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MS | Japan exports to U S fall for first time in 17 months amid protectionism fears | By Stanley White TOKYO Reuters Japan s exports to the United States fell in June for the first time in 17 months amid worries about U S President Donald Trump s protectionist trade policies Exports to the United States fell 0 9 percent in June from the same period a year ago due to a decline in shipments of cars and semiconductor manufacturing equipment two of Japan s most important export products The decline while slight could still raise concerns among Japanese policymakers who worry whether Trump will push Japan to take concrete measures to lower its trade surplus with the United States Overall exports remain healthy for now but we are not sure how things are going to turn out on the trade policy front said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities It is possible talk of tariffs and trade friction could reduce corporate investment Imports from the United States fell 2 1 percent year on year due a decline in crude oil aircraft and coal As a result Japan s trade surplus with the United States was 590 3 billion yen up 0 5 percent from the same period a year ago Japan s trade surplus with the United States may draw criticism as Trump s administration raises tariffs to lower the U S trade deficit and combat what it says are unfair trade policies The United States this month imposed 25 percent tariffs on 34 billion of Chinese goods to lower the U S trade deficit and China quickly retaliated with an increase in tariffs on U S goods Trump has imposed tariffs on imported steel and aluminum a blow to Japanese exporters and has also criticized Japan for the small number of American vehicles it imports Japan s overall exports rose 6 7 percent in June from the same period a year ago less than the median estimate for a 7 0 percent annual increase expected by economists in a Reuters poll Exports grew an annual 8 1 percent in May Exports are likely to continue to grow because global demand remains firm but Japan s trade surplus with the United States makes it a potential target for Trump s protectionist policies Japan s imports rose 2 5 percent in the year to June versus the median estimate for a 7 0 percent increase
The trade balance was a surplus of 721 4 billion yen 6 40 billion versus the median estimate for a 534 2 billion yen surplus |
MS | Japan exports to U S fall business mood sours amid fears of trade war | By Tetsushi Kajimoto and Stanley White TOKYO Reuters Japan s exports to the United States fell for the first time in 17 months and Japanese business sentiment soured amid worries about U S President Donald Trump s protectionist trade policies Exports to the United States dipped 0 9 percent in June from the same period a year ago on waning shipments of cars and semiconductor manufacturing equipment two of Japan s most important export products Thursday s trade data came on the heels of the Reuters Tankan which showed business sentiment slipped in July reflecting companies fears about an intensifying trade dispute between the United States and China The batch of data highlighted concerns among Japanese policymakers who worry Trump may resort to tariffs or other protectionist measures to fix trade imbalances with Japan under his America first policy The government cut its view of business sentiment and warned that it must be vigilant about the impact that Sino U S trade frictions could have on the global economy which would in turn affect export reliant Japan Overall exports remain healthy for now but we are not sure how things are going to turn out on the trade policy front said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities It s possible talk of tariffs and trade friction could reduce corporate investment With Japanese imports from America down 2 1 percent Japan s trade surplus with the United States widened 0 5 percent year on year to 590 3 billion yen 5 24 billion That could make it a potential target for Trump s protectionist policies Japan s global exports rose 6 7 percent in June while imports gained 2 5 percent The Reuters Tankan which tracks the Bank of Japan s closely watched quarterly tankan survey found manufacturers sentiment index stood at 25 in July down one point from June and the service sector s mood fell to 34 from 35 in the prior month The index subtracts the percentage of companies that feel negative about the economy from those who are optimistic so a positive number means more businesses are upbeat TRADE PROTECTIONISM Concerns about protectionism were widely cited in the Reuters poll of 483 large and mid sized companies of which 268 responded between July 2 13 Exporters of cars precision machinery and metal products were among those who dragged down manufacturers sentiment Earlier this month the United States and China slapped tit for tat duties on 34 billion of each other s goods Our clients are increasingly taking a wait and see stance on capital expenditure in the face of uncertainty over trade friction between the United States and China and the EU a manager of a machinery maker wrote in the survey Uncertainty is rising over capital spending plans at our client firms due to the expansion of protectionist policies and geopolitical risks said another machinery maker The manufacturers index is seen rising to 29 in October while the service sector index is expected to hold steady after July s decline led by real estate construction firms In its monthly report for July released on Thursday the government kept intact its assessment for a seventh straight month that Japan s economy was recovering at a moderate pace But it said business sentiment was almost flat a bleaker view than in June when it said the mood was improving The downgrade came after the BOJ s tankan survey showed business confidence worsened for a second straight quarter in April June reflecting companies jitters over Trump s protectionist policies
1 112 7300 yen |
MS | Emerging Markets at Mercy of Yuan Swings as Currency War Looms | Bloomberg China s yuan is back at the top of emerging market investor worries as the deepening standoff between the U S and China over trade threatens to evolve into a currency battle
As the dollar strengthens amid the trade tensions the slide in the yuan is spurring concern that China might be embracing purposeful devaluation as a policy tool That stoked the ire of U S President Donald Trump who accused the country and the European Union of manipulating their currencies China s foreign ministry spokesman said Monday the country has no desire to boost its exports through competitive devaluation while the nation s sound economic fundamentals are providing support to the currency
The yuan s definitely weighing on risk although much more so on Asia said Edwin Gutierrez the London based head of emerging market sovereign debt at Aberdeen Standard Investments But we are confident that the Chinese will not let things get disorderly Having recently won the battle against capital outflows they re not about to stoke those again by letting the currency depreciate significantly
The People s Bank of China last week fixed the currency past 6 7 per dollar for the first time in almost a year and on Friday weakened the reference rate the most in two years On Monday the PBOC strengthened the yuan s fixing by 0 12 percent to 6 7593 though it was still slightly weaker than traders and analysts had expected The offshore yuan erased its gain to trade lower at 10 30 a m in London
A further drop in the Chinese currency to 7 against the dollar may trigger another round of panic selling in emerging markets Gutierrez said The currency regained some ground on Friday after a big Chinese bank sold dollars traders said
Chasing a Weaker Yuan is Probably the Wrong Trade Goldman Says
Asian currencies including the South Korean won and Indonesian rupiah have borne the brunt of the sell off in emerging markets this month with the yuan the worst performer after Turkey s lira
The Argentine and Mexican peso as well as Brazil s real have been the top performing developing nation currencies this month Aberdeen Standard has been overweight Latin American currencies for quite a while Gutierrez said
Erdogan Era
With the majority of economists expecting a rate hike of at least one percentage point by Turkey s central bank on Tuesday traders will be glued to the results of policy makers first meeting since the re election of President Recep Tayyip Erdogan Inflation soared to 15 4 percent in June about three times the central bank s target
In the case of a continuation of loose fiscal and quasi fiscal policies the CBT is likely to be forced to hike further in the rest of the year Morgan Stanley NYSE MS analysts wrote in an emailed note
Other Rate Decisions
After the Bank of Russia adopted a hawkish tone at its meeting in June economists see rate setters keeping their benchmark on hold at 7 25 percent on Friday From a planned increase in value added tax next year to ruble weakness and steady gains in wages inflation pressures are building according to BCS Financial Group
Morgan Stanley economists including Pasquale Diana expect a somewhat cautious tone when Hungarian policy makers meet on Tuesday despite rates having eased since their last decision Dovish monetary policy makes currencies such as Hungary s forint and Poland s zloty vulnerable to capital outflows according to Warsaw based mBank analysts led by Ernest Pytlarczyk The regulator may leave the base rate at a record low 0 9 percent according to all economists in a Bloomberg survey
Nigeria announces its rate decision on Tuesday with markets mostly expecting it to hold at a record high of 14 percent While inflation is slowing a pickup in outflows in the past few months amid the emerging market sell off may make the central bank wary of easing monetary policy
Ghana Chile Georgia and Colombia will also decide on rates
Former Cricket Hero for Prime Minister
Pakistan voters go to the polls Wednesday with the incumbent Pakistan Muslim League Nawaz and former cricket star Imran Khan s Tehreek e Insaf or Movement for Justice almost neck and neck The nation s fast deteriorating economy means that whoever wins will likely have to go to the International Monetary Fund for another bailout The benchmark KSE100 Index of stocks this month fell to the lowest level since 2017
READ No Winners Seen for Investors in Pakistan Neck and Neck Election
Brazil s Presidential Race
Developments in Brazil s presidential race could influence local markets after the Democratic Workers Party or PDT endorsed leftist Ciro Gomes Traders will also eye confirmation that Brazil s centrao coalition has agreed to back former Sao Paulo Governor Geraldo Alckmin as reported by local media Support for Alckmin a market friendly candidate who has been lagging behind in recent polls could give him as much as 40 percent of total television ad time The real has trailed major peers this year
Brazil economic data for release include the current account trade and loans Weaker than expected data is another reason for the underperformance of Brazilian assets The biggest exchange traded fund the iShares MSCI Brazil ETF earlier this month suffered it sharpest daily outflow since 2015
Other Economic Data
South Korea will report its preliminary figure for gross domestic product on Thursday The government lowered its forecast for Asia s fourth largest economy on July 18 to 2 9 percent from an earlier 3 percent citing rising global trade tensions That follows the move of Bank of Korea which revised down its 2018 estimate to 2 9 percent while leaving the inflation outlook unchanged
The Philippines reported on Monday a budget deficit of 54 3 billion pesos 1 billion for June That took the shortfall for the first six months of the year to 193 billion pesos compared with a deficit of 154 5 billion pesos in the year earlier period President Rodrigo Duterte needs 9 trillion pesos to fund a program to build roads and railways through 2022 The government forecasts its budget deficit will swell to 3 2 percent of gross domestic product in 2019 which would be the highest in nine years from a projected 3 percent this year
Taiwan s industrial output rose 0 36 percent in June from a year earlier while the jobless rate was little changed at 3 68 percent the local dollar strengthened
Mexico watchers also have their pick of economic figures with data due on inflation retail sales trade and unemployment The Mexican peso has surprised many analysts with a stronger than expected performance after the presidential election leading Morgan Stanley to revise its forecast for the year
Updates yuan prices in fourth paragraph Taiwan data in bullet |
JPM | Forced Venezuela bond selling about to face first test | By Marc Jones
LONDON Reuters The feared firesale of Venezuela s government bonds after JP Morgan effectively cut them out of its popular bond indices earlier this month has yet to materialize but things are about to get interesting
JPMorgan NYSE JPM will only officially start a five month phase out process on Wednesday And yet for any index tracking money manager who still needs to sell its debt holdings finding any buyers is a tough task
Most of the 60 billion worth of bonds issued by the Venezuelan government and state oil firm PDVSA have not paid interest for years and the market has been virtually frozen since U S sanctions banned their trading back in January
Washington hoped the move would prevent President Nicolas Maduro s administration from siphoning off funds from the oil company to maintain his grip on power That hasn t worked yet but the bond squeeze has
The sudden stop in trading meant JP Morgan had little choice but to chop Venezuela While it avoided the nuclear option of ejecting the country s debt altogether it cut the index weight down to zero which has a broadly similar impact
That means the thousands of fund managers that benchmark their performance against JPM s indices face a dilemma sell the bonds at whatever price they are currently marked at just 15 cents in the dollar or keep them and veer away from the index
We will start doing something this week as we will have to realign the funds to the benchmark said a senior fund manager at a major U S investment bank who requested anonymity while the sale was in process We will see what the market is like
Exchange Traded Funds which most closely mimic indexes like JP Morgan s are also expected to be forced sellers
ETF s are estimated to own around 3 percent of the 3 2 trillion of emerging market debt now in circulation so if that reads across to Venezuela s 60 billion of bond then as much as 1 8 billion might potentially be up for sale
The biggest in the emerging market sphere BlackRock s iShares JPMorgan USD EM Bond ETF has almost 80 million of Venezuela and PDVSA bonds according to its latest filing It does however have the wiggle room to invest as much of 20 of its assets away from the index in special cases A spokeswoman declined to say what it would do in Venezuela s case
This is nightmare for passive funds said Jan Dehn who works at Ashmore a London based active emerging market fund
It owns defaulted Venezuela government bonds as well as the more sought after PDVSA 2020 bonds secured by the oil firm s U S refining offshoot Citgo
Dehn is watching closely for any bargains that pop up There is nothing better in finance than forced selling It is a beautiful thing he said
CHEEKY ENQUIRIES
However plenty of Venezuela holders are sitting tight
Big name U S funds T Rowe Price Greylock Capital Fidelity and GMO are part of a creditor group that has formed hoping to shape a potential restructuring deal should Maduro be forced from office
Aberdeen Standard Investments portfolio manager Viktor Szabo said his firm had received cheeky enquiries from would be buyers mainly small European or other little known non U S funds in recent weeks but had not been tempted either
They wanted a few million of this or that particular bond Szabo said But I think they were just fishing for forced sellers
Interest is usually communicated via the big custodian banks that look after underlying assets but the intentions that are less clear
Washington s sanctions also mean there will be no U S buyers ruling out the flock of specialist U S funds that pecked at Argentina for over a decade although they may have built some stakes already
Venezuela would be prime fodder for litigation loving funds according to Rodrigo Olivares Caminal Chair in Banking and Finance Law at Queen Mary University in London
Close to 40 billion of its bonds have no Collective Action Clauses CACs terms typically spelling out that any restructuring can go ahead with a 75 or 85 approval from investors
That includes all of the 35 6 billion issued by state owned oil company PDVSA which could thus easily be exposed to a lengthy legal grapple with holdouts
If you don t have CACs you will always have the threat of having holdouts Olivares Caminal said
With the JP Morgan move many institutional investors will offload their bonds so that is how the bonds will end up in the hands of a different type of investor |
JPM | JPMorgan Says Europe Is Different From Japan And in a Good Way | Bloomberg Investors often compare Europe with Japan these days but according to JPMorgan Chase NYSE JPM Co their assets are largely sending very different signals
While tumbling German bond yields shrinking demographics and underperforming European financial stocks resemble the situation in Japan JPMorgan says other indicators from equities to debt levels place Europe in a more favorable position
John Normand JPMorgan s head of cross asset fundamental strategy points out that the euro area s expansion and inflation may be weak but nominal growth and core inflation beat Japan s deflation A decade after the European debt crisis leverage levels in the region s private sector have stabilized In contrast Japanese households and companies spent 20 years from the mid 1990s reducing their debt fueling what JPMorgan calls a balance sheet recession
Although the Euro area is most often referred to as having Japanized this term only fits the region on a few criteria said Normand in a note Europe s position looks more favorable than Japan s did at a similar stages
And whereas Europe mainly resembles Japan through its low bond yields the region s equities couldn t be more different as they never experienced Japan s multi year earnings recession or dramatic price to earnings derating said the strategist
Japan s equity P E derating has been unique because its pre crisis overvaluation was so extreme said Normand
The Stoxx Europe 600 Index is up 33 in dollar terms over the past 20 years compared to 12 for the Topix
Economists and the likes of Pacific Investment Management Co have warned this year that European markets are spiraling toward their own version of the Japanese slowdown that began two decades ago as the euro area confronts low interest rates a grim economic outlook falling volatility and the dissemination of negative bond yields
JPMorgan s Normand cautions that while the region has so far managed to escape Japan s fate more European indicators could yet turn Japanese due to sluggish growth the low likelihood of significant fiscal stimulus in nations such as Germany and reduced returns under the European Central Bank s future quantitative easing |
JPM | Major U S banks lower benchmark interest rates following Fed rate cut | By Elizabeth Dilts
NEW YORK Reuters Major U S banks lowered their benchmark rates for a wide range of consumer and commercial loans on Wednesday following a rate cut from the Federal Reserve
Starting on Aug 1 JPMorgan Chase Co N JPM Citigroup N C and Wells Fargo Co N WFC said they will reduce rates by 25 basis points to 5 25
The banks use different names with Citi calling this its base rate and JPMorgan and Wells Fargo referring to it as a prime rate
However lowering this benchmark rate means lower interest rates on loans that are based off the Fed s main short term rate The move could result in lower revenues for the banks in the coming quarters
Earlier on Wednesday the U S Federal Reserve cut the overnight lending rate to a target range of 2 00 to 2 25 due to concerns about the global economy and muted U S inflation
The U S central bank signaled a readiness to lower borrowing costs further if needed
Although banks were expected to lower rates in line with the Fed the moves were notable because rates had been rising for more than a decade
The last time JPMorgan reduced its prime rate was in December 2008 when it cut the rate to 3 25 from 4 The bank maintained a 3 25 prime lending rate for the next seven years eventually raising it to 3 5 in December 2015 |
JPM | The Fed Can t Seem to Satisfy Bond Traders or Trump | Bloomberg Opinion Who said it A small rate cut is not enough but we will win anyway
The answer technically is President Donald Trump who again this week fumed about the European Union and China on Twitter while lamenting that the Federal Reserve raised interest rates way too early and way too much But it just as well could have been bond traders Their initial take on Wednesday was clearly disappointment that the Fed cut its benchmark lending rate by only 25 basis points and ended its balance sheet runoff Two year U S Treasury yields shot higher by as much as 5 basis points to 1 86 and the yield curve flattened In another signal of the hawkish interpretation of the Fed s decision the U S dollar strengthened
The moves were only exacerbated once Fed Chair Jerome Powell began speaking at his press conference He said the rate cut was aimed at insuring against downside risks He noted that trade tensions almost boiled over in May and June but have since returned to a simmer Overall the committee still sees a favorable baseline outlook he said and more important that the committee is thinking of this move as a mid cycle adjustment to policy
I m contrasting it there with the beginning of a lengthy cutting cycle Powell said That s not what we re seeing now that s not our perspective our outlook Later he said I didn t say it s just one
Markets simply wanted more Before the Federal Open Market Committee meeting bond traders were pricing in more than 25 basis points of easing an indication that some were holding out for an even larger 50 basis point reduction Not only did that not happen but both Kansas City Fed President Esther George and Boston Fed President Eric Rosengren dissented in favor of leaving rates steady raising questions about the path to further interest rate cuts
Then again just because the Fed didn t meet the market s lofty expectations now doesn t mean it won t do so in the future In fact if recent history is any guide it s only a matter of time before central bankers shift their stance to more closely reflect traders positions Alex Gurevich chief investment officer at HonTe Investments captured it succinctly in a Twitter post last month
By all accounts the first U S interest rate cut in more than a decade should be enough of a victory for markets given that in my estimation U S economic data is strong enough to merit keeping interest rates steady Former New York Fed President Bill Dudley wrote in a Bloomberg Opinion column this week that he too sees risks in needlessly stimulating the economy when it is already growing at an above trend rate Scott Minerd of Guggenheim Partners was on Bloomberg TV just before the decision saying he didn t think lower interest rates were necessary
Instead bond traders are hoping to run up the score They had priced in almost three quarter point cuts by the end of the year JPMorgan Chase NYSE JPM Co s Treasury client survey showed the highest level of long positions since late May while separately other strategists at the bank warned that a number of risk assets were flashing overbought ahead of the Fed meeting Simply put markets were set up for disappointment
Still I doubt the immediate reaction from this slightly hawkish decision will last To continue Gurevich s pattern the Fed may want to signal one 25 basis point insurance cut but the market will likely remain convinced that officials will further ease policy in the near future
Powell has given little reason to believe he ll push back against market pricing which is why bond traders and Trump figure they ll likely end up winning in the end The FOMC statement reiterated that officials will act as appropriate to sustain the expansion
It s also an important signal that the Fed ended its balance sheet normalization early I m not sure it was the right move given that just staying the course for two months would have been awfully negligible and electing to tinker with the plan counters Powell s long held stance that interest rates are the central bank s main monetary policy tool But their rationale I assume is that it doesn t make much sense to be stimulating the economy through lower interest rates while also being seen as restrictive by paring down the balance sheet It also sets up a clearer path to further lowering rates
For now one quarter point rate cut straddles the line between those at the Fed who want to get ahead of any economic weakness and those who see little urgency to ease But markets are forward looking and will demand clarity on what s next |
JPM | With Fed sure to cut rates Powell on hook to flag next steps | By Ann Saphir and Jason Lange WASHINGTON Reuters The Federal Reserve cut interest rates on Wednesday but the head of the U S central bank said the move might not be the start of a lengthy campaign to shore up the economy against risks including global weakness Fed Chairman Jerome Powell cited signs of a global slowdown simmering U S trade tensions and a desire to boost too low inflation in explaining the central bank s decision to lower borrowing costs for the first time since 2008 and move up plans to stop winnowing its massive bond holdings Let me be clear it s not the beginning of a long series of rate cuts Powell said in a news conference after the Fed released its latest policy statement At the same time he said I didn t say it s just one rate cut Financial markets had widely expected the Fed to reduce its key overnight lending rate by a quarter of a percentage point to a target range of 2 00 to 2 25 but many traders expected clearer confirmation of forthcoming rate cuts U S President Donald Trump who has repeatedly attacked the Fed s policy stance under Powell and demanded that it push through big rate cuts said on Twitter the Fed chief let us down by not telegraphing that an aggressive easing was coming U S stock prices fell during Powell s news conference The benchmark S P 500 index SPX closed down 1 1 for the day Yields on 2 year notes a proxy for Fed policy rates rose to 1 87 Ken Polcari managing principal at Butcher Joseph Asset Management said Powell s message was not what the market was expecting to hear even though most traders expected a rate cut He is not shutting the door but he is also not saying there is another one coming in September so hold on Polcari said Heading into Wednesday s Fed decision the S P 500 was up about 3 since June 19 when the Fed first signaled a rate cut was likely as it pledged then to act as appropriate to sustain the record long U S expansion In a statement at the end of a two day policy meeting the Fed said it decided to cut rates in light of the implications of global developments for the economic outlook as well as muted inflation pressures It said it will continue to monitor how incoming information affects the economy and that it will act as appropriate to sustain the expansion It s smart of them to go ahead and take out some insurance here It s better than none at all said Brett Ewing chief market strategist at First Franklin Financial Services in Tallahassee Florida The U S dollar index gained ground to touch its highest in more than two years The index which measures the greenback against a basket of currencies was up about 0 5 on the day TWO NO VOTES The Fed s policy decision drew dissents from Boston Fed President Eric Rosengren and Kansas City Fed President Esther George who argued for leaving rates unchanged This is the most dissent we ve had in the current Fed we had two hawkish dissenters on this decision said Eric Donovan managing director of over the counter foreign exchange and interest rates at INTL FCStone Rosengren and George have raised doubts about a rate cut in the face of the current expansion an unemployment rate that is near a 50 year low and robust household spending On the opposite flank was Trump What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate cutting cycle which would keep pace with China The European Union and other countries around the world Trump said after the Fed decision As usual Powell let us down Powell and other Fed officials in recent weeks have walked a middle ground flagging risks like continued uncertainty on the global trade front low inflation and a weakening world economy but repeating the view the United States is fundamentally in a good spot The Fed said in its statement it continued to regard the labor market as strong and added that household spending had picked up But it noted business spending was soft and that measures of inflation compensation remain low The Fed said the rate cut should help return inflation to its 2 target but that uncertainties about that outlook remain Sustained expansion of economic activity and a strong labor market are also the most likely outcomes the Fed said Several banks including JPMorgan Chase Co N JPM and Citigroup Inc N C announced plans to lower their rates used as a benchmark for a wide range of consumer and commercial loans after the Fed decision That will translate into lower interest rates on a wide range of loans and could drag on bank earnings in the coming quarters Underscoring its decision to ease policy across the board the Fed also said it would stop shrinking its 3 6 trillion in bond holdings starting Aug 1 two months ahead of schedule The Fed bought most of the bonds after the 2008 global financial crisis to stimulate a sluggish economy but in more recent months has been letting some of them expire without replacing them Trump celebrated that move saying at least he is ending quantitative tightening a term for the bond trimming policy that the Republican president said should not have started given tame inflation
Ending the quantitative tightening right here was also a good call First Franklin s Ewing said |
JPM | JPMorgan Q1 Earnings Will Signal Whether Bank s Best Growth Period Is Over | Reports Q1 2019 results on Friday April 12 before the market opens Revenue expectation 28 45 billion EPS expectation 2 35
Wall Street s powerhouse commercial and investment bank JPMorgan Chase Co NYSE JPM has much at stake when it reports its first quarter earnings tomorrow Investors are keenly watching if the earnings miss in the final quarter of 2018 was a blip or the beginning of a trend
Driven by strong loan growth and robust business in the lender s flagship investment banking division the last 12 months proved a great year for JPMorgan The bank posted a record net income even when you take out the benefits from U S tax reforms But the last quarter showed cracks in this otherwise stellar performance Revenue form the fixed income trading plunged 18 the worst performance in a decade while increasing costs crimped margins further Both of these headwinds resulted in profit and earnings growth that missed analysts expectations the first such setback since 2015
Despite officials claiming that a one time miss shouldn t be mistaken for a trend investors don t seem too convinced JPM stock has been under pressure in recent months Trading at 105 34 at yesterday s close it s down about 6 during the past year while its recovery from the December correction has also been weak
This uncertainty has also been reflected in analysts Q1 consensus forecast On average expectations are for EPS to remain flat vs the same period a year ago at 2 35 on sales of 28 45 billion
Growth Outlook Is Improving
Despite this uncertainty we see many improvements since the final quarter of 2018 that bode well for bank s earnings The markets have shown remarkable resilience since going through their steep correction in December That means strong trading revenue for JPMorgan and other lenders
On the macro front the U S and China have moved closer to settling their trade dispute and a potential deal will remove a major hurdle which is threatening global growth and banks loan expansion While Federal Reserve Chairman Jerome Powell said last month that underlying economic fundamentals remain strong policy makers have cut their outlook for growth this year and next and forecast no interest rate hikes for 2019
Though low interest rates are generally considered negative for banks they may fuel more loan expansion helping JPM to increase its lending activity That s what JPM s Chief Executive Officer Jamie Dimon pointed out early this year when he told analysts that the near term outlook for credit is relatively rosy
Bottom Line
Investing in JPMorgan stock may seem unappealing when there are still many headwinds threatening the global economy but the lender looks cheap after the recent weakness in its share price Its annual dividend yield of more than 3 is offering a bargain when compared to its five year average of 2 3 For long term investors looking to keep a quality banking stock in their portfolios JPMorgan valuations are attractive Improving macro outlook and the bank s strong position in the U S and globally make it a good long term bet |
MS | Morgan Stanley is rallying after earnings | is edging higher in pre market trading Wednesday after posting better than expected results on both the top and bottom lines Wealth management and mergers and acquisitions both provided a boost The bank raised its dividend The bank s revenue came in at 10 6 billion beating the Wall Street estimate of 10 1 billion It earned 1 30 a share better than the 1 11 that analysts surveyed by Bloomberg were expecting The bank s wealth management business saw impressive results posting a pre tax profit margin of 26 8 Mergers and acquisitions activity also provided a boost with revenue from that unit climbing 22 6 to 618 million as a result of high deal volume Morgan Stanley was down 3 23 this year through Tuesday |
MS | Stocks Berkshire Morgan Stanley Lead Financials Higher | Financial stocks were the winners on U S markets Wednesday after Morgan Stanley NYSE MS became the latest bank to report impressive earnings and Berkshire Hathaway NYSE BRKa loosened its policy on share buybacks
Many of the big name banks have now reported quarterly results with the majority topping expectations
Morgan Stanley reported a profit of 1 30 a share for the three months ended June handily beating Wall Street expectations of 1 11 per share Revenue of 10 61 billion topped forecasts for 10 05 billion Investing banking and stock and bond trading were highlighted as particularly strong
Overall banks have reported solid earnings and most passed the Fed s latest round of stress tests allowing cash to be redeployed to buybacks and dividend increases
Morgan Stanley stock gained about 1 9 in afternoon trading JPMorgan Chase NYSE JPM climbed about 0 6 and Citigroup NYSE C rose about 0 6
But it was Berkshire Hathaway that led the charge of the S P Financial Sector index higher with class B shares gaining more than 4 5
Berkshire Chairman Warren Buffett and Vice Chairman Charlie Munger will now be able to buy back shares when they feel those shares are below intrinsic value Shares repurchases were previously restricted to when the share price was below 1 2x book value |
JPM | Asian fund managers use barbells to build risk resistance | By Swati Pandey
SYDNEY Reuters Some Asia fund managers grappling with market uncertainties are reaching for barbells though that doesn t mean hitting the gym more often
The managers are hedging against extreme outcomes with what s called a barbell strategy dividing their portfolios between assets that are either very safe or very risky
Slowing economic growth low inflation trade tensions and an environment in which 14 trillion of bonds carry negative yields have complicated decision making for investors
They have been forced to question fundamental theories seeing stocks as unequivocal beneficiaries of growth and bonds as havens in times of economic stress
For funds that manage money across bonds stocks and alternative assets a barbell strategy can help balance risk whether the global economy recovers or tips into recession
Deutsche Bank DE DBKGn strategist Alan Ruskin in a Wednesday note said two seemingly contradictory themes long carry trades and extreme risk aversion as interest rates fall can form part of the same portfolio
Ruskin s barbell idea entails short term long positions on emerging market currencies such as Mexican peso Indian rupee and Brazilian real and long term holdings in gold and well rated government bonds for safety
For Hou Wey Fook DBS chief investment officer in Singapore a barbell approach involves outsized exposures in two areas income generating assets and non cyclical investments such as technology and e commerce
SHOPPING LIST
Included on Hou s shopping list U S tech services firms that are less vulnerable to trade tensions than hardware and consumer electronics real estate investment trusts offering an attractive and predictable income stream slightly lower rated investment grade corporate bonds and Chinese equities
Kerry Craig Melbourne based global strategist for JPMorgan NYSE JPM Asset Management has low risk government bonds at one end of his fixed income barbell and high yielding or junk bonds on the other
In adjusting strategy Craig and others are wrestling with the uncertainty and big headwind the protracted Sino U S trade war has brought
The question from here is what happens next said Peter Wilmshurst a portfolio manager for Franklin Templeton Investments who is pursuing a barbell strategy on a A 320 million 225 million equities portfolio
Does the trade war continue to recede or does it go hot again Do we see U S Iranian conflict go more severe which could change expectations for oil prices inflation and interest rates And then where does economic growth go
A barbell strategy helps investors avoid overexposure to the binary outcomes from each scenario that could make or break portfolios
GRAPHIC Asset performance in dollar terms
REAL RETURNS
In the current environment the safe end of the barbell in which bulk of investment resides is in money market funds highly rated sovereign bonds and gold Part of the mountain of negative yielding developed market debt is also in numerous barbell strategies showing investors are prepared to pay for the safety and liquidity of some assets
Risky bets include low rated corporate bonds and emerging market assets including equities
This year global stocks MIWD00000PUS are up nearly 17 with S P 500 SPX and the Nasdaq IXIC are around record highs while bond yields are near all time lows Gold reached a six year peak recently while U S oil futures CLc1 had a wild ride in 2018 s last quarter ranging from 76 90 to 42 36 a barrel
Investors including Templeton s Wilmshurst are wagering on bond proxies or instruments that provide fixed income such as infrastructure stocks with revenues largely immune to downturns and real estate investment trusts REITs
At the risky end of his barbell Wilmshurst is advocating exposure to banks he feels reward investors well such as Standard Chartered L STAN
Financials should be a significant part of your portfolio he said If we do see some recovery in economic momentum they ll be re rated significantly and if you don t you re still getting pretty attractive returns from dividends and share buybacks
Australia s A 154 billion sovereign wealth fund recently kicked off a program to sell portions of its private equity and infrastructure investments to be in more liquid assets
Very rarely would we make moves in the portfolio with a view over a shorter timeframe and now is actually one of those times Future Fund chief investment officer Raphael Arndt told Reuters
GRAPHIC Asia Pacific equity valuations |
JPM | Draghi Shouts Louder at Germany as ECB Scrapes Stimulus Barrel | Bloomberg Mario Draghi is shouting louder than ever for help with the euro area economy and still no one is listening
After stating that the outlook is getting worse and worse the European Central Bank president said on Thursday it is unquestionable that governments will need to pitch in with fiscal measures if conditions keep deteriorating
Draghi s eight year term which ends in October has been marked by negative interest rates bond purchases and bank loans While he s promising that the ECB can add more stimulus and looks poised to do so in September the comments suggest that the central bank is getting close to the limits of its powers
Yet Germany which has a budget surplus and which can borrow money at sub zero rates doesn t see the problem even as its own manufacturing sector contracts Finance Minister Olaf Scholz told Bloomberg Television on Thursday minutes before Draghi s press conference that he has no plans to loosen the country s purse strings because it s not necessary or wise to act as if we were in a crisis
The ECB has been in crisis fighting mode for years combating the aftermath of the global financial meltdown the euro zone s own sovereign debt struggles and a flirtation with deflation It has unleashed innovative instruments including 2 6 trillion euros 2 9 trillion of quantitative easing and ultra cheap bank loans that have flooded the region with liquidity and promised to keep rates low for as long as needed to revive price growth
For all the success the institution claims such as six years of economic growth and more than 10 million new jobs inflation remains far short of its goal That s a risk to the ECB s credibility especially with trade tensions and Brexit threatening a new downturn
There is a sense that they are scraping the bottom of the barrel on monetary easing said Richard Barwell an economist at BNP Paribas PA BNPP Asset Management in London Hence fiscal policy will have to do more next time around
