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C | Exclusive Eurazeo hires banks for 2 2 billion sale of payments firm Planet sources | By Pamela Barbaglia and Arno Schuetze LONDON FRANKFURT Reuters European buyout fund Eurazeo PA EURA has hired Citigroup N C and Evercore to prepare the sale of its payments business Planet in a deal that could value the Irish firm at up to 2 billion euros 2 22 billion three sources told Reuters Eurazeo wants to launch an auction process in March as it seeks to capitalize on the rise of online shopping and mobile phone payments two sources with knowledge of the matter said Citi and Evercore won a contest in December to handle the sale which comes just days after U S private equity firm Silver Lake agreed to merge Planet s rival Global Blue with Far Point a vehicle set up by hedge fund Third Point and led by the former president of the New York Stock Exchange Eurazeo declined to comment Citi and Evercore were not available for immediate comment Planet based in Galway on Ireland s west coast serves more than 400 000 merchants and 100 partner banks and provides both tax refunds and a wide range of payments services Paris based Eurazeo took control of New York listed Planet Payment in 2017 through Fintrax Group a portfolio company which specialized in currency conversion services that enabled card holders traveling abroad to pay for goods in their own currency The combined group was rebranded Planet and has since grown its international presence employing more than 1 500 staff in 64 markets across five continents Eurazeo is looking to cash out at a multiple of 15 to 20 times Planet s core earnings of more than 100 million euros two of the sources said with the final price tag expected to be comfortably above 1 5 billion euros The sale will target Asian and Western companies as well as other investment funds one of the sources said Planet s closest competitor is Dutch payments specialist Adyen AS ADYEN which was listed in Amsterdam in 2018 by a pool of investors including General Atlantic and Temasek Adyen which processes payments for companies including Airbnb and Netflix O NFLX has a market value of 23 5 billion euros and trades at 56 times its expected core earnings Other European payments firms such as Worldline PA WLN and Nexi MI NEXII trade at roughly 18 5 times their expected core earnings according to Refinitiv data Growth in payment systems has kept deals rolling even as potential mergers in other sectors have stalled on concerns about trade tensions and a global economic slowdown Once a backwater of banking the payments sector is now lucrative and fast growing and is attracting growing interest from private equity investors
Blackstone NYSE BX and CVC are currently exploring a possible listing of Britain s Paysafe Group |
C | M A strong though Chinese buyers lacking Citigroup s Kalvaria | By Aaron Saldanha and Divya Chowdhury
Reuters Geopolitical uncertainties are not deterring Citigroup Inc NYSE C clients from strategic deals and some unicorns offer great potential but outbound Chinese buyers are lacking Leon Kalvaria chairman of the lender s institutional clients group said
Kalvaria also told the Reuters Global Markets Forum on Thursday that Citi s overall market share across advisory syndicate lending equity and debt origination rose in 2019 but attracting and retaining talent is challenging in the business
Below are excerpts from the chat held on the sidelines of the World Economic Forum s annual meeting in Davos Switzerland
Question Q Is geopolitical uncertainty keeping some corporate clients who would otherwise be looking for deals or other financing on the sidelines
Answer A I don t think geopolitical uncertainties are affecting clients who are looking to do strategic transactions However that said obviously outbound mergers and acquisitions M A from China has gone down considerably but other cross border M A remains reasonably strong
Q Many of Citigroup s competitors are going down market to look for growth since there is more competition for the biggest deals but fewer of them Why hasn t Citi followed suit
A We are not going down market because we do not believe that s the right phraseology What we are doing is spending significant time on smaller emerging growth companies which we believe over time will be winners within their sub sectors
Those companies are candidates for initial public offerings merger and acquisition M A opportunities and other potential services that we can bring to bear as they grow globally
Q How has the era of unicorns changed the way Citigroup sources new clients
A The era of unicorns relates to the earlier question about covering smaller companies The unicorn valuations help highlight companies with great potential for us to cover and are very helpful in the areas we should invest in from the people standpoint
Q In 2018 Citi s overall market share across advisory syndicate lending and equity and debt origination rose to 5 1 from 4 9 How is the effort to capture more market share progressing and what are the biggest hurdles
A We continue to increase market share in 2019 slowly and carefully The hurdles remain in retaining and attracting the best talent This is a people business and we have to ensure that we have the best
Q How will the corporate banking landscape change given recent consolidation in the capital markets industry Will fewer players in equity or debt impact the other corporate banking business lines
A Corporate banking business will remain a broad global business Obviously the big 3 American corporate banks continue to enjoy a very strong position in the marketplace and remain very strong But they face competition from leading banks in Asia and Europe
In terms of fixed income and equities some players have retreated to some extent and that has given other players the opportunity to pick up market share
This interview was conducted in the Reuters Global Markets Forum a chat room hosted on the Eikon platform Sign up here to join GMF |
JPM | Opening Bell Stocks Hit By Italy China Risk Euro Crude Slip | Italy s budget standoff with European Commission adds to broader rotation into risk off
China s central bank intervention hits Asian shares yuan
Potential US waivers on Iranian sanctions weighs on WTI
Key Events
European equities along with futures on the S P 500 Dow and NASDAQ 100 followed Asian shares lower this morning amid heightened risk off sentiment
While the Columbus Day holiday in the US has given Treasurys some respite from last week s selloff which pushed them to a 7 year low as US bond markets are closed today Italy s sovereign bonds continue to be dumped by investors after the country s nationalist government clashed with the European Commission over its budget plans sending the yield on 10 year notes to its highest levels since February 2014
The pan European STOXX Europe 600 slipped lower for a third straight day weighed down by losses in automakers and retail shares as well as re ignited fears over the possible ramifications of Italy s euroskeptic stance
During the earlier Asian session Chinese stocks underperformed The China A50 plunged 4 81 percent the SZSE Component slid 4 05 percent to the lowest level since July 2014 and the Shanghai Composite tumbled 3 72 percent These vigorous losses occurred after the People s Bank of China cut reserve requirements for banks for the fourth time this year unlocking 109 2 billion of funds to prop up the country s economy which has come increasingly under pressure from mounting trade tariff risks
The move pushed the Chinese yuan below 6 9 per dollar in the offshore market with the dollar side benefiting from an increased outlook for interest rate tightening after fresh US data showed on Friday that unemployment in the world s largest economy hit the lowest level in almost 50 years
Japan was spared the volatility Its markets were shut for Health Sports Day
Global Financial Affairs
On Friday US equities capped their worst week in a month with technology shares leading the decline pulling the NASDAQ 100 1 21 percent lower off 3 percent for the week amid persistent trade headwinds
A 7 year high for 10 year Treasury yields added to the equity exodus spurring investors to sell riskier growth assets in favor of safer and now higher yielding bond holdings
The dollar also got a boost from growing foreign demand for USD denominated Treasurys The greenback is struggling for the third day at the bottom of the rising channel it violated Since the price is now chasing the rising channel bottom it may require a new high above the 96 98 August 15 peak confirming the uptrend which would make technical traders comfortable with committing to a long position
The euro has been falling with underwhelming German industrial production figures adding to the already existing political headwinds Technically the single currency has been caught between supply and demand on the uptrend line since Thursday
South Africa s rand weakened on reports the country s Finance Minister Nhlanhla Nene intends to resign over a recent corruption scandal
In commodities markets West Texas Intermediate oil slid below 74 a barrel after Washington said it might allow some waivers on Iranian crude purchases for countries that have demonstrated efforts to reduce imports from the Middle Eastern oil producer Technically the price of WTI could still fall toward 71 without its trend s integrity being questioned
Aluminum prices eased considerably after Norwegian metals company Norsk Hydro ASA OTC NHYDY reversed a decision to close the world s largest alumina refinery the Brazilian Alunorte which had added to ongoing fears of supply scarcity
Up Ahead
The US Treasury auctions 230 billion worth of debt this week
The International Monetary Fund presents its World Economic Outlook on Tuesday
US President Donald Trump holds the latest series of rallies this week ahead of the November 6 mid term elections
US consumer prices due on Thursday are expected to have remained elevated in September climbing 2 3 percent from a year earlier
JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC kick off earnings season for US banks on Friday
Market Moves
Stocks
The STOXX Europe 600 declined 0 2 percent to the lowest level in almost four weeks
Futures on the S P 500 fell 0 2 percent to the lowest level in four weeks
The Shanghai Composite Index dropped 3 7 percent hitting the lowest level in almost three weeks
The MSCI Emerging Market Index slipped 0 8 percent
Currencies
The Dollar Index gained 0 3 percent
The euro fell 0 2 percent
South Africa s rand lost 1 1 percent to the weakest level in more than three weeks
The offshore yuan declined 0 2 percent to 6 907 per dollar reaching the weakest level in almost eight weeks
Bonds
Italy s 10 year yield climbed eight basis points to 3 504 percent the highest level in more than four years
Germany s 10 year yield slid one basis point to 0 56 percent
Spain s 10 year yield gained one basis point to 1 586 percent the highest level in almost 19 weeks
Commodities
The Bloomberg Commodity Index fell 0 4 percent
West Texas Intermediate crude slipped 0 8 percent to 73 74 a barrel the lowest level in more than a week
LME copper declined 0 1 percent to 6 164 00 per metric ton the lowest level in more than two weeks
Gold edged 0 6 percent lower to 1 196 08 an ounce |
JPM | Opening Bell U S Treasurys Futures Sell Off On Trade Risk USD Pops | Global stocks take a hit from heated US China dispute over currency devaluation persistent EU headaches
IMF cuts global growth outlook for the first time since early 2016
WTI bulls eye 77 peak
Key Events
Global stocks were mixed on Tuesday with European shares crawling higher at the open then slipping into red territory Futures on the S P 500 Dow Jones and NASDAQ 100 hovered more markedly in the red weighed down by re ignited worries of an escalation of the US China trade war Meanwhile US Treasurys resumed their selloff pushing the yield on 10 year bonds to fresh 7 year highs pressuring risk assets yet further
Miners and oil shares helped the STOXX 600 start Tuesday s session 0 11 percent higher while a rebound in Italian stocks after yesterday s sharp fall lifted the FTSE MIB 0 3 percent higher at the open However the index not only eased from an early 0 83 percent high but quickly joined the broader pan European benchmark in a relatively steep descent
Earlier during the Asian session the Shanghai Composite consolidated with a 0 17 percent gain after yesterday s 2 78 percent plunge the worst in more than three months when traders chose to focus on deepening diplomatic tensions with the US rather than on increasingly attractive stock valuations The yuan rebounded 0 11 percent after yesterday s 0 9 percent slide However the currency failed to cling to an earlier 0 3 percent gain
Senior US officials reportedly voiced concerns over China s recent currency devaluation as much as 9 percent against the dollar warning they are watching closely for further developments after the People s Bank of China set the weakest daily yuan fixing rate in 17 months on Tuesday
In Japan the strengthening yen also impacted equities with stocks of the Nikkei 225 s export reliant firms slipping 1 34 percent lower on aggregate The yen s advance then turned into a drop but it was too late to help Japanese shares gain ground
Global Financial Affairs
Yesterday s US session saw traders buy into significant early declines Except for the Dow which closed higher all major indices closed in the red for the third straight day As well it was mainly defensive shares that led the climb which is not a bullish indication
The S P 500 gave up 0 4 percent Consumer Staples 1 38 percent led gains followed closely by Real Estate 1 29 percent demonstrating that the recent selloff was prompted by fears that rising interest rates would depress property valuations and cause mortgages and loans to become unaffordable Utilities 0 84 percent came in third On the opposite side of the spectrum Technology 1 13 percent was the obvious catalyst for the benchmark s overall decline Technically the SPX found support by the August peak successfully tested with the September trough at the 2 863 level which coincides with the bottom of its rising channel since April
The technology selloff fueled by losses in software companies and semiconductor manufacturers pushed the NASDAQ 100 to its lowest level since August 1 Since these stocks are leaders during rallies momentum traders sell them first Technically the price fell below its uptrend line since April increasing the potential for a further fall to 7 500 and the uptrend line since February
The Russell 2000 dropped 0 16 percent in a mirror image of the Dow s 0 15 percent climb This seems to indicate that traders were not concerned with the heightened US China trade tensions Technically the small cap benchmark is on the verge of a reversal having registered a lower trough after falling below its uptrend line since February For now the index found support by the January and March peaks which coincided with the longer term uptrend line since the February 2016 bottom A rally that would fail to overcome the late August peak followed by a fall below the 1 600 level would establish a reversal
Meanwhile the International Monetary Fund cut its outlook for global growth for the first time since 2016 when stocks bottomed citing the impact of the US China trade dispute China s slowing growth complicates the picture not only because of the country s global weigh as the world s second largest economy but also because it can prompt policymakers to step up currency devaluation which would in turn deteriorate trade relations
Amid persistent Treasury selling which is likely to boost the dollar and scare equity investors into further selloffs traders will now focus on the 230 billion US Treasury auction taking place this week
In other news Italy s 10 year bond yield slipped after spiking on Monday
WTI oil climbed toward 75 a barrel Technically the advance follows yesterday s hammer increasing the odds for traders to push prices up past last week s near 77 peak
Iron ore futures in Dalian jumped to the highest level in almost three weeks on higher demand
Up Ahead
The US Treasury auctions 230 billion worth of debt this week
US President Donald Trump holds the latest series of rallies this week ahead of the November 6 mid term elections
US consumer prices due on Thursday are expected to have remained elevated in September climbing 2 3 percent from a year earlier
JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC kick off earnings season for US banks on Friday
Market Moves
Stocks
Futures on the S P 500 dropped 0 1 to the lowest level in more than four weeks
The UK s FTSE 100 lost 0 24 percent as of 11 06am GMT
Germany s DAX gave up 0 41 percent as of 11 06am GMT
The MSCI Asia Pacific Index retreated 0 8 percent hitting the lowest level in 15 months with its seventh consecutive decline
The MSCI Emerging Market Index fell less than 0 05 percent to the lowest level in almost 17 months
Currencies
The Dollar Index gained 0 17 percent
The euro dropped 0 1 percent to 1 1485
The British pound slid less than 0 05 percent to 1 3088
The Japanese yen eased 0 1 percent to 113 35 per dollar
Bonds
The yield on 10 year Treasuries edged two basis points higher to 3 25 percent hitting the highest level in more than seven years with its fifth straight advance
Germany s 10 year yield climbed three basis points to 0 56 percent
Britain s 10 year yield gained four basis points to 1 714 percent
The spread of Italy s 10 year bonds over Germany s slipped six basis points to 2 9813 percentage points
Commodities
West Texas Intermediate crude climbed 0 7 percent to 74 81 a barrel
Gold advanced 0 2 percent to 1 190 85 an ounce |
JPM | Opening Bell U S Yields Rise Boosting Dollar Pressuring Equities | Pick up in Treasury selloff coupled with dwindling equity gains flags up bearish paradigm
Morgan Stanley warns of shift into value sectors upcoming correction
US investors rotate into Asian stocks attractive valuations
Soaring US yields favor the dollar as the preferred safe haven currency
Key Events
While yields on US Treasurys resumed their climb this morning European shares on the STOXX 600 and futures on the S P 500 Dow and NASDAQ 100 kept falling despite a rebound in Asian equities earlier today
The yield on US 10 year bonds reversed yesterday s slide and looks set to continue edging higher as investors resume their selloff of government bonds It s important to note that yesterday s selling break coincided with an advance in European shares and with a US stock rebound off the day s lows whereas today s pick up is coupled with losses across European equities and US futures Typically when investors rotate out of bonds they buy risk assets That s a bullish paradigm Conversely the current Treasury selloff signals a bearish paradigm as it is not followed by a rising demand for risk
Morgan Stanley analysts warned that the stock market has reached a tipping point Rising yields may spur a shift in sector allocations away from growth stocks and toward value assets favoring energy utilities and financials over tech and consumer discretionary The US investment bank is forecasting a market correction as early as 2019 sooner than what the current market narrative is suggesting
There has also been a rotation into Asian shares whose very low valuations provide bargains when compared to the record price levels on US stocks Japan s Nikkei 225 and the broader TOPIX rebounded from a four day rout China s Shanghai Composite and Hong Kong s Hang Seng closed 0 18 percent and 0 08 percent higher respectively
Global Financial Affairs
Yesterday most US stocks fell though technology shares gained consolidating after a three day selloff
The S P 500 dropped 0 14 percent due to fear of rising export costs Materials shares 3 32 percent tumbled followed by stocks in the Industrials sector 1 54 percent Energy 0 89 percent outperformed tracking oil prices higher
Technically the benchmark index appears to be forming an H S top after the MACD and RSI broke down Also the RSI provided a negative divergence after it crossed below its August trough horizontal black line while the price is well above its corresponding trough
The Dow Jones Industrial Average lost 0 21 percent The NASDAQ Composite eked out a 0 03 percent gain while the Russell 2000 underperformed losing 0 47 percent Technically all US major indices provided sell signals based on MACD and RSI
The small cap index formed a trough lower than those preceding but still within the uptrend A peak lower than the August 30 1 742 09 would establish a downtrend
The dollar bounced back from its decline after US President Donald Trump said the Fed is tightening interest rates too rapidly Technically the DXY may be forming a flag bullish after the nearly 2 5 percent rise in late September early October
Interestingly the greenback is also strengthening against the yen perhaps suggesting that foreign investors now see USD denominated Treasurys as providing safer and better returns than Japan s currency This pattern may help the dollar overtake the yen as the preferred safe haven currency once again Technically the USD JPY found support by the July peak
In European FX trade the euro was unable to hold on to gains after it rallied alongside the pound on positive momentum on Brexit talks Conversely cable managed to remain in green territory after the Times reported that 30 to 40 Labour MPs would endorse a softer stance proposal to avert a no deal Brexit Officials from both sides of the Channel are meeting in Brussels today to discuss a temporary stay for the UK within the EU customs regime
Meanwhile the yuan slightly strengthened against the dollar for a second day easing controversy around China s currency devaluation policy
WTI slipped back below 75 a barrel after initially nearing that key psychological level as Hurricane Michael hampered offshore oil production and the IEA issued a warning to the global market
Up Ahead
The US Treasury auctions 230 billion worth of debt this week
US President Donald Trump holds the latest series of rallies this week ahead of the November 6 mid term elections
US consumer prices due on Thursday are expected to have remained elevated in September climbing 2 3 percent from a year earlier
JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC kick off earnings season for US banks on Friday
Market Moves
Stocks
Futures on the S P 500 dropped 0 1 percent
The Stoxx Europe 600 slipped 0 2 percent
The UK s FTSE 100 slid 0 1 percent to the lowest level in about six months
Germany s DAX fell 0 3 percent to the lowest level in more than six months
The MSCI Asia Pacific Index climbed 0 1 percent the first advance in more than a week
The MSCI Emerging Market Index gained less than 0 05 percent the first advance in a week
Currencies
The Dollar Index climbed 0 1 percent to 95 71
The euro was unchanged at 1 1491 the strongest level in a week
The British pound gained 0 1 percent to 1 3162 the strongest level in two weeks
The Japanese yen dropped 0 1 percent to 113 12 per dollar the first retreat in a week
Bonds
The yield on 10 year Treasurys gained one basis point to 3 21 percent
Germany s 10 year yield lost one basis point to 0 54 percent
Britain s 10 year yield gained less than one basis point to 1 719 percent
The spread of Italy s 10 year bonds over Germany s climbed ten basis points to 3 026 percentage points
Commodities
West Texas Intermediate crude edged 0 3 percent lower to 74 72 a barrel
Gold fell 0 1 percent to 1 188 57 an ounce |
MS | Long only Japanese investors scoop up Japan shares | By Ayai Tomisawa TOKYO Reuters Japanese retail investors bought about 1 trillion yen 9 37 billion of domestic stocks over the past six weeks as they saw bargain hunting opportunities after the recent sharp slide helping to put a rough floor under the market Buying by Japanese retail investors using cash and not margin trading reached a net 980 billion yen between the fourth week of January and the last week of February In February they were net buyers of Japanese stocks on a monthly basis for the first time since March 2017 the data showed It s long term money that s going to serve as a shock absorber when the market slides just like how pension funds buying supports the market s weakness said Norihiro Fujito a senior investment strategist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities Unlike institutional investors retail investors don t have to worry about quarterly performances so even if there is a short term downside risk they tend to buy cheap quality stocks in order to hold for two to three years After hitting a 26 year high of 24 129 34 points in mid January the Nikkei share average N225 slumped to below 21 000 points a level not seen since October hammered by Wall Street s rout stemming from rising inflation worries and fears of a global trade war Retail investors buying cushioned the blow from 2 1 trillion yen of net selling by foreign investors whose activity has a massive impact on the Japanese market due to its size for the past eight weeks Japanese shares also have been helped in the last few sessions on hopes of easing tensions over North Korea But market watchers say Japanese stocks in particular steelmakers are likely to remain under pressure after the United States imposed tariffs Trump has offered the possibility of excluding other allies on top of Canada and Mexico from the planned tariffs on steel and aluminum imports Tokyo has sought such an exemption For now the market seems relieved with Trump s decision to exempt NAFTA partners It s not like there will be a trade war immediately but there is still uncertainty said Takashi Ito equity market strategist at Nomura Securities |
MS | German utilities overhaul supports European stocks | By Danilo Masoni MILAN Reuters European shares hit their highest level in almost two weeks on Monday boosted by gains among German utilities after the sector s leading players announced a major overhaul of the industry Innogy soared 12 percent after parent RWE and rival E ON said they would break up Germany s largest energy company by market value and divide up its assets The deal would give E ON greater economies of scale in power distribution and retail and RWE in renewables making it easier for them to cope with Germany s rapid shift to cleaner energy sources RWE and E ON whose share prices collapsed over the past decade rose 7 5 and 5 percent respectively Morgan Stanley NYSE MS said the agreement could be a win win deal with larger networks and retail businesses for E ON and a long term renewables strategy and a stable dividend for RWE Shares in utilities in other countries rose on optimism for further M A in the sector The STOXX utility index rose 1 4 percent to lead sectoral gainers in Europe helping the pan European STOXX 600 index rise by 0 3 percent by 0920 GMT to its highest since Feb 28 Germany s DAX was up 0 7 percent while the UK s FTSE dipped 0 1 percent on weaker commodity stocks Among top gainers were GKN LON GKN up 1 2 percent after Melrose increased its hostile bid for the UK automotive engineer appealing to investors after the company struck a rival deal of its own last week Melrose fell 2 4 percent The autos sector index rose 0 6 percent brushing off a tweet by U S President Donald Trump in which he threatened to impose taxes on European autos imported into the U S if the EU retaliates in a row over steel tariffs The top faller on the STOXX was Just Eat down 4 3 percent following a downgrade to sell from Deutsche Bank DE DBKGn Along with 2017 results new CEO Peter Plumb announced an investment plan to expand into the delivery services business While we think this move is strategic to defend Just Eat s leadership position against increased competition it will come at the expense of profitability Deutsche Bank said Shares in Aryzta s fell 3 8 percent as the Bakery company announced another management shuffle after posting a wider first half net loss
Meanwhile basic resources stocks fell 0 7 percent tracking lower metal and crude oil prices |
MS | Dollar tops 107 yen as politics pressures Japan | By Saikat Chatterjee LONDON Reuters The dollar jumped against the yen on Tuesday nearing a two week high as the Japanese currency was pressured by a political scandal engulfing Prime Minister Shinzo Abe s govermment The yen weakened by 0 3 to 0 5 percent against other major currencies after Japan s ministry of finance said on Monday it altered documents related to a discounted sale of state owned land to a school operator with ties to Abe s wife The dollar is also benefiting from the decline in broader currency market volatility which is encouraging investors to add positions in higher yielding currencies though the greenback s gains were capped before monthly U S inflation data The broader story remains that of U S monetary policy normalization in the backdrop of an improving economy and a further decline in currency market volatility would only fuel more risk taking appetite said Commerzbank s FX strategist Thu Lan Nguyen The dollar was trading at 106 95 against the yen up 0 5 percent and just below a two week high of 107 05 The yen tends to suffer in an environment when riskier and higher yielding assets are bid but Morgan Stanley NYSE MS strategists said in a note that a further deterioration in the political situation that affected the position of Abe could see the yen forcefully return towards its previous upward trend Elsewhere though the renewed drop in currency volatility prompted investors to add bets on higher yield currencies with the Australian dollar recovering smartly from three month lows while the euro gaining nearly 2 percent in the last 10 trading sessions The euro EUR EBS was broadly flat around 1 2329 against the dollar on the day A key focus for investors is the U S CPI data due at 1230 GMT Median forecasts by economists polled by Reuters point to annual core CPI inflation of 1 8 percent in February which would be flat from January A higher reading could stoke expectations that the Federal Reserve will likely raise interest rates four times rather than three times this year A rate hike at its upcoming policy meeting on March 20 21 has been long considered a done deal while another increase in June is almost fully priced in Yet traders are also mindful that the prospects of more U S rate hikes while theoretically positive for the dollar may not necessarily lift the U S currency given other factors weighing on the greenback One big issue is U S President Donald Trump s tariff on steel and aluminium which many investors worry could trigger retaliatory moves by U S trade partners and hurt the economy |
