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MS | Oil hits multi week lows as OPEC and Russia look to raise output | By Ahmad Ghaddar LONDON Reuters Oil prices extended losses on Monday as Saudi Arabia and Russia said they may increase supplies while U S production gains show no sign of slowing Brent crude futures LCOc1 stood at 75 22 a barrel at 1526 GMT 11 26 a m ET down 1 22 from the previous close The contract touched a three week low of 74 49 earlier in the session U S crude futures were at 66 49 down 1 39 after hitting a six week low of 65 80 The spread between the two contracts reached 9 38 a barrel its widest since March 2015 Trading was light due to public holidays in the United States and United Kingdom The Organization of the Petroleum Exporting Countries OPEC and other producers led by Russia began withholding 1 8 million barrels per day bpd of supplies in 2017 to tighten the market and prop up prices that in 2016 fell to their lowest in more than a decade at less than 30 a barrel Prices have soared since the start of the cuts last year with Brent breaking through 80 this month triggering concerns that high prices could crimp economic growth and stoke inflation The pace of the recent rise in oil prices has sparked a debate among investors on whether this poses downside risks to global growth Chetan Ahya chief economist at U S bank Morgan Stanley NYSE MS wrote in a weekend note To address potential supply shortfalls Saudi Arabia the de facto leader of OPEC and top producer Russia have been in talks about easing the cuts and raising oil production by 1 million bpd Russian Energy Minister Alexander Novak said a return to October 2016 production levels the baseline for the current supply pact was one option for easing curbs Given that our crude balance is short some 825 000 bpd over the second half of the year a gradual increase of about 1 million bpd would probably limit stock draws to quite some extent Vienna based consultancy JBC Energy said Meanwhile surging U S crude production showed no sign of abating as drillers continued to expand their search for new oilfields to exploit U S energy companies added 15 rigs looking for new oil in the week ending May 25 bringing the rig count to 859 its highest since 2015 in a strong indication that American crude production will continue to rise
U S crude output has already surged by more than 27 percent in the past two years to 10 73 million bpd ever closer to Russia s 11 million bpd |
MS | How the world s biggest private equity oil and gas industry bid collapsed | By Sonali Paul
MELBOURNE Reuters Blame it on Trump Iran or Venezuela Rising oil prices combined with a heavy debt load killed the world s biggest private equity oil and gas industry deal last week
Harbour Energy left Australia empty handed after a year of chasing gas producer Santos Ltd AX STO missing out on Santos stakes in three liquefied natural gas projects in Australia and Papua New Guinea as it sought to become a major LNG player
The U S firm backed by EIG Global Energy Partners was forced to bid against itself five times including twice over one weekend until it made a final offer of 10 8 billion up more than 50 percent from its first approach last August
The grievance runs deep and it s heartfelt said a person in the Harbour camp
Harbour Chief Executive Linda Cook a former senior executive at Royal Dutch Shell L RDSa was on a plane last Tuesday when she heard Santos had rejected its sixth offer worth about A 6 95 a share She declined to comment for this story
Harbour s disappointed chairman Blair Thomas was already back in Washington DC and didn t mince words
There was insufficient engagement with Santos on valuation no meaningful attempt by Santos to discuss a realistic price which could supported by any reasonable set of technical and commercial assumptions and an unwillingness by their Board to explore means of closing the gap between the offer and their expectations he said in a two page statement
Thomas believed by the end of a weekend of back and forth between advisers on both sides that he had a deal with Santos Chairman Keith Spence a person in the Harbour camp said
Harbour s team were parked in Sydney where Harbour s backer EIG has an office and advisers at JPMorgan NYSE JPM Morgan Stanley NYSE MS and Highbury are based according to people involved A couple of hundred people were involved in analyzing data and conducting due diligence they said
Cook and Thomas met Kevin Gallagher and Keith Spence their counterparts at Adelaide based Santos on May 18 They felt encouraged the board would facilitate an offer going to shareholders people in the Harbour camp said
People on both sides said talks were cordial the whole time but the Santos board was firm on value and Harbour failed to offer enough of a premium as oil prices marched higher
Crude prices climbed from around 52 a barrel when Harbour made its first approach in August to 80 last week their highest since late 2014 as U S President Donald Trump imposed sanctions on Venezuela and pulled out of a nuclear arms control deal with Iran both key oil producers
What hurt Harbour was the 7 75 billion in debt they had lined up from JPMorgan and Morgan Stanley which required oil price hedging against 30 percent of Santos oil linked LNG sales making the deal complex Santos investors and bankers said
The problem is when you get high leverage deals there are a lot of terms and conditions you have to meet and it makes it inflexible said a veteran Australian investment banker not involved in the bid
Santos balked when Harbour tried to force the company to lock in the hedges in order to cut costs for the banks and allow Harbour to raise its offer
Santos said it was resilient to the oil price fall as it has slashed costs to be cash flow breakeven at 36 a barrel
The value of the Harbour bid was simply not compelling enough compared with Santos own growth plan the risks associated with the hedging and the reliance on Santos balance sheet to help fund the deal a Santos spokeswoman said
FURIOUS CHINESE
Not only was Harbour jilted at the altar but the biggest shareholders in Santos Chinese gas distributor ENN Ecological and private equity firm Hony Capital missed out on more than doubling their combined stake to up to 40 percent in a privatized Santos
Sources said ENN and Hony were as furious as Harbour
They re deeply disappointed and angry and frustrated a person close to ENN said They feel that the outcome didn t reflect some of the conversations with senior Santos people
However in a statement to the Shanghai Stock Exchange last week ENN which has a director on the board of Santos said The company s future cooperation with Santos is not affected
A Santos spokeswoman said ENN is part of a united Santos board and the company s strategic relationship with ENN and Hony remains in place
Hony said it will closely follow the further development
Swiss energy and commodities trader Mercuria which was set to contribute 10 percent of the bid was thwarted in its ambition to use Santos to get into LNG trading where its rivals Glencore LON GLEN Gunvor Trafigura and Vitol are already active
A lot of time and money went into this so it is annoying said a person familiar with Mercuria s thinking
Mecuria declined to comment
Harbour s first approach last August was swiftly rejected by the board under then chairman Peter Coates who had also rebuffed a 5 1 billion takeover offer two years earlier when Santos was wallowing in debt as oil prices collapsed
The August approach was only disclosed by Santos in November after a newspaper outed Harbour It took Harbour until March to line up funding from JPMorgan and Morgan Stanley and equity from Mercuria ENN and Hony in order to make another approach
Top 10 shareholder Argo Investments said the deal was too complex and would have involved Santos taking on too much risk when there was a lot of uncertainty around whether it would be approved
Shareholders have faith in CEO Gallagher who slashed costs and cut debt faster than expected over the past two years
It s fair to say that he s done a pretty good job said Argo Investments Managing Director Jason Beddow
The proof will be in the pudding as to how Santos looks in a year or two s time which is somewhat dependent on the oil price |
MS | Italian bonds suffer worst day in more than 25 years | By Dhara Ranasinghe and Abhinav Ramnarayan LONDON Reuters A deepening political crisis in Italy the euro zone s third biggest economy fueled a heavy selloff in Italian assets and the euro reminiscent of the euro zone debt crisis of 2010 2012 Short term Italian bond yields which move inversely to price were set for their biggest one day jump since 1992 IT2YT RR while Italian and wider euro zone banking stocks were set to suffer their worst day since August 2016 FTIT8300 Italy s president has set the country on a path to fresh elections by appointing a former International Monetary Fund official as interim prime minister with the task of planning for snap polls and passing the next budget The concern is that fresh elections could deliver an even stronger mandate for Italy s anti establishment eurosceptic politicians The spectacular rise of 2 year yields in Italy this morning reflects break up or redenomination fears Martin van Vliet ING Bank s senior fixed income strategist said The 5 Star Movement and far right League have dropped plans to take power and have switched to campaign mode 5 Star have also called for street protests against President Sergio Mattarella s rejection of their nominee for economy minister 81 year old Paolo Savona who has argued for Italy to quit the euro zone Italy s central bank chief warned on Tuesday that the state was only ever a few short steps from losing investors trust The ECB s bond buying program has provided a powerful backstop to euro zone government debt although moves in Italian markets suggest that this buffer may have lost its punch The closely watched Italian German 10 year bond yield spread seen by many investors as an indicator for sentiment towards the eurozone was at its widest level since June 2013 IT10YT RR DE10YT RR The spread rose above 300 basis points having almost tripled from end April levels around 115 bps To view a graphic on Italian German bond spread widest in half a decade click With such an unclear Italian political situation investors will continue to demand a significant uncertainty premium said Isabelle Vic Philippe head of euro government bonds at Amundi one of the Europe s largest investors Italy s 2 year yield spiked more than 150 bps to 2 73 while 10 year bond yields jumped 50 bps to their highest level in over four years at 3 38 percent IT10YT RR Italian bond yields traded above their U S Treasury yields US10YT RR for the first time in almost a year To view a graphic on Worst day for Italian 2 year bond yields since 1992 click It s all driven by Italian BTP bond futures there are little volumes on the cash market The sell off is linked to worries that the upcoming general election will be a referendum on the euro said a Milan based trader The cost of insuring exposure to Italian risk in the five year credit default swaps market rose to a 4 1 2 year high of 225 basis points a jump of 49 basis points on the day data from IHS Markit showed A rush to safe havens pushed Germany s 10 year bond yield to 0 19 percent DE10YT RR its lowest in more than a year BANKS RISKS The selloff also engulfed broader Italian markets Italy s main stock index FTMIB fell to a 9 month low down more than 3 percent on the day with banks bearing the brunt of the losses due to their large sovereign debt holdings The bank index FTIT8300 fell 5 percent to a fresh 13 month low and several stocks automatically suspended from trading for excessive losses It is the worst day for the Italian banks index since August 2016 U S bank Morgan Stanley NYSE MS recently said that Italian bond yields of above 2 4 percent could spark wider market and economic contagion by hitting the bottom line of banks that hold a sizable chunk of their assets in government debt Euro zone banks SX7E slumped 4 5 percent set for their biggest one day fall in 21 months The euro also fell sharply Against the dollar EUR EBS it fell 0 8 percent to 1 1531 its weakest since early November Against the Japanese yen EURJPY EBS the single currency plunged to its lowest level since June 2017 at 125 10 yen Spain s bond yield spread with Germany pushed out also by political worries in Madrid was at its widest in over a year at 143 bps ES10YT RR Spanish Prime Minister Mariano Rajoy will face a vote of confidence in his leadership on Friday as corruption convictions handed down to dozens of people linked to his centre right People s Party threatened his six year rule
Taking any position in Italian debt long or short is dangerous right now said David Roberts Head of Global Fixed Income Liontrust Asset Management |
MS | Wall Street falls on Italy worries bank shares drop | By April Joyner NEW YORK Reuters The S P 500 and the Dow Jones Industrial Average registered their biggest one day percentage drops in a month on Tuesday as political turmoil in Italy sparked concerns about the stability of the euro zone and shares of U S banks tumbled Italy has been unable to assemble a coalition government since inconclusive elections in March which saw the rise of anti establishment parties that support leaving the euro The most recent nominee for prime minister failed to secure support from the country s major political parties The political crisis in Rome and the threat to the euro project it represents triggered a rush to traditional safe havens like U S debt pulling down U S 10 year Treasury yields and in turn spurring losses for U S banks Shares of S P 500 banks registered their biggest one day decline in more than two months ending more than 4 percent lower The direct connection between the Italian government and the S P 500 is tenuous but it indirectly reminds people of geopolitical uncertainty said Ed Keon chief investment strategist at QMA in Newark New Jersey The Dow Jones Industrial Average fell 391 64 points or 1 58 percent to 24 361 45 the S P 500 lost 31 47 points or 1 16 percent to 2 689 86 and the Nasdaq Composite dropped 37 26 points or 0 5 percent to 7 396 59 Shares of large U S banks were also pressured by downbeat guidance from JPMorgan Chase Co NYSE JPM and Morgan Stanley NYSE MS JPMorgan s corporate and investment bank chief said his bank s second quarter markets revenue would be flat compared with a year earlier The co head of Morgan Stanley s wealth management division said activity had slowed since March according to a CNBC report JPMorgan Chase shares which fell 4 3 percent were the biggest drag on the S P 500 Morgan Stanley shares dropped 5 8 percent the second largest percentage decline on the index It s evolving into not the greatest environment for bank stocks said Tim Ghriskey chief investment strategist at Inverness Counsel in New York Shares of energy companies were also led lower by a drop in U S crude oil futures on expectations that Saudi Arabia and Russia could pump more crude to compensate for a potential supply shortfall O R Declining issues outnumbered advancing ones on the NYSE by a 1 49 to 1 ratio on Nasdaq a 1 63 to 1 ratio favored decliners The S P 500 posted seven new 52 week highs and 12 new lows the Nasdaq Composite recorded 95 new highs and 51 new lows
Volume on U S exchanges was 7 58 billion shares compared to the 6 58 billion average over the last 20 trading days |
MS | Trump Raises Pressure on China With Swerve on Tariff Plans | Bloomberg President Donald Trump said he s moving ahead with plans to impose tariffs on 50 billion of Chinese imports and curb investment in sensitive technology ratcheting up pressure on Beijing days before the next round of trade negotiations
In a statement Tuesday the White House said a final list of targeted imports will be released by June 15 and the tariffs will be imposed shortly thereafter It s the most specific the administration has been about the timing for the duties to take effect
The administration also said new restrictions on Chinese investment and enhanced export controls will be announced by June 30 and then implemented shortly after China s commerce ministry responded hours later with a statement saying it was surprised by the U S announcement and remains confident the country can protect its interests
It s the latest twist in a trade dispute between the U S and China that has roiled financial markets for months and prompted the International Monetary Fund to warn of a trade war that could undermine the broadest global upswing in years The announcement raises the stakes for the third round of talks between the two economies Commerce Secretary Wilbur Ross is scheduled to meet with officials in Beijing on June 2 4 to continue negotiations
The decision to move forward with the tariffs could stop those planned talks the Wall Street Journal reported on Wednesday citing sources in both countries A team of U S officials was scheduled to arrive in Beijing on Wednesday to discuss the broad outline of those talks but if the two sides failed to reach agreement on what would be discussed Ross trip could be canceled the report said
Asian equities slid Wednesday as concerns about the repercussions of Italy s political turmoil and the renewal of trade tensions between the U S and China gripped financial markets The yen extended gains while Treasury yields seemed to stabilize after a plunge Tuesday
While trade disputes remain a risk to China s economic outlook the countries will likely find common ground said Robin Xing chief China economist at Morgan Stanley NYSE MS He sees the nation buying an additional 60 billion to 90 billion of American goods over several years
The two parties can reach a deal by China increasing imports he said Wednesday in a Bloomberg Television interview from Beijing De escalation over time through negotiation remains our base case because we see areas where China and the U S can find some middle ground to make some mutually beneficial progress for example to meet China s own demand for upgrading consumption
Trump has vacillated in recent weeks on how hard to push Beijing over issues such as tariffs and intellectual property The dispute began in March when his administration threatened to slap tariffs on as much as 50 billion in Chinese shipments to punish Beijing for violating American I P rights
Chinese state media reacted with dismay to the newest u turn though pledges to retaliate were muted
The world faces an extremely mercurial White House administration an editorial in the Global Times read The Chinese government has the ability and wisdom to handle such situations
After Beijing promised to retaliate in kind to any duties the president raised the ante to slap tariffs on an additional 100 billion in Chinese goods However the U S has yet to publish a list of target products for the 100 billion and the White House statement on Tuesday made no reference to the second potential tranche of duties
The U S tariffs threat has been widely opposed by industry leaders and some members of Congress who warn the duties could end up raising costs for American consumers devastating farmers and hurting other exporters if China proceeds with retaliatory duties
Conflicting messages coming from the administration is causing whiplash for American companies that are focused on growing the economy and creating jobs here at home the Virginia based Retail Industry Leaders Association said in an emailed statement We support the administration s decision to hold China accountable for their bad behavior But retailers strongly believe igniting a global trade war will cause casualties
Congressional Pressure
U S Chamber of Commerce President Thomas Donohue in an emailed statement said We continue to believe that the use of tariffs puts all the burden on American companies and consumers
Trump is also under pressure from Congress to stay tough on China especially Chinese telecoms equipment maker ZTE Corp HK 0763 Last week the president said he would allow ZTE to stay in business after it pays a 1 3 billion fine shakes up its management and provides high level security guarantees
China pressed the U S to give ZTE a break after the Commerce Department cut off the company from U S suppliers to punish it for allegedly lying to American officials in a sanctions case Republican Senator Marco Rubio and other lawmakers from both parties have criticized Trump s leniency toward ZTE arguing that doing business with the company presents a risk to national security
Top Senate Democrat Chuck Schumer who has previously praised Trump s tariffs plan urged the president to be strong tough and consistent in addressing China s trade policies
Stick With It
The White House outline for imposing the tariffs announced on Tuesday represents the kind of actions we have needed to take for a long time Schumer said in an emailed statement But the president must stick with it and not bargain it away
When Trump announced the initial plan to impose tariffs he also instructed the Treasury Department to draw up new curbs on investments in the U S by Chinese companies The Treasury has presented its findings to the president but its conclusions haven t been made public
The latest signal from the White House sounds like the more hawkish wing of Trump s trade team is trying to amplify its hard line after Treasury Secretary Steven Mnuchin said this month that any talk of a trade war was suspended for now
Mnuchin s trade war on hold comments look to have been repudiated this morning and possibly his investment stance too said Derek Scissors a China analyst at the American Enterprise Institute in Washington It may be the administration has shifted somewhat to appease the Congress on the lifting of the ZTE sanctions
WTO Case
The White House also said on Tuesday the U S plans to continue litigation at the World Trade Organization for China s intellectual property practices
In a further indication of the Trump administration striking a tougher tone before the negotiations later this week the White House issued a separate statement running through its major grievances over China s trade practices from forced technology transfers to automobile import tariffs
Updates to add WSJ report on preparations for negotiations |
JPM | U S manufacturing mired in soft patch as orders shipments fall | By Lucia Mutikani WASHINGTON Reuters New orders for U S made goods fell in April and shipments dropped by the most in two years indicating continuing weakness in manufacturing activity that could hurt the broader economy The report from the Commerce Department on Tuesday added to moderate consumer spending as well as weak home sales construction and equipment outlays in April in suggesting that economic growth was slowing sharply after a temporary boost from trade inventories and defense spending in the first quarter Some economists believe the dimming economic outlook which also reflects an escalating trade war between the United States and China could force the Federal Reserve to cut interest rates this year The U S central bank early this year suspended its three year rate hiking campaign Fed Chairman Jerome Powell said on Tuesday the central bank was closely monitoring the implications of the trade tensions on the economy and would act as appropriate to sustain the expansion Powell may have opened the door a crack wider to the possibility that the Fed will ratify one or two of the rate cuts the markets have discounted this year said Chris Rupkey chief economist at MUFG in New York Factory goods orders declined 0 8 pulled down by softening demand for transportation equipment computers and electronic orders and primary metals Orders increased 1 3 in March Economists polled by Reuters had forecast factory orders would fall 0 9 in April Factory orders rose 1 6 compared to April 2018 Manufacturing which accounts for about 12 of the economy is being squeezed by businesses placing fewer orders while working off stockpiles of unsold goods in warehouses The sector could see more disruptions to the supply chain after President Donald Trump announced last week that he would impose a tariff on all goods from Mexico in a bid to stem the tide of illegal immigration across the U S Mexican border The tariff would start at 5 on June 10 Manufacturers are still digesting the White House s decision in early May to slap additional tariffs of up to 25 on 200 billion of Chinese goods which prompted retaliation by Beijing The trade war together with the inventory bloat that is concentrated in the automotive sector could keep manufacturing on the backfoot A survey on Monday showed a measure of national factory activity dropped to a 31 month low in May with manufacturers worried mostly about the trade tensions BUMPY ROAD AHEAD We expect further bumps along the road for manufacturing as a slowing global economy and escalating tariffs on major U S trading partners pose headwinds said Stephen Ciccarella a senior economist at Moody s Analytics in West Chester Pennsylvania The supply chains with the U S and Mexico are more intertwined than those between the U S and China which would make the spillover effects on the U S economy more significant than the 5 tariff would otherwise suggest Stocks on Wall Street were trading higher boosted by Powell s comments The dollar rose marginally against a basket of currencies while U S Treasury prices fell Inventories at factories rose 0 3 in April The stock of unsold goods has increased in seven of the last eight months Shipments of manufactured goods fell 0 5 in April the largest drop since April 2017 after rising 0 2 in March The inventories to shipments ratio increased to 1 37 from 1 36 in March Pointing to further weakness in manufacturing activity unfilled orders at factories slipped 0 1 in April reversing March s 0 1 rise Boeing s move to cut production of its troubled 737 MAX aircraft is also hurting manufacturing The economy is broadly slowing despite the lowest unemployment rate in nearly 50 years The Atlanta Federal Reserve is forecasting GDP rising at a 1 3 annualized rate in the second quarter The economy grew at a 3 1 rate in the January March period In April orders for computers and electronic products fell 0 5 while those for primary metals dropped 1 1 Machinery orders rose 0 3 Orders for electrical equipment appliances and components increased 0 9 Transportation equipment orders tumbled 5 9 after rising 6 0 in March Orders for civilian aircraft and parts plunged 25 2 Motor vehicles and parts orders fell 1 7 the biggest drop since July 2017 The Commerce Department also said April orders for non defense capital goods excluding aircraft which are seen as a measure of business spending plans on equipment declined 1 0 instead of the 0 9 drop reported last month Orders for these so called core capital goods rose 0 3 in March Shipments of core capital goods which are used to calculate business equipment spending in the gross domestic product report were unchanged as previously reported Core capital goods shipments fell 0 6 in March Business spending on equipment contracted in the first quarter for the first time in three years
It is likely that real equipment spending will decline again in the second quarter said Daniel Silver an economist at JPMorgan NYSE JPM in New York |
JPM | JPMorgan Rises 3 | Investing com JPMorgan NYSE JPM rose by 3 03 to trade at 109 68 by 15 54 19 54 GMT on Tuesday on the NYSE exchange
The volume of JPMorgan shares traded since the start of the session was 10 16M JPMorgan has traded in a range of 107 13 to 109 70 on the day
The stock has traded at 109 9600 at its highest and 104 8400 at its lowest during the past seven days |
JPM | Mnuchin s Deadlocked China Trade Talks Hang Over Pivotal G 20 | Bloomberg U S Treasury Secretary Steven Mnuchin this weekend will have his first chance to break an impasse in a deepening trade war with China if officials from the two countries decide they want to jump start talks at an international summit in Japan
Mnuchin is set to meet Chinese central bank Governor Yi Gang during a gathering of G 20 finance ministers from June 7 to 9 in Fukuoka according to a Treasury department statement on Tuesday
Even a casual chat between officials of the world s two largest economies could lay important groundwork for a meeting between Presidents Donald Trump and Xi Jinping who will be in Japan at the end of the month for the G 20 leaders summit Since trade talks broke off last month the two countries have escalated their trade war and exchanged increasingly belligerent accusations about who s to blame for the stalemate
Any evidence of Mnuchin talking trade or any evidence of a constructive dialog taking place is going to be encouraging but at this point it is difficult to see how the two sides will de escalate unless planned tariffs are scrapped or at least delayed said James Lucier managing director of Washington based Capital Alpha Partners a policy research firm for investors
Opportunities to Talk
In addition to the one on one meeting with Yi Mnuchin and Liu Kun China s finance minister will participate in a panel discussion about tax policy early Saturday alongside four other counterparts Yi has attended some trade talks with the U S though he is not considered Beijing s lead negotiator on the matter
The two nations hit an impasse in May after months of intense talks prompting another round of tit for tat trade tariffs Trump last month raised tariffs on 200 billion of Chinese goods to 25 from 10 The Chinese responded with countermeasures
The Trump administration is now seeking to choke off Beijing s access to key technologies by limiting the sale of vital American components to China s Huawei Technologies Co citing national security concerns and weighing putting at least five Chinese surveillance companies on the same blacklist
Rare Earths
China blames the U S for the breakdown in the trade talks accusing it of unreasonable demands The country has hinted at cutting off the U S supply of rare earth elements and its state media is blasting American policies in nationalistic terms
The U S on Monday said it was disappointed China was misrepresenting the nature of the talks Our insistence on detailed and enforceable commitments from the Chinese in no way constitutes a threat to Chinese sovereignty the U S Treasury Department and Trade Representative said in a June 3 statement
The stalemate in U S China trade talks helped send American stocks to their first month in the red this year with the S P 500 Index losing 6 6 in May Losses spiraled further after Trump announced last week that Mexico could face tariffs over immigration
Permanent Conflict
We could be in a permanent state of trade conflict with China said Michael Feroli chief economist for JPMorgan Chase Co NYSE JPM
To cope investors have been flocking to safer assets Bonds rallied in May sending 10 year Treasury yields falling at the fastest pace since 2016
Trump and Xi s teams have held nearly a dozen rounds of trade meetings but a deal has remained elusive At the beginning of May the two nations considered announcing a signing ceremony according to Mnuchin before talks broke down
While the trade war has unnerved investors U S economic growth has continued The unemployment rate is the lowest since 1969 and so far inflation data shows that consumers have not felt pressure from rising prices
But global manufacturing last month a key recession indicator was the weakest since 2012 with softness in Germany Japan and the U K according to a report by IHS Markit The U S had its lowest result in a decade
Federal Reserve Chairman Jerome Powell on Tuesday signaled an openness to cut interest rates if necessary pledging to keep a close watch on fallout from the deepening disputes between the U S and its largest trading partners
The trade war is throwing global supply chains into question and contributes further to the uncertainty already weighing down business investment said Jonathan Millar senior U S economist at Barclays LON BARC Plc
At the finance ministers meeting Mnuchin will meet with a dozen of his counterparts including the finance ministers of Germany and Japan Trump has threatened to impose tariffs on imported cars from the two countries unless they can reach an accord |
JPM | Liquidity Breakdown Is Biggest Fear in JPMorgan Quant Survey | Bloomberg The greatest risk to quantitative strategies wouldn t be an equity bear market or a sharp increase in rates It would be a collapse in liquidity
That s the result from a survey of investors at JPMorgan Chase Co NYSE JPM s U S Macro Quantitative and Derivatives Conference in New York on May 17 with 36 of respondents picking a liquidity plunge and 25 fearing political or geopolitical risks most according to the conference summary from strategists Marko Kolanovic and Dubravko Lakos Bujas
About 59 of those answering saw the 10 year Treasury yield between 2 0 2 5 at year end while 39 expected the S P 500 between 2 800 and 3 000 A full 23 expect the next recession after 2021 though 33 see it in 2020 and 37 in 2021
In terms of which quantitative approach has the best outlook 27 of respondents said it was Equity Multi Factors with 22 choosing Statistical Arbitrage High Frequency according to the survey of conference attendees that garnered between 150 and 270 responses per question
People remain quite positive on the outlook for quant investing Lakos Bujas said in an interview May 30
There were other discussions in addition to the survey including a study showing that market maker profitability may predict the subsequent month s liquidity and volatility as well as the trend lower in liquidity overall in recent years
People know this is happening Kolanovic said in an interview about the decline in liquidity It s not just a theory
Read JPMorgan Sees Violent Markets on Volatility Liquidity LoopRead Marko Kolanovic Has Concerns About Fragility in the Marketplace
Meanwhile about 80 of attendees responding to questions about volatility targeting said they do employ that method And when surveyed about signals based on alternative data and machine learning that participants had researched 59 of the conference s respondents said none were actually yielding alpha or excess returns And 31 said between one and three did
It s not easy to identify sources of alpha but it s the future Lakos Bujas said
Adds chart after third paragraph |
JPM | Swiss regulator fines banks for fixing forex trading | ZURICH Reuters Five banks have been fined a total of 90 million Swiss francs 90 5 million for colluding to rig the multi trillion dollar foreign exchange market Switzerland s competition authority said on Thursday
The Swiss fines come on top of 1 07 billion euros 1 20 billion of fines handed out last month by the European Union
Barclays LON BARC Citigroup NYSE C JP Morgan and Royal Bank of Scotland LON RBS were all punished by the Swiss authority known as WEKO It said it found several anti competitive arrangements between banks in foreign exchange spot trading
Also punished was Japan s MUFG Bank for its part in the scam which involved traders coordinating their activities through internet chatrooms
Traders from Barclays Citigroup JPMorgan NYSE JPM Royal Bank of Scotland and UBS participated in the so called Three way banana split cartel from 2007 to 2013 WEKO said Participants in the Essex express cartel which ran from 2009 to 2012 were traders from Barclays MUFG Bank RBS and UBS
Barclays was fined 27 million francs Citigroup 28 5 million francs JPMorgan 9 5 million francs MUFG Bank 1 5 million francs and RBS 22 5 million francs
UBS was not punished because it revealed the cartels to the competition authorities first while an investigation is still underway into Credit Suisse SIX CSGN WEKO said it had closed its investigation into Julius Baer and Zuercher Kantonalbank
Credit Suisse is continuing to cooperate fully with WEKO s investigation process and intends to vigorously contest the substance of the allegations a spokesman for the Swiss bank said
JP Morgan Barclays and RBS declined to comment while Citi was not available for comment |
JPM | U S Federal Reserve ends 2013 London Whale enforcement action against JPMorgan Chase | WASHINGTON Reuters The U S Federal Reserve announced on Thursday it had terminated a 2013 enforcement action it imposed on JPMorgan Chase NYSE JPM after the bank reported significant losses stemming from its London Whale trading scandal The regulator said it decided to end the enforcement action after the bank had made substantial improvements in its risk management and internal audit functions since the 2013 order
The bank lost 6 2 billion on the contracts arranged by a London based bank trader which attracted attention and criticism from policymakers in Washington |
MS | U S Tax Issues USD And Corporate Bonds | The US Senate is set to unveil proposals for a significant re writing of the the US Tax Code including corporate taxation on September 25 There is every likelihood if the tone of President Trump s tweets are accurate that there will be an attempt to lower the US corporate tax rate And if that is the case and bearing in mind how well the US dollar responded in 2005 when President Bush s Administration brought in for one year only a greatly reduced corporate tax rate traders may wish to stay tuned to the unfolding story
The key point to recall from the Bush Administration is that while the legislation was mooted and signed off in 2004 it was when the law became effective that lent itself to the upward move in the US dollar It remains to be seen if there will be a similar tradeable event in the Trump Administration s proposals but the numbers involved are huge For example US bank Morgan Stanley NYSE MS estimates that the 30 most cash rich US corporates have USD1 2trn holdings of cash and securities Of this USD1 2trn USD840bln is held outside US but is often invested into USD denominated securities such as corporate bonds In the US firm s view should tax reform talks between the White House and the Democrats gain momentum US bond yields including the corporate bond spreads may be carefully watched by market participants Tax reform may lead to a wave of corporate bond selling currently held in offshore accounts such as Bermuda by cash rich US corporates