What Bloomberg s Economists Say
There are clearly many details that have yet to be fleshed out on what is likely to be a comprehensive and complementary package Still there appears to be broad agreement on its necessity Maeva Cousin and Jamie Murray See their ECB REACT
Draghi pointed out that he s been asking governments to speed up plans to boost growth since at least 2014 The ECB has been calling on politicians to undertake structural reforms for decades
Budget Surplus
To little avail German Chancellor Angela Merkel s administration ran a record budget surplus in 2018 of 1 7 of GDP or 58 billion euros 65 billion and the debt burden is seen dropping to 51 of GDP in 2023 That s well within European Union rules
Governments have also been reluctant to make changes that would cause short term pain in exchange for long term gains and citizens have often been unwilling to accept the nascent efforts that are made France s attempt to reform the labor market sparked riots last year
Earlier this month Group of Seven finance ministers meeting in France were only able to agree that fiscal policy should be flexible and growth friendly Even then they said fiscal buffers should be rebuilt where needed
If there were to be a significant worsening in the euro zone economy it s unquestionable that fiscal policy a significant fiscal policy becomes of the essence Draghi said
Heavy Lifters
He s not alone in his frustration Federal Reserve Chairman Jay Powell has said it s no good for monetary policy to be the main game in town Christine Lagarde who is leaving as head of the International Monetary Fund to succeed Draghi has said that in the next slump the world will need fiscal stimulus wherever possible
Part of the problem may be the extent to which the remit of central banks has grown Since the 1990s they ve increasingly gained operational independence and been given inflation targets While that s designed to stop politicians from stoking growth with low interest rates before elections it s meant that central banks have done the heavy lifting to keep the economy expanding while governments try to reduce their debt loads
JPMorgan Chase NYSE JPM Co economists have also suggested other European governments are unlikely to do much either given the budget rules of the bloc France Italy and Spain must still tighten fiscal policy by around 2 5 of GDP to satisfy the guidelines according to the New York bank s calculations
The ECB is pretty close to running on empty said Everett Brown European bond strategist at Ideaglobal in London Not so much that it can t ease policy further with lower rates and quantitative easing which it will do But the scope is certainly diminishing |
JPM | Draghi Shouts Louder at Germany as ECB Prepares Stimulus | Bloomberg Mario Draghi is shouting louder than ever for help with the euro area economy and still no one is listening
After stating that the outlook is getting worse and worse the European Central Bank president said on Thursday it is unquestionable that governments will need to pitch in with fiscal measures if conditions keep deteriorating
Draghi s eight year term which ends in October has been marked by negative interest rates bond purchases and bank loans While he s promising that the ECB can add more stimulus and looks poised to do so in September the comments suggest that the central bank is getting close to the limits of its powers
Yet Germany which has a budget surplus and which can borrow money at sub zero rates doesn t see the problem even as its own manufacturing sector contracts Finance Minister Olaf Scholz told Bloomberg Television on Thursday minutes before Draghi s press conference that he has no plans to loosen the country s purse strings because it s not necessary or wise to act as if we were in a crisis
The ECB has been in crisis fighting mode for years combating the aftermath of the global financial meltdown the euro zone s own sovereign debt struggles and a flirtation with deflation It has unleashed innovative instruments including 2 6 trillion euros 2 9 trillion of quantitative easing and ultra cheap bank loans that have flooded the region with liquidity and promised to keep rates low for as long as needed to revive price growth
For all the success the institution claims such as six years of economic growth and more than 10 million new jobs inflation remains far short of its goal Professional forecasters cut their longer term outlook for consumer price growth to a record low 1 7 according to an ECB survey published Friday That s a risk to the central bank s credibility especially with trade tensions and Brexit threatening a new downturn
There is a sense that they are scraping the bottom of the barrel on monetary easing said Richard Barwell an economist at BNP Paribas PA BNPP Asset Management in London Hence fiscal policy will have to do more next time around
What Bloomberg s Economists Say
There are clearly many details that have yet to be fleshed out on what is likely to be a comprehensive and complementary package Still there appears to be broad agreement on its necessity Maeva Cousin and Jamie Murray See their ECB REACT
Draghi pointed out that he s been asking governments to speed up plans to boost growth since at least 2014 The ECB has been calling on politicians to undertake structural reforms for decades
Budget Surplus
To little avail German Chancellor Angela Merkel s administration ran a record budget surplus in 2018 of 1 7 of GDP or 58 billion euros 65 billion and the debt burden is seen dropping to 51 of GDP in 2023 That s well within European Union rules
Governments have also been reluctant to make changes that would cause short term pain in exchange for long term gains and citizens have often been unwilling to accept the nascent efforts that are made France s attempt to reform the labor market sparked riots last year
Earlier this month Group of Seven finance ministers meeting in France were only able to agree that fiscal policy should be flexible and growth friendly Even then they said fiscal buffers should be rebuilt where needed
If there were to be a significant worsening in the euro zone economy it s unquestionable that fiscal policy a significant fiscal policy becomes of the essence Draghi said
Heavy Lifters
He s not alone in his frustration Federal Reserve Chairman Jay Powell has said it s no good for monetary policy to be the main game in town Christine Lagarde who is leaving as head of the International Monetary Fund to succeed Draghi has said that in the next slump the world will need fiscal stimulus wherever possible
Part of the problem may be the extent to which the remit of central banks has grown Since the 1990s they ve increasingly gained operational independence and been given inflation targets While that s designed to stop politicians from stoking growth with low interest rates before elections it s meant that central banks have done the heavy lifting to keep the economy expanding while governments try to reduce their debt loads
JPMorgan Chase NYSE JPM Co economists have also suggested other European governments are unlikely to do much either given the budget rules of the bloc France Italy and Spain must still tighten fiscal policy by around 2 5 of GDP to satisfy the guidelines according to the New York bank s calculations
The ECB is pretty close to running on empty said Everett Brown European bond strategist at Ideaglobal in London Not so much that it can t ease policy further with lower rates and quantitative easing which it will do But the scope is certainly diminishing |
JPM | Mining mogul Agarwal made just 6 profit on Anglo investment Reuters estimate | By Abhinav Ramnarayan and Clara Denina
LONDON Reuters Mining mogul Anil Agarwal pocketed just 6 profit from his 3 5 billion pound 4 3 billion investment in Anglo American L AAL held since 2017 even though the underlying shares rose over 50 since then according to Reuters estimates
Agarwal s family vehicle Volcan Investments the biggest shareholder in Anglo said on Thursday it would unwind its almost 20 stake in the South African miner by repaying debt with 247 1 million Anglo shares
After paying back the loan Volcan would have been left with a 1 9 stake that was sold in the open market for 519 million pounds on Thursday This makes up his gross profit from the whole investment according to a source familiar with the deal
Once coupon payments and the investment banking fees are accounted for the sum dwindles to 196 25 million 213 7 million pounds or 5 7 6 1 of the original deal size a Reuters calculation shows
Under the terms of the original deal Volcan borrowed 3 5 billion pounds through the issuance of a mandatory convertible bond arranged by U S investment bank JPMorgan N JPM to fund the acquisition
The convoluted structure dubbed POEMS Purchaser of Equity via Mandatory Securities by JPMorgan is a variation of the more traditional exchangeable bond format where a borrower issues debt that can be converted into shares of another company
Volcan Investments and JPMorgan declined to comment
The first bond would have matured in April 2020 if the Indian billionaire had not cashed out dashing speculation that he was preparing to take over the 30 8 billion pound diversified miner
The nature of the convertible bond issuance however meant that Agarwal s profit was just a fraction of the London listed miner s massive increase in value of an average 7 pounds per share over the past two years
Agarwal s gross profit is the 24 7 million shares or about 1 9 of Anglo he was left with after repaying the bond JP Morgan arranged a sale of those shares for 519 million pounds on Thursday
On top of that there is the 4 coupon paid on the debt which comes at about 280 million pounds over a two year period and the fees paid to JPMorgan
M A consultancy Freeman Consulting Services said convertible bonds issued by Anglo American typically garner fees of around 0 75 1 25 of the transaction size
Assuming JPMorgan charged Volcan a similar fee for this convoluted structure the total cost to Agarwal is 26 25 million to 43 75 million pounds |
JPM | The Pound Is Now the Most Volatile Currency in the G 10 | Bloomberg The pound is buckling under concerns about Brexit and the Bank of England may add further pressure to the currency when it meets this week
The cost of insuring against undue volatility in sterling over a three month period has climbed to the highest among the Group of 10 exchange rates as the U K steps up preparations for a no deal Brexit The central bank is expected to signal that it is unlikely to raise interest rates in coming months removing any support for the currency
Money markets are in fact pricing a more than 60 chance of a 25 basis point rate cut by December on concern the U K may exit the European Union without a divorce deal That compares with just 20 in June shortly after the central bank bucked global trends and cited the need to raise rates in coming years
With Boris Johnson now installed as PM the Brexit saga is set to recommence strategists at JPMorgan NYSE JPM including Meera Chandan wrote in a client note The BOE s shift toward a neutral bias all but giving up hopes for continued normalization will do little to support the currency
JPMorgan sees policy makers lowering their growth outlook while moving further away from raising rates when they announce their decision and release their quarterly inflation report on Thursday
The pound fell as much as 1 4 to 1 2212 Monday its weakest level since March 2017 Three month risk reversals for the pair slipped to 177 basis points in favor of selling sterling the most bearish since April
Gilts meanwhile are headed for a third monthly rally and strategists foresee the gains extending The yield on 10 year government bonds has fallen 18 basis points to 0 66 this month and could fall below 0 50 in the event of a no deal Brexit according to Petr Krpata the chief EMEA currency and rates strategist at ING Bank NV
The more Brexit uncertainty there is and more it spills over negatively in the growth outlook the more downward pressure on U K yields there will be Krpata said If early election weighs on sterling as we expect then U K rates and yields will go lower due to the mix of flight to safety and the Brexit uncertainty |
JPM | Cautious Optimism Heading Into Super Wednesday | Wall Street closed lower the S P 500 snapped an 8 day winning streak whilst the Dow closed down for a second straight session weighed down by lingering growth concerns as investors brace themselves for the start of earnings season later this week
US corporate earnings are becoming a central focus Major US banks JP Morgan Chase NYSE JPM and Wells Fargo NYSE WFC are to kick off first quarter earnings on Friday Expectations for earnings season represent a significant reduction to corporate growth compared to a solid run of recent quarters Earnings growth is expected to drop 4 3 on revenue growth of under 5
The sentiment is clearly fragile particularly following yet another global growth downgrade by the IMF the third in just 6 months Trump opening up another front in the trade war this time against the EU also weighed on sentiment However European bourses were pointing to a cautiously higher start ahead of Super Wednesday s risk events the ECB monetary policy announcement EU Brexit Summit US Federal Reserve minutes and US inflation
What to expect from the ECB
The euro was holding steady at 1 1260 heading towards the ECB rate announcement as it extends a slow recovery from 1 1183 touched at the beginning of April Investors could be growing quietly confident that the ECB will recognize some of the improvements in recent eurozone data notably the service sector and retail sales Yet whilst there is a possibility that the ECB will support the euro focusing on a stabilizing in recent data there is still plenty for the central bank to be concerned about
Most notably Trump ramping up trade dispute rhetoric and threatening tariffs not just on automobiles now but also helicopters cheese and wine A growing threat of recession in Italy won t escape the central bank nor will the fact that the US China trade dispute continues to rumble on threatening growth in Germany and the eurozone as a whole Inflation concerns are returning to haunt the ECB Despite a weaker euro and a solid rally in oil prices inflation in the bloc is lacklustre at best and falling Finally Brexit isn t going anywhere soon
The list of concerns for the ECB is lengthy Draghi focusing on these could see the euro pull back and test April s low of 1 1183 However the recent bias is to the upside meaning that a morsel of positive news could help boost the euro back towards resistance at 1 1350
Brexit update
The pound will be under the spotlight as the European Council meets to discuss an extension to Brexit Brussels have been vocal in their support for a longer Brexit extension expressing doubts over Theresa May s ability to break the Brexit deadlock in Westminster before 30th June As if on cue talks with Jeremy Corbyn are stalling amid a lack of flexibility from May s team It remains to be seen how the EU votes Sterling at these levels is not pricing in the EU rejecting an extension
Original post |
JPM | Chart of the Day JPMorgan Teetering On Knife s Edge Ahead Of Q1 Earnings | JPMorgan Chase NYSE JPM is expected to report Q1 earnings on Friday before the market opens Consensus is for EPS of 2 36 on revenue of 28 47 billion
The bank had beaten expectations in all earnings reports for three straight years up to last quarter in which it missed both Was that the beginning of a downtrend or just a fluke or correction after an extended period of better than expected results
Shares yesterday closed down 0 7 at 104 87 after having gained 8 3 since the beginning of the year As the technicals demonstrate the stock is perched on a knife s edge Here s what its chart is signaling about the possible direction it could take next
Unlike our bearish outlook for Wells Fargo NYSE WFC whose short term medium term and long term picture all seem bleak signs are mixed for JPM it s hovering between a potentially bullish short term and bearish medium to long term Whereas WFC s pennant is bearish after the 8 3 drop in just 4 days March 10 March 22 upon a downside breakout JPM s pennant is bullish after its 8 43 rally in just 8 days March 25 April 3
JPMorgan Chase fell below its uptrend line since the December rout similar to WFC unlike Wells Fargo it broke out of its long term downtrend line since 2018 Like Wells Fargo JPMorgan Chase found resistance at the late September 200 DMA WFC Sept 20 JPM Sept 19 Unlike WFC JPM scaled above its 50 and 100 DMAs Like WFC JPM s RSI posted a lower trough clearing the path for falling momentum but its MACD looks stronger where the shorter MA is above the longer MA
However the biggest conflict for JPM is between the bullish pennant complete with an upside breakout and a very bearish double top seen on the weekly chart
The price completed a double top when falling before the trough between the two peaks While the price did manage to climb back above the neckline the resistance below the short term uptrend line dotted line and 50 week MA increases the potential that crossing the line does not change the double top s bearish implication
Therefore a decisive breakout of the daily chart s flag will determine the next major move An upside penetration would indicate a double top failure stepping over the stop losses and creating a massive short squeeze catapulting prices higher On the other hand a failure for the bearish pennant would vindicate the weekly double top pattern
Trading Strategies
Conservative traders would wait for an obvious resolution to the trend conflict with the stock either posting a higher peak above the March 19 108 40 high or a fresh trough below the March 25 98 09 low
Moderate traders are likely to wait for a decisive pattern breakout on a closing basis then wait for the return move to demonstrate pattern integrity as the price finds support on an upside breakout or resistance if prices fall out of the bottom of the pattern
Aggressive traders may go with the breakout preferably on a closing basis
Trade Sample Long Position
Entry 106
Stop Loss 105
Risk 1
Target 109
Reward 3
Risk Reward Ratio 1 3
Trade Sample Short Position
Entry 104
Stop Loss 105
Risk 1
Target 101
Reward 3
Risk Reward Ratio 1 3 |
JPM | Will Strong USD Hurt Multi National Stocks | The European Central Bank ECB gave another weak forecast for the European economy The ECB President Mario Draghi is concerned that he is seeing slower growth momentum in the euro zone This news should continue to support the U S Dollar Index in the future While the Dollar Index remains strong at this time it has not broke out much past the 97 00 area If the dollar continues to gain strength it could hurt many of the large multi national companies in the United States Traders must remember a weaker currency will usually boost exports as it becomes cheaper to sell goods abroad While the USD is still below its 2017 peak it is starting to creep up toward that old high level Earnings season is around the corner as J P Morgan Chase NYSE JPM and Wells Fargo Company NYSE WFC are scheduled to report this Friday So we shall start to hear from many companies about how the strong dollar is affecting their bottom line |
JPM | Here s Why Gold ETFs Are Set To Shine | After making small gains in the first quarter gold is set to shine in the coming months buoyed by dovish central banks a slowdown in economic growth and geopolitical tensions The latest Fed minutes revealed that the central bank will be patient on rising interest rates this year citing uneasiness over the U S and global economies subdued inflation and the messy attempt by the U K to leave the European Union Lower interest rates will continue to weigh on the dollar against the basket of currencies raising the yellow metal s attractiveness as it does not pay interest like fixed income assets The European Central Bank also plans to maintain its rates in the wake of a slowing economy Though hopes of a U S China trade deal has bolstered investors risk appetite it also led to speculation of higher gold demand from China and have fueled strong optimism in the gold bullion market Further the cut in global growth outlook by the International Monetary Fund IMF as well as fresh round of U S EU tariff threat compelled investors to take flight to safety lately read
The IMF warned that global growth is slowing more than expected and thus reduced the growth outlook to 3 3 for this year down 0 2 percentage points from the previous expectation This is the third cut since October and marks the slowest expansion since 2016 Meanwhile Trump threatened to slap tariff on European goods worth 11 billion escalating global trade war fears Moreover declining earnings trends bolstered optimism in the gold outlook as first quarter earnings are expected to turn negative for the first time since the second quarter of 2016 S P 500 earnings are expected to decline 4 from the same period last year despite 4 6 higher revenues and net margins are also likely to witness 100 basis points compression per read If these weren t enough central banks across the globe have been on the best gold buying spree in a half century thereby resulting in a higher price of the metal The trend of central banks accumulating bullion and increasing their gold reserves doesn t seem to stop anytime soon as countries are seeking to reduce their dependence on the U S dollar In particular China s central bank increased its gold reserves for the fourth consecutive month in March The combination of these factors will support the bullish sentiment for gold and continue to boost to prices in the months ahead Given this we highlight six popular gold ETFs that could be excellent plays for investors who believe that the gold bullion will continue to move higher All these funds are up nearly 2 so far this year and has a Zacks ETF Rank 3 Hold SPDR Gold Trust ETF V GLD This is the largest and most popular ETF in the gold space with AUM of 31 7 billion and average daily volume of around 8 8 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 iShares Gold Trust AX IAU 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 12 7 billion and trades in solid volume of 14 2 million shares a day on average The ETF charges 25 bps in annual fees read Aberdeen Standard Physical Swiss Gold Shares ETF This product also tracks the price of gold bullion and is backed by physical bullion under the custody of JPMorgan Chase Bank It has amassed 885 5 million in its asset base and trades in lower volume of 48 000 shares per day The product has an expense ratio of 0 17 SPDR Gold MiniShares Trust V GLD This product seeks to reflect the performance of the price of gold bullion With an expense ratio of just 0 18 GLDM has gathered 658 4 million in AUM within 10 months of debut while trading in solid average daily volume of 673 000 shares read GraniteShares Gold Trust TO BAR With AUM of 467 million and expense ratio of 0 17 the fund tracks the performance of gold price It trades in good volume of 251 000 shares per day on average see VanEck Merk Gold Trust This product seeks to provide investors with a convenient and cost efficient way to buy and hold gold through an exchange traded product with the option to take physical delivery of gold It charges 40 bps in fees per year and has AUM of 151 4 million OUNZ trades in average daily volume of 48 000 shares 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 | Industrials help European shares shrug off China data | LONDON Reuters Strong industrials and pharma stocks helped European shares make hesitant gains on Monday while data showing slowing economic growth from China kept a lid on the market s progress
The pan European STOXX 600 STOXX inched up 0 2 percent by 0725 GMT in line with Germany s DAX which is heavily exposed to China
Basic resources SXPP and autos SXAP were among the worst performing sectors as they are both reliant on solid Chinese growth but industrials merger speculation helped outweigh the overall negative impact of the data
The top European mover was drugmaker Indivior L INDV jumping 26 percent after a U S court blocked India s Dr Reddy s Laboratories from selling generic versions of its bestselling opioid addiction treatment in the U S
Elevator firm Kone HE KNEBV drove gains among industrials with a 1 7 percent gain after a report that the Finnish company and Germany s Thyssenkrupp had held merger talks on their elevator operations Thyssenkrupp DE TKAG rose 0 8 percent
Shares in French technology consultancy firm Altran PA ALTT climbed 3 8 percent after Friday s 30 percent plunge on the discovery of forged orders at its recently acquired U S business Aricent
Broker recommendations also moved some stocks
French publisher Lagardere PA LAGA rose 4 2 percent after Morgan Stanley NYSE MS upgraded it to overweight while British software firm Micro Focus L MCRO fell 4 percent after a Credit Suisse SIX CSGN downgrade to underweight
In the UK market Debenhams L DEB shares fell 5 6 percent after a Sunday Times report said credit insurers had cut cover for suppliers to the department store which has issued three profit warnings this year |
MS | Morgan Stanley Infrastructure bids to take over Germany s VTG | FRANKFURT Reuters Morgan Stanley NYSE MS Infrastructure announced a cash takeover offer for rail logistics group VTG DE VT9G on Monday after securing a large stake from German billionaire Klaus Michael Kuehne
The U S investor is offering 53 euros for every share it does not already own valuing the German firm at around 1 52 billion euros 1 78 billion
VTG stock listed on Germany s small cap index SDAXI spiked 14 percent to 55 euros indicating that some investors are hoping for a higher offer
Kuehne Holding AG agreed to sell around 20 percent of VTG for more than 300 million euros raising Morgan Stanley Infrastructure s stake in the company to 49 percent
We have friendly intentions and believe that due to our infrastructure expertise we are an excellent partner to drive VTG s growth Markus Hottenrott chief investment officer at Morgan Stanley Infrastructure Partners told Reuters
He added that the fund holds its investments for an average of seven years and that a potential domination agreement requiring 75 percent of the shares or a delisting of VTG are not crucial to Morgan Stanley s plans for the company
Kuehne had bought his stake for less than 30 euros a piece from U S investor Wilbur Ross who had acquired the company from TUI DE TUIGn in 2005 and floated it in 2007
VTG s third largest investor the Joachim Herz foundation behind consumer goods firm Beiersdorf DE BEIG said it has not yet decided whether to tender its shares
Ahead of the deal VTG will need to close the 780 million euro acquisition of French peer Nacco which will be financed in part by a planned 300 million euro capital increase
Separately a solution needs to be found for VTG s small Russia business as Morgan Stanley wants to avoid any of its companies doing business with Russian counterparts targeted by U S sanctions
VTG last year posted earnings before interest tax depreciation and amortization of 343 million euros on sales of 1 billion euros It has 80 000 rail freight cars which it leases to companies active in the chemicals oil and agriculture sectors |
JPM | Taiwan Stocks Offer Hefty Yield But Investors Still Selling | Bloomberg The cash reward for owning Taiwan stocks is larger than almost anywhere else in Asia Global investors are ditching them anyway
Even with the benchmark Taiex gauge near a record high managers have pulled about 680 million from Taiwan stock funds this month more than any other market in the region The withdrawals come even as corporate dividends top U S yields and just as a record amount of debt globally yields less than zero
Investors who leaped into Taiwan stocks earlier this year aren t eager to do it again the economy s firms are so entwined with the global technology supply chain that they ve been particularly vulnerable to the trade war and a slowdown in the smartphone market
High dividend yields make Taiwan stocks attractive to global investors in a low interest rate environment but it s only one of the elements to consider said Agnes Lin a global market strategist at JPMorgan NYSE JPM Asset Management Taiwan Ltd The island s weak economic fundamentals partly the result of the U S China trade clash are also turning investors off the equities she said
The Taiex measure rose 0 5 as of 9 08 a m Monday in Taipei
Some 13 trillion of bonds globally trade with negative yields which is destroying potential returns That has investors looking elsewhere While U S stocks have surged to record levels Taiwan hasn t provided the answer at least for now as it struggles to reclaim last year s highs
The main problem has been the trade friction between the world s two largest economies Taiwan s export orders have dropped for the seven months through May Tech stocks which account for nearly half of the Taiex gauge have been whipsawed as the U S banned companies from supplying China s Huawei Technologies Co
Still Taiwan s listed companies plan to hand out NT 1 5 trillion 48 billion of cash dividends this year 5 more than in 2018 according to exchange data compiled by Bloomberg The yield for stocks on the Taiex gauge is 4 14 according to Bloomberg compiled data more than double the S P 500 Index s 1 9 To be sure some of Europe s stock gauges top Taiwan s with the FTSE 100 Index figure of 4 79
Prashant Bhayani chief investment officer for Asia at BNP Paribas PA BNPP Wealth Management said one of the reasons dividend yields in Taiwan are relatively high is it has mature companies that have excess cash flow beyond their investment needs
That description fits Taiwan Semiconductor Manufacturing Co which is expected to pay a total of NT 10 a share in 2019 in line for a record On top of that on Thursday it projected third quarter revenue that topped estimates Chief Executive Officer C C Wei said the world s largest contract chipmaker sees very very strong demand in the second half of the year
That could be a signal the worst has passed for Taiwan s technology companies spurring foreign investors to return to its equities and those dividend yields
There is a global search for yield presently with the rally we have seen in bond markets year to date said Bhayani Taiwan has had relatively higher downward earnings revisions over the past three months relative to the most other countries in Asia We look for pull backs in selected companies as an opportunity
TSMC was up 1 4 in early trading on Monday
Updates prices throughout |
JPM | Emerging Markets May Get Tough Lesson on Complacency Over Rates | Bloomberg Central bank meetings are turning into something of a minefield for emerging market investors
Turkey will announce its rate decision on Thursday with estimates for a reduction ranging from 50 to 800 basis points Russia is expected to ease monetary policy a day later
The concern among analysts is that central banks especially Turkey s will disappoint investors by lowering borrowing costs too aggressively eating away at the relatively high real rates in emerging markets But that risk hasn t been priced in with implied volatility for currencies near the weakest level since 2014 and the yield on local bonds at a record low
Listen here for emerging markets weekly podcast
Currencies as they are getting to a point where they are cyclically overvalued said Anders Faergemann a fund manager in London at PineBridge Investments The wall of money looking to target in on emerging markets makes for a challenging investment environment as fundamentals are getting more fragile
Every currency across developing nations has risen since May 17 after concern over global growth spurred the world s most powerful central bankers to turn dovish prompting a hunt for yield That helped narrow the difference in implied volatility between emerging market currencies and their developed peers to the smallest since March 2018 according to JPMorgan Chase Co NYSE JPM indexes
Cut Cut Cut
Turkey s rate decision will be a first for Murat Uysal who unexpectedly replaced Murat Cetinkaya as central bank governor earlier this month
The median forecast is for a 200 basis point cut in Turkey s one week repo rate now at 24 a move that would lower the real rate to a little over 6 That would still be among the highest in emerging markets But given President Recep Tayyip Erdogan s push for lower borrowing costs the concern is the central bank may opt for an aggressive cut which could trigger a sell off in the lira and a pickup in inflation
The central bank could trigger another currency crisis with a deeper than expected cut Ziad Daoud the Dubai based chief Middle East economist at Bloomberg Economics wrote in a report The market is pricing in a 200 250 basis point reduction he said
READ Turkey s New Central Banker Breaks Silence to Map Out Rate Cuts
Russia is expected to reduce its benchmark rate by a quarter point on Friday as the ruble outperforms all of its peers this year
Hungary s central bank will probably keep its policy rate unchanged after a small tightening step in June The next adjustment may come in September when rate setters will review their stance based on updated economic forecasts
In Africa Kenya and Nigeria are seen holding borrowing costs for now on rising inflation Angola which has been easing since last July will decide on its next move Friday as it seeks to boost growth after a contraction last year
Colombia s central bank will probably keep its key rate unchanged when it meets Friday amid optimism about recovering growth The peso led gains among Latin American peers last week
The Reserve Bank of India the most aggressive central bank in Asia this year to ease policy signaled a more cautious stance on future action Policy makers have effectively delivered more easing than the three interest rate cuts this year RBI Governor Shaktikanta Das said in an interview
Inflation Trade War Impact
In Brazil money managers will on Tuesday watch for another low inflation reading which could feed expectations that the central bank will make its first rate cut in more than a year The government may also announce on Wednesday a measure to try to boost consumption
After last week s widely expected rate cut by South Africa s central bank the first in more than a year inflation data on Wednesday will help investors to gauge the direction of monetary policy in the coming months Data in line with expectations would bolster the market s confidence in another rate reduction this year
South African Reserve Bank Governor Lesetja Kganyago will deliver a public lecture about monetary policy inflation and sustainable economic growth in Pretoria on Wednesday
South African Finance Minister Tito Mboweni will on Tuesday present funding plans for state owned power utility Eskom Holdings SOC Ltd President Cyril Ramaphosa said in June the government would expedite giving Eskom what it needs to remain solvent
South Korea reports preliminary second quarter GDP data on Thursday after its central bank last week unexpectedly cut its policy rate and lowered growth forecasts The U S China trade war China s own economic slowdown and a slump in the semiconductor sector have sent Korean exports tumbling Growing tensions with Japan have further dimmed the outlook
Further shedding light on the impact of the prolonged trade war South Korea s exports a bellwether for global trade looked set for an eighth straight monthly decline Data on Monday showed shipments during the first 20 days of July fell 14 from a year earlier
Thailand s exports declined 2 15 in June from a year earlier a fourth straight month of declines the Commerce Ministry reported on Monday Export orders from Taiwan are due later
May economic activity data in Argentina set to be released on Thursday is expected to offer more evidence that the economy came out of a recession in the second quarter as its currency outperformed regional peers
Philippine President Rodrigo Duterte is due to deliver his annual State of the Nation address on Monday Investors expect him to discuss bills to overhaul the constitution the drug war and ways to make the economy more competitive The Philippine stocks last week entered a bull market and the peso in 2019 may end a six year losing run
The International Monetary Fund will probably justify central banks moves to cut rates when it updates its forecasts for the global economy on Tuesday In April it forecast growth of 3 3 this year the weakest since 2009
Second quarter U S GDP due Friday is forecast to slow to 1 8 the weakest pace since early 2017
Lebanese bonds may rise after parliament passed an overdue deficit cutting 2019 budget |
JPM | Europe s Bank Earnings to Offer Glimpse Into Negative Rate Abyss | Bloomberg If you thought U S bank earnings were worrisome wait for the Europeans
As top Wall Street banks warn of zero Treasury yields and falling income from lending their European peers have been dealing with negative rates for half a decade with an end looking increasingly far off The drought has left them without a cushion to fall back on when income from trading dries up as it did in the first half and it s one reason why once mighty Deutsche Bank AG DE DBKGn just announced the most radical cuts yet to its investment bank
The second quarter will probably provide more evidence how damaging zero or negative rates are for an industry that at its core depends on clients paying to borrow money Revenue at eight of Europe s top lenders is set to decline 2 7 on average from a year earlier according to filings and analyst estimates That compares with a 0 5 gain for the top U S peers many of which still managed to post record earnings after nine interest rate increases by the Federal Reserve since late 2015
The focus for European banks is really on revenue said Jonathan Tyce an analyst at Bloomberg Intelligence Rates are set to go down which means lower loan loss provisions but that doesn t make up for the loss in revenue All this keeps bringing you back to costs
Here s a guide to what investors will be looking for when the top lenders start to report on Tuesday
Switzerland
UBS Group AG July 23 will give investors a first look into European bank earnings It has indicated that trading conditions improved from what CEO Sergio Ermotti called one of the worst first quarters in recent history The world s largest wealth manager is less dependent on trading revenue that peers but trade worries and market swings still affect how much money it attracts from rich clients Attention will also be focused on the business of advising on deals as well as stock and bond issuance after a poor run and last year s departure of rainmaker Andrea Orcel
Credit Suisse SIX CSGN Group AG July 31 the second largest Swiss bank after UBS is coming off a strong first quarter that showed CEO Tidjane Thiam s painful three year restructuring is bearing fruit But after the surprise loss of a key wealth management executive Iqbal Khan investors will be looking at whether the growth momentum in a key pillar of the bank will continue The main trading unit which managed to outperform peers in the first quarter will have to show that it wasn t just a one off
Swiss banks could disappoint should Julius Baer Group Ltd be any guide The lender said on Monday that it saw net new money in the first half hurt by the exits of some clients as it purges risky accounts and by a wider application of negative interest rates to large cash holdings
Germany
Deutsche Bank July 24 unveiled its biggest overhaul in decades this month including a plan to exit its underperforming stock trading business The move was partly driven by low interest rates and the company now assumes that European short term rates will rise to just 0 in 2021 Deutsche Bank also offered insight into second quarter earnings with a 5 9 slide in revenue Costs and profit figures fell short of expectations even before the bank said it expects 3 billion euros of restructuring charges in the period Deutsche Bank says about 75 of the investment banking businesses it wants to keep will have a top five market position and the release this week will give investors a glimpse of how they re holding up
Commerzbank AG DE CBKG Aug 7 explored a merger with Deutsche Bank earlier this year but talks fell apart That didn t make the bank s challenges go away Germany s second biggest listed lender is one of the banks hit hardest by the European Central Bank s rate policy because it holds a large amount of deposits and is heavily reliant on lending income Commerzbank plans a strategy update this fall after scrapping several financial goals earlier this year The company is seen as a takeover target because it offers a foothold in Europe s largest economy While negative rates should accelerate consolidation a lack of confidence within the industry is now the biggest impediment to necessary cross border mergers according to Casper von Koskull the CEO of Nordea Bank Abp
France
BNP Paribas PA BNPP SA July 31 seemed poised to benefit from Deutsche Bank s woes after striking a preliminary agreement to take on the hedge fund and electronic trading clients of the German lender s equities business But transferring balances is said to be difficult and investors will be looking for updates on the transaction They will also want evidence that BNP s existing equities trading business is turning the corner after embarrassing losses late last year Analysts at JPMorgan Chase Co NYSE JPM expect a 26 drop in equities revenue in the second quarter from a year earlier
Societe Generale PA SOGN SA Aug 1 is shrinking parts of its investment bank and cutting 1 600 jobs globally in an attempt to boost profitability Investors will keep a close eye on the bank s capital buffer which has been among the weakest of the region s large lenders Analysts at JPMorgan say SocGen should reduce its dividend by two thirds to ease concern about a possible capital shortfall by 2021 CEO Frederic Oudea has said he s comfortable he can meet the capital goals while maintaining his dividend policy