MS | World stocks inch higher as investors await U S inflation data | By Ritvik Carvalho LONDON Reuters World shares inched higher on Tuesday eking out limited gains as investors kept a wary eye on a U S inflation reading later in the day that could offer clues on the pace of Federal Reserve interest rate hikes this year The MSCI All Country World index of stocks which tracks shares in 47 countries was up less than 0 1 percent MIWD00000PUS The index has recovered about half its losses during a violent shakeout in stocks in February The selloff came on the back of strong U S wage numbers which investors feared might feed into inflation and push the U S central bank towards a faster pace of monetary tightening Graphic Attempting recovery U S consumer price index CPI data is due at 1230 GMT Today s CPI inflation data is likely to add further color to the US inflation picture however it probably won t add any further clarity to the overall inflation outlook puzzle given that the Fed doesn t use CPI as its inflation benchmark said Michael Hewson chief markets analyst at CMC Markets in London Nonetheless it is still a useful gauge in establishing when and how the price pressures we ve been seeing build up in US supply chains start to filter down into the wider economy While the consumer price index is a popular barometer of economic health it is not the primary gauge the Fed uses to determine whether it is meeting its mandate of price stability Instead the Fed uses the personal consumption expenditure PCE index European shares opened positive with the pan European STOXX 600 STOXX gaining 0 1 percent Italian and Spanish stocks rose 0 3 to 0 4 percent while Britain s FTSE FTSE was a laggard down 0 1 percent Earlier in Asia MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS was up 0 2 percent after spending much of the day swerving in and out of negative territory The index surged 1 5 percent on Monday following firm U S jobs numbers on Friday while low wage growth eased concerns about inflation and faster central bank rate hikes But a mixed performance by U S shares overnight tempered the rally The S P 500 SPX and the Dow DJI slipped on Monday as the U S tariffs signed into law last week weighed on industrials while a rise in tech stocks boosted the Nasdaq IXIC to a new record high POLITICS PRESSURES YEN BOOSTS SLOVAK BOND YIELDS In currencies the Japanese yen fell over half a percent to a two week low against the dollar pressured by a political scandal engulfing Japanese Prime Minister Shinzo Abe s government It also lost ground to the euro The yen tends to suffer in an environment when riskier and higher yielding assets are bid but Morgan Stanley NYSE MS strategists said in a note that a further deterioration in the political situation that affected the position of Abe could see the yen forcefully return towards its previous upward trend The dollar index DXY which measures the greenback against a basket of currencies was up 0 2 percent The broader story remains that of U S monetary policy normalization in the backdrop of an improving economy and a further decline in currency market volatility would only fuel more risk taking appetite said Commerzbank s FX strategist Thu Lan Nguyen Slovakia s 10 year bond yield rose as much as five basis points and the cost of insuring exposure to its debt hit the highest in almost three months as the country s government inched towards collapse Slovak Prime Minister Robert Fico s government moved closer to collapse on Monday after his junior coalition partner called for early elections amid a political crisis sparked by the killing of a journalist The benchmark 10 year U S Treasury note yield US10YT RR stood little changed at 2 879 percent In commodities crude oil prices staged a recovery after sliding on concerns over rising U S output U S crude futures CLc1 were up 0 2 percent to 61 51 per barrel Brent LCOc1 also rose 0 2 percent to 65 08 per barrel Spot gold fell 0 2 percent to 1 318 per ounce |
JPM | Trump to Meet China s Liu in a Sign Trade Talks Are Reaching Final Stages | Bloomberg U S President Donald Trump will meet Chinese Vice Premier Liu He at the White House on Thursday as negotiations over a trade deal between the world s biggest economies enter what could be the final stages
Talks are continuing in Washington where Liu held meetings with U S Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Wednesday The goal over the next few days is to strike an agreement on the core issues so Trump and Chinese leader Xi Jinping can hold a ceremony to sign a deal
Drafts of an agreement to end a nearly year long trade war would give Beijing until 2025 to meet commitments on commodity purchases and allow American companies to wholly own enterprises in the Asian nation according to three people familiar with the talks
Both sides do want an agreement but they want to make sure it s the right deal for their respective domestic audience said Tai Hui Asia Pacific chief market strategist at JPMorgan NYSE JPM Asset Management in Hong Kong
Stocks in Asia were mixed in early Thursday trading after American equities edged up to a six month high as investors look for signs of progress The offshore yuan held at 6 7173 per dollar
As the talks resumed on Wednesday morning Trump s top economic adviser touted progress but cautioned that a final deal to end the trade war remained elusive Negotiators are making good headway White House economic adviser Larry Kudlow told reporters at an event in Washington But we re not there and we hope this week to get closer he said
U S and Chinese officials are still discussing when the two leaders could sit down to sign off on their trade deal A meeting date between Trump and Xi could be announced as early as Thursday people familiar with the plans said After Xi s team initially floated a formal state visit to Washington as an option China has pushed back against a meeting on U S soil and wants to instead meet in a neutral third country the people briefed on the plans said
While White House officials have expressed cautious optimism in recent days about securing a deal in the near future a U S decision to tentatively sell fighter jets to Taiwan may affect the outcome of this week s talks as well as any Trump Xi summit one of the people said Given the geopolitical sensitivities of such a sale that issue would likely be raised only when the two leaders meet and is unlikely to be part of the trade negotiations led by Lighthizer
Under the proposed agreement China would commit by 2025 to buy more U S commodities including soybeans and energy products and allow 100 percent foreign ownership for American companies operating in China as a binding pledge that can trigger retaliation if left unfulfilled according to the people who asked not to be identified because the talks are private
Other non binding promises China has offered to implement by 2029 wouldn t be tied to potential U S retaliation they said without elaborating
The limited time frame raises questions about how much a deal would reshape the longer term economic relationship rather than simply serve as a political win for Trump that would last through a potential second term as the 2020 election campaign kicks off While some progress is being made resolving more contentious issues such as the forced transfer of technology is taking longer
2020 Election
China s Commerce Ministry didn t immediately reply to faxed questions The White House referred questions to USTR which didn t immediately reply to a request for comment
The White House is particularly focused on Chinese purchases of American goods through the second quarter of 2020 in an effort to narrow the trade balance ahead of Trump s re election bid For that reason the U S is pushing for China to front load a big chunk of the commodities purchases in the first two years the agreement is in place people familiar with the situation said
The merchandise trade deficit with China hit a record 419 2 billion in 2018
The two sides are still haggling over how to enforce the deal which Lighthizer has said is the fundamental issue in the talks In congressional testimony in February Trump s top trade negotiator said the U S wants the right to take unilateral proportional action against China if it fails to abide by the rules A person familiar with the text said China so far agreed only to consider avoiding retaliation if the U S took action against Beijing but stopped short of a formal pledge to refrain from counter punching
One of the final issues is what will happen to the tariffs the two sides have imposed on about 360 billion of each other s goods in the past nine months Trump has suggested that at least some of the tariffs will stay in place saying they are necessary for a substantial period of time to ensure Beijing keeps up its end of the bargain
The text will also include benchmarks likely set at 90 days and 180 days after signing by which China is asked to fulfill key pledges two of the people said without giving further details
Updates with markets in fifth paragraph |
JPM | Dimon Sees Recent Volatility as Harbinger of Things to Come | Bloomberg Jamie Dimon warned investors to get ready for more wild rides like the one that upended markets at the end of last year
The fourth quarter of 2018 might be a harbinger of things to come the chief executive officer of JPMorgan Chase Co NYSE JPM said Thursday in his 51 page annual letter to shareholders Dimon cited a raft of issues driving the more pessimistic outlook including uncertainty about the Federal Reserve s interest rate shifts Germany s economic slowdown Brexit and the U S China trade spat
Investors face a new normal of liquidity constraints because of tighter regulations on banks and other market makers Dimon said adding that there are growing geopolitical tensions with less certainty around American global leadership
Dimon s more cautious tone is a shift from the full throated optimism he s conveyed in the past few years and even from his last letter in 2018 when the bank forecast billions in profits tied to rising interest rates and the U S tax overhaul Investors closely parse Dimon s letters for insights even as the CEO s frequent public appearances mean his opinions are well known
The annual missives have more than tripled in length since Dimon 63 took over as CEO at the end of 2005 as he s dedicated more space to public policy That s helped fuel speculation the banker plans to run for president a suggestion he s quick to shut down
Recession Outlook
At JPMorgan s investor day in February the chief of the largest U S bank acknowledged a growing number of potential obstacles to the economy that carried his firm to record profits last year He said the bank is prepared for a recession but not predicting one and repeated that assessment in Thursday s letter
Dimon has often lamented the sluggish nature of the U S economic recovery saying poor policy decisions are in part to blame for slow cumulative growth U S growth cooled by more than initially reported in the fourth quarter on revisions to consumer and government spending signaling mounting challenges to the expansion as it nears a record duration
Daniel Pinto JPMorgan s co president and head of its investment bank said in his own letter Thursday that recent volatility could be pinned on investors speculating that a downturn was coming sooner than previously expected Flash crashes are becoming more frequent Pinto said These are a function of a number of factors including thinner liquidity across asset classes fewer participants in the market and a growing percentage of automated trading volumes
Dimon also called out other CEOs challenging them to get more involved in social and public policy He said JPMorgan is bolstering its teams that deal with such issues
In the past boards and advisers to boards advised company CEOs to keep their head down and stay out of the line of fire Dimon said Now the opposite may be true If companies and CEOs do not get involved in public policy issues making progress on all these problems may be more difficult
Other Highlights
JPMorgan expects to have 6 500 wealth advisers in place by the end of 2019 Dimon said hiring more bankers can boost the company s market share in investment banking
Dimon said he wouldn t look at the yield curve s inversion as sending the same signals as in the past because of central banks interference
The CEO said Brazil has turned the corner economically and is an example of a bright spot in the world that shouldn t be eclipsed by the growing list of geopolitical risks
Dimon whose company is the nation s biggest bank by assets strongly defended capitalism warning that socialism would be a disaster for our country because it tends to produce stagnation corruption and authoritarian officials
Cybersecurity may be biggest threat to U S financial system Dimon said echoing earlier statements
JPMorgan is restructuring its applications to take full advantage of cloud computing a technology whose potential Dimon said he didn t initially grasp
Updates with comment from Pinto in eighth paragraph |
JPM | Trump s tax cuts added 3 7 billion to JPMorgan s profits | JPMorgan NYSE JPM CEO Jamie Dimon praised President Donald Trump s tax cuts in an annual investor letter The law gave a boost to earnings to the tune of 3 7 billion And the bank posted record earnings even without the impact of tax reform JPMorgan also said it bought back 55 billion in stock in 2018 JPMorgan CEO Jamie Dimon hailed President Donald Trump s tax cuts in the bank s on Thursday saying the law gave a boost to earnings to the tune of 3 7 billion The letter outlined the bank s record earnings performance even without the impact of tax reform JPMorgan made a record profit in 2018 posting net income of 32 5 billion and an astonishing 111 5 billion in sales reflecting strong underlying performance across our businesses Dimon added All things being equal which they are not the new lower tax rates added 3 7 billion to net income The new tax code establishes a business tax rate that will make the United States competitive around the world and frees US companies to bring back profits earned overseas Dimon wrote in the letter The cumulative effect of capital retained and reinvested over many years in the United States will help cultivate strong businesses and ultimately create jobs and increase wages The bank s fourth quarter was part of an for the industry mostly because the on deferred tax assets that declined in value Dimon praised Trump s cuts back in January as well The enactment of tax reform in the fourth quarter is a significant positive outcome for the country Dimon said at the time 55 billion in share buybacks In the last five years JPMorgan says it bought back 55 billion in stock or about 660 million shares accounting for about 20 of the company s common shares outstanding Share buybacks as critics including US presidential candidate Bernie Sanders accuse companies of exploiting their tax windfalls to benefit shareholders instead of employees Dimon acknowledged the criticism of buybacks which he called a no brainer Corporate capital expenditures and R D spend are also rising he said while the benefit of tax reform is the long term multi year cumulative effect of capital retained and reinvested Investment in technology salaries The gains from the law will be short lived Dimon said For the long term we expect that some or eventually most of that increase will be erased as companies compete for customers on products capabilities and prices he said However we did take this opportunity in the short term to massively increase our investments in technology new branches and bankers salaries philanthropy and lending |
JPM | JPMorgan s Dimon urges infrastructure mortgage reform to spur U S growth | By Elizabeth Dilts Reuters JPMorgan Chase Co NYSE JPM chief executive Jamie Dimon on Thursday called for reforms to U S public policy on education infrastructure and mortgages to repair what he called the fraying American dream Governments must be better and more effective we cannot succeed without their help Dimon wrote in his 50 page annual letter https a third of which was devoted to his argument The rest of us could do a better job too As head of the largest U S bank Dimon has frequently used the letter to promote his views on public policy and corporate responsibility On Thursday he highlighted 11 problems he said are impeding U S growth and opportunities U S schools are failing to prepare students for professional level jobs he said and suggested that more high schools and community colleges provide training programs and internships for specific jobs JPMorgan is retraining some staff in its own workforce as it prepares for jobs to be eliminated by advancements in machine learning and artificial intelligence Dimon said Dimon also called on the U S government to finish implementing the Fixing America s Surface Transportation Act which was passed in 2015 and is meant to provide 305 billion to improve America s highways through 2020 Bad mortgage rules are also hindering U S economic growth Dimon said He called for on policymakers to reduce onerous and unnecessary origination and servicing requirements and to open up the securitization markets for safe loans JPMorgan is reviewing its role in originating servicing and holding mortgages given the current lack of reforms he said Last year Dimon praised U S President Donald Trump for the 2017 tax reform law which lowered the business tax rate JPMorgan invested in technology and new branches and raised employee salaries in 2018 because the reforms boosted its net income by 3 7 billion Dimon wrote However Dimon said reform is still needed to address inequities in taxes on individuals and suggested the government expand the earned income tax credit to help the lowest earners JPMorgan said it expects its first quarter net interest income will likely be flat compared with the prior quarter and adjusted expense to be up by mid single digit percentage compared with the year ago quarter
The bank reports its first quarter results on April 12 |
JPM | Knowles hires JPMorgan for activist defense source | By Shariq Khan and Shivani Singh Reuters Audio components maker Knowles Corp has hired JPMorgan NYSE JPM investment bankers to advise it on its defense against demands by shareholders Caligan Partners LP and Falcon Edge Capital LP to seek a review of its Precision Devices unit according to a source familiar with discussions between the parties The source also said the two funds which together hold more than 6 7 percent of Knowles and are seeking to nominate two new members to its board are still prepared to work cooperatively with the company on solutions Shares in Knowles have risen about 3 percent since Caligan and Falcon went public with their demands at the end of last week after settlement talks between the shareholders and the company stalled JPMorgan s involvement in the conflict was first reported earlier on Thursday by Dealreporter The source said the funds were unwilling to agree to demands by Knowles that the funds enter a two year stand still agreement in return for a single board seat After an overwhelming vote in favor of de staggering the company s board at its last annual meeting six of Knowles board members will be up for re election at a 2020 shareholders meeting A two year standstill agreement would require the activists to vote in favor of all board proposals till 2021 While Caligan and Falcon were open to settling for one seat instead of two the stand still demand described as off market in the funds letter dated March 29 was a dealbreaker the source said Caligan and Falcon Edge also posted a presentation https on Wednesday demanding the company release detailed financials for its struggling Intelligent Audio segment The funds said they believe Knowles stock could reach at least 28 per share in value by the end of the year if the company listened to their feedback JPMorgan Caligan Partners Falcon Edge and Knowles Corp declined to comment
This story corrects headline to remove reference to legal counsel |
JPM | Deutsche Commerzbank favor merger over holding company structure sources | By Arno Schuetze FRANKFURT Reuters Deutsche Bank DE DBKGn and Commerzbank DE CBKG favor a straightforward merger over more complex ways to structure a deal three people close to the matter said In their base case scenario a transaction would be organized as a share offer from Deutsche Bank for Commerzbank they said That structure is preferred to the creation of a new holding company which is viewed as too difficult to execute The holding structure is dead one of the people said referring to setting up a holding company that would buy Deutsche and Commerzbank in return for shares of the new bank Sources said last year that Deutsche Bank was examining creating a holding company structure amid speculation at the time that it could merge with Commerzbank Last month the two banks confirmed they were in talks about a merger A preliminary decision on whether they want to go forward is expected within days The people cautioned that no decision has yet been taken on a potential deal structure and there is still no certainty that a deal will be struck at all Deutsche Bank and Commerzbank declined to comment Regulators in the United States Britain and Switzerland tend to favor the bank holding company structure in part because it can help with the winding down of a troubled bank There has been a push since the financial crash to make banks easier to break up lowering the risk that the problems of a troubled investment bank for instance could affect ordinary savers About 90 percent of U S banks including Citigroup NYSE C and JPMorgan Chase NYSE JPM operate as holding companies according to the U S Federal Reserve But converting to a holding company structure can be costly In Deutsche and Commerzbank s case defining the relative value of the two banks for a holding structure would be more complicated than simply negotiating a price for a simple takeover the sources said As part of a deal Deutsche Bank will be asked by the European Central Bank to raise fresh funds to plug capital holes resulting from asset revaluations and expected restructuring costs a person with direct knowledge of the matter said earlier this week Issues around regulatory capital and how to make use of the fact that Commerzbank trades well below book level which can be used to boost such capital are a talking point between the two banks Other issues focus on synergies job cuts as well as legal and tax issues people familiar with the matter have said |
JPM | Dean Sinks the Most Among Food Bonds | Bloomberg Investors are betting there s no easy fix for Dean Foods Co with the top U S dairy company s bonds sinking deeper into distressed territory amid a long term decline in American milk demand
The bonds have handed investors a 21 percent loss since late February when the Dallas based company reported a wider than expected quarterly loss and said it s looking at alternatives that may include a sale That s by far the worst performance among 61 food and beverage issuers tracked by Bloomberg globally On average the group gained 0 9 percent The company s shares have done even worse in the same span plunging 46 percent
What Bloomberg Intelligence Says
There s a secular movement away from fluid milk and toward plant based alternatives and the crushing debt load has weighed heavily on Dean They haven t done a good job diversifying away from that category
Kenneth Shea BI food beverage analyst in an interview
The company didn t provide a comment when asked about the selloff
Dean hired Evercore Group LLC to undertake the strategic review which has no set timetable including consideration of standalone initiatives selling assets or forming a joint venture JPMorgan Chase Co NYSE JPM has said it would be unlikely to find a buyer
The company had already begun consolidating manufacturing and distribution but has struggled with its turnaround plans Chief Executive Officer Ralph Scozzafava said in November Per capita Americans are drinking 40 percent less milk than they did in 1975
Dean is the worst performing stock among North America packaged food producers tracked by Bloomberg in the past year losing 72 percent The stock began trading below its book value in November while the peer group fetches an average of 3 1 times book
The company s notes due 2023 hit a record low 59 25 cents on the dollar this week pushing up the yield to 23 percent That puts it among the 100 most distressed dollar issuers tracked by Bloomberg
Dean has also faced growing competition from retailers offering private label products with some even selling milk at a loss to lure consumers to their stores Shea said If you have a branded product how do you compete against that |
MS | Athene s IPO Hit Markets Friday Priced As Expected With Promising Return | If you ve been keeping an eye on the retirement company and fixed annuity service provider Athene Holding Ltd NYSE ATH you ll presumably know that its initial public offering went quite well A total of 27 million class A shares from the retirement services company raised 1 1 billion in a year marked by slow and unremarkable IPOs
Athene became available for the first time on the New York Stock Exchange this Friday under the ticker symbol ATH The offering was at the of 38 and 42 per share according to Reuters
Athene reported selling the shares at 40 each they opened at 43 56 on the market and reached a high of 44 62 a promising result for potential investors looking to dip their toes into Athene
It was the year s largest IPO of a financial company It was also the of 2016 according to the Wall Street Journal Business Insider said US Foods Holding Corp NYSE USFD collected 1 2 billion making it the second largest while ZTO Express Cayman Inc NYSE ZTO raised 1 4 billion for the largest IPO of the year
Athene currently has 186 million shares outstanding and is valued at an estimated 7 5 billion according to Business Insider
According to Reuters Athene is backed by Apollo Global Management LLC a private equity firm founded in 1990 which retains a 45 percent voting control over Athene Apollo helps manage Athene and founded the company
Athene was formed in 2009 after the recession to purchase assets from insurers in need of funds The company is now valued at 7 55 billion
The company will get none of the proceeds from the IPO all the shares are being sold by particular shareholders which means the IPO itself has offered no immediate cash up for Athene to use
However the timing of the IPO release may allow Athene to catch the tail end of the post Trump election market rally which means investors looking to jump in need to do it quick or decide to wait for another drop Early investors already earned returns according to Financial Times
On the other hand the pension provider is planning on major expansions following its wildly successful IPO which means a drop may not be anywhere in sight for Athene s market price
Chief executive James Belardi said the company has 2 5 billion of capital available for expansion projects according to Financial Times which means it s well positioned to take off rapidly The company is now considering expanding its product line to include products such as privacy guide for risk transfer deals And compared to fellow life insurance companies Athene may be a good bet performing better than the S P 500 life and health insurance index according to Financial Times
Athene has a history of good performance since at least 2012 according to The Motley Fool The company has used strategic acquisitions to expand into international markets including the UK and Germany but still has much room to expand and grow and time for investors to jump on board
In total 22 companies advised on the opening The offering was underwritten by Goldman Sachs Co Barclays LON BARC Citigroup NYSE C and Wells Fargo NYSE WFC Securities In addition BofA Merrill Lynch BMO Capital Markets Credit Suisse SIX CSGN Deutsche Bank DE DBKGn Securities J P Morgan Morgan Stanley NYSE MS RBC Capital Markets BNP PARIBAS BTIG Evercore ISI SunTrust Robinson Humphrey and UBS Investment Bank are serving as bookrunners In addition to the underwriters and bookrunners Dowling Partners Securities LLC Keefe Bruyette Woods A Stifel Company Lazard Rothschild Sandler O Neill Partners L P and The Williams Capital Group L P are serving as co managers on the offering according to Street Insider |