Higher yields would support the USD vs low yielding currencies And that s aside from offshore funds held in other currencies by US corporates funds that would have to be exchanged for US dollars prior to any repatriation Nor does it address the issue of potentially tighter US dollar liquidity for banks operating outside the United States if greenbacks held offshore are repatriated US tax reform will likely have a slow burning fuse but traders should keep a watchful eye on it because any material lowering of the US corporate tax rate could in time have material implications for the currency markets
Written by Neal Kimberley External Currency Analyst |
MS | MLP ETFs Can Post Harvey Rally Continue | Master limited partnerships or MLPs have been on an uptrend lately with several energy related investments The largest MLP ETF Alerian MLP ETF F AMLP gained more than 6 4 in the last one month as on Sep 19 2017 though the space previously struggled immensely with sliding oil prices So far this year as on Sep 19 2017 the fund is down about 11
Below we highlight a few reasons which led to these gains and see if the MLP rally continues
Demand Induced Jump in Oil Prices
As soon as oil price staged a rally on the prospect of output cuts by OPEC and non OPEC countries most of the energy MLPs started marching northward Energy stocks recorded the of the year lately read
Energy Select Sector SPDR ETF NYSE XLE saw its best week of this year recently The reason behind the uptrend is believed to be the possibilities of the OPEC discussing the extension of the output cut deal as per a portfolio manager at
Not only this demand jumped 2 4 in the second quarter of 2017 This led International Energy Agency IEA to upgrade its for this year Along with the rally OPEC output declined in August for the first time in five months
Less Than Expected Impact of Harvey
As per Harvey has thumped a quarter of oil production from the Gulf of Mexico and over of U S refining capacity The area is a major hub for oil refineries Several energy companies and some MLPs have shut down their operations and took pipelines and storage facilities
But as per an article published on the impact of the hurricane probably wasn t as harsh as feared Energy infrastructure started operating sooner than expected Also the barrons com article went on to explain that many partnerships have insurance coverage to make up for damages read
Lure of Dividends
MLPs are known for their high yielding nature as these do not pay taxes at the entity level and are thus able to pay out most of their income more than 90 in the form of dividends like the REIT firms While most traditional income asset classes produced miniscule yields MLPs lured investors with their higher payouts
Yes MLPs underperform in a rising rate environment as these have to depend on the debt market to finance their operations or fresh projects Naturally higher rates amid the Fed tightening cycle would cut back their profitability But investors should note that many MLPs use a fixed rate debt for their borrowings
Can the Rally Last
In a nutshell if energy stocks remain steady and investors drive for dividends stay strong MLP ETFs have more room to run
ETF Choices
Below we highlight a few MLP ETFs which delivered some of the highest returns in the last one month and offered sturdy yields as on Sep 19 2017
VanEck Vectors High Income MLP ETF Yields 8 73 annually
Morgan Stanley NYSE MS Cushing MLP High Income Index ETN Yields 8 65 annually
UBS E TRACS Alerian Natural Gas MLP Index Fund DE MLPG Yields 5 97 annually
ALPS Alerian MLP ETF F AMLP Yields 7 98 annually
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JPM | Four Solid Reasons To Buy Gold ETFs Now | Gold continued its strong performance this year topping 1 300 for the first time since Jun 14 2018 In fact the bullion registered its best one day percentage gain on Jan 25 since Oct 11 on the hopes that the Fed will keep interest rates unchanged during its two day policy meeting later in the week Additionally a myriad of woes led investors flight to safety in the yellow metal read Given the strong momentum we have highlighted some solid reasons to invest in gold ETFs now Fed ActionIn its two day FOMC meeting slated for Jan 29 and 30 the central bank is expected to pause interest rates hike that will raise the appeal for gold Early in the month Fed minutes indicated caution on future interest rate hikes 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
Global WorriesThe global stock market has been gripped by uncertainty regarding still unresolved Sino U S trade Brexit geopolitics and U S government shutdown which lasted for 35 days While the shutdown has been temporarily averted for three weeks the uncertainty remains This is because a deal without a border wall might again lead to closure of the government after Feb 15 Amid such backdrop gold is considered a great store of value and hedge against market turmoil read A slew of disappointing economic data across the globe aggravated the threats of global slowdown making gold more appealing to investors In particular the World Bank recently cut global growth forecast to 2 9 for this year from the previous projection of 3 citing rising trade tension weakening manufacturing activity and growing financial stress in emerging market countries Meanwhile the International Monetary Fund also lowered its growth forecast by 0 2 percentage points to 3 5 on account of weakness in Germany and Turkey Also the agency is concerned about the failure to resolve trade tensions that could further destabilize a slowing global economy Weak Earnings GrowthThe Q4 reporting cycle started on a weak note with deceleration in earnings growth This is especially true as earnings of 113 S P 500 members that have reported Q4 results so far are up on 6 5 revenue growth This is much lower than earnings and revenue growth of 19 2 and 7 9 respectively for the same cohort of companies in the preceding earnings season The pace of growth is expected to decelerate further in the current quarter and beyond Further the companies appear to be struggling to beat consensus EPS and revenue estimates with 67 3 beating on earnings and 58 4 coming ahead of expectations on the top line For the same cohort of companies the proportion of positive EPS and revenue surprise was 80 5 and 61 9 respectively in the Q3 earnings season read Weak earnings and revenue trends have made investors jittery boosting the demand for gold as a safe haven Bullish ViewsPer the both Wall Street and Main Street expect gold to rise due to combination of many factors that are moving in favor of the metal Out of 18 market professionals in the Wall Street survey 72 expects gold price to be higher 6 lower and 22 price to move sideways Meanwhile in an online Main Street poll 47 predicts gold upward movement while 29 expects the metal to move in the opposite direction and 24 see a sideways market ETFs to TapIn view of the reasons discussed above we highlight six popular gold ETFs that could be excellent plays for investors who believe that bullion will continue to move higher given the rocky stock market fundamentals SPDR Gold Trust ETF V GLD This is the largest and most popular ETF in the gold space with AUM of 33 7 billion and average daily volume of around 8 1 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 The fund has a Zacks ETF Rank 3 Hold with a Medium risk outlook 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 2 billion and trades in solid volume of 13 4 million shares a day on average The ETF charges 25 bps in annual fees and has a Zacks ETF Rank 3 with a Medium risk outlook 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 873 4 million in its asset base and trades in lower volume of 41 000 shares per day The product has an expense ratio of 0 17 and has a Zacks ETF Rank 3 with a Medium risk outlook SPDR Gold MiniShares Trust V GLD This product seeks to reflect the performance of the price of gold bullion Being a low cost product with expense ratio of just 0 18 GLDM has gathered 491 2 million in AUM within seven months while trading in solid average daily volume of 603 000 shares GraniteShares Gold Trust TO BAR With AUM of 437 4 million and expense ratio of 0 17 the fund tracks the performance of gold price It trades in lower volume of 2700 shares per day on average and has a Zacks ETF Rank 3 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 149 5 million OUNZ trades in average daily volume of 51 000 shares and has a Zacks ETF Rank 3 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 |
JPM | 4 Trade Ideas For JP Morgan | JP Morgan JPM
JPMorgan Chase Co NYSE JPM made a high in February last year and then pulled back to a support zone in July That brought the price under the 200 day SMA as well It bounced from there back to the prior high in August and held there into September From there it fell back to the support zone again into October
Another bounce stalled at a lower high near the 200 day SMA and it consolidated At the start of December it back to support and then swiftly through it to the Christmas Eve low Since then it has been moving higher and the price is now back at the support zone as resistance
The RSI is on the edge of a move into the bullish zone with the MACD slightly positive and rising The Bollinger Bands have pushed higher as well There is resistance at 105 and then 107 followed by 111 50 and 113 Support lower comes at 103 and 102 then 99 and 96 Short interest is low under 1 The stock started trading ex dividend January 3rd and the company is expected to report earnings next on April 12th
A look at the weekly options chain sees a big open interest above at the 105 and 106 strikes which could pull the price higher The February options chain has the highest open interest at the 105 Call and 100 Put The March chain has heavy open interest at the 110 Call with big numbers at 105 and 115 as well Finally the April chain covering the nest earnings report is just starting to build open interest and has piles at the 100 Put and 105 Call
JP Morgan Trade Ideas
Buy the stock on a move over 105 with a stop at 102 50
Buy the stock on a move over 105 and add a February 103 100 Put Spread 95 cents as protection selling the March 110 Call 60 cents to help fund it
Buy the April 105 February 106 Call Diagonal 2 54 and sell the February 99 Put 52 cents to lower the cost
Buy the April 95 105 110 Call Spread Risk Reversal for 68 cents
Elsewhere
Gold to pause in its uptrend while Crude Oil pauses in its move higher The U S Dollar Index is back in broad consolidation while U S Treasuries pause in their uptrend The Shanghai Composite is building the case for a possible reversal higher while the Emerging Markets NYSE EEM building a reversal itself
Volatility looks to remain muted keeping the bias higher for the equity index ETF s SPY IWM and QQQ Their charts remain strong in the short timeframe and just short of full bullish on the longer timeframe Use this information as you prepare for the coming week and trade them well
Disclaimer
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment I or my affiliates may hold positions or other interests in securities mentioned in the Blog please see my Disclaimer page for my full disclaimer
Original post |
MS | Euro Swiss franc at two month lows as Italy concerns weigh | By Saikat Chatterjee LONDON Reuters The Swiss franc and the Japanese yen rose against the dollar on Wednesday as a wave of caution swept currency markets a day after U S President Donald Trump tempered optimism over progress made in trade talks with China Carry trades where investors borrow in relatively low yielding currencies to invest in higher yielding ones came under pressure with the euro swiss franc EURCHF EBS cross being singled out for special punishment While the dollar against a basket of its rivals DXY rose 0 2 percent to 93 76 it weakened 0 6 percent and 0 3 percent against the Japanese yen and Swiss franc respectively Stocks tumbled and the yen gained broadly after Trump said on Tuesday he was not pleased with recent trade talks between the United States and China the world s two biggest economies The euro was also pressured lower by concern over political risk in Italy The single currency fell to a six month low after German PMI data fell to a 20 month low indicating that economic momentum in Europe s biggest economy was faltering The euro Swiss franc fell 0 3 percent to 1 1616 francs per euro EURCHF EBS its lowest level since March 23 The currency pair a proxy for risk appetite within Europe has fallen nearly 3 percent since May 14 as concerns of a fiscally profligate new coalition government in Rome has raised concerns of a showdown with the European Union The likelihood of a government comprised of the anti establishment 5 Star Movement and the far right League has pushed Italian 10 year yields up nearly 60 basis points since the start of May The bulk of that move has been over the past week GVD EUR The euro franc cross encapsulates the growing risk premium that investors are placing on the euro in recent days and we may see further downside for now said Alvin Tan a currency strategist at Societe Generale PA SOGN in London Morgan Stanley NYSE MS strategists said the euro s recent weakness could prompt overseas investors to hedge their bond and equity investments in Europe which could add further downside pressure on the euro The safe haven yen also rose against other currency crosses and surged against the Turkish lira amid talk of Japanese retail investors selling the lira as stop loss levels were hit The yen tends to rise in times of market turbulence since Japan is the world s largest creditor nation and traders tend to assume Japanese investors would repatriate funds at times of crisis Investors are now looking to the release on Wednesday of the Fed s minutes from its most recent meeting when it kept interest rates steady
In its post meeting statement issued in early May the Fed also said inflation had moved close to its target and that on a 12 month basis is expected to run near the Committee s symmetric 2 percent objective over the medium term |
MS | Morgan Stanley shareholders side with board at annual meeting | PURCHASE N Y Reuters Morgan Stanley N MS shareholders sided with the company s board on all votes taken at their annual meeting on Thursday electing the slate of directors and endorsing the company s compensation of top executives All of the board nominees received at least 98 percent of votes cast and some 96 percent approved of executive pay according to preliminary results announced at the end of the formal part of the meeting Chief Executive Officer James Gorman was paid 27 million for 2017 up 20 percent from the year before A shareholder proposal to prohibit vesting of stock awards for senior executives who resign to work for the government was opposed by the board and received about 20 percent of votes cast The measure had been proposed by an investment fund of the AFL CIO labor organization A handful of environmental protesters were removed from outside Morgan Stanley s Purchase New York office complex by police after they attempted to block an entrance with tree branches laid across the driveway according to a Reuters journalist present at the event Despite the disturbance which caused a backup of vehicles waiting to enter the bank s parking lot the meeting began on time An environmental activist group called The FANG Collective later posted on its Twitter and Facebook NASDAQ FB accounts that the individuals were protesting Morgan Stanley s relationship as a lender to and shareholder of Energy Transfer Partners N ETP which operates the controversial Dakota Access Pipeline |
MS | EU may not enforce its rules on Italy but financial markets will | By Jan Strupczewski BRUSSELS Reuters EU officials will probably not do much to enforce their borrowing rules on Italy s new government but they are hoping they won t have to because financial markets will do the job for them A new government is expected to take office in Italy next week a coalition of the anti establishment 5 Star Movement and far right League who have jointly promised a bonanza of tax cuts and spending increases that would burst through the EU s limits on borrowing by member states Slovak Finance Minister Peter Kazimir on Thursday called the policy mix a suicide mission Markets have already responded yields of the benchmark 10 year Italian bonds have jumped 0 7 percentage point since the start of May to 14 month highs above 2 46 percent Morgan Stanley NYSE MS warned this week that sustained yields that high could spark contagion by hitting the profits of banks which hold a big chunk of their assets in government debt Shares in Italian banks hit 11 month lows on Friday having fallen almost 14 percent so far this month Economists say that is only a taste of what could come the rise in rates would be much steeper if markets believed that Italy was actually prepared to go through with the plans If they do what said they want to do the reaction of the market will be much more than what we have seen so far said Francesco Papadia a senior fellow at the respected Brussels based Bruegel think tank The spread of the Italian benchmark paper over comparable German bonds hit 200 basis points this week still a far cry from the 550 basis points spread at the peak of the sovereign debt crisis in 2012 So far the market reaction has been clear but not extreme Maybe the market still has a hope they won t do at least the most extreme version of what they said they would do Papadia said Italy s increased spending against EU rules would likely be met by aggressive Italy underperformance versus other markets investment bank J P Morgan said in a note for investors EU UNLIKELY TO INTERVENE As an EU member Italy is obliged seek a balanced budget in structural terms and have debt below 60 percent of gross domestic product Instead its structural deficit has been rising since 2015 and its debt has been close to 132 percent of GDP since 2014 But most Brussels watchers do not expect Europe to take political action to enforce its rules The European Commission the guardian of EU laws has the task of disciplining profligate governments through what is called an excessive deficit procedure that could end in fines But it has repeatedly declared that punishment is not the way to deal with budget rule breaking and showed leniency to repeat budget offenders like France Portugal and Spain The Commission is also held back by concern that enforcement action would only strengthen eurosceptic sentiment in Italy the euro zone s third biggest economy where many people are already ambivalent about the euro currency In the end crazy countries are always disciplined by markets Rules can be broken But you cannot replace market funding with wishful thinking one senior euro zone policy maker said expressing a widely shared view MARKET PRESSURE WOULD HURT VOTERS QUICKLY League leader Matteo Salvini brushed off market pressure The more they insult us the more they threaten us the more they blackmail us the more desire I have to embark on this challenge he said But analysts point out that only 36 percent of Italy s massive 2 4 trillion euro debt is held by foreigners meaning a fall in asset prices would hit Italians hard The rest is held domestically by banks funds investment vehicles and individuals who now benefit from demand created by a European Central Bank bond buying program The ECB scheme is likely to wind down this year and rate hikes are expected in mid 2019 Faced with profligate policies that undermine Italy s ability to repay debt foreign investors are likely to sell Italian paper As yields rise Italian voters would quickly see the value of their assets shrink In Italy quite a percentage of bonds is held by families directly So when people see the statements from their banks on the value of their financial wealth their savings they would see the consequences Papadia said Another factor likely to limit the Italian government s fiscal plans is the threat of a credit rating downgrade Italy is now just two notches above junk with a BB from Standard Poor s and Fitch and Baa2 from Moody s Fitch has already said the plans outlined in the coalition agreement would add risk to Italy s fiscal position
If Italian debt were to fall below investment grade its banks would find it much more difficult and costly to get daily liquidity from the ECB a constraint that could have serious consequences for the whole sector and the country |
MS | China s Toughest Housing Curbs Test Limits of Speculative Buyers | Bloomberg Lengthy residency requirements to purchase homes Bans on flipping property Down payments of as high as 70 percent
In the tropical Chinese province of Hainan authorities are going to unprecedented lengths to combat real estate speculators The campaign aimed at scuttling one of the nation s biggest housing booms may provide a new model for taming buying frenzies that almost always follow in the wake of China s economic stimulus plans
Introduced in two rounds straddling President Xi Jinping s announcement of new measures to boost Hainan s economy in April the restrictions are unusual in China not only for their severity but for how quickly they were implemented to avert a bubble While the curbs have shown early signs of working some buyers are still exploiting loopholes and others are moving to hot markets elsewhere underscoring the challenges for China s leaders as they try to break a nationwide addiction to property speculation
It s like water that s spilled over said Yang Kewei Shanghai based research director at property data and consulting firm China Real Estate Information Corp You block it here it flows there
Four property brokers including Cushman Wakefield Inc said Hainan s restrictions are starting to derail sales as non local buyers are staying away
But some buyers are finding ways to get around the restrictions One way is a delayed contract in which buyers sign for homes that will legally be transferred to them after the two year waiting period to become a Hainan resident according to brokers familiar with the practice
Zhuang Yan a 37 year old accountant from northern China is scouting for suitable property projects outside the three most popular cities and is willing to give the delayed contract a try She believes prices are set to surge and said she doesn t want to risk missing the property boom
Some buyers are replacing traditional sale agreements with long term rental contracts getting the right to use the property At Laiying Peninsula a hotel project converted into residential use in eastern Hainan s Wanning city buyers can sign two separate 20 year rental contracts instead of buying the property outright said an agent who would only give his last name Yao to avoid scrutiny speaking about a sensitive topic
While the crackdown in Hainan follows a now familiar pattern that has played out in several Chinese cities officials went further than most to head off a frenzy Leaders in Hebei province were caught off guard by news last year that China would create an economic zone sparking an investor craze The government temporarily froze all property sales within 24 hours of that announcement but not before buyers clogged highways and camped overnight outside property agent offices to buy homes
Read more China Plan to Create New Shenzhen Spurs Speculative Rampage 1
Leaders in Hainan where the property market has gone through two boom and bust cycles since 1990 have reason to be vigilant Home prices in the provincial capital Haikou have surged 80 percent since the beginning of 2017 the second biggest jump among all Chinese cities where such data is available
Property speculation in Hainan is a prime example of what ails the broader Chinese economy said Andy Xie an independent analyst and a former chief Asia economist at Morgan Stanley NYSE MS Abundant liquidity and growing wealth in China periodically unleash trading frenzies as money rolls through assets such as stocks and real estate In the property market tighter rules to cool a bubble in one location often inflate another
The problem is by nature hard to be resolved by local buying curbs alone Xie said It s an issue that needs to be dissolved by monetary tightening
The first hard numbers showing the impact of the Hainan restrictions will come in mid June when China releases monthly home price data In the meantime some realtors are already targeting other promising destinations
An agent who would only disclose his last name Zhao said he and other colleagues are planning to relocate from Hainan to areas including the port city of Beihai in the southern Guangxi province and the far flung mountainous province of Yunnan
It s not easy to make a living here anymore Zhao said |
JPM | JPMorgan Slashes U S Yield Forecasts as Trade War Roils Outlook | Bloomberg JPMorgan Chase Co NYSE JPM slashed its targets for U S Treasury yields anticipating that the pressures of the trade war will hobble American economic growth and force the Federal Reserve to cut interest rates
The latest developments this week are likely to have lasting damaging effects on business confidence JPMorgan analysts led by Matthew Jozoff and Alex Roever in New York wrote in a note following President Donald Trump s move to impose tariffs on Mexico Growth concerns are unlikely to dissipate over the near term and could in fact build further
JPMorgan sees 10 year Treasury yields at 1 75 at year end compared with 2 45 previously and 2 13 on Monday in Asian trading The forecast for March is 1 65
The bank sees two year yields at 1 40 in December and 1 30 in March
The Fed is seen cutting the policy rate by a quarter point in September and December
U S GDP growth projected at 1 for second quarter 1 5 in third quarter
The projections are a contrast with JPMorgan Chief Executive Officer Jamie Dimon s warning last month that yields were already extraordinarily low on an historical basis and that 4 wouldn t be a bad number His comments pre dated the latest trade war developments
Despite their new forecasts the bank s strategists warned against jumping on the current Treasuries rally saying that they maintain a neutral call for duration We are hesitant to initiate longs given the pace of the rally over the last two weeks and the substantial uncertainty that remains around the path forward for trade policy
JPMorgan s economists highlighted the difficulty of quantifying the impact on U S growth from tariffs on Mexico a trading partner which has become increasingly integrated with American supply chains over the past quarter century Their Fed forecasts have averaged out the potential impact of scenarios on growth
If we are on track for Fed easing we would expect to see deterioration in the business sentiment data and subsequently hard activity data beginning in early July the strategists wrote We don t expect a material shift in the Fed s stance at the June meeting |
JPM | Treasuries Are on Biggest Rally Since 2008 as Fed Rate Cut Seen | Bloomberg Investors are chasing bond yields lower at the fastest pace since the global financial crisis on conviction that the Federal Reserve will cut borrowing costs to contain the fallout from trade tensions
The yield on two year Treasuries is headed for the biggest two day decline since January 2008 after China extended retaliatory tariffs to cover more than two thirds of imports from the U S with Beijing also warning students about the risk of studying in America Meanwhile JPMorgan Chase Co NYSE JPM slashed its targets for U S yields on concern that the trade war with will crimp economic growth and force the Federal Reserve to cut interest rates
The latest developments this week are likely to have lasting damaging effects on business confidence JPMorgan analysts led by Matthew Jozoff and Alex Roever wrote in a note Growth concerns are unlikely to dissipate over the near term and could in fact build further
Yields on two year U S Treasuries slumped as much as eight basis points to 1 84 the lowest since December 2017 while those on 10 year notes fell five basis points to 2 07 That means the extra yield investors get to hold the longer dated debt is a mere 23 basis points reflecting pessimism about the outlook for the world s largest economy
Yields across the euro area were also lower with the rate on 10 year German bunds falling one basis point to a record low minus 0 21
JPMorgan predicted that 10 year Treasury yields will slide to 1 75 by the end of the year compared with an earlier outlook for 2 45 It sees the two year yield falling to 1 40 |
JPM | Crypto Prices Plunge Bitcoin Drops Below 8 000 | Investing com Cryptocurrency prices slumped on Tuesday in Asia with Bitcoin dropping below the 8 000 level for the first time in more than a week
Bitcoin was down 8 6 to 7 971 6 by 11 30 AM ET 03 30 GMT its biggest fall in two weeks The largest digital currency reached a year to date high of 8 925 5 on May 30
Today s sell off has erased all gains from May 26 when the coin tested the 9 000 resistance a couple of times before plummeting
Ethereum plunged 9 3 to 245 88 XRP fell 10 7 to 0 40839 while Litecoin lost 11 1 to 103 647
Cryptocurrencies received a boost in May amid reports that Facebook NASDAQ FB and JPMorgan NYSE JPM are developing their own coins confirming renewed institutional interest
The reason behind the fall today was unclear but some analysts have suggested that the pullback was likely given the rapid acceleration seen in the popular crypto which recorded its fourth straight monthly gain last week
Peter Schiff of Euro Pacific Asset management warned before the sell off that the crypto market has an abundance of fake buying sentiment and that the cryptocurrency serves neither the purpose of money nor a store of value |
JPM | JPMorgan Pushes Back European Rate Hike Estimates on Slow Growth | Bloomberg Go inside the global economy with Stephanie Flanders in her new podcast Stephanomics Subscribe via Pocket Cast or iTunes
JPMorgan Chase Co NYSE JPM pushed back its estimates for when central banks in western Europe will next raise interest rates citing trade tensions slower economic growth and loosening at the Federal Reserve
The revised outlook follows U S President Donald Trump s threat of tariffs on Mexico which prompted JPMorgan s U S economists to pencil in quarter percentage point rate cuts by the Federal Reserve for September and December this year The European team led by Malcolm Barr expects the European Union to also face intensified tariff pressure
A common theme is that inflation concerns are either sufficiently distant to delay or an outright inhibition to monetary tightening JPMorgan said in a note
The economists said the uncertainty over how the ECB will react to economic developments is currently very high given that it still hasn t signaled any forceful measures despite euro area inflation stuck well below its goal
The BOE will be affected through the exchange rate channel by Fed rate cuts and slower ECB tightening along with Brexit and political risk In Sweden the Riksbank is struggling to boost underlying inflation while Norway s Norges Bank has above target inflation Still JPMorgan says both have been sensitive to global uncertainty and declines in foreign market rates and expects them to turn more dovish |
MS | Investors Remain Negative On GBP Despite Hitting 1 Year High Against USD | Expectations that the Bank of England will take a more hawkish stance at its policy meeting this week have lifted sterling from two month lows ploughed at the end of August offsetting concerns about a slowing economy and a lack of progress in the Brexit negotiations
Stronger than expected inflation data on Tuesday fuelled those expectations as UK consumer prices rose by an annual rate of 2 9 in August just shy of the BoE s upper limit of 3 at which point the Governor Mark Carney would be required to write a letter to the UK finance minister explaining the overshoot
The pound hit a one year high of 1 3328 earlier today but those gains were tempered after the latest UK employment data showed average weekly earnings missed expectations UK wages rose by just 2 1 annually in the three months to July underlining the predicament for the Bank of England where an unemployment rate at a 42 year low of 4 3 is not spurring higher pay growth and in turn causing a squeeze on household s disposable incomes
Another dilemma for the Bank is a weakening economy Slowing consumer and business spending have pushed the UK to the bottom of the G7 growth league in first half of the year The slowdown was anticipated by the Bank of England and is the main reason why it has been reluctant to raise rates even though inflationary pressures are clearly on the up
However the Bank has said there are limits to its tolerance of inflation overshoot and speculation has been increasing that the tolerance level has been reached for more of the BoE s monetary policy committee MPC members In June the Bank saw its tightest vote since 2011 when three members dissented The figure fell to two in August following the departure of one of the hawks Kirstin Forbes But a growing number of market participants think the Bank s Chief Economist Andy Haldane will join Ian McCafferty and Michael Saunders in voting for a 25bps rate hike on Thursday
Economists are not convinced though that a UK rate rise is nearing and are not projecting an increase in borrowing costs before 2019 Traders see a different story however and the market implied odds of a rate hike before the end of 2018 have been rising This has been positive for the pound which has been looking surprisingly bullish against the US dollar since April The pound has also perked up against the euro recently hitting a one month high this week
However analysing the pairs more closely sterling s gains look overstated The pound s 7 5 gain versus the dollar this year is more to do with the greenback s weakness than improved fundamentals for the UK economy Against the euro sterling has in fact been on a downtrend since May and this month s rebound is more likely to be a technical correction than a trend reversal
The Bank of England pays more attention to the sterling Effective Exchange Rate Index which fell to a 10 month low when the euro peaked at an 8 year high of 0 9306 on August 29 when excluding last October s flash crash The index has recovered somewhat since then but is still slightly down on the year in contrast to the pound dollar pair This would worry BoE policymakers as fresh falls in sterling s broader value could drive inflation even further above the Bank s 2 target
But despite the Bank s task of justifying low interest rates becoming increasingly difficult most analysts don t foresee a majority of MPC members voting for a hike in the coming months especially as now that the committee is back to its full nine members the doves including Governor Carney outnumber the hawks
This explains why many investors remain bearish on the pound particularly against the euro which itself is benefiting from the prospect of tighter policy by the European Central Bank Morgan Stanley NYSE MS predicted last month that the pound will hit parity with the euro in 2018 This view isn t shared by most other investment banks though many have lowered their forecasts for pound euro while raised them slightly for pound dollar
The most recent Reuters poll conducted in the first week of September points to a similar picture Median forecasts for pound dollar in a year s time were unchanged at 1 30 but a majority of economists raised their forecasts for euro pound to 0 92 pounds
The MPC vote composition at tomorrow s meeting will be crucial in setting the trend for the pound as a 6 3 vote would fuel rate rise expectations whereas a 7 2 vote could kill the current mini rally Judging by Carney s previous comments concerns about waning consumer confidence and the negative impact on businesses from the continued Brexit uncertainty will likely outweigh the unease about the upswing in inflation
The MPC will probably want to wait and see whether inflation will drop back once the initial increases from the pound s post Brexit depreciation start to drop out of the calculation In the absence of a pick up in wage growth there is little to suggest that the current spike in inflation is not temporary |
MS | Why Did Hertz HTZ Stock Tank Today | Shares of rental car giant Hertz NYSE HTZ crashed on Thursday after Morgan Stanley NYSE MS downgraded the company s stock
In a note to clients Morgan Stanley s Adam Jonas demoted Hertz from equal weight to underweight The firm lowered its Hertz price target to 14 a share which is almost 10 below Wednesday s closing price
Hertz stock price had skyrocketed from under 9 a share in June to rest at 23 93 per share on Wednesday This massive uptick in stock price is part of the reason for Morgan Stanley s downgrade The analysts wrote that Hertz shares experienced a dramatic re rating over the past 3 months
The core of their downgrade is valuation Destructive weather events present a material short term increase to pricing but we believe this is more than in the share price Structural issues with the car rental model remain
The car rental company s stock had climbed well before Hurricanes Harvey and Irma caused destruction in Texas and Florida but the tropical storms did help send shares of Hertz up even higher
Now analysts at Morgan Stanley are pumping the breaks on the stock citing previously powerful sell off incentives such as low used car prices and competition from ride sharing services like Uber