Natixis SA Aug 1 has had its own string of issues to contend with After losses from exotic derivatives and a slump at the bank s fixed income unit last quarter brought a meltdown at one of its boutique asset management businesses London based H20 Asset Management suffered 9 billion of redemptions after it emerged that one of its funds invested substantial amounts in the debt of a controversial German financier Investors will want to see evidence that flows at Natixis broader asset management business are resilient according to Bloomberg Intelligence
Italy
Low rates haven t been all bad In Italy banks have been able to draw some benefit from lower funding costs from long term rates as well as help in reducing a mountain of bad debt though low short term rates are still a burden on income UniCredit SpA Aug 7 is taking steps to put itself in a stronger financial position as CEO Jean Pierre Mustier prepares a growth plan to follow a three year cleanup Italy s biggest bank by assets is now emerging as one of the few firms in position to consolidate and is among lenders said to have been interested in a potential takeover of Commerzbank Mustier in an interview published over the weekend told Milano Finanza that the new business plan will have organic growth as precondition Investors will be looking for any update on the options the CEO is eyeing
U K
While trading revenue at Barclays LON BARC Plc s Aug 1 investment bank fared better than its U S rivals earlier this year the picture for the second quarter looks bleak JPMorgan analysts have predicted a 22 slump in equity revenue The analysts also see negative implications for the U K economy from Brexit A scandal dating back several years related to the sales of payment protection insurance will probably continue to hurt earnings at most British banks
HSBC Holdings Plc LON HSBA Aug 5 investors will be looking to see whether Europe s largest lender was able to keep revenues growing at a faster pace than costs after the bank hit the key target in the first quarter Several hundred jobs are being cut in the global banking and markets division and poor trading performance could see HSBC trim this year s 4 billion investment budget Shareholders are also looking for signs of management is returning excess capital for example in the form of buybacks
Spain
Banco Santander MC SAN SA July 23 is less dependent on its home market than competitors after expanding in regions like Latin America Still Europe plays a big enough role to drag on earnings and it s the focus of much of a cost drive that includes thousands of job cuts Of the group s largest units the U K looks the most vulnerable with Keefe Bruyette Woods forecasting a 36 drop in net income
That s putting a spotlight on the bank s capital strength Chairman Ana Botin has argued the lender can operate with smaller capital buffers because it doesn t engage in volatile trading like the big investment banks Botin may also face more questions about the botched hiring of Orcel the former UBS investment banker who is now suing Santander after the Spanish lender withdrew its job offer
Adds Julius Baer in eighth paragraph Nordea in 10th Mustier in 14th |
JPM | Global oil market in glut but not a big enough one for OPEC | By Ahmad Ghaddar and Rania El Gamal
LONDON DUBAI Reuters OPEC has shifted the goalposts for assessing an overhang in oil inventories giving the group more room to prolong production cuts while analysts warn the move will offer a distorted view of market conditions
Ever since the Organization of the Petroleum Exporting Countries and allies led by Russia a grouping known as OPEC started curbing oil output two and a half years ago they have targeted bringing oil in storage in the industrialized world in line with the five year average
In OPEC s view eliminating the glut in inventories would achieve a balanced oil market
Earlier this month Saudi Energy Minister Khalid al Falih said OPEC was using the period 2010 2014 as one metric to assess the success of its oil cuts
Including this new metric would be a shift away from the more recent five year average of 2014 2018 which the International Energy Agency IEA and OPEC itself had used to gauge market conditions
2010 2014 is probably another end of the spectrum and we will be looking at a collection of metrics that would give us guidance on what to do next after the nine months are over Falih said referring to when supply curbs end in March 2020
He said the next meeting of the OPEC ministerial monitoring committee in September would look at stocks in terms of cover for future demand and how much of those stocks was in pipelines and tank heels referring to oil residue below a tank s suction pump
Two OPEC sources said 2010 2014 would be the main metric for measuring inventories
They said the rationale was that the 2010 2014 average preceded 2015 2016 when inventories rose at unprecedented levels and when OPEC led by Saudi Arabia boosted output in a fight for market share against shale and other producers
For a graphic on OECD Oil Inventories click
This is a new perspective suggested by OPEC We have our own perspective IEA chief Fatih Birol told Reuters
The important thing is that you can change the methodology but you cannot change the realities of the market he said
OECD stocks in May were 220 million barrels above the five year average in 2010 2014 according to the most recent monthly report from the IEA which represents economies that are part of the Organisation for Economic Cooperation and Development
In comparison the overhang in May above the five year average of 2014 2018 stood at only 6 7 million barrels the IEA said OPEC s own figures suggest the May glut was at 25 million barrels above the 2014 2018 average
It s basically telling everyone we will continue oil supply management for a while one of the OPEC sources said
For a graphic on OECD Inventories OPEC click
Examining the 2010 14 five year average will encourage OPEC to maintain supply restraint to rebalance the market but putting too much focus on a single metric could result in actions that have unintended consequences Richard Mallinson co founder of Energy Aspects said
Mallinson said that looking at the 2010 2014 metric has its shortcomings not least that it doesn t take into account that global oil demand grew from 93 million barrels per day in 2014 to 100 million bpd this year
For some analysts such as Bernstein s Oswald Clint looking at inventories from the point of view of forward demand cover should also be considered According to the IEA in May OECD stocks on a forward demand basis covered 60 days 1 4 days lower than the most recent five year average of 61 4 days
For a graphic on Global Oil Demand click
OPEC and the IEA use OECD inventories to gauge stocks worldwide which could create another distortion Mallinson said OECD inventories did not capture the growing importance of stocks held in non OECD economies particularly China and India
THE GLUT IS BACK
Even though the latest IEA figures show a modest overhang in inventories over the five year average analysts generally believe the market will remain in excess in 2020
The worst of inventory builds are behind us with peak build rate in 4Q15 Bernstein said in a report
They expect inventories to draw slightly in the second quarter of 2019 before light builds in 2020 22 followed by falls over 2023 24
The OPEC decision to extend production cuts should be sufficient to draw down OECD inventories through the end of the year but these cuts will need to be extended through 2020 just to keep the oil market near balance Jefferies equity analyst Jason Gamel said
JPMorgan NYSE JPM sees a surplus of 700 000 bpd in 2020 in the absence of a deeper OPEC cut
For a graphic on OECD Oil Stocks May 2019 click |
JPM | Citi hires JPMorgan asset management executive for Asia equities business | HONG KONG Reuters Citigroup N C said on Thursday it has hired Curt Engler a senior executive from JPMorgan s N JPM asset management business in New York as its Asia Pacific head of equities execution services
Based in Hong Kong Engler will oversee all execution desks for Citi s cash equities business in 12 markets across Asia Pacific and will also be responsible for client relationships technology and governance
Engler joined JPMorgan Asset Management in 2010 and in his most recent role oversaw the trading operations of more than 250 billion in assets under management Citi said in a statement
Engler will report regionally to Citi s head of investor sales and relationship management Julia Raiskin and head of Asia Pacific equities Richard Heyes |
JPM | A Busy Week Ahead For Financial Markets Oil Spikes | Risk assets received a nice boost after the release of Friday s US Non Farm Payrolls report The 196 000 jobs added in March exceeded market estimates of 180 000 and February s figure was revised slightly upwards to 33 000 from 20 000 The added jobs are more than enough to keep the unemployment rate near its 50 year low if the momentum in the labor market is sustained over the coming months However this wasn t the only piece of information that encouraged equity bulls It was the wage growth which slowed down to 3 2 from February s pace of 3 4 which was the fastest in a decade A strong headline figure along with weaker wage growth suggests two things It confirms that the US remains in a growth mode although it may be in a late cycle and non inflationary pressure will keep the Fed on hold both of which are good ingredients for the bull market
This week we ll get to know more about why the Federal Reserve decided to pause on hiking rates in 2019 On Wednesday the Fed will release the minutes from the March meeting and probably the biggest question is does the Fed know something that investors don t know about Markets are now expecting a 60 chance of a rate cut by year end and President Trump is seen pushing aggressively for lower rates If inflationary pressures are headed lower the Fed will probably consider Trump s advice but at this stage there are no signs of a fall in prices
The mood from the US China trade talks continues to be positive although no deal has been achieved yet Officials from both sides will resume negotiations this week in hopes of resolving outstanding issues and put an end to the trade disputes However markets have been pricing in a breakthrough for a couple of months so a deal should be compelling enough to provide a further push to risk assets
Investors will also keep a close eye on US earnings with JPMorgan NYSE JPM and Wells Fargo NYSE WFC kicking off the season on Friday According to FactSet earnings are expected to decline 4 2 in Q1 which will mark the first year over year decline since Q2 2016 While this decline in earnings is already priced in it s the surprise factor and forward guidance that will lead Wall Street
In commodity markets Brent and WTI posted new highs for 2019 OPEC s ongoing supply cuts and US sanctions on Iran and Venezuela have been the major driver of prices throughout this year However the latest boost was received from an escalation of fighting in Libya which is threatening further supply disruption If output from Libya is reduced significantly in the upcoming days and OPEC does not act we may see a further 5 10 surge in prices over the next two weeks
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JPM | Opening Bell Stocks Drop On Q1 Earnings Gloom WTI Eyes 64 On Libya Crisis | European stocks U S futures drop on Q1 earnings pessimism
Dollar Treasurys hold steady despite Trump s heightened pressure on Fed
U K PM May s appeal for Brexit compromise boosts Sterling
Libyan military escalation pushes oil toward 64
Key Events
The global stock market opened the week in a defensive stance this morning as the biggest trade dispute in decades continued to loom unresolved in the background and expectations of a rough earnings season ahead threatened to challenge even the most stubborn of bulls
The STOXX Europe 600 remained trapped within a congestion since Thursday and dropped erasing Friday s gains Meanwhile futures on the S P 500 Dow and NASDAQ 100 all pointed to a weaker opening in the upcoming U S session
In the earlier Asian session regional benchmarks posted a mixed picture as climbers gave up gains and losers bounced off lows While negotiators from both the U S and China signaled some positive progress last week traders decided to focus on Q1 earnings headwinds and thereby adopted a defensive posture amid expectations of a 3 9 year on year average drop across S P 500 listed companies which would mark the largest earnings plunge since Q1 2016
Japan s Nikkei 225 0 21 briefly reached levels not seen since Dec 13 only to dwindle into negative territory
China s Shanghai Composite 0 05 was flat at the end of a day that saw the highest levels since Mar 22 last year but also some volatile session lows Technically the 100 DMA is attempting to cross the 200 DMA after the 50 DMA had already done so which triggered a golden cross in mid March amid the development of bullish ascending triangle With the index pausing for the first time in a five straight day rally traders should brace for a likely return move after the pattern s completion
Hong Kong s Hang Seng 0 47 posted a more upbeat performance hitting its highest level since June 15 as of the time of writing resuming a rally after Friday s setback which came after eight day of gains out of nine Technically the 100 DMA is aiming to overcome the 200 DMA after the 50 DMA posted a golden cross early last month
South Korea s KOSPI 0 04 eked out a seventh day of a rally after bouncing off the 100 DMA cutting through the 50 and 100 DMA in the same day The price though fluctuated and closed mid range well off both its highs and its lows
Finally Australia s S P ASX 200 0 65 bucked the mixed trend and posted solid gains erasing nearly all of Friday s rout
Global Financial Affairs
Yields on 10 year Treasurys dropped for the fourth consecutive session though they reverted higher in the late European morning Traders however should be wary of a potential bullish flag to the downward biased congestion
The dollar erased Friday s gains confirming the April high resistance Overall Treasurys and the greenback are holding relatively stable considering that President Donald Trump ratcheted up pressure on the Fed to favor market growth ahead of his re election bid Friday s jobs report beating expectation corroborated last month s low inflation figures and motivated Trump to step up his calls for more policy accommodation as well as to make two controversial picks for the Fed board
However analysts warnings against the worst earnings results in three years lurking on the horizon which could trigger a market tumble after last year s stellar company returns propped up prices to record highs risk offsetting the effect of upbeat economic readings
Meanwhile the pound wiped out most of Friday s losses which were stopped atop the 200 DMA as British Prime Minister Theresa May appealed to both the public and lawmakers to support a compromise Brexit plan
Oil extended a rally toward the halfway point to 64 after self organized military forces led by commander Khalifa Haftar attacked Libya s capital Tripoli throwing the country into a state of chaos that threatens to oust international forces from the country and cause major oil supply disruptions
WTI price gains followed a gap above the 200 DMA the highest level since Nov 1 after the commodity sealed its best returns in nearly two months last week Prospects of a confirmation from OPEC s monthly supply report of ongoing production tightening are also helping the price higher
Up Ahead
U S banks begin reporting first quarter earnings led by JPMorgan NYSE JPM and Wells Fargo NYSE WFC
Israelis head to the polls on Tuesday for general elections that could see incumbent leader Benjamin Netanyahu become the longest serving prime minister
The annual Spring Meetings of the World Bank Group and the International Monetary Fund begin in Washington on Tuesday
The ECB is expected to leave its key interest rates unchanged on Wednesday Investors will be looking for further details on the TLTRO program
Market Moves
Stocks
The U K s FTSE 100 dropped 0 1
Germany s DAX fell 0 4 the first retreat in more than a week and the biggest dip in more than two weeks
The MSCI Emerging Market Index climbed 0 1 hitting the highest in about eight months with its eighth consecutive advance
The MSCI Asia Pacific Index rose less than 0 05
Currencies
The Dollar Index dropped less than 0 10 along with falling yields
The euro climbed 0 1 to 1 1227
The British pound increased 0 1 to 1 3052
The Japanese yen climbed 0 3 to 111 45 per dollar the biggest increase in more than two weeks
Bonds
The yield on 10 year Treasuries dipped less than one basis point to 2 49
Germany s 10 year yield declined one basis point to 0 00
Britain s 10 year yield slid less than one basis point to 1 114
Italy s 10 year yield rose less than one basis point to 2 479
Commodities
West Texas Intermediate crude climbed 0 4 to 63 34 a barrel the highest in five months
Gold increased 0 4 to 1 297 26 an ounce the highest in more than a week on the biggest climb in two weeks |
MS | U S Yield Curve to Invert in Mid 2019 Morgan Stanley Says | Bloomberg The Federal Reserve next March will probably map out an end to the contraction in its balance sheet helping support longer dated bond yields which will drop below those on shorter dated notes by the middle of 2019 according to Morgan Stanley NYSE MS
Investors are underestimating the size of the SOMA portfolio that will be needed to keep the benchmark overnight interest rate within the range targeted by the Fed Morgan Stanley strategists including Sam Elprince wrote in a July 12 note SOMA refers to the System Open Market Account the Fed s name for its pool of assets
Morgan Stanley cut its forecast for net U S government debt issued by the Treasury by 690 billion through 2020
The bank sees 10 year Treasury yields at 2 75 percent by year end and 2 50 percent by mid 2019 It previously forecast them at 2 85 percent for end 2018 and 2 70 percent for the second quarter of 2019
The yield curve will invert by mid 2019 the analysts said We suggest an overweight to U S Treasuries
The Fed started shrinking its balance sheet last October unwinding the unprecedented quantitative easing launched during the financial crisis The recent phenomenon of the effective federal reserve rate trading toward the upper end of the Fed s target range has been a sign to some observers that liquidity may already be getting tight
Some Fed officials have called for a discussion about where to take the balance sheet with the run off scheduled to increase by 10 billion a month to 50 billion next quarter Morgan Stanley s team sees the Fed providing a detailed account of exchanges on the issue in minutes of its December 2018 meeting expected in early January In March they predict an announcement on plans to end balance sheet normalization in September 2019
The yield curve has been flattening almost continuously since early 2017 as the Fed kept raising rates pushing up two year yields while 10 year yields rose by less An inversion has preceded U S recessions in the past and some Fed officials have expressed concern about that happening Ten year Treasuries now yield just 27 basis points more than two year notes
While a larger end point for the Fed s balance sheet than previously anticipated should support risky assets the help won t arrive until the contraction ends Morgan Stanley said On a 12 month horizon the strategists recommended being underweight corporate credit relative to benchmark indexes
Adds reference to call on credit in final paragraph |
MS | Virtus Investment June total AUM up 2 8 from March | Virtus Investment Partners NASDAQ VRTS preliminary total assets under management rises to 91 6B as of June 30 2018 from 89 1B at the end of March Total long term AUM was 89 8B vs 87 4B as of March 31 2018 Liquidity 1 79B vs 1 64B as of March 31 2018 Source Press ReleaseNow read |
MS | Land drillers recommended by Morgan Stanley amid Permian takeaway risks | Precision Drilling PDS 3 1 and Nabors Industries NBR 0 8 are upgraded to Overweight from Equal Weight at Morgan Stanley NYSE MS which sees both companies continuing to realize strong pricing and activity levels in their U S land drilling businesses Given its expectation that Permian constraints will dominate the narrative through the Q2 earnings season and the belief that the Permian s regional weakness has potential to transmit to other basins Stanley s Connor Lynagh recommends decreasing completions exposure as it increases land drilling exposure As a result the firm downgrades C J Energy Services CJ 1 5 and U S Silica SLCA 1 to Equal Weight from Overweight and Superior Energy SPN 0 4 to Underweight from Equal Weight it maintains Overweight ratings for Keane Group FRAC 0 8 FTS International FTSI 2 7 Liberty Oilfield Services LBRT 0 7 and Patterson UTI Energy PTEN 1 5 |
MS | Fed s escape from crisis holdings could hit dead end | By Jonathan Spicer
NEW YORK Reuters Not long ago the Federal Reserve expected to quietly shed nearly half of its 4 5 trillion portfolio by around 2022 leaving little trace of the extraordinary steps it took to face down the financial crisis But an unexpected market kink could force the Fed to scrap the plan two or three years early and permanently leave it holding 1 trillion more than it wanted
The U S central bank is making adjustments on the fly and keeping its options open I don t think that s problematic in any way to halt the process somewhat earlier William Dudley the former New York Fed president and key architect of the portfolio strategy told reporters last month
Yet if the world s largest holder of U S bonds tossed out its play book and effectively took on a more accommodative stance the result could be an across the board easing of market borrowing costs the foreign exchange value of the dollar and of the growing strains on emerging markets
The evidence that we have suggests that the ultimate size of the balance sheet will be bigger than what people expected said Matthew Luzzetti senior economist at Deutsche Bank DE DBKGn Securities in New York
All of this amounts to the final chapter in the Fed s unprecedented decision over the last decade to buy some 3 5 trillion in mortgage and Treasury bonds in an effort to boost riskier investments hiring and economic recovery from recession In a nod to a stronger U S economy the Fed since 2015 has raised interest rates well above zero and since October of last year begun shrinking its balance sheet to a more normal but yet unspecified size
The market kink is partly of the Fed s making
With each dollar worth of bonds it has let run off the so called excess reserves it requires private banks to hold have become more scarce Meanwhile the Trump administration s spending boost this year has sucked up dollar liquidity as the government issued more bonds and deposited more at the central bank
The result has been a pronounced jump in demand for excess bank reserves which exploded during the crisis as the Fed ramped up bond buying but which have fallen by about 350 billion in the last nine months as it scaled back its portfolio
That in turn has threatened to push the Fed s key rate above a policy band currently set at 1 75 to 2 percent In June the central bank responded with a short term fix that may only delay a longer term reckoning
Some economists are now predicting it will have to stop shedding bonds in one to two years and when it s done its post crisis balance sheet normalization end up with a roughly 3 5 trillion portfolio
That s larger than the broad 2 3 to 2 9 trillion range Fed economists projected in September and well above the 900 billion it had before the 2007 2009 crisis The September projections saw the process end by 2022 or 2023
SLIDING FINISH LINE
The looming question is how much excess reserves banks will require in the years ahead since that represents a big yet shrinking chunk of the Fed s liabilities After peaking at about 2 8 trillion in 2014 they are down to 1 9 trillion
Luzzetti at Deutsche Bank predicts excess reserves will fall to an equilibrium around 1 3 trillion forcing the Fed to stop shedding bonds in the first half of 2020 and leaving it with some 3 7 trillion in total assets Morgan Stanley NYSE MS economists on Thursday predicted it would end in September of next year
That would spell good news for economies that have seen investment flee this year like Argentina Philippines and India whose central bank chief in June complained the Fed s bond shedding is weakening emerging market currencies China locked in a trade war with the United States could also see relief for its tumbling yuan and equities
Closer to home rewriting the play book could keep a lid on longer term U S bond yields since the Fed would take on a more accommodative stance perhaps permanently
Roberto Perli partner at Cornerstone Macro and a former Fed economist predicted the Fed would stop shrinking its balance sheet in the second half of next year That would mean yields on 10 year Treasuries which fell as the Fed snapped up bonds over the last decade would rise by only 0 25 to 0 3 percent or about two thirds of what would be expected were it to stick to its original plan he said
The so called yield curve or the difference between 10 and 2 year Treasury bond yields should within about a year be completely flat a historical signal of a pending recession These are not trivial amounts Perli said of the 800 billion to 1 trillion in additional bonds the Fed may end up holding
To be sure U S central bankers have always said their asset shedding plan announced in detail last June would be flexible and depend on unpredictable Treasury issuance and redemptions of mortgage backed securities And the Fed has not yet specified what portion of assets banks must hold as excess reserves which as a multiple of required reserves are near their lowest levels since the crisis
The central bank may yet meet its forecasts especially if the recent jump in demand for bank reserves eases
We don t exactly know when we will hit that point where excess reserves reach an equilibrium Philadelphia Fed President Patrick Harker said at a forum in Idaho on Thursday adding it could be between 500 billion and 700 billion
Yet an analysis of the central bank s annual predictions suggests it has come to terms with a permanently larger balance sheet The New York Fed s end point estimates based in part on the estimates of dealer banks have risen to 3 trillion from 2 trillion over three years The portfolio normalizes sometime between 2020 and 2022 it predicted in April
On June 15 his last day at the New York Fed Dudley said I don t think it s a huge problem or issue if banks demand 1 trillion of excess reserves versus 5oo billion of excess reserves and that were to cause us to stop the balance sheet normalization process somewhat earlier
To view a graphic on Bank excess reserves held at the Fed click |
JPM | Former JPMorgan senior banker pleads not guilty to bribery charges | HONG KONG Reuters JPMorgan s N JPM former Asia investment banking vice chair Catherine Leung pleaded not guilty to charges of bribery in a Hong Kong court on Thursday Leung is alleged to have offered employment to the son of the chairman of a logistics company as a reward for the chairman favoring JPMorgan when choosing banks to work on the company s IPO Hong Kong s Independent Commission Against Corruption ICAC said in May Leung did not comment when approached by Reuters outside the court room The trial for the case has been set to start on Feb 25 2020 and will continue for eight days A spokeswoman for JPMorgan declined to comment on the development on Thursday and instead referred to a statement in May that said This is a historical case which J P Morgan reached agreement on and settled in 2016 JPMorgan agreed to pay U S authorities 264 million in 2016 resolve allegations it hired the relatives of Chinese officials dubbed princelings to win banking deals The bank did not admit or deny the charges As part of its settlement with the U S Justice Department a Hong Kong unit of the bank admitted to making quid pro quo hiring agreements with Chinese officials to win investment business U S authorities at the time said JPMorgan s Asia unit created an elaborate program called Sons and Daughters that allowed clients and influential government officials to recommend potential hires The U S Federal Reserve banned former JPMorgan managing director Timothy Fletcher from the industry for life in February for his role in the hiring program Fletcher worked in the bank s Hong Kong office Leung was vice chair of Asia investment banking when she left JPMorgan in February 2015 amid a wider reshuffle in the bank s regional leadership She first joined JPMorgan in 1994 according to her LinkedIn NYSE LNKD profile and left to join rival Merrill Lynch in 2001 before rejoining JPMorgan in 2002 The prosecutor in Leung s case Glen Kong asked the judge on Thursday to consider merging the case with that of another ongoing investigation as the two share a similar witness list No arrests have been made in the other case but the suspect currently in mainland China is likely to return to Hong Kong the prosecutor said Details of the case were not available Judge WK Kwok did not make a decision about merging the two cases on Thursday |
JPM | Asia s Fort Knox Said to Be on Sale as Owner Fights Tycoon | Bloomberg Follow Bloomberg on LINE messenger for all the business news and analysis you need
Asia s Fort Knox a private maximum security vault in Singapore is for sale
Le Freeport a multistory repository for fine art precious gems and even JPMorgan Chase Co NYSE JPM s stash of gold has been seeking a buyer since as far back as 2017 so far without success according to people familiar with the matter Owner Yves Bouvier a Swiss art dealer has been embroiled in a five year legal brawl with a Russian billionaire and has been selling assets
Opened in 2010 at a cost of about S 100 million 74 million the vault sits on a large tract of government land with direct access to the runways of Changi Airport Formerly known as the Singapore Freeport the building was heralded as part of the city state s effort to boost its wealth management industry and become a regional hub for luxury collectibles and bullion trading For a while that worked
Bouvier s dispute with billionaire Dmitry Rybolovlev brought some unwanted attention to the facility but overall it remained the focal point of the gold industry in Singapore both for institutional and for individual clients said Joshua Rotbart who runs a Hong Kong based logistics firm specializing in precious metals and has used the vault to store clients assets since 2010
The climate started to change a few years ago when China s clampdown on luxury spending and an economic slowdown in the region curbed demand for high value items while an exodus by many banks from their physical commodity business from 2014 reduced the need for bullion storage
Losing Money
The venture has lost money for about a decade It reported accumulated losses of S 18 4 million by the end of last year according to filings to Singapore s Accounting and Corporate Regulatory Authority
Le Freeport Chief Executive Officer Lincoln Ng recently told at least one tenant that the facility is still for sale but that its owner hasn t found a buyer according to one of the people
In an emailed response to questions about Le Freeport sent via a spokesman Bouvier declined to comment on whether the business was for sale He said the attacks by Mr Rybolovlev against me in various courts and in the media have had a very negative effect on my business operations worldwide including on the FreePort in Singapore Despite this over the past decade our vision for the FreePort in Singapore has been proven to be a great success
CEO Ng also declined to comment on whether Le Freeport is seeking a buyer
The operation has cut rental rates to entice new tenants said two people familiar with the matter Anchor tenant Christie s International which took the entire top floor when the building opened pulled out last year
Further Retreat
A buyer would inherit an outstanding debt to DBS Group Holdings Ltd Singapore s largest bank which stood at about S 20 million as of last year
Any sale would mark a further retreat for Bouvier from his earlier plan to build a network of freeports in wealthy hotspots around the world He has said that he abandoned plans to build a Freeport in Shanghai because of the negative publicity from his court case and in late 2017 he sold his storage and moving company Natural Le Coultre to a French rival including his minority stake in the Geneva Freeport the world s largest He remains the majority owner of his Luxembourg Freeport
Singapore s government provided support to the Freeport with the National Heritage Board and the National Arts Council among the initial shareholders though the two entities say they divested in 2011 Enterprise Singapore a government agency in 2014 said the facility provided Asia with its own Fort Knox a reference to the U S Bullion Depository in Kentucky The city state aspired to be a regional gold trading hub after the government waived goods and service tax on investment grade bullion in 2012
JPMorgan one of the world s largest gold traders was among the initial customers keeping precious metals in the vaults since the opening UBS Group AG Deutsche Bank AG DE DBKGn and Australia New Zealand Banking Group Ltd have also stored gold there though Deutsche Bank said they are no longer customers and ANZ said it has suspended its physical precious metals custody service
Borderless Cage
Anyone entering Le Freeport has to go through security checks and a body scan before proceeding into a long atrium dominated by a 38 meter long sculpture of polished steel by Israeli artist Ron Arad called the Cage without Borders The building designed by Swiss architects Benedicte Montant and Carmelo Stendardo includes energy saving features such as vegetation covered walls to help maintain temperature and humidity levels
Surrounding the atrium are windowless corridors with rows of identical steel doors that house the private suites of the tenants They include Malca Amit Global Ltd which handles logistics for diamonds and gold art movers Helu Trans Group and Stamford Cellars according to Le Freeport s website
Tenants can have goods delivered to the site directly from planes without having to pay goods and services tax A special heavy duty elevator at the rear of the building can transport gold directly to the basement vaults
Secrecy over what was stored in the strongrooms has led to concern about the possible use of the facility for illicit purposes
In 2015 Singapore imposed new obligations to prevent money laundering and terrorism financing on GST exempt warehouses including those at the Freeport But a year later the Paris based Financial Action Task Force said Singapore s authorities did not demonstrate a comprehensive understanding of what activities were being undertaken in the building
Customs Checks
Bouvier said the Singapore operation employs a system which allows for complete traceability for every item stored He said the security and transparency provided by Le Freeport for both clients and authorities has made it the world s largest facility dedicated to the storage of fine art and high value collectibles
Singapore Customs which licenses companies storing goods at Le Freeport said it imposes stringent requirements on the storage of high value goods such as precious stones and conducts regular checks at the companies warehouses to ensure they comply with regulations
But it s the events outside of the building which have put the Freeport into the spotlight
Russian art collector Rybolovlev accused Bouvier in early 2015 of overcharging him by about 1 billion for dozens of canvasses by artists including Gustav Klimt and Rene Magritte Rybolovlev said Bouvier violated fiduciary duties as his broker by deliberately inflating what he said the works cost
Bouvier and his lawyers have argued repeatedly that he was never Rybolovlev s broker and that the Russian was just a repeat customer willing to pay top prices to secure the artworks
The battle has been playing out in courts in Monaco Paris New York London Geneva and Singapore where Bouvier currently lives forcing him to hire an international team of lawyers to fight his corner Bouvier told Bloomberg in early 2017 that the battle with Rybolovlev had cost him nearly 1 billion in lost business
Updates in 13th paragraph with Singapore entities divesting in 2011 |
JPM | U S weekly jobless claims rise as expected | By Lucia Mutikani WASHINGTON Reuters The number of Americans filing applications for unemployment benefits increased moderately last week pointing to still strong labor market conditions despite signs that economic activity was slowing Other data on Thursday showed factory activity in the mid Atlantic region rebounded sharply in July reaching its highest level in a year That added to recent surveys on manufacturing that have suggested the struggling sector was stabilizing The improvement in the regional factory surveys likely reflects a decision by President Donald Trump not to impose tariffs on Mexican goods after the two countries struck a deal on immigration But manufacturing which makes up about 12 of the economy remains hamstrung by weaker business spending on equipment an inventory glut a bitter trade war between the United States and China and softening global growth This big swing in the data over the past couple of months may reflect changing attitudes on trade given that the sampling for the June reports probably occurred around the time of peak concern about trade policy between the U S and Mexico said Daniel Silver an economist at JPMorgan NYSE JPM in New York Initial claims for state unemployment benefits rose 8 000 to a seasonally adjusted 216 000 for the week ended July 13 the Labor Department said remaining in the middle of their 193 000 230 000 range for this year Last week s increase in claims was in line with economists expectations The claims data tends to be volatile around this time of the year because of summer factory closures especially in the automobile industry which occur at different periods This can throw off the model the government uses to strip out seasonal fluctuations from the data Layoffs remain low despite the U S China trade tensions which have contributed to a dimming of the economy s outlook and led the Federal Reserve to signal it would cut interest rates at its July 30 31 meeting for the first time in a decade Last week s claims data covered the survey period for the nonfarm payrolls component of July s employment report Claims were little changed between the June and July survey periods suggesting strong job growth this month The economy created 224 000 jobs in June Firms remain extraordinarily reluctant to lay off workers and the labor market remains extremely tight said John Ryding chief economist at RDQ Economics in New York There is no reason to expect anything but a solid jobs report for the month The dollar was steady against a basket of currencies while U S Treasury prices fell Stocks on Wall Street were lower WORKERS SCARCE There are however concerns that a shortage of workers and the Trump administration s tougher stance on immigration could impede job growth The Fed s Beige Book report of anecdotal information on business activity collected from contacts nationwide published on Wednesday showed some manufacturing and information technology firms in the Northeast reduced their number of workers from mid May through early July It said a few reports highlighted concerns about securing and renewing work visas flagging this as a source of uncertainty for continued employment growth Solid job growth is helping to underpin the economy which is slowing as last year s massive stimulus from tax cuts and more government spending fades Weak manufacturing and housing as well as a widening trade deficit are partially offsetting strong consumer spending The Atlanta Fed is forecasting gross domestic product rising at a 1 6 annualized rate in the second quarter The economy grew at a 3 1 pace in the January March period The slowdown in activity was underscored by a second report on Thursday from the Conference Board showing its measure of future economic growth fell for the first time in six months in June The 0 3 drop in the leading indicator the largest since January 2016 suggests growth is likely to remain slow in the second half of the year the Conference Board said But manufacturing appears to be improving In a third report the Philadelphia Fed said its business conditions index jumped to a reading of 21 8 in July from 0 3 in June That was the highest level since July 2018 and reflected strong increases in measures of new orders employment and shipments The improvement in manufacturing in the region that covers eastern Pennsylvania southern New Jersey and Delaware mirrors other measures on factory activity It probably overstates the outlook for manufacturing however A survey from the New York Fed on Monday showed a mild rebound in its business conditions index in July after contracting in June While overall manufacturing production increased last month output at factories fell at a 2 2 annual rate in the second quarter the sharpest decline in three years the Fed reported on Tuesday Manufacturing production dropped at a 1 9 pace in the first quarter The troubles that have plagued industry continue to linger said Roiana Reid an economist at Berenberg Capital Markets in New York The Philadelphia Fed survey s measure of prices received by manufacturers in the mid Atlantic region increased this month as did a gauge of prices paid by factories Both measures however remained well below their lofty readings over the past few month consistent with expectations of moderate inflation
The survey s six month business conditions index jumped to a reading of 38 0 this month the highest reading since May 2018 from 21 4 in June Its six month capital expenditures index increased to 36 9 from a reading of 28 0 in the prior month |
