TradeTheNews.com Weekly
Market Update: Markets Shake Off Trade and Contagion Concerns Again
Fri, 17 Aug 2018 16:24 PM EST
Global markets were forced to contend with elevated bouts of volatility this
week, but ultimately US stock indices stayed within reach of the all-time highs
hit earlier this year. Emerging market FX swings precipitated a spike in risk
off sentiment through mid-week. A plunging Turkish Lira brought about worries
regarding European bank exposure, and contagion fears were exacerbated by
another move lower in the Yuan which approached levels not seen in nearly a
decade. China growth concerns emerged after another string of disappointing
economic data came alongside weak corporate reports by several Chinese tech
darlings. US stock markets continued to outperform the rest of the globe and
the Dollar index surged above 96. Treasury prices also benefited modestly from
risk-off flows keeping yields subdued and flattening the US 2-10 year spread
back below 25 basis points. Late in the week equities surged on news the US and
China would restart trade negotiations in Washington next week ahead of a
multilateral summit in November. For the week the S&P and DJIA each gained
0.1%, while the Nasdaq slipped less than 0.1%.
In corporate news this week, Walmart posted its biggest rise in US sales in
over 10 years amid improved e-commerce growth and strong fresh food sales.
Macy’s shares fell despite reporting an earnings beat and raising guidance as
investors saw slipping market share against its online and lower cost rivals.
Nvidia shares tumbled after reporting lower than expected revenue guidance and
seeing no contribution from crypto-specific products going forward. Applied
Materials also fell on guidance and pointed to near-term softness in customer
spending. Constellation Brands made a $4B bet on the emerging cannabis
industry, taking a 38% stake in Canopy Growth and hinted it may begin selling a
drinkable product in Canada by next year. VFC announced a plan to split off its
denim business into a separate company. Tesla shares on Friday saw their worst
day since late March after a New York Times interview with CEO Musk in which he
described a difficult year leading the company.
MONDAY 8/13
VFC Announces Intention to Create Two Independent, Publicly Traded Companies
(TR) Speculation that Turkey could release the US pastor Brunson held under
house arrest by Aug 15th - twitter
TUESDAY 8/14
(DE) GERMANY Q2 PRELIMINARY GDP Q/Q: 0.5% V 0.4%E; Y/Y: 2.0% V 2.1%E
(UK) JUN AVERAGE WEEKLY EARNINGS 3M/Y: 2.4% V 2.5%E; WEEKLY EARNINGS (EX BONUS)
3M/Y: 2.7% V 2.7%E
(UK) JULY JOBLESS CLAIMS CHANGE: +6.2K V +9.0K PRIOR; CLAIMANT COUNT RATE: 2.5%
V 2.5% PRIOR
*(EU) EURO ZONE Q2 PRELIMINARY GDP Q/Q: 0.4% V 0.3%E; Y/Y: 2.2% V 2.1%E
*(DE) GERMANY AUG ZEW CURRENT SITUATION: 72.6 V 72.1E; EXPECTATIONS
SURVEY:-13.7 V -21.3E
HD Reports Q2 $3.05 v $2.84e, Rev $30.5B v $30.0Be
(CN) China govt launches WTO dispute settlement procedure over US photovoltaic
subsidies
GOOGL Reportedly plans to invest $375M in Oscar Health - press
EGN To be acquired by Diamondback for 0.6442 shares/shr, valuing it at $9.2B
WEDNESDAY 8/15
(ID) INDONESIA CENTRAL BANK (BI) RAISES 7-DAY REVERSE REPO BY 25BPS TO 5.50%;
NOT EXPECTED
*(UK) JULY CPI M/M: 0.0% V 0.0%E; Y/Y: 2.5% V 2.5%E
700.HK Reports Q2 (CNY) Net 17.9B v 19.3Be, Rev 73.7B v 77.7Be
WEED.CA Constellation Brands to acquire 38% stake for C$48.60/shr valued at
C$5B in strategic partnership
M Reports Q2 $0.59 (ex asset sale gain) v $0.49e, Rev $5.57B v $5.59Be
*(US) AUG EMPIRE MANUFACTURING: 25.6 V 20.0E
*(US) Q2 PRELIMINARY NONFARM PRODUCTIVITY: 2.9% V 2.4%E; UNIT LABOR COSTS:
-0.9% V 0.0%E
(US) JULY INDUSTRIAL PRODUCTION M/M: 0.1% V 0.3%E; CAPACITY UTILIZATION: 78.1%
V 78.2%E
*(US) DOE CRUDE: +6.8M V -2.5ME; GASOLINE: -0.7M V -0.5ME; DISTILLATE: +3.6M V
+1ME
(TR) Qatar has pledged to invest $15B in Turkey economy - Turkish press
CSCO Reports Q4 $0.70 v $0.69e, Rev $12.8B v $12.8Be
(CN) China Commerce Ministry (MOFCOM): China Vice Commerce Min to visit the US
for trade talks in late Aug, to meet with US Treasury Undersecretary Malpass
THURSDAY 8/16
CARLB.DK Reports H1 (DKK) Adj Net 2.51B v 2.29B y/y, Adj EBITDA 6.48B v 6.63B
y/y, Rev 31.0B v 30.6Be
*(UK) JULY RETAIL SALES (EX-AUTO/FUEL) M/M: 0.9% V 0.0%E; Y/Y: 3.7% V 2.8%E
WMT Reports Q2 $1.29 v $1.21e, Rev $128.0B v $125.6Be
(US) JULY HOUSING STARTS: 1.17M V 1.26ME; BUILDING PERMITS: 1.31M V 1.31ME
(US) AUG PHILADELPHIA FED BUSINESS OUTLOOK: 11.9 V 22.0E (lowest level since
Nov 2016)
NVDA Reports Q2 $1.94 v $1.83e, Rev $3.12B v $3.11Be
FRIDAY 8/17
(US) President Trump has reportedly asked SEC to consider allowing US companies
to report corporate results on 6-month basis – press
(CN) US and China reportedly plot roadmap to resolve trade dispute before Pres
Trump-Pres Xi meeting in Nov - press
Friday, August 17, 2018
Sunday, August 12, 2018
Strong Dollar and Risk-On Sentiment Persist
TradeTheNews.com Weekly
Market Update: Strong Dollar and Risk-On Sentiment Persist
Fri, 10 Aug 2018 16:07 PM EST
US stock momentum built for much of this week as investors looked past the US China trade spat to push indices within striking distance of the all-time highs made earlier this year. The NASADAQ led with that index posting a string of 8 straight daily rises before Friday. Oil began the week bid as traders looked to handicap the most recent round of Iran sanctions that took effect at midnight on Monday. Rates drifted sideways most of the week despite a record amount of issuance from the US Treasury helped by relatively benign US inflation readings. The Greenback strengthened against a broad array of currencies. Trade worries held back the Yuan, Italian budget negotiations caused some consternation around the Euro, emerging market currencies were dogged by geopolitics (Lira, Ruble), and the Pound remained beholden to Brexit concerns. By Friday, the plunge in the Turkish Lira had accelerated leading some in Europe worry about potential contagion risks for the European banks. That narrative resulted in a flight from risk including global stocks while buoying bond prices. For the week the S&P500 slipped 0.3% and the DJIA fell 0.6%, while the Nasdaq rose 0.3%.
As earnings season began to wind down this week, Snap shares took a hit after it reported a miss on its daily active user count, though a Saudi prince’s investment in the company helped later bolster the stock. On Tuesday it was revealed that Saudi money also flowed in to Tesla, whose CEO pushed shares even higher with a tweet that created an uproar as Musk pondered a going private transaction. Dropbox slipped after announcing the departure of its COO, and Pepsi shares fell after its long-time CEO Indra Nooyi announced she would be retiring in October. Elsewhere, some commodity intensive firms shared concerns about tariff impacts, notably Ford which said steel and aluminum duties have become a significant headwind. On the M&A front, uncertainty rose regarding Linde and Praxair’s merger as US regulators made potentially overly burdensome divestment demands. Rite Aid and Albertsons agreed to call off their merger after pushback from investors. Tribune terminated its $3.9B merger deal with Sinclair due to FCC opposition. Australia’s Amcor announced it would acquire American rival Bemis in a move to create a global leader in packaging.