C | Exclusive Temasek Trustbridge target majority stake in WeWork China at 1 billion valuation sources | By Yingzhi Yang and Julie Zhu BEIJING HONG KONG Reuters Temasek Holdings and Trustbridge Partners have held talks with WeWork China over increasing their stake in the China branch of the troubled co working startup to take majority ownership three people familiar with the matter told Reuters The plan values WeWork China at around 1 billion two of the people said The proposal was submitted to WeWork s major stakeholder Japanese technology conglomerate SoftBank Group Corp at the end of last year said one of the people who asked not to be identified as the discussions are private Singapore state investor Temasek and Shanghai based private equity firm Trustbridge want to buy more shares to give them a combined majority stake in WeWork China according to the people WeWork currently owns 59 of WeWork China with the remainder held by other investors including SoftBank Hony Capital and Trustbridge according to the group s prospectus for its initial public offering The Chinese unit had raised 500 million in July 2018 from investors including Temasek Trustbridge SoftBank and Chinese fund Hony Capital in a deal valuing the firm at about 5 billion That was the second round with the firm having previously raised 500 million in 2017 A new deal giving Temasek and Trustbridge a majority stake would likely mean that WeWork China would go through a down round a fall in valuation following a new investment if the proposal got passed but could significantly ease the financial burden on WeWork and SoftBank They added that the discussions were at an early stage and a deal was not certain SoftBank Temasek and WeWork declined to comment Trustbridge did not immediately respond to a request for comment The larger WeWork group is undergoing a broad restructuring after it was thrown a 9 5 billion lifeline by SoftBank following a failed public offering and the ouster of founder Adam Neumann However SoftBank s plan to secure 3 billion from Japan s three biggest banks have stalled likely complicating its rescue package for WeWork Reuters has reported WeWork China has set out ambitious revenue goals for 2020 Reuters reported last month even though it faces staff cutbacks and weak occupancy numbers at its properties across China In 2018 WeWork China generated 99 5 million in revenue according to WeWork s IPO prospectus WeWork s woes have had a ripple effect across the sector impacting the likes of UCommune WeWork China s rival which is trying to launch an initial public offering Citigroup Inc NYSE C and Credit Suisse SIX CSGN Group AG walked away from underwriting UCommune s IPO because they decided they could not deliver the offering at a previously discussed valuation
UCommune has now tapped little known U S investment bank Benchmark Company LLC to launch its listing Reuters reported earlier this month |
C | U N s decarbonisation target for shipping to cost over 1 trillion study | By Jonathan Saul
LONDON Reuters At least 1 trillion of investment in new fuel technology is needed to enable the shipping industry to meet U N targets for cuts in carbon emissions by 2050 a study published on Monday showed
The global shipping fleet which accounts for 2 2 of the world s CO2 emissions is under pressure to reduce those emissions and other pollution About 90 of world trade is transported by sea
U N shipping agency the International Maritime Organization IMO aims to reduce the industry s greenhouse gas emissions by 50 from 2008 levels by 2050 a target that will require the swift development of zero or low emission fuels and new ship designs using cleaner technology
In the first study into costs researchers estimated that the cumulative investment needed between 2030 and 2050 would be between 1 trillion to 1 4 trillion or an average of 50 billion to 70 billion annually for 20 years
If the shipping industry was to fully decarbonise by 2050 this would require further investment of some 400 billion over 20 years bringing the total to 1 4 trillion to 1 9 trillion
Our analysis suggests we will see a disruptive and rapid change to align to a new zero carbon system with fossil fuel aligned assets becoming obsolete or needing significant modification said Tristan Smith reader at University College London s UCL Energy Institute which was involved in the study
Apart from more than a decade of tough market conditions the shipping industry is also contending with the exit of many European banks from providing finance leaving a capital shortfall of tens of billions of dollars annually
Around 87 of investments needed would be in land based infrastructure and production facilities for low carbon fuels the study said This includes investments in the production of low carbon fuels as well as the land based storage and bunkering infrastructure needed for their supply
The remaining 13 of investments are related to the ships themselves including the machinery and onboard storage required for a ship to run on low carbon fuel
Sustainable investing is here to stay said Michael Parker chairman of Global Shipping Logistics Offshore at Citigroup NYSE C
The estimates were based on ammonia being the primary zero carbon fuel choice
The study was carried out by UMAS which includes UCL and the Energy Transitions Commission a panel of global experts It was conducted on behalf of the non profit Getting to Zero Coalition which includes the Global Maritime Forum and World Economic Forum which is meeting in Davos this week |
C | Citibank to pay 18 million penalty for failing to insure flood prone properties | WASHINGTON Reuters A U S banking regulator fined Citibank N A N C 18 million for delays in purchasing mandatory flood insurance for properties where borrowers were located in flood prone areas
The Office of the Comptroller of the Currency said Tuesday that insufficient policies meant the bank took too long to acquire necessary insurance on behalf of borrowers located in flood hazard areas In a statement a bank spokesman said Citi was happy to resolve the matter which had no impact on its borrowers or investors |
JPM | Despite Selloff Bank Stocks Hold Their Own | Many of the large U S bank stocks are holding up despite Wednesday s early morning sell off Financial giant JPMorgan Chase NYSE JPM traded lower by just 0 05 cents on Wednesday and has been consolidating on its daily and weekly charts Remember that when a stock consolidates or forms a sideways base it s looking to move higher in the near future
I Like JPM
JPM is on my radar for a potential long side trade and while the consolidation pattern may not be complete the potential upside is north of 120 Other bank stocks that have similar patterns include Wells Fargo NYSE WFC and Citigroup NYSE C
Bottom Line JPM looks the best to me |
JPM | 10 Year Note Yields Rise To Multiyear Highs | Index Futures Net Changes and Settlements
Foreign Markets Fair Value and Volume
In Asia 8 out of 11 markets closed lower Shanghai Comp 1 06 Hang Seng 1 73 Nikkei 0 56
In Europe 12 out of 13 markets are trading lower CAC 0 89 DAX 0 16 FTSE 0 87
Fair Value S P 4 46 NASDAQ 25 99 Dow 15 23
Total Volume 1 24mil ESZ 126 SPZ traded in the pit
Today s Economic Calendar
Today s economic calendar includes Weekly Bill Settlement Challenger Job Cut Report 7 30 AM ET Randal Quarles Speaks 8 15 AM ET Jobless Claims 8 30 AM ET Factory Orders 10 00 AM ET EIA Natural Gas Report 10 30 AM ET Treasury STRIPS 3 00 PM ET Fed Balance Sheet and Money Supply 4 30 PM ET
S P 500 Futures ES Rallies Then Dumps As 10 Year Note Yield Hits 3 146
After a weak close on Monday and a push down to 2924 00 the S P 500 futures looked tired but by 7 43 AM CT Tuesday morning the futures shot up to 2940 00 On the 8 30 bell the ES traded 2939 50 initially then popped up to 2941 00 before pulling back to 2936 75 Just after the pullback I put this out in the MTS forum
Dboy 10 00 34 AM I get the feeling the ES is not going to pullback much Dboy 10 00 55 AM looks like NQ is trying to hold
A few minutes later the ES made a new high at 2942 25 and then ran up to 2944 75 After that the futures sold off down to 2935 75 when this headline hit the tape
10 08 26 AM Sen Sanders wants to break up JPMorgan NYSE JPM Berkshire Hathaway NYSE BRKa and other large financials
From there the ES traded back up to the open before making a lower high but then on the higher lower Riley Retest the ES bounced from 2936 00 back and filled for the next three hours then double topped at 2942 00 Just after 1 30 the futures got hit by a sell program that forced a drop down to 2928 25 at 1 56 CT
After rallying back up to 2932 75 the ES again dropped down to retest the lows at 2925 50 and then bounced up to 2931 50 going into the close printing 2930 50 at 3 00 and settling the day at 2931 50 up 3 00 handles or 0 10
In the end it s all about the failed rallies If it s not the China trade wars it s the emerging markets If it s not the emerging markets it s the midterm elections If it s not the elections its higher rates and higher yields Things seem to be piling up against the bulls but does that mean the highs are in I don t think so but I do think it s time to be more careful about the upside
Disclaimer Trading Futures Options on Futures and retail off exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors You should carefully consider whether trading is suitable for you in light of your circumstances knowledge and financial resources Any decision to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person s authorizing such transaction s BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE S AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
Original post |
MS | Uber shakes up loan market | Looking to raise 1 25B in the leveraged loan market Uber is eschewing banking advisors and instead making direct approaches to investors Industry vets can t remember the last time an issuer sought to raise that large of an amount on its own Uber last went to the leveraged loan market in 2016 raising 1 15B but relied on Morgan Stanley NYSE MS to arrange Is credit just flowing too freely at the moment or are banks about to face another secular revenue threat ETFs XLF FAS FAZ VFH UYG FNCL IYF BTO IYG RYF FXO SEF FINU RWW FINZ JHMF FAZZ FNCFNow read |
MS | Corporate Tax Cut Riches Going to Shareholders Not Workers | Investing com The bulk of Corporate America s savings from the Trump tax cut package is going to shareholders not workers S P 500 companies have allocated about 5 6 billion to bonuses and wage increases since the tax cuts became law Meanwhile 183 billion has been spent on share buybacks The White House says 3 5 million workers have benefited from bonuses and pay hikes so far but that s less than 3 of the total workforce A recent survey by Morgan Stanley NYSE MS showed just 13 of the money saved from taxes will be spent on pay raises bonuses and employee benefits 43 will go toward stock buybacks and dividend increases Analysts say the corporate tax cut is not responsibl e for all of the pay increases and improved benefits Some companies are responding to the tight labor market in an effort to retain workers |
MS | Morgan Stanley initiates Oclaro shares 2 1 | Morgan Stanley NYSE MS initiates Oclaro NASDAQ OCLR at Equal Weight with an 8 price target a 0 25 upside to yesterday s close Analyst Meta Marshall says the company needs to grow its share to match valuation especially as past drivers subside Oclaro shares are down 2 1 premarket to 7 59 Now read |
JPM | Retailers and Builders Likely to Benefit Most From Australia Budget | Bloomberg Australia s pre election budget is unlikely to have an immediate impact on equities although retailers may benefit from planned tax refunds and infrastructure focused companies might find support from a long term spending program
With an election scheduled for next month Australia s budget has forecast a return to surplus while also increasing tax relief to more than 10 million low and middle income earners The payments will come as rebates of tax paid and may trigger an increase in retail spending of as much as 1 5 percent in the September quarter according to Citi analysts led by Craig Woolford
The benchmark S P ASX 200 Index is set to rise 0 6 percent in early trading having already risen the past six sessions carrying on from producing its strongest first quarter performance since at least 1992 Still the gains place Australia 31st in a global ranking of indexes
We could see a little bit of a reaction from retail stocks and consumer facing stocks CommSec Market Analyst Steven Daghlian told Sky News Australia this morning Infrastructure spending could also help some of those construction and building companies as well moving forward
The government plans to spend A 2 1 billion 1 5 billion on infrastructure in fiscal year 2020 as part of a plan to outlay A 100 billion over the next 10 years to ease congestion in the major cities and improve access to regional Australia Still there are concerns that these plans won t have as much of an impact on the economy
While we ve penciled in a 6 rise in public investment this year today s budget suggests that public capital spending will be less supportive next year Marcel Thieliant Australia New Zealand senior economist at Capital Economics writes in April 2 note
If the opposition Labor Party which is leading in the polls are successful at the election later this year there may be some small changes to the budget although they are unlikely to influence publicly traded companies
At the margin there may be some small additional stimulus relative to the current outlook as an ALP Government may refocus some of the later tax cuts on low and middle income earners which tend to have a higher marginal propensity to consume ANZ Bank Senior Economist Cherelle Murphy writes in April 2 note
Winners
Consumer discretionary staples including Super Retail JB Hi Fi Bapcor Crown Tabcorp Harvey Norman Domino s Pizza Premier Investments Star Entertainment Aristocrat Leisure Treasury Wine Estates
Tax offset to provide A 7 3b boost to households with most spending likely in the Sept qtr May boost spending 1 1 5 in the period Citi
Coles Super Retail Accent Group rated buy at Citi amid a broad re rating of retail sector the past month
Infrastructure firms including Adelaide Brighton Cimic CSR Lendlease
Govt pledged A 2 1b for infrastructure in FY20 although net capital spending has been lowered to A 4 7b from A 5 8b Capital Economics
Early learning centers including G8 Education and Think Childcare
350k children to get access to 15 hrs of early learning a week in year before school
Health care companies including Healius and Sonic Healthcare
Primary health care funding increased A 1 1b Imaging spending lifted A 309m
Healius a clear beneficiary with A 5m lift in profits in FY20 amid increase in practice incentive payments and indexation for medicare items JPMorgan NYSE JPM analyst David Low writes in April 2 note
Losers
Financial service providers including Commonwealth Bank ANZ Bank National Australia Bank Westpac and AMP
ASIC to get A 400m funding boost to increase supervision and pursue more court action APRA to also get extra A 152m to target governance remuneration
Adds detail on healthcare stocks in winners section |
JPM | Brexit May Bring New Threat for Germany s Beleaguered Banks | Bloomberg Germany s beleaguered investment bankers could face even more competition when rivals move staff to the country after Brexit
While relocations from the U K will initially have little effect that may change if banks then use their newly established presence in Germany to expand in the local market for investment banking services Joachim Wuermeling the head of banking supervision at the Bundesbank said in an interview
This is a dynamic business and it may well be that when they wake up in the morning and look around them they may see that they have further opportunities on the ground he said Frankfurt s financial center will become more international and more competitive
Such a trend would mean more pain for firms like Deutsche Bank AG DE DBKGn While Wuermeling didn t name any banks the Frankfurt based firm is Europe s biggest investment bank by revenue and has been losing market share to U S rivals After a series of failed turnaround efforts it is now studying a merger with a smaller German rival Commerzbank AG DE CBKG
Both companies have recently emphasized their German roots but competition for corporate clients in their home market has eroded margins Commerzbank this year cut its revenue outlook because of that though new competitors keep entering Dutch lender ING Groep AS INGA NV announced in 2018 that it wants to increase its German corporate banking staff by 50 percent over the next three years
Wuermeling and other European banking supervisors have said they are neutral in assessing a potential merger of Deutsche Bank and Commerzbank
Any merger is first and foremost a decision for the markets and in particular for the owners of the banks involved Wuermeling said of the deal talks If this happens supervisors will pay it the highest degree of attention
A deal between the two German banks could lead to the loss of as many as 30 000 positions people familiar with the matter have said Brexit related relocations of bank jobs to Germany may help offset some of that
Wuermeling said he expects about 2 000 jobs to be moved to the country by 24 banks this year alone Frankfurt s finance lobby puts the number at as many as 2 500 jobs and estimates that the figure could rise to 10 000 in coming years
The sales area will weigh heavier at first but the back office will be built up as well Wuermeling said What happens in the coming years depends on how much business will relocate
In addition to moving staff banks are also shifting hundreds of billions of euros of balance sheet assets to Germany to prepare for Brexit While the biggest chunk about 400 billion euros 449 billion will be moved by Deutsche Bank JPMorgan Chase Co NYSE JPM plans to shift about 200 billion euros people familiar have said That would turn it into one of Germany s largest banks
So far banks have sought to keep as much of their operations as possible in the U K to limit costs but it s possible they will eventually move euro dominated business conducted for clients outside the European Union as well said Wuermeling who is also a member of the European Central Bank s supervisory board
Building up risk management and clearing in the euro area could generate a dynamic of its own and they may ask whether it s worth doing the business in parallel he said That s the most interesting question
The Bundesbanker urged companies that rely on banking services to switch contracts with U K counterparties to entities based in the EU so that they can keep running Failing to modify the contracts would mean banks aren t able to provide loans and services as agreed
That could cause difficulties he said They won t be a threat to financial stability but the ride could be bumpy
Updates with comment on banking contracts in final paragraphs |
MS | How Is Morgan Stanley Institutional Mid Cap Growth A Fund MACGX Performing | Morgan Stanley NYSE MS Institutional Mid Cap Growth A a Zacks Rank 2 Buy eeks long term capital appreciation by investing primarily in growth oriented equity securities of U S mid capital companies and to a limited extent foreign companies Under normal circumstances at least 80 of the fund s assets are invested in common stocks of mid capital companies
This Mid Growth fund as of the last filing allocates their fund in two major groups Large Growth and Small Growth Further as of the last filing MORGAN STANLEY INS LIQ FU INTUITIVE SURGICAL INC and ATHENAHEALTH were the top holdings for MACGX
The Morgan Stanley Institutional Mid Cap Growth A fund managed by carries an expense ratio of 1 08 Moreover MACGX requires a minimal initial investment of 1 000
MACGX has a history of positive total returns for over 10 years Specifically the fund s returns over the 5 year benchmarks is 4 05 To see how this fund performed compared in its category and other 1 and 2 Ranked Mutual Funds
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MS | Royal Bank Of Scotland To Pay 1B Over Right Issue Charges | The state owned British bank The Royal Bank of Scotland Group LON RBS plc TO RBS has agreed to pay a fine of 800 million pounds 1 billion in an out of court settlement to majority of the claimants This is being done to settle charges that it misled shareholders ahead of a 12 billion pound rescue fundraising at the height of the financial crisis in 2008 The bank has reached a settlement with three of the five claimant groups representing hundreds of shareholders involved in the lawsuit These groups had sued the company for over 4 billion pounds for allegedly misrepresenting its financial health at the time of its 2008 rights issue The investors lost nearly 80 of their money when RBS collapsed a few months later and had to be bailed out by the British government costing the taxpayers more than 45 billion pounds At present the bank is over 70 controlled by the government The settlement has been made with Standard Life LON SL Legal General Aviva LON AV and Prudential LON PRU and the Universities Superannuation Scheme USS which collectively bought about 10 of the 2008 share issue In addition the company mentioned that it is now making efforts to reach a settlement with the other two groups to avoid a potentially embarrassing trial in Mar 2017 The intention is to split the 800 million penalty among the five shareholders group upon approval by all the claimants This split settlement adds a fresh dimension to an unprecedented English lawsuit that already stands out for its size and complexity However unlike the other claimants RBS Shareholder Action Group the largest of the claimant groups representing 27 000 retail investors is planning to take to court former senior executives including the former chief executive Fred Goodwin alongside the bank The bank is currently attempting to settle a range of fines and lawsuits related to its alleged misconduct before and during the financial crisis which have hindered its plans to return to profit and private ownership Although the company has set aside an unprecedented amount to cover an out of court settlement for a case involving allegations of misrepresentation the settlement represents a good deal for the bank The settled amount accounts for nearly one fifth of the original demand and will avoid the costs and risks of years of lengthy trials and appeals at a time when the bank s finances have become more constrained by a bunch of fines and other lawsuits Bottom LineThe current litigation issue follows the investigation by the U S Department of Justice DoJ penalizing the bank for allegedly mis selling residential mortgage backed securities RMBS in the run up to the 2008 financial downturn Last week the bank was the biggest failure in the Bank of England s annual stress test of lenders partially owing to a mounting legal cost for misconduct that analysts and lawyers had previously estimated could cost the bank up to 27 billion JPMorgan Chase Co s NYSE JPM executives faced a similar probe from the DoJ for alleged sale of faulty mortgage securities prior to the 2008 financial crisis Additionally among other major banks Citigroup Inc NYSE C and Morgan Stanley NYSE MS have paid billions of dollars to the U S financial regulators as penalties for settlement against charges of business malpractices in the pre crisis period Royal Bank of Scotland currently carries a Zacks Rank 3 Hold You can see Shares of the company have declined more than 43 so far this year on the NYSE underperforming the 2 7 growth for the Zacks categorized Foreign Banks industry
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C | Citigroup female employees earn 27 less than men | By C Nivedita and Imani Moise Reuters Citigroup s N C female employees earn 27 less than male employees on average when factors like title and location are not taken into account the Wall Street bank said on Wednesday That was a slight improvement of two percentage points from last year according to an internal analysis In similar job positions in the same location women on average are paid 99 of what men are paid on a par with last year s results the bank said Citigroup began disclosing raw pay gap figures globally last year in response to shareholder pressure to disclose how much less it pays women than men A British law that went into effect in 2018 forced corporations to disclose unadjusted pay gap figures for their operations in that country annually but Citi is the only bank that voluntarily discloses the global metrics As we ve said before transparency breeds accountability and we took that important first step last year in disclosing our pay equity results head of global human resources Sara Wechter said in a statement We know the pressure to make progress will continue and we welcome it For minorities in the United States Citi said the median pay was 94 of the median for non minorities up from 93 last year The third largest U S bank has said it wants female employees to hold at least 40 of roles at assistant vice president level through to managing director level by the end of 2021 with 8 of such roles in the United States held by black employees Activist investment firm Arjuna Capital lobbied U S Wall Street firms to disclose and close gender pay gaps at shareholder meetings last year
The lack of diversity in the upper echelon s of Wall Street will not be solved in one year but over the course of many said Natasha Lamb managing partner at Arjuna This is a great start and Citi goes well beyond peers who have not even disclosed these raw numbers |
C | Citigroup Inc Deposit Shs Repr 1 1000th 6 3 Non Cum Pfd Shs Series S declares 0 39375 dividend | Citigroup Inc Deposit Shs Repr 1 1000th 6 3 Non Cum Pfd Shs Series S NYSE C PS declares 0 39375 share quarterly dividend in line with previous
Forward yield 5 92
Payable Feb 12 for shareholders of record Jan 31 ex div Jan 30
See C PS Dividend Scorecard Yield Chart Dividend Growth |
C | Kyle Bass s Doomsday Call on Hong Kong Isn t Convincing Markets | Bloomberg Kyle Bass is convinced Hong Kong is headed for a financial crisis and he s warning investors every chance he gets Few seem to be listening
The Dallas based hedge fund manager who made a fortune betting against subprime mortgages more than a decade ago issued his latest dire Hong Kong forecast on Wednesday saying in a Bloomberg TV interview that the city would suffer a full fledged banking crisis in 2020 Citing a collapse in the local economy and high levels of financial leverage he compared Hong Kong to Iceland and Ireland before those nations banking systems imploded during the global financial crisis
While few doubt that Hong Kong s economy is suffering after seven months of anti government protests the city s markets have shown little sign of an impending banking calamity
A gauge of the city s financial stocks is trading near an all time high after outpacing gains in the broader market this year and posting an advance of nearly 1 on Thursday While interbank borrowing rates have increased over the past 12 months they remain far below levels that preceded previous crises The Hong Kong dollar which Bass is betting against has recently strengthened toward the strong end of its trading band against the U S currency
Howard Lee a deputy chief executive at the Hong Kong Monetary Authority wrote in a blog late last month that the city s financial markets are stable supported by a well tested currency peg and robust banking sector The de facto central bank has not seen any significant fund outflows since the protests began he said Hong Kong dollar deposits were little changed at HK 6 9 trillion 888 billion in November from a month earlier according to official data
Read more Why Hong Kong Is Still Protesting and Where It May Go
Yes we are in a recession but living in Hong Kong you can see that property prices the stock market they re still doing relatively well said Kenny Wen a strategist at Everbright Sun Hung Kai Co in Hong Kong I really don t think we ll see a banking crisis in the near future
Of course Bass s predictions about subprime mortgages in 2007 ultimately proved prescient even as many investors shrugged them off at the time If Hong Kong s economy continues to weaken and the city s sky high real estate prices tumble banks could face a surge in soured loans Another flareup in protest violence could easily snuff out recent gains in the local stock market
Read more Hedge Fund Bets the Hong Kong Dollar s Tear Higher Can t Last
For now though many observers say Hong Kong s banking industry can weather the storm Asset quality issues at small and medium sized Hong Kong businesses among the most impacted by the city s economic downturn are unlikely to develop into a crisis Citigroup Inc NYSE C analysts said in a report this month
This week s phase one trade deal between the U S and China may help bolster investor sentiment toward Hong Kong a key gateway for trade and financial flows into Asia s largest economy The MSCI Hong Kong Index rose 0 5 at 10 29 a m local time set for its highest close since July
Unless we have a global financial crisis I don t think we re in a very dangerous situation Wen said |
MS | Russians used social media to disrupt U S energy industry report says | The same Russian backed propaganda groups accused of meddling in the 2016 U S presidential election used social media to try to disrupt U S energy policy including inciting protests against pipeline projects according to a new congressional report The House Science Committee report says it found evidence that Russian sponsored agents used Facebook NASDAQ FB Twitter NYSE TWTR and Instagram to suppress research and development of fossil fuels and impede efforts to expand the use of natural gas and fracking in the U S The groups targeted Energy Transfer Partners NYSE ETP Dakota Access pipeline and TransCanada s NYSE TRP Keystone XL pipeline as well as projects by Enbridge NYSE ENB and other companies according to the report The Kremlin has a motive to disrupt U S energy markets and influence domestic energy policy since American energy represents a direct threat to Russian energy interests the report says Now read |
