TradeTheNews.com Weekly Market Update: Risk Assets Continue Rebound
On Hopes for Trade Deal Stocks markets continued to ride a wave of positive momentum throughout much of the first full week of the New Year. US and Chinese officials met in Beijing on Monday and Tuesday and, though details were limited, sentiment improved as future meetings were put on the calendar for later this month. Treasury yields and oil prices also continued to rebound providing a sense of relief for those worried that the recent declines portended an oncoming recession. Reports circulated that the Saudis were going to significantly curtail exports to prop up crude prices, while a deluge of Fed speak, along with the FOMC minutes, affirmed Powell’s recent shift and suggested the Fed consensus is now centered on a ‘wait and see’ approach on rates. The greenback was generally weaker as the US government shutdown dragged on with no endgame in sight as both parties dug further in. The Euro briefly topped a key 1.15 technical level and the Yuan firmed to the best levels since last summer helped by growing expectations for more stimulus from the Chinese government. The British Pound lifted late in the week despite heightened uncertainty heading into next week’s Brexit vote in Parliament. On Friday, investors pulled back from some of those risk assets heading into the weekend and stocks finished lower for the first time in six sessions. For the week, the S&P rose 2.5%, the DJIA gained 2.4%, and the Nasdaq added 3.5%.
In corporate news this week, Eli Lilly announced it would acquire Loxo Oncology for $8B in order to boost its cancer drug portfolio. Ratings agencies delivered humbling news for PG&E, downgrading the electric utility several notches amid reports of extraordinary wildfire liabilities and a potential bankruptcy. Constellation Brands shares tumbled on disappointing guidance related to their wine and spirits division. Retail names saw some volatility this week as Macy's cut its outlook and Kohl’s noted some disappointing holiday SSS, though Target saw a year-end sales surge and Bed Bath & Beyond announced its tracking ahead of long-term financial goals. GM surged on Friday after raising profit guidance as the automaker sharpens its focus on light truck production. Midstream energy firm Targa Resources offered the first high-yield bond deal to hit the markets since November. Reports indicated Amazon may be gearing up to enter the game streaming service space, potentially competing with similar future offerings from Google and Microsoft.
MONDAY 1/7 (EU) EURO ZONE JAN SENTIX INVESTOR CONFIDENCE: -1.5 V -2.0E (lowest reading since Dec 2014) LOXO To be acquired by Lilly for $235.00/shr in all cash deal valued at $8.0B Wall Street firms reportedly plan new exchange to challenge NYSE, Nasdaq - press PGC Reportedly liabilities from 2017-18 fires could reach at least $30B - CNBC *(US) DEC ISM NON-MANUFACTURING INDEX: 57.6 V 58.5E (SA) Saudi Arabia reportedly to cut crude exports to 7.1M bpd - press 005930.KR Reports Prelim Q4 (KRW) Op 10.8T v 13.8Te, Rev 59.0T v 63.6Te (IT) Italian govt to freeze 90% of motorway tariffs; will review in June - Italian Press
TUESDAY 1/8 066570.KR Reports prelim Q4 (KRW) Op 75.3B v 387Be, Rev 15.8T v 16.3Te *(EU) EURO ZONE DEC BUSINESS CLIMATE INDICATOR: 0.82 V 1.00E; CONSUMER CONFIDENCE: -6.2 V -6.2E *(US) NOV JOLTS JOB OPENINGS: 6.888M V 7.050ME (lowest since June) (US) Atlanta Fed raises Q4 GDP forecast to 2.8% from 2.6% prior *(US) NOV CONSUMER CREDIT: $22.1B V $17.5BE (US) Reportedly Pres Trump wants a China trade deal soon to boost markets - press
WEDNESDAY 1/9 STZ Reports Q3 $2.37 v $2.04e, Rev $1.97B v $1.91Be EUR/USD Tests above 1.15 for the first time since Nov; US Dollar index drops below 95.50 *(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATES UNCHANGED AT 1.75%; AS EXPECTED (US) Conference Board Experimental Help Wanted OnLine Index (HWOL) at 101.7 v 99.3 m/m (reverses Oct and Nov declines) *(US) DOE CRUDE: -1.7M V -2ME; GASOLINE: +8.1M V +2ME; DISTILLATE: +10.6M V +1ME (US) Association of American Railroads weekly rail traffic report for week ending Jan 5th: 436.1K, +4.8% y/y *(US) FOMC MINUTES FROM DEC 19TH MEETING: OFFICIALS EXPRESSED LESS CERTAINTY ABOUT 'TIMING AND SIZE' OF FUTURE RATE INCREASES BBBY Reports Q3 $0.18 v $0.16e, Rev $3.03B v $3.04Be
THURSDAY 1/10 F Reportedly to cut thousands of European jobs; mulls exiting several unprofitable European markets - FT TGT Reports No/Dec SSS +5.7% v 3.4% y/y; CFO Cathy Smith to retire M Reports Nov/Dec SSS +1.1% (owned plus licensed), Cuts FY18 $3.95-4.00 v $4.21e, Rev ~ flat y/y (prior +0.3-0.7%) AAL Cuts FY18 $4.40-4.60 v $4.62e (prior FY18 $4.50-5.00); Cuts Q4 TRASM +1.5% (prior +1.5-3.5%) MGM Starboard said to have built stake and intends to take activist role - press (US) Atlanta Fed maintains Q4 GDP forecast at 2.8% (US) Fed Chair Powell: We have ability to be patient, flexible, and watch patiently at this time; Fed balance sheet will end up "substantially smaller" - comments in Washington AMZN Reportedly developing a game streaming service, could launch in 2020 or later - The Information TRGP Prices $1.5B in senior notes due 2027 and 2029 (upsized from $750M); notes were priced at par (US) US Treasury Sec Mnuchin: China Vice Premier Liu He will most likely visit Washington later in Jan for trade talks
FRIDAY 1/11 (UK) Cabinet Ministers say that Brexit to be delayed beyond March 29th as likely - financial press GM Raises FY18 EPS to 'high end with potential upside' $5.80-6.20 v $6.27e, auto FCF ~$4B - capital markets event GM Guides initial FY19 $6.50-7.00 v $5.86e, adj FCF $4.5-6.0B, capex $8.0-9.0B CZR CNBC's Faber: Icahn has built stake in Caesars; Tilman Fertitta remains interested in pursuing deal, as well
Friday, January 11, 2019
Saturday, January 5, 2019
Barrons weekend summary
Barrons weekend summary: Positive feature on AAPL; positive on DXC, MS, MYL, T
Cover story: Barron’s list of best income investments for 2019 includes picks from 11 sectors that should deliver yields from three to 10 percent: MLPs, junk bonds, European dividend stocks and funds, U.S. dividend stocks and funds, preferred stock, REITs, telecoms, municipal bonds, utilities, investment-grade bonds, Treasuries.
Features: 1) Positive on AAPL: Despite the company’s recent guidance bombshell, investors should hold onto their shares—the stock is currently tied to iPhone sales, but its future is tied to a lucrative installed base of about 1.3B devices; 2) Positive on T, DXC, MS, MYL: These four humbly price stocks are worth a look by bargain hunters—they have single-digit P/E ratios, and have received fresh Buy recommendations from analysts during the past three months; 3) Roy Johnson, known for his success at reinventing AAPL’s stores and his failure to rejuvenate JCP, is running a Silicon Valley startup called Enjoy that hopes to make online shopping less impersonal; 4) A growing number of companies are working to build more inclusive and diverse workplaces, bolstered in party by an expanding body of research about the benefits of such efforts; 5) “As sustainable investing evolves, it looks more and more like good, old-fashioned stock picking.”
Tech Trader: The Consumer Electronics Show, which kicks off in Las Vegas on January 6, comes “against a backdrop of a shaky stock market, tariff talks with China, and threat of a recession roiling the tech and chips markets.” Trader: The stock market isn’t at the ‘end of bear market’ cheap, says Jim Paulsen of Leuthold Group, but is at a level that offers some potential upside again, provided inflation and interest rates stop rising; Columnist Ben Levisohn says his best call last year was a recommendation on March 3 to sell LB, shares of which continued to fall amid changing consumer tastes; “Utility stocks lived up their reputation as a solid defensive play in 2018, and they have the potential to keep outperforming, especially if more volatility ensues.”
Mutual Fund Quarterly: 1) Given enough time and positive shifts in corporate policy, ESG investors should be able to forgives companies that have engaged in egregious behavior; 2) Q&A with Carson Block, founder of Muddy Waters, who talks about his approach to investing according to environmental, social, and governance factors; 3) Barron’s list of the top 20 sustainable mutual funds—all of which beat the market by focusing on good corporate governance—is topped by Polen Growth, Fidelity Focused Stock, and Calvert Equity; 4) Jerome Dodson, founder of Parnassus Investments and a major player in sustainable investing, takes far more than three or four metrics into account when deciding whether to buy a stock, and he rarely wavers from his own strict guidelines; 5) Of the 78 actively managed U.S. stock funds that have a sustainability goal of some sort, 54 did not make Barron’s list of the most sustainable funds, some because of their small size, others because they had an average or below-average sustainability rating.
European Investor: Positive on Fugro: Netherlands-based company is a good contrarian play: a small cap hit hard by the drop in oil prices and Europe’s yearlong economic and geopolitical woes.
Emerging Markets: Geopolitics are top of mind for emerging markets investors this year, but national politics in countries such as Brazil—where newly elected president Jair Bolsonaro may push through market reforms—also loom large.
Commodities: “African swine flu, possibly brutal winter weather, and falling beef production could propel prices for cattle futures more than 15% higher over the next two quarters or so.”
January-February 2019 Outlook: New Year’s Resolutions
TradeTheNews.com January-February
2019 Outlook: New Year’s Resolutions
Fri, 04 Jan 2019 7:41 AM EST
The New Year has started on unsteady footing, tipsy from swallowing months of uncertainty about the global economy; market sentiment has shifted and thrust many stock indices into an official bear market. The bugaboos that have haunted the markets all year – Brexit, slowing global growth, dysfunctional politics, dwindling central bank largesse, and trade conflicts – have finally taken their toll and shaken the risk-on regime that has held sway for most of the last decade.
2018 was the worst year for US stocks in ten years, seeing the S&P500 contract by more than six percent. With traders looking to technical levels and other guideposts for sentiment, the adage ‘As January goes, so go the markets’ may seem more relevant this year. The last time US stocks fell in January was in 2016, and should it happen again this year the stock market pain could create a self-reinforcing downward spiral, bleeding into confidence indicators and even the hard data. Investors are now trying to suss out if corporate earnings peaked for the cycle in 2018, and await fundamentals to reassert themselves in commodity and stock markets, hoping to overcome the eroding sentiment that has dragged down asset prices in the last couple of months.
Many of the big picture issues overhanging the markets will finally be resolved in 2019…for better or for worse. If enough fall on the happy side of the resolutions ledger, the global economy and markets could put their party hats back on and revel in more prosperity in the New Year. If not, these issues could linger as an unshakable hangover, and 2019 will be characterized by a bear market and possibly recession in some economies.
Global Trade: The Clock Strikes Midnight
The S&P500 has tumbled more than 10% since President Trump declared himself a “tariff man” in early December, and a self-imposed clock is ticking down to early March when a temporarily postponed tariff increase could go into effect, opening up an all-out trade war. Market optimism about the US reaching a trade deal with China has faded and its becoming clearer that tariffs are contributing to a slowdown in China that is spilling over into the global economy. The latest sign was the December reading of the China Caixin manufacturing PMI, which entered contraction for the first time in 19 months. A holiday quarter earnings warning from Apple added to the angst about the health of the Chinese economy. It also raises the question of how many other companies, especially in tech, will follow suit with lowered guidance in the weeks ahead, laying blame on China and trade tensions.
We will get a read on the state of the trade discussions on January 7 when a delegation from the US will meet with counterparts in China. The US group is being led by a deputy of the US Trade Representative, so no breakthroughs are expected, but it could set the table for higher level talks. Expectations for this “mid-level” meeting are low, giving it the potential for a positive surprise should delegates come away with evidence to support the so-far unsubstantiated optimistic tone Presidents Trump and Xi have cast on negotiations.
US Politics: New Year, Same Old Problems
With mounting political woes at home, President Trump may be eager to claim a big victory on trade, even if it means reaching a deal with China that is suboptimal. Both countries are starting to feel the effects of the trade war and would like to alleviate that economic pain, but unlike President-for-life Xi, Trump is subject to domestic political pressures as he plots his run for reelection in 2020. A breakthrough on trade relations with China would be just the thing to win back any wavering Trump voters, but the deadline of three months from the December 1st G-20 meeting means things will have to move quickly. The White House has a poor record on meeting its own time tables and will be adjusting to a new political landscape in Washington as the Democratic-controlled House will convene three days into the New Year.
The first test for the new Congress will be the government funding standoff over border security funding, and it will quickly clarify how the next two years will play out in Washington. Neither the President nor the Democrats appear willing to give any ground, and Trump has conceded that the shutdown could last a “long time” though the pressure will build over the weeks as constituents begin to complain about missing government services (and Wall Street laments missing government economic data). The President will get to make his case directly to the people during the State of the Union address (Jan 22). On Capitol Hill, it appears that Republican Senators will content themselves with seating conservative federal judges, while the House Democrats may be tempted to use their subpoena powers to open new probes of the Trump administration, even as they eagerly await the findings of the Mueller investigation.
Ahead of the Mueller report, the White House needs to work on its communication strategy. Trump’s unprecedented jawboning of monetary policy is poking at central bank independence, even as the President’s own tariff policy could conceivably drive up inflationary pressures that would give the Fed more reason to raise rates. Then there was the ill-conceived Christmas Eve statement from Treasury Secretary Mnuchin that spawned new concerns about the credit markets that no one had been contemplating until that moment. This came amid reports that Trump was talking to aides about potentially firing the Fed Chair after the December rate hike.
Central Banks: The Party’s Over
Markets have had an adverse reaction to the notion that they are losing the support of central banks as the Fed said rates would continue higher into the neutral zone and the ECB wrapped up its QE program buying. Central bankers have responded with the message that monetary policy will move very deliberately, staying attuned to incoming data as they work to normalize policy after a decade of extraordinary accommodation. These efforts by the central banks to slowly take away the punch bowl may be impeded by the softer economic outlook for this year and warning cries from the markets.