SUN 8/5
LIN.DE Linde: increased requirements for the merger clearances are likely to exceed a threshold for merger clearances previously agreed between Linde and Praxair
MON 8/6
*(EU) EURO ZONE AUG SENTIX INVESTOR CONFIDENCE: 14.7 V 13.4E
FAST Reports July Net Sales $411.6M, +17.6% y/y
PEP CEO Indra Nooyi to step down effective Oct 3rd; 22yr veteran Ramon Laguarta (54) named new CEO
BMS To be acquired by Amcor for $57.75/shr in all-stock deal valued at $6.8B; combined company to list on NYSE, ASX
(IR) Trump administration official: first batch of US sanctions against Iran will go into force at midnight Tuesday
TUES 8/7
DPW.DE Reports Q2 Net €516M v €602M y/y, EBIT €747M v €841M y/y, Rev €15.0B v €15.0Be
(US) White House officials sought to reassure tech industry representatives at a private meeting last week that the Trump administration's pugnacious trade policies will ultimately aid their businesses - Axios
TSLA Saudi Arabia sovereign wealth fund reportedly has built a $2B stake - FT
TSLA *CEO Musk tweets: Considering taking Tesla private at $420/shr; funding secured
*(US) JUN CONSUMER CREDIT: $10.2B V $15.0BE
DIS Reports Q3 $1.87 v $1.97e, Rev $15.2B v $15.5Be
(CN) US Trade Rep Lighthizer: Trump administration has finalized the second tranche of $16B tariffs on Chinese products (in addition to the initial $34B in tariffs implements last month on July 6th) - press
SNAP Reports Q2 -$0.14 v -$0.17e, Rev $262.3M v $248Me; Daily active users (DAUs) 188M, -2% q/q; Prince Alwaleed tweets that he has invested $250M to take a 2.3% stake
(CN) China State Planner (NDRC): To use monetary policy including targeted RRR cuts to support debt to equity swaps
*(CN) CHINA JULY TRADE BALANCE (CNY): 176.9B V 227.1BE
(CN) CHINA JULY TRADE BALANCE:$28.1B V $38.9BE
WED 8/8
005930.KR Announces investment plan worth KRW180T over 3-years that includes CAPEX and R&D
(IT) Italy PM Conte: Budget will be serious, rigorous and courageous, will contain a package of 'realistic' reforms
(CN) China Commerce Ministry confirms retaliatory tariff on $16B of US goods to take effect on Aug 23rd, reiterates stance that it was forced to retaliate
NYT Reports Q2 $0.17 v $0.18 y/y, Rev $414.6M v $407.1M y/y
*(US) DOE CRUDE: -1.4M V -2.5ME; GASOLINE: +2.9M V -1.5ME; DISTILLATE: +1.2M V 0ME
Ford Exec: steel & aluminum tariffs have become a significant headwind, but Ford will not pass on the higher commodity costs to customers - press
RAD Agrees to terminate $24B merger with Albertsons
THURS 8/9
941.HK Reports H1 (CNY) Net 65.6B v 63.4Be; EBITDA 145.9B v 146Be; Rev 391.8B v 385Be
TKA.DE Reports Q3 Net -€131M v -€251M y/y, adj EBIT €332M v €438Me, Rev €11.12B v €10.9Be
DTE.DE Reports Q2 adj Net €1.24B v €1.37Be, adj EBITDA €5.93B v €5.84Be, Rev €18.4B v €18.6Be
US Postal Office reports Q3 net loss $1.5B, Rev $17.1B, +2.4% y/y
(US) JULY PPI FINAL DEMAND M/M: 0.0% V 0.2%E; Y/Y: 3.3% V 3.4%E
(US) Atlanta Fed cuts Q3 GDP forecast to 4.3% from 4.4% prior
TRCO Confirms to terminate merger agreement with Sinclair Broadcast Group, Inc.; files lawsuit for breach of contract
(JP) JAPAN Q2 PRELIMINARY GDP Q/Q: 0.5% V 0.3%E; ANNUALIZED Q/Q: 1.9% V 1.4%E
FRI 8/10
(EU) ECB Single Supervisory Mechanism (SSM) said to be concerned about the exposures that Unicredit, BNP Paribas, and BBVA have to Turkey - FT
(RU) Russia PM Medvedev: Moscow would consider it "economic war" if US imposes ban on banks or use of particular currency
*(UK) Q2 PRELIMINARY GDP Q/Q: 0.4% V 0.4%E; Y/Y: 1.3% V 1.3%E (annual pace moves off recent 5-year lows)
*(UK) JUN INDUSTRIAL PRODUCTION M/M: 0.4% V 0.3%E; Y/Y: 1.1% V 1.0%E
(TR) Turkey President Erdogan: Converting FX to TRY currency (Lira) would be the nation's best response in economic war; the USD dollar and other things cannot block our path
*(US) JULY CPI M/M: 0.2% V 0.2%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E
*(CA) CANADA JULY NET CHANGE IN EMPLOYMENT: +54.1K V +17.0KE; UNEMPLOYMENT RATE: 5.8% V 5.9%E
(TR) Pres Trump tweets: have authorized doubling steel & aluminum tariffs against Turkey to 50% and 20%
Fri, 10 Aug 2018 16:07 PM EST
US stock momentum built for much of this week as investors looked past the US China trade spat to push indices within striking distance of the all-time highs made earlier this year. The NASADAQ led with that index posting a string of 8 straight daily rises before Friday. Oil began the week bid as traders looked to handicap the most recent round of Iran sanctions that took effect at midnight on Monday. Rates drifted sideways most of the week despite a record amount of issuance from the US Treasury helped by relatively benign US inflation readings. The Greenback strengthened against a broad array of currencies. Trade worries held back the Yuan, Italian budget negotiations caused some consternation around the Euro, emerging market currencies were dogged by geopolitics (Lira, Ruble), and the Pound remained beholden to Brexit concerns. By Friday, the plunge in the Turkish Lira had accelerated leading some in Europe worry about potential contagion risks for the European banks. That narrative resulted in a flight from risk including global stocks while buoying bond prices. For the week the S&P500 slipped 0.3% and the DJIA fell 0.6%, while the Nasdaq rose 0.3%.
As earnings season began to wind down this week, Snap shares took a hit after it reported a miss on its daily active user count, though a Saudi prince’s investment in the company helped later bolster the stock. On Tuesday it was revealed that Saudi money also flowed in to Tesla, whose CEO pushed shares even higher with a tweet that created an uproar as Musk pondered a going private transaction. Dropbox slipped after announcing the departure of its COO, and Pepsi shares fell after its long-time CEO Indra Nooyi announced she would be retiring in October. Elsewhere, some commodity intensive firms shared concerns about tariff impacts, notably Ford which said steel and aluminum duties have become a significant headwind. On the M&A front, uncertainty rose regarding Linde and Praxair’s merger as US regulators made potentially overly burdensome divestment demands. Rite Aid and Albertsons agreed to call off their merger after pushback from investors. Tribune terminated its $3.9B merger deal with Sinclair due to FCC opposition. Australia’s Amcor announced it would acquire American rival Bemis in a move to create a global leader in packaging.