MS | BOJ chief flags prospect of exit from easy policy if inflation goals met | By Leika Kihara and Tetsushi Kajimoto TOKYO Reuters Japan s central bank chief said on Friday it would consider ending ultra loose monetary policy if inflation hits its target during the year ending in March 2020 in his first comments acknowledging the possibility of a stimulus exit The remarks sent the dollar lower against the yen and pushed Japanese government bond yields up on heightened market expectations the central bank could wind down its crisis mode monetary stimulus through measures such as higher interest rates or a cut in its bond purchases The BOJ s board members expect that prices will reach 2 percent around fiscal 2019 If this happens there s no doubt that we will consider and debate an exit Bank of Japan Governor Haruhiko Kuroda told parliament While Kuroda s remarks were broadly consistent with his previous guidance on the conditions needed to unwind the accommodative policy market participants took particular note of his explicit reference to an exit This stoked speculation the BOJ could follow in the footsteps of its major peers in removing monetary stimulus The market has been very sensitive about the BOJ s exit from ultra easy policy said Norihiro Fujito senior investment strategist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities Until now the BOJ did not comment on exiting but since it was reported that he commented on exiting the market was startled Kuroda stressed the BOJ s resolve to maintain its massive stimulus program for now with inflation distant from its 2 percent target But he added the BOJ could adjust its yield targets flexibly and won t stick to ultra loose policy forever If economic conditions become favorable and our price target is achieved we will normalize monetary policy he said Kuroda who has been nominated by the government to serve another five year term after his current one ends in April made the comments during a confirmation hearing at the lower house of parliament on Friday The dollar dropped 0 4 percent to 105 79 yen edging back toward its 15 month low of 105 545 set on Feb 16 The benchmark 10 year JGB yield was 1 basis point higher at 0 060 percent after rising briefly to 0 080 percent Naomi Muguruma senior market economist at Mitsubishi UFJ Morgan Stanley Securities said Kuroda s comments on Friday should not be read as a sign the BOJ is rushing to exit its stimulus Rather his comment about an exit offered a perfect opportunity for investors to adjust positions before the weekend she said Mitsubishi UFJ Morgan Stanley Securities expects that the BOJ won t tighten policy at least until some time in 2020 as the central bank should examine the impact of a planned sales tax hike in October 2019 With inflation remaining distant from the 2 percent target the central bank is widely expected to keep its massive monetary easing intact at its policy setting meeting next week Still data out Friday showed core consumer inflation in Tokyo edging up to 0 9 percent in February as the nation s jobless rate hit a 25 year low of 2 4 percent in January underscoring Kuroda s optimism Kuroda s nomination needs approval by both chambers of parliament which is a near certainty as Prime Minister Shinzo Abe s governing coalition holds a comfortable majority If comments are to be taken for face value it spells a major turning point in BOJ policy said Daisuke Karakama senior market economist at Mizuho Bank in Tokyo Under a policy adopted in 2016 the BOJ guides short term interest rates at minus 0 1 percent and the 10 year government bond yield around zero percent With prolonged easing straining bank margins some analysts have called on the BOJ to raise rates before inflation hits 2 percent arguing that it was too high a level to aim for in a country that has suffered from two decades of deflation Kuroda said the BOJ could debate an exit strategy from its ultra loose policy and communicate its plan with markets when the appropriate time comes But he said now was not the time to push for an exit with inflation still distant from the BOJ s target It has become clear that changing public perceptions on price moves will take time Kuroda said
We d like to guide policy with utmost focus on meeting our price target mindful of recent debate on the impact of our policy on the BOJ s finances and an exit strategy he said |
MS | Markets May Need to Buckle Up for Trade Tensions Over Long Haul | Bloomberg The angst about rising trade tensions that s hit equity markets may presage a prolonged conflict considering that when it comes to China the Trump administration may have greater ambitions than just a more advantageous commercial arrangement
While Chinese officials have pressed for a list of specific demands as President Donald Trump prepares to execute measures including tariffs there may be no such theoretical list if this prism of analysis is correct Morgan Stanley NYSE MS says the risks are now skewing toward a protectionist push scenario that roils stocks
The U S Trade Representative s office along with national security officials labeling China a strategic competitor ultimately aren t interested in things such as greater market access for American companies says Arthur Kroeber head of research at economic consultancy Gavekal Dragonomics in Beijing Instead these Trump administration elements are engaging in an effort to contain the growing sway of a state driven Chinese economic model on the global stage he argues
No Bargain
The USTR is not trying to bargain with Beijing it is trying to force a deep change in behavior Kroeber wrote in a March 2 note The policy is to either get China to dismantle its industrial policy edifice and conduct its economy more along Western lines or failing that ensure the U S defeats China in the race for technological supremacy
Kroeber added that the odds are that the trade and security hawks will have the better of the battle in 2018 in the administration unless supporters of globalization such as White House economic adviser Gary Cohn can organize greater support from U S companies with major China operations that could be under threat
Morgan Stanley analysts are more sanguine for now anticipating a measured international response to the U S s latest move to put tariffs on aluminum and steel imports A move to sanction China on intellectual property protection could tip the balance toward tensions however
For U S stocks a material escalation toward protectionism would involve additional risks increase volatility further and likely dampen broader risk appetite Morgan Stanley strategists Michael Zezas and Meredith Pickett wrote in a note Monday That scenario would also mean downside for Treasury yields this year they wrote |
MS | Japan central bank chief tempers talk of easy policy exit | By Leika Kihara and Tetsushi Kajimoto TOKYO Reuters Japan s central bank chief said on Tuesday a future exit from ultra easy monetary policy would need to be very gradual in comments analysts described as a bid to temper expectations about a near term end to crisis mode stimulus Bank of Japan Governor Haruhiko Kuroda startled markets last week when he told lawmakers that the central bank could consider exiting easy policy if his inflation target was met in fiscal 2019 as projected remarks that sent the yen and bond yields higher Speaking in parliament again on Tuesday he said the BOJ had the necessary tools to engineer a smooth exit from easy policy and was already brainstorming how a future stimulus exit could affect its balance sheet but sounded caution about withdrawing too quickly When the BOJ exits it will be a very gradual process so as not to trigger a spike in long term interest rates or a disruption in financial markets Kuroda said on Tuesday We need to move cautiously so as not to hurt the economy and prices he said adding that details on when and how to exit will depend on economic and price conditions at the time Kuroda stressed that an actual exit from easy policy was some time away with inflation now at 0 9 percent still distant from his 2 percent target Underlying price moves remain weak so our feeling is that there is some distance to achieving our price target Kuroda said It s unthinkable to end or weaken the degree of monetary easing before our inflation target is met Kuroda appeared before the upper house of parliament for confirmation hearings after the government reappointed him to serve another five year term when the current one ends in April It is a near certainty parliament will approve the government s nomination because premier Shinzo Abe s ruling coalition holds a majority in both houses of parliament Kuroda sounded confident about an exit probably out of need to reassure market the BOJ can engineer a smooth exit when the appropriate time comes said Masaki Kuwahara senior economist at Nomura Securities I think the BOJ will stand pat at least until fiscal 2020 given tepid inflation TONING DOWN In reference to his comments last week Kuroda on Tuesday said they weren t intended to give an explicit timeframe for an actual exit I didn t say the BOJ will immediately exit the easy policy in fiscal 2019 I only said there could be some debate of an exit if inflation hits 2 percent during fiscal 2019 as we project Kuroda said Under the current forecast the BOJ s nine member board projects inflation to reach 2 percent during the fiscal year ending in March 2020 Many analysts see the estimate as too ambitious in a country barely emerging from deflation People reacted strongly to Kuroda s comments about the exit last week so I think he was trying to tone this down today said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities The outlook for prices could weaken a little making it difficult for the BOJ to move policy Japan s economy has been recovering steadily but inflation remains well below the BOJ s target as companies hold off on raising prices for fear of scaring away cost sensitive consumers Years of heavy money printing to reflate growth have hurt already thin margins of Japan s financial institutions drawing calls from lawmakers for the BOJ to be more mindful of the cost of prolonged monetary easing Kuroda said he did not see any serious threats to Japan s banking system But he said the BOJ would obviously debate an exit strategy from easy policy when its price target is met There are various means to exit such as mopping up liquidity via market operations and raising the interest the BOJ pays to excess reserves financial institutions park at the central bank Kuroda said
The BOJ is also doing some brainstorming on how a future exit could affect its balance sheet though how and through what means it would withdraw stimulus would depend on economic and price conditions at the time he said |
MS | Morgan Stanley breaks down which markets provide the clearest hints of a downturn | Strategists at have put together a guide on which assets are most consistent with the final stages of a bull market Our current environment of rising inflation strong data tighter policy flatter yield curves and more volatility is consistent with a late cycle market they said The agreed definition of a bear market is a 20 decline from the most recent high But it s not as straightforward to predict when a bear market is looming Moreover the bear markets in the 1980s crash the dotcom bubble and the 2008 financial crisis were all preceded by strong final rallies Strategists at Morgan Stanley have put together a guide on which assets are most consistent with the final stages of a bull market Our current environment of rising inflation strong data tighter policy flatter yield curves and more volatility is consistent with a late cycle market said the team of strategists including Serena Tang in a note on Sunday But late cycle doesn t necessarily mean every drawdown must be the big one looking at S P the market for which we have the longest history since 1950 bull corrections 10 declines with quick recoveries have happened almost twice as frequently as bear markets for the S P with the two having very different recovery trajectories and incentivizing very different strategies The strategists examined the trailing six month and 12 month performances of major assets and compared them to returns in the same timeframes during the run up to previous bull market peaks In the stock market every region seems consistent with a late cycle market except emerging markets and Europe which have lagged their usual performance in the 12 months going into a market top And on a sector basis telecom tech and energy stocks aren t as strong as they typically are at the late stages of a bull market The outcomes are less mixed for the corporate credit market Interestingly most of credit looks out of line with a late bull market environment having outperformed materially over the last 12 months versus what s usually seen in the run up to equity tops Tang said Notably she added US high yield credit rated BB and European debt rated BBB are the best outperformers meaning they re also more vulnerable in a late bull market Like corporate debt US Treasurys have outperformed relative to the late bull market environments Morgan Stanley studied The dollar s slide since late 2016 lines up with late cycle behavior But according to Tang the 12 decline over the past year which was partly driven by stronger economic growth in other countries is an extreme move The euro pound Malaysian ringgit and peso have all gained more than usual in a late cycle Tang said Most other currencies are consistent with a late bull market backdrop |
JPM | Outsider CEO won t be a quick fix for Wells Fargo analysts | By Imani Moise Reuters Wells Fargo NYSE WFC Co s plan to bring in an outsider as its next chief executive could give the scandal plagued bank a much needed fresh start but a turnaround will not be easy for whoever takes the helm analysts said The fourth largest U S bank by assets said on Thursday that CEO Tim Sloan a 31 year Wells Fargo veteran would resign immediately and a committee would meet on Friday to start looking for a replacement from outside the bank More than two years after its wide ranging sales practices scandal first came to light Wells Fargo is still struggling to repair its reputation and relationship with U S regulators Reforming decades of past mistakes at an institution as large as Wells is a difficult and time consuming endeavor said Morningstar analyst Eric Compton in a note on Friday Wells Fargo shares were down 2 2 percent to 48 02 on Friday after jumping more than 2 7 percent after the bank announced Sloan s resignation on Thursday Investors are pondering what the change in leadership will actually mean for the bank over the next year or two Marty Mosby an analyst at Vining Sparks IBG said in a note on Friday The intermediate transition period will not likely be as productive as we had been assuming and the longer term ramifications won t be played out for years Mosby said Admissions by the bank that it opened potentially millions of unauthorized accounts and improperly charged customers for services have resulted in billions of dollars in fines and settlements since 2016 The Federal Reserve has also placed an unprecedented restriction on Wells Fargo to keep it from growing its balance sheet until it proves risk management controls are improved It does seem that Wells Fargo management has lost the confidence of regulators Minneapolis Federal Reserve President Neel Kashkari told Reuters on Friday It will be important to put in a CEO that can regain that confidence It remained unclear what exactly triggered Sloan s abrupt departure Sloan who had been CEO since after the scandal erupted in 2016 said he made the decision because the focus on him was hampering the bank s recovery Sloan twice disappointed investors by pushing back the date he expected to get the asset cap removed When the consent order was announced in February 2018 he said reviews of its plan to meet the Fed s request would be completed in October of that year In May he said the cap would be lifted in early 2019 but in January he told analysts he expected the bank to operate under the cap through 2019 Analysts still say that timeline is too ambitious We do not expect the asset cap to get lifted until mid 2020 said Citigroup NYSE C Inc analyst Keith Horowitz in a note on Thursday KBW S Brian Kleinhanzl also wrote in a note that the bank seems to be far from convincing the Fed that it has made sufficient changes Banks typically operate under consent orders from the Fed for many years The Fed has yet to end a 2013 enforcement order against JPMorgan Chase Co NYSE JPM related to its London Whale scandal according to an analysis of the U S central bank s public notices A 2011 consent order against 10 banks related to crisis era mortgage practices ended last year Wells Fargo executives did not provide new information about when they expected the Fed to lift the asset cap on Thursday TRIMMING COSTS Outside of regulatory pressures the new CEO will also be faced with investors who want management to shore up the bank s core business Wells Fargo was the only bank among the top four U S lenders to not grow loans or deposits over the past two years according to Refinitiv data While current executives have suspended the bank s 2020 expense target to give a new CEO room for a novel strategy analysts expect incoming management to maintain Wells Fargo s approach of growing profits by getting leaner I think the new CEO is going to take the path of trimming costs and buying back stocks and you still won t see a lot of balance sheet expansion in terms of loan growth because they are under that cap said Edward Jones analyst Kyle Sanders Wells Fargo Board Chair Betsy Duke did not give clear guidelines on what kinds of candidates the board is looking for The next CEO will likely be a finance executive with experience with consumer banking and digital strategy as well as the ability to smooth relationships with Washington analysts said Citi s Horowitz said JPMorgan Chief Financial Officer Marianne Lake who has experience running the consumer bank at the largest U S bank by assets would be his first call
A seasoned executive from a financial technology company already based in San Francisco could also be a good fit said Edward Jones Sanders |
JPM | Lira Drops as Erdogan Suffers Blow in Turkey s Municipal Ballot | Bloomberg The lira tumbled as Turkey s main opposition moved ahead of President Recep Tayyip Erdogan s ruling AK Party in a closely fought contest for the nation s largest metropolis after local elections loosened his grip on the nation s key cities
The currency dropped more than 2 percent against the dollar and overnight swap rates jumped to 150 percent a sign funding conditions in the offshore market remain tight after authorities orchestrated a short squeeze last week to prop up the currency
Early results showed the opposition winning the capital Ankara and taking control of Mediterranean coastal cities from Erdogan s alliance The party has also taken the lead in Istanbul Sadi Guven the chairman of the nation s High Election Board said in televised comments on Monday A former prime minister and ally of Erdogan had earlier declared victory in the race on Sunday
If the results hold the setback for Erdogan s AKP could fuel concern that authorities will trigger further currency weakness by pursuing expansionary policy aimed at rallying the party s base Local investors were seen buying small amounts of foreign currency in early trading according to two traders who declined to named in line with policy
In a short address before departing for a victory speech in Ankara on Sunday Erdogan said Turkey has an important reform agenda ahead and conceded that some municipalities may have been lost to the opposition
Erdogan s comments on the reform process and free market principles were market friendly said Inan Demir an economist at Nomura International Plc in London But if the AK Party loses Istanbul or wins but the opposition contests the official results the markets might price in more populism by the government which would be negative for lira assets
Runaway Inflation
Turkey s currency crash in August drove inflation beyond 20 percent battered foreign currency borrowers and pushed the economy into its first recession since the global financial crisis as banks lost their appetite to lend
The central bank has signaled it will maintain a hawkish stance until the pace of price growth slows but investors are worried that government policies could stoke an inflation rate running at four times the official target Before Sunday s vote state lenders were already under pressure to prime the economy with cheap loans while a series of tax cuts designed to boost consumer demand have put a hole in the budget
After the central bank s decision to raise interest rates in September initially anchored the lira with the highest carry trade returns in emerging markets the currency has weakened more than 7 percent over the past three months the most among peers after the Argentine peso
Dollar Demand
Persistent demand for hard currency from local investors has increased the weakness as they sought protection from inflation and a hedge against any turbulence following the elections Households and companies have added around 28 billion to their foreign currency deposits over the past six months taking the total to a record
Data earlier this month showed the central bank s net reserves dropped unexpectedly in March adding to speculation that it was using the cash to support the currency JPMorgan Chase Co NYSE JPM said the drawdown was unsustainable and recommended investors sell the lira
Still the currency s swings may prove less wild than in crises past Authorities orchestrated a liquidity crunch last week to stand in the way of short sellers looking to drive the currency lower which may limit scope for big moves
Traders were stunned by the extent of recent measures used to keep the lira stable at all costs said Piotr Matys a strategist at Rabobank in London
Market participants will be looking for the Erdogan administration to reveal a comprehensive package of reforms in the coming weeks if not even days to restore shattered confidence he said |
JPM | JPMorgan Rises 3 | Investing com JPMorgan NYSE JPM rose by 3 01 to trade at 104 31 by 13 51 17 51 GMT on Monday on the NYSE exchange
The volume of JPMorgan shares traded since the start of the session was 10 02M JPMorgan has traded in a range of 102 12 to 104 28 on the day
The stock has traded at 104 3200 at its highest and 98 0900 at its lowest during the past seven days |
MS | U S Silica Declares Exercise Of Option To Buy 1 35M Shares | U S Silica Holdings Inc NYSE SLCA has declared the full exercise of the underwriters option to buy 1 35 million additional shares of its common stock
The option was granted by U S Silica to the underwriters in connection with the earlier completed public offering of 9 million shares of common stock Morgan Stanley Co NYSE MS LLC and Barclays LON BARC Capital Inc acted as joint book running managers for the public offering
U S Silica plans to utilize the net proceeds of the offering for general corporate purposes This includes potential acquisition of complementary businesses or assets
The shares of the company rose 0 3 to close at 47 on Nov 23 US SILICA HOLDI Price U S Silica registered a loss of 11 3 million or 17 cents per share in third quarter 2016 The company had posted a profit of 2 4 million or 4 cents per share a year ago The results in the third quarter were unfavorably impacted by business development related expenses However adjusted loss of 13 cents per share in the quarter was narrower than the Zacks Consensus Estimate of a loss of 19 cents
Revenues fell 11 year over year to 137 7 million in the third quarter trailing the Zacks Consensus Estimate of 138 million Overall sales volume fell 5 year over year to 2 5 million tons in the quarter
U S Silica said that it will not provide any guidance for adjusted EBITDA until it gets a clear picture of business activity levels and related demand for its products Factoring in the current market conditions the company anticipates its capital expenditures for 2016 to be in the band of 42 47 million
While U S Silica is facing sustained challenges in its Oil and Gas segment it remains focused on cost reduction and operational efficiency improvement The company is executing many cost improvement projects throughout its supply chain
Further U S Silica s strong balance sheet provides it with ample opportunities for making strategic investments that will help expand the life of its flagship operation and ensure its long term competitive position in the market
U S Silica currently has a Zacks Rank 2 Buy
Other Stocks to Consider
Other well placed companies in the basic materials space include BHP Billiton LON BLT Ltd NYSE BHP BHP Billiton plc NYSE BBL and South32 Ltd OTC SOUHY
BHP Billiton Ltd sports a Zacks Rank 1 Strong Buy The company has an expected earnings growth of 147 8 for the current year You can see
BHP Billiton plc also sports a Zacks Rank 1 The company has an expected earnings growth of 334 2 for the current year
South32 is another Zacks Rank 1 stock The company has an expected earnings growth of 476 9 for the current year
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MS | 5 Oil Stocks To Buy On Possible OPEC Deal | The market is perhaps habituated to persistently weak oil prices following an oversupplied commodity market But instead of taking steps to lower output all major producers went on swelling up their inventory pushing crude to multiyear lows
In a move to restore oil the Organization of the Petroleum Exporting Countries OPEC decided in September to limit production to the range of 32 5 33 million barrels per day lower than the current daily mark of 33 64 million barrels The projected output cut was proposed to be divided among OPEC members In fact the cartel also wants non OPEC players like Russia to join in the mission to trim production
However many analysts agree that the cartel might face difficulties in uniting the members to walk the same path Already Saudi Arabia refused to attend a pre OPEC meeting on Monday with Russia and other non OPEC producers to coordinate output cuts The reason is pretty clear it is not feasible for producers to show interest in output cut by letting others to win the race for more market share Amrita Sen chief oil analyst at Energy Aspects explains At the end of the day everyone is looking after their own interests and no one wants to lose market share
Since both sides of the argument are based on sound logic speculation will remain rife till the outcome of the OPEC meeting is clear It s hard to predict what the OPEC members want but we ll tell you which stocks to pick assuming that they decide on an output cut
Will OPEC Go for Production Cut
The outcome of the OPEC meeting will arguably be the most important move in the energy sector this year as oil prices could take a U turn Crude has been trading at less than half the price it was at during mid 2014 following plentiful supply of the commodity Naturally the energy market desperately wants OPEC to come up with an agreement on Wednesday
Now there are two choices for OPEC either it goes for a production cut or it doesn t Let s analyze each of the moves and how that might impact OPEC
Production Cut If the cartel agrees to curb production there will definitely be sufficient pressure to push up oil prices In fact Bijan Zanganeh expressed optimism that if an agreement is reached by OPEC members on Nov 30 oil could cross the 50 per barrel mark He further added that if non OPEC members support production curb crude could touch the 55 per barrel level again
This improvement on the crude front will open the gate for other oil producers particularly U S shale players as they can take the advantage of higher prices to ramp up production Hence U S producers will gain market share at the expense of OPEC s production cut
No Production Cut It is a common knowledge that if there is no cut in OPEC s output oil price will fall again Rock bottom crude is also bad for OPEC as it will not be able to sell the commodity at healthy prices Some analysts including Morgan Stanley NYSE MS fear that crude could hit 35 per barrel if there is no cut
Russia Iran Iraq Against Cut
OPEC wanted Russia to curb output by 300 000 barrels per day according to people familiar with the matter Russia initially expressed its willingness in holding output levels steady instead of curbing them Later on media resources confirmed that Alexander Novak Russian Energy Minister will not attend the OPEC meeting on Wednesday but showed interest in cooperating if the cartel strikes an output cut accord
On the other hand Iran the country that has the fourth largest proven oil reserve in the world as per its government recently revealed that it is continuing negotiations to be exempted from curbing production This is because it is only this year that the country came out of its sanctions following the historic it signed with the superpowers U S Russia Britain Germany France China and the EU on Jul 14 2015 in Vienna