Wall Street operators that had pinned their hopes on an extension of the ‘Fed put’ were disappointed with Fed Chair Powell’s December press conference performance, in which he indicated that the central bank will not necessarily ride to the rescue if the stock market weakens. Powell also gave the impression he would keep the Fed balance sheet off the table as a potential policy tool, saying the balance sheet reduction would continue on ‘auto-pilot,’ draining another $600B from the reserves this year. By some estimates that will add the equivalent of three 25 basis point rate hikes in addition to any FOMC interest rate hikes. Days later NY Fed President Williams tried to massage the message, providing assurances that the Fed does listen to market participants, but with little effect. The markets want to hear Powell revise the communication himself.
Powell will have his first chance to reconsider his messaging on January 4, when he participates in panel discussion with the predecessors who created the policies he is working to unwind, Chairs Yellen and Bernanke. If Powell takes a more conciliatory tone toward the worries that are buffeting the markets, it could alleviate some bearish sentiment. This might come in the form of walking back the ‘auto pilot’ comment, perhaps simply by indicating that the Fed stands ready to use all available tools if the situation requires it. On the other hand, Powell might feel he has already thrown a bone to the markets by ratcheting back the rate hike forecast for 2019 from three to two, especially if he is convinced that economic growth remains on a solid track.
Speculation about whether President Trump might actually try to fire the Fed Chair has added some uncertainty. The Administration does have the authority to remove the Chairman “for cause,” but that suggests some type of malfeasance, so it seems unlikely that the President could find grounds for a firing. If he still tried to sack Powell it could lead to an unprecedented legal battle between the White House and the Fed that would only undermine confidence and market sentiment. This seemed to be the conclusion drawn by White House economic advisor Kevin Hassett when he declared just after Christmas that Powell’s job is “100% safe,” even though the President never publically denied the report that he contemplated firing Powell.
The European Central Bank will soon undertake its own leadership change (though by contrast it is planned). ECB President Mario Draghi’s term expires on October 31, which might spark some uncertainty about the continuity of ECB monetary policy. Draghi has been a steady hand and markets appreciated his strong language (“whatever it takes”) at key points during the financial crisis, but it will be up to his successor to tackle the task of normalizing monetary policy over the next few years. Germany was due for its turn to lead the ECB, but Berlin now has its sights set on securing the EU Presidency, diminishes the chances that Bundesbank President Weidmann will be tapped to lead the ECB.
The current frontrunner to replace Draghi is Erkki Liikanen, who just recently stepped down as Governor of the Bank of Finland after 14 years in the post. Liikanen is also a veteran of European politics, having entered the Finnish parliament at age 21, eventually serving as the country’s finance minister before taking a stint as a member of the European Commission. Surveys of economists depict him to be a strong compromise candidate, who can mediate between the demands of nations like Germany to begin the wind down of extraordinary stimulus as soon as possible, and countries like Italy that are concerned their economies could teeter without ongoing monetary support. If he is the eventual selection for the post, Liikanen’s political and monetary policy experience should help him navigate the north-south antagonisms in the euro zone.
The ECB also must continue to keep a watchful eye on Italy. After the populist government in Rome backed down in its budget standoff with Brussels, Italy is still contending with weakness in its banks, which are suffering from the bad decisions that created a mountain of non-performing loans. Banca Carige, Italy’s tenth largest bank, is drawing a lot of attention as it struggles with its NPL problems. The bank has been placed under temporary administration by the ECB, and the Italian PM and Economy Minister say they are watching developments at the bank “personally.” It’s not 2008 again, but further erosion of confidence in the banking system in Italy could spread across borders quickly in Europe, creating headaches for other enfeebled banks including Deutsche Bank.
Heading for the Brexit
Another lingering problem for Europe is the UK’s planned withdrawal from the EU, which could see a make or break moment mid-month. On January 15, the House of Commons is set to hold its “meaningful vote” on PM May’s Brexit proposal, and by all accounts she is short by dozens of votes. Efforts to get further assurances about the backstop from Brussels have won over many uncertain Conservative party members, but many Euroskeptics remain fixed against the deal on the table. The remaining three dozen or so MPs that May needs want her to convince the EU to grant the UK the power to unilaterally leave the backstop. There’s no real chance that Brussels will budge on that issue, as the EU has firmly held solidarity with Ireland. If PM May’s efforts get her close to the vote count she needs, there is an outside chance that the March Brexit date could be delayed to give her more time to lobby MPs, but that would require agreement from all 27 EU states and May has asserted that she will not tolerate a delay.
That leaves only a few options for May’s government as the vote approaches. Some supporters are reportedly urging the PM to call the vote as many times as needed to wear down MPs and get a majority, perhaps voting on the issue dozens of times in succession. The other proposal being mulled would have May announce a specific date on which she would resign, allowing new leadership to take on the next step of negotiating future trade relations with the EU. Both strategies are uncertain at best, and chances of a ‘hard Brexit’ appear to be rising quickly as March 29 approaches.
A final option has been opened by the European Court of Justice. Late last year the ECJ ruled that the UK can unilaterally cancel the Brexit process without consulting the other EU 27 members. This opens the possibility for the UK government to give up on the treacherous implementation of the non-binding Brexit referendum. This course back to the status quo is unlikely, however, as PM May has vowed to move forward with “the will of the people” and even the ‘loyal opposition’ Labour party has remained loyal to the cause, with only a handful of MPs publically calling for a new referendum. This unwavering support for Brexit increases the likelihood that the UK will crash out of the EU with no governing agreement if the Parliament rejects May’s negotiated deal.
Inflation: Watching the Ball Drop
Upward inflation pressure has not been an issue for central banks in the developed economies, as wages growth has remained slow and new tariffs have not had a major impact on price pressures yet. The fading price of oil will help keep inflation in check, but it may have other implications.
Crude prices were almost halved during Q4 as North American production continued to ramp, offsetting the output constraints implemented by OPEC and its partners. The precipitous price drop has created concerns about the debt load in the energy sector. If WTI crude should slide below the $40/bbl level, it could induce a panic that some energy sector firms will default, which would send ripples across the debt market.
The next OPEC Monitoring Committee meeting on January 18 will give an early gauge on how the new 2019 production targets are progressing. A new round of cutbacks began on January 1, but their impact may vary based on how fast some members fully implement them, particularly Russia, which has said it could take months for its private oil firms to achieve their targets.
RESOLUTIONS
The stock market looks like it may lose some more ‘weight’ in early 2019, as many national economies will shed tenths of GDP due to tariffs, political disputes, and slightly tighter monetary policy tipping the scales of growth to the downside. The major banks will kick of earnings season in the third week of January, and analysts at those same banks have already slashed their forecasts for earnings growth to single digits, while the selloff in the S&P500 has essentially priced in zero profit growth for 2019. The stock market has come off the boil, but with the US economy still solid, bargain hunters may nibble at equities early this year, and could turn bullish again if some of the major uncertainties are lifted.
The collapse of crude oil prices has been a strong indicator of market sentiment, signaling downbeat expectations for the 2019 economy. But the energy market could help restore some confidence if the OPEC cuts establish a floor or actually push prices higher. The last time oil prices dipped this low central banks were content to attribute it to ‘temporary factors’ (factors that lasted for well over a year), but an absence of any significant energy inflation could contribute to a more dovish rate policy outlook.
Those voices calling for the Fed to put policy on hold in December weren’t realistic in thinking the central bank could turn policy on a dime. Chair Powell simply couldn’t justify going from expectations for several more hikes to none in a single meeting. But by slow increments Powell could move toward more dovish messaging if incoming data prescribe it. After the adverse reaction to the December rate announcement, the Fed may shift to a “pause” at one of the FOMC meetings during Q1. The tightening already exhibited by the markets coupled with the ongoing uncertainty about the global economy and the impact of escalating tariffs would give the Fed cover to formally change its policy stance.
The expansion of FOMC press conferences to eight from four per year will provide Powell with greater flexibility in his communication strategy, allowing for more rapid course corrections. If the market’s bellyaching turns out to be more than just indigestion, Powell will show more temperance. Some market gauges are fostering speculation that the Fed could actually cut rates in early 2020 as it starts sniffing out a recession. That would imply the FOMC continuing to turn more dovish over the course of this year.
China’s central bank may look to create more liquidity via additional cuts in its reserve ratio requirement after four RRR cuts last year amid slowing growth. The PBoC could also take the more drastic measure of cutting its key one-year lending and deposit rates, which have not been lowered since a series of cuts in 2015 amid the Shanghai stock market bubble bursting after a surprise devaluation of the yuan [**Note: On Jan 4, the PBoC cut RRR by 100bps].
In Europe, the ECB will tread cautiously in light of downside risks which unofficially include the installation of a new central bank President. Meanwhile, the Brexit has no real upside for markets, only the risk of more uncertainty if it fails to get legislative approval. In the end PM May could have to sacrifice her political future to get approval, and the next Tory leader will take up the even more difficult task of negotiating the shape of future relations and trade with the Continent.
Back in Washington, the longer the partial government shutdown drags on and the more bitter the dispute, the greater the chance it will start hurting growth and confidence. The ultimate resolution may come in some version of the deal discussed a year ago that would exchange border security funding for a resolution of the DACA (‘Dreamers’) immigration issue.
Among the global concerns that could see some resolution in the next few months, resolving the trade dispute between the world’s two largest economies is paramount and would be the best catalyst for markets this year. President Trump’s impulsive communication style could work against him during this sensitive period of the trade talks, especially if he is distracted by domestic political skirmishes and the turnover in his cabinet. The 90 day grace period on imposing new tariffs ends in March so the time table is short, but if there is demonstrable progress in talks those tariffs could be postponed again, which is probably the best case scenario for now. On the other hand, if talks go nowhere, a jump to 25% tariffs on most Chinese goods coming into the US could well trigger a recession by the next New Year.
CALENDAR
JANUARY
2: UK Manufacturing PMI
3: US ISM Manufacturing PMI; New US Congress convenes
4: UK Services PMI; EU Flash CPI Estimate; US Payrolls & Unemployment; Fed Chair Powell speaks
7: US ISM Non-manufacturing PMI; China Trade Balance
8:
9: FOMC Minutes
10: BOE Credit Conditions Survey; ECB Minutes
11: UK Nov GDP; UK Manufacturing Production; US CPI; Preliminary University of Michigan Consumer Sentiment
14: Fed Chair Powell Testifies before Congress
15: UK Parliament vote on Brexit plan; US PPI; China Industrial Production
16: UK CPI; US Retail Sales; China Q4 GDP
17: Philadelphia Fed Manufacturing Index; US Housing Starts & Building Permits
18: UK Retail Sales; OPEC Monitoring Committee meetings
21: MARTIN LUTHER KING DAY HOLIDAY (US)
22: German Ifo Business Climate; UK Unemployment; German ZEW Economic Sentiment; World Economic Forum (Jan 22-25); BOJ Policy Decision; US State of the Union Address (tentative)
23: Various EU Flash Manufacturing and Services PMIs
24: ECB Policy Decision
25: US Durable Goods Orders
28:
29: US Consumer Confidence
30: German Preliminary CPI; US Advance Q4 GDP; FOMC Policy Decision; China Manufacturing & Non-Manufacturing PMIs
31: EU Flash Q4 GDP; US Personal Income & Spending; US Core PCE; US Employment Cost Index; Chicago PMI
FEBRUARY
1: UK Manufacturing PMI; EU Flash CPI Estimate; UK Payrolls & Unemployment; US ISM Manufacturing PMI
4:
5: UK Services PMI; US ISM Non-manufacturing PMI
6: EU Economic Forecasts
7: BOE Policy Decision
8: Preliminary University of Michigan Consumer Sentiment
11: UK Manufacturing Production; UK Preliminary Q4 GDP
12: China Trade Balance
13: UK CPI; US CPI; Japan Preliminary Q4 GDP
14: Germany Preliminary Q4 GDP; EU Flash Q4 GDP; OPEC Monitoring Committee meeting; US PPI
15: UK Retail Sales
18: PRESIDENT’S DAY HOLIDAY (US)
19: UK Unemployment; German ZEW Economic Sentiment
20: US Housing Starts & Building Permits; FOMC Minutes
21: Various EU Flash Manufacturing and Services PMIs; UK Inflation Report (tentative); ECB Minutes; Philadelphia Fed Manufacturing Index
22: German Ifo Business Climate
25:
26: US Consumer Confidence
27: US Durable Goods Orders; China Manufacturing & Non-manufacturing PMIs
28: German Preliminary CPI; US Preliminary Q4 GDP (2nd reading); Chicago PMI
MARCH
1: UK Manufacturing PMI; EU Flash CPI Estimate; US Personal Income & Spending; US ISM Manufacturing PMI
4:
5: UK Services PMI; US ISM Non-Manufacturing PMI
6:
7: ECB Policy Decision; China Trade Balance
8: US Payrolls & Unemployment; Preliminary University of Michigan Confidence
11:
12: UK Q4 GDP; UK Manufacturing Production; UK Annual Budget (tentative); US CPI
13: OPEC Monitoring Committee meetings; US PPI; China Industrial Production
14: US Retail Sales; BOJ Policy Decision
15:
18:
19: UK Unemployment; German ZEW Economic Sentiment; US Building Permits
20: UK CPI & PPI; FOMC Policy Decision
21: UK Retail Sales; BOE Policy Decision; Philadelphia Fed Manufacturing Index
22: Flash Manufacturing & Services PMIs for various EU states; German Ifo Business Climate
25:
26: US Durable Goods Orders; US Consumer Confidence
27:
28: German Preliminary CPI;US Final Q4 GDP
29: UK BREXIT; UK Final Q4 GDP; EU Flash CPI; US Personal Income & Spending; Chicago PMI
Fri, 04 Jan 2019 7:41 AM EST
The New Year has started on unsteady footing, tipsy from swallowing months of uncertainty about the global economy; market sentiment has shifted and thrust many stock indices into an official bear market. The bugaboos that have haunted the markets all year – Brexit, slowing global growth, dysfunctional politics, dwindling central bank largesse, and trade conflicts – have finally taken their toll and shaken the risk-on regime that has held sway for most of the last decade.
