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JPM | JPMorgan In Talks To Divest AARP Card Portfolio Worth 1B | JPMorgan NYSE JPM intends to sell one of its credit card portfolios with about 1 billion in receivables which was built in partnership with a non profit organization AARP This was first reported by Bloomberg citing persons familiar with the matter AARP which was earlier recognized as the American Association of Retired Persons comprises 38 million members JPMorgan and AARP have roughly 30 years of partnership This portfolio belonging to people of the age group 50 and above JPMorgan s AARP rewards card provides its users with benefits like 3 cash back on dining and gas purchases and 1 on all other purchases This portfolio has attracted the attention of Columbus OH based Alliance Data Systems Corp NYSE ADS Alliance Data Systems has been undertaking efforts to build its private label credit card and payments businesses Nonetheless as talks are still private there is no official confirmation of the same The latest move seems to be part of JPMorgan s efforts to further improve its operating efficiency The company with nearly 158 billion worth of card loans as of Jun 30 2019 is undertaking measures to strengthen its credit card operations Also the bank has been opening branches in new regions This will not only fortify its retail presence but also support the bank s cross selling opportunities in the cards and auto loan businesses Shares of this Zacks Rank 3 Hold company have rallied 10 8 year to date outperforming the s rise of 8 7 Stocks to ConsiderHilltop Holdings Inc NYSE HTH has been witnessing 2 2 upward earnings estimate revisions for the past 30 days with the company s shares jumping 27 6 year to date The stock flaunts a Zacks Rank of 1 Strong Buy at present You can see Limestone Bancorp Inc s NASDAQ LMST estimates remained unchanged over the past seven days The company s shares have gained 8 3 year to date Currently it sports a Zacks Rank 1 Looking for Stocks with Skyrocketing Upside Zacks has just released a Special Report on the booming investment opportunities of legal marijuana Ignited by new referendums and legislation this industry is expected to blast from an already robust 6 7 billion to 20 2 billion in 2021 Early investors stand to make a killing but you have to be ready to act and know just where to look |
JPM | JPMorgan In Talks To Divest AARP Card Portfolio Worth 1B Revised | JPMorgan NYSE JPM intends to sell one of its credit card portfolios with about 1 billion in receivables which was built in partnership with a non profit organization AARP This was first reported by Bloomberg citing persons familiar with the matter AARP which was earlier recognized as the American Association of Retired Persons comprises 38 million members JPMorgan and AARP have roughly 30 years of partnership JPMorgan s AARP rewards card provides its users with benefits like 3 cash back on dining and gas purchases and 1 on all other purchases This portfolio has attracted the attention of Columbus OH based Alliance Data Systems Corp NYSE ADS Alliance Data Systems has been undertaking efforts to build its private label credit card and payments businesses Nonetheless as talks are still private there is no official confirmation of the same The latest move seems to be part of JPMorgan s efforts to further improve its operating efficiency The company with nearly 158 billion worth of card loans as of Jun 30 2019 is undertaking measures to strengthen its credit card operations Also the bank has been opening branches in new regions This will not only fortify its retail presence but also support the bank s cross selling opportunities in the cards and auto loan businesses Shares of this Zacks Rank 3 Hold company have rallied 11 9 year to date outperforming the s rise of 9 1 Stocks to ConsiderHilltop Holdings Inc NYSE HTH has been witnessing nearly 2 2 upward earnings estimate revisions for the past 30 days with the company s shares jumping 29 2 year to date The stock flaunts a Zacks Rank of 1 Strong Buy at present You can see Limestone Bancorp Inc s NASDAQ LMST estimates remained unchanged over the past seven days The company s shares have gained 6 9 year to date Currently it sports a Zacks Rank 1 We are reissuing this article to correct a mistake The original article issued on August 28 2019 should no longer be relied upon |
MS | Ericsson doesn t see sales lift after security concerns hit Chinese rivals | BARCELONA Reuters Telecom networks equipment maker Ericsson ST ERICb said on Wednesday security concerns about its Chinese rivals and wider trade tensions had not translated into more orders for the Swedish firm s products Chief Executive Borje Ekholm also said his firm was investing in new technology for 5G networks to help boost its market share particularly in China There is a lot of speculation going on There is a lot of discussion about geopolitics he said at the Morgan Stanley NYSE MS Technology Media and Telecom conference in Barcelona We let the security agencies and politicians deal with that Asked if there had been any impact on Ericsson sales from worries among operators about Chinese competitors after some governments had intervened citing national security concerns he said We haven t really seen that to any large extent yet Australia and the United States have decided to ban Chinese suppliers from next generation 5G networks and German officials are planning a drive to convince the government to consider excluding Chinese firms such as Huawei Technologies Co Ltd HWT UL from building the country s 5G infrastructure Huawei the world s largest telecoms equipment maker has rejected any suggestion it might pose a threat to any country s national security saying cyber security has always been its top priority Ekholm said telecoms customers had been concerned when the U S government temporarily stopped U S firms selling to China s ZTE HK 0763 Corp SZ 000063 but he said that this had not translated into more orders for Ericsson equipment The U S denial order was lifted in July Ekholm said he did not think the trade tensions would make it harder for Ericsson to compete in China adding that his company had struggled in China in the past because it lacked the product range Chinese customers wanted This time around we are investing to make sure we have the features we have the functionalities we are doing well in tests we are doing well in customer discussions so I don t feel that in any way we are put at a disadvantage today he said |
MS | Tencent s Big Beat Falls Flat With Analysts Pining for New Games | Bloomberg Tencent Holdings Ltd failed to deliver on the one thing analysts were looking for from its third quarter update when will China approve new games
The company s management told analysts late Wednesday it didn t have much of an update regarding the games approval process that has been at the center of the stock s 245 billion loss of value since January
Here s what analysts have to say
JPMorgan Chase Co NYSE JPM
Cuts price target to HK 345 from HK 400 and removes Tencent as top sector pick writes analyst Alex Yao
Visibility on new game monetization approval the single most important swing factor of 2019 gaming revenue remains as low as before the print and the approval suspension seems more serious than initially thought
Still cautiously optimistic that approval process will resume by the end of 2019
Expansion into industrial Internet looks like a short term pain point but a long term gain it could take years for financial returns to emerge
Cuts 2019 2020 EPS targets by 11 9
Prefers Alibaba NYSE BABA among large caps on better control of earnings generation capability
Citigroup Inc NYSE C
Lowers price target to HK 392 from HK 420 and stays buy write analysts including Alicia Yap
Near term games revenue growth outlook remains murky as there is no sign of when approval will be resumed and given the implementation of real ID verification for Honour of Kings
Tencent s recent reorganization upgrade and its latest strategic focus on industrial Internet position it as a key digital assistant to industry partners whereby it could create another internet empire surrounding enterprises and providing support to provincial and municipal services
Reduces 2019 adjusted EPS target to HK 11 50 from HK 13 10
Morgan Stanley NYSE MS
Cuts price target to HK 370 from HK 420 stays overweight we believe cautious forecasts are prudent given macro risk write analysts including Grace Chen
Online game revenue was lower than expected mainly due to weakness in PC game sales
VAS gross margin contracted to a record low of 56 5 likely due to unfavorable product mix with softer than expected PC game sales
Online ad revenue was a highlight driven by strength in the social and others segment such as WeChat Moment Mini Program and QQ KanDian write analysts including Grace Chen
Also likes the 3Q figure for revenue from other businesses Strength in that segment was driven by commercial payments fintech services and cloud
Jefferies Group LLC
Results better than feared as sequential recovery in mobile games and re accelerating ad growth offset PC games weakness write analysts including Karen Chan
Clarity on game approval timeline remains low but 15 approved games in pipeline should provide a buffer of 2 3 quarters
Cloud and mini programs show long term monetization potential
Maintains buy rating and HK 385 price target |
MS | Oil edges higher but market at risk of possible supply glut | By Amanda Cooper LONDON Reuters Oil rose on Thursday stabilizing after losing nearly 7 percent over the previous three days though concern over the prospect of an oversupplied market next year continued to weigh on prices despite OPEC s message that it may cut crude output The Organization of the Petroleum Exporting Countries OPEC led by Saudi Arabia is considering a cut of up to 1 4 million barrels per day bpd next year to avoid the kind of build in global inventories that prompted the oil price to crash between 2014 and 2016 Brent crude oil futures were last up 61 cents on the day at 66 73 a barrel at 1245 GMT while U S crude futures rose 15 cents to 56 14 A cut helps but based on my balances I think we ll need to see 1 5 million bpd at least for the first half of the year Words aren t going to work The market is going to need to see action as well said ING commodities strategist Warren Patterson The International Energy Agency IEA and OPEC this week warned of a sizeable surplus at least in the first half of 2019 and possibly beyond given the pace of growth in non OPEC production and slower demand in heavy consumers such as China and India To avoid further price erosion a production cut is a must It is not only manifested in the demand for OPEC oil as estimated by forecasters but also in OECD stock levels said PVM Oil Associates strategist Tamas Varga The oil price has lost about a quarter of its value in only six weeks pressured by a slowing global economy and soaring crude output led by the United States Asian refiners and consumers we speak with are mentioning initial concerns of slowing demand said Mike Corley president of Mercatus Energy Advisors U S bank Morgan Stanley NYSE MS said on Wednesday that China s economic conditions deteriorated materially in the third quarter of 2018 while analysts at Capital Economics said China s near term economic outlook still remains downbeat China is the world s biggest oil importer and the second largest crude consumer As a result oil inventories are rising The American Petroleum Institute said late on Wednesday that crude inventories rose by 8 8 million barrels in the week to Nov 9 to 440 7 million compared with analyst expectations for an increase of 3 2 million barrels
With inventories likely to build in 1Q19 prices could remain under pressure in the near term Bernstein Energy analysts said in a note |
MS | SAP still expects to expand margins after Qualtrics deal SAP | BARCELONA Reuters SAP DE SAPG the German business software company still expects its margins to expand after its 8 billion takeover of Qualtrics the U S company that specializes in tracking the sentiment of consumers online CFO Luka Mucic said on Friday SAP will be able to scale growth and profitability quickly at Qualtrics Mucic told the Morgan Stanley NYSE MS European Technology Media and Telecoms Conference in Barcelona After closing SAP forecasts top line growth in double digits with non IFRS operating profits growing faster The company s margin recovery story will remain intact Mucic said adding that SAP would update guidance after the deal closes |
MS | Weak credit growth raises odds of first China rate cut in years | By Winni Zhou and Kevin Yao
SHANGHAI BEIJING Reuters China s stubbornly weak credit growth has spurred talk of its first cut in benchmark lending rates in three years but economists and policy insiders say concerns about a potential knock to its currency will likely give the central bank pause
While the People s Bank of China PBOC has already slashed banks reserve requirements four times this year and pushed money market rates lower analysts are now wondering if policymakers are considering wheeling out bigger guns
China s economic growth has cooled to its weakest pace since the global financial crisis and is expected to soften further in coming months if domestic demand is slow to recover and the United States piles more tariffs on Chinese goods
Beijing has announced a raft of growth boosting measures in recent months to cushion the fall ranging from more construction spending to tax cuts and more steps are likely on the way
But analysts say it will take some time before the world s second largest economy starts to stabilize with business conditions expected to get worse before they get better
Data this week showed credit growth slowed sharply in China in October despite increased injections of liquidity by the central bank into the financial system and pressure on banks from regulators to help keep cash starved companies afloat
There is a need to cut interest rates Chen Zheng senior analyst at China Merchants Bank said adding that if weak lending data persists for another month the market will likely lose confidence
The PBOC has not cut its benchmark 1 year lending rate since October 2015 it is now 4 35 percent opting instead to use other more targeted policy tools to influence borrowing costs such as extending more loans specifically to struggling sectors
Authorities are also concerned that more aggressive easing measures could undermine their recent campaign to reduce a mountain of debt left over from the last stimulus binge during the global crisis
But speculation about a possible rate cut was stirred after the PBOC changed some wording in its latest policy report
Its second quarter report said the PBOC would resolutely not engage in flood like strong stimulus That phrase was missing from the third quarter report released on Nov 9
The possibility is that much more powerful stimulus may be applied on top of already kitchen sink measures that reek of desperation The market hasn t woken up to the disturbing implications said Sue Trinh head of Asia FX Strategy at RBC Capital Markets
However Premier Li Keqiang did use the same phrase about avoiding strong stimulus in a speech in Singapore this week
CAN T BE RULED OUT BUT
One policy insider said a benchmark rate cut could not be ruled out but noted authorities would carefully weigh the potential adverse effects
The yuan currency has lost more than 6 percent against the dollar so far this year and would likely come under more pressure if China starts cutting rates while the U S central bank is steadily tightening policy
The trouble with cutting rates is related to the exchange rate The exchange rate is a very thorny issue They are trying to stabilize it said a second policy adviser
There is still room for a rate cut as our rate levels are still higher than those of the United States but the space won t be very big said the insider
The Federal Reserve is expected to raise rates again in December and several times more in 2019
China would then have to decide whether to use more of its foreign exchange reserves to defend the yuan or allow the currency to slide risking capital outflows
Researchers at Morgan Stanley NYSE MS expect the PBOC to cut RRR by another 100 basis points per quarter from this one through the end of 2019 while a benchmark interest rate cut is less likely they wrote in an emailed response to a Reuters query
Capital Economics on the other hand has forecast for some time that China would have to cut benchmark rates on top of other easing measures
A bold move to reduce borrowing costs across the economy in one fell swoop could help the central bank resolve a major policy conundrum
Repeated cash injections by the PBOC into the market to encourage banks to lend are not producing results as quickly as authorities had hoped as cautious lenders worry about a surge in bad loans as the economy continues to slow
It s the ineffective monetary transition mechanism rather than high interest rates that is suffocating China s small businesses said Serena Zhou economist at Mizuho Securities in Hong Kong
One big question mark is the China U S trade row
Some economists believe the central bank will wait to gauge the impact of the trade war and slowing global growth next year before deciding on another round of broad based easing China s exports to the U S have been remarkably resilient so far but face much higher tariffs from Jan 1
Nie Wen economist at Hwabao Trust in Shanghai said the biggest uncertainty faced by China is whether trade frictions with the United States will escalate
An interest rate cut is not necessary at the moment Nie said They are likely to hold off until the second half of next year And before that the central bank can still use RRR cuts to fairly effectively lowering funding costs
All eyes are now on a meeting between U S President Donald Trump and his Chinese counterpart Xi Jinping later this month to see if the two sides can de escalate their feud giving Beijing more room to concentrate on domestic pressures |
MS | T Mobile says Sprint deal may close as early as first quarter next year | Reuters T Mobile US Inc s N TMUS Chief Financial Officer said there is a possibility that its 26 billion acquisition deal of Sprint Corp N S will close as early as the first quarter of 2019 T Mobile majority owned by Deutsche Telekom AG DE DTEGn agreed in April to buy wireless carrier Sprint and the deal was initially expected to close in the first half of 2019 The Federal Communications Commission FCC and the Department of Justice are currently scrutinizing the deal The only remaining thing that is happening is depositions with the DoJ which have started and will be completed in a few weeks CFO J Braxton Carter told the Morgan Stanley NYSE MS TMT Conference in Barcelona At this point it s more pointing to the second quarter as more probable but it could still be first quarter Carter said Both the agencies did not immediately respond to requests for comment The agreement between the third and fourth largest U S wireless carriers in April was reached after four years of on and off talks that set the stage for the creation of a company that would compete more favorably with the top two wireless players Verizon Communications Inc N VZ and AT T Inc N T Their first round of merger talks had ended unsuccessfully in 2014 after the then Obama administration expressed antitrust concerns Carter said on Friday the companies have provided 25 million pages worth of documents to the DoJ filed 600 pages public information statement with the FCC and held meetings with other U S government departments The two companies have also defended their deal by saying they need to merge to build the next generation of 5G wireless technology in a robust nationwide network The combined assets of Sprint and T Mobile can create 8 times the 5G capacity that either of us could do on a standalone basis and 15 times the speed Carter said Telecom companies are pegging their future success on implementation of 5G networks which are expected to be at least 100 times faster than current 4G networks and cut latency allowing for innovations in a number of fields Governments have started auctioning 5G spectrum on both sides of the Atlantic The FCC on Wednesday launched the agency s first high band 5G spectrum auction while Germany is expected to start its 5G auctions in early 2019
There would be very very significant revenue synergies in the new company resulting from the merger Carter said at the conference |
JPM | WeWork s new chairman defends payouts to founder says company will survive | By Sheila Dang and Carrie Monahan Reuters WeWork s new Executive Chairman Marcelo Claure on Wednesday defended huge payouts to the office sharing company s founder Adam Neumann and said there is now zero risk of the company going bankrupt according to an audio recording of a meeting he held with employees that was reviewed by Reuters The meeting took place a day after WeWork s largest shareholder SoftBank Group Corp provided a 9 5 billion lifeline and took over the company including payments to Neumann to give up control In response to a question from one WeWork employee Claure said Neumann was like any shareholder of the company who deserved the right to sell his shares There s a level of gratefulness that we re going to have for Adam because he s the one who built this business Claure said Neumann has the right to sell his stake in the company for as much as 970 million sources previously told Reuters as part of a tender offer in which SoftBank will buy up to 3 billion in WeWork shares from investors and employees He currently owns a little over one fifth of WeWork SoftBank has also agreed to extend him a 500 million loan to repay a credit line from JPMorgan Chase Co NYSE JPM as well as pay him a 185 million fee for a four year assignment as a consultant to WeWork one of the sources said SURREAL TO CRAZY WeWork cofounder Miguel McKelvey had kicked off the meeting by introducing Claure to the staff at the company s New York headquarters and addressed the tumultuous few weeks WeWork had experienced I think I ve run out of words to describe what s been going on from surreal to crazy to unbelievable to bonkers McKelvey said In August WeWork filed for a splashy initial public offering This week it was struggling for survival as it has been quickly burning through the cash on its balance sheet The IPO was abandoned in September as investors balked at sky high valuations a deal in January had tagged its worth at 47 billion The rescue by SoftBank now values it at just 8 billion Investors also questioned both whether its business model was sustainable given big losses it was suffering and the way that Neumann was running the company triggering his resignation as CEO Claure who was previously CEO of U S wireless carrier Sprint Corp set an upbeat tone during the hour long meeting at which he encouraged questions My goal is to be part of one of the most amazing comebacks in history and to build jointly with you guys said Claure who is also the chief operating officer at SoftBank Claure said that the new cash injection meant WeWork was not going to struggle to survive However it was going to focus very differently he said Make no mistake the world has changed The growth stories don t sell any more he said Adding that the challenge was to build a company that has an amazing product that delights our customers but also makes money And that meant deciding which of the markets around the world makes sense for us to be in which market doesn t he said According to its website WeWork has 856 office sites in 123 countries that are open or about to open Claure said he did not know how many layoffs would take place as WeWork looks to go back to basics Sources close to the company have mentioned a range of figures for possible layoffs in recent weeks from as few as 2 000 to as many as 5 000 out of its 12 500 employees Claure said that despite the turmoil WeWork s landlords were eager to find different models of working with us WeWork had 18 billion in long term lease obligations as of the end of June according to its most recent public financial disclosure It also had 1 3 billion in net debt The company is closing or selling a number of businesses outside of the main office sharing operations It recently announced it would close the WeGrow private school in New York City after the current school year
WeWork did not respond to requests for comment |
JPM | Sizzle Is Off Emerging World s Hottest Destination for Investors | Bloomberg Egypt s President Abdel Fattah El Sisi emerged largely unscathed from a bout of anti government protests a month ago
Investors Less so
Egyptian stocks are the world s fourth worst performers since the demonstrations across several cities which prompted the government to arrest nearly 2 000 people and restrict social media And local currency bonds have underperformed emerging market peers this month slowing their world beating advance over the course of 2019
The change of tone underscores how quickly frontier markets such as Egypt which was more or less shunned by global traders until it began a series of reforms backed by the International Monetary Fund three years ago can turn for the worse
It has reminded investors just how narrow the exit window can be in adverse conditions said Paul Greer a London based money manager at Fidelity International which owns Egyptian Treasury bills but has reduced its exposure in recent weeks
Egypt retains a strong appeal It s still the fastest growing Arab economy and its inflation rate has dropped to 4 8 from almost 18 a year ago That s helped boost its inflation adjusted yields to around 10 especially enticing at a time when major central banks are easing monetary policy and 13 trillion of bonds have negative rates
Thanks to those yields and a strengthening pound Egypt s local bonds have gained 39 in dollar terms in 2019 That s more than seven times the average return across emerging markets according to Bloomberg Barclays LON BARC indexes
But whereas investors previously focused mainly on Egypt s impressive macroeconomic numbers they now have to add to the mix politics and widespread discontent that rapid growth is failing to reduce poverty Street protests have triggered the downfall of two Egyptian presidents this decade Hosni Mubarak in 2011 and his successor Mohamed Mursi two years later
The big pool of foreign investors holding the nation s securities also leaves the market more vulnerable if there s a sudden rush for the exit External ownership of local debt stood at about 19 5 billion late last month according to Finance Minister Mohamed Maait up from 13 billion in January Citigroup Inc NYSE C estimates there have been around 800 million of outflows since the demonstrations
Cairo s benchmark stock index remains 3 5 lower than it was before the protests
Investor Favorite
Egypt became a favorite among emerging market traders after it turned to the IMF in 2016 for a 12 billion loan to ease a crippling shortage of dollars It devalued its currency and reduced some of its extensive subsidy programs
This year the finance ministry s held talks with JPMorgan Chase NYSE JPM Co to try to get Egypt included in the Wall Street bank s indexes for developing nation local currency bonds That would help attract even more portfolio investment Egypt also hopes to conclude a deal by January with Euroclear which settles transactions in the securities of dozens of countries
With inflation slowing the central bank will likely continue an easing cycle that has included 450 basis points of rate cuts this year The Monetary Policy Committee will probably reduce its key rate by another 100 basis points to 12 25 at its next meeting on Nov 14 according to Mohamed Abu Basha head of research at Cairo based investment bank EFG Hermes
That would still mean a comfortable cushion for investors he said
Fidelity s Greer whose debt fund has outperformed almost all its competitors in 2019 remains positive about Egyptian assets for the rest of the year But he said if there s more political turbulence the pound and local bonds would be hit
Nothing Significant
Officials have played down the prospect of that Last month s unrest was nothing significant and won t change the direction of monetary policy central bank Governor Tarek Amer said in an interview in Washington
The risk reward has become more balanced said Esther Law a London based senior investment manager at Amundi Asset Management We will need to monitor inflation closely in case of some risk of a weaker currency from portfolio outflows |
JPM | How SoftBank made WeWork an offer it had to accept | By Mike Spector Joshua Franklin Greg Roumeliotis and Anirban Sen NEW YORK Reuters Just a few months ago WeWork s co founder Adam Neumann was being courted by Wall Street s top investment bankers in anticipation of one of this year s most high profile initial public offerings By October with the IPO abandoned and his office space sharing company bleeding cash Neumann found himself late on a Sunday evening pleading with WeWork s largest lender for a 5 billion lifeline people familiar with the matter said The message was clear without new financing WeWork would run out of money within weeks Do you still believe in the company Neumann who had stepped down as CEO but was still WeWork s chairman asked a room of JPMorgan Chase NYSE JPM Co N JPN bankers on the 42nd floor of their midtown Manhattan headquarters on Oct 6 the sources said The JPMorgan bankers led by asset and wealth management CEO Mary Erdoes and debt capital markets head Jim Casey told Neumann and other WeWork directors they would back the company and were confident they could raise the money But they would not underwrite the deal on the spot as one board member requested With questions swirling around WeWork s chances of survival in the wake of its failed IPO the bankers told Neumann they needed some time to sound out investors first according to the sources A few days later an alternative rescue plan began to emerge from WeWork s largest shareholder Japan s SoftBank Group Corp T 9984 Both were far from perfect But given its dire straits WeWork was fortunate to have a choice This account of how WeWork s financial rescue came together over the past three weeks is based on interviews with eight people with knowledge of the negotiations They requested anonymity to discuss the confidential deliberations WeWork SoftBank and JPMorgan declined to comment for this story Requests for an interview with Neumann were also declined CORPORATE GOVERNANCE PROBLEM SoftBank offered 9 5 billion to WeWork including new debt and recommitted equity as well as a tender offer to partly cash out Neumann and other shareholders In addition to providing more funds than JPMorgan the SoftBank deal resolved what some WeWork directors privately referred to as the company s corporate governance problem Neumann s controlling grip SoftBank s deal would strip Neumann s voting power and remove him from the board Neumann was blamed by other WeWork investors such as Benchmark Capital and China s Hony Capital for the company s precipitous decline some of the people said His erratic management style combined with WeWork s lack of a clear path to profitability alienated potential IPO investors The problem was that Neumann could still wield power over the company even after he quit as CEO on Sept 24 because as WeWork s founder each of his shares had 10 voting rights Others had only one vote for every share It was clear to SoftBank as well as to a special board committee formed to consider the financing plans that Neumann relinquishing control would come with a price tag three of the people said CLAURE AND NEUMANN NEGOTIATE In meetings in New York between Neumann and SoftBank Chief Operating Officer Marcelo Claure the contours of a side deal came together SoftBank would provide a 500 million credit line to refinance Neumann s personal borrowings made against WeWork s stock as long as he used proceeds from cashing out up to 970 million of his shares to repay SoftBank for that loan first SoftBank s latest offer valued the company at as little as 5 9 billion based on the repricing of warrants it was already committed to exercise according to Bernstein research a far cry from the 47 billion it had assigned to WeWork in January Neumann s special pay off did not stop there He negotiated with SoftBank a four year non compete agreement with a 185 million consulting fee in return for stepping down from WeWork s board He would now only get to observe board proceedings instead of participating WeWork s special board committee members expressed concern that Neumann s bailout would cause outrage among many WeWork employees whose stock options had a much higher strike price than the valuation in SoftBank s tender offer some of the people said The committee declined to comment for this article SoftBank s offer to buy up to 3 billion of WeWork stock from employees and existing shareholders would value the company at about 8 billion higher than the new valuation based on the warrants Neumann attempted to push up the valuation of the tender offer in his negotiations with SoftBank one of the people said SoftBank stood firm Anticipating criticism from its own shareholders for possibly throwing good money after bad it wasn t prepared to pay more Most WeWork directors wanted Neumann off the board and many minority shareholders which the special committee was formed to represent wanted to cash out the people said JPMorgan had not pursued raising additional money for shareholders in part because WeWork only tasked the bank with delivering 5 billion of debt financing JPMORGAN S COVENANT When the bank submitted the debt package on Monday only private equity firm Starwood Capital Group run by real estate mogul Barry Sternlicht had committed to join JPMorgan in sharing the financing burden JPMorgan agreed to provide the rest and transfer the money by Thursday But the deal also included a condition known as a covenant that would trigger a debt default if SoftBank did not make good on 1 5 billion that it had already committed to provide when warrants came due next April the people said JPMorgan wanted to ensure SoftBank would honor its financial commitment which would lessen the risk for investors holding debt that would one day need to be repaid But SoftBank told WeWork s board that it would not pay the 1 5 billion if its financing offer was rejected two of the people added The problem from SoftBank s perspective was that those warrants were based on January s 47 billion valuation of WeWork It wanted to change the pricing radically to reflect WeWork s dramatic fall in value JPMorgan dealmakers on the other hand believed WeWork s contract with SoftBank prevented the telecommunications and technology giant from reneging on that earlier commitment other people familiar with the matter said In the end the risk that SoftBank wouldn t fulfill its commitment if the JPMorgan financing package was chosen helped swing the special committee s deliberations in favor of SoftBank s offer they added SoftBank had made WeWork an offer it had to accept On Tuesday SoftBank unveiled a deal that increased its ownership of WeWork to 80 from 30 but sought to avoid having to consolidate WeWork s liabilities on its balance sheet by not taking full control of the expanded board SoftBank will only have 5 of the 10 seats But unless SoftBank can turn WeWork around quickly it could be a pyrrhic victory WeWork has burned through almost 2 5 billion of cash since the end of June and Claure will have to cut costs quickly including slashing thousands of jobs and helping the company to find a way to get out of expensive leases Otherwise the new cash injection may not last long enough to stabilize the business As predicted Claure is also facing some staff anger over the size of Neumann s payout He told employees on Wednesday that it was the price that had to be paid to get rid of Neumann s voting rights Otherwise he said Adam could do whatever he wanted
The story corrects Erdoes job description in paragraph 4 |
JPM | Government Bonds In Neverland | The negative interest rate policies of the European Central Bank ECB and the Bank of Japan BOJ have created a Neverland in the global fixed income markets An 8 18 Bloomberg story reported
The world s headlong dash to zero or negative interest rates just passed another milestone Homebuyers in Denmark effectively are being paid to take out 10 year mortgages Jyske Bank A S Denmark s third largest lender announced in early August a mortgage rate of 0 5 before fees Nordea Bank Abp meanwhile is offering 30 year mortgages at annual interest of 0 5 and 20 year loans at zero A 7 29 story in The Washington Times reported
The latest estimates are that approximately 30 percent of the global government bond issues are now trading in negative territory Last week Swiss 50 year borrowing costs fell below zero percent which means that Switzerland s entire government bond market now trades with negative yields Earlier in the month Denmark became the country to have its entire yield curve turn negative During 2018 when the 10 year U S Treasury bond yield was rising toward last year s high of 3 24 on 11 8 there was much chatter about its going to 4 5 For example on 8 4 at the Aspen Institute s 25th Annual Summer Celebration Gala JP Morgan Chase NYSE JPM Chief Jamie Dimon warned that the 10 year U S Treasury bond yield could go much higher