SUN 8/5
LIN.DE Linde: increased requirements for the merger clearances are likely to exceed a threshold for merger clearances previously agreed between Linde and Praxair
MON 8/6
*(EU) EURO ZONE AUG SENTIX INVESTOR CONFIDENCE: 14.7 V 13.4E
FAST Reports July Net Sales $411.6M, +17.6% y/y
PEP CEO Indra Nooyi to step down effective Oct 3rd; 22yr veteran Ramon Laguarta (54) named new CEO
BMS To be acquired by Amcor for $57.75/shr in all-stock deal valued at $6.8B; combined company to list on NYSE, ASX
(IR) Trump administration official: first batch of US sanctions against Iran will go into force at midnight Tuesday
TUES 8/7
DPW.DE Reports Q2 Net €516M v €602M y/y, EBIT €747M v €841M y/y, Rev €15.0B v €15.0Be
(US) White House officials sought to reassure tech industry representatives at a private meeting last week that the Trump administration's pugnacious trade policies will ultimately aid their businesses - Axios
TSLA Saudi Arabia sovereign wealth fund reportedly has built a $2B stake - FT
TSLA *CEO Musk tweets: Considering taking Tesla private at $420/shr; funding secured
*(US) JUN CONSUMER CREDIT: $10.2B V $15.0BE
DIS Reports Q3 $1.87 v $1.97e, Rev $15.2B v $15.5Be
(CN) US Trade Rep Lighthizer: Trump administration has finalized the second tranche of $16B tariffs on Chinese products (in addition to the initial $34B in tariffs implements last month on July 6th) - press
SNAP Reports Q2 -$0.14 v -$0.17e, Rev $262.3M v $248Me; Daily active users (DAUs) 188M, -2% q/q; Prince Alwaleed tweets that he has invested $250M to take a 2.3% stake
(CN) China State Planner (NDRC): To use monetary policy including targeted RRR cuts to support debt to equity swaps
*(CN) CHINA JULY TRADE BALANCE (CNY): 176.9B V 227.1BE
(CN) CHINA JULY TRADE BALANCE:$28.1B V $38.9BE
WED 8/8
005930.KR Announces investment plan worth KRW180T over 3-years that includes CAPEX and R&D
(IT) Italy PM Conte: Budget will be serious, rigorous and courageous, will contain a package of 'realistic' reforms
(CN) China Commerce Ministry confirms retaliatory tariff on $16B of US goods to take effect on Aug 23rd, reiterates stance that it was forced to retaliate
NYT Reports Q2 $0.17 v $0.18 y/y, Rev $414.6M v $407.1M y/y
*(US) DOE CRUDE: -1.4M V -2.5ME; GASOLINE: +2.9M V -1.5ME; DISTILLATE: +1.2M V 0ME
Ford Exec: steel & aluminum tariffs have become a significant headwind, but Ford will not pass on the higher commodity costs to customers - press
RAD Agrees to terminate $24B merger with Albertsons
THURS 8/9
941.HK Reports H1 (CNY) Net 65.6B v 63.4Be; EBITDA 145.9B v 146Be; Rev 391.8B v 385Be
TKA.DE Reports Q3 Net -€131M v -€251M y/y, adj EBIT €332M v €438Me, Rev €11.12B v €10.9Be
DTE.DE Reports Q2 adj Net €1.24B v €1.37Be, adj EBITDA €5.93B v €5.84Be, Rev €18.4B v €18.6Be
US Postal Office reports Q3 net loss $1.5B, Rev $17.1B, +2.4% y/y
(US) JULY PPI FINAL DEMAND M/M: 0.0% V 0.2%E; Y/Y: 3.3% V 3.4%E
(US) Atlanta Fed cuts Q3 GDP forecast to 4.3% from 4.4% prior
TRCO Confirms to terminate merger agreement with Sinclair Broadcast Group, Inc.; files lawsuit for breach of contract
(JP) JAPAN Q2 PRELIMINARY GDP Q/Q: 0.5% V 0.3%E; ANNUALIZED Q/Q: 1.9% V 1.4%E
FRI 8/10
(EU) ECB Single Supervisory Mechanism (SSM) said to be concerned about the exposures that Unicredit, BNP Paribas, and BBVA have to Turkey - FT
(RU) Russia PM Medvedev: Moscow would consider it "economic war" if US imposes ban on banks or use of particular currency
*(UK) Q2 PRELIMINARY GDP Q/Q: 0.4% V 0.4%E; Y/Y: 1.3% V 1.3%E (annual pace moves off recent 5-year lows)
*(UK) JUN INDUSTRIAL PRODUCTION M/M: 0.4% V 0.3%E; Y/Y: 1.1% V 1.0%E
(TR) Turkey President Erdogan: Converting FX to TRY currency (Lira) would be the nation's best response in economic war; the USD dollar and other things cannot block our path
*(US) JULY CPI M/M: 0.2% V 0.2%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E
*(CA) CANADA JULY NET CHANGE IN EMPLOYMENT: +54.1K V +17.0KE; UNEMPLOYMENT RATE: 5.8% V 5.9%E
(TR) Pres Trump tweets: have authorized doubling steel & aluminum tariffs against Turkey to 50% and 20%
Sunday, August 5, 2018
Barrons weekend summary
Barrons weekend summary: positive featured on FB, FCAU
Cover story: Barron’s partnered with Backend Benchmarking to publish the first ranking of major robo-advisor firms that uses both performance data and qualitative metrics like ease of use and financial-planning capabilities; The top ten firms are Vanguard, Betterment, SigFig, E*Trade, Schwab, Wealthfront, WiseBanyan, Personal Capital, FutureAdvisor, and Acorns.
Features: 1) The container-leasing business is in the second year of a four-to-five year cycle, with growth coming from replacement containers and increased global shipping volume, says Cowen’s Helane Becker; 2) Positive on FB: Shares of the social site would seem to be a bargain after last week’s drop, especially because the company is a rarity: a megacap with a reasonable valuation whose revenues have 25% upside next year; 3) Positive on FCAU: Despite the death of CEO Sergio Marchionne and mixed quarterly results, analysts expect the automaker to grow earnings faster than U.S. rivals, and shares are 75% cheaper than the broad S&P 500 index; 4) Few companies say they have seen positive effects from Donald Trump’s tariffs, while many cite none, or describe only modest negatives—though it’s ultimately too early to tell what the overall results will be.
Tech Trader: Most tech companies that remain in their specialized niches will have a hard time adapting to the changing landscape—rather than bending the world according to their vision, as AMZN has done, they remain focused simply on avoiding problems.
Trader: “Tariffs remain a central concern and an important driver of economic and market action, and they probably affected Q2 GDP by causing exporters to speed up deliveries, particularly of farm products, ahead of the new duties”; A majority of active fund managers beat their benchmarks last year, allowing them to reverse the cash outflows they’ve suffered amid the growth in passive investing; Cautious on LLY: The key question for investors is whether the pharma company’s superior growth is baked into the stock price.
Interview: Sarat Sethi and Ned Dewees, managing partners at Douglas C. Lane & Associates, are positive on the U.S. economy and consumer, and the potential of big data; Their portfolios don’t include AMZN or NFLX (holdings: ILMN, IAC, MSFT, ORCL, FRC, XPO). Profile: Will Muggia, manager of the Touchstone Mid Cap Growth fund, uses a model based on analyst track records that closely monitors each analyst’s contribution to portfolio risk relative to the benchmark (top 10 holdings: WP, PXD, FIS, FLT, JBHT, TRU, TIF, COO, TDY, AME).
European Trader: Positive on Charter Court Financial Services Group, OneSavings Bank: Firms are the top choices for investors in the British challenger bank sector, says Goodbody analyst John Cronin.
Emerging Markets: Trade wars and a strong dollar aren’t hitting all emerging markets: Latin America is on a tear, with ETFs covering Brazil, Mexico, and Argentina up during the past month.
Commodities: Investors shouldn’t expect gold prices to rebound anytime soon “because the strength of the U.S. dollar will keep a lid on any rally and at the very least could push prices for the metal down further.”
Streetwise: The ongoing closure of newspapers will affect investors because without reporters there will be less information available upon which to base decisions.
Saturday, August 4, 2018
US Data and Corporate Earnings Outshine Trade and Monetary Policy Concerns
TradeTheNews.com Weekly
Market Update: US Data and Corporate Earnings Outshine Trade and Monetary
Policy Concerns
Markets worked
through a heavy news weak in relatively decent form. The push and pull of peak
earnings season came against a backdrop of key central banks meetings and the
escalating trade dispute between the US and China. US corporations continued to
generally beat Q2 expectations by a significant margin, but managements
remained reticent to offer overly aggressive outlooks due to rising cost
inputs, the stronger US dollar and ongoing uncertainty surrounding trade. For
the week the S&P500 gained 0.8%, the DJIA edged up less than 0.1%, and the
Nasdaq rose nearly 1%.
On Tuesday the BOJ offered up its first ever forward guidance which resulted in volatility in the JGB market, and eventually higher interest rates globally. Wednesday’s FOMC statement left the door wide open for two more rate hikes this year, while the BOE raised rates for just the second time this decade. By midweek, expectations were growing that the Trump administration was set to make an announcement to put further pressure on China by ratcheting up tariffs on another $200B in Chinese goods. The Yuan dropped to new lows and the Chinese stock market came under renewed pressure. The Greenback was also helped by another string of solid US economic data resulting in the Atlanta Fed taking up its US Q3 GDP forecast to as high as 5%(later trimmed to 4.4% on Friday), while most major European PMIs missed expectations. Friday’s July jobs growth came in below forecast but June numbers were revised higher. The report did little to change market expectations surrounding tepid wage growth and was somewhat overshadowed by China's announcement of plans to retaliate against the Trump administration’s latest tariff threats.