Iraq the leading producer among the cartel members also added that since it is generating revenue out of oil to fund the war against the Islamic State it will not be feasible to lower production
Saudi Arabia Signals No Cut
Saudi Arabia the largest exporter of petroleum believes that even without curbing output the market will rebalance itself to find the equilibrium price In fact reportedly Khalid al Falih the energy minister of Saudi has raised questions on the need to cut a deal as the market will eventually take care of itself
Moreover since rival Iran is unwilling to curb output Saudi Arabia is not in a mood to lose market share In other words Saudi Arabia does not want its rival Iran to earn more revenue from oil at the expense of its production cut
What the Stories Mean for Oil Stocks
As of now figuring out what OPEC really wants can be quite mindboggling Many analysts are projecting that OPEC will cut the deal while some are expressing doubts over the cartel s production cut
But investors who have bet their hard earned money on energy stocks will obviously want the deal to materialize This is because if there is a cut in output enough pressure will get created to push up oil price Following this the players involved in exploration and production E P activities will be able to sell crude at higher prices and can generate more cash flows for shareholders in the coming days
We have employed our proprietary screening methodology to pick five oil stocks that are worth buying should the OPEC cut the much awaited deal
Ultra Petroleum Corp OTC UPLMQ headquartered in Houston TX is an upstream energy player The company which sports a Zacks Rank 1 Strong Buy has an expected earnings growth rate of 425 8 for the current year You can see
Based in Denver CO Resolute Energy Corporation NYSE REN is involved in E P activities in prospective resources in the U S Presently the company carries a Zacks Rank 2 Buy Investors should know that for the current year the company s earnings are expected to grow more than 159
Plano TX based Denbury Resources Inc NYSE DNR is a growing E P company engaged in the acquisition development operation and exploration of oil and natural gas properties in the Gulf Coast and Rocky Mountain regions of the U S
Denbury posted an average positive earnings surprise of 283 33 over the last three months Currently it carries a Zacks Rank 2 implying that it will outperform the broader U S equity market over the next one to three months
SM Energy Company NYSE SM based in Denver CO is an independent oil and gas company engaged in the exploration exploitation development acquisition and production of natural gas and crude oil in North America
The company carries a Zacks Rank 2 and managed to beat the Zacks Consensus Estimate in three of the last four quarters with an average positive surprise of 6 88
W T Offshore Inc NYSE WTI headquartered in Houston TX is an upstream energy player that operates in the Gulf of Mexico The company carries a Zacks Rank 2 and managed to beat the Zacks Consensus Estimate in each of the last four quarters with an average positive earnings surprise of 31 49
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MS | Oil price slumps over doubts on OPEC deal | The oil price is down over 3 percent today as OPEC s members struggled to agree on a deal to cut production in order to boost the price Iran and Iraq appear to be the main culprits in cutting a deal and seem to be at opposite sides of the table with Saudi Arabia before tomorrow s meeting in Austria Iran and Iraq are refusing to cut simply reaching the high end of the Algiers range will require greater cuts from other members namely Saudi Arabia which may be difficult politically analysts at Morgan Stanley NYSE MS said in a report If an agreement is not reached tomorrow some say the oil price could plunge below the 40 a barrel mark and remain subdued for some time Even if a deal is hatched out tomorrow and the price of oil rises some predict that it will be short lived as more oil drillers from countries such as the US will appear which will again create an oversupply and drive the price down Higher oil prices means non OPEC producers will be more encouraged to drill for more oil which will increase global supply and prices will be depressed again said Gao Jian an energy analyst at SCI International |
C | Investment Banking Boosts Citigroup | Citigroup Inc NYSE C released its fourth quarter financial results before the markets opened on Tuesday The bank said that it had 1 87 in earnings per share EPS and 18 6 billion in revenue which compares with consensus estimates of 1 84 in EPS and revenue of 17 89 billion In the same period of last year the bank said it had EPS of 1 61 and 17 12 billion in revenue Citigroup s end of period loans were 682 billion as of quarter s end up 1 from the prior year period The end of period deposits were 1 0 trillion an increase of 3 Book value per share was 77 09 and tangible book value per share was 65 55 both as of quarter s end Each increased 8 and 7 respectively from the prior year driven by the benefit of a lower share count In fact common outstanding shares have decreased 9 from last year div connatix margin bottom 1 5em div connatix img margin unset In terms of its businesses the bank reported as follows
Global Consumer Banking revenue was relatively flat year over year at 8 5 billion
Institutional Clients Group revenue decreased by 2 to 9 7 billion
Corporate Other revenue decreased 27 to 431 million
The Investment Banking segment within the Instituitional Clients Group saw incredible growth in the quarter The revenues were up 20 to 1 4 billion as strong growth in advisory and investment grade debt underwriting more than offset a decline in equity underwriting Advisory revenues increased 76 to 378 million equity underwriting revenues decreased 20 to 172 million and debt underwriting revenues increased 15 to 804 million Michael Corbat Citi CEO commented Our earnings reflect the progress we are making to improve our return on and return of capital Both our consumer and institutional businesses performed well and we saw good momentum in those areas where we have been investing such as U S Branded Cards Treasury and Trade Solutions and Investment Banking Importantly our strategy in North America consumer banking is showing good early results as we introduce new products and engage with a broader range of customers through digital channels Shares of Citigroup were last seen up over 2 at 82 38 in a 52 week range of 59 55 to 82 53 The consensus price target is 89 02
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By Chris Lange |
C | Citigroup Inc C Q4 2019 Earnings Call Transcript | Citigroup Inc NYSE C Q4 2019 Earnings CallJan 14 2020 11 30 a m ETContents
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks
OperatorHello and welcome to Citi s Fourth Quarter 2019 Earnings Review Today we are joined by Citi s Chief Executive Officer Mike Corbat the Chief Financial Officer and Mark Mason CFO Today s call will be hosted by Elizabeth Lynn Head of Investor Citi Investor Relations Operator Instructions Ms Lynn you may begin Elizabeth Lynn Head of Investor RelationsThank you operator Good morning and thank you all for joining us On our call today are CEO Mike Corbat will speak first Then Mark Mason our CFO will take you through the earnings presentation which is available for download on our website citigroup com Afterwards we will be happy to take questions Before we get started I d like to remind you that today s presentation may contain forward looking statements which are based on management s current expectations and are subject to uncertainty and changes in circumstances Actual results capital and other financial conditions may differ materially from these statements due to a variety of factors including the precautionary statements referenced in our discussion today and those included in our SEC filings including without limitation the Risk Factors section of our 2018 Form 10 K With that said let me turn it over to Mike Michael Corbat Chief Executive OfficerThank you Liz This morning we announced that we had a strong close to 2019 We reported earnings of 5 billion for the fourth quarter bringing our net income to 19 4 billion for the year the highest since 2006 Our earnings per share of 2 15 were over 30 higher than a year ago and the 8 04 for the full year was over 20 above 2018 We finished the year with a return on tangible common equity of 12 1 just ahead of our 12 target for the year this is 120 basis points higher than our 2018 return on tangible common equity of 10 9 In constant dollars our 2019 underlying revenues increased by 4 in both Global Consumer Banking and our Institutional Clients Group good revenue growth paired with disciplined expense management allowed us to deliver positive operating leverage even as we continue to make significant investments in the franchise Pre tax earnings were up 5 We also had loan and deposit growth for the year and for the 16th consecutive quarter Our return on assets rose to 98 basis points for the year Our strong finish to 2019 was a result of balanced performance of both across both products and geographies Both North America and International Consumer Banking had 4 year over year revenue growth In the US Branded Cards revenues continued to grow at a healthy clip with a 10 increase for the quarter bringing the full year increase to 8 We continued to attract digital deposits from both existing and new customers bringing the total to 6 billion for the year Better sentiment helped increase our Wealth Management revenues in Asia and our Cards business contributed to growth in Mexico Investor sentiment also positively impacted our Institutional business for the fourth quarter Fixed income was up nearly 50 from a tough final quarter of 2018 equities didn t perform as well mainly due to weakness in derivatives We continued to gain share in Investment Banking and the Private Bank posted good revenue growth of 6 Treasury and Trade Solutions continued to grow despite a lower rate environment as we work to ensure our global network remains indispensable to our multinational clients We ended the year in a strong capital position with a common equity Tier 1 ratio of 11 7 and we re on track to deliver our Investor Day commitment of returning more than 60 billion of capital to our shareholders over three CCAR cycles having returned over 22 billion in 2019 alone Our dividend creates a very respectable yield for our common shareholders and we reduced our shares outstanding by 11 during the year Our tangible book value per share increased to over 70 a 10 increase for the year I m very proud of our firm s performance As we did in 2018 we hit our return target for the year despite an uncertain environment which saw trade disputes rising geopolitical tensions and still no finality regarding Brexit As we told you entering the year we prepared for multiple scenarios and used multiple levers to manage the firm through the uncertainty and deliver a solid year for our shareholders We enter 2020 in a strong competitive position from capital and liquidity to talent and technology We continue to invest in areas where we see opportunities for client led growth and in our infrastructure in light of the enduring need to be an indisputably strong and stable institution We re looking forward to sharing with you how we ll take our firm forward over the next several years With that in mind we will hold our next Investor Day on May 13th The environment has changed meaningfully since our 2017 Investor Day and we ll lay out what we aspire to this year and beyond Now let me turn it over to Mark and then we d be happy to answer your questions Mark Mark Mason Chief Financial OfficerThank you Mike and good morning everyone Starting on Slide three net income of 5 billion in the fourth quarter grew 18 from last year as growth in operating margin was partially offset by higher credit costs and we benefited from a significantly lower tax rate EPS grew 34 including the impact of a 10 reduction in average diluted shares outstanding as we ve continued to buy back shares throughout the year consistent with our capital plan Revenues of 18 4 billion grew 7 from the prior year driven by higher non interest revenue and reflecting continued solid results across consumer as well as our accrual businesses in ICG along with a rebound in markets Expenses increased 6 year over year reflecting higher compensation and volume related expenses along with continued investments in the franchise partially offset by efficiency savings and the wind down of legacy assets and cost of credit increased driven by volume growth and seasoning in consumer as well as volume growth and a few episodic downgrades in ICG while overall credit quality remained stable Our effective tax rate for the quarter was 12 better than our outlook reflecting discrete tax items The discrete tax items equate to a benefit of 0 25 per share this quarter Excluding this benefit our tax rate would have been roughly 22 In constant dollars end of period loans grew 2 year over year to 699 billion as 3 growth in our core businesses was partially offset by the wind down of legacy assets and deposits grew 6 with contributions from both our consumer and institutional franchises On Slide four we show our full year results Looking at 2019 our progress was broad based with revenue growth positive operating leverage and operating margin expansion across both our consumer and institutional businesses Revenues were up 4 on an underlying basis excluding the impact of FX as well as the 150 million gain on the sale of the Hilton portfolio and the 250 million gain on the asset management business in Mexico in 2018 In Global Consumer Banking we generated 4 revenue growth across all three regions In ICG revenues also grew 4 with continued momentum in our accrual businesses as well as growth in our market sensitive businesses and even as we continued to make critical investments in our franchise we maintained expense discipline delivering roughly flat expenses for the year in line with our outlook Credit quality remained broadly stable across the franchise and underlying pre tax earnings grew by 5 EPS grew by 21 and we generated an RoTCE of 12 1 ahead of our target for the full year Turning now to the businesses Slide five shows the results for Global Consumer Banking in constant dollars The Consumer business showed continued momentum in the fourth quarter For the quarter revenues grew 4 with contributions from all regions while expenses were down 1 driving continued growth in operating margin and earnings And looking at full year results in Consumer excluding both gains in 2018 we also generated 4 revenue growth while expenses were roughly flat resulting in 9 growth in operating margin and 13 growth in pre tax earnings Slide six shows the results for North America Consumer Banking in more detail Fourth quarter revenues of 5 3 billion were up 4 from last year We have continued to make meaningful progress against our strategy to create a more integrated client centric relationship model launching new value propositions across Cards and Retail Banking and continuing to enhance our digital capabilities In 2019 we introduced the Rewards card digital lending products flex loan and flex pay new digital checking and savings accounts and relationship offers for both cards and deposits And in digital we enhanced our account opening and servicing capabilities for example streamlining the digital account opening process which has roughly doubled our application submission rate These actions are resonating with our clients driving deeper relationships and better growth in deposits AUMs and loans and while most of the new offerings we ve introduced in 2019 have leveraged our proprietary products and reward programs This year we will be expanding our reach and the breadth of our customer base with both existing and new partners For example we are expanding our partnership with American Airlines to include deposit products and we recently announced a new partnership with Google to attract clients digitally Importantly we are building these capabilities in a scalable manner with the ability to expand to other partners efficiently Turning now to the results of the individual businesses Branded Cards revenues of 2 4 billion grew 10 year over year Client engagement remained strong with purchase sales up 7 and average loan growth improved to 4 while our net interest revenue as a percentage of loans expanded to 921 basis points this quarter In Retail Banking our deposit momentum continued to improve with average deposits up 7 with a strong contribution from both traditional and digital channels And our AUMs were up 20 or 8 excluding market movements reflecting strong engagement from our Citigold clients We saw continued momentum in digital deposit sales bringing our full year total to roughly 6 billion versus the 1 billion we raised in 2018 And our experience to date gives us confidence in our ability to drive toward national scale in retail as we deepen relationships over time However Retail Banking revenues of 1 1 billion were down 4 year over year as the benefit of stronger deposit volumes was more than offset by lower deposit spreads Finally Retail Services revenues of 1 7 billion were up 1 year over year with continued growth in loans and purchase sales across the majority of the portfolio Total expenses for North America Consumer were down 4 year over year as efficiency savings more than offset investment spending and higher volume related expenses Turning to credit Net credit losses grew by 10 year over year reflecting loan growth and seasoning in both cards portfolios Our full year NCL rate in US Branded Cards and Retail Services were 319 basis points and 513 basis points respectively Looking ahead we expect NCL rates in 2020 to be at or slightly above the high end of our outlook range of 300 basis points to 325 basis points for Branded Cards and 500 basis points to 525 basis points for Retail Services And I d also note that we typically see higher NCL rates in the first half relative to the second half of the year reflecting normal seasonality On Slide seven we show results for International Consumer Banking in constant dollars Fourth quarter revenues of 3 2 billion grew 4 In Latin America Consumer revenues grew 6 including a few small episodic gains Loan and deposit growth was muted in Mexico again this quarter as we are seeing lower levels of client demand in the current environment of decelerating GDP growth and a slowdown in overall industry volumes But importantly we delivered strong year over year EBIT growth again this quarter Turning to Asia Consumer revenues grew 4 in the fourth quarter We continued to see strong growth in our Wealth Management drivers in Asia with 10 growth in Citigold clients and 9 growth in net new money versus last year In total operating expenses for International Consumer Banking increased 3 in the fourth quarter as investment spending and volume driven growth was partially offset by efficiency savings and cost of credit was down 6 driven primarily by Mexico Slide eight shows Global Consumer Credit trends in more detail As a reminder this quarter we realigned our commercial banking business with all commercial banking activities including those previously reported as part of GCB now reported in ICG The consumer credit trends on Slide eight reflect this change In North America and Asia this shift resulted in only a slight increase in the reported NCL rates However it did have a larger impact on reported NCL rates in Latin America given the relative size of the commercial business there which had structurally lower NCL rates and represented roughly one third of the GCB loan book Overall credit trends remained favorable again this quarter Turning now to the Institutional Clients Group on Slide nine Revenues of 9 4 billion were up 10 in the fourth quarter reflecting continued momentum in the accrual businesses as well as strong performance in both Investment Banking and Fixed Income Markets partially offset by softness in Equity Markets Total Banking revenues of 5 5 billion were up 3 Treasury Trade Solutions revenues of 2 6 billion were up 2 as reported and 3 in constant dollars as we drove strong client engagement and solid growth in deposits and transaction volumes partially offset by the impact of lower interest rates We continued to see robust underlying business drivers in TTS reflecting growth with new clients as well as the deepening of relationships with our existing clients including 10 growth in average deposits as well as double digit growth in our cross border payment flows this quarter Investment Banking revenues of 1 4 billion were up 6 from last year outperforming the market wallet reflecting strong performance in equity and debt underwriting particularly investment grade underwriting as we leveraged our global capabilities to help clients optimize their funding needs Private Bank revenues of 847 million were up 6 driven by higher lending and increased investment activity with both new and existing clients partially offset by spread compression and Corporate Lending revenues of 732 million were roughly flat as growth in the commercial book was offset by lower volumes in the rest of the portfolio Total markets and security services revenues of 3 9 billion were up 28 from last year Fixed income revenues were up 49 largely reflecting a recovery from the fourth quarter 2018 coupled with strong performance particularly in rates and spread products Equities revenues were down 23 primarily reflecting a more challenging environment in equity derivatives And finally in Securities Services revenues were down 1 on a reported basis but largely unchanged in constant dollars as higher volumes from new and existing clients were offset by lower spreads Total operating expenses of 5 4 billion increased 8 year over year driven by higher compensation related expenses and legal costs And credit costs increased to 246 million reflecting overall volume growth as well as a few episodic downgrades while overall portfolio quality remained strong And on a full year basis credit cost of 563 million were consistent with what we would expect annually given the size as well as the quality of our portfolio For full year 2019 our net income grew 3 on the combination of revenue growth positive operating leverage continued credit discipline and a lower tax rate On a constant dollar basis full year revenue growth was 4 from a client perspective our revenue growth was largely driven by continued strong engagement with our corporate clients across TTS and Investment Banking as well as both fixed income and equity markets And looking at our results from a product perspective we generated over half our revenues in Banking which grew 3 as reported and 5 in constant dollars on continued momentum in TTS Investment Banking and the Private Bank Security Services revenues were largely unchanged on a reported basis but grew 4 in constant dollars as we continue to acquire new clients as well as deepen existing client relationship And in fixed income revenues grew 10 with strong contribution from both rates and currencies as well as spread products The combined solid performance in these businesses helped to more than offset weakness in equities and deliver positive operating leverage for the year And finally while our cost of credit was higher it was in line with our outlook for 2019 reflecting a normalization in credit trends and credit quality remained strong with roughly 10 basis points of losses for the year Slide 10 shows the results for Corporate Other revenues of 542 million increased 8 from last year reflecting gains on investments partially offset by the wind down of legacy assets Expenses increased 34 reflecting higher infrastructure costs partially offset by the wind down of legacy assets and the pre tax loss was 80 million this quarter roughly in line with our prior outlook Looking ahead for 2020 we would expect a quarterly pre tax loss of roughly 250 million in Corporate Other as we continue to invest in infrastructure and controls and see some impact from lower rates as well as a reduced level of gains Slide 11 shows our net interest revenue split between our markets business and the contribution from the rest of the franchise excluding markets on the top of the slide As you can see we delivered 3 growth in net interest revenue or roughly 1 4 billion year over year in constant dollars in 2019 In line with the high end of our latest outlook mainly reflecting strength in North America branded cards and TTS Looking at results for the quarter we saw a rebound in markets net interest revenues both year over year and sequentially while growth in the rest of the franchise was more than offset by the headwinds of lower rates And net interest margin increased by 7 basis points sequentially also driven by the higher markets net interest revenue And turning to non interest revenue for total Citigroup this quarter we generated strong year over year growth in non interest revenue of roughly 1 2 billion The strong end to the year allowed us to deliver nearly 650 million of growth in non interest revenue on a full year basis or 2 above our original forecast for roughly flat So if you look at our total revenues for full year 2019 we realized 2 growth on a reported basis and 4 on an underlying basis with a balanced contribution from both NIR and non NIR revenues Looking ahead to 2020 we do expect to deliver some growth in net interest revenues this year despite the change in the direction of rates as loan growth and mix become the primary drivers And we remain comfortable in our ability to deliver continued growth and non interest revenues this year driven by continued fee growth across both our consumer and institutional businesses So in aggregate for total Citigroup we expect to generate modest year over year revenue growth in 2020 on a reported basis On Slide 12 we show our key capital metrics In the fourth quarter our tangible book value per share increased 10 year over year to 70 39 driven by net income and lower share count And our CET1 capital ratio increased sequentially to 11 7 driven by a decline in risk weighted assets In summary we made good progress in 2019 with broad based revenue growth positive operating leverage earnings growth and a sizable return of capital to our shareholders We improved our RoTCE by over 100 basis points achieving a full year RoTCE of 12 1 ahead of our target of 12 for the year We drove 2 revenue growth with a balanced contribution from both our Consumer and Institutional businesses On the expense side we were able to hold expenses flat while making significant investments in the franchise as productivity savings continued to meaningfully outpace our incremental investments as well as offset volume related expenses We maintained our credit discipline growing our loan portfolio while maintaining loss rates within our medium term expectations across every business and region On the tax rate we continued to work to better position the firm post tax reform and we delivered on our capital optimization goals returning over 22 billion of capital through share buybacks and dividends during the year Importantly we continued to deepen and broaden our client relationships in order to drive sustainable client led growth and a steady improvement in returns Our results in 2019 give us confidence in 2020 and we are committed to delivering continued progress going forward For 2020 we expect to deliver modest top line growth and roughly flat expenses while continuing to manage the franchise responsibly We expect cost of credit to remain manageable and we expect our effective tax rate to be around 22 in 2020 excluding any discrete tax items As Mike mentioned the revenue environment has changed since we set our targets for 2020 with lower interest rates slower global growth and the pressure we ve seen in industry wallets in markets and banking In an environment similar to the one we are operating in today we expect to deliver an RoTCE in the range of 12 to 13 for 2020 So we expect we will continue to make progress in improving our returns and we look forward to having the opportunity to talk more about this year and beyond at our Investor Day in May With that Mike and I are happy to take any questions Questions and Answers Operator Operator Instructions The first question will come from John McDonald with Autonomous Please go ahead John McDonald Autonomous Research AnalystGood morning Mark wanted to ask you about deposit growth it seemed like it accelerated throughout the year You re kind of doing that 2 billion per quarter it seems like toward the end of the year Is that a pace you think you can keep up with the new initiatives on deposit growth Mark Mason Chief Financial OfficerSo we ve seen good deposit growth as you said through the year in both our Consumer business as well as on the Institutional side and that in many ways I think is an important proof point around our consumer strategy We re continuing to focus on value propositions on the consumer side in order to grow with our card customers and outside of our retail banking markets We just launched the high yield checking account and we ll continue to develop new products such as with our partner in American Airlines and those types of initiatives we expect to continue to fuel continued growth on the deposit side in consumer We ve also as I said seen good momentum on the institutional side We expect that growth to continue and that s an important metric as we think about