MAY AVERAGE WEEKLY EARNINGS 3M/Y: 2.5% V 2.5%E; WEEKLY EARNINGS (EX
BONUS) 3M/Y: 2.7% V 2.7%E
*(UK) JUN JOBLESS CLAIMS CHANGE: +7.8K V -7.7K PRIOR; CLAIMANT COUNT RATE: 2.5%
V 2.5% PRIOR
BTC/USD Coinbase reportedly receives approval from SEC and FINRA to list
digital coins considered to be securities – press
GS Reports Q2 $5.98 v $4.67e, Rev $9.40B v $8.71Be; Confirms David
Solomon as the new CEO & Chairman on Oct 1st
*(US) JUN INDUSTRIAL PRODUCTION M/M: 0.6% V 0.5%E CAPACITY UTILIZATION: 78.0% V
78.3%E
(US) Fed Chair Powell Congressional testimony: aware of risks of raising rates
too fast or too slow
(EU) European Union reportedly exploring talks with President Trump on reducing
car tariffs – press
CSX Reports Q2 $1.01 (GAAP) v $0.86e, Rev $3.10B v $2.99Be
SAH Reports preliminary Q2 $0.37-0.41 v $0.48e; Cuts FY18 outlook on
margin pressure in key brands expected to last into Q3
BRK.A Amends Share Repurchase Program: Under the amendment repurchases
can be made at any time that Buffett and Vice Chairman Munger believe that the
repurchase price is below the intrinsic value of the company
BHP.AU Reports Q4 Waio iron ore production 72.0Mt v 70.0Mt y/y;
attributable iron ore production 63.6Mt v 60.3Mte v 60.0Mt y/y
WED 7/18
*(UK) JUN CPI M/M: 0.0% V 0.2%E; Y/Y: 2.4% V 2.6%E; CPI CORE Y/Y: 1.9% V 2.1%E
GOOGL EU confirms €4.34B fine on unfair dominance of Android OS
*(US) JUN HOUSING STARTS: 1.173M V 1.320ME; BUILDING PERMITS: 1.273M V 1.330ME
*(US) DOE CRUDE: +5.8M V -3.5ME; GASOLINE: -3.2M V -0.5ME; DISTILLATE: -0.3M V
+1ME; US production reaches 11M bpd for first time in history
CP Reports Q2 C$3.16 adj v C$3.18e, Rev C$1.75B v C$1.76Be
IBM Reports Q2 $3.08 v $3.03e, Rev $20.0B v $19.6Be
AA Reports Q2 $1.52 v $1.33e, Rev $3.58B v $3.56Be
*(AU) AUSTRALIA JUN EMPLOYMENT CHANGE: +50.9K V +16.5KE
THRS 7/19
SAP.DE Reports Q2 Non-IFRS Net €1.17B v €1.12B y/y, non-IFRS Op €1.64B v
€1.63Be, Rev €6.01B v €5.9Be
UNA.NL Reports H1 Net €3.24B v €3.32B y/y, Rev €26.4B v €26.6Be
(US) EU to consider tariffs on coal, pharmaceuticals, chemistry goods if US
implements plans for levies on cars - financial press
*(UK) JUN RETAIL SALES (EX AUTO/FUEL) M/M: -0.6% V +0.1%E; Y/Y: 3.0% V 3.7%E
*(US) JULY PHILADELPHIA FED BUSINESS OUTLOOK: 25.7 V 21.5E
FOXA Comcast confirms will not pursure FOX assets, and will focus on Sky
offer
*(US) Pres Trump: Not happy about interest rates going up at the Fed; Strong
dollar puts the US at a disadvantage
MSFT Reports Q4 $1.13 adj v $1.07e, Rev $30.1B v $29.2Be
*(JP) JAPAN JUN NATIONAL CPI Y/Y: 0.7% V 0.8%E; CPI EX FRESH FOOD (CORE): 0.8%
V 0.8%E (first rise since Feb)
USD/CNY *(CN) CHINA PBOC SET YUAN REFERENCE RATE AT 6.7671 V 6.7066
PRIOR (7th straight weaker yuan fix, weakest fix since July 14, 2017)
FRI 7/20
(US) President Trump: Repeats we are being taken advantage of on trade; remain
ready to put tariffs on $500B of Chinese imports
GE Reports Q2 $0.19 v $0.18e, Rev $30.1B v $29.8Be
(US) White House official: President Trump worries that the Fed will raise
rates two more times this year - CNBC
Saturday, July 21, 2018
Barrons weekend update
Barrons weekend update: positive features on APTV, VNE, and asset management firms
Cover story: Direct lending has become the hottest frontier in alternative asset management, in which funds lend to companies either too small or too risky to be bank clients; “The direct loans carry floating rates, so enthusiasm grows with each anticipated uptick in interest rates.”
Features: 1) Barron’s list of the top 50 annuities, split into groups: immediate action annuities, deferred income annuities, buffer annuities, fixed-indexed annuity income guarantees, and variable annuity income guarantees; 2) Positive on APTV, VNE: Makers of electronic components give investors a way to buy targeted exposure to the autonomous, all-electric future of driving, but for now returns could be higher for companies focused on gas-powered vehicles; 3) Positive on AB, BLK, BEN, IVZ, TROW: Shares of many traditional asset-management firms have lost favor on Wall Street because of the growth of passive-investment vehicles, but they now look like bargains for value investors; 4) The mutual fund industry has hundreds of funds that have been around for at least five years but have less than $50M in assets, raising the question of why firms don’t terminate them.
Tech Trader: Cautious on AMZN, NFLX, TSLA: Since the recession, the companies have leveraged ultralow borrowing rates to build their businesses, raising the question of whether these “kings of debt” can continue to outperform peers as the Fed raises rates.
Trader: Donald Trump is one of three political novices to lead the U.S. since the beginning of the 20th century, and that means mistakes will be made because of his inexperience, says Tom Lee of Fundstrat Global Advisors; The S&P 500’s telecom sector has long benefited investors seeking income, but will be less attractive on that front when it is reorganized in September, becoming larger, growth-oriented, and volatile; Trade worries have dented industrial stocks, attracting bargain hunters, but with further escalation of trade wars a possibility, the sector might not be bargain.
Profile: Gary Greenberg, manager of the Calvert Emerging Markets Equity fund, believes it’s possible to invest responsibly and successfully using an ESG approach (top 10 holdings: Tencent, TSM, Samsung Electronics, BABA, Techtronic, China Construction Bank, AIA Group, Independent and Community Bank of China, KB Financial, Samsonite International).
Interview: Charles de Vaulx, manager of IVA Worldwide, owns common stocks, corporate bonds, gold, and a lot of cash, and sees opportunities to buy amid macroeconomic change (picks: XEC, Royal Boskalis Westminster, AIB Group).
European Trader: Cautious on Air France-KLM: Shares have risen in a tough year, but bears say the carrier’s recent problems—including costs, management, and more—will continue to persist, and that it needs a new business plan.
Commodities: “Oil prices have lost more than 7% this month, but some experts say that a roughly 40% spike from last week’s levels to more than $100 is possible this year.”
Streetwise: In Russia, “Economic reality will catch up with political showmanship eventually,” says Craig Mellow, at which point Russia “may get dangerous for investors.”
Saturday, July 14, 2018
Barrons weekend summary
Barrons weekend summary: Cover story on headwinds for corporate profits; article suggests XLNX and ADI would make better M&A targets for AVGO
Cover story: With rising interest rates, a growing federal deficit, and trade and tariff battles, corporate profit growth could take a hit in the coming months, limiting investors’ gains; Barron’s 2018 Roundtable participants offer picks to help counter the trends.
Features: 1) Hedge fund titan Bill Ackman has had a tough time for the past few years, but his Pershing Square Holdings could be set to make a comeback, now that it has closed out positions in VRX and HLF; 2) Critics are wary of Supreme Court nominee Brett Kavanaugh, whom they say is hostile to investor protections and eager to rein in the SEC, while supporters say he merely takes a skeptical view of the “administrative state.”
Tech Trader: AVGO is no longer about chip innovation— it’s a deal-making machine, but continuing M&A will be difficult given the dwindling number of chip targets, though there are more appropriate candidates than CA, such as XLNX or ADI.
Trader: Investors aren’t ignoring the trade war, but they’ve stopped “trading the market,” avoiding the risk-on/risk-off trading that has been dominant since the financial crisis.
Profile: Ryan Kohan, Rick Richert, and Stephen Ketchum of the American Beacon Sound Point Floating Rate Income fund, which has delivered a 5.7% annualized return, versus its average peer’s 3.3%.
Barron’s Roundtable: 1) Meryl Witmer says Great Britain will move on easily after the Brexit, and that in the U.S., the S&P 500 and the Dow have 5-10% upside (picks: KMX, OEC, Dart Group, Howden Joinery Group, PKG, Indivior, Tessenderlo Group); 2) Jeffrey Gundlach says a recession is on the horizon, explains why he likes commodities, and says Republicans are likely to hold onto both houses of Congress (picks: XLE, NTG, BKLN, EWZ, DXJ); 3) Mario Gabelli discusses tariffs, Treasuries, taxes, and technology (picks: MSG, BATRA, MGM, Davide Campari-Milano, ZBH, CNHI, GCP, PCAR, TXT, ENR, SNE, MIICF, NPO); 4) Oscar Schafer says the U.S. economy is doing better than Europe’s, and that unless trade talks prove disruptive, it will continue on its course (picks: CNK, ORLY, COMM, EVTC, ANIP, Whitbread); 5) Donald Trump is the dominant theme for investors, says Scott Black, and if the U.S. becomes overzealous with tariffs, it could throw the world into recession (picks: LRCX, HCLP, GTN, ARCC, HOFT, NBL, ARW, 6-month Treasury Bill); 6) Abby Joseph Cohen says the economy is at a point of inflection, and that a trade war would damage economies around the world (picks: OXY, Samsung Electronics, ABBV, China Railway & Signal Communications, MDLZ, AZO, Kingfisher, BUD, Inner Mongolia Yili Industrial Group, Midea Group, IYG); 7) Henry Ellenbogen believes Democrats will take the House in November, ramping up political tensions and preventing anything from getting through Congress (picks: EFX, MTN, BFAM, SERV, SHOP, GRUB, TRU, BWXT, RDFN); 8) William Priest says the outlook for earnings and dividends is excellent this year, and that the market faces two big issues: the budget deficit and the trade backdrop (picks: OLED, AMAT, SBUX, MLM, MET, KR, PSX); 9) It’s pretty routine now for companies to trade for eight to 14 times revenue, says Paul Wick, a sign there isn’t much price discipline among investors (long on MU, WDC, MRVL, ORCL, AVGO, IDTI; short on SNAP, XON, CGC, SHOP).
Follow-Up: Trucking companies across the U.S. are struggling to find drivers, particularly for long-haul routes, forcing wages and rates higher, with costs rising nearly 8% in June.
Emerging Markets: “Nothing Donald Trump can do will derail China’s continuing economic growth and diversification, with all of the financial opportunity that entails.”
Commodities: “Record U.S. supplies of cheese have contributed to a drop in prices this year, and traders predict more of the same for the rest of 2018,” but trade wars could pose long-term problems that may cause some dairy farms to close.
Streetwise: It’s going to take a long time for the online sports betting industry to scale, says Kip Levin of Paddy Power Betfair, and it will come down to how quickly states allow the legal regulated market to compete with the illegal market.
Trump Heads to Europe, Stocks Head Higher
TradeTheNews.com Weekly
Market Update: Trump Heads to Europe, Stocks Head Higher
Fri, 13 Jul 2018 16:04 PM EST
Stocks rose this week despite another brief midweek reversal predicated on resurfacing trade concerns. President Trump was again at the epicenter of a host of geopolitical headlines that stock markets largely looked past. Before heading off Europe to meet with NATO and UK Prime Minister May it was reported his administration would announcement an additional $200B in tariffs on Chinese goods, resulting in swift rhetorical pushback from China, but no immediate threat of more counter-tariffs. Despite the trade jitters, by week’s end the S&P was testing key resistance at 2,800 once again as traders anticipate a solid earnings season. Treasury yields continued to drift sideways-to-lower on both sides of the Atlantic amid the uncertain geopolitics resulting in persistent handwringing about flattening yield curves. Mixed inflation data out of Europe along with rising US June CPI figures facilitated continued strength in the Greenback. The Yen touched a fresh 6-month low against the dollar. Copper prices held a key technical level just below $2.75 while WTI oil prices lost significant ground, backing of towards the $70 mark. For the week, the S&P500 gained 1.5%, the DJIA added 2.3%, and the Nasdaq rose 1.8%.
As earning season begins anew, some banks announced mixed results, with JPMorgan and Citi beating estimates, while Wells Fargo disappointed as it continues to struggle to bounce back from its regulatory issues. Pfizer delayed previously announced price hikes by six months following a discussion with President Trump prompted by his tweet that drugmakers “should be ashamed” about raising prices. Broadcom shares plunged as its $18.9B all-cash acquisition announcement of software developer CA Inc puzzled investors and analysts. Delta announced a beat on both its top and bottom line, but cut its full year outlook on expectations that higher prices for fuel will eat into profits. Papa John’s distanced itself from its titular chairman ‘Papa John’ Schnatter after reports that he used a racist slur on a conference call, and the company announced it would be removing his image from further marketing material.