Shares of Hertz tanked over 10 34 on Thursday morning after the downgrade Morgan Stanley s new underweight evaluation for the Estero Florida based car rental agency helped send shares of fellow car rental conglomerate Avis Budget Group NASDAQ CAR lower as well
Shares of Avis sunk by more than 5 55 after experiencing a similarly massive climb since the start of summer
In the past 60 days Hertzhas received three downward earnings estimate revisions for this quarter next quarter the current full year and its next fiscal year The Zacks Consensus Estimate calls for a 17 88 EPS dip this quarter and a massive 401 37 drop off for the full year
Our consensus estimate currently calls for 2 54 billion worth of sales this quarter which would mark a 0 72 year over year decline We also project full year revenues to fall by 1 53 Hertzis currently a Zacks Rank 5 Strong Sell
Avis projected EPS growth for the current quarter sits at 21 59 but full year estimates call for a 10 24 decline Despite positive revenue projections for this quarter and next quarter we ve seen two negative revisions to Avis full year earnings estimates within the past 60 days as well as two downgrades for the next year Avis is currently a Zacks Rank 4 Sell
New Report An Investor s Guide to CybersecurityCyberattacks have become more frequent and destructive than ever In fact they re expected to cause 6 trillion per year in damage by 2020
The cybersecurity industry is expanding quickly in response to these threats In fact a projected 170 billion per year will be spent to protect consumer and corporate assets Zacks has just released Cybersecurity An Investor s Guide to Locking Down Profits which reveals 4 promising investment candidates |
JPM | Skies Are Darkening For The EUR USD Bulls | The ECB is seriously challenged by the problems of European exports and domestic demand If the dollar has reached its growth peak and such factors as fiscal stimulus and aggressive monetary policy then why is the EUR USD falling down The answer is simple The euro might not have reached its bottom The factor of a long pause of the Fed monetary normalization has been priced in the dollar pairs by the markets since the mid December A delay in the first ECB interest rate hike from September 2019 to a later period is just beginning to affect the euro value If the ECB sticks to its former intention to start normalizing its monetary policy by September amid a strong slowdown in the economic growth the threat of losing investor confidence will skyrocket
The central banks all over the world are challenged with a serious problem They lack the means to manage the current drawdown in global economic growth According to JP Morgan their interest rates are on average 2 lower than before the global financial crisis In theory they should be raised in order to protect the economies from a future recession The matter is that the tightening of monetary policies may result in a recession The ECB perfectly knows it It used to raise the interest rate in 2018 and in 2013 The results were sad in both cases It might of course do the same mistake again and again but what for
The troubles of the euro area economy are not just in lower export rate hit by trade wars but in weak domestic demand as well It might seem strange that the core inflation rate fails to rise higher than 1 amid the growth of average wages and a drop in the unemployment rate The household debt ratio is down to 57 6 the lowest since 2006 it gives a clue to the answer Amid the uncertainty the Europeans pay off debts and save up the consumption is weak negatively affecting the GDP growth According to Bloomberg even the strong in 2017 2918 Spain s economy will lose the growth rate in 2019 Let alone Italy which according to the local central bank is on the verge of a technical recession It reduced the forecast for Italy s GDP growth from 1 and 1 1 down to 0 6 and 0 9 in 2019 2020
GDP Growth In Euro Area Countries
Source Bloomberg Bank of Italy forecasts
Source Bloomberg
The budget deficit of 2 4 suggested by the Euro skeptic Italian government seems to be nonsense amid the current dynamics of the GDP rate Will they frighten the markets by the announcements about Italy s withdrawal from the EU According to 80 of Bloomberg experts the euro celebrating its 20 year anniversary will go on at least the same term Neither Rome nor Athens will be able to ruin it But if Germany and France start opposing the future of the single European currency looks rather gloomy
Therefore the skies are getting darker over the EUR USD bulls and their opponents are trying to get an advantage of the strong statistics of the U S industrial production Furthermore New York Fed president John Williams said the U S economy would strong in 2019 so the EUR USD drop is not surprising The matter is whether the euro will touch the bottom in the range of 1 1265 1 1365 |
JPM | 3 JP Morgan Mutual Funds To Buy For Amazing Returns | JPMorgan NYSE JPM is one of the best financial management companies in the world It has a legacy of investment management since 1865 The company pioneered innovative inflation protected municipal products J P Morgan managed 1 71 trillion of assets as of Sep 30 2018 The fund family has offices in more than 30 countries Also JPMorgan is one of the major mutual fund managers in the United States and prides itself as being the nation s leader in equity fund flows JPMorgan offers managed accounts and retirement products Its primary principle is to understand the needs of its clients and advice the best investment solutions for surplus returns Below we share with you three top ranked JPMorgan mutual funds Each has earned a Strong Buy and is expected to outperform its peers in the future Investors can JPMorgan Core Plus Bond A seeks a high level of current income ONIAX invests a large portion of its assets in a wide range of debt securities of varying quality Not more than 35 of its assets are used to purchase foreign securities At least 65 of its assets must be invested in bonds rated investment grade at the time of purchase ONIAX offers dividends monthly and capital gains annually The JPMorgan Core Plus Bond A has returned 2 5 over the past three years As of November 2018 this fund held 3204 issues with 2 17 of its total assets invested in US Treasury Note 1 75 JPMorgan Intrepid Value R5 invests a large chunk of its assets in equity securities of mid and large cap companies The fund invests in a wide variety of equity securities that the fund adviser considers as having strong momentum high quality and attractive valuations JIVRX seeks capital growth for the long run JPMorgan Intrepid Value R5 has three year annualized returns of 6 4 Jason Alonzo is the fund manager of JIVRXsince 2005 JPMorgan Mortgage Backed Securities A invests the majority of its assets in mortgage backed securities OMBAX focuses on acquiring bonds and debt securities rated investment grade though it may purchase securities of comparable quality OMBAX offers dividends monthly and capital gains annually The JPMorgan Mortgage Backed Securities A has returned 2 2 over the past three years OMBAX has an expense ratio of 0 65 compared to a category average of 0 76 To view the Zacks Rank and past performance of all JPMorgan 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 | A Warning Signal for Global Stock Markets Is Flashing in Japan | Bloomberg Morgan Stanley NYSE MS calls it the end of easy that witching hour in global stock markets when economic growth is slowing the Federal Reserve is tightening and inflation is ticking up After a long bull run strategists the world over are getting nervous and watching for the top
And over in Tokyo a warning is starting to flash
A feared rotation is taking hold as investors dump the shares that propelled the good times such as industrials and technology companies in favor of an entirely different class of firms those needed no matter how bad the economy gets When investors become less optimistic about the future the theory goes that s where they turn
Yoshinori Shigemi a global market strategist at JPMorgan NYSE JPM Asset Management Japan Ltd has been to this rodeo before And he s alert to the danger
No one can really tell whether global stocks will go into a bear market Shigemi said But when Japanese defensives outperform it can be a leading indicator
Utilities health care consumer staples and real estate stocks all so called defensive shares are the top performers of the 11 industry groups in the MSCI Japan Index this year beating information technology and industrial companies so called cyclical shares seen as benefiting the most from economic expansion
It s a change that hasn t happened in the U S and Europe where cyclicals are still mostly in the ascendancy as defensives generally lag behind But Shigemi of JPMorgan Asset has a theory about that Essentially he says Japan s market can respond more to U S developments than the U S itself
Japan is a cyclical stock market and it could be reacting more sensitively to a possible slowdown in the U S economy Shigemi said
The MSCI Japan Utilities Index has jumped 14 percent this year the best performance among the industry groups as the broader Japan gauge retreated Last year when the MSCI Japan surged 18 percent utilities were the only group to decline tumbling 5 6 percent
Concerns that the global economy may peak uncertainties over President Donald Trump s policies and the yen s appreciation against the dollar earlier this year have contributed to the rally in Japanese defensives according to Hiroshi Matsumoto head of Japan investment at Pictet Asset Management Ltd
The phase when cyclical stocks are purchased because of solid global growth is probably over Matsumoto said But that doesn t mean investors are completely bearish either he said
For Mitsushige Akino it s all about U S Treasuries Yields on U S 10 year notes rose past 3 1 percent on Wednesday to the highest level in about seven years helping fuel bets the Fed may need to raise interest rates three more times in 2018
That could jeopardize the global economy said Akino an executive officer with Ichiyoshi Asset Management Co in Tokyo That s why investors can t buy cyclicals in Japan
Japanese defensive shares have been harbingers of global equity downturns before Most notably they started to outperform cyclicals in 2007 not long before the global financial crisis sent equities tumbling An index of global equities sank 44 percent the following year
But the link doesn t always apply Defensives also started outperforming in early 2014 just before Japan raised its consumption tax And that time global equities continued to advance
What will happen this time is hard to tell but two questions are worth asking Is Japan s shift to defensives preceding a similar trend in other markets And does it mean the bull run is set to end
Morgan Stanley strategists including Michael Wilson are certainly monitoring for such a turning point The research team isn t convinced the market is ready to move into full defensive mode just yet they wrote in a report dated May 13 But it does bear close watching they wrote |
MS | Morgan Stanley Sees Loveless Kiwi Sliding to Two Year Low | Bloomberg The worst is yet to come for the poorest performing Group of 10 currency Morgan Stanley NYSE MS says
New Zealand s dollar will drop another 4 percent by year end as rising household debt levels leave the economy vulnerable to higher U S interest rates the New York based bank says Kiwibank Ltd is also negative it sees the terms of trade weakening while technical analysis shows the currency is on the brink of breaking below a key support level
We ve been bearish for a while said Daniel Blake a strategist at Morgan Stanley in Sydney There s a broad basket of highly levered household sectors which include Australia New Zealand Canada and Sweden which will all be negatively impacted by Fed tightening Australia and New Zealand have shown the highest correlation between housing and currencies he said
New Zealand s dollar has dropped 6 percent against the greenback in the past month the worst performing G 10 currency over the period The kiwi slid to a five month low of 68 51 U S cents earlier this week before trading at 68 82 cents on Friday
Morgan Stanley s Blake predicts the currency will decline to 66 cents by year end which would be the weakest since March 2016 and down from as high as 74 38 in January
New Zealand s household debt as a percentage of disposable income climbed to a record 168 percent in the middle of last year and stayed close to that level at the end of 2017 the latest central bank data show The cost of servicing that debt is set to escalate with the Federal Reserve poised to add to its six rate increases since December 2015 as soon as next month
Economies such as New Zealand have been most willing to take on cheap financing to boost domestic demand Blake said As these trends unwind we see these highly levered household currencies underperforming
Rate differentials are also weighing against the kiwi New Zealand s two year interest rate swaps fell to 60 basis points below their U S equivalents this week a record in data compiled by Bloomberg starting in 1993
While the Reserve Bank of New Zealand s policy rate of 1 75 percent currently matches the upper bound of the Fed s target range the U S rate will be more than 50 basis points higher than New Zealand s in the coming year overnight index swaps indicate
Kiwibank says the currency will come under pressure due to worsening in the terms of trade the relative prices of a country s exports compared with its imports
The terms of trade at current levels argue for a higher New Zealand dollar but the outlook suggests a weaker terms of trade into 2019 said Jarrod Kerr chief economist at the company in Auckland That easing alongside a deepening decline in our interest rate differentials should mean a weaker kiwi dollar
The currency will drop to 67 cents by year end he said
New Zealand s dollar initially advanced on Thursday after the government maintained its forecast for surpluses in the nation s annual budget Those gains only lasted a few hours underscoring the headwinds facing the currency
The kiwi s technical position is also bearish The currency is poised to close below a weekly support line that plots lows from August 2015 to November 2017 signaling further downside An indicator of momentum slow stochastics K also indicates it is likely to keep weakening
Updates returns in fourth paragraph |
MS | Oil Prices Firm As Brent Edges Close to 80 Per Barrel | Investing com Oil prices firmed on Friday morning in Asia with Brent crude creeping ever closer to 80 per barrel a level it has not seen since November 2014 as supplies tighten while demand remains strong
Crude Oil WTI Futures for June delivery were trading at 71 58 a barrel at 11 30PM ET 03 30 GMT up 0 13 Brent Oil Futures for July delivery traded in London were up 0 29 at 79 53 per barrel
Shanghai Crude Oil WTI Futures for September delivery were up 1 80 at 485 40 yuan 76 20 per barrel
Geopolitical risks continue to prop up prices and an unexpected fall in U S inventories pushed them up further
U S crude inventories fell by 1 4 million barrels in the week to May 11 and gasoline stocks fell by 3 79 million barrels
Meanwhile looming U S sanctions against Iran which currently produces 4 of global oil supplies raised fears that oil markets will face shortages later this year when trade restrictions take effect
In Venezuela production also plunged to 1 5 million barrels last month its lowest level in decades due to its ongoing economic crisis
On the other hand U S crude is increasingly appearing on global markets as a result of its surging production
Oil prices have surged more than 70 over the last year as demand has risen sharply while production has been restricted by the Organization of the Petroleum Exporting Countries OPEC led by Saudi Arabia and other producers including Russia
Morgan Stanley NYSE MS raised its Brent price forecast to 90 per barrel by 2020
But demand is likely to moderate with the dollar strengthening higher oil prices and softening economic growth
The International Energy Agency IEA lowered its global oil demand growth forecast for 2018 from 1 5 million barrels per day bpd to 1 4 million bpd |
MS | Japan s exports accelerate in April as volumes rise outlook positive | By Stanley White TOKYO Reuters Japan s exports accelerated in April on increased shipments of cars and machines used to make semiconductors with rising volumes suggesting healthy overseas demand could help the economy recover quickly from a dip in the first quarter Exports grew 7 8 percent in April from the same period a year ago below the median estimate for an 8 1 percent annual increase expected by economists in a Reuters poll In March exports grew an annual 2 1 percent In terms of volume which strips away the impact of exchange rates Japan s exports rose an annual 4 6 percent in April faster than the 1 8 percent annual increase seen in March Exports are likely to continue to grow thanks to increased demand for manufacturing equipment cars and car parts but Japan s trade surplus with the United States makes it a potential target for U S President Donald Trump s protectionist policies Overseas economies are in a growth phase so Japan s exports will continue to do well said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities The U S government may turn its attention to Japan s trade surplus but there are steps Japan can take especially given the close defense relationship between the two countries The rise in the volume of exports was another reason to be optimistic Miyazaki noted Exports of cars rose 15 3 percent in April from the same period a year ago while exports of semiconductor manufacturing equipment rose 18 2 percent year on year finance ministry data showed on Monday Exports to China Japan s largest trading partner rose an annual 10 9 percent in April versus a 10 8 percent increase in the previous month due to an increase of shipments of machines used to process metals and to make electronic components Japan s exports to China often serve as a barometer of global demand because companies in China use materials and equipment from Japan to make goods for export to other countries Japan s economy contracted more than expected at the start of this year ending the best run of expansion in decades The April trade data suggests exports could help the economy quickly return to growth but the rate of expansion could be slower than the previous growth spurt Japan s exports to the United States rose 4 3 percent year on year in April faster than a 0 2 percent annual increase in March Japan s trade surplus with the United States was 615 7 billion yen 5 55 billion in April up 4 7 percent from the same period a year ago In March the trade surplus with the United States fell an annual 0 3 percent Since taking office last year Trump has pushed to rewrite free trade deals to protect U S companies and jobs from what is seen as unfair foreign competition Trump has imposed tariffs on steel and aluminum imports which affect Japanese companies and has also criticized Japan for its low level of imports of American vehicles Last year Trump urged Japan to buy more U S military hardware which remains an option for Japan to reduce its trade surplus with the United States The United States and China have called off their threats of tariffs while they discuss ways China can buy more American goods to lower the U S trade deficit
Some officials in Tokyo are worried that the United States could seek a similar measures from Japan |
MS | Japan Inc Mostly Misses on Profit But Analysts See Hope Ahead | Bloomberg With the quarterly reporting period almost over in Japan one analyst summed up the general feeling about companies profit performance
The results season was probably a disappointment said Jonathan Allum a strategist at SMBC Nikko Capital Markets Ltd in London
It s difficult to disagree Most firms have posted net income that fell short of analyst expectations according to data compiled by Bloomberg And beyond the bottom line numbers the word from some of Japan Inc s biggest names hasn t been good
Mitsubishi UFJ Financial Group Inc forecast the largest profit slide among Japan s three biggest lenders this year Sony Corp T 6758 said it expects weaker sales and operating profits across most of its business units while Honda Motor Co predicted a surprise decline in operating income
That results were underwhelming this quarter hardly comes as that much of a surprise Few expected the good times to continue after stellar reporting periods last year This time 12 months ago for example most firms beat analyst expectations
In the three months ended March Topix companies had their worst performance in six quarters according to Morgan Stanley NYSE MS In the brokerage s analysis companies net income surpassed the consensus analyst estimate by just 1 2 percent in the period far below the average beat of 6 7 percent for those six quarters
But as the yen continues to slide optimism is creeping back in The Japanese currency has reversed course after hitting a 16 month high against the dollar in March It s weakened about 6 percent against the dollar since March 23 helped by a strengthening greenback as U S Treasury yields rose A falling yen of course is seen as good news for the Japan s legion of exporters as it inflates the value of their overseas profits when repatriated
Conservative Forecasts
Allum and others point out that Japanese firms are notoriously cautious when it comes to projecting future profits or making assumptions about things like the currency Investors are well aware that forecasts for the year are too conservative Allum said A number of companies are basing their forecasts on an average foreign exchange rate of 100 yen to 105 yen per dollar levels that look increasingly unlikely he said The Japanese currency currently trades at 111 32 per dollar
We can be more optimistic than corporate projections would have us believe said Kiyoshi Ishigane chief strategist at Mitsubishi UFJ Kokusai Asset Management Co in Tokyo
Just Blip
The global economy led by the U S is likely to fare better than it did in the March quarter dulling demand for the yen as a safe haven asset both Allum and Ishigane said Ishigane sees a positive impact from tax cuts by U S President Donald Trump s administration materializing from this quarter Last week data showed U S factory production regained its footing in April pushing capacity utilization to the highest since 2015
It has been clear for some time that the global economy including that of Japan was weak in the first quarter Allum said But it is generally believed that this is no more than a blip
Greg Dean a fund manager who oversees 3 billion at Cambridge Global Asset Management in Toronto sounds a note of caution Wages are starting to pick up in Japan and while that may be good news for Bank of Japan Governor Haruhiko Kuroda Dean says it s not a positive for Japanese companies earnings outlooks
Reducing Exposure
I am reducing my exposure to retailers in Japan where multiples are high and where they may struggle to pass on higher wages due to competition Dean said
But John Vail New York based chief global strategist for Nikko Asset Management Co sides with the optimists when it comes to Japan Inc s future earnings and the prospects for their stocks
Japanese corporates are usually very conservative in their outlook Vail said Profits are likely to continue growing and valuations are low by international comparison |
MS | Morgan Stanley Sees End To Bull Market In Second Half of 2018 | Investing com The bull market in stocks is not over yet but the end is near according to Morgan Stanley NYSE MS In a note to clients the Wall Street firm says stocks will have one last rally this summer before peaking in the third or fourth quarter Morgan says there s been a fundamental shift in the market environment wherein growth is slowing inflation is rising and the Federal Reserve will speed up interest rate hikes The firm says history shows stocks usually peak nine to 12 months following a peak in corporate credit which in this case occurred in January Morgan says investors should expect a series of rolling tops and volatility similar to the early part of 2018 as the bull market winds down |
MS | Pure Storage target raised to 23 upside | BMO Capital maintains an Outperform rating on Pure Storage NYSE PSTG and raises the price target from 25 to 29 New target represents a 23 upside to yesterday s close Pure Storage shares are down 6 8 to 21 99 Previously Pure Storage 6 6 on Q1 beats with product margin drop in line guide May 21 Previously Morgan Stanley NYSE MS increases Pure Storage target to 11 downside May 22 Now read |
JPM | TSMC s Worst Month Since 2008 Has Investors Feeling Whipsawed | Bloomberg Investors in Taiwan Semiconductor Co Ltd TWO 5425 can be excused for feeling whipsawed
The elation they felt in late April when TSMC climbed to a record has turned to disappointment as it is now poised for its worst month since 2008 The slide comes as the Trump administration banned companies from supplying U S tech to Huawei Technologies Co
The slump by Taiwan s biggest stock is dragging down Taiwan equities Foreign investors have sold a net 3 5 billion of the island s shares so far this month the most among Asian markets tracked by Bloomberg It has also helped weaken the Taiwan dollar which is trading near its weakest since early 2017
JPMorgan NYSE JPM Credit Suisse SIX CSGN and BNP Paribas PA BNPP have cut their price targets on TSMC this week The foundry could lose 1 1 billion in smartphone sales and 200 million from a slower infrastructure build out due to the Huawei ban Credit Suisse said Huawei accounts for about 6 4 of TSMC s revenue according to data compiled by Bloomberg
The Taiwanese firm said on May 23 there s no need to change our exports to Huawei and it won t change its second quarter earnings forecast
TSMC fell 0 4 at the close in Taipei extending its drop this month to 11 The Taiex lost 0 1 taking its slide in May to 6 |
JPM | JPMorgan s deposit growth slowing as customers seek higher yield | By Elizabeth Dilts NEW YORK Reuters Deposit growth at JPMorgan Chase Co NYSE JPM the largest U S bank by assets is slowing as customers withdraw some of their money and stash it with competing banks that pay higher interest rates a bank executive said Thursday Most big U S banks have been slow to raise the interest rates they pay customers on their savings and deposits despite the U S Federal Reserve setting current rates at between 2 25 and 2 5 This has left an opening for some smaller and online only banks that are trying to capitalize on customer frustration by offering savings accounts and other products that pay between 2 and 2 45 interest Gordon Smith co president and chief operating officer for JPMorgan Chase said that though customers are taking out money and this is contributing to slowing in the bank s deposit growth most of those customers still keep Chase as their main bank People are taking a component of their deposits They re parking those deposits with a high yield competitor whomever they may be said Smith also head of JPMorgan s consumer and community banking That money is very liquid said Smith It ll then move from that high yield competitor to another but that high yield competitor is not winning the primary bank relationship which is obviously what s critical
Smith said the bank constantly reviews its deposit pricing and that interest rates are only part of what customers want from the bank |
JPM | China s Factory Outlook Worsens as Trade War Heats Up Again | Bloomberg The outlook for China s manufacturing sector deteriorated more than expected in May as weakness in the domestic economy combined with escalation in the trade standoff with the U S
The manufacturing purchasing managers index dropped to 49 4 according to data released by the National Bureau of Statistics on Friday That s worse than the 49 9 forecast in a Bloomberg survey of economists The non manufacturing gauge remained steady to 54 3 A reading below 50 signals contraction
Key Insights
A sub index gauging new export orders fell further into contraction suggesting that exporters felt the squeeze of renewed tariff threats from the U S and waning global demand
Weak factory sentiment implies that the apparent recovery in the first half has been short lived amid a sudden escalation of the trade war Policymakers may be forced to take bolder easing steps although the weakening yuan is a constraint
The momentum of the economy is continuing with the softer trend we saw in April Grace Ng a China economist at JPMorgan Chase Co NYSE JPM in Hong Kong said on Bloomberg Television Now on top of that there is the complication from the escalation of tariffs from the U S which will then drag on the export sector which will feed through to the domestic economy
Get More
The deterioration in May was foreshadowed by Bloomberg s deck of early indicators which showed weakness in stocks copper prices and lower confidence among small firms
The outlook worsened across all enterprise size categories though by the most among small companies The index there slumped to 47 8 from 49 8
Updates with chart under first bullet |
JPM | JPMorgan now sees two 2019 rate cuts after U S Mexico tariff threat | NEW YORK Reuters JPMorgan Chase Co NYSE JPM which previously saw an even chance the U S Federal Reserve would slash rates on Friday said it now predicts two interest rate cuts by the end of the year
The new outlook from JPMorgan is in line with futures market pricing and comes after President Donald Trump said on Thursday the United States will impose a 5 tariff on all goods coming from Mexico starting on June 10 until illegal immigration across the southern border is stopped
The White House said the tariff could increase as high as to 25 by October which JPMorgan said may require much more than a 0 50 reduction in the Fed s target rate |
MS | Outline Of Dreyfus International Equity I Fund DIERX | Dreyfus International Equity I Fund seeks long term growth of capital DIERX invests in a master portfolio which invests under normal circumstances at least 80 of its assets in equity securities of companies located in the foreign countries represented in the Morgan Stanley NYSE MS Capital International Europe Australasia and Far East EAFE Index and Canada DIERX s stock investments may include common stocks preferred stocks and convertible securities including those purchased in initial public offerings or shortly thereafter DIERX may also invest up to 20 of its net assets in high grade fixed income securities of any maturity or duration DIERX intends to invest in a broad range of and in any case at least five different countries This Non US Equity producthas a history of positive total returns for over 10 years Specifically the fund s returns over the 3 5 year benchmarks 3 year 3 3 and 5 year 10 6 To see how this fund performed compared in its category and other 1 and 2 Ranked Mutual Funds DIERX s performance as of the last filing when compared to funds in its category was in the top 34 over the past 1 year and in the top 47 over the past 3 years and in the top 15 over the past 5 years The Dreyfus International Equity I fund as of the last filing allocates their fund in top two major groups Foreign Stock and High Yield Bond Further as of the last filing Banco Santander MC SAN SA Royal Dutch Shell LON RDSa PLC and Allianz DE ALVG AG were the top holdings for DIERX This Zacks Rank 2 Buy was incepted in December 1988 and is managed by DIERX carries an expense ratio of 0 85 and requires a minimal initial investment of 1 000 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 | How To Ride 33 Month High Euro With ETFs | The euro has been on a tear lately being at a 33 month high against the greenback Heightened speculation over the European Central Bank s ECB possible announcement of the QE wind down as soon as in October was behind this strength read
The ECB held interest rates steady and expects rates to remain at their for an extended period of time Though the ECB agreed in its latest meeting on Sep 7 that the latest euro rally could mar the recovery in the inflationary backdrop he did not talk about any way to deal with the issue Several market watchers including the chief European economist at believe that October is probably a sweet spot for the ECB to announce tapering
This caused the euro to gain further CurrencyShares Euro ETF NYSE FXE was up about 0 9 on Sep 7 Meanwhile the dollar plunged fell about 0 7 on the day as hurricanes and Trump s policy uncertainty have taken center stage Also several downbeat economic data points including weak inflation weighed on the dollar
Notably the U S economy created 156 000 jobs in August falling shy of economists expectation of job additions Not only was August job data less than expected job totals also were reduced from 231 000 to 210 000 for June and 209 000 to 189 000 for July as per an article published on read
The ECB is currently buying bonds worth 60 billion euros a month and plans to run the program to December 2017 or beyond should there be any necessity read
Reasons Behind Euro s Strength
The ECB shot up above 1 20 last month for the first time since the ECB announced the launch of QE two and a half years ago FXE is up 13 6 this year while Powershares DB US Dollar Index Bullish Fund UUP is down 10 2
The Eurozone economy grew sequentially in the second quarter in line with the preliminary estimate and following 0 5 growth in the previous period ECB president Mario Draghi said that the bloc expanded faster than expected in the first half of the year
The ECB upped its economic growth forecast from 1 However guidance for Euro zone inflation was cut to 1 2 for next year and 1 5 for 2019 which is nowhere close to the ECB s 2 target
ETFs to Play Surging Euro
CurrencyShares Euro ETF FXE
A strengthening economy and QE taper should boost the euro making FXE an intriguing pick read
Ultra Euro ETF LON ULE
The fund gives twice 200 the exposure of the U S dollar price of the Euro The fund was more than 1 7 up on Sep 7 and has gained about 26 this year
Market Vectors Double Long Euro ETN
This seeks to track the performance of the Double Long Euro Index less investor fees The ETN provide investors with cost effective access to a two times leveraged long exposure to the performance of the euro relative to the U S dollar URR was up about 1 9 on Sep 7 and is up 27 5 this year see ETFs
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 | 3 JPMorgan Mutual Funds To Buy Now | JPMorgan NYSE JPM is one of the major mutual fund managers in the United States and prides itself as being the nation s leader in equity fund flows JPMorgan offers managed accounts and retirement products Its primary principle is to understand the needs of its clients and advice the best investment solutions for surplus returns Also JPMorgan is one of the best financial management companies in the world It has a legacy of investment management since 1865 The company pioneered innovative inflation protected municipal products J P Morgan managed 1 71 trillion of assets as of Sep 30 2018 The fund family has offices in more than 30 countries Below we share with you three top ranked JPMorgan mutual funds Each has earned a Strong Buy and is expected to outperform its peers in the future Investors can JPMorgan Intrepid GrowthFund A seeks to offer growth of capital for the long run JIGAX invests primarily in a broad portfolio of equity securities of large and mid cap companies that have high quality and attractive valuations JPMorgan Intrepid Growth Fund A has three year annualized returns of 10 1 Jason Alonzo is one of the fund managers of JIGAX since 2005 JPMorgan Large Cap Value A seeks capital growth OLVAX invests a major portion of its assets in securities of large cap companies that include common stocks debt and preferred stocks that can be converted to common stocks Large cap companies are those that have market capitalization similar to those listed on the Russell 1000 Value Index at the time of purchase JPMorgan Large Cap Value A has three year annualized returns of 6 6 OLVAX has an expense ratio of 0 93 compared with the category average of 1 00 JPMorgan Small Cap Growth Fund A invests the lion s share of its assets in securities issued by small cap companies These are companies with market capitalization equivalent to those listed on the Russell 2000 Growth Index stocks and below 4 billion at the time of purchase The fund seeks capital appreciation for the long run JPMorgan Small Cap Growth Fund A has three year annualized returns of 13 1 As of November 2018 PGSGX held 120 issues with 1 93 of its assets invested in Advanced Disposal Services Inc To view the Zacks Rank and past performance of all JPMorgan 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 |