I think rates should be 4 today You better be prepared to deal with rates 5 or higher it s a higher probability than most people think At the time the bears worried about mounting federal deficits resulting from the tax cuts at the beginning of the year at the same time that the Fed was on track for more QT In addition there was mounting evidence that inflationary pressures were building with some related to Trump s tariffs
In my 8 8 18 daily commentary I wrote
So why isn t the U S bond yield soaring The bulls respond that trying to forecast the bond market using flow of funds supply vs demand analysis has never worked It s fairly obvious that U S bond yields are tethered to comparable German and Japanese yields which are near zero and are likely to remain there given the stated policies of both the ECB and BOJ to keep their official rates near zero for the foreseeable future The tether has gotten tighter since last year s peak in the U S bond yield on 11 8 Since then the U S bond yield has dropped 164bps to 1 60 on Monday while the comparable German and Japanese yields are down 111bps to 0 65 and 36bps to 0 23 respectively
Now consider the following related developments in the U S bond market
1 Tipping into negative territory The 10 year TIPS yield dropped to zero on Monday suggesting that the nominal yield reflects only inflation expectations with no real yield The TIPS yield could be about to turn negative as it did in 2012
2 Real rates and productivity Why should the real bond yield be negative or even zero The most widely accepted notion is that the real bond yield should be related to the growth rate in productivity which is the economy s real return arguably The correlation between the two using averages over five year time periods is not compelling though In any event productivity growth has been turning up over the past few years Productivity has been growing faster in the U S than in the other G7 economies
3 Demography is destiny The geriatric trend in global demographic profiles does support a case for negative nominal and real interest rates if the trend leads to a combination of slow growth and deflation That s if deflation reduces the value of assets purchased today with debt Negative interest rates on that debt might reflect the voluntary self extinction of the human race attributable to the collapse of fertility rates around the world Dwindling populations particularly of younger people will put downward pressure on real asset prices because there will be less demand for the goods and services they provide in the future |
JPM | Paypal PYPL Down 5 5 Since Last Earnings Report Can It Rebound | It has been about a month since the last earnings report for Paypal PYPL Shares have lost about 5 5 in that time frame underperforming the S P 500
Will the recent negative trend continue leading up to its next earnings release or is Paypal due for a breakout Before we dive into how investors and analysts have reacted as of late let s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts PayPal s Q1 Earnings Beat Estimates Revenues Up Y YPayPal Holdings delivered non GAAP earnings of 78 cents per share in the first quarter of 2019 which surpassed the Zacks Consensus Estimate by 11 cents and surged 37 on a year over year basis The company s strategic investment in MercadoLibre NASDAQ MELI acted a key catalyst throughout the quarter as evident from its contribution of 8 cents to the reported EPS figure Net revenues of 4 128 billion missed the Zacks Consensus Estimate of 4 129 billion However the figure increased 12 from the year ago quarter The year over year growth in top line can be attributed to rapidly increasing net new active accounts and strengthening customer engagement on the company s platform which provided a significant boost to the total active accounts in the reported quarter Further robust performance of Venmo and One Touch continued to contribute well to revenues However sale of the U S consumer credit receivables portfolio to Synchrony negatively impacted revenues Without the impact revenues would have exhibited growth of 19 Top Line in DetailBy Type Transaction revenues came in at 3 731 billion 90 4 of net revenues up 17 from the year ago quarter Other value added services generated 397 million of revenues accounting for 9 6 of net revenues decreasing 18 6 year over year The decline can be attributed to the sale of its U S consumer credit receivables portfolio to Synchrony By Geography Revenues from the United States came in at 2 187 billion 53 of net revenues up 8 1 on a year over year basis International revenues were 1 941 billion 47 of revenues increasing 17 from the prior year quarter Quarter in DetailPayPal s strategic partnerships and portfolio strength continued to strengthen its customer as well as merchant base throughout the reported quarter which in turn aided its total payment volume TPV During the first quarter the company revealed a partnership with Facebook s Instagram Per the deal it will process payment infrastructure on the latter s Checkout on Instagram Further PayPal invested 750 million in MercadoLibre in order to make a foray into the e commerce space Further this move is strengthening the company s international presence Additionally PayPal unveiled Instant Transfer in collaboration with JPMorgan Chase NYSE JPM This offers real time payments for both consumers and merchants consequently enabling PayPal s customers to access their money seamlessly Further the company s efforts to monetize Venmo remained positive throughout the quarter The product s annual revenue run rate exceeded 300 million in the first quarter Key Metrics to ConsiderSupported by these endeavors the company recorded year over year growth of 17 in total active accounts by addition of 9 3 million net new active accounts during the reported quarter The total number of active accounts was 277 million in the quarter beating the Zacks Consensus Estimate of 274 million Venmo remains a key growth driver in this metric with over 40 million active customers Additionally the total number of payment transactions came in at 2 84 billion up 28 2 on a year over year basis The figure topped the Zacks Consensus Estimate of 2 82 billion Further the company s payment transactions per active user were 37 9 million which increased 9 2 from the year ago quarter The figure lagged the Zacks Consensus Estimate of 38 2 million TPV came in at 161 5 billion in the reported quarter exhibiting year over year growth of 22 and 25 on spot rate and currency neutral basis respectively However the figure missed the Zacks Consensus Estimate of 162 9 billion eBay NASDAQ EBAY volume which was down 4 remains a concern Further it accounted for 9 7 of TPV contracting 300 bps from the year ago quarter Nevertheless Venmo which accounted for 21 billion of TPV surged 73 on a year over year basis driven by its strong performance Further growing momentum of core peer to peer P2P also contributed 42 billion up 41 from the prior year quarter Also merchant services volume which was up 29 helped in offsetting the declining eBay contribution during the reported quarter Further mobile payment accounted for more than 66 billion of TPV primarily driven by robust mobile checkout services of One Touch which had 12 1 million merchants and 136 million customers at the end of first quarter Operating DetailsPayPal s operating expenses were 3 61 billion in the first quarter climbing 14 6 from the prior year quarter Non GAAP operating income rose 12 7 year over year to 934 million Further non GAAP operating margin came in at 22 6 expanding 10 bps on a year over year basis Balance Sheet Cash FlowAs of Mar 31 2019 cash equivalents and investments came in at 7 8 billion down from 9 1 billion on Dec 31 2018 PayPal generated 1 03 billion of cash from operations and free cash flow of 809 million during the reported quarter Further the company bought back 7 7 million shares worth 750 million GuidanceFor second quarter 2019 PayPal expects revenues between 4 3 billion and 4 34 billion growing in the range of 11 13 at current spot rate and 12 13 on FX neutral basis Non GAAP earnings are anticipated in the range of 68 70 cents per share The company s investment portfolio is likely to contribute 1 cent to the EPS in second quarter For 2019 PayPal estimates revenues between 17 85 billion and 18 1 billion rising in the band of 16 17 at both current spot rates and on FX neutral basis Further non GAAP earnings are expected in the range of 2 94 3 01 per share This includes benefit of 8 cents from PayPal s investment in MercadoLibre
How Have Estimates Been Moving Since Then
It turns out fresh estimates have trended downward during the past month
VGM Scores
Currently Paypal has a nice Growth Score of B though it is lagging a bit on the Momentum Score front with a C Charting a somewhat similar path the stock was allocated a grade of D on the value side putting it in the bottom 40 for this investment strategy
Overall the stock has an aggregate VGM Score of C If you aren t focused on one strategy this score is the one you should be interested in
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions has been net zero Notably Paypal has a Zacks Rank 2 Buy We expect an above average return from the stock in the next few months |
MS | AT T CFO cautions on how quickly 5G revenue will come | BARCELONA Reuters AT T NYSE T is upbeat on long term revenue prospects for 5G services but expects it to take years before 5G enabled devices predominate CFO John Stephens said on Wednesday AT T the second largest U S wireless carrier has developed some use cases for the next generation mobile technology such as connected factories but does not expect 5G enabled handsets to hit the market until late 2019 or 2020 It s an exciting spot We re ready But I m not here to make any predictions on revenue opportunities in 19 Stephens told the Morgan Stanley NYSE MS TMT Conference in Barcelona Stephens said only around 5 percent of users were getting a new smartphone each quarter indicating it will take time for the sector to grow
On revenue opportunities will we say in five years how did we ever live without this I would say yes Stephens said |
MS | Online ad group Criteo confident it can remain independent | PARIS Reuters Online advertising and technology company Criteo expressed confidence it could continue to operate on a standalone and independent basis even as tech start ups get targeted by bigger more established companies That s not part of our strategy today to look for another partner Criteo chief financial officer Benoit Fouilland told a Morgan Stanley NYSE MS technology conference in Barcelona Fouilland whose presentation was broadcast on Criteo s website added his company would invest more next year which could result in a drop in Criteo s margins We feel we have the right ingredients and right assets in order to be successful added Fouilland Back in 2014 Criteo had been the subject of speculation that it could be bought by French advertising giant Publicis
Criteo itself has been making acquisitions of late buying a Silicon Valley company called Manage in October |
MS | Verizon looks to expand 5G home broadband offering | BARCELONA Reuters Verizon NYSE VZ plans to target a broader audience for its new 5G home broadband product following the adoption of global standards for the technology CFO Matthew Ellis said on Wednesday The top U S wireless carrier has launched 5G home broadband in four cities that provide high speed connections without having to lay a cable connection using standards agreed with an allied group of operators and providers We re very excited with results we ve got Ellis told the Morgan Stanley NYSE MS TMT Conference in Barcelona of the limited rollout Verizon will launch 5G enabled handsets in the first half of 2019 and widen its offering of 5G broadband based on the global standard that was adopted in June We see line of site to get to 30 million households in the next few years Ellis said He added that 5G would start to have an impact on Verizon s financials in 2020 |
MS | Oil finds floor stocks ease sterling braces for wild swings | By Danilo Masoni MILAN Reuters Oil prices bounced from multi month lows on Wednesday but stocks fell as disappointing data heightened worries over slowing global growth while the pound wavered as Prime Minister Theresa May faced the hard task of selling her Brexit deal European shares hit a two week low after data showed the German economy contracted for the first time since 2015 tracking similar losses in Asia where data in Japan and China underscored worries about weaker growth They later pared some losses after Reuters reported that OPEC and its partners were discussing a proposal to cut output helping oil prices reverse opening losses and putting an end to their longest losing streak in decades The MSCI s world equity index MIWD00000PUS remained on track for its fifth day of losses in a row but reduced its decline to 0 1 percent by 1243 GMT The pan European STOXX STOXX benchmark index was down 0 2 percent while U S stock index futures pointed to a flat open Sterling fell from the 7 month high versus the euro and eased below 1 30 in volatile trading after being boosted from news that Britain and the European Union agreed on the text of a Brexit divorce deal After 873 days of bickering point scoring intransigence on both sides and seemingly irreconcilable differences we finally have a deal said Deutsche Bank DE DBKGn strategist Jim Reid Now this easy part is out of the way along comes the hard part of selling it to a divided Parliament full of vested interests and factions he added in a note Before seeking UK parliamentary approval before exiting the bloc on March 29 2019 May will try to persuade senior ministers to accept the deal that opponents said would imperil her own government and threaten national unity The British cabinet is due to meet at 1400 GMT Although sterling softened from peaks hit in the previous session investors were anticipating wild swings ahead for the British currency Sterling dollar implied overnight volatility jumped to 23 percent its highest since a general election in June 2017 We are cognizant that the recent provisional deal is only a step in the right direction and if it does not pass the meaningful vote the opposite scenario is likely to play out said Richard Larner Head of Research at Brooks Macdonald In this event investors will begin to price a no deal situation into investment markets he added OIL BOUNCES AFTER LONG LOSING STREAK Meanwhile oil attempted to rebound after plunging around 7 percent the previous session with surging supply and the specter of faltering demand scaring off investors The growing prospect of OPEC and allied producers cutting output at a meeting next month however propped up the market helping U S West Texas Intermediate WTI crude futures CLc1 trade 0 3 percent at 55 9 a barrel and reverse opening losses According to three sources familiar with the issue OPEC and its partners are discussing a proposal to cut oil output by up to 1 4 million barrels per day for 2019 to avert an oversupply that would weaken prices In the previous session U S crude futures suffered 12 straight sessions of losses We went through our archives yesterday and found a bit more daily data back to 1977 and we still can t find a losing run of this magnitude said Deutsche Bank s Reid Brent crude oil futures LCOc1 also bounced up 0 9 percent at 66 05 per barrel In the previous session they hit an eight month low following a 25 percent slide from the four year high reached early in October Energy stocks SXEP in Europe also recovered ground but remained in negative territory down 0 4 percent The oil plunge underlined cracks in the global economy The German economy shrank 0 2 percent in the third quarter as global trade disputes and problems in the auto industry threw the traditional export growth engine into reverse Earlier in the day data from Japan confirmed the world s third largest economy contracted in the third quarter ITALIAN BUDGET WOES Still in currency markets the euro EUR struggled below 1 13 as Italy re submitted its draft budget for next year to the European Commission with the same growth and deficit assumptions that had been rejected by Brussels While boosting its privatization plan and committing to mitigate spending overshoots the Italian government did not change its deficit targets This will likely lead the European Commission to recommend an infringement procedure said Morgan Stanley NYSE MS analysts Concerns over the Italian budget also spread to debt markets with yields on Italian government bonds hitting three week highs widening the gap over top rated German peers while shares in Italian banks FTIT8300 fell 1 3 percent
In commodities base metals eased slightly as weak retail sales data from top consumer China took the shine off upbeat industrial output and investment figures in the country |
MS | Defiant Italy sets stage for budget showdown with EU | By Jan Strupczewski BRUSSELS Reuters Italy re submitted its draft 2019 budget to the European Commission with the same growth and deficit assumptions as a draft rejected for breaking European Union rules stepping up its showdown with the EU over its fiscal policy The Commission which is the guardian of EU laws sent back Italy s previous draft last month to be revised because its growth assumptions were too high the deficit was to be bigger rather than smaller and debt was to be stable instead of lower But Italy s euro sceptic government of the far right League and populist Five Star movement dug in its heels on the main assumptions of the draft and defying a call from all euro zone finance ministers last week stuck to its initial plan The only concession offered by Rome in the revised plan is to sell more state assets and to pay off debt faster Italy s structural deficit which excludes one off items like privatization and business cycle swings and is key for the assessment of fiscal health is still to rise 0 8 percent of GDP next year rather than fall 0 6 percent as required by EU rules European Central Bank policymaker Klaas Knot said Italy should comply with the rules or face higher borrowing costs because the ECB would not rush to the aid of any single country It s quite pertinent that Italy actually complies with the rules Knot told CNBC television If it doesn t the result is that spread will go up Italy s 10 year bond yield rose 9 bps to a three week high at 3 54 percent IT10YT RR pushing the gap over benchmark 10 year German Bund yields to 314 bps from around 303 bps late on Tuesday on news of the revised budget The cost of insurance against Italian default also rose While boosting its privatization plan and committing to mitigate spending overshoots the Italian government did not change its deficit targets Morgan Stanley NYSE MS economist Daniele Antonucci said This will likely lead the European Commission to recommend an infringement procedure STILL IN BREACH OF EU RULES EU fiscal rules require highly indebted governments such as Italy to cut their structural deficit and debt every year until government books are in balance or surplus in structural terms and public debt is below 60 percent of GDP Italy has a public debt of 131 percent of GDP the second highest in the EU after Greece and other euro zone finance ministers are worried Italy could trigger a sovereign debt crisis like that one that nearly killed the euro some years ago In the revised draft Italy forecasts that its debt would now rapidly fall to 129 2 percent in 2019 127 3 in 2020 and 126 0 in 2021 But markets doubt that Government debt is unlikely to come down over 2019 21 in our view Morgan Stanley s Antonucci said The fiscal boost to growth will probably have some beneficial effects on consumption But it s unlikely to be so big as to result in an improvement of the public finances Markus Ferber a German conservative on the European Parliament s Economic and Monetary Affairs Committee called on the Commission to be tough when it issues its assessment of the revised Italian budget on Nov 21 Italy is going for escalation Ferber said If the integrity of the EU fiscal rules matter at all for the European Commission it has to take a tough stance on this provocation Stubbornness will do Italy more harm than good The markets have already amped up the pressure by sending the spreads for Italian bonds steadily up over the past few months this trend is likely to continue he said The European Commission now has the option of starting disciplinary steps against Rome over the structural deficit rise and the unrealistic growth and debt assumptions The Commission forecast last week Italy s debt would remain stable at 131 percent of GDP until 2020 The disciplinary steps could eventually end in fines for Italy although this option has never been used so far Italy s Deputy Prime Minister Matteo Salvini warned on Wednesday the EU would make a mistake if it moved to sanctions
They ve got it wrong if they are even just thinking of imposing fines on the Italian people Salvini who is also the leader of the League told state owned radio RAI |
MS | Altice USA CEO calls for fixed wireless consolidation in the U S | BARCELONA Reuters Altice USA Chief Executive Officer Dexter Goei called on Wednesday for the consolidation of fixed and wireless telecoms businesses in the United States Altice USA owns the fourth biggest cable operator in the United States and is the sister company of Altice Europe both controlled by Franco Israeli tycoon Patrick Drahi I m a big believer in fixed wireless consolidation Altice USA s boss Dexter Goei said at the Morgan Stanley NYSE MS TMT Conference in Barcelona The U S market is the only market that has not seen fixed wireless consolidation |
JPM | NewsBreak SoftBank to Take Control of WeWork Inject up to 5B Reports | Investing com SoftBank will take control of WeWork in a deal that would cut the value of the work space company to about 8 billion and provide a much needed cash injection according to published reports citing people familiar with the matter
Softbank plans to spend between 4 billion and 5 billion on new equity and existing shares to take a 70 controlling stake in WeWork The deal would value WeWork between 7 5 billion to 8 billion and could be announced as soon as Tuesday according to the reports
We Work was valued at 47 billion as recently as January It shelved plans to go public after its IPO prospectus in August revealed a 900 million loss in the first half of the 2019
The report comes just a week after reports suggested that WeWork was running out of cash and had been in talks with JPMorgan NYSE JPM and SoftBank to raise funds |
JPM | SoftBank s WeWork financing would lead to Adam Neumann s exit sources | By Greg Roumeliotis Anirban Sen and Joshua Franklin
Reuters SoftBank Group Corp T 9984 offered close to 10 billion to WeWork owner The We Company its employees and its investors on Monday under a plan to keep the struggling U S office space sharing start up afloat that would lead to the exit of its co founder and Chairman Adam Neumann people familiar with the matter said on Monday
WeWork could run out of cash as early as next month without new financing sources have said after the company pulled plans in September for an initial public offering IPO It abandoned the IPO when investors questioned its large losses the sustainability of its business model and the way WeWork was being run by Neumann who gave up his CEO title last month and now serves as board chairman
SoftBank has offered 5 billion in new money to WeWork in the form of debt the sources said It is also proposing to accelerate a previous 1 5 billion equity commitment to WeWork in the form of warrants that are due in April the sources added
This commitment was made in January at a 47 billion valuation but SoftBank is now seeking to renegotiate it at a valuation of about 8 billion the sources added
SoftBank is also proposing to launch a tender offer for up to 3 billion to acquire WeWork shares from existing investors and insiders including Neumann the sources said Based on the outcome of the tender offer SoftBank could own between 60 and 80 of WeWork but will seek to avoid consolidating the company on its books one of the sources added
Neumann could step down from The We Company s board as part of the deal with SoftBank and become an adviser according to the sources SoftBank Chief Operating Officer Marcelo Claure would succeed Neumann as chairman the sources said
The We Company s board will meet on Tuesday to evaluate SoftBank s offer one of the sources said JPMorgan Chase Co N JPM has been trying to put together an alternative financing package sources have said
WeWork SoftBank and JPMorgan declined to comment
WeWork has lined up Mizuho Financial Group Inc T 8411 as part of its syndication of the 5 billion debt package one of the sources said The package comprises letters of credit for more than 1 billion as well as senior secured and subordinated bonds the source added
SoftBank and its 100 billion Vision Fund already own about a third of WeWork through previous investments totaling 10 6 billion
The We Company s seven member board tasked two directors with representing the interests of all investors in the company by sitting on the special committee considering the financing plans Reuters reported earlier this week
One is Bruce Dunlevie who is a general partner at WeWork shareholder Benchmark Capital The other is Lew Frankfort who is the former CEO of luxury handbag maker Coach |
JPM | SoftBank s WeWork financing would lead to Adam Neumann s exit sources | By Greg Roumeliotis Anirban Sen and Joshua Franklin
Reuters SoftBank Group Corp T 9984 offered close to 10 billion to WeWork owner The We Company its employees and its investors on Monday under a plan to keep the struggling U S office space sharing start up afloat that would lead to the exit of its co founder and Chairman Adam Neumann people familiar with the matter said on Monday
WeWork could run out of cash as early as next month without new financing sources have said after the company pulled plans in September for an initial public offering IPO It abandoned the IPO when investors questioned its large losses the sustainability of its business model and the way WeWork was being run by Neumann who gave up his CEO title last month and now serves as board chairman
SoftBank has offered 5 billion in new money to WeWork in the form of debt the sources said It is also proposing to accelerate a previous 1 5 billion equity commitment to WeWork in the form of warrants that are due in April the sources added
This commitment was made in January at a 47 billion valuation but SoftBank is now seeking to renegotiate it at a valuation of about 8 billion the sources added
SoftBank is also proposing to launch a tender offer for up to 3 billion to acquire WeWork shares from existing investors and insiders including Neumann the sources said Based on the outcome of the tender offer SoftBank could own between 60 and 80 of WeWork but will seek to avoid consolidating the company on its books one of the sources added
Neumann could step down from The We Company s board as part of the deal with SoftBank and become an adviser according to the sources SoftBank Chief Operating Officer Marcelo Claure would succeed Neumann as chairman the sources said
The We Company s board will meet on Tuesday to evaluate SoftBank s offer one of the sources said JPMorgan Chase Co N JPM has been trying to put together an alternative financing package sources have said
WeWork SoftBank and JPMorgan declined to comment
WeWork has lined up Mizuho Financial Group Inc T 8411 as part of its syndication of the 5 billion debt package one of the sources said The package comprises letters of credit for more than 1 billion as well as senior secured and subordinated bonds the source added
SoftBank and its 100 billion Vision Fund already own about a third of WeWork through previous investments totaling 10 6 billion
The We Company s seven member board tasked two directors with representing the interests of all investors in the company by sitting on the special committee considering the financing plans Reuters reported earlier this week
One is Bruce Dunlevie who is a general partner at WeWork shareholder Benchmark Capital The other is Lew Frankfort who is the former CEO of luxury handbag maker Coach |
JPM | Warren Steps Into Repo Market Turmoil Asks Mnuchin for Answers | Bloomberg Senator Elizabeth Warren waded into last month s turmoil in short term funding markets warning Treasury Secretary Steven Mnuchin not to use the incident as a rationale for weakening post financial crisis regulations
Warren a front runner in the race to challenge Donald Trump in the 2020 U S presidential election sent a letter to the Treasury on Friday In it she sought Mnuchin s views on what triggered the spike in rates for repurchase agreements and expressed concern about potential costs to businesses and consumers if strains persist
She also set herself up for another fight with Wall Street citing an article reporting that large banks were using the repo market chaos to pressure the Federal Reserve to weaken liquidity rules they despise Warren said she s concerned the Financial Stability Oversight Council whose chair is Mnuchin might support those efforts
These rules were designed to ensure that banks have enough cash on hand to meet their obligations in the event of another market crash Warren said Banks are reporting profits at record levels and it would be painfully ironic if unexplained chaos in a small corner of the banking market became an excuse to further loosen rules that protect the economy from these types of risks
The Treasury Department declined to comment
Banking industry complaints about regulations have gotten louder since the mid September dislocation JPMorgan Chase NYSE JPM Co Chief Executive Officer Jamie Dimon said Oct 15 that the bank had the money and inclination to step in when rates surged but liquidity rules prevented it from doing so
Regulations introduced after the 2008 crisis oblige financial institutions to hold more cash and cash like assets as a buffer against times of stress and systemically important banks JPMorgan is the largest in the U S face year end reviews to determine how much more common equity they must carry
The Fed has been injecting liquidity into the funding markets since Sept 17 when the rate on overnight general collateral repo jumped to 10 from around 2 The central bank has also begun buying Treasury bills to add reserves back into the system These efforts have mostly calmed repo rates
While the Federal Reserve has taken the necessary action to ensure that markets continue to function I am alarmed that it has been required to engage in money market interventions that have not been used since the 2008 financial crisis wrote Warren a Democrat from Massachusetts
Warren came to prominence because of her criticisms of Wall Street and calls for tougher oversight of the financial industry after the 2008 financial crisis Her advocacy was pivotal to the creation of the Consumer Financial Protection Bureau and helped lock in her election to the Senate
Warren asked that Mnuchin respond to these and other questions no later than Nov 1
What are the underlying causes of the spike in borrowing rates for overnight repurchase agreements Has FSOC learned why the Fed announced on Oct 11 that overnight operations meant to keep the calm would be extended at least through January of next year How will FSOC and Treasury use data on centrally cleared repo transactions to gain a further understanding of the market Is further information needed to sufficiently monitor the short term lending market |
JPM | Five U S officials including Kushner Mnuchin to attend Saudi financial conference sources | By Timothy Gardner and Heather Timmons WASHINGTON Reuters U S Treasury Secretary Steven Mnuchin and presidential adviser Jared Kushner will lead Washington s delegation to an annual financial conference in Saudi Arabia government sources said on Tuesday The conference comes a year after U S based journalist Jamal Khashoggi was murdered inside the Saudi consulate in Istanbul prompting a global outcry State Department Iran adviser Brian Hook and Kushner adviser Avi Berkowitz plan to join Mnuchin and Kusher at the Future Investment Initiative in Riyadh a senior administration official told Reuters Energy Secretary Rick Perry who is due to step down on Dec 1 will also attend a second government source said Perry has held a series of private talks with Saudi officials including former energy minister Khalid al Falih on the use of U S technology to build civilian nuclear power plants in the kingdom Kushner will attend the conference after leading a delegation to Israel Reuters reported Oct 17 Mnuchin s plans to attend were first reported by Quartz The conference nicknamed Davos in the Desert seeks to draw global investment banks and financiers to Riyadh to interact with Saudi officials and drum up investment for projects in the region It will be held from Oct 29 to 31 at the Ritz Carlton in Riyadh Last year executives including J P Morgan Chase N JPM Chief Executive Jamie Dimon and Ford Motor Co N F Chairman Bill Ford pulled out of the October conference after Khashoggi s Oct 2 disappearance
The incident led to U S Treasury sanctions on 17 Saudi individuals and a Senate resolution blaming Saudi Arabia s crown prince But Saudi officials including Prince Mohammed later blamed Khashoggi s death and reported dismemberment on rogue officials |
JPM | JPMorgan Says Sell Chilean Stocks Amid Worst Unrest in Decades | Bloomberg JPMorgan Chase NYSE JPM Co is turning bearish on Chilean stocks as the country s worst civil unrest in decades compounds the effects of lackluster growth and a grim outlook for an economic overhaul
A combination of unattractive macro with poor bottom up options rich valuations and now added social political instability made us take profits on Chile JPMorgan strategists led by Emy Shayo Cherman wrote in a report Tuesday downgrading the country s equities to underweight from neutral
Chile s IPSA equity index had its worst day in almost two years Monday as a wave of riots and protests sparked by a four cent hike to subway fares led to thousands of arrests and 15 deaths After saying Chile was at war President Sebastian Pinera has softened his tone and pledged the government would seek dialogue and work on social measures The nation s stocks and currency are trading slightly higher today
The economic overhaul proposed by the government including changes to employment laws taxes and pensions faces strong opposition in Congress the JPMorgan team wrote It said labor costs are likely to rise citing a proposal by the Communist Party that JPMorgan estimates will lead to a 10 increase in corporate labor costs
JPMorgan said that shares of shopping malls are particularly likely to suffer from the protests
Meanwhile JPMorgan also raised Peruvian stocks to neutral on attractive valuations The bank has an overweight rating for Brazil and Colombia and is underweight Mexico and Argentina |
JPM | 3 Top Ranked Large Cap Value Funds To Buy Today | Large cap funds are better than small or mid cap funds for risk averse investors These funds have exposure to large cap stocks with a long term performance history and more stability than what mid or small caps offer Companies with market capitalization of more than 10 billion are generally considered large cap However due to their significant international exposure large cap companies might be affected by a global downturn Meanwhile investors who are looking for a bargain stocks trading at a discount are mostly interested in value funds which pick stocks that tend to trade at a price lower than their fundamentals i e earnings book value debt equity and pay out dividend In the long run value stocks are expected to outperform the growth ones across all asset classes and are less vulnerable to the trending markets However investors interested in choosing value funds for yield should check the mutual fund yield as not all value funds comprise solely companies that use their earnings primarily to pay out dividend Below we share with you three top ranked large cap value mutual funds Each has earned a Strong Buy and is expected to outperform its peers in the future Investors can Invesco Oppenheimer Value Fund Class A aims for growth of capital The fund mostly invests in common stocks of companies that the portfolio managers evaluate as undervalued The fund primarily invests in securities of large capitalization value companies CGRWX has returned 18 2 on a year to date basis Devin E Armstrong is one of the fund managers of CGRWX since 2019 Edgar Lomax Value Fund seeks capital appreciation over a long period with a focus on offering some income This is a no load fund that primarily invests in stocks of large capitalization companies that it deems as undervalued The fund s objective is to generate the highest return that carries the lowest possible risk LOMAX has returned 12 9 on a year to date basis LOMAX has an expense ratio of 0 70 as compared to the category average of 1 00 MFS Value Fund Class A seeks capital growth The fund primarily invests in large capitalization companies that can be deemed of as high quality The fund takes a flexible valuation approach while investing In addition the fund focuses on companies that it feels are undervalued MEIAX has returned 20 6 on a year to date basis As of June 2019 MEIAX held 89 issues with 4 53 of its assets invested in JPMorgan Chase Co NYSE JPM To view the Zacks Rank and past performance of all large cap value mutual funds investors can Want key mutual fund info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing mutual funds each week |