MON 7/9
*(EU) EURO ZONE JUL SENTIX INVESTOR CONFIDENCE: 12.1 V 9.0E
(UK) Prime Min May accepts resignation of Foreign Sec Boris Johnson - press
*(US) MAY CONSUMER CREDIT: $24.6B V $12.0BE
TUES 7/10
*(DE) GERMANY JULY ZEW CURRENT SITUATION: 72.4 V 78.1E; EXPECTATIONS SURVEY: -24.7 V -18.9E
BZH Reports Q3 prelim Homebuilding Rev $507M, new home orders 1.45K; guides initial FY19 EPS >$2.50 v $2.25e
(CN) US reportedly preparing list of $200B in additional tariffs on Chinese goods; an announcement may come as early as Tuesday night- press
(CN) US Senior Administration Official: Confirms 10% tariff on additional $200B in China goods; will try to avoid impacting consumer goods, new list of China tariffs will include products that China identified in its 2025 report; US will not implement tariffs on new list for 2-months
PFE Confirms to delay prices increases, will defer the drug price increases that were effective on July 1st; deferring the price increases until President Trump's drug price plan is effective or the end of the year, whichever is sooner
WEDS 7/11
(EU) ECB policymakers split of first rate hike, meaning of through summer; see rate hike only in Autumn 2019 - press
*(US) JUNE PPI FINAL DEMAND M/M: 0.3% V 0.2%E; Y/Y: 3.4% V 3.1% PRIOR
(CN) China reportedly considering non-trade measures to retaliate against U.S. tariffs; could delay merger approvals as one such tactic - press
*(CA) BANK OF CANADA (BOC) RAISES INTEREST RATE BY 25BPS TO 1.50%; AS EXPECTED
*(US) DOE CRUDE: -12.6M V -3.5ME; GASOLINE: -0.7M V -1ME; DISTILLATE: +4.1M V +1ME (largest crude draw since Sept 2016)
(US) Atlanta Fed raises Q2 GDP forecast to 3.9% from 3.8% prior
(US) Association of American Railroads weekly rail traffic report for week ending July 7th: 485.2K, +8.6% y/y
CA Broadcom confirms to acquire co. for $18.9B in cash or $44.50/share; Broadcom sees the deal as immediately accretive to non-GAAP EPS , closing expected in fourth calendar quarter of 2018
THURS 7/12
*(IT) ITALY DEBT AGENCY (TESORO) SELLS TOTAL €6.5B VS. €4.5-6.5B IN 2021, 2025, 2033 AND 2038 BTP BONDS
DAL Reports Q2 $1.77 v $1.73e, Rev $11.8B v $11.7Be; Raises Quarterly dividend 14.8% to $0.35 from $0.305 (indicated yield 2.81%)
*(EU) ECB ACCOUNT OF JUN POLICY MEETING (MINUTES): Again leave QE extension on the table; policymakers were unanimous of policy proposals put forward by Praet
*(UK) UK Government publishes Brexit Whitepaper; Seeks Association Agreement, would ensure the new settlement is sustainable – working for the citizens of the UK and the EU now and in the future
*(US) JUNE CPI M/M: 0.1% V 0.2%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI NSA: 251.989 V 252.092E
(UK) Pres Trump reportedly warned PM May that soft Brexit would 'probably kill' potential for future trade deal with US - UK press
*(SG) SINGAPORE Q2 ADVANCE GDP Q/Q: 1.0% V 1.3%E; Y/Y: 3.8% V 4.1%E
*(CN) CHINA PBOC CONDUCTS CNY188.5B 1-YEAR MEDIUM-TERM LENDING FACILITY (MLF) V CNY200B PRIOR AT 3.30% V 3.30% PRIOR; Confirms it has skipped daily open market operation (OMO)
(CN) China H1 Trade Balance (CNY): +901.3B, -26.7% y/y
(CN) CHINA JUNE TRADE BALANCE (CNY): +261.9B V +187.0BE
(CN) CHINA JUNE TRADE BALANCE: $41.6B V $27.7BE
FRI 7/13
JPM Reports Q2 $2.29 v $2.22e, Managed Rev $27.8B v $27.6Be
C Reports Q2 $1.63 v $1.54e, Rev $18.5B v $18.4Be
(US) Pres Trump: whatever the UK does on Brexit is OK with me - press conf with PM May
(US) July Preliminary University of Michigan Confidence: 97.1 v 98.0e
(US) DOJ set to announce new indictment in Mueller probe; indictments relate to 12 Russian intelligence officers with hacking into DNC and Clinton campaign and disseminating info in 2016
(US) Weekly Baker Hughes US Rig Count: 1,054 v 1,052 w/w (+0.2%) (second straight weekly rise)
(US) Trump Administration reportedly considering releasing oil from Strategic Petroleum Reserve to curb gasoline prices ahead of fall elections - press
Fri, 13 Jul 2018 16:04 PM EST
Stocks rose this week despite another brief midweek reversal predicated on resurfacing trade concerns. President Trump was again at the epicenter of a host of geopolitical headlines that stock markets largely looked past. Before heading off Europe to meet with NATO and UK Prime Minister May it was reported his administration would announcement an additional $200B in tariffs on Chinese goods, resulting in swift rhetorical pushback from China, but no immediate threat of more counter-tariffs. Despite the trade jitters, by week’s end the S&P was testing key resistance at 2,800 once again as traders anticipate a solid earnings season. Treasury yields continued to drift sideways-to-lower on both sides of the Atlantic amid the uncertain geopolitics resulting in persistent handwringing about flattening yield curves. Mixed inflation data out of Europe along with rising US June CPI figures facilitated continued strength in the Greenback. The Yen touched a fresh 6-month low against the dollar. Copper prices held a key technical level just below $2.75 while WTI oil prices lost significant ground, backing of towards the $70 mark. For the week, the S&P500 gained 1.5%, the DJIA added 2.3%, and the Nasdaq rose 1.8%.
As earning season begins anew, some banks announced mixed results, with JPMorgan and Citi beating estimates, while Wells Fargo disappointed as it continues to struggle to bounce back from its regulatory issues. Pfizer delayed previously announced price hikes by six months following a discussion with President Trump prompted by his tweet that drugmakers “should be ashamed” about raising prices. Broadcom shares plunged as its $18.9B all-cash acquisition announcement of software developer CA Inc puzzled investors and analysts. Delta announced a beat on both its top and bottom line, but cut its full year outlook on expectations that higher prices for fuel will eat into profits. Papa John’s distanced itself from its titular chairman ‘Papa John’ Schnatter after reports that he used a racist slur on a conference call, and the company announced it would be removing his image from further marketing material.
MON 7/9
*(EU) EURO ZONE JUL SENTIX INVESTOR CONFIDENCE: 12.1 V 9.0E
(UK) Prime Min May accepts resignation of Foreign Sec Boris Johnson - press
*(US) MAY CONSUMER CREDIT: $24.6B V $12.0BE
TUES 7/10
*(DE) GERMANY JULY ZEW CURRENT SITUATION: 72.4 V 78.1E; EXPECTATIONS SURVEY: -24.7 V -18.9E
BZH Reports Q3 prelim Homebuilding Rev $507M, new home orders 1.45K; guides initial FY19 EPS >$2.50 v $2.25e
(CN) US reportedly preparing list of $200B in additional tariffs on Chinese goods; an announcement may come as early as Tuesday night- press
(CN) US Senior Administration Official: Confirms 10% tariff on additional $200B in China goods; will try to avoid impacting consumer goods, new list of China tariffs will include products that China identified in its 2025 report; US will not implement tariffs on new list for 2-months
PFE Confirms to delay prices increases, will defer the drug price increases that were effective on July 1st; deferring the price increases until President Trump's drug price plan is effective or the end of the year, whichever is sooner
WEDS 7/11
(EU) ECB policymakers split of first rate hike, meaning of through summer; see rate hike only in Autumn 2019 - press
*(US) JUNE PPI FINAL DEMAND M/M: 0.3% V 0.2%E; Y/Y: 3.4% V 3.1% PRIOR
(CN) China reportedly considering non-trade measures to retaliate against U.S. tariffs; could delay merger approvals as one such tactic - press
*(CA) BANK OF CANADA (BOC) RAISES INTEREST RATE BY 25BPS TO 1.50%; AS EXPECTED
*(US) DOE CRUDE: -12.6M V -3.5ME; GASOLINE: -0.7M V -1ME; DISTILLATE: +4.1M V +1ME (largest crude draw since Sept 2016)
(US) Atlanta Fed raises Q2 GDP forecast to 3.9% from 3.8% prior
(US) Association of American Railroads weekly rail traffic report for week ending July 7th: 485.2K, +8.6% y/y
CA Broadcom confirms to acquire co. for $18.9B in cash or $44.50/share; Broadcom sees the deal as immediately accretive to non-GAAP EPS , closing expected in fourth calendar quarter of 2018
THURS 7/12
*(IT) ITALY DEBT AGENCY (TESORO) SELLS TOTAL €6.5B VS. €4.5-6.5B IN 2021, 2025, 2033 AND 2038 BTP BONDS
DAL Reports Q2 $1.77 v $1.73e, Rev $11.8B v $11.7Be; Raises Quarterly dividend 14.8% to $0.35 from $0.305 (indicated yield 2.81%)
*(EU) ECB ACCOUNT OF JUN POLICY MEETING (MINUTES): Again leave QE extension on the table; policymakers were unanimous of policy proposals put forward by Praet
*(UK) UK Government publishes Brexit Whitepaper; Seeks Association Agreement, would ensure the new settlement is sustainable – working for the citizens of the UK and the EU now and in the future
*(US) JUNE CPI M/M: 0.1% V 0.2%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI NSA: 251.989 V 252.092E
(UK) Pres Trump reportedly warned PM May that soft Brexit would 'probably kill' potential for future trade deal with US - UK press
*(SG) SINGAPORE Q2 ADVANCE GDP Q/Q: 1.0% V 1.3%E; Y/Y: 3.8% V 4.1%E
*(CN) CHINA PBOC CONDUCTS CNY188.5B 1-YEAR MEDIUM-TERM LENDING FACILITY (MLF) V CNY200B PRIOR AT 3.30% V 3.30% PRIOR; Confirms it has skipped daily open market operation (OMO)
(CN) China H1 Trade Balance (CNY): +901.3B, -26.7% y/y
(CN) CHINA JUNE TRADE BALANCE (CNY): +261.9B V +187.0BE
(CN) CHINA JUNE TRADE BALANCE: $41.6B V $27.7BE
FRI 7/13
JPM Reports Q2 $2.29 v $2.22e, Managed Rev $27.8B v $27.6Be
C Reports Q2 $1.63 v $1.54e, Rev $18.5B v $18.4Be
(US) Pres Trump: whatever the UK does on Brexit is OK with me - press conf with PM May
(US) July Preliminary University of Michigan Confidence: 97.1 v 98.0e
(US) DOJ set to announce new indictment in Mueller probe; indictments relate to 12 Russian intelligence officers with hacking into DNC and Clinton campaign and disseminating info in 2016
(US) Weekly Baker Hughes US Rig Count: 1,054 v 1,052 w/w (+0.2%) (second straight weekly rise)
(US) Trump Administration reportedly considering releasing oil from Strategic Petroleum Reserve to curb gasoline prices ahead of fall elections - press
Tuesday, July 10, 2018
July-August 2018 Outlook: Political Football
July-August
2018 Outlook: Political Football
Mon, 09 Jul 2018 18:18 PM EST
The eyes of the world are on the World Cup in Russia, which has been a welcome distraction from the political and trade squabbles that have dominated the news lately. But as the tournament starts to wrap up the difficult geopolitical realities remain the same.
Economic fundamentals are solid and corporate results appear strong heading into the Q2 earnings season, but the contest over global trade has put a drag on markets. Despite stronger global economic growth, uncertainty is reflected in the over 20% drop in the Shanghai index in the last five months and the 9% drop in the DJIA since its January peak. Meanwhile, the yield curve is most definitely not ‘bending it like Beckham’: the 2-10 year Treasury spread has flattened to below 30 basis points for the first time in over a decade. While most analysts and central bank officials are not deeply concerned about this flattening, which they see as the result of a variety of special factors, if the yield curve remains flat for a prolonged period it could cause damage to sentiment.
The upcoming earnings season could deflect some of that uncertainty if companies put up strong numbers, but guidance may be clouded by the overhang of the nascent trade war. CEOs may inject a note of caution in their forward guidance as they consider political uncertainties around tariffs that will impact corporate decisions on capital expenditures, hiring and other investments. Corporate earnings are growing but stock multiples tend to contract during Fed tightening cycles, creating potential downside in equity markets over the medium term. Thus trade issues including tariffs and Brexit, and various domestic political dramas will keep markets on the edge of their seats long after the World Cup winner takes home the trophy.
Central Banks: On the Sidelines
While many central bankers no doubt have been rooting for their home teams during the World Cup, they strive to keep out of politics to help ensure their independence. The closest central bank chiefs have gotten to the current dispute is in a general agreement that protectionism is a major downside risk to the outlook.
The next two months will likely be quiet for the central banks as they enter their typical summertime dormancy. Most of the big monetary policy moves have already been made in recent months: the Fed raised rates again and withdrew its forward guidance, the ECB firmed up plans for tapering QE and exiting zero rate policy, and the PBoC cut its Reserve Ratio Requirement to spur lending.
The Bank of England may put a 25 basis point hike on the board at its August 2 meeting, but that’s only after ‘calling offsides’ on market prognostications of a May hike. The June meeting did result in a more hawkish stance, with a divided 6-3 vote and the threshold for tapering QE policy shortened to when rates reach 1.50% from the previous target of 2.00%. BOE officials continue to be confident that rates will rise slowly in the absence of any new shocks (so progress on Brexit talks would undoubtedly please the central bank).