2018 was the worst year for US stocks in ten years, seeing the S&P500 contract by more than six percent. With traders looking to technical levels and other guideposts for sentiment, the adage ‘As January goes, so go the markets’ may seem more relevant this year. The last time US stocks fell in January was in 2016, and should it happen again this year the stock market pain could create a self-reinforcing downward spiral, bleeding into confidence indicators and even the hard data. Investors are now trying to suss out if corporate earnings peaked for the cycle in 2018, and await fundamentals to reassert themselves in commodity and stock markets, hoping to overcome the eroding sentiment that has dragged down asset prices in the last couple of months.
Many of the big picture issues overhanging the markets will finally be resolved in 2019…for better or for worse. If enough fall on the happy side of the resolutions ledger, the global economy and markets could put their party hats back on and revel in more prosperity in the New Year. If not, these issues could linger as an unshakable hangover, and 2019 will be characterized by a bear market and possibly recession in some economies.
Global Trade: The Clock Strikes Midnight
The S&P500 has tumbled more than 10% since President Trump declared himself a “tariff man” in early December, and a self-imposed clock is ticking down to early March when a temporarily postponed tariff increase could go into effect, opening up an all-out trade war. Market optimism about the US reaching a trade deal with China has faded and its becoming clearer that tariffs are contributing to a slowdown in China that is spilling over into the global economy. The latest sign was the December reading of the China Caixin manufacturing PMI, which entered contraction for the first time in 19 months. A holiday quarter earnings warning from Apple added to the angst about the health of the Chinese economy. It also raises the question of how many other companies, especially in tech, will follow suit with lowered guidance in the weeks ahead, laying blame on China and trade tensions.
We will get a read on the state of the trade discussions on January 7 when a delegation from the US will meet with counterparts in China. The US group is being led by a deputy of the US Trade Representative, so no breakthroughs are expected, but it could set the table for higher level talks. Expectations for this “mid-level” meeting are low, giving it the potential for a positive surprise should delegates come away with evidence to support the so-far unsubstantiated optimistic tone Presidents Trump and Xi have cast on negotiations.
US Politics: New Year, Same Old Problems
With mounting political woes at home, President Trump may be eager to claim a big victory on trade, even if it means reaching a deal with China that is suboptimal. Both countries are starting to feel the effects of the trade war and would like to alleviate that economic pain, but unlike President-for-life Xi, Trump is subject to domestic political pressures as he plots his run for reelection in 2020. A breakthrough on trade relations with China would be just the thing to win back any wavering Trump voters, but the deadline of three months from the December 1st G-20 meeting means things will have to move quickly. The White House has a poor record on meeting its own time tables and will be adjusting to a new political landscape in Washington as the Democratic-controlled House will convene three days into the New Year.
The first test for the new Congress will be the government funding standoff over border security funding, and it will quickly clarify how the next two years will play out in Washington. Neither the President nor the Democrats appear willing to give any ground, and Trump has conceded that the shutdown could last a “long time” though the pressure will build over the weeks as constituents begin to complain about missing government services (and Wall Street laments missing government economic data). The President will get to make his case directly to the people during the State of the Union address (Jan 22). On Capitol Hill, it appears that Republican Senators will content themselves with seating conservative federal judges, while the House Democrats may be tempted to use their subpoena powers to open new probes of the Trump administration, even as they eagerly await the findings of the Mueller investigation.
Ahead of the Mueller report, the White House needs to work on its communication strategy. Trump’s unprecedented jawboning of monetary policy is poking at central bank independence, even as the President’s own tariff policy could conceivably drive up inflationary pressures that would give the Fed more reason to raise rates. Then there was the ill-conceived Christmas Eve statement from Treasury Secretary Mnuchin that spawned new concerns about the credit markets that no one had been contemplating until that moment. This came amid reports that Trump was talking to aides about potentially firing the Fed Chair after the December rate hike.
Central Banks: The Party’s Over
Markets have had an adverse reaction to the notion that they are losing the support of central banks as the Fed said rates would continue higher into the neutral zone and the ECB wrapped up its QE program buying. Central bankers have responded with the message that monetary policy will move very deliberately, staying attuned to incoming data as they work to normalize policy after a decade of extraordinary accommodation. These efforts by the central banks to slowly take away the punch bowl may be impeded by the softer economic outlook for this year and warning cries from the markets.
Wall Street operators that had pinned their hopes on an extension of the ‘Fed put’ were disappointed with Fed Chair Powell’s December press conference performance, in which he indicated that the central bank will not necessarily ride to the rescue if the stock market weakens. Powell also gave the impression he would keep the Fed balance sheet off the table as a potential policy tool, saying the balance sheet reduction would continue on ‘auto-pilot,’ draining another $600B from the reserves this year. By some estimates that will add the equivalent of three 25 basis point rate hikes in addition to any FOMC interest rate hikes. Days later NY Fed President Williams tried to massage the message, providing assurances that the Fed does listen to market participants, but with little effect. The markets want to hear Powell revise the communication himself.
Powell will have his first chance to reconsider his messaging on January 4, when he participates in panel discussion with the predecessors who created the policies he is working to unwind, Chairs Yellen and Bernanke. If Powell takes a more conciliatory tone toward the worries that are buffeting the markets, it could alleviate some bearish sentiment. This might come in the form of walking back the ‘auto pilot’ comment, perhaps simply by indicating that the Fed stands ready to use all available tools if the situation requires it. On the other hand, Powell might feel he has already thrown a bone to the markets by ratcheting back the rate hike forecast for 2019 from three to two, especially if he is convinced that economic growth remains on a solid track.
Speculation about whether President Trump might actually try to fire the Fed Chair has added some uncertainty. The Administration does have the authority to remove the Chairman “for cause,” but that suggests some type of malfeasance, so it seems unlikely that the President could find grounds for a firing. If he still tried to sack Powell it could lead to an unprecedented legal battle between the White House and the Fed that would only undermine confidence and market sentiment. This seemed to be the conclusion drawn by White House economic advisor Kevin Hassett when he declared just after Christmas that Powell’s job is “100% safe,” even though the President never publically denied the report that he contemplated firing Powell.
The European Central Bank will soon undertake its own leadership change (though by contrast it is planned). ECB President Mario Draghi’s term expires on October 31, which might spark some uncertainty about the continuity of ECB monetary policy. Draghi has been a steady hand and markets appreciated his strong language (“whatever it takes”) at key points during the financial crisis, but it will be up to his successor to tackle the task of normalizing monetary policy over the next few years. Germany was due for its turn to lead the ECB, but Berlin now has its sights set on securing the EU Presidency, diminishes the chances that Bundesbank President Weidmann will be tapped to lead the ECB.
The current frontrunner to replace Draghi is Erkki Liikanen, who just recently stepped down as Governor of the Bank of Finland after 14 years in the post. Liikanen is also a veteran of European politics, having entered the Finnish parliament at age 21, eventually serving as the country’s finance minister before taking a stint as a member of the European Commission. Surveys of economists depict him to be a strong compromise candidate, who can mediate between the demands of nations like Germany to begin the wind down of extraordinary stimulus as soon as possible, and countries like Italy that are concerned their economies could teeter without ongoing monetary support. If he is the eventual selection for the post, Liikanen’s political and monetary policy experience should help him navigate the north-south antagonisms in the euro zone.
The ECB also must continue to keep a watchful eye on Italy. After the populist government in Rome backed down in its budget standoff with Brussels, Italy is still contending with weakness in its banks, which are suffering from the bad decisions that created a mountain of non-performing loans. Banca Carige, Italy’s tenth largest bank, is drawing a lot of attention as it struggles with its NPL problems. The bank has been placed under temporary administration by the ECB, and the Italian PM and Economy Minister say they are watching developments at the bank “personally.” It’s not 2008 again, but further erosion of confidence in the banking system in Italy could spread across borders quickly in Europe, creating headaches for other enfeebled banks including Deutsche Bank.
Heading for the Brexit
Another lingering problem for Europe is the UK’s planned withdrawal from the EU, which could see a make or break moment mid-month. On January 15, the House of Commons is set to hold its “meaningful vote” on PM May’s Brexit proposal, and by all accounts she is short by dozens of votes. Efforts to get further assurances about the backstop from Brussels have won over many uncertain Conservative party members, but many Euroskeptics remain fixed against the deal on the table. The remaining three dozen or so MPs that May needs want her to convince the EU to grant the UK the power to unilaterally leave the backstop. There’s no real chance that Brussels will budge on that issue, as the EU has firmly held solidarity with Ireland. If PM May’s efforts get her close to the vote count she needs, there is an outside chance that the March Brexit date could be delayed to give her more time to lobby MPs, but that would require agreement from all 27 EU states and May has asserted that she will not tolerate a delay.
That leaves only a few options for May’s government as the vote approaches. Some supporters are reportedly urging the PM to call the vote as many times as needed to wear down MPs and get a majority, perhaps voting on the issue dozens of times in succession. The other proposal being mulled would have May announce a specific date on which she would resign, allowing new leadership to take on the next step of negotiating future trade relations with the EU. Both strategies are uncertain at best, and chances of a ‘hard Brexit’ appear to be rising quickly as March 29 approaches.
A final option has been opened by the European Court of Justice. Late last year the ECJ ruled that the UK can unilaterally cancel the Brexit process without consulting the other EU 27 members. This opens the possibility for the UK government to give up on the treacherous implementation of the non-binding Brexit referendum. This course back to the status quo is unlikely, however, as PM May has vowed to move forward with “the will of the people” and even the ‘loyal opposition’ Labour party has remained loyal to the cause, with only a handful of MPs publically calling for a new referendum. This unwavering support for Brexit increases the likelihood that the UK will crash out of the EU with no governing agreement if the Parliament rejects May’s negotiated deal.
Inflation: Watching the Ball Drop
Upward inflation pressure has not been an issue for central banks in the developed economies, as wages growth has remained slow and new tariffs have not had a major impact on price pressures yet. The fading price of oil will help keep inflation in check, but it may have other implications.
Crude prices were almost halved during Q4 as North American production continued to ramp, offsetting the output constraints implemented by OPEC and its partners. The precipitous price drop has created concerns about the debt load in the energy sector. If WTI crude should slide below the $40/bbl level, it could induce a panic that some energy sector firms will default, which would send ripples across the debt market.
The next OPEC Monitoring Committee meeting on January 18 will give an early gauge on how the new 2019 production targets are progressing. A new round of cutbacks began on January 1, but their impact may vary based on how fast some members fully implement them, particularly Russia, which has said it could take months for its private oil firms to achieve their targets.
RESOLUTIONS
The stock market looks like it may lose some more ‘weight’ in early 2019, as many national economies will shed tenths of GDP due to tariffs, political disputes, and slightly tighter monetary policy tipping the scales of growth to the downside. The major banks will kick of earnings season in the third week of January, and analysts at those same banks have already slashed their forecasts for earnings growth to single digits, while the selloff in the S&P500 has essentially priced in zero profit growth for 2019. The stock market has come off the boil, but with the US economy still solid, bargain hunters may nibble at equities early this year, and could turn bullish again if some of the major uncertainties are lifted.
The collapse of crude oil prices has been a strong indicator of market sentiment, signaling downbeat expectations for the 2019 economy. But the energy market could help restore some confidence if the OPEC cuts establish a floor or actually push prices higher. The last time oil prices dipped this low central banks were content to attribute it to ‘temporary factors’ (factors that lasted for well over a year), but an absence of any significant energy inflation could contribute to a more dovish rate policy outlook.
Those voices calling for the Fed to put policy on hold in December weren’t realistic in thinking the central bank could turn policy on a dime. Chair Powell simply couldn’t justify going from expectations for several more hikes to none in a single meeting. But by slow increments Powell could move toward more dovish messaging if incoming data prescribe it. After the adverse reaction to the December rate announcement, the Fed may shift to a “pause” at one of the FOMC meetings during Q1. The tightening already exhibited by the markets coupled with the ongoing uncertainty about the global economy and the impact of escalating tariffs would give the Fed cover to formally change its policy stance.
The expansion of FOMC press conferences to eight from four per year will provide Powell with greater flexibility in his communication strategy, allowing for more rapid course corrections. If the market’s bellyaching turns out to be more than just indigestion, Powell will show more temperance. Some market gauges are fostering speculation that the Fed could actually cut rates in early 2020 as it starts sniffing out a recession. That would imply the FOMC continuing to turn more dovish over the course of this year.
China’s central bank may look to create more liquidity via additional cuts in its reserve ratio requirement after four RRR cuts last year amid slowing growth. The PBoC could also take the more drastic measure of cutting its key one-year lending and deposit rates, which have not been lowered since a series of cuts in 2015 amid the Shanghai stock market bubble bursting after a surprise devaluation of the yuan [**Note: On Jan 4, the PBoC cut RRR by 100bps].
In Europe, the ECB will tread cautiously in light of downside risks which unofficially include the installation of a new central bank President. Meanwhile, the Brexit has no real upside for markets, only the risk of more uncertainty if it fails to get legislative approval. In the end PM May could have to sacrifice her political future to get approval, and the next Tory leader will take up the even more difficult task of negotiating the shape of future relations and trade with the Continent.
Back in Washington, the longer the partial government shutdown drags on and the more bitter the dispute, the greater the chance it will start hurting growth and confidence. The ultimate resolution may come in some version of the deal discussed a year ago that would exchange border security funding for a resolution of the DACA (‘Dreamers’) immigration issue.
Among the global concerns that could see some resolution in the next few months, resolving the trade dispute between the world’s two largest economies is paramount and would be the best catalyst for markets this year. President Trump’s impulsive communication style could work against him during this sensitive period of the trade talks, especially if he is distracted by domestic political skirmishes and the turnover in his cabinet. The 90 day grace period on imposing new tariffs ends in March so the time table is short, but if there is demonstrable progress in talks those tariffs could be postponed again, which is probably the best case scenario for now. On the other hand, if talks go nowhere, a jump to 25% tariffs on most Chinese goods coming into the US could well trigger a recession by the next New Year.