MS | Just a growth wobble or the beginning of the end | By Balazs Koranyi FRANKFURT Reuters Two of the world s biggest economies probably shrank last quarter further proof that global growth is now past its peak and the risk of a downturn is rising Germany and Japan are both expected to report negative growth figures in the coming days and even if a slew of one off events are factored out the underlying trend is weak and the outlook is fraught with risk not least from a global trade war For now few economists predict a global downturn as the U S economy is motoring ahead and most even see a rebound perhaps in 2020 But the risks are skewed toward a more negative outcome as the global business cycle is entering a mature phase already having left its growth peak behind in 2017 It appears the global economy is hitting another major soft patch UBS said in a research report The deterioration in global hard and soft data is the most severe since the euro zone crisis We view the softness as transitory and we project consumption and investment to re accelerate in 2020 it added There is no precedent for a recession having started with accelerating investment growth as is currently the case in Japan and the euro zone Advanced economies are suffering from capacity constraints the global trade war is already undermining confidence and rising global interest rates driven by tighter U S monetary policy are weighing on financial markets As if that was not enough recent corporate earnings were on the weak side of expectations China s housing market continues to slow the risk of a hard Brexit looms and Italy is locked in a battle with the EU over its budget As U S growth is strong and inflation is trending higher Fed policy is getting tighter ABN Amro chief economist Han de Jong said Unfortunately the rest of the world economy is not half as strong as the U S Given the U S s leading role in the world economy and more crucially the importance of U S interest rates for global financial markets that creates a big problem he added GRAPHIC Contributions to changes in global GDP growth EXHIBIT A GERMANY The euro zone s biggest economy is expected to report on Wednesday a 0 1 percent quarterly drop in GDP its first negative reading in well over three years Economists attribute the hiccup to the auto industry s difficulty in adjusting to new emissions testing regulations which help up production for months They say that growth will resume once the bottleneck is cleared which is expected late this year But that is only part of the picture Even without this effect the economy has lost considerable momentum compared with the first half of the year Commerzbank DE CBKG said Hardly any measures have been taken in recent years to make Germany a more attractive business location it added Indeed the opposite has more often been the case Germany s loss of export momentum may be just as worrying as its car troubles and with the risks of a global trade war lingering exports are unlikely to recover quickly and certainly not to last year s level GRAPHIC Global trade in goods and surveys EXHIBIT B JAPAN Japan s economy will have shrunk by 0 3 percent in the third quarter the second negative reading this year figures due on Wednesday are expected to show Like in Germany the contraction is mainly due to one offs primarily the impact of natural disasters from typhoons to earthquakes But also like in Germany the exceptional events may hide the fact the growth trend is pointing lower Japan s expansion will be just above 1 percent for the year and growth may gradually slow in the coming years on declining labor market capacity diminishing fiscal support and the limited capacity of monetary policy to provide stimulus GDP growth should return to a moderate positive gain in October December Morgan Stanley NYSE MS MUFG Securities said in a note While the economy is currently in the late stage of a cycle we maintain our view that it continues to moderately expand mainly in domestic demand The threats of tariffs on its massive car industry hold the potential for more volatility in growth with global politics likely setting the tone
Still even with several big economies wobbling U S growth remains robust and several key emerging markets are also performing well And it is this backdrop which supports those economists who argue the recent soft patch is just that or at worst part of a moderate slowdown not a downturn |
MS | U S Fed to reconsider stress capital buffer plan official | By Pete Schroeder and Michelle Price WASHINGTON Reuters Randal Quarles head of supervision at the Federal Reserve said on Friday the central bank would re propose aspects of a bank capital rule known as the stress capital buffer due to industry concerns Speaking at a conference in Washington Quarles said the regulator should also ease a key element of its annual stress tests that allows the regulator to fail firms on operational grounds The changes are part of a broader Fed effort to streamline its stress testing process a tool introduced after the 2007 2009 financial crisis that banks say has become far too onerous The Fed proposed a stress capital buffer SCB in April an effort to shift the Fed s stress testing regime to fall more in line with its traditional supervisory work and make its requirements more flexible to address each firm s specific characteristics But in response to industry comments Quarles said the Fed would rethink several portions of the plan to make it simpler for banks The changes under consideration are aimed at making the future supervisory and capital regime for banks simpler and more predictable He pitched a number of significant changes to how the Fed evaluates the strength of a bank s operations during times of crisis He said the Fed is considering a change that would allow a bank to learn how it fared under the Fed s evaluation before building a capital distribution plan This would reverse the current regime where banks must pitch capital plans to the Fed for approval which has been a point of stress for banks given the public nature of the approval or rejection He also said the Fed was considering scrapping leverage requirements proposed as part of the stress capital buffer and was working to reduce the volatility of stress test results now that banks have built up significant capital reserves following the financial crisis On current stress tests Quarles said he supported eliminating the Fed s ability to object to a bank s plan on qualitative grounds Banks had long complained that this standard which gave the Fed broad leeway to flunk banks for operational concerns even if their capital proved sufficient was opaque and arbitrary In June German lender Deutsche Bank DE DBKGn fell foul of the qualitative standard due to widespread and critical deficiencies in its capital planning controls Banks have started to complain increasingly about the Fed s stress tests saying the scenarios have become unrealistically severe and are proving an unnecessary drag on their capital Morgan Stanley N MS chief executive James Gorman said in October that it had been pushing the Fed to reconsider its approach to the tests Quarles said the Fed was considering giving banks more insight into its stress testing model and scenarios The Fed had resisted giving too much information on that front in the past concerned that banks could find ways to pass the test without actually reducing risk But Quarles argued close examination of banks by Fed supervisors could guard against that
I ve always been a little skeptical of that about the ability of the firms to game it he said |
MS | BAT Plunges on Possible U S Move to Ban Menthol Cigarettes | Bloomberg British American Tobacco LON BATS Plc plunged on news of a possible ban on menthol cigarettes in the U S which would hit a business that generates as much as one quarter of the company s profit
Food and Drug Administration Commissioner Scott Gottlieb plans to pursue new restrictions the Wall Street Journal reported late Friday citing senior agency officials
Key Insights
The potential ban on menthol cigarettes popular with younger smokers steps up the FDA s campaign against youth smoking Clove cigarettes were previously taken off the market and now the agency is also taking a tougher approach to cigarette alternatives
The FDA has been targeting flavored tobacco products as studies indicate that teens who smoke menthol cigarettes consumed close to twice as many weekly compared with non menthol users
BAT is still very much a cigarette business While the company s vapor and other heated tobacco products are growing they make up about 3 5 percent of revenue U S menthol cigarettes account for 25 percent of profit according to Morgan Stanley NYSE MS analyst Richard Taylor
Market Reaction
BAT shares fell as much as 11 percent in London the biggest drop since July 2017 They re down about 40 percent for the year |
MS | Noble Group to name former Morgan Stanley banker as next chairman sources | By Anshuman Daga SINGAPORE Reuters Noble Group Ltd is set to appoint Ian Potter a former senior banker at Morgan Stanley NYSE MS as its next chairman in a few weeks just as the commodities trader seeks to complete its 3 5 billion debt restructuring sources with knowledge of the matter said on Monday Singapore based Potter has been working with Noble in an advisory capacity for the past few months said one of the sources who declined to be named as Singapore listed Noble has not made any official announcement about its next chairman Reuters was not able to contact Potter and an external spokeswoman at Noble had no immediate comment on the subject Potter is a managing partner at Lion City Capital a private investment company He previously had a nearly two decade stint at Morgan Stanley where he was the head of its Asia commodities among other roles according to his LinkedIn NYSE LNKD profile Paul Brough a restructuring veteran and Noble s current chairman brought the firm back from one of the biggest near death corporate experiences in Asia and had said he would step down once the restructuring was completed Noble s next chairman will be tasked with steering the company into profitability as it transforms itself into an Asian centric trader mainly dealing with coal freight and liquefied natural gas Noble is seeking approval from a UK court and a Bermuda court for its restructuring and payment to creditors in what would mark its final hurdle to completing the debt for equity swap Faced with the prospect of insolvency Noble s shareholders reluctantly backed its restructuring
The Financial Times reported on Monday that Potter had emerged as the frontrunner to be the next chairman of Noble |
JPM | Price Analysis 18 10 BTC ETH XRP BCH LTC EOS BNB BSV XLM LEO | The traditional financial system is heading to a disaster with about 17 trillion in global bonds returning negative yields The whole concept of negative yields of people paying for the privilege of lending money is insane behavior to me said William Eigen a veteran fund manager at JPMorgan NYSE JPM Asset Management in an interview with Bloomberg
Gemini crypto exchange co founder Cameron Winklevoss believes that the staggering amount of negative yield bonds is a compelling reason why investors should gravitate towards Bitcoin BTC Stafford Masie the general manager of WeWork South Africa also believes that Bitcoin is the best technological gift to mankind and Masie stressed that it will change the future of humanity |
JPM | Jamie Dimon About Libra A Neat Idea That Will Never Happen | JPMorgan Chase NYSE JPM CEO Jamie Dimon has said that Facebook s not yet released Libra stablecoin is a neat idea that will never happen
Dimon delivered his comments during a speech at the Institute of International Finance conference on Friday BNN Bloomberg reported on Oct 18 Dimon said that the idea behind Libra is not unique and further turned the conversation to his company s own stablecoin JPM Coin revealing that JPMorgan is spending over 11 billion on technological developments this year |
JPM | SoftBank seeks to avoid WeWork s liabilities with new investment sources | By Joshua Franklin Greg Roumeliotis and Mike Spector
NEW YORK Reuters SoftBank Group Corp T 9984 is attempting to become the majority owner of WeWork without assuming the onerous lease obligations of the U S office space sharing firm according to people familiar with the matter
SoftBank is offering a 5 billion financing lifeline that The We Company the parent of New York based WeWork is assessing against a proposal by JPMorgan Chase Co N JPM for a debt package of similar size from banks and institutional investors
WeWork could run out of cash as early as next month without new financing sources have said after the company pulled plans in September for an initial public offering IPO It abandoned the IPO when investors questioned its large losses the sustainability of its business model and the way WeWork was being run by its co founder and former CEO Adam Neumann who now serves as board chairman
Over the weekend a special board committee formed by The We Company to evaluate the financing proposals ring fenced from the influence of SoftBank and Neumann was working around the clock with its advisers to reach an agreement the sources said The negotiations could spill into next week one of the sources cautioned
SoftBank and its 100 billion Vision Fund own about a third of WeWork through previous investments totaling 10 6 billion
SoftBank s latest offer values WeWork at less than 10 billion according to two of the sources a fraction of the 47 billion it assigned to it in January in a previous fundraising round
LEASE LIABILITIES
While the split in SoftBank s contribution between equity and debt is still being negotiated its investment could make it the majority owner of WeWork Were this to translate to formal voting control for SoftBank it could force it to consolidate the loss making company on its balance sheet the sources said
This in turn could result in SoftBank assuming WeWork s liabilities which include long term leases for office space that it refurbishes and rents out under short term contracts according to the sources WeWork had 18 billion in long term lease obligations as of the end of June according its most recent public financial disclosure It also had 1 3 billion in net debt
SoftBank has been keen not to burden its balance sheet further given its net debt of about 5 trillion yen 46 billion as of the end of June more than half its 9 trillion yen market capitalization according to the Japanese technology conglomerate s most recent quarterly earnings statement
One way for SoftBank to avoid assuming formal control of WeWork that would lead to accounting consolidation would be to accept nonvoting stock for any equity investment However it is not clear how SoftBank plans to structure the deal
SoftBank also wants to renegotiate with WeWork a previous commitment for a 1 5 billion investment in the form of warrants that are due in April at the 47 billion valuation according to the sources
The sources asked not to be identified because the deliberations are confidential
A WeWork spokeswoman declined to comment
LAYOFFS COMING
Facing a cash crunch WeWork is seeking to slow down its expansion reducing the number of new property leases it is taking on
The We Company s board has also agreed on a cost cutting plan that includes layoffs two of the sources said without disclosing further details The cuts will occur over the coming weeks the sources added
Job cuts in the United States could come in the first week of November one of the sources said There are also expected to be job losses in other parts of the world the source added
The We Company s seven member board tasked two directors with representing the interests of all investors in the company by sitting on the special committee considering the financing plans Reuters reported earlier this week
One is Bruce Dunlevie who is a general partner at WeWork shareholder Benchmark Capital The other is Lew Frankfort who is the former CEO of luxury handbag maker Coach
The board committee s advisers include investment bank Perella Weinberg Partners LP and law firms Skadden Arps Slate Meagher Flom LLP and Wilson Sonsini Goodrich Rosati one of the sources said
Representatives of Perella Weinberg Skadden and Wilson Sonsini did not immediately respond to requests for comment
JPMorgan has not agreed to underwrite the debt package and WeWork is waiting to see how much capital the bank will be able to raise from other lenders and credit investors The debt package is split between about 1 billion in senior secured debt 2 billion in unsecured debt and 1 5 billion to 2 billion in letters of credit two of the sources said
A JPMorgan spokesman declined to comment
WeWork may seek to combine SoftBank s and JPMorgan s financing packages in some form after the latter has completed its debt financing effort the sources said |
JPM | Why Is JP Morgan JPM Down 8 1 Since Last Earnings Report | It has been about a month since the last earnings report for JPMorgan Chase JPM Shares have lost about 8 1 in that time frame underperforming the S P 500
Will the recent negative trend continue leading up to its next earnings release or is JP Morgan due for a breakout Before we dive into how investors and analysts have reacted as of late let s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts JPMorgan Q2 Earnings Revenues Beat EstimatesModest loan growth and higher mortgage banking fees drove JPMorgan s second quarter 2019 adjusted earnings of 2 59 per share which outpaced the Zacks Consensus Estimate of 2 50 Results exclude income tax benefits of 768 million or 23 cents per share Including this earnings were 2 82 per share Decent loan growth driven by rise in wholesale and credit card loans and relatively higher rates supported NII Moreover home lending revenues adjusted basis rose 4 year over year mainly due to higher mortgage origination volume Also provision for credit losses recorded a decline Additionally card income improved 25 driven by 8 growth in card loan portfolio Among other positives credit card sales volume was up 11 and merchant processing volume grew 12 Further Commercial Banking average core balances jumped 1 and Asset Management average loan balances were up 7 As expected both equity trading income down 12 and adjusted fixed income trading revenues 3 down recorded a fall This led total markets revenues to decline 6 on adjusted basis Further investment banking fees decreased 14 with 16 fall in advisory fees and 11 decline in equity underwriting income and 13 drop in debt underwriting fees Operating expenses increased in the reported quarter The overall performance of JPMorgan s business segments in terms of net income generation was weak All segments except Corporate Community Banking and Corporate reported a fall in net income on a year over year basis Net income increased 16 to 9 7 billion Higher Rates Loan Growth Aid Revenues Costs RiseNet revenues as reported were 28 8 billion up 4 from the year ago quarter Rising rates and growth in balance sheet were the main reasons for the improvement These positives were partially offset by lower Markets revenues investment banking fees and mortgage banking fees Also the top line beat the Zacks Consensus Estimate of 28 4 billion Non interest expenses on managed basis were 16 3 billion up 2 from the year ago quarter The rise was primarily due to investments in business and auto loan depreciation Credit Quality A Mixed BagProvision for credit losses was 1 1 billion down 5 year over year Also as of Jun 30 2019 non performing assets were 5 3 billion down 9 from Jun 30 2018 However net charge offs grew 12 year over year to 1 4 billion Strong Capital PositionTier 1 capital ratio estimated was 13 9 as of second quarter end compared with 13 6 on Jun 30 2018 Tier 1 common equity capital ratio estimated was 12 2 as of Jun 30 2019 up from 12 0 Total capital ratio was 15 8 estimated at the end of the second quarter compared with 15 5 on Jun 30 2018 Book value per share was 73 77 as of Jun 30 2019 compared with 68 85 on Jun 30 2018 Tangible book value per common share was 59 42 at the end of June compared with 55 14 a year ago OutlookManagement projects NII to be about 57 5 billion in 2019 down from the prior outlook of more than 58 billion The change is based on a number of factors including lower long end rates and expectations of up to three rate cuts this year The company expects NII in third quarter 2019 to be 100 150 million below the second quarter level Further seasonality will hurt the company s investment banking fees despite having a strong pipeline Notably debt underwriting is expected to be muted given the slowdown in acquisition financing activity and refinancing opportunities amid a decent backdrop for new debt issuances owing the rate environment For 2019 it expects operating expenses to be approximately 66 billion up 2 7 billion from 2018 level This additional spending includes 600 million of new technology investments and 1 6 billion for marketing front office hiring new branches and a new headquarters building Net charge offs are expected to be 5 5 billion in 2019 up from 4 9 billion recorded in 2018
How Have Estimates Been Moving Since Then
It turns out fresh estimates have trended downward during the past month
VGM Scores
Currently JP Morgan has a subpar Growth Score of D a grade with the same score on the momentum front Charting a somewhat similar path the stock was allocated a grade of C on the value side putting it in the middle 20 for this investment strategy
Overall the stock has an aggregate VGM Score of D If you aren t focused on one strategy this score is the one you should be interested in
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift Notably JP Morgan has a Zacks Rank 3 Hold We expect an in line return from the stock in the next few months |
MS | Medtech group Medacta readies Swiss IPO next year sources | ZURICH FRANKFURT Reuters Swiss medical technology company Medacta is preparing to float on the SIX Swiss Exchange in spring next year three people familiar with the matter told Reuters Credit Suisse SIX CSGN and Morgan Stanley NYSE MS are leading the deal with the help of JP Morgan and UBS the sources said The company was not immediately available for comment and the banks all declined comment Family owned Medacta generates annual sales of around 300 million Swiss francs one of the people said The company based in the Italian speaking canton of Ticino will likely float just a minority stake at first Medacta which employs 930 people develops and manufactures orthopedic implants for knees and spines Another Swiss implant group Basel based Medartis was valued at 563 million Swiss francs when it went public in March Medacta s higher profitability should give it a significantly higher market capitalization the sources said Swiss trainmaker Stadler is also in the starting blocks for a Swiss listing next year The Swiss market for flotations is likely to slow next year after 10 new listings so far in 2018 of which six were initial public offerings IPOs IPOs only work now for companies with crisis proof business models one source said noting investors had become much more selective given market fluctuations |
MS | Powell s Monetary Policy Gets Muddled by Jittery Markets White House | Bloomberg There s what you think you said There s what you actually said And perhaps most importantly for the steward of the world s largest economy there s what people heard
That s a lesson that Federal Reserve Chairman Jerome Powell is learning the hard way as he seeks to steer the economy between the twin shoals of overheating and recession while being buffeted by criticism from Wall Street to the White House
Powell is going to be getting a lot more practice He ll hold a press conference after every Fed meeting from next month onward boosting both the opportunity to refine his message and the risk of sowing confusion
Case in point Powell s unscripted comments on Oct 3 that monetary policy was still boosting the economy and probably was a long way from neutral but might eventually have to turn restrictive
While numerous Fed watchers saw the remarks as nothing new many investors heard it as a signal that the central bank was far from finished raising interest rates And they dumped stocks in response helping send the S P 500 Index to its worst performance since 2011 last month
Jefferies LLC chief market strategist David Zervos didn t mince words blaming Powell s inexperience at the helm The sell off was simply the result of a novice Fed chair fumbling the communications ball he said in an email to clients dismissing arguments that U S China trade tensions or other factors were to blame
Powell and his colleagues are expected to hold policy steady at a two day meeting starting Wednesday while leaving the door ajar to a rate increase at their final gathering of 2018 Powell s next press conference is scheduled for Dec 19 and he will then hold one after every gathering starting in January
December Resolve
Heightened financial market volatility has not altered the Fed s resolve to hike in December Morgan Stanley NYSE MS Chief U S Economist Ellen Zentner and her fellow economists wrote in a Nov 1 note
The problem is that investors are still getting to know Powell eight months after he became chairman Unlike predecessors Ben Bernanke and Janet Yellen he doesn t have a Ph D in economics and prides himself on his ability to translate difficult subjects into plain English That s undoubtedly what he was trying to do in his Oct 3 comments to television anchor Judy Woodruff
The result is that perhaps a little gets lost in translation in the financial markets because people want to infer changes in the substance of what s being said when what s changing is just the approach or the tone said Stephen Stanley chief economist of Amherst Pierpont Securities LLC
It hasn t helped that Powell has spent his early days being critical of some concepts that have served as Fed policy lodestars in the past He s stressed the wide bands of uncertainty surrounding economists estimates of R star the neutral interest rate that neither spurs nor curbs growth and U star the unemployment rate that is sustainable in the long run
Not Clear
So when Powell said that interest rates were far from neutral it s perhaps not surprising that investors didn t know exactly what was meant
They do seem very proud of their transparency but if that transparency is just them saying we re not sure of anything then it s unclear what they are so proud of Michael Feroli chief U S economist for JPMorgan Chase Co NYSE JPM said in an email
Powell and his colleagues also have not been terribly up front about the need to eventually get the labor market in equilibrium said Deutsche Bank DE DBKGn Securities Chief Economist Peter Hooper That too is not surprising Any suggestion that the Fed was trying to engineer a rise in joblessness could trigger even more criticism from President Donald Trump
The result is that even seasoned Fed watchers are puzzling over where Powell falls in the so called dot plot of policy makers interest rate projections That s in contrast with Yellen Economists were pretty certain which anonymous dot she represented in the quarterly forecasts
We don t know where Powell is said HSBC Securities Chief U S economist Kevin Logan adding He s probably somewhere in the middle of the dot plot but whether he favors two three or four rate increases next year is unclear
Logan said the Fed is approaching an inflection point for monetary policy and its communications strategy For years its task was clear nurture a slow motion recovery by running an expansionary policy But now with unemployment at a 48 year low and inflation on target the Fed is getting out of the business of providing the economy with support What comes afterward is less clear
The improving economy is also allowing the Fed to step back from holding the market s hand by scaling back the forward guidance it provides investors on where rates are headed It moved in that direction in June when it stopped describing policy as accommodative in its post meeting statement
Still there s only so far the Fed can go in that direction as long as it s publishing a policy dot plot
They are trying to dial back from forward guidance but it s difficult to go as far as you might like to when you re still doing these dot plots said Johns Hopkins University professor Jonathan Wright
Wrightson ICAP LON NXGN LLC chief economist Lou Crandall said he understands how investors could have misread Powell s Oct 3 remarks and that the chairman himself probably wishes he hadn t made them
Still Crandall voiced hopes that Powell succeeds in getting to a world where he can speak in plain and not precisely tailored English and not have people misunderstand him |
MS | KKR Allianz among four contenders for Altice Europe fiber sale sources | By Pamela Barbaglia and Gw na lle Barzic LONDON PARIS Reuters Rival consortia led by U S buyout fund KKR N KKR and Germany s insurer Allianz DE ALVG are among the four main contenders for a stake in the fiber network business of Dutch based telecom company Altice AS ATCA sources said The two other bidding groups are led by Australian investment firm Macquarie AX MQG and U S infrastructure fund I Squared Capital respectively four sources close to the deal told Reuters Altice s majority owner Patrick Drahi is trying to pay down Altice Europe s 32 billion euro debt pile and share the burden of ploughing cash into the costly roll out of its fiber optic network in France Altice which runs France s second biggest telecom operator SFR is selling a stake of between 40 and 60 percent in its fiber network business a deal that could be worth up to 3 6 billion euros 4 11 billion the sources said The sale has also drawn interest from a number of long term investors Canadian pension fund manager OMERS has teamed up with Allianz while Singapore s sovereign wealth fund GIC has joined forces with I Squared Capital one of the sources said Altice and Allianz declined to comment KKR Macquarie I Squared Capital GIC and OMERS were not immediately available for comment Altice has asked bidders to submit their final proposals in late November but the deadline could be further extended the sources said The sources said the winner will not be selected until mid or late December The business may raise anything between 1 8 and 3 6 billion euros but the price will largely depend on the final terms of the agreement between Altice Europe s infrastructure business and its telecom carrier the sources said Altice wants to share the same degree of governance control with the investors and have a say on key decisions they said In June the Dutch based group raised 2 5 billion euros in by selling stakes in its telecoms towers businesses in France and Portugal KKR won the auction for the French towers and formed a new company called SFR TowerCo comprising 10 198 sites operated by Altice s French subsidiary SFR In Portugal Morgan Stanley NYSE MS Infrastructure Partners and Horizon Equity Partners bought 75 percent of a newly formed domestic towers business Altice remains in restructuring mode with Drahi fighting to revive its fortunes after growing rapidly in recent years through a series of acquisitions A sudden loss of investors confidence in Drahi s commercial results in France caused a steep fall in the stock about 10 months ago triggering the departure of the chief executive a strategic turnaround plan and the separation of Altice s European and U S divisions
1 0 8762 euros additional reporting by Arno Schuetze in Frankfurt and Mathieu Rosemain in Paris editing by Silvia Aloisi and Jane Merriman |
MS | A Divided Congress Could Put the Dollar s Bull Run at Risk | Bloomberg The dollar s bull run against major currencies could come to an end in 2019 after the Democrats took the U S House from the Republicans in the midterm election
While the outcome was largely expected analysts at Morgan Stanley NYSE MS and Credit Agricole PA CAGR SA say it could lead to a gridlocked government during the rest of President Donald Trump s term undermining efforts to extend tax cuts and boost infrastructure spending This could weigh on the greenback which has outperformed all Group of 10 peers so far this year
For Treasuries the result is likely to herald lower yields as the market moves to price out further stimulus according to analysts Here s a roundup of analyst views
Morgan Stanley Bearish Dollar
Result supports our longer term dollar bearish thesis write currency strategists including Hans Redeker
See EUR USD rallying and USD JPY weaker as Europe and Japan perform better and FX unhedged positions shift back to home countries
Democrats taking control of the House effectively halts any further progress of the Republican agenda but does not invite investors to consider meaningfully higher probability of Democratic priorities being enacted beyond 2020 strategists including Meredith Pickett wrote in a research note
Treasuries are likely to be supported in near term as market probably got ahead of itself in pricing in a higher probability of Republicans holding the house and implementing more tax cuts
However see the possibility of an unfunded infrastructure spending plan with the next couple of weeks critical to forming a more substantive stance on this issue and whether or not it will impact Treasury markets
Credit Agricole Weaker Dollar
The Democrats win in the House should lessen the prospect of any meaningful new fiscal stimulus while the Trump Administration s protectionist stance should remain largely unchanged Credit Agricole analysts including head of G 10 currency strategy Valentin Marinov write in a report
Thus the past boost to U S growth from earlier fiscal measures should fade reinforcing our outlook for a weaker dollar over time
Citgroup Buy the Dip
Post election USD sell off has likely been more timid than many investors anticipated wrote Todd Elmer senior G 10 currency strategist
Any further dollar weakening on election likely to be short lived as investor appetite to chase the move may be low midterms do not historically mark a break in currency trends policy levers for USD depreciation are weak and dollar positive implications from the elections may be underplayed
Dollar sell off ultimately present an opportunity to re enter longs
Sees limited scope for dollar selling to extend and favors buying on the dip
MUFG EUR USD Support at 1 13
This is no blue wave and no resounding rejection of President Trump that many Democrats were expecting that will certainly limit the initial decline of the dollar on this result say strategists Derek Halpenny and Fritz Louw
It reduces the prospect of any near term breach of the 1 1300 support level against the euro
We can now forget about the prospect of additional fiscal stimulus but Trump s direction in regard to trade policy and China may not change at all
BMO Capital Markets Flatter Curve
In general the passage of a risk event this time around may not translate into higher yields as the Treasury market appeared most concerned about a bearish surprise in rates wrote strategist Jon Hill
Return to political gridlock will likely temper growth expectations or moderate the prospect of additional stimulative fiscal policy
Don t anticipate this to dissuade the Fed from continuing to deliberately tighten monetary policy as other areas of the economy maintain very strong momentum
See curve moving flatter from here with any breach above 26 4 basis points on the 2s 10s clearing the way for a new challenge of the cycle flat of 18 3 basis points in coming weeks
Danske Bank Still Sees 3 5
We still expect 10 year Treasuries to move toward 3 5 percent in three to six months wrote strategists including Arne Lohmann Rasmussen
Knee jerk reaction to the result might be a modest support to U S Treasuries and slightly lower yields as risk of bigger budget deficit and subsequent tighter monetary policy should somewhat abate any support is expected to be short lived
Still looks for euro dollar to move below 1 13 before year end
Dollar set to enjoy continued support from U S cyclical and carry outperformance
Toronto Dominion EUR USD Floor at 1 13
The double bottom at 1 13 in EUR USD now looks like a pretty solid floor for the time being says Ned Rumpeltin head of foreign exchange strategy
The Democrats underperformed in the Senate but not to a game changing degree it is likely to be a slow burn story for the dollar
We are likely to revert back to the 1 16 1 18 trading range that has prevailed for much of the last 6 months or so |
JPM | Sterling falters as Brexit deal hope fades shares pause after five day rally | By Hideyuki Sano and Swati Pandey
