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

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.

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)

Hopes for China trade deal fade; Yield curve inverts

TradeTheNews.com Weekly Market Update: Hopes for China trade deal fade; Yield curve inverts
Fri, 07 Dec 2018 16:09 PM EST

It was a jarring week for investors which saw the Dow trade lower by nearly 800 points in two separate sessions before sliding another 559 points on Friday. Traders were forced to navigate the anomaly of a Wednesday US market closure due to the observance of Former President George H. W. Bush’s funeral which may have hampered liquidity and goosed volatility. Stock trading opened on a decidedly positive note after President Trump and President Xi appeared to reach some sort of a détente at their G20 dinner last Saturday. The euphoria spurred by positive tones coming from the US President was short lived though. Tuesday saw the US Treasury yield curve invert for the first time when the 5-year yield dropped below 3-year and eventually 2-year rates. This alarming growth signal spooked investors and, along with a rethink of just how lasting the trade truce will be, sent stocks careening lower in a global flight from risk assets.

Thursday when markets reopened the panic resumed after news broke late on Wednesday that the CFO of Chinese tech giant Huawei was arrested in Canada and was to be extradited to the US on trade sanction violations. The US 10-year yield dropped below 2.85% for the first time since this summer while the VIX popped back above 25. The Russel 2000 took out the fall lows while the other major US indices appeared poised to retest those Oct/Nov lows. Oil prices also remained heavy heading into the OPEC producers meetings. Oil prices bounced on Friday after an agreement was reached to take an additional 1.2M bpd of supply off the market beginning in January. Friday’s softer than expected November employment data didn’t raise any serious doubts about the prospects for a rate hike on December 19th, but was consistent with growing market expectations for a less hawkish Fed in 2019. Various Fed officials echoed the dovish shift outlined by Powell last week, but the softening of Fed expectations had diminishing effects on investor sentiment and stocks remained under pressure into the closing bell. Trade concerns and troubling signals for growth both home and abroad seem to have surpassed any positive momentum coming from the growing expectation of a wait and see Fed. For the week the S&P500 fell 4.6%, the DJIA lost 4.5%, and the Nasdaq tumbled 4.9%.

In corporate news this week, Nexstar confirmed it would acquire Tribune Media Company for $46.50/shr cash in a $6.4B deal that would make it the largest local TV firm in the United States. Tesaro shares jumped after Glaxo announced it would acquire the cancer-focused drugmaker in a $5.1B all-cash deal. Marlboro maker Altria Group announced a C$2.4B strategic investment in Canada pot firm Cronos, sending the cannabis company’s shares 20% higher on Friday. Toll Brothers dropped after reporting an earnings miss and lackluster guidance, the latest evidence of slowing housing demand. Restoration Hardware jumped on a strong outlook and beats on both the top and bottom line. Lyft filed confidential plans for an IPO with the SEC, beating rival Uber to the punch.

SUNDAY 12/2
(US) US President Trump: China has agreed to remove tariffs on Car imports - tweet

MONDAY 12/3
(UK) UK Home Secretary Javid: No chance of pulling the 11th Dec vote on PM May's Brexit Deal - radio comments
*(UK) NOV MANUFACTURING PMI: 53.1 V 51.7E
(CN) Reportedly China imports first US crude cargo in November after a month's halt following escalation of trade war - press
TRCO Nexstar confirms to acquire Tribune Media Company for $46.50/shr cash in $6.4B deal
TSRO To be acquired by GSK for $75/shr cash in $5.1B deal
(US) MARKIT NOV FINAL MANUFACTURING PMI: 55.3 V 55.4E
CRON Altria reportedly in discussions to acquire Cronos - press
(US) Atlanta Fed raises Q4 GDP forecast to 2.8% from 2.6% prior
*(AU) RBA LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED; Low rates support the economy

TUESDAY 12/4
(UK) UK Parliament find Government in contempt over Brexit legal advice; UK Gov defeated in contempt motion 311-293; Orders Gov to publish full advice immediately
(RU) Sec of State Pompeo: reiterates US position that Russia is cheating on the INF treaty; US has given Russia a 2-month deadline to come back into compliance
(UK) UK PM May Government defeated 321-299 in Vote on Parliament Brexit Power

WEDNESDAY 12/5
*(IN) INDIA CENTRAL BANK (RBI) LEAVES REPURCHASE RATE UNCHANGED AT 6.50%; AS EXPECTED
*(UK) NOV PMI SERVICES: 50.4 V 52.5E (28th month of expansion but lowest since July 2016)
*(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATE UNCHANGED AT 1.75%; AS EXPECTED
Oman Energy Minister: OPEC+ agrees to recommend a cut, has consensus for Oil production cut
(US) Association of American Railroads weekly rail traffic report for week ending Dec 1st: 567.3K, +0.4% y/y
(US) FEDERAL RESERVE BEIGE BOOK: ECONOMIC GROWTH 'MODEST OR MODERATE'; LABOR MARKETS TIGHTENED FURTHER
HUAWEI.CN Canada reportedly arrests global CFO, Deputy Chairwoman and daughter of founder, Wanzhou Meng in Vancouver on trade sanction violation suspicions in the US - Globe & Mail
HUAWEI.CN Confirms Wanzhou Meng is detained by Canada authorities Dec 1st, not aware of any wrongdoing by Meng, not provided with much information so far; confirms US is seeking to extradite her

THURSDAY 12/6
(US) Q3 FINAL NONFARM PRODUCTIVITY Q/Q: 2.3% V 2.3%E; UNIT LABOR COSTS Q/Q: 0.9% V 1.0%E
*(US) DOE CRUDE: -7.3M V -1ME; GASOLINE: +1.7M V +1ME; DISTILLATE: +3.8M V +1ME
(US) Atlanta Fed cuts Q4 GDP forecast to 2.7% from 2.8% prior
(US) Fed Reports Q3 Financial Accounts: Household Change in Net Worth: $2.07T v $2.278T prior
JPM CEO Dimon: we still have a strong economy; trade, oil and Brexit are creating uncertainty which is roiling the markets; see 60% chance of a US/China trade resolution - CNBC interview
LYFT.IPO Announces Confidential Submission of Draft Registration Statement for Proposed Initial Public Offering

FRIDAY 12/7
(EU) EURO ZONE Q3 FINAL GDP Q/Q: 0.2% V 0.2%E; Y/Y: 1.6% V 1.7%E
CRON Announces C$2.4B strategic investment from Altria Group; Altria agreed to acquire 146.2M shares at C$16.25/shr
(US) NOV CHANGE IN NONFARM PAYROLLS: +155K V +198KE
(US) NOV UNEMPLOYMENT RATE: 3.7% V 3.7%E (matches the lowest since 1969)
(US) NOV AVERAGE HOURLY EARNINGS M/M: 0.2% V 0.3%E; Y/Y: 3.1% V 3.1%E; AVERAGE WEEKLY HOURS: 34.4 V 34.5E
(US) DEC PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 97.5 V 97.0E
(US) Atlanta Fed cuts Q4 GDP forecast to 2.4% from 2.7% prior
BAS.DE Cuts FY18 Adj EBIT -20% to -15% y/y (prior slight decline up to -10% y/y) due to the Chemicals segment

Barron’s weekend summary

Barron’s weekend summary: Cover story on firms benefitting from offering subscription services; Cautious feature on AAPL; Positive features on AMAT, CAT, DVMT 

Cover story: Subscription services are giving companies as different as MSFT and DE regular revenue streams and benefiting investors; Recurring payments are also changing the way Americans consume software, music, movies, TV, fitness, clothing and food (Positive on SNPS, ADVS, CDNS, AZPN, ADBE, ADSK, INTU, MODN, PTC, PRO, GWRE). 