The ECB was also a tinge more hawkish last month, though it took a more cautious stance than many expected on policy normalization. While President Draghi did finally announce plans for tapering QE during the last quarter of 2018, he also said that rates will not rise off the zero bound until the summer of 2019. With its policy line up now announced, the ECB should not present any surprises in the next couple of months.
Just a day before the ECB statement in June, the FOMC announced its second rate hike of the year, as expected, basing the decision on continued improvement in economic activity. The statement acknowledged that the Fed has reached its maximum employment goal and largely removed the central bank's forward guidance, another indication that policy normalization is fully underway. The updated Summary of Economic Projections (SEP) was also more hawkish. A shift in the 'dot plot' showed the median forecast from FOMC members is now fully factoring in four rate hikes this year.
In the end there is not that much distance between the Fed doves and hawks. Most agree on “gradual” tightening, leaving the question of when the end of the cheap money era will start to exert pressure on financial markets. At the moment, only the bond market is looking through to the next recession, reflected in the flattening yield curve. So far Fed officials have expressed little concern about a yield curve inversion and rates continue to march up the field. A week after the June hike, Fed Chair Powell stated that the Fed stance is still accommodative and may be 100 bps below the 'neutral' rate, indicating enough room for rates to keep rising well into 2019.
Politics: Group Stage
While monetary policy is on the sideline for the moment, politicians are playing a fast paced game, and many are looking to tear up the rulebook. The balance of political power within the EU and euro zone are being tested by the Brexit, populist issues like immigration, and policy rifts within coalition governments. Meanwhile a Supreme Court nomination battle and the culmination of the Russia investigation are likely to bring out the worst hooliganism that Washington has to offer ahead of the mid-term elections.
The most surprising development of the last month was the domestic upheaval suddenly shaking the coalition of the German Chancellor. Germany, still licking its wounds from its early ouster in the World Cup tournament, saw Chancellor Merkel narrowly avoid a similarly embarrassing defeat that threatened her government. Allied political parties put pressure on Merkel over illegal immigration policy, and she only managed to avert a domestic rebellion by pressing the issue at the EU summit meeting in June. There has been a great deal of political change in Europe over the last decade, but to see the four-term leader of the euro zone’s largest member suddenly threatened by a shift in the political winds was quite extraordinary. If the leaders at the core of the euro zone are vulnerable, then any government could potentially fall to abrupt changes in the political environment.
Case in point is Italy, where the only bigger national shame than failing to qualify for the Cup is the country’s inability to form a stable government. Analysts are closely watching the new government coalition, whose nationalistic tendencies have contributed to pushing the immigration issue to the fore. Even as they question euro zone rules, it remains to be seen how the coalition will reconcile the goals of the populist Five Star Movement, which promised more public spending, and the far-right Northern League, which wants tax cuts. Over time such policies would add to the country’s €2.1T in debt and could lead to a nightmare scenario for the EU: a Greek-style debt crisis in the euro zone’s third largest country. It will be up to PM Giuseppe Conte, a lawyer and academic with no political experience to navigate away from a fiscal crisis. His choices will be under the scrutiny of President Mattarella, who showed his willingness to utilize rarely used veto powers when he rejected the government’s first nominee for Finance Minister who Mattarella deemed as too anti-European. These tensions could lead to new battles within Italian politics that could easily spill over to the wider euro zone.
The partisan battle in Washington D.C. will intensify in the months ahead as the Republican and Democratic teams line up for the November election. The retirement of the Supreme Court’s swing voter, Justice Kennedy, is the latest flash point in the political game as Senate Republicans race to confirm the new nominee before the election. The financial world will likely look favorably on the new Justice, who will almost certainly be a pro-business jurist, though those taking a longer view may be uneasy about the court tilting further to the right on cultural and religious issues. The role of Chief Justice Roberts in leading the court will become even more prominent as he will now sit at the new ideological median of the court. After the new justice is sworn in it will soon become clear if Roberts will adhere to the core principle of following legal precedent or preside over a newly activist court.
The other legal issue hanging over Washington is the Russia investigation. The findings of the special counsel could be announced at any moment in the next few months, and, depending on their scope, could rock the Trump administration (and potentially draw votes away from the GOP in the November election). Unless the report either fully exonerates the President or is especially damning of him, its likely to further expand the partisan divide in Washington.
All of DC’s political issues are now fodder for the November election, which is increasingly being seen as a confidence vote on the President. Growing expectation that Democrats could retake one or both houses of Congress could eventually weigh on market psychology. Though the GOP tax plan can’t be rolled back as long as there is a Republican in the White House, a Democratic-controlled Congress would block any further major legislative initiatives by this White House.
In foreign policy matters, Trump is looking to hit Iran’s oil market with a red card. Just days after OPEC and other aligned producers agreed to a moderate production increase, the US declared a goal of wiping out most of Iran’s oil exports by November. If successful, the White House play could spur a significant price rise in oil, with at least one analyst suggesting the exclusion of Iranian oil from the market could send WTI to over $120 per barrel. Realizing higher gasoline prices would be a sore spot for US voters in November, Trump has been demanding even more production from OPEC.
Meanwhile Iran has been working the field, trying to extract compensatory concessions from Europe. However, if the US pressure campaign starts to cause real economic damage Iran could make good on threats to tear up the nuclear accord entirely. It’s worth noting that Iran’s Revolutionary Guard commander has threatened to block oil shipments through the Straight of Hormuz if the US throttles the flow of Iranian oil. While the Iranian navy may not be capable of backing up that threat, it is a sign that hardliners who were against the nuclear accord from the beginning may be gaining the upper hand in Tehran.
Disagreement over Iran policy could spill over into discussions with US allies. On the heels of the ill will that emerged from the G7 summit in Quebec last month, Trump faces a contentious meeting with NATO (July 11-12). Then on July 16th, Presidents Trump and Putin will meet in Helsinki. Trump is expected to ask the Russian leader to help push Iran out of the Syrian conflict, having already conceded the US rhetorical stance on removing Syrian strong man Bashar al Assad. The optics of a warm meeting between Trump and Putin right after the NATO gathering could put even more strain on relations with allies already upset with Trump’s trade policies.
Brexit: Elimination Round
After a lot of dramatics but little progress on trade issues, the negotiations to withdraw the UK from the EU are about to enter extra time with no score on the board. Prime Minister May appears to have one more chance to put the ball in the goal before the process faces a complete collapse. May is fighting her own Brexit Secretary and Foreign Secretary who continue to advocate for a ‘max fac’ technology based customs border for Ireland. The EU has already essentially rejected that option and the PM is now pushing for a ‘softer’ proposal that would adhere to EU trade rules at the border. If the PM can’t come to terms with her insurgent cabinet ministers, it could lead to a confidence vote against PM May and a leadership challenge by Boris Johnson (*Editor’s Note: as of July 9, Brexit Minister Davis and Foreign Minister Johnson have both resigned in protest).
After a day of knocking heads in a private cabinet meeting PM May emerged with a new proposal that attempts appeal to both hardline members of her cabinet and to Brussels with a “facilitated customs arrangement” that would apply domestic tariffs on goods headed for the UK and their EU equivalents for goods bound for the EU. The plan envisions minimum friction at the border while still allowing the UK to set its own tariffs and trade policy. Furthermore the new plan promises to maintain a common rulebook for all goods including agricultural products and for UK courts to give “due regard” to EU case law and to allow for binding arbitration.
The EU negotiating team will now assess whether the proposal outlined in a forthcoming white paper (due July 12) is workable, or just another false start in setting the terms of the new trading relationship. PM May has done a lot of arm twisting to get the factions within her own party to support her latest customs plan, but it will only matter if the EU sees the proposal as remotely credible and a basis for restarting real negotiations as the game clock continues to tick toward March 2019.
Trade: The Final
Trade tensions between the US and the rest of the world are likely to remain the main event in the months ahead. Though the US is absent from the World Cup, it most definitely is driving the geopolitical discussion under President Trump’s strategy of disrupting the staid global order built up over the last several decades. Trump is testing old alliances and adversaries alike with his brand of leadership based on unpredictability and putting “America first.” This policy is manifesting in a recalibration of global trade relationships, but it’s unclear if there will be any winners.
So far, Trump’s tactics have extracted concession from a few countries, but most are responding with tit-for-tat tariffs. Already over $20B in new tariffs on US goods have been imposed in retaliation for the steel and aluminum tariffs that the US imposed in March.
Specific American firms and industries will continue to suffer amid the rising tariff dispute. One report said China could cancel as much as 1.1M tons of US soybeans this year (China accounts for about half of America’s $14B in annual soybean exports). Harley-Davidson has taken direct criticism from President Trump after it announced it would move some production to Europe to avert tariffs. Micron just suffered an adverse patent ruling in China, and one can’t help but wonder if the trade war played a role in the court’s decision. Similar concerns may arise for Google this month as the EU is set to issue a fine against the firm over its alleged abuse of market dominance in the Android mobile operating system. Analysts expect the new fine could eclipse the record $2.8B fine that was levied against the company last year over its search market dominance. Predictions run as high as $11B, and the trade dispute may get blamed for influencing that figure if it runs toward the high end.
As of July 6, the US-China trade fight jumped to a new level. The US went ahead with $34B in new tariffs, which China immediately matched, with another $16B to be imposed by both sides in a couple of weeks.
The US has targeted the vast majority of its tariffs at capital or intermediary products, with the intention of making American firms’ supply chains less reliant on Chinese goods. The unintended consequence here could be disruptions in the synchronized global supply chain as companies shift production and sourcing. And protectionist measures beget more protectionism, so the tariffs are bound to spread to other countries. At a minimum, Canada and other major US trade partners are apt to put up their own trade barriers to China on concerns about goods being diverted through their markets in an effort to circumvent the US duties.
The burgeoning trade war could escalate quickly if China matches the entire $50B in new duties the US plans. Trump has threatened to expand tariffs by as much as $450B, an amount that would be difficult for Beijing to match. But China could retaliate in other ways, transmitting negative feedback through the bond and currency markets, or imposing burdensome inspections that could delay sales of durable goods or leave fresh foodstuffs to rot on the dock. If the markets start feeling pain, Trump may have second thoughts, especially after touting the rising stock market as the true measure of his approval rating.
The markets have latched on to auto tariffs as the line of demarcation for a full blown trade war. The US Commerce Department is currently considering auto tariffs on “national security” grounds (a Section 232 review), but a decision is not expected for months, leaving some time for international trade negotiators to broker a solution. Meanwhile the Commerce Department will hold hearings on the issue on July 19-20. As we saw with the Section 232 review on steel and aluminum, the outcome of the Commerce probe appears pre-ordained: its being used as a pressure tactic that will hang over the auto industry and trade talks for the rest of the year.
In early July, markets took some heart that a resolution to the auto tariff dispute can be found as one US official expressed a willingness to deal. A German press report noted the US ambassador to Germany told car makers the Trump administration is open dropping its tariff talk if European removes its 10% duties on US vehicles (and the US would remove its 2.5% duty). If, however, no deal is reached in the coming months, President Trump could follow through on his threat to raise the cost of autos imported from the EU by 20%. In that event, the Trump administration might also start talking more seriously about withdrawing from the WTO, which would be a crippling blow to the post-war global trade framework.
At this point there does not appear to be much high level dialogue going on especially between the US and China, so a trade war could rapidly get out of control. Rising trade barriers will put upward pressure on inflation, which could in turn force central banks to raise rates faster. Neither side wants a trade war, however, so there’s still a chance for a deal that would lead to freer trade, maybe even in time in time for the start of the American football season.
CALENDAR
JULY
1: China Manufacturing and Non-manufacturing PMIs; China Caixin Manufacturing PMI; Mexico general election
2: UK Manufacturing PMI; US ISM Manufacturing PMI
3: UK Construction PMI; China Caixin Services PMI
4: UK Services PMI; US ISM Non-manufacturing PMI; FOMC Minutes; 4th of July Holiday
5: US ADP Employment
6: US Payrolls & Unemployment
9: China CPI & PPI
10: UK Manufacturing Production; UK Goods Trade Balance; China Trade Balance
11: US PPI; NATO summit (July 11-12)
12: BOE Credit Conditions Survey; ECB Minutes; US CPI; UK White Paper on new Brexit proposal
13: Preliminary University of Michigan Confidence
16: US Retail Sales; China Q2 GDP; China Industrial Production; Trump/Putin summit
17: UK CPI & PPI; German ZEW Economic Sentiment; US Industrial Production
18: UK Claimant Count & Unemployment; US Housing Starts & Building Permits
19: UK Retail Sales; Philadelphia Fed Manufacturing Index
20:
23: US Existing Home Sales
24: Euro Zone Flash Manufacturing & Services PMIs
25: German Ifo Business Climate
26: UK Prelim Q2 GDP; ECB Policy Announcement; US Durable Goods Orders
27: US Advance Q2 GDP
30: German Prelim CPI; BOJ Policy Announcement
31: German Retail Sales; Euro Zone Flash CPI; US Core PCE Price Index & Employment Cost Index; US Personal Income & Spending; Chicago PMI; China Manufacturing & Non-manufacturing PMIs; China Caixin Manufacturing PMI
AUGUST
1: UK Manufacturing PMI; US ISM Manufacturing PMI; FOMC Policy Decision
2: UK Construction PMI; BOE Policy Decision; China Caixin Services PMI
3: UK Services PMI; US Payrolls & Unemployment
6:
7: China Trade Balance
8: China CPI
9: US PPI
10: UK Manufacturing Production; US CPI
12: Japan Prelim Q2 GDP
13: China Industrial Production
14: Germany Preliminary Q2 GDP; Euro Zone Q2 GDP; UK CPI & PPI
15: UK Unemployment & Claimant Count; UK Inflation Report; US Retail Sales; US Industrial Production
16: UK Retail Sales; US Housing Starts & Building Permits; Philadelphia Fed Manufacturing Index
17: Euro Zone Final CPI; Preliminary University of Michigan Sentiment
20:
21: German ZEW Economic Sentiment
22: US Existing Home Sales; FOMC Minutes
23: ECB Minutes; Fed’s Jackson Hole symposium begins
24: Various European Flash Manufacturing & Services PMIs; US Durable Goods Orders
27: German Ifo Business Climate
28: UK Q2 GDP (second estimate); US Consumer Confidence
29: US Prelim Q2 GDP (second estimate)
30: German Preliminary CPI; US Core PCE; US Personal Income & Spending
31: German Retail Sales; Euro Zone Flash CPI Estimate; US Chicago PMI; China Caixin Manufacturing PMI
Mon, 09 Jul 2018 18:18 PM EST
The eyes of the world are on the World Cup in Russia, which has been a welcome distraction from the political and trade squabbles that have dominated the news lately. But as the tournament starts to wrap up the difficult geopolitical realities remain the same.