MS | The Honey Badger Market Willful Blindness To Risk | There is a LOT of optimism in the markets currently
But why shouldn t there be
Speaking at Davos the head of the world s largest hedge fund said
We are in this Goldilocks period right now Inflation isn t a problem Growth is good everything is pretty good with a big jolt of stimulation coming from changes in tax laws Ray Dalio Bridgewater
Yes indeed Everything does seem to be firing on all cylinders as long as you don t scratch too deeply beneath the surface Even if you do and see the ugly scars of minuscule wage growth plummeting savings rates and surging delinquencies investors just don t give a kazoo as markets continue to rocket higher
Of course I also
A waning of the temporary factors that boosted inflation in recent years will probably help foster a continued edging down of core inflation The U S economy appears to be making a transition from the rapid rate of expansion experienced over the preceding several years to a more sustainable average pace of growth Ben Bernanke February 2007
The fed s official forecast an average of forecasts by fed governors and the fed s district banks essentially portrays a Goldilocks economy that is neither too hot with inflation nor too cold with rising unemployment
At that time things were literally as good as they could get
In 2008 Goldilocks was eaten by the 3 bears of a collapse in stock market credit and real estate prices
As Good As It Gets
But here we are once again For investors there is little evidence of a problem anywhere on the horizon
Everything is literally as good as it can get
Let s look at weight of evidence
Economically speaking things have rarely been better The monthly Citigroup NYSE C Economic Surprise index is hitting levels not seen seen 2004 and 2012 We can also confirm Citigroup s index by comparing it to the Economic Output Composite Index which is also registering its highest levels since 2004 as well
The EOCI is comprised of the CFNAI Chicago PMI LEI NFIB ISM and Fed regional surveys
Investors have also rarely been as optimistic about the markets as they are currently The 4 panel chart below shows the level of optimism currently from both professional and individual investors Whether it is record margin debt stock allocations or simple exuberance we are at levels of rarefied air for participants
Of course all of that has led to record low levels of complacency in the markets by virtually all measures whether it is the level of investment in bearish Rydex funds or measures of volatility like the VIX
Even consumers have jumped into the game pushing debt to record levels Why not After all with the stock market surging higher debt can easily be paid off at some future point from investment gains right
And lastly earnings expectations for companies have soared to record levels based on tax reform As noted by this week
We have no beef with this increase and it s generally in line with our estimate that tax cuts would add somewhere between 5 10 per share to S P 2018 EPS
What could possibly go wrong
Pretty much everything
I have written in the past that for a reason
First record levels of anything are records for a reason It is where the point where previous limits were reached Therefore when a record level is reached it is NOT THE BEGINNING but rather an indication of the MATURITY of a cycle While the media has focused on employment record stock market levels etc as a sign of an ongoing economic recovery history suggests caution The 4 panel chart below suggests that current levels should be a sign of caution rather than exuberance
Chart updated through end of 2017
With the stock market pushing record price levels not to mention excessive deviations from long term means the risk of disappointment has been greatly accelerated
The problem with record levels of everything is there is little room for an upside surprise to further fuel forward expectations for improvement Since the financial markets are driven by forward expectations the risk to investors is a series of disappointments that leads to a repricing of investment risk
When it comes to corporate earnings Morgan Stanley also noted
However we are skeptical it will exceed 155 when all is said and done Meanwhile the multiple has also been rising suggesting the market is now expecting a further rise toward 155 or higher
As I noted just recently in our weekly newsletter
Ultimately investors will care about valuations For now it is hoped that historically high levels of stock valuations will be reduced by an explosion in underlying earnings growth due to the impact of tax reform While exuberance is currently off the charts bullish and our portfolios remain inherently long in the meantime we are extremely cognizant of the risk of something breaking It is what always happens
Yes currently everything is absolutely positively optimistic Economic growth has picked up over the last couple of quarters due to an unprecedented level of natural disasters oil prices have risen boosting production and corporate earnings and employment is at historically high levels if you don t count those out of the labor force
The positive backdrop for stocks could not be currently better
The Single Biggest Risk To Your Money
All of this underscores the single biggest risk to your investment portfolio
In a honey badger market investors become willfully blind to investment risks as every investment rises regardless of the underlying fundamental quality In turn this has led to a general hubris by investors believing they are now smarter than the market As Doug Kass recently noted We are at the market stage where the naysayers are explicitly ridiculed for missing out on the rally He continues
Ray Dalio says markets surge ahead If you re holding cash you re going to feel pretty stupid
There is a growing business risk for investment managers who have been cautious and conservative which is perpetuating the market advance as funds are forced into equities Many commentators in the business media encourage investors to buy more and no longer see risk or question the rise There are few platforms in the business media for those that hold on to an ursine market view discussion of risks have disappeared as fear and doubt has left Wall Street Momentum investing is in contrarian investing is out Many investors commentators and talking heads cant see any meaningful risk in valuations or in profit and economic growth Many strategists climb over each other to raise their S P Index price targets much like what occurred at the tail end of the dot com boom in the late 1990s Speculative activity e g in cryptocurrency is multiplying
Those that are fearful of missing out are losing investment rigor buying symbols of stocks they know nothing about Market participants ignore any risk including growing Washington D C division that likely precludes further meaningful legislation and a Washington D C reality show who s antics could change the composition of the Congress at the time of the November 2018 election and more importantly who s autocratic views could jeopardize and corrode our values law that have been sustained for centuries Market participants are also ignoring the growing geopolitical risks and the possibility of trade issues rising interest rates Bill Miller sees a melt up risks that the tax bill will trickle up not trickle down the ever expanding deficit and the distortive role of passive investing ETFs and the dominance of machines and algos Monetary tightening is intensifying but everyone still appears to believe that all the easing was a free lunch and therefore nothing to worry about now Where we are in the market cycle is up to interpretation Sometimes people hear what they want to hear
Doug is right on all points Unfortunately it is the reversal of the market that exposes the real investment risk undertaken in portfolios and leads to crippling losses in a very short time frame
Bull markets don t die of pessimism they die from excess optimism
Currently investors are more optimistic than at virtually any other point in history
But then again who gives a sweet diddly hoot
Eventually you will |
JPM | Earnings Preview JPMorgan Chase JPM Q1 Earnings Expected To Decline | The market expects JPMorgan Chase JPM to deliver a year over year decline in earnings on higher revenues when it reports results for the quarter ended March 2019 This widely known consensus outlook is important in assessing the company s earnings picture but a powerful factor that might influence its near term stock price is how the actual results compare to these estimates
The stock might move higher if these key numbers top expectations in the upcoming earnings report which is expected to be released on April 12 On the other hand if they miss the stock may move lower
While management s discussion of business conditions on the earnings call will mostly determine the sustainability of the immediate price change and future earnings expectations it s worth having a handicapping insight into the odds of a positive EPS surprise
Zacks Consensus Estimate
This biggest U S bank by assets is expected to post quarterly earnings of 2 34 per share in its upcoming report which represents a year over year change of 1 3
Revenues are expected to be 27 95 billion up 0 2 from the year ago quarter
Estimate Revisions Trend
The consensus EPS estimate for the quarter has been revised 0 07 higher over the last 30 days to the current level This is essentially a reflection of how the covering analysts have collectively reassessed their initial estimates over this period
Investors should keep in mind that an aggregate change may not always reflect the direction of estimate revisions by each of the covering analysts
Price Consensus and EPS Surprise
Earnings Whisper
Estimate revisions ahead of a company s earnings release offer clues to the business conditions for the period whose results are coming out This insight is at the core of our proprietary surprise prediction model the Zacks Earnings ESP Expected Surprise Prediction
The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter the Most Accurate Estimate is a more recent version of the Zacks Consensus EPS estimate The idea here is that analysts revising their estimates right before an earnings release have the latest information which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier
Thus a positive or negative Earnings ESP reading theoretically indicates the likely deviation of the actual earnings from the consensus estimate However the model s predictive power is significant for positive ESP readings only
A positive Earnings ESP is a strong predictor of an earnings beat particularly when combined with a Zacks Rank 1 Strong Buy 2 Buy or 3 Hold Our research shows that stocks with this combination produce a positive surprise nearly 70 of the time and a solid Zacks Rank actually increases the predictive power of Earnings ESP
Please note that a negative Earnings ESP reading is not indicative of an earnings miss Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative Earnings ESP readings and or Zacks Rank of 4 Sell or 5 Strong Sell
How Have the Numbers Shaped Up for JP Morgan
For JP Morgan the Most Accurate Estimate is lower than the Zacks Consensus Estimate suggesting that analysts have recently become bearish on the company s earnings prospects This has resulted in an Earnings ESP of 1 57
On the other hand the stock currently carries a Zacks Rank of 3
So this combination makes it difficult to conclusively predict that JP Morgan will beat the consensus EPS estimate
Does Earnings Surprise History Hold Any Clue
Analysts often consider to what extent a company has been able to match consensus estimates in the past while calculating their estimates for its future earnings So it s worth taking a look at the surprise history for gauging its influence on the upcoming number
For the last reported quarter it was expected that JP Morgan would post earnings of 2 20 per share when it actually produced earnings of 1 98 delivering a surprise of 10
Over the last four quarters the company has beaten consensus EPS estimates three times
Bottom Line
An earnings beat or miss may not be the sole basis for a stock moving higher or lower Many stocks end up losing ground despite an earnings beat due to other factors that disappoint investors Similarly unforeseen catalysts help a number of stocks gain despite an earnings miss
That said betting on stocks that are expected to beat earnings expectations does increase the odds of success This is why it s worth checking a company s Earnings ESP and Zacks Rank ahead of its quarterly release Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they ve reported
JP Morgan doesn t appear a compelling earnings beat candidate However investors should pay attention to other factors too for betting on this stock or staying away from it ahead of its earnings release |
JPM | China s Renminbi Is Unlikely To Threaten The Dollar For Now | A few years ago it was not uncommon to hear pundits calling the end of the dollar s supremacy the decline of the greenback s position as the world s reserve currency
Those pundits predicted the dollar would eventually be overtaken by a rising China or at the very least by a multi currency world of euro yen and the rapidly rising renminbi
Then came the broad market rout of 2015 and all that went into reverse
You won t have heard those calls for the dollar s demise of late why Because despite the current administration s weaponization of the currency the imposition of geopolitically inspired controls on dollar transactions such as sanctions on Russian oligarchs Iran North Korea and so on the dollar is being used more now than it was five years ago
True those most impacted like Russia have significantly reduced their reserve holdings of dollars and diversified into gold and other currencies According to the Financial Times Russia has reduced its holdings of dollars from 46 of the total foreign currency reserves to 22 and increased its holdings in gold
Russia one can understand but the surprise has been China
Today the renminbi is less international by three key measures than just before that 2015 meltdown the Financial Times explains At its peak more than four years ago the Chinese currency had become the fourth most widely used currency for cross border payments according to SWIFT the global financial messaging service
But for most of the past few years it has been in fifth place having fallen in larger monthly volumes year on year than other global currencies Similarly the Financial Times says yuan denominated trade accounted for 30 of total Chinese trade in 2014 but has since slipped to about half that level
Moreover offshore bond issuance denominated in renminbi is about half the roughly 900 billion level of 2014 according to JPMorgan
The only parties to kick the trend are central banks which as of the third quarter carried 1 8 of the world s reserves in renminbi according to IMF data But that was up only slightly from 1 1 when the Chinese currency was first included in the data at the end of 2016 and still pales to banks appetite for gold holdings of which are now at their highest level since 1971
Fortunes for the renminbi could be about to change though
Recently Chinese government bonds have become accepted into a widely used global index a move that could ultimately spur some 2 trillion of fund inflows into China s onshore debt market according to the Financial Times That signifies the country s debt market the world s third largest could in itself spur demand for renminbi
Even so China s aspiration for the renminbi to rank alongside the dollar still looks to be a long way off
No need to rush to the forex dealer with your greenbacks just yet
by Stuart Burns |
MS | Indonesia central bank confident on yields as it assesses rate path | By Gayatri Suroyo and Ed Davies
JAKARTA Reuters Indonesia s central bank governor said on Monday assessments of the domestic economy and global indicators would determine whether monetary policy needed to be tightened further after three rate increases in two months to defend the currency
In an interview Bank Indonesia BI Governor Perry Warjiyo said rate rises had made returns on assets in Southeast Asia s biggest economy more attractive noting that investors had started to re enter the government bond market
On June 29 BI raised its benchmark rate by 50 basis points to stem a sell off rattling emerging markets caused by factors ranging from rising U S interest rates to a brewing global trade war
Asked whether there was still room to raise Indonesia s rates Warjiyo said Well of course we will continue assessing the development of the domestic economy and global indicators to determine the policy
Warjiyo said that the current benchmark rate of 5 25 percent following 100 bps of increases so far this year assumed that the Federal Reserve would raise rates four times this year and three times in 2019
BI also assumed the yield on the U S Treasury notes would be 3 35 percent at the end of this year up from around 2 8 percent now
Outflows from Indonesia s government bond market continued in June for a third consecutive month though they declined from May Foreign ownership of government debt is around 38 percent
We are quite confident returns on Indonesia s financial assets especially government bonds are quite attractive competitive compared to other peer groups Warjiyo said
The yield on Indonesia s benchmark 10 year bond ID10YT RR hit 7 823 percent at the end of June the highest since January 2017 up from around 6 percent at the start of 2018 The yield closed at 7 499 percent on Monday
Indonesia is among the emerging markets vulnerable to capital outflows Foreign bond ownership is high and it runs a persistent current account deficits
We are addressing the issue of current account the need for import substitution as well as promoting tourism and how to continue to promote FDI foreign direct investment Warjiyo told Reuters
I think a series of policies will be issued in this juncture he said without elaborating
Indonesia s current account gap is expected to widen to more than 2 percent of GDP this year from 1 7 percent in 2017 BI has forecast
Indonesia s central bank has outpaced other vulnerable Asian markets such as the Philippines and India in its pace of rate increases to respond to capital outflows
The rupiah has lost about 5 percent of its value against the dollar so far this year
BI s foreign exchange reserves declined 12 2 billion in February through June partly from being used for currency intervention to 119 8 billion the lowest in 17 months
Analysts now appear divided over the outlook for Indonesia s benchmark rate DBS Bank on Monday said it expected another 50 bps increase this year Morgan Stanley NYSE MS sees no further change this year |
MS | Forward motion again for auto suppliers | Traders are showing some confidence in auto suppliers again as the latest trade tariff developments are digested An upgrade from Morgan Stanley NYSE MS on Delphi Technologies to Overweight from Equal Weight is also helping to swing sentiment around to the positive side Notable gainers include Delphi Technologies DLPH 5 7 Dana DAN 3 5 American Axle Manufacturing AXL 3 2 Meritor MTOR 3 7 BorgWarner BWA 2 5 and Allison Transmission Holdings ALSN 2 1 Overall 29 out of the 37 publicly traded auto supplier stocks with a market cap of over 50M are showing some sort of gain on the day Now read |
MS | MORGAN STANLEY The stock market is taking a major turn for the worse and it s bad news for tech stocks | Since June investors have shifted toward more defensive sectors like utilities equity strategists observed They ve been writing to clients this year about a drawn out bear market in equity valuations and how to prepare On Monday they said it s time to get more defensive and downgraded the tech sector to underweight with a list of reasons the sector may not be as rewarding to investors in the near term The stock market is at a turning point according to Morgan Stanley For many months the bank s equity strategists have written to clients about a forthcoming rotation toward defensive sectors which investors prefer during downturns They warned about a long drawn out marked by slower profit growth They as the best defensive sector as the broader stock market risked losses In a note Monday the firm s chief US equity strategist Mike Wilson said the market s turning point arrived in June Since June 18 defensive sectors like utilities and real estate have outperformed cyclical sectors like tech and financials Wilson also identified that two out of three conditions for a rotation to defensive sectors were happening and that investors were discounting them peaking S P 500 earnings growth on a year on year basis and a top in the 10 year Treasury yield The third would occur if the 10 year yield were to fall below the two year a so called yield curve inversion They took their defensive call into a higher gear by downgrading small caps to equal weight and tech stocks to underweight in a client note on Monday They also upgraded consumer staples and telecom stocks to equal weight We think it makes sense to lower broad tech exposure in the near term or at the very least hedge sector exposure aggressively into earnings season as elevated valuations lack of material earnings upside extended positioning technicals and trade related risks all add up to a poor risk reward for the sector in the near term Wilson said in a note on Monday Analysts project 25 for tech companies which will report second quarter results shortly Wilson however said there s not much room to meaningfully beat expectations This remarkable earnings forecast is already reflected in stock prices Wilson said Similarly the fundamentals that would drive the earnings growth are already priced in While not in bubble territory he added the price to earnings ratio for S P 500 tech companies is over two standard deviations above the postcrisis average Tech companies particularly hardware providers that source parts from all over the world have benefitted from global trade but are in the crosshairs of a trade war Wilson expects managements to address trade during earnings calls which could dampen their guidance and earnings growth On a technical note Wilson observed that fewer stocks were trading below their 200 day moving averages Given its exceptional growth and quality characteristics tech has been a holdout to date Wilson said However we suspect it will not be immune from the changing attitudes toward risk assets we are seeing across markets and think the sector may have benefitted from a false sense of security the past few months |
MS | Morgan Stanley s Pick promoted to head of institutional securities memo | By Lauren Tara LaCapra NEW YORK Reuters Morgan Stanley N MS has promoted Ted Pick to head of its trading and investment banking businesses the most recent elevation for an executive who has overseen several key initiatives at the Wall Street bank The move part of a broader executive shuffle that also moved Franck Petitgas from co head of investment banking to head of Morgan Stanley s international business was disclosed in an internal memo seen by Reuters on Tuesday Pick 49 started his career at Morgan Stanley in investment banking and later moved to trading He ran the bank s equities trading business which became a key money maker as it struggled in other businesses and then helped orchestrate a difficult overhaul of its fixed income operation which had weighed on results for years Chief Executive Officer James Gorman and President Colm Kelleher 61 who previously led the institutional securities business called the promotion a natural next step for Pick in the memo Pick s shift to a role that Kelleher has long overseen is important because it hints at succession planning at Morgan Stanley While there is no indication Gorman has plans to retire soon and though Kelleher is his deputy the process to find a next long term CEO can take years to cement Petitgas has also been mentioned as a potential successor among analysts former executives and others who closely follow Morgan Stanley In addition to Pick s elevation Susie Huang will become co head of investment banking alongside Mark Eichorn according to the memo Petitgas previously had that role Pick and Petitgas will report to Kelleher while Huang and Eichorn will report to Pick
In a separate memo Pick appointed Gokul Laroia David Russell and Alan Thomas as global co heads of Institutional Equities |
MS | Premarket analyst action healthcare | OncoCyte NYSEMKT OCX initiated with Buy rating and 7 103 upside price target at Benchmark Myriad Genetics NASDAQ MYGN upgraded to Overweight with a 55 45 upside price target at Morgan Stanley NYSE MS Shares up 4 premarket Jazz Pharmaceuticals NASDAQ JAZZ downgraded to Equal Weight with a 183 1 upside price target at Morgan Stanley Now read |
MS | Morgan Stanley manager steps down amid complaints against brokers | NEW YORK Reuters Morgan Stanley N MS said Wednesday that Robert Perry branch manager for the firm s Beverly Hills California wealth management office has left the firm Morgan Stanley spokeswoman Christine Jockle confirmed Perry left the firm but declined to comment further Perry did not respond to phone and email messages seeking comment Perry s departure comes after at least two sexual harassment lawsuits were filed against brokers who worked under him over the past year the wealth management news website AdvisorHub reported on Tuesday
Perry had been with the firm since 1993 when he joined Citigroup s global markets business a firm Morgan Stanley acquired in 2009 |
MS | Dollar near 1 1 2 week highs as U S price data eyed | By Saikat Chatterjee LONDON Reuters The dollar held at a nine day high on Thursday bolstered by concern U S inflation pressures will pick up although worries about an escalation in trade conflict capped gains The conventional wisdom is that any escalation in trade conflict between the United States and its trading partners will feed through to inflation and prompt the U S Federal Reserve to raise interest rates at least twice more this year But market watchers fear the dollar may have peaked for now With the stimulus effect from U S tax cuts expected to wane next year and worries that the trade war rhetoric may fuel a selloff in global stock markets some analysts advise caution in buying the dollar at these levels If stocks drop sharply then the Fed will pause and moreover we think the U S is toward the end of its rate hike cycle said Thu Lan Nguyen an FX analyst at Commerzbank DE CBKG in Frankfurt Having raised interest rates seven times since December 2015 to 2 percent markets expect three or four rate hikes by the end of 2019 But despite the widening interest rate differentials in favor of the dollar spreads between 10 year U S Treasuries and equivalent German Bunds are near 30 year highs at 2 59 percent the dollar has failed to power ahead in recent days notably against the euro Graphic World FX rates in 2018 Money managers at Russell Investments believe the risks of a U S recession are rising for late 2019 encouraging the dollar to hit a near term peak The dollar gained 0 3 percent to 112 29 yen after rising as much as 1 3 percent in U S trade on Wednesday breaching the 112 barrier for the first time since Jan 10 The dollar index against a basket of six major currencies DXY edged up toward a one week high of 94 769 reached overnight trading at 94 753 For now investors were looking U S consumer inflation data due at 1230 GMT for further clues on when and how fast the Fed will raise interest rates The biggest annual increase in 6 1 2 years in June U S producer prices thanks to gains in the cost of services and motor vehicles set the scene for an upside surprise in the consumer price index numbers The euro EUR EBS lacked momentum meanwhile trading at 1 1675 edging further off a 3 1 2 week high of 1 17905 touched on Monday Morgan Stanley NYSE MS strategists say the dollar may remain under pressure as the threat of protectionism rises Damage to the profit margins of U S companies could prompt global investors to shy away from U S assets
They estimate that foreigners own 30 percent of U S corporate debt and 15 percent of U S equities |
JPM | JPMorgan Hiring in Africa as More Firms Seek London Listings | Bloomberg JPMorgan Chase Co NYSE JPM is hiring in sub Saharan Africa as the New York based bank works with companies to list their shares in London despite Brexit uncertainty
There are fast growing businesses in Africa that s why we re able to get these IPOs underway said Barry Meyers managing director of JPMorgan s U K capital markets and sub Saharan Africa business declining to be specific on deals International investors are interested and more open to the African growth story than ever before
More offerings are expected over the next 12 months as African businesses seek to tap deeper pools of capital he said The increased interest comes amid a 3 5 billion share sale by Airtel Africa Ltd London s third largest IPO this year and follows a roadshow by officials from the London Stock Exchange earlier this year to spur more issuance
Interest is starting to spill over into South Africa where deal flow has been hindered by a contracting economy Talks with foreign investors are becoming more frequent in an environment of greater political stability Kevin Latter the head of JPMorgan s South African operations said in a separate interview in Johannesburg
There s a renewed interest in South African corporates because they are well run well managed cheap and have regional proximity to what s going to be the biggest consumer growth area in the next 20 years he said Yes growth is low but it s predictably low
JPMorgan has grown consistently in the past few years and now has 180 regional staff Latter said It will continue to invest in people as we look to grow our capabilities both in South Africa and more broadly in sub Saharan Africa
Our own strategy and how we are running our own business reinforces what we believe the landscape to be for other international and South African corporates Latter said |
JPM | Yield Hunters Lured by Junk Bonds Even as Defaults Pick Up | Bloomberg Investors are rushing to buy high yield bonds in Europe at a time when the number of issuers defaulting has reached the highest level since 2010
The 12 month notional weighted default rate could rise to 2 by year end compared with 0 6 a year ago according to analysts at JPMorgan Chase Co NYSE JPM Meanwhile high yield funds with a European focus have attracted inflows for five consecutive weeks totaling 2 7 billion euros 3 0 billion the analysts said citing the bank s own data
The search for yield will continue with high yield being a renewed hunting ground for investment grade buyers said Andrew Wilmont a senior investment manager at Pictet Asset Management SA in Geneva which manages 165 billion euros of assets They re on the lookout for better returns amid a growing negative yielding market
But the current rally across fixed income markets fueled by speculation that the European Central Bank is preparing another round of monetary stimulus may be masking a key risk in the high yield market the fragility of corporate balance sheets
Blow Ups
Amid the hunt for yield some portfolio managers are avoiding the riskiest categories of high yield bonds however given concerns about idiosyncratic risks valuations and liquidity
Investors have to keep owning the right names and with default rates rising it s a case of trying to avoid the blow ups said Azhar Hussain head of leveraged finance at Royal London Asset Management who manages 4 7 billion pounds of assets
Spread dispersion in Markit s iTraxx Crossover index is at an all time record indicating the current diversity of risks in high yield names and how selection is critical for portfolio performance Bloomberg Intelligence strategist Mahesh Bhimalingam wrote in a research note Tuesday
There s a huge bifurcation in the market right now with investors buying BB rated and good quality B rated names and not daring to touch weaker B rated and triple C deals with a barge pole Royal London s Hussain said
Yield Grab
A decade of easy monetary policy has pushed bond investors into riskier assets that yield enough to match their liabilities And with hints of more monetary stimulus to come investors predict it s only a matter of time before people turn their attention to what is yielding more
Value is being squeezed thanks to the inflows from investment grade accounts and we now expect investors to begin reaching down the quality curve for yield said Mark Benbow a fund manager at Kames Capital Plc People thought we were at the end of the cycle but Draghi is giving us a few more hours on the dance floor
The Edinburgh based fund manager said he has started buying CCC rated credits which are seven levels below investment grade after de risking earlier this year in a bid to boost his returns but added that the key is to stay credit selective
The next bet will be on CCC credit it will be a case of that looks reasonable Normally we know it s the final hour when CCCs let rip he said |
JPM | IMF Warns Rising Trade War Risk is Weighing on Global Economy | Bloomberg The International Monetary Fund said more work is needed to further reduce global trade imbalances amid increasing tensions while issuing a fresh warning that such conflicts are weighing on the global economy
It is imperative that all countries avoid policies that distort trade the IMF said in its annual External Sector Report released Wednesday in Washington Against a backdrop of escalating trade tensions greater urgency is needed in tackling persistent excess imbalances
The report comes as the Washington based fund confronts a surge in protectionism around the world that s seen dragging on global growth with output slowing in major economies from China to Europe and Mexico IMF leadership also is in flux with Managing Director Christine Lagarde set to succeed Mario Draghi as president of the European Central Bank
While the U S trade war with China has cooled with a recent truce and renewed talks the world s second largest economy has slowed amid President Donald Trump s tariffs China s government said this week that the economy eased to the weakest pace since quarterly data began in 1992 highlighting effects of the ongoing trade dispute with the U S
Countries should refrain from using tariffs to target bilateral trade balances as they are costly for global trade investment and growth and are generally not effective in reducing external imbalances the report said
World Imbalances
Overall current account balances declined marginally from the prior year to 3 of global gross domestic product in 2018 according to the report Net creditor positions have further increased to about 20 of global output which the fund called a historical peak that s four times higher than early 1990s levels
Higher than warranted balances are centered in the euro area driven by Germany and the Netherlands as well as other advanced economies such as South Korea and Singapore according to the IMF It said balances that are lower than warranted are still concentrated in the U S and U K along with some emerging economies such as Argentina and Indonesia
China s balance is in line with fundamentals as its current account surplus has narrowed further the IMF said while adding that a lasting external rebalancing requires further reforms and reining in expansionary economic policies
Trade risks are the number one risk to the global economy IMF s Chief Economist Gita Gopinath told Bloomberg Television in June De escalating those tensions would do a great deal of good for the global economy
Stimulus Ready
David Lipton the IMF s acting managing director on Tuesday urged central banks and other policy makers to be ready with more stimulus if a global economy that s already slowed by a trade war deteriorates All need to be ready in case there is a significant slowdown to respond much more forcefully Lipton said in a Bloomberg TV interview
The fund s report Wednesday called for reviving liberalization efforts and modernizing the multilateral rules based trading system to better capture e commerce and trade in services plus more enforceable World Trade Organization commitments through a well functioning WTO dispute settlement system
The IMF in April cut its outlook for global growth to the lowest since the financial crisis amid a bleaker outlook in most major advanced economies and signs that higher tariffs are weighing on trade The IMF forecast the world economy will grow 3 3 this year less than the 3 5 it had estimated in January It was third downgrade to the outlook in six months
Reports from major economies show trade tensions weighing on global manufacturing U K factory output is shrinking for the first time in almost three years while gauges for China and South Korea remain below the key 50 level The JPMorgan NYSE JPM Global Manufacturing PMI fell to 49 4 in June the weakest reading in data since mid 2016 |
JPM | Takeda kicks off sale of Western European drugs sources | By Arno Schuetze and Pamela Barbaglia
FRANKFURT LONDON Reuters Japan s Takeda Pharmaceutical Co T 4502 has reached out to prospective bidders for a portfolio of drugs for sale in western Europe as it seeks to trim its debt following the 59 billion purchase of Shire sources close to the matter told Reuters
Takeda is hoping to fetch around 1 5 billion euros 1 68 billion from the sale and has sent out information packages to interested parties the sources said
The drugs on the block include over the counter OTC and prescription medicines patents for most of which have run out meaning they can be copied by generic drug makers
The assets have combined earnings before interest tax depreciation and amortization EBITDA of about 160 million euros the sources said with OTC drugs accounting for about 40 million euros
Takeda is working with JPMorgan NYSE JPM to find a new owner and wants to receive indicative bids after the summer the sources said
Takeda and JPMorgan declined to comment
The sale comes amid a wave of multi billion dollar deals as drugmakers seek to buy other companies to combat expiring patents on their blockbuster medicines and renew their drug pipelines
While the acquisition of Shire gave Takeda global heft it also left it highly indebted with 5 7 trillion yen 52 73 billion of debt as of end March this year
Japan s biggest drugmaker said in January it would dispose of 10 billion worth of assets It subsequently sold its dry eye drug Xiidra to Novartis S NOVN for up to 5 3 billion
The group has pledged to focus on five key areas oncology gastroenterology neuroscience rare disease and plasma derived therapies which contribute about 75 of its total revenue while disposing of the rest
It is hoping to clinch a deal for its Western European drugs with either an industry player or a private equity firm the sources said adding the portfolio could also be split and offered to two sets of bidders
The OTC drugs are expected to draw interest from the likes of Germany s Stada D STAGn France s Zentiva and Italy s Recordati MI RECI the sources said
The remainder of the business may appeal to industry players who are seeking to expand their distribution channels and increase penetration of their own drugs they added
Another source said while there is no obvious buyer for the entire portfolio private equity funds with existing healthcare investments such as Cinven and Bain Capital who jointly back Stada and Asian players particularly Indian pharmaceutical companies are likely get involved as they want scale in Europe
Takeda is also in the process of divesting its Latin American assets which are valued at about 1 billion
The Latam sale is in the final stages with Brazilian pharmaceutical firm EMS seen as the frontrunner the sources said
Reckitt Benckiser L RB and Uruguay s Megalabs have been shortlisted along with EMS to submit binding offers for the Latam portfolio but are less likely to win they said
EMS Reckitt and Megalabs declined to comment |
JPM | Jamie Dimon Says Libra Does Not Pose a Threat in Short Term | Jamie Dimon CEO of global financial services firm JPMorgan Chase NYSE JPM argued that Facebook s cryptocurrency project Libra does not pose a threat in the foreseeable future
As reported by CNBC Dimon delivered his comments during a conference call with analysts on Tuesday July 16 Dimon said that he would not spend too much time on Libra specifying that to put it in perspective we have been talking about blockchain for seven years and very little has happened We are going to be talking about Libra three years from now |
MS | Loonie Undecided After Rate Hike While Dollar Rebounds | Here are the latest developments in global markets FOREX The US dollar index continued to recover on Thursday trading nearly 0 4 higher and extending the gains it posted on Wednesday on the back of rising US treasury yields STOCKS Asian markets were mixed Japan s Nikkei 225 and Topix indices fell by 0 4 and 0 7 respectively while Hong Kong s Hang Seng index was up 0 4 In Europe futures tracking the Euro Stoxx 50 are in positive territory suggesting the index could open higher Over in the US the three major equity indices the Dow Jones S P 500 and NASDAQ Composite all closed in the green Specifically the Dow advanced an astonishing 1 25 and closed above the milestone of 26000 at a fresh record high Meanwhile the S P and Nasdaq closed just shy of their all time highs Futures tracking the Dow S P and NASDAQ 100 are all currently in the green albeit marginally COMMODITIES In energy markets both WTI and Brent crude prices drifted slightly lower during the Asian session Thursday Despite pulling back somewhat WTI and Brent are still hovering near multi year highs supported by a broadly weak US dollar despite the rise over the last couple of days declining US inventories risks of supply disruptions in Nigeria and expectations that major oil producers could extend their current output cut deal again In this respect Russian Energy minister Alexander Novak said yesterday that the oil market is not balanced yet helping to calm the nerves of those speculating that the OPEC led supply cuts may be unwound this year In precious metals gold edged 0 1 lower after declining yesterday as well