Features: 1) Cautious on AAPL: As the company’s iPhone juggernaut slows down, it could look to ADBE as a model and create a subscription service for Apple Music, iCloud storage, AppleCare warranties, and its rumored video service; 2) Story looks at how Bernie Madoff perpetuated his massive fraud, and at some of the warning flags investors should keep in mind to avoid sophisticated Ponzi schemes; 3) Positive on DVMT: Michael Dell and Silver Lake Partners will reap $11B by gaining control of VMW, but holders of the tracking stock—who aren’t getting as much as they deserve in the deal—will still benefit by owning stakes in a company with $90B in annual revenue; 4) Positive on AMAT: While the company faces near-term challenges, the long-term outlook for growth remains bright, because new, more sophisticated chips require more manufacturing equipment; 5) Positive on CAT: Shares are down, yet investors have dire concerns that seem at odds with business conditions and near-term earnings forecasts, and the recent selling looks overdone; 6) Story says many taxpayers will get a nasty surprise when they finalize their 2018 returns, but there are still ways to minimize the damage from new restrictions on deductions and other changes to the tax law. 

Technology Trader: Positive on PYPL: Company has “become an essential arms merchant in the raging war for e-commerce dollars” as retailers such as WMT, TGT, and BBY battle AMZN—and is flourishing in the transition to smartphone e-commerce. 

Trader: As the market grows more volatile, investors should own high-quality, low-volatility stocks, and not chase the market’s moves, says Savita Subramanian of BAC/Merrill Lynch; Positive on LEN: Housing doesn’t have to boom for the stock to do well, and with a dismal spring selling season baked in, shares are cheap—and likely to rise on even a modest upswing in home sales; A recent paper from the New York Fed says that equity markets treat the Fed chair “almost as the pope of Wall Street,” and that his or her words can significantly move equity markets. 

Interview: Matthew McLennan of First Eagle Global favors companies with strong competitive advantages and market positions, as well as conservative leverage, regardless of where they’re located (picks: XOM, ORCL, WY). 

Profile: Luz Padilla, manager of the DoubleLine Emerging Markets Fixed Income fund, was cautious as this year’s emerging markets rout unfolded, and believes developed markets could be the tinder for the next crisis. 

Follow-Up: Cautious on LRCX: If earnings have finally hit bottom, the shares could be a deal, but if not, the question is how low they can still go. 

European Trader: Cautious on DB: The fact that shares are down doesn’t make them a bargain, and investors should consider dumping them in any forthcoming rallies, or purchase out-of-the-money put options that will pay out if the stock falls. 

Emerging Markets: Investors will almost certainly make money in Asia over the next three years, says Edmund Harris of Guinness Asset Management, but things could certainly get worse during the next 12 months. 

Commodities: Silver prices quietly sit close to their lowest levels in nearly three years following a 15% decline this year, and the metal deserves a closer look. 

Streetwise: Politicians should stop criticizing GM chief Mary Barra for plant closures, since she is guiding the 110-year-old company toward the autonomous, electric future, while expanding its profit margins and U.S employment.

Barrons weekend summary

Barrons weekend summary: Positive feature on PGR; cautious on FB 

Cover story: “The explosive growth of digital data, along with better tools to analyze and store it, has jump-started a once-niche industry that packages under-the-radar information”; so-called alternative data, such as language tracking software that detects consumer sentiment, is becoming mainstream, creating potential and risk for investors. 

Features: 1) Cautious on FB: Company has gotten past a string of scandals recently, but there is the risk its prospects may be damaged more than the market expects down the road by Washington and Brussels; 2) Positive on PGR: Company, the No. 3 auto insurer in premium volume behind State Farm and Geico, has excelled at every major aspect of the business, and offers a tech-like growth story with its sophisticated analytics; 3) Regular investors are increasingly able to take advantage of alternative data, such as credit-card use or location tracking, offered by firms such as AMTD or Sentieo. 

Tech Trader: Positive on MSFT: Tech giant’s revival bucks a trend in which once-great companies such as Sun Microsystems or Digital Equipment flounder and disappear; Under chief Satya Nadella, it made a bold pivot away from Windows, putting its cash cows at risk, and successfully transitioned to cloud computing. 

Trader: Earnings estimates are likely to keep falling, says Dennis DeBusschere of Evercore ISI, and with the S&P 500 trading about at 15.8 times forward earnings, the risk of lower profits will limit future returns; Positive on APTV: For investors unwilling to bet on automakers such as GM because of tough competition and high capital needs, Aptiv, a supplier that sells key safety technologies for driverless cars, could be a good play;The annual meeting of the American Society of Hematology will feature developments from big firms such as CELG, AMGN and smaller ones such as BLUE and Genmab. 

Interview: Raghuram Rajan, governor of the Reserve Bank of India, has an independent streak that has drawn backlash; He talks to Barron’s about where the next crisis might be brewing, China’s debt, and why investors should care about income inequality. 

Profile: Robert Hyman, manager of the ALPS/Core Commodity Management Complete Commodities Strategy fund is trying to mitigate the contango that has cost about six percentage points per year for the past 10 years to the Bloomberg Commodity Index. 

Follow-Up: 1) Positive on GM: Automaker is taking the right steps with its plan to shutter plants and focus on its profitable truck/SUV business and autonomous vehicles, but investors are giving it little credit, and shares are undervalued; 2) Cautious on GE: Story offers four suggestions for how chief Larry Culp can turn around the troubled company: Be bold at GE Capital, sell part of GE Healthcare, infuse new life into the culture, and switch deal-making priorities. 

European Investor: Positive on J.D. Wetherspoon: Shares of British pub chain, which recently dropped after an earnings scare, are cheap, and offer a persistently high return on equity. 

Emerging Markets: Markets are skeptical about the ability of Mexico’s incoming President Obrador to deliver on socially generous campaign promises and deal with a “caravan” of migrants massing on the U.S. border. 

Commodities: “Achieving a balance in the oil markets is proving to be a challenge for OPEC and its allies, and they face their stiffest test yet when they meet in Vienna next week.” 

Streetwise: If there’s value in stocks, it’s in foreign markets, says Doug Ramsey of Leuthold Group—companies such as those in the MSCI EAFE index could gain 10% just to get back to median valuations.