JPM | 3 Best Dimensional Mutual Funds For Strong Gains | Founded in 1981 Dimensional Fund Advisor offers investment solutions from different asset classes to institutional and individual investors investment consultants and financial advisors It boasts more than 1 300 investment professionals across 13 offices across nine countries in North America Asia and Europe Dimensional had nearly 517 billion of assets under management as of Dec 31 2018 For the past three decades the company has been providing investment management strategies to clients This Texas based firm invests in both domestic and foreign equities fixed income securities retirement income funds real estates and commodity markets Below we share with you three top ranked Dimensional mutual funds Each has earned a Strong Buy and is expected to outperform peers in the future Investors can to see the complete list of Dimensional funds DFA US Large Cap Value III attains its investment objective by investing almost all its assets in its master fund the U S Large Cap Value Series which in turn allocates its assets in securities of large cap U S companies These companies are believed to be undervalued DFUVX seeks appreciation of capital for the long run DFA US Large Cap Value III has a three year annualized return of 7 9 DFUVX has an expense ratio of 0 13 compared with the category average of 1 00 DFA US Targeted Value R1 seeks appreciation of capital for the long run DFTVX maintains a diversified portfolio by investing in domestic small and mid cap companies that the fund s Advisor considers to be value stocks DFA US Targeted Value R1 has a three year annualized return of 5 3 Jed Fogdall has been one of the fund managers of DFTVX since 2012 DFA Tax Managed US Marketwide Value is part of Tax Managed U S Marketwide Value Series which invests in a wide variety of securities of domestic companies that are believed to be undervalued DTMMX seeks to attain capital growth for the long run DFA Tax Managed US Marketwide Value has three year annualized returns of 7 2 As of November 2018 DTMMX held 1 173 issues with 4 33 of its assets invested in JPMorgan Chase Co NYSE JPM To view the Zacks Rank and past performance of all Dimensional Investments 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 | Japan s GDP ends best growth run in decades as spending trade fade | By Stanley White and Leika Kihara TOKYO Reuters Japan s economy contracted more than expected at the start of this year suggesting growth has peaked after the best run of expansion in decades unwelcome news for a government struggling to get traction for its reflationary policies The world s third largest economy shrank by 0 6 percent on an annualized basis a much more severe contraction than the median estimate for an annualized 0 2 percent decline The contraction which was driven by declines in investment and consumption and weaker export growth comes as Japan Inc frets over the possible effects of U S President Donald Trump s protectionist policies on exports It also highlights the central bank s vulnerability to an economic or financial shock after five years of heavy monetary stimulus has left it with little ammunition to defend growth Economy Minister Toshimitsu Motegi said there was no change to the government s view that the economy was recovering moderately predicting a resumption in growth to be driven mainly by private consumption and capital expenditure But we need to be mindful of the impact of overseas economic uncertainty and market volatility he added External demand or exports minus imports added just 0 1 percentage point to first quarter GDP as imports slowed more than exports However a breakdown of the data shows export growth is losing momentum expanding just 0 6 percent in the first quarter after growth of 2 2 percent October December last year Slower export growth reflected a decline in shipments of mobile phone parts and factory equipment in the quarter a government official said This is a concern for Japanese manufacturers because many of these machines and electronic components are sent to China where they are used to produce goods for export but this trade is at risk if the Trump administration s threatened tariffs on Chinese exports go ahead Globally IT related items have been in an adjustment phase which weighed down Japan s exports and factory output said Yoshimasa Maruyama chief market economist at SMBC Nikko Securities Economists say Japan s first quarter contraction is temporary but the rebound will not be nearly as strong as previous quarters The economy is not headed for a recession said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities However it is clear that in the long term the pace of growth is slowing Wednesday s data marked the end to eight straight quarters of economic expansion which was the longest stretch of growth since a 12 quarter run between April June 1986 and January March 1989 Fourth quarter growth was revised to an annualized 0 6 percent down from the 1 6 percent estimated earlier Capital expenditure fell 0 1 percent down for the first time in six quarters suggesting corporate investment is not as strong as many economists had expected The median estimate was for a 0 4 percent increase The capital spending figures may presage data due on Thursday that is forecast to show core machinery orders a leading indicator of capital expenditure fell in March for the first time in three months Consumer spending fell marginally registering a decline of less than one percentage point in the first quarter The median estimate was for consumer spending to remain unchanged The economy is unlikely to continue to contract further The global economy is performing well and the yen is trading beyond 110 yen against the dollar so once exports start to grow again the economy will return to a moderate growth path said Maruyama of SMBC Nikko Securities The first quarter contraction could make Japanese politicians more reluctant to implement a hike in sales tax to 10 percent from the current 8 percent scheduled for next year A sales tax hike to 5 percent from 3 percent in 2014 caused a large fall in consumer spending and tipped the economy into recession The revised GDP data 2017 showed the economy had already started to slow down from the beginning of last year And the economic contraction for January March may support some ruling officials call for a delay in a planned sales tax hike said Kyohei Morita chief economist at Credit Agricole PA CAGR Securities |
MS | Party City lower after secondary | Party City NYSE PRTY is down 4 56 after its secondary offering of 12M shares is said to have priced at 15 15 per share The block of shares is being sold by THL PC Topco Morgan Stanley NYSE MS is the underwriter for the offering Now read |
MS | Morgan Stanley Sticks With Hawkish BOE Call on Soft Brexit Hopes | Bloomberg Morgan Stanley NYSE MS is keeping the faith in an August increase in U K interest rates
The market is underestimating the Bank of England s potential to be hawkish while pricing in exaggerated Brexit risks according to the U S bank Morgan Stanley strategists predict the BOE will raise rates in August followed by further hikes in May and November 2019 once Brexit has been navigated It recommends that investors position themselves for the prospect by placing bets for a steepening of the two to five year gilt curve
There s an under appreciation of the hawkishness implied by the Monetary Policy Committee s framework Morgan Stanley economist Jacob Nell and strategist Shreya Chander wrote in a research note We expect rates to drift higher over 2018 as data deterioration into the Brexit endgame keeps the MPC on hold after August
Investors have slashed bets on an August move by the BOE to just over 50 percent after the central bank seemed in no hurry to tighten policy as it stayed on hold last week Chander had written in a note published in March that she was waiting for a better opportunity to enter so called steepeners in gilts as the trade for 2018
Morgan Stanley is relatively optimistic on Britain s exit from the European Union putting the probability of a so called soft Brexit as high as 75 percent The U K has moved closer to a pragmatic position while it now looks like a majority in Parliament could block a hard Brexit the strategists said The House of Lords has issued 14 amendments so far to Prime Minister Theresa May s flagship Brexit legislation |
MS | Government borrowing costs rise as oil heads back to the 80s | By Marc Jones LONDON Reuters The dollar took a breather at a five month high on Thursday though government borrowing costs continued to grind upwards as oil prices hit their highest since 2014 at almost 80 a barrel Ten year U S government Treasury yields which are a key driver of global borrowing costs neared a 7 year high of 3 12 percent as higher oil pointed to higher inflation and followed Wednesday s upbeat U S retail sales numbers Europe s FX traders nursed dollar index positions after its latest surge but euro dollar was struggling to keep a foothold back above 1 18 and dollar yen hit its highest level since late January at 110 57 FRX The big turnaround was the Japanese yen there is clearly big time U S vs Japan rate sensitivity there said Saxo Bank s head of FX strategy John Hardy The correlation between moves in yields and yen is likely to one to one almost and without any risk appetite meltdown that should continue World and European shares did creep higher EU but other two big macro market spotlights stayed on Italy and Turkey Turkey s lira was on the slide again as concerns persisted about what an expansion of President Tayyip Erdogan s powers could mean if he wins elections in the country next month as widely expected It came despite the central bank saying on Wednesday that it would take action against a sell off in the currency Benchmark Italian government bond yields nudged higher after a 16 basis point jump on Wednesday following reports subsequently denied that the prospective Five Star League coalition government had drafted an economic plan that would seek 250 billion euros of debt forgiveness from the European Central Bank While few people see that as either a realistic proposal or one that would remain in the coalition s agenda the tone of the new government s stance toward euro zone rules was seen as confrontational and spooked some investors Markets are now eagerly awaiting the final agreement to see what details remain Two year Italian government yields are now back in positive territory for the first time in almost a year the only other positive yielding two year euro zone government bond is Greece I m still sceptical on the euro there is a lot of headline risk Saxo bank s Hardy said adding the worry for lira was that investors will bolt even before they know Erdogan s post election plans BACK TO THE FUTURES The other major mover was oil which was nearing the 80 a barrel threshold for first time since late 2014 With the global economy running at healthy clip demand remains strong while U S President Donald Trump s plans to re impose sanctions on Iran could soon cut global supply by a million barrels a day Brent crude futures were last at 79 47 per barrel up 0 12 percent from their last close while U S crude was at 71 67 a barrel up 18 cents Both are now up almost 30 percent since February and 80 percent since June last year ANZ bank said on Thursday that Brent was now threatening to break through 80 per barrel as geopolitical risks continue to support prices and as an unexpected fall in inventories in the U S got investors excited U S bank Morgan Stanley NYSE MS meanwhile raised its Brent price forecast to 90 per barrel by 2020 due to a steady increase in demand Back in the currency markets sterling rallied against both the dollar and the euro after a UK newspaper reported that Prime Minister Theresa May would tell Brussels that Britain was prepared to stay in the European Union s customs union after a transitional arrangement beyond 2021
Pressure on Mexico s peso returned as hopes for a new look NAFTA trade deal with the U S and Canada were pushed back and as the country s central bank said its systems had been hit by a 300 million pesos 15 33 million cyber attack |
JPM | JPMorgan s Kolanovic Sees a Trump Collar on U S Stock Market | Bloomberg The stock market may be bound in a range by U S President Donald Trump according to JPMorgan Chase Co NYSE JPM s Marko Kolanovic
There s a Trump collar on markets as the president reassures traders when equities are down but does things that worry investors when they re doing well said JPMorgan s global head of macro quantitative and derivatives research Kolanovic s positive on aspects such as the Federal Reserve s effects the U S and Chinese economies and investor positioning His firm has a year end forecast of 3 000 for the S P 500 or about 6 above current levels
Kolanovic last week said that a Trump put with the president trying to soothe investors would be at a 3 4 sell off On May 24 he and colleague Bram Kaplan said in a note that pension funds could provide a tailwind to stocks at the end of the month as they rebalance after an unusually large underperformance versus bonds so far in May
We still think the second half of the year s fundamentals will be better than the first half he said in an interview in New York We are still broadly positive because trade war escalation is irrational and it s in everyone s interest for this to get resolved The trade war is not a positive for the U S the world consumers or markets and ultimately for Trump
Recent developments in U S China negotiations were negative but positioning provided some cushioning at least initially in sell offs according to Kolanovic Investors aren t terribly long stocks so there wouldn t be as much to sell and leverage is not very high he said
Potential Fatigue
Yet fatigue may set in at some point according to Kolanovic
Eventually investors may give up because they are not going to be guessing the tweets he said People cannot really enthusiastically invest with such uncertainty in the backdrop
Kolanovic recommends adding to some of the currently very distressed segments in semiconductors energy metals and mining stocks some of which are close to their lows Even those who aren t positive on the broader market could go long on the cyclical assets that are well off their peaks while shorting defensive assets that are way above previous highs for a relative value view he said
A Performance Gap
Kolanovic has also pointed out to the importance of factors such as a big gap between defensive and cyclical factors as well as quality and low volatility reaching all time highs He also highlighted the fact that value and high beta are at all time lows
We think it will snap back very violently and we see it as an opportunity Kolanovic said though he cautioned it could hurt hedge funds
Market fragility is also still on the radar for the strategist who noted that since January 2018 there have been two record highs and two all time lows in stock correlations
Read more about Kolanovic s concerns about fragility in the marketplace
The market is behaving irrationally under the hood Kolanovic said and it s partially quant flows partially liquidity and partially macro developments
Swings in correlation and flash crashes are related to market fragility namely the feedback loop between volatility flows and liquidity One area for hope on that front Kolanovic said there s potential that machine learning algos might learn to recognize if they re causing or exacerbating a flash crash and pull back
With reinforced learning you study your actions in real time If an algo is causing damage to the market at that moment it could take a step back Kolanovic said But if you have to sell a certain amount there may be no way to avoid the impact |
JPM | FX collusion scandal reaches Australia class action launched | By Byron Kaye
SYDNEY Reuters An Australian law firm filed a class action lawsuit on Monday against five major international investment banks accusing them of colluding to rig foreign exchange rates during 2008 2013 to jack up profits at the expense of businesses and investors
The case involved some of the same banks caught up in similar currency market scandals in Europe and the United States
UBS AG Barclays LON BARC Bank Plc Citigroup Inc NYSE C Royal Bank of Scotland Group LON RBS Plc and JP Morgan AG are accused according to Australian court documents of colluding to increase the price clients paid for certain investment products in order to fix exchange rates at more costly levels
Reuters emailed and called the banks named in the lawsuit
JP Morgan declined to comment while spokespeople for UBS Citi and RBS acknowledged receiving Reuters enquiries but were not immediately available for comment
Maurice Blackburn the law firm that has launched the case alleged that traders from the banks who were supposed to be competing with each other shared confidential information like details of clients and their orders on internet chatrooms
According to court documents names given by the traders to those chatrooms included The Cartel The Mafia and A CoOperative
Several of the same chatroom names were identified in an investigation into foreign exchange rate rigging by U S regulators
In a U S case Barclays BNP Paribas PA BNPP Citigroup JPMorgan NYSE JPM Royal Bank of Scotland and UBS have entered related guilty pleas and been collectively fined more than 2 8 billion
Reuters reported earlier this month that EU anti trust regulators investigating currency market rigging were set to fine seven banks several of which were also accused in the case launched in Australia
Australian businesses and investors particularly medium to large importers exporters institutional investors and businesses with operations overseas have been affected by the distortion of the FX market by these banks said Maurice Blackburn principal lawyer Kimi Nishimura in a statement
Such cartel behavior cheats Australian businesses in circumstances where they may already have been vulnerable to currency fluctuations Nishimura added
The lead plaintiff was a dental products importer called J Wisbey and Associates although the class action would represent any Australian customers of the five investment banks which had made cross border transactions worth more than A 500 000 346 250 in the five year period Maurice Blackburn said
Maurice Blackburn wanted the five investment banks to pay damages to the plaintiffs without specifying how much according to the court documents
The dust has barely settled from the previous scandal that roiled Australia s banking community in recent years after a market regulator launched a series of lawsuits against the country s Big Four banks
The regulator accused them of rigging the Bank Bill Swap Rate BBSW a benchmark interest rate in Australia used to price trillions of dollars of assets to inflate profit during the period 2010 2012
Commonwealth Bank of Australia CBA AX National Australia Bank NAB AX and Australia and New Zealand Banking Group ANZ AX settled before hearings began Westpac Banking Corp defended the case and was cleared by a court a year ago
1 1 4440 Australian dollars |
JPM | Citi JPMorgan UBS Face Australia Forex Cartel Class Action | Bloomberg Citigroup Inc NYSE C Royal Bank of Scotland Group LON RBS Plc and JPMorgan Chase Co NYSE JPM are among five banks named in a class action lawsuit in Australia seeking damages for colluding on foreign exchange trading strategies
UBS Group AG and Barclays LON BARC Plc were also named in the suit lodged Monday in the Federal Court by Maurice Blackburn Lawyers The action claims the banks colluded to rig foreign exchange rates boosting profits at the expense of Australian businesses and investors the law firm said in a statement
Spokespeople at Citi and JPMorgan in Sydney and Barclays in Hong Kong had no immediate comment on the suit UBS didn t return a call seeking comment RBS didn t immediately respond to an inquiry outside of regular business hours in London where it is a public holiday
Citi RBS JPMorgan and Barclays were among five lenders that agreed to pay European Union fines totaling 1 07 billion euros 1 2 billion earlier this month for colluding on foreign exchange strategies UBS escaped a fine because it was the first to tell regulators about the collusion
Traders allegedly used chat rooms bearing names such as The Cartel The Bandits Club and The Mafia and communicated directly with each other to coordinate the manipulation of FX benchmark rates control the pricing of spreads and to trigger client stop loss orders and limit orders Maurice Blackburn said
The manipulation of benchmark foreign exchange rates was exposed in 2013 via Bloomberg stories triggering regulatory probes in the U S the U K and Switzerland More than a dozen financial institutions have paid about 11 8 billion in fines and penalties globally with another 2 3 billion spent to compensate customers and investors
While the U S has won guilty pleas from JPMorgan Citigroup RBS and Barclays three British traders in the group known as The Cartel were acquitted by a U S federal court last year of using a chatroom to coordinate trades and manipulate prices on the spot exchange rate for euros and U S dollars
Maurice Blackburn s suit claims Australian companies and investors including importers exporters institutional investors and businesses with overseas operations have been affected by the distortion of currency markets by the five banks The action is on behalf of customers who bought or sold more than A 500 000 347 000 of foreign currency between Jan 1 2008 and Oct 15 2013 the law firm said
Adds attempt to contact RBS in third paragraph |
JPM | Strong labor market boosts U S consumer confidence | By Lucia Mutikani WASHINGTON Reuters Consumer confidence jumped in May as households grew more upbeat about the labor market suggesting the economy remained on solid ground despite signs that activity was slowing after being temporarily boosted by exports and a build up of inventories The surge in confidence reported by the Conference Board on Tuesday came despite an escalation in tensions in the 10 month trade war between the United States and China which sparked a sharp sell off on Wall Street It mirrors strength exhibited by another sentiment surveys in the middle of this month Economists said the strong readings likely did not fully capture the impact of the trade standoff between Washington and Beijing The cut off date for the Conference Board survey was on May 16 The U S raised existing tariffs on 200 billion in Chinese goods to 25 from 10 on May 10 prompting Beijing to retaliate with its own levies on American imports So there was at least some time for the recent escalation in the trade spat with China to factor in said Tim Quinlan a senior economist at Wells Fargo NYSE WFC Securities in Charlotte North Carolina But at this stage consumers are nonplussed The Conference Board said its index of consumer attitudes increased 4 9 points to a reading of 134 1 this month climbing up to levels seen last November when the index was hovering near 18 year highs Economists polled by Reuters had forecast the index rising to 130 0 this month The survey s expectations index based on consumers short term outlook for income business and labor market conditions increased to a reading of 106 6 this month from 102 7 in April The Conference Board survey s so called labor market differential derived from data on respondents views on whether jobs are plentiful or hard to get increased to 36 3 from 33 2 in April That measure closely correlates to the unemployment rate in the Labor Department s employment report The labor market is tight with the unemployment rate at 3 6 percent a level last seen almost 50 years ago While the sentiment surveys have been upbeat the so called hard economic data have weakened in recent months Industrial production durable goods orders retail and home sales fell in April suggesting the economy lost considerable momentum early in the second quarter after getting a lift from exports and an accumulation of unsold goods in warehouses in the first quarter The Atlanta Federal Reserve is forecasting gross domestic product increasing at a 1 3 annualized rate in the second quarter The economy grew at a 3 2 pace in the January March quarter Growth is mostly slowing as last year s massive stimulus from the Trump administration s tax cuts and spending increases fades The dollar was trading higher on Tuesday U S Treasury prices rose with the yield on the benchmark 10 year note dropping to its lowest level since October 2017 Stocks on Wall Street eked out modest gains HOUSE PRICES SLOWING As long as job growth is strong that is the green light we need to keep consumers moving along said Jennifer Lee a senior economist at BMO Capital Markets in Toronto Consumers anticipated inflation would remain muted over the next 12 months The survey s one year inflation expectations fell to 4 4 in May from 4 6 in April Inflation has been benign despite the tight labor market prompting calls from President Donald Trump for the Federal Reserve to cut interest rates The U S central bank recently suspended its three year interest rate hiking campaign and last month showed little desire to alter its monetary policy stance Other data on Tuesday showed a further moderation in house price inflation which could help support the struggling housing market But a chronic shortage of lower priced homes remains an obstacle amid strong demand that has been stoked by declining mortgage rates The S P CoreLogic Case Shiller composite index of home prices in 20 metropolitan areas increased 2 7 in the 12 months to March after rising 3 0 the prior month In another report the Federal Housing Finance Agency FHFA said its house price index rose a seasonally adjusted 4 9 in March from a year ago That followed a 5 1 gain in February The FHFA s index is calculated by using purchase prices of houses financed with mortgages sold to or guaranteed by mortgage finance companies Fannie Mae and Freddie Mac
A variety of different measures of housing activity have been soft in recent months despite the recent decline in mortgage rates and if affordability issues are weighing on the housing market house prices could continue to soften moving forward said Daniel Silver an economist at JPMorgan NYSE JPM in New York |
JPM | RBA Rate Forecasters Race to Bottom Intensifies With 0 5 Seen | Bloomberg The Reserve Bank of Australia s signal it expects to lower interest rates this year is setting off a fresh round of forecasts for deeper policy cuts as economists ponder where the lower bound is Down Under
JPMorgan Chase Co NYSE JPM on Wednesday said it expects the central bank will have to cut its 1 5 benchmark 1 percentage point by the middle of 2020 in an attempt to achieve the RBA s inflation and employment goals That forecast follows projections of a 0 75 rate over the same time frame from Westpac Banking Corp and Capital Economics
After holding rates steady since taking over in late 2016 RBA Governor Philip Lowe this month acknowledged an easing bias as he struggles to revive sagging inflation and growth That came after weaker than expected first quarter inflation undermined the central bank s hopes for a turnaround from an economic slowdown at the end of 2018
A number of developments in recent months suggest the RBA is unlikely to achieve desired macro economic outcomes with only 50bp of easing economists including Sally Auld wrote in a JPM report emailed Wednesday Our sense is that the combination of global headwinds and the RBA having slipped behind the curve could therefore be decisive in bringing 4 cuts rather than 3
JPM is outpacing rates traders with swaps forwards seeing the RBA rate at 0 79 a year from now The Australian dollar was little changed at 69 21 U S cents as of 9 17 a m in Sydney down 1 9 over the past month while three year yields slid 1 basis point to 1 11 just above the record low touched last Friday
Governor Lowe opened the door wide to rate cuts in a May 21 speech in Brisbane
A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target he said Given this assessment at our meeting in two weeks time we will consider the case for lower interest rates |
MS | Mixed UK Data And Brexit Uncertainty Cloud Outlook For Sterling | After being criticised by EU officials for turning up at the negotiating table unprepared the UK has this week published its most comprehensive vision yet of a post Brexit relationship with the bloc The British government published yesterday its first policy paper on a future customs agreement with the European Union and is due to soon release a paper on Northern Ireland and its border arrangements with the Irish Republic
The paper calls for a new customs partnership with the EU with the aim of achieving as frictionless as possible trade between the UK and the EU Aside from the desire to maintain a barrier free trade with the EU the British government wants to avoid a return to a hard border between Northern Ireland and the Republic of Ireland as this could jeopardise the Peace Process in the province Also outlined in the paper are proposals for an interim arrangement for a time limited period to allow UK businesses to adjust to the new customs agreement once Britain is out of the EU
The proposal for an interim customs system is a welcome relief for the UK business community who feared a cliff edge scenario when the prime minister Theresa May raised the prospect of a hard Brexit in her first major speech on the UK s exit plans back in January Signs that the government is now shifting towards the idea of having a transitional agreement in place once the UK leaves the EU in March 2019 have helped the pound move towards 10 month highs against the US dollar rising above 1 32 earlier this month
The turnaround came after the Prime Minister lost her parliamentary majority in June s snap election which had the opposite intention of strengthening her negotiating hand in what proved to be a major political misjudgement Many blamed the Conservatives poor performance in the election on the government s hard line on Brexit with the shock vote outcome giving an unexpected boost to the Remainers within May s cabinet notably the finance minister Philip Hammond
Amid all the political headlines a more hawkish Bank of England has also lifted the pound as surging import costs brought on by sterling s post Brexit depreciation pushed UK inflation to near 4 year highs in May However CPI has eased back to 2 6 in June and July alleviating some of the pressure on the Bank to act sooner rather than later
The pound slipped back below the 1 29 level after this week s July inflation data but more crucial will be Thursday s retail sales figures Annual retail sales have moderated significantly in 2017 compared to last year Household consumption comprises around 65 of UK GDP and a slowdown in spending would have a significant impact on growth especially as so far the weaker pound has not provided much of a boost to exporters Rising exports and a subsequent increase in business investment has the potential to offset any decline in consumer spending
A persistent weakness in consumption would mean the UK economy will likely continue growing at around the sluggish rate of 0 2 0 3 seen during the first two quarters of the year This would make it more difficult for the BoE to raise rates when growth is so low and the economy vulnerable to Brexit developments Without a rebound in consumer spending in sight sterling could further reverse some of its impressive gains made since April
Not all data has been feeble however with the UK labour market remaining robust Figures released today showed the jobless rate fell to a 42 year low of 4 4 in the three months to June Wage growth also came in above expectations picking up to 2 1 during the same period though this is still below the rate of inflation Further gains in earnings growth would be viewed as being positive for higher consumer spending and would ease concerns of a prolonged downturn in consumption
It would also give more weight to the hawkish voices within the BoE s Monetary Policy Committee With more MPC members becoming uncomfortable with inflation running above their target the Bank may feel confident enough to overlook the current soft patch in the economy and raise rates on the expectation that higher wage growth will keep CPI running above 2
The constantly altering outlook for UK rates has become a bigger factor driving the pound in recent weeks with the UK currency becoming less sensitive to the Brexit negotiations However it is too early to rule out further big political shocks causing disruption in the forex markets as no conclusive agreement has yet to emerge from the Brexit talks while Theresa May s future in Number 10 looks highly uncertain and another fresh election plausible
In the meantime the broader dollar weakness and the resurgent euro have also influenced the outlook for the pound particularly the single currency which has risen to 10 month highs of above 0 91 pounds this week Morgan Stanley NYSE MS projected last week the euro would hit parity with the pound in 2018 though other forecasts are a bit more bullish for sterling Some analysts see the euro rally as overdone as the excessive rise in euro dollar is not supported by a corresponding increase in either the short or long term yield differentials between US and German government bonds suggesting the moves are mostly speculative
According to the latest Reuters poll forecasts for pound dollar during Q3 2017 and Q2 2018 range between 1 15 and 1 44 while for EUR GBP they stand between 0 77 and 1 03 pounds For now though the pound remains well supported above 1 26 but may struggle to climb past 1 33 without a fresh breakthrough in the Brexit negotiations or signs that the UK economy is gaining traction |
MS | Fiat Chrysler Stock Rises On Hope For Maserati Alfa Romeo Spinoffs | Shares of Fiat Chrysler NYSE FCAU rose more than 5 in midday trading on Wednesday after the company said it is considering options to spin off the upscale Maserati and Alfa Romeo brands as well as its components operations
According to Fiat Chrysler is considering the spinoffs to focus the company on mass market cars This would make the car automobile company more attractive for a potential buyer Combined the two luxury car brands are worth more than 8 3 billion
This news follows a series of reports about Fiat Chrysler and its potential buyout Last week the stock rose on the news that a Chinese car manufacturer was interested in the company And just this Monday shares of Fiat Chrysler jumped after reports indicated that Great Wall Motor China s largest SUV and pick up manufacturer confirmed its interest in acquiring Fiat Chrysler
However Great Wall Motor has since said there are big uncertainties whether it will continue to study Fiat Chrysler for a potential acquisition In a filing to the Shanghai stock exchange the Chinese company said that its efforts have not generated concrete progress as of now
Fiat Chrysler previously spun off their Ferrari NYSE RACE brand in January 2016 Since then shares of Ferrari have grown from its IPO price of 60 per share to 115 18 per share as of Tuesday s close
Analysts are hoping for similar success should Fiat Chrysler spin off the Maserati and Alfa Romeo brands Jefferies raised the price target on the company from 14 to 16 while Morgan Stanley NYSE MS upgraded the stock to Overweight with a new price target of 15
The timing of the potential overhaul for Fiat Chrysler is uncertain and a final decision may not be made until early next year
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JPM | Financial Surge Nearing End Here Is The Short Trade | Poor earnings by Citigroup NYSE C and JPMorgan Chase NYSE JPM have given investors a chance to buy the dip and they did Both stocks opened lower after reporting their earnings However quickly investors bought and the stocks surged higher Both stocks are entering overbought territory and likely to pull back in the coming days The biggest tell for the financial sector is the Financial Select Sector SPDR NYSE XLF the financial ETF The ETF is approaching the daily 50 moving average and a major pivot from October 2018 The combination of these two factors gives a short trade on the XLF at 25 25 a high reward low risk success rate Keep it on your radar |
JPM | Fed Rate Pause And A Case For Volatility | And we come full circle back again It s not what they say it s what they do Kansas City Fed CEO Esther George was at least consistent unlike all the other voting FOMC members Throughout 2015 and 2016 the rest of them would say the economy was strong but then vote the other way no rate hike December 2015 was the lone exception
President George on the other hand was almost irredeemably optimistic about the economy and voted that way too While the majority held steady Esther was the one who would dissent against the then Fed Pause The few times she didn t was in early 2016 when the US economy approached recession conditions
You knew it was serious when the hawkest of hawks stopped walking how she talked In March 2015 George had said
The U S economy is expanding at an above trend growth rate which I expect to continue through the end of the year A strong dollar and certain aspects of the foreign outlook pose some risks but the economy appears well positioned to withstand such headwinds
Importantly this improved outlook for consumers and businesses suggests that momentum in the labor market will likely continue going forward The economy added more than 3 million jobs in 2014 the highest level since 1999 and the rapid pace of job creation has continued into the beginning of 2015
Sounds very familiar doesn t it especially how none of it was true a fact George herself would confirm in January 2016 voting in unanimity forgoing a second hike immediately after the first which was the original plan
Can we stop with all the rate hikes are causing this nonsense The upper boundary of federal funds is currently 2 50 hardly any sort of hardship on anyone anywhere If 250 bps is the cause of so much fright and angst how in the world did the world function when risk free was 6 or better You might even notice that the economy did function so much better when interest rates were higher interest rate fallacy
Something big changed between 2017 three rate hikes and 2018 four rate hikes and it wasn t the extra 25 bps The global economy isn t going to be sailing into globally synchronized growth with federal funds around 150 bps and then on the precipice of the full downturn with the addition of just 100 bps more
The strongest economy in decades would never have been cut off by another 1 at least if it was actually strong in any realistic sense
What I mean is therefore perfectly clear the rate hikes didn t cause this therefore the Fed pause can t fix it The pause however is very real anyway and now for a second time Here s Esther George today
A pause in the normalization process would give us time to assess if the economy is responding as expected with a slowing of growth to a pace that is sustainable over the longer run