CALENDAR
JANUARY
2: UK Manufacturing PMI
3: US ISM Manufacturing PMI; New US Congress convenes
4: UK Services PMI; EU Flash CPI Estimate; US Payrolls & Unemployment; Fed Chair Powell speaks
7: US ISM Non-manufacturing PMI; China Trade Balance
8:
9: FOMC Minutes
10: BOE Credit Conditions Survey; ECB Minutes
11: UK Nov GDP; UK Manufacturing Production; US CPI; Preliminary University of Michigan Consumer Sentiment
14: Fed Chair Powell Testifies before Congress
15: UK Parliament vote on Brexit plan; US PPI; China Industrial Production
16: UK CPI; US Retail Sales; China Q4 GDP
17: Philadelphia Fed Manufacturing Index; US Housing Starts & Building Permits
18: UK Retail Sales; OPEC Monitoring Committee meetings
21: MARTIN LUTHER KING DAY HOLIDAY (US)
22: German Ifo Business Climate; UK Unemployment; German ZEW Economic Sentiment; World Economic Forum (Jan 22-25); BOJ Policy Decision; US State of the Union Address (tentative)
23: Various EU Flash Manufacturing and Services PMIs
24: ECB Policy Decision
25: US Durable Goods Orders
28:
29: US Consumer Confidence
30: German Preliminary CPI; US Advance Q4 GDP; FOMC Policy Decision; China Manufacturing & Non-Manufacturing PMIs
31: EU Flash Q4 GDP; US Personal Income & Spending; US Core PCE; US Employment Cost Index; Chicago PMI
FEBRUARY
1: UK Manufacturing PMI; EU Flash CPI Estimate; UK Payrolls & Unemployment; US ISM Manufacturing PMI
4:
5: UK Services PMI; US ISM Non-manufacturing PMI
6: EU Economic Forecasts
7: BOE Policy Decision
8: Preliminary University of Michigan Consumer Sentiment
11: UK Manufacturing Production; UK Preliminary Q4 GDP
12: China Trade Balance
13: UK CPI; US CPI; Japan Preliminary Q4 GDP
14: Germany Preliminary Q4 GDP; EU Flash Q4 GDP; OPEC Monitoring Committee meeting; US PPI
15: UK Retail Sales
18: PRESIDENT’S DAY HOLIDAY (US)
19: UK Unemployment; German ZEW Economic Sentiment
20: US Housing Starts & Building Permits; FOMC Minutes
21: Various EU Flash Manufacturing and Services PMIs; UK Inflation Report (tentative); ECB Minutes; Philadelphia Fed Manufacturing Index
22: German Ifo Business Climate
25:
26: US Consumer Confidence
27: US Durable Goods Orders; China Manufacturing & Non-manufacturing PMIs
28: German Preliminary CPI; US Preliminary Q4 GDP (2nd reading); Chicago PMI
MARCH
1: UK Manufacturing PMI; EU Flash CPI Estimate; US Personal Income & Spending; US ISM Manufacturing PMI
4:
5: UK Services PMI; US ISM Non-Manufacturing PMI
6:
7: ECB Policy Decision; China Trade Balance
8: US Payrolls & Unemployment; Preliminary University of Michigan Confidence
11:
12: UK Q4 GDP; UK Manufacturing Production; UK Annual Budget (tentative); US CPI
13: OPEC Monitoring Committee meetings; US PPI; China Industrial Production
14: US Retail Sales; BOJ Policy Decision
15:
18:
19: UK Unemployment; German ZEW Economic Sentiment; US Building Permits
20: UK CPI & PPI; FOMC Policy Decision
21: UK Retail Sales; BOE Policy Decision; Philadelphia Fed Manufacturing Index
22: Flash Manufacturing & Services PMIs for various EU states; German Ifo Business Climate
25:
26: US Durable Goods Orders; US Consumer Confidence
27:
28: German Preliminary CPI;US Final Q4 GDP
29: UK BREXIT; UK Final Q4 GDP; EU Flash CPI; US Personal Income & Spending; Chicago PMI
Dour Mood in Markets Lifted by a Trio of Positive Developments on Friday
TradeTheNews.com Weekly
Market Update: Dour Mood in Markets Lifted by a Trio of Positive Developments
on Friday
Fri, 04 Jan 2019 16:05 PM EST
2019 commenced with a bang as markets gyrated in much the same fashion as the closing weeks of 2018. Following the New Year’s Day holiday global markets endured a fresh bout pernicious risk-off trading linked to worries about global growth. A key China PMI reading dropped into contraction territory while European and US data continued to soften. The US government remained in a partial shutdown and the prospects for ending the standoff anytime soon appeared remote. Global bond yields dropped precipitously along with stock prices on Thursday after Apple preannounced a significant shortfall in quarterly sales which only served to perpetuate fears that the ongoing trade war has severely stunted corporate prospects. The Japanese Yen saw extreme upside volatility in the wake of the Apple news highlighting how global liquidity conditions maybe exacerbating capital market swings in the wake of central banks attempts to wean off of unconventional measures, namely quantitative easing. US rates fell aggressively after the December ISM reading dropped at the fastest pace since October 2008. For the first time since the financial crisis the Fed funds rate briefly traded above that of the yield on the 2-year Treasury note prompting more forecasts for an eventual rate cut by year’s end.
Investor sentiment turned abruptly on Friday as a confluence of factors enticed investors back into risk assets. First, the PBOC cut the Reserve Requirement Ratio (RRR) by a full percentage point, adding liquidity to China’s economy ahead of trade talks with the US early next week. Second, the US December employment report was viewed in a very positive light as upside surprises in payrolls and wage growth far outweighed a rise in the unemployment rate, which could even be viewed as encouraging in the context of a rising participation rate. Finally, within hours of the jobs report a host of risk assets surged again after Fed Chairman Powell noted that he saw the jump in wages as a positive, rather than raising concerns on inflation. He went on to echo what was heard from other Fed officials this week when he added the Fed would remain patient on raising rates and would not rule out modifying the balance sheet run off if it ultimately proved necessary. Breadth on both the NYSE and NASDAQ widened to levels not seen in recent weeks as US stock indices rebounded into the weekend. Rising oil and copper prices supported the positive tone in equities, and for the week the S&P gained 1.9%, the DJIA added 1.6%, and the Nasdaq rose 2.3%.
Leading corporate headlines during this holiday-shortened week was news that Bristol-Myers would acquire Celgene for $74B, which would make it the largest health-care deal ever, though Bristol investors were less than enthusiastic about the plan. Apple slashed its outlook for the first time in the iPhone era, noting poor demand in China and unexpectedly less frequent model upgrades. Samsung announced plans to cut its chip inventory in order to maintain tight supplies as demand is expected to slow. Tesla shares fell after it reported a miss on Q4 targets for Model 3 and implemented a price cut for all vehicles to offset tax credit reductions. Delta weighed on the transports midweek after trimming its Q4 revenue outlook. Netflix named former Activision and Disney executive Spencer Neumann as its new CFO. Shares of winter clothing manufacturer Canada Goose lifted on the news that its store opening in China was well received.
SUNDAY 12/30
(US) Texas judge Reed O'Connor rules Affordable Care Act ('Obamacare') to remain in place during appeal, cited the need to avoid uncertainty during appeal process - US Press
MONDAY 12/31
*(US) DEC DALLAS FED MANUFACTURING ACTIVITY: -5.1 V 15.0E
(US) Federal Communications Commission (FCC) to suspend most operations tomorrow if shutdown continues - press
TUESDAY 1/1
*(CN) CHINA DEC CAIXIN MANUFACTURING PMI: 49.7 V 50.2E (first contraction since May 2017)
WEDNESDAY 1/2
*(UK) DEC PMI MANUFACTURING: 54.2 V 52.5E (29th month of expansion)
*(US) DEC FINAL MARKIT MANUFACTURING PMI: 53.8 V 53.9E (lowest since Sep 2017)
AAPL Cuts Q1 Rev $84B v $91.3Be, gross margin 38%, opex $8.7B (prior Rev $89-93B, gross margin 38.0-38.5%; op-ex $8.7-8.8B) on emerging market challenges and lower anticipated iPhone Rev; China market especially weak (first guidance cut since 2002)
TSLA Reports Q4 Deliveries 90.7K vehicles +8% q/q v 92.0Ke (model 3 deliveries 63.2K v 63.7Ke); Announces $2K price reduction in the US to offset tax credit reduction
005930.KR Will cut chip inventory due to oversupply - Korean press
THURSDAY 1/3
CELG To be acquired by Bristol-Myers in cash and stock deal for implied $102.43/shr initially valued at ~$74B
GM Reports Q4 total deliveries: 785.2K units, -2.7% y/y
(US) Fed's Kaplan (dove, non-voter): Favors taking no action the first few quarters in 2019; personal forecasts for GDP have come down a bit - financial press
(US) Association of American Railroads weekly rail traffic report for week ending Dec 29th: 411.7K, +5.1% y/y
(CN) China Commerce Ministry (MOFCOM): Confirms China and US to hold vice ministerial level trade talks on Jan 7-8th (Mon-Tues)
(JP) Reportedly BoJ will consider trimming inflation outlook for next 2 years - Nikkei
FRIDAY 1/4
*(DE) GERMANY DEC UNEMPLOYMENT CHANGE: -14K V -13KE; UNEMPLOYMENT CLAIMS RATE: 5.0% V 5.0%E
*(CN) CHINA PBOC CUTS REQUIRED RESERVES RATIO (RRR) BY 100 BP to 14.50%; in two stages
*(UK) DEC SERVICES PMI: 51.2 V 50.7E (29th month of expansion)
*(EU) EURO ZONE DEC ADVANCE CPI ESTIMATE Y/Y: 1.6% V 1.7%E; CORE CPI Y/Y: 1.0% V 1.0%E
*(US) DEC UNEMPLOYMENT RATE: 3.9% V 3.7%E
*(US) DEC CHANGE IN NONFARM PAYROLLS: +312K V +184KE
*(US) DEC AVERAGE HOURLY EARNINGS M/M: 0.4% V 0.3%E; Y/Y: 3.2% V 3.0%E; AVERAGE WEEKLY HOURS: 34.5 V 34.5E
*(US) Fed Chair Powell: Welcomes wage data, it doesn't raise inflation concerns; Always prepared to shift policy and shift it significantly if necessary - panel discussion
(US) DOE CRUDE: +0.0M V -2.5ME; GASOLINE: +6.9M V +1.5ME; DISTILLATE: +9.5M V +0.5ME
GE Apollo reportedly mulling offer of jet leasing division; could be worth $40B - press
Fri, 04 Jan 2019 16:05 PM EST
2019 commenced with a bang as markets gyrated in much the same fashion as the closing weeks of 2018. Following the New Year’s Day holiday global markets endured a fresh bout pernicious risk-off trading linked to worries about global growth. A key China PMI reading dropped into contraction territory while European and US data continued to soften. The US government remained in a partial shutdown and the prospects for ending the standoff anytime soon appeared remote. Global bond yields dropped precipitously along with stock prices on Thursday after Apple preannounced a significant shortfall in quarterly sales which only served to perpetuate fears that the ongoing trade war has severely stunted corporate prospects. The Japanese Yen saw extreme upside volatility in the wake of the Apple news highlighting how global liquidity conditions maybe exacerbating capital market swings in the wake of central banks attempts to wean off of unconventional measures, namely quantitative easing. US rates fell aggressively after the December ISM reading dropped at the fastest pace since October 2008. For the first time since the financial crisis the Fed funds rate briefly traded above that of the yield on the 2-year Treasury note prompting more forecasts for an eventual rate cut by year’s end.
Investor sentiment turned abruptly on Friday as a confluence of factors enticed investors back into risk assets. First, the PBOC cut the Reserve Requirement Ratio (RRR) by a full percentage point, adding liquidity to China’s economy ahead of trade talks with the US early next week. Second, the US December employment report was viewed in a very positive light as upside surprises in payrolls and wage growth far outweighed a rise in the unemployment rate, which could even be viewed as encouraging in the context of a rising participation rate. Finally, within hours of the jobs report a host of risk assets surged again after Fed Chairman Powell noted that he saw the jump in wages as a positive, rather than raising concerns on inflation. He went on to echo what was heard from other Fed officials this week when he added the Fed would remain patient on raising rates and would not rule out modifying the balance sheet run off if it ultimately proved necessary. Breadth on both the NYSE and NASDAQ widened to levels not seen in recent weeks as US stock indices rebounded into the weekend. Rising oil and copper prices supported the positive tone in equities, and for the week the S&P gained 1.9%, the DJIA added 1.6%, and the Nasdaq rose 2.3%.
Leading corporate headlines during this holiday-shortened week was news that Bristol-Myers would acquire Celgene for $74B, which would make it the largest health-care deal ever, though Bristol investors were less than enthusiastic about the plan. Apple slashed its outlook for the first time in the iPhone era, noting poor demand in China and unexpectedly less frequent model upgrades. Samsung announced plans to cut its chip inventory in order to maintain tight supplies as demand is expected to slow. Tesla shares fell after it reported a miss on Q4 targets for Model 3 and implemented a price cut for all vehicles to offset tax credit reductions. Delta weighed on the transports midweek after trimming its Q4 revenue outlook. Netflix named former Activision and Disney executive Spencer Neumann as its new CFO. Shares of winter clothing manufacturer Canada Goose lifted on the news that its store opening in China was well received.