Economic fundamentals are solid and corporate results appear strong heading into the Q2 earnings season, but the contest over global trade has put a drag on markets. Despite stronger global economic growth, uncertainty is reflected in the over 20% drop in the Shanghai index in the last five months and the 9% drop in the DJIA since its January peak. Meanwhile, the yield curve is most definitely not ‘bending it like Beckham’: the 2-10 year Treasury spread has flattened to below 30 basis points for the first time in over a decade. While most analysts and central bank officials are not deeply concerned about this flattening, which they see as the result of a variety of special factors, if the yield curve remains flat for a prolonged period it could cause damage to sentiment.
The upcoming earnings season could deflect some of that uncertainty if companies put up strong numbers, but guidance may be clouded by the overhang of the nascent trade war. CEOs may inject a note of caution in their forward guidance as they consider political uncertainties around tariffs that will impact corporate decisions on capital expenditures, hiring and other investments. Corporate earnings are growing but stock multiples tend to contract during Fed tightening cycles, creating potential downside in equity markets over the medium term. Thus trade issues including tariffs and Brexit, and various domestic political dramas will keep markets on the edge of their seats long after the World Cup winner takes home the trophy.
Central Banks: On the Sidelines
While many central bankers no doubt have been rooting for their home teams during the World Cup, they strive to keep out of politics to help ensure their independence. The closest central bank chiefs have gotten to the current dispute is in a general agreement that protectionism is a major downside risk to the outlook.
The next two months will likely be quiet for the central banks as they enter their typical summertime dormancy. Most of the big monetary policy moves have already been made in recent months: the Fed raised rates again and withdrew its forward guidance, the ECB firmed up plans for tapering QE and exiting zero rate policy, and the PBoC cut its Reserve Ratio Requirement to spur lending.
The Bank of England may put a 25 basis point hike on the board at its August 2 meeting, but that’s only after ‘calling offsides’ on market prognostications of a May hike. The June meeting did result in a more hawkish stance, with a divided 6-3 vote and the threshold for tapering QE policy shortened to when rates reach 1.50% from the previous target of 2.00%. BOE officials continue to be confident that rates will rise slowly in the absence of any new shocks (so progress on Brexit talks would undoubtedly please the central bank).
The ECB was also a tinge more hawkish last month, though it took a more cautious stance than many expected on policy normalization. While President Draghi did finally announce plans for tapering QE during the last quarter of 2018, he also said that rates will not rise off the zero bound until the summer of 2019. With its policy line up now announced, the ECB should not present any surprises in the next couple of months.
Just a day before the ECB statement in June, the FOMC announced its second rate hike of the year, as expected, basing the decision on continued improvement in economic activity. The statement acknowledged that the Fed has reached its maximum employment goal and largely removed the central bank's forward guidance, another indication that policy normalization is fully underway. The updated Summary of Economic Projections (SEP) was also more hawkish. A shift in the 'dot plot' showed the median forecast from FOMC members is now fully factoring in four rate hikes this year.
In the end there is not that much distance between the Fed doves and hawks. Most agree on “gradual” tightening, leaving the question of when the end of the cheap money era will start to exert pressure on financial markets. At the moment, only the bond market is looking through to the next recession, reflected in the flattening yield curve. So far Fed officials have expressed little concern about a yield curve inversion and rates continue to march up the field. A week after the June hike, Fed Chair Powell stated that the Fed stance is still accommodative and may be 100 bps below the 'neutral' rate, indicating enough room for rates to keep rising well into 2019.
Politics: Group Stage
While monetary policy is on the sideline for the moment, politicians are playing a fast paced game, and many are looking to tear up the rulebook. The balance of political power within the EU and euro zone are being tested by the Brexit, populist issues like immigration, and policy rifts within coalition governments. Meanwhile a Supreme Court nomination battle and the culmination of the Russia investigation are likely to bring out the worst hooliganism that Washington has to offer ahead of the mid-term elections.
The most surprising development of the last month was the domestic upheaval suddenly shaking the coalition of the German Chancellor. Germany, still licking its wounds from its early ouster in the World Cup tournament, saw Chancellor Merkel narrowly avoid a similarly embarrassing defeat that threatened her government. Allied political parties put pressure on Merkel over illegal immigration policy, and she only managed to avert a domestic rebellion by pressing the issue at the EU summit meeting in June. There has been a great deal of political change in Europe over the last decade, but to see the four-term leader of the euro zone’s largest member suddenly threatened by a shift in the political winds was quite extraordinary. If the leaders at the core of the euro zone are vulnerable, then any government could potentially fall to abrupt changes in the political environment.
Case in point is Italy, where the only bigger national shame than failing to qualify for the Cup is the country’s inability to form a stable government. Analysts are closely watching the new government coalition, whose nationalistic tendencies have contributed to pushing the immigration issue to the fore. Even as they question euro zone rules, it remains to be seen how the coalition will reconcile the goals of the populist Five Star Movement, which promised more public spending, and the far-right Northern League, which wants tax cuts. Over time such policies would add to the country’s €2.1T in debt and could lead to a nightmare scenario for the EU: a Greek-style debt crisis in the euro zone’s third largest country. It will be up to PM Giuseppe Conte, a lawyer and academic with no political experience to navigate away from a fiscal crisis. His choices will be under the scrutiny of President Mattarella, who showed his willingness to utilize rarely used veto powers when he rejected the government’s first nominee for Finance Minister who Mattarella deemed as too anti-European. These tensions could lead to new battles within Italian politics that could easily spill over to the wider euro zone.
The partisan battle in Washington D.C. will intensify in the months ahead as the Republican and Democratic teams line up for the November election. The retirement of the Supreme Court’s swing voter, Justice Kennedy, is the latest flash point in the political game as Senate Republicans race to confirm the new nominee before the election. The financial world will likely look favorably on the new Justice, who will almost certainly be a pro-business jurist, though those taking a longer view may be uneasy about the court tilting further to the right on cultural and religious issues. The role of Chief Justice Roberts in leading the court will become even more prominent as he will now sit at the new ideological median of the court. After the new justice is sworn in it will soon become clear if Roberts will adhere to the core principle of following legal precedent or preside over a newly activist court.
The other legal issue hanging over Washington is the Russia investigation. The findings of the special counsel could be announced at any moment in the next few months, and, depending on their scope, could rock the Trump administration (and potentially draw votes away from the GOP in the November election). Unless the report either fully exonerates the President or is especially damning of him, its likely to further expand the partisan divide in Washington.
All of DC’s political issues are now fodder for the November election, which is increasingly being seen as a confidence vote on the President. Growing expectation that Democrats could retake one or both houses of Congress could eventually weigh on market psychology. Though the GOP tax plan can’t be rolled back as long as there is a Republican in the White House, a Democratic-controlled Congress would block any further major legislative initiatives by this White House.
In foreign policy matters, Trump is looking to hit Iran’s oil market with a red card. Just days after OPEC and other aligned producers agreed to a moderate production increase, the US declared a goal of wiping out most of Iran’s oil exports by November. If successful, the White House play could spur a significant price rise in oil, with at least one analyst suggesting the exclusion of Iranian oil from the market could send WTI to over $120 per barrel. Realizing higher gasoline prices would be a sore spot for US voters in November, Trump has been demanding even more production from OPEC.
Meanwhile Iran has been working the field, trying to extract compensatory concessions from Europe. However, if the US pressure campaign starts to cause real economic damage Iran could make good on threats to tear up the nuclear accord entirely. It’s worth noting that Iran’s Revolutionary Guard commander has threatened to block oil shipments through the Straight of Hormuz if the US throttles the flow of Iranian oil. While the Iranian navy may not be capable of backing up that threat, it is a sign that hardliners who were against the nuclear accord from the beginning may be gaining the upper hand in Tehran.
Disagreement over Iran policy could spill over into discussions with US allies. On the heels of the ill will that emerged from the G7 summit in Quebec last month, Trump faces a contentious meeting with NATO (July 11-12). Then on July 16th, Presidents Trump and Putin will meet in Helsinki. Trump is expected to ask the Russian leader to help push Iran out of the Syrian conflict, having already conceded the US rhetorical stance on removing Syrian strong man Bashar al Assad. The optics of a warm meeting between Trump and Putin right after the NATO gathering could put even more strain on relations with allies already upset with Trump’s trade policies.
Brexit: Elimination Round
After a lot of dramatics but little progress on trade issues, the negotiations to withdraw the UK from the EU are about to enter extra time with no score on the board. Prime Minister May appears to have one more chance to put the ball in the goal before the process faces a complete collapse. May is fighting her own Brexit Secretary and Foreign Secretary who continue to advocate for a ‘max fac’ technology based customs border for Ireland. The EU has already essentially rejected that option and the PM is now pushing for a ‘softer’ proposal that would adhere to EU trade rules at the border. If the PM can’t come to terms with her insurgent cabinet ministers, it could lead to a confidence vote against PM May and a leadership challenge by Boris Johnson (*Editor’s Note: as of July 9, Brexit Minister Davis and Foreign Minister Johnson have both resigned in protest).
After a day of knocking heads in a private cabinet meeting PM May emerged with a new proposal that attempts appeal to both hardline members of her cabinet and to Brussels with a “facilitated customs arrangement” that would apply domestic tariffs on goods headed for the UK and their EU equivalents for goods bound for the EU. The plan envisions minimum friction at the border while still allowing the UK to set its own tariffs and trade policy. Furthermore the new plan promises to maintain a common rulebook for all goods including agricultural products and for UK courts to give “due regard” to EU case law and to allow for binding arbitration.
The EU negotiating team will now assess whether the proposal outlined in a forthcoming white paper (due July 12) is workable, or just another false start in setting the terms of the new trading relationship. PM May has done a lot of arm twisting to get the factions within her own party to support her latest customs plan, but it will only matter if the EU sees the proposal as remotely credible and a basis for restarting real negotiations as the game clock continues to tick toward March 2019.
Trade: The Final
Trade tensions between the US and the rest of the world are likely to remain the main event in the months ahead. Though the US is absent from the World Cup, it most definitely is driving the geopolitical discussion under President Trump’s strategy of disrupting the staid global order built up over the last several decades. Trump is testing old alliances and adversaries alike with his brand of leadership based on unpredictability and putting “America first.” This policy is manifesting in a recalibration of global trade relationships, but it’s unclear if there will be any winners.
So far, Trump’s tactics have extracted concession from a few countries, but most are responding with tit-for-tat tariffs. Already over $20B in new tariffs on US goods have been imposed in retaliation for the steel and aluminum tariffs that the US imposed in March.
Specific American firms and industries will continue to suffer amid the rising tariff dispute. One report said China could cancel as much as 1.1M tons of US soybeans this year (China accounts for about half of America’s $14B in annual soybean exports). Harley-Davidson has taken direct criticism from President Trump after it announced it would move some production to Europe to avert tariffs. Micron just suffered an adverse patent ruling in China, and one can’t help but wonder if the trade war played a role in the court’s decision. Similar concerns may arise for Google this month as the EU is set to issue a fine against the firm over its alleged abuse of market dominance in the Android mobile operating system. Analysts expect the new fine could eclipse the record $2.8B fine that was levied against the company last year over its search market dominance. Predictions run as high as $11B, and the trade dispute may get blamed for influencing that figure if it runs toward the high end.
As of July 6, the US-China trade fight jumped to a new level. The US went ahead with $34B in new tariffs, which China immediately matched, with another $16B to be imposed by both sides in a couple of weeks.
The US has targeted the vast majority of its tariffs at capital or intermediary products, with the intention of making American firms’ supply chains less reliant on Chinese goods. The unintended consequence here could be disruptions in the synchronized global supply chain as companies shift production and sourcing. And protectionist measures beget more protectionism, so the tariffs are bound to spread to other countries. At a minimum, Canada and other major US trade partners are apt to put up their own trade barriers to China on concerns about goods being diverted through their markets in an effort to circumvent the US duties.
The burgeoning trade war could escalate quickly if China matches the entire $50B in new duties the US plans. Trump has threatened to expand tariffs by as much as $450B, an amount that would be difficult for Beijing to match. But China could retaliate in other ways, transmitting negative feedback through the bond and currency markets, or imposing burdensome inspections that could delay sales of durable goods or leave fresh foodstuffs to rot on the dock. If the markets start feeling pain, Trump may have second thoughts, especially after touting the rising stock market as the true measure of his approval rating.