It s this slowing pace of growth that has caught them off guard more so markets reactions to it Here s what she said back in October not quite as unhinged as Atlanta s Raphael Bostic but similarly confident nonetheless
By nearly every measure the U S economy is performing well With accommodative financial conditions elevated levels of confidence and solid labor markets it seems reasonable to expect economic growth slightly above trend with low and stable inflation for the next few years Consumers are poised to continue to be the main force behind this expansion and the recent pickup in business investment may continue as well
Perhaps unconsciously she was simply repeating her views from March 2015 Was it the lags of the last two or three or four rate hikes catching up with a truly robust economy that caused it to fall back Does anyone really believe that It s what they ll write in the Wall Street Journal
The real problem is much deeper a fact we are reminded of again with various banks putting up some eye opening numbers for last quarter In the textbooks they always say that dealers run matched books market makers picking up a few pennies on others trading Volatility is good for business
Supposedly it was the Fed being so accommodative to the monetary system throughout the ZIRP period that killed off the dealer business FICC shrank and according to conventional wisdom the lack of volatility was the reason Thanks Bernanke
Except whenever there was a serious bout of market volatility as the end of 2015 and the beginning of 2016 FICC revenues would collectively plunge Banks it seems can t actually make money in money during volatile periods I noted this actually consistent inconsistency almost three years ago during the last one
In low volatility environments investment banks get smaller in high volatile environments investment banks get smaller You might just get the impression that investment banks reduce themselves regardless of the volatility environment and thus are projecting some other concern or structural tendencies
Rates are rising the markets were volatile so dealers should be cleaning up Instead as they are beginning to report in Q4 2018 they got cleaned out
JPMorgan Chase NYSE JPM reported fourth quarter FICC sales and trading revenue that missed analysts estimates just like Citigroup NYSE C on Monday JPMorgan s adjusted earnings per share also trailed estimates
Bond traders just suffered their worst quarter in a decade
Revenue from fixed income trading typically the biggest contributor to the company s markets business plunged 18 in the fourth quarter to the lowest since the depths of the financial crisis as wild markets kept clients on the sidelines The drop more than outweighed an increase in equity trading revenue and advisory fees making for the corporate and investment bank s worst quarter in three years
Citi s FICC bond trading numbers were even worse down 39 in Q4 2018 from Q3 and off 21 year over year from a Q4 2017 that was far from fantastic
It s another few data points for why December especially in curves liquidity hedges was so bad This renewed overseas turmoil has come home once more a confirmation of sorts performed unintentionally by Esther George Again |
MS | Roku shares jump after co posts smaller than expected loss | Reuters Roku Inc O ROKU shares were up nearly 7 percent premarket on Thursday after it posted smaller than expected first quarter loss helped by its TV streaming platform Roku which makes devices for TV streaming said https on Wednesday revenue from its platform more than doubled to 75 1 million from strong growth across advertising and content distribution The strong growth in Roku Channel usage highlights growing ad supported content consumption Morgan Stanley NYSE MS analyst Benjamin Swinburne wrote in a client note Roku also beat Wall Street expectations with active accounts up 47 percent to 20 8 million at the end of March 31 and average revenue per user jumping 50 percent fastest growth rate in 18 months Roku reported an impressive quarter validating our view that it is one of a handful of companies leading the transition to over the top video consumption said Tom Forte an analyst at D A Davidson who also called the results outstanding
Roku shares were last up 6 7 percent at 38 55 in premarket after having fallen nearly 30 percent this year |
MS | Mahathir s Surprise Return to Test Ringgit Traders Resolve | Bloomberg The surprise comeback of Malaysian leader Mahathir Mohamad who once imposed capital controls is likely to halt a rally in Asia s best performing currency amid concerns pro growth reforms will give way to populist campaign promises
The ringgit may initially slide to the psychological level of 4 per dollar although the size of its decline will depend on the level of clarity about the new policies according to Bank of Singapore ING Groep AS INGA NV cut its year end forecast to 4 05 from 3 84 after the vote citing political uncertainty
The first significant resistance is at four said Sim Moh Siong a currency strategist at Bank of Singapore We ll need to see how smooth the power transition is given that this result is historic in nature Following the transition we also need to see how the government reconciles the key policy differences
The ringgit closed at 3 9497 on Tuesday after dropping to an almost four month low of 3 9507 earlier that day Trading in one month non deliverable forwards on Friday imply the currency will be 1 5 percent weaker when onshore markets reopen on Monday It is still Asia s best performer over the past year rising 10 percent
The currency s immediate future looks bleak due to concern the new government will roll back recent financial reforms namely replacing the consumption tax with a sales levy and reintroducing fuel subsidies Most investors had expected former Prime Minister Najib Razak would retain power ensuring a continuation of policies that had propelled growth to the fastest in three years
Mahathir sought to reassure investors Thursday as he pledged to focus on growing the economy and lead a business friendly administration
Our concern over the economy is the main thing Mahathir told reporters after he was sworn in as prime minister We would like to tell the business people to push up the value of the stock market And on the currency there is no cause to devalue the ringgit We should ensure this
Currency Peg
Mahathir is known for his criticism of foreign exchange traders and his imposition of capital controls during the Asian financial crisis In late 1998 he introduced a currency peg after the ringgit plummeted and reserves dwindled In a sign he remains wary of financial markets he said in an interview with Bloomberg on April 6 that he s willing to implement a peg on the ringgit to ward off currency manipulators
While investors including those at Fidelity International don t expect the return of his past policies there are concerns that implementation of the campaign pledges would widen the nation s budget deficit which has been brought down gradually to 3 percent of GDP Moody s Investors Service said Thursday that those promises if carried through without adjustments would be credit negative for the nation s bonds
A scenario where the fiscal deficit significantly widens would represent a major headwind for the MYR and government bonds given where the current account is at Morgan Stanley NYSE MS analysts Jesper Rooth and Chun Him Cheung wrote in a report
Crowded Positions
The uncertainty may lead some funds to trim holdings given that positioning in both the currency and the debt have become relatively crowded they wrote
An initial negative market reaction to the surprising election results seems probable Prakash Sakpal an Asian economist at ING in Singapore wrote in a research note Lingering political and economic risks will weigh on investor confidence and performance of local markets especially the ringgit for some time probably through the end of this year
Technical analysis suggests the ringgit is likely to extend recent declines until it reaches initial support at 4 01 the 23 6 percent Fibonacci retracement of its advance from January 2017 to April 2018 Beyond that the currency is also likely to be supported between 4 0155 and 4 0278 the lows set on Jan 3 4 and 10
Not everyone is negative
Back in the day Mahathir was a pragmatic person and is less likely to completely close the economy Bryan Collins head of Asian fixed income at Fidelity International said in a statement Thursday Inflation dynamics in the near term support lower rates for longer so we would look into buying back our short local rates positions The ringgit is more volatile to these uncertainties but a lot of speculative positioning has eroded away
Updates NDFs in fourth paragraph adds Mahathir s comments in paragraphs six and seven and Fidelity s comments in 13th paragraph |
MS | Kim Could Make North Korea Samsung s New Backyard | Bloomberg Opinion It wouldn t be hard for North Korea to become the next Vietnam if only Kim Jong Un loosened up a bit
North Korea today looks remarkably similar to the Southeast Asian nation in 1986 when its Communist neighbor undertook Doi Moi reforms to tiptoe toward capitalism North Korea may have a head start because it s richer and more industrialized
Vietnam is now a huge manufacturing hub boasting an economy that s six times larger than North Korea s Last year it expanded 6 8 percent the fastest pace in a decade thanks in no small part to South Korean firms Samsung Electronics KS 005930 Co is Vietnam s biggest foreign investor accounting for around one quarter of its total export revenue North Korea s economy by comparison seems frozen in time
South Korean companies would probably happily relocate though The wages they d have to pay workers are significantly lower based on salary data from North Korea s Kaesong Industrial Complex which was shut by the Park Geun hye administration in 2016
Crimped by sanctions Kim is playing the diplomat pledging an end to the Korean War and agreeing to meet with U S President Donald Trump marking in Trump s words a very special moment for world peace
It could certainly be a defining moment for North Korea Investment accounts for about 26 percent of Vietnam s GDP If Pyongyang could raise offshore inflows which are practically zero to even 20 percent of GDP then its economy could grow at 5 percent according to Morgan Stanley NYSE MS estimates
Investments from South Korea alone could fill that quota At 20 percent of North Korea s 31 billion of GDP in 2016 the latest figures available that s about 6 billion Samsung has plowed more than 17 billion into Vietnam over the years
Vietnam still paints a prettier picture when it comes to demographics Around 70 percent of the population is of working age versus only 44 percent in North Korea And North Korea s working age population is expected to peak by 2020 compared with 2040 in Vietnam
Combining the populations of the two Koreas would come to around 80 million That s big enough on its own to make the peninsula a self sufficient production and consumption powerhouse
Sell side analysts often say that the reduced possibility of a war on the Korean peninsula could close the notorious Kospi discount The risk premium attributed to South Korean assets is fading Foreigners have purchased more than 17 billion of the nation s bonds since January betting an easing of tensions will usher in a less volatile won Credit default swaps insuring government debt against a default are near a five year low
But South Korean firms are still 30 percent cheaper than their peers in the region even though chaebol have pulled up their corporate governance socks and improved their return on equity
One can t blame investors for being wary Kim isn t exactly a stabilizing influence But if he s true to his word fund managers could have a lot of catching up to do |
MS | Morgan Stanley Splits With Nomura Over Emerging Market Outlook | Bloomberg The rout that took emerging market debt spreads to a 16 month high is provoking very different reactions from two financial titans
Morgan Stanley NYSE MS is all in on sovereign bonds from developing nations saying that the tumble this year is providing an attractive entry point to load up on undervalued securities Nomura Holdings Inc takes the opposite view namely that the slump is just a small preview of the outsize pain that investors can expect during the rest of the year
The bullish case for the market focuses on stable economic growth forecasts for a weaker dollar and expectations that U S Treasury yields won t fluctuate wildly from current levels For all those reasons Morgan Stanley strategists say clients should add to their holdings of hard currency emerging market debt Nomura on the other hand cites concern that the balance of payments could bring some pain later this year
Even if we are right that global growth is holding up this is likely to be only a brief respite for EM analysts at Nomura including Rob Subbaraman and Young Sun Kwon wrote in a report Friday In our mind Q3 2018 is the high risk quarter for a painful EM snapback
The Nomura strategists are focusing on rising borrowing costs this year s dollar rally and steeper oil prices Combined all those things will exacerbate current account shortfalls already being felt in some of the biggest emerging markets according to Nomura
Developing nation sovereigns now yield about 3 2 percentage points more than similar maturity Treasuries on average down from a 16 month high of 3 4 points earlier this month according to data compiled by JPMorgan Chase Co NYSE JPM Offshore debt issued by emerging market governments have produced a loss of 4 percent this year for investors
Edwin Gutierrez the London based head of emerging market sovereign debt at Aberdeen Standard Investments which oversees 575 billion pounds 780 billion of assets globally is mostly positive on emerging market bonds He says the asset class offers good value with just a few specific exceptions particularly Argentina and Turkey where he sees trouble ahead
I think we re modestly cheap in USD bonds now having been on the expensive side Gutierrez said
Morgan Stanley strategist James Lord says that while it s possible emerging market debt spreads widen by the end of the year there are still plenty of opportunities now to buy high quality credits at a discount He says South Africa is particularly attractive
In short we believe that the market has exaggerated the risks for EM and that current levels represent a tactical opportunity to add risk Lord wrote in a report Sunday |
MS | Nvidia Braces Itself for Rough Ride Following Lower Demand from Miners | Nvidia is looking bearish as the company doesn t have any good news to share about its GPU sales during this quarter Its most recent quarterly report and forecast suggest that the decline in demand for cryptocurrency mining is hurting the company
The chipmaker projects that by the end of Q2 2018 sales to cryptocurrency oriented customers will dive by as much as two thirds of the previous value of 300 million Even keeping in mind that the company makes most of its revenue from gamers and that it earned in the first quarter of this year a loss of 200 million in potential revenue has investors watching
Nvidia has taken a hit in its stock price and is down 5 from Thursday
Joseph Moore an analyst at Morgan Stanley NYSE MS isn t too worried about the drop in demand from miners projecting Nvidia s stock price at 273 per share He said that the market would settle once the company pulls through the turbulence
It should be cleaned up in the next couple of quarters while the numbers keep going up he added
Nvidia s not the only company looking at red spreadsheets this quarter board manufacturers in Taiwan that make their orders from the company for drops in revenues as demand from miners
The thing about people who mine cryptocurrencies is that they often buy in bulk which often results in a huge increase in sales in the short term Over a longer period however these miners do not need new GPUs for their rigs
The appearance of an anti ASIC movement among coin developers could help reignite the embers in Nvidia s stock price although that would depend on whether coin miners prefer second hand hardware or not |
JPM | Short Aussie Long Yen Is the Hot New Currency Bet for Trade War | Bloomberg Short Australia s risk sensitive currency against the haven yen That is emerging as one popular currency trade as investors look to profit from the U S China trade war
With the conflict escalating Citigroup Inc NYSE C predicts the Aussie yen will slip to about 72 75 in a few weeks which marks a drop of more than 4 from 76 11 early in Asia Wednesday Jeffrey Halley a 30 year currency trading veteran and market analyst at Oanda Asia Pacific Pte reckons the pair could fall below 70
Aussie yen is the best bellwether for risk off said Sean Callow senior currency strategist in Sydney at Westpac Banking Corp I don t see a quick resolution to the U S China trade war before the Group of 20 meeting next month he said
With U S President Donald Trump bringing the trade spat back to the fore by threatening to impose tariffs on almost all imports from China investors are looking to benefit not just from potential downside in the Aussie but also from gains in the yen which is proving to be the most sought after haven currency
One month risk reversals a measure of market positioning signal options traders are most bullish on the yen among the Group of 10 currencies while being the least confident about the Aussie Further implied volatility is indicating potential for wild swings in the Aussie yen cross over the next three months
I can t think of a better way to play the yen crosses right now other than by selling the Aussie said Jeffrey Halley Singapore based market strategist at Oanda There s going to be the most value in being short Aussie because it s such a proxy for China and the yen is still loved as a haven I see easily Aussie yen falling below 70 in the next one to two months
Yuan Link
The Aussie is closely tied to the yuan as China is Australia s largest trade partner buying up commodities including iron ore The Australian dollar is a proxy for investors wary of trading the yuan given capital control measures The Aussie yen s correlation with how the offshore yuan trades has been rising recently and climbed to 0 60 last week the highest since October according to data compiled by Bloomberg That s stronger than the relationship the Chinese currency has with Aussie greenback
The Aussie capped a fifth straight weekly loss against the yen on Friday and touched 75 331 its lowest since early January when it hit a decade low amid the flash crash
I see Aussie yen potentially testing 72 75 in the next two weeks said Shyam Devani senior technical strategist at Citi in Singapore
Trade issues aside the Aussie has also been under pressure from a faltering local economy and rising bets for an interest rate cut by the Reserve Bank of Australia Governor Philip Lowe said Tuesday he ll consider easing at next month s meeting to spur faster hiring That saw the Aussie resume its losses after rallying Monday in the wake of Prime Minister Scott Morrison s surprise election victory
The weaker growth outlook and market pricing around RBA rate cuts should mean a depreciation in the Aussie dollar relative to the yen over the course of the year said Kerry Craig global market strategist at JPMorgan NYSE JPM Asset Management in Melbourne However the near term views on where the yen goes are determined by sentiment rather the fundamentals
Yen Haven
The yen meanwhile has gained against all other G 10 currencies over the past month with an advance of 1 3 against the U S dollar 2 1 versus the euro and 4 9 against the Aussie and strategists at some of the world s biggest banks are predicting more gains
Still not everyone is as bearish on the Aussie s prospects Some analysts say the planned meeting between Trump and Chinese President Xi Jinping at the G 20 summit may prove to be a potential catalyst for the two sides to work toward a resolution on trade
As long as the U S trade talks with China Japan and Europe are continuing and no further physical actions are taken it s hard to see markets turning extremely risk off said Ko Haruki head of the financial solutions group at CIBC World Markets Japan in Tokyo The Aussie in itself may not fall so sharply limiting the downside in the Aussie yen pair |
JPM | Short Dollar Trade Wiped Out as Tariff Wars Undermine Growth | Bloomberg The threat of trade war has put King Dollar back on its throne and usurped an ever popular bet on emerging market currencies in one fell swoop
As the Bloomberg Dollar Index hits a 2019 peak a gauge that measures carry trade returns from eight emerging markets funded by short positions in the greenback has given up its gains this year Donald Trump s trade salvo on 200 billion worth of Chinese imports on May 10 has lent strength to the dollar at the cost of developing world currencies from Taiwan to South Africa to Brazil
Emerging market currencies are vulnerable to deterioration in the trade war said Salman Ahmed chief global strategist at Lombard Odier Investment Managers who pared an overweight currency position to neutral in April Expect no short term resolution
As tensions escalate traders are taking a hard look at whether the developing world can surmount problems that keep their currencies intertwined with the greenback s ups and downs or at least counteract a strong dollar with rate differentials and higher yields
JPMorgan Chase Co NYSE JPM strategists are among doubters last week they turned underweight on emerging market currencies especially the South African rand and Taiwanese dollar
The change in trajectory of trade talks could see a period of downward growth revisions again for emerging markets they wrote in a report We think the market will need to adjust their expectations around the implications from U S China trade talk and tariffs
If the two sides fail to strike a deal that averts all out trade war when Presidents Trump and Xi Jinping meet at the G 20 summit toward the end of next month China s renminbi could be hit with a depreciation of 10 according to estimates by Nordea Investment Funds That could create a domino effect across emerging market currencies
No wonder the negative correlation between emerging market currencies and the dollar has deepened and is holding near this year s high
And things could get worse from here
As the greenback draws strength from its status as a haven currency and an economy that s still outperforming life could get tougher for emerging market nations Their hard currency obligations which have doubled since 2010 to 3 7 trillion according to the Bank for International Settlements look even bigger as the dollar gains
There are some consolations A dovish tilt by the world s central banks and lower for longer rate regimes will keep debt refinancing costs low at least and investors pouncing on higher yields And even if the dollar s appeal as a funding currency fades other options retain their allure Carry trades financed with the euro are popular for example thanks to Europe s rock bottom rates
Still fears of a slowdown in China expose the danger of undiversified economies that are too reliant on exports JPMorgan estimated a full fledged trade war without any counter measures from China will cost Chinese GDP growth one percentage point in one year That could hit emerging economies hard given that their exports to the country have more than doubled to 773 4 billion in the past 10 years
The dollar is benefiting greatly from risk aversion said Sebastien Galy a senior macro strategist at Nordea Investment Funds who is cautious on EM currencies While some developing economies are in a better position to handle external shocks there s still a lot of vulnerability out there |
JPM | Fed May Shed Clues on Debate Over Rate Cut Minutes Preview | Bloomberg Federal Reserve Chairman Jerome Powell has cautioned against the need for an interest rate cut A record of the U S central bank s most recent meeting could reveal if policy makers in fact discussed that option
Minutes of the Federal Open Market Committee s April 30 May 1 gathering will be released at 2 p m Wednesday in Washington Officials held rates steady at the meeting and maintained their pledge to be patient as they weigh future rate moves
It will be interesting to see if there was any discussion of what it would take for them to get to lower rates whether as an insurance cut or because of the inflation being too low story said Roberto Perli a partner at Cornerstone Macro LLC in Washington Of course they will not be crystal clear Reading between the lines could be interesting
James Bullard president of the St Louis Fed and one of the most dovish policy makers at the U S central bank said Wednesday in Hong Kong that a rate reduction may become a more attractive option if inflation data continue to disappoint Investors who re pricing in a rate cut by the end of the year have other grounds to expect some debate on the question
Fed Vice Chairman Richard Clarida told CNBC in an interview on April 11 that the central bank has sometimes taken out insurance cuts to protect an economic expansion as Alan Greenspan did in 1995 and 1998 Chicago Fed chief Charles Evans speaking several days later said that a decline to 1 5 core inflation could call for lower rates
The Fed s preferred gauge of core inflation excluding food and energy slowed to 1 6 in the 12 months through March
Powell in his press conference following the meeting said he didn t favor an insurance cut and today s situation is quite different from 1995 We don t see a strong case for moving in either direction he said
Falling Inflation
Powell also played down inflation s decline below the central bank s 2 target telling reporters it may prove to be transitory Close attention will be paid to how many other policy makers voiced this view during the meeting
I do expect to see a lengthy discussion of inflation said Michael Feroli chief U S economist at JPMorgan Chase Co NYSE JPM in New York It will be interesting to see if Powell s transitory view is representative of the committee as a whole or just a part of it
Balance Sheet
The FOMC plans to stop shrinking its balance sheet in September when it will halt the reduction of its holdings of Treasuries But key details including about the maturity composition of its asset holdings over time remain undecided
Powell told reporters the committee held a preliminary discussion on the question and the FOMC would return to the topic toward the end of the year though there is no pressing need to resolve this matter and investors will get plenty of warning of any decision
What Bloomberg s Economists Say
Ending interest rate hikes and being set to end balance sheet runoff leaves the Fed in the enviable position of sitting on its hands unless the economic or market environment changes in a meaningful way
Carl Riccadonna Yelena Shulyatyeva and Eliza Winger Bloomberg economists
The minutes could shed light on the debate said Jim O Sullivan chief U S economist at High Frequency Economics
My reading is that they are strongly leaning toward the option of matching average maturity distribution of the market rather than going to an all bills composition he said
Asset Prices
Some Fed presidents notably Esther George of the Kansas City have worried about signs of financial excesses arguing that prolonged low rates could repeat the asset bubbles that caused the last two U S recessions The S P 500 hit a record high on April 30 though it has since fallen back amid trade war concerns
Worries about frothy asset markets might be mentioned in the minutes said Jonathan Wright an economics professor at Johns Hopkins University
U S China trade tensions could also have been a topic for debate But President Donald Trump s decision to escalate the dispute by slapping punitive tariffs on Chinese imports happened after the Fed met
Updates with Bullard comment in fourth paragraph |
JPM | Even With Trade War Asia Bond Investors Sleep Better at Night | Bloomberg Bond investors are keeping their faith in Asia a region they view as being relatively stable even as an escalation in the trade war threatens to dent global growth
Asian policy makers have more capacity to support the region s economies with inflation running below targets meaning that central banks can cut interest rates if needed according to Aberdeen Standard Investments Opportunities can be found in countries such as China and Papua New Guinea where reforms to open up their markets to foreign investors are taking place NN Investment Partners said
Asia is where you ll sleep a little better at night said London based Edwin Gutierrez who manages 14 billion as head of emerging market sovereign debt at Aberdeen He favors local currency debt in India and the Philippines as they are less directly hit by the trade conflict The markets are supported by low inflation and the fact that Asian central banks have a lot of flexibility to ease monetary policy
Demand for Asia s relative safety comes as investors soured on riskier assets on the back of rising odds of a full blown trade war between the U S and China President Donald Trump earlier this month delivered on his threat to more than double tariffs on the Asian country and Beijing responded that it s been forced to retaliate
Below are three charts that show why Asian debt remains appealing
Local debt issued by emerging Asia with currency hedges handed investors a return of 1 0 since May 3 as Trump began ratcheting up pressure with plans to raise tariffs on Chinese goods a Bloomberg Barclays index shows That compares with a 0 4 gain in a measure tracking similar debt across global emerging markets
Asia s domestic debt is attractive because the region is ahead when it comes to the monetary easing cycle compared with Latin America Aberdeen s Gutierrez said adding that he s looking to add Indonesia local currency government bonds on any sell offs Most of the central banks in South America have just paused in raising rates so it would take them longer to introduce stimulus again he said
Malaysia and the Philippines have cut their benchmark rates since the first weekend in May while other emerging markets including Brazil Chile Peru as well as Mexico have left their policy rates unchanged
For Gutierrez the risks for local currency bonds lie in their currencies which have been hit by the trade spat Five of the 10 worst performing emerging market currencies this month are from Asia
Read more Alarm Sounds for World Growth as Bellwether Economy Contracts
The rates story is a lot cleaner than the FX story Gutierrez said A further deterioration in the trade dispute will likely prompt more stimulus measures from Asian policy makers if it starts to take a toll on Chinese growth he said
Emerging Asia s hard currency bonds are withstanding the market turmoil with a gain of 0 3 since May 3 compared with an overall flat performance in global emerging market dollar bonds JPMorgan Chase Co NYSE JPM indexes show
Asia remains a core investment for Leo Hu NN Investment s senior portfolio manager in Singapore for hard currency emerging market debt Reforms are continuing in China which is opening up its financial markets and in Papua New Guinea where laws are being strengthened to encourage foreign investments he said The investor also favors Pakistan which will be under an International Monetary Fund program
Read here how Asian economies are to dominate the 7 growth club during 2020s
It s more about high quality growth said Hu who helps oversee about 10 billion of emerging market debt It s about reforms Even the trade tensions between the U S and China it s about China implementing reforms Although the process to get there could be very painful eventually on a medium term trajectory reforms are very helpful |
JPM | Deutsche Bank plans cuts in U S equities prime unit sources | By Matt Scuffham NEW YORK Reuters Deutsche Bank DE DBKGn is planning cuts at its U S equities business including prime brokerage and equity derivatives to win over shareholders unhappy about its performance four sources familiar with the matter told Reuters Chief Executive Officer Christian Sewing told shareholders at the bank s annual meeting on Thursday it was prepared to make tough cutbacks at its investment bank Sewing is battling to convince them he can turn around Germany s biggest lender whose shares have reached a record low The bulk of the anticipated U S cuts will come from its money losing equities business which includes cash equities trading Other areas of the business including U S rates trading have been earmarked for further reductions they said It is unclear how many of the bank s 9 275 U S employees will be affected and no final decisions have been made the sources said Deutsche Bank declined to comment Sewing did not name which parts of the business will be cut or when the changes will happen when addressing shareholders on Thursday However two people with knowledge of the matter told Reuters that job cut announcements are not imminent The future of the bank s U S trading and investment banking operations has been in question for months with some shareholders calling for further cuts on top of those announced last year The bank had previously denied reports it planned a further U S restructuring saying in a memo to staff last month that it was firmly committed to its U S franchise However the collapse of merger talks with German rival Commerzbank AG DE CBKG last month led senior management to intensify discussions over a Plan B for turning around the business the sources said U S cuts were high on the agenda the sources said Last year Deutsche Bank said it would reduce its global headcount to below 90 000 from 97 000 That incorporated a 25 cut in equities sales and trading jobs including a significant number in New York However it has continued to lag competitors in performance Shares in Deutsche Bank have fallen by 40 during Sewing s 13 month tenure as CEO in part reflecting concerns over the poor performance of its investment bank The business last year eked out a slender 1 return on equity an important profitability yardstick trailing the 16 at JPMorgan NYSE JPM Chase s investment bank Adding to scrutiny on the U S business is the outcome of the Federal Reserve s annual stress test which regulatory sources anticipate will be announced by the end of June Deutsche Bank flunked the test in 2015 2016 and 2018 A repeat would cause a bigger dent in confidence among customers and business partners European regulators have said they fear the bank could fail the U S test Even if it passes conditions could be placed restricting how the business can operate After the 2007 2009 financial crisis Deutsche maintained a large presence on Wall Street even as European rivals like Credit Suisse SIX CSGN made big cuts
The business has brought in around half of Deutsche Bank s overall investment banking revenue which includes corporate and investment banking as well as trading However encumbered by litigation and regulatory investigations the business has struggled to compete with Wall Street rivals |
JPM | Facebook s Cryptocurrency GlobalCoin Expected in 2020 | will roll out its own digital asset GlobalCoin in 2020 The media points out that Facebook representatives have already consulted Bank of England governor Mark Carney
Rumors circulated around Facebook s intention suggesting that the newly created asset will be pegged to the US dollar Thus Facebook joins JP Morgan Chase NYSE JPM as established businesses move in to create digital assets
In general any business can already resort to ready made blockchain solutions However regulatory requirements still apply and total anonymity with no limit to transactions will not be among the fe |
JPM | U S Economic Outlook Dims as Capital Goods Add to Weak Data | Bloomberg The outlook for the U S economy is dimming after a report showed below forecast business equipment orders adding to a string of weak data in other sectors
JPMorgan Chase Co NYSE JPM cut its forecast for second quarter economic growth to 1 from 2 25 and said the Federal Reserve s next interest rate move is equally likely to be a hike or a cut instead of an increase chief U S economist Michael Feroli said in a note Friday Oxford Economics lowered its estimate to 1 3 from 1 6 while Barclays LON BARC Plc s tracking forecast went down to 2 from 2 2
Friday s report showing lower capital and durable goods orders in April in addition to earlier data on retail sales housing and manufacturing suggest the economy is losing momentum That s even before President Donald Trump ratcheted up his trade war with China this month by raising tariffs on some goods and threatening more levies
The concern is that firms just don t have a strong sense of what the rules of the game are going to be and that kind of uncertainty in principle and in practice can cause firms to be more cautious about undertaking long term investments Feroli said by phone So that is certainly a risk we ve been worrying about which might be starting to manifest itself in the data
IHS Markit s Macroeconomic Advisers lowered its tracking estimate for second quarter growth by 0 2 percentage point to 1 7 while the Atlanta Fed s GDPNow tracker stood at 1 3
Rate Cut
Fed officials have stressed in recent weeks that they don t see a strong case for a rate move in either direction though markets expect a cut this year and Trump has been pressuring the central bank for a deep reduction Feroli s note Friday is titled Deteriorating Q2 GDP should put Fed on watch
The Commerce Department report Friday showed a proxy for business investment non military capital goods orders excluding aircraft dropped 0 9 in April from the prior month exceeding the decline expected by analysts in a Bloomberg survey March data was also revised down