TOKYO SYDNEY Reuters Sterling faltered on fading hopes of a Brexit deal on Thursday while a five session rally in Asian stocks ran out of steam as weak U S retail sales fanned fears about the health of the world s biggest economy
South Korean Australian and New Zealand indexes were all in negative territory Chinese shares were slightly higher while Japan s Nikkei N225 ended a tad lower That left MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS mostly unchanged
Investor focus was shifting to the United Kingdom where Northern Ireland s Democratic Unionist Party said it could not support the Brexit deal as it currently stands
The report fueled doubts whether Prime Minister Boris Johnson can gain approval from his government and Britain s fractious parliament to exit the European Union with a deal in place
Sterling fell 0 5 to 1 2762 on the news drifting from a six month top of 1 2877 touched on Wednesday
Trading the British pound intra day at the moment is not for the faint hearted with deep pockets required said Jeffrey Halley senior market analyst at OANDA
The street clearly wants to take GBP higher on any Brexit hope but traders should be aware that the pullback will be equally as ugly if progress stalls or collapses yet again
In early European trades the pan region Euro Stoxx 50 futures STXEc1 were down 0 4 German DAX futures FDXc1 were down 0 3 while those for London s FTSE futures FFIc1 added 0 1 at 7 158
U S stock futures ESc1 were a shade weaker
Sentiment in the equities market turned dour on Wednesday after data showed U S retail sales contracted in September for the first time in seven months in a potential sign that manufacturing led weakness could be spreading to the broader economy
Given U S consumption has been one of few remaining bright spots in the global economy the data fanned worries the Sino U S trade war would tip the world into recession
It looks like the trade war has claimed yet another victim in addition to diminished business confidence and reduced investment spending as consumers are starting to chicken out said Chris Rupkey chief financial economist at MUFG Union Bank
TRADE WAR
U S Treasury Secretary Steven Mnuchin said on Wednesday that U S and Chinese trade negotiators were working on nailing down a Phase 1 trade deal text for their presidents to sign next month
But he also said there were no plans for another high level meeting on the trade deal outlined last week
While the U S suspended a hike in tariffs it hasn t gone as far as scrapping the tariffs altogether so it is hard to expect a quick pick up in the economy said Yoshinori Shigemi global market strategist at JPMorgan NYSE JPM Asset Management
In the currency market the dollar index USD was last at 98 075 bouncing off its lowest since Aug 27 touched on Wednesday
Against the yen it was a flat at 108 72 after peaking at 108 90 on Tuesday
The euro stood at 1 1071 EUR near a one month high of 1 1085 hit in U S trade on Wednesday
In commodities oil prices slipped after industry data showed a larger than expected build up in U S crude stocks adding to concerns that demand for oil around the world may weaken amid further signs of a global economic slowdown
Brent crude LCOc1 futures fell 0 89 to 58 89 a barrel while U S West Texas Intermediate WTI crude CLc1 lost 1 03 to 52 81 |
JPM | Exclusive Wall Street banks see green light from Fed on reserves sources | By Matt Scuffham and Pete Schroeder
NEW YORK WASHINGTON Reuters Wall Street banks believe they are getting a green light from supervisors to hold more Treasury debt and less cash after last month s volatility in overnight lending markets three industry sources told Reuters
That change could help boost liquidity in the overnight lending markets because Treasury bonds are a common type of collateral pledged by companies and investors in exchange for cash
Banks have complained for years that the U S Federal Reserve can be painfully prudent with its view that Treasury bonds are not the same as ordinary dollars when used as a liquidity buffer
In recent weeks they have intensified efforts to get Fed officials and examiners to soften their stance and initial signs suggest the industry may finally be getting a warmer reception
In private conversations with senior bankers supervisors have attempted to make banks more comfortable with using excess reserves to lend in repo markets rather than hold onto more cash sources familiar with the discussions said
The Fed declined to comment on conversations with regulated entities
Banks hold regular meetings with Fed supervisors who provide broad guidance on how to interpret regulations but do not offer formal instructions people familiar with the matter say Rather than be prescriptive about how to manage reserves supervisors identify shortcomings and provide general feedback on capital plans put forward by the institutions
Bankers previously came out of that process understanding that the Fed preferred them to hold cash rather than Treasury bonds in times of stress industry sources said A struggling bank looking to offload large volumes of Treasury bonds may need to do so at a deep discount which is a worry for regulators
Banks have been to some extent instructed by their supervisors at least through the years that there is a preference or even a requirement that the banks hold high levels of excess reserves said Bill Nelson a former senior Fed official who is now chief economist for the Bank Policy Institute which lobbies for larger banks
REPO MARKET UPHEAVAL
The tone taken by bank supervisors in private interactions with bank staff changed after chaos in the overnight lending market known as repo in September one bank source said
Rates for those loans suddenly spiked to 10 and the Fed had to step in to provide liquidity for the first time since the global financial crisis The smooth functioning of those markets is critical to the financial system providing banks with the short term funding they need to trade and lend
The Fed s approach to regulation and supervision has relaxed since U S President Donald Trump appointed Randal Quarles as head of banking supervision two years ago Quarles said the Fed was rethinking its position on reserves at a May 2018 conference but bank sources said they did not experience any change in approach until recently
U S lenders with more than 250 billion in assets are currently required to hold a large pool of high quality easily tradable assets that can cover cash outflows during times of extreme stress
Banks can park those excess reserves at the Fed either in idle cash or by buying Treasury bonds Both are regarded as high quality liquid assets in formal regulatory requirements However many banks believed the Fed preferred cash over Treasuries based on private supervisory feedback they received
Some bankers including JPMorgan Chase Co N JPM Chief Executive Jamie Dimon say that prevents them from easing stress in repo markets
This month Reuters reported that changes to JPMorgan s 2 7 trillion balance sheet which saw the bank reduce the cash it had on deposit at the Fed by 57 through June were a factor in the repo spike
Speaking to reporters after JPMorgan reported third quarter results on Tuesday Dimon said he would have happily provided more overnight loans when rates spiked because it would have generated better profits than leaving cash at the Fed But in his view regulatory constraints prevented JPMorgan from doing so
We have 125 billion in that checking account today I would be happy to move all of it into repo but we can t because of regulations he said |
JPM | Traders Are Rushing Nickel Out of China to Capture LME Profits | Bloomberg Traders are moving nickel stockpiles from China to other Asian warehouses to capture hefty profits by delivering to the London Metal Exchange
At least 15 000 tons of refined nickel left bonded warehouses in China since September according to traders and logistic managers with knowledge of the matter The inventory is on its way to LME storage facilities in Taiwan Malaysia and Singapore said the people who asked not to be identified as the information is private
Merchants could earn between 20 and 50 a ton by purchasing nickel from China s tax free zones and delivering the metal to offset London contracts due in October and November they said The cash discount in the Chinese market extreme backwardation on the LME and incentives offered by the warehouses make it a profitable trade they added
The metal that s set to reach LME warehouses is another example of the convulsions within the nickel market after Indonesia promised to ban raw ore exports next year unleashing a panic over possible shortages In the past month about half of all the nickel in LME warehouses has been withdrawn and spot contracts have traded at the biggest premium to futures in 12 years in a condition known as backwardation
China s Tsingshan Holding Group Co was one of the main forces behind a record drawdown in LME nickel inventories in early October according to people familiar with the matter Tsingshan is working with financing banks including JPMorgan Chase NYSE JPM Co to take the metal off the exchange the people said Estimates for how much they bought range from 30 000 to 80 000 tons
LME nickel was little changed at 16 280 a ton on Friday and is heading for a 7 2 slump this week Prices are still up 52 this year on concerns about a shortage
The nickel supply squeeze could signal a Hamanaka moment according to Citigroup Inc NYSE C analysts including Oliver Nugent That s a reference to the Sumitomo Corp trader who hoarded copper driving up prices before the market collapsed in the 1990s
The Citigroup report highlighted the disconnect between futures and physical markets The LME nickel contract is signaling an extreme shortage while conditions in the physical market are looser That represents a major downside risk to prices given that global growth is starting to weaken the bank said |
MS | Should Value Investors Pick ANI Pharmaceuticals ANIP Stock | Value investing is easily one of the most popular ways to find great stocks in any market environment After all who wouldn t want to find stocks that are either flying under the radar and are compelling buys or offer up tantalizing discounts when compared to fair value One way to find these companies is by looking at several key metrics and financial ratios many of which are crucial in the value stock selection process Let s put ANI Pharmaceuticals Inc NASDAQ ANIP stock into this equation and find out if it is a good choice for value oriented investors right now or if investors subscribing to this methodology should look elsewhere for top picks PE RatioA key metric that value investors always look at is the Price to Earnings Ratio or PE for short This shows us how much investors are willing to pay for each dollar of earnings in a given stock and is easily one of the most popular financial ratios in the world The best use of the PE ratio is to compare the stock s current PE ratio with a where this ratio has been in the past b how it compares to the average for the industry sector and c how it compares to the market as a whole On this front ANI Pharmaceuticals has a trailing twelve months PE ratio of 17 7 as you can see in the chart below This level actually compares pretty favorably with the market at large as the PE for the S P 500 compares in at about 21 4 If we focus on the stock s long term PE trend the current level puts ANI Pharmaceuticals current PE ratio below its midpoint over the past three years Further the stock s PE also compares favorably with the industry s trailing twelve months PE ratio which stands at 34 6 At the very least this indicates that the stock is relatively undervalued right now compared to its peers We should also point out that ANI Pharmaceuticals has a forward PE ratio price relative to this year s earnings of 11 3 so it is fair to say that a slightly more value oriented path may be ahead for the stock in the near term too P S RatioAnother key metric to note is the Price Sales ratio This approach compares a given stock s price to its total sales where a lower reading is generally considered better Some people like this metric more than other value focused ones because it looks at sales something that is far harder to manipulate with accounting tricks than earnings Right now ANI Pharmaceuticals has a P S ratio of 4 1 This is higher than the S P 500 average which comes in at 3 4 right now ANI Pharmaceuticals is overvalued compared to peers from this perspective Broad Value OutlookIn aggregate ANI Pharmaceuticals currently has a Zacks Value Style Score of B putting it into the top 20 of all stocks we cover from this look This makes ANI Pharmaceuticals a solid choice for value investors and some of its other key metrics make this pretty clear too For example the P CF ratio another great indicator of value comes in at 10 5 is better than the industry average of 22 4 Clearly ANIP is a good choice on the value front from multiple angles What About the Stock Overall Though ANI Pharmaceuticals might be a good choice for value investors there are plenty of other factors to consider before investing in this name In particular it is worth noting that the company has a Growth grade of A and a Momentum score of A This gives ANIP a Zacks VGM score or its overarching fundamental grade of A You can read more about the Zacks Style Scores Meanwhile the company s recent earnings estimates have been encouraging The consensus estimate for the current quarter has moved north by 7 2 while that of the current year has increased by 18 6 in the past two months You can see the consensus estimate trend and recent price action for the stock in the chart below ANI Pharmaceuticals Inc Price and Consensus Even though ANI Pharmaceuticals has a better estimates trend the stock has just a Zacks Rank 3 Hold That is why we are looking for in line performance from the company in the near term Bottom LineANI Pharmaceuticals is an inspired choice for value investors as it is hard to beat its incredible lineup of statistics on this front However with a sluggish industry rank bottom 25 it is hard to get too excited about this company overall Also over the past year the industry has underperformed the broader market as you can see below So value investors might want to wait for the broader factors to turn around in this name first but once that happens this stock could be a compelling pick Breaking News Cryptocurrencies Now Bigger than VisaThe total market cap of all cryptos recently surpassed 700 billion more than a 3 800 increase in the previous 12 months They re now bigger than Morgan Stanley NYSE MS Goldman Sachs NYSE GS and even Visa The new asset class may expand even more rapidly in 2018 as new investors continue pouring in and Wall Street becomes increasingly involved Zacks has just named 4 companies that enable investors to take advantage of the explosive growth of cryptocurrencies via the stock market |
JPM | How To Bet On Gold Surge With ETFs Stocks | Gold continued to shine on safe haven demand triggered by escalation in the trade spat between the world s largest economies as well as global easy monetary policies Notably gold futures rose above per ounce on the Comex the highest level since 2013 Trade WarTrade tensions worsened with Trump s new tariff of 10 on the remaining 300 billion of Chinese goods and China s retaliation by allowing its yuan currency to drop to an 11 year low China also reportedly halted imports of U S agricultural products Additionally Trump branded China as a currency manipulator thereby resulting in a currency war The tit for tat situation has raised concerns over global economy which is already witnessing a slowdown read The International Monetary Fund IMF has recently cut its global growth forecast to 3 2 from 3 3 for this year and to 3 5 from 3 6 for the next citing further U S China tariffs U S auto tariffs weaker investment disruption of global supply chains and severely slow global growth Against this backdrop gold is considered a great store of value and hedge against market turmoil Global EasingThe Federal Reserve last week cut interest rates by 25 bps to 2 2 5 for the first time since the 2008 financial crisis This has propelled the yellow metal higher as lower rates will continue to weigh on the dollar against the basket of currencies raising the yellow metal s attractiveness given that gold does not pay interest like fixed income assets read Additionally easing money policies from other major central banks also boosted the yellow metal How to Play Given the optimism and intense buying pressure on gold investors have a long list of options in both the ETF stock world to tap the metal s rally Below we have highlighted some of them Gold ETFsWhile there are many products that are directly linked to the spot gold price or futures we have highlighted ETFs that have hit new highs in the recent session and carry a favorable Zacks ETF Rank 3 Hold with a Medium risk outlook SPDR Gold Trust P GLD ETF TSXV GLD This is the largest and most popular ETF in the gold space with AUM of 39 3 billion and average daily volume of around 8 3 million shares The fund tracks the price of gold bullion measured in U S dollars and kept in London under the custody of HSBC Bank USA Expense ratio comes in at 0 40 read iShares Gold Trust This ETF offers exposure to the day to day movement of the price of gold bullion and is backed by physical gold under the custody of JP Morgan Chase NYSE JPM Bank in London It has AUM of 14 6 billion and trades in solid volume of 16 million shares a day on average The ETF charges 25 bps in annual fees SPDR Gold MiniShares Trust TSXV GLD This product seeks to reflect the performance of the price of gold bullion Being a low cost product with expense ratio of just 0 18 GLDM has amassed 903 7 million in AUM and trades in a solid average daily volume of 877 000 shares read Gold Mining ETFsActing as a leveraged play on the underlying metal prices metal miners tend to experience more gains than their bullion cousins in a rising metal market Hence mining ETFs and stocks are outperformers We have highlighted the ones that are leading this year U S Global GO GOLD and Precious Metal Miners ETF This fund provides investors access to companies engaged in the production of precious metals either through active mining or production or passive owning royalties or production streams means It tracks the U S Global Go Gold and Precious Metal Miners Index holding 28 stocks in its basket Canada takes the lion s share at 56 8 followed by South Africa 17 8 and United States 12 9 It has amassed 20 1 million in its asset base and charges 60 bps in fees per year Volume is light at nearly 12 000 shares iShares MSCI Global Gold Miners ETF OL RING This ETF follows the MSCI ACWI Select Gold Miners Investable Market Index and holds 35 securities in its portfolio Canadian firms take half of the portfolio while United States South Africa and Australia round out the top four with a double digit exposure each RING is the cheapest choice in the gold mining space charging just 39 bps in fees and expenses The fund has been able to manage assets worth 264 6 million and trades in a good volume of 207 000 shares per day see Sprott Gold Miners ETF This fund follows the Solactive Gold Miners Custom Factors Index holding 30 stocks in its basket Here again Canada takes the top spot at 59 9 followed by 20 in the United States and 17 in the South Africa The fund has amassed 187 million in its asset base and trades in a lower volume of around 34 000 shares a day It charges 57 bps in annual fees from investors Gold Mining StocksThese gold mining stocks have been performing well and are looking to post double digit growth for this year Additionally these have a Zacks Rank 1 Strong Buy or 2 Buy Kinross Gold Corporation NYSE KGC This Zacks Rank 1 company is engaged in the acquisition exploration and development of gold properties in the United States the Russian Federation Brazil Chile Ghana and Mauritania It has gained 47 5 so far this year and is posed to log impressive earnings growth of 110 for 2019 The stock has a VGM Score of B You can see Harmony Gold Mining Company Limited NYSE HMY This Zacks Rank 2 company is engaged in the exploration extraction and processing of gold in South Africa and Papua New Guinea Its earnings are expected to grow a whopping 223 08 for the fiscal year ending June 2020 The stock has gained 59 2 so far and has a top VGM Score of A Alamos Gold Inc TSX AGI This Zacks Rank 1 company is engaged in the acquisition exploration development and extraction of gold deposits in North America The stock is up nearly 112 2 so far this year The strong performance is expected to continue given that it also has a VGM Score of B and its earnings are expected to grow 280 this year Want key ETF info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing ETFs each week |
MS | Bitcoin Prices Little Changed Hong Kong Plans Sandbox For Crypto Exchange | Investing com Bitcoin and other major cryptocurrency prices were little changed on Thursday Reports that Hong Kong s Securities and Futures Commission SFC is considering proposing a sandbox that grants special regulatory waivers for cryptocurrency exchanges received some attention
Bitcoin inched up 0 4 to 6 362 5 by 12 45 AM ET 04 45 GMT on the Bitifinex exchange
Ethereum gained 0 6 to 198 45 and Litecoin rose 1 3 to 50 108 XRP gained 1 2 to 0 45190 on the Poloniex exchange
Ashley Alder chief executive of the SFC said in a fintech conference in Hong Kong on Thursday that the regulator would announce later in the day a new exploratory approach to how virtual asset trading platforms might be regulated
Those exchanges that want to be regulated by us will be set apart from those that don t he said
This is essentially an opt in approach for exchanges and platform operators and they will first explore the conceptual framework with us in a strict sandbox environment said Alder
A sandbox essentially gives cryptocurrency exchanges the option to operate in the city with compliance waivers while working with regulators to develop a longer term regulatory framework for the industry
In other news Morgan Stanley NYSE MS said in a report that it is now classifying cryptocurrency as an institutional asset class
The amount of virtual coin assets under management has been increasing in the last two years with 7 11 billion currently being stored by hedge funds venture capital firms and private equity firms Morgan Stanley added
The investment bank also noted three major issues traders had when investing in digital assets regulatory uncertainty a lack of regulated custodian solutions and a current lack of large financial institutions in the space |
MS | Updated Morgan Stanley Report Hails Cryptocurrency as New Institutional Investment Class | Bitcoin and altcoins has been a new institutional investment class since 2017 U S multinational investment bank and financial services company Morgan Stanley NYSE MS claims in a new report released Oct 31
The document titled Bitcoin Decrypted A Brief Teach In and Implications sees the newly bullish Morgan Stanley weigh in on the surprising developments in cryptocurrency that continue to the present day |
MS | Chinese Stocks Are Sending a Scary Signal About the Economy | Bloomberg As exporters feel the heat of the trade war China s powerful domestic consumption engine was supposed to provide some protection for investors in the nation s stocks
That s not working out so well A narrative that s captured traders attention in recent weeks has been a consumption downgrade in the world s second biggest economy With official data already showing retail sales growth slowing investor alarm increased when China s biggest liquor maker Kweichow Moutai Co reported its weakest profit expansion in almost three years
Moutai alone lost 212 billion yuan 30 billion in market value over six days last month And stocks of companies that sell less discretionary items have done even worse The Shenzhen CSI 300 Consumer Staples Index slid 22 percent in October its worst month since the 2008 global financial crisis
Dai Ming a fund manager at Hengsheng Asset Management Co in Shanghai is among those who have bailed on China s consumer story for now He sold off his portfolio of those stocks earlier this year in favor of financials
We haven t figured out the reason clearly for the apparent changes in spending habits Dai said Among the explanations market players cite
Rising property prices and rents that have crimped the ability to pay for other items
A collapse in so called peer to peer lending platforms that hit some individuals finances
A probable slide in consumer confidence for which few gauges exist thanks to negative news on trade relations with the U S
And signs of consumer behavior becoming more sophisticated with shoppers getting savvier at finding bargains
The earnings from Moutai which makes the baijiu liquor that s often prized as a luxury gift were concrete proof of China s consumption growth slowdown Dai said The next key tests will be Single s Day a shopping bonanza promoted by online retailing giant Alibaba NYSE BABA Group Holding Ltd and spending over the lunar new year holidays he said
Bloomberg Intelligence analysts remain cautious on the prospects for spending during Single s Day noting that Chinese online appliance sales were weak in October
Investors aren t the only ones worried about China s consumers Authorities are taking steps to shore up spending all the more so with trade tensions sending manufacturing gauges to the weakest levels since the economy s 2015 2016 hard landing scare
China s Politburo says more aid is coming on the domestic front read more here
A slowing auto market has been one major reason for the deceleration in retail sales this year and China s top economic planning body is proposing to halve the tax on car purchases to 5 percent Bloomberg News has reported Personal income tax cuts are also on the table
There are likely to be more actions predicted Laura Wang a China equity strategist at Morgan Stanley NYSE MS in Hong Kong For now we still look at this as a relatively short term cyclical consumption momentum slowdown instead of a longer term structural decline she said Improvements could come as soon as the first quarter of 2019 Wang said
Still Wang recommends tilting toward materials and energy companies at the moment We do not recommend adding exposure to broad consumption related sectors such as autos and retailing she said
Among the consumer related companies that showcase the reason for caution
Tsingtao Brewery Co saw a mere 0 4 percent rise in sales volume in the third quarter
Midea Group Co China s and the world s largest appliance maker said this week that revenue rose 1 percent in the third quarter against analysts forecast for an 8 9 percent increase
SAIC Motor Corp Ltd saw the first year on year decline in sales since 2012 in the third quarter
Chinese consumer stocks have wiped out 302 billion in market value as of Thursday from June 12 when the discretionary and staples sectors of the CSI 300 Index reached recent highs according to data compiled by Bloomberg
People haven t been this pessimistic in over a decade consumers confidence is weak and they dare not spend money said Jinghua Lin an analyst at Capital Securities Corp We may have to wait until the end of mid term elections in November and the G 20 meeting for any shift in sentiment Lin said referring to next week s U S congressional elections and the subsequent planned meeting between Presidents Donald Trump and Xi Jinping
Updates with analyst comments in seventh paragraph
To contact Bloomberg News staff for this story Jeanny Yu in Hong Kong at jyu107 bloomberg net Amanda Wang in Shanghai at twang234 bloomberg net Ludi Wang in Shanghai at lwang191 bloomberg net
To contact the editors responsible for this story Christopher Anstey at canstey bloomberg net Sarah Wells
2018 Bloomberg L P |
MS | Bitcoin and Cryptocurrencies a New Institutional Investment Class Morgan Stanley Report | In another instance of Wall Street warming up to digital currencies the investment bank Morgan Stanley NYSE MS has released a bullish report on cryptocurrencies which hails Bitcoin and its peers as a new institutional investment class
In an to a previous report Bitcoin Decrypted A Brief Teach In and Implications released on October 31 Morgan Stanley s research division provides an overview of its rapidly morphing thesis on Bitcoin and cryptocurrencies declaring that from 2017 onwards BTC and other digital currencies had become a new institutional asset class regardless of the current bear market
The report states that the cryptocurrency market is seeing an influx of institutional investors while the number of retail inves |
MS | Take Five World markets themes for the week ahead | LONDON Reuters Following are five big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them
1 MIDTERM MADNESS
If the last five U S midterm elections are anything to go by investors should be long U S stocks on Tuesday to make the most of a knee jerk upwards move no matter what the outcome Equities have risen the day after each of the past five midterms
During President Barack Obama s second term in November 2014 stocks rose 0 6 percent when Republicans made broad gains and took control of the Senate Energy stocks got a particular boost on hopes of approvals for pipelines And Obama s first term midterm elections also saw stocks grind higher after Republicans took control of the House
Going back to 2006 during President George W Bush s second term stocks nudged 0 2 percent up when Democrats took control of the house while in 2002 stocks rose 0 9 percent
A Republican win this time around that allows them to retain total control of Congress could boost stocks as it would increase the chances of more tax reform and further de regulation Still a Democratic takeover of the House may not significantly shake the market if it has effectively been priced in offering the prospect of gridlock and stability in policy
2 YUAN LOVE
Is there light at the end of the trade war tunnel U S President Donald Trump and Chinese President Xi Jinping both seemed optimistic about resolving their bitter trade dispute after Thursday s phone discussion and ahead of a high stakes meeting at the end of November in Argentina
Hopes for a possible deal propelled the yuan away from the psychological threshold of 7 to the dollar for now The currency had been under pressure amid worries over slowing growth in the world s second largest economy
And despite a raft of stimulus measures announced by Beijing having already brightened investors mood the jury is still out as to whether the yuan could crash through that key level according to a Reuters poll
If it does consensus predicts the move to be gradual unless economic conditions in China deteriorate further Trade data out this week will surely be scoured for clues on that
3 GREAT EXPECTATIONS
As the European earnings season continues to rumble on analysts are scratching their heads as to what exactly triggered a sharp selloff across global equity markets last month which seems to have hit price performance but left earnings expectations largely intact
Some say investors were just pricing in the fact U S stocks aren t going to be able to provide 20 percent earnings growth every quarter and taking prices down from their exuberant record high levels
If they re beginning to look for alternatives to the United States that still have some earnings improvement to deliver Europe is starting to look viable Analysts expect quarterly year on year earnings growth in Europe to edge above those in the U S in 2019
Yet in the short term investors still have a few hurdles to jump most notably Italian banks earnings this week which could deepen the gloom around lenders ability to withstand the steep sell off in government bonds
4 NOVEMBER PAIN
Sterling s rally this week was the second biggest of the year Fuelled by reports that the United Kingdom and the European Union have made progress on a deal to give London basic access to EU markets after Brexit and a rally in global stocks traders lost no time in snapping up the heavily shorted currency
But some warn that markets may be getting overtly excited While expectations of a deal at a summit on Nov 21 have grown domestic political challenges still abound and market indicators reflect those concerns
One month sterling risk reversals a ratio of puts to calls on the currency and a barometer of investor bearishness hold near two year highs indicating uncertainty remains high
Morgan Stanley NYSE MS strategists say market sentiment is extremely bearish on sterling with gauges indicating traders are paying more premiums to buy currency options to brace for a rocky ride ahead And expectations are that roller coaster ride may last for some time with implied volatility curve spreads between 1 year and 1 month options near its flattest levels this year
5 TURKEY TWIZZLER
The strong relief rally that has lifted Turkey s markets over the last month will face a crucial test on Monday when national inflation figures are released
Signs are that the data won t make for very pleasant reading Retail price numbers from Istanbul released on Thursday showed a 3 5 percent month on month surge and the city is home to a fifth of Turkey s population so it tends to be a good guide for national inflation
Economists now expect Monday s figure to come in at around 26 percent and the peak might still be another month or two away So having been charging back into Turkey in recent weeks investors might begin to remember why they left in the first place |
MS | CoreCivic names former Morgan Stanley i banker to board | CoreCivic NYSE CXW names Devin I Murphy formerly vice chairman of investment banking at Morgan Stanley NYSE MS to its board
Murphy is currently CFO treasurer and secretary of Phillips Edison Co an owner and operator of grocery anchored shopping centers
He had also served as global head of real estate investment banking at Deutsche Bank DE DBKGn
Previously CoreCivic gets new contract to house some Vermont inmates in Mississippi Sept 19 |
JPM | Two thirds of economists see BOJ easing in October deeper negative rates in focus Reuters poll | By Kaori Kaneko
TOKYO Reuters The Bank of Japan is laying the groundwork for deepening negative interest rates analysts polled by Reuters said with two thirds of respondents expecting the central bank to loosen monetary policy this month
Risks to the global economy have risen from a protracted Sino U S trade war and Brexit among other factors and Japan s central bank is not alone in having to consider launching more stimulus to avert a sharp slowdown
At its rate review last month the BOJ said it would take a more thorough look at whether heightening overseas risks could derail Japan s fragile economic recovery
BOJ Governor Haruhiko Kuroda has said the central bank is edging closer to expanding stimulus as the trade war and slowing global demand cloud Japan s economic outlook
In a Reuters poll conducted between Oct 2 14 35 of 41 economists said the central bank s next move would be to ease policy while six predicted it would cut back on monetary support Most economists responded to the survey before U S President Donald Trump outlined the first phase of an agreement to end a trade war with China last week
Of those who projected monetary easing 21 said it would happen at its Oct 30 31 meeting five predicted action in December and another six said next year or later The remainder did not give a time frame for when the BOJ would ease
Judging from the governor s comments the BOJ appears to be considering the option of cutting short term interest rates while preventing the yield curve from flattening too much said Harumi Taguchi principal economist at IHS Markit
Under a policy dubbed yield curve control YCC the BOJ pledges to guide short term rates at 0 1 and the 10 year government bond yield around 0 It also buys government bonds and risky assets to flood the economy with cash
Critics say cutting the 0 1 short term rate target further would do more harm than good to the economy as it would strain financial institutions already narrowing profit margins and discourage them from boosting lending
Still 28 of 37 economists said the BOJ had already started laying the groundwork for deepening negative rates Governor Kuroda had said the move was among options the central bank would consider if it was to ease policy
The number of analysts who predicted the BOJ might opt for a deepening of negative rates rose to 15 in the October poll nearly doubling from eight in September
On other possible tools the BOJ could use 17 said the central bank would tweak its forward guidance pledging to keep interest rates at current ultra low levels at least until spring of next year the poll showed
A majority of economists polled said that if the BOJ was to deepen negative rates it would accompany the step with measures to ease the subsequent side effects
Without steps to mitigate the side effects some commercial banks may face a profit squeeze and see their stock prices fall sharply said Hiroshi Ugai chief economist at JPMorgan NYSE JPM Securities Japan
If that happens it could prompt investors to shy away from risk and affect currency rates That would undermine the effect of any BOJ easing
When asked what tools could be used to soften the blow on banks 60 of those polled said the BOJ would tweak its tiered system on reserves to increase the portion for which a 0 1 interest rate is offered to financial institutions