Major movers BoC hikes rates dollar rises alongside yields ECB jawbones the euro
The Bank of Canada BoC hiked its benchmark interest rate by a quarter point yesterday to 1 25 as was widely anticipated The accompanying statement maintained a relatively cautious tone on further rate hikes indicating that NAFTA uncertainties are weighing increasingly on the outlook and that even though wages have picked up they are rising by less than would be typical in this environment The key message from the BoC was that despite hiking now any future rate adjustments will likely depend on the evolution of incoming data and how the NAFTA negotiations play out Interestingly enough market pricing continues to suggest the Bank will hike two more times this year with the next rate increase being fully priced in by May according to Canada s overnight index swaps The loonie plunged initially on the decision as this was interpreted as a dovish hike but recovered its losses almost instantly to trade more or less unchanged against the dollar in the following hours
The dollar index which measures the greenback s performance against a basket of six major currencies was up nearly 0 4 today extending the gains it posted on Wednesday With no clear fundamental catalyst behind the dollar s recovery the move is being attributed to the spike higher in US Treasury yields yesterday Higher bond yields are usually positive for a currency as bonds become more attractive to hold for investors seeking a higher return
Elsewhere sterling surged yesterday amid heightened optimism that the EU and the UK will agree on a transitional Brexit deal soon perhaps by the end of the month
Meanwhile the euro tumbled somewhat on Wednesday after key ECB members voiced their discomfort with the currency s recent appreciation ECB Vice President Vitor Constancio said that he is concerned about sudden exchange rate movements which do not reflect fundamentals while Governing Council member Ewald Nowotny noted that a strengthening euro is not helpful These remarks may have served as a reminder that the ECB is unlikely to sit idle and allow the euro to appreciate rapidly as that could make it more difficult for inflation to return to its target in a sustainable manner
Day ahead US data on housing and jobless claims as earnings season continues
Some releases out of the US could spur positioning on the dollar during Thursday s trading the number of housing starts and building permits for the month of December will be made public at 1330 GMT in November they stood at a more than a decade high and it will be interesting to see if momentum is maintained It should be said that weather conditions in the US in late 2017 are expected to have played a role weighing on the number of housing starts At the same time weekly data on initial and continued jobless claims will be released Individuals applying for unemployment benefits for the first time are expected to fall to 250k from the previous week s 261k which was a more than a three month high and marked the fourth consecutive week of rises though the number was still below the 300k mark that is linked to a robust jobs market The Philly Fed s Business index is also scheduled for release at 1330 GMT
Canada will see the release of the ADP nonfarm employment change report at 1330 GMT This is not typically a market mover though
Cleveland Fed President Loretta Mester an FOMC voting member in 2018 will be speaking on monetary policy at 2305 GMT
Oil prices could see some volatility when the Energy Information Administration releases its report including information on US crude stocks for the week ending January 12 at 1600 GMT Crude inventories are forecast to decline by around 3 6 million barrels registering their ninth straight weekly decline This compares to a fall by around 4 9m barrels in the week that preceded
In stock markets the earnings season continues with Morgan Stanley NYSE MS being among US companies releasing results today
Technical Analysis WTI oil futures trade close to 3 year highs bearish signal by stochastics in very short term
WTI oil futures for February delivery continue to trade not far below 64 86 the highest since late December 2014 hit on Monday The Tenkan and Kijun sen lines remain positively aligned suggesting that the bullish bias in the short term is still in place Notice though that the Kijun sen has flatlined this perhaps being an indication that positive momentum is losing steam Also looking at the stochastics the K line has crossed below the slow D line with both lines heading lower This is a bearish signal in the very short term
Should the EIA s report show a larger than forecasted drawdown in crude stockpiles oil prices could head higher In this case immediate resistance could come around Monday s high of 64 86
On the other hand a smaller than anticipated decline in crude inventories or a rise of course is expected to weaken prices In this scenario the range around the Tenkan sen at 63 09 would be eyed as potential support |
MS | Bitcoin Price Forecast What Is The Future Of The Cryptocurrency | Any Bitcoin price forecast has been fraught with uncertainty as the meteoric rise and fall of the cryptocurrency platform has made media headlines all over the world There are hugely differing opinions on the future direction of Bitcoin with some suggesting that the digital payment platform has massive upside potential and others believing that Bitcoin does not represent a store of value and will decline much further yet
Bitcoin future
However even the harshest critics of the cryptocurrency have generally accepted that Bitcoin will remain part of the financial architecture for years to come One financial expert who is bearish on Bitcoin Peter Boockvar concedes that the embryonic currency will be around for a long time but predicts that it will decline in value significantly
Boockvar of Bleakley Advisory Group CIO suggests that the price could diminish so dramatically that Bitcoin is worth around 1 000 in the near future with even with the optimistic estimate of the analyst being 3 000 per unit Some have even suggested that the imminent collapse of Bitcoin will endanger the entire financial system but Boockvar is sceptical about this possibility
I think we have to look at it more broadly in the sense that the central bank bubble manifested itself in many different places and just recently cryptocurrencies So cryptocurrencies roll over and collapse then maybe that s a sign that the risk taking attitude of investors is changing Maybe that s because of monetary tightening that intensifying this year I don t see it having a major impact if the price of Bitcoin continues to decline the analyst told CNBC
Bullish aspects
However not everyone is bearish on Bitcoin The fact that Bitcoin futures are now part of the financial architecture is considered by many to be a major upside for the cryptocurrency in the foreseeable future This has led some to make an optimistic Bitcoin price forecast particularly as Morgan Stanley has now announced its intention of clearing Bitcoin futures for its clients Morgan Stanley NYSE MS joins Goldman Sachs TD Ameritrade E Trade and others in clearing CME and Cboe in satisfying Bitcoin futures
It is this relative acceptance by the mainstream financial establishment that has led many to be positive on Bitcoin price forecast This is despite the fact that the creation of regulated Bitcoin futures has not been universally acclaimed by the Bitcoin community Nonetheless the involvement of more firms clearly adds legitimacy to the fledgeling digital currency
One positive Bitcoin price forecast related to this comes from Coinbase CEO Brian Armstrong who suggests that institutional investors will rapidly sink 10 billion into Bitcoin as a result of the futures market This should have a positive impact on the value of the cryptocurrency and could lead to another breakout performance from Bitcoin in 2018 even though its value has already declined around 40 percent
Scathing Bitcoin price forecast
Nonetheless the fall in the value of Bitcoin in the early weeks of 2018 has undoubtedly spooked some investors This led to one particularly scathing Bitcoin price forecast from Jeffrey Robinson The author likened investing in Bitcoin to gambling although it should be noted that Robinson has been a vocal critic of the cryptocurrency
It s a bubble It s a loaded roulette wheel You re better off in Vegas The food is better Robinson facetiously asserted
Robinson blamed media hype for the dangerous bubble that Bitcoin is in currently
I blame the media for bringing on these snake oil salesmen who tell you what a great investment it is It s not an investment It s not a currency
There are also further factors which are bearish for any Bitcoin price forecast over the next few years Firstly financial watchdogs in Europe are passing significant legislation which will impact on Bitcoin and indeed the entire cryptocurrency niche This follows on in the back of similar regulations in East Asia which have already begun to impact on the price of Bitcoin
Secondly the incredibly rapid escalation in the value of Bitcoin over has obviously led some people to claim with seeming legitimacy that Bitcoin is in a bubble It is worth remembering that at the beginning of 2017 Bitcoin was worth only 1 000 per unit and is currently trading at over 11 000 And this follows a quite significant correction in the Bitcoin price
With regard to the first of these factors major countries in Europe are now pushing for explicit Bitcoin legislation French Finance Minister Bruno Le Maire stated that France wishes to avoid the risks of speculation or possible financial traffics linked to Bitcoin
And the European Commission has backed this proposal with Valdis Dombrovskis the Commission vice president responsible for financial services writing to the three financial watchdogs employed in the European Union warning know about a possible bubble in the cryptocurrency Dombrovskis also asked asked for the regulatory framework related to such products to be reviewed citing clear risks for investors and consumers associated to price volatility
Positive signs
In such a climate it is difficult to make a bullish Bitcoin price forecast But many are still positive on the future of the cryptocurrency particularly considering that there will only ever be a finite number of Bitcoins mined Once twenty one million Bitcoins are in circulation the cryptocurrency will only be used as a unit of exchange and this has led advocates of the cryptocurrency to make the positive Bitcoin price forecast will inevitably head northwards despite recent corrections
The future of Bitcoin is certainly shrouded in doubt and the innovative and revolutionary nature of the cryptocurrency is bound to bring scepticism among both the authorities and traditional investors There is also a good deal of ire among those who have missed the spectacular investment opportunity that the early phases of Bitcoin represent with the value of the cryptocurrency having increased literally tens of thousands of fold from its launch price
One Bitcoin price forecast that can be made with confidence is that this most spectacular investment opportunity will continue to make headlines for the foreseeable future |
JPM | 5 Best Commodity ETFs Of Q1 | Broad commodities bounced back strongly after a weak fourth quarter driven by tightening supply and optimism over demand Additionally Fed s dovish stance which has kept U S dollar under pressure added to the strength A weak dollar makes dollar denominated assets attractive for foreign investors raising the appeal for commodities Further the prospect of U S China trade deal as well as stimulus in Chinese economy lent strong support amid global growth slowdown worries Given the bullishness the Bloomberg Commodity Index of 23 raw materials rose more than 6 marking the best quarter in almost three years read In particular oil price made a nice comeback on OPEC led fresh crude output cuts and falling output from Iran and Venezuela due to U S sanctions Industrial metals like nickel and copper also saw smooth trading given the hopes of a trade deal as well as recovering growth in the world s second biggest economy that will boost demand Notably China is the top consumer of raw materials Further falling stockpiles and the outlook for production deficits in some metals led to the rally in prices with an index of metals traded in London posting its first quarterly gain since the end of 2017 In the precious metal space palladium saw a strong run up in its prices prompted by a global shift from diesel to gasoline and hybrid vehicles that has led to higher demand for the metal and resulted in the speculation of supply deficit Gold often acts as a store of value and hedge against market turmoil amid still unresolved trade tensions Brexit concerns as well as global slowdown worries Coming to soft commodities sugar has been leading the way higher with the global market swinging into deficit in the 2019 20 season Additionally reports of a drop in sugar output in India added to the strength Given this we have highlighted five best performing commodity ETFs of Q1 from these outperforming areas that will continue to trend higher if the favorable factors persist United States Oil Fund NYSE USO This is the most popular and liquid ETF in the oil space with AUM of 1 5 billion and average daily volume of more than 28 4 million shares The fund seeks to match the performance of the spot price of West Texas Intermediate WTI or U S crude The ETF has 0 76 in expense ratio and has gained more than 32 in the first quarter read United States Gasoline ETF This ETF provides investors with exposure to front month gasoline futures tracking RBOB gasoline for delivery to the New York harbor which is traded on NYMEX The ETF trades in average daily trading volume of about 36 000 suggesting that investors have to pay extra beyond the annual fee of 75 bps per year The fund has managed assets of 41 3 million and has gained nearly 29 in the first quarter iPath Bloomberg Nickel Subindex Total Return ETN The note tracks the he Bloomberg Nickel Subindex Total Return which provides returns through one futures contract on nickel The product is unpopular and illiquid with AUM of just 8 1 million and average daily volume of around 1 000 shares Expense ratio came in at 0 75 JJN has a Zacks ETF Rank 3 Hold with a High risk outlook Aberdeen Standard Physical Palladium Shares ETF The fund seeks to match the price of palladium It owns palladium bullion in plate or ingots kept in Zurich or London under the custody of JPMorgan Chase NYSE JPM Bank The product has amassed 230 1 million in its asset base and trades in lower volume of about 33 000 shares a day It charges 60 bps in annual fees and has gained about 13 last quarter The fund has a Zacks ETF Rank 5 Strong Sell with a High risk outlook read United States Copper Index Fund This fund seeks to track the performance of the SummerHaven Copper Index Total Return plus interest income from CPER s holdings The index provides investors exposure to front month copper futures contract traded on the NYSE Arca The product has accumulated 230 1 million in its asset base and charges 80 bps in annual fees It trades in light volume of 13 000 shares a day and has a Zacks ETF Rank 3 with a High risk outlook 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 |
JPM | Stock Buybacks Worst Mistake Ever | A lot s driving this bubble we ve been in since 2009 but good fundamental trends and things like demographics and technology are not among them
The biggest inflator has been the 13 trillion worth of quantitative easing QE courtesy of central banks Thanks to their significant gift to all but retail investors like you and me speculation has become the norm
With higher cash flow and cheaper borrowing rates all in a slow growth economy companies quickly learned that the best way to increase their earnings per share EPS was to shrink the number of shares available
Just look at this
In 2018 Trump added the massive tax cuts to the stimulus plan That created even more direct cash flow to corporations who responded with record stock buy backs of 806 billion last year which was a 56 increase over 2017 JPMorgan NYSE JPM expects we ll see about as many buybacks this year The 2019 number is an estimate Regardless it s insanity
Since 2009 corporations have done more than 90 of net buying in the stock market As The New York Times accurately describes it This stock market rally has everything except individual investors
Institutional buyers aka the smarter money have been net sellers
Individual investors you and me have been neutral while foreign buyers have been only slightly involved in stock purchases
Rather the dizzying gains the U S stock market has enjoyed are a result of 5 6 trillion worth of stock buybacks over the last decade
That s an average of 500 billion per year It s no wonder democratic politicians like Senator Tammy Baldwin have introduced a bill to ban open market stock buybacks Senators Bernie Sanders and Chuck Schumer are on this bandwagon as well as Rodney has mentioned before
The Stark Disconnection Between Markets And The Economy
All this while U S GDP between 2007 and 2018 only reached a cumulative 19 That s lower than GDP during the Great Depression which came in at 20 cumulatively between 1929 and 1940
The financial asset bubble is in fact even greater than the one we enjoyed in the 1990s when the internet was moving mainstream on an S Curve as we predicted and the Baby Boom spending cycle was at its strongest as we also predicted
It all just goes to show that this 21st century market bubble is built on nothing but B S And it s risen so high on all the resultant methane that the inevitable crash will be mind numbingly devastating
Imagine the nightmare the CEOs CFOs and boards of executives stockholders of these companies face when they realize that they soaked up more than 40 of their cash buying back their own stocks at the highest prices and valuations in history
What the hell are they going to do when they desperately need that cash to survive the greatest economic shakeout since the 1930s
They re not going to be laughing all the way to the bank They ll be crying many crawling on their hands and knees
And their shareholders are going to be pissed
Who s the dumb money now It s not the shoe shine boys and housewives
While this bubble experiences it s last hurrah in an extreme blow off rally into the end of this year make sure you re taking advantage of the Dark Window opportunities We re in the final stretch of this low growth stimulus driven something for nothing gravy train ride |
MS | UK economy picks up speed raising chance of rate rise | By David Milliken LONDON Reuters Britain s large services industry grew last month at its fastest rate since October a survey showed on Wednesday prompting investors to increase bets that the Bank of England will raise interest rates next month After a weak first four months of 2018 the IHS Markit CIPS services Purchasing Managers Index PMI rose to 55 1 in June easily beating economists average forecasts in a Reuters poll of 54 0 unchanged from May s reading June surveys this week for the smaller manufacturing and construction sectors also beat expectations Taken together the three PMIs point to overall economic growth of 0 4 percent in the second quarter double the pace of the first IHS Markit said Sterling rallied and British government bond yields rose as financial markets priced in a greater chance that the Bank of England will raise interest rates to 0 75 percent from the 0 5 percent they have stood at for most of the past decade In May the BoE postponed a widely expected rate hike after the economy slowed more than forecast in the three months to March due in part to unusually harsh winter weather High inflation and continuing deep uncertainty about the terms Britain s departure from the European Union in March 2019 have acted as underlying drags on growth The central bank also said in May that in the event of a recovery rates were likely to rise for only the second time in more than a decade as part of a gradual move away from the emergency stimulus program it rolled out during the financial crisis These PMIs the last before the Monetary Policy Committee finalize their August 2 decision are consistent with a robust second quarter rebound and keep our call for an August hike on track Morgan Stanley NYSE MS economist Jacob Nell said SPEND WHILE THE SUN SHINES Last month BoE chief economist Andy Haldane joined two other members of the BoE s nine strong Monetary Policy Committee in calling for a rate rise and data was revised to show the first quarter slowdown was less severe than first thought The BoE has forecast 0 4 percent GDP growth for the second quarter and also expects inflation to pick up in the coming months due to higher oil prices Wednesday s survey backed up the BoE s view showing service firms contending with higher wage and fuel costs and overall input costs rising at the fastest pace since September 2017 New business flowed in at the fastest rate in just over a year with firms registering a boost to consumer spending from unusually warm weather But expectations among businesses for the next 12 months during which Britain is due to leave the EU were below their average for the years since the financial crisis with Brexit related uncertainty to blame IHS Markit said Britain cannot yet count on a transitional EU trade deal for the period immediately after Brexit which means firms cannot rule out border disruptions after March Such a divergence between current and expected future activity stokes worries that the upturn is being fueled by short term spending and likely masks a lack of longer term business investment IHS Markit economist Chris Williamson said
Euro zone PMI data on Wednesday showed businesses in the bloc at their gloomiest since late 2016 despite activity growing at its fastest in four months reflecting concerns about a possible trade war with the United States |
MS | Mexico Stocks Rally as Capital Returns Post AMLO Election | Bloomberg Money is pouring into Mexico prompting hard hit stocks to rally
Mexican assets had been under pressure in the run up to Sunday s presidential election They ve been rebounding as President elect Andres Manuel Lopez Obrador known as AMLO sought to ease investors concerns after he won more than half the vote
Among the stocks that most benefited are those that saw sharp drops earlier in the year and look attractive for returning funds Actinver SA analyst Enrique Mendoza said
Low cost airline Controladora Vuela Cia de Aviacion or Volaris saw shares fall the most in April since 2016 they are now up 15 percent over the past five days Micro lender Gentera SAB which in March fell to a five year low rose 12 percent this week Banco Santander MC SAN Mexico SA and Grupo Lala SAB increased 9 5 percent and 6 6 percent respectively
Capital is returning to the stock exchange and it s picking names that had been too castigated Mendoza said in an interview Gentera had been crashing and stabilized in the past few months making for a very low valuation
Earlier in the week Mexican stocks were raised to overweight at Morgan Stanley NYSE MS from equal weight as they look attractive in absolute and relative terms The Mexican economy continues to expand at a moderate pace and the outlook for corporate earnings growth in 2018 2019 remains strong analysts wrote in a note
Volaris has also benefited from signs of strong demand The company reported a 14 percent year over year increase in passenger traffic in June
The S P BMV ICP benchmark index has gained 3 percent this week It now trades at 15 9 times 12 month forward price to earnings versus an average of 17 8 times for the last five years according to data compiled by Bloomberg |
MS | As Tariffs Kick In Bond Traders Only See Fuel for the Rally | Bloomberg Treasury yields are slipping further away from the pivotal 3 percent level and an escalating trade war between the U S and China has traders bracing for the world s biggest bond market to keep rallying
A four week advance in 10 year notes the longest of 2018 has driven yields down to 2 82 percent from an almost seven year high of 3 13 percent in mid May Amid a tit for tat tariff standoff investors may still look to government debt as a haven in the days ahead as they assess the economic ripple effects of the levies and hedge against the risk that the protectionist measures will roil markets
For Columbia Threadneedle Investments and Morgan Stanley NYSE MS this week could bring a test of 2 75 percent for 10 year yields the low for the past three months set in late May Barring a spike higher in U S consumer prices in data to be released Thursday Treasuries are poised to draw buyers according to Columbia Threadneedle money manager Gene Tannuzzo
At some point cooler heads will prevail but that doesn t seem to be the direction said Tannuzzo who helps oversee 4 3 billion If you want a market that can actually provide you some insurance some ability to go lower in yields then Treasuries are the best risk reward safe haven there
Ten year yields dropped as low as 2 8053 percent last week even as the U S is set to sell 22 billion of the maturity on July 11 The yield curve continued to push flatter The spread between 2 and 10 year maturities briefly fell below 27 basis points the smallest since 2007 after U S levies took effect Friday and China retaliated
More to Come
And there may be more tariffs ahead President Donald Trump has threatened to apply them to additional Chinese goods although much of the tension may already be baked into prices Bond bulls may also face a potential hurdle this week in the release of June s consumer price figures
Inflation is projected to rise 2 9 percent from a year earlier the quickest pace since 2012 However should Thursday s reading show a significant leap above expectations that could boost yields and possibly even disrupt the flattening trend if it has investors betting the Fed isn t moving aggressively enough said Morgan Stanley s Matthew Hornbach
However that s not his base case Morgan Stanley sees inflation rising by 0 2 percent on a monthly basis in line with the consensus which means expectations for Fed tightening should remain steady he said That will leave markets to focus on trade concerns which should set 10 year yields up for a test of 2 75 percent Hornbach said
This week s data will come too soon to capture the impact of tariffs but inflation readings will become incrementally more important as a measure of their economic effect according to Tannuzzo Though tariffs may initially produce inflationary pressures the duties could also start to dent growth in the U S and abroad he said
I worry about trade because if you start to see deceleration in the U S it starts to put some cracks in the foundation of growth globally he said
What to Watch This Week
On the geopolitical front Trump heads to the NATO Summit in Brussels and then plans to visit the U K to meet with Prime Minister Theresa May
The Fed releases its semi annual monetary policy report to Congress on July 13
A handful of Fed officials are on the calendar
July 11 New York Fed s John Williams speaks in New York
July 12 Minneapolis Fed s Neel Kashkari speaks in Minnesota Philadelphia Fed s Patrick Harker speaks in Idaho
July 13 Atlanta Fed s Raphael Bostic in Virginia
The latest read on CPI is the highlight for U S economic indicators
July 9 Consumer credit
July 10 NFIB small business optimism Jolts job openings
July 11 MBA mortgage applications producer price indexes wholesale inventories
July 12 Consumer price indexes initial jobless claims Bloomberg consumer comfort Treasury s monthly budget statement
July 13 Import export price indexes University of Michigan survey |
MS | Rescuers race to find survivors after Japan floods kill at least 114 | By Kiyoshi Takenaka and Issei Kato KURASHIKI Japan Reuters Rescuers in Japan dug through mud and rubble on Monday racing to find survivors after torrential rain unleashed floods and landslides that killed at least 114 people with dozens missing Prime Minister Shinzo Abe canceled an overseas trip to deal with Japan s worst flood disaster since 1983 with several million people forced from their homes Officials said the overall economic impact was not clear Rain tapered off across the western region on Monday to reveal blue skies and a scorching sun that pushed temperatures well above 30 Celsius 86 Fahrenheit fuelling fears of heat stroke in areas cut off from power or water We cannot take baths the toilet doesn t work and our food stockpile is running low said Yumeko Matsui whose home in the city of Mihara in Hiroshima prefecture has been without water since Saturday Bottled water and bottled tea are all gone from convenience stores and other shops the 23 year old nursery school worker said at an emergency water supply station Some 11 200 households had no electricity power companies said on Monday while hundreds of thousands had no water The death toll reached at least 114 NHK public television said with 61 people missing Though the persistent rain had ended officials warned of sudden showers and thunderstorms as well as of more landslides on steep mountainsides saturated over the weekend Chief Cabinet Secretary Yoshihide Suga said Prime Minister Abe had canceled his trip to Belgium France Saudi Arabia and Egypt because of the disaster He had been due to leave on Wednesday Industry operations have also been hit with Mazda Motor Corp saying it was forced to close its head office in Hiroshima on Monday The automaker which suspended operations at several plants last week said the halt would continue at two plants until Tuesday because it could not receive components although both units were undamaged Daihatsu which suspended production on Friday at up to four plants said they would run the second evening shift on Monday Electronics maker Panasonic said operations at one plant remained suspended after the first floor was flooded GRIM RECOVERY Refineries and oil terminals were not affected but blockages in roads leading to one Showa Shell LON RDSa oil terminal in Hiroshima caused gas and diesel shortages nearby Shares in some companies fell but losses were modest with Mazda even gaining as investors bet damage was limited If the rainfall affects supply chains there will be selling of the affected stocks said Norihiro Fujito chief investment strategist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities Otherwise the impact will be limited Elsewhere people soldiered on with a grim recovery The floodwaters slowly receded in Kurashiki city s Mabi district one of the hardest hit areas leaving a thick coat of brown mud and cars turned over or half submerged as residents returned to tackle the mess I ve never experienced anything like this is my life and I ve lived for more than 70 years said Hitoko Asano 71 The washing machine refrigerator microwave toaster PC they re all destroyed she said as she cleaned her two story house Clothes in the drawers were all damaged by muddy water we won t even bother to wash them I can t help wondering how much it ll cost to repair this At one landslide in Hiroshima shattered piles of lumber marked the sites of former homes television images showed Other homes had been tossed upside down Although evacuation orders were scaled sharply back from the weekend some 1 7 million people still face orders or advice to keep away from homes fire and disaster officials said The economic impact was being assessed I m worried there could be a significant impact on production consumption and tourism Toshiro Miyashita Bank of Japan s Fukuoka branch manager who oversees Kyushu region told a news conference
Japan monitors weather conditions and issues warnings early but its dense population means every bit of usable land is built on in the mostly mountainous country leaving it prone to disasters |
MS | Morgan Stanley tells clients to cut tech exposure | via Notable CallsCiting elevated valuations lack of material earnings upside extended positioning technicals and trade related risks the team at Morgan Stanley NYSE MS cuts technology to Underweight As for the S P 500 they re way more constructive figuring the index could move to 2 800 2 825 from the current 2 760 in the very near term on the back of a Goldilocks economic scenario Broad tech ETFs XLK VGT TECL FTEC IYW ROM QTEC RYT FNG TECS IGM FXL XNTK REW JHMT XITK TCHF TECZNow read |
JPM | JPMorgan Earnings Revenue Beat in Q2 | Investing com JPMorgan NYSE JPM reported second quarter earnings that beat analysts expectations on Tuesday and revenue that topped forecasts
The firm reported earnings per share of 2 82 on revenue of 29 57B Analysts polled by Investing com forecast EPS of 2 51 on revenue of 28 84B That compared to EPS of 2 29 on revenue of 28 39B in the same period a year earlier The company had reported EPS of 2 65 on revenue of 29 85B in the previous quarter
JPMorgan follows other major Financial sector earnings this month
On Monday Citigroup reported second quarter EPS of 1 95 on revenue of 18 76B compared to forecasts of EPS of 1 81 on revenue of 18 51B
Commerce Bancshares earnings beat analysts expectations on Tuesday with second quarter EPS of 0 96 on revenue of 338 9M Investing com analysts expected EPS of 0 94 on revenue of 339 13M
Stay up to date on all of the upcoming earnings reports by visiting Investing com s earnings calendar |
JPM | JPMorgan Bond Trading Revenue Outlook Suffer From Fed Reversal | Bloomberg JPMorgan Chase Co NYSE JPM was hit by the Federal Reserve s about face on interest rates in the second quarter posting its fourth straight decline in fixed income trading revenue and warning that lending income will fall in the second half
The largest U S bank on Tuesday reported a drop in bond trading and cut its full year outlook for net interest income revenue from customers loan payments minus what the bank pays depositors by 500 million NII accounted for about half the New York based company s revenue last year
Less revenue from loans is a problem for JPMorgan which has been leaning on its traditional lending business to weather four back to back quarters of declining revenue from trading stocks and bonds Fed Chairman Jerome Powell last week opened the door to a July cut in interest rates stressing a cooling global economy and trade friction It s a reversal from the start of the year when investors were betting the Fed would boost interest rates
JPMorgan notched the highest profit in U S banking history in 2018 with 32 5 billion spurred in part by rising interest rates and the Trump administration s corporate tax cuts The bank now sees net interest income at 57 5 billion this year after saying in April it could increase to more than 58 billion
Shares of the company which climbed 17 this year through Monday fell 1 5 at 7 10 a m in early New York trading
Citigroup Inc NYSE C on Monday said net interest revenue increased 2 in the second quarter which was roughly in line with analysts average estimate The bank left its full year growth outlook for the figure unchanged at 4
JPMorgan s revenue from stock and bond trading slipped 6 in the second quarter excluding a one time gain related to the initial public offering of Tradeweb Markets Inc Analysts had expected a 5 drop Investment banking fees fell 9 to 1 8 billion
Revenue from the corporate and investment bank slipped 3 from last year s record to 9 6 billion as market uncertainty drove investors to the sidelines and damped corporate sentiment
Non interest expense rose by 2 to 16 3 in the quarter less than the average analysts estimate of 16 4 billion The bank said in February adjusted expenses for the full year would rise to less than 66 billion from about 63 billion last year
JPMorgan has been ramping up spending as it expands its consumer bank into new states for the first time in more than a decade uses technology to transform how its corporate and investment bank does business and constructs a new headquarters in New York |
JPM | JPMorgan beats profit estimates but shows signs of pressure | By Elizabeth Dilts and David Henry
Reuters JPMorgan Chase Co N JPM reported a quarterly profit that beat estimates on Tuesday as higher interest income and consumer lending offset lower activity at its trading desks
But even as the biggest U S bank reported record earnings there were warning signs across Wall Street that the playing field is beginning to tilt against the financial industry
Like Citigroup N C on Monday and Wells Fargo Co N WFC on Tuesday JPMorgan reported its net interest margin declined to 2 49 from 2 57 a year ago as deposit rates and the rate the bank pays for other borrowings both rose
JPMorgan also lowered its outlook for net interest income to about 57 5 billion in 2019 from the 58 billion to 60 billion projection executives gave in February
While Chief Executive Officer Jamie Dimon maintained a bullish outlook about the U S economy as a whole he conceded that uncertainties relating to global trade which tend to impact trading volumes were a drag
The consumer in the United States is doing fine Dimon said on a conference call Business sentiment is a little bit worse mostly driven by the trade war But I wouldn t get too pessimistic
Average loans rose 2 driven largely by JPMorgan s consumer bank Chase which reported credit card loans were up 2 and credit card sales surged 11 The cost of handling that credit was flat
Overall income from the consumer and community banking JPMorgan s largest business rose 22 to 4 17 billion which offset declines across other businesses
Total net interest income the difference between what banks pay on deposits and earn on loans rose 7 to 14 40 billion
Net income climbed 16 to 9 65 billion as a tax gain and higher net interest income overshadowed lower activity on its trading desks Excluding the tax gain it earned 2 59 per share Net revenue rose 4 to 29 57 billion
Return on tangible common equity a key profit measure for how well it uses shareholder money rose to 20 up from 19 in the first quarter and higher than the bank s 17 target
Analysts were expecting earnings of 2 50 per share on revenue of 28 90 billion according to IBES data from Refinitiv |
MS | India ETFs In Focus As Retail Inflation Touches 17 Year High | India s retail inflation touched a 17 year high in December owing to rising food and crude prices Moreover lower base effect also contributed to the gains in consumer prices Inflation has quickened because of a low base effect Richa Gupta economist at Deloitte India told Livemint
Into the Headlines
Consumer prices grew 5 21 year over year in December compared with 4 88 in November and above the central bank s 4 target per the Ministry of Statistics The primary driver for retail inflation was food prices Consumer food prices grew 4 96 year over year in December compared with 4 42 in the prior month Moreover housing inflation also increased to 8 25 in December compared with 7 36 in the prior month
Adding to the agony oil prices gained and Brent crossed the 70 mark for the first time in three years owing to falling U S stockpiles and geopolitical risks This poses serious worries to prime minister Narendra Modi ahead of the last full year budget of his current term on Feb 1
The Reserve Bank of India RBI maintained status quo on interest rates in its last monetary policy meeting in December 2017 However analysts are expecting that any further changes in the status of the economy and factors driving prices might lead the RBI to change its monetary policy stance and adopt a hawkish tone
Economic Scenario
Coming to the economic data points India s GDP grew 6 3 year over year in the July September quarter of 2017 compared with a three year low of 5 7 in the previous quarter However Morgan Stanley NYSE MS is very optimistic on the Indian economy going forward as it published a new research report stating that the Indian economy is expected to grow an average 7 3 between 2020 and 2022
Given that the union budget is scheduled on Feb 1 investors this time are expecting a populist budget Modi s state election victories in 2017 were mostly driven by urban voter population India is one of the fastest growing economies in the world and the growth is benefiting people in different sectors maximum population is dependent on agri sector and unless the gains are clear and evident the economic growth is not justifiable and equitable per a Livemint article citing a statement by Minister Arun Jaitley
Let us now discuss a few ETFs focused on providing exposure to the emerging market nation see
iShares MSCI India ETF
This fund provides exposure to large and mid sized Indian equities
It has AUM of 5 7 billion and charges a fee of 68 basis points a year Financials Computer Software and Consumer Discretionary are the top three sectors of the fund with 22 3 13 1 and 12 7 allocation respectively as of Jan 12 2018 Housing Development Finance Co Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund with 8 6 8 0 and 6 1 allocation respectively as of Jan 12 2018 The fund has returned 35 8 in a year INDA has a Zacks ETF Rank 1 Strong Buy with a Medium risk outlook
WisdomTree India Earnings Fund V EPI
This fund provides exposure to Indian equities in multiple capitalization segments
It has AUM of 1 8 billion and charges a fee of 84 basis points a year Financials Energy and Information Technology are the top three sectors of the fund with 22 9 18 9 and 16 9 allocation respectively as of Jan 12 2018 Reliance Industries Ltd Infosys Ltd and Housing Development Finance Co are the top three holdings of the fund with 8 9 7 4 and 5 8 allocation respectively as of Jan 12 2017 The fund has returned 38 7 in a year EPI has a Zacks ETF Rank 1 with a Medium risk outlook
iShares India 50 ETF JK INDY
This fund provides exposure to large cap Indian equities