how we continue to increase our engagement with clients and so yes we do expect to see continued growth in deposits OperatorThe next question is from Glenn Schorr with Evercore Please go ahead Glenn Schorr Evercore ISI AnalystHi how are you Good morning So I m curious Branded Cards is doing well up 10 when you look at Retail Services up 1 I m curious if you could talk about the compare and contrast of what s driving one to have better growth I don t know if there were any partnership or repricing so lost partners along the way Thanks Mark Mason Chief Financial OfficerSure so on the Branded Card side you ve heard us say through the course of the year we ve continued to see good traction with our clients there we ve seen purchase sales up 7 and you ve seen continued growth in loans and on the branded side so 1 growth in quarter one 2 growth in quarter two 3 growth in quarter three 4 in quarter four So good good momentum there a good pace of increase in the average interest earning balances and so that has been a big part and contributor to that 10 growth that you referenced and sizable growth for the full year as well On a Retail Services side as you know there are multiple portfolios that make up Retail Services and we ve seen good momentum in a good number of those portfolios but within that obviously is Sears which is a partner of ours and that the results that we have do reflect the impact from Sears That said we ve delivered on the 1 we ve talked about as guidance for the revenue growth for the quarter and I think it s 2 for the full year We would expect to see continued pressure from the Sears portion of the portfolio particularly on the purchase sales and that said it is still a very profitable portfolio for us We are still very engaged with the customers there and some 80 of the spend is outside of those stores and so profitable good returning but some pressure given everything going on with that partner Glenn Schorr Evercore ISI AnalystIn particular the store closures Mark Mason Chief Financial OfficerYes And very important partner but a lot going on there OperatorThe next question is from Steven Chubak with Wolfe Research Please go ahead Steven Chubak Wolfe Research AnalystHey good afternoon Mark Mason Chief Financial OfficerGood afternoon Steven Chubak Wolfe Research AnalystSo Mark wanted to start off with a question just on some of the RoTCE guidance certainly commendable you guys delivered on the 12 this year That said I believe it does include about a 50 basis point benefit from discrete tax item And so as I think about the core rate it s maybe somewhere in the zone of 11 6 And I m just thinking as we try to unpack the walk to that 12 to 13 you spoke of and the fact that you do have provision likely trending higher in 2020 and assuming no further benefit on the tax side just help us think through what are some of the key drivers to help us get to that 12 to 13 Mark Mason Chief Financial OfficerSure so look I think it s if you think about what we saw this year and some of the key important drivers of performance you can kind of look across many of the businesses and see good top line growth underlying and good EBIT performance We expect that top line growth to continue particularly as we continue to execute on our consumer strategy and more deeply penetrate the card customers that we have there and develop new value propositions that we can get out to market having proven those digital capabilities that we ve invested in So continued top line growth on the Consumer side We do expect to see good underlying metrics with our institutional clients particularly in TTS which is core to our network but also has linkages around linkages with the rest of the ICG So good continued momentum deposit volumes and engagement with both new and existing clients on the institutional side and in TTS And so top line growth of a couple of percentage points in a constructive capital markets environment with flat expenses and so you we ve referenced that at the beginning of this year and manage to that with all the uncertainty playing through the year and we are targeting that again for 2020 And the combination of that and continued work on the cost of credit and of course we ll continue to look at the tax line but we believe the combination of that focus and continued productivity benefits funding the volume growth that we expect to have will get us to the range of the 12 to 13 that I referenced OperatorThe next question is from Saul Martinez with UBS Please go ahead Saul Martinez UBS AnalystHi Hey guys good morning good afternoon sorry So I guess following up well actually first it s more of a clarification I just want to make sure I heard something correctly you said Mark you said on the corporate and other pre tax estimate for next year I thought I heard 250 million per quarter that can t be right is that did I that seems awfully higher Obviously it s a much higher run rate than what you ve been doing What was can you just repeat what that outlook was for pre tax corporate and other Mark Mason Chief Financial OfficerSure so I did reference that we would expect to see an impact of about 250 a quarter for Corporate Other that is higher than the prior guidance that I had given of a 100 million to 150 million the last time I gave guidance on Corporate Other so a bit higher There are couple of things that impact that or that will drive that one of which is the impact of rates we obviously had three rate cuts in the back half of 2019 that plays through the business performance but some of it also plays through the revenue that s in Corporate Other We also have we ll have fewer gains I referenced some gains that we have from investments that play through 2019 and through the quarter here so likely to have fewer of those And then we are and I ve referenced the investments that that we continue to want to continue to make or will continue to make in infrastructure and controls and those investments will be in the form of technology and people and focused on things such as data data governance and infrastructure and so those are important investments that we ll be making and those three drivers will be what impacts or is underneath that guidance not all in the expense line but as I mentioned we will move to keep the expenses flat OperatorThe next question is from Jim Mitchell with Buckingham Research Please go ahead Jim Mitchell Buckingham Research AnalystHey good afternoon guys Mark Mason Chief Financial OfficerGood afternoon Jim Mitchell Buckingham Research AnalystA follow up and I appreciate the unpredictability of particularly Capital Markets revenue and I assume that s why the wide range in RoTCE But if we look at the second half of last year the operating leverage particularly in the Investment Bank has been minimal it s been OK but you had 7 as a firm you had 7 growth top line growth with some investment gains 6 expense growth in the fourth quarter So I just wanted to understand I think the upside the upper end of that range would imply some pretty good operating leverage So is it just some unusual items in the back half of the year accelerated spending that you expect to slow or if we see higher revenue growth Is that going to be offset by volume related expenses and you just can t get a ton of operating leverage Just help me think through the expense trajectory and different revenue scenarios Phonetic Michael Corbat Chief Executive OfficerWell let me Mark why don t I start maybe just talk a little bit about the revenue environment and what may drive So if we look Jim at 2019 Mark referenced the back half of the year and rate cuts but I would say throughout the year we saw what I would describe as a lot of things out there that was driving uncertainty be it the lack of a China trade deal US MCA where was that headed Brexit Hong Kong and I think we see ourselves in a position now where the horizon looks like some of those things may clear right hopefully we get a trade deal in the next couple of days here at least Phase 1 of the trade deal hopefully US MCA and it looks like it should be pretty well along the path to being ratified and it looks like we ll get a Brexit deal So I think some of the things that were overhanging some of the volume related parts of the market might have a chance to lift and we maybe get a bit more action out of the C suite nod of some of our investors you would see volumes pick up but I think as we look at the activities that we see and again I think a pretty reasonable close to the year here when you look at the combination of ECM when you look at the combination of DCM banking more broadly obviously M A down a little bit but I think the backlog looks pretty good and I think the forward calendar as we look into the other areas look good So one is I think there is a pretty good driver on the revenue side Mark Mason Chief Financial OfficerYes I guess I d just add to that I guess a couple of things So one in the broadest sense again we as we think about 2020 we re targeting flat expenses With that said there are couple of things that are playing through that that I think will benefit the expense line in 2020 and cover any volume related increases or investments that we re planning to make so one is the productivity saves that we ve talked about over the past couple of years and those outpacing investments and so we expect yet another 500 million to 600 million of productivity benefits to play through 2020 and that will be used to fund some of those headwinds or investment opportunities Two you would have heard us reference a number of times through the course of the year repositioning charges that we ve taken severance charges as we ve adjusted capacity Those were obviously increases in expenses in the year that will play out or damage or reflect or generate benefits in 2020 again creating capacity And then you referenced the back half and particularly if you look at the ICG in the last quarter you got to kind of keep in mind that growth in expenses is 10 top line growth is 8 expenses expense growth but that comes with the compensation increase associated with those revenues The volume increases associated with that activity that we saw in the back half of the year and so you really got to think about the full year expense base as we go into 2020 as the timing for both investments and the productivity benefits will vary through the course of the year and we ll get into much more of this and the forward look beyond 2020 obviously at Investor Day OperatorThe next question is from Mike Mayo with Wells Fargo Securities Please go ahead Mike Mayo Wells Fargo Securities AnalystHi can you talk about technology spend and where you are in the process and priorities for the back office and the front office I know it s a broad question but maybe for the back office like the number of data centers you have or the percent of workload you intend to move to the public cloud or for the front office little bit more color on the relationship with Google and where you expect that to go And then just overall with total tech spend and where you are in terms of spending or reaping the benefits of past spend Michael Corbat Chief Executive OfficerSure so why don t I start out and Mark you can chime in So again I don t want to steal the thunder we ll go into a fair bit of this in detail at Investor Day but Mike I ll give you a couple of examples you ve asked the question before in data centers and Citi at its peak had just over 70 data centers At Investor Day we told you we were down to 20 and today we re down to 10 What I would say is based on the combination of the necessity of redundancies GDPR and other things I won t say 10 is the static number but as you get to 10 and you run a global organization approaching 100 countries I don t think there is massive opportunity and again we ve got to see how the regulatory and how the legal landscape unfolds in terms of data and data storage Second piece beyond data storage is around data itself that in many ways Citi personifies big data operating all the places that we operate And if you look at the way that the company came together through acquisitions and through other bolt ons we think there is a significant opportunity to really modernize or to take our data to the next stage in terms of giving us benefits in terms of safety and soundness in terms of giving us benefits in terms of straight through processing all of those manifesting itself in better client experiences show a part of the number or reasonable part of the number that Mark is referencing here in terms of spend is around what I describe as the modernization of our data and our data approach And so we re excited about that I ll give you one example On the Consumer side that we talked about last time and I ll take you to back to Page 23 again around our consumer drivers but if you look at as an example the things that we ve been doing around our technology in the call centers and if you look at the upper right hand box around agent contact rates what you ve seen is you ve seen basically circa 15 million reduction in calls inbound calls into our call centers And at the same time the way we re handling those calls through the combination of IVR and chat has changed where we re able to dedicate our specialist to the more complex things and not being forced to deal with what s my balance When s my payment due How do I collect my Thank You points types of calls And show at the same time we re reducing significantly those contact rates and you can see it there We re also taking on more volume right as we re growing as you re growing your cards footprint as you re growing your digital deposit base obviously you re getting more engagement and so we re not only on the absolute level of reducing the number of inbounds but we re also taking on volume at obviously very attractive rates So I think that underscores or highlights why we believe and I think you ve seen in the numbers that we ve put up as we ve made some of these investments in technology we ve gotten pretty good paybacks and we think the paybacks that we can get out of the things that we ve got on the slate certainly warrant Phonetic going after them Mark Mason Chief Financial OfficerYes I d agree with that And Mike I think about it as Mike described but kind of in four buckets and so as we think about technology investments there are investments that we are making that are directly client related think about new products new solutions think about the work we do with our TTS clients and as we identify pain points whether it d be managing their receivables or managing their invoices we invest in other technologies we invest in our own solutions to service those client related needs if you will think of our client service from a client experience point of view and the investments that we re making to do things like streamline on boarding I referenced that regarding digital customers on boarding but we also invest a lot in how we on board our corporate clients in new countries as we enter markets with them those are technology investments that s the second bucket The third bucket is just how we streamline our own operations our own internal processes How we do more in the way of automation less manual reconciliation and manual work There is an opportunity there for to manage data from input straight through output as Mike s reference and there are and paybacks on the streamlining of internal processes And then the fourth bucket and I separated because of in part because of it s significance Mike has referenced before which is cyber And so cyber is a very important technology investment for us to both protect the franchise and protect our clients and we ve been growing that over the past five years and expect to continue to grow our investment in cyber So just another way to think about the lens that we look at the technology and investment and need for it as we go into 2020 OperatorThe next question will come from Erika Najarian with Bank of America Please go ahead Erika Najarian Bank of America Merrill Lynch AnalystYes thank you Good afternoon Mike does the 12 to 13 RoTCE for this year fully capture the potential of the franchise Or and I expect you to give us more detail on Investor Day or do you think continued improvement could be realized from here if we keep the rate curve fairly flat and there is no major change in the global economic outlook Michael Corbat Chief Executive OfficerYes Again we ve kind of talked about the steps along the way And you mentioned the word improvement and improvement is paramount in terms of the way we re approaching 2020 And we think we ve got the ability using technology client engagement wallet share of gains a lot of the leverage that we ve spoken to on the revenue and expense side of continuing to make improvement and make progress against those benchmarks Mark Mason Chief Financial OfficerYes I completely agree I mean we are focused on significant improvement over time We ve made progress over the past couple of years when we talked last about our underlying performance consumer and the ICG we pointed to consumer as having the opportunity to close the gap between where we were two years ago and something we thought it was up in the 20 or so We re making good progress on that We think there is continued upside there We also have talked about when you think about our TCE and how it s broken out between consumer ICG and Corporate Other We know that over time some portion of what we have in Corporate Other that TCE that s tied to the excess capital that we have the DTA Citi Holdings over time that will work itself down and that in and of itself will contribute to improved RoTCE So we ve got a real sense of urgency to improve our RoTCE responsibly over time and we intend to continue to do that Erika Najarian Bank of America Merrill Lynch AnalystThank you Mark Mason Chief Financial OfficerWelcome OperatorThe next question will come from Matt O Connor with Deutsche Bank Please go ahead Matt O Connor Deutsche Bank AnalystGood afternoon Mark Mason Chief Financial OfficerGood afternoon Matt O Connor Deutsche Bank AnalystI was wondering if you could just talk about what you re working on in the equities business Obviously it has been an area of focus The last few years you had some signs of progress a tough quarter this quarter I don t want to kind of overplay it It s only a few percent of revenue but you re very strong in gaining share in sick Phonetic strong and it seems like gaining some share and banking and it s still kind of call it the missing piece in the puzzle from my perspective So maybe you could just talk about the strategic outlook there and what you re working on Michael Corbat Chief Executive OfficerSure So as you recall several years ago we embarked on the mission and at the time we were about number nine of moving into the top five Today we find ourselves at number six and along the way we ve consistently taken share And this year probably not so we look like based on some coalition delta or others were probably kind of flat to market But certainly not where we want to be and not where this ends I think as we look at things that we ve done you ve seen us adjusting in particular front end capacity against the business in particular in terms of cash making investments in Delta One derivatives Prime Broker But I would also urge you not just to look at what we post as the trading revenues call it roughly 3 billion for the year I think you ve got to look at the aggregate business which include GCM about another 1 billion of revenue as well as our security business about another 2 5 billion of revenue So as we look at and think about our equity business it s about a 6 5 billion business to us So it is in aggregate a meaningful business That being said we still have our objective to break top five That being said we still think we can improve profitability and returns in the business But again we re focused on the end to end the pre trade the trade post trade and trying to maximize the overall benefits of that to our franchise but Matt more work to do there OperatorThe next question is from Betsy Graseck with Morgan Stanley Please go ahead Betsy Graseck Morgan Stanley AnalystHi good morning Mark Mason Chief Financial OfficerHi Betsy Graseck Morgan Stanley AnalystCouple of questions one on the capital side of the RoTCE I think you did indicate that you feel like you have some more opportunity there to give back excess capital I guess I wanted to understand in the most recent CCAR cycle do you feel like you maxed out that ask or that you were holding back and I m just I think is I m wondering if we should be expecting acceleration from here as we go into 2020 CCAR cycle Mark Mason Chief Financial OfficerYes thanks So we we ve obviously worked down over time much of the excess capital that we have we ve gone from having a CET1 ratio somewhere around 13 or so and kind of working that down to we ll end the year roughly at 11 7 And so there ll be less excess that s there We obviously will go through the CCAR process as we ve done in the past and try to responsibly come up with as much as we can return to shareholders That is an important driver in us delivering on the continued progress that we ve talked about We obviously would want to and will first look to what opportunities for growth of the business exist So out of the earnings we re able to generate first to fund that growth and then with what s left in available to shareholders including the benefits from the reduction in the disallowed DTA that we ve been targeting from year to year We would look to distribute that both in the form of continued dividends as well as buybacks And so there is some excess that s there Obviously there are number of factors that go into that analysis including the scenario and so on and so forth but we ll continue down the path of returning as much as we responsibly kind of it makes sense given the growth trajectory we see Betsy Graseck Morgan Stanley AnalystAnd so on your 12 to 13 RoTCE goal is the degree of capital you re envisioning returning I would think a function of that range as well That range is being driven in part by the capital I know you discussed the Mark Mason Chief Financial OfficerYes So that yes the range does include continued return of capital not at the payout ratios we ve seen in the past for the reasons that I ve mentioned but absolutely it includes a competitive continued payout in that 12 to 13 range 12 to 13 RoTCE range Betsy Graseck Morgan Stanley AnalystRight OK And then just separately on your card guidance you gave some guidance for card net charge offs both on the Branded and the Retail Partner card And I guess I m wondering does that include your expectation for what day two CECL impact is likely to be and maybe you could speak a little bit to how you re thinking about CECL and what s your assumptions are for the reasonable supportable period of CECL from an economic input perspective Mark Mason Chief Financial OfficerSure let me kind of break that in two pieces if I can So on the guidance that I gave regarding cost of credit in cards or NCL rates I should say in cards I referenced that it would be a little bit above the 300 basis points to 325 basis points of a medium term target that we d set and we re branded And my reference there and I think I ve mentioned this in the past is that we ve seen a higher percentage of conversion into average interest earning balances And so with that higher volume than expected which is a good thing that comes with it s profitable high quality of volume activity but with that comes higher NCLs and so much of the increase that I referenced that would put us potentially outside of that range is driven by that In terms of we have in how we think about our forecast and certainly a range that I ve articulated we have factored in the impact of how we think about CECL We ve I ve referenced in the past a range of roughly 20 to 30 on the high end in terms of the day one impact We expect the day one impact to increase the reserves by roughly 29 to get a little bit more precise or roughly 4 billion So inside of the range that I ve communicated in the past the regulatory capital perspective from a regulatory capital perspective that will be about 6 basis points of CET1 capital in 2020 with a full impact of about 24 basis points by the time we get to the first quarter of 23 2023 As you would imagine the significant build is on the consumer side so to your reference to cards it s being driven by Cards and that is based on the increased coverage from 14 months to about 23 months And so that s the more significant pieces offset by a decrease in the corporate build which nets down to about the 4 billion You reference kind of day two and we ll talk more about that I m sure in the forward quarters But there are obviously a number of moving variables that go into that calculation whether it d be kind of economic conditions or the seasonality of the business There a number of factors there that impact day two and we ve consider that as we look at our 2020 forecast and as I ve given you that range it factors in that consideration Betsy Graseck Morgan Stanley AnalystOkay thanks Mark Mason Chief Financial OfficerWelcome OperatorThe next question is from Ken Houston with Jefferies Please go ahead Ken Houston Jefferies AnalystThanks Thanks a lot Good morning Just a question on capital I know we re all waiting just the finalization of SCB and stress test framework also coming out of the year end Any I assume that there was no change to your G SIB where you landed in all And so I guess it s just a question is just what do you how are you setting up in terms of the expectations for regardless of timing around SCB Any potential changes to what the final framework might look like and any anticipated changes how you have to think about that Mark Mason Chief Financial OfficerSure So I guess I ll first address directly your reference to the G SIB score At the third quarter we ended up at about 6 28 which is right below the 6 29 and so still in the 3 bucket We should end the fourth quarter well into or inside of that 3 bucket as well so below the 6 29 in the low 600s or so just given some of the seasonality that we see and the focus that we obviously put on ensuring that we re managing the business in a responsible way And so 3 bucket is where we expect to be by the year end or for the year end here 2019 In terms of the stress capital buffer we ve heard as you ve heard a lot of a number of comments around the interest in getting something out for this next CCAR cycle We haven t seen anything as of yet that would need to come out I think by middle of February We obviously are continuing with the normal planning of our CCAR submission when I think about how we consider that or how we factor that in I kind of go back to the CET1 ratio that we managed to about 11 5 and we have kind of a number of buffers in there but one buffer in there to account for our estimation of the impact of the stress capital buffer so about 50 basis points above the capital conservation buffer that we have there And then we also have a management buffer And so my thinking is that as that as we get more information and clarity on the proposal we should be able to cover that inside of how we re managing the target that we already have for ourselves The final point I ll make is that we continue to take some comfort in the regulators comments and views that whatever we do with any one of these proposals including the SCB that we re targeting capital neutrality across the industry and I want to take a holistic approach that is factoring in how each of these proposals will work together in an integrated fashion while preserving the capital neutrality So Ken Houston Jefferies AnalystGot it understood And just outside of the seasonality is there anything that just given the environment and some of the ins and outs of balance Fed balance sheet of volatility seasonality got you inside that G SIB thanks for clarifying that Anything else just changing in terms of just flows that you see from the business outside of normal course that s coming via the repo market the Fed balance sheet expansion or is it just really was a seasonality Mark Mason Chief Financial OfficerIt was seasonality and we obviously work to ensure that we were meeting client needs while being able to deliver inside of that bucket but nothing outside of that nothing related to kind of the repo activity as you mentioned in the market Ken Houston Jefferies AnalystOkay Thank you Mark Mark Mason Chief Financial OfficerYes OperatorThe next question is from Brian Kleinhanzl with KBW Please go ahead Brian Kleinhanzl Keefe Bruyette Woods AnalystGreat thanks It is a quick question on the NIR guidance Can you kind of walk through some of the puts and takes that gets you comfortable with being able to grow in 2020 And then also what s the macro assumptions you re using behind that Thanks Mark Mason Chief Financial OfficerYes so as I mentioned we expect kind of total revenue growth in 2020 with a mix from both NIR and non NIR We would expect that that would be driven by both loan growth as well as mix to get to that NIR growth that s there There ll probably be some or there will be some kind of volatility on a quarterly basis just due to the idea that NIR has market business NIR that flows through there as well and I walk through that dynamic last quarter But we do expect loan growth in mix to be primary drivers there offsetting obviously some of the pressure in terms of the impact of rates of interest rates And your point around kind of how we think about the