In terms of corporate news this week, the focus remained on earnings. Apple reached the $1T market cap level on the back of a strong profit beat in a quarter which saw its average selling price for iPhones jump. Tesla rallied after promising a profitable second half, and shares were further boosted when a contrite CEO Musk apologized for past behavior during the earnings call. Wynn and MGM fell on continued softness in casino earnings reports, while Caesars management said to expect weakness in Las Vegas programming in July and August. Chipotle lost some of last week’s gains on the latest report regarding food-related illnesses at a store in Ohio. CBS opened marginally lower on Friday after an earnings conference call that steered clear of addressing sexual misconduct claims against CEO Les Moonves.
MON 7/30
HEIA.NL Reports H1 Net €1.08B v €1.04B y/y, Op €1.75B v €1.81B y/y, Rev €10.8B v €10.3B y/y
(JP) BOJ AGAIN CONDUCTS FIXED-RATE JGB PURCHASE OPERATION FOR an unlimited amount of 5-10-YR JGBs at 0.10% (3rd operation within the past week)
(EU) EURO ZONE JULY BUSINESS CLIMATE INDICATOR: 1.29 V 1.35E; CONSUMER CONFIDENCE (FINAL): -0.6 V -0.6E
*(IT) ITALY DEBT AGENCY (TESORO) SELLS TOTAL €6.0B VS. €4.50-6.0B INDICATED RANGE IN 5-YEAR AND 10-YEAR BTP BONDS
CAT Reports Q2 $2.97 v $2.66e, Rev $14.0B v $13.8Be; To raise prices
(DE) GERMANY JULY CPI M/M: 0.3% V 0.4%E; Y/Y: 2.0% V 2.1%E
*(US) JUN PENDING HOME SALES M/M: 0.9% V 0.2%E; Y/Y: -4.0% V -2.8% PRIOR (6th straight month of y/y declines)
*(US) JULY DALLAS FED MANUFACTURING ACTIVITY: 32.3 V 30.0E
CAT Feel good about business, taking orders for delivery well into 2019 - earnings call
(KR) South Korea Jun Industrial Production M/M: -0.6% v -0.9%e; M/My: -0.4% v 0.7%e
(KR) North Korea said to have built new missiles after summit with Trump - press
*(JP) JAPAN JUN JOBLESS RATE: 2.4% V 2.3%E; (first rise since Feb)
005930.KR Reports final Q2 (KRW) Net 11.0T v 11.1Te, Op 14.9T v 14.8T prelim, Rev 58.5T v 58.0T prelim
*(CN) CHINA JULY OFFICIAL GOVT MANUFACTURING PMI: 51.2 V 51.3E (lowest since Feb)
TUES 7/31
STAN.UK Reports H1 Pretax $2.35B v $2.30Be, Adj Op Rev $7.65B v $7.69Be
CSGN.CH Reports Q2 (CHF) Net 647M v 694M y/y, adj Pretax 1.05B v 1.06Be, Rev 5.60B v 5.35Be
SAN.FR Reports Q2 Business EPS €1.25 v €1.20e, Business Net €1.56B v €1.70B y/y, Rev €8.18B v €8.38Be
BP.UK Reports Q2 Adj Net (underlying RC profit) $2.82B v $2.66Be, Total Rev $76.9B v $57.4B y/y
(JP) BOJ Gov Kuroda: Introduced forward guidance to increase commitment on price target; stronger framework aimed at hitting the 2% price target asap - post rate decision press conference
*(DE) GERMANY JULY NET UNEMPLOYMENT CHANGE: -6K V -10KE; UNEMPLOYMENT CLAIMS RATE: 5.2% V 5.2%E
*(EU) EURO ZONE Q2 ADVANCE GDP Q/Q: 0.3% V 0.4%E; Y/Y: 2.1% V 2.2%E
*(CN) US AND CHINA REPORTEDLY TO MEET TO RESTART TALKS REGARDING TRADE - press
FB (US) Facebook has identified a coordinated political influence campaign on its platform, using fake accounts and pages seeking to influence the 2018 US election - NYT
(US) Nevada reports Jun casino gaming Rev $933.0M, +4.2% y/y; Las Vegas strip Rev $523.9M, +5.4% y/y
(US) Atlanta Fed forecasts initial Q3 GDP growth at 4.7%
AAPL Reports Q3 $2.34 v $2.17e, Rev $53B v $52.4Be
BIDU Reports Q2 $3.18 v $2.63e, Rev $3.93B v $4.01Be
WEDS 8/1
(HK) Macau July Gaming Rev MOP25.3B v MOP22.5B prior, Y/Y: 10.3% v 11.5%e (3rd consecutive miss on estimates)
MT.NL Reports Q2 $1.84 v $1.30 y/y, EBITDA $3.07B v $2.85Be, Rev $20.0B v $19.9Be
BA.UK Reports H1 Underlying EPS 14.8p v 17.9p y/y, EBITA £874M v £848Me, Rev £8.82B v £8.83Be
RIO.AU Reports H1 Underlying Net $4.42B v $4.6Be; underlying EBITDA $9.2B v $9.6Be; Rev $19.9B v $21.1Be; Adds $1.0B to share buyback program
VOW3.DE Reports Q2 adj Net €3.31B v €3.10B y/y, Op €5.58B v €4.97Be, Rev €61.1B v €62.1Be
*(IN) INDIA CENTRAL BANK (RBI) RAISES REPURCHASE RATE BY 25BPS TO 6.50%; AS EXPECTED
CG To purchase 19.9% of reinsurer DSA from AIG and enter into a strategic asset management relationship with DSA Re
(US) JULY ADP EMPLOYMENT CHANGE: +219K V +186KE; Zandi sees no tariff impact "yet"
(US) Conference Board July Total online job ads 4.65M v 4.48M m/m v 4.61M y/y; New ads 1.89M v 1.90M m/m v 1.90M y/y
*(US) DOE CRUDE: +3.8M V -2ME; GASOLINE: -2.5M V -2ME; DISTILLATE: +3.0M V +0.5ME
Fidelity announces plans to reduce mutual fund fees
(TR) US reportedly readying list of economic sanctions against Turkey over detained US pastor - press
(US) Atlanta Fed raises Q3 GDP forecast to 5.0% from 4.7% prior
(US) Reportedly Trump administration will confirm taking $200B China tariffs rate up to 25% later today - press
ESRX Icahn reportedly has sizable Cigna stake and is likely to urge shareholders to vote against proposed Express Scripts takeover - press
TSLA Reports Q2 -$3.06 v -$2.76e, Rev $4.0B v $3.79Be
*(BR) BRAZIL CENTRAL BANK (BCB) LEAVES SELIC TARGET RATE UNCHANGED AT 6.50%; AS EXPECTED
THUR 8/2
GLE.FR Reports Q2 adj Net €1.16B v €1.0Be, Op €1.88B v €1.29B y/y, Rev €6.45B v €6.16Be
SIE.DE Reports Q3 Net €1.21B v €1.41B y/y, Industrial Business profit €2.21B v €2.27Be, Rev €20.5B v €20.8Be; affirms FY outlook
GAM.CH Fund boards suspend dealing in unconstrained/absolute return bond funds; notes high level of redemptions
*(UK) BOE RAISES INTEREST RATES BY 25BPS TO 0.75%; AS EXPECTED (2nd hike over the past decade)
(UK) BANK OF ENGLAND (BOE) QUARTERLY INFLATION REPORT (QIR)
(UK) BOE Gov Carney:Need a modest tightening of monetary policy; reiterates that limited and gradual hike will be needed - post rate decision press conference
AAPL Tests $207.04, becomes first publicly listed US company valued at $1 trillion
FRI 8/3
ACA.FR Reports Q2 Net €1.44B v €1.02Be; Rev €8.40B v €7.94B y/y
RBS.UK Reports Q2 Net £96M v £792M y/y, adj Op £613M v £1.24B y/y, Rev £3.40B v £3.30B y/y
*(UK) JULY SERVICES PMI: 53.5 V 54.7E (24th month of expansion)
(CN) China PBoC adjusts the Reserve Requirement on FX Forwards trading from 0% (nil) to 20%
*(CN) CHINA COMMERCE MINISTRY (MOFCOM) RELEASES PROPOSED RETALIATION TO US TARIFF THREAT; to levy differentiated tariffs (import tax) on ~$60B in US goods
*(US) JULY CHANGE IN NONFARM PAYROLLS: +157K V +193KE
(CN) White House Econ Adviser Kudlow: tariff response from China today is not tit-for-tat; China should not underestimate Pres Trump on trade policy
*(US) JULY FINAL MARKIT SERVICES PMI: 56.0 V 56.2E
*(US) JULY ISM NON-MANUFACTURING COMPOSITE: 55.7 V 58.6E
(CN) China to propose 25% tariff on US LNG - press
(CN) China proposed 25% tariff list includes US copper ore and concentrate, lithium carbonate
(US) Atlanta Fed cuts Q3 GDP forecast to 4.4% from 5.0% prior
On Tuesday the BOJ offered up its first ever forward guidance which resulted in volatility in the JGB market, and eventually higher interest rates globally. Wednesday’s FOMC statement left the door wide open for two more rate hikes this year, while the BOE raised rates for just the second time this decade. By midweek, expectations were growing that the Trump administration was set to make an announcement to put further pressure on China by ratcheting up tariffs on another $200B in Chinese goods. The Yuan dropped to new lows and the Chinese stock market came under renewed pressure. The Greenback was also helped by another string of solid US economic data resulting in the Atlanta Fed taking up its US Q3 GDP forecast to as high as 5%(later trimmed to 4.4% on Friday), while most major European PMIs missed expectations. Friday’s July jobs growth came in below forecast but June numbers were revised higher. The report did little to change market expectations surrounding tepid wage growth and was somewhat overshadowed by China's announcement of plans to retaliate against the Trump administration’s latest tariff threats.