SUNDAY 12/30
(US) Texas judge Reed O'Connor rules Affordable Care Act ('Obamacare') to remain in place during appeal, cited the need to avoid uncertainty during appeal process - US Press
MONDAY 12/31
*(US) DEC DALLAS FED MANUFACTURING ACTIVITY: -5.1 V 15.0E
(US) Federal Communications Commission (FCC) to suspend most operations tomorrow if shutdown continues - press
TUESDAY 1/1
*(CN) CHINA DEC CAIXIN MANUFACTURING PMI: 49.7 V 50.2E (first contraction since May 2017)
WEDNESDAY 1/2
*(UK) DEC PMI MANUFACTURING: 54.2 V 52.5E (29th month of expansion)
*(US) DEC FINAL MARKIT MANUFACTURING PMI: 53.8 V 53.9E (lowest since Sep 2017)
AAPL Cuts Q1 Rev $84B v $91.3Be, gross margin 38%, opex $8.7B (prior Rev $89-93B, gross margin 38.0-38.5%; op-ex $8.7-8.8B) on emerging market challenges and lower anticipated iPhone Rev; China market especially weak (first guidance cut since 2002)
TSLA Reports Q4 Deliveries 90.7K vehicles +8% q/q v 92.0Ke (model 3 deliveries 63.2K v 63.7Ke); Announces $2K price reduction in the US to offset tax credit reduction
005930.KR Will cut chip inventory due to oversupply - Korean press
THURSDAY 1/3
CELG To be acquired by Bristol-Myers in cash and stock deal for implied $102.43/shr initially valued at ~$74B
GM Reports Q4 total deliveries: 785.2K units, -2.7% y/y
(US) Fed's Kaplan (dove, non-voter): Favors taking no action the first few quarters in 2019; personal forecasts for GDP have come down a bit - financial press
(US) Association of American Railroads weekly rail traffic report for week ending Dec 29th: 411.7K, +5.1% y/y
(CN) China Commerce Ministry (MOFCOM): Confirms China and US to hold vice ministerial level trade talks on Jan 7-8th (Mon-Tues)
(JP) Reportedly BoJ will consider trimming inflation outlook for next 2 years - Nikkei
FRIDAY 1/4
*(DE) GERMANY DEC UNEMPLOYMENT CHANGE: -14K V -13KE; UNEMPLOYMENT CLAIMS RATE: 5.0% V 5.0%E
*(CN) CHINA PBOC CUTS REQUIRED RESERVES RATIO (RRR) BY 100 BP to 14.50%; in two stages
*(UK) DEC SERVICES PMI: 51.2 V 50.7E (29th month of expansion)
*(EU) EURO ZONE DEC ADVANCE CPI ESTIMATE Y/Y: 1.6% V 1.7%E; CORE CPI Y/Y: 1.0% V 1.0%E
*(US) DEC UNEMPLOYMENT RATE: 3.9% V 3.7%E
*(US) DEC CHANGE IN NONFARM PAYROLLS: +312K V +184KE
*(US) DEC AVERAGE HOURLY EARNINGS M/M: 0.4% V 0.3%E; Y/Y: 3.2% V 3.0%E; AVERAGE WEEKLY HOURS: 34.5 V 34.5E
*(US) Fed Chair Powell: Welcomes wage data, it doesn't raise inflation concerns; Always prepared to shift policy and shift it significantly if necessary - panel discussion
(US) DOE CRUDE: +0.0M V -2.5ME; GASOLINE: +6.9M V +1.5ME; DISTILLATE: +9.5M V +0.5ME
GE Apollo reportedly mulling offer of jet leasing division; could be worth $40B - press
Sunday, December 30, 2018
TradeTheNews overview
For years now subscribers of the Sunday Links newsletter enjoy weekly market updates (sample), two-months market outlooks (sample), and Saturday Barron's summaries (sample). In the newsletter, you did see the link to the original source of those, TradeTheNews. Today I want to present the service behind these informative bits and introduce you to this feature-rich source, highlighting a few more sides of it you may have not seen.
(Disclaimer: I have no financial interest in TTN, nor do I get paid for this post or compensated for subscriptions) .
At its heart TTN is a real-time scrolling news source. Thus, its default view has the headlines occupying main area. They scroll, you read - simple as that. Of course, you don't have to watch them all the time. There are sound alerts when something significant happens (more on that later). Also, you read more details behind the headline by hovering your cursor over it, like so:
You can also click on the headline, and full text will appear in the bottom part, where you will also have an access to other related news, upcoming earnings and current holders of the stock:
Speaking of that bottom area, you have a default tab "Show Market Data." It displays S&P 500 real time changes, and there is more to it. First, you can switch to other market indicators, if you prefer - NASDAQ, VIX, even Gold or Oil, etc. Second, there are red circles on the chart. Those are indication of a certain event happened at that point in time. Pointing your cursor to it and reading the event details, you can match the information to the market change:
This kind of matching the event to the market response is not only informative, it's educational as well. You get a sense for how market is likely to behave when influenced by various news. It's more nuanced than a primitive "good news - up, bad news - down" view that befalls many traders. If you are familiar with my A Taoist Trader, 111 Trades and other materials, you can see how this idea of verifying the market moves against the information/news background goes to the very heart of my trading approach. Being familiar with patterns described, among others, in Techniques of Tape Reading, utilized by Jesse Livermore and valid since, well, forever, you can gauge which stage of the movement the market is. Is tulip mania at the beginning or at the peak - that's the question you need to answer to understand how the next news item is likely to impact the market. Good news can push the stock upward if it comes at the beginning stages of the movement, and can have just the opposite effect at the top of the move. Accumulation by smart money at the early phase vs. euphoric buying by the crowds at the final stage, and how the news fit in this context - if you have a firm grasp of these concepts, you have the key to the markets. TTN provides the tools for such understanding. In case these concepts are new to you, let me offer you this chart as a means to pique your curiosity and as a starting point for the further research:
But I digress.
Remember a bit about sound alerts? It's not just your rudimentary beep getting your attention when something of importance happens. It's also a squawk box, voice commenting on the latest news of note, so you can hear it while watching the market or browsing other tabs in your browser:
Let's move on to the other features. There is a Calendar tab where you can familiarize yourself with all important events of the upcoming week and switch between different world regions:
As you look at those tabs, you will notice a few more, providing wealth of information and mostly self-explanatory. Let me show you how they look and what kind of information they provide. Filers tab:
...and Top Stories tab:
Now that have first idea of the interface, I'll leave you to explore the rest of it to discover the TTN's full potential. One more aspect to mention is e-mail alerts. You can configure them to control the volume of incoming e-mails according to your interests and trading style. For instance, to prepare for the beginning of trading day, Pre-Market Movers is invaluable. This is what you get:
There is Morning and Evening Papers Summary, Online Reading Summary, Market Close Summary, Event Watch, midday Trading Hours Summary... if you get overwhelmed by choice, just watch them all for a week or two to get a sense of which of them are useful for you.
Let me wrap it up by saying that there is a lot more to the TTN offerings, and the main thing you are likely to discover is a value of a single well-organized and thought-through source of information and analysis.
Barrons weekend summary
Barrons weekend summary: Positive cover story on DIS; cautious on medical device makers ABT, BSX, MDT
Cover story: After 20 years of focus on television, DIS is returning to its roots in films and theme parks, part of a transformation that includes a bold move into streaming that could help pull the company’s stock out of a three-year slump.
Features: 1) The streaming landscape is beginning to resemble cable, with a handful of major “networks” such as AMZN, Hulu, and NFLX dominating as players such as DIS prepare to enter the fray; 2) Investors think index funds are a great way to capture market returns, but many funds that do no more than track broad market benchmarks charge fees on a par with actively managed funds; 3) Cautious on ABT, BSX, MDT: Recent research that found evidence doctors misdiagnose patients to justify useless but lucrative procedures could curb the inappropriate use of stents, trimming revenue from medical device companies.
Tech Trader: “With consumers, legislators, and investors more skeptical of tech than they’ve been in years, trust could be an an intangible factor next year in how companies compete, recruit new customers, and retain talent.”
Trader: Three months ago, the market appeared to be pricing in a strong economy and solid earnings in 2019, but that changed in September, and stocks are now pricing in a possible recession; Positive on CGNX: Company’s gross margins of more than 75% are more comparable to a software company than its industrial peers, and it’s always on the hunt for new industries for expansion.
Profile: Bob Doll, chief equity strategist and senior portfolio manager at Nuveen, applies quantitative and qualitative analysis to the Large Cap Core fund, a strategy known as "quantamental" (top 10 holdings: AAPL, MSFT, UNH, MA, Comcast, GOOGL, AMZN, CSCO, CELG, CI); Winton Capital founder David Harding, who deploys high-powered computers to crunch data, pick up potential trading signals, and ascertain market patterns, talks about artificial intelligence and statistical fallacies.
Interview: BX chief executive Stephen Schwarzman talks about whether the firm has grown too big, whether it should convert from a partnership to a regular C corporation, and about succession planning.
Up and Down Wall Street: Now could be the time to look at preferred shares, whose relative stability and higher dividend yields are attractive to some investors; Positive on G4S: Shares of the company, which are down from their 2018 high, are cheap and set for a rebound, says Alexander Roepers of Atlantic Investment Management.
European Trader: Positive on Aegon, Prudential, ING: “After a broad selloff in preferred stocks during the first half of the year, several U.S. exchange-traded preferreds from European issuers have become attractive income plays.”
Emerging Markets: Emerging markets fund mangers followed two lines of thought in 2019: a belief that fundamentals remained sound, and that many excellent companies would thrive despite political or economic volatility—but investors didn’t buy either argument.
Commodities: Prices for platinum, which is used primarily in automobile catalytic converters, look ready to bounce more than 40% in the next few weeks, according to analysts.
Streetwise: Banks have squandered the public’s trust over the past decade, but fintechs—which stepped in with offers of better technology and stronger ethics—have also stumbled, raising questions about whether the new guard is any better than the old guard.
Friday, December 28, 2018
Historic Volatility Marks Closing Days of 2018
TradeTheNews.com Weekly Market Update: Historic Volatility Marks Closing Days of 2018
In the wake of the most bruising week of trading since the financial crisis holiday week trading opened with the worst Christmas Eve performance in the history of the US stock market. Concerns surrounding global growth and the potential for a recession, along with dysfunction in Washington DC remained a toxic concoction for investor sentiment while year-end tax loss selling kept technical readings in an extremely precarious state. US economic data deteriorated led by a particularly poor Richmond Fed reading which saw manufacturing indicators decline at a record pace in December. The picture was further muddied by delays in other key US readings due to the partial government in Washington. The S&P briefly sniffed bear market territory following the Transports, NASADQ and Russell which had already decline more than 20% from their peaks. Oil prices plumbed to new lows along with US Treasury yields and the VIX traded above 36 before global equity markets were closed for the Christmas holiday.
Wednesday saw a snap back rally of epic proportions when the Dow gained more than 1,000 points in one session for the first time ever. Oil prices surged roughly 9% in tandem with stocks and Treasury yields rose resulting in steepening along the curve. Many were quick to call it a dead cat bounce as it had many of the attributes of a typical bear market rally. There was no major news catalyst to point to while much of the most aggressive buying was seen in the most beaten down names suggesting algorithmic short covering. Many of those investors felt vindicated when markets turned around Thursday morning giving back more than half of the post-Christmas rally before a vicious snap back rally ensued into the close. Markets were volatile again on Friday, as traders searched for a new pattern. In a week of violent trading, the S&P ended up 2.9%, the DJIA gained 2.8%, and the Nasdaq rose 4%.
In corporate news this holiday-shortened week, Amazon caught a bid after reporting ‘record-breaking’ holiday season orders. Fitness industry software developer Mindbody announced a go-private deal with PE firm Vista Equity for $1.9B. Canadian cannabis firm Aphria rebuffed a C$11/share takeover offer from Green Growth Brands. Tesla named Oracle's Larry Ellison and Walgreens Boots' Kathleen Wilson-Thompson as new independent board members. Deal renewal talks between Verizon and Disney reportedly hit a snag, which could black out a slew of Disney channels, including ESPN, for Verizon customers at the start of the New Year.
SATURDAY 12/22 (US) Pres Trump has discussed firing Fed Chairman Powell after the December FOMC rate hike; advisers not convinced he would actually go through with it – press (US) Treasury Sec Mnuchin: Trump "never suggested firing" Fed Chair Powell, Trump does not believe he has the right to fire Powell - press
SUNDAY 12/23 (CN) China Finance Ministry will not levy tariffs on 94 items including fertilizer and iron ore, to adjust tariffs on items, effective Jan 1st, 2019; to implemented temporary import tariffs on more than 700 items; to remove import tariffs on goods produced in Hong Kong and Macau (US) Treasury Sec Mnuchin: Called CEOs of largest banks over the weekend all confirmed have ample liquidity
MONDAY 12/24 MB To be acquired by Vista Equity Partners for $36.50/shr in cash valued at $1.9B (US) Appaloosa's David Tepper: I have been buying some stocks today - CNBC
TUESDAY 12/25 (CN) China Association of Automobile Manufacturers official: China will cut electric vehicle (EV) subsidy by 30% in 2019 - China Securities Times (US) President Trump said to be getting increasingly frustrated with Treasury Sec Mnuchin, while still publicly supporting him - US press
WEDNESDAY 12/26 *(US) DEC RICHMOND FED MANUFACTURING INDEX: -8 V +15E (record drop for data series) (US) White House Econ Adviser Hassett: Fed Chair Powell's job is not in jeopardy; Powell is 100% safe; there's no hidden liquidity crisis - Fox Business interview
THURSDAY 12/27 HUAWEI.CN Trump administration said to be looking to issuing an executive order in January barring US companies from buying Huawei & ZTE products - US Financial Press (CN) China PBoC: To maintain its prudent policy stance; to comprehensively use multiple policy tools - Q4 quarterly meeting statement (US) Nevada reports Nov casino gaming Rev $967.2B, +6.4% y/y; Las Vegas strip Rev $534.5M, +10% y/y *(US) DEC CONSUMER CONFIDENCE: 128.1 V 133.7E (lowest since July) (US) Association of American Railroads weekly rail traffic report for week ending Dec 22nd: 567.3K, +4.2% y/y 12/27 APHA.CA Green Growth confirms intention to launch C$11/shr takeover bid for Aphria
FRIDAY 12/28 (DE) GERMANY DEC CPI SAXONY M/M: +0.4% V -0.1% PRIOR; Y/Y: 1.9% V 2.1% PRIOR (DE) GERMANY DEC PRELIMINARY CPI M/M: 0.1% V 0.3%E; Y/Y: 1.7% V 1.9%E (US) DOE CRUDE: -0.05M V -2.5ME; GASOLINE: +3M V 0ME; DISTILLATE: +0.0M V 0ME TSLA Names Oracle's Larry Ellison and Walgreens Boots' Kathleen Wilson-Thompson as new independent Board members
In the wake of the most bruising week of trading since the financial crisis holiday week trading opened with the worst Christmas Eve performance in the history of the US stock market. Concerns surrounding global growth and the potential for a recession, along with dysfunction in Washington DC remained a toxic concoction for investor sentiment while year-end tax loss selling kept technical readings in an extremely precarious state. US economic data deteriorated led by a particularly poor Richmond Fed reading which saw manufacturing indicators decline at a record pace in December. The picture was further muddied by delays in other key US readings due to the partial government in Washington. The S&P briefly sniffed bear market territory following the Transports, NASADQ and Russell which had already decline more than 20% from their peaks. Oil prices plumbed to new lows along with US Treasury yields and the VIX traded above 36 before global equity markets were closed for the Christmas holiday.