The markets have latched on to auto tariffs as the line of demarcation for a full blown trade war. The US Commerce Department is currently considering auto tariffs on “national security” grounds (a Section 232 review), but a decision is not expected for months, leaving some time for international trade negotiators to broker a solution. Meanwhile the Commerce Department will hold hearings on the issue on July 19-20. As we saw with the Section 232 review on steel and aluminum, the outcome of the Commerce probe appears pre-ordained: its being used as a pressure tactic that will hang over the auto industry and trade talks for the rest of the year.
In early July, markets took some heart that a resolution to the auto tariff dispute can be found as one US official expressed a willingness to deal. A German press report noted the US ambassador to Germany told car makers the Trump administration is open dropping its tariff talk if European removes its 10% duties on US vehicles (and the US would remove its 2.5% duty). If, however, no deal is reached in the coming months, President Trump could follow through on his threat to raise the cost of autos imported from the EU by 20%. In that event, the Trump administration might also start talking more seriously about withdrawing from the WTO, which would be a crippling blow to the post-war global trade framework.
At this point there does not appear to be much high level dialogue going on especially between the US and China, so a trade war could rapidly get out of control. Rising trade barriers will put upward pressure on inflation, which could in turn force central banks to raise rates faster. Neither side wants a trade war, however, so there’s still a chance for a deal that would lead to freer trade, maybe even in time in time for the start of the American football season.
CALENDAR
JULY
1: China Manufacturing and Non-manufacturing PMIs; China Caixin Manufacturing PMI; Mexico general election
2: UK Manufacturing PMI; US ISM Manufacturing PMI
3: UK Construction PMI; China Caixin Services PMI
4: UK Services PMI; US ISM Non-manufacturing PMI; FOMC Minutes; 4th of July Holiday
5: US ADP Employment
6: US Payrolls & Unemployment
9: China CPI & PPI
10: UK Manufacturing Production; UK Goods Trade Balance; China Trade Balance
11: US PPI; NATO summit (July 11-12)
12: BOE Credit Conditions Survey; ECB Minutes; US CPI; UK White Paper on new Brexit proposal
13: Preliminary University of Michigan Confidence
16: US Retail Sales; China Q2 GDP; China Industrial Production; Trump/Putin summit
17: UK CPI & PPI; German ZEW Economic Sentiment; US Industrial Production
18: UK Claimant Count & Unemployment; US Housing Starts & Building Permits
19: UK Retail Sales; Philadelphia Fed Manufacturing Index
20:
23: US Existing Home Sales
24: Euro Zone Flash Manufacturing & Services PMIs
25: German Ifo Business Climate
26: UK Prelim Q2 GDP; ECB Policy Announcement; US Durable Goods Orders
27: US Advance Q2 GDP
30: German Prelim CPI; BOJ Policy Announcement
31: German Retail Sales; Euro Zone Flash CPI; US Core PCE Price Index & Employment Cost Index; US Personal Income & Spending; Chicago PMI; China Manufacturing & Non-manufacturing PMIs; China Caixin Manufacturing PMI
AUGUST
1: UK Manufacturing PMI; US ISM Manufacturing PMI; FOMC Policy Decision
2: UK Construction PMI; BOE Policy Decision; China Caixin Services PMI
3: UK Services PMI; US Payrolls & Unemployment
6:
7: China Trade Balance
8: China CPI
9: US PPI
10: UK Manufacturing Production; US CPI
12: Japan Prelim Q2 GDP
13: China Industrial Production
14: Germany Preliminary Q2 GDP; Euro Zone Q2 GDP; UK CPI & PPI
15: UK Unemployment & Claimant Count; UK Inflation Report; US Retail Sales; US Industrial Production
16: UK Retail Sales; US Housing Starts & Building Permits; Philadelphia Fed Manufacturing Index
17: Euro Zone Final CPI; Preliminary University of Michigan Sentiment
20:
21: German ZEW Economic Sentiment
22: US Existing Home Sales; FOMC Minutes
23: ECB Minutes; Fed’s Jackson Hole symposium begins
24: Various European Flash Manufacturing & Services PMIs; US Durable Goods Orders
27: German Ifo Business Climate
28: UK Q2 GDP (second estimate); US Consumer Confidence
29: US Prelim Q2 GDP (second estimate)
30: German Preliminary CPI; US Core PCE; US Personal Income & Spending
31: German Retail Sales; Euro Zone Flash CPI Estimate; US Chicago PMI; China Caixin Manufacturing PMI
Saturday, July 7, 2018
Stocks finish higher despite escalating trade spat
TradeTheNews.com Weekly
Market Update: Stocks finish higher despite escalating trade spat
Fri, 06 Jul 2018 16:16 PM EST
Stocks lifted this week in holiday-abbreviated trade. Early on, worries around potentially changing political winds in Europe resulted in risk-off trading sentiment. Coming out of the July 4th break, rising tensions surrounding trade and escalating tariffs were counterbalanced by another strong reading on the US jobs market and high expectations heading into corporate earnings season. The US Treasury yield curve continued to flatten into territory not seen since 2007, while copper prices plumbed to fresh 1-year lows. Banks remained a notable laggard, unable to garner any momentum, while traditionally defensive groups and the NASDAQ/tech remained in leadership roles. For the week the S&P gained 1.5%, Dow rose 0.7% and the NASDAQ jumped 2.5%.
In corporate news this week, Tesla announced it hit its one-week production goal of 5,000 Model 3 units in the last week of Q2, but analysts noted a miss on overall Q2 deliveries and a decline in net Model 3 reservations, sending shares lower. Casino names fell after Macau gaming numbers came in below estimates for the second straight month. Facebook shares dropped Tues on news of an expanded probe into the Cambridge Analytica-linked data breach, with the FBI, SEC and FTC joining the DOJ in their investigation. Boeing and Embraer confirmed a JV deal in which Boeing will acquire control of Embraer’s $4.8B commercial jet division. Biogen surged after successful results from an Alzheimer’s trial that showed its drug could slow the progression of the disease in its milder, early stages.
SUN 7/1
(DE) Germany Interior Minister/CSU Chairman Seehofer said to have offered resignation to colleagues in CSU Party over migrant issue; CSU Caucus chief Dobrindt said to oppose Seehofer quitting - financial pres
(EU) EU makes written submission to US Commerce Dept warning that EU and others will likely respond to tariffs on foreign autos, by targeting $300B in US goods in retaliation - FT
(HK) Macau June Gaming Rev MOP22.5B, Y/Y: 12.5% v 18%e (2nd consecutive missed estimate)
MON 7/2
TSLA Reports Q2 vehicle deliveries 40.7K (Model 3 18.4K, Model S 10.9K, Model X 11.4K)
(UK) JUN MANUFACTURING PMI: 54.4 V 54.0E
(DE) Chancellor Merkel and Interior Min Seehofer reach compromise over migration - German press
(US) Atlanta Fed raises Q2 GDP forecast to 4.1% from 3.8% prior
(CN) China June exports to the US said to be +3.8% y/y according to customs v 27.6% y/y - Chinese press
TUES 7/3
(CN) China PBOC Gov Yi Gang: closely watching moves in fx market, reiterates to keep yuan basically stable and at reasonable level; reiterates 'prudent, neutral' monetary policy
(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.50%
WEDS 7/4
(UK) Post-Brexit document showed customs system 'could take up to five years - financial press
(CN) China to implement tariffs on $34B worth of US goods from midnight July 6th, according to press report; Separately, a China MOF official said China will not implement tariff measures ahead of the US
(UK) JUN SERVICES PMI: 55.1 V 54.0E (23rd month of expansion and a 9-month high)
THURS 7/5
(US) JUN ADP EMPLOYMENT CHANGE: 177K V 190KE
(US) JUN ISM NON-MANUFACTURING COMPOSITE: 59.1 V 58.3E
(US) Conference Board June Total online job ads 4.5M v 4.7M m/m v 4.8M y/y; New ads 1.9M v 1.9M m/m v 2.0M y/y
005930.KR Reports Q2 prelim (KRW) Op 14.8T v 14.9Te (vs 14.07T y/y), Rev 58.0T v 59.7Te (vs. 61.0T y/y)
FRI 7/6
(CN) First round of US tariffs on China take effect
(CN) China Commerce Ministry (MOFCOM): Reiterates has to fight back, forced to retaliate on tariffs; will continue evaluating impact of US tariffs
*(CN) CHINA STATE MEDIA: IMPORT TARIFFS HAVE TAKEN EFFECT ON US PRODUCTS
066570.KR Reports prelim Q2 (KRW) Op 771B v 821Be, Rev 15.02T v 15.5Te
(CN) China Foreign Ministry spokesperson Lu Kang: Retaliatory tariffs on US goods are now in effect - press conf
DBK.DE Reportedly JP Morgan and ICBC considering taking a stake - press
(IT) Bank of Italy (BOI) June Balance-Sheet Aggregates: Target2 liabilities at record high of €480.9B v €464.6B m/m
(CA) CANADA JUN NET CHANGE IN EMPLOYMENT: 31.8K V +20.0KE; UNEMPLOYMENT RATE: 6.0% V 5.8%E
*(US) JUN CHANGE IN NONFARM PAYROLLS: 213K V 195KE
Fri, 06 Jul 2018 16:16 PM EST
Stocks lifted this week in holiday-abbreviated trade. Early on, worries around potentially changing political winds in Europe resulted in risk-off trading sentiment. Coming out of the July 4th break, rising tensions surrounding trade and escalating tariffs were counterbalanced by another strong reading on the US jobs market and high expectations heading into corporate earnings season. The US Treasury yield curve continued to flatten into territory not seen since 2007, while copper prices plumbed to fresh 1-year lows. Banks remained a notable laggard, unable to garner any momentum, while traditionally defensive groups and the NASDAQ/tech remained in leadership roles. For the week the S&P gained 1.5%, Dow rose 0.7% and the NASDAQ jumped 2.5%.
In corporate news this week, Tesla announced it hit its one-week production goal of 5,000 Model 3 units in the last week of Q2, but analysts noted a miss on overall Q2 deliveries and a decline in net Model 3 reservations, sending shares lower. Casino names fell after Macau gaming numbers came in below estimates for the second straight month. Facebook shares dropped Tues on news of an expanded probe into the Cambridge Analytica-linked data breach, with the FBI, SEC and FTC joining the DOJ in their investigation. Boeing and Embraer confirmed a JV deal in which Boeing will acquire control of Embraer’s $4.8B commercial jet division. Biogen surged after successful results from an Alzheimer’s trial that showed its drug could slow the progression of the disease in its milder, early stages.
SUN 7/1
(DE) Germany Interior Minister/CSU Chairman Seehofer said to have offered resignation to colleagues in CSU Party over migrant issue; CSU Caucus chief Dobrindt said to oppose Seehofer quitting - financial pres
(EU) EU makes written submission to US Commerce Dept warning that EU and others will likely respond to tariffs on foreign autos, by targeting $300B in US goods in retaliation - FT
(HK) Macau June Gaming Rev MOP22.5B, Y/Y: 12.5% v 18%e (2nd consecutive missed estimate)
MON 7/2
TSLA Reports Q2 vehicle deliveries 40.7K (Model 3 18.4K, Model S 10.9K, Model X 11.4K)
(UK) JUN MANUFACTURING PMI: 54.4 V 54.0E
(DE) Chancellor Merkel and Interior Min Seehofer reach compromise over migration - German press
(US) Atlanta Fed raises Q2 GDP forecast to 4.1% from 3.8% prior
(CN) China June exports to the US said to be +3.8% y/y according to customs v 27.6% y/y - Chinese press
TUES 7/3
(CN) China PBOC Gov Yi Gang: closely watching moves in fx market, reiterates to keep yuan basically stable and at reasonable level; reiterates 'prudent, neutral' monetary policy
(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.50%
WEDS 7/4
(UK) Post-Brexit document showed customs system 'could take up to five years - financial press
(CN) China to implement tariffs on $34B worth of US goods from midnight July 6th, according to press report; Separately, a China MOF official said China will not implement tariff measures ahead of the US
(UK) JUN SERVICES PMI: 55.1 V 54.0E (23rd month of expansion and a 9-month high)
THURS 7/5
(US) JUN ADP EMPLOYMENT CHANGE: 177K V 190KE
(US) JUN ISM NON-MANUFACTURING COMPOSITE: 59.1 V 58.3E
(US) Conference Board June Total online job ads 4.5M v 4.7M m/m v 4.8M y/y; New ads 1.9M v 1.9M m/m v 2.0M y/y
005930.KR Reports Q2 prelim (KRW) Op 14.8T v 14.9Te (vs 14.07T y/y), Rev 58.0T v 59.7Te (vs. 61.0T y/y)
FRI 7/6
(CN) First round of US tariffs on China take effect
(CN) China Commerce Ministry (MOFCOM): Reiterates has to fight back, forced to retaliate on tariffs; will continue evaluating impact of US tariffs
*(CN) CHINA STATE MEDIA: IMPORT TARIFFS HAVE TAKEN EFFECT ON US PRODUCTS
066570.KR Reports prelim Q2 (KRW) Op 771B v 821Be, Rev 15.02T v 15.5Te
(CN) China Foreign Ministry spokesperson Lu Kang: Retaliatory tariffs on US goods are now in effect - press conf
DBK.DE Reportedly JP Morgan and ICBC considering taking a stake - press
(IT) Bank of Italy (BOI) June Balance-Sheet Aggregates: Target2 liabilities at record high of €480.9B v €464.6B m/m
(CA) CANADA JUN NET CHANGE IN EMPLOYMENT: 31.8K V +20.0KE; UNEMPLOYMENT RATE: 6.0% V 5.8%E
*(US) JUN CHANGE IN NONFARM PAYROLLS: 213K V 195KE
Barrons weekend summary
Barrons weekend summary: positive on LMT, MPC, INTC, KORS; cautious on home builders
Cover story: Proxy voting professionals and practitioners say the system needs to change, with the PG-Trian proxy fight the “latest failure in a system that is unresponsive to institutional and retail investors, and increasingly at risk of producing an erroneous result in a close vote.”