It has AUM of 1 2 billion and charges a fee of 93 basis points a year Banks Computer Software and Refineries Marketing are the top three sectors of the fund with 26 1 10 8 and 10 6 allocation respectively as of Jan 12 2018 Reliance Industries Ltd Housing Development Finance Co and ITC Ltd are the top three holdings of the fund with 7 9 6 8 and 5 5 allocation respectively as of Jan 12 2018 The fund has returned 33 6 in a year INDY has a Zacks ETF Rank 1 with a Medium risk outlook
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 | Punch Drunk Investors And Extinct Bears Part 1 | The Mother of All Blow Offs
We didn t really plan on writing about investor sentiment again so soon but last week a few articles in the financial press caught our eye and after reviewing the data we thought it would be a good idea to post a brief update When positioning and sentiment reach levels that were never seen before after the market has gone through a blow off move for more than a year it may well be that it means something for once
Interestingly the DJIA has fully participated in the blow off this time contrary to what happened at the end of the 1990s bull market and the first echo boom that ended in 2007 On the monthly chart the venerable Dow Industrials Average now sports on RSI of roughly 90 which is really quite rare
The slightly overbought DJIA sports an RSI of 89 59 on its monthly chart in the wake of the blow off move over the past year
If you think this looks like the exact opposite of what we have seen at the lows in 2009 you are entirely correct it is indeed the opposite in every conceivable respect In 2009 the news were uniformly bad nowadays we are flooded with good news on the economy and corporate earnings In 2009 stocks were cheap if not really historically cheap now they are in many ways at their most expensive in history particularly if one considers the median stock rather than just the capitalization weighted indexes
Singing From the Same Hymn Sheet
We recall that the reading of the Daily Sentiment Index of S P 500 Futures traders stood at just 3 bulls on the day of the March 2009 low Looking at sentiment data today there are probably 3 bears left What prompted us to take a closer look at the data was an article at Marketwatch about the positioning of Ameritrade customers in other words self directed retail investors The article is ominously entitled An all time high Isn t this supposed to be the most hated bull market ever That hasn t been true for quite a while actually Ameritrade helpfully provided a chart of its Investor Movement Index IM Index which measures the aggregate stock market exposure of its clients
At the height of the Fed s QE3 operation in 2014 retail investors were almost pessimistic compared to today The Ameritrade IM Index is currently above 8 but it already established a new record high when it crossed 7 0 for the first time last summer
On the day we looked at the article we quickly jotted down the titles of other articles Marketwatch suggested to its readers via embedded links We suspected these might at least partly change after a while and wanted to preserve what we saw The headlines were quite telling
Read Why Monday is a big day for bulls and could suggest gains of nearly 20 in 2018
See Stock market investors should brace for a possible near term melt up Jeremy Grantham
Read Stock optimism swells as S P 500 hits most overbought level in 22 years
Retail investors according to a Deutsche Bank analysis of consumer sentiment data view the current environment as the best time ever to invest in the market
And the most popular article on Marketwatch that day was
Here s what could trigger a 30 stock market melt up says investor Bill Miller
This is of course not what the people quoted in these articles said in previous years least of all in 2009 The main point is of course their unanimity which emerges only after a relentless march higher For all we know they could well be right take for example the call for yet another 30 melt up it sounds crazy to us but in a blow off even a mere handful of weeks can make a big difference One only has to recall the explosive run in the Nasdaq from November 1999 to March 2000 it rose by 80 in that brief time period
Investors Large and Small All Are on the Same Page
So is this now the stage when professionals are distributing stocks to retail investors Not really actually If anything they are even more in love with stocks Mish pointed out last week that among fund managers which is funny because hedges have also become quite cheap But it seems that few fund managers want to risk underperforming their benchmarks even by a few basis points as that could well cost them customers and bonuses
If the market crashes they will all be in the same boat and will collectively point to the fact that no one could have seen it coming Also it is after all OPM they are supervising and isn t it anyway a tradition that the customers shall remain yacht less
This lack of demand for hedges was recently noticed by a quantitative analyst at Morgan Stanley as well as Zerohedge reports The man audaciously recommends buying a few puts for a quick pullback It is well worth looking at the charts that go with the report we rarely see all thoughts of downside potential abandoned so thoroughly
For instance customer holdings of SPX calls reached the 100th percentile and holdings of puts fell to the zero percentile No further escalation is possible in this case that s it basically In other words a new boundary for the bullish consensus among the firm s clients has been set it has never been where it is now Customer demand for long S P futures positions concurrently hit a new record high at Morgan Stanley NYSE MS as well
We want to keep our focus on individual investors though mainly because they are normally rather cautious If one looks at a long term chart of the AAII survey American Association of Individual Investors it usually shows a fairly sizable proportion of skeptical investors They rarely go overboard collectively with foaming at the mouth bullishness but that has clearly changed The chart below is from a Bloomberg article that appeared last week entitled We imagine that their imagination will soon be jolted back to life
The bullish consensus according to the AAII survey has reached a 7 3 year high as of January 03
Readings in the 60 to 70 area are traditionally peak levels for the AAII consensus However a somewhat deeper analysis shows that this reading masks the fact that the exposure to stocks among the survey respondents in terms of a percentage allocation is actually at a 17 year high i e the highest since 2000
The next chart has appeared in the monthly Elliott Wave Financial Forecast and depicts the gap between the stock and cash allocation of AAII respondents as well as the 13 week average of the bullish consensus among investment advisors The latter has reached a 40 year high Note the contrast to the survey results recorded at the 2009 low when the most popular stocks could be bought for a fraction of the prices they trade at today
A tale of two surveys the AAII stock cash allocation gap and the 13 week average of the percentage of bullish advisors in the Investors Intelligence survey These readings represent rare extremes as well
In Part 2 we take a closer look at the other side of the trade namely bears and short sellers or rather what is left of them It is a sorry sight |
JPM | Nomura NMR To Slash Jobs In U S Europe To Reduce Costs | With an aim to reduce expenses and sustain less profitable operations amid a tough backdrop Nomura Holdings Inc NYSE NMR plans to cut jobs across the United States and Europe This was reported by Bloomberg The bank intends to slash more than 100 jobs in its trading and investmentbanking businesses per the persons familiar with the matter The maximum reductions are likely to occur at Nomura s European operation which is struggling and has lost billions of dollars over the past several years The job cuts are the latest in the series of measures being taken by Nomura to turnaround its international operation Earlier in 2016 the company had slashed hundreds of jobs in Europe when it shut most of its stock trading business there Also last year the bank laid off several sales and trading employees at its U S branch Notably Nomura has been grappling with a dismal performance of its retail business in Japan Given the weakening customer sentiments revenues have declined in last four consecutive quarters This along with instability in global equity and bond markets as well as weak investment banking performance led the bank to incur one of the biggest losses during December 2018 quarter Several other global banks like JPMorgan NYSE JPM Wells Fargo NYSE WFC and Deutsche Bank NYSE DB are also trimming jobs across several businesses The main purpose behind these cuts is saving costs in less profitable non core operations Shares of Nomura have lost nearly 25 over the past six months Nomura Holdings Inc ADR Price Currently Nomura carries a Zacks Rank 3 Hold You can see Today s Best Stocks from ZacksWould you like to see the updated picks from our best market beating strategies From 2017 through 2018 while the S P 500 gained 15 8 five of our screens returned 38 0 61 3 61 6 68 1 and 98 3 This outperformance has not just been a recent phenomenon From 2000 2018 while the S P averaged 4 8 per year our top strategies averaged up to 56 2 per year |
MS | Big Banks Share The Wealth With Stock Buybacks And Dividend Hikes | Investing com A handful of the nation s biggest financial firms plan to reward shareholders with big stock buyback plans and generous dividend hikes The plans were announced after the banks passed their annual stress test by the Federal Reserve JPMorgan Chase NYSE JPM s quarterly dividend increase is the largest rising to 80 cents a share It will buy back up to 20 7 billion in stock Citigroup NYSE C will raise its quarterly dividend to 45 cents a share while buying back 17 6 billion in stock Morgan Stanley NYSE MS s dividend will rise to 30 cents a share Its buyback is worth 4 7 billion Wells Fargo NYSE WFC is increasing its dividend to 43 cents a share At 24 5 billion its stock buyback plan is the largest Goldman s dividend hike is the smallest proportionately The company will buy back 5 billion in stock American banks posted record profits in the first quarter of this year They are among the biggest beneficiaries of the Trump administration s corporate tax cut |
MS | Japan s MUFG calls on Morgan Stanley expertise in wealth management drive | By Taiga Uranaka TOKYO Reuters Mitsubishi UFJ Financial Group Inc MUFG is drawing on the expertise of U S peer Morgan Stanley NYSE MS to help expand in the wealth management business the head of the pair s Japanese joint venture told Reuters Japan s biggest bank is consulting with Morgan Stanley s wealth management people about various aspects including product lineup Saburo Araki chief executive officer of Mitsubishi UFJ Morgan Stanley Securities Co Ltd MUMSS said in an interview MUMSS is a brokerage and investment bank a product of MUFG s 9 billion investment into Morgan Stanley at the height of a financial crisis in 2008 The Japanese bank now owns just under a quarter of its Wall Street peer Faced with ultra thin profit margins in Japan s traditional lending business MUFG has made wealth management a key growth driver targeting clients with at least 300 million yen 2 74 million in assets It aims to increase such assets under management to 16 3 trillion yen in the year through March 2024 from 12 trillion yen in the last financial year MUFG hopes to replicate the success of Morgan Stanley which under CEO James Gorman has turned wealth management into a growth pillar through reducing risk exiting problematic fields and emphasizing steadier businesses generating reliable revenue It helps us greatly that we can use their expertise and experience said Araki CEO of the joint venture since April Araki previously second in command at MUFG s core commercial bank also said the venture has not yet fully taken advantage of the bank s vast client base which includes 1 2 million individuals classed as wealthy As such it will step up efforts to attract commercial bank customers to higher return products like mutual funds he said SOLUTIONS MUMSS was created by combining the Japanese investment banking operations of MUFG and Morgan Stanley in 2010 Its immediate parent Mitsubishi UFJ Securities Holdings Co Ltd MTFMS UL is now Japan s third largest brokerage and investment bank in terms of net operating revenue after Nomura Holdings Inc and Daiwa Securities Group Inc We are really happy to have made that investment and to have teamed up with a global investment bank Araki said referring to the 9 billion deal The reason we can keep top positions in league tables is none other than Morgan Stanley He said MUFG has no intention of building its own investment banking franchise that would make it unnecessary to rely on Morgan Stanley It s impossible We cannot match their global network with investors and issuers Araki said Asked to describe their respective roles in the venture he said To put it very simply we provide our client base and they provide solutions The interview took place before the securities watchdog on Friday recommended the Financial Services Agency fine MUMSS around 2 million citing one instance of a dealer at the brokerage manipulating the bond market |
MS | Trump Immigration Moves Help Drive Mexico Cash Transfers to Record | Bloomberg Donald Trump s immigration policy immigration policy is helping drive cash transfers from Mexicans living abroad to a record
Remittances to Mexico from workers outside the country climbed to a record for a second consecutive month in May rising 14 percent from April to 3 1 billion according to data released by Mexico s central bank on Monday That s a 20 percent increase from a year earlier and more than the highest estimate in a Bloomberg survey of eight economists the second straight time it has surpassed the most bullish analyst forecasts
Transfers typically climb when the peso is weak but they rose to an all time high in April at as the currency was rallying to its strongest level in six months The currency surged to better than 18 per dollar on optimism about the possibility for a deal to update the North American Free Trade Agreement and they picked up further in May when the peso began weakening again as Nafta expectations dimmed
Francisco Flores an economist at Grupo Financiero Banorte said that it s likely that Mexican migrant concern over deportation played a role in the jump in remittances in May although peso weakness which increases the purchasing power of dollars sent back to Mexico and the Mother s Day holiday probably were factors as well The rise in 2018 cash transfers is a continuance of a trend that saw record years in 2016 and 2017 amid Trump s campaign when he raised the prospect of the U S blocking the flow to make Mexico pay for a border wall and his first year in office
About That Wall Trump Said Mexico Would Pay For QuickTake
We believe that the growth of remittances in 2018 will continue to be explained by the strength of the labor market and the U S immigration policy Flores wrote in a research report Monday
An improving U S labor market also probably will boost transfers Flores said
In the U S government s 2017 budget year a period that included the final four months of President Barack Obama s administration and the first eight months of the Trump presidency about 226 000 people were removed a 5 9 percent drop from a year earlier according to the U S Immigration and Customs Enforcement agency The Trump administration attributed the decrease to a decline in border apprehensions which it said possibly reflected an increased deterrent effect from ICE s stronger interior enforcement efforts U S officials have not yet released 2018 figures
Luis Arcentales an economist at Morgan Stanley NYSE MS is also among those who think immigration policy probably is helping spur remittances
Fears over increasingly aggressive immigration policies could be leading workers to transfer more money home he wrote in a report last month
During the 2016 campaign Trump floated the idea of blocking remittances to make Mexico pay for a 10 billion border wall that he said would stop undocumented immigration The transfers provide a lifeline for some of Mexico s poorest households and communities who depend on relatives working in kitchens and construction sites from California to Maine Overwhelmingly coming from the U S the remittances were equivalent to about 2 percent of Mexico s gross domestic product in recent years exceeding oil revenue and rivaling foreign direct investment |
MS | Bank of Japan seen cutting price forecasts as inflation expectations stall | By Stanley White and Sumio Ito TOKYO Reuters The Bank of Japan is likely to cut its price growth forecasts at a policy meeting later this month as long term inflation expectations stall sources said highlighting the bank s difficulty in hitting its elusive price target Three sources with direct knowledge of the bank s thinking told Reuters that the BOJ was likely to cut its projection for core consumer price growth this fiscal year to around 1 0 percent from the 1 3 percent projected in April and for next year to around 1 5 percent from 1 8 percent The sources spoke on condition of anonymity because the BOJ board s discussions are confidential The BOJ said on Tuesday that companies in its tankan survey expected consumer prices to have risen 0 9 percent a year from now slightly above their projection of 0 8 percent three months ago Companies in the survey also expected consumer prices to have risen an annual 1 1 percent three years from now and 1 1 percent five years ahead suggesting little confidence in the Bank of Japan s 2 percent target being reached anytime soon Tuesday s tankan findings came in the wake of a massive stimulus program deployed by the BOJ in 2013 aimed at shocking consumers out of their deflationary mindset and boosting corporate and household inflation expectations After failing to make much headway on price growth the BOJ revamped its policy framework in 2016 to one better suited to a long term battle against deflation although its results have been modest The BOJ is increasingly at a loss to explain why consumer prices consistently undershoot Governor Haruhiko Kuroda has suggested that online shopping which allows consumers to easily find the lowest prices for goods and services may be one reason The BOJ will try to explain why inflation is not picking up when it next meets but the reality is wages are not rising much and some people are not confident in the outlook said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities The central bank s board is due to review its quarterly projections at a meeting ending on July 31 and will examine whether or not weakness in consumer prices is likely to continue Japan has what appears to be unusually low unemployment at 2 5 percent and 1 6 jobs for every applicant but BOJ Deputy Governor Masazumi Wakatabe has said that what looked like some slack in the labor market could in fact be underemployment among workers in the 20 to 50 age category Underemployment refers to skilled workers stuck in lower paying jobs and part time workers who want to work full time but cannot find a suitable job and could help explain Japan s chronic lack of inflationary pressure The nationwide core consumer price index which includes oil products but excludes volatile fresh food costs rose just 0 7 percent in May from a year earlier well below half the central bank s 2 percent target Economists say the BOJ is unlikely to ease policy any further because of concerns that its heavy buying of government debt is hurting bond market liquidity and that its negative interest rate policy is squeezing bank margins
Japan s economy is expected to have bounced back in the second quarter after a contraction in the first quarter which ended the longest uninterrupted period of growth since the 1980s bubble economy |
MS | MUFG JV excluded from more bond issues after market manipulation DealWatch | TOKYO Reuters A joint venture of Mitsubishi UFJ Financial Group Inc T 8306 and Morgan Stanley N MS has been dropped as manager of bond issuances by some local governments after it was reprimanded for market manipulation sources told Thomson Reuters DealWatch The move comes a day after sources revealed that Mitsubishi UFJ Morgan Stanley Securities Co Ltd had been dropped from managing issuances by Toray Industries Inc T 3402 KDDI Corp T 9433 and Tokyo Gas Co T 9531 It has now also been dropped as manager of issuances by the city of Kyoto Tokushima Prefecture in western Japan and the Japan Housing Finance Agency people with direct knowledge of the matter said on Tuesday A spokesman at the JV said it took its clients decisions seriously and would work on regaining their trust It is a matter for a customer to decide and we have no further comment he said The Securities and Exchange Surveillance Commission on Friday recommended the Financial Services Agency fine the brokerage around 2 million saying one of its dealers placed both buy and sell orders in August for a 10 year Japanese government bond futures contract without intention to execute
The dealer aimed to create the impression of strong interest for the contract and the brokerage gained 1 58 million yen from related transactions the watchdog said |
MS | China Turmoil Leaves Hong Kong Equity Bulls With Taste of Regret | Bloomberg Valuations have cratered earnings estimates are down and forecasters are slashing their targets on Hong Kong s stock market which has gone from darling to pariah in under half a year
While investors the world over worry about a tumbling yuan and the Federal Reserve s plans to lift borrowing costs the brunt of the impact is increasingly felt in a city that is entwined with both The Hang Seng Index lost 1 4 percent when markets reopened Tuesday following a long weekend as another sign that China s economy may be slowing faster than expected added fuel to the selloff and took multiples back to two year lows
The Hang Seng Index s best quarterly winning streak since 1996 has ground to a painful halt punished by companies reliance on China for profits Hong Kong s ties to U S monetary policy and a loss of love for favorites like Tencent Holdings Ltd After five quarters of gains and hitting a record high in January the benchmark posted a loss in the three months through June
It s getting ugly said Stephen Innes head of trading for Asia Pacific at Oanda Corp in Singapore who was bullish on Hong Kong stocks until March China data just continues to sour and the yuan is bringing up memories of 2015 Whether we could see capital outflows is a question nobody thought they d be asking Hiding in cash is the only way to go now
Bulls are losing faith in a market that treated them with some of the world s best returns in January when even the pessimists were calling for only a temporary pullback International investors who piled into funds tracking Hong Kong and offshore listed China stocks for 17 straight weeks have withdrawn almost 4 billion since early June according to China International Corp s Hanfeng Wang and Yingqi Lin
A glut of large initial public offerings is also threatening to undermine existing shares as billions of dollars in new stocks may draw more liquidity from the market Xiaomi Corp which raised 4 7 billion after pricing its initial public offering at the low end expects to begin trading on July 9 Meituan Dianping is targeting an IPO in Hong Kong that may raise as much as 6 billion while China Tower Corp s listing could match the city s biggest since 2010
Stocks in Hong Kong have still held up far better than those on the mainland remaining in the green throughout most of 2018 until the yuan s descent accelerated in mid June Strategists still see a rebound in the second half though many have tempered their projections for the city s benchmarks including Nomura Holdings Inc and Morgan Stanley NYSE MS
I wish I had been more negative in January when it was clear that Hong Kong markets were getting frothy said Wendy Liu head of China equity research at Nomura The question we re getting is whether China economy is about to collapse or not we need more data to gauge that
Investors are paying less than 11 times projected earnings for the Hang Seng Index a multiple that s about 5 percent lower than its 10 year average Earnings expectations have started to falter after their resilience in February acted as a support against further losses in a global selloff Morgan Stanley says members of the index generate an average 60 percent of their earnings in yuan which is one of the world s worst performing currencies over the past month
Adding to the pressure is a buyer s strike from Shanghai where investors have been net sellers of Hong Kong stocks for three consecutive months through exchange links with the city Also a currency peg with the U S is driving up the cost of borrowing Hong Kong s one month interbank rate is topping 2 percent for the first time since 2008
With a June 2019 target of 27 200 points for the Hang Seng Index or 4 7 percent below Tuesday s close Morgan Stanley believes the selloff in Hong Kong has room to run
It s a combination of multiple factors yuan weakness trade uncertainty expectations for four Fed rate hikes and the tightening liquidity situation in China Morgan Stanley equity strategist Laura Wang said by phone from Hong Kong We re not expecting any immediate change to any of those Even southbound flows have turned |
MS | Crude Oil Prices Settle Higher Despite Plunge From November 2014 Highs | Investing com Crude oil prices settled higher in a choppy session Tuesday as traders weighed the prospect of fresh supply flooding the market against an ongoing disruption in crude output
In the New York Mercantile Exchange crude futures for August delivery rose 20 cents to settle at 74 14 a barrel while on London s Intercontinental Exchange Brent climbed 0 65 to trade at 77 78 a barrel WTI crude oil prices had hit their highest level since November 2014 rising above 75 a barrel before paring gains
In what was a rocky session crude oil prices recovered from a mid morning slip but settled well below intraday highs after Saudi Arabia agreed to U S President Donald Trump s demand to pump more oil to stabilize the market
The kingdom is prepared to utilize its spare production capacity when necessary to deal with any future changes in the levels of supply and demand a cabinet statement said following a meeting chaired by King Salman
This comes just days after President Donald Trump said in a tweet that he had requested King Salman bin Abdulaziz to raise output by as much as 2 million barrels per day
The fall to session lows however attracted a fresh wave of buyers as traders continued to bet on the prospect of a shortage in global supplies supporting oil prices as unexpected disruptions in Canada Libya and Venezuela have weighed on supply
Some analysts questioned Saudi s ability to offset the risk of global crude supply shortage ahead of upcoming U S sanctions on Iran OPEC s third largest oil exporter
Morgan Stanley NYSE MS said it expects a crude deficit of 600 000 barrels a day over the next six months after upwardly revising its estimates on the loss of Iranian crude
The bank anticipates the impact of U S sanctions on Iran s exports would cut shipments by 1 1 million barrels per day by year end That is higher than its estimates for a 700 000 barrels per day decline through 2019 |
JPM | Party Mood Sours in Saudi Markets After 20 Billion Bonanza | Bloomberg Investors are starting to tune out the noise of the billions of dollars that flowed into Saudi bonds and stocks in the first half of the year after the kingdom s upgrade to emerging market status
While the Saudi government has accelerated the pace of deregulating its capital markets concerns about the economy s reliance on oil and escalating tensions in the Persian Gulf are coming back to the fore
The bulk of the estimated 20 billion in inflows from Saudi Arabia s ascension to two key developing nation equity indexes would materialize by end August according to EFG Hermes Meanwhile the tailwind from its dollar bonds inclusion in JPMorgan Chase Co NYSE JPM s emerging market gauges happening gradually over nine months through September has largely played out said Arqaam Capital Ltd s Abdul Kadir Hussain
Once the passive flows subside courting active investors will be a hard grind said M R Raghu the head of research at Kuwait Financial Centre SAK which manages 3 8 billion Foreign investors will perceive Saudi Arabia as a commodity play for some time to come
Active money managers seek to outperform benchmark indexes by buying and selling securities By contrast passive funds track an index
Saudi stocks are also getting more expensive relative to developing nation equities with the gap in their estimated price to earnings ratios near the widest since 2015 The high valuations are the reason Mark Mobius a pioneer in emerging market investing isn t joining the party
What s more some investors aren t ready to forgive or forget the murder of columnist Jamal Khashoggi in the Saudi consulate in Istanbul in October
The Khashoggi incident and the general structure of the rule of law in Saudi Arabia will continue to deter some investors said Mobius who spent three decades at Franklin Templeton Investments before setting up his own firm last year
No Limit
The prospects may not improve much despite regulatory changes in June that are paving the way for foreigners to take controlling stakes in sectors from banking to petrochemicals after Saudi Arabia removed a cap on ownership of publicly traded companies for international strategic investor Although foreign direct investment more than doubled last year to 3 2 billion it remains well below the average level of the past decade
Higher valuations are to some extent justified by the earnings outlook and technicals said Michael Bolliger the Zurich based head of emerging market asset allocation at UBS Wealth Management s chief investment office But for this to be sustained it is crucial that the government keeps up the reform pace and successfully cooperates with the private sector
Saudi Arabia s bonds have a market value of about 42 billion in JPMorgan s emerging market indexes according to calculations by Arqaam Capital The debt might be vulnerable to increased swings in U S Treasury yields and concerns over global trade tensions and slowing global economic growth in the coming months said Hussain the Dubai based head of fixed income asset management at Arqaam Capital
The securities have returned more than 11 this year outperforming the 9 6 gain in emerging markets according to Bloomberg Barclays LON BARC indexes
Risks for the second half are fairly elevated overall he said We have already had a strong rally in the first six months |
JPM | Scotiabank Turns to Dollar Market for Its First Green Bond | Bloomberg Bank of Nova Scotia is debuting in the green bond market following other Canadian rivals including Royal Bank of Canada
The Toronto based lender is set to price 500 million of 3 5 year senior bail in green bonds at a yield of 58 basis points over Treasuries at the tight end of guidance earlier offered according to people familiar with the matter That compares with a spread of about 63 basis points the bank s 1 25 billion of 2024 senior bail in bonds were quoted at on Friday according to Trace bid prices
Scotiabank moved ahead with its first green offering a month after a panel of experts appointed by the Canadian government released a set of recommendations for bolstering the green and sustainable bond market which include a set of tax incentives for investors and issuers as well as improving reporting requirements
BNP Paribas PA BNPP SA ING Groep AS INGA NV JPMorgan Chase Co NYSE JPM are helping Scotiabank lead the transaction Earlier this year RBC sold 500 million euros of five year senior bail in green bonds In 2014 Toronto Dominion Bank became the first Canadian bank to tap the green market when it priced C 500 million of three year bonds
Scotiabank will apply proceeds from today s sale toward assets businesses or projects involved in initiatives such as pollution control or green buildings according to the issuance framework it released last month
Borrowers so far this year have priced a record 104 4 billion of global green bonds compared with 70 3 billion in the same period a year earlier according to data compiled by Bloomberg
Updates with pricing information and use of bond sale proceeds |
MS | RIA Chart Book Q4 2017 Most Important Charts | Michael Lebowitz and I decided that each quarter we would produce a chartbook of the most important charts from the last quarter for you to review
In addition to the graphs we provided a short excerpt from the article as well as the links to the original articles for further clarification and context if needed We hope you find them useful insightful and importantly we hope they give you a taste of our unique brand of analysis In most cases the graphs data and commentary we provide are different from that of the business media and Wall Street Simply put our analysis provides investors an edge that few are privy to
The Federal Reserve Reveals The Ugly Truth
The 2016 survey confirms statements regarding the Fed s monetary interventions leaving the majority of Americans behind
However setting aside that point for the moment how valid is the argument the rise of asset prices is related to economic strength Since companies ultimately derive their revenue from consumers buying their goods products and services it is logical that throughout history stock price appreciation over the long term has roughly equated to economic growth However unlike economic growth asset prices are psychologically driven which leads to boom and busts over time Looking at the current economic backdrop as compared to asset prices we find a very large disconnect
Since Jan 1st of 2009 through the end of June the stock market has risen by an astounding 130 51 However if we measure from the March 9 2009 lows the percentage gain explodes to more than 200 With such a large gain in the financial markets we should see a commensurate indication of economic growth right
The reality is that after 3 massive and unprecedented Federal Reserve driven Quantitative Easing programs a maturity extension program bailouts of TARP TGLP TGLF etc HAMP HARP direct bailouts of Bear Stearns AIG GM bank supports etc all of which total more than 33 Trillion the economy grew by just 2 64 Trillion or a whopping 16 7 since the beginning of 2009 The ROI equates to 12 50 of interventions for every 1 of economic growth
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Risk vs Reward
There are two divergent facts that make investing in today s market extremely difficult
The market trend by every measure is clearly bullish Any novice technician with a ruler projected at 45 degrees can see the trend and extrapolate ad infinitum
Markets are extremely overvalued Intellectually honest market analysts know that returns produced in valuation circumstances like those observed today have always been short lived when the inevitable correction finally arrives
In we presented a graph that showed expected five year average returns and the maximum drawdowns corresponding with varying levels of Cyclically Adjusted Price to Earnings CAPE ratios since 1958 We alter the aforementioned graph as shown below to incorporate the odds of a 20 drawdown occurring within the next five years
Over the next five years we should expect the following
Annualized returns of 34 green line
A drawdown of 27 10 from current levels red line
76 odds of a 20 or greater correction yellow bars
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Tax Cut Impact
So with 80 of Americans living paycheck to paycheck the need to supplant debt to maintain the standard of living has led to interest payments consuming a bulk of actual disposable income The chart below shows that debt has exceeded personal consumption expenditures Therefore any tax relief will most likely evaporate into the maintaining the current cost of living and debt service which will have an extremely limited if any impact on fostering a higher level of consumption in the economy
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One Chart
Our chart of the day is a long term view of price measures of the market The S P 500 is derived from Dr Robert Shiller s inflation adjusted price data and is plotted on a QUARTERLY basis From that quarterly data I have calculated
The 12 period 3 year Relative Strength Index RSI
Bollinger Bands 2 and 3 standard deviations of the 3 year average
CAPE Ratio and
The percentage deviation above and below the 3 year moving average
The vertical RED lines denote points where all measures have aligned
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Borrowing From The Future
The stock market has returned more than 60 since 2007 peak which is more than three times the growth in corporate sales growth and 30 more than GDP The all time highs in the stock market have been driven by the 4 5 trillion increase in the Fed s balance sheet hundreds of billions in stock buybacks PE expansion and ZIRP
It is critical to remember the stock market is NOT the economy The stock market should be reflective of underlying economic growth which drives actual revenue growth Furthermore GDP growth and stock returns are not highly correlated In fact some analysis suggests that they are negatively correlated and perhaps fairly strongly so 0 40
However in the meantime the promise of a continued bull market is very enticing as the fear of missing out overrides the fear of loss
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Markets Don t Compound
Morgan Stanley NYSE MS states that in 30 years if the Dow grows at just 5 annually it will hit 500 000 However if the Dow actually compounded returns at 5 in the future as Morgan suggests it would have done so in the past and would ALREADY be at 500 000
But it s not We are just stuck here at a crappy ole 23 000
There is a huge difference between compound returns and average returns The historical return of the markets since 1900 including dividends has averaged a much higher rate of return than just 5 annually Therefore the Dow should actually be much closer to 1 000 000 than just 500 000
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Not In A New Secular Bull Market
However as noted above and as shown below secular bull markets which are long term growth trends have never started from 15x valuations and immediately surged to the second highest level on record Historically as shown below secular bull markets are born of excessive pessimism and low valuations that stay in place for years as earnings and profitability grow faster than prices keeping valuations lower Despite Mr Saut s hopes that is simply not the case today as valuations exploded as earnings economic and profit growth lagged the liquidity induced surge in asset prices
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The Myths Of Tax Cuts
Myth 1 Tax Cuts Will Create An Economic Revival
As the Committee for a Responsible Federal Budget stated last week
Tax cuts do not pay for themselves they can create growth but in the amount of tenths of percentage points not whole percentage points And they certainly cannot fill in trillions in lost revenue Relying on growth projections that no independent forecaster says will happen isn t the way to do tax reform
That is absolutely correct and as I pointed out on Friday
As the chart below shows there is ZERO evidence that tax cuts lead to stronger sustained rates of economic growth The chart compares the highest tax rate levels to 5 year average GDP growth Since Reagan passed tax reform average economic growth rates have only gone in one direction
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What does 2028 hold in store
The following graph and table explore the range of outcomes that are possible given the scenarios outlined above To help put context around the wide range of expected returns we calculated an equity equivalent price of the 10 year U S Treasury Note and added it to the graph as a black dotted line Investors can use the line to weigh the risk and rewards of the S P 500 versus the option to purchase a relatively risk free U S Treasury Note The table below the graph serves as a legend and reveals more information about the forecasts The color shading on the table affords a sense of whether the respective scenario will produce a positive or negative return as compared to the U S Treasury Note The far right column on the table indicates the percentage of observations since 1881 that CAPE has been higher than the respective scenarios
Data Courtesy and 720Global Real Investment Advice
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Why Rates Can t Rise
The chart below shows only the composite index and the 10 year Treasury rate Not surprisingly the recent decline in the composite index also coincides with a decline in interest rates
In the current economic environment the need for capital remains low outside of what is needed to absorb incremental demand increases caused by population growth as demand remains weak While employment has increased since the recessionary lows much of that increase has been the absorption of increased population levels
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On Punditry
So sorry Suze This bit of knowledge Strikeout Not everything compounds
Orman explained that if a 25 year old puts 100 into a Roth IRA each month they could have 1 million by retirement
This statement perplexes me While I wholeheartedly agree with a monthly investing or saving discipline spouted here especially into a Roth IRA where earnings grow tax deferred and withdrawn tax free at retirement I had a dilemma making her retirement numbers work
As outlined in the chart above on an inflation adjusted basis achieving a million buck balance in 40 years by dollar cost averaging 100 a month requires a surreal 11 25 annual return In the real world not the superstar pundit realm a blind follower of Suze s advice would experience a whopping retirement funding gap of 695 254 68