The broader measure of bookings for all durable goods or items meant to last at least three years fell 2 1 slightly below economist estimates and March was revised lower
Other recent reports for April showed retail sales unexpectedly declined factory output was below forecasts sales of previously owned homes fell and permits for single family homes hit the lowest in almost two years
What Our Economists Say
Durable goods orders for April displayed broad based weakness largely in line with expectations Yet given sharp downward revisions to March the net outcome of the report was considerably bleaker BE continues to project current quarter GDP at 2 0
Carl Riccadonna chief U S economistClick here for the full reaction note
On the positive side consumer confidence has remained upbeat amid gains in jobs and wages that probably held firm in May
Reports out next week will give more color on consumer spending and the Fed s preferred inflation gauge in April along with trade and pending home sales U S central bankers said in minutes of their most recent meeting that they expect to be patient on interest rate moves for some time amid muted inflation
The weakness does look relatively contained to the manufacturing sector said Jeremy Schwartz U S economist at Credit Suisse SIX CSGN Group AG The labor market has held up well suggesting that any contagion does look limited for now and that s the real thing we re worried about he said |
MS | GrubHub GRUB Hits All Time High | Shares of GrubHub NYSE GRUB soared to a new all time high on Monday on the back of an analyst upgrade and continued momentum from its most recent deal
Morgan Stanley NYSE MS analyst Brian Nowak to overweight and raised his price target to 59 per share on Monday The Morgan Stanley analyst upgraded the company based partly on new growth and scalability potential
The move comes after Grubhub announced it purchased Yelp s NYSE YELP Eat24 business for a reported 287 5 million last week Grubhub s acquisition is set to help the growing food delivery platform expand its reach with a new more extensive list of restaurants and eateries
On top of the Yelp deal NASDAQ GRPN to bring the food delivery company s services to the deal based platform Groupon customers will now be able to order Grubhub food directly on Groupon s app or website along with other exclusive deals
GrubHub s stock price climbed 8 30 on Monday The food delivery service company reached a new 52 week and all time intraday high of 57 26 a share and closed at 56 99 per share
The company is currently a Zacks Rank 3 Hold and scored a B grade for Growth in our Style Score system
5 Trades Could Profit Big League from Trump Policies
If the stocks above spark your interest wait until you look into companies primed to make substantial gains from Washington s changing course
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals tariffs lower taxes higher interest rates and spending surges in defense and infrastructure |
MS | Bitcoin Vs Gold Peter Schiff Vs Max Keiser Who Is Right | A major debate topic came up between Max Keiser and Peter Schiff at the Freedom Fest conference on July 19 22 in Las Vegas Bitcoin vs Gold
Max Keiser is a huge proponent of Bitcoin
Peter Schiff says These digital currencies might make fiat currencies look good That s how bad they are
The video was well produced thanks to Stacy Hebert It s well worth a play in entirety
Bitcoins the New Beaver Pelts
As noted in my clip I think Schiff is on the right side of the debate This is my take
Bitcoins are the new beaver pelts of monetary transactions For thousands of years when available by free choice gold has always been the currency of demand Things like salt cigarettes beaver pelts and recently Bitcoin come and go
The scarcity of gold is real The scarcity of Bitcoin is artificial It depends on trust that a human based promise to mine more coins will be limited
In a currency crisis liquidity crunch or stock market collapse where would you rather be If you choose Bitcoin over gold you are not thinking clearly You are dreaming
Blockchain does not scale Imagine the entire history of every transaction of any size any place in the world recorded on a distributed network
Despite the hype no one would use Bitcoin to buy a candy bar or even a meal at McDonald s One might easily do that with Bitgold Transaction costs are the difference
Absurd proclamations and theories about the value of Bitcoin are now commonplace This is typical of any bubble
Transaction Fees
In regards to point number 5 Morgan Stanley NYSE MS says
According to the bank last year Bitcoin was accepted at five of the top 500 online merchants Today only three of the top 500 merchants accept bitcoin as a form of payment
The disparity between virtually no merchant acceptance and Bitcoin s rapid appreciation is striking the analysts wrote
In contrast Bitgold is accepted at any place that accepts a debit card
Average Bitcoin Transaction Fee
Please note the
Bitcoin to 1 000 000
On June 8 I commented
Cramer s rationale was rather amusing
European banks are frantically trying to buy them so they can pay off ransomware It s a short term way to be able to deal with cybersecurity It is the way to pay off the bad guys Cramer said on Squawk on the Street
When you get hit and you re not sure how to do bitcoin these cyberattackers have customer service desks Cramer said
I replied
Frantically Trying to Buy Bitcoins
The idea that banks need to try to buy Bitcoins is absurd
Do Or do not There is no try Yoda
New Absurd Theories
Also in regard to point number 6 we are now told
The author s rationale is based on his own observations of a theory proposed by George Soros
This reminds me of the dot com Gorilla Game theory that stated gorillas like Cisco CSCO could never be overpriced No price was too high for a gorilla
It also reminds me of absurd click rate measures used to justify stocks whose value eventually went to zero
Rating the Debate
Schiff went a bit off track at times in the debate primarily in regards to US dollar bashing
The Eurozone banking system is insolvent Both the Euro and the Yen are worse currencies than the dollar Schiff has to know that but he just cannot stop dollar bashing
While it s possible the dollar breaks the previous low at least Schiff was not preaching hyperinflation
That said I believe Shiff has the dollar direction right for now I don t hold grudges or let past differences sway my current take
This puts me in agreement or at least near agreement with the key points made by Schiff in his interview with Max Keiser
Disclosure
Both Schiff and I have an economic interest in Bitgold I expect his interest is many times the magnitude of my ongoing advertising relationship |
MS | S P 500 Futures VIX Up 40 North Korea US Threats Spook The Market | Well when B of A and Morgan Stanley NYSE MS did the stories of the historical low VIX and its risks most investors were already worried Then when Interactive Brokers raised margin on short volatility products and the CFTC put out the commitments of traders report showing record short VIX futures positions and then you throw in the The Trump North Korean threat factor something had to happen The S P 500 futures ESU17 CME have been riding high for a long time without any major pullbacks and has not seen a 1 down day since May 17th
Troubled Waters
After a firm finish to Wednesday s trade and a push up to 2474 50 on Globex the ES pulled back and opened at 2461 25 down 11 75 handles on the 8 30 CT open It was all sell programs and sell stops and the first move was down to the 2456 00 2455 50 area After a small uptick the ES got slammed down to 2449 00 at around 9 00am CT The futures did a little back and fill traded up 2456 00 area then got slammed again making 6 lower lows in a row before bottoming at 2442 75 low around 11 30 CT
The two largest rallies of the day came off that low which pushed the ES back up to 2450 00 where it double topped and then sold off down to 2444 50 The three hour sell off wiped out three weeks of gains and at the low of the day the VIX was up nearly 40
Trump Fire and Fury Threat May Not be Enough
Once the markets started rolling lower it was just one gigantic sell program The news wire algos completely took the ball and ran with it With the exception of the first bounce off 2442 75 up to 2450 00 the only other substantial bounce came from the late 2444 50 low up to 2451 50 going into 1 30
Late in the day President Trump went on TV talking about North Korea and Venezuela One of his statements was that North Korea has gotten away with too much and that the fire and fury threat to North Korea may not have been enough After several more NK comments the ES started another late day slide all the way down to 2435 75 a 17 handle late day drop At 2 45 the NYSE MOC imbalance came out showing 870 million to sell and the ES made another new low at 2435 75 down 39 25 handles or down 1 51
The Fear Greed index took a big swing from 59 greed to 32 fear yesterday and Trumps continued North Korean threats were a big part of it For years the U S has underestimated the NK nuke program and now they say they could have as many as 60 nuclear weapons The markets hate uncertainty and there seems to be an abundance of that going around right now
While You Were Sleeping
Overnight equity markets in Asia and Europe followed suit with yesterday s weakness and all traded lower overnight In the U S the S P 500 futures continued to move lower as tensions with North Korea continue to build As of 6 55am CT the last print in the ESU is 2432 00 down 5 50 handles with 246k contracts traded
In Asia 11 out of 11 markets closed lower Shanghai 1 59 and in Europe 12 out of 12 markets are trading lower this morning FTSE 1 17
Today s economic calendar includes Consumer Price Index 8 30 AM ET Dallas Fed s Robert Kaplan Speaks 9 40 AM ET Minneapolis Fed s Neel Kashkari Speaks 11 30 AM ET Baker Hughes Rig Count 1 00 PM ET
Earnings JC Penney
News Driven Algos Go Berserk
Our View In the past when the ES sells off hard it usually bounces When it was going up earlier in the week I wanted to be a seller and when it started going down I wanted to be a buyer In other words my feel for this has not been good but one thing is for sure there was a lot of fear flying around yesterday and it would be hard to believe a sell off like this would just be a one day event
On the other hand I always say pullbacks from all time highs are usually 40 to 50 handles For weeks the ES has been in a low volume narrow trading range grind but that changed yesterday
Our view we lean to some type of bounce but that doesn t mean the ES won t sell off again There is all sorts of news about the U S and practice runs with the B 1B Lancer bombers so I m not sure I want to be long going into the weekend
In Asia 11 out of 11 markets closed lower Shanghai Comp 1 59 Hang Seng 2 04 Nikkei 0 05
In Europe 12 out of 12 markets are trading lower CAC 1 09 DAX 0 19 FTSE 1 17
Fair Value S P 1 89 NASDAQ 0 31 Dow 32 39
Total Volume 2 3mil ESU and 2 5k SPU traded in the pit |
JPM | Dow Shrugs Off JP Morgan Miss | JPMorgan NYSE JPM fourth quarter results disappointed as profit came in at 1 98 missing analysts expectations of 2 20 the first miss in 15 quarters Just like Citigroup NYSE C FICC sales and trading revenue were down sharply a sign that the rest of the financials may see similar results JP Morgan s outlook was also not too bright They see first quarter Net Interest Income flat quarter over quarter and expense to be up mid single digits year over year
JP Morgan stock was down over 2 6 in premarket trade but has recovered half of its losses at the open The Dow Jones Industrial Average is also off the session lows and currently trades higher by 0 3 The dollar is mixed in early trade slightly higher against both the euro and cable but lower against the commodity currencies
Original Post |
MS | Oil soars as Trump dumps Iran nuclear deal dollar dips | By Kit Rees LONDON Reuters Crude oil prices hit 3 1 2 year highs on Wednesday after President Donald Trump pulled the United States out of an international nuclear deal with Iran while the dollar touched a new high for the year and world stocks held steady Trump s move sparked fears of increased tension in the Middle East and uncertainty over global oil supplies O R Demand for safe haven assets remained muted as the immediate market impact was seen as specific to oil supply but investors remained mindful of the knock on effects on inflation Gold prices retreated and bond yields rose The U S 10 year Treasury US10YT RR once again breached the psychologically significant 3 percent level and hit a two week high of 3 0140 percent supported by expectations of higher interest rates In an environment where the Fed particularly is already at its inflation target and people are closely watching the pace of the monetary tightening something like this which could possibly nudge inflation a little bit higher is going to be quite interesting for the market UBS Wealth Management s UK chief investment office deputy head Caroline Simmons said That s why you re seeing the yields go up a little bit on the bonds she said The impact of Trump s decision was mostly limited to oil markets and energy related stocks West Texas Intermediate crude futures CLc1 hit their highest level since November 2014 at 71 17 per barrel last up 2 7 percent Brent crude futures LCOc1 jumped as much as 2 8 percent to a 3 1 2 year high of 77 20 There is still an interim period before sanctions kick in And other signatories and Iran want to keep the deal going so there is a period where things could be hammered out ING rates strategist Benjamin Schroeder said But I would have expected a bit of a safe haven bid this morning he noted referring to bonds The MSCI world equity index MIWD00000PUS which tracks shares in 47 countries was flat and continued to trade in a narrow range The pan European STOXX 600 STOXX meanwhile rose 0 2 percent as oil majors gained and earnings from Siemens DE SIEGn and Imperial Brands L IMB dominated trading In the U S stocks futures pointed to a positive start for Wall Street with E Mini futures for the S P 500 ESc1 up 0 5 percent In the very short term it looks as if the impact of heightened geopolitical worries was limited to oil markets But that is not the end of the story Mitsubishi UFJ Morgan Stanley NYSE MS Securities senior investment strategist Norihiro Fujito said U S sanctions could affect various industries And tensions between Iran and Israel look set to intensify Those will begin to cap share prices he said The reaction in Asian markets was more pronounced as renewed U S sanctions on Tehran were seen as disruptive for many companies that have dealings with Iran Trump s move is also seen as likely to worsen already tense relations between Iran and U S allies in the region MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS was up 0 1 percent while Japan s Nikkei N225 fell 0 4 percent Iran the third biggest OPEC producer produces about 3 8 million barrels per day bpd or about 4 percent of the world s oil supplies The U S Treasury said it will reimpose a wide array of Iran related sanctions after the expiry of 90 and 180 day wind down periods including those aimed at Iran s oil sector and transactions with its central bank DOLLAR STEPS BACK FROM HIGH The rise in Treasury yields helped fuel the dollar s rally with the greenback hitting a new 2018 high before giving up gains The dollar index against a basket of major currencies DXY was at 93 026 It has risen about 1 percent this year Souring risk sentiment is hitting emerging markets which have been depressed in recent weeks by concerns about capital outflows as the prospect of higher U S interest rates lures investors back to U S bonds rather than riskier assets Countries with high perceived political risks such as Brazil and Turkey were among the worst hit The Brazilian real hit a near two year low and the Turkish lira reached a record low Since the start of this week those currencies are both down about 1 percent The Indonesian rupiah hit a 2 1 2 year low and has slid 1 percent this week Among major currencies the risk sensitive Australian dollar hit an 11 month low of 0 74130 and last stood at 0 74510 The euro recovered slightly after hitting a new 4 1 2 month low of 1 1821 and last stood at 1 1880 EUR having fallen about 4 percent in the past three weeks The currency was hit by increasing prospects of another election in Italy as the political impasse there has continued since early March s vote The British pound was slightly firmer at 1 3538 but remained close to a four month low ahead of the Bank of England s meeting on Thursday
The dollar rose 0 5 percent to 109 65 yen edging near its three month high of 110 02 yen touched last week |
MS | BAML Says Buy Nvidia On Strong Earnings Outlook | Investing com When Nvidia reports first quarter earnings on Thursday Bank of America Merrill Lynch won t be surprised if the chip maker beats expectations The Wall Street firm reiterated its buy rating and 300 price forecast for Nvidia saying its leadership in several product areas will likely lead to better than expected earnings in 2018 BAML cited continued strength in the data center business work station demand the shift of GPUs from gamers to cryptocurrency miners and sales of Nintendo s new game Switch which uses a Nvidia processor Data center growth is particularly strong thanks to growing demand from cloud computing providers Morgan Stanley NYSE MS recently upgraded Nvidia saying it expected the firm to beat earnings expectations Nvidia shares are up 37 in 2018 |
MS | As Japan Stocks Stage Comeback Investors Doubt Rally Will Last | Bloomberg Japanese stocks have roared back to life after a two month selloff but some investors and analysts aren t convinced the good times will last for Asia s best performing equity market since late March
We re not as bullish as we should be said Amir Anvarzadeh a senior strategist at Asymmetric Advisors in Singapore We aren t convinced that this is a recovery scenario
Anvarzadeh says he s worried that the Bank of Japan will reduce its monetary stimulus earlier than expected That he says will throttle the rally in the country s stocks Added to that are geopolitical concerns about Iran and North Korea according to Mitsubishi UFJ Morgan Stanley NYSE MS Securities Co
The Nikkei 225 Stock Average has jumped almost 9 percent since March 23 for one of the strongest returns of 94 primary equity indexes tracked by Bloomberg It was a remarkable turnaround after a plunge starting late January that sent the country s stocks into a correction The rebound was fueled by the yen s retreat from a 16 month high against the dollar as the two Koreas vowed to make peace and U S President Donald Trump said he d meet North Korean leader Kim Jong Un
Foreigners have been a major driving force behind Japanese stocks revival turning net buyers in April after three months of net selling Overseas investors purchased a net 207 billion yen 1 9 billion in cash equities last month while also becoming net buyers of Topix index and Nikkei 225 futures
To Anvarzadeh continued rate increases by the U S Federal Reserve and inflationary pressures pose one of the biggest risks for Japanese equities Rising market interest rates and higher input costs for companies triggered by a jump in commodity prices are bound to push the BOJ to cut back on its massive stimulus program he said
Some of the BOJ s nine board members said it s important to communicate thoroughly that the bank is still a long way from achieving the inflation target and isn t at the stage of considering an exit according to a record of comments from the March 8 9 policy meeting published this week But one member said that while normalization could be considered at some point the BOJ needs to explain to market participants that normalization would still be part of the process of monetary accommodation and therefore different from tightening
It s interesting that BOJ board members are already talking about that in the minutes Anvarzadeh said The exit strategy of the BOJ will be much tougher than other central banks he said The impact could be much bigger
For Norihiro Fujito a senior strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo geopolitical developments relating to Iran are a more immediate concern
Geopolitical Risks
Japanese stocks fell Wednesday after Trump said the U S will withdraw from the landmark 2015 accord to curb Iran s nuclear program and reinstate financial sanctions on the Islamic Republic opening an uncertain new chapter for the Middle East His decision was intended to force Iran to renegotiate an agreement the country s leaders have said they will not revisit Trump s political opponents warned he could lead the U S into another Middle East war
There s a possibility for things to get pretty tense Fujito said This is something that warrants caution Higher tension will push up the yen and stocks will be hit
The timing of Trump s move isn t great for Japanese stocks as aggressive short covering by hedge funds will probably have run its course Fujito said leaving the market devoid of buying catalysts Corporate earnings aren t looking as stellar as they did last year either he said
Some Optimism
Still not everyone is buying the gloom
Japanese equities from a valuation perspective are cheap compared with markets like the U S said Mitsuo Shimizu an equity strategist at Japan Asia Securities Co in Tokyo Foreigners have been buying big since April If corporate earnings are strong of course they will keep buying
While it s still early days in the quarterly reporting season companies have so far mostly fallen short of analyst expectations Of 246 stocks that have reported results this reporting season and for which Bloomberg has analyst estimates 54 percent missed projections for profit
And despite Shimizu s optimism Anvarzadeh and Fujito remain far from convinced
The rebound momentum in equities has weakened quite a bit Fujito said If the U S North Korea summit is devoid of details the market response could be harsh |
MS | Ex Wall Street law clerk gets 37 months prison in insider case | By Jonathan Stempel Reuters A former clerk at the Wall Street law firm Simpson Thacher Bartlett was sentenced on Wednesday to 37 months in prison for his role in an insider trading ring that passed merger tips on napkins and Post it notes in New York s Grand Central Terminal Steven Metro 44 formerly of Katonah New York was resentenced three months after the federal appeals court in Philadelphia threw out his original 46 month term finding a lack of proof he was responsible for all 5 6 million of alleged illegal profit from the five year scheme Prosecutors said Metro leaked transactions involving Simpson Thacher clients to mortgage broker Frank Tamayo who passed the tips to former Morgan Stanley N MS stockbroker Vladimir Eydelman at Grand Central s main clock Tamayo would then chew up the papers on which tips were written prosecutors said U S District Judge Michael Shipp in Trenton New Jersey who imposed the sentence also ordered Metro to serve three years of supervised release Metro has been incarcerated in a federal detention center in Philadelphia and according to his lawyer Lawrence Lustberg is expected to move to a halfway house within a month As he expressed to the court today his imprisonment has given him the chance to re order his priorities and he has learned as he said the hard way that family is much more important than money Lustberg said in an email Metro pleaded guilty in November 2015 Eydelman and Tamayo also pleaded guilty and were sentenced to three years and one year in prison respectively
Shipp had also imposed the original 46 month prison term Prosecutors agreed that a 37 month term was now appropriate |
MS | Mahathir Ousts Najib in Historic Malaysia Power Shift | Bloomberg Mahathir Mohamad won a stunning victory in Malaysia s election ending the six decade rule of Prime Minister Najib Razak s party in a landmark shift for the Southeast Asian nation
Mahathir Malaysia s longest serving premier who defected to the opposition to take on Najib will return to power at the age of 92 His four party Pakatan Harapan alliance won at least 112 of 222 parliamentary seats in Wednesday s vote official figures from the election commission showed
Najib had faced increased public anger over a goods and services tax that boosted prices and a money laundering scandal involving hundreds of millions of dollars siphoned from state investment firm 1MDB While Najib denied wrongdoing Mahathir lambasted him as a thief on the campaign trail
This has been a Malaysian tsunami across the board and the country said Bridget Welsh a political scientist at John Cabot University in Rome who specializes in Southeast Asia Mahathir was a game changer But it also took Najib They wanted Najib gone
The result represents a monumental shift in a nation long defined by racial politics that hasn t seen a transfer of power since independence in 1957 It s also a win for democracy in Southeast Asia where generals and authoritarian leaders often lock up opponents and stifle free speech
Khairy Jamaluddin a member of Najib s cabinet said the prime minister plans to hold a press conference on Thursday We re going to accept the will of the people Khairy said
We are not seeking revenge Mahathir said What we want to do is to restore the rule of law
Financial markets are closed Thursday and Friday after the government declared public holidays Malaysia s police advised political parties to not hold rallies that could jeopardize public order
Malaysia s stock market which traded near a record high on the eve of the election will become more volatile after Mahathir s victory Morgan Stanley NYSE MS analyst Aarti Shah wrote in a note As results signaled a win for Mahathir iShares MSCI Malaysia ETF based on the nation s stocks dropped as much as 2 6 percent to the lowest since February
On the campaign trail the opposition mainly focused on bread and butter issues The GST helped inflation accelerate last year at nearly the fastest pace in a decade
Mahathir s coalition has pledged to scrap the GST within his first 100 days in office and reintroduce fuel subsidies If implemented with no other changes those moves could make narrow the government s revenue base and be credit negative for Malaysia s sovereign according to Anushka Shah a senior analyst at Moody s Investor Service
The vote showed that Mahathir still knows how to win elections The victory was dominant He swept traditional government strongholds like Johor Kedah and Negeri Sembilan and neutralized Najib s advantage in the Borneo states of Sabah and Sarawak
What s more Mahathir appeared to decisively win over ethnic Malay voters that had long underpinned the ruling party s success The mostly ethnic Chinese Democratic Action Party previously the largest opposition party was on pace to win fewer seats than in 2013
For Mahathir the fight against his former protege was particularly ugly The two fell out over a myriad policy issues including Najib s decision to abolish the Internal Security Act his performance in the 2013 general election and 1MDB
Ahead of Wednesday s vote Mahathir repeatedly blasted Najib saying he lives in fear even of my photos Najib countered by saying Mahathir is obsessive about control calling the shots
Headache
What comes next is unclear Mahathir helms an unwieldy four party coalition that includess Malaysia s largest ethnic Chinese party He also plans to step aside once de facto opposition leader Anwar Ibrahim a one time deputy to Mahathir who was fired after a dispute over economic policies in 1998 gets out of jail on a sodomy charge
Mahathir said he would seek a pardon for Anwar who is scheduled to be released June 8 He also faces a five year ban from politics
I have to manage four presidents of four different parties Mahathir said It s going to be a headache
It s uncertain whether the outcome will fundamentally reshape race relations in Malaysia Najib s party had long staked its legitimacy on providing preferential treatment for the bumiputera or sons of the soil which include ethnic Malays and indigenous groups
While voters were in the mood for change the irony that an aging former prime minister the country for 22 years represented a fresh start wasn t lost on some voters
I hope we can have a change I want to see something different though it was strange to see Mahathir speaking Avinash Naidu 24 who works for a local phone company said after leaving a polling station Wednesday It s going to be tough with so many different parties But it will be good knowing a chance for change is possible |
JPM | Indebted Lebanon may struggle to refinance as austerity budget makes slow progress | By Tom Arnold LONDON Reuters Lebanon s impasse in agreeing a credible fiscal reform plan and deteriorating global market conditions means it may struggle to refinance key foreign currency debts coming due this year unnerving overseas investors Outright default can likely be averted in the short term by a government financing maneuver involving the central bank and local banks the main holders of its debt But this is only likely to be a stopgap and many foreign funds contacted said they would be reluctant to delve into new Lebanese Eurobonds until they assess reforms Lebanon s cabinet talks will convene again on Monday after about a dozen sessions so far without a deal against a backdrop of protests by public sector workers and retired soldiers over concerns about wage and pension cuts The government in February promised difficult and painful reforms to control spending Prime Minister Saad al Hariri has said this may be the most austere budget in Lebanon s history At stake is investor support for new debt sales needed to help meet maturing Eurobonds this week and again in November Access to international markets has been compounded by fresh turbulence on emerging markets as the trade row between the United States and China blew up again and geopolitical tensions involving Iran heightened Lebanon with one of the world s highest public debt burdens has been buffeted by political paralysis and fallout from conflict in Syria and Iraq which has weighed on regional trade investment and travel A small open economy it has also been hit by a fall in money flowing in from its scattered diaspora which traditionally helped fund a large chunk of its financing needs Graphic Lebanon foreign reserves The government is not even able to get its act together to deliver a comprehensible transparent budget Nor did it present or formulate a credible medium term fiscal adjustment plan that strikes the right balance between the imperative of growth and fiscal consolidation said Alia Moubayed managing director at Jefferies an international finance firm Without a clear medium term economic and fiscal policy framework that addresses large external imbalances and given high levels of corruption and state capture investors will not be convinced to buy Lebanon risk as donors will look with extra scrutiny before committing further funding The protracted budget process has pushed up the cost of insuring Lebanon s debt in recent days to its highest level since Jan 22 when it was struggling to form a government Lebanon should be able to muddle through to find a solution to its most immediate debt headache a 650 million Eurobond maturing on May 20 Lebanon can pay back investors in this bond drawing on a foreign exchange transaction with the central bank a source familiar with the matter said The government has used the same unconventional approach to financing its deficit in the past The central bank would likely discount dollar denominated certificates of deposits for the banks to subscribe to in return for them buying long term domestic bonds said one banker familiar with the situation In parallel the central bank would do a swap with the finance ministry the issuer of the international debt The finance minister had previously said the government aimed to issue Eurobonds in the range of 2 5 bln to 3 bln on May 20 to cover this maturity and Lebanon s other maturing principle for 2019 a 1 5 billion issue due in November A source familiar with the matter told Reuters on Tuesday that Lebanon might wait until emerging market investors have more appetite and the government has approved its budget The government is targeting international investors for around 20 percent of the new issue The government says it is committed to pay all maturing debt and interest payments on predetermined dates Eurobond maturities this year would be met by issuing further eurobonds said Garbis Iradian chief MENA economist at Institute of International Finance IIF First they have to send a strong signal to the market by approving strong fiscal measures Nassib Ghobrial chief economist at Lebanon s Byblos Bank said there was no risk to Lebanon s foreign currency financing for this year because the central bank was committed to covering the hard currency needs But Lebanon s economic challenges remain hefty Its fiscal deficit ballooned to 11 2 percent of gross domestic product GDP last year from 6 1 percent the year before and its international reserves fell to 39 7 billion enough for 13 months of import coverage Lebanon s cabinet made important progress on Sunday in its debate over the draft budget which will have a deficit of 8 3 of GDP or less Lebanon s Finance Minister Ali Hassan Khalil said Still that rebalancing could be tricky to achieve with anemic economic growth JPMorgan NYSE JPM forecasts recently revised its growth forecast down to 1 3 percent in 2019 warning of significant downside risks surrounding fiscal reforms While cabinet formation has supported sentiment delays in the execution of much needed reforms could dent confidence against the background of large fiscal and external deficits and high debt Giyas Gokkent of JPMorgan Securities wrote in a note Deep seated fiscal reforms including improving the business climate and fighting corruption could help accelerate growth and unlock the 11 billion in funding pledged by the international community at a special conference in April 2018 according to the IIF That money hinges on such reforms Qatar also said in January it will invest 500 million in Lebanese government dollar bonds It is unclear whether that support has materialized Still some prospective investors remain unconvinced We are underweight Lebanon said Sergey Dergachev senior portfolio manager at Germany based Union Investment There s very few items that make us feel confident about increasing our position as the problems haven t been solved on the ground and the long term plan remains quite weak
Dergachev said it would be tough for Lebanon to issue at the moment given uncertainty over the U S China trade spat |
JPM | JPMorgan Says Yen and Gold May Improve as Trade War Hedges | Bloomberg Traditional hedges gold and the yen have performed poorly since the beginning of the U S China trade war but that could now change given the more dovish monetary backdrop according to JPMorgan Chase Co
A combination of a Federal Reserve that has stopped tightening policy and investor positioning that suggests the two assets are under owned could see their performance as hedges improve in 2019 and 2020 wrote strategists including John Normand in a note Friday It s premature to call for an end to trade tensions which could last for years so investors should explore the value of tactical hedges and strategic underweight positions they argued
Although some markets like developed market equities have begun recovering from May s trade war escalation it s premature to extrapolate stability they wrote Summer activity could show a renewed slump in manufacturing risk premia are not very apparent and positioning adjustments have been modest they said
The impact of the trade war on markets has been difficult for Wall Street strategists to predict Normand s own JPMorgan NYSE JPM says the S P 500 Index end up anywhere from 2 550 to 3 200 it closed just below 2 860 Friday Morgan Stanley thinks the dispute could increase the potential of a recession And numerous predictions in recent months that the dollar might decline have been stymied
While tactical hedges can improve the returns of defensive positions they require skill to time entry and exit points JPMorgan argued Though strategic underweights avoid the need for this nimbleness they could end up hurt returns as and when trade tensions ebb it said
Since the trade war began last year defensive trades that have generated positive absolute returns and attractive risk reward ratios included U S versus international equities and Treasuries over emerging market local debt the strategists wrote The yen and gold and owning Treasuries against U S stocks have been poor hedges they said |
JPM | Turkey Tells Banks to Slow FX Buying in Latest Lira Defense | Bloomberg Want the lowdown on European markets In your inbox before the open every day Sign up here
Turkey told banks to wait one day before settling some large foreign currency purchases the latest move to defend the lira as President Recep Tayyip Erdogan s party seeks to keep control of Istanbul in a controversial rerun of local elections
The bank regulator told lenders to settle all retail transactions valued at 100 000 or higher one working day later instead of the current practice of doing it on the same day according to a document sent to banks on Monday which was seen by Bloomberg and verified by three bankers The regulator didn t immediately have a comment on the move
The lira didn t immediately react after posting gains earlier on Monday The currency was down 0 2 against the dollar at 6 0380 as of 9 05am on Tuesday
Turkish authorities have become more interventionist in the markets drawing criticism from investors after a series of crises turned the lira into one of the world s weakest currencies