Features: 1) Positive on LMT, MPC, INTC, KORS: With the effects of Donald Trump’s trade wars uncertain, Barron’s found four companies whose earnings outlooks have climbed in recent months by more than their share price; 2) Cautious on TOL, DHI, LEN, PHM: Many investors see homebuilders as “early cycle” stocks that should be avoided toward the end of a long economic recovery, but bulls says the cycle will continue because the U.S. has underbuilt housing over the past decade; 3) Blockchain, the technology behind bitcoin, could be a solution to problems related to the use of middlemen in the proxy process, from solicitors to banks to tabulators, making tracking votes difficult; 4) Story looks at three proxy votes that went bad, including one that led TROW to erroneously vote for Michael Dell’s bid to take his company private, for which the firm had to compensate clients.
Tech Trader: Cloud computing is the greatest revolution in technology since the advent of the World Wide Web, but a backlash—called edge computing, led by old guard companies such as Dell, IBM, HPQ, HPE, NTAP, and CSCO, all imperiled by the cloud—is under way.
Trader: China’s ability to push back on U.S. tariffs may be limited, but the trade war could serve as a further impetus for Beijing to internationalize its currency, impacting the dollar’s role as the world’s reserve currency.
Barron’s Mutual Fund Quarterly: 1) A look at funds that have outperformed the market in a tough climate for bonds; money-market and short-term funds pose the least risk, while floating-rate, unconstrained, and high-yield muni bonds may be more volatile (+ VMFXX, THOPX, SEMRX, BSCK, EAFAX, FLOT, PUBAX, OSTRX, IOBAX, NHMAX); 2) With the winding down of a 35-year bull market in bonds and the potential for rising inflation, bond investors need to be stingy about management fees; 3) In an interview, Dan Wiener of Vanguard and Jim Lowell of Fidelity, who are a team at Adviser Investments, talk about their favorite fund managers, and say that healthcare is the best long-term opportunity right now; 4) Astonishingly high yields, often into the mid-teens, make collateralized loan obligations—which are typically institutional investments—worth another look.
Follow-Up: Positive on Embraer: Business jet prices are firming up, which could be good news for the company, but the best way to invest in it might be through BA, which now has a stake in Embraer’s narrow-body C-series.
European Trader: Cautious on Glencore: A selloff following a Justice Department subpoena could make it a good time to buy on the dip, but there’s a good case to made for holding off, especially if China demand weakens or other legal problems emerge.
Emerging Markets: “A number of Asia-based strategists believe Southeast Asian stocks are within 5-10% of their bottom and should be on the shopping list of long-term investors.”
Commodities: “Platinum, with its price at the lowest level in nearly a decade, might soon attract the interest of bargain hunters.”
Streetwise: Dell Technologies’ $21.7B cash and stock bid to buy out holders of DVMT, a Dell stock that tracks VMW, is likely to gain shareholder approval, though the tracking stock’s holders deserve a better deal.
Sunday, July 1, 2018
Barrons weekend summary
Barrons weekend summary: Cover story warns its time to prepare for the end of the bull market
Cover story: Time for the bull market that started in 2009 to come to an end by 2020. Factors include recent tax cuts (a stimulus that should last another year or so) and the Fed continuing to raise interest rates while reducing its $4T balance sheet. BMO chief investment strategist Brian Belski suggests traders focus on high quality stocks. (Picks: BLK, BIIB, COST, UTX) Goldman Sachs' chief U.S. equity strategist David Kostin recommends stocks with strong balance sheets. (picks: FB, ISRG, MNST, VZ)
Features: Positive on Sirius XM Holdings despite greater competition from the likes of Spotify and Apple. Liberty Media owns a controlling stake in Sirius and Barron's suggests investors can "ride the value" of that stake through a tracking stock. The tracking stock comes in three classes: Liberty Media Corp Series A (LSXMA), Series B SiriusXM (LSXMB) and Series C SiriusXM (LSXMK)
Feature 2: Non-financial companies debt is at a record 74% of GDP: Low Credit risk company picks: MA, EA, GGG, EQC, VZ Feature 3: The economy is running out of workers with continued economic growth in the United States. The author suggests "second-chancers," the population that was recently released from prison, could fill the void and extend economic expansion.
- Highlights: Trump and trade, going after Harley Davidson, immigration gridlock, Supreme Court's travel ban, GE exiting the Dow industrials, and Amazon's acquisition of PillPack
Tech Trader: Apple (AAPL), Qualcomm (QCOM), IBM (IBM) fell on Monday following news that the Trump would plan to target China's involvement in US tech. The Nasdaq ended up with its worst week since March finishing -2.4%; tech received some judicial relief when the high court ruled in favor of American express (AXP) giving it right to stop its partner merchants from offering discounts to consumers using cards from Visa (V) and MasterCard (MA).
Profile: Lisa Hess and Dan Sobol, the managing partners of SkyTop Capital Management talk about potential winners connected to the electric car and autonomous vehicles industry. (picks: AAG.DE, VC, CSTM, S.CA)
Interview: investors Kenneth Broad and Christopher Bonavico of Jackson Square SMID-Cap fund. The fund holds 30 stocks that remain in their portfolio for a long time with a third held for more than a decade. (picks: DNKN, LOGI, JCOM, RDFN, NYT) - Bernstein media analyst Todd Juenger recently conducted a 1,000-person survey to find out why Netflix (NFLX) has only 57M paying users. Survey results show Netflix has 141M users and 68% of whom pay for the service. Juenger also predicts the company will be at 87M subscriptions in 2030.
Trader: Expects durgstore names to recover after Amazon's announcement into prescription drug market. Sees Harley Davidson shares falling lower after 9% loss last week after announcing move of some production overseas and Trump's lashing out.
European Trader: Norway low level of political risk has helped stocks outperform other equities; the country's economic growth looks solid. Analysts see 2% GDP expansion both in 2018 and 2019.
Emerging Markets: Following Trukey's re-election of Erdogan the country's currency, the lira, is at its lowest value since 2012; real domestic interest rates are at 7% with yields at similar levels. Remains cautious on Turkey's future given re-election of Erdogan.
Commodities: Commodities' returns have not done as well as expected in H1 of 2018; trade news has dominated commodities which means the outlook is very uncertain.Follow Up: Remains cautious on GE sees credit rating in risk of being cut.
Saturday, June 30, 2018
Trump to lean on CFIUS; European inflation gets back to ECB target
TradeTheNews.com Weekly
Market Update: Trump to lean on CFIUS; European inflation gets back to ECB
target
Fri, 29 Jun 2018 16:08 PM EST
Markets chopped around this week as the quarter drew towards a close. Early on, risk-off flows picked up momentum on concerns that the US would crack down aggressively on Chinese investments in an attempt to curtail intellectual property theft. Trade tensions were soothed modestly when the President said he would use the CFIUS mechanism to protect US technology rather than introduce a new set of laws to go after transgressors, at least for now. Nevertheless, the Chinese Yuan repeatedly made new yearly lows against the Dollar after the PBOC announced an RRR cut on Sunday, leading some to speculate Chinese officials were OK with a weakening currency, illustrating devaluation remains part of their arsenal in any trade war.
By Friday, stocks were swinging back up, led by a rebound in Europe. European flash CPI topped the ECB target of 2% for the first time in more than a year, and EU leaders reached a modest agreement on immigration. US core PCE data also matched the Federal Reserve’s target for the first time since 2012. Treasury markets continued to flash warning signs, though, as flattening in the US yield curve continued to ever-precarious levels, keeping the pressure on banks until the CCAR results on Thursday night sparked a relief rally. High yield fixed income also slipped, pushing ETF barometers back towards key support levels for the year. The crude rally continued largely unabated to probe fresh highs going back to 2015, helped by reports that the US was leaning heavily on nations to comply with Iranian sanctions. The Greenback moved up for much of the week as emerging market currencies stayed volatile, and investors continued to place bets predicated on expected divergent central banks paths. For the week the S&P fell 1.3%, the Dow lost 1.3% and the NASDAQ dropped 2.4%.
In corporate news this week, the Nasdaq saw bouts of weakness amid some quarter end profit-taking in the FANG names as investors weighed potential upcoming trade and foreign investment hurdles. Harley Davidson was the target of Pres Trump’s ire after announcing plans to shift production of some motorcycles to the EU to avoid tariffs. Amazon made another foray into the drug sector with the acquisition of Pillpack, sending shares of drugstore names tumbling. Nike surged higher after topping expectations and raising its annual sales growth forecasts. ConAgra announced the acquisition of Pinnacle Foods in a $10.9B cash-and-stock deal, aiming to boost its foothold in the snack and frozen food markets.
SUNDAY 6/24
Bank for International Settlements Annual Economic Report: Banks may be disguising their borrowings in a way similar to that used by Lehman Brothers Holdings, with debt ratios falling within limits imposed by regulators just four times a year; warns on protectionist measures
(CN) China PBOC cuts Reserve Ratio Requirement (RRR) for some banks by 50bps, effective July 5th; (3rd targeted cut this year) as a result releasing CNY700B v CNY400Be in liquidity (as speculated)
MONDAY 6/25
*(DE) GERMANY JUN IFO BUSINESS CLIMATE: 101.8 V 101.8E; CURRENT ASSESSMENT: 105.1 V 105.6E; Expectations Survey: 98.6 v 98.0e
HOG Plans to shift production of motorcycles with EU destinations away from US to avoid tariffs, expects tariffs will result in an incremental cost of ~$2.2K per average motorcycle exported from the US to the EU - filing
(US) MAY NEW HOME SALES: 689K V 667KE
(US) JUN DALLAS FED MANUFACTURING ACTIVITY: 36.5 V 23.0E
(CN) China President Xi reportedly told various CEOs last week that Beijing plans to strike back against punitive American tariffs; says "In our culture we punch back" - press
(US) White House Trade Adviser Navarro: we have no plans to impose investment restrictions; today's market selloff is a large overreaction - CNBC interview
TUESDAY 6/26
LEN Reports Q2 $1.58 v $0.45e, Rev $5.46B v $5.23Be
GE Confirms Healthcare to become standalone company; to focus on Aviation, Power and Renewable Energy - Investor day
HOG (US) President Trump tweets "Early this year Harley-Davidson said they would move much of their plant operations in Kansas City to Thailand. That was long before Tariffs were announced. Hence, they were just using Tariffs/Trade War as an excuse. Shows how unbalanced & unfair trade is, but we will fix it....
AXP To launch new Amazon cobrand card to enhance how small businesses buy
*(US) JUN RICHMOND FED MANUFACTURING INDEX: 20 V 15E
(US) Supreme Court upholds Trump travel ban by 5-4 vote - press
(CA) Canada govt reportedly readying steel quotas and tariffs on China and other countries - press
(US) S&P affirms United States sovereign rating at AA+: Outlook stable
WEDNESDAY 6/27
INTC New CPU release delay may reduce global notebook shipments - Digitimes
PF Confirms to be acquired by Conagra in a $10.9B cash and stock deal
(CZ) CZECH CENTRAL BANK (CNB) RAISES 2-WEEK REPURCHASE RATE BY 25BPS TO 1.00%; NOT EXPECTED
(US) Official: President Trump seeks to maintain investment environment open in the US, to use CFIUS to respond to China technology theft - closed door conference call (in-line with recent speculation)
(US) MAY PRELIMINARY DURABLE GOODS ORDERS: -0.6% V -1.0%E; DURABLES EX TRANSPORTATION: -0.3% V +0.5%E
(US) MAY PENDING HOME SALES M/M: -0.5% V +0.5%E; Y/Y: -2.8% V +0.4% PRIOR
(US) Atlanta Fed cuts Q2 GDP forecast to 4.5% from 4.7% prior
(US) Association of American Railroads weekly rail traffic report for week ending June 23rd: 557.3K, +3.7% y/y
(US) Justice Kennedy to retire from US Supreme Court - press
BBBY Reports Q1 $0.32 v $0.31e, Rev $2.75B v $2.75Be
(NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE (OCR) UNCHANGED AT 1.75%, AS EXPECTED
THURSDAY 6/28
AMZN Announces new offering that helps entrepreneurs build their own companies delivering Amazon packages
(EU) EURO ZONE JUN BUSINESS CLIMATE INDICATOR: 1.39 V 1.40E; CONSUMER CONFIDENCE (FINAL): -0.5 V -0.5E
(DE) GERMANY JUN PRELIMINARY CPI M/M:0.1 % V 0.1%E; Y/Y: 2.1% V 2.1%E
*(DE) GERMANY JUN PRELIMINARY CPI M/M:0.1 % V 0.1%E; Y/Y: 2.1% V 2.1%E
(US) Q1 FINAL GDP PRICE INDEX: 2.2% V 1.9%E; CORE PCE Q/Q: 2.3% V 2.3% PRELIM
*(US) Q1 FINAL GDP ANNUALIZED Q/Q: 2.0% V 2.2%E; PERSONAL CONSUMPTION: 0.9% V 1.0%E
AMZN To buy PillPack, an online pharmacy that offers pre-sorted doses of medications and home delivery
(CN) China state planner issued special management measures list for foreign investment access, effective July 28th - press
(US) State Dept says it will work with countries who buy Iranian oil on case by case basis; may not reach zero imports - CNBC
(US) White House Chief of Staff Kelly reportedly expected to leave position this summer - press
NKE Reports Q4 $0.69 v $0.64e, Rev $9.79B v $9.39Be; authorizes new 4-year, $15B program to repurchase Class B shares (13% of market cap)
DBK.DE Fed objects to capital plan for Deutsche Bank US unit due to qualitative concerns
(US) FEDERAL RESERVE COMPREHENSIVE CAPITAL ANALYSIS AND REVIEW (CCAR): 34 OF 35 CAPITAL PLANS APPROVED
NKE CEO: Raises forecast for annual sales growth at high single digits (prior mid to high single digits) - earnings call comments
FRIDAY 6/29
Xiaomi Corp [1810.HK] IPO said to price at HK$17/share (low-end of range), raising ~$4.7B (implied valuation ~$48.0B) - financial press
(DE) GERMANY JUN UNEMPLOYMENT CHANGE: -15K V -8KE; UNEMPLOYMENT CLAIMS RATE: 5.2% V 5.2%E
(US) Nevada reports May casino gaming Rev $1.04B, +5.3% y/y; Las Vegas strip Rev $904.6M, +5.1% y/y
(US) JUN FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 98.2 V 99.0E (largely due to tariff concerns)
(US) Atlanta Fed cuts Q2 GDP forecast to 3.8% from 4.5% prior
AAPL Reportedly to rebuild its Maps product; to compile new maps from its own data - tech blog
Fri, 29 Jun 2018 16:08 PM EST
Markets chopped around this week as the quarter drew towards a close. Early on, risk-off flows picked up momentum on concerns that the US would crack down aggressively on Chinese investments in an attempt to curtail intellectual property theft. Trade tensions were soothed modestly when the President said he would use the CFIUS mechanism to protect US technology rather than introduce a new set of laws to go after transgressors, at least for now. Nevertheless, the Chinese Yuan repeatedly made new yearly lows against the Dollar after the PBOC announced an RRR cut on Sunday, leading some to speculate Chinese officials were OK with a weakening currency, illustrating devaluation remains part of their arsenal in any trade war.