Seven projected the central bank would cut interest rates on its loan support program and three said the BOJ would do both cut interest rates and raise the amount of loan under the program the poll showed
The poll also showed analysts expected Japan s economy to shrink an annualized 2 6 in the current quarter due to the hit from a sales tax hike that took effect in October
The economy is likely to grow 0 7 in the fiscal year ending in March 2020 and 0 4 the following year the poll showed
Japan rolled out a twice delayed increase in the sales tax to 10 from 8 on Oct 1 a move seen critical for fixing the country s tattered finances but risks hurting consumption and tipping the economy into recession
The core consumer price index which includes oil products but excludes fresh food prices would rise 0 7 in the current fiscal year to March 2020 and 0 6 in the following fiscal year the poll showed
Prime Minister Shinzo Abe has vowed to take all possible steps if risks to the economy mount echoing a pledge made by the central bank and signaling the prospect of fiscal stimulus in case this month s sales tax increase triggers a sharp economic downturn
Polling and reporting by Kaori Kaneko Additional polling by Khushboo Mittal and Anisha Sheth in BENGALURU Editing by Leika Kihara and Jacqueline Wong |
JPM | JPMorgan Veteran Refuses to Buy Insane Negative Yield Bonds | Bloomberg Lots of investors chafe at the idea of buying negative yield bonds Few are as repelled by the prospect as William Eigen
The JPMorgan NYSE JPM Asset Management fund manager says he d retire before buying sub zero securities even as some of his peers profit from the trade amid mounting fears of a global recession He predicts negative yielding bonds will eventually lead to devastating losses and has parked almost half of his fund in cash that will be insulated from a market sell off
The whole concept of negative yields of people paying for the privilege of lending money is insane behavior to me Eigen a 29 year industry veteran who oversees the 12 5 billion JPMorgan Strategic Income Opportunities Fund said in an interview from Boston I do not pay to lend money That s not fixed income investing that s fixed loss investing
Eigen says investors will ultimately face a train wreck in a market distorted by vast amounts of negative yielding debt spurred by years of ultra loose monetary policy from Europe to Japan Some 13 4 trillion of securities now trade with sub zero yields as several European central banks and Japan slashed rates to below zero after the financial crisis in a bid to spur growth
The measures including the European Central Bank s enormous bond buying program were meant to be temporary but Europe s benchmark rate has persistently stayed below zero since 2014 The value of negative yielding bonds has surged 61 this year triggered in part by fears of a prolonged U S China trade war
Eigen said he s shunning the debt even as he predicts a recession in Europe and a pretty rough slowdown in the U S which would normally be a good time to buy bonds
He gave three reasons bonds are already pricing in bad times And you can only make a capital gain from negative yielding debt if someone crazier than you is willing to come in to pay more for the privilege of lending money to an over levered government or a company
Devastating Losses
But most importantly nothing about the current bond market is sustainable according to Eigen Sooner or later it s going to crash and he wants to be there with dry powder when it happens
What I m saying is that you print this much money you put trillions of dollars of securities on your balance sheet at some point something s going to break Eigen said I m not saying it s going to be in the short term but man when this thing breaks the losses fixed income investors will be facing will be devastating and it s my job in that environment to post positive returns
Eigen s fund which aims to outperform cash has returned 3 2 in 2019 above the effective Federal Funds rate of 1 75 to 2 But he s also trailing behind peers who buy low or negative yielding bonds the Bloomberg Barclays LON BARC Global Aggregate Total Return Index has gained 6 2 this year
He s not alone as bond bears have underperformed this year with even heavy hitters such as Dan Ivascyn s Pimco Income Fund and Ray Dalio s flagship investment losing out amid a global rally
It s not just sub zero rates in Europe that are raising Eigen s wariness An automotive enthusiast with a penchant for fast Italian motorcycles he takes his cues on the economy from customers at two commercial garages that he partly owns in central Massachusetts Eigen s not liking what he s hearing as the 2020 presidential election draws near
Nervous Customers
I see some of our bigger buyers and the bigger customers getting really nervous he said Elections have become so polarized here in the U S that that can t be good for confidence and confidence drives the economy
The cocktail of risks is prompting Eigen to favor cash and highly liquid assets His strategy which can invest in or bet against almost anything in the fixed income universe has 21 parked in investment grade corporate debt He also favors non agency mortgages
Junk bonds now make up less than 5 of the fund from as high as 70 three years ago While Eigen profited last year from shorting five year German government debt he s not willing to repeat the wager today
My feeling is that rates can probably get a bit lower here in the U S and German rates will probably follow he said
Even predictions of a further rally in U S Treasuries aren t enough to whet his appetite His portfolio is about as defensively positioned as it s ever been and he s building a war chest of cash to deploy when bond markets sell off And in the meantime even if he loses out on some returns he won t be buying securities with negative yields
I won t engage in that he said The day I buy a negative yielding security is when I m retired I don t do that for investors If people want to lock in losses they can do it all by themselves |
JPM | Fed Drags Feet as Digital Money Challenges Central Banks | Bloomberg When finance ministers and central bankers come to Washington this week the International Monetary Fund has a message for them Digital currencies are on your doorstep Get involved
In the U S and other countries around the world it is just a matter of time before we see massive disruption Tobias Adrian the director of the IMF s monetary and capital markets department said in an interview There is at least the potential that new technology might lead to a new global payment system fairly rapidly
The G 7 on Thursday will release broad guidelines for regulating digital money They will also discuss whether central banks should issue their own Adrian s team is contributing to the report
Central banks from Sweden to Canada and China are studying whether their money should have a digital counterpart Sweden began an e krona project in 2017 and has issued two reports on the topic The Bank of Canada has launched a formal research project that has partnered with other monetary authorities The U S central bank by comparison is focused on updating the domestic payment system to real time settlements so money moves almost instantly
The forces of change are coming from two longer run developments that regulation may slow but not stop
Online Purchases
The first Transactions are increasingly conducted online and consumers and merchants want cheaper and faster payment systems In the U S today payments travel through banks and credit card companies and along the way there are fees and delays Those costs cut particularly hard against gig workers immigrants and low income people
The American payment system is a giant reverse Robinhood sucking billions of dollars out of people who live paycheck to paycheck and depositing money in the form of credit card rewards to the already rich said Aaron Klein a fellow at the Brookings Institution in Washington who is critical of the roughly five to six years the Fed says it will take to launch its own real time payment system
The second trend is a potent threat Social media and online platforms like Facebook could create stablecoin currencies to facilitate transactions on their platforms A stablecoin s value is linked to some reserve asset and is designed to have less price variation than cryptocurrency
Libra
Facebook Inc NASDAQ FB has already proposed a global digital currency called Libra which regulators are grappling with Banks have also conducted their own experiments with stablecoins such as JPMorgan Chase NYSE JPM Co s JPM Coin which is meant to speed up corporate payments
A financial system that is moving away from a bank centric model of payments to one that is based on payment platforms leaves central bankers with a choice Do they want on their country s money or somebody else s to facilitate those transactions
A system of competing currencies is what the U S banking system used to look like in the 1800s and we had repeated financial crises said Julia Coronado the founder of MacroPolicy Perspectives in New York and a former Fed board economist
But today the public is demanding simpler payment forms and the central bank should find ways to embrace that while protecting the safety and soundness of money she said
The monetary authority must recognize the current system doesn t fully serve the public s needs anymore and some degree of disruption is inevitable said Coronado
Fed Links
That s a tall order for the Fed to accomplish without congressional backing or support of the banking system with which it has deep historical linkages And so far the U S central bank hasn t looked to be a first mover in the space
The Fed has no formal digital currency research effort though its economists are keeping abreast of the topic It is occupied with the build out of its real time payment system FedNow
FedNow will compete with a private payment system run by banks that is already delivering real time payments for a fee It will also continue to work through a bank centered model rather than a payment centered model In fact FedNow intentionally strengthens the current banking model rather than disrupting it
A digital currency is really about the industrial organization of the payment system said former Richmond Fed President Jeffrey Lacker The Fed has always aligned itself with the banking system and FedNow is about preserving the privileged place banks have in that system
Fed Governor Lael Brainard spoke about the costs and benefits of stablecoins and central bank digital currencies on Wednesday in Washington
Global stablecoin networks also may pose challenges to bank business models she cautioned In the extreme widespread migration to one or more global stablecoin networks could disintermediate the role of banks in payments
Economists predict the Fed can t wait much longer to confront the question of digital currency That s also the view of the leaders of the Bank for International Settlements and the IMF Depression era institutions that were founded to help stabilize the global monetary system
It might be sooner than we think that there is a market and we need to be able to provide central bank digital currencies BIS chief Agustin Carstens told The Financial Times in June
Privacy Outages
There are plenty of things to worry about economists caution Big tech monetizes user data and it would certainly continue to do so if they got involved in payments raising privacy concerns Platform payment systems could easily develop into monopolies and help spread dollarization to other nations as merchants and consumers abandoned local currencies Anything digital is subject to hacking power outages and is naturally limited by access to technology
Adrian the IMF director says central bankers often argue from the status quo when it comes to digital currency asking What problem are you trying to fix
Mainly it s that payment needs are changing and legacy services are expensive and slow Adrian said As economists we like innovation and we like competition he said
That is the thing about innovation you don t quite know what it is going to be used for Adrian said Did we know we would come to rely so much on our smartphones when they were introduced
Updates with comments from Brainard in 19th paragraph |
JPM | Moody s May Shelve Its Plan to Control China s Top Rating Firm | Bloomberg Moody s Corp may have to shelve a plan to take control of China Chengxin International Credit Rating Co the nation s largest ratings company amid regulatory inaction according to people with knowledge of the matter
Moody s seeking to take advantage of China s policy of opening its financial sector to global firms reached a framework agreement to increase its holding in Chengxin to more than 50 from 30 Bloomberg reported in March The U S business had also approached the People s Bank of China for feedback on its plan
The effort has been held up mainly because Moody s failed to get regulatory clearance the people said asking not to be identified because the matter is private Trade tensions between the U S and China have also been a hurdle they said
China has over the past two years embarked on an unprecedented policy of leveling the playing field for international finance But despite rule changes including allowing majority stakes in domestic joint ventures foreign entities say they still face hidden barriers as they try to gain increased access to the 43 trillion industry not least slow regulatory approval
A Moody s representative declined to comment and Chengxin didn t respond to calls seeking comment The PBOC didn t respond to a faxed request for comment Chengxin s leadership has in the past expressed unwillingness to give up control to Moody s
Authorities last year began allowing offshore firms to take majority stakes in securities ventures In the insurance payments and credit rating sectors a few companies received approval for control of onshore units Foreign participation remains a small fraction of overall business in the industry
Overseas firms seeking approvals for increased stakes in local ventures under the new rules have had to wait for months New York based JPMorgan Chase NYSE JPM Co and Nomura Holdings Inc based in Tokyo waited more than 10 months after submitting applications for majority control of local securities ventures before getting the green light Switzerland s UBS Group AG had a nearly seven month wait
S P Approval
S P Global Inc in January became the first foreign ratings company allowed to set up its own local unit to rate domestic Chinese bonds Moody s application for a wholly owned unit meanwhile wasn t approved said one of the people with knowledge of the matter
Under the original Moody s and Chengxin agreement from 2006 Moody s has the option to raise its stake to 51 if Chinese regulators allow it China opened the door for overseas ratings firms in 2017 as a way to speed up reform and foster competition in the domestic bond market
China and U S remain far apart in their stances on the trade war even after the two sides reached a handshake accord last week U S President Donald Trump said on Friday that China would significantly step up commodity purchases and make concessions related to financial services as part of the deal with the U S delaying a tariff increase that was due this week while the deal is finalized
China s securities regulator last week set a timetable for foreign financial firms to have full control of local ventures and the cabinet on Tuesday published revised rules easing requirements for overseas banks and insurers operating in the country In July regulators said they ll allow overseas credit rating companies to rate bonds listed in China
Beijing based Chengxin established in 1992 was the first jointly owned credit rating company approved by the central bank It has since become China s largest in domestic market share and is ranked No 4 in the world according to its website
The Chengxin stake held by Moody s was diluted in 2017 to 30 from 49 following a restructuring At the time Moody s said its investment in the company hadn t been reduced and denied that the move was in preparation for an independent onshore rating business |
MS | Japan s central bank holds fire cuts inflation f cast | By Leika Kihara and Stanley White
TOKYO Reuters The Bank of Japan kept monetary policy steady on Wednesday and slightly trimmed its inflation forecasts as global trade frictions clouded the economic outlook reinforcing views the central bank is in no rush to trim its massive stimulus
But the BOJ issued a slightly stronger warning on financial vulnerabilities than it did three months ago reflecting growing concerns that years of ultra low rates were hurting bank profits and could discourage them from increasing lending
Prolonged downward pressure on financial institutions profits from low interest rates could destabilize the financial system the BOJ said in a quarterly report assessing the long term economic outlook and risks
Although these risks are judged as not significant at this point it s necessary to pay close attention to future developments it said In the previous report in July the BOJ only said such risks were not materializing
As widely expected the BOJ maintained a pledge to guide short term interest rates at minus 0 1 percent and long term rates around zero percent by a 7 2 vote
Caught between heightening external risks to growth and the mounting demerits of prolonged easing the BOJ is set to keep policy steady for some time analysts say
If it weren t for the trade friction the BOJ would be looking for ways to normalize policy Normalization is off the cards for now said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities
There is no need to ease policy but at the same time the BOJ can t normalize policy due to worries about trade and the chance the yen will rise
In the quarterly report the central bank cut its core consumer inflation forecast for the current fiscal year ending March 2019 to 0 9 percent from 1 1 percent three months ago
It also slightly trimmed its price forecasts for the following two years and now projects inflation to hit 1 5 percent in the year ending in March 2021 short of its 2 percent target
The downgrade to the BOJ s inflation forecasts underlines that policy tightening remains a long way off said Marcel Thieliant senior Japan economist at Capital Economics
If anything the board has become more pessimistic about the prospects of hitting its 2 percent inflation target
Inflation has remained subdued despite Japan s steady economic expansion forcing the BOJ to maintain stimulus despite the impact on bank profits from years of near zero rates
The central bank took steps in July to make its policy framework more sustainable such as allowing bond yields to move more flexibly around its target
But the measures have done little to revive bond market trading or give relief to banks In a semi annual review of Japan s banking system the BOJ warned that risk taking in Japan s financial sector hit a near three decade high as they struggle to earn profits
Adding to headwinds for meeting the BOJ s price target a recent batch of weak data suggests Japan s economy may have peaked Many analysts warn that intensifying trade frictions and slowing Chinese demand could weigh on business sentiment and discourage firms from boosting spending
Japanese factory output fell more than expected in September as a series of typhoons and earthquakes disrupted production data released earlier on Wednesday showed reinforcing expectations the economy may have contracted slightly in the third quarter |
MS | Treasury Lifts Long Term Debt Sales for Fourth Straight Quarter | Bloomberg The U S Treasury Department will raise the amount of long term debt it sells to 83 billion this quarter again concentrating its increases of coupon bearing debt on securities with five years or less to maturity
In its quarterly refunding announcement on Wednesday the Treasury boosted the auctions of notes and bonds from 78 billion the previous quarter It was the fourth consecutive quarterly increase with the government again lifting sales of securities of all maturities as well as its floating rate debt Treasury slowed the pace of its outsize increases to its 2 3 and 5 year note auctions over the current quarter relative to the last quarter
The department also detailed plans to begin next year adding a new five year inflation protected security or TIPS to its auction calendar and made adjustments to its 30 year TIPS cycle It left unchanged sales of its current TIPS offerings this quarter but signaled gradual increases are likely starting after February next year
The Treasury will sell 37 billion in three year notes on Nov 5 compared with 36 billion it sold last month and 34 billion in August The government increased to 27 billion the sale of 10 year notes to be auctioned on Nov 6 from 26 billion last quarter while hiking the 30 year bonds to be sold on Nov 7 to 19 billion from 18 billion in August The sales will raise new cash of 28 7 billion Treasury said
The department will increase its two three and five year notes by 1 billion per month over the next two months a change from what it announced in August when Treasury increased sizes by 1 billion every month over the quarter It will hike by 1 billion its seven 10 and 30 year auctions in November and hold the auction sizes steady at that level
The department will increase the auction sizes of the two year floating rate note by 1 billion in November The changes will result in an additional 27 billion of new issuance which is lower than the 30 billion increase announced in August
Treasury also modified its existing TIPS auction calendar to accommodate its upcoming new issue The department will replace the existing October 30 year reopening sale with a sale of the new October five year TIPS Also beginning next year the 30 year will be reopened once rather than twice as it does currently The first 30 year reopening will move from June to August Treasury will move the first reopening of the April five year TIPS from August to June
The yield on benchmark 10 year Treasuries rose as much as 4 basis points to 3 16 percent Wednesday
America s borrowing needs pushed the budget gap to a six year high in the latest fiscal year ended Sept 30 At the same time support from the Federal Reserve is waning with the central bank choosing not to replace some of its Treasury holdings as they mature On top of that rising interest rates are hoisting the cost of financing the country s more than 15 3 trillion debt pile
Net Treasury issuance is on course to more than double this calendar year to 1 36 trillion from 572 billion last year and remain high at 1 31 trillion in 2019 according to JPMorgan Chase Co NYSE JPM The firm s interest rate strategists forecast net coupon bearing debt sales will total 1 17 trillion in 2019 versus 957 billion this year
Analysts at primary dealer firms including Citigroup Inc NYSE C Barclays LON BARC Plc and Morgan Stanley NYSE MS said prior to Treasury s announcement that the government won t have to increase coupon bearing auctions again this fiscal year after Wednesday s move Any additional funding needs can be met with increased bill sales Treasury said
Updates with yields A previous version of this story was corrected to show a change to a TIPS sale will be a reopening |
MS | Russia to take time to assess risks of sanctions inflation Reuters poll | By Andrey Ostroukh
MOSCOW Reuters The Russian central bank is likely to hold rates or raise them only marginally over the next year taking its time to assess the inflation pattern and weigh the risk of further sanctions against Moscow a Reuters monthly poll showed on Wednesday
Russia raised rates for the first time since 2014 in September in response to a falling rouble and threats of more U S sanctions A planned tax increase and the lingering risk of sanctions suggest rates will remain higher rather than lower
The central bank is expected to hold its key interest rate at 7 50 percent until the end of 2019 the poll of 23 analysts and economists showed
This is a slight shift in expectations from last month s poll which suggested the central bank would keep its main rate on hold until the end of the third quarter of 2019
Inflation which is the central bank s main remit has been on the rise in recent months due to the weaker rouble rising petrol prices and consumers expectations that it will move even higher after a planned increase in value added tax from 2019
The central bank is unlikely to consider easing monetary policy before all inflationary factors have filtered into consumer prices said analysts at Rosbank a subsidiary of Societe Generale PA SOGN
Annual inflation is now seen at 3 9 percent by the end of this year nearing the central bank s 4 0 percent up from 3 8 percent predicted in the previous poll
The scenario of holding the key rate is the most optimal one from the point of view of balancing the monetary policy target and the task of supporting economic growth in Russia said Denis Popov an analyst at Zenit Bank
Other analysts who took part in the poll said the central bank would need a higher rate to keep inflation under control
We see another 25 basis point rate hike coming in the fourth quarter of 2018 given the CBR s sensitivity to market volatility which is likely to persist Morgan Stanley NYSE MS analysts said
Then we would expect the key rate to be kept on hold at 7 75 percent until the fourth quarter of 2019 when an inflation reversal would allow for the start of an easing cycle
But the risk of more U S sanctions over what Washington calls Russia s malign activities may require more action from the central bank analysts predict
The possibility of new sanctions is a major unknown factor Renaissance Capital analysts said
In case of material U S sanctions we would see the CBR being forced to hike by more Morgan Stanley said
The rouble s future also remains vulnerable to geopolitical risks
In one year from now the rouble is seen at 65 00 versus the dollar and at 77 07 against the euro the October poll showed That compares to 62 31 and 78 21 respectively predicted in the September poll
On Wednesday afternoon the rouble traded at 65 75 against the dollar and at 74 52 against the euro |
MS | Equity and Quant Hedge Funds Hit Hardest by Stock Market Rout | Bloomberg October s stock rout is inflicting the most pain on equity and quant hedge funds
As the U S stock market headed for its worst month in seven years equity funds have slumped 6 8 percent through Monday Morgan Stanley s prime brokerage group said in a report That brings the year s losses to 5 9 percent
The global turmoil has tripped up the 3 trillion hedge fund industry wiping out what little money they had made in 2018 a year that has seen managers including Highfields Capital s Jon Jacobson and Tourbillon Capital s Jason Karp exit the business The losses also show the difficulties that most managers face in navigating episodic market turbulence By contrast macro managers sidestepped the mess and profited from price swings
The selloff underscores the perils that funds face when they pile into the same stocks Equity funds suffered after the top 10 stocks they re most crowded in underperformed the S P 500 Index by almost 3 percent on Oct 29 the worst day since 2010 Morgan Stanley NYSE MS said In addition the top 10 stocks that funds bet against outperformed the index by more than 1 percent
Funds that use computer driven models to follow big market trends were whiplashed as price volatility spiked Among the casualties Leda Braga s BlueTrend hedge fund GAM Holding AG s Cantab unit and Man Group Plc s AHL unit Other quant models that lost money include Renaissance Technologies U S equity fund
On the macro front managers who bet on broad economic trends have staged a comeback in 2018 after years of middling returns Among them was Alan Howard s Brevan Howard Asset Management which gained 1 9 percent through Oct 26 in its main fund bringing its returns so far this year to 12 percent
Other hedge funds that skirted losses include Ken Griffin s Citadel which gained 0 5 percent so far this month in its biggest fund people with knowledge of the matter said
Representatives for the hedge funds declined to comment
Here some more stats from the Morgan Stanley Oct 30 report
Globally all funds lost an average 4 9 percent for the month and 3 9 percent for the year
American equity funds lost 7 2 percent for the month and are down 4 percent for the year
Those in Europe slid 5 8 percent for the month and lost 5 9 percent for the year
In Asia equity funds lost 6 3 percent for the month and 13 percent for the year
Monthly figures are through Oct 29 |
JPM | WeWork bond prices at record low on possible debt heavy financing deal | NEW YORK Reuters The price of WeWork s U S junk bond fell to an all time low on Tuesday last trading at 78 cents on the dollar as the company weighed financing options including a package that may include at least 2 billion of unsecured notes with a 15 coupon
The office sharing company s May 2025 7 875 junk bond worth 702 million was last down 12 5 down 25 7 from a record high in mid August
WeWork parent We Companies is leaning toward a near 5 billion financing package led by JPMorgan Chase Co N JPM instead of selling a controlling stake to Japan s SoftBank Group Corp T 9984 Bloomberg reported late on Monday That debt package may include the additional 2 billion in bonds Bloomberg said |
JPM | JPMorgan Felt Barred From Calming Repo Market by Regulations | Bloomberg JPMorgan Chase NYSE JPM Co had the cash and willingness to calm short term funding markets when they went haywire in mid September but the banking giant said regulations held it back
The firm has what Chief Executive Officer Jamie Dimon on Tuesday called a checking account at the Federal Reserve When rates on repurchase agreements spiked to around 10 a month ago roughly four times more than what JPMorgan earns at the Fed the bank could ve profited by shifting the money into repo
It didn t The bank Dimon told analysts following JPMorgan s third quarter earnings release needed to keep that money put so it could fulfill its liquidity requirements mandated by regulators
We could not redeploy it into the repo market We d have been happy to do it Dimon said Tuesday It s up to the regulators to decide if they want to recalibrate the kind of liquidity they expect us to keep in that account
This couldn t be more different than year end 2018 Back then JPMorgan deployed excess cash to the repo market when rates surged above 6 as other lenders retreated as a way of tidying up their balance sheets for regulatory purposes JPMorgan drew down its deposits with the Fed and increased its allocations to the repo market by more than 100 billion according to its fourth quarter earnings statement
Last year we had more cash than needed for regulatory requirements Dimon said So shifting into repo obviously made sense you make more money the CEO added
To get the market back under control a month ago the Fed began daily liquidity injections into repo as market forces alone weren t able to right the ship Repo rates have since returned to more normal levels though many experts fear volatility will return by the end of the year Last week the Fed announced it will buy 60 billion of Treasury bills a month another move intended to give the central bank greater control over benchmark rates
We have to get used to the Fed s presence in the repo market for a while said Priya Misra head of rates strategy at TD Securities I don t think we ll be at adequate reserves at least until the second quarter of next year |
MS | 3 Zacks Rank 1 Diversified Bond Mutual Funds To Invest In | Mutual funds having significant exposure to diversified bonds are excellent choices for investors seeking steady returns with a relatively low level of risk Investing in funds that maintain a portfolio of bonds issued across a wide range of market sectors also reduces sector specific risk Moreover investing in diversified bond funds is preferred to individual bond investing as building a portfolio of the second type may prove relatively more expensive A higher level of liquidity also makes diversified bond funds more attractive Below we share with you three top ranked diversified bond mutual funds Each has earned a Strong Buy and is expected to outperform its peers in the future Investors can Morgan Stanley NYSE MS Global Fixed Income Opportunities A seeks growth of income The fund invests a large chunk of its assets in fixed income securities DINAX may also invest around 65 of its assets in any particular one market segment or asset class It may also invest not more than one fifth of its assets in public bank loans issued by financial institutions including banks Morgan Stanley Global Fixed Income Opportunities A has one year annualized returns of 6 3 As of December 2017 DINAX held 523 issues with 7 95 of its assets invested in Us Ultra Bond Cbt Mar18 Xcbt 20180320 Deutsche Unconstrained Income S seeks growth of returns KSTSX invests primarily in fixed income securities of both domestic and foreign companies and governments The fund may invest up to all its assets in fixed income securities that are rated investment grade or lower Deutsche Unconstrained Income S has returned 3 7 in the last one year period KSTSX has an expense ratio of 0 86 compared with the category average of 1 02 PIMCO Income Fund D invests the lion s share of its assets in a multi sector portfolio of fixed income instruments such as forwards or derivatives such as options futures contracts or swap agreements PONDX may also invest almost half of its assets in high yield securities that are rated lower than investment grade by S P Fitch or Moody s The fund seeks maximization of income along with growth of capital PIMCO Income Fund D has returned 5 2 over the last one year period Alfred Murata is one of the fund managers of PONDX since 2013 To view the Zacks Rank and past performance of all diversified bond mutual funds investors can Want key mutual fund info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing mutual funds each week |
MS | Deutsche Bank To Sell 20 Stake In DWS Partners Nippon Life | Deutsche Bank DE DBKGn Aktiengesellschaft NYSE DB recently announced plans to offer shares of its asset management business DWS Group at a price range of 30 to 36 per share The shares are due to begin trading on the Frankfurt Stock Exchange on Mar 23
Deutsche Bank plans to sell 20 of its wholly owned shares in DWS Further it reserves the right to offer another 5 in case of strong demand and to cover over allotments
The Japan based Nippon Life Insurance Co has agreed to become a cornerstone investor in the offering and would be acquiring 5 stake in the unit at the issue price Also a representative of Nippon Life would become member of the supervisory board of DWS Moreover they have entered into a five year strategic partnership under which additional assets under management AUM will be added under the DWS name
The minority initial public offering IPO is expected to raise proceeds between 1 5 billion and 1 8 billion which is lower thanwhat Deutsche Bank had hoped for
Deutsche Bank is global coordinator on the IPO with Barclays plc NYSE CS Morgan Stanley NYSE MS Credit Suisse NYSE CS BNP Paribas PA BNPP ING Citigroup NYSE C UBS Group and UniCredit as bookrunners
Last week at an event in Texas CEO John Cryan announced that the bank s top executives would have to forgo bonus this year On the other hand overall employee bonuses for 2017 would be considerably higher compared with the prior year
With about 700 billion in AUM listing of DWS might help Cryan to turnaround the bank s fate Also it is likely to bolster the bank s capital position Nevertheless Deutsche Bank s bottom line continues to remain under pressure due to low interest rates and persistent legal hassles
Shares of Deutsche Bank have lost 17 8 over the past year underperforming the s rally of 13 3
The stock carries a Zacks Rank 5 Strong Sell
You can see
The Hottest Tech Mega Trend of AllLast year it generated 8 billion in global revenues By 2020 it s predicted to blast through the roof to 47 billion Famed investor Mark Cuban says it will produce the world s first trillionaires but that should still leave plenty of money for regular investors who make the right trades early |
JPM | JP Morgan Technicals Look Bullish | Is JPMorgan Chase Co NYSE JPM creating a pattern that is suggesting much higher prices ahead
It s possible
This chart looks at JP Morgan on a weekly basis over the past 5 years The chart itself comes from MarketSmith a service provided by Investors Business Daily
Over the past 15 months JPM may have been creating a bullish inverse head and shoulders pattern with the neckline coming into play around the 120 level
If this pattern is correct and JPM breaks above the 120 the pattern suggests that JPM could rally at least 20
The neckline around 120 comes into play as resistance If this resistance is taken out to the upside look for it to attract buyers |