Wednesday saw a snap back rally of epic proportions when the Dow gained more than 1,000 points in one session for the first time ever. Oil prices surged roughly 9% in tandem with stocks and Treasury yields rose resulting in steepening along the curve. Many were quick to call it a dead cat bounce as it had many of the attributes of a typical bear market rally. There was no major news catalyst to point to while much of the most aggressive buying was seen in the most beaten down names suggesting algorithmic short covering. Many of those investors felt vindicated when markets turned around Thursday morning giving back more than half of the post-Christmas rally before a vicious snap back rally ensued into the close. Markets were volatile again on Friday, as traders searched for a new pattern. In a week of violent trading, the S&P ended up 2.9%, the DJIA gained 2.8%, and the Nasdaq rose 4%.
In corporate news this holiday-shortened week, Amazon caught a bid after reporting ‘record-breaking’ holiday season orders. Fitness industry software developer Mindbody announced a go-private deal with PE firm Vista Equity for $1.9B. Canadian cannabis firm Aphria rebuffed a C$11/share takeover offer from Green Growth Brands. Tesla named Oracle's Larry Ellison and Walgreens Boots' Kathleen Wilson-Thompson as new independent board members. Deal renewal talks between Verizon and Disney reportedly hit a snag, which could black out a slew of Disney channels, including ESPN, for Verizon customers at the start of the New Year.
SATURDAY 12/22 (US) Pres Trump has discussed firing Fed Chairman Powell after the December FOMC rate hike; advisers not convinced he would actually go through with it – press (US) Treasury Sec Mnuchin: Trump "never suggested firing" Fed Chair Powell, Trump does not believe he has the right to fire Powell - press
SUNDAY 12/23 (CN) China Finance Ministry will not levy tariffs on 94 items including fertilizer and iron ore, to adjust tariffs on items, effective Jan 1st, 2019; to implemented temporary import tariffs on more than 700 items; to remove import tariffs on goods produced in Hong Kong and Macau (US) Treasury Sec Mnuchin: Called CEOs of largest banks over the weekend all confirmed have ample liquidity
MONDAY 12/24 MB To be acquired by Vista Equity Partners for $36.50/shr in cash valued at $1.9B (US) Appaloosa's David Tepper: I have been buying some stocks today - CNBC
TUESDAY 12/25 (CN) China Association of Automobile Manufacturers official: China will cut electric vehicle (EV) subsidy by 30% in 2019 - China Securities Times (US) President Trump said to be getting increasingly frustrated with Treasury Sec Mnuchin, while still publicly supporting him - US press
WEDNESDAY 12/26 *(US) DEC RICHMOND FED MANUFACTURING INDEX: -8 V +15E (record drop for data series) (US) White House Econ Adviser Hassett: Fed Chair Powell's job is not in jeopardy; Powell is 100% safe; there's no hidden liquidity crisis - Fox Business interview
THURSDAY 12/27 HUAWEI.CN Trump administration said to be looking to issuing an executive order in January barring US companies from buying Huawei & ZTE products - US Financial Press (CN) China PBoC: To maintain its prudent policy stance; to comprehensively use multiple policy tools - Q4 quarterly meeting statement (US) Nevada reports Nov casino gaming Rev $967.2B, +6.4% y/y; Las Vegas strip Rev $534.5M, +10% y/y *(US) DEC CONSUMER CONFIDENCE: 128.1 V 133.7E (lowest since July) (US) Association of American Railroads weekly rail traffic report for week ending Dec 22nd: 567.3K, +4.2% y/y 12/27 APHA.CA Green Growth confirms intention to launch C$11/shr takeover bid for Aphria
FRIDAY 12/28 (DE) GERMANY DEC CPI SAXONY M/M: +0.4% V -0.1% PRIOR; Y/Y: 1.9% V 2.1% PRIOR (DE) GERMANY DEC PRELIMINARY CPI M/M: 0.1% V 0.3%E; Y/Y: 1.7% V 1.9%E (US) DOE CRUDE: -0.05M V -2.5ME; GASOLINE: +3M V 0ME; DISTILLATE: +0.0M V 0ME TSLA Names Oracle's Larry Ellison and Walgreens Boots' Kathleen Wilson-Thompson as new independent Board members
Saturday, December 22, 2018
Barrons weekend summary
Barrons weekend summary: positive feature on CVS, LH, TDOC
Cover story: Next year could be a time of reckoning for several tech giants that will hit the public market, which takes a more hard-headed view of the high cost of growth than the private market, according to participants in Barron’s Tech Roundtable; The panel picked twelve fast-growing startups to watch: Uber, Airbnb, Stripe, Lyft, Warby Parker, Discord, Allbirds, Toast, Fundbox, Nuro, and Aurora Innovation.
Features: 1) If several large unicorns go public next year, they could revive an IPO market that is wobbling with the downturn in stocks, but investors should temper their expectations for the IPOs and their impact on the stock market; 2) Though 81% of the companies that went public in 2018 priced in or above their indicated range, their luster has dimmed, and combined they have returned minus 2.3% this year; 3) After dropping by about 25%, some European stocks hold a lot of long-term value, and investors willing to do some legwork can find buried gems (positive on Henkel, Danone, Cie Financiere Richemont, BP, BASF); 4) Positive on CVS, LH, TDOC: A JNJ selloff on the alleged risks of baby powder looks overdone, but the stock was expensive to begin with; investors may instead want to focus on powerful long-term trends with these three stocks.
Tech Trader: The market often extrapolates the recent past and pays higher valuations when growth rates are accelerating, but the reverse is also true: earning multiples contract as forecasts fall, a problem the tech sector, and chip stocks in particular, face; Outside the tech world, there are other indications that a global slowdown may have already begun.
Trader: The odds of a recession have increased, according to Jason Pride of Glenmede, who puts the chances of a slowdown at about 35%—and when the odds of a slump are that high, it signals a high level of fragility in the economy; Positive on MS: Though weak prices make sense at some banks, which are trading as if a 2019 recession is guaranteed, the discount is hard to justify at Morgan Stanley, which has a number of growth drivers; “It’s been raining stock buybacks on Wall Street this year, and the outlook appears to be for another downpour in 2019” after repurchases crossed the $1T mark in mid-December.
Profile: Ben Kirby and Brian McMahon of the Thornburg Investment Income Builder fund, which has adjusted its allocation to stocks and bonds in line with shifting market conditions during the past 16 years.
Interview: Gary Heminger, chairman and CEO of MPC , talks to Barron’s about pump prices, refining profits, miles-per-gallon requirements, electric cars, and more.
Follow-Up: The promise of blockchain technology seemed unlimited a year ago, but it may be years before it proves its usefulness, and much of seems to be “smoke and mirrors”; Some investors wonder if the rapid decline in oil prices and a market selloff are an ominous signal about global economic growth, but they probably aren’t.
European Trader: Positive on BTI, PM: After taking a hit for most of the year, shares of the tobacco companies are substantially undervalued, generally less volatile than the overall market, and yield huge dividends.
Emerging Markets: Cautious on GCL-Poly Energy Holdings, Sungrow Power Supply: Until this year, China seemed poised to dominate the solar energy industry, but an abrupt moratorium on state subsidies for new projects has led to a drop in installations.
Streetwise: The decision by CBS to refuse a $120M exit payout for former chief Les Moonves may have inadvertently created a turning point in the “baffling pattern” of harassment settlements.
Fed Chair Spooks Already Fragile Markets Fearing a Slowdown
TradeTheNews.com Weekly
Market Update: Fed Chair Spooks Already Fragile Markets Fearing a Slowdown
Fri, 21 Dec 2018 16:06 PM EST
The quarter and year drew mercifully towards a close in what was another bruising week for investors. Concerns surrounding global growth heading into 2019 lingered amid heightened speculation on just how much the US Fed would incorporate those worries into their rate policy statement on Wednesday. Another string of weak economic readings, particularly in core Europe and China, along with some deceleration evident in the US economy only exacerbated that trepidation and manifested itself in downward moves for global equities and commodities, most notably continued pressure on crude oil prices.
Wednesday’s FOMC statement failed to meet mounting dovish expectations and Chairman Powell’s press conference delivery further underwhelmed those same investors. The Chairman emphasized the Fed would remain data dependent into 2019 and at this point most FOMC members now forecast two hikes next year rather than three given the strength of the US economy. Dovish tweaks to the statement language and the press conference itself did nothing to change sentiment and investors resumed selling stocks. US indices plumbed through the February lows, the NASDAQ officially fell into bear market territory, and the Transports careened lower, further worrying Dow theorists. Dysfunction in Washington DC didn’t help either as the President and Congress veered towards a government shutdown as the two sides fought over funding for the Mexico border wall. Gold prices rose above the 200 day moving average and the VIX jumped above 30 for the first time since February. The S&P500 had its worst week since 2011, falling 7.1% and the Russell 2000 was down 8.2%. The DJIA and Nasdaq had their worst week since 2008, plunging 6.9% and 8.4%, respectively.
In corporate news this week, Nike jumped after reporting results, noting strong online growth and rising women’s sportswear apparel sales. FedEx crystalized concerns about international growth and shares came under pressure after slashing its forecast, saying its international business had weakened as global trade decelerates. Pfizer and Glaxo announced they would combine their consumer businesses, creating an over-the-counter-drug monolith. Qualcomm won a ruling against Apple in a Munich Court that would ban the sale of some iPhone models in Germany — this coming after a judge had granted preliminary injunctions against Apple in China last week. Jack in the Box announced it was exploring strategic alternatives and has spoken with potential buyers, though no timelines for a deal are known. The Malaysian government lodged criminal charges against Goldman Sachs and said it would seek $7.5B in damages from the American bank over allegedly fraudulent dealings with the state development fund 1MDB.
MONDAY 12/17
*(US) DEC EMPIRE MANUFACTURING: 10.9 V 20.0E (lowest since May 2017)
*(US) DEC NAHB HOUSING MARKET INDEX: 56 V 60E
WTI crude futures settle at $49.88/bbl, settling below $50 for the first time since Oct 2017
ORCL Reports Q2 $0.80 v $0.78e, Rev $9.56B v $9.53Be
JNJ Announces $5B share repurchase program (1% of market cap); affirms FY18 $8.13-8.18 v $8.16e, Rev $81-81.4B v $81.3Be
TUESDAY 12/18
*(DE) GERMANY DEC IFO BUSINESS CLIMATE: 101.0 V 101.7E; CURRENT ASSESSMENT: 104.7 V 105.0E
(SA) Saudi Arabia 2019 budget: Forecasts 2019 GDP growth at 2.6% vs. 2.3% this year - financial press
*(US) NOV HOUSING STARTS: 1.26M V 1.228ME; BUILDING PERMITS: 1.33M V 1.260ME
MU Reports Q1 $2.97 v $2.93e, Rev $7.91B v $8.03Be
FDX Reports Q2 $4.03 v $4.06e, Rev $17.8B v $17.7Be; initiates voluntary employee buyout program
WEDNESDAY 12/19
GSK.UK Reached agreement with Pfizer Inc to combine their consumer health businesses into a new world-leading JV (Pfizer to receive 32% equity stake of JV)
(TH) THAILAND CENTRAL BANK (BOT) RAISES BENCHMARK INTEREST RATE BY 25BPS TO 1.75%; AS EXPECTED
(SA) Saudi Oil Min Al-Falih: Current oil price not reflected in fundamentals; will achieve oil market balance in 2019
(US) DOE CRUDE: -0.5M V -3ME; GASOLINE: +1.8M V +1ME; DISTILLATE: -4.2M V +0.5ME
(US) Association of American Railroads weekly rail traffic report for week ending Dec 15th: 569K, +3.9% y/y
*(US) FOMC RAISES TARGET RANGE BY 25BPS TO 2.25-2.50%; AS EXPECTED
*(US) FOMC SUMMARY OF ECONOMIC PROJECTIONS (DEC) FOR SEPT MEETING (V. SEPT)
*(US) Fed Chair Powell: inflation has come in a touch lower than we expected, gives FOMC the ability to be patient going forward - Q&A FOMC press conf
THURSDAY 12/20
(ID) INDONESIA CENTRAL BANK (BI) LEAVES 7-DAY REVERSE REPO UNCHANGED AT 6.00%; AS EXPECTED
(SE) SWEDEN CENTRAL BANK (RIKSBANK) RAISES REPO RATE BY 25BPS TO -0.25%; NOT EXPECTED
(UK) NOV RETAIL SALES (EX AUTO/FUEL) M/M: 1.2% V 0.2%E; Y/Y: 3.8% V 2.3%E
(UK) BANK OF ENGLAND (BOE) DEC MINUTES: Voted 9-0 to leave Interest rates unchanged
QCOM Wins injunction against Apple in Munich Court; Can ban the sale of some iPhone models in Germany - press
(US) DEC PHILADELPHIA FED BUSINESS OUTLOOK: 9.4 V 15.0E
(CN) Reportedly US and over a dozen allies plan to openly accuse China about its economic espionage activities - Washington Post
(SA) Saudi Arabia reportedly to cut production more than initially expected as part of OPEC agreement; to cut 3% of collective output from 2.5% initially announced - press
Nasdaq Composite now 20% off record high set in Aug, entering a bear market
NKE Reports Q2 $0.52 v $0.45e, Rev $9.37B v $9.16Be
(US) Pres Trump in tweet announces Defense Sec Mattis will be retiring at end of Feb; replacement to be named 'shortly'
FRIDAY 12/21
(CN) China State Council guideline on implementing Central Economic Work Conference Report: Reiterates to enact a proactive fiscal policy; modifies its monetary policy stance to neutral for 2019 - financial press
(UK) Q3 FINAL GDP Q/Q: 0.6% V 0.6%E; Y/Y: 1.5% V 1.5%E
(US) US President Trump Tweets: Senator Mitch McConnell should fight for the Wall and Border Security as hard as he fought for anything. He will need Democrat votes, but as shown in the House, good things happen. If enough Dems don’t vote, it will be a Democrat Shutdown! House Republicans were great yesterday!