Fed’s Powell “put” the market at ease amid G20 trade discussions

TradeTheNews.com Weekly Market Update: Fed’s Powell “put” the market at ease amid G20 trade discussions
Fri, 30 Nov 2018 16:05 PM EST

Investors had a host of issues to chew on this week, but ultimately the Fed Chairman’s speech on Wednesday moved the needle ahead of the weekend G20 meeting. Powell softened his comments on the whereabouts of the ‘neutral’ rate from Oct 3rd that many believed was a major catalyst for the recent US stock market correction. By acknowledging rates were “just below” the range that most Fed members viewed as neutral he appeared to offer investors an early Christmas gift by leaving the door open to backing away from some or even all of the Fed’s projected 2019 rate hikes. The economic numbers largely supported the dovish tilt as US data softened, oil prices plunged further, key inflation readings stayed subdued, and overseas growth signals remained worrisome.

Risk assets held the post-Powell gains heading into the G20 meeting on Friday. Expectations grew for the Xi/Trump summit as even some of the White House’s most ardent China hawks suggested something was likely to come of the meeting. Market expectations seemed to coalesce around the notion the two sides could zero in on a deal to de-escalate the trade dispute, involving the US delaying implementation of further tariffs in return for China policy modifications on farm and energy product restrictions. US Treasury yields fell and the curve flattened, rekindling fears of a potential curve inversion when the 2-year and 5-year yields converged to within a few basis points on Friday. For the week, the S&500 gained 4.8%, the DJIA rose 5.1%, and the Nasdaq added 5.6%.

GM’s announcement of a major restructuring headlined the corporate news this week. Citing shifting consumer tastes in automobiles, GM announced it would cease operations at three plants in the US and Canada and cut thousands of jobs with the expectation of saving billions of dollars in costs and capex. The US and Canada governments expressed displeasure at the move and President Trump said he would look at clawing back GM subsidies and bailout costs. United Technologies completed its acquisition of Rockwell Collins and confirmed the next step in its plans, splitting the conglomerate into three more focused entities. In a reversal from the consumer optimism surrounding the Black Friday weekend, Tiffany shook high end retailers with a subpar earnings report and a cut to its same store sales guidance for the fiscal year. Meanwhile, Salesforce reinvigorated trading in tech growth names with an impressive Q3 report. The week closed out with a report of a database breach at Marriott that may have exposed the personal information of half a billion customers over the last 4 years, sending the hotel’s shares down more than five percent.


MONDAY 11/26
(IT) Italy ruling coalition said to be discussing lowering 2019 budget deficit to GDP target from 2.4% to 2.0-2.1% - press
*(DE) GERMANY NOV IFO BUSINESS CLIMATE: 102.0 V 102.3E; CURRENT ASSESSMENT: 105.4 V 105.3E
GM Reportedly to cut car production in North America, will stop building some car models; to announce significant job cuts in N.A. among salaried and executive workers - press
GM Confirms accelerates transformation; cuts production from 5 plants; to take charge of $3.0-3.8B
(US) NOV DALLAS FED MANUFACTURING ACTIVITY: 17.6 V 24.5E
(US) Pres Trump: not happy with GM's decision to cut auto production; expects GM will put something else in Ohio; the country has done a lot for GM
UTX Confirms to Separate Into Three Independent Companies; Completes Acquisition of Rockwell Collins; affirms dividend of $0.735 post split; Cuts FY18 $7.10-7.20 v $7.27e (prior $7.20-7.30); Raises Rev $64.5-65.0B v $64.8Be (prior $64.0-64.5B); Affirms organic Rev ~+6%

TUESDAY 11/27
(US) Fed Vice Chair Clarida (moderate, voter): Gradual rate hikes appropriate as data shows way to neutral policy
(US) Nevada reports Oct casino gaming Rev $1.06B, +7.5% y/y; Las Vegas strip Rev $593.4M, +12.2% y/y
(EU) Reportedly US President Trump to impose 25% tax on European carmakers next week after G20 meeting - German press
*(US) NOV CONSUMER CONFIDENCE: 135.7 V 135.9E
GM Pres Trump expresses disappointment in GM, says he is studying cutting all GM subsidies, including for electric cars
CRM Reports Q3 $0.61** v $0.50e, Rev $3.39B v $3.37Be
GSK Unilever reportedly in exclusive talks to acquire nutrition unit from GlaxoSmithKline including Horlicks drink brand - FT
(CN) China Ambassador to US Cui: doesn't believe anyone in Beijing is thinking seriously about pulling back from US Treasury debt market if trade disputes worsen

WEDNESDAY 11/28
TIF Reports Q3 $0.77 v $0.76e, Rev $1.01B v $1.05Be
(US) Q3 PRELIMINARY GDP ANNUALIZED Q/Q: 3.5% V 3.5%E; PERSONAL CONSUMPTION: 3.6% V 3.9%E
(US) NOV RICHMOND FED MANUFACTURING INDEX: 14 V 15E
*(US) OCT NEW HOME SALES: 544K V 575KE
(US) Fed Financial Stability Report: large US banks are strongly capitalized; business debt high relative to GDP
*(US) DOE CRUDE: +3.6M V +0.5ME; GASOLINE: -0.8M V 0ME; DISTILLATE: +2.6M V -0.5ME
(US) FED'S POWELL: POLICY RATE IS 'JUST BELOW' ESTIMATES OF NEUTRAL; GREAT DEAL TO LIKE ABOUT THE US ECONOMY - PREPARED REMARKS AT NY ECONOMIC CLUB
(US) Association of American Railroads weekly rail traffic report for week ending Nov 24th: 470.9K, +3% y/y
(CN) US Trade Rep Lighthizer: China has yet to offer meaningful proposals; Chinese policies on auto tariffs are egregious

THURSDAY 11/29
(IT) Italy PM Conte said to be seeking to cut budget deficit target to 2.2%; 'optimistic' country could avoid Excessive Debt Procedure - Stampa
(DE) GERMANY NOV UNEMPLOYMENT CHANGE: -16K V -10KE; UNEMPLOYMENT CLAIMS RATE: 5.0% V 5.1%E (fresh post German reunification record low)
(EU) EURO ZONE NOV BUSINESS CLIMATE INDICATOR: 1.09 V 0.96E; CONSUMER CONFIDENCE: -3.9 V -3.9E
WTI crude trades below $50 mark for first time in more than 1-year
(US) OCT PERSONAL INCOME: 0.5% V 0.4%E; PERSONAL SPENDING: 0.6% V 0.4%E
(US) Former Pres Trump attorney Michael Cohen to plead guilty to making false statements to congressional committees investigating Russian collusion - ABC News
(US) Atlanta Fed raises Q4 GDP forecast to 2.6% from 2.5% prior
(CN) US and China reportedly considering deal to de-escalate trade disputes; likely would focus on delaying US tariffs in return for China policy modifications on farm and energy product restrictions - press
(US) FOMC MINUTES FROM NOV 8TH MEETING: ALMOST ALL SEE ANOTHER RATE INCREASE WARRANTED 'FAIRLY SOON'; FUTURE POLICY STATEMENTS TO EMPHASIZE IMPORTANCE OF INCOMING DATA
(CN) CHINA NOV MANUFACTURING PMI: 50.0 V 50.2E (lowest since July 2016); NON-MANUFACTURING: 53.4 V 53.8E
(CN) China Finance Ministry (MOF): Confirms to adjust cross-border e-commerce import tax from 2019; to raise the annual cross border quota for individuals to CNY26K from CNY20K, effective Jan 1st 2019