MS | Oil edges back from big slump as Iran sanctions return to focus | By Henning Gloystein SINGAPORE Reuters Oil prices on Wednesday clawed back a fraction of their hefty losses the day before that came after Saudi Arabia said it would make up for supply disruptions from U S sanctions starting next month on Iran s petroleum exports Front month Brent crude oil futures LCOc1 were at 76 72 a barrel at 0320 GMT 28 cents or 0 4 percent above their last close U S West Texas Intermediate WTI crude futures CLc1 were at 66 66 a barrel up 23 cents or 0 4 percent from their last settlement That came after Brent closed down 4 3 percent and WTI 4 percent in the previous session Saudi Energy Minister Khalid al Falih said at an investment conference in Riyadh on Tuesday that despite expected supply disruptions from U S sanctions against Iran that kick in from Nov 4 Saudi Arabia would step up to meet any demand that materializes to ensure customers are satisfied Oil prices fell substantially as Saudi Arabia released assurances it could supply more to the global market Australia s Rivkin Securities said Despite the slump analysts said markets remained tight because of the looming sanctions We still see Brent reaching 85 per barrel by year end said U S bank Morgan Stanley NYSE MS Into 2019 however the broader economic outlook could be darkening China s state planner said on Wednesday it would step up financial support for regions most hit by the ongoing trade war between Washington and Beijing in which both sides have slapped import tariffs on hundreds of goods Meanwhile South Korea s KOSPI 100 equity index KS100 has now fallen by nearly 19 percent over the past year the fastest rate of decline since the financial crisis of 2008 09 The KOSPI 100 has typically correlated closely with growth in international trade given the South Korean economy s strong orientation toward exports |
MS | Deutsche Boerse steps up clearing battle with London ahead of Brexit | By Huw Jones LONDON Reuters Deutsche Boerse DE DB1Gn has announced plans to intensify competition with rival London Stock Exchange L LSE ahead of Brexit saying it would expand a profit sharing scheme The Frankfurt based exchange s Eurex Clearing said it will expand its partnership program to include repurchase or repo agreements and foreign exchange traded among banks from the first quarter of 2019 The more volume that users pass through Eurex the bigger share of profit they will get It is similar to a long standing program at the LSE s LCH unit which dominates euro denominated clearing in Europe Financial centers such as Frankfurt and Paris are vying to win a share of London s financial market Europe s biggest as UK based financial firms shift some business to new EU hubs ahead of Brexit The aim of the repo program is to increase choice and efficiency for market participants in special repo and general collateral instruments and to grow in the dealer to client repo business Eurex said LCH s Paris subsidiary clears repo related business Some EU policymakers want euro denominated clearing moved from London to the euro zone after Brexit In the event of a no deal Brexit London would likely remain a clearing center for EU customers to give rivals like Eurex time to build up capacity an EU document indicated on Wednesday Eurex launched its program a year ago to capture a chunk of LCH s euro interest rate swaps business though it is still dwarfed by its London counterpart The OTC FX market is still largely uncleared Eurex said Eurex Clearing is currently working with market participants to be the first major clearinghouse to offer a comprehensive cross currency swap clearing service it said in a statement Commerzbank DE CBKG Deutsche Bank DE DBKGn JP Morgan and Morgan Stanley NYSE MS have expressed an early interest to join both new segments Eurex said adding that Citigroup NYSE C DekaBank and LBBW may participate in the repo program |
MS | ECB Holds as Expected Draghi Comments on Tap | Investing com The European Central Bank left interest rates on hold Thursday in a widely anticipated decision and reiterated that it will remain unchanged at least through the summer of 2019
The euro zone monetary authority left interest rates unchanged at zero where they have remained since March 2016
Despite the lack of surprise in Thursday s decision investors will pay close attention to the ECB press conference with President Mario Draghi as they look for any shift in the central bank s outlook
As the euro area grapples with global trade conflicts Italian budget issues and messy Brexit negotiations there is a small possibility that the ECB may see risks shifting from balanced to the downside
We don t think it ll be prepared to do this just yet Morgan Stanley economists said
Although these experts do see growing risks they believe that a relatively robust pace of domestic expansion along with potential upside risks from fiscal policy are still sufficient to keep the recent balance
With Thursday s decision the ECB s deposit rate currently its primary interest rate tool remains at 0 40 while the main refinancing rate which determines the cost of credit in the economy stayed at 0 0
The ECB is likely to reiterate that it expects its asset purchase program to end in December after halving it to 15 billion per month starting in October
The euro zone monetary authority announced plans to wind up its massive bond purchasing stimulus program at its June meeting
In addition the ECB s latest meeting minutes noted that trade tensions could lead to a decline in confidence throughout the global economy beyond any direct effects from trade tariffs |
MS | Sri Lanka s political crisis trigger major economic concerns | By Shihar Aneez and Abhirup Roy COLOMBO MUMBAI Reuters A decision by Sri Lanka s president to fire the prime minister has raised doubts among global investors and credit analysts about the near term economic health of a country already grappling with slow growth and a falling currency Among key concerns for investors are Sri Lanka s ability to repay its massive external debt amid the reduced likelihood of continued economic reforms President Maithripala Sirisena sacked Prime Minister Ranil Wickremesinghe and swore in ex president Mahinda Rajapaksa to replace him plunging the country into turmoil Wickremesinghe said his sacking was illegal and he maintained that he was still prime minister and had the support of a majority of members of parliament Rajapaksa meanwhile assumed his duties at the prime minister s office The ability to execute reforms could slow down given the political developments and the fact that presidential elections are due by the end of 2019 which would be negative for Sri Lankan assets DBS analysts said in a note on Monday According to DBS Sri Lanka which relies on foreign support has debts of 15 billion maturing between 2019 and 2022 Debt service costs are also set to rise given the lower currency according to a report by Morgan Stanley NYSE MS India and western countries have expressed concern about Rajapaksa s ties to China as he ushered in billions of dollars of investments from Beijing during his tenure as president to help rebuild the country after a 26 year civil war against ethnic Tamil separatists ended in 2009 Those investments have put the country deep in debt and forced it to hand over control of a strategic southern port to China Credit rating agency Moody s said policy uncertainty could hurt investor sentiments and make it difficult for the country to refinance debt that comes due in early 2019 at an affordable rate The current political crisis in Sri Lanka is credit negative for the sovereign said Matthew Circosta an analyst with Moody s Sovereign Risk Group And at a time when global financial markets are turbulent uncertainty about the direction of future policy could have a large and lasting negative impact on international investor confidence DROUGHTS AND FLOODS Tight monetary and fiscal conditions and a farm sector that has faced a spate of difficult weather including both droughts and floods has led to the island nation s stuttering economic growth that fell to a 16 year low of 3 3 percent last year This month the International Monetary Fund IMF revised down its projection for 2018 economic growth to under 4 percent from June s forecast of 4 percent Following a review of Sri Lanka s economic program supported by a three year 1 5 billion loan IMF mission chief Manuela Goretti said given significant vulnerabilities reforms needed to accelerate to strengthen the economy s resilience In recent years the country has introduced tax reforms financial discipline in government institutions reforms of loss making state owned enterprises and adopted a fuel price formula that is adjusted monthly However Nomura in a note last month said Sri Lanka was most at risk of a currency crisis among the 30 countries it covered given its large refinancing needs due to high short term debt and modest foreign exchange reserves On Monday the Sri Lankan rupee slumped to a record low of 174 30 per dollar It ended at 173 75 90 per dollar on Monday compared with its previous close of 173 05 20 The currency has weakened 12 8 percent so far this year Refinitiv Eikon data shows Last month Sri Lanka imposed a raft of measures to restrict imports with immediate effect in an effort to curb dollar outflows and take pressure off the rupee But with the unfolding political crisis market sources said traders were bringing their dollar trades forward by purchasing the greenback expecting a further fall in the rupee
1 173 4000 Sri Lankan rupees |
MS | Bolsonaro Gets Brazilian Oil Windfall With Output Poised to Soar | Bloomberg Brazil s President elect Jair Bolsonaro is staring at an oil windfall
After a decade of stagnant production Brazil s offshore mega projects are about to deliver a double whammy with exports set to surge and Brent prices comfortably above 70 a barrel This means more revenue for a country beset with fiscal deficits and more activity in a key industry said Decio Oddone the head of Brazil s National Petroleum Agency
The oil turnaround gives the government more than just cash it promises to revive the fortunes of Petrobras the much maligned state controlled state oil company that s a source of pride for many Brazilians but which has spent the past few years mired in scandal
Brazil Swings Right With Jair Bolsonaro s Commanding Victory
It takes years to get a deep water project flowing in Brazil and Bolsonaro is likely to get all the credit from investment decisions made in the past
A lot of Brazilians may see it as the effect of a policy or stance that he implemented and not necessarily the continuation of existing policies said Roberta Braga an associate director who focuses on Latin America for the Atlantic Council a Washington based think tank If this pays off his image would be improved significantly
Petrobras Chief Executive Officer Ivan Monteiro has said production will increase spectacularly in 2019 and that the company is re opening an office in Singapore to help market the boost in exports
Petrobras s production is expected to rise 9 percent in 2019 from 2 million barrels a day to 2 4 million according to UBS Group AG Morgan Stanley NYSE MS expects and even greater increase of 12 percent While Petrobras hasn t announced an official target for 2019 yet a record eight production vessels have started to be installed this year and will gradually ramp up throughout next year Together the floating platforms have the potential to nearly double Petrobras s oil output capacity
The increase is thanks to large deposits of oil found a decade ago in deep waters of the Atlantic The so called pre salt reserves trapped under a thick layer of salt is now responsible for more than half of the country s production and is attracting growing investments by oil majors
This region the main source of value for Petroleo Brasileiro SA as the company is formally known with unparalleled productivity and low risk exploration Morgan Stanley analysts Bruno Montanari and Guilherme Levy said in an Oct 23 report
Even though production has been flat in 2018 the combination of higher oil prices and a stronger real are already delivering a windfall Petrobras paid 28 percent more in taxes and royalties in the first half of 2018 or 75 billion reais compared with the year earlier period Petrobras publishes third quarter earnings on Nov 6
Petrobras also resumed paying dividends and the second quarter was its most profitable since 2011 This contrasts sharply with the multi billion dollar writedowns it posted in during Brazil s biggest graft scandal known as Carwash a pay to play scheme where a group of company executives colluded with suppliers to inflate contracts
One source of uncertainty is who will lead Petrobras under Bolsonaro who takes office on Jan 1 He hasn t named his energy team which includes the energy minister or possible recommendations for the board and top management at Petrobras
With elections behind us eyes now turn to the transition government and the selection of the names for the next cabinet Bradesco analyst Fernando Barbosa said in a note to clients on Monday |
JPM | WeWork prefers JPMorgan s financing package over SoftBank s control Bloomberg | Reuters Shared office space company WeWork Companies Inc is leaning toward a near 5 billion financing package led by JPMorgan Chase Co N JPM instead of selling a controlling stake to Japan s SoftBank Group Corp T 9984 Bloomberg reported late on Monday
The debt package may include at least 2 billion of unsecured notes with a 15 coupon Bloomberg reported
The report said that WeWork preferred the JPMorgan package over a stake sale to SoftBank which already owns around one third of the company because it would not dilute the stakes of top private shareholders
The Bloomberg report cited people familiar with the matter
SoftBank and WeWork declined to comment on the report JPMorgan did not immediately respond to a request for comment
Reuters reported earlier in October that WeWork and JPMorgan were negotiating a debt deal after the company postponed last month s initial public offering as investor concerns grew about its valuation and its business model
Reuters reported on Sunday citing a source that SoftBank had prepared a financing package that would significantly increase its one third stake and further dilute the influence of co founder Adam Neumann
The Guardian newspaper reported early on Tuesday that WeWork is expected to sack at least 2 000 people as early as this week
In recent weeks the cash strapped office sharing company has seen its credit ratings being downgraded deeper into junk territory by global credit rating agencies Standard Poor s and Fitch Ratings
WeWork lost 1 9 billion in 2018 and burned through 2 36 billion in cash in the first half of this year according to U S filings
The company last month replaced Neumann as chief executive with insiders Artie Minson and Sebastian Gunningham taking on joint CEO roles |
JPM | NewsBreak JPMorgan Posts Record Revenue in 3Q EPS Beats Forecasts | Investing com JPMorgan Chase Co NYSE JPM reported record revenues in the third quarter as a strong performance by its investment bank and its credit card business more than compensated for a slowdown in home loans Chief executive Jamie Dimon said that the consumer remains healthy with growth in wages and spending combined with strong balance sheets and low unemployment levels However he acknowledged that the U S economy had slowed slightly citing weakening business sentiment and capital expenditures mostly driven by increasingly complex geopolitical risks including tensions in global trade
Key points
3Q19 net income of 9 1B and EPS of 2 68 vs 2 45 forecast
Revenue 30 06 billion vs 27 82 billion in 3Q 2018
Return on tangible common equity 18 vs 20 in previous quarter
Markets revenue up 14 on year at 5 1 billion
Provision for credit losses 1 52 billion up 60 on year |
JPM | JPMorgan Rises 3 | Investing com JPMorgan NYSE JPM rose by 3 12 to trade at 120 08 by 10 39 14 39 GMT on Tuesday on the NYSE exchange
The volume of JPMorgan shares traded since the start of the session was 7 82M JPMorgan has traded in a range of 117 88 to 120 10 on the day
The stock has traded at 120 1000 at its highest and 111 6600 at its lowest during the past seven days |
JPM | Why JPMorgan Chase JPM Is A Great Dividend Stock Right Now | Getting big returns from financial portfolios whether through stocks bonds ETFs other securities or a combination of all is an investor s dream However when you re an income investor your primary focus is generating consistent cash flow from each of your liquid investments
While cash flow can come from bond interest or interest from other types of investments income investors hone in on dividends A dividend is that coveted distribution of a company s earnings paid out to shareholders and investors often view it by its dividend yield a metric that measures the dividend as a percent of the current stock price Many academic studies show that dividends make up large portions of long term returns and in many cases dividend contributions surpass one third of total returns
JPMorgan Chase in Focus
Based in New York JPMorgan Chase JPM is in the Finance sector and so far this year shares have seen a price change of 17 47 The biggest U S bank by assets is currently shelling out a dividend of 0 8 per share with a dividend yield of 2 79 This compares to the Banks Major Regional industry s yield of 2 77 and the S P 500 s yield of 1 87
In terms of dividend growth the company s current annualized dividend of 3 20 is up 29 from last year Over the last 5 years JPMorgan Chase has increased its dividend 5 times on a year over year basis for an average annual increase of 15 18 Future dividend growth will depend on earnings growth as well as payout ratio which is the proportion of a company s annual earnings per share that it pays out as a dividend JP Morgan s current payout ratio is 35 meaning it paid out 35 of its trailing 12 month EPS as dividend
JPM is expecting earnings to expand this fiscal year as well The Zacks Consensus Estimate for 2019 is 9 94 per share which represents a year over year growth rate of 10 44
Bottom Line
Investors like dividends for a variety of different reasons from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits However not all companies offer a quarterly payout
Big established firms that have more secure profits are often seen as the best dividend options but it s fairly uncommon to see high growth businesses or tech start ups offer their stockholders a dividend Income investors have to be mindful of the fact that high yielding stocks tend to struggle during periods of rising interest rates With that in mind JPM is a compelling investment opportunity Not only is it a strong dividend play but the stock currently sits at a Zacks Rank of 3 Hold |
JPM | Silver And Gold The Battle For Investment Relevancy | The desire for gold is the most universal and deeply rooted commercial instinct of the human race Gerald M Loeb
One of the finest books ever written on investing was The Battle for Investment Survival by Gerald M Loeb the provider of today s quote and a true legend in the distant long forgotten world of free market capitalism Also credited with Put all of your eggs in one basket and watch the basket it was an obvious slap in the face to those who eat drink and breathe the diversification mantra
Having avoided disaster in the 1929 market crash Loeb was deeply affected by the devastating swath it cut through the economic field of vision and was one of the first of his era to debunk the long term investing track record choosing instead to trade positions rather than hold I remember reading the book in 1974 and marveled at how thirty nine years after its initial publishing run it still retained relevancy a quality that many professional investors lack given the rapidly changed changing universe of financial products available to generations of new investors around the globe From time to time I will take it down from the bookshelf in my study pour a glass or two of fine wine and browse the many chapters in search of old time honoured lessons and rules that I deem still absolutely relevant here in the Year of our Lord 2019
The fact that gold remains the most universal and deeply rooted commercial instinct of the human race defines the reason why the paper merchants bankers brokers detest its very existence Since 1977 when I joined the Canadian securities industry I have watched with abject horror the concerted campaign of misinformation disinformation propaganda and fraud condoned promoted and executed by the destroyers as Ayn Rand called them as a means of swaying the desire mentioned by Loeb from gold to financial assets including stocks and bonds Financial news networks not to be found anywhere until the 1980s served to deify stock ownership and the proof of that is the rise in household ownership of stocks from 4 in 1974 to over 50 by the year 2000
In light of the intensity of the message being broadcast by the elitist bankers and politicians gold has been an unwanted house guest rarely if ever to be invited to any of the celebrations such as the all time highs or Dow 30 000 parties so common in this period of insane currency debasement operating under the alias of easy money Today there is a generational tendency that allows the most universal and deeply rooted commercial instinct of the human race to be the desire for paper wealth through stocks a trait held by over 65 of all Millennials who in a recent survey said that they preferred computer generated BUY recommendations rather than those by highly educated brilliantly trained carbon units
The reason I write this missive is that being a gold or silver expert provides a function to an increasingly shrinking market in the same sad manner in which buggy whip manufacturers were forced from relevancy by the invention of the automobile Being brilliantly trained by brilliant mentors in the importance of anchoring one s wealth in solid time tested stores of value such as gold and silver carries little or no usefulness in a world managed manipulated and molded by the paper merchants as year upon year upon year the suppression of precious metals marches on
However in June 2019 there was an event that broke the shackles of price management for gold with the near magical surge to 1 442 ounce finally vacating a six year band of resistance despite heavy shorting by the Commercials and a seriously underperforming silver market With the HUI now above 200 for the first time since January 2018 it needs to get above 225 to set up the assault on 280 the August 2016 high Of major significance to the physical metals is this The miners must lead the charge to the 2016 highs assuming the leadership role and the gold to silver ratio GTSR must be in full descent as it happens
This brings us right back to the term relevancy and the debate over whether any real bull market in gold can sustain itself without participation by silver You notice I use the term participation as opposed to outperformance and that is noteworthy because integral to any sustainable and trustable advance in gold has historically been silver s role as the superstar
In 2009 I was long gold and every morning I looked at the percentage gain in both metals and was delighted to see silver consistently outperforming gold on its advance post GFC from under 9 ounce to nearly 50 ounce by 2011 The great debate going on with technical types fundamentalists CTAs and historians like me is whether or not the silver price is today relevant to gold s future performance It is no longer a question of why silver has lagged so dreadfully everyone points to JP Morgan or China or base metal byproduct supply as possible answers But for me anchored perhaps incorrectly in the biases of past bull markets it is especially difficult to charge into a 50 car position in August gold with the GTSR over 90 For me the silver price is absolutely relevant to the gold price but more so to the gold price risk and for all of us so unmercifully bludgeoned by precious metals drawdowns over the years no amount of megaphone fueled pom pom waving siss boom bah cheerleading will remove silver s relevancy from my analytical cement mixer
To wit the one argument to which I am oh so slowly swinging is that gold can be a leader in the early stages of precious metals bulls with silver being the late cycle bloomer that at once captivates the retail hordes and signals the maturity of the bull move Since 2015 I have been using a set of rules that blissfully allowed me to avoid the drawdowns that have sent so many gold silver bulls to the emergency room with terminal injuries to net worth from which recovery would be impossible While the rules worked wonderfully the June skew in their predictive value was an important omen for me so I have no choice but to revert back to full on bull market tactics as opposed to protect principal trading range tactics
So here is what I am driving at The trade that I am slowly teeing up is in silver Gold is in an unbridled unassailable accelerating bull market and one that will drag silver irrespective of JPMorgan NYSE JPM or China or base metals supply to new recovery highs above the 2016 highs at 20 26 Gold is the fleeting leader that will forfeit its dominance to silver as the second major up wave kicks into gear Silver should be able to seize the mantle of dominance by the end of the summer and the key will be its performance during the seasonally weak month of July So far it has been a distinct improvement over the May June window
The COT structure for silver is far friendlier than it is for gold Commercials appear poised to let silver advance while they are markedly hostile to gold As you can see from the red rectangles shown above the alligator jaws depicting heavy Commercial shorting into heavy Large Spec buying in April 2017 and February 2019 are today muted and indicative of a price shock to the upside
That is what I am predicting and that is why I am accumulating the iShares Silver Trust NYSE SLV US as well as the August and December 15 calls Now the true silver aficionados would tell you that SLV has zero physical silver and therefore is devoid of purpose relative to our mission to protect against the debasement of purchasing power of currency However if in U S dollar denominated terms SLV moves from 14 54 to 24 54 the trade will be satisfactory to the extent that the profits from the paper trade will allow me to exchange paper for physical silver thus enabling the safe haven utility while increasing the number of silver ounces sitting instructively idle in my safe
The time to have been aggressive was in that first explosive shot to 1 375 off the December 2015 bottom at 1 045 and make no mistake I was I rode the wave until mid May 2016 and then exited when the Commercials decided to lower the boom which they certainly did by August Four more times the cretins capped assaults to 1 350 1 375 and all four times I was flat all of the leveraged positions before they took them right back down
Since the top in 2016 at 280 the HUI has tried to rally four times and all four times the HUI crashed right back down again For this advance to be truly different silver must take the reins of the beast and simply take off and therein lies the speculative shot I am taking Tactics from pre June 2019 are to be discarded in favor of those from pre August 2011 Dips any and all are to be bought with sales only into relative strength index RSI spikes into the 85 90 ranges
Ladies and gentlemen conditions have changed the tone and texture of the market has changed and I have changed in all aspects related to strategy as we move forward The current consolidation for gold is more so a particularly compelling buying opportunity for silver on the expectation that silver rejects the gold correction and instead leads the entire complex out of this pregnant pause and upward to new recovery highs flipping the algobots and the Millennial traders to bullish while forcing tens of millions of social media sheep into the silver trade thanks to their undying loyalty to the safety of crowd investing
With the Fed about to cleave another fifty beeps off the funds rate in an effort to drive down the U S dollar aiding U S exports while attempting to steepen the yield curve it is obvious to me that they are completely out of control as to policy as to purpose and as to implementation The conclusion I draw is that it is not the hard assets investor that is rapidly becoming irrelevant it is the Fed Once recognized it is important Once acted upon it is crucial
I leave you with a memorable quote from Ayn Rand with the suggestion that everywhere you see the word gold simply insert silver
Whenever destroyers appear among men they start by destroying money for money is men s protection and the base of a moral existence Destroyers seize gold and leave to its owners a counterfeit pile of paper This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values Gold was an objective value an equivalent of wealth produced Paper is a mortgage on wealth that does not exist backed by a gun aimed at those who are expected to produce it Paper is a check drawn by legal looters upon an account which is not theirs upon the virtue of the victims Watch for the day when it bounces marked Account Overdrawn Ayn Rand
Buy silver |
JPM | Global Policy Easing Cycle Set In Motion ETFs To Win | Amid global growth concerns sparked by unceasing trade tensions a rate cut cycle is in motion for many economies Recently central banks in South Korea Indonesia and South Africa resorted to rate cuts in order to keep signs of a slowdown at bay Notably top Asian exporters like Singapore Japan and South Korea have been experiencing low exports amid trade tensions
Inside the Series of Rate Cut Announcements
On Jul 18 the Bank of Korea BOK cut the seven day repurchase rate to 1 5 from 1 75 marking their first rate cut since 2016 The move was forecast by only by Bloomberg The BOK now expects the economy to expand 2 2 this year versus 2 5 in April Inflation is projected to tick up to 0 7 versus the prior projection of 1 1 The central bank signaled at more rate cuts
On the same day Bank Indonesia to 5 75 Lending and deposit facility rates were also cut by 25 bps to 6 5 and 5 respectively The move signaled an end to the tightening cycle that started last year read
On Jul 18 South African Reserve Bank SARB also slashed interest rates for the first time since March 2018 by 25 bps to 6 5 as expected Inflation expectations in the economy
A number of other countries have slashed rates since April The central bank of Philippines cut its key overnight reverse repurchase facility rate by 25 bps to 4 5 on its May 5 2019 meeting It was the first rate cut since May 2016 reversing a 175 bp rate hike last year With the economy seeing the weakest quarterly growth rate in the first quarter of this year since third quarter 2014 there are chances that the central bank would go for more rate cuts should the need be read
New Zealand s central bank slashed interest rates to a fresh record low in early May and hinted at more policy easing should the need be It became the per Bloomberg
The Reserve Bank of India lowered its policy rate by 25 bps to 5 75 during its June meeting India slashed rates in every meeting this year enacting a total cut of 75 bps
In May China s central bank announced a cut in reserve requirement ratios RRRs to release about 280 billion yuan 41 billion for some small and medium sized banks The PBOC had set three dates May 15 Jun 17 and Jul 15 for the implementation of a cut in RRR
Fed ECB Dovish Too
The Fed has indicated that it is ready to cut rates this year if required This was against multiple rate hikes the Fed had enacted last year Stubbornly low PCE inflation probably led to such statements read
The ECB indicated on Jun 18 that it could restart money printing to boost its ailing economy even though it had ended QE in 2018 read
ETFs to Win
Vanguard International Dividend Appreciation Index Fund
Since global growth slowdown is causing policy easing a quality ETF like VIGI should be a good option The underlying Nasdaq International Dividend Achievers Select Index focuses on high quality companies in developed and emerging markets excluding the United States that have both the ability and commitment to boost dividends over time It charges 25 bps in fees read
JPMorgan NYSE JPM USD Emerging Markets Sovereign Bond ETF
Host of rate cuts in emerging markets should bode well for bonds of related regions The fund comprises liquid U S dollar denominated sovereign and quasi sovereign fixed and floating rate debt securities from emerging markets selected using a rules based methodology The fund yields 4 65 annually
iShares Global Consumer Staples ETF
Since the consumer staples sector performs well in a low rate environment the fund should gain in the days ahead Also consumer staple is a slowdown proof industry This global consumer staples fund is heavy on the U S 51 2 followed by 11 4 focus on U K 9 5 on Switzerland and 6 8 on Japan The fund yields 2 42 annually
iShares Edge MSCI Minimum Volatility EAFE ETF
The present situation might prove beneficial for low volatility stocks EFAV looks to replicate the performance of international equity securities that have lower absolute volatility No single stock makes up for more than 1 52 of the portfolio Country wise the fund appears more focused on Japan 28 4 Switzerland 13 4 and United Kingdom 11 8 equities The fund charges 20 bps in fees read
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MS | Freudenberg picks JP Morgan Morgan Stanley for Vibracoustic IPO sources | FRANKFURT Reuters German technology group Freudenberg picked JP Morgan N JPM and Morgan Stanley N MS to act as so called global coordinators for a planned 2019 stock market flotation of its Vibracoustic unit people close to the matter said The listing of the automotive anti vibration components maker could take place as early as the second quarter 2019 and value the business at around 2 billion euros 2 29 billion the people said adding that Lazard is acting as so called IPO advisor Freudenberg declined to comment while the banks declined to comment or were not immediately available for comment Vibracoustic makes anti vibration components and modules such as engine mounts and dampers and says it has a global market share in anti vibration solutions for the car industry of 18 percent The company which employs roughly 10 000 people last year posted earnings before interest tax depreciation and amortization of 288 million euros on revenues of 2 1 billion 1 0 8718 euros |
MS | With record dry powder private equity poised for Asia M A boom | By Kane Wu HONG KONG Reuters Dealmaking by private equity firms in Asia has surged this year data showed underscoring their rising presence in the region s otherwise stolid tycoon dominated M A scene backed by an unmatched warchest Private equity backed deals so far this year total 79 billion in Asia Pacific excluding Japan up 63 percent over the same period of last year and surpassing the 74 billion full year record set in 2015 according to Refinitiv data The growth was much higher than the 12 percent year on year increase seen in the region s total mergers and acquisitions value of 892 billion the data showed While investments in Chinese technology companies such as Ant Financial have headlined private equity s activity in Asia a series of actions including buyouts show the industry is becoming more aggressive Private equity s banner year also comes as the region s companies face challenges with trade tensions and regulatory scrutiny curbing outbound deals from China the dominant dealmaking force for the past three years The result is an increased acceptance of buyout groups in a region well known for cosy behind the scenes dealmaking between established tycoons and companies When we are on the sell side even if it is a strategic asset the feedback from potential buyers would be more private equity than strategic The clients themselves are very surprised said Samson Lo head of Asia M A at UBS The sizes of deals and proposed deals are one indication of the heightened interest of private equity In August Hillhouse Capital Group led a consortium that bid 17 6 billion for U S listed fast food chain operator Yum China N YUMC The bid was later rejected And last month China s Anta Sports HK 2020 teamed up with private equity firm Fountainvest Partners to offer 5 3 billion for Finnish sports company Amer Sports HE AMEAS They are not afraid of big deals UBS s Lo said of private equity firms TECH DEALS DOMINANT In Europe and the United States private equity firms flex their muscles primarily via large buyouts but in Asia they have also made a splash investing in growth companies especially in the internet and technology sector An industry who s who including Carlyle Group NASDAQ CG Silver Lake Partners and Warburg Pincus in June backed Ant Financial in its 14 billion fund raising the world s largest such deal This tech sector is the pond with the most fish So do you want to fish in it or not said Jim Tsao chairman and head of China for UK based firm Permira a traditional buyout firm which raised its first global growth focused fund this year KKR Co N KKR also made news earlier this year when it invested in Beijing Bytedance Technology Co the owner of China s leading news aggregator Jinri Toutiao via convertible bonds Toutiao is seeking a valuation of 75 billion in its latest funding round Looking forward internet and tech are still going to be the biggest sectors largely driven by China said Kiki Yang a Hong Kong based partner at consulting firm Bain Co adding that the sectors would be less impacted by trade tensions as they are more related to local markets DRY POWDER The region s private equity dealmaking surge has been helped by the sheer volumes of funds available to finance it Last year the industry raised a record 138 billion in new funds for the region according to data provider Preqin The fundraising has continued this year too Hillhouse Capital in September raised Asia s biggest fund at 10 6 billion The dry powder or investable capital reached 309 billion in September its highest level ever Average deal size in the first half of this year hit a record 172 million up 51 percent from its five year average according to a September report from Bain Co China has been Asia Pacific s biggest market by value since 2014 and this year s 49 billion is already a record Refinitiv data showed India has also boomed with a record 10 billion in deals so far Private equity houses are also venturing into Southeast Asia where recent changes in market regulations and the proliferation of new technologies have brought opportunities