*(US) Q3 FINAL GDP ANNUALIZED Q/Q: 3.4% V 3.5%E; PERSONAL CONSUMPTION: 3.5% V 3.6%E
*(US) NOV PRELIMINARY DURABLE GOODS ORDERS: 0.8% V 1.6%E; DURABLES EX-TRANSPORTATION: -0.3% V +0.3%E
*(US) NOV PERSONAL INCOME: 0.2% V 0.3%E; PERSONAL SPENDING: 0.4% V 0.3%E
(US) Fed's Williams (moderate, voter): the important message is that the economy is very strong; listening to markets closely - CNBC interview
(US) Pres Trump: chances are pretty good there will be a shutdown; totally prepared for a very long shutdown
Fri, 21 Dec 2018 16:06 PM EST
The quarter and year drew mercifully towards a close in what was another bruising week for investors. Concerns surrounding global growth heading into 2019 lingered amid heightened speculation on just how much the US Fed would incorporate those worries into their rate policy statement on Wednesday. Another string of weak economic readings, particularly in core Europe and China, along with some deceleration evident in the US economy only exacerbated that trepidation and manifested itself in downward moves for global equities and commodities, most notably continued pressure on crude oil prices.
Wednesday’s FOMC statement failed to meet mounting dovish expectations and Chairman Powell’s press conference delivery further underwhelmed those same investors. The Chairman emphasized the Fed would remain data dependent into 2019 and at this point most FOMC members now forecast two hikes next year rather than three given the strength of the US economy. Dovish tweaks to the statement language and the press conference itself did nothing to change sentiment and investors resumed selling stocks. US indices plumbed through the February lows, the NASDAQ officially fell into bear market territory, and the Transports careened lower, further worrying Dow theorists. Dysfunction in Washington DC didn’t help either as the President and Congress veered towards a government shutdown as the two sides fought over funding for the Mexico border wall. Gold prices rose above the 200 day moving average and the VIX jumped above 30 for the first time since February. The S&P500 had its worst week since 2011, falling 7.1% and the Russell 2000 was down 8.2%. The DJIA and Nasdaq had their worst week since 2008, plunging 6.9% and 8.4%, respectively.
In corporate news this week, Nike jumped after reporting results, noting strong online growth and rising women’s sportswear apparel sales. FedEx crystalized concerns about international growth and shares came under pressure after slashing its forecast, saying its international business had weakened as global trade decelerates. Pfizer and Glaxo announced they would combine their consumer businesses, creating an over-the-counter-drug monolith. Qualcomm won a ruling against Apple in a Munich Court that would ban the sale of some iPhone models in Germany — this coming after a judge had granted preliminary injunctions against Apple in China last week. Jack in the Box announced it was exploring strategic alternatives and has spoken with potential buyers, though no timelines for a deal are known. The Malaysian government lodged criminal charges against Goldman Sachs and said it would seek $7.5B in damages from the American bank over allegedly fraudulent dealings with the state development fund 1MDB.
MONDAY 12/17
*(US) DEC EMPIRE MANUFACTURING: 10.9 V 20.0E (lowest since May 2017)
*(US) DEC NAHB HOUSING MARKET INDEX: 56 V 60E
WTI crude futures settle at $49.88/bbl, settling below $50 for the first time since Oct 2017
ORCL Reports Q2 $0.80 v $0.78e, Rev $9.56B v $9.53Be
JNJ Announces $5B share repurchase program (1% of market cap); affirms FY18 $8.13-8.18 v $8.16e, Rev $81-81.4B v $81.3Be
TUESDAY 12/18
*(DE) GERMANY DEC IFO BUSINESS CLIMATE: 101.0 V 101.7E; CURRENT ASSESSMENT: 104.7 V 105.0E
(SA) Saudi Arabia 2019 budget: Forecasts 2019 GDP growth at 2.6% vs. 2.3% this year - financial press
*(US) NOV HOUSING STARTS: 1.26M V 1.228ME; BUILDING PERMITS: 1.33M V 1.260ME
MU Reports Q1 $2.97 v $2.93e, Rev $7.91B v $8.03Be
FDX Reports Q2 $4.03 v $4.06e, Rev $17.8B v $17.7Be; initiates voluntary employee buyout program
WEDNESDAY 12/19
GSK.UK Reached agreement with Pfizer Inc to combine their consumer health businesses into a new world-leading JV (Pfizer to receive 32% equity stake of JV)
(TH) THAILAND CENTRAL BANK (BOT) RAISES BENCHMARK INTEREST RATE BY 25BPS TO 1.75%; AS EXPECTED
(SA) Saudi Oil Min Al-Falih: Current oil price not reflected in fundamentals; will achieve oil market balance in 2019
(US) DOE CRUDE: -0.5M V -3ME; GASOLINE: +1.8M V +1ME; DISTILLATE: -4.2M V +0.5ME
(US) Association of American Railroads weekly rail traffic report for week ending Dec 15th: 569K, +3.9% y/y
*(US) FOMC RAISES TARGET RANGE BY 25BPS TO 2.25-2.50%; AS EXPECTED
*(US) FOMC SUMMARY OF ECONOMIC PROJECTIONS (DEC) FOR SEPT MEETING (V. SEPT)
*(US) Fed Chair Powell: inflation has come in a touch lower than we expected, gives FOMC the ability to be patient going forward - Q&A FOMC press conf
THURSDAY 12/20
(ID) INDONESIA CENTRAL BANK (BI) LEAVES 7-DAY REVERSE REPO UNCHANGED AT 6.00%; AS EXPECTED
(SE) SWEDEN CENTRAL BANK (RIKSBANK) RAISES REPO RATE BY 25BPS TO -0.25%; NOT EXPECTED
(UK) NOV RETAIL SALES (EX AUTO/FUEL) M/M: 1.2% V 0.2%E; Y/Y: 3.8% V 2.3%E
(UK) BANK OF ENGLAND (BOE) DEC MINUTES: Voted 9-0 to leave Interest rates unchanged
QCOM Wins injunction against Apple in Munich Court; Can ban the sale of some iPhone models in Germany - press
(US) DEC PHILADELPHIA FED BUSINESS OUTLOOK: 9.4 V 15.0E
(CN) Reportedly US and over a dozen allies plan to openly accuse China about its economic espionage activities - Washington Post
(SA) Saudi Arabia reportedly to cut production more than initially expected as part of OPEC agreement; to cut 3% of collective output from 2.5% initially announced - press
Nasdaq Composite now 20% off record high set in Aug, entering a bear market
NKE Reports Q2 $0.52 v $0.45e, Rev $9.37B v $9.16Be
(US) Pres Trump in tweet announces Defense Sec Mattis will be retiring at end of Feb; replacement to be named 'shortly'
FRIDAY 12/21
(CN) China State Council guideline on implementing Central Economic Work Conference Report: Reiterates to enact a proactive fiscal policy; modifies its monetary policy stance to neutral for 2019 - financial press
(UK) Q3 FINAL GDP Q/Q: 0.6% V 0.6%E; Y/Y: 1.5% V 1.5%E
(US) US President Trump Tweets: Senator Mitch McConnell should fight for the Wall and Border Security as hard as he fought for anything. He will need Democrat votes, but as shown in the House, good things happen. If enough Dems don’t vote, it will be a Democrat Shutdown! House Republicans were great yesterday!
*(US) Q3 FINAL GDP ANNUALIZED Q/Q: 3.4% V 3.5%E; PERSONAL CONSUMPTION: 3.5% V 3.6%E
*(US) NOV PRELIMINARY DURABLE GOODS ORDERS: 0.8% V 1.6%E; DURABLES EX-TRANSPORTATION: -0.3% V +0.3%E
*(US) NOV PERSONAL INCOME: 0.2% V 0.3%E; PERSONAL SPENDING: 0.4% V 0.3%E
(US) Fed's Williams (moderate, voter): the important message is that the economy is very strong; listening to markets closely - CNBC interview
(US) Pres Trump: chances are pretty good there will be a shutdown; totally prepared for a very long shutdown
Saturday, December 15, 2018
Barrons weekend summary
Barrons weekend summary: names top 10 stocks for 2019
Cover story: “After a gloomy 2018, Wall Street strategists are upbeat about the market’s prospects next year, given a growing economy, low interest rates, and a possible truce on trade,” and U.S. stock could rise by more than 10 percent, according to a Barron’s panel of market strategists.
Tech Trader: Column looks at three opportunities in the tech sector for 2019: Cloud computing chips (INTC), artificial intelligence (GOOGL), and digital commerce (PYPL, GRUB).
Trader: “Peak everything” isn't a problem as long as the market sees continued earnings growth, profit margins, and positive confidence indicators, all signs the economy remains strong, according to Julian Emanuel of BTIG; A report from HSBC groups risk into three categories: event risk, market risk, and liquidity risk, all of which are driving the current market volatility, though investors also need to worry about other things; +/- XPO: A report by short seller Ben Axler claims the company, one of the year’s best-performing transport stocks, has used aggressive accounting to hide poor returns on its growth-by-acquisition strategy.
Interview: Liz Ann Sonders of SCHW talks about where investors should brace for a bear market, what her favorite indicators are signaling, and risks to which investors may not be paying attention.
Features: 1) Barron’s list of the top 10 stocks for 2019 includes GOOGL, AAPL, BAC, BLK, CAT, CVX, DAI, DAL, ET, and TOL; The list “tilts toward more economically sensitive issues and value,” and value investors could see some of the best opportunities in years; Most of the picks trade for 10 times forward earnings or less; 2) Growing cost pressures and concerns about slowing growth have led many investors to lose faith in small-caps, so investors will have to be choosy and avoid simply buying the index—2019 could be the year for stock pickers; 3) As rates rise, so do borrowing costs, which could create problems for companies with large debt loads—and just because some businesses aren’t feeling pressure now doesn’t mean they won’t at some point next year; 4) Investors in target-date funds are wondering what went wrong this year, but should think twice if they’re tempted to sell—losses may be due to an unusual confluence of events, and the funds are designed to be long-term savings vehicles.
European Trader: Stocks in the U.K., France, and Germany weren’t much of a bargain for investors in 2018, but the problems they face are likely to dissipate, shares are inexpensive, and central bank monetary policies will remain supportive (Positive on Rehinmetall, Accor, B&M European Value Retail).
Emerging Markets: Emerging market stocks didn’t change much over 2018, but they are growing twice as fast as those in developed countries, and economic management is solid in most countries, with inflation near historic lows (Positive on BABA, Tencent, PAGS, MELI, HDB, Kotak Mahindra, NTES, ATHM, VALE).
Commodities: Some laggards in 2018, including gold, copper, corn, and soybeans, could become leaders in the commodity sector in 2019 as new opportunities arise because of the U.S.-China trade war and other global events.
Streetwise: The uncertainty around Britain’s future after the Brexit isn’t likely to be resolved much before the March 29 deadline, and though prime minister Theresa May’s deal is flawed and unpopular, it may be the best the U.K. can get.
Friday, December 14, 2018
Downside Risks Continue to Overshadow More Dovish Central Banks
TradeTheNews.com Weekly
Market Update: Downside Risks Continue to Overshadow More Dovish Central Banks
Fri, 14 Dec 2018 16:19 PM EST
It was another eventful week, particularly for equity traders, as significant intra-day swings were prevalent throughout most of the week’s trading sessions. Ultimately global growth worries overshadowed a better tone on the trade front and another dovish turn by a major Central Bank. The S&P slipped through the October low for the first time on Monday after UK Prime Minister May pulled the Brexit vote and a Chinese court ordered an immediate ban on import and sale of certain iPhone models. Midweek saw stock futures trade up sharply before the opening bell, spurred by reports suggesting US/China trade talks were beginning to get traction in right direction. President Trump even went as far as to say he could consider intervening into the Huawei CFO saga as part of a broader trade deal with China. The positive effects were short lived though, as each day selling pressure returned and indices retraced much of the pre-market gains by days end. By Friday, a Chinese announcement that it would temporary ease auto tariffs had almost no beneficial effect on markets.
Wednesday evening UK PM May narrowly survived her party’s confidence vote, but it provided little clarity on Brexit, as she sought “assurances” from Brussels on the backstop plan. Thursday the ECB met and, as expected, confirmed the end of QE while outlining an indefinite reinvestment process. ECB President Draghi also acknowledged a slight downgrade to growth prospects, suggesting that any rate hikes remain uncertain and are likely a ways away. The Dovish tilt had diminishing effects on investor sentiment just as the Fed’s walk back for 2019 rates did last month. By Friday, stock markets were rolling over once again as global data continued to deteriorate and flash warning signs. Core EU PMI figures missed expectations, highlighted by the French manufacturing reading falling into contraction territory. Italy and EU crawled towards some kind of agreement on the 2019 budget as speculation grew in a host of EU capitals elections might not be that far off. China retail sales figures grew at the slowest pace since 2003 and the US President kept up the pressure suggesting the weakening Chinese economy was the direct result of US tariffs and that it could ultimately push China into a comprehensive deal. Global growth/risk barometers remained at warning levels. WTI crude stayed heavy holding just above $50/bbl, the US 10-year yield still has a 2.8% handle and the Dollar index surpassed the November high, briefly touching the highest level in more than a year. Interestingly, the Russel 2000 continued to underperform despite US economic data that continues to outperform on a relative basis. In another volatile week of trading, the S&P fell 1.25%, the DJIA lost 1.2%, and the Nasdaq dropped 0.8%.
In corporate news this week, e-commerce platform Travelport was taken private by Siris Capital in a $4B deal following efforts by activist Elliott Management to push for strategic alternatives. Apple announced it would update its iOS 12 software to circumvent a ban in China of certain iPhone models after Qualcomm won a patent infringement case. GoPro said it planned to move US-bound camera production out of China due to tariff concerns. Costco shares dropped on weaker than expected earnings and lower gross margins y/y. Reports indicated that the German government had intensified its planning for a possible merger between the troubled Deutsche Bank and Commerzbank. On Friday, Johnson & Johnson shares plunged after a Reuters investigation found evidence that the company may have known about asbestos contamination in its baby powder for decades and failed to inform the FDA.