By Friday, stocks were swinging back up, led by a rebound in Europe. European flash CPI topped the ECB target of 2% for the first time in more than a year, and EU leaders reached a modest agreement on immigration. US core PCE data also matched the Federal Reserve’s target for the first time since 2012. Treasury markets continued to flash warning signs, though, as flattening in the US yield curve continued to ever-precarious levels, keeping the pressure on banks until the CCAR results on Thursday night sparked a relief rally. High yield fixed income also slipped, pushing ETF barometers back towards key support levels for the year. The crude rally continued largely unabated to probe fresh highs going back to 2015, helped by reports that the US was leaning heavily on nations to comply with Iranian sanctions. The Greenback moved up for much of the week as emerging market currencies stayed volatile, and investors continued to place bets predicated on expected divergent central banks paths. For the week the S&P fell 1.3%, the Dow lost 1.3% and the NASDAQ dropped 2.4%.
In corporate news this week, the Nasdaq saw bouts of weakness amid some quarter end profit-taking in the FANG names as investors weighed potential upcoming trade and foreign investment hurdles. Harley Davidson was the target of Pres Trump’s ire after announcing plans to shift production of some motorcycles to the EU to avoid tariffs. Amazon made another foray into the drug sector with the acquisition of Pillpack, sending shares of drugstore names tumbling. Nike surged higher after topping expectations and raising its annual sales growth forecasts. ConAgra announced the acquisition of Pinnacle Foods in a $10.9B cash-and-stock deal, aiming to boost its foothold in the snack and frozen food markets.
SUNDAY 6/24
Bank for International Settlements Annual Economic Report: Banks may be disguising their borrowings in a way similar to that used by Lehman Brothers Holdings, with debt ratios falling within limits imposed by regulators just four times a year; warns on protectionist measures
(CN) China PBOC cuts Reserve Ratio Requirement (RRR) for some banks by 50bps, effective July 5th; (3rd targeted cut this year) as a result releasing CNY700B v CNY400Be in liquidity (as speculated)
MONDAY 6/25
*(DE) GERMANY JUN IFO BUSINESS CLIMATE: 101.8 V 101.8E; CURRENT ASSESSMENT: 105.1 V 105.6E; Expectations Survey: 98.6 v 98.0e
HOG Plans to shift production of motorcycles with EU destinations away from US to avoid tariffs, expects tariffs will result in an incremental cost of ~$2.2K per average motorcycle exported from the US to the EU - filing
(US) MAY NEW HOME SALES: 689K V 667KE
(US) JUN DALLAS FED MANUFACTURING ACTIVITY: 36.5 V 23.0E
(CN) China President Xi reportedly told various CEOs last week that Beijing plans to strike back against punitive American tariffs; says "In our culture we punch back" - press
(US) White House Trade Adviser Navarro: we have no plans to impose investment restrictions; today's market selloff is a large overreaction - CNBC interview
TUESDAY 6/26
LEN Reports Q2 $1.58 v $0.45e, Rev $5.46B v $5.23Be
GE Confirms Healthcare to become standalone company; to focus on Aviation, Power and Renewable Energy - Investor day
HOG (US) President Trump tweets "Early this year Harley-Davidson said they would move much of their plant operations in Kansas City to Thailand. That was long before Tariffs were announced. Hence, they were just using Tariffs/Trade War as an excuse. Shows how unbalanced & unfair trade is, but we will fix it....
AXP To launch new Amazon cobrand card to enhance how small businesses buy
*(US) JUN RICHMOND FED MANUFACTURING INDEX: 20 V 15E
(US) Supreme Court upholds Trump travel ban by 5-4 vote - press
(CA) Canada govt reportedly readying steel quotas and tariffs on China and other countries - press
(US) S&P affirms United States sovereign rating at AA+: Outlook stable
WEDNESDAY 6/27
INTC New CPU release delay may reduce global notebook shipments - Digitimes
PF Confirms to be acquired by Conagra in a $10.9B cash and stock deal
(CZ) CZECH CENTRAL BANK (CNB) RAISES 2-WEEK REPURCHASE RATE BY 25BPS TO 1.00%; NOT EXPECTED
(US) Official: President Trump seeks to maintain investment environment open in the US, to use CFIUS to respond to China technology theft - closed door conference call (in-line with recent speculation)
(US) MAY PRELIMINARY DURABLE GOODS ORDERS: -0.6% V -1.0%E; DURABLES EX TRANSPORTATION: -0.3% V +0.5%E
(US) MAY PENDING HOME SALES M/M: -0.5% V +0.5%E; Y/Y: -2.8% V +0.4% PRIOR
(US) Atlanta Fed cuts Q2 GDP forecast to 4.5% from 4.7% prior
(US) Association of American Railroads weekly rail traffic report for week ending June 23rd: 557.3K, +3.7% y/y
(US) Justice Kennedy to retire from US Supreme Court - press
BBBY Reports Q1 $0.32 v $0.31e, Rev $2.75B v $2.75Be
(NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE (OCR) UNCHANGED AT 1.75%, AS EXPECTED
THURSDAY 6/28
AMZN Announces new offering that helps entrepreneurs build their own companies delivering Amazon packages
(EU) EURO ZONE JUN BUSINESS CLIMATE INDICATOR: 1.39 V 1.40E; CONSUMER CONFIDENCE (FINAL): -0.5 V -0.5E
(DE) GERMANY JUN PRELIMINARY CPI M/M:0.1 % V 0.1%E; Y/Y: 2.1% V 2.1%E
*(DE) GERMANY JUN PRELIMINARY CPI M/M:0.1 % V 0.1%E; Y/Y: 2.1% V 2.1%E
(US) Q1 FINAL GDP PRICE INDEX: 2.2% V 1.9%E; CORE PCE Q/Q: 2.3% V 2.3% PRELIM
*(US) Q1 FINAL GDP ANNUALIZED Q/Q: 2.0% V 2.2%E; PERSONAL CONSUMPTION: 0.9% V 1.0%E
AMZN To buy PillPack, an online pharmacy that offers pre-sorted doses of medications and home delivery
(CN) China state planner issued special management measures list for foreign investment access, effective July 28th - press
(US) State Dept says it will work with countries who buy Iranian oil on case by case basis; may not reach zero imports - CNBC
(US) White House Chief of Staff Kelly reportedly expected to leave position this summer - press
NKE Reports Q4 $0.69 v $0.64e, Rev $9.79B v $9.39Be; authorizes new 4-year, $15B program to repurchase Class B shares (13% of market cap)
DBK.DE Fed objects to capital plan for Deutsche Bank US unit due to qualitative concerns
(US) FEDERAL RESERVE COMPREHENSIVE CAPITAL ANALYSIS AND REVIEW (CCAR): 34 OF 35 CAPITAL PLANS APPROVED
NKE CEO: Raises forecast for annual sales growth at high single digits (prior mid to high single digits) - earnings call comments
FRIDAY 6/29
Xiaomi Corp [1810.HK] IPO said to price at HK$17/share (low-end of range), raising ~$4.7B (implied valuation ~$48.0B) - financial press
(DE) GERMANY JUN UNEMPLOYMENT CHANGE: -15K V -8KE; UNEMPLOYMENT CLAIMS RATE: 5.2% V 5.2%E
(US) Nevada reports May casino gaming Rev $1.04B, +5.3% y/y; Las Vegas strip Rev $904.6M, +5.1% y/y
(US) JUN FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 98.2 V 99.0E (largely due to tariff concerns)
(US) Atlanta Fed cuts Q2 GDP forecast to 3.8% from 4.5% prior
AAPL Reportedly to rebuild its Maps product; to compile new maps from its own data - tech blog
Saturday, June 23, 2018
Barrons weekend summary
Barrons weekend summary: Cover story on BlackRock annual letter and sustainable investing
Cover story: Focuses on the quote from the BlackRock annual letter, “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” Notes growing belief backed by research that investors and companies who take into account social and environmental governance generally outperform the market over the longer term and reduce short term risks.
Features:
1. Does sustainable investing (ESG) lead to lower returns? Cites 2 experts in the field one taking each side of the position.
2. Does an ESG roundtable with various CEOs and COIs who explore social and environmental governance
3. Trade wars: Investors should prepare. Stock market doesn't appear to have priced in the potential impact of a trade war. Positive mentions on: NextEra Energy (NEE), Xcel Energy (XEL), and American Electric Power (AEP), General Mills (GIS), Kroger (KR), Andeavor (ANDV), Valero (VLO)
4. Fed expected to approve big bank dividend increases and buyback plans this week. Expected to return avg of 100% of earnings to shareholders over next 12-months
5. Investing interviews David King who runs Columbia Flexible Capital Income Fund. Sees some opportunity in equities and convertible bonds. Positive on Six Flags Entertainment (SIX) and Microsoft (MSFT) Supports GE being kicked from Dow but should have been replaced by Facebook (FB)or another tech company, not Walgreens (WBA). Also thinks Berkshire Hathaway (BRK.B), AbbVie (ABBV), Abbott Laboratories (ABT), Nvidia (NVDA), and Salesforce.com (CRM) should all be considered for the Dow. Cautious On: MD, Mednax shares trade near the valuation at which competitor Envision (EVHC) agreed to be bought, and any buyer would inherit its disputes The amount of money flowing into sustainable mutual and exchange-traded funds every month has tripled since Donald Trump was elected Explores different styles of sustainable investing. Barron's names the 20 most influential people in ESG investing. Names Jeremy Grantham #7, comments on his ideas of the future. Panelists on Impact Investing Summit see big fund flows into ESG strategies, driven by millennials and women who will make up 75% of workforce by 2025.
The Trader: Notes that US may be winning the trade war, or at least has the upper hand as many of China's options would hurt them at home too much.
International trader: Positive on publicly traded venture-capital firm Draper Esprit (GROW.UK) as a play on early-stage, high-tech growth companies.
Commodities: Trade war between US and China has hurt corn and soybeans, but dont expect long term impact to priced
Streetwise: Notes raft of CEOs speaking out about separating child from their illegal parents, but notes that most will only speak out about political things that will impact their bottom line
Friday, June 22, 2018
Trade Tensions Simmer; OPEC Adjusts Coordinated Supply Agreement
TradeTheNews.com Weekly
Market Update: Trade Tensions Simmer; OPEC Adjusts Coordinated Supply Agreement
Fri, 22 Jun 2018 16:08 PM EST
Trade and tariffs continued to loom large over markets this week as the US administration held the line in ongoing negotiations with China and western allies alike. Nowhere was it more evident than the Dow Jones Industrial average which carried an eight session losing streak into Friday. The weakness in large cap industrial names and their potential exposure to an escalating trade spat was juxtaposed against new all-time highs in the NASDAQ and small cap Russel 2000. US treasury markets largely traded sideways but yield differentials in the belly of the curve held perilously close to inverting before rates lifted on Friday. US Jun manufacturing data softened and missed expectations lending to modest selling in the Greenback. Most notably the British Pound appreciated after the BOE indicated rates could rise again as soon as next month. Finally oil producers meet in Vienna, where OPEC leaders cajoled various members and reached an agreement that could potentially bring an additional ~600K bpd onto the market. The decision largely met market expectations but nevertheless WTI crude popped above the 50 moving average to a one month high.