forward look as we plan for 2020 similar to what s out there in the way of the forward curve we ve assumed one additional rate cut of about 25 basis points toward the back end of 2020 So 2020 will have the full impact of the three cuts we saw in the back half of 19 and assumed one incremental rate cut in the back half of 2020 Brian Kleinhanzl Keefe Bruyette Woods AnalystGreat thanks OperatorThe next question is from Marty Mosby with Vinings Sparks Please go ahead Marty Mosby Vining Sparks AnalystThanks for taking the question And the net margin kind of bounced around and it s not really hard or trending like what you would see in the rest of the group So just was curious positive benefit you got this quarter it didn t seem like the balance sheet really creative it looked like it was a real positive earnings impact does NII was stronger Is it more sustainable or how do you kind of one of the bearings that kind of move that as we go forward Mark Mason Chief Financial OfficerYes So the net interest margin grew by about 7 basis points quarter over quarter and much of that as I mentioned earlier was driven by the markets revenues So we saw a big uptick obviously year over year as the fourth quarter rebounded And so that mix resulted in an increase in the NIM up to 2 63 and as we go forward I haven t really I haven t given a forecast on NIM going forward I have spoken obviously as I just mentioned to NIR and non NIR but obviously all of the factors you would imagine such as the loan growth in the mix and all of those things will factor into how NIM plays out in the balance of 2020 Marty Mosby Vining Sparks AnalystAnd then Mike I wanted to ask you on the last Investor Day that Citigroup posted it really was about capital You also then talked about how you had to invest in the business In the overall revenue outlook it was pretty dicey It s feels like we re in a totally different place where revenue starting to pick up a little momentum The investment that was required over the last couple of years you could accomplish that so maybe not as much going forward So the dynamic kind of move away from just capital is being the driver to actually now the fundamentals of the business starting to perk up a little bit going into this next Investor Day Michael Corbat Chief Executive OfficerMarty I d love to tell you it s an easy environment but I think as we as we look toward the future I think one is that our levels of client engagement and what you ve seen since Investor Day we talked about revenue gains coming off of kind of potential while is expansion but in particular market share gains And I think as you look across all of our businesses certainly most of our businesses we ve had there And I would expect at Investor Day we re going to talk more about that as the things we do I think continue to resonate with the clients is the investments that we ve made in our products the investments that we ve made in service I think continue to reap good benefits You ll hear us talk again about continued expense discipline but at the same time you ll hear us talk about the investments in technology and technology infrastructure in those pieces which we think gives us a multiple benefit to safety soundness gives a benefit to customer experience and obviously gives a benefit on the cost side of things So again I think as you cite I think the big the big outsized times of capital return versus net income are probably coming to an end but I think at the same time the momentum in the franchise accelerates Marty Mosby Vining Sparks AnalystThanks OperatorThe next question is from Gerard Cassidy with RBC Please go ahead Gerard Cassidy RBC AnalystThank you Good afternoon Mike and Mark Michael Corbat Chief Executive OfficerHey Gerard Mark Mason Chief Financial OfficerHey Gerard Gerard Cassidy RBC AnalystMark I know you just gave us some of the assumptions that you guys are looking at on the macro for your revenue growth for 2020 If we are talking on this call a year from now and you guys have better than expected than modest total revenue growth What are some of the data points do you think we need to look at throughout the year where the revenue growth could come in stronger Mark Mason Chief Financial OfficerSure So when I think about 2020 there are couple of I think critically important factors that I look to One is continued execution on our North America consumer strategy We ve gotten some good momentum through the course of 19 We ve made meaningful progress in terms of the capabilities to more deeply penetrate our customers We ve seen good client engagement across that portfolio And so that continued momentum playing into 2020 and to the extent that it plays in even more significantly I think you ll see that as we penetrate more customers as we grow volumes with those customers as they use our products and services more whether through purchase sales or any of the other metrics with Citigold households etc The second category is as I think about our global corporate client in our institutional client group and the continued good great engagement that we re seeing with those clients not just in TTS around the world not just existing clients but new clients that we ve been able to on board and grow with very rapidly not just with cash management products but also with Capital Markets offerings like our FX capabilities and the benefits that those clients are realizing as we invest in technologies that bring those product capabilities together to create solutions that allow them to run their operations more efficiently And so more traction there would be a second thing that you would look to I think And then the third thing would be something that one of the things Mike has reference to a number of times on this call but that discipline around the need to invest across the franchise and not just in growth but certainly in growth around those important capabilities but also in how we improve the way we go to market the way we run our businesses and the efficiency around that I think the combination of those things and return of capital obviously will be the things that you will be able to look at at the end of 2020 and have a greater sense of clarity as to why we ended up where we ended up and or better than that range Mike do you want to add to that yes Michael Corbat Chief Executive OfficerNo Thank you Gerard Cassidy RBC AnalystAnd tying into some of your answer Mark Mike obviously the consumer business credit cards is a great example is the economies of scale and the community banks in this space and even some of the regional banks really cannot compete with you and your peers at a profitable level that most investors would find acceptable If we shift over now to the capital markets business and I know you have that economies of scale in Treasury and Trade Solutions Do you think Mike in three to four years could the capital markets be something similar to the credit cards where the five dominant banks really kind of run the show like in credit cards for example Michael Corbat Chief Executive OfficerI think I think Gerard you re already seeing some of that and we can cite different examples but one is in Europe The fact today that in Europe the top five banks in the market space are all US Banks right And by nature of the businesses those bank are largely all certainly we are operating at scale in the businesses that we re in And so scale matters and we measure scale lots of different ways and certainly in the consumer business but also in the institutional business part of scale is your ability to invest control and build your tech stack your tech infrastructure to make sure that you re at or out in front in terms of the evolution of the business So I think you continue to see consolidation in the capital market space Gerard Cassidy RBC AnalystThank you Michael Corbat Chief Executive OfficerThank you OperatorThe next question is from Vivek Juneja with JPMorgan Please go ahead Vivek Juneja JPMorgan AnalystThanks Couple of questions Mark firstly your guidance on revenue growth as well as an outlook for 2020 When I look at revenue growth of 19 as a starting point you had about 1 billion increase in securities gains and the Indecipherable so when I exclude that it was about 2 So I guess the question is as you look out to 2020 do you expect securities gains to continue do you have any impact of one time gains and also what are your assumption for outside of the US Mark Mason Chief Financial OfficerVivek I apologize I just have had a hard time hearing your question I really apologize if you could repeat that please Vivek Juneja JPMorgan AnalystSure When you look at revenue growth if you look at the revenue growth it was when I look at it on a core basis excluding trade rev gain and 1 billion increase in securities gains it was about 2 year on full year 2019 For 2020 when you look at your guidance Mark are you expecting more securities gains Are these gains to continue and against from further sales of business as portfolios And also what assumption do you have for rates outside the US Mark Mark Mason Chief Financial OfficerSure So there are couple of questions in there As I think about our forward look an estimate of revenue growth we are expecting net revenue growth from all of the buckets that I ve described So core underlying revenue performance is what s going to drive what we see going into 2020 I d be careful about looking at 2019 just through the items that you mentioned there There are other things that don t necessarily reflect the underlying strength of the franchise There are some so anyway to just be careful about kind of narrowing it to just those two things but the answer to your question is in fact that we see good underlying growth in our businesses In terms of the forward look on rates I guess what I d point you to is if you look at kind of our interest rate exposure that s in our queue and ultimately be in our K we often talk about the impact of a 25 basis point move There is an analysis there for both US dollar and non US dollar And you ll see that the non US dollar impact to get to your question around non US rates is not a material impact on a quarter to quarter basis It s a little bit less than 30 million a quarter for a 25 basis point shift in the non US dollar rates and obviously there are a number of different countries that make up that but it s about it s less than 30 million Vivek Juneja JPMorgan AnalystOkay thanks And I have a question from Mike Mike just going back to the equities business and I recognize it is relatively a small business but I know you had big hopes for this business with 1 billion increase in revenues a couple of years ago when you were talking about it Recently you ve had some headcount cuts I know you ve already put more capital to work in the prime finance business So what do you do what can you do tangibly now differently to really to get that revenue growth going again because full year 19 was you were at the lower end of where you ve been in the last five years Michael Corbat Chief Executive OfficerYes We prior to 2019 we ll see where the coalition debt and other data shuttles but it seems like we re coming in somewhere about flat to market wallet where we had in the past several years taking taken share So one is we ve got to get back on the track of taking share I think the second piece is that we ve got to continue to assess the capacity of our front end and continue to use technology to drive parts of our lower or low touch business I think we feel pretty good about the derivative space I think we feel good about Delta One We feel good about Prime Broker We feel good about our Security Services business and all of those are obviously higher returning businesses i e in some cases less capital And again I think based on the nature of the clients that we cover the consolidation of assets not just in the US but around the world we think we ve got the ability to face off against those continue to take share and again as we pull the business together to drive returns did have it makes sense Vivek Juneja JPMorgan AnalystThanks if I may one quick one Mark you went to the high end on CECL day one from the 20 to 30 given the economic environment has held up pretty well any color on what brought you toward the high end Is it a shift in your card business which also drove that little increase in charge offs or is there something else Mark Mason Chief Financial OfficerAgain it was just a there was no particular change as we work through it We obviously developed our model There were shifts in balances but there are a number of different factors that go into that And I think I ve been communicating guidance toward the high end not just on this call where I talked about the actual number but in the past couple of calls and so no meaningful shift that I d point to Vivek Juneja JPMorgan AnalystThank you OperatorThe final question is a follow up from Mike Mayo with Wells Fargo Securities Please go ahead Mike Mayo Wells Fargo Securities AnalystHi I wasn t able to get this in earlier Just as you look at efficiency clearly your guidance implies better efficiency ahead and it s improved for the last several years But we slice and dice the number in different ways it doesn t seem to be as efficient as it could be if you take it out cards for example So where do you how much does technology help keep the expenses flat and where do you think efficiency can go in the short term the long term And just I had also asked the prior question of the Google relationship if I can throw that into Michael Corbat Chief Executive OfficerSo I ll start with Google and Mark you can chime in as well So we are out with the announcement Obviously Q1 to Q2 we re going to be launching some products here in the US with them and so we re not out with the exact design of that but more to come in the not too distant future Mark Mason Chief Financial OfficerYes And on the operating efficiency in the earnings deck we kind of showed a chart on Page 18 of just the LTM efficiency ratio and there you d see we ve got discontinued downward trend of 56 5 for the year 89 basis points of improvement What I would say Mike is that we ve put out a target not just on returns but on flat expenses again this year We re gearing up for Investor Day We re going to make sure that we can talk to how we think about the future but also how we think about technology and the role that it plays now and going forward We ve given you some descriptions on the benefits that accrue to the firm from the investments we ve made already I think we ve demonstrated proof points of those generating productivity savings consistently and we expect that to continue But in terms of much more detail around the technology benefits or around how we think about beyond 2020 I d ask that you kind of wait for us to get to Investor Day where we can talk about it in a more holistic way Mike Mayo Wells Fargo Securities AnalystI guess I ll reserve May 13th to my calendar Thanks a lot Mark Mason Chief Financial OfficerThank you Michael Corbat Chief Executive OfficerThank you OperatorAt this time I would like to turn the conference back over to management for any closing comments Elizabeth Lynn Head of Investor RelationsThank you all for joining today and of course if you have any follow up questions please feel free to reach out to us and Investor Relations Thank you and have a good day Operator Operator Closing Remarks Duration 81 minutesCall participants Elizabeth Lynn Head of Investor RelationsMichael Corbat Chief Executive OfficerMark Mason Chief Financial OfficerJohn McDonald Autonomous Research AnalystGlenn Schorr Evercore ISI AnalystSteven Chubak Wolfe Research AnalystSaul Martinez UBS AnalystJim Mitchell Buckingham Research AnalystMike Mayo Wells Fargo Securities AnalystErika Najarian Bank of America Merrill Lynch AnalystMatt O Connor Deutsche Bank AnalystBetsy Graseck Morgan Stanley AnalystKen Houston Jefferies AnalystBrian Kleinhanzl Keefe Bruyette Woods AnalystMarty Mosby Vining Sparks AnalystGerard Cassidy RBC AnalystVivek Juneja JPMorgan Analyst
More C analysis
All earnings call transcripts |
C | PG E 5 pre market after Citigroup calls agreement big step forward | PG E NYSE PCG is indicated to open at its highest levels in five months as Citi analyst Praful Mehta upgrades shares to Buy from Neutral with a 15 price target up from 11 saying the company s potential agreement with bondholders is a big step forward
Bloomberg reported yesterday that PG E is near a deal with creditors including Pimco and Elliott on a restructuring plan which would offer a mix of equity and new debt if they abandon their rival restructuring plan
Mehta believes the constructive negotiations referenced in bankruptcy court yesterday suggest a deal with bondholders is imminent one that would limit California Gov Newsom s ability to push back on leverage levels
PG E likely will offer constructive solutions like building sales NOL monetization and regulatory asset recovery as ways to improve the credit profile Mehta writes
PCG s average Sell Side Rating Seeking Alpha Authors Rating and Quant Rating all are Neutral |
JPM | Early Signs Small Caps Undergoing Subtle Change In Momentum | There are some early signs markets are undergoing a subtle change particularly as relates to the dynamics between small and large caps
Right after Donald Trump was elected US president on November 8 2016 small caps became one of the go to sectors for risk on money This continued this year Late January small caps along with stocks in general peaked followed by a sharp drop into a reversal low on February 9 Between an intraday high of 1615 52 on January 24 and that low the Russell 2000 small cap index collapsed 11 1 percent in 13 sessions This was followed by a lot of back and forth action with higher lows but a new high did not come until mid May Chart 1 Large caps in the meantime were still stuck in a rut Both the S P 500 large cap index and the Dow Industrials are below their late January highs
Post election small caps primarily benefited from two tailwinds During election campaign Trump promised to cut taxes and regulations as well as increase infrastructure spending Small caps inherently are domestically focused thus tend to benefit more from cuts in taxes and regulations than their large cap brethren At least that is the conventional wisdom Because of their domestic focus they are also perceived rightly or wrongly as immune from the fallout of the ongoing trade dispute between the US and China in particular
Trump delivered on cuts in both taxes and regulations In recent weeks months trade tensions have escalated Yet small caps are beginning to act a little tired The Russell 2000 1687 08 last Monday rose to a new intraday high of 1708 56 but that was barely enough to surpass the prior high of 1708 10 from June 20 No breakout Too soon to make too much of this but this does represent a subtle change in small caps character
Small caps rather lethargic behavior recently has taken place even as the S P 500 has managed to rally to an interesting juncture As did the Russell 2000 the S P 500 too has made higher lows since the February 9 low As stated earlier the latter is still below its all time high of 2872 87 from January 26 which since has not been tested Rally attempts persistently got stopped at 2800 Once again the index 2801 31 finds itself at that level Chart 2
We are in the midst of 2Q earnings A convincing breakout raises the odds that bulls would at least try to push the index toward the January high This in the for what it s worth category In the past five months the S P 500 has traded within a rectangle A genuine breakout measures to 3000
With that said if early signs are any indication the earnings season has hardly gotten off to a great start Financials had already been acting poor That did not change last Friday Post earnings JP Morgan JPM Citigroup C and Wells Fargo WFC all fell
Speaking of earnings since 2Q ended 2018 operating earnings estimates for S P 600 companies have gone down by 0 31 to 49 95 This is as of last Thursday The high was recorded on March 22 when estimates peaked at 50 66 In 2017 these companies earned 31 19 Tax cuts provided a big boost to this year s and next estimates
The Tax Cuts and Jobs Act of 2017 was signed into law on December 22 last year A day before that 2018 estimates were 45 41 Consequently using forward estimates the price to earnings ratio looks a lot better than if one were to use trailing
Chart 3 uses four quarter rolling total The seven quarters in the box portray forward P E reflecting the jump in 2018 and 2019 estimates with the latter currently at 61 25 The question is how reliable are 2019 estimates Thus far except in the past few weeks they have been given the benefit of the doubt
Small caps along with US stocks in general reached a major low in February 2016 This coincided with a reversal in a downward trend lasting several quarters in S P 600 earnings On a four quarter rolling total basis earnings fell from 26 78 in 4Q14 to 19 66 in 4Q15 That was the bottom Earnings began an uptrend in 1Q16
This phenomenon is also reflected in the National Federation of Independent Business s sub index of current profit trend In August 2016 the red line in Chart 4 fell to minus 23 blue arrow Then there was another dip into December 2017 black arrow before going vertical In May actual earnings changes rose to a new high of three followed by a drop in June to minus one As good as it gets Once again this is too soon to conclude But it is definitely something to keep in the back of one s mind particularly considering how small caps have behaved in recent weeks
Incidentally non commercials have been cutting back on net longs in Russell 2000 futures for a while now In the week through May 29 they held 74 239 contracts By Tuesday last week this had dwindled to 44 771 contracts a nine week low More recently in the week to June 19 these traders held 67 483 contracts The cash peaked on June 20 This could very well be a case of the cash catching up with the futures Time will tell
For now how things transpire as earnings roll out this week and next will be telling The Russell 2000 remains overbought but is still above shorter term averages The 20 day was tagged last Thursday Near term support lies at 1640 1650 and after that 1610 ish The latter represents breakout retest and also approximates trend line support from the aforementioned February low
If fatigue continues this week there may be tactical shorting opportunities Wait and watch for now
Thanks for reading |
JPM | Global Stocks Rise As Earning Expectations Beat World Economic Fears | The markets opened on a high today on Monday and global market stocks reported a rise as the earning expectations beat the world economic fears especially those associated with China European shares were higher after Asian markets dropped Moreover the corporate earnings outlook was better and crude prices dropped due to supply concerns
As the world prepared for another week on Monday European stock markets opened higher as the expectations regarding the forthcoming earnings were better than the trade conflicts going on between Washington and Beijing
Data revealed that factory production growth and China s economy have both slowed down at the start of the week and investors are still worried Investors feel that there might be further issues for the economy and this will hurt the economy more
However despite this European shares were mostly higher but the gains seemed marginal The DAX index of Germany was the biggest riser for the day as it was up by half a percent before it gave up most of the gains The CAC 40 of France increased by 0 16 whereas the STOXX 600 rose by 0 23
For today the worst performing sectors were autos and the basic resources Both of them relied on the solid growth in China but amongst merger speculations the overall effect was outweighed Moreover the iShares MSCI World NYSE URTH that tracks 47 countries also remained flat for the day
A strategist at Peel Hunt Ian Williams while commenting on the growth of stocks said that there was nothing extra ordinary about the numbers and they were not way out of line Moreover he added further that the slower activity members were also kind of priced in
US banks started with their earnings season last week on Friday and this week many European countries also reported their numbers for the 2nd quarter
Mislav Matejka the equity strategist at JPMorgan Chase Co NYSE JPM said that the earnings results in the Europe and US both will be strong and they will beat expectations by about 4 5
On Friday strong profits from the energy and industrial firms underpinned the gains on Wall Street and therefore S P 500 e mini futures reported a rise of 0 1 on Monday
Latest data by China reveals that the economy grew by 6 7 during the 2nd quarter of the year but this was a slight decline from the 6 8 growth in the last three quarters
Moreover GDP figures were also quite in line with the market expectations but new data revealed that there was slower than expected growth in the country s industrial output which showed slow momentum and the call for the government to take strong measures to assist growth In retrospect the MSCI index the biggest and broadest index of Asia Pacific shares outside of Japan dropped by 0 36
On the other hand in the commodity market the US crude dropped by 0 76 settling at 70 47 per barrel whereas Brent crude dropped by 0 36 as it settled at 75 06 a barrel Gold prices also recovered from hitting their 7 month low because of a weak dollar |
MS | Morgan Stanley revises earnings boosts compensation after U S tax change | By Catherine Ngai NEW YORK Reuters The new U S tax law has taken a bigger bite out of Morgan Stanley s 2017 earnings than it initially expected and led its board to boost top executives deferred compensation from prior years the Wall Street bank said on Tuesday After further analysis of the law s particulars Morgan Stanley NYSE MS boosted its provision for income taxes by 43 million the bank said in its annual 10 K securities filing The adjustment reduced earnings per share from continuing operations by 3 cents per share in the fourth quarter and 2 cents per share for the full year The sweeping tax code changes enacted in late December cuts the corporate tax rate to 21 percent from 35 percent meaning that U S based corporations with the highest rates like banks would benefit in the longer term Morgan Stanley expects its overall tax rate from continuing operations this year to be 22 to 25 percent depending on where its earnings come from globally The bank s board also decided to change the amount of long term stock awards executives were awarded in prior years because of the way tax code changes affected the performance targets they had to hit
Although the new law is expected to boost future corporate earnings big Wall Street banks took large one time earnings hits last year related to deferred tax assets and earnings stored overseas |
MS | Japan stocks to claw back to near 26 year high strong yen bites Reuters poll | By Ayai Tomisawa TOKYO Reuters Japanese stocks are expected to claw their way back close to a 26 year high by end December up over 5 percent in 2018 but could be held back by likely prospects of a stronger yen a Reuters poll of market strategists and fund managers found on Wednesday Respondents in the latest Reuters poll were mostly optimistic about further gains into this year and next also based on a buoyant outlook for the global economy as well as the longest run of domestic growth in nearly 30 years However the gains will likely be limited as companies are expected to forecast weaker profits for the next year due to a stronger yen The Nikkei share average N225 is expected to trade at 24 000 at year end up over 7 percent from Tuesday s close of 22 389 86 according to the median forecast from 19 analysts and fund managers polled by Reuters in the past week The Nikkei is down around 8 percent from its 26 year high hit on Jan 23 That followed a Wall Street rout based in part on inflation worries that have boosted yields on the benchmark U S 10 year note US10YT RR to a four year high But the Nikkei has regained momentum along with U S stocks We know that high volatility and high yields do not mean an economic slowdown said Fumio Matsumoto a senior fund manager at Dalton Capital Japan one of the more bullish respondents in the poll forecasting the Nikkei to reach 25 000 at year end He added that growth and low volatility stocks which have outperformed the broader market in the past will likely make a turnaround He said value shares like banks and exporters are likely to be bid up from now on For its part the U S Federal Reserve looking past the recent stock market sell off and inflation concerns expects economic growth to remain steady and sees no serious risks on the horizon that might pause its planned pace of rate hikes From now to June we expect U S companies to post strong profits thanks to a big tax cut and shares will likely be strong on the prospect that U S rate hikes won t be delivered more than three times this year said Akio Yoshino chief economist at Amundi Japan Forecasts for end 2018 ranged from 20 000 to 28 000 They were 22 000 to 25 000 for mid 2018 In the previous poll conducted in October forecasts were 16 500 to 23 000 for mid 2018 and 14 500 26 000 for end December 2018 STRONGER YEN BITES A recent Reuters poll showed most analysts predict the Bank of Japan will keep a key part of its super easy monetary policy the long term bond yield target at zero percent throughout the year despite strength in Japan s economy Japanese yields would normally move upwards as well but the BOJ stops that from happening leading to a widening gap between the United States and Japan The interest rate difference created greater downward pressure on the yen last year but analysts say that is over and it will be the dollar instead that will be nudged downward The U S s twin deficits are to blame said Norihiro Fujito a senior investment strategist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities referring to the United States huge and growing budget deficit as well as the current account deficit In a separate Reuters poll more than half the economists said 110 114 yen to the dollar was the optimal exchange rate for Japan s export dependent economy Recently the yen has strengthened sharply to around 105 50 yen hurting exporters profits Fujito said that with the dollar trading at around 106 yen now by the time companies release their forecasts in late April May their own foreign exchange assumptions may range around 100 105 yen Earnings for the next fiscal year will likely be break even or they may just eke out small gains on the year Fujito said Analysts also said volatility still remains a focus point in U S shares Asked about which asset classes would be the most vulnerable if U S stocks move sharply answers ranged from emerging market shares and bonds developed market stocks and currencies as well as high yielding products We ve seen that Japanese stocks which have high liquidity got hit a lot as well as the yen in the wake of U S stock market s rout said Takashi Ito an equity market strategist at Nomura Securities This story corrects Nomura analyst s name in last paragraph