FRIDAY 11/30
(EU) EURO ZONE NOV ADVANCE CPI ESTIMATE Y/Y: 2.0% V 2.0%E; CPI CORE Y/Y: 1.0% V 1.1%E
MAR Announces Starwood guest reservation database security incident involving 500M guests
(CN) China Director of International Affairs Wang Xiaolong: the points of consensus between the US and China are rising, though some areas of disagreement remain as trade talks continue - press

Barrons weekend summary

Barrons weekend summary: Cover looks at opportunities in the FAANG stocks; positive features on to US financial firms; cautious on FB, IGCC 

Cover story: The FAANG stocks—FB, AAPL, AMZN, NFLX, and GOOGL—have lost $1.1T since their peaks, part of which may have been the result of herd behavior; The selloff creates an opportunity for investors to reassess them, because the next opportunity for the FAANGs could come from picking them apart and judging each on its own merits. 

Tech Trader: A new kind of lending has emerged in fintech: Affirm, launched by PYPL co-founder Max Levchin and others, allows users to pay online for goods with the repayment schedule of an installment loan, based on a new process for gauging credit risk. 

Trader: “Investors are fearful that 2019 earnings estimates won’t pan out because of potential global economic weakness, but some reduction in growth already seems discounted in the market”; Bankers are concerned that corporate leverage could trigger the next recession, and Fed chairman Jerome Powell has called out non-financial corporate debt as something to watch; Cautious on TGT: Shares are down after the retailer fell short of same-store sales and earnings estimates, but it’s unlikely the problem is as bad as investors think, and the shares are now a bargain. 

Interview: Jamie Zimmerman of Lifespeed Mananagemet, which specializes in event-driven investing, seeks to profit from asset mispricings from mergers, spinoffs, and bankruptcy filings. 

Profile: Jamie Cuellar, co-manager of the Buffalo Small Cap fund, looks for companies that benefit from long-term trends, such as cost-containment in healthcare and software-as-a-service (top 10 holdings: TWLO, CXW, MTZ, MIME, MDSO, HQY, HMSY, CONE, EGHT, RGEN). 

Features: 1) Cautious on FB: Barron’s likes the stock despite recent controversies, with two caveats: there are concerns about its changing user base and how that will affect selling ads, and it’s possible that recent markdowns could prove to be a lasting reset, not a dip; 2) Positive on WFC, USB, GS, PNC, BK, JPM, BAC: Berkshire Hathaway owns shares in seven of the country’s top 10 banks, a sign the sector offers value because they are less cyclical than other stocks and have more resilient earnings; 3) Early data from CFRA indicated that while it’s still early in the shopping season, hot consumer items—including electronic goods and apparel—are selling fast over the Thanksgiving weekend; 4) Positive on Curaleaf Holdings: As prohibitions against marijuana are relaxed across the U.S. and companies race to obtain licenses and locations, Russia-based Curaleaf is the best funded, though Canadian and U.S. counterparts are catching up; 5) Cautious on IGCC: Company that combines cannabis and blockchain isn’t living up to expectations, and negative details are emerging that are raising questions about its viability. 

European Trader: Positive on Advanced Metallurgical Group: Investors who recently soured on lithium sent shares down, and they look cheap, especially given the company’s expanding profit margins. 

Emerging Markets: Russia has a host of problems, but an oil-price correction isn’t among them—that’s the message the Kremlin is sending in response to Saudi Arabia’s latest call for exporters to unite on a production cut. 

Commodities: Emerging markets such as China and Saudi Arabia are expected to boost demand for uranium, creating significant growth prospects for the sector and benefiting companies such as Kazatomprom. 

Streetwise: Investors who opened cryptocurrency trading accounts during the past year are underwater, and most financial institutions are keeping quiet about their Bitcoin ambitions.

Collapsing oil prices worry markets awaiting Black Friday sales data

TradeTheNews.com Weekly Market Update: Collapsing oil prices worry markets awaiting Black Friday sales data
Fri, 23 Nov 2018 13:02 PM EST

Equity investors had little to be thankful for in this year’s shortened Thanksgiving week trade. Indices moved back towards the late Oct lows on concerns about slowing global growth, Brexit and Italian budget disagreements, and lasting China trade worries. Investors generally responded poorly to late Q3 earnings season reports from the retailers who largely noted growing margins pressures heading into holiday season. US Treasury yields slipped to the lowest levels in more than a month helped by the risk off flows. WTI crude prices careened toward $50 a barrel as global growth concerns and worries about oversupply weighed on oil. For the week, the S&P500 dropped 3.8%, the DJIA lost 4.4%, and the Nasdaq sagged 4.3%.

In corporate news this week, Apple and its suppliers’ shares were weighed upon by reports that the tech giant recently cut production orders for three new iPhone models due to lower-than-expected demand, and a separate report indicating Apple’s largest assembler, Foxconn, planned on nearly $3B in cost cuts amid warnings of anemic smartphone demand. As earnings season wraps up before the US holidays, some key retailers announced results, with Target and TJ Maxx seeing Q3 margins under pressure. Footlocker, however, beat expectations and raised its Q4 comps outlook, and Kohl’s saw strength in apparel. And as Black Friday kicked off, Macy’s CEO said in an interview that he saw a ‘really strong start to the holiday shopping season’ with the caveat of challenges arising from exceptionally strong Q4 comps last year. Nissan removed its long-time CEO Carlos Ghosn following his arrest on suspicion of financial misconduct in Japan. On Friday, Rockwell Collins shares spiked nearly 10% on word that China has approved its merger deal with United Technologies, quashing fears that the deal could get entangled in the Sino-US trade squabble.