In corporate news this week, Sarepta soared higher on positive DMD drug early trial results that analysts said “meaningfully beat even the highest of expectations.” Tesla ended lower after an odd week that included fires on its factory floor, speculated sabotage from a former technician, and the closing of some solar facilities. Starbucks shares cooled after cutting guidance and shuttering some underperforming stores. E-commerce names saw relatively muted reaction to a Supreme Court online sales tax ruling. Disney improved its bid to acquire Fox assets to $38/shr, up from its prior offer of $28/shr and ahead of Comcast’s $35/shr proposal. Perry Ellis agreed to be taken private for $27.50/shr, while Rent-A-Center accepted a raised acquisition offer from Vintage Capital at $15/shr.
MON 6/18
SQ New York Dept of Financial Services (DFS) has granted Square a virtual currency license
(UK) PM May defeated in House of Lords over plans to give lawmakers "meaningful vote" over final Brexit agreement - press (as expected)
Ministerial meeting of the 33 member Global Forum on Excess Steel Capacity scheduled for Wednesday in Paris has been cancelled due to trade tensions - Nikkei
AAPL Trump said to have told CEO Cook that iPhones will be excluded from China tariffs - NYT
(CN) China Commerce Ministry (MOFCOM): US threats on $200B tariffs list disobeys negotiation and consensus reached previously between the two countries: to take qualitative and quantitative measures if US publishes additional tariffs list
TUES 6/19
*(US) MAY HOUSING STARTS: 1.350M V 1.311ME; BUILDING PERMITS: 1.301M V 1.350ME
(US) Atlanta Fed cuts Q2 GDP forecast to 4.7% from 4.8% prior
ORCL Reports Q4 $0.99 v $0.94e, Rev $11.3B v $11.2Be
SBUX Guides Q3 SSS +1% y/y v +2.9%e; Raises Quarterly dividend 20% to $0.36 from $0.30 (indicated yield 2.51%)
FDX Reports Q4 $5.91 v $5.72e, Rev $17.3B v $17.2Be
WEDS 6/20
MU Reports Q3 $3.15 v $3.14e, Rev $7.80B v $7.70Be
(UK) UK govt wins vote in parliament, defeating Brexit 'meaningful vote' amendment (As expected after compromise made earlier)
(US) Association of American Railroads weekly rail traffic report for week ending June 16th: 558.1K, +4.1% y/y
(TH) THAILAND CENTRAL BANK (BOT) LEAVES BENCHMARK INTEREST RATE UNCHANGED AT 1.50%, AS EXPECTED
(US) Atlanta Fed cuts Q2 GDP forecast to 4.7% from 4.8% prior
ORCL Reports Q4 $0.99 v $0.94e, Rev $11.3B v $11.2Be
SBUX Guides Q3 SSS +1% y/y v +2.9%e; Raises Quarterly dividend 20% to $0.36 from $0.30 (indicated yield 2.51%)
FDX Reports Q4 $5.91 v $5.72e, Rev $17.3B v $17.2Be
THURS 6/21
(FR) FRANCE JUN BUSINESS CONFIDENCE: 106 V 106E; MANUFACTURING CONFIDENCE: 110 V 108E
*(CH) SWISS NATIONAL BANK (SNB) LEAVES SIGHT DEPOSIT INTEREST RATE UNCHANGED AT -0.75%; AS EXPECTED
(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.50%; AS EXPECTED
*(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.50%; AS EXPECTED
(UK) BOE JUN MINUTES: VOTED 6-3 TO KEEP POLICY STEADY (McCafferty, Saunders again dissented calling for 25bps hike, chief economist Haldane joins ranks to hike)
(US) JUN PHILADELPHIA FED BUSINESS OUTLOOK: 19.9 V 29.0E (lowest since Nov 2016)
(US) Supreme Court rules that states can require collection of sales taxes on all online purchases, even if companies have no physical presence in a state
FED BANK STRESS TEST RESULTS: ALL 35 BANKS EXCEED MINIMUM CAPITAL REQUIREMENTS
OPEC+ committee supports 1M bpd production increase "on paper" - press
(JP) JAPAN MAY NATIONAL CPI Y/Y: 0.7% V 0.6%E; CPI EX FRESH FOOD (CORE): 0.7% V 0.7%E
FRI 6/22
(FR) FRANCE JUN PRELIMINARY MANUFACTURING PMI: 53.1V 54.0E (21st month of expansion)
(DE) GERMANY JUN PRELIMINARY MANUFACTURING PMI: 55.9 V 56.3E (42nd month of expansion and lowest since Dec 2016)
(EU) EURO ZONE JUN PRELIMINARY MANUFACTURING PMI: 55.0 V 55.0E (59th straight month of growth but lowest since Dec 2016)
(EU) ECB: banks to repay early €11B in TLTRO-2 loans - press
*(US) JUN PRELIMINARY MARKIT MANUFACTURING PMI: 54.6 V 56.1E (7-month low)
(US) Trump tweets: "Based on the Tariffs and Trade Barriers long placed on the U.S. and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!"
Fri, 22 Jun 2018 16:08 PM EST
Trade and tariffs continued to loom large over markets this week as the US administration held the line in ongoing negotiations with China and western allies alike. Nowhere was it more evident than the Dow Jones Industrial average which carried an eight session losing streak into Friday. The weakness in large cap industrial names and their potential exposure to an escalating trade spat was juxtaposed against new all-time highs in the NASDAQ and small cap Russel 2000. US treasury markets largely traded sideways but yield differentials in the belly of the curve held perilously close to inverting before rates lifted on Friday. US Jun manufacturing data softened and missed expectations lending to modest selling in the Greenback. Most notably the British Pound appreciated after the BOE indicated rates could rise again as soon as next month. Finally oil producers meet in Vienna, where OPEC leaders cajoled various members and reached an agreement that could potentially bring an additional ~600K bpd onto the market. The decision largely met market expectations but nevertheless WTI crude popped above the 50 moving average to a one month high.
In corporate news this week, Sarepta soared higher on positive DMD drug early trial results that analysts said “meaningfully beat even the highest of expectations.” Tesla ended lower after an odd week that included fires on its factory floor, speculated sabotage from a former technician, and the closing of some solar facilities. Starbucks shares cooled after cutting guidance and shuttering some underperforming stores. E-commerce names saw relatively muted reaction to a Supreme Court online sales tax ruling. Disney improved its bid to acquire Fox assets to $38/shr, up from its prior offer of $28/shr and ahead of Comcast’s $35/shr proposal. Perry Ellis agreed to be taken private for $27.50/shr, while Rent-A-Center accepted a raised acquisition offer from Vintage Capital at $15/shr.
MON 6/18
SQ New York Dept of Financial Services (DFS) has granted Square a virtual currency license
(UK) PM May defeated in House of Lords over plans to give lawmakers "meaningful vote" over final Brexit agreement - press (as expected)
Ministerial meeting of the 33 member Global Forum on Excess Steel Capacity scheduled for Wednesday in Paris has been cancelled due to trade tensions - Nikkei
AAPL Trump said to have told CEO Cook that iPhones will be excluded from China tariffs - NYT
(CN) China Commerce Ministry (MOFCOM): US threats on $200B tariffs list disobeys negotiation and consensus reached previously between the two countries: to take qualitative and quantitative measures if US publishes additional tariffs list
TUES 6/19
*(US) MAY HOUSING STARTS: 1.350M V 1.311ME; BUILDING PERMITS: 1.301M V 1.350ME
(US) Atlanta Fed cuts Q2 GDP forecast to 4.7% from 4.8% prior
ORCL Reports Q4 $0.99 v $0.94e, Rev $11.3B v $11.2Be
SBUX Guides Q3 SSS +1% y/y v +2.9%e; Raises Quarterly dividend 20% to $0.36 from $0.30 (indicated yield 2.51%)
FDX Reports Q4 $5.91 v $5.72e, Rev $17.3B v $17.2Be
WEDS 6/20
MU Reports Q3 $3.15 v $3.14e, Rev $7.80B v $7.70Be
(UK) UK govt wins vote in parliament, defeating Brexit 'meaningful vote' amendment (As expected after compromise made earlier)
(US) Association of American Railroads weekly rail traffic report for week ending June 16th: 558.1K, +4.1% y/y
(TH) THAILAND CENTRAL BANK (BOT) LEAVES BENCHMARK INTEREST RATE UNCHANGED AT 1.50%, AS EXPECTED
(US) Atlanta Fed cuts Q2 GDP forecast to 4.7% from 4.8% prior
ORCL Reports Q4 $0.99 v $0.94e, Rev $11.3B v $11.2Be
SBUX Guides Q3 SSS +1% y/y v +2.9%e; Raises Quarterly dividend 20% to $0.36 from $0.30 (indicated yield 2.51%)
FDX Reports Q4 $5.91 v $5.72e, Rev $17.3B v $17.2Be
THURS 6/21
(FR) FRANCE JUN BUSINESS CONFIDENCE: 106 V 106E; MANUFACTURING CONFIDENCE: 110 V 108E
*(CH) SWISS NATIONAL BANK (SNB) LEAVES SIGHT DEPOSIT INTEREST RATE UNCHANGED AT -0.75%; AS EXPECTED
(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.50%; AS EXPECTED
*(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.50%; AS EXPECTED
(UK) BOE JUN MINUTES: VOTED 6-3 TO KEEP POLICY STEADY (McCafferty, Saunders again dissented calling for 25bps hike, chief economist Haldane joins ranks to hike)
(US) JUN PHILADELPHIA FED BUSINESS OUTLOOK: 19.9 V 29.0E (lowest since Nov 2016)
(US) Supreme Court rules that states can require collection of sales taxes on all online purchases, even if companies have no physical presence in a state
FED BANK STRESS TEST RESULTS: ALL 35 BANKS EXCEED MINIMUM CAPITAL REQUIREMENTS
OPEC+ committee supports 1M bpd production increase "on paper" - press
(JP) JAPAN MAY NATIONAL CPI Y/Y: 0.7% V 0.6%E; CPI EX FRESH FOOD (CORE): 0.7% V 0.7%E
FRI 6/22
(FR) FRANCE JUN PRELIMINARY MANUFACTURING PMI: 53.1V 54.0E (21st month of expansion)
(DE) GERMANY JUN PRELIMINARY MANUFACTURING PMI: 55.9 V 56.3E (42nd month of expansion and lowest since Dec 2016)
(EU) EURO ZONE JUN PRELIMINARY MANUFACTURING PMI: 55.0 V 55.0E (59th straight month of growth but lowest since Dec 2016)
(EU) ECB: banks to repay early €11B in TLTRO-2 loans - press
*(US) JUN PRELIMINARY MARKIT MANUFACTURING PMI: 54.6 V 56.1E (7-month low)
(US) Trump tweets: "Based on the Tariffs and Trade Barriers long placed on the U.S. and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!"
Saturday, June 16, 2018
Barrons weekend summary
Barrons weekend summary: Cover story on Berkshire Hathaway succession planning; positive feature on AXL; concerns about a trade war
Cover story: After 35 years at the helm of Berkshire Hathaway, Warren Buffett needs to share the limelight with his likely successor and the company’s many managers—because the company’s future success depends in part on removing doubts about future leadership.
Features: 1) A global trade war seems likely, posing a major risk to the stock market, and though little of the threat is reflected in stock and bond prices, investors need to pay attention and take steps to avoid a worst-case scenario; 2) An increase in media mergers is being driven by desperate attempts to catch up to NFLX, which many media giants could have easily acquired a few years ago—before its current $170B market cap; 3) Positive on AXL: Concerns about the company—including high debt, reliance on GM, and exposure to a near-term slowdown in North American vehicle demand amid electric-car growth—appear overstated of misplaced.
Tech Trader: Cautious on FB: Despite recent problems related to privacy and data-sharing, and low approval ratings in some consumer polls, Wall Street continues to love the stock, and much of the world continues to treat the site as indispensable.
Trader: Jason Pride of Glenmede says investors should focus on what’s good (the economy and earnings) and not on what’s bad (tariffs and rate hikes); Debt markets are giving off mixed signals, with high-yield corporate debt rallying while safe bonds languish, and returns are being driven not by outside forces but by factors specific to each asset class; Cautious on ELY: Shares could have more upside, says JPM analyst Steven Zaccone, but Barron’s says traders should think carefully before buying shares.
Profile: James Hamel, managing director at Artisan Partners and head of the Artisan Global Opportunities fund, looks for companies with franchise characteristics and improving profitability (top 10 holdings: INFO, V, Shiseido, BAC, STT, NBL, APTV, PXD, Temenos, BSX).
Interview: Diana Strandberg and Charles Pohl, who oversee the Dodge & Cox Global Stock fund, recently undertook a rigorous scrub-down of the fund’s investing thesis on nearly every stock (picks: Itau Unibanco Holding, Naspers, SNY, DISH, GOOGL).
Follow-Up: Cautious on CRSP, EDIT, NTLA: It’s hard to say whether the market is over- or under-valuing companies that use the gene-editing technology, but for now there’s no reason to sell. European Trader: With Italy’s political situation in turmoil, investors may want to buy beaten-down European banking shares that will likely jump when the clouds over the sector evaporate.
Emerging Markets: Some investors are growing bullish about emerging markets fixed income, saying much of the gloom and doom this year has been driven by idiosyncratic stories that mask strong fundamentals.
Commodities: “OPEC can claim success in its roughly 18-month-old effort to curb production, easing a global glut of supply and raising oil prices.
Streetwise: A sudden change of chief executive won’t necessarily harm a stock, but “prudent investors should keep a sharp eye on what’s happening in the C-suite.” Cover story: After 35 years at the helm of Berkshire Hathaway, Warren Buffett needs to share the limelight with his likely successor and the company’s many managers—because the company’s future success depends in part on removing doubts about future leadership.
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