I don t know about you to me this is a Grand Canyon expectation vs reality sized unwelcomed surprise
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The Myth Of Buy Hold
Once you set aside the daily media chatter sales pitches poor investment advice and investing methods that have a complete lack of evidence to support them you find out one simple truth
Managing the risk of drawdowns is what separates having enough money to live out your retirement dreams or not
With this in mind the reality of saving for your retirement should be clear as 2 of the 3 methods discussed above leave you well short of your financial goals
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Global QE
Global central banks post financial crisis monetary policies have collectively been more aggressive than anything witnessed in modern financial history Over the last ten years the six largest central banks have printed unprecedented amounts of money to purchase approximately 14 trillion of financial assets as shown below Before the financial crisis of 2008 the only central bank printing money of any consequence was the Peoples Bank of China PBoC
The central banks goals in general are threefold
Expand the money supply allowing for the further proliferation of debt which has sadly become the lifeline of most developed economies
Drive financial asset prices higher to create a wealth effect This myth is premised on the belief that higher financial asset prices result in greater economic growth as wealth is spread to the masses
And higher stock prices will boost consumer wealth and help increase confidence which can also spur spending Increased spending will lead to higher incomes and profits that in a virtuous circle will further support economic expansion Ben Bernanke Editorial Washington Post 11 4 2010
Lastly generate inflation to help lessen the burden of debt
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Turning Japanese
More importantly while there are many calling for an end of the this is unlikely the case As shown in the chart below interest rates are relative globally Rates can t rise in one country while a majority of economies are pushing negative rates As has been the case over the last 30 years so goes Japan so goes the U S
Unfortunately for the Administration the reality is that cutting taxes and MORE debt is unlikely to change the outcome in the U S The reason is that monetary interventions and government spending don t create organic and sustainable economic growth Simply pulling forward future consumption through monetary policy continues to leave an ever growing void in the future that must be filled Eventually the void will be too great to fill
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The Long End Of The Curve
Each time when liquidity was extracted from the financial markets the rotations from risk to safety pushed yields lower Not higher The chart below is the 8 rolling average of the Fed s balance sheet which more clearly shows the correlation
The correlation makes complete sense when you think about it When the Fed is expanding their balance sheet money flows into the equity markets driving risk assets higher With the reduced need for safety money rotates from bonds into stocks on an asset allocation basis The opposite occurs when the Fed extracts liquidity from the markets |
MS | Interest Rates Walking On Narrow Ledge | There is a huge shock in store for those who have been lulled to sleep by a stock market that has become accustomed to no volatility and only an upward direction And that alarm bell can be found in the price action of bitcoin which recently tumbled over 40 in less than a week For the implosion within the cryptocurrency world foreshadows what will happen with the major averages as the Federal Reserve futilely attempts to stop monetizing the exploding mountain of U S debt
I am fond of quoting the figure of total market capitalization as a percentage of GDP in order to illustrate the overvalued state of the equity market That level has now surged to 145 of GDP while history shows that stock values should represent just 50 of the underlying economy In that same vein another eye popping figure compares global asset prices to GDP Global asset prices stocks and bonds back in 1980 were only 110 of global GDP Today they have soared to an incredible and unsustainable 350 of the economy according to data compiled to by Morgan Stanley NYSE MS
Which also means due to the massive 3 8 trillion counterfeiting spree from the Fed since 2008 the S P 500 dividend yield has now plummeted to just 1 8 But then again due to the delusion that the Fed can normalize interest rates there have been five rate hikes on the shortest end of the curve since December of 2015 This means the 3 Year note once again has a yield that is higher than the S P 500 dividend yield This also means that if the Fed follows through on its three rate hikes penciled in for 2018 the dividend yield on the S P 500 would be less than a risk free 1month T bill which has not been the case since the great panic of 2008 began The reemergence of this phenomenon could surely launch a barrage of daggers upon Wall Street s latest and greatest bubble
The most important point I can make about this insanely overvalued stock market is that its lynchpin that is what s holding the entire charade together is the worldwide bubble in the bond market As long as interest rates behave the rally can continue And by behave I mean that long term rates can neither fall or rise by more than a relatively small number of basis points without sending the market into a tailspin
Let me explain First you must understand that the entire credit market construct is completely artificial and therefore guarantees it will end very badly and soon However central banks have now started to pull away their manipulation of interest rates and that means one of two conditions is about to occur The yield curve will continue on its path towards inversion and could do so in just a few months time That would shut off the entire credit creation machine and send asset prices cascading down to earth Or alternatively a spike in long term interest rates could be in store which would engender those same consequences
And one has to really wonder why bond yields haven t started to soar as of yet In fact yields going out ten years on the curve are up only about 20bps since December 2015 That s the date when the Fed began the first of its five to date 25bps rate hikes for a total 125bps At 2 45 the U S 10 Year Note is still less than half of nominal U S GDP growth That means the yield should be at least double from where it is currently trading just to be in line with historical measures But given the level of U S debt and our escalating solvency concerns the benchmark yield should be much higher than the historical average
After all the current narrative is one of synchronized and accelerating global growth Also that inflation is rising towards the Fed s 2 target Not only this the Fed s balance sheet reduction rises to 50 billion per month by October the Fed s dot plot predicts three more rate hikes this year and the ECB has halved its QE program and is predicted to be completely finished printing money by the end of this year Exploding debt and the reversal of central bank support for bonds should cause rates to spike
Indeed deficits are already rising due to demographics but the swamp creatures in D C that inhabit both parties only care about deficits when they are not in power The amount of red ink is projected to reach around 1 2 trillion per year by fiscal 2019 but that is just start of calamities
So the daunting addition goes something like this the baseline projection is that there will be 10 trillion added to the 21 trillion National debt over the next ten years Not including Trump s unpaid for tax cuts which are projected to add another 1 5 trillion over the next decade Then you add on to the debt Trump s next endeavor known as the most massive infrastructure project outside of China s recent efforts to pave over the Far east which will add hundreds of billions to the total of red ink And since the next recession most likely isn t more than just a few quarters away and is already long overdue deficits will jump again by a further trillion dollars per annum just like then did during the four years from 2009 2012 Plus every 100bps higher in average interest costs on the outstanding debt piles on another 200 billion in debt service payments per year All this will be happening as the Fed is dumping 600 billion per year of MBS and Treasuries on to the balance sheet of taxpayers
So of course interest rates should be soaring from their record low levels and not just in the U S but around the globe The only reason why they would not do so immediately is that global sovereign bond investors are aware that an economic crash is going to arrive in the very near future
Then again if rates do end up spiking on the nearly 10 trillion worth of negative yielding global sovereign debt it will cause interest payments on the record 230 trillion 320 of global debt to GDP to become completely unserviceable That will definitely cause the crash to arrive in short and brutal fashion And once the bubble bursts on that risk free sovereign debt it will surely smash the worldwide equity hysteria with unrelenting fury
Therefore long term interest rates have a very narrow ledge to traverse in order to keep the turbines flowing into the worldwide equity bubble Fall a few dozen basis points from here and the yield curve inverts rather quickly and a recession depression will soon follow just as it has always done throughout history On the other hand if rates were to quickly rise more than a few dozen basis points the competition for stocks becomes salient while at the same time debt service payments on both the public and private sectors of the economy become a baneful situation
You don t have to be another victim of the government s ill fated rollercoaster cycles of inflationary bubbles and deflationary collapses Intelligent and knowledgeable investors are running out of time to prepare for the wild ride ahead in 2018 which should finally be the year that the inevitable reality check arrives
Michael Pento is the President and Founder of Pento Portfolio Strategies produces the weekly podcast called The Mid week Reality Check is Host of The Pentonomics Program and Author of the book The Coming Bond Market Collapse |
MS | Stocks Finally Take A Well Deserved Break | Remember we need your input to make next week s new Zacks Ultimate Strategy Session episode the best it can be There are two ways you can participate 1 Zacks Mailbag This regular segment will answer your questions ranging from current market conditions general investing wisdom usage of the Zacks Rank or any resources of Zacks com and more Pretty much anything goes Kevin Cook and Tracey Ryniec will each pick one to discuss 2 Portfolio Makeover Sheraz Mian and Brian Bolan will review a customer portfolio to give feedback for improvement No need to send us personal information such as dollar value of holdings Simply email us with all of the tickers you own
Just make sure to email your submissions for either one or both by tomorrow morning January 11 Email now to mailbag zacks com
It took a week and a half but the market finally stepped back in 2018 News that China would slow or stop purchases of U S treasuries was given most of the blame for the slight pullback but it was really just time for the major indices to take a breather Not only did the S P and NASDAQ finish on positive ground each of the first six sessions this year but they also made new highs on each day The Dow also had an impressive run having only slipped a bit earlier this week
By the closing bell the NASDAQ was off 0 14 to 7153 6 while the S P slipped 0 11 to 2748 2 and the Dow declined 0 07 to 25 369 1 Each of the indices started the day sharply lower and came well off their highs by the close Like all good streaks it had to come to an end Even though it was a down day on paper it really wasn t all that bad said Dave in Momentum Trader and Surprise Trader Still keeping my eyes on the prize this week which means I m looking out to Friday That s when we first get a taste of some serious earnings reports setting the stage for what could be a very important earnings season ahead of the us
The closeness of earnings season is likely a big factor in why the editors have been so quiet lately There were no moves today in the portfolios So that gives us a chance to appreciate a big double digit performance from Healthcare Innovators The highlights section below also includes a couple of portfolio excerpts on today s tiny loss in the market and the reports from big banks that kick off the season on Friday Today s Portfolio Highlights Healthcare Innovators When Kevin added Epizyme EPZM back in June of last year it was a largely speculative play on the company s tazemetostat cancer drug More than six months later a report from Morgan Stanley NYSE MS says that this drug has proven to be effective in treating blood cancers and solid tumors with minimal toxicities in early and mid stage trials In addition to taking one more step toward blockbuster status the news sent shares of EPZM soaring by 19 2 On a down day for the market that was easily the best performer of all the portfolios In fact it was more than three times the runner up Counterstrike Indices gapped down overnight as the bond market was spooked by a report that China is losing interest in U S Government bonds purchases The report was from Bloomberg so it is likely reliable However I find it hard to believe that America s largest purchaser of bonds would completely stop
With bond prices slipping maybe China doesn t see bonds as the best investment and will shift a little money elsewhere But considering the safe haven status I would expect China to continue to be very active in the bonds market
While markets saw some selling off the open buyers quickly stepped in and stocks finished down only slightly The S P closed down 0 11 while the Nasdaq lost 0 14 Jeremy MullinInsider Trader A little pessimism needed to come back into the markets didn t it
Although even though stocks opened to the downside they nearly finished the day in the green anyway Whatever the reason stocks can t go up forever although it sure feels like they could in 2018
The big story of the week will really be the big bank earnings that are expected out on Friday before the bell We ll hear from Wells Fargo NYSE WFC and JP Morgan among others Tracey Ryniec
All the Best Jim Giaquinto
Recommendations from Zacks Private Portfolios Believe it or not this article is not available on the Zacks com website The commentary is a partial overview of the daily activity from Zacks private recommendation services If you would like to follow our Buy and Sell signals in real time we ve made a special arrangement for readers of this website Starting today you can see all the recommendations from all of Zacks portfolios absolutely free for 7 days Our services cover everything from value stocks and momentum trades to insider buying and positive earnings surprises which we ve predicted with an astonishing 80 accuracy |
JPM | Is JPMorgan Diversified Return Emerging Markets Equity ETF JPEM A Strong ETF Right Now | Designed to provide broad exposure to the Broad Emerging Market ETFs category of the market the JPMorgan NYSE JPM Diversified Return Emerging Markets Equity ETF JPEM is a smart beta exchange traded fund launched on 01 07 2015
What Are Smart Beta ETFs
For a long time now the ETF industry has been flooded with products based on market capitalization weighted indexes which are designed to represent the broader market or a particular market segment
Market cap weighted indexes offer a low cost convenient and transparent way of replicating market returns and are a good option for investors who believe in market efficiency
If you re the kind of investor who would rather try and beat the market through good stock selection then smart beta funds are your best choice this fund class is known for tracking non cap weighted strategies
These indexes attempt to select stocks that have better chances of risk return performance based on certain fundamental characteristics or a combination of such characteristics
While this space offers a number of choices to investors including simplest equal weighting fundamental weighting and volatility momentum based weighting methodologies not all these strategies have been able to deliver superior results
Fund Sponsor Index
JPEM is managed by J P Morgan and this fund has amassed over 296 45 M which makes it one of the average sized ETFs in the Broad Emerging Market ETFs This particular fund before fees and expenses seeks to match the performance of the FTSE Emerging Diversified Factor Index
The FTSE Emerging Diversified Factor Index are selected from advanced and secondary emerging markets strictly in accordance with guidelines and mandated procedures and are selected from constituents of the FTSE Emerging Index
Cost Other Expenses
When considering an ETF s total return expense ratios are an important factor And cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal
Operating expenses on an annual basis are 0 47 for JPEM making it on par with most peer products in the space
JPEM s 12 month trailing dividend yield is 2 66
Sector Exposure and Top Holdings
It is important to delve into an ETF s holdings before investing despite the many upsides to these kinds of funds like diversified exposure which minimizes single stock risk And most ETFs are very transparent products that disclose their holdings on a daily basis
Looking at individual holdings Taiwan Semiconductor accounts for about 3 03 of total assets followed by China Mobile Ltd Common and Reliance Industries Ltd
JPEM s top 10 holdings account for about 15 51 of its total assets under management
Performance and Risk
The ETF has gained about 6 28 so far this year and is down about 7 15 in the last one year as of 03 26 2019 In the past 52 week period it has traded between 49 44 and 60 62
The ETF has a beta of 0 81 and standard deviation of 15 81 for the trailing three year period making it a medium risk choice in the space With about 634 holdings it effectively diversifies company specific risk
Alternatives
JPMorgan Diversified Return Emerging Markets Equity ETF is a reasonable option for investors seeking to outperform the Broad Emerging Market ETFs segment of the market However there are other ETFs in the space which investors could consider
IShares Core MSCI Emerging Markets ETF IEMG tracks MSCI Emerging Markets Investable Market Index and the Vanguard FTSE Emerging Markets ETF VWO tracks FTSE Emerging Markets All Cap China An Inclusion Index IShares Core MSCI Emerging Markets ETF has 58 79 B in assets Vanguard FTSE Emerging Markets ETF has 62 84 B IEMG has an expense ratio of 0 14 and VWO charges 0 12
Investors looking for cheaper and lower risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Broad Emerging Market ETFs
Bottom Line
To learn more about this product and other ETFs screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe please visit Zacks ETF Center |
JPM | Buy These Top 4 Large Cap Value Funds Today | Large cap funds are considered prudent choices for risk averse investors when compared to their small and mid cap counterparts These funds have exposure to large cap stocks with a long term performance history and offer more stability than mid or small caps 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 Investors looking for a bargain i e 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 dividends In the long run value stocks are expected to outperform the growth ones across all asset classes and are less vulnerable to trending markets However investors interested in value funds for yield should check the mutual fund yield as not all value funds comprise companies that primarily use their earnings to pay out dividends Below we share with you four 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 American Century NT Large Company Value Fund G aims primarily for appreciation of capital in the long term The fund invests a minimum of 80 of its net assets in equity securities of companies that are a part of Russell 1000 Index ACLLX has three and five year annualized returns of 12 1 and 7 4 respectively As of December 2018 ACLLX held 72 issues with 3 33 of its assets invested in JPMorgan Chase Co NYSE JPM Principal Equity Income A aims to provide current income and long term appreciation of capital and income PQIAX invests a majority of its net assets in equity securities that pay dividends The fund mostly invests in mid and large cap companies PQIAX has three and five year annualized returns of 14 2 and 8 9 respectively PQIAX has an expense ratio of 0 89 compared with the category average of 1 00 Vanguard Equity Income Investor aims to provide a level of current income that s above average along with a sound long term capital growth The fund primarily invests in common stocks of medium sized and large companies that the advisor feels are undervalued and pay above average levels of dividend income VEIPX has three and five year annualized returns of 13 3 and 9 6 respectively James P Stetler is one of the fund managers of VEIPX since 2003 Praxis Value Index A aims for capital appreciation by primarily investing in American equity securities The fund seeks to imitate the performance of the U S large cap value equities market as measured by the S P 500 Value Index As of Feb 28 MVIAX has three and five year annualized returns of 12 9 and 7 6 respectively MVIAX has an expense ratio of 0 94 compared with the category average of 1 00 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 | Morgan Stanley pays 3 6 million fine for weak investor protection rules | WASHINGTON Reuters Morgan Stanley N MS agreed to pay a 3 6 million fine on Friday after regulators found it failed to have systems in place to help it detect and prevent the misappropriation of client funds the U S Securities and Exchange Commission said Since 2009 Morgan Stanley has allowed brokers to initiate wire transfers of as much as 100 000 from a client s brokerage account into a third party account so long as the adviser reported on an internal digital form that the client had requested the transfer over the phone or in person The brokerage required some additional information and had policies in place allowing it to review some disbursement requests the SEC said But the regulator said the policies were insufficient in preventing one broker from misappropriating 5 million worth of clients money without their permission between December 2015 and November 2016 Former Morgan Stanley broker Barry Connell was arrested in February 2017 and faces criminal charges in a federal court in New York related to the alleged misappropriations His case is pending As part of the settlement Morgan Stanley did not admit or deny the SEC s findings Morgan Stanley spokeswoman Christine Jockle said the firm was happy to have reached the settlement
Morgan Stanley has strengthened and will continue to improve its controls against fraudulent conduct to ensure the safety of our clients assets Jockle said in an emailed statement |
MS | Solid capital spending plans a bright spot in Bank of Japan s downbeat tankan | By Tetsushi Kajimoto and Stanley White TOKYO Reuters Business confidence among Japan s big manufacturers worsened for a second straight quarter in the three months to June a Bank of Japan survey showed with the outlook clouded by U S trade protectionism and rising input costs It was the first time since Prime Minister Shinzo Abe swept to power in December 2012 that manufacturers morale has soured for two straight quarters raising worries that his reflationary Abenomics policies may be sputtering Industrial sectors such as cars and oil dragged down the overall mood adding to concerns that U S President Donald Trump may target auto imports from Japan and other trading partners for protectionist tariffs after imposing stiff duties on steel and aluminum The quarterly BOJ tankan s headline index of plus 21 undershot the median estimate of plus 22 in a Reuters poll of analysts and is expected to stay flat over the next three months Still the survey also showed that big firms plan to raise their capital spending by 13 6 percent in the financial year starting April 2018 handily beating economists median estimate of a 9 3 percent gain Manufacturers sentiment is leveling off while capital expenditure holds firm I m watching how fears of trade protectionism may affect corporate capex planning from now on said Masaki Kuwahara a senior economist at Nomura Securities SOLID CAPEX Big manufacturers plan to increase capital expenditure by 17 9 percent this fiscal year the fastest gain for June surveys since 2015 the tankan showed Large non manufacturers plan to raise capex by 11 2 percent making it the fastest increase for June surveys since 1990 during the peak of the bubble economy Economists expect capital expenditure will be supported by the need to upgrade production capacity and invest in labor saving equipment to cope with labor shortages and an infrastructure boom ahead of the Tokyo Olympic Games in 2020 A Bank of Japan official noted that although big firms investment capex plans came out strong at the start of the new fiscal year they could be revised down as the year progresses A private survey showed on Monday that Japanese manufacturing activity grew at a slightly faster pace in June but export orders fell more than initially reported an unwelcome sign of the potential impact of a trade war between the United States and major economies WORRIES OVER PROTECTIONISM YEN The central bank will scrutinize the tankan results at its rate review later this month at which its nine member board will conduct a quarterly audit of its long term growth and price outlook and analyze factors behind subdued inflation Policymakers and Japanese firms also worry that trade friction and potential gains in the safe haven yen could undermine export led growth The latest tankan showed big manufacturers set their expected dollar yen rate at 107 26 for this fiscal year compared with 109 66 seen three months ago underscoring corporate caution about renewed yen strength The dollar stood at around 111 yen in the early Monday trade Some manufacturers are worried about the yen rising and this hurt their sentiment Companies may be worried about some change in monetary policy or about the yen rising due to risk aversion said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities The tankan shows the economy remains on solid footing but it is not strong enough to allow the BOJ to head for the exit Large non manufacturers sentiment stood at plus 24 in June slightly above a median forecast of plus 23 up one point from the previous quarter It was seen worsening to 21 in September The tankan s sentiment indexes are derived by subtracting the number of respondents who say conditions are poor from those who say they are good A positive reading means optimists outnumber pessimists
Japan s economy is expected to rebound in the second quarter from a contraction in the first quarter that ended the longest growth streak since the 1980s bubble economy |
MS | China s shares yuan slump as U S tariff deadline looms | By Luoyan Liu and John Ruwitch SHANGHAI Reuters Chinese stocks on Monday handed back their gains from a bounce late last week as worries mount ahead of a U S move to impose 34 billion of tariffs on Chinese exports The yuan fresh off its worst month on record continued to lose ground against the dollar trading at around 6 6450 at 0606 GMT from a close of 6 6225 on Friday Chinese 10 year treasury futures for September were down in the morning but reversed course in the afternoon inching up about 0 1 percent After rising last week to a more than one year high on trade war fears the cost to insure exposure to Chinese debt fell on Monday The spread of the five year credit default swap rate on Chinese sovereign debt fell 4 7 percent to 69 79 basis points Markets are jittery ahead of a July 6 deadline when the United States is due to impose the tariffs on Chinese exports Beijing is expected to respond with tariffs of its own on U S goods Even before the tariffs kick in a private survey showed manufacturing activity in the world s second largest economy slowed slightly China s Caixin Markit Manufacturing Purchasing Managers index PMI declined to 51 0 in June from May s 51 1 with a subindex showing new export orders contracting for the third straight month and the most in two years On Friday Chinese stocks and the yuan bounced with benchmark share indexes having one of their best days since mid 2016 Still June represented the worst month for Chinese stocks in more than two years and the yuan s biggest monthly fall on record By 0637 GMT on Monday the blue chip CSI300 index CSI300 was down 3 1 percent while the Shanghai Composite Index SSEC fell about 2 6 percent Financial stocks led declines with the CSI financial sub index off 4 percent Chen Xiaopeng an analyst with Sealand Securities said more pessimism was on the cards for Chinese stock investors with the country s economic outlook hurt by prospects of a full blown trade war between Beijing and Washington It could take at least several months for the major stock indexes to bottom out he said Uncertainties will reinforce investors inclination to huddle together for warmth in outperforming sectors such as consumers and healthcare Chen said An index tracking healthcare firms is up nearly 20 percent so far this year while the Shanghai index is down around 15 percent Concerns about the world s second largest economy heightened following more signs of slowdown in the manufacturing sector Hong Kong s markets were closed on Monday for a public holiday to mark the 21st anniversary of the former British colony s return to Chinese rule The yuan fell 3 25 percent against the dollar in June and continued its slide despite a firmer than expected midpoint set by the central bank on Monday Investors don t care and spot yuan rates continued weakening a trader said If the yuan s decline intensifies Morgan Stanley NYSE MS economists wrote in a note on Monday that the Chinese central bank the People s Bank of China may step up intervention CNY may overshoot with shifting market expectations of policy stance amid higher trade tensions but we don t expect policymakers to encourage material RMB depreciation The PBOC could step up intervention if depreciation risk intensifies they wrote On Friday the last trading day of the month ING lowered its yuan forecast to 7 per dollar by the end of the year from a previous forecast of 6 6 citing risks to the policy outlook A weaker currency would at most be a shield safeguarding wider damage from a trade war and the hurdles faced by Chinese companies operating in the U S it said ING added it did not see any panic in the market ING s shift follows a similar move on June 24 by Deutsche Bank DE DBKGn which said it expected the yuan to depreciate to 6 8 per dollar by the end of this year and 7 2 by the end of 2019 It had previously forecast 6 4 yuan per dollar in each year The depreciation will be driven by an important change of policy stance from tightening to loosening it said
This version of the story was refiled to correct typo in headline |
MS | MUFG JV dropped as manager for bond issues after market manipulation DealWatch | TOKYO Reuters A joint venture of Mitsubishi UFJ Financial Group Inc T 8306 and Morgan Stanley N MS has been dropped as manager for bond issuances for three firms following an instance of market manipulation Thomson Reuters publication DealWatch reported on Monday Mitsubishi UFJ Morgan Stanley Securities Co Ltd had been co lead manager for a total of 130 billion yen 1 17 billion worth of bond issuances by Toray Industries Inc T 3402 and KDDI Corp T 9433 It was also managing the issuance of around 30 billion yen worth of bonds for Tokyo Gas Co T 9531 A person with direct knowledge of one of the issuances said liaison banks on Monday told potential investors that the brokerage was no longer involved with the issuance following a reprimand by Japan s securities regulator DealWatch reported A spokesman at Mitsubishi UFJ Morgan Stanley said the brokerage had no comment on clients actions We accept client decisions and will make every effort to regain trust the spokesman said The Securities and Exchange Surveillance Commission on Friday recommended the Financial Services Agency fine the brokerage around 2 million saying one of its dealers placed both buy and sell orders in August for a 10 year Japanese government bond futures contract without intention to execute The dealer aimed to create the impression of strong interest for the contract and the brokerage gained 1 58 million yen from related transactions the watchdog said The Mitsubishi UFJ Morgan Stanley spokesman said the brokerage acknowledged the findings Toray KDDI and Tokyo Gas told Reuters Mitsubishi UFJ Morgan Stanley was no longer managing their bond issuances They declined to comment on reasons |
JPM | China Stocks Recover as Earnings Economic Data Boost Sentiment | Bloomberg China s nervy stock market got a boost Monday after a handful of firms said earnings are improving while data also showed the economy may be stabilizing
The Shanghai Composite Index added 0 8 as of the mid day break rebounding from its worst week in two months The ChiNext Index of smaller companies rallied 2 3 Official data released Monday on factory output and retail sales growth beat estimates for June while investment in the first half of the year accelerated That s even as China s economy grew at the slowest pace since quarterly data began in 1992
Investors are now looking to the reporting season for clues on how corporate China is holding up While some fell short of expectations with Han s Laser Technology Industry Group Co and Dong E E Jiao Co down by the daily limit others including Beijing Lanxum Technology Co and Guangzhou Shangpin Home Collection Co surged after saying they were profitable in the first six half of 2019
Some ChiNext firms positive first half earnings are helping stocks especially those with low valuations said Zhu Junchun an analyst with Lianxun Securities Co The market may have priced in earnings expectations that are too high for some blue chips to deliver It s relatively easier for growth firms to record stronger than expected earnings
The rebound comes just as the imminent start of a new trading venue in Shanghai raised questions around whether the market was ready to absorb 5 4 billion in fresh supply Throw in an economic slowdown excessive large cap valuations and selling from overseas funds and Chinese shares were among the world s worst performers since Presidents Xi Jinping and Donald Trump agreed to resume trade talks
Some 577 companies including the tech board debutantes have applied to list on the mainland this year already twice last year s total according to data compiled by Bloomberg The number of applicants jumped by nearly seven times year on year in June A surge in new options tends to drag cash away from other stocks and the 25 tech board companies are set to raise about 20 more than initially planned
Foreign investors sold a combined 4 billion yuan 580 million of Chinese equities via the trading links with Shanghai and Shenzhen last week the most since May JPMorgan NYSE JPM Asset Management is among those selling emerging market assets due to worries about the trade war
Consumer staples have been the best performers in China over the past two weeks on bets domestic consumption will hold up The rally has made some of the more popular stocks expensive on a price to earnings basis a sign that the market may be peaking unless profit growth accelerates Liquor makers Wuliangye Yibin Co and Kweichow Moutai Co are near the highest multiples in more than a year Those two stocks slipped on Monday
The surprise government takeover of Baoshang Bank Co in May has had a ripple effect on lending conditions making it more expensive for corporates to borrow Investors are concerned that small and mid cap companies will see lower earnings because they have to pay more for funding said Yan Kaiwen analyst at China Fortune Securities
Updates with Monday trading throughout |
MS | MS The Most Bullish Of The Big Financials Charts | Morgan Stanley NYSE MS has spent the last eight years in the dog house its lower chart brown line channel
MS really looks like it wants to reclaim its upper black line channel that goes back to 2003 However MS is at a critical point at the moment as it would be good if it stayed on the topside of its blue channel and declared it no longer the active channel leaving it and continuing to climb its red line ascension channel into its large black line channel above Granted all the financials could become weak and drift lower at the first of the year after across the board six month record runs MS could survive this and continue higher even if it loses its blue channel because the lower line of its red channel is just below and could give it a second chance to go higher |
MS | Ex Morgan Stanley adviser sentenced to U S prison for fraud | By Nate Raymond BOSTON Reuters A former Morgan Stanley N MS adviser was sentenced to 20 months in prison on Thursday after he admitted that he misused client funds to invest in and support a wind farm project that a friend had decided to start Cornelius Peterson 29 was sentenced by U S District Judge Nathaniel Gorton in Boston who said the former financial adviser deserved a significant prison term for misusing hundreds of thousands of dollars from two clients accounts You were someone who didn t need the money Gorton said Well today you find that fraud and financial crimes that hurt people don t go unpunished Peterson who pleaded guilty in February to investment adviser fraud and bank fraud charges did not speak during the hearing In a letter to Gorton Peterson said he was ashamed and remorseful His lawyer Carol Starkey in court argued that he played a minor role in a scheme that his supervisor orchestrated Peterson s boss in Morgan Stanley s Boston office James Polese pleaded guilty in April to related charges He is scheduled to be sentenced in August According to his lawyers in 2013 Peterson became friendly with an entrepreneur investing in wind farm projects and offered to help him raise money for a private equity fund called Commonwealth Bay that would invest in them In 2014 Peterson who had become a member of the fund s board of directors transferred 100 000 from the account of one of his clients without his permission to invest in a wind farm project prosecutors said He did so along with Polese who had become an investor in the project which needed financing prosecutors said Both men later in 2015 used 400 000 from the account of an 86 year old long time client of Morgan Stanley to back a letter of credit in support of the wind farm project prosecutors said In addition both men without approval in 2016 transferred 350 000 from that same client s account which was used for a real estate investment and to pay for Polese s own and family s expenses according to court papers Mr Peterson took advantage of his clients and took their money for his own uses Assistant U S Attorney Sara Bloom said New York based Morgan Stanley fired both men in June 2017 The bank has said that it immediately terminated them after uncovering their misconduct and reported the matter to authorities
In addition to the prison sentence Peterson must pay 462 000 in restitution jointly with Polese |
MS | World stocks jump on lull in trade tensions euro gets summit boost | By Helen Reid LONDON Reuters World stocks enjoyed a strong bounce on Friday as a recovery in Asian markets spread to European shares after a turbulent week of selling as investors fears of higher barriers to trade came closer to becoming reality MSCI s index of world stocks rose 0 5 percent by 0800 GMT its strongest gain in three weeks but its second quarter was still set to be in the red as investors priced in U S tariffs that are set to be implemented next week The U S administration is due to activate tariffs on Chinese goods worth 34 billion on July 6 which is expected to prompt a tit for tat response from Beijing European stocks rallied strongly with the pan European STOXX 600 up 1 2 percent and Germany s trade sensitive DAX up 1 5 percent But trade wars have already mauled assets from the Chinese yuan to European autos stocks and wiped 1 75 trillion off world stocks market capitalization since June 12 The euro jumped after leaders at an EU summit reached an agreement on migration rising 0 5 percent to 1 1622 at 0800 GMT The outcome of the summit tells us something about the severity of the situation said Jan von Gerich chief analyst at Nordea in Helsinki I m not confident it will solve the underlying issues but there was a fear that the summit would fail and we could get a collapse of the German government so that risk premium is being priced out he said STOCKS GAIN YUAN PAIN While Asian stocks rose the Chinese yuan suffered its worst month on record losing 3 percent against the dollar in June as investors pulled money from a market likely to suffer from higher barriers to trade The Chinese yuan traded as low as 6 6441 to the dollar on Friday its lowest since November It traded at 6 6211 to the dollar around 0800 GMT Chinese shares rebounded from two year lows helped by news that Beijing would ease foreign investment curbs on sectors including banking automobiles heavy industry and agriculture But despite Friday s gains the CSI300 and Shanghai Composite are the world s worst performing major indexes this year In strong contrast to the yuan the U S dollar was set for its strongest quarterly gains since Q4 2016 helped by the U S Federal Reserve s move to raise interest rates in June and expectations of further hikes this year The dollar index edged down 0 5 percent to 94 924 and was up 0 1 percent against the yen at 110 65 European bonds diverged with the EU Summit migration agreement pushing Germany s Bund yields up while Italian 10 year government bond yields fell to a one week low The yield on benchmark 10 year Treasury notes rose to 2 8547 percent and the yield curve widened slightly to 33 3 basis points Many investors see its flattening to record lows as a sign recession may be around the corner Intensifying trade tariff fears contrasted with a still strong picture of the global economy and robust company earnings growth Our view for this year has been that asset markets would likely underperform the real economy as peaking growth momentum tighter financial conditions higher inflation and more volatility would act as a drag on valuations even as EPS trends remain solid said Morgan Stanley NYSE MS analysts cutting their index targets for MSCI Europe on Thursday Oil prices also came under pressure from trade frictions falling despite tight crude market conditions that had pushed prices to three and a half year highs on Thursday U S crude was 0 4 percent lower at 73 19 a barrel Brent crude rose 0 2 percent to 78 01 per barrel Gold remained near 6 1 2 month lows weighed down by trade worries interest rate expectations and the strong dollar Spot gold traded up 0 2 percent at 1250 78 per ounce but was still headed for its worst monthly performance since November 2016 GOL