MONDAY 11/19
7201.JP Reportedly Chairman Ghosn to be arrested in Japan for alleged financial trading violations - Japanese press
AAPL Reportedly has recently cut production orders for 3 new iPhone models due to lower-than-expected demand - U.S. financial press
(US) NOV NAHB HOUSING MARKET INDEX: 60 V 67E (lowest reading since Aug 2016; biggest drop since 2014)

TUESDAY 11/20
LOW Reports Q3 $1.04 v $0.97e, Rev $17.4B v $17.3Be
BBY Reports Q3 $0.93 v $0.85e, Rev $9.59B v $9.55Be
*(US) OCT HOUSING STARTS: 1.228M V 1.225ME; BUILDING PERMITS: 1.263M V 1.260ME
(US) Atlanta Fed cuts Q4 GDP forecast to 2.5% from 2.8% prior
GPS Reports Q3 $0.69 v $0.68e, Rev $4.09B v $3.98Be

WEDNESDAY 11/21
(US) Association of American Railroads weekly rail traffic report for week ending Nov 17th: 546.5K, +0.04% y/y
(US) Atlanta Fed maintains Q4 GDP forecast at 2.5%
(US) DOE CRUDE: +4.9M V +2ME; GASOLINE: -1.3M V -0.5ME; DISTILLATE: -0.1M V -2.5ME
(US) OCT EXISTING HOME SALES: 5.22M V 5.20ME
(US) OCT PRELIMINARY DURABLE GOODS ORDERS: -4.4% V -2.6%E; DURABLES EX-TRANSPORTATION: 0.1% V 0.4%E
(CN) Reportedly adviser Peter Navarro will NOT be at the upcoming Trump Xi meeting at the G20 - China press
(EU) EU Commission opinion on 2019 draft budget plans; confirms Italy budget is seriously noncompliance with debt reduction commitment; excessive deficit procedure warranted
TKA.DE Reports FY18 Net €60M* v €271M y/y, adj EBIT €1.6B v €1.64Be, Rev €42.75B v €42.3Be

FRIDAY 11/23
(US) According to Adobe Analytics, Thanksgiving online spending valued at $2.4B, +31.8% y/y - press
(DE) GERMANY Q3 FINAL GDP Q/Q: -0.2% V -0.2%E; Y/Y: 1.1% V 1.1%E
*(FR) FRANCE NOV PRELIMINARY MANUFACTURING PMI: 50.7 V 51.2E (26th month of expansion but lowest since Sept 2016)
*(DE) GERMANY NOV PRELIMINARY MANUFACTURING PMI: 51.6 V 52.2E (47th month of expansion but lowest since Mar 2016)
*(EU) EURO ZONE NOV PRELIMINARY MANUFACTURING PMI: 51.5 V 52.0E (64th month of expansion and lowest since Mar 2016)
COL China gives conditional approval for United Technologies merger deal
*(US) NOV PRELIMINARY MARKIT MANUFACTURING PMI: 55.4 V 55.7E
(SA) OPEC and Saudis are reportedly mulling quiet oil output cuts; considering stretching 2016 output limits into 2019 - press

Market Weigh Signs of Slower Growth and Brexit Uncertainties

TradeTheNews.com Weekly Market Update: Market Weigh Signs of Slower Growth and Brexit Uncertainties
Fri, 16 Nov 2018 16:25 PM EST

Headwinds persisted this week as a wide swath of headlines whipsawed the major US averages. Stocks opened the Veterans Day Monday under pressure led by the NASDAQ after a key corporate outlook downgrade weighed on Apple shares and the rest of the handset/chip space. The cautions growth narrative was subsequently echoed by other corporate forecasts by managements within that sector, as well as others, later in the week. Tuesday saw sentiment improve when White House adviser Kudlow confirmed a report that US China trade talks have resumed in earnest ahead of the upcoming G20 meeting. WTI crude futures continued fall as many pointed to global growth concerns and potential supply demand imbalances. Traders noted the exacerbated decline in crude prices came alongside as surge in natural gas prices which had many noting of a potential pairs trade gone wrong resulting in forced unwinding. For the week, the S&P lost 1.6%, the DJIA dropped 2.2%, and the Nasdaq fell 2.2%.

Slowing global growth remained an overriding factor as economic data out of Europe, particularly Germany, continued to disappoint. The signals of softening came amid arduous Brexit negotiations that saw PM May and the EU finally come to terms on a draft separation agreement. It remains anything but clear though, if the PM can cajole enough of her Conservative party members to support the deal ahead of a key European summit later this month. Separately, EU and Italian officials continued to trade barbs in the press over fiscal policy resulting in higher borrowing rates there. Fixed income risk barometers began to flash as high yield bond prices slumped, US Treasury yields fell, and the 3-month LIBOR-EURIBOR spread widened to levels not seen since 1999, before the dot com bubble. The benchmark 10-year yield closed below the 50-day moving average for the first time since Labor Day. In the latter part of the week, we heard from a cadre of Fed officials highlighted by Fed Chairman Powell and Vice Chair Clarida. Each acknowledged that the Fed must pay attention to slowing global growth signals going forward, but also indicated rates remain below ‘neutral’ and to this point nothing has altered the thinking that they need to gradually rise to that neutral level. The Greenback backed away from its strongest levels in more than a year late in the week as Treasury yields moved lower.

For the week's corporate news, on Monday, Lumentum shares fell precipitously after the company slashed its outlook, noting a large customer (presumably Apple) asked to materially reduce shipments. The news hit Apple shares along with its other suppliers, and on Tuesday, Qorvo followed suit, cutting guidance on lower recent demand for flagship smartphones. Semiconductor firms were also under pressure this week, after Nvidia cut its outlook on rising inventories and semi equipment maker Applied Materials forecast a soft Q1. KB Home added to woes in the homebuilder sector by guiding a weaker than anticipated Q4, which weighed on Home Depot and Lowes. In the retail space, Macy’s and Walmart dropped despite beating and raising earnings, and Williams Sonoma fell after reporting in line with expectations. On the M&A front, AthenaHealth confirmed a deal to be acquired by Veritas Capital for $135/share in cash, SAP announced the acquisition of Qualtrics for $8B just days ahead of its IPO, and Johnson Controls divested its power solutions business to Brookfield for $13.2B in cash and stock. Shares of Acadia Healthcare fell as much as 20% on Friday on a report that its LBO process has stalled. PG&E fell sharply this week on liability concerns relating to the disastrous 'Camp' wildfire consuming wide swaths of Northern California, but shares bounced off their lows on commentary from state regulators indicating they don't want to force the utility to go bankrupt.

SUN 11/11
XM To be acquired by SAP for $8B cash

MON 11/12
BBVA Recent strength being attributed to Mexico's govt vows no change in banking laws
LITE Cuts Q2 $1.15-1.34 v $1.67e, Rev $335-355M v $423Me (prior $1.60-1.75, Rev $405-430M), Op margin 23-25% (prior 28-30%) (update)
(US) EPA official: EPA to set new regulations to significantly cut nitrogen oxide emissions from heavy duty trucks
AAL.UK De Beers reportedly to cut low end diamond prices by as much as 10% - press
(US) Commerce Dept reportedly circulating a draft report on auto tariffs; Pres Trump to hold meeting Tues with trade advisers to discuss the report - press
(CN) On Friday (Nov 9th), US Treasury Sec Mnuchin and China Vice Premier Liu He resumed talks and spoke by phone; the conversation did not lead to any 'breakthrough' - US financial press
(CN) China Vice Premier Liu He to visit the US to pave the way for the Xi-Trump meeting; the Chinese official is expected to visit the US 'shortly' for talks - Hong Kong Press