Warburg Pincus KKR and TPG have all made sizable investments in Indonesia and Vietnam while Morgan Stanley NYSE MS Private Equity Asia just announced on Monday it has raised over 440 million for a Thailand focused fund |
MS | The stock market s dead cat bounce is over and the rolling bear market is making a comeback Morgan Stanley says | The stock market may have bounced back from its sharp sell off at the beginning of October but Morgan Stanley NYSE MS says the selling will pick back up soon The firm expects the S P 500 to slide back below the 200 day moving average a key technical level Tread carefully in tech and consumer discretionary Morgan Stanley warns The stock market may have bounced back from its sharp drop at the beginning of October but Morgan Stanley says it s time to buckle up because the rolling bear market has unfinished business with the S P We think attempts to rebound were more short lived than sustainable a Morgan Stanley team led by the equity strategist Michael Wilson said in a note sent out to clients on Monday Recent price declines in crowded Growth Tech and Discretionary have caused enough portfolio pain that we think most investors are playing with weak hands We are increasingly thinking a rally into year end will be harder to come by as lower liquidity and concerns on peaking growth weigh on the S P and an investor base in defense mode The Morgan Stanley team hypothesized earlier this year that and that earnings growth would deteriorate in the second half of the year as the impact of President Donald Trump s tax cuts began to fade Wilson and his team say they are looking for which has been tested a handful of times this year but has held to finally give way Simply put the 200 day is an indicator traders use to determine the overall trend of the market The market is in an uptrend as long as it s above its 200 day and it s in a downtrend if it s below the measure So what can that mean for stocks The benchmark index suffered through a correction or worse the past two times it fell below the key technical level In August 2015 the S P 500 plunged 15 amid the fallout from and the day the country s benchmark Shanghai Composite index fell more than 8 Before that the S P 500 plunged into a brief bear market after the US lost its AAA rating at the ratings agency Standard Poor s In both instances the S P 500 wouldn t make new highs for at least five months If there is any comfort for investors it s that the firm said that it didn t think the 20 to 40 stock market plunge that characterized the past three bear markets would rear its head this time Instead it sees individual stocks and sectors coming under fire Wilson s team says to tread carefully in two sectors tech and consumer discretionary Given the high degree of cyclicality in both Tech and Consumer Discretionary we think their derating should be more in line with the broader S P 500 or another 6 8 percent they wrote Of course that begs the question of whether the valuation for the S P 500 has fallen too far already We don t think so |
JPM | SoftBank seeks control of WeWork through financing package source | By Joshua Franklin Reuters SoftBank Group Corp T 9984 has prepared a financing package for WeWork Companies Inc that would give it control over the shared office space company a person familiar with the matter said The package would significantly increase the stake of SoftBank which already owns around one third of WeWork and further dilute the influence of co founder Adam Neumann said the person who declined to be identified because of the sensitivity of the matter Reuters had reported that SoftBank was in negotiations to make a 1 billion investment to enable WeWork to go through a major restructuring Without a fresh infusion of cash WeWork risks running out of money as early as the end of the December the person said WeWork is working with JPMorgan Chase Co N JPM to negotiate a 3 billion debt deal after a planned initial public offering was tabled last month because of investor concerns about how it was valued and its business model Reuters reported last week WeWork has retained a major Wall Street financial institution to arrange a financing a WeWork spokeswoman said Approximately 60 financing sources have signed confidentiality agreements and are meeting with the company s management and its bankers over the course of this past week and this coming week WeWork lost 1 9 billion in 2018 and burned through 2 36 billion in cash in the first half of this year according to filings In recent weeks global credit rating agencies Standard Poor s and Fitch Ratings have also downgraded WeWork s credit ratings deeper into junk territory while the company s junk bond is trading at a record low WeWork last month replaced co founder Neumann as CEO with insiders Artie Minson and Sebastian Gunningham taking on joint CEO roles
The pair have talked about the need to return to WeWork s core business of renting out trendy office space to freelancers and enterprises That would pull the company back from the fringe activities Neumann had forayed into such as a school apartment buildings and various businesses |
JPM | Top 5 Things to Know in the Market on Monday | Investing com Markets are set to open lower after investors take a more sober look at the provisional trade deal delivered by the U S and China at the end of last week while the U K s Brexit hopes get a fresh setback and Turkish assets fall after the U S and EU threaten sanctions Elsewhere Softbank is reported to be set to take control over WeWork s parent company to stop the hemorrhaging of cash at the office space provider Here s what you need to know in financial markets on Monday 14th October
1 Stocks euphoria to continue ebbing
U S stock markets are indicated to open the week lower on disappointment that the substance of Friday s interim trade agreement between the U S and China falls well short of the hype given it by the White House
By 6 05 AM ET 1005 GMT Dow futures were marked down 120 points or 0 5 while S P 500 futures were also down 0 5 and Nasdaq 100 futures were down 0 6 die partly to a report by Bloomberg saying that China wants more talks before it commits even to the little that was supposedly agreed on Friday
Both the New York Stock Exchange and NASDAQ will open for trading as normal today despite the Columbus Day holiday The Securities Industry and Financial Markets Association by contrast has recommended that the bond market be closed
2 China s economy is still slowing
Asian markets rallied in relief at the results of U S China trade talks at the end of last week but the hard data continued to show the extent of China s problems
Chinese exports fell at the steepest level since March in September They dropped 3 2 on the year Imports fell an even steeper 8 2 equalling their worst drop since 2016
There was further evidence of the Chinese economy s struggles in a 5 2 annual drop in car sales the 15th straight monthly decline Even sales of new energy vehicles cars which are either wholly or partially electric powered fell for the third month in a row That s due in large measure to the phasing out of subsidies for electric car purchases
On an otherwise light day for data the euro zone s industrial production fell by a worse than expected 2 8 on the year in August despite a 0 4 monthly rebound
3 Softbank set to take over WeWork
Softbank is in talks to take control of WeWork s parent company according to the Wall Street Journal and Financial Times aiming to recapitalize the company at a sharply lower valuation than that which it was seeking from the public capital markets last month
The papers reported that Softbank is also lining up billions of dollars in fresh debt from JPMorgan NYSE JPM Both reports said that a deal wasn t guaranteed and the FT noted that if new money can t be raised then bankruptcy proceedings may be necessary The WSJ noted that We Co the largest commercial tenant in some urban real estate markets needs 3 billion to get through the next year
Softbank is already We Co s largest external shareholder having invested over 10 billion in We Co directly and through its Saudi backed Vision Fund
4 Turkish assets falls under sanctions threat
The Turkish lira and the local stock and bond markets all fell sharply after both the U S and EU warned of imposing economic sanctions on the country if it continues its military operations in Kurdish controlled areas of Syria
The dollar rose as high as 5 9225 lira the highest since June after a weekend peppered with reports of atrocities committed and jailbreaks by Islamic State prisoners whose Kurdish guards had been redeployed to fight Turkish units
President Recep Tayyip Erdogan has counted on Turkey s significant geopolitical value to defy pressure from the West he has threatened to reignite Europe s migrant crisis by sending 3 6 million Syrian refugees westward while also threatening a major security realignment by buying new missile defense equipment from Russia rather than from its NATO allies
5 Not good enough EU tells U K on Brexit plans
The British pound retreated after its sharpest one day rally in more than two years after the EU s top negotiator Michel Barnier reportedly told EU diplomats that the U K s latest proposals on settling the Irish border chapter of the Brexit negotiations were unworkable
The EU s reaction means that it s virtually impossible to agree a legally binding withdrawal agreement at a summit due at the end of this week As such Prime Minister Boris Johnson will be forced under a recently passed law to ask the EU for another extension to the Oct 31 Brexit deadline
Outgoing EU Commission President Jean Claude Juncker told an Austrian newspaper at the weekend that it would be unhistoric not to grant such a request
Johnson s government meanwhile is preparing for a general election a new session of parliament opened by the Queen today will read out a laundry list of major spending promises for the time after Brexit |
JPM | WeWork opens new sites at breakneck speed despite cash burn concerns | By Herbert Lash and Carrie Monahan NEW YORK Reuters WeWork has opened almost as many new locations in the last 3 1 2 months as it did in the whole first half of this year likely accelerating the speed with which the office sharing company is burning through cash as increasingly hard nosed investors scrutinize its prospects for going public According to a Reuters analysis of information on the company s website WeWork had 622 sites open in 123 cities on Oct 10 That compares with its footprint of 528 locations in 111 cities on June 30 that was outlined in the prospectus for its abandoned IPO The website also identifies 89 sites as coming soon and 117 sites as just announced all new locations that are yet to open Altogether WeWork says on the website that it will soon have 845 locations in 125 cities but it is unclear whether all those will still open A WeWork spokesman declined to comment on its plans The quickening pace of new office openings adds to the risks for WeWork a company that has created a global brand for its shared workspace concept but was forced to halt plans to go public on Sept 30 because of investor concerns about how it was valued and whether its business model is sustainable The company is now cutting back including laying off some employees and closing or selling entities that are not essential to its core operations as it seeks to avoid running out of cash On Friday WeWork said it will shut down its WeGrow private school in New York City as it pares peripheral operations The 97 new locations WeWork added in the first half of this year on average cost 2 63 million each in design and construction costs up 38 from the average 1 91 million that 82 openings each cost in the first half of 2018 according to the IPO document It added 94 new locations between the start of July and Oct 10 according to its website Whether the average size of a new location in the latest burst of openings is similar to those in the first half of this year is unclear A WeWork spokesman declined to comment Investors don t want to invest in a company with such a high cash burn rate said Gina Szymanski a portfolio manager at real estate focused AEW Capital Management LP in Boston They have got to slow their growth down and focus a little bit more on profitability BLEEDING CASH WeWork has only about 2 5 billion of cash on hand as of June 30 according to the prospectus that was issued in August It will run out of money in the second quarter of next year if the company s current trajectory doesn t change according to research by AllianceBernstein Some media reports in recent days said it may run out of cash before the end of the year without a new lifeline As well as substantial costs for opening new sites WeWork s current operations are also still big loss makers In the year to June 30 its expenses were 2 9 billion and revenue just 1 54 billion WeWork has been locked in negotiations since last week with its largest shareholder Softbank Group Corp T 9984 over a new 1 billion investment to help the company go through a major restructuring according to sources familiar with discussions SoftBank has prepared a financing package that would give it control over WeWork and dilute the influence of co founder Adam Neumann said a person familiar with the matter who declined to be identified IFR reported banking sources as saying on Friday that WeWork is in talks with JPMorgan Chase NYSE JPM to seek 1 75 billion in bank financing that would provide it with enough liquidity to see it through to the end of the year Chase is in talks with other banks to syndicate the letter of credit it said In addition WeWork is in discussions with banks to issue 3 25 billion in secured and unsecured bonds with warrants IFR added WeWork has certainly slowed new leasing in response to investor feedback said Szymanski citing AEW s analysis of WeWork s market presence The leases for many of the recently opened sites would likely have been signed before August which was when the company first became a punching bag for investors and analysts critical of how it was being valued and run
WeWork owner The We Company said in the IPO document that it has mitigated expenses by refining its design and construction processes which included investments in new technology to help WeWork quickly and efficiently develop a workspace The new technology wasn t defined and the company declined to comment |
JPM | In new headache WeWork says it found cancer causing chemical in its phone booths | By Herbert Lash NEW YORK Reuters Cash strapped WeWork the office sharing company that is trying to negotiate a financial lifeline has a new problem that may prove costly It has closed about 2 300 phone booths at some of its 223 sites in the United States and Canada after it says it discovered elevated levels of formaldehyde The company which abandoned plans for an initial public offering last month after investors questioned its mounting losses and the way it was being run said in an email to its tenants on Monday that the chemical could pose a cancer risk if there is long term exposure After a tenant complained of odor and eye irritation WeWork began testing and based on the results took 1 600 phone booths out of service the company said in the email to tenants which it calls members An additional 700 booths are closed while more testing is conducted it said All the phone booths closed were installed over the past several months WeWork said The safety and well being of our members is our top priority and we are working to remedy this situation as quickly as possible WeWork said in a statement More costs are the last thing needed at the company which some analysts say is fast running out of cash WeWork declined to comment on the cost of testing and replacing the booths It is currently in talks for a multi billion dollar rescue deal that could lead to its largest shareholder Japan s SoftBank Group Corp T 9984 taking control two people familiar with the matter said WeWork is also talking to JPMorgan Chase N JPM over a possible debt package they said WeWork declined to identify the manufacturer of the phone booths Long term exposure to formaldehyde such as that experienced by workers in jobs who experience high concentrations over many years has been associated with certain types of cancers WeWork told tenants in the email In 1987 the U S Environmental Protection Agency classified formaldehyde as a probable human carcinogen under conditions of unusually high or prolonged exposure Some studies since then suggested that formaldehyde exposure is associated with certain types of cancer according to the National Cancer Institute A tenant who did not wish to be identified said she was worried about the risk of cancer as she had spent hundreds of hours inside phone booths at a San Francisco WeWork that has the problem Phone booths are popular in WeWork s open plan offices as they provide privacy and noise reduction the tenant said |
MS | Dollar gains for a second day as markets eye Fed minutes | By Saikat Chatterjee LONDON Reuters The dollar edged higher on Wednesday as a rally on Wall Street boosted risk appetite although gains were capped before the release of Fed minutes later in the day Still moves were muted in currency markets contrary to the big gains in global stocks and drops in government bond yields in markets such as Italy The dollar has been strongly correlated to risk appetite for much of this year but in the last few days we have seen this correlation loosening a bit suggesting markets need more strong economic data to push the dollar higher said Manuel Oliveri an FX strategist at Credit Agricole PA CAGR in London Against a basket of its rivals USD DXY the dollar rose 0 1 percent to 95 15 It remains about 2 percent below a 2018 peak of near 97 hit in mid August Major Wall Street indexes rose by more than 2 percent each as strong earnings indicated the U S economy is still expanding despite rising interest rates and global trade war tensions But market analysts warned against buying into the dollar s strength as global financial conditions appeared to be tightening globally Cross currency basis swaps in euros yen and sterling money market gauges of offshore dollar liquidity have widened in recent weeks That suggest the U S Federal Reserve s rate hikes have cut into the availability of overseas dollars Risk caution is warranted the replacement of Fed liquidity has come at the expense of tightening liquidity conditions outside the U S Morgan Stanley NYSE MS strategists said Markets will be looking for clues on the dollar s direction and the path for U S interest rates from minutes of the Fed s September meeting due for release later on Wednesday Interest rate futures are pricing in a 77 percent likelihood that the Fed will raise rates in December according to the CME Group s FedWatch Tool Two more increases are likely next year The British pound was down 0 2 percent at 1 3158 after gaining 0 25 percent on Tuesday as a crucial European Union summit got underway
On Wednesday the euro EUR EBS traded lower at 1 15575 down 0 2 percent On Tuesday it reached 1 1622 its highest since Oct 1 before giving up its gains |
MS | Danske Bank forced to resume CEO search after regulator s rejection | By Stine Jacobsen
COPENHAGEN Reuters Danske Bank CO DANSKE reeling from a money laundering scandal will resume its search for a new chief executive after a Danish regulator rejected its internal candidate for the job and analysts said it would be forced to look outside the bank
Jacob Aarup Andersen 40 the Danske board s choice to take over the helm of Denmark s biggest bank was rejected by the country s financial regulator on the grounds that he wasn t experienced enough
The previous CEO Thomas Borgen was ousted last month as the group struggles to deal with a 200 billion euro 230 billion money laundering scandal that has prompted several criminal investigations and spooked investors
Aarup Andersen joined Danske from Danica Pension in 2016 as chief financial officer and has been head of wealth management since May
While the regulator found he was well qualified in many areas it added longer experience including within certain of Danske Bank s business areas is needed the bank said
The Board of Directors unanimously backed Jacob Aarup Andersen as new CEO knowing full well that longer experience in certain areas would have been desirable said Chairman Ole Andersen in a statement adding that the board was now talking to other potential candidates
The financial watchdog s unusual move to block the decision raises the pressure on Danske Bank s board
This can t be interpreted as anything other than a slap in the face said Per Hansen economist at investment firm Nordnet However he did not think the chairman was likely to step down before a new CEO is found
Danske Bank will now have to look for an external candidate possibly from outside Denmark said Sydbank analyst Mikkel Emil Jensen There are no more internal candidates left he said
RISK HARD TO MEASURE
However the task will be difficult as the full magnitude of the money laundering scandal and potential fines is yet to be uncovered
There is no one who can quantify the risk that Danske Bank is in and a future CEO won t be able to quantify the work related risk either that is a big challenge said Peter Lundgreen CEO of investment advisory firm Lundgreen s Capital
Other names mentioned by analysts and media outlets as possible candidates are the CEO of Danish mortgage lender Nykredit Michael Rasmussen the head of European Fixed Income and Commodities at Morgan Stanley N MS Jakob Horder and Annika Falkengren who is the former CEO of Swedish bank SEB ST SEBa and a partner in Swiss bank Lombard Odier
Danske Bank shares hit a four year low this month after the bank said it faced a U S criminal investigation into a money laundering scandal at its Estonian branch The shares are down more than 40 percent this year
Rating agency Moody s said last week it has downgraded all of Danske s long term debt ratings because of the criminal investigation into the bank by the U S Department of Justice
It followed similar moves by rating agencies DBRS S P and Fitch
Jesper Nielsen who was the head of Danske Bank s domestic banking business will stay on as interim CEO
Former CEO Borgen quit after an internal inquiry found that payments totaling 200 billion euros many of which Danske Bank said were suspicious had been moved through its Estonian branch between 2007 and 2015
Shares in Danske were trading down 2 1 percent at 138 7 Danish crowns at 1156 GMT on Wednesday |
MS | Investors are doubling down on a trade that blew up in their faces earlier this year here s what Morgan Stanley says they should do instead | Traders refuse to throw in the towel on the controversial short volatility trade that s come under pressure multiple times this year Morgan Stanley NYSE MS lays out why the trade is so ill advised especially amid current conditions and offers alternative solutions Sometimes old habits die hard That s definitely the case when it comes to one hot button trade that still has legions of participants despite an ugly blowup earlier this year We re referring of course to volatility After a market shock in early February and forced them to cover positions billions of dollars were erased from popular investment products Some even That carnage in turn worsened widespread selling pressure as those investors covered shorts in droves And all of a sudden the market had a new black sheep Those traders don t appear to have learned their lesson As the chart below shows they ve rebuilt a net short volatility position to rival the one seen before the February meltdown In fact they went as far as to add to it during last week s market mayhem The most recent weekly period in the chart ended Thursday the day the Cboe Volatility Index or reached a multimonth high Their hubris wound up costing them dearly last week when the capped off a sharp six day drop pushing the VIX to 24 98 its highest since the mess eight months ago That cost volatility short sellers roughly 420 million one expert It wasn t as bad as the February incident which saw the VIX exceed 37 but it was still a tough pill to swallow for volatility bears is hardly a fan of the short volatility trade Strategists at the firm spoke out against it after last week s pan market sell off and accompanying volatility spike The firm argued that it could take five to six months to build up cushions against a reversion to the mean whenever there s a surge in price swings Because of that an increasingly volatile market can quickly undo progress Morgan Stanley is also cautiously watching the sudden rerating of so called growth stocks or companies seeing torrid earnings expansion They say this is driving the ongoing uptick in volatility which is hardly a fleeting trend as instead These investors should instead be throwing in the towel on their beloved trade and going long volatility Morgan Stanley says The firm offers some specifics Like in January the equity market has been the most responsive to a sector rotation driven drop Andrew Sheets Morgan Stanley s chief cross asset strategist wrote in a client note We have liked owning hedges on Russell 2000 which tends to underperform S P 500 in drawdowns Credit vols have also risen but are still below average levels again suitable for a long vol bias That being said common sense and expert advice haven t stopped short volatility enthusiasts yet and probably won t in the future It s likely that they used the recent VIX spike to replenish their short positions an inverse buy the dip strategy of sorts But their luck may soon run out at least if a comes true Inigo Fraser Jenkins the firm s head of global and quantitative European equity strategy thinks volatility will shift higher on a long term basis It seems like a sound thesis based on how the past couple of years have played out During 2017 the VIX averaged a record low of 11 10 implying that it had nowhere to go but up Sure it s still below its long term average of 19 33 but any reversion to the mean would translate to more volatile conditions But if short volatility traders have shown one quality over time it s that they re a stubborn bunch They re likely to go down swinging no matter how dire the situation becomes |
MS | Morgan Stanley s brokerage sweetens retirement bonuses for top brokers | NEW YORK Reuters The largest U S brokerage by sales force Morgan Stanley NYSE MS told its top brokers on Thursday that if they commit to handing off their clients to another broker at the firm when they retire they can score bigger retirement bonuses Starting in 2019 the firm is offering to contribute 10 to 50 percent of the revenue top brokers produce in their final year to their post retirement bonus according to a memo Vince Lumia Morgan Stanley wealth s head of field management sent to staff To earn the additional bonus in what the firm called its enhanced former adviser program brokers must produce 2 million in fees or commissions annually and must agree not to work at another financial services for 90 days after they leave
The program which was reported earlier in the day by the wealth management news website AdvisorHub is optional and will be open to around 800 of Morgan Stanley s roughly 15 600 brokers |
JPM | JPMorgan Economists Warn of Black Swan Risks From Climate Change | Bloomberg JPMorgan Chase NYSE JPM Co economists warned that standard models on the costs of a business as usual approach toward climate change may be flawed by failing to incorporate the Black Swan type risk of pushing the planet into conditions unseen for millions of years
There are plenty of non linear tipping points in the climate system that could make the economic consequences of BAU much more severe David Mackie and Jessica Murray economists at the bank in London wrote in a note to clients Thursday BAU stands for business as usual It is hard to know what weather outcomes will occur Econometric estimates are based on small deviations in the mean of the probability distribution
Mackie and Murray said business as usual studies didn t generally provide the kind of numbers that would motivate governments to take costly climate mitigation policies now
They referenced research including an August 2019 working paper from the National Bureau of Economic Research which suggested that a persistent rise in average global temperature of 0 04 degrees celsius annually would hit world gross domestic product per capita by 7 22 by 2100
Given that incomes would likely be much larger than today by 2100 that magnitude of damage is trivial the JPMorgan economists wrote Assuming a 100 level of income today and 2 GDP per capita gains until 2100 it would be the difference between 487 and 453 they illustrated
When Is Change a Crisis Why Climate Terms Matter QuickTake
Given that wealth is likely to grow over the coming 80 years even sizable losses in wealth still leave future generations wealthier than the current generation Mackie and Murray wrote This raises the question of whether it will be possible for governments to push through difficult climate policies on the basis of counterfactual losses
But all of that analysis may be deficient they indicated
The economics of climate change is really in the tails of the probability distribution and in the risk of disastrous outcomes they wrote
Read here about the IMF s most emphatic statement on climate change yet |
JPM | For a few dollars more global funds take on FX risk | By Saikat Chatterjee Hideyuki Sano and Gertrude Chavez Dreyfuss LONDON TOKYO NEW YORK Reuters Some European and Japanese bond investors are taking on more currency risk by buying dollar debt without protecting themselves against potentially devastating exchange rate swings as they seek ways to compensate for sub zero yields at home A fund manager in Germany can buy 10 year U S Treasuries that offer minimal credit risk at yields of up to 1 6 more than 2 percentage points more than for German Bunds But that juicier yield is available only if she eschews expensive currency hedging that could wipe out that whole premium a vulnerable position that funds have traditionally avoided for fear of adverse exchange rate swings Hedging dollar exposure is expensive at current prices the German investor s 2 2 yield pick up on 10 year Treasuries would become a 0 3 loss after hedging With some 40 of non U S debt about 15 trillion now yielding less than zero however it s a risk that funds especially those with obligations to insurance policyholders and pensioners seem prepared to take For fixed income investors the normal habit is to hedge currency risk but this year we ve seen a tendency to hedge less said Claire Dissaux head of global strategy at fund Millennium Global which helps clients manage FX exposures If you are a euro zone investor it s expensive to hedge dollar exposure so there has been a temptation to not hedge And if you didn t hedge you will have done well GRAPHIC Sovereign bond yield heatmap Hedges are usually implemented via currency forwards that specify the rate at which a currency may be exchanged over the contract period usually three or six months That effectively shields the fund if the foreign currency depreciates against its base currency Funds rarely disclose their hedging strategies but interviews with money managers and advisors data on hedged and unhedged bond returns and exchange rate moves imply the ratio of unhedged debt holdings in portfolios has been rising A survey of corporate clients by U S bank Wells Fargo NYSE WFC showed 35 of FX exposure was hedged in 2018 versus 47 in 2016 indicating a broader decline in hedging appetite Japan s 1 5 trillion Government Pension Investment Fund GPIF recently decided to reclassify FX hedged foreign debt as domestic giving itself leeway to buy more foreign debt including scope to increase buying of FX unhedged foreign bonds Barclays LON BARC analysts wrote A yen based investor currently earns a 196 bp yield pickup on 10 year Treasuries but a 0 5 loss after hedging costs For an interactive version of the below graphic click here GRAPHIC Losing appeal Japanese funds bought 2 57 trillion yen 23 76 billion of U S bonds in July official data shows the most in a month since July 2016 With little reliable data investors often use exchange rate moves to draw conclusions on hedge ratios Because hedging effectively offsets the purchase of an FX asset by selling the same currency in forward markets a currency may strengthen more if it is not being sold for hedging purposes Dissaux said the U S dollar s resilience in the face of interest rate cuts and slowing growth is partly due to investors not hedging their dollar exposure Tohru Sasaki head of Japan rates and FX research at JPMorgan NYSE JPM says the dollar yen exchange rate has a fairly stable correlation to the yield gap between 10 year Treasuries and Japanese government bonds But in September the dollar has shifted about one yen above the usual correlation and it rose further in the last couple of weeks which suggests unusual factors are driving up dollar yen he added Unhedged foreign bond buying by Japanese investors is the most likely culprit For an interactive version of the below graphic click here GRAPHIC Going West TRIMMING HEDGES The shift is important because bond investors are a risk averse bunch Pension and insurance funds desire slim but steady returns and holding bonds unhedged can jeopardize that When U S bonds yielded around 5 and the Treasury yield curve was steep hedging costs ate less into returns But a flattening of the curve since 2016 so that long maturity debt yields barely more than short dated bonds has crushed post hedging yields said Ugo Lancioni managing director for global fixed income at Neuberger Berman For an interactive graphic please see GRAPHIC BUY AMERICAN Curve flattening has forced Japanese and other investors to buy bonds on an increasingly unhedged basis if you were to hedge your FX risk completely what you earn on the long end you can lose by hedging on the short end Lancioni said Although it is unusual for hedging costs to eliminate the yield advantage of a foreign security the gap between U S interest rates and those in Europe and Japan on which the cost of forwards is based mean no change is likely soon Collapsing currency volatility is another factor With big FX swings now relatively rare it s become less risky for bond investors to run unhedged portfolios The Fed has not pushed the button on U S interest rates and said we re going to zero like in Europe and Japan So if you re looking to take on dollar exposure it s probably still to your advantage to enjoy the full interest rate differential said Tim Horan chief investment officer for fixed income at Chilton Trust in New York Some would call the strategy reckless Dollar positioning valuations and the low volatility backdrop have reached extremes meaning any reversal could be bloody The dollar meanwhile faces headwinds from Fed rate cuts and President Donald Trump who blames currency strength for U S trade woes By leaving all of your global bonds unhedged currency risk will dominate in your portfolio You may lose the integrity of a fixed income portfolio said Ben Popatlal multi asset strategist at Schroders LON SDR Do clients usually know what currency risks they face Popatlal said active managers tend to have discretion over portfolios with clients kept informed of strategy shifts
Our neutral starting point is to be 100 hedged and then take active decisions away from that such that every currency earns its place in the portfolio he added |
JPM | JPMorgan Rises 3 | Investing com JPMorgan NYSE JPM rose by 3 03 to trade at 117 67 by 11 16 15 16 GMT on Friday on the NYSE exchange
The volume of JPMorgan shares traded since the start of the session was 4 86M JPMorgan has traded in a range of 115 89 to 117 68 on the day
The stock has traded at 117 6800 at its highest and 110 5200 at its lowest during the past seven days |