MONDAY 12/10
*(EU) EURO ZONE DEC SENTIX INVESTOR CONFIDENCE: -0.3 V +8.3E (lowest since Dec 2014)
TVPT Confirms to be acquired by affiliates of Siris Capital Group, LLC and Evergreen Coast Capital for $15.75/shr in cash valued at $4.4B
*(UK) PM MAY SAID TO CANCEL PLANNED TUESDAY'S MEANINGFUL VOTE IN PARLIAMENT - financial press
(IN) India Central Bank (RBI) Gov Patel steps down citing personal reasons; effective immediately - financial press
QCOM Court orders immediate ban on import, sale, offers for sale of Iphone 7, Iphone 8 plus, Iphone 8, Iphone 8 plus and Iphone X in China
*(US) OCT JOLTS JOB OPENINGS: 7.079M V 7.100ME
(UK) PM May: confirms she will delay Parliamentary meaningful vote on Brexit; there is broad support for aspects of the deal, the Backstop is creating concerns
TUESDAY 12/11
(UK) NOV JOBLESS CLAIMS CHANGE: +21.9K V +23.2K PRIOR; CLAIMANT COUNT RATE: 2.8% V 2.7% PRIOR
(UK) Oct Average Weekly Earnings 3M/Y: 3.3% v 3.0%e; Weekly Earnings (ex Bonus) 3M/Y: 3.3% v 3.2%e
(DE) GERMANY DEC ZEW CURRENT SITUATION SURVEY: 45.3 V 55.0E; EXPECTATIONS SURVEY: -17.5 V -25.0E
(CN) Reportedly China is signaling it could cut tariffs on U.S. cars - press
(US) NOV PPI FINAL DEMAND M/M: 0.1% V 0.0%E; Y/Y: 2.5% V 2.5%E
(UK) Senior govt source: expect confidence vote on PM May imminently; threshold of 48 letters has been reached to trigger a vote - Buzzfeed
(US) President Trump: Release of Huawei CFO Meng could be part of broader trade deal with China, could intervene in the Huawei case if it aids China trade deal; Would be 'foolish' for US Fed to raise rates at next week's meeting (Dec 18-19th)
WEDNESDAY 12/12
CSGN.CH Affirms FY19 RoTE 10-11%; To buy back shares of up to CHF3B in 2019, 2020 (17.5% of market cap); on track to complete 3-yr restructuring - Investor Day
(UK) LEADERSHIP CONTEST SAID TO HAVE BEEN TRIGGERED - press
(IT) Italy Govt said to propose 2.0% budget deficit to GDP target in revised 2019 budget - financial press
(CN) China reportedly preparing to replace "Made in China 2025" plan; revised plan would downplay China's efforts to expand its manufacturing dominance - press
*(US) DOE CRUDE: -1.2M V -3ME; GASOLINE: +2.1M V +2ME; DISTILLATE: -1.5M V +1.5ME
(IT) Italy PM Conte: New budget deficit proposal of 2.04% in 2019 does not betray Italians
*(UK) PM MAY SURVIVES THE CONSERVATIVE PART CONFIDENCE VOTE (as expected)
THURSDAY 12/13
*(PH) PHILIPPINES CENTRAL BANK (BSP) LEAVES OVERNIGHT BORROWING RATE UNCHANGED AT 4.75%; AS EXPECTED
AAPL Said to build new $1B campus in Austin; establish new sites and add jobs across the US - press
*(CH) SNB LEAVES SIGHT DEPOSIT RATE UNCHANGED AT -0.75%; AS EXPECTED
*(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.75%; AS EXPECTED
(TR) TURKEY CENTRAL BANK (CBRT) LEAVES 1-WEEK REPO RATE AT 24.00%; AS EXPECTED
(EU) ECB’s Draghi: Reaffirms guidance on rates; confirms reinvestment on QE program; reiterates that significant monetary stimulus still needed - Prepared remarks
(EU) ECB sources: Policymakers debated modifying the balance of risk assessment to highlight downside risks - press
COST Reports Q1 $1.73 v $1.62e, Rev $35.1B v $34.6Be
*(JP) JAPAN Q4 TANKAN LARGE MANUFACTURING INDEX: 19 V 18E; OUTLOOK: 15 V 17E (weakens for first time in 3 quarters); LARGE ALL INDUSTRY CAPEX: 14.3% V 12.8%E
*(CN) CHINA NOV INDUSTRIAL PRODUCTION Y/Y: 5.4% V 5.9%E (matches slowest growth rate since early 2016)
*(CN) CHINA NOV RETAIL SALES Y/Y: 8.1% V 8.8%E (slowest growth since 2003)
(CN) China National Bureau of Statistics (NBS) Official: Nov industrial production was impacted by the auto and electronics sectors; China 2019 economic growth target should reflect goal of doubling GDP by 2020 from 2010
AAPL China Unit: To publish iPhone software update early next week to resolve any possible concerns about compliance with court order
FRIDAY 12/14
(US) Lipper: US-based money market funds had inflows of $81B in most recent weekly period (largest inflows since the early 1990s), US-based stock funds had $46.0B in outflows (largest since the early 1990s) - US financial press
(FR) FRANCE DEC PRELIMINARY MANUFACTURING PMI: 49.7 V 50.7E (1st contraction in 27 months, lowest since Sept 2016)
*(DE) GERMANY DEC PRELIMINARY MANUFACTURING PMI: 51.5 V 51.7E (48th month of expansion but lowest since Mar 2016)
(EU) EURO ZONE DEC PRELIMINARY MANUFACTURING PMI: 51.4 V 51.8E (66th month of expansion but lowest since Feb 2016)
(US) Nov Industrial Production M/M: 0.6% v 0.3%e; Capacity Utilization: 78.5% v 78.6%e
JNJ Reportedly J&J was aware of asbestos issues for years regarding talc baby powder and failed to tell FDA – press
*(US) DEC PRELIMINARY MARKIT MANUFACTURING PMI: 53.9 V 55.0E (lowest since Nov 2017)
Fri, 14 Dec 2018 16:19 PM EST
It was another eventful week, particularly for equity traders, as significant intra-day swings were prevalent throughout most of the week’s trading sessions. Ultimately global growth worries overshadowed a better tone on the trade front and another dovish turn by a major Central Bank. The S&P slipped through the October low for the first time on Monday after UK Prime Minister May pulled the Brexit vote and a Chinese court ordered an immediate ban on import and sale of certain iPhone models. Midweek saw stock futures trade up sharply before the opening bell, spurred by reports suggesting US/China trade talks were beginning to get traction in right direction. President Trump even went as far as to say he could consider intervening into the Huawei CFO saga as part of a broader trade deal with China. The positive effects were short lived though, as each day selling pressure returned and indices retraced much of the pre-market gains by days end. By Friday, a Chinese announcement that it would temporary ease auto tariffs had almost no beneficial effect on markets.
Wednesday evening UK PM May narrowly survived her party’s confidence vote, but it provided little clarity on Brexit, as she sought “assurances” from Brussels on the backstop plan. Thursday the ECB met and, as expected, confirmed the end of QE while outlining an indefinite reinvestment process. ECB President Draghi also acknowledged a slight downgrade to growth prospects, suggesting that any rate hikes remain uncertain and are likely a ways away. The Dovish tilt had diminishing effects on investor sentiment just as the Fed’s walk back for 2019 rates did last month. By Friday, stock markets were rolling over once again as global data continued to deteriorate and flash warning signs. Core EU PMI figures missed expectations, highlighted by the French manufacturing reading falling into contraction territory. Italy and EU crawled towards some kind of agreement on the 2019 budget as speculation grew in a host of EU capitals elections might not be that far off. China retail sales figures grew at the slowest pace since 2003 and the US President kept up the pressure suggesting the weakening Chinese economy was the direct result of US tariffs and that it could ultimately push China into a comprehensive deal. Global growth/risk barometers remained at warning levels. WTI crude stayed heavy holding just above $50/bbl, the US 10-year yield still has a 2.8% handle and the Dollar index surpassed the November high, briefly touching the highest level in more than a year. Interestingly, the Russel 2000 continued to underperform despite US economic data that continues to outperform on a relative basis. In another volatile week of trading, the S&P fell 1.25%, the DJIA lost 1.2%, and the Nasdaq dropped 0.8%.
In corporate news this week, e-commerce platform Travelport was taken private by Siris Capital in a $4B deal following efforts by activist Elliott Management to push for strategic alternatives. Apple announced it would update its iOS 12 software to circumvent a ban in China of certain iPhone models after Qualcomm won a patent infringement case. GoPro said it planned to move US-bound camera production out of China due to tariff concerns. Costco shares dropped on weaker than expected earnings and lower gross margins y/y. Reports indicated that the German government had intensified its planning for a possible merger between the troubled Deutsche Bank and Commerzbank. On Friday, Johnson & Johnson shares plunged after a Reuters investigation found evidence that the company may have known about asbestos contamination in its baby powder for decades and failed to inform the FDA.
MONDAY 12/10
*(EU) EURO ZONE DEC SENTIX INVESTOR CONFIDENCE: -0.3 V +8.3E (lowest since Dec 2014)
TVPT Confirms to be acquired by affiliates of Siris Capital Group, LLC and Evergreen Coast Capital for $15.75/shr in cash valued at $4.4B
*(UK) PM MAY SAID TO CANCEL PLANNED TUESDAY'S MEANINGFUL VOTE IN PARLIAMENT - financial press
(IN) India Central Bank (RBI) Gov Patel steps down citing personal reasons; effective immediately - financial press
QCOM Court orders immediate ban on import, sale, offers for sale of Iphone 7, Iphone 8 plus, Iphone 8, Iphone 8 plus and Iphone X in China
*(US) OCT JOLTS JOB OPENINGS: 7.079M V 7.100ME
(UK) PM May: confirms she will delay Parliamentary meaningful vote on Brexit; there is broad support for aspects of the deal, the Backstop is creating concerns
TUESDAY 12/11
(UK) NOV JOBLESS CLAIMS CHANGE: +21.9K V +23.2K PRIOR; CLAIMANT COUNT RATE: 2.8% V 2.7% PRIOR
(UK) Oct Average Weekly Earnings 3M/Y: 3.3% v 3.0%e; Weekly Earnings (ex Bonus) 3M/Y: 3.3% v 3.2%e
(DE) GERMANY DEC ZEW CURRENT SITUATION SURVEY: 45.3 V 55.0E; EXPECTATIONS SURVEY: -17.5 V -25.0E
(CN) Reportedly China is signaling it could cut tariffs on U.S. cars - press
(US) NOV PPI FINAL DEMAND M/M: 0.1% V 0.0%E; Y/Y: 2.5% V 2.5%E
(UK) Senior govt source: expect confidence vote on PM May imminently; threshold of 48 letters has been reached to trigger a vote - Buzzfeed
(US) President Trump: Release of Huawei CFO Meng could be part of broader trade deal with China, could intervene in the Huawei case if it aids China trade deal; Would be 'foolish' for US Fed to raise rates at next week's meeting (Dec 18-19th)
WEDNESDAY 12/12
CSGN.CH Affirms FY19 RoTE 10-11%; To buy back shares of up to CHF3B in 2019, 2020 (17.5% of market cap); on track to complete 3-yr restructuring - Investor Day
(UK) LEADERSHIP CONTEST SAID TO HAVE BEEN TRIGGERED - press
(IT) Italy Govt said to propose 2.0% budget deficit to GDP target in revised 2019 budget - financial press
(CN) China reportedly preparing to replace "Made in China 2025" plan; revised plan would downplay China's efforts to expand its manufacturing dominance - press
*(US) DOE CRUDE: -1.2M V -3ME; GASOLINE: +2.1M V +2ME; DISTILLATE: -1.5M V +1.5ME
(IT) Italy PM Conte: New budget deficit proposal of 2.04% in 2019 does not betray Italians
*(UK) PM MAY SURVIVES THE CONSERVATIVE PART CONFIDENCE VOTE (as expected)
THURSDAY 12/13
*(PH) PHILIPPINES CENTRAL BANK (BSP) LEAVES OVERNIGHT BORROWING RATE UNCHANGED AT 4.75%; AS EXPECTED
AAPL Said to build new $1B campus in Austin; establish new sites and add jobs across the US - press
*(CH) SNB LEAVES SIGHT DEPOSIT RATE UNCHANGED AT -0.75%; AS EXPECTED
*(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.75%; AS EXPECTED
(TR) TURKEY CENTRAL BANK (CBRT) LEAVES 1-WEEK REPO RATE AT 24.00%; AS EXPECTED
(EU) ECB’s Draghi: Reaffirms guidance on rates; confirms reinvestment on QE program; reiterates that significant monetary stimulus still needed - Prepared remarks
(EU) ECB sources: Policymakers debated modifying the balance of risk assessment to highlight downside risks - press
COST Reports Q1 $1.73 v $1.62e, Rev $35.1B v $34.6Be
*(JP) JAPAN Q4 TANKAN LARGE MANUFACTURING INDEX: 19 V 18E; OUTLOOK: 15 V 17E (weakens for first time in 3 quarters); LARGE ALL INDUSTRY CAPEX: 14.3% V 12.8%E
*(CN) CHINA NOV INDUSTRIAL PRODUCTION Y/Y: 5.4% V 5.9%E (matches slowest growth rate since early 2016)
*(CN) CHINA NOV RETAIL SALES Y/Y: 8.1% V 8.8%E (slowest growth since 2003)
(CN) China National Bureau of Statistics (NBS) Official: Nov industrial production was impacted by the auto and electronics sectors; China 2019 economic growth target should reflect goal of doubling GDP by 2020 from 2010
AAPL China Unit: To publish iPhone software update early next week to resolve any possible concerns about compliance with court order
FRIDAY 12/14
(US) Lipper: US-based money market funds had inflows of $81B in most recent weekly period (largest inflows since the early 1990s), US-based stock funds had $46.0B in outflows (largest since the early 1990s) - US financial press
(FR) FRANCE DEC PRELIMINARY MANUFACTURING PMI: 49.7 V 50.7E (1st contraction in 27 months, lowest since Sept 2016)
*(DE) GERMANY DEC PRELIMINARY MANUFACTURING PMI: 51.5 V 51.7E (48th month of expansion but lowest since Mar 2016)
(EU) EURO ZONE DEC PRELIMINARY MANUFACTURING PMI: 51.4 V 51.8E (66th month of expansion but lowest since Feb 2016)
(US) Nov Industrial Production M/M: 0.6% v 0.3%e; Capacity Utilization: 78.5% v 78.6%e
JNJ Reportedly J&J was aware of asbestos issues for years regarding talc baby powder and failed to tell FDA – press
*(US) DEC PRELIMINARY MARKIT MANUFACTURING PMI: 53.9 V 55.0E (lowest since Nov 2017)
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