It s been battered by escalating tensions with the U S and by the economy s slide into recession after a borrowing binge by Turkish business much of it in dollars and euros turned sour when the currency crashed last year
Less Liberal
The turmoil contributed to losses for Erdogan s party in March local elections including its stronghold of Istanbul the country s biggest city where the mayoral vote will be repeated in June after an opposition victory was annulled due to what authorities describe as electoral fraud
With Erdogan s opponents in uproar and the president s party still in campaign mode A series of steps have made it harder to bet against the lira Before the original vote banks were pressured not to provide liquidity to foreign fund managers seeking to pull out Last week Turkey imposed a 0 1 tax on currency sales the first such charge in more than a decade
The measures are creating a gradually less liberal capital account which is not the ideal signal to send to local retail deposit holders and foreign investors said Inan Demir an economist at Nomura Plc in London
Deposit Shift
Regulators have also announced probes into banks including JPMorgan Chase Co NYSE JPM who ve been blamed for misguiding markets with research that recommended selling the lira And Turkish authorities are said to be leaning on local banks to buy more sovereign bonds as the government turns to a widening budget deficit to help pull the economy out of recession
Output declined 3 in the last quarter of 2018 and it s forecast to keep shrinking through at least June
The slide has encouraged Turkish households and companies to turning their savings into dollars and euros They ve added about 20 billion in hard currency bank deposits this year taking the total to more than 180 billion close to a record high
Adds lira move in the third paragraph |
JPM | JPMorgan raises its Brexit no deal probability forecast to 25 from 15 | By Guy Faulconbridge LONDON Reuters U S investment bank JPMorgan NYSE JPM raised its probability of a no deal Brexit to 25 from 15 saying its base case is that Boris Johnson becomes prime minister followed by a general election and then another delay to Britain s exit to the end of the year JPMorgan raised the probability of an Article 50 extension to 60 versus 50 before and cut the probability of exit on the terms of Prime Minister Theresa May s Withdrawal Agreement to 15 from 35 In a research note to clients titled Brexit Time to be afraid as no deal probability rises JPMorgan s Malcolm Barr said the base case was that Johnson became prime minister in early September Boris Johnson becomes PM in early September on a no deal if we have to platform Barr said The EU refuses his central objective of removing the backstop from the Withdrawal Agreement The Commons begins the process of legislating to force Johnson to seek an Article 50 extension and Johnson calls a general election seeking a mandate for his approach the note added The UK and EU agree to extend Article 50 to end December to allow time for the general election to take place and for discussions to follow it Nearly three years after the United Kingdom voted 52 to 48 in a referendum to leave the EU it remains unclear how when or even if it will leave the European club it joined in 1973 The current deadline to leave is Oct 31
Britain s labyrinthine crisis over Brexit has stunned allies and foes alike and with deadlock in London the world s fifth largest economy faces an array of options including an exit with a deal to smooth the transition a no deal exit an election or a second referendum |
JPM | Appetite for Saudi Arabia tested by latest jumbo loan | By Davide Barbuscia and Hadeel Al Sayegh DUBAI Reuters Saudi Arabia s Public Investment Fund PIF has attracted only tepid interest in plans for its latest multibillion dollar debt sale banking sources say suggesting the kingdom is losing its appeal for some lenders International banks have flocked to join the efforts of the the Middle East s largest economy to reduce its reliance on oil and have continued to seek Saudi business despite Riyadh s relations with Western allies being tested by the murder last year of journalist Jamal Khashoggi The Saudi government has raised nearly 60 billion in global bonds since 2016 as well as a 16 billion international loan with a string of state entities also joining the debt bonanza including this year s 12 billion bond issue from oil giant Saudi Aramco Though banks have queued up for relatively low earning Saudi sovereign bonds and loans in the expectation this would lead to more lucrative work postponement of Aramco s planned stock market listing and a slow start to a slate of other planned privatizations have left some lenders disappointed Banks had been made a lot of promises on the equity side mostly and what is happening is just sovereign borrowing said one banker with an international lender Having raised 11 billion through a syndicated five year loan last year PIF is in talks with international banks for an expected 8 billion offering to be paid back within one year from the sale of the sovereign fund s 70 stake in petrochemicals company SABIC to Aramco Banks already participated in the PIF term loan so they re hesitant to also participate in the bridge loan if it s not at commercial terms and more about relationship lending said another banker who is familiar with the matter Some large banks such as HSBC and Citi will participate the sources said meaning the deal is likely to get done But the waning interest indicates that Saudi Arabia may have to start paying higher rates for sovereign debt that is not a precursor to more profitable work Last year sources said that PIF s 11 billion loan paid 75 basis points over the London Interbank Offered Rate Libor the same rate paid by the government itself A group of 15 lenders took part in that deal including European Asian and U S banks LOW MARGINS PIF s new loan is also expected to offer relatively low margins with one source saying he expected it to be around 30 basis points above Libor adding to the lack of enthusiasm A PIF spokesman said the fund does not comment on rumours or speculation regarding transactions He added that PIF s long term funding strategy includes four sources of finance including capital injections and asset transfers by the government retained investment returns and loans and debt instruments Banks tend to establish or strengthen relationships with clients by providing relatively cheap financing in the hope of winning further business in areas such as trade finance or capital markets Saudi Arabia s economic reforms include privatizations large infrastructure projects and the planned flotation of Aramco in a transaction expected to net 100 billion for the state and millions of dollars for arrangers However Aramco s initial public offering has been postponed until 2021 and the other work expected has been slow to appear When Saudi Arabia started its borrowing spree bankers said it was made clear in conversations that the government was asking them to lend cheaply in return for more profitable mandates further down the line Banks with large balance sheets and a strong presence in the Middle East such as JPMorgan NYSE JPM and HSBC have been able to lend extensively at low margins but new borrowing requests from the Saudis are starting to fatigue medium sized banks the sources said For some European banks which have a very high cost of funding this is a problem and they are feeling the pinch one of the sources said The new PIF loan has also raised concern among potential lenders because it is unclear how the loan will be used because it is not tied to any specific investment or acquisition There s no visibility in terms of deals and upcoming business one of the sources said |
JPM | JPMorgan shareholders approve bank s executive pay with protest | CHICAGO Reuters JPMorgan Chase Co NYSE JPM said on Tuesday that only 71 64 percent of shareholders voted to approve its executive compensation packages marking a rare instance of criticism over the bank s top leaders pay The bank also said that all of its directors were elected and that a shareholder proposal that the bank report annually on its global gender pay gap was voted down according to preliminary tallies
The votes were taken at the bank s annual shareholder meeting at its offices in Chicago |
MS | Emerging Europe Bargains | American equities have been a good place to invest during the current bull market now in its eighth year Since the November election the S P 500 Index has surged close to 16 percent But this means that valuations continue to creep up and political risk threatens to derail further gains as President Donald Trump s high growth agenda stumbles on even more roadblocks
Investors might therefore be looking for an alternative I believe one of the most attractive destinations for your investment dollars right now is emerging European countries Below you can see a valuation comparison between U S and emerging European equities Trading at 9 2 times earnings the latter are offering quite a bargain for investors seeking a better bang for the buck
More than that though core Central and Eastern Europe CEE countries including Poland the Czech Republic Romania and Hungary are currently among the fastest growing in the world In a recent series on the region the Financial Times put it succinctly The former communist countries that have joined the European Union EU since 2004 offer superior growth to western Europe and many other emerging markets combined with the benefits and protections of EU membership
Expectations for economic growth in CEE countries have changed rapidly and positively The consensus forecast is now 2 5 percent growth this year 0 3 percent points higher than expectations near the beginning of the year
Next year could be even brighter with analysts expecting 2 6 percent growth 0 1 percentage point higher than earlier forecasts Stronger than expected external demand in Western Europe a tighter labor market an attractive environment for foreign investment government stimulus measures easy financing conditions and the revival of EU structural funds are all supporting stronger growth in the region
Manufacturing Continues To Strengthen
Loyal readers of Frank Talk know that we closely follow the purchasing manager s index PMI which measures the strength of a country s manufacturing industry We ve found it to be not only a handy gauge of future commodities demand but also a country s or region s economic growth potential
For the first time in recent memory most emerging European economies PMIs are above the key 50 mark that separates growth from contraction Greece rose from 49 6 in May to 50 5 in June the first time its manufacturing sector was in expansion mode in nearly a year
Russia grew at a much slower pace in June however with its PMI falling to 50 3 just above the threshold But as I shared with you this week Capital Economics analysts believe Russian growth in the coming quarters will be stronger than most anticipate with the Central Bank of Russia loosening monetary policy even further
The fact that all CEE countries are above 50 points to synchronized growth It also suggests that the worst of the region s economic woes following the global recession might finally be in the rear view mirror
Poland Next Economic Powerhouse
Writing recently for the New York Times opinions section Ruchier Sharma Morgan Stanley NYSE MS Investment Management s chief global strategist singled out Poland as the world s likeliest next advanced economy following South Korea s entry into the high income club 20 years ago
I have to agree As Sharma points out Poland has seen average annual growth of 4 percent since 1991 the year it transitioned from communism to democracy During that period it hasn t had a single down year amazingly enough
The Polish economy continued to grow at an annual rate of nearly 4 percent in the second quarter as suggested by the May retail sales and industrial output data According to mBank analysts fiscal year growth will slightly exceed 4 percent driven by public investments recovery and persistently strong consumption The real retail sales growth in the second quarter held close to the prior quarter level which means that consumption growth should remain at around 5 percent mBank estimates
Poland s impressive ascent should only help strengthen other CEE countries both economically and politically Its president Andrzej Duda seems fully aware of this and has taken several important strides to improve not just Poland s economy but the region s as well The Three Seas Initiative spearheaded last year by Duda and Croatian president Kolinda Grabar Kitarovi seeks to connect the economies and infrastructure of 12 CEE countries between the Adriatic Baltic and Black Seas A number of EU officials see the Initiative as a threat to the EU bloc s unity which might be partially why President Trump agreed to meet with Initiative members when he visited Poland last month
Stocks On The Rise
Also contributing to CEE growth right now is the steadily weakening U S dollar as Reuters reports Prague stocks rose to a seven week high this week while Hungary s Budapest Stock Exchange Index BUX continues to hit new all time highs
Speaking of Hungary its government is considering whether to lower personal income taxes to 10 percent from the current 15 percent This would be a major boost to Hungarians disposable income which is already rising at a breathtaking pace Wage growth in April was an amazing 14 6 percent
Again the CEE region looks more and more like a good place to invest not least of which because of its attractive discount to American equities
The Vanguard FTSE Europe ETF NYSE VGK was trading at 56 58 per share on Thursday morning up 0 21 0 37 Year to date VGK has gained 20 34 versus a 11 53 rise in the benchmark S P 500 index during the same period
VGK currently has an ETF Daily News SMART Grade of A Strong Buy and is ranked 2 of 89 ETFs in the European Equities ETF category
Frank Holmes is the CEO and chief investment officer of U S Global Investors Mr Holmes purchased a controlling interest in U S Global Investors in 1989 and became the firm s chief investment officer in 1999 In 2006 Mr Holmes was selected mining fund manager of the year by the Mining Journal and in 2011 he was named a U S Metals and Mining TopGun by Brendan Wood International He is also the co author of The Goldwatcher Demystifying Gold Investing More than 30 000 subscribers follow his weekly commentary in the award winning Investor Alert newsletter which is read in over 180 countries |
JPM | JPMorgan Options Price In Big Stock Move Tomorrow | Earnings season gets underway this week with several big cap financial names set to report Citigroup NYSE C took its turn in the earnings confessional bright and early this morning unveiling a sharp drop in fixed income trading revenue While C stock was last seen trading higher sector peer JPMorgan Chase Co NYSE JPM is up 0 8 at 100 71 ahead of the big cap financial firm s own quarterly results which are due before the market opens tomorrow Jan 15
Over the past eight quarters JPM stock has closed lower in the session after earnings six times including the last three in a row Overall the shares have averaged a 1 2 next day move in that two year time frame while the options market is pricing in a 4 9 swing for tomorrow s trading based on implied earnings deviation data from Trade Alert
Options traders appear to be bracing for another post earnings move to the downside At the International Securities Exchange ISE Chicago Board Options Exchange CBOE and NASDAQ OMX PHLX PHLX JPM s 10 day put call volume ratio of 0 68 ranks in the 80th annual percentile While this shows calls have outpaced puts on an absolute basis the rate of call buying relative to put buying has been quicker than usual
Skepticism is rising outside of the options pits too with short interest up 9 in the two most recent reporting periods to 22 million shares the most since early November However this accounts for just 0 7 of JPM stock s available float meaning the bearish bandwagon is far from overcrowded
Meanwhile analysts have started issuing bear notes on the big cap bank stock However eight of 15 brokerages still say it s a buy or better with not one sell on the books Plus the average 12 month price target of 115 88 is a 15 premium to current trading levels
It s been a rough stretch for JPM shares which came in to today s trading on a four day losing streak While the stock is up 10 7 from its late December low near 91 it s still down 10 4 year over year and struggling against short term resistance at its 30 day moving average |
MS | Last man standing lonely Fed tightening spurs dollar surge | By Saikat Chatterjee and Ritvik Carvalho LONDON Reuters As speculation about interest rate rises and policy normalization in the euro zone Japan Britain and China falls away rapidly the U S Federal Reserve s now lonely monetary tightening has suddenly supercharged the dollar The revival of the U S currency after more than a year on the wane is already causing mayhem in emerging markets from Turkey to Argentina and Indonesia while tightening global financial conditions in a way that could eventually make even the Fed consider a pause for thought In just two weeks the dollar has surged nearly four percent against a basket of the most traded currencies erasing all the losses it had suffered since the start of 2018 DXY Against a broader group of currencies including those from emerging markets the greenback is now in positive territory against half of them Two factors may indicate the dollar s rise which is potentially damaging to the world economy due to its pre eminence as a global funding currency has more room to run U S yield differentials support dollar First is the interest rate gap While the Fed left interest rates unchanged on Wednesday it is possibly set to raise them by a total of 75 basis points this year This means U S rates are likely to pull still further ahead of all others in the developed world U S China surprise to the upside The Fed s overnight lending rate in already in a target range of 1 50 1 75 percent compared with the European Central Bank s closely watched deposit rate benchmark at minus 0 4 percent while the Bank of Japan pledges to guide short term interest rates at minus 0 1 percent Data on Thursday showing euro zone inflation slowing further last month could cement that view especially after the Fed showed no sign of swerving from its tightening path after its policy meeting calling recent U S inflation rises sustainable 2018 Return of King Dollar 2017 Dollar in the dumps The second factor is the record overhang of short dollar bets by speculators who believed the greenback would weaken These amounted to nearly 24 billion as of end April as seen by positioning data just off a 28 billion peak Such bets had multiplied by a factor of 10 in slightly more than a year based on a belief that other major economies notably in Europe would continue expanding at a faster pace than the United States allowing central bankers to react faster than what markets were pricing in The link up in the yield differential and the dollar theme means the rally may have further room to run especially against the euro and sterling as there is a big structural short dollar position in the market said Salman Ahmed chief investment strategist at Lombard Odier Investment Managers US financial conditions Anecdotal evidence suggests short dollar bets may be far bigger thanks to a slow moving allocation away from the greenback in recent years among large institutional investors The dollar s rally this year is quite a turnaround from 2017 when it weakened against every other currency Even in early 2018 most analysts were tipping greenback losses to escalate The euro was on a roll with the ECB looking set to roll back its economic stimulus in September and raise rates in the first quarter of 2019 Last man standing Similarly sterling seemed to have left behind its Brexit related worries due to expectations of two interest rate rises this year by the Bank of England Likewise the Japanese economy had enjoyed eight straight quarters of expansion the longest such run since the 1980s But a string of ominously weak data is causing speculation that the ECB may have to delay closing its bond buying program from September Such data appears to have also scuppered a May rate rise in Britain while Japan ditched on April 27 its timeframe for hitting inflation targets indicating no let up in its stimulus Expectations for European and Japanese growth probably went too far and we have seen a bit of loss of momentum said Nick Wall a portfolio manager at Old Mutual Global Investors though he noted growth still remained robust in these regions China s central bank meanwhile has also contributed to dollar strength via liquidity injections into money markets and by cutting reserve requirement ratios for banks by 100 basis points in mid April The addition of liquidity suggests to markets that the Chinese yuan trade weighted index appreciation trend was set to pause in turn suggesting implicit dollar strength Morgan Stanley NYSE MS analysts told clients Some other central banks notably those in Switzerland and Sweden have also turned more dovish with the latter suggesting this week that more tools may be deployed to lift inflation That indeed leaves the Fed as the only tightening game in town Wall said The policy divergence is shown in bond markets where spreads between German yields and equivalent U S debt has blown out to its widest in three decades at 240 basis points Similarly the UK U S yield gap widened this week to the most since 1984 Many people including Wall still see the dollar failing to extend its recent surge given the United States needs a weaker currency to fix its deficit and the Fed s awareness of the knock on effects on developing countries of a rampant dollar But dollar appreciation could also feed more gains should it persuade overseas investors to buy U S debt without hedging currency exposure Asian funds have balked at buying Treasuries in recent months as higher U S rates raise hedging costs That shift to unhedged buying a dramatic move for bond investors could lead to more dollar purchases Lombard Odier s Ahmed said |
MS | U S jobs growth expected to regain momentum in April | By Lucia Mutikani WASHINGTON Reuters U S job growth likely accelerated in April after a weather related slowdown in the previous month with the unemployment rate expected to drop to near a 17 1 2 year low of 4 0 percent The Labor Department s closely watched employment report on Friday is also expected to show steady wage growth which would add to signs of building inflation pressures and likely keep the Federal Reserve on a gradual path of monetary policy tightening The U S central bank on Wednesday left interest rates unchanged and said it expected annual inflation to run close to its symmetric 2 percent target over the medium term Economists interpreted symmetric to mean policymakers would not be too concerned with inflation overshooting the target Non farm payrolls probably increased by 192 000 jobs last month according to a Reuters survey of economists Payrolls rose by 103 000 positions in March the smallest gain in six months which economists dismissed as payback after unseasonably mild weather boosted hiring by 326 000 jobs in February The anticipated decline in the unemployment rate from 4 1 percent in March would put it at a level last seen in December 2000 and within striking distance of the Fed s forecast for 3 8 percent by the end of this year The high frequency indicators coming from the labor market continue to look rock solid there is no real indication that the labor market is slowing down said Scott Anderson chief economist at Bank of the West in San Francisco From the Fed s perspective we are already at or below full employment Average hourly earnings are expected to have risen 0 2 percent last month after a 0 3 percent gain in March That would leave the annual increase in average hourly earnings at 2 7 percent While average hourly earnings have suggested only a gradual increase in wage inflation other measures have been more robust The Employment Cost Index ECI widely viewed by policymakers and economists as one of the better measures of labor market slack increased solidly in the first quarter The ECI report showed wages rising at their fastest pace in 11 years during the period SKILLED LABOR SHORTAGE Even with the annual increase in average hourly earnings still moderate inflation is flirting with the Fed s target The Fed s preferred inflation measure the personal consumption expenditures price index excluding food and energy was up 1 9 percent year on year in March after a 1 6 percent rise in February In an environment where productivity growth is remaining very weak you actually don t need a particularly large rise in wage growth to be consistent with the Fed s 2 percent inflation target said Michael Pearce a senior U S economist at Capital Economics in New York We expect faster wage growth will prompt the Fed to raise rates three more times this year The Fed hiked rates in March and has forecast at least two more increases for this year Economists expect the unemployment rate will drop to 3 5 percent by the end of the year The economy needs to create roughly 120 000 jobs per month to keep up with growth in the working age population Employment gains averaged 202 000 jobs per month in the first quarter Some economists however caution that April s job growth could come in below expectations citing declines in measures of manufacturing and services sector employment during the month More businesses are complaining about shortages of skilled workers A consumer confidence survey showed households assessments of current labor market conditions falling for a second straight month in April In addition cold temperatures persisted last month in some parts of the country We have seen historically poor weather which we expect will act as a temporary headwind to April job growth said Ellen Zentner chief economist at Morgan Stanley NYSE MS in New York Weather sensitive construction and leisure hospitality jobs in particular will likely be negatively impacted by the weather swing so we expect those industries to take a meaningful hit Still manufacturing payrolls are expected to have rebounded last month after recording their first drop in eight months in March Manufacturing employment is forecast rising by 20 000 jobs in April after a gain of 22 000 positions in March
Government payrolls are seen falling by 2 000 jobs in April |
MS | Argentina curbs peso s fall though risks linger | By Caroline Stauffer and Eliana Raszewski BUENOS AIRES Reuters Argentina likely stopped a run on the peso with a massive rate hike and lower fiscal deficit target on Friday though high inflation and large amounts of debt are lingering risks economists said Treasury Minister Nicolas Dujovne told local radio over the weekend the government had avoided a crisis with coordinated measures by the central bank and economic team though he acknowledged Argentina would pay for the measures with lower economic activity When someone takes measures on the scale we took them he chooses which costs to avoid and which costs to pay Dujovne said on Radio Mitre We chose to avoid a crisis Later undoubtedly higher rates can result in lower activity but that also depends on how long the rates last The peso closed 5 12 percent stronger at 21 88 per dollar on Friday after the central bank hiked its benchmark interest rate to 40 percent and Dujovne lowered the fiscal deficit target but the peso remained 6 percent weaker than a week ago The peso s slump to all time lows and talk of crisis last week made Argentines nervous as many still have strong memories of a 2001 bank run that led to years of hyperinflation political instability and poverty The local Merval stock index MERV one of the best performing in the world last year fell 2 6 percent on Friday We believe the peso will calm down in the next few days although it will not necessarily be free of volatility local consultancy Ecolatina said The 40 percent rate can temporarily support an exchange rate of 21 6 but the heavy positioning loss of credibility and reputational cost make 22 pesos a new fair rate in our view BTG Pactual economists said in a note The bank forecast an exchange rate of 24 per dollar for the year end and raised its annual inflation forecast to 24 percent far higher than the central bank s target of 15 percent The issue of credibility is crucial to Argentina which returned to international capital markets after settling a dispute with holdout creditors after center right President Mauricio Macri took office in late 2015 ending 12 years of leftist governments Argentina even sold an oversubscribed century bond last year to investors who had praised his policies Latin America s No 3 economy still lacks an investor credit rating and is classified as a frontier rather than an emerging market by Morgan Stanley NYSE MS UNIFIED FRONT Macri s economic team has tried to present a unified front in recent days A government spokesman said Macri had expressed complete confidence in the central bank at a cabinet meeting on Thursday Dujovne publicly expressed support for the bank on Friday in a joint press conference with Finance Minister Luis Caputo who said the government would not take on any more foreign debt this year The central bank which is not technically independent from the government had lowered rates earlier in the year arguing inflation would start falling in May when a series of government mandated price hikes on energy and transportation were scheduled to end But higher rates abroad and an exodus from emerging markets last week appeared to have caught it off guard Before announcing three emergency rate hikes starting on April 27 the bank tried to prop up the peso by selling nearly 8 billion in dollar reserves on the spot market since March Friday was the first day the bank did not intervene in two weeks The peso is going to stay at these levels always attentive to what happens abroad said Economist Santiago L pez Alfaro of Delphos Investment If it stays constant then we have reached a new equilibrium point I do not expect much intervention with these rates Lopez said economic growth would likely be closer to 2 or 2 5 percent this year below the government s initial forecast of 3 percent because of higher rates as well as a punishing drought that hurt soy and corn output in the world s No 3 exporter of both
Argentina s association of small and medium sized companies warned it members would pay for the latest measures with excessive financing costs impossible conditions for accessing productive credit and a rupture of the payment chain |
JPM | Ex JPMorgan banker faces Hong Kong bribery charges over princeling hires | By Alun John
HONG KONG Reuters JPMorgan s former Asia investment banking vice chair Catherine Leung has been charged with two counts of bribery by Hong Kong s anti corruption watchdog for offering a job to the son of a potential client
Leung allegedly offered employment to the son of the chairman of a logistics company in 2010 and 2011 as a reward for the chairman favoring J P Morgan Securities Asia Pacific when choosing banks to work on the company s IPO Hong Kong s Independent Commission Against Corruption ICAC said in a statement on Thursday
Leung currently at MizMaa Ventures an Israeli U S tech focused venture capital firm she co founded did not immediately respond to a Reuters email sent via MizMaa requesting comment
Leung has been released on ICAC bail pending a scheduled appearance in a Hong Kong magistrates court on May 20 ICAC said
ICAC said that in 2010 and 2011 the times of the alleged offences Leung was responsible for sourcing business for JP Morgan Securities Asia Pacific and its parent JPMorgan Chase Co NYSE JPM
A spokeswoman for JPMorgan said This is a historical case which J P Morgan reached agreement on and settled in 2016
We strengthened our compliance procedures and controls around hiring and reinforced the high standards of conduct expected of our people the spokeswoman said in an emailed statement
In 2016 JPMorgan agreed to pay U S authorities 264 million to resolve allegations it hired the relatives of Chinese officials dubbed princelings to win banking deals according to U S Securities and Exchange Commission and the U S Justice Department
U S authorities at that 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
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 |
JPM | Citigroup Hit Hardest as EU Fines Banks 1 2 Billion Over FX | Bloomberg Want the lowdown on European markets In your inbox before the open every day Sign up here
Citigroup Inc NYSE C Royal Bank of Scotland Group LON RBS Plc and JPMorgan Chase Co NYSE JPM are among five banks that agreed to pay European Union fines totaling 1 07 billion euros 1 2 billion for colluding on foreign exchange trading strategies
Citigroup was hit hardest with a 310 8 million euro penalty followed by fines of 249 2 million euros and 228 8 million euros for RBS and JPMorgan the European Commission said in a statement on Thursday Barclays LON BARC Plc was fined 210 3 million euros and Mitsubishi UFJ Financial Group Inc must pay nearly 70 million euros as part of the settlement with the EU s antitrust regulator
Traders ran two cartels on online chatrooms swapping sensitive information and trading plans that allowed them make informed decisions to buy or sell currencies the regulator said Many of them knew each other calling one chatroom on the Bloomberg terminal the Essex Express n the Jimmy because all of the traders but one met on a commuter train from Essex to London Other names for rooms were the Three Way Banana Split and Semi Grumpy Old Men
Foreign exchange spot trading activities are one of the largest markets in the world worth billions of euros every day EU Competition Commissioner Margrethe Vestager said These cartel decisions send a clear message that the commission will not tolerate collusive behavior in any sector of the financial markets
While relatively large the cartel fines are lower than a 1 3 billion euro penalty for banks for rigging Euribor rates and below a record 3 8 billion euro penalty for collusion between truckmakers
UBS Group AG escaped a fine because it was the first to tell regulators about the collusion The five other banks won reduced penalties by striking a settlement with the commission that won t allow them to challenge the EU s findings Credit Suisse SIX CSGN Group AG was separately charged by the EU over FX collusion last year That case involves another online chatroom and banks may be fined at a later date
Traders manipulation of benchmark foreign exchange rates was exposed in 2013 Bloomberg articles triggering regulatory probes in the U S the U K and Switzerland More than a dozen financial institutions have paid about 11 8 billion in fines and penalties globally with another 2 3 billion spent to compensate customers and investors Former U S attorney general Loretta Lynch in 2015 said the banks engaged in a brazen display of collusion to game markets
Today s fine is a further reminder of how badly the bank lost its way in the past and we absolutely condemn the behavior of those responsible RBS said in an emailed statement This kind of behavior has no place at the bank we are today our culture and controls have changed fundamentally during the past ten years
JPMorgan said the bank is pleased to resolve this historical matter which relates to the conduct of one former employee and has now made significant control improvements
MUFG is committed to ensuring integrity and compliance with the regulatory authorities in every jurisdiction in which we operate and have taken a number of measures to prevent this occurring again the bank said in a statement Citigroup and Barclays declined to comment
The fines for Barclays and RBS are covered by the two British banks existing provisions and in line with expectations according to Edward Firth an analyst with Keefe Bruyette Woods in London
Traders exchanged information about outstanding customers orders bid ask spreads their open risk positions and details of current or planned trading activities They would sometimes agree to stand down or stop a trading activity to avoid interfering with another trader in the group They traded 11 currencies including the euro the U S dollar the British pound and the Japanese yen
While the U S has won guilty pleas from JPMorgan Citigroup RBS and Barclays three British traders in a group known as The Cartel were acquitted by a U S federal court last year of using a chatroom to coordinate trades and manipulate prices on the spot exchange rate for euros and U S dollars
The EU is continuing to investigate banks for possible EU antitrust violations
Deutsche Bank AG DE DBKGn Credit Suisse and Credit Agricole PA CAGR SA are targeted by an EU probe into a suspected cartel for trading of U S dollar supra sovereign sovereign and agency bonds via online chatrooms between 2009 and 2015
Eight banks are the focus of yet another EU probe looking at the trading of eurozone sovereign bonds from 2007 to 2012 UniCredit SpA said it faces a possible fine from the eurozone probe RBS is also one of the banks being probed a person said in February
The EU regulator is also looking at potential coordination in options trading in the FX market HSBC Holdings Plc LON HSBA said in its annual report in February HSBC received questions from regulators in October and the investigation is at an early stage it said
Updates with RBS response in eighth paragraph |