TUES 11/13
BAYN.DE Reports Q3 Adj €2.89B v €3.88B y/y, adj EBITDA €2.20B v €2.20B y/y, Rev €9.91B v €8.03B y/y
VOD.UK Reports H1 adj EPS 3.56c v 6.32c y/y, adj EBIT €2.31B v €2.46B y/y, Rev €21.8B v €23.1B y/y
*(UK) SEPT AVERAGE WEEKLY EARNINGS 3M/Y: 3.0% V 3.0%E; WEEKLY EARNINGS (EX BONUS) 3M/Y: 3.2% V 3.1%E
*(UK) OCT JOBLESS CLAIMS CHANGE: +20.2K V +23.2K PRIOR; CLAIMANT COUNT RATE: 2.7% V 2.6% PRIOR
*(DE) GERMANY NOV ZEW CURRENT SITUATION: 58.2 V 65.0E; EXPECTATIONS SURVEY: -22.0 V -26.0E
HD Reports Q3 $2.51 v $2.27e, Rev $26.3B v $26.2Be
HD Hurricane related sales negatively impacted US comps by 80bps in Sep and 120bps in Oct - earnings call
(UK) Five pivotal senior ministers reportedly back UK Prime Min May's draft Brexit proposal - Sun's Newton Dunn
JCI Confirms to divest Power Solutions business to Brookfield Business Partners & CDPQ for $13.2B in cash and stock
(IT) Italy Govt publishes letter to the EU: Asks EU for flexibility for extraordinary events, cites spending for floods and infrastructure after Genoa; Confident to reach growth targets
(US) US planning to hold off on implementing auto tariffs for now after Trump meeting

WEDS 11/14
*(DE) GERMANY Q3 PRELIMINARY GDP Q/Q: -0.2% V -0.1%E; GDP Y/Y: 1.1% V 1.3%E (1st quarterly contraction since Q2 2014)
(EU) Euro Zone Q3 Preliminary GDP Q/Q: 0.2% v 0.2%e; Y/Y: % v 1.7%e
(DE) German Bundesbank: Real estate prices may be 15-30% overvalued, some loan collateral values may be overestimated
700.HK Reports Q2 (CNY) Net 23.3B v 18.4Be, Rev 80.6B v 80.4Be
M Reports Q3 $0.27 v $0.13e, Rev $5.40B v $5.38Be
(UK) One govt minister says two ministers, Mordaunt and McVey, will resign the cabinet - UK's Telegraph
(US) House Ways and Means Trade Subcommittee Ranking Member Pascrell (D-NJ): the new USMCA trade deal can't pass as is
(US) Association of American Railroads weekly rail traffic report for week ending Nov 14th: 547.2K, +1.4% y/y
(UK) UK PM May will not deliver statement to media on Wednesday evening - UK police minister
(UK) BBC's Kuenssberg: "Senior Tory tells me Brexiteer anger so high that seems likely there will be a call for no confidence vote tomorrow"
(UK) PM May reportedly has secured Cabinet support for Brexit deal, at least for now - UK's Telegraph
(CN) China govt reportedly has sent written response including concessions to US regarding trade reforms - press
(US) Fed Chair Powell: challenges include how much further to hike and at what pace; pretty good reason economy stays on healthy track; reiterates all meetings are live

THURS 11/15
*(ID) INDONESIA CENTRAL BANK (BI) RAISES REVERSE REPO RATE BY 25BPS TO 6.00%; NOT EXPECTED
*(PH) PHILIPPINES CENTRAL BANK (BSP) RAISES OVERNIGHT BORROWING RATE BY 25BPS TO 4.75%; AS EXPECTED
*(UK) BREXIT MIN RAAB RESIGNS; cannot support indefinite backstop arrangement
KBH Guides Q4 Housing Rev $1.31-1.34B v $1.43Be, Gross margin 18.3-18.6%, Op income margin 9.3-9.5% - annual investor presentation
*(UK) OCT RETAIL SALES (EX-AUTO/FUEL) M/M: -0.4% V +0.2%E; Y/Y: 2.7% V 3.4%E
WMT Reports Q3 $1.08 v $1.02e, Rev $124.9B v $124.8Be
*(US) NOV EMPIRE MANUFACTURING: 23.3 V 20.0E
*(US) NOV PHILADELPHIA FED BUSINESS OUTLOOK: 12.9 V 20.0E
FDA issues statement from commissioner on proposed new steps to protect youth by preventing access to flavored tobacco products and banning menthol in cigarettes
*(US) DOE CRUDE: +10.3M V +2ME; GASOLINE: -1.4M V -1.5ME; DISTILLATE: -3.6M V -2ME (biggest rise in crude since Feb 2017)
(US) Atlanta Fed cuts Q4 GDP forecast to 2.8% from 2.9% prior
(CN) US Commerce Sec Ross: still expects eventual China trade deal, but not by Jan - press
(CN) Commerce Sec Ross: US still plans China tariff boost to 25% in January - press
AMAT Reports Q4 $0.97 v $0.96e, Rev $4.01B v $4.00Be
NVDA Reports Q3 $1.84 v $1.91e, Rev $3.18B v $3.24Be; Raises Quarterly dividend 6.7% to $0.16 from $0.15 (indicated yield 0.32%)

FRI 11/16
IMB.UK Issues statement on FDA announcement: notes the menthol cigarette ban proposal would require a multi-year process
*(EU) EURO ZONE OCT FINAL CPI Y/Y: 2.2% V 2.2%E; CPI CORE Y/Y: 1.1% V 1.1%E
(US) Fed Vice Chair Clarida (moderate, voter): no clear signal to take from stock market volatility; have to pay attention to slowing global growth
*(US) OCT INDUSTRIAL PRODUCTION: 0.1% V 0.2%E; CAPACITY UTILIZATION: 78.4% V 78.2%E
(CN) US President Trump: May not have to impose additional tariffs on China; China wants to make a deal on trade, but proposal not acceptable yet (FOLLOW UP: CNBC's Javers: "White House officials tell me that the president was simply expressing optimism about ongoing negotiations with the Chinese when he said the US may not have to impose additional tariffs. I’m told we should not read into that that there is a deal imminent. All eyes still on G20.")

Barrons weekend summary

Barrons weekend summary: Cautious feature on retailers amid fierce competition with Amazon; Positive select oil & gas names 

Cover story: Forty years after Congress passed the Revenue Act of 1978 and created the 401(k), 55 million people have plans totaling more than $5 trillion; The 401(k) rule “has hastened or improved retirement for a large segment of the population, namely people with full-time jobs and matching benefits, but it’s far from perfect,” and needs to be available to more people. 

Features: 1) Cautious on KSS, TGT, TIF, HD, WMT, BBY, TJX: Retailers have managed to counter AMZN by ramping up their e-commerce fulfillment sides, improving supply chains, and taking other offensive steps, but even with a strong holiday outlook not all will ring up gains; 2) Oil’s descent during the past six weeks has shaken traders and sown doubt among investors, and the sector’s volatility could be a red flag for the rest of the economy; 3) Positive on BP, CVX, XOM, Royal Dutch Shell, EOG, COG, EQT: Energy companies have shown financial discipline by reining in capital spending and returning more cash to shareholders, and many shares look attractive despite a recent 15% retreat in the sector; 4) Just 13% of people working in corporate America have a defined-benefit pension plan—and few people work at one company long enough to get a pension that could support them in retirement. 