In terms of corporate news this week, the focus remained on earnings. Apple reached the $1T market cap level on the back of a strong profit beat in a quarter which saw its average selling price for iPhones jump. Tesla rallied after promising a profitable second half, and shares were further boosted when a contrite CEO Musk apologized for past behavior during the earnings call. Wynn and MGM fell on continued softness in casino earnings reports, while Caesars management said to expect weakness in Las Vegas programming in July and August. Chipotle lost some of last week’s gains on the latest report regarding food-related illnesses at a store in Ohio. CBS opened marginally lower on Friday after an earnings conference call that steered clear of addressing sexual misconduct claims against CEO Les Moonves.
MON 7/30
HEIA.NL Reports H1 Net €1.08B v €1.04B y/y, Op €1.75B v €1.81B y/y, Rev €10.8B v €10.3B y/y
(JP) BOJ AGAIN CONDUCTS FIXED-RATE JGB PURCHASE OPERATION FOR an unlimited amount of 5-10-YR JGBs at 0.10% (3rd operation within the past week)
(EU) EURO ZONE JULY BUSINESS CLIMATE INDICATOR: 1.29 V 1.35E; CONSUMER CONFIDENCE (FINAL): -0.6 V -0.6E
*(IT) ITALY DEBT AGENCY (TESORO) SELLS TOTAL €6.0B VS. €4.50-6.0B INDICATED RANGE IN 5-YEAR AND 10-YEAR BTP BONDS
CAT Reports Q2 $2.97 v $2.66e, Rev $14.0B v $13.8Be; To raise prices
(DE) GERMANY JULY CPI M/M: 0.3% V 0.4%E; Y/Y: 2.0% V 2.1%E
*(US) JUN PENDING HOME SALES M/M: 0.9% V 0.2%E; Y/Y: -4.0% V -2.8% PRIOR (6th straight month of y/y declines)
*(US) JULY DALLAS FED MANUFACTURING ACTIVITY: 32.3 V 30.0E
CAT Feel good about business, taking orders for delivery well into 2019 - earnings call
(KR) South Korea Jun Industrial Production M/M: -0.6% v -0.9%e; M/My: -0.4% v 0.7%e
(KR) North Korea said to have built new missiles after summit with Trump - press
*(JP) JAPAN JUN JOBLESS RATE: 2.4% V 2.3%E; (first rise since Feb)
005930.KR Reports final Q2 (KRW) Net 11.0T v 11.1Te, Op 14.9T v 14.8T prelim, Rev 58.5T v 58.0T prelim
*(CN) CHINA JULY OFFICIAL GOVT MANUFACTURING PMI: 51.2 V 51.3E (lowest since Feb)
TUES 7/31
STAN.UK Reports H1 Pretax $2.35B v $2.30Be, Adj Op Rev $7.65B v $7.69Be
CSGN.CH Reports Q2 (CHF) Net 647M v 694M y/y, adj Pretax 1.05B v 1.06Be, Rev 5.60B v 5.35Be
SAN.FR Reports Q2 Business EPS €1.25 v €1.20e, Business Net €1.56B v €1.70B y/y, Rev €8.18B v €8.38Be
BP.UK Reports Q2 Adj Net (underlying RC profit) $2.82B v $2.66Be, Total Rev $76.9B v $57.4B y/y
(JP) BOJ Gov Kuroda: Introduced forward guidance to increase commitment on price target; stronger framework aimed at hitting the 2% price target asap - post rate decision press conference
*(DE) GERMANY JULY NET UNEMPLOYMENT CHANGE: -6K V -10KE; UNEMPLOYMENT CLAIMS RATE: 5.2% V 5.2%E
*(EU) EURO ZONE Q2 ADVANCE GDP Q/Q: 0.3% V 0.4%E; Y/Y: 2.1% V 2.2%E
*(CN) US AND CHINA REPORTEDLY TO MEET TO RESTART TALKS REGARDING TRADE - press
FB (US) Facebook has identified a coordinated political influence campaign on its platform, using fake accounts and pages seeking to influence the 2018 US election - NYT
(US) Nevada reports Jun casino gaming Rev $933.0M, +4.2% y/y; Las Vegas strip Rev $523.9M, +5.4% y/y
(US) Atlanta Fed forecasts initial Q3 GDP growth at 4.7%
AAPL Reports Q3 $2.34 v $2.17e, Rev $53B v $52.4Be
BIDU Reports Q2 $3.18 v $2.63e, Rev $3.93B v $4.01Be
WEDS 8/1
(HK) Macau July Gaming Rev MOP25.3B v MOP22.5B prior, Y/Y: 10.3% v 11.5%e (3rd consecutive miss on estimates)
MT.NL Reports Q2 $1.84 v $1.30 y/y, EBITDA $3.07B v $2.85Be, Rev $20.0B v $19.9Be
BA.UK Reports H1 Underlying EPS 14.8p v 17.9p y/y, EBITA £874M v £848Me, Rev £8.82B v £8.83Be
RIO.AU Reports H1 Underlying Net $4.42B v $4.6Be; underlying EBITDA $9.2B v $9.6Be; Rev $19.9B v $21.1Be; Adds $1.0B to share buyback program
VOW3.DE Reports Q2 adj Net €3.31B v €3.10B y/y, Op €5.58B v €4.97Be, Rev €61.1B v €62.1Be
*(IN) INDIA CENTRAL BANK (RBI) RAISES REPURCHASE RATE BY 25BPS TO 6.50%; AS EXPECTED
CG To purchase 19.9% of reinsurer DSA from AIG and enter into a strategic asset management relationship with DSA Re
(US) JULY ADP EMPLOYMENT CHANGE: +219K V +186KE; Zandi sees no tariff impact "yet"
(US) Conference Board July Total online job ads 4.65M v 4.48M m/m v 4.61M y/y; New ads 1.89M v 1.90M m/m v 1.90M y/y
*(US) DOE CRUDE: +3.8M V -2ME; GASOLINE: -2.5M V -2ME; DISTILLATE: +3.0M V +0.5ME
Fidelity announces plans to reduce mutual fund fees
(TR) US reportedly readying list of economic sanctions against Turkey over detained US pastor - press
(US) Atlanta Fed raises Q3 GDP forecast to 5.0% from 4.7% prior
(US) Reportedly Trump administration will confirm taking $200B China tariffs rate up to 25% later today - press
ESRX Icahn reportedly has sizable Cigna stake and is likely to urge shareholders to vote against proposed Express Scripts takeover - press
TSLA Reports Q2 -$3.06 v -$2.76e, Rev $4.0B v $3.79Be
*(BR) BRAZIL CENTRAL BANK (BCB) LEAVES SELIC TARGET RATE UNCHANGED AT 6.50%; AS EXPECTED
THUR 8/2
GLE.FR Reports Q2 adj Net €1.16B v €1.0Be, Op €1.88B v €1.29B y/y, Rev €6.45B v €6.16Be
SIE.DE Reports Q3 Net €1.21B v €1.41B y/y, Industrial Business profit €2.21B v €2.27Be, Rev €20.5B v €20.8Be; affirms FY outlook
GAM.CH Fund boards suspend dealing in unconstrained/absolute return bond funds; notes high level of redemptions
*(UK) BOE RAISES INTEREST RATES BY 25BPS TO 0.75%; AS EXPECTED (2nd hike over the past decade)
(UK) BANK OF ENGLAND (BOE) QUARTERLY INFLATION REPORT (QIR)
(UK) BOE Gov Carney:Need a modest tightening of monetary policy; reiterates that limited and gradual hike will be needed - post rate decision press conference
AAPL Tests $207.04, becomes first publicly listed US company valued at $1 trillion
FRI 8/3
ACA.FR Reports Q2 Net €1.44B v €1.02Be; Rev €8.40B v €7.94B y/y
RBS.UK Reports Q2 Net £96M v £792M y/y, adj Op £613M v £1.24B y/y, Rev £3.40B v £3.30B y/y
*(UK) JULY SERVICES PMI: 53.5 V 54.7E (24th month of expansion)
(CN) China PBoC adjusts the Reserve Requirement on FX Forwards trading from 0% (nil) to 20%
*(CN) CHINA COMMERCE MINISTRY (MOFCOM) RELEASES PROPOSED RETALIATION TO US TARIFF THREAT; to levy differentiated tariffs (import tax) on ~$60B in US goods
*(US) JULY CHANGE IN NONFARM PAYROLLS: +157K V +193KE
(CN) White House Econ Adviser Kudlow: tariff response from China today is not tit-for-tat; China should not underestimate Pres Trump on trade policy
*(US) JULY FINAL MARKIT SERVICES PMI: 56.0 V 56.2E
*(US) JULY ISM NON-MANUFACTURING COMPOSITE: 55.7 V 58.6E
(CN) China to propose 25% tariff on US LNG - press
(CN) China proposed 25% tariff list includes US copper ore and concentrate, lithium carbonate
(US) Atlanta Fed cuts Q3 GDP forecast to 4.4% from 5.0% prior
Saturday, July 28, 2018
Barrons weekend summary
Barrons weekend summary: positive featured on FB, FCAU
Cover story: Barron’s partnered with Backend Benchmarking to publish the first ranking of major robo-advisor firms that uses both performance data and qualitative metrics like ease of use and financial-planning capabilities; The top ten firms are Vanguard, Betterment, SigFig, E*Trade, Schwab, Wealthfront, WiseBanyan, Personal Capital, FutureAdvisor, and Acorns.