JPM | Wells Fargo and Barclays back fintech company OpenFin | By Anna Irrera NEW YORK Reuters Financial services software startup OpenFin has raised 17 million in a funding round led by Wells Fargo NYSE WFC Co with participation from Barclays LON BARC the company said on Thursday Existing investors including JPMorgan Chase Co NYSE JPM Bain Capital Ventures and Pivot Investment Partners also participated in the round the company said OpenFin which is headquartered in New York and London will use the cash injection to accelerate sales efforts and for product development it said Founded in 2010 the company has developed an operating system that enables financial institutions to more easily create and upgrade their computer applications similarly to how consumer apps are updated on smartphones This can help large firms cut down on the time and money needed to modernize the software they use for a wide array of both front and back office functions such as trading or risk management It would otherwise take between 6 to 18 months for a financial institution to deploy or update an application OpenFin said Over the past few years banks have been ramping up partnerships and investments in young companies that create products and services which can help large financial institutions remain competitive in an increasingly digital world Banks know that they need to significantly reduce their cost of doing business and they need to increase productivity Mazy Dar chief executive and co founder of OpenFin said in an interview All of this heavy infrastructure needs to be replaced with something that is a lot more agile and nimble OpenFin s operating system is used on nearly 200 000 desktops at 15 global investment banks and more than 1 500 other banks and buy side firms it said
The latest investment brings the company s total amount of venture funding to 40 million |
JPM | U S housing starts beat expectations supply constraints remain | By Lucia Mutikani WASHINGTON Reuters U S housing starts increased more than expected in April and activity in the prior month was stronger than initially thought suggesting declining mortgage rates were providing some support to the struggling housing market Land and labor shortages however continue to constrain builders ability to construct more lower priced houses the segment of the market that has suffered an acute shortage of inventory and weak sales Those supply challenges were highlighted by a drop in the number of homes under construction to a seven month low in April The housing market is coming back a little said Joel Naroff chief economist at Naroff Economic Advisors in Holland Pennsylvania Building activity is what really matters for economic growth and right now that is softening Housing starts rose 5 7 to a seasonally adjusted annual rate of 1 235 million units last month driven by gains in the construction of both single and multi family housing units the Commerce Department said on Thursday Groundbreaking was also likely boosted by drier weather in the Midwest Data for March was revised up to show homebuilding rising to a pace of 1 168 million units instead of falling to a rate of 1 139 million units as previously reported Building permits rose 0 6 to a rate of 1 296 million units in April after three straight monthly declines Single family building permits however fell for the fifth straight month suggesting a moderation in groundbreaking activity was likely Economists polled by Reuters had forecast housing starts would increase to a pace of 1 205 million units in April The 30 year fixed mortgage rate has dropped to 4 10 from a peak of about 4 94 in November according to data from mortgage finance agency Freddie Mac Decreasing mortgage rates reflect a recent decision by the Federal Reserve to suspend its three year monetary policy tightening campaign A survey on Wednesday showed confidence among homebuilders rose to a seven month high in May While lower borrowing costs are boosting demand builders said they continue to deal with ongoing labor and lot shortages and rising material costs that are holding back supply and harming affordability Relatively cheaper home loans and a strengthening labor market characterized by the lowest unemployment rate in nearly 50 years are underpinning demand for housing In a separate report on Thursday the Labor Department said initial claims for state unemployment benefits dropped 16 000 to a seasonally adjusted 212 000 for the week ended May 11 The PHLX housing index was trading higher also tracking a broadly firmer U S stock market The dollar rose against a basket of currencies while U S Treasury prices fell SLUGGISH MANUFACTURING The robust job market should also support the economy as the boost from the White House s 1 5 trillion tax cut package fades and President Donald Trump s escalating trade war with China disrupts supply chains at factories which are already struggling with an inventory bloat that has cut production A third report from the Philadelphia Federal Reserve on Thursday showed manufacturing activity in the mid Atlantic region accelerated in May but factories reported receiving fewer orders and were less upbeat about capital spending over the next six months The survey was conducted before last Friday s move by Trump to hike tariffs on 200 billion worth of Chinese goods While business sentiment appears to have picked up lately it is unclear what types of assumptions respondents had about trade policy and many of the responses for these surveys likely were completed before the increase in tariffs implemented last Friday said Daniel Silver an economist at JPMorgan NYSE JPM in New York The housing market has been mired in a soft patch since last year Investment in homebuilding contracted at a 2 8 annualized rate in the first quarter the fifth straight quarterly decline Last month single family homebuilding which accounts for the largest share of the housing market increased 6 2 to a rate of 854 000 units Single family homebuilding surged in the Midwest which had suffered flooding in prior months Single family starts also rose in the Northeast and West but fell in the South where the bulk of homebuilding occurs Permits to build single family homes dropped 4 2 to a rate of 782 000 units in April The number of houses under construction fell last month as did competitions Starts for the volatile multi family housing segment advanced 4 7 to a rate of 381 000 units last month Permits for the construction of multi family homes rebounded 8 9 to a pace of 514 000 units last month
It looks like residential construction will move sideways in coming months with a slight increase in multifamily construction edging out a decrease in single family starts said Andres Carbacho Burgos a senior economist at Moody s Analytics in West Chester Pennsylvania |
JPM | Deere Slumps as Trade War Dims Outlook for Top Tractor Maker | Bloomberg The U S China trade war is finally taking a visible toll on the world s biggest maker of tractors
Deere Co is no longer cautiously optimistic as it has been for so long The machinery giant reported lower than expected earnings and cut its annual guidance as its farmer customers shun major purchases amid uncertainty about demand for their products
Ongoing concerns about export market access near term demand for commodities such as soybeans and a delayed planting season in much of North America are causing farmers to become much more cautious about making major purchases Chief Executive Officer Sam Allen said in a statement Friday
Sales for fiscal 2019 are projected to increase about 5 with net income forecast at about 3 3 billion the Moline Illinois based company said It previously forecast 7 sales growth and net income of about 3 6 billion Deere missed on earnings for a sixth straight quarter
U S China trade tensions have been escalating just as wet weather in the Midwest is keeping farmers out of their fields when they should be planting Demand for soybeans used in feed is expected to take a hit from the spread of African swine fever in China All that has prompted analysts including JPMorgan Chase Co NYSE JPM to cut their recommendations this week
It s not terribly surprising given the trade backdrop the lack of visibility and what appears to be unrelenting wave of headwinds on the horizon that the company pretty much cut their 2019 outlook across the board said Chris Ciolino an analyst at Bloomberg Intelligence
There are other signs the trade war is causing casualties Inventories of new equipment at dealerships are bulging and Deere s are slightly higher than the industry average according to Mircea Dobre a senior analyst at Robert W Baird Co Deere said it was taking steps to manage inventories by cutting production levels in the second half to below retail sales
Deere s agriculture margins at 14 were weaker than anticipated Ciolino said Operating profit in the company s agriculture and turf unit declined compared to the prior year due to higher production and research and development costs although that was offset by units selling at higher prices according to the statement Farmers still have a need to replace aging equipment which will drive some sales While Deere reported an increase in quarterly sales from a year earlier investors seem more interested in the company s outlook for the rest of 2019 and how much farmers pain will impact discretionary upgrades of machinery
Shares dropped as much as 4 7 before the start of regular trading Friday With grain prices near multi year lows Deere is down 12 in May heading for its worst month in a year
Adds comment from analyst in sixth and eighth paragraphs |
JPM | U S consumer sentiment robust before escalation of trade war | By Lucia Mutikani WASHINGTON Reuters U S consumer sentiment jumped to a 15 year high in early May amid growing confidence over the economy s outlook but much of the surge was recorded before an escalation in the trade war between the United States and China which could hurt activity The University of Michigan said its consumer sentiment index increased 5 3 to 102 4 the highest reading since 2004 Economists polled by Reuters had forecast a reading of 97 5 President Donald Trump last week raised tariffs on 200 billion worth of Chinese goods to 25 from 10 China retaliated on Monday with higher tariffs on a revised list of 60 billion worth of U S products Economists have warned the bruising trade fight could weigh on consumer and business confidence and undercut spending The University of Michigan said negative references to tariffs rose in the past week and are likely to rise further in late May and June So the recent improvement in sentiment may turn out to be short lived said Daniel Silver an economist at JPMorgan NYSE JPM in New York While the ultimate response to tariffs is still unclear the survey results suggest that consumer sentiment was upbeat before the developments on trade policy from the past couple of weeks Still some economists viewed the surge in sentiment which also came despite higher gasoline prices as a hopeful sign for a pickup in consumer spending after it slowed sharply in the first quarter Consumer confidence accounts for more than two thirds of U S economic activity The University of Michigan consumer sentiment survey s expectations index also rose to its highest since 2004 The survey showed consumers expecting higher inflation over the next 12 months and five years The survey s five year inflation expectations measure rose to 2 6 early this month from 2 3 in April Federal Reserve officials are keeping a close eye on survey based measures of inflation expectations Inflation measures have retreated contributing to the U S central bank s recent decision to suspend its three year monetary policy tightening campaign A key inflation measure tracked by the Fed has slowed below its 2 percent target prompting calls from Trump for the central bank to cut interest rates
This is the kind of rebound the Fed would welcome and it adds to the case that the Fed will not make an insurance cut in interest rates said John Ryding chief economist at RDQ Economics in New York |
JPM | U S services data suggests downward revision to first quarter GDP | WASHINGTON Reuters U S economic growth for the first quarter is likely to be revised lower after data on Friday suggested less consumer spending and investment in intellectual property products than initially estimated The findings of the Commerce Department s quarterly services survey or QSS come on the heels of data this week showing growth in manufacturing inventories in the first quarter was not as robust as initially estimated Before the QSS data economists had expected that GDP growth for the January March quarter would be trimmed to an annualized pace of 3 0 percent from a 3 2 percent rate Based on the QSS data economists at JPMorgan NYSE JPM and Action Economics estimated an additional one tenth of a percentage point would be subtracted from the GDP estimate That suggests first quarter GDP could be trimmed to a 2 9 percent rate when the Commerce Department s Bureau of Economics Analysis publishes its revision later this month
Data from the QSS point to modest downward revisions to the BEA s first quarter estimates of consumer spending and investment in intellectual property products which combined subtracted 0 1 percentage point from our growth tracking estimate said Daniel Silver an economist at JPMorgan in New York |
JPM | Pinterest shares tumble as profit seen elusive | Reuters Pinterest NYSE PINS Inc s shares slumped as much as 17 on Friday after the online scrapbook company s disappointing annual forecast shook investors faith in its ability to turn in a profit soon The fall in shares after Pinterest s first quarterly results as a public company took some of the shine off its successful stock market debut last month Up to Thursday Pinterest s shares had risen 62 since their April 18 opening The company which gets revenue through advertisements that are placed among the pins or posts that users upload on the site forecast full year revenue of 1 055 billion to 1 08 billion mostly in line with analysts estimate We continue to believe that Pinterest s early stage international and self serve offerings provide meaningful growth drivers over time but they require strong sustained execution and Pinterest cannot simply flip a switch on either one JPMorgan NYSE JPM analysts said in a statement Two brokerage groups said the it would take the company at least two years to become profitable We see low daily engagement relative to peers will limit average revenue per user potential Rosenblatt Securities analyst Mark Zgutowicz said Most brokerages are optimistic on the stock with four of them rating the stock buy or higher and only one recommending sell Twelve brokerages have a hold rating In the first quarter Pinterest s net loss narrowed to 41 4 million in the quarter ended March 31 from 52 7 million a year earlier Morningstar analyst Ali Mogharabi said he expected the company to be profitable by 2021 and that the first quarter results displayed Pinterest s progress in being profitable While around 93 of total revenue was from the US we believe growth opportunities remain in the market as Pinterest can further monetize its U S users via increasing ad loads which resemble native ads and adding more advertisers said Credit Suisse SIX CSGN analyst Stephen Ju
Shares were down 13 7 percent at 26 62 in morning trading after falling as much as 16 7 percent earlier |
MS | Snapchat SNAP Launches Stay Tuned Newscast With NBC | Snap Inc NYSE SNAP is partnering with NBC News to produce a twice daily headline news show called Stay Tuned for the Snapchat app in a bid to reach the highly sought after millennial cohort per media reports
Stay Tuned which began airing on Jul 19 is a two to three minute news broadcast and marks the first ever daily news show on Snapchat Topics will include national and international news as well as politics and pop culture
Reportedly NBC has put together a team of 30 people on the show which will be led by executive producer Andrew Springer and hosted by Gadi Schwartz and Savannah Sellers correspondents for NBC News and MSNBC respectively
The show is supported by sponsorships and advertising NBC will reportedly share a portion of its ads revenue with Snap
NBC News Stay Tuned will feature in the new Shows section of Snapchat which has previously hosted other NBC owned shows like The Voice and E News The Rundown Snap Inc Price
Stay Tuned Targets Millennials
Millennials also known as Generation Y or the Net Generation are the demographic cohort consisting of young individuals who are vastly different given their digital media consumption habits most apparent in their mobile usage The show aims to connect with these younger viewers who are no longer attuned to traditional television for getting their news
Notably Snapchat is striving to boost its 166 million user base primarily consisting of millennials In fact content partners and advertisers are powerfully allured by Snapchat s highly engaged young mobile audience
Increased focus for exclusive shows
The program also represents the latest development in Snap s move to bring original content to its platform The company hopes to air up to three shows per day by the end of the year
We are positive about Snap s decision to dive in head first into news especially as its arch rival Facebook Inc NASDAQ FB is also sprucing up its nascent efforts in the original programming space and recently confirmed launching Paywalled News Subscription Service
We further note that Snapchat has been adding plethora of new features throughout the last few months as it continues to face fierce competition from Facebook s Instagram Last week the company announced two new features for its app Tint Brush and multi snap recording
Comcast is still bullish on Snapchat
It is worth mentioning that Comcast NASDAQ CMCSA owned NBCUniversal invested 500 million in Snap s IPO
Finally we believe there is often a follow the leader effect that could draw other big media houses to follow shortly afterwards thereby opening new revenue channels for Snap
Zacks Rank and Share Price Movement
On Tuesday following a recent downgrade from Morgan Stanley NYSE MS shares of Snap Inc had dropped below the 15 per share mark for the first time since its historic market debut a few months ago Snap is down 11 9 since its initial public offering at 17 in March
Also shares of Snap have fallen 38 8 since its IPO on Mar 2 while the Zacks categorized industry has gained 22 1
Yesterday however the company s shares started trading higher following the announcement of the news program and new app features The stock eventually closed at 14 97
At present Snap carries a Zacks Rank 4 Sell
Stock to Consider
A better ranked stock in this industry is Autohome Inc NYSE ATHM sporting a Zacks Rank 2 Buy You can see
Autohome has delivered an average positive earnings surprise of 41 38 in the trailing four quarters
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MS | Snap Inc Versus Instagram Tenacity Against Overwhelming Scale | Snap Inc NYSE SNAP stock plunged yet again on Tuesday falling under the 15 per share mark for the first time ever which will likely help it continue to be the best performing short position The company just added some new features to Snapchat but it s probably only a matter of time before Facebook NASDAQ FB copies those features too Last week analysts from multiple firms issued bearish notes about Snap including a report which points to troubling trends for Snap versus Instagram and even a huge downgrade from one of the company s underwriters
Snap stock rallies but
Snap stock rallied on Wednesday in a big way climbing nearly 3 by lunchtime to surpass the 15 per share mark again However let s not forget that Snap s IPO price was 17 a share and have been having a field day with the company since the very first day its stock was available to borrow
Ihor Dusaniwsky research head at financial analytics firm S3 Partners reports this week that Snap is their best performing short position The stock fell 11 1 last week alone and is down almost 50 since the IPO In a note earlier this week he pointed out how ironic it is that Facebook CEO Mark Zuckerberg is one of the biggest contributor to the company s downfall because he tried to buy Snapchat in 2013 It seems that Snap management inadvertently created a nemesis when they refused to sell out And thus we have Snap versus Instagram and Facebook today with the latter repeatedly
According to Dusaniwsky investors appear worried about whether Snap will be able to create an ad platform that s able to generate enough revenue to compete with more stablished social media companies
Did Snap just bottom out
Morgan Stanley NYSE MS analysts downgraded Snap last week and cut their price target to 16 a share The firm served as one of the underwriters on the company s stock and although the analysts that provide the ratings did not work on the underwriting they may feel pressured to keep up appearances for as long as possible Thus their downgrade is seen by some as the ultimate insult and CNBC s Jim Cramer even called it an obituary for the social media firm
Interestingly Drexel Hamilton analyst Brian White said on s Squawk Box earlier this week that Snap appeared to be bottoming out He even predicted that the stock could reach 30 a share and went on to draw comparisons between the Snapchat parent and Facebook He noted that Facebook plunged 60 after its IPO before climbing Snap was down 48 four months after its IPO and White called it a great buying opportunity adding that within the first three years after high growth companies hold their IPO they trade at nine to 22 times enterprise value to revenue
Snap versus Instagram the ultimate battle
White also spoke to the battle of Snap versus Instagram and its parent company Facebook However he also explained that social media doesn t have to be a winner takes all However a survey released last week by Piper Jaffray suggests that the social media fight may indeed be winner take all
The firm s bi annual Teen Survey indicated that 90 of Snapchat users also use Instagram which sets a firm base for the Snap versus Instagram fight The firm s analysts suggested that if Instagram is able to expand its use case it could further reduce the uniqueness of Snapchat and limit Snap s user growth
Instagram for its part is proving that it is highly flexible not only in use case but also in platform and even user base according to Piper Jaffray The firm s survey focused on engagement modes on Instagram found that Instagram users are sending new and forwarded messages more and more which results in continuing strength in user growth and continued interest from advertisers
Lock up period on Snap ends soon
Piper Jaffray cut its price target for Snap and boosted its target for Facebook drawing a line in the sand on Snap versus Instagram following its surveys Other firms have also slashed their targets for Snap recently including Cowen This demonstrates growing concern among analysts that the company won t be able to defend against Instagram and its much stronger parent firm
But there s yet another reason to be worried about Snap stock The lock up period on employee and insider owned shares after the IPO ends on July 29 which means that some 900 million shares will be available to sell on July 31 The float currently stands at only 230 million shares which means the float is about to get dramatically bigger Snap is due to release its next earnings report on Aug 10 however which means that the lockup period is actually extended possibly as far out as Aug 14 for some insiders due to blackout periods that typically surround earnings reports
It s very common for stocks to drop when the lock up period ends after their IPO because insiders want to take some profits However CNBC s Jim Cramer predicts that many Snap insiders will want to hold onto their shares especially if they bought any shares in the IPO |
MS | S P 500 Futures Up 9 Of Last 10 Days | There s really no point talking about Tuesday nights Globex session The ES traded in a 3 5 handle range from 2457 75 to 2461 25 for most of the night and only 128k contracts traded That s it Moving on
At 8 30am CT the S P 500 futures ESU17 CME opened the regular trading session at 2461 50 up 3 75 handles and the Nasdaq 100 futures NQU17 CME opened up at 5898 25 up 15 50 points Strong earnings from Morgan Stanley NYSE MS and better than expected housing data helped push stocks higher right out of the gate
At 9 00am the ES had printed an early high of 2466 25 and the NQ had traded up to 5913 25 Things slowed down a little after that and stocks began to back off By 9 30 the ES had traded down to 2462 25 and the NQ fell to 5896 50 From there the slow grind higher that we have been seeing for the last couple weeks started which continued for the rest of the morning and into the afternoon
When it was all over the S P 500 futures ESU17 CME settled at 2471 50 up 13 75 handles or 0 56 the Dow Jones futures YMU17 CBT settled at 21596 up 76 points or 0 35 and the Nasdaq 100 futures NQU17 CME settled at 5918 25 up 35 50 points or 0 60
Thin To Win Meets New All Time Highs
At the end of the day the ES drifted all the way up to 2472 00 and closed at new all time highs What s surprising to me is this happened with less than 950k contracts traded Going a step further if you subtract 128k contracts for the Globex session then another 70 for algo and hft programs you re only left with 246 600 contracts traded in the regular day session That s what you call Thin To Win and it has been a big part of this rally over the last 2 weeks
There s going to be a lot of heavy data flying around today and tomorrow but I really don t expect volume to pick up that much Summer markets have always been thin so you can probably expect more of the same today
Looking past earnings and economic reports for a minute tomorrow is the July options expiration and the stats for today are the strongest of the week The Thursday before the July expiration has the S P 500 closing higher 22 out of the last 33 occasions so I will be looking for strength in the S P all day today
While You Were Sleeping
Overnight equity markets in Asia traded mixed with a slight bias to the upside led by the NIKKEI which closed up 0 62 Meanwhile in Europe all markets with the exception of the OMXS30 are currently trading higher this morning
In the U S the S P 500 futures opened the overnight Globex session at 2471 00 and traded modestly lower throughout the Asian session finding a low of 2469 25 From there the ESU began drifting higher and as European markets opened traded up to 2474 00 extending the overnight range to 4 75 handles Since then the futures have eased off a little and as of 6 30am CT the last print in the ES is 2472 50 up 1 handle with 88k contracts traded
In Asia 7 out of 11 markets closed lower Shanghai 0 44 and in Europe 11 out of 12 markets are trading higher this morning FTSE 0 72 Today s economic calendar includes the Weekly Bill Settlement the 52 Week Bill Settlement Jobless Claims Philadelphia Fed Business Outlook Survey Bloomberg Consumer Comfort Index Leading Indicators EIA Natural Gas Report a 3 Month Bill Announcement a 6 Month Bill Announcement a 2 Yr FRN Note Announcement a 2 Yr Note Announcement a 5 Yr Note Announcement a 7 Yr Note Announcement a 10 Yr TIPS Auction Fed Balance Sheet and Money Supply
Our View
Too high to buy Not for those who extended the all time high by 12 50 handles so far
We can keep talking about the profit taking pullback going into the end of month and T 3 next week We can talk about it being near the end of the week and with the S P 500 up every day this week that it makes sense for some money to leave the market today or tomorrow by way of booking profits and that would make sense Or we can just look at the facts being that it s much more difficult to short this market than it is to buy it
Our view remains the same you can buy any early weakness and hold or sell the midday rallies with smaller size and at your own risk
As always please use protective buy and sell stops when trading futures and options
In Asia 7 out of 11 markets closed lower Shanghai Comp 0 44 Hang Seng 0 26 Nikkei 0 62
In Europe 11 out of 12 markets are trading higher CAC 0 24 DAX 0 41 FTSE 0 72
Fair Value S P 2 45 NASDAQ 1 08 Dow 50 54
Total Volume 950k ESU and 640 SPU traded in the pit |
JPM | Bank Earnings Round 2 JPM WFC Report On Tuesday | Earnings season starts to pick up the pace this week with reports from JPMorgan Chase Co NYSE JPM and Wells Fargo Company NYSE WFC scheduled before market open on Tuesday Jan 15
Between the Fed s rate hike path growing concerns regarding global economies and future growth and geopolitical uncertainty there s plenty for executives to discuss on tomorrow s earnings calls
Beyond whether the banks beat meet or miss projections it could be interesting to tune in to earning s calls to see whether executives discuss their outlook for interest rates The yield on the 10 year Treasury has pulled back to well under the key 3 rate as investors have sought the relative safety of U S government debt At the same time there have been worries about the potential inversion of the yield curve an out of the ordinary formation that has preceded recessions in the past
In addition to interest rate movement global uncertainty regarding economic growth and geopolitics has been a regular topic in recent quarterly calls Still executives haven t seemed too worried yet that any of it might start to dampen loan and deposit growth in the immediate future
At an Axios event recently JPM CEO Jamie Dimon said 2019 could be the fastest global growth year on record although he did mention that a slowdown in 2020 seemed likely The International Monetary Fund expects global growth to come in at 3 7 in 2019 lower than their previous 3 9 estimate The World Bank is less optimistic expecting global growth to slow to 2 9 this year
JP Morgan Earnings And Options Activity
For Q4 JPM is expected to report EPS of 2 25 on revenue of 27 28 billion according to third party consensus analyst estimates In the same quarter last year EPS came in at 1 76 on revenue of 25 45 billion
When JPM last reported net revenue from its consumer and community banking operations increased 10 year over year YoY to 13 29 billion Within that segment consumer and business banking grew 18 to 6 4 billion and the card merchant services and auto division increased 10 to 5 6 billion Analysts are again widely expecting similar strength from this division
Where there is some uncertainty is how the corporate and investment bank division performed in Q4 In Q3 JPM reported revenue in this segment increased 2 YoY to 8 81 billion but was down 11 compared to the second quarter when the company reported 9 9 billion in revenue in that division JPM reported that fixed income markets revenue declined 10 YoY to 2 8 billion in Q3 which wasn t offset by a 17 increase in equity markets revenue Given the heightened volatility across many asset classes in Q4 it remains to be seen how that impacted trading operations as well as debt and equity underwriting
In Line With S P 500 JPM is charted above compared to the S P 500 SPX teal line The two have been moving pretty closely in line with each other since the start of October Since the start of Q4 JPM is down 11 97 versus the SPX s 11 23 as of January 14 Chart source thinkorswim by TD Ameritrade Not a recommendation For illustrative purposes only Past performance does not guarantee future results
Options traders have priced in a 2 8 stock price move in either direction around JPM s earnings release according to the Market Maker Move indicator on the thinkorswim platform Implied volatility was at the 42nd percentile as of this morning
In short term trading at the Jan 18 monthly expiration calls have been active at the 100 and 105 strike prices On the put side most of the activity has been at the 100 strike pretty much right at the money The 95 strike has had heavier volume in recent trading as well
Looking at the Feb 15 monthly expiration trading has been concentrated similarly to January For calls activity has been heavier at the 100 and 105 strikes while puts have been active at the 95 and 100 strikes
Note Call options represent the right but not the obligation to buy the underlying security at a predetermined price over a set period of time Put options represent the right but not the obligation to sell the underlying security at a predetermined price over a set period of time
Wells Fargo Earnings And Options Activity
In tomorrow s report WFC is expected to report EPS of 1 19 up from 0 97 in the prior year quarter on revenue of 21 75 billion according to third party consensus analysts Revenue is projected to decrease 1 4 compared to last year
Right now many analysts have been focused on CEO Tim Sloan s efforts to strengthen the bank and address some of the issues that has plagued it in recent years Since 2016 the bank has faced one scandal after another to the point that the Federal Reserve ordered it to keep its assets under 1 95 trillion until it has demonstrated improved governance and controls
Sloan s update last quarter was just that the company s interactions with regulators had been constructive and that the bank was still planning on operating under the asset cap in the first part of 2019
As the Fed has handicapped WFC s growth management has taken steps to cut expenses and improve the efficiency of the bank On last quarter s earnings call CFO John Shrewsberry said WFC was still on track to achieve its 53 5 to 54 5 billion expense target this year Next year the bank is targeting 52 to 53 billion in total expenses and by 2020 expects to be able to reduce it even further to 50 to 51 billion
Due to the company s focus on efficiency combined with expanding digital self service options available to customers management had said it s expecting headcount reductions of 5 to 10 over the next three years both through layoffs and regular employee attrition
Wells Fargo Since Start of Q4 WFC has bounced back since the end of September and even though it s down 8 38 since the start of October has been outpacing the S P 500 SPX teal line which is down 11 23 over the same time frame Chart source thinkorswim by TD Ameritrade Not a recommendation For illustrative purposes only Past performance does not guarantee future results
Around WFC s earnings report options traders have priced in a 4 stock move in either direction according to the Market Maker Move indicator Implied volatility was at the 44th percentile as of this morning
At the Jan 18 monthly expiration the 50 strike call has been heavily traded with volume of 3 076 contracts during Friday s session and open interest of 24 398 contracts On the call side the 47 and 48 strikes have also been active For puts activity has been concentrated at the 47 strike There is also a significant amount of open interest ranging from about 52 000 contracts to 67 000 contracts at the 45 50 and 52 5 strike puts
Further out at the Feb 15 monthly expiration volume has been heavier recently on the call side with the most activity at the 50 strike call For puts there has been a smattering of activity mostly right around the money
TD Ameritrade commentary for educational purposes only Member SIPC Options involve risks and are not suitable for all investors Please read Characteristics and Risks of Standardized Options |
JPM | JPMorgan JPM Misses On Q4 Earnings Revenues Estimates | Have you been eager to see how JPMorgan NYSE JPM performed in Q4 in comparison with the market expectations Let s quickly scan through the key facts from this New York based major global bank s earnings release this morning An Earnings MissJPMorgan came out with earnings of 1 98 per share which missed the Zacks Consensus Estimate of 2 20 Improved revenues were offset by a rise in expenses How Was the Estimate Revision Trend You should note that the earnings estimate revisions for JPMorgan depicted pessimistic stance prior to the earnings release The Zacks Consensus Estimate moved 1 3 down over the past 30 days Nonetheless JPMorgan have an impressive earnings surprise history Before posting the earnings miss in Q4 the company delivered positive surprises in all prior four quarters as shown in the chart below JPMorgan Chase Co Price and EPS Surprise
Overall the company has a positive earnings surprise of 3 9 in the trailing four quarters Revenue Lower Than ExpectedJPMorgan recorded revenues of 26 1 billion which lagged the Zacks Consensus Estimate of 26 7 billion However it compared favorably with the year ago number of 24 5 billion Key Q4 Statistics Investment banking fees were flat year over yearFixed Income Markets revenue declined 16 year over yearEquity Markets revenues grew 15 year over yearProvisions for credit losses increased 18 year over yearAverage Core loans up 7 year over yearReturned nearly 8 3 billion to shareholders through dividends and share buybacksBasel III common equity Tier 1 ratio of 12 0 as of Dec 31 2018What Zacks Rank SaysThe estimate revisions that we discussed earlier have driven a Zacks Rank 3 Hold for JPMorgan However since the latest earnings performance is yet to be reflected in the estimate revisions the rank is subject to change While things apparently look unfavorable it all depends on what sense the just released report makes to the analysts You can see How the Market Reacted So FarFollowing the earnings release JPMorgan s shares were down 2 1 in the pre trading session This is in contrast to what the stock witnessed in the prior day s session Clearly the initial reaction shows that the investors have not considered the results in their favor However the full session s price movement may indicate a different picture Check back later for our full write up on this JPMorgan earnings report Looking for Stocks with Skyrocketing Upside Zacks has just released a Special Report on the booming investment opportunities of legal marijuana Ignited by new referendums and legislation this industry is expected to blast from an already robust 6 7 billion to 20 2 billion in 2021 Early investors stand to make a killing but you have to be ready to act and know just where to look |
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