Tech Trader: Cracks in AAPL’s narrative began to form after its recent earnings report, with some analysts saying its reduced transparency could be a sign iPhone sales have peaked, while two key suppliers singled out Apple for a shortfall in component orders. 

Trader: The U.S. and China could reach a trade deal at the G20 and the Fed could pause on rate hikes, but even those actions might not be enough to fix the market; Positive on AMGN: Biotech generates more than $10B in free cash flow annually, is a good steward of its money, and has more cash than debt on its balance sheet; Positive on THS: Shares of the private-label food maker are down on negative headlines, but its strengths are obfuscated by restructuring-related charges and one-time items as it closes facilities and streamlines production. 

Interview: David Pearl, co-founder of Epoch Investments, believes that looking at growing free cash flow is the way to pick stocks, and says “We are in one of the best economic periods since World War II” (picks: MS, CVS, HXL, AAPL). 

Profile: David Sand and Andy Kaufman of Community Capital Management manage the Community Reinvestment Act Qualified Investment fund, which focuses on investments that are “sustainable, responsible, and impactful.” 

Follow-Up: “The SEC must take the lead in proposing—if not compelling—cooperation and new approaches to improve the accuracy and reliability of the U.S.’s outdated and expensive proxy voting system.” 

European Trader: Positive on British Land, Land Securities: The U.K.-based REITs have taken a hit over Brexit turmoil, but have reached price levels that merit consideration by income-oriented investors who think a Brexit deal will be reached by March 29. 

Emerging Markets: A Chinese yuan weaker than seven to the dollar has acquired symbolic significance, and if it breaches seven, it’s hard to tell where the next line will be; Beijing watchers think a currency defense might be in the offing. 

Commodities: Further natural gas price hikes may follow just as winter gets under way; prices will go up and down with the weather, with upside moves greater than downside moves. 

Streetwise: Economic growth tends to be higher in emerging markets, attracting bankers but putting them in place that are “less well governed, more corrupt, and increasingly polluted,” according to Renaissance Capital.

November-December 2018 Outlook

TradeTheNews.com November-December 2018 Outlook: The Results Are In
Tue, 13 Nov 2018 7:23 AM EST

The return of volatility has created dread in some investors and excitement in others that see opportunity in a less complacent market. The stock market had a classic October sell off, but other markets also suffered. The junk bond market had its worst month in a decade, and the 10-year Treasury yield hit a 7-year high as markets reassessed sentiment about Fed rate tightening, even at a “gradual” and predictable pace.

With the resolution of the US midterm elections, at least one of the key uncertainties of the last year is now resolved. The outcome of the election will not only change the tenor of US politics for the next two years, but it will also influence the other major outstanding geopolitical issues that play into the assessment of the balance of risks. Now risk analysis will focus squarely on Fed rate policy, the final outcome of the Brexit deal, and the nascent trade war between the world’s largest economies.

US Election ‘Blues’

In the US, the House going ‘blue’ thwarts any White House dreams of additional tax cuts, but could result in some bipartisan issues getting more attention, particularly infrastructure spending – though it remains to be seen if Trump and the Democrats can agree on the structure of any such spending legislation (highways vs. walls). A Democratic House does give Trump a foil to run against for the next two years and he will definitely use the “obstructionist Democrats” to share the blame for any policy failures, stock market weakness, or economic downturn. On the policy level, the absence of any new fiscal stimulus could give the Federal Reserve some room to slow its monetary tightening if any red flags appear in the economic data, even as it deflects criticism from President Trump about higher rates.

The next two months could see the outcome of Special Counsel Mueller’s probe, which is reportedly near completion. Mueller was in a ‘quiet period’ ahead of the election, but with the votes counted the Special Counsel may soon be ready to announce conclusions and possibly new indictments in the wide ranging investigation of Russian election interference. It will be embarrassing for Trump if more campaign advisors are caught up in the dragnet, but there is no sense of a fatal blow to his Presidency coming out of the investigation. No sooner than Mueller is done, however, House Democrats with newly regained subpoena powers could continue to harry the White House with demands for document related to his taxes and business dealings.

The probe of Russian election tampering could also be a thorn in the side of social media companies in the months ahead. If any hint of foreign influence being exerted through social platforms comes to light, firms like Facebook and Twitter will take a lot of heat, especially from President Trump seeking to assign blame for his party’s election setbacks. The social media firms have added thousands of employees to scan for misinformation campaigns, but have confirmed that they have removed only a few hundred suspect pages and users over the last few months.

Big Decisions in Europe

The same populist wave that swept Trump into power two years ago continues to roil Europe. The official Brexit, brought about by referendum, is now just months away. Meanwhile the new populist Italian government has begun to question EU authority over its budget.

The deadline for an agreement on Brexit keeps slipping but there isn’t much leeway left with the UK scheduled to leave the Union on March 29. By all accounts, most of the Brexit outline is completed but the Irish border remains the sticking point. It will all come down to whether the EU or the UK (and specifically Northern Ireland) will bend in order to save Europe from a ‘hard Brexit.’ If there is no breakthrough in the next few weeks, there won’t realistically be enough time for a new leaders’ summit or legislative debate in the parliaments of the EU27 nations. There is starting to be some speculation that the March 29 Brexit date under Article 50 could be extended but that is not likely to gain any traction with Brexiteers in the UK. Thus European markets will be on edge for the next few weeks as they contemplate the repercussions of a hard Brexit scenario, which is becoming more and more likely.

The Italian government will be watching the Brexit proceedings with special interest. Though the coalition in Rome insists that it has no desire to leave the EU or the euro, it has been pushing back hard against limits set by the European hegemony. So far Italy’s government has been adamant that it will not make any major changes to its budget plan and won’t veer from its 2.4% deficit/GDP target despite EU objections. Instead, Rome is pinning its hopes on the economic plan creating better than expected growth.

The European Commission has given Rome until mid-November (11/13) to make adjustments to its budget plan, but so far the Italians have been unyielding. If Italy’s government doesn’t pay some heed to Europe’s ‘advice’ regarding the budget and its deficit/GDP ratio should slip further, it could lead to disciplinary action in the spring of 2019 in the form an "excessive deficit procedure." That procedure could potentially culminate in sanctions that will make it even harder for Italy to spend its way out of its economic malaise.

Trade Talks or Trade War

As the dispute over international trade grows more serious, the US election result may ultimately give President Trump a stronger hand in trade talks. Though Democrats did well enough to retake the House, President Trump showed that he can still mobilize his voters, so China and Europe may not be able to simply wait him out of office. President Xi could now be more amenable to reaching an agreement with the Trump White House rather than risk a prolonged trade conflict potentially lasting six more years.