JPM | WeWork to close its WeGrow elementary school in New York next year | By Sheila Dang Reuters WeWork said on Friday it will shut down its WeGrow private school in New York City after the current school year as the company focuses on its main office sharing business The company is cutting back including laying off some employees and closing or selling entities that are not essential to its core operations as it seeks to avoid running out of cash WeWork which had to abandon an initial public offering on September 30 because of investor concerns about how it was valued and its business model is currently seeking new financing from its major shareholder SoftBank Group Corp T 9984 and JPMorgan Chase Co N JPM sources have told Reuters WeWork said in a statement it will continue to operate WeGrow through the 2019 2020 school year and that WeWork and the families of WeGrow students are engaging in discussions with interested parties regarding plans for WeGrow for the following school year Last week parents picking up their children outside the WeGrow elementary school in Manhattan s Chelsea district expressed hope that it would continue to stay open but said they had not received much information from administrators WeGrow which took in children as young as two years old was founded by Rebekah Neumann the wife of former WeWork chief executive Adam Neumann who resigned last month
The school charged between 22 000 to 42 000 for annual tuition based on the student s age |
JPM | JPMorgan names Rebecca Thornton head of director advisory services memo | By Jessica DiNapoli
NEW YORK Reuters Rebecca Thornton will become the head of JPMorgan Chase Co s N JPM director advisory services group a unit of the U S bank that helps source members for corporate boards and provides advice to them according to an internal memo seen by Reuters
Thornton who joined JPMorgan from executive recruiting firm Spencer Stuart last year succeeds Karen Simon a veteran of the bank who is retiring Thornton is an expert in corporate governance across industries who has helped build out the boards of private equity owned companies and has bolstered those facing pressure from activist investors
Corporate boards of directors are under increasing scrutiny as investors press them on the diversity of their of their members their view on environmental risks facing companies and their independence from management Investors are pushing back against some companies with governance practices they view as sub par such as co working space landlord The We Company which recently shelved plans to go public
Since joining JPMorgan Thornton has helped the group expand its referral network according to the internal memo
JPMorgan s director advisory services group has worked with more than 300 corporate clients and placed 23 directors according to the internal memo The group also has a network of more than 700 candidates
Rod Reed JPMorgan s vice chairman of investment banking will also serve as senior adviser to Thornton and her team according to the memo |
JPM | WeWork s financing lifeline hinges on SoftBank talks | By Anirban Sen and Joshua Franklin Reuters WeWork is locked in negotiations this week with its largest shareholder Softbank Group Corp T 9984 over a new 1 billion investment to enable the shared office space company to go through a major restructuring according to sources familiar with discussions If the talks are successful WeWork which had to abandon an initial public offering last week because of investor concerns about how it was valued and its business model will seek to negotiate a 3 billion debt deal with JPMorgan Chase Co N JPM the sources said SoftBank founder and CEO Masayoshi Son publicly backed WeWork in an interview with Nikkei Business magazine this week saying in 10 years the company would be making substantial profits WeWork and SoftBank did not immediately respond to requests to comment However SoftBank and its Vision Fund which controls about 29 percent of WeWork after investing or committing to invest 10 65 billion are facing unusual crosscurrents as they seek a new deal SoftBank wants to renegotiate a 1 5 billion warrant deal which was agreed in January based on WeWork being valued at around 47 billion before providing the additional 1 billion one of the sources said WeWork s valuation estimates had fallen to as low as 10 billion to 12 billion around the time that it decided to abandon the IPO Reuters reported last month Normally SoftBank would be expected to seek as low of a valuation as possible for the renegotiated and new investments so that it can pick up a bigger stake But securities analysts say that if it invests in WeWork at a valuation below about 24 billion 26 billion which is the estimated basis for its entire stake then SoftBank and its Vision Fund could suffer on paper losses Those would be large if the valuation were closer to 10 billion The success of the talks with both SoftBank and Wall Street is essential if WeWork is going to survive in anything like its current form The company was already expected to pare back its ambitions significantly and to cut several thousand jobs according to a source familiar with the matter WeWork lost 1 9 billion in 2018 and burned through 2 36 billion in cash in the first half of this year and it could run out of money in the second quarter of 2020 at its current burn rate according to an analysis last week by securities house Sanford C Bernstein Co HOPES FOR DEAL NEXT WEEK WeWork hopes to complete the talks with SoftBank and JP Morgan as early as next week the sources said cautioning the plans are subject to change and timetable may still shift The bank does not want to get into intensive negotiations over the debt deal until it is sure that SoftBank has reached a new financing deal one of the sources said It was unclear what kind of collateral the bank would demand Originally a group of banks was prepared to provide WeWork with a 6 billion line of credit provided it raised 3 billion in the IPO JPMorgan declined to comment SoftBank has been reluctant to plow more cash into WeWork but now concludes that a fresh investment is necessary in order to have any hope of salvaging the investment it has already made according to one source In the run up to the planned IPO investors raised concerns about WeWork s ballooning losses and the potentially risky way in which it operates by signing long term leases and then renting out spaces short term In recent weeks global credit rating agencies Standard Poor s and Fitch Ratings have also downgraded WeWork s credit ratings deeper into junk territory while the company s junk bond is trading at a record low WeWork last month replaced co founder Adam Neumann as CEO with insiders Artie Minson and Sebastian Gunningham taking on the joint CEO roles The pair have talked about the need to return to WeWork s core business of renting out trendy office space to freelancers and enterprises That would pull the company back from the fringe activities Neumann had forayed into such as a school apartment buildings and various businesses
The firm expects to tell staff about jobs cuts and planned divestments as early as next week hoping the news will coincide with a new financing deal being in place the sources said again cautioning that the timeline is subject to change |
JPM | Exclusive China Everbright Group to restructure pursue billion dollar HK IPO sources | By Engen Tham and Julie Zhu
SHANGHAI HONG KONG Reuters State owned financial conglomerate China Everbright Group aims to restructure its sprawling business and pursue a billion dollar IPO next year in Hong Kong three people with direct knowledge of the matter told Reuters on Thursday
While the offering size has yet to be finalised the initial public offering IPO will likely be at least in the billion dollar bracket two of the people said The third person estimated that Everbright backed by sovereign wealth fund subsidiary Central Huijin Investment Ltd and China s Ministry of Finance could raise up to 3 billion
The Fortune 500 company has recently hired U S investment bank JPMorgan Chase Co N JPM and Chinese peers China International Capital Corp Ltd CICC HK 3908 and CITIC Securities Co Ltd SS 600030 as restructuring advisers the people said
The advisers will help the group with businesses as varied as banking insurance aircraft leasing and environmental protection services to finalize details such as what assets will be listed and under which entity two of the people said
Everbright Group JPMorgan CICC and CITIC Securities did not respond to requests for comment The three people declined to be identified as the information was not public
Beijing based Everbright has been exploring IPO plans since the first half of the year and has been asking another state owned conglomerate CITIC Group Corp for guidance and advice said one of the people
The group decided to list in Hong Kong rather than Shanghai partially because the process is shorter and there are fewer uncertainties the person said
Like many heads at Chinese state owned enterprises Everbright Chairman Li Xiaopeng who joined the group in December 2017 from another state backed conglomerate China Merchants Group Ltd is a senior Communist Party official
One of the people said a successful IPO would likely help Li 60 climb further up the ranks of the Party
Everbright s IPO pursuit in Hong Kong comes as Asia s top financial hub looks to be back in business with companies forging ahead with listing plans after a freeze during months of frequently violent anti government protests
Budweiser Brewing Company APAC Ltd HK 1876 last month raised about 5 billion in Hong Kong in this year s second largest IPO worldwide
On Thursday Chinese sportswear manufacturer Topsports International Holdings Ltd HK 6110 debuted on the Hong Kong stock exchange after raising 1 01 billion
Everbright one of mainland China s oldest and biggest financial conglomerates was founded in Hong Kong in 1983 early in China s economic reform era
The group now has registered capital of 60 billion yuan 8 41 billion and about 11 stock market listed entities including China Everbright Bank Co Ltd SS 601818 Everbright Securities Co Ltd SS 601788 and asset manager China Everbright Ltd HK 0165 |
MS | U S retail sales increase modestly consumer spending strong | By Lucia Mutikani WASHINGTON Reuters U S retail sales barely rose in September as a rebound in motor vehicle purchases was offset by the biggest drop in spending at restaurants and bars in nearly two years But other details of the report from the Commerce Department on Monday were upbeat and suggested that consumer spending ended the third quarter with strong momentum which should provide a boost to economic growth despite anticipated drags from weak exports and a struggling housing market The net result still appears to be a fairly strong quarter for consumer spending growth said Jim O Sullivan chief U S economist at High Frequency Economics in White Plains New York Retail sales edged up 0 1 percent last month after a similar gain in August Economists polled by Reuters had forecast retail sales increasing 0 6 percent in September Retail sales in September rose 4 7 percent from a year ago Excluding automobiles gasoline building materials and food services retail sales jumped 0 5 percent last month after being unchanged in August These so called core retail sales correspond most closely with the consumer spending component of gross domestic product Consumer spending which accounts for more than two thirds of U S economic activity is being driven by a robust labor market with the unemployment rate near a 49 year low of 3 7 percent Tight labor market conditions are gradually pushing up wage growth Consumption has also been supported by the Trump administration s 1 5 trillion tax cut as well as higher savings However economists said the stimulus from the tax cuts was fading and many expected consumer spending to slow sharply in the fourth quarter Some also worried a recent stock market sell off had dented household wealth which could hurt spending We believe lower tax withholdings provided meaningful lift to consumer spending growth so far this year but that the incremental support to growth from taxes should be fading said Michael Feroli an economist at JPMorgan NYSE JPM in New York We look for a more meaningful deceleration in consumer spending in the fourth quarter SOLID ECONOMIC GROWTH Economists are estimating that consumer spending grew at an annualized rate of about 3 5 percent in the third quarter which would be slightly below the 3 8 percent pace logged in the April June period Solid consumer spending should help to offset the impact on the economy from a widening trade deficit and persistent weakness in the housing market Growth estimates for the third quarter are above a 3 0 percent rate The economy grew at a 4 2 percent pace in the second quarter Growth prospects for the July September quarter were bolstered by a second report from the Commerce Department on Monday showing business inventories rose 0 5 percent in August after increasing 0 7 percent in July Inventory investment is expected to contribute to GDP growth after a liquidation of stocks sliced 1 17 percentage points from output in the April June quarter Strong economic growth likely will keep the Federal Reserve on course to raise interest rates in December The U S central bank hiked rates last month for the third time this year Tightening monetary policy has roiled financial markets in recent days U S stocks were trading lower on Monday The dollar was marginally weaker against a basket of currencies while U S Treasury yields rose Last month auto sales surged 0 8 percent after declining 0 5 percent in August Receipts at clothing stores rebounded 0 5 percent after tumbling 2 8 percent in August Online and mail order sales soared 1 1 percent in September after rising 0 5 percent in the prior month There were also strong increases in receipts at furniture hobby musical instrument and book stores as well as electronics and appliances outlets But Americans cut back on spending at restaurants and bars with sales dropping 1 8 percent That was the biggest decline since December 2016 and followed a 0 3 percent rise in August While the Commerce Department said it was impossible to determine the impact of Hurricane Florence on the data disruptions caused by the storm could have hurt sales at restaurants and bars last month Retail sales for food services and drinking places may have been impacted by the hurricane in September as consumer confidence remained solid during the month said Ellen Zentner chief U S economist at Morgan Stanley NYSE MS in New York
Sales at building material stores nudged up 0 1 percent in September Receipts at service stations fell 0 8 percent likely reflecting a moderation in gasoline prices |
MS | China s cooling factory gate inflation signals waning demand | BEIJING Reuters China s factory gate inflation cooled for a third straight month in September amid ebbing domestic demand pointing to more pressure on the world s second biggest economy as it remains locked in an intensifying trade war with the United States Consumer inflation on the other hand picked up slightly in September from the previous month led mainly by higher food prices official data showed on Tuesday Overall pricing pressures were contained giving authorities the flexibility to ease monetary policy to shore up slowing growth Over the weekend central bank governor Yi Gang said he sees plenty of room for adjustment in interest rates and banks reserve requirement ratio due to significant downside risks from the Sino U S trade row Indeed economic activity has been slackening in the past few months prompting the People s Bank of China PBOC to announce another cut to banks reserve requirement ratio RRR just over a week ago the fourth reduction this year For this year Yi said that CPI will likely come in about 2 percent and expects PPI between 3 4 percent The producer price index PPI a gauge of industrial profitability rose 3 6 percent in September from a year earlier compared with a 4 1 percent increase in August according to data released by the National Statistics Bureau on Tuesday On a monthly basis the PPI picked up to 0 6 percent from 0 4 percent in August Julian Evans Pritchard senior China economist at Capital Economics noted that the small monthly rise in producer inflation mainly reflected an unsustainable increase in global oil price The bigger picture is that broader factory gate price pressures still appear to be cooling alongside weaker economic activity he said in a client note following the data release Analysts polled by Reuters had expected September producer inflation would cool to 3 5 percent as both external and domestic demand weakened Price inflation in non metallic mineral resources metal smelting chemicals and coal mining all slowed in September from previous month while extraction in oil and natural gas extended its gains Raw materials prices rose 7 3 percent in September from a year earlier down from a 7 8 percent increase in August according to the statistics bureau Profit growth at China s industrial firms slowed to a five month low in August fanning concerns about faltering domestic demand The trade row with Washington appears to be already impacting industries Growth in China s factory sector in September stalled after 15 months of expansion with export orders falling the most in more than two years a private business survey showed An official survey also confirmed a further manufacturing weakening CPI PICKUP The consumer price index CPI rose 2 5 percent from a year earlier in line with expectations of 2 5 percent and accelerating from August s 2 3 percent gain It still remained comfortably below China s inflation goal of 3 percent for 2018 same as last year The food price index increased 3 6 percent in September up sharply from the 1 7 percent annual gain in September due to extreme weather conditions such as seasonal typhoons heavy rains and hailstorms according to the NBS Despite the pickup in the headline number the core consumer price index which strips out volatile food and energy prices rose 1 7 percent year on year cooling from 2 0 percent s gain in August Gains in non food prices also slowed to 2 2 percent from August s 2 5 percent China s economic growth cooled slightly to 6 7 percent in the second quarter though worries about a sharper slowdown in coming quarters have increased in recent months amid the rocky trade relations with the United States The two countries have already slapped tit for tat tariffs on each other s goods and U S President Donald Trump has warned that he was ready to slap tariffs on virtually all Chinese imports into the United States If China goes ahead with a 15 percent tariff on 60 billion U S goods it could lead to a one time impact of a 0 2 0 3 percentage point gain on China s consumer inflation according to estimates from Morgan Stanley NYSE MS Yet few expect the overall inflation picture to prevent further policy support for the economy
The recent rise in CPI is due to temporary disruptions to food supply and is unlikely to prevent the People s Bank from loosening monetary policy further in the coming months in a bid to shore up economic growth said Evans Pritchard |
MS | China to step up banks reserve requirement cuts in 2019 as growth risks build Reuters poll | BEIJING Reuters China s central bank is increasingly expected to cut the amount of funds banks need to hold as reserves next year as the government looks to funnel cash into an economy hit by slowing domestic demand and a trade war with the United States That should help economic growth hold up in the face of both internal and external challenges with a Reuters poll showing economists keeping forecasts for gross domestic product growth in 2018 and 2019 unchanged from a July poll The median forecast of 73 economists Reuters polled was for GDP growth in the world s second biggest economy to expand by 6 6 percent in 2018 and 6 3 percent in 2019 Since the last poll China reported second quarter growth of 6 7 percent down slightly from 6 8 percent in the third quarter and GDP growth is expected to slow to 6 6 percent and 6 5 percent in the third and fourth growth quarters respectively Economists in the poll expect the People s Bank of China to keep the reserve requirement rate RRR steady for the rest of this year but forecast a 1 5 percentage point reduction in the rate to 13 percent by the end of 2019 a deeper cut than the 0 75 percentage point cut tipped in the July poll The current RRR is 14 5 percent We ve seen some signs of slowing economic growth but this year should be ok it s been a soft landing said Robin Xing chief China economist at Morgan Stanley NYSE MS Everyone is focused on what policies will be implemented next year if downward pressure increases China will publish third quarter GDP and September activity data on Friday at 0200 GMT Economic data over the past few months has shown faltering domestic demand with record low fixed asset investment growth tepid expansion in industrial output and weaker growth in consumer spending And as U S President Donald Trump ramps up pressure on China s trade policies Beijing has shifted to a loosening stance as it looks to backstop growth The PBOC has cut reserve requirements for lenders four times this year with the latest cut taking effect on Monday pumping out more cash to stimulate bank lending Beijing has also softened its stance on a campaign to reduce credit risks pledged to speed up infrastructure investment and increased tax rebates for exporters Factory surveys for September showed growth sputtered with export orders contracting However even with the expected moderation China is expected to meet its goal of around 6 5 percent growth this year Exports have held up better than expected in the face of new U S tariffs though analysts say growth should slow in the future as the boost from firms ramping up shipments ahead of U S tariffs weakens MORE CASH FOR BANKS China s central bank late last month announced a steep cut in banks reserve requirements stepping up moves to lower financing costs and spur growth amid concerns over the economic drag from an escalating trade dispute with the United States With more funds flowing into the economy economists now expect inflation to pick up through the end of 2019 compared with a forecast for slowing inflation in July The 2018 median consumer price inflation forecast rose to 2 2 percent from 2 1 percent while economists now expect 2019 inflation to be 2 4 percent versus a 2 2 percent forecast in July Most economists expect China to keep its benchmark lending rate unchanged at 4 35 percent through to the end of 2019 as the central bank focuses on other monetary policy levers such as interbank rates The PBOC last moved its benchmark policy in October 2015 easing rates |
JPM | Technical buying could spur significant rally for U S stocks JPM | By Saqib Iqbal Ahmed
NEW YORK Reuters There is more behind the recent slide in U S stocks than weak data according to JPMorgan NYSE JPM Chase s head of quantitative and derivatives research who says options hedging and technical selling contributed to the gyrations and could help the market reverse course and rally
Even Friday s modest positive move could spur technical buying and spell good news for equity bulls Marko Kolanovic wrote in a note published as the market rallied on encouraging U S employment data
The benchmark S P 500 index SPX shed 3 over the first two days of October logging its worst two day performance since early August after employment and manufacturing data revived worries that the U S China trade war is taking an increasing toll on the U S economy
Dismal manufacturing data on Monday dragged the S P down past several technical levels prompting dealers who had earlier sold options to add to the selling pressure as they hedged their positions Kolanovic said
When investors buy S P 500 put options they are buying insurance against a drop in the market Dealers who sell this insurance are on the hook if the index drops sharply
To counter this exposure they sell increasing amounts of S P 500 futures as the index falls thereby adding to selling pressure
In addition to this options related selling the recent sharp drop in the S P also prompted selling by commodity trading advisors CTA firms that follow trends and are specialists in the futures markets
Technical flows likely drove more than about 100 billion of equities selling in a 48 hour period wrote Kolanovic
However that may be set to change
The S P gained 26 35 points or 0 90 at midday after September U S employment data offered some relief from the week s spate of dismal economic indicators
If stocks end the day more than half a percent higher the near term outlook would brighten significantly Kolanovic said
It could spark a significant rally driven by the trend followers CTAs and the same put options that helped push the market lower earlier in the week he said |
JPM | Deutsche Bank in strategy shift to address tech woes | FRANKFURT Reuters Deutsche Bank DE DBKGn is creating a new technology division in a strategy shift designed to reduce complexity and lower costs while transforming systems that have held back the bank for years The German lender s legacy IT systems have been blamed in part for the bank s failure to control costs and for its slow progress in keeping up with the wave of fintech innovation across the industry Technology has long been a problem for Deutsche Bank Former Chief Executive John Cryan complained in 2015 about lousy systems and very slow processes and former operations chief Kim Hammonds last year described Deutsche as vastly complex and the most dysfunctional workplace she has known The central technology division announced on Monday will be led by Bernd Leukert overseeing tech security data and innovation functions among others the bank said in a note to employees seen by Reuters At its heart our technology strategy empowers our businesses to control what is produced while technology has control of the how In the past the how offered too much optionality and did not consistently follow group wide architecture and tooling it said The lender also established a board level Technology Data and Innovation Committee in May and has vowed to invest 13 billion euros 14 2 billion in technology by 2022 It will be doing so amid a technology arms race in banking Research from UBS this year found that JPMorgan N JPM has budgeted 11 4 billion for technology in 2019 alone In its note to staff Deutsche Bank also said that moving systems to the cloud would not happen overnight meaning it would continue to invest in legacy infrastructure on which it operates today However it pledged to continue to reduce the number of applications and barriers to technology functions We have a bank wide commitment to strengthen engineering expertise in the bank by increasing the share of expert internal technology staff it said This story has been refilled to show memo was published Monday not Wednesday |
JPM | JPMorgan Says Euro Area to Be Key Equities Winner in Brexit Deal | Bloomberg Euro area stocks would stand to gain more from a Brexit deal by the end of this month than U K shares JPMorgan NYSE JPM Cazenove strategists said
While such a scenario would be bullish for domestic British companies a strengthening of the pound would take away much of the upside for U K equities strategists led by Mislav Matejka wrote in a note Euro zone shares however would be a big potential indirect beneficiary they said
JPMorgan on Monday reiterated its overweight stance on euro area equities while maintaining an underweight position on U K shares In addition to a potential Brexit deal boost euro area stocks are under owned and trading cheaply on most valuation metrics while speculation is mounting for fiscal stimulus in the region the strategists said
The U K s benchmark FTSE 100 Index has tended to move inversely to the pound since the 2016 referendum to leave the European Union thanks to a heavy weighting of exporters that benefit from a weaker currency Last week a stronger pound and a slump in commodities dragged the gauge to its worst drop in almost a year
JPMorgan s base case is for the Oct 31 deadline to be pushed out to January February with early elections likely but the strategists cautioned that one shouldn t ignore the likelihood that Boris Johnson gets his deal through in October
Prospects of a breakthrough ahead of the deadline faded again over the weekend as talks between the two sides stalled The EU has indicated that proposals made by Prime Minister Johnson last week to resolve the impasse won t cut it
The FTSE 100 has underperformed the Euro Stoxx 50 Index this year amid lingering uncertainty about the timing and details of Brexit |
JPM | JPMorgan Wells Fargo And Citigroup Are Part Of Zacks Earnings Preview | For Immediate ReleaseChicago IL July 15 2019 Zacks com releases the list of companies likely to issue earnings surprises This week s list includes JPMorgan NYSE JPM Wells Fargo NYSE C and Citigroup NYSE C What to Expect from Bank Earnings Bank stocks have done reasonably well lately contrary to general perception of the group as a laggard and victim of the dovish Fed outlook The chart below shows the year to date stock market performance of the Zacks Major Banks industry relative to the S P 500 index and the Zacks Finance sector The blue line in the chart represents the Zacks Major Banks industry which includes Citigroup that reports on Monday July 15th and JPMorgan and Wells Fargo that report on Tuesday July 16th The recent most catalyst for the group turned out to be the late June completion of the Fed s stress test officially called Comprehensive Capital Analysis and Review or CCAR that allowed these players to return ever increasing amounts to shareholders through cash dividends and buybacks The Dodd Frank legislation in the wake of the 2008 crisis made banks better capitalized and more stringently regulated The goal was to make this important part of the economy safer and less prone to riskier behavior Banks have become boring as a result almost like utilities with many of the major industry players promising juicy dividend yields JPMorgan currently yields 3 2 The group s earnings performance has been good not great but good On most key operating metrics bank performance was been very strong in recent quarters and we will most likely see a repeat performance this earnings season as well Key parts of the market s worry list for banks include the interest rate backdrop and its related implications for the broader economy With the current U S economic expansion on the verge of becoming the longest in history many in the market justifiably worry about the duration and stability of the economy s growth trajectory Keep in mind that banks are cyclical businesses engaged in lending and other activities like investment banking money management and trading that are always at the mercy of the economic cycle Banks not only experience low demand for its services when the economic cycle turns down but the quality of its existing assets its loan portfolio also goes down as its customers credit profiles weaken The Fed s recent dovish tilt is aimed at forestalling worries about trade and global growth from bleeding into business and market sentiment The momentum in stock and other asset prices suggests that it is working even though it is prompting cuts to earnings estimates for banks What Are Banks Expected to Earn Total Q2 earnings for the Zacks Major Banks industry that includes Citi JPMorgan Wells Fargo and other major industry players are expected to be down 5 4 from the same period last year on 0 2 higher revenues This would follow the 2 earnings growth on 0 8 higher revenues for the group in Q1 The table below shows Q2 expectations for the constituent industries of the Finance sector contrasted with what was reported in Q1 and what is expected for Q3 Please note that the Major Banks industry represents the biggest slice of the Finance sector accounting for almost 45 of the sector s total earnings The decline is primarily a function of tough comparisons with the year earlier tally reflecting one time boost from the tax cut legislation Join us on Facebook NASDAQ FB Zacks Investment Research is under common control with affiliated entities including a broker dealer and an investment adviser which may engage in transactions involving the foregoing securities for the clients of such affiliates Media ContactZacks Investment Research800 767 3771 ext 9339Zacks com provides investment resources and informs you of these resources which you may choose to use in making your own investment decisions Zacks is providing information on this resource to you subject to the Zacks Terms and Conditions of Service disclaimer Past performance is no guarantee of future results Inherent in any investment is the potential for loss This material is being provided for informational purposes only and nothing herein constitutes investment legal accounting or tax advice or a recommendation to buy sell or hold a security No recommendation or advice is being given as to whether any investment is suitable for a particular investor It should not be assumed that any investments in securities companies sectors or markets identified and described were or will be profitable All information is current as of the date of herein and is subject to change without notice Any views or opinions expressed may not reflect those of the firm as a whole Zacks Investment Research does not engage in investment banking market making or asset management activities of any securities These returns are from hypothetical portfolios consisting of stocks with Zacks Rank 1 that were rebalanced monthly with zero transaction costs These are not the returns of actual portfolios of stocks The S P 500 is an unmanaged index Visit for information about the performance numbers displayed in this press release |
MS | Week That Spooked Bond Markets Sent Traders Scrambling for Exits | Bloomberg Volatility in the U S Treasury market appears to have forced traders out of what just a week ago appeared to be surefire wagers on higher yields and a flatter curve
Flight to quality as U S stocks slumped pulled the 10 year note s yield from a four year high of 3 259 percent on Tuesday to as low as 3 124 percent on Thursday Apparently that was enough for one trader to abandon a 2 5 million wager targeting a move to 3 60 percent by December Placed last week the bet took a loss of close to 1 million
Specifically a block trade of 18 000 put options on the 10 year futures contract expiring in January 2019 was bought for 9 ticks on Oct 4 Thursday an identical sized block was sold at 5 ticks and CME data suggest it was liquidation open interest in the strike declined by 17 999
The Treasury curve also put positions to the test as the spread between 5 and 30 year yields briefly topped its 200 day moving average on Oct 9 for the first time in more than a year Morgan Stanley NYSE MS abandoned long held and previously profitable flattener calls and a derivatives trader appears to have also thrown in the towel
Wednesday a pair of large block trades in 2 and 10 year Treasury futures appeared consistent with a partial unwind of a flattener initiated in August after a 13 million hit To be sure the remaining position may yet pan out Flattening bets still enjoy broad sponsorship based on the outlook for Fed rate increases and subdued growth and inflation
In the meantime the wound licking can commence |
JPM | Gold Prices Rise Again as Weak ADP Reinforces Risk Aversion | Investing com Gold prices edged higher again on Wednesday on continued demand for haven assets in the face of collapsing bond yields and falling stock prices
By 10 40 AM ET 1440 GMT gold futures for delivery on the Comex exchange were up 0 9 at 1 502 65 a troy ounce having risen as high as 1 504 15 after a weaker than expected report on private sector hiring in September from payrolls processor ADP However the data didn t add significant momentum to prices that had already risen sharply after Tuesday s ISM Manufacturing PMI data
Spot gold was likewise 1 1 higher at 1 496 10
Bond yields meanwhile continued to head lower with the two year yield falling to a four week low of 1 50 as traders priced in the growing likelihood of more rate cuts from the Federal Reserve According to Investing com s Fed Rate Monitor Tool the implied probability of another cut before the end of the year is now around 87 5 while the chance of action already at the October Federal Open Markets Committee Meeting has risen to just under 75 from 64 a week ago
With buyers still apparently ready to step in anywhere below 1 500 gold s drift in the last couple of weeks is still seen by many as little more than a temporary pause in a long term rally that will continue to be supported by lower interest rates around the world Analysts at Landesbank Hessen Thueringen see prices averaging 1 600 oz through the current quarter rising to an average of 1 850 in the fourth quarter of 2020
Analysts at JPMorgan NYSE JPM led by Natasha Kaneva wrote in a weekly note that with the long term upward trend clearer than the short term one selling short dated gold call options to finance longer dated calls could be attractive
Among other haven plays Wednesday Silver Futures rose 1 5 to 17 56 an ounce while platinum futures rebounded 0 6 to 891 60 an ounce
Copper Futures which tend to move inversely to haven assets eked out a 0 4 gain to 2 57 a pound |
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