Features: 1) The container-leasing business is in the second year of a four-to-five year cycle, with growth coming from replacement containers and increased global shipping volume, says Cowen’s Helane Becker; 2) Positive on FB: Shares of the social site would seem to be a bargain after last week’s drop, especially because the company is a rarity: a megacap with a reasonable valuation whose revenues have 25% upside next year; 3) Positive on FCAU: Despite the death of CEO Sergio Marchionne and mixed quarterly results, analysts expect the automaker to grow earnings faster than U.S. rivals, and shares are 75% cheaper than the broad S&P 500 index; 4) Few companies say they have seen positive effects from Donald Trump’s tariffs, while many cite none, or describe only modest negatives—though it’s ultimately too early to tell what the overall results will be.
Tech Trader: Most tech companies that remain in their specialized niches will have a hard time adapting to the changing landscape—rather than bending the world according to their vision, as AMZN has done, they remain focused simply on avoiding problems.
Trader: “Tariffs remain a central concern and an important driver of economic and market action, and they probably affected Q2 GDP by causing exporters to speed up deliveries, particularly of farm products, ahead of the new duties”; A majority of active fund managers beat their benchmarks last year, allowing them to reverse the cash outflows they’ve suffered amid the growth in passive investing; Cautious on LLY: The key question for investors is whether the pharma company’s superior growth is baked into the stock price.
Interview: Sarat Sethi and Ned Dewees, managing partners at Douglas C. Lane & Associates, are positive on the U.S. economy and consumer, and the potential of big data; Their portfolios don’t include AMZN or NFLX (holdings: ILMN, IAC, MSFT, ORCL, FRC, XPO). Profile: Will Muggia, manager of the Touchstone Mid Cap Growth fund, uses a model based on analyst track records that closely monitors each analyst’s contribution to portfolio risk relative to the benchmark (top 10 holdings: WP, PXD, FIS, FLT, JBHT, TRU, TIF, COO, TDY, AME).
European Trader: Positive on Charter Court Financial Services Group, OneSavings Bank: Firms are the top choices for investors in the British challenger bank sector, says Goodbody analyst John Cronin.
Emerging Markets: Trade wars and a strong dollar aren’t hitting all emerging markets: Latin America is on a tear, with ETFs covering Brazil, Mexico, and Argentina up during the past month.
Commodities: Investors shouldn’t expect gold prices to rebound anytime soon “because the strength of the U.S. dollar will keep a lid on any rally and at the very least could push prices for the metal down further.”
Streetwise: The ongoing closure of newspapers will affect investors because without reporters there will be less information available upon which to base decisions.
FANG's Flounder, Trump and Tusk Signal Détente; US Economic Engine Purrs
TradeTheNews.com Weekly
Market Update: FANG's Flounder, Trump and Tusk Signal Détente; US Economic
Engine Purrs
Fri, 27 Jul 2018 16:05 PM EST
US stocks spent the better part of the week moving higher, but investors looked away from the NASDAQ and high beta names in particular for leadership. As the Q2 earnings season ramped up, there were some notable disappointments among key tech firms, leading to some market rotation. Despite generally better than expected results, many managements outside of tech also noted that rising raw material costs and stiffening FX headwinds have resulted in a challenging environment and conservative guidance. For the week the S&P500 gained 0.6%, the DJIA added 1.6%, while the Nasdaq lost 1.1%.
The economic data largely surpassed expectations, with the exception of perhaps Friday’s first look at Q2 GDP. Nevertheless, the US economy saw growth that surpassed 4% in Q2 which the Administration was quick to tout as a direct result of the President’s policies. The July Richmond Fed index beat expectations suggesting the growth momentum has continued in to Q3, while European data showed some improving trends as well. Trade remained a key topic with the Chinese Yuan plumbing fresh lows early on, leading to another salvo of tough rhetoric on both sides. Wednesday saw President Trump and the EU President Juncker announce concessions had been reached to ease trade tensions – including Europe expressing a willingness to lower certain industrial tariffs – while formal negotiations continue in good faith.
Corporate news this week was mostly dominated by the aforementioned avalanche of earnings, notably in the FANG space. Alphabet rallied on a bottom-line beat and Amazon lifted after surpassing profit expectations, but Twitter slid on a drop in monthly active users and Facebook took a record hit to its market cap after disclosing its total revenue growth rate is expected to decelerate in the second half as expenses continue to mount. Many companies said they saw effects from rising input prices and shipping costs this quarter, including Whirlpool, Kimberly Clark, GM, Fiat, Coca-Cola, Packaging Corp, and USG. Qualcomm rose and NXP fell after Chinese regulators scuttled their merger agreement, as largely anticipated. Intel tumbled on concerns about its slow rollout of next-gen chips. McDonald’s shares spilled after it missed same-store sales expectations, Chipotle rallied on better than expected results, and the board at Papa John’s launched a “poison pill” effort to block former CEO John Schnatter from gaining control of the company. A report of Friday alleged sexual misconduct by Les Moonves, putting the future of the CBS CEO in question as he continues to battle with Shari Redstone over the fate of the company.