November 30 may be a binary moment as Presidents Trump and Xi meet in Buenos Aires. Arrangements appear to be on track for the two leaders to have bilateral talks on the sidelines of the G20, their first meeting since last July. If they can show some concrete progress toward resolving the impasse on trade between the world’s two largest economies it could alleviate some of the uncertainty hanging over markets. In the alternative scenario, Trump and Xi will bump heads and offer no concessions. That outcome could hasten implementation of US threats to boost existing tariffs from 10% to 25%, signaling the start of a full blown trade war.

To date, China’s biggest export has become strong rhetoric about holding its ground. The standard line from officials in Beijing has become that they do not desire a trade war, but they also don’t fear one. President Trump has also held firm and his only offer so far has been to issue additional punitive tariffs. If the G20 meeting comes and goes with no new overtures on trade issues between the two nations, it may finally shake confidence that a compromise will be found any time soon.

If the G20 is a bust, the Chinese currency could continue to fall against the greenback and test the key psychological level 7.00, which the PBoC has verbally defended in the past. The trade dispute has already weakened both the Chinese stock market and the currency, and a break of that level could stir concerns about capital flight from China. It’s also likely to earn a rebuke from the White House, which has declined to label China a currency manipulator, but knows that the weaker yuan softens the blow of tariffs because it makes exports cheaper.


Fed Steady, Inflation Steady, Oil…

The Federal Reserve has been one of the many targets of President Trump’s ire, but continues to go about its business after the election. With the US labor market at full employment and inflation stable around 2%, the Fed has achieved its mandate and logically continues to unwind extraordinary accommodation, raising rates and paring down its balance sheet holdings. Now the focus is moving to where rate tightening should stop in order to keep the economy humming without allowing it to overheat. The Fed seems to be aiming for a slightly restrictive policy as its endgame, a bit above the ‘neutral’ rate which stands somewhere around 3.00%.

The Fed made no noises about slowing rate hikes at the November meeting, giving every indication that the committee is ready to move again in December (12/18). With the rate hike locked in for next month, the statement and updated Summary of Economic Projections will be scrutinized for any signs that the Fed might blink in the face of both market and political pressure. If inflation shows no signs of percolating higher it could conceivably give the central bank an excuse to pare back tightening expectations. There is already a wing of the Fed that appears to favor stopping at ‘neutral’ to reassess the situation before tightening any further. If that strategy prevails, it means the Fed could raise in December and once more in the Spring and then declare neutral policy has been reached. If there is a “Powell put”, a level at which the Powell Fed would take action to support sagging equity market, it can be surmised that it’s at a lower level than under past Fed Chairs. Even still, the baseline case remains that that Fed will continue hikes throughout 2019 unless there are real signs downside risks are asserting themselves on the economy early next year.

A hard Brexit and unresolved trade tensions could move the needle to the downside. So too could slower economic growth in the US if the fiscal stimulus from the 2018 tax cut turns out to be just a short term ‘sugar high’ as many economists believe. There’s not much evidence yet that the corporate tax cut has changed companies’ long term behavior as the Trump administration predicted, so growth could slip back into the 2.5% range or lower next year.

The inflation outlook is another key factor in the central bank calculus, and as usual energy prices are unbalancing the scales. After demonstrating firm pricing through much of the year, crude oil prices have suffered a 20% decline from recent highs, entering a bear market amid the bout of risk-off behavior in the broader markets, shepherded along by booming US shale production and uncertainty about the OPEC+ production agreement.

An OPEC+ gathering in Abu Dhabi punted the issue, so it will come down to the semi-annual OPEC meeting (12/6) to determine if producers outside North America want to continue efforts to support prices. Even as Iranian exports dwindle under US sanctions, world oil producers will have to decide whether to keep the market in balance or to return to an every-man-for-himself production policy.

On the geopolitical end, the White House will have to contend with European governments which are contemplating a Special Purpose Vehicle to facilitate trade with Iran, circumventing some US sanctions. The SPV idea is sure to ruffle Trump’s feathers and create a negative feedback loop into efforts to resolve tariff issues between the EU and US. If world leaders don’t elect to solve these disputes diplomatically it could ratchet up tensions in the New Year.

CALENDAR OF EVENTS
NOVEMBER
6: US Midterm Election
7: China Trade Balance
8: FOMC Policy Statement; China CPI
9: US PPI

12:
13: UK CPI & PPI; German ZEW Economic Sentiment; Japan Preliminary Q3 GDP; China Industrial Production
14: UK Claimant Count & Unemployment; Euro Zone Flash Q3 GDP; US CPI
15: UK Retail Sales; US Retail Sales; Philadelphia Fed Index
16: UK Inflation Report Hearing; Euro Zone Final CPI; Preliminary University of Michigan Consumer Sentiment

19:
20: US Housing Starts & Building Permits; UK Autumn Forecast (tentative); Joint OPEC-non-OPEC Ministerial Monitoring Committee (JMMC)(tentative)
21: US Durable Goods Orders
22: ECB Minutes; THANKSGIVING HOLIDAY (US)
23: Various Euro Zone Manufacturing & Services PMIs

26: German Ifo Business Climate
27: UK Bank Stress Test Results; US Consumer Confidence
28: US Preliminary Q3 GDP (2nd reading)
29: German Preliminary CPI; US Personal Income & Spending; FOMC Minutes
30: German Retail Sales; Euro Zone Flash CPI Estimate; Chicago PMI; China Manufacturing & Non-manufacturing PMIs; G20 Leaders Summit in Buenos Aires(day 1)

DECEMBER
1: G20 Leaders Summit in Buenos Aires

3: UK Manufacturing PMI; US ISM Manufacturing PMI
4: UK Construction PMI
5: BOE Financial Stability Report; UK Services PMI; US ISM Non-Manufacturing PMI
6: Regular Semiannual OPEC Meeting in Vienna; China Trade Balance
7: US Payrolls & Unemployment
8: China CPI

10: UK Q3 GDP; UK Manufacturing Production
11: UK CPI & PPI; German ZEW Economic Sentiment; US PPI
12: UK Claimant Count & Unemployment; US CPI; China Industrial Production
13: ECB Policy Statement & Press Conference
14: US Retail Sales; Preliminary University of Michigan Consumer Sentiment
15: Japan Lower House Elections

17: NY Empire Manufacturing Index
18: German Ifo Business Climate; US Housing Starts & Building Permits
19: FOMC Policy Statement, SEP, & Press Conference; BOJ Policy Statement
20: UK Retail Sales; BOE Policy Statement; Philadelphia Fed Manufacturing Index
21: Various EU Flash Manufacturing & Services PMIs; UK Current Account; UK Final Q3 GDP; US Durable Goods Orders; US Final Q3 GDP; US Personal Income & Spending

24:
25: CHRISTMAS DAY HOLIDAY
26:
27: Chicago PMI; US Consumer Confidence
28: German CPI

31:
JANUARY
1: NEW YEARS DAY