Emerging stocks jumped 1 6 percent having hit a one month low in the previous session The index was set for its worst month since January 2016 as the rising dollar battered emerging economies |
JPM | JPMorgan aims to lower account minimums on new robo adviser tool | NEW YORK Reuters JPMorgan Chase Co N JPM intends to lower the minimum account balance on its new digital investment product You Invest Portfolios to as low as 1 000 an executive said Wednesday
The biggest U S bank by assets launched its robo adviser on Wednesday with a minimum account balance of 2 500 and an annual fee of 0 35 or 35 basis points of assets
You Invest Head Jed Laskowitz said that during the year they spent testing the product with a select group of employees and bank clients customers frequently said that lack of funds was a major reason they did not invest
We wanted to get the minimums to as low as possible said Laskowitz We hope to get to below 1 000 next year
The low cost investment platform matches customers with portfolios of the bank s exchange traded funds ETFs based on their risk tolerance and financial priorities Customers pay an annual fee and receive rebates for any fees associated with the ETFs
The robo adviser tool is an offshoot of You Invest a self directed investment platform the bank launched 10 months ago
Laskowitz did not say how many clients or assets You Invest has gathered so far He said that 90 of its customers are first time investors and that two thirds of the assets on the platform are new to the bank |
JPM | StockBeat Weight Watchers Gets Lift as JPMorgan Abandons Bearish View | Investing com Shares of Weight Watchers International surged on Thursday as JPMorgan upgraded its outlook on the stock ditching its bearish outlook on the company citing a stabilized subscriber trends
JPMorgan upgraded its investment rating on Weight Watchers NASDAQ WW to neutral from underweight and raised its price target on the stock to 22 from 17 sending the stock more than 7 higher
We believe that steps taken to redirect the marketing message to dieting have worked to stabilize recruitment trends JPMorgan NYSE JPM analysts wrote in a note to clients
The health and wellness company saw its stock tumble nearly 30 on Feb 26 after its fourth quarter results and guidance fell short of Wall Street s expectations prompting downgrades from a slew of analysts The stock had already been falling badly from a 52 week high of 96 47 reached in July 2018 It bottomed at 16 71 on May 31 and is 42 since
Still the shares are down 42 for 2019
Weight Watchers NASDAQ WW is down 42 so far this year
Weight Watchers NASDAQ WW is down 42 so far this year
Analysts had blamed the company s weaker quarter results on a plunge in subscriber growth amid poor communication about the shift to a more of wellness company than a weight loss company
But JPMorgan said the slump in earnings this year was starting to take a backseat to the potential growth opportunity brought on by the launch of a new diet program
We believe investors are beginning to look past the expected 50 earnings decline this year and instead focus on the potential growth opportunity in 2020 following the launch of a new diet program at the end of this year the bank said |
JPM | JPMorgan s 50 Billion Fund Halves EM Holdings on Trade Risk | Bloomberg A U S interest rate cut may be on the horizon but a JPMorgan NYSE JPM Asset Management fund is turning away from emerging market assets
The money manager s Global Income Fund has halved its holdings of developing nation fixed income and equities to 3 each opting instead to buy European corporate junk bonds and Treasuries according to its co manager Eric Bernbaum The 50 billion strategy is skeptical about emerging Asia s prospects due to the region s exposure to the U S China trade war
The area that we ve seen the most deterioration in and the most weakness is in the emerging markets complex particularly ex China New York based Bernbaum said by phone We re thinking of areas like Korea Taiwan Singapore those regions and countries that are very exposed to global trade uncertainty disruption of supply chains and waning demand
Bernbaum s call serves as a warning as traders celebrate the coming U S interest rate cut by piling into risk assets Even if the Fed eases Asia s export reliant economies must still contend with the damage wrought by the trade war with no sign that the dispute will be resolved anytime soon
While Washington has restarted high level talks with Beijing the truce is far from a game changer according to Bernbaum Thorny issues such as intellectual property rights and cyber security still persist U S President Donald Trump has complained that China didn t boost purchases of American farm products as promised by his Chinese counterpart Xi Jinping last month
I would say there would be no huge ground breaking resolution on the longer term structural issues Bernbaum said There s still going to be ongoing uncertainty
If recent data are any guide more weakness may be in store for emerging Asia s economies Shipments from South Korea fell 2 6 in the first 10 days of July with sales of semiconductors down by a quarter from a year earlier
Singapore s economy shrank an annualized 3 4 in the second quarter missing economists forecast for a 0 5 expansion a report showed Friday The city state s exports have been badly hit by a slump in the electronics sector
Fed Easing
The strategy among JPMorgan Asset s biggest mutual funds sold the bulk of its five year Treasuries holdings about a month ago and has been buying 10 year notes where it sees more value Bernbaum said before Fed Chairman Jerome Powell s testimony to Congress on Wednesday
If investors globally are looking for safe duration with some yield the U S 10 year the belly of the U S curve is actually not a bad place to be he said
JPMorgan expects the Fed to cut rates by a quarter of a percentage point in July and potentially once more by year end
Fed Chair Powell indicated on Wednesday that policy makers are preparing to lower interest rates due to a cooling global economy and no sign of overheating in the jobs market at home
Here are some of Bernbaum s other views
Slowing Growth
In the U S while economic growth is slowing it s only just slightly below trend and we re expecting it to stabilize around that between now and the rest of the year
While America will be impacted by the trade war it s less exposed than other areas of the world be it emerging markets Europe or Japan
Treasuries at 2
The low end of our range for 10 year Treasuries is about where we are today which is 2 Two to 2 75 is fair value We absolutely think there could be slight downside risk to that
We held our allocations in the shorter end of the curve we ve now switched that to be more in the belly of the curve which we think is less richly priced
We think the front end is very aggressively and in our opinion too aggressively pricing in the extent of cuts by the central bank but at the belly of the curve we find a bit more attractive because it s less tied to the immediate reaction to the Fed cuts
Junk Bonds
High yield is about 10 of our portfolio today we continue to like European high yield
Stabilizing growth with very accommodative monetary policy and lower interest rates will continue to be a supportive environment for carry
Adds Trump s remarks on China farm purchases in fifth paragraph and Singapore GDP in eighth paragraph |
MS | XRP Supported At 0 72 After Adding Morgan Stanley Veteran To Board | Ripple XRP Update After reaching the new high at 0 90 Ripple s XRP has been supported by the 23 Fibonacci level in the 0 72 zone This is despite the fact that Ripple added a former Morgan Stanley veteran Zoe Cruz to its board of directors on Tuesday
Ripple XRP Technical OverviewOn Thursday s Asian trading session Ripple XRP showed a strong bullish sentiment It s been supported by the 23 Fibonacci retracement level of 0 72 for the past week However it hasn t been able to reach the all time high level of 0 90 yet The next support level is set at the 38 Fibonacci level of 0 62 However just like its cousins XRP is unlikely to follow traditional market sentiment price actions
What s the Deal with Ripple Anyway Ripple Inc is the company that builds and maintains the Ripple network It has built a blockchain based system that banks use to issue IOUs and settle debts XRP is Ripple s asset and native token
What s XRP Used for XRP basically has two uses One is to pay fees on the Ripple network The other is being used as a bridge currency for value transfers between any two institutions that don t have a trusted relationship
However what cryptocurrency enthusiasts need to keep in mind is that XRP is not necessary for the Ripple network to function
Also with CBOE and CME launching their Bitcoin futures trading the probability of XRP becoming the global reserve has become a lot more difficult
What s New with Ripple XRP On a bright side Ripple continues to save its spot as the 4th largest cryptocurrency by market cap It is currently trailing behind and Bitcoin Cash
Furthermore to keep up with its ambitions Ripple has added a former Morgan Stanley NYSE MS veteran Zoe Cruz to its board of directors Why does this make sense to the San Fransisco based startup Ripple Because its business involves selling a Swift killing blockchain software to banks At the same time they are also working to persuade the banks to use XRP for cross border payments That s why having a Morgan Stanely veteran could help with the negotiations
Until the long term fate of Ripple s XRP is figured out we could expect a revisit of the all time high levels and more in the medium term
This article was originally published |
MS | Bitcoin Some Call It The Crash But Others Believe It Is Just A Bump | Bitcoin Ethereum Litecoin and other major cryptocurrencies have been on a wild ride this year and over the past 10 days the volatility that we have witnessed in the marketplace has been absolutely breathtaking On December 17th Bitcoin shot above 19 800 for a brief moment before it started plummeting dramatically At one point the price of Bitcoin dipped below 11 000 which represented close to a 45 percent decline from the record high that it had hit just five days earlier And Bitcoin was far from alone virtually every other major cryptocurrency was also down between 25 and 50 percent during that five day period But now almost all of them are bouncing back and at this moment the price of Bitcoin is 14 219 99
So where do things go from here
There are many that believe that in the short term the price of Bitcoin will fall back toward the actual cost of production It has been estimated that the cost to produce a new Bitcoin is currently between three and four thousand dollars and with the price of Bitcoin so high there is a tremendous incentive for Bitcoin miners to produce as many as possible right now
But there are others that are convinced that Bitcoin could eventually go to zero
Morgan Stanley NYSE MS analyst James Faucette and his team sent a research note to clients a few days ago suggesting that the real value of bitcoin might be 0
That s zero dollars Bitcoin stood at around 14 400 at the time of writing
To back up his assessment Faucette made the following arguments
Can Bitcoin be valued like a currency No There is no interest rate associated with Bitcoin
Like digital gold Maybe Does not have any intrinsic use like gold has in electronics or jewelry But investors appear to be ascribing some value to it
Is it a payment network Yes but it is tough to scale and does not charge a transaction fee
Faucette also pointed out that the number of online retailers that accept Bitcoin is actually falling Five of the top 500 e commerce merchants accepted Bitcoin during the first quarter of 2016 but now only three still do
In order for Bitcoin to have a sustainable long term future it must become a real currency that is widely used but many would argue that it is already being surpassed by better and newer options In fact one top cryptocurrency expert recent stated that the old Bitcoin network is as good as unusable
Emil Oldenburg the co founder of one of the world s largest sites devoted to the cryptocurrency recently called the cryptocurrency the most risky investment you can make after he switched to bitcoin cash which he considers to be the future
The old bitcoin network is as good as unusable said in an interview with Swedish tech site Breakit
That certainly doesn t sound promising but so far that hasn t stopped the price of Bitcoin from heading into the stratosphere So far in 2017 the price of Bitcoin has risen more than 1 400 and that number is extremely impressive no matter how you look at it
Of course virtually all of that digital wealth could disappear in just a matter of days during a major crash The CEO of Patriarch Equity Eric Schiffer believers that Bitcoin investments are eventually heading for
I think bitcoin is a tower of death Schiffer says It is going to result in the imminent death of your investment a thermonuclear death
Right now we are looking at a financial bubble that is bigger than the tulip craze and I believe that we are headed for a bitcoin crash that will supersede any financial worries of the 21st century he added People are going to be shocked when they try to liquify their bitcoins
Schiffer might be right
After all Bitcoin and other cryptocurrencies don t have any intrinsic value Essentially they are nothing more than digital creations that only have value because people think they have value
But those that got in back at the beginning and have cashed out now have made enormous amounts of money and nobody can deny that
With every form of investing they are winners and there are losers Unfortunately those that chose to jump in at the height of the madness could end up losing very big The following comes from
Betting on cryptos is a peculiar form of online gambling on a global scale that requires a consensus among participants that they only buy and that you cannot ever cash out and now that some folks are trying to cash out the bets for everyone else are souring The same dynamics that pushed prices up have reversed and are causing them to crash
But what if the naysayers are wrong
What if this current Bitcoin crash is just a bump in the road on the way to 40 000
Years ago the price of Bitcoin crashed 75 percent at one point What would have happened if the early investors had all bailed out then instead of holding on until now
Those that sold Bitcoin at 12 000 might end up really kicking themselves if the price of Bitcoin does hit 40 000 by the end of next year and that is exactly what some top experts are projecting
Billionaire investors and highly respected analysts including hedge fund investor Mike Novogratz prominent financial analyst Max Keiser and Fundstrat s Tom Lee stated that the price of bitcoin will likely surpass the 40 000 margin by the end of 2018 and achieve a 1 trillion market cap
And let us not forget that big names such as John McAfee and James Altucher are predicting that the price of Bitcoin will eventually reach one million dollars
To me this is absolutely fascinating On the one side you have financial experts that believe that Bitcoin is going to zero and on the other side you have financial experts that are projecting that someday a single Bitcoin will be worth one million dollars
I don t know which side will ultimately prevail but it will be a lot of fun to watch how everything plays out |
JPM | Crypto Investing How A Minority Wins A Majority In The Technological Race | Many years ago several hundred crypto enthusiasts included in a closed e mail list received a letter signed by Satoshi Nakamoto He said in his letter that he was working on creating a new electronic cash settlement system in which transactions were carried out directly between the participants without the involvement of a third party
Most of the recipients of this letter were skeptical about it Why There were many reasons A huge factor in this negative feedback laid in the fact that subscribers of the closed mailing were crypto punks a community of people interested in cryptography and anonymity as a tool for safeguarding individual privacy They were a minority
Perhaps this is the most interesting question for sociologists and futurologists How does a small group of people obsessed with their ideas take the place of the majority
The beginning steps of major social movements are often laid by the minority These at first shake up the majority and then in some cases the groundbreakers develop into the majority themselves The whole history of humanity is built around the opposition of the minority and the majority
An interesting proposal is presented by the former head of the Laboratory for Socio Psychological Research at the Graduate School of Social Research at the University of Paris The man in question Serge Moscovici suggested that the decisive factors influencing a minority are consistency self righteousness and the transfer of the majority to the minority s side
Let s explore that in regards to cryptography and blockchain s evolution
Consistency
If you look deep into the problem for many years now there has been a constant struggle between the authorities on the one hand and the crypto anarchists on the other Each of these parties have serious arguments The first one insists on Anti Laundering and KYC procedures because of the alleged threat of terrorism and drug trafficking The second part is fiercely pursuing the right to freedom in personal spaces on the Internet as well as anonymity
In 2019 we still see the existence of Bitcoin and its development as digital gold This clearly speaks about the perseverance of cryptographic and the reluctance to accept the rules laid forth by regulators Bitcoin and its derivatives are in great demand
Interestingly a consistent minority is influential even when it is not popular among the majority Our opinion leaders such as Vatalik Buterin Roger Ver Pavel Durov Charlie Lee and others are more likely to be at the center of the discussion and to give compelling arguments in defense of their position
In other words the influence of the majority is always normative You must do this and carry out these procedures Regulators pass on from the top their bills regulations rules of the game and required behavior The influence of the minority is informative They are fighting for the minds and thoughts of users If the minority consistently defends its position year after year then the majority begins to listen to the arguments of the minority But consistency alone is not enough
Self Righteousness
Demonstrating its perseverance and strength the minority is able to push the majority to rethink its position When a minority systematically expresses doubt in the wisdom of the majority representatives of the majority begin to freely express their own doubts and may even join the minority
How does it look in practice Just look to the rhetoric of regulators If ten years ago everything related to the blockchain technology was associated with drug trafficking and crime then in 2019 we would see the words of the President of the International Monetary Fund the State can and should play its part in supplying money to a crypto economy
Consistency self righteousness and the regular casting of arguments by opinion leaders turned the clock mechanism backwards Most listened to the crypto minority thesis But this is not enough
The Transition Of The Majority To The Minority Side
This is one of the most interesting stages The minority with its numerous years of perseverance was able to convince institutional players that tokens smart contracts stablecoins and digital democracy on blockchain are only a small part of the economy of the future
As such that began a massive transition of the majority to the side of the minority Telegram Messenger plans to launch its TON network the fall of this year The Japanese Mizuho Financial Group which has assets of 1 8 trillion plans to launch its stablecoin for payments and remittances Banking giant JPMorgan Chase NYSE JPM not wanting to stay behind plans to launch its own cryptocurrency JPM Coin Lastly Facebook NASDAQ FB is developing a secret crypto project for WhatsApp Messenger and Instagram which will provide an audience of about 2 7 billion people a month to the future tokens
What is the main conclusion The path of the minority is always very difficult Opposition will laugh at you You will have many skeptics and few supporters In the Satoshi Nakamoto case only one programmer Hal Finney believed in this groundbreaker and saw the prospects of blockchain Only one person Despite all this it s key to remember one main thing the minority rules the future and the majority will silently join you bit by bit
However it is necessary to understand that a new minority will appear then surely and overthrow us in the future This is the fate of the technological race
Sources Financial Times Entrepreneur com Barclays LON BARC Research Futurism com CNN com Bloomberg com |
JPM | MLP ETFs For Growth And Juicy Yields | 1 00 What Are MLPs And The Different Types 3 40 How are MLPs Taxed and What Are The Impacts 7 35 How Do The Tax Complications Impact ETNs 10 00 Overview of Alerian MLP ETF Energy Infrastructure ETF AMLP ENFR 14 10 How Do MLPs Correlate With Crude Oil Prices 16 25 What To Expect From MLPs and Crude Oil Prices Going Forward 21 00 How Do MLPs Correlate With Other Asset Classes In this episode of ETF Spotlight I talk with Jeremy Held director of research at ALPS Advisors We discuss investing in Master Limited Partnerships MLPs and related ETFs
Oil prices have rebounded in 2019 after a steep sell off late last year leading to a surge in MLP ETFs The most popular MLP ETF ALPS Alerian MLP ETF F AMLP is up almost 18 this year Further it has a very juicy dividend yield of about 8 But MLP investing can be complex and it is important for investors to understand tax implications
Most MLPs are in involved in processing and transportation of energy commodities such as natural gas crude oil and refined products They have benefitted a lot from oil and gas boom in the US Jeremy explains why investors find midstream MLPs particularly attractive
Since MLPs are structured as pass through entities they do not pay taxes at the entity level Individual MLPs issue complicated K 1s but some of the tax complexities can be avoided by owning them in a fund form Funds that have more than 25 of their assets invested in MLPs are treated as C corporations for tax purposes Please listen to the podcast to find out what that means for investors
While MLP ETNs like the JPMorgan NYSE JPM Alerian MLP Index ETN have some benefits due to their structure investors do not get any tax deferred distributions They should also remember than ETNs are unsecured debt instruments and carry credit risk
AMLP the largest MLP ETF holds energy infrastructure MLPs that earn the majority of their cash flow from midstream activities It is structured as a C corporation
The Alerian Energy Infrastructure ETF holds energy infrastructure companies in the US and Canada Jeremy explains the differences between the two
Most MLPs operate under long term contracts So they have relatively consistent and predictable cash flows unlike exploration and production E P companies whose profits are highly correlated with commodity prices We discuss how MLPs are correlated with crude prices
We also discuss the outlook for oil and MLPs Do valuations look attractive at the current levels
How are MLPs correlated with major asset classes Do they add any diversification benefits to the portfolios
Tune into the podcast to learn more
Please visit if you want to learn more about these products Make sure to be on the lookout for the next edition of ETF Spotlight If you have any comments or questions please email podcast zacks com |
JPM | Long Term Prospects For Emerging Markets Puts 3 Funds On Top | Certain global trends may be turning into tailwinds for the emerging markets this year The Fed s dovish outlook economic stimulus in China and a possible resolution to the U S China trade war in the near term are some major positives poised to help emerging markets grow faster
Emerging Markets Could Outpace U S Markets
Emerging markets have put up a solid performance since the beginning of this year with the MSCI Emerging Markets Index registering 10 8 growth on a year to date basis Political stability in the emerging economies and their central banks turning more accommodative have boosted emerging markets
According to Jim Paulsen of The Leuthold Group emerging markets have considerably outperformed developed markets during the final years of economic and market cycles for the last three bull markets since the mid 1990s Given the positive political and economic factors affecting the region this year emerging markets should perform better a Market Watch report cited
Dovish Fed Trade Deal to Boost Emerging Markets
The Federal Reserve has adopted a defensive stance this year among global growth worries by keeping its benchmark rates unchanged While this dovish attitude may not be good news for American lenders owing to the lower interest rates and a flatter yield curve it could prove highly beneficial for the emerging markets
An accommodative Fed tends to weaken the dollar which could boost emerging market stocks After all a weak greenback drives commodity prices higher Since many emerging countries sell commodities they stand to benefit
In addition to the Fed s dovishness a possible trade deal between the world s two largest economies could propel emerging market stocks higher American and Chinese officials are set to meet in Beijing next week to conclude a trade deal which could surely diminish tensions over tariffs and raise interest in emerging markets
Emerging Market Stocks Less Pricey
Investing in emerging markets takes significantly less capital as emerging market stocks are less inexpensive than U S stocks Also emerging market securities are largely under owned and are likely to turn around Fund managers will feel the need to raise their exposure to emerging market securities as they outperforms
China s Measures to Fuel its Slowing Economy
The Chinese government in particular has implemented steps to stimulate its slowing economy amid global growth worries which could definitely boost corporate earnings and equities
Per a CNBC report the country s central bank pushed 560 billion yuan about 83 billion into its banking system in a bid to ease its stressed economy This measure could boost the overall scenario for the emerging markets in Asia
Why Invest in Emerging Market Mutual Funds
Despite the encouraging factors in emerging markets owning their stocks could prove difficult for American retail investors Therefore one can increase their portfolio s exposure to emerging market securities through mutual funds
Moreover reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds read more
Our Choices
We have highlighted three mutual funds that invest in emerging markets and are well positioned for gains These funds also carry a Zacks Mutual Fund Rank 1 Strong Buy or 2 Buy Moreover these funds have encouraging three and five year returns Additionally the minimum initial investment is within 5000
We expect these funds to outperform peers in the future Remember the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers Unlike most of the fund rating systems the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund
DWS Emerging Markets Equity S aims for long term capital appreciation The fund invests a minimum of 80 of its net assets in equity securities of emerging market companies The fund has minimum initial investment of 2500 As of Feb 28 2019 SEMGXhad 21 8 of its investments in China
This Sector Non US Equity product has a history of positive total returns for over 10 years To see how this fund performed compared in its category and other 1 and 2 Ranked Mutual Funds
SEMGX has a Zacks Mutual Fund Rank 1 and an annual expense ratio of 1 01 which is below the category average of 1 36 The fund has three and five year returns of 16 5 and 5 5 respectively
Fidelity Series Emerging Markets Debt seeks high total return The fund invests the majority of its net assets in securities of emerging market issuers FEDCX is a non diversified fund
This Sector Non US Equity product has a history of positive total returns for over 10 years To see how this fund performed compared in its category and other 1 and 2 Ranked Mutual Funds
FEDCX has a Zacks Mutual Fund Rank 1 and an annual expense ratio of 0 which is below the category average of 1 08 The fund has three and five year returns of 8 3 and 5 5 respectively The fund has no minimum initial investment
JPMorgan NYSE JPM Emerging Markets Equity A aims to provide high total returns by investing in a portfolio of equity securities from emerging market companies The fund is known to invest at least 80 of its net assets in investments of emerging markets As of Feb 28 2019 the fund had 20 4 of its investments in China
This Sector Non US Equity product has a history of positive total returns for over 10 years To see how this fund performed compared in its category and other 1 and 2 Ranked Mutual Funds
JFAMX has a Zacks Mutual Fund Rank 2 and an annual expense ratio of 1 24 which is below the category average of 1 36 As of Feb 28 2019 the fund has three and five year returns of 17 2 and 5 6 respectively The fund has minimum initial investment of 1000
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MS | Outright Bear Ahead for Emerging Markets Morgan Stanley Says | Bloomberg Emerging market economies witnessing an equity selloff have more than just the U S China tension to blame said Jonathan Garner Morgan Stanley s chief Asia and emerging markets strategist
There s also accelerated tightening in the U S a rollover in global growth outside of the U S including in emerging markets as well as risks around oil price strength the Hong Kong based Garner told Bloomberg Television
This is a dangerous market Garner said We now think we re heading to an outright bear market
The diverse troubles convinced Morgan Stanley NYSE MS strategists to lower their 12 month target for the MSCI emerging markets gauge to 1 000 from 1 160 Garner noted that the team has been worried since the end of 2017 about how a softening in equities would play out in emerging markets
Movement in interest rates on the back of Federal Reserve tightening as well as trade protectionism and the Chinese renminbi s weakening against the dollar since the end of April could all help cause stock indexes such as the Hang Seng to adjust to the downside quite rapidly Garner said
Oil prices that have charged ahead this year have been a drag for more than 80 percent of emerging markets even as they provide a boost to some oil exporting economies such as Russia Colombia and Mexico he said
Amid heightened U S China trade tensions Garner said he s watching how auto stocks have been suffering particularly in Europe and Japan He sees earnings estimates for technology hardware such as semiconductors and mobile phones coming down and a global tightening cycle is pressuring financial sector equities as economies move faster than anticipated on interest rate hikes |
MS | At Home Group 7 2 on Morgan Stanley upgrade 29 upside | Morgan Stanley NYSE MS upgrades At Home Group NASDAQ HOME from Equal Weight to Overweight and raises the price target from 35 to 47 a 29 upside to yesterday s close At Home Group shares are up 7 2 to 38 98 Now read |
MS | Trade War Hits Stocks as 8 Trillion in Bear Market Inside EM | Bloomberg Stocks in developing nations slumped as heightened concern that a trade war will sap global economic growth put equity gauges worth 8 trillion in a bear market Currencies also retreated and are heading toward their worst month since November 2016
The MSCI Emerging Markets Index sank to the lowest in 10 months while 18 out of 24 currencies tracked by Bloomberg fell The Shanghai Composite Index has tumbled 20 percent from its peak in January with China joining nations such as Turkey and Pakistan in crossing that threshold The risk premium on sovereign bonds over U S Treasuries widened
Traders are grappling with conflicting signals after President Donald Trump hinted Tuesday at a less confrontational path toward curbing Chinese investments in sensitive U S technologies His remarks seemed to favor the approach of Treasury Secretary Steven Mnuchin over National Trade Council Director Peter Navarro Earlier President Xi Jinping reportedly said he would strike back In addition to tension between the world s two biggest economies traders are assessing a scenario of accelerated tightening by the Federal Reserve and impact of higher oil prices
This is a dangerous market said Jonathan Garner Morgan Stanley s chief Asia and emerging markets strategist We now think we re heading to an outright bear market
ANALYSIS
Pimco Says Grand Strategic Bargain Possible to Avert Trade War
From Turkey to China Bear Markets Spread Across Emerging World
MSCI s EM Currency Index Is at Critical Juncture Rabobank Says
Allianz DE ALVG Says Emerging Markets Might Get Hurt as Dollar Climbs
Acadian Sees Very Good Value in Stocks of Fragile Five Nations
LATAM
ARGENTINA
Merval Index decreased 1 3 percent to 28 447 57
Peso fell 0 1 percent to 27 10 per dollar
Nation kept interest rates on hold at 40 percent as seen by economists
I still don t think we can say the currency tension episode has ended It would be a bad signal for market expectations if the new administration debuted with an interest rate cut said Gabriel Zelpo chief economist at Elypsis
TCW Group s Mauro Roca said it s difficult to call peso overvalued
Economic activity posted its largest contraction in April since President Mauricio Macri took office in December 2015 according to INDEC
BRAZIL
Ibovespa rose 0 3 percent to 71 179 25
Real decreased 0 6 percent to 3 80 per dollar
10 year local bond yield dipped eight basis points to 11 90 percent
Central bank said uncertain scenario was main reason for them to avoid clearly signaling next rate moves
Morgan Stanley NYSE MS raised Brazilian mall stocks to overweight
Supreme Court Minister Edson Fachin who canceled trial of ex president Luiz Inacio Lula da Silva s appeal previously scheduled for this week sent case to be debated on Court floor
Former finance minister Henrique Meirelles said he s willing to self finance his campaign for president
How to Make Money Off Brazilian Stocks When They Are Sinking
MEXICO
Mexbol index climbed 0 4 percent to 46 913 86
Peso fell 0 3 percent to 19 9483 per dollar
10 year local bond yield declined eight basis points to 7 686 percent
Alfonso Romo economic adviser to presidential frontrunner Andres Manuel Lopez Obrador told Reuters the peso is undervalued and promised to strengthen it
Trading volumes are above average while liquidity conditions slightly worse than average which may exaggerate price moves as short MXN positions unwind according to NY based traders
Federal Reserve Bank of Dallas President Robert Kaplan said the U S would be much more potent fighting threat of China if it weren t engaged in battles with friends such as Mexico
Click for market news on ANDES
EMEA
TURKEY
Borsa Istanbul 100 Index increased 0 4 percent to 94 408 19
Turkish lira gained 1 5 percent to 4 613 per dollar
Veteran investor Mark Mobius recommends buying lira as a weak currency is not necessarily a bad thing
Moody s said recent policies by Erdogan administration have heightened Turkish corporates and banks exposure to currency depreciation and the economy s exposure to the widening current account deficit
Nomura economist Inan Demir said election outcome doesn t solve most important question for Turkish economy how to avoid a hard landing
RUSSIA
MOEX Russia Index declined 0 1 percent to 2 234 51
Ruble sank 0 5 percent to 63 1025 per dollar
10 year local bond yield rose 10 basis points to 7 75 percent
Interfax reports government may borrow up to 3 billion externally
Short term outlook mixed for ruble with OPEC raising output positive and trade war tensions a spoiler said Igor Rapokhin an analyst at BCS brokerage
Record low inflation set to surge higher next year according to Bloomberg Intelligence
SOUTH AFRICA
FTSE JSE Africa All Share Index sank 1 1 percent to 49 138 59 lowest in almost 12 weeks
Rand little changed at 13 5439 per dollar
9 year local bond yield fell two basis points to 8 886 percent
Fear is that full blown trade war will nudge U S economy into a recession and leave South African markets vulnerable amid flight to safe haven assets said FirstRand Bank fixed income trader Michelle Wohlberg
Moody s says move to change constitution to allow expropriation without compensation could deter investment
Inflation set to accelerate on food costs in the second half of 2018 according to Bloomberg Intelligence
Click for market news on POLAND and HUNGARY
ASIA
CHINA
Shanghai Composite Index sank 0 5 percent to 2 844 51 lowest in about two years
Offshore yuan dipped 0 6 percent to 6 5818 per dollar weakest in about six months
10 year local bond yield dropped one basis point to 3 585 percent
Benchmark equity gauge entered a bear market amid growing concern about the country s resilience to a trade war
China Stock Rout May Worsen Analysts Warn No End in Sight
President Xi Jinping told a group of U S and European CEOs that he will strike back at U S trade measures the Wall Street Journal reported
Finance Ministry says it plans to sell 5 billion yuan bonds in Hong Kong soon
China ETF That Lured Millions Turns Sour as Trade War Escalates
INDIA
Sensex Index increased 0 1 percent to 35 490 04
Rupee decreased 0 2 percent to 68 251 per dollar
10 year local bond yield fell one basis point to 7 8286 percent
While rising trade tensions weigh on sentiment India should outperform as oil prices stabilize and domestic flows remain strong said Sunil Sharma CIO at Sanctum Wealth Management
Prime Minister Narendra Modi said government is firmly committed to path of fiscal consolidation
Macro stress tests indicate the gross bad loan ratio of Indian banks may rise to 12 2 percent by March 2019 from 11 6 percent year ago according to RBI s Financial Stability Report
Traders are awaiting a decision on farm support prices to gauge inflation outlook
Click for more on markets in ASIA |
MS | Morgan Stanley Sees Rolling Bear Reaching High Quality Stocks | Bloomberg The Federal Reserve s monetary tightening and a less synchronized global economic expansion is dealing a series of blows to financial markets in a pattern that ultimately will encompass higher quality U S stocks according to Morgan Stanley NYSE MS
Riskier assets have been hit first before investors move on to securities perceived as safer chief U S equity strategist Mike Wilson said in an interview on Bloomberg Television While emerging market equities have been hammered this month the U S S P 500 Index is still up for June
That s basically our call for the year that we are in a kind of rolling bear market Wilson said on the Bloomberg Markets show We are not seeing an 08 scenario where everything gets hit at once it s selectively hitting markets one by one and it s a rolling sort of correction
The recent sell off in U S technology stocks is an example of that Wilson said The U S tech sector has been the only one in the U S to see valuations climb this year as money flowed into better quality stocks he said Now maybe even some of these highest quality stocks have gotten too expansive and maybe need to be hit a little bit he said
The failure of 10 year U S Treasury yields to hold above 3 percent over the past several weeks is a key sign of investors shift in sentiment according to Wilson Morgan Stanley last week concluded the peak for the year is now already behind for the benchmark amid brewing trade tensions and a stronger dollar
The fact that it can t get above 3 percent that s concerning he said It s signaling two things number one that growth is peaking doesn t mean recession and number two that the Fed may be further along than people think that they have tightened a lot already because don t forget their balance sheet is reducing at the same time as they are raising interest rates And that s draining liquidity
One section of the market that may be protected against the rolling bear is U S small caps he said Relative earnings growth for those companies is going to be superior this year because of tax cuts he said And being more domestically focused they are seen less vulnerable to hits from Trump administration trade policies
Wilson anticipates a more aggressive rotation into defensive stocks such as utilities telecom services health care and consumer staples as growth slows and the U S Treasury yield curve heads toward inversion |
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