SUN JULY 22
(CN) CHINA PBOC CONDUCTS CNY502B IN 1-YEAR MEDIUM-TERM LENDING FACILITY (MLF) V CNY188.5B PRIOR AT 3.30% V 3.30% PRIOR (2nd MLF operation in July)
MON JULY 23
CWK Files to sell 45M IPO shares between $16.00 and $18.00 on the NYSE - filing
ITW Reports Q2 $1.97 v $1.98e, Rev $3.83B v $3.85Be
AMZN Pres Trump again criticizes Washington Post and Amazon's deal shipping deal with USPS; speculates that antitrust case should be brought against Amazon
GOOGL Reports Q2 $11.75** (Ex fines) v $8.90 y/y, Rev $26.2B (ex $6.4B TAC) v $25.6Be
WHR Reports Q2 $3.20 v $3.63e, Rev $5.14B v $5.22Be
TUES JULY 24
UBSG.CH Reports Q2 (CHF) Net 1.28B v 1.09Be, adj Pretax 1.81B v 1.72Be, Rev 7.55B v 7.27B y/y
(FR) FRANCE JULY BUSINESS CONFIDENCE: 106 V 107E
(FR) FRANCE JULY PRELIMINARY MANUFACTURING PMI: 53.1 V 52.5E (22nd month of expansion)
*(EU) EURO ZONE JULY PRELIMINARY MANUFACTURING PMI: 55.1 V 54.7E (60th month of expansion)
(TR) TURKEY CENTRAL BANK (CBRT) LEAVES ONE-WEEK REPO RATE UNCHANGED AT 17.75%; NOT EXPECTED
LMT Reports Q2 $4.05 v $3.89e, Rev $13.4B v $12.7Be
KMB Reports Q2 $1.59 adj v $1.60e, Rev $4.60B v $4.63Be
(UK) UK Brexit Department Document (White Paper details): Will be necessary to ensure EU laws continue to apply to Britain during Post-Brexit transition period; new Brexit laws will modify parts of the act to reflect the departure of the UK
(UK) PM May: I will take personal control of the Brexit negotiations
*(US) JULY PRELIMINARY MARKIT MANUFACTURING PMI: 55.5 V 55.1E
*(US) JULY RICHMOND FED MANUFACTURING INDEX: 20 V 18E
TXN Reports Q2 $1.40 v $1.33e, Rev $4.0B v $3.95Be
WEDS JULY 25
DBK.DE Reports Q2 Net €401M v €400M prelim, Pretax €700M v €700M prelim, Rev €6.6B v €6.6B prelim
VOD.UK Reports Q1 group Rev €10.9B* v €11.5B y/y
(DE) GERMANY JULY IFO BUSINESS CLIMATE: 101.7 V 101.5E; CURRENT ASSESSMENT: 105.3 V 104.9E
UPS Reports Q2 $1.94 v $1.92e, Rev $17.5B v $17.2Be
BA Reports Q2 $3.33 v $3.24e, Rev $24.3B v $24.0Be
FCX Reports Q2 $0.58 v $0.54e, Rev $5.17B v $4.82Be
(US) JUN NEW HOME SALES: 631K V 668KE
*(US) DOE CRUDE: -6.2M V -1ME; GASOLINE: -2.3M V +0.5ME; DISTILLATE: -0.1M V +1ME
(US) Association of American Railroads weekly rail traffic report for week ending July 21st: 553K, +4.9% y/y
(US) President Trump reportedly has received concessions from Europe to avert trade war; Europe agrees to lower industrial tariffs - press
FB Reports Q2 $1.74 v $1.75e, Rev $13.2B v $13.4Be
V Reports Q3 $1.20 v $1.09e, Rev $5.20B v $5.08Be
F Reports Q2 $0.27 v $0.34e, Rev $38.9B v $35.5Be
(US) President Trump: US and EU will be winners, have agreed to work together toward zero tariffs on non-auto industrial goods - press conf with EU's Juncker
(KR) Sec of State Pompeo: North Korea is continuing to produce nuclear material; we want denuclearization to occur by end of 2020 - Senate testimony
FB Total revenue growth rate expected to continue to decelerate in H2 2018, down in high single digits during Q3 and Q4 - earnings call comments
000660.KR Reports Q2 (KRW) Net 4.33T v 3.4Te; Op 5.57T v 5.3Te; Rev 10.37T v 10.2Te
THURS JULY 26
AIR.FR Reports H1 Net €496M v €1.1B y/y, adj EBIT €1.16B v €988Me, Rev €25.0B v €25.2B y/y
ROG.CH Reports H1 (CHF) Core EPS 9.84 v 8.23 y/y, Core operating 11.2B v 10.1B y/y, Rev 28.1B v 27.5Be
NOKIA.FI Reports Q2 adj €0.03 v €0.08 y/y, adj Op €334M v €574M y/y, Rev €5.31B v €5.6B y/y
ABI.BE Reports Q2 $1.10 v $1.05e, Adj EBITDA $5.57B v $5.49Be, Rev $14.0B v $13.9Be
ORA.FR Reports Q2 EBITDA €3.38B v €3.28B y/y, Rev €10.2B v €10.0B y/y
RDSA.NL Reports Q2 basic CCS EPS $0.56 v $0.71e, adj Net $6.02B v $1.55B y/y, Rev $96.7B v $72.1B y/y
AZN.UK Reports Q2 Core EPS $0.69 v $0.71e, Rev $5.16B v $4.99Be
DGE.UK Reports FY18 EPS 118.6p v 108.5p y/y, EBIT £3.82B v £3.77Be, Rev £12.2B v £12.1B y/y; approves buyback program up to £2.0B (~2% of market cap)
066570.KR Reports final Q2 (KRW) Net 327B v 403Be; Op 771B v 771B prelim; Rev 15.0T v 15.02T prelim
(EU) ECB LEAVES 7-DAY MAIN REFINANCING RATE UNCHANGED AT 0.00%; AS EXPECTED
*(US) JUN PRELIMINARY DURABLE GOODS ORDERS: 1.0% V 3.0%E; DURABLES EX TRANSPORTATION: 0.4% V 0.5%E
(UK) EU Chief Brexit Negotiator Barnier: EU will not delegate the application of its customs policy to a non-member (rules out allowing the UK to collect customs duties on its behalf); rejects UK white paper proposal on customs - press conf comments
CA.FR Reports Q2 Rev €20.8B v €21.8B y/y
(US) White House Econ Adviser Kudlow: Number on US GDP growth due on Friday 'will be big'
AMZN Reports Q2 $5.07 v $2.49e, Rev $52.9B v $53.4Be
CMG Reports Q2 $2.87 v $2.78e, Rev $1.30B v $1.26Be
SEC rejects Winklevoss Bitcoin ETF proposal, says it does not met regulatory standards - CNBC
BHP.AU Announces sale of US onshore (shale) assets to unit of BP for base consideration of $10.8B in cash; expected to close by the end of Oct 2018
FRI JULY 27
BAS.DE Reports Q2 Adj Net €1.48B v €1.50B y/y, EBIT €2.36B v €2.42Be, Rev €16.8B v €16.6Be
(FR) FRANCE Q2 ADVANCE GDP Q/Q: 0.2% V 0.3%E; Y/Y: 1.7% V 1.9%
MRK Reports Q2 $1.06 v $1.03e, Rev $10.5B v $10.3Be
(US) Q2 ADVANCE GDP PRICE INDEX: 3.0% V 2.3%E; CORE PCE Q/Q: 2.0% V 2.2%E
(US) Q2 ADVANCE GDP ANNUALIZED Q/Q: 4.1% V 4.2%E (fastest pace since 2014); PERSONAL CONSUMPTION: 4.0% V 3.0%E
CBS CEO Les Moonves said to be accused of sexual misconduct in upcoming New Yorker piece by reporter Ronan Farrow - press
Fri, 27 Jul 2018 16:05 PM EST
US stocks spent the better part of the week moving higher, but investors looked away from the NASDAQ and high beta names in particular for leadership. As the Q2 earnings season ramped up, there were some notable disappointments among key tech firms, leading to some market rotation. Despite generally better than expected results, many managements outside of tech also noted that rising raw material costs and stiffening FX headwinds have resulted in a challenging environment and conservative guidance. For the week the S&P500 gained 0.6%, the DJIA added 1.6%, while the Nasdaq lost 1.1%.
The economic data largely surpassed expectations, with the exception of perhaps Friday’s first look at Q2 GDP. Nevertheless, the US economy saw growth that surpassed 4% in Q2 which the Administration was quick to tout as a direct result of the President’s policies. The July Richmond Fed index beat expectations suggesting the growth momentum has continued in to Q3, while European data showed some improving trends as well. Trade remained a key topic with the Chinese Yuan plumbing fresh lows early on, leading to another salvo of tough rhetoric on both sides. Wednesday saw President Trump and the EU President Juncker announce concessions had been reached to ease trade tensions – including Europe expressing a willingness to lower certain industrial tariffs – while formal negotiations continue in good faith.
Corporate news this week was mostly dominated by the aforementioned avalanche of earnings, notably in the FANG space. Alphabet rallied on a bottom-line beat and Amazon lifted after surpassing profit expectations, but Twitter slid on a drop in monthly active users and Facebook took a record hit to its market cap after disclosing its total revenue growth rate is expected to decelerate in the second half as expenses continue to mount. Many companies said they saw effects from rising input prices and shipping costs this quarter, including Whirlpool, Kimberly Clark, GM, Fiat, Coca-Cola, Packaging Corp, and USG. Qualcomm rose and NXP fell after Chinese regulators scuttled their merger agreement, as largely anticipated. Intel tumbled on concerns about its slow rollout of next-gen chips. McDonald’s shares spilled after it missed same-store sales expectations, Chipotle rallied on better than expected results, and the board at Papa John’s launched a “poison pill” effort to block former CEO John Schnatter from gaining control of the company. A report of Friday alleged sexual misconduct by Les Moonves, putting the future of the CBS CEO in question as he continues to battle with Shari Redstone over the fate of the company.
SUN JULY 22
(CN) CHINA PBOC CONDUCTS CNY502B IN 1-YEAR MEDIUM-TERM LENDING FACILITY (MLF) V CNY188.5B PRIOR AT 3.30% V 3.30% PRIOR (2nd MLF operation in July)
MON JULY 23
CWK Files to sell 45M IPO shares between $16.00 and $18.00 on the NYSE - filing
ITW Reports Q2 $1.97 v $1.98e, Rev $3.83B v $3.85Be
AMZN Pres Trump again criticizes Washington Post and Amazon's deal shipping deal with USPS; speculates that antitrust case should be brought against Amazon
GOOGL Reports Q2 $11.75** (Ex fines) v $8.90 y/y, Rev $26.2B (ex $6.4B TAC) v $25.6Be
WHR Reports Q2 $3.20 v $3.63e, Rev $5.14B v $5.22Be
TUES JULY 24
UBSG.CH Reports Q2 (CHF) Net 1.28B v 1.09Be, adj Pretax 1.81B v 1.72Be, Rev 7.55B v 7.27B y/y
(FR) FRANCE JULY BUSINESS CONFIDENCE: 106 V 107E
(FR) FRANCE JULY PRELIMINARY MANUFACTURING PMI: 53.1 V 52.5E (22nd month of expansion)
*(EU) EURO ZONE JULY PRELIMINARY MANUFACTURING PMI: 55.1 V 54.7E (60th month of expansion)
(TR) TURKEY CENTRAL BANK (CBRT) LEAVES ONE-WEEK REPO RATE UNCHANGED AT 17.75%; NOT EXPECTED
LMT Reports Q2 $4.05 v $3.89e, Rev $13.4B v $12.7Be
KMB Reports Q2 $1.59 adj v $1.60e, Rev $4.60B v $4.63Be
(UK) UK Brexit Department Document (White Paper details): Will be necessary to ensure EU laws continue to apply to Britain during Post-Brexit transition period; new Brexit laws will modify parts of the act to reflect the departure of the UK
(UK) PM May: I will take personal control of the Brexit negotiations
*(US) JULY PRELIMINARY MARKIT MANUFACTURING PMI: 55.5 V 55.1E
*(US) JULY RICHMOND FED MANUFACTURING INDEX: 20 V 18E
TXN Reports Q2 $1.40 v $1.33e, Rev $4.0B v $3.95Be
WEDS JULY 25
DBK.DE Reports Q2 Net €401M v €400M prelim, Pretax €700M v €700M prelim, Rev €6.6B v €6.6B prelim
VOD.UK Reports Q1 group Rev €10.9B* v €11.5B y/y
(DE) GERMANY JULY IFO BUSINESS CLIMATE: 101.7 V 101.5E; CURRENT ASSESSMENT: 105.3 V 104.9E
UPS Reports Q2 $1.94 v $1.92e, Rev $17.5B v $17.2Be
BA Reports Q2 $3.33 v $3.24e, Rev $24.3B v $24.0Be
FCX Reports Q2 $0.58 v $0.54e, Rev $5.17B v $4.82Be
(US) JUN NEW HOME SALES: 631K V 668KE
*(US) DOE CRUDE: -6.2M V -1ME; GASOLINE: -2.3M V +0.5ME; DISTILLATE: -0.1M V +1ME
(US) Association of American Railroads weekly rail traffic report for week ending July 21st: 553K, +4.9% y/y
(US) President Trump reportedly has received concessions from Europe to avert trade war; Europe agrees to lower industrial tariffs - press
FB Reports Q2 $1.74 v $1.75e, Rev $13.2B v $13.4Be
V Reports Q3 $1.20 v $1.09e, Rev $5.20B v $5.08Be
F Reports Q2 $0.27 v $0.34e, Rev $38.9B v $35.5Be
(US) President Trump: US and EU will be winners, have agreed to work together toward zero tariffs on non-auto industrial goods - press conf with EU's Juncker
(KR) Sec of State Pompeo: North Korea is continuing to produce nuclear material; we want denuclearization to occur by end of 2020 - Senate testimony
FB Total revenue growth rate expected to continue to decelerate in H2 2018, down in high single digits during Q3 and Q4 - earnings call comments
000660.KR Reports Q2 (KRW) Net 4.33T v 3.4Te; Op 5.57T v 5.3Te; Rev 10.37T v 10.2Te
THURS JULY 26
AIR.FR Reports H1 Net €496M v €1.1B y/y, adj EBIT €1.16B v €988Me, Rev €25.0B v €25.2B y/y
ROG.CH Reports H1 (CHF) Core EPS 9.84 v 8.23 y/y, Core operating 11.2B v 10.1B y/y, Rev 28.1B v 27.5Be
NOKIA.FI Reports Q2 adj €0.03 v €0.08 y/y, adj Op €334M v €574M y/y, Rev €5.31B v €5.6B y/y
ABI.BE Reports Q2 $1.10 v $1.05e, Adj EBITDA $5.57B v $5.49Be, Rev $14.0B v $13.9Be
ORA.FR Reports Q2 EBITDA €3.38B v €3.28B y/y, Rev €10.2B v €10.0B y/y
RDSA.NL Reports Q2 basic CCS EPS $0.56 v $0.71e, adj Net $6.02B v $1.55B y/y, Rev $96.7B v $72.1B y/y
AZN.UK Reports Q2 Core EPS $0.69 v $0.71e, Rev $5.16B v $4.99Be
DGE.UK Reports FY18 EPS 118.6p v 108.5p y/y, EBIT £3.82B v £3.77Be, Rev £12.2B v £12.1B y/y; approves buyback program up to £2.0B (~2% of market cap)
066570.KR Reports final Q2 (KRW) Net 327B v 403Be; Op 771B v 771B prelim; Rev 15.0T v 15.02T prelim
(EU) ECB LEAVES 7-DAY MAIN REFINANCING RATE UNCHANGED AT 0.00%; AS EXPECTED
*(US) JUN PRELIMINARY DURABLE GOODS ORDERS: 1.0% V 3.0%E; DURABLES EX TRANSPORTATION: 0.4% V 0.5%E
(UK) EU Chief Brexit Negotiator Barnier: EU will not delegate the application of its customs policy to a non-member (rules out allowing the UK to collect customs duties on its behalf); rejects UK white paper proposal on customs - press conf comments
CA.FR Reports Q2 Rev €20.8B v €21.8B y/y
(US) White House Econ Adviser Kudlow: Number on US GDP growth due on Friday 'will be big'
AMZN Reports Q2 $5.07 v $2.49e, Rev $52.9B v $53.4Be
CMG Reports Q2 $2.87 v $2.78e, Rev $1.30B v $1.26Be
SEC rejects Winklevoss Bitcoin ETF proposal, says it does not met regulatory standards - CNBC
BHP.AU Announces sale of US onshore (shale) assets to unit of BP for base consideration of $10.8B in cash; expected to close by the end of Oct 2018
FRI JULY 27
BAS.DE Reports Q2 Adj Net €1.48B v €1.50B y/y, EBIT €2.36B v €2.42Be, Rev €16.8B v €16.6Be
(FR) FRANCE Q2 ADVANCE GDP Q/Q: 0.2% V 0.3%E; Y/Y: 1.7% V 1.9%
MRK Reports Q2 $1.06 v $1.03e, Rev $10.5B v $10.3Be
(US) Q2 ADVANCE GDP PRICE INDEX: 3.0% V 2.3%E; CORE PCE Q/Q: 2.0% V 2.2%E
(US) Q2 ADVANCE GDP ANNUALIZED Q/Q: 4.1% V 4.2%E (fastest pace since 2014); PERSONAL CONSUMPTION: 4.0% V 3.0%E
CBS CEO Les Moonves said to be accused of sexual misconduct in upcoming New Yorker piece by reporter Ronan Farrow - press
Saturday, July 21, 2018
Markets don’t see any reason why they would(n’t) rally
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
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
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
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