To read other stories from the Reuters global stock markets poll Additional polling by in BENGALURU Editing by Ross Finley and Subhranshu Sahu |
MS | Currency speculators play deaf as analysts yell year of the yen | By Swati Pandey SYDNEY Reuters BNP Paribas PA BNPP calls it the year of the yen Morgan Stanley NYSE MS proclaims it s the land of the rising yen While Citi has turned into a dollar bear with its latest report we continue to holler sell the dollar Though most speculators have still to heed them analysts are lining up to call a higher yen expecting its traditional safe harbor status to draw investors made nervous by ballooning U S deficits and heightened financial market volatility A stronger yen making imports cheaper would undermine the Bank of Japan s primary goal of increasing price growth to wrench the economy out of a long deflationary phase But analysts reckon the central bank may have run out of policy ammunition to resist the upward pull on the yen exerted by Japan s improved economic growth and huge current account surplus The Japanese yen can easily be the top performer among the G 10 currencies said Momtchil Pojarliev deputy head of currencies at BNP Paribas Asset Management referring to the Group of Ten advanced countries The Bank of Japan BoJ remains dovish for now but this means that the next policy shift can only be hawkish he added Second the Japanese yen is one of the cheapest currencies in the world Third the return of financial market uncertainty is supportive for the Japanese yen Yet currency speculators appear deaf to all the hollering having built huge short positions in yen futures even as the currency rallied to 105 5 per dollar in February from 114 5 in late 2017 Yen short positions remain about 40 percent larger than the past one year average and near levels seen in mid 2017 The numbers are even larger if short yen positions held by Japanese retail investors colloquially known as Mrs Watanabe are taken into account Latest monthly data from the Financial Futures Association of Japan FFAJ showed that at the end of January long positions in the dollar yen trade held by retail currency traders were at 3 009 trillion yen 28 09 billion That was the highest since January 2015 and more than three times the short positions at 922 billion yen If the analysts are right it sets the scene for a massive shakeout that could see the yen test 100 per dollar or even higher LONG DOLLAR SHORT YEN This one sided positioning has become a major risk for the greenback as a sustained rise in the yen would force investors to close out loss making positions by buying yet more yen A similar unraveling happened in early 2016 when positions in the yen swung sharply from short to long and the dollar followed by sinking from 120 00 yen to as low as 99 00 The current short position in the yen is also much larger than back in 2016 even though more analysts are turning bullish toward the Japanese currency This dissonance will eventually be resolved said Morgan Stanley analyst Hans Redekar who expects the dollar to ultimately succumb to twin deficit disease We have to go back to the mid 1960s to find a similar situation with the U S pursuing fiscal expansion despite labor market tightness strong private sector investment and widening foreign imbalances says Redekar The result was the breakdown of Bretton Woods Absent a fixed exchange rate regime it should instead now lead to USD weakness DOVISH BOJ Many analysts including National Australia Bank are predicting USD JPY around 100 105 over the coming months That could be a setback for Japan s export driven economy and a downside risk for inflation It would also be a major challenge for the Bank of Japan with inflation still well short of its 2 percent target Governor Haruhiko Kuroda has gone out of his way to assure investors that policy will remain easy a commitment underpinned by the government s nomination of two dovish deputies History however shows the impact of BOJ policies on the currency market has become smaller with every new iteration For example the yen fell for eight consecutive months on expectations of a radical easing in monetary policy when Shinzo Abe was elected prime minister in late 2012 The yen resumed its slide in 2014 following the BOJ s second round of quantitative easing and reached a 12 1 2 year trough in mid 2015 But when the BoJ eventually announced its latest yield curve control YCC policy in September 2016 the yen s decline was only modest and the currency has since recouped all that fall Just this month investors practically ignored the news of the reappointment of Kuroda and his two new deputies amid doubts policy could be eased any further Markets appear to be seeking clarity about whether the policy direction could really change under new members said Daiju Aoki Chief Japan Economist at UBS Chief Investment Office Wealth Management We expect no radical change of monetary policy from the current YCC Market expectations for changing the regime or additional easing if they surfaced would not last long GRAPHIC
GRAPHIC |
MS | Dodgy data casts cloud over Japan PM s labor reform push | By Tetsushi Kajimoto and Linda Sieg TOKYO Reuters Japanese Prime Minister Shinzo Abe s plan to revise labor laws a key part of his economic reforms to boost growth is facing political headwinds after the government admitted using flawed data to back up its proposals Abe has pledged to pass in the current session of parliament which ends in June laws that make the labor market more flexible and allow a more efficient allocation of resources The changes would be a key part of the so called third arrow of his signature economic policies which focuses on structural reforms However the government s admission earlier this month that data used to support the proposals contained errors have prompted opposition parties opposed to some of the reforms to insist the government go back to the drawing board While Abe s hefty majority in both houses of parliament means he could easily push through the legislation doing so could risk a perception of political overreach as he extends his reign into a sixth year At the same time failure to enact the reforms would be a embarrassment and disappoint business executives who want to see the scope for performance based merit pay expanded to help boost productivity in the world s third biggest economy Abe has only two choices to push through the legislation or reconsider and delay its submission to parliament Whichever he takes it would deal a blow said Atsuo Ito an independent political analyst On Wednesday Abe told a parliamentary panel the government would not forge ahead with the legislation until it clarified the facts called into question by the flawed data a step he said could take quite some time Abe came to office in December 2012 promising to revive the economy with three arrows of his Abenomics policies hyper easy monetary policy fiscal spending and structural reforms Critics say he has lagged on the third part of this agenda The overhaul would be the first major reform of labor laws in 70 years and businesses are keen to see two reforms in particular One would expand the categories of highly skilled and highly paid professions with no limits on working hours The other would expand a system of discretionary labor where employees are regarded as having worked a certain number of hours and paid a fixed wage regardless of how long they work The flawed data related primarily to this aspect of the proposals Japan ranks below its Group of Seven peers in labor productivity due to chronically long working hours and lower value added output according to OECD data Government data shows average annual working hours per Japanese worker at 1 719 hours shorter than South Koreans at 2 113 hours and American workers at 1790 but longer than other G7 countries A delay in the legislation s passage will clearly be a setback for Abe given a consensus among policymakers markets and academics that labor market reform is crucial for the Japanese economy said Takuya Hoshino an economist at Dai ichi Life Research Institute He added that the proposed changes were limited and symbolic but a step in the right direction Abe s Liberal Democratic Party has yet to sign off on the bills Some lawmakers worried about a backlash have suggested removing the proposal to expand the discretionary labor and highly paid professionals categories the very reforms of most interest to businesses media reported Also included in the reforms is a legal cap on overtime of 100 hours per month an effort to end phenomenon of karoshi or death from overwork The issue of brutally long hours at many Japanese firms grabbed attention in 2015 when a 24 year old employee at advertising giant Dentsu Inc committed suicide The government later ruled she had died of karoshi Critics on one side of the debate have said that cap would effectively condone a level of overtime that is harmful to workers health On the other side some economists say setting the cap reduces management flexibility The work style issue is extremely important for Japan which needs a more flexible labor market to reallocate labor more effectively otherwise the economy cannot grow and cannot sustain the social security system said Robert Feldman an economist at Morgan Stanley NYSE MS MUFG Securities in Tokyo
But my view is that this set of labor laws would not have a significant positive effect It might be better if they try again |
MS | Facebook s Sandberg uses investor meeting to urge gender equality | By David Ingram SAN FRANCISCO Reuters Facebook Inc NASDAQ FB Chief Operating Officer Sheryl Sandberg brought her message about workplace gender equality to a typically male domain on Wednesday urging attendees at an investor conference to improve mentoring of junior female colleagues Sandberg the No 2 executive at the world s largest social media network took a break from answering questions about privacy and Facebook s role in elections to address what she called an important moment for women given recent scandals over sexual harassment Go back and be loud and clear especially if you are a male that you are committed to mentoring women It will make a huge difference Sandberg said at the Morgan Stanley NYSE MS 2018 Technology Media Telecom Conference Sandberg 48 published a memoir about female empowerment Lean In in 2013 It became a bestseller and ignited debate over women s opportunities in the professional world It was not immediately clear how the audience reacted Morgan Stanley barred media from the conference although it allowed Facebook to broadcast audio on an investor website Sandberg near the close of her appearance said she wanted to use the remaining time to address a topic no one had asked about Investors you guys have a lot of power she said She cited survey research that said nearly half of male managers feared meetings with junior female colleagues even as they accepted meetings with male colleagues The result is unequal she said If managers don t feel comfortable having dinner with women then they shouldn t have dinner with men Sandberg said |
JPM | Global Investors May Spur Change in China s 13 Trillion Debt Market | Bloomberg China s central bank chief was perhaps surprisingly open last weekend about the limits to support in his nation for financial liberalization He s about to get a potentially powerful new ally
The near 13 trillion Chinese domestic bond market on course to overtake Japan as the world s No 2 will see some of its securities included in benchmark global indexes for the first time starting next week With overseas holdings already at record levels the influx of 100 billion or more a year will make the foreign investor community an increasingly significant stakeholder in China s financial system
Foreigners are already making demands including readily available hedging tools more transparent and faster registration procedures and less loudly given the sensitivity assurance they ll be able to take their money out when they like Their voices are set to become more important as their share of the domestic market climbs from little more than 2 percent today
As more people become part of the yuan asset market it requires China both to reform and to improve its domestic regulatory structure to ensure the healthy development and efficient functioning of its financial market said Linan Liu a greater China rates and foreign exchange strategist at Deutsche Bank AG DE DBKGn in Hong Kong It all helps in upgrading domestic financial regulation she said
Going Global
The fresh impetus comes from the phased inclusion of Chinese sovereign bonds and debt sold by three key state owned policy banks into the Bloomberg Barclays LON BARC Global Aggregate Index starting in April 1 Up to now inflows have been dominated by central banks and sovereign wealth funds Now private sector managers following the index will start joining in
A QuickTake on Chinese bonds inclusion in the Bloomberg Barclays index
Morgan Stanley NYSE MS sees as much as 120 billion going into China s government bond market annually from 2020 to 2030 Deutsche Bank s projections suggest foreigners will own as much as a fifth of central government debt in five years
There remain different voices on China s financial sector opening there are supportive voices and there are also people who are worried People s Bank of China Governor Yi Gang said March 24 at a forum in Beijing The process of opening could add to the complexity of risk control
Heavy Handed
Index inclusion will challenge the status quo of how China s financial markets are managed With tight capital controls a wide range of interbank liquidity tools and daily reference rates on the yuan Beijing has the power to dictate the level of borrowing costs and where money flows But the costs of any unexplained policy change will rise should it spook the new class of investors to pull their money out
In the aftermath of a shock yuan devaluation in 2015 Chinese authorities intervened heavily in the currency market and engineered a cash crunch in Hong Kong to punish bearish speculators That kind of heavy handed approach remains a concern for investors looking to diversify into China s bonds which last year offered some of the best returns globally
To help hedge against risks fund managers are pressing for more interest rate derivatives and a developed futures market which in turn would help address relatively low liquidity in Chinese bonds that tend to be bought and held by banks Foreign investors and Chinese commercial banks are barred from trading futures contracts on sovereign notes
Other index compilers are also looking at adding Chinese bonds FTSE Russell will announce in September whether it will include government debt in its flagship gauges of sovereign bonds and JPMorgan Chase Co NYSE JPM has also placed onshore notes on watch for inclusion in some of its indices Bloomberg LP owns Bloomberg Barclays indexes and Bloomberg News
A more rapid increase in the demand for Chinese bonds will require officials to further open up the debt market said Stephen Chiu foreign exchange and rates strategist at China Construction Bank Asia Corp |
JPM | Day Ahead Top 3 Things to Watch | Investing com Here s a preview of the top 3 things that could rock markets tomorrow
1 Lyft to Start Trading After Raising 2 34 Billion
Ride sharing company LYFT NASDAQ LYFT will start trading tomorrow on the Nasdaq after raising 2 34 billion with its initial public offering
Lyft priced an increased 32 5 million shares at 72 per share tonight the top of its boosted range indicating strong demand for the deal That values the company at 24 3 billion Reuters reported
The widely anticipated IPO had a host of big name lead underwriters including JPMorgan Chase NYSE JPM Credit Suisse SIX CSGN UBS and Jefferies
The deal is being watched as an early signal for demand in the market for more gig economy companies looking to debut including Lyft rival Uber
The stock will trade under the symbol LYFT
2 New Home Sales Expected to Bounce Back
The parade of housing numbers continues tomorrow with the latest on new home sales
The Commerce Department will report February figures on sales of new homes at 10 00 AM ET 14 00 GMT
On average economists predict that new home sales bounced back in February to rise 1 3 to an annual rate of 620 000 according to forecasts compiled by Investing com
Before the bell the Bureau of Economic Analysis will report personal income and spending numbers at 8 30 AM ET That report also comes with the Federal Reserve s favorite inflation gauge albeit from back in January
Personal income for February is forecast to have risen 0 3 while personal spending which will be reported for January is expected to post a 0 3 rise as well
That inflation gauge the core personal consumption expenditures PCE price index which excludes food and energy is expected to have risen 0 2 in January with the annual rate remaining at 1 9
3 Chicago PMI Michigan Sentiment Also on Tap
Also on the economic calendar are measures of manufacturing activity and consumer sentiment
The Chicago purchasing manager s index PMI which gives investors insight into manufacturing in the Midwest will come out at 9 45 AM ET 13 45 GMT
The March PMI is expected to fall to 61 according to economists
At 10 00 AM the University of Michigan issues its final measure of March consumer sentiment
Economists predict the sentiment index remained the same as the preliminary measure at 97 8 |
JPM | As IPO flood recedes Asia bankers bet on follow on capital raising | By Julia Fioretti HONG KONG Reuters Bankers in Asia are betting on newly listed companies returning to the markets for fresh capital as last year s flood of initial public offerings IPOs slows to a trickle with 2019 seeing the weakest start in equity sales in three years Equity sales in the region including IPOs convertible bonds and follow on sales fell 41 percent to 49 1 billion in the first quarter Refinitiv data show the slowest since 2016 Fees from equity capital market ECM deals have reached 966 million so far bankers worst quarterly haul in six years The data make for a sobering read after 2018 when Asia s red hot markets hosted many multi billion dollar IPOs including SoftBank Corp s 23 6 billion Tokyo float and Xiaomi s 5 4 billion one in Hong Kong But bankers hope some of the gloom will be lifted as many of the companies that went public last year return for additional capital making 2019 less a year of jumbo IPOs and more of follow on capital raisings and convertible bonds We are already seeing companies that went public last year coming back with follow on offerings said Goldman Sachs David Binnion co head of equity capital markets Asia ex Japan In many situations these follow on financings are coming sooner after listing than we have historically seen reflecting the capital intensive nature of these growth companies Many firms that went public last year raised less than they had aimed for as investors pushed back against lofty valuations That will further drive follow on activity bankers said Chinese electric vehicle maker NIO video streaming company iQIYI and e commerce firm Pinduoduo all 2018 IPOs have come back to the market to raise funds NIO raised 750 million in a five year convertible bond this year four months after it went public in New York while iQIYI raised 1 1 billion in six year convertible bonds this week in its second such issue within a year of its IPO Pinduoduo raised 1 6 billion in a follow on offering in February the fourth largest ECM transaction this quarter Asian companies have sold 21 3 billion in convertible bonds so far a record for this point in any year Graphic Asia ECM fees since 2013 IPO SLOWDOWN After a blockbuster IPO year for Asia in 2018 led by Hong Kong that hosted deals worth 36 3 billion its best year in eight 2019 is expected to be much slower Some drivers of last year such as mega IPOs out of China will probably be fewer said Murli Maiya co head of investment banking coverage for Asia Pacific for JPMorgan NYSE JPM There should be continued investor interest in IPOs but likely at different price points and in different sectors Hong Kong s largest IPOs this year are likely to be from non Chinese firms such as UK data centre operator Global Switch which plans to raise 1 billion and a spin off of the Asian interests of the world s largest brewer Anheuser Busch InBev which could raise over 5 billion sources say The largest IPO in Asia this year so far was the 687 million float of Embassy Office Parks REIT in India the country s first real estate investment trust IPO But bankers are optimistic the good performance of smaller IPOs such as CStone Pharmaceuticals and Chinese broker Futu Holdings will give investors confidence after the bleak performance of many newly listed shares in 2018 Despite the headline grabbing amounts raised in IPOs last year many companies languished below their offer prices with Sino U S trade tensions keeping investors on tenterhooks
Successful floats will give investors the confidence that the IPO market is still an important contributor to performance and that s important for the rest of 2019 said Jason Cox head of ECM Asia Pacific for Deutsche Bank DE DBKGn |
JPM | Commodity prices investment poised to extend upswing | By Eric Onstad LONDON Reuters A rebound in commodities prices and investment is poised to extend in coming months as the sector gets its traditional boost during the final stages of the global economic cycle along with other drivers While some investors worry about a possible recession commodities are due to benefit from an expected U S China trade deal tightening oil supply and potential short covering in beaten down U S grain futures The 19 commodity Thomson Reuters Core Commodity CRB Index which has rebounded 10 percent from an 18 month low touched at the end of last year should also get further support from easier monetary policy that has lifted all financial markets analysts and traders said Graphic Commodity Prices Clawing Higher From December Lows Commodities along with other financial markets have been buoyed after the U S Federal Reserve this month confirmed its three year drive to tighten monetary policy was at an end The dovish change from the Fed and growing stimulus in top commodities consumer China would extend the current positive economic cycle and support commodity prices JPMorgan NYSE JPM said in a note Late cycles are typically marked by outperformance of commodities JPMorgan analyst Dominic O Kane said The rise in commodities so far has been partly fueled by hopes for an agreement to end a trade war between Washington and Beijing helping to spur 2 1 billion of flows so far this year into commodity index funds and exchange traded funds data compiled by Citi showed Commodity assets under management have climbed to 407 billion breaching 400 billion for the first time since October Citi said based on data through March 5 Although the energy complex has recovered strongly this year positioning in crude oil is not overstretched analysts said According to the latest exchange data hedge funds have bought another 65 million barrels of petroleum futures and options the biggest one week increase since the end of August 2018 and a bullish signal That was because investors expect prices to be bolstered by supply side disruptions while OPEC and its allies comply with their plans to cut 1 2 million barrels per day of supply this year The funds net long position in Brent crude has more than doubled from a low hit in early December but is still less than half of the record high touched in April last year There s plenty of room on the upside said Ole Hansen head of commodity strategy at Saxo Bank in Copenhagen Graphic Hedge Funds Crude Oil Positions Rebound As part of a proposed trade deal Beijing has offered to make big ticket purchases from the United States to help reduce a record trade gap U S President Donald Trump s team has said those purchases would be worth more than a trillion dollars over about six years Agricultural exports to China could grow to 30 billion or more a year Citi analyst Aakash Doshi said in a note This compares to nearly 20 billion in 2017 The CBOT Chicago Board of Trade complex appears poised for a rebound in 2Q 3Q on the back of a U S Sino trade deal that could meaningfully boost Chinese purchases of soybeans corn ethanol cotton pork and other agricultural products he said Flooding in the U S Midwest makes agricultural futures vulnerable to short covering after bearish bets hit record levels in recent weeks and this could accelerate if Chinese purchases surge analysts said Graphic U S Agricultural Exports to China Industrial metals are moving into their strongest seasonal period when construction activity rises in top consumer China Both the fundamentals and technicals are supportive so if we can get some concrete news that a trade deal has been successful these things could really fly said Robin Bhar head of metals research at Societe Generale PA SOGN As seasonal demand is due to climb most metals should have market deficits this year and in 2020 according to analyst consensus forecasts compiled by Reuters polls Graphic Most Industrial Metals in Deficit |
MS | Trump Election Sparks Record ETF Inflows | Donald Trump should get into the ETF business According to research from Morgan Stanley NYSE MS in the past week long term mutual funds posted accelerating outflows after Trump s election but ETF s recorded the strongest inflows since July Morgan s figures come from data provider EPFR Global
According to the flows data last week there was a sharp uptick in domestic equity fund outflows and sustained outflows in all other asset classes Equity ETF inflows spiked however coming in at nearly 12 billion for the week to 9 November compared to outflows of 6 billion for domestic equity mutual funds
According to figures from JPMorgan NYSE JPM flows into ETFs accelerated towards the end of the week While data from Morgan Stanley and EPFR only goes up to 9 November JP Morgan s figures got up to November 11 and show that 22 billion flowed into US equity ETF s over the three days prior to the report which is not only three times larger than the outflow seen in the previous week before the election but it presents the strongest 3 day buying streak since last January
JP Morgan goes on to note that there was a spectacular divergence across sectors in ETF buying following Trump s election
Industrial Healthcare Technology and Financials equity ETFs saw inflows of between 3 7 of AUM over the past three days Consumer Discretionary ETFs saw a big outflow instead followed by bond like high yielding defensive sectors such as Utilities Consumer Staples and Telecoms Commodity sector ETFs such as Energy and Materials ETFs saw modest inflows and Gold ETFs saw outflows instead
Meanwhile emerging market ETFs s saw outflows in both equity and bond space as Trump policies such as trade and immigration restrictions are expected to have more negative impact on these markets
High yield ETFs also saw strong inflows As a percentage of assets under management inflows surpassed those for overall US equity ETF s last week
HY ETFs also saw strong inflows which in terms of AUM surpassed those for overall US equity ETFs We argued last week that US HY ETFs looked oversold at the end of last week and thus were more at risk of short covering relative to US equity ETFs Indeed Figure 3 which depicts the weekly change in the short interest for the biggest ETF in each major asset class saw a big divergence between US HY ETFs which saw the biggest decline and EM bond ETFs which saw the biggest increase in the short interest over the past week |
MS | Morgan Stanley Stock Has Soared Since Earnings Can The Trend Continue | It has been about a month since the last earnings report for Morgan Stanley NYSE MS Shares have added about 19 01 in the past month easily cruising past broad market performances in that time frame
Will the recent positive trend continue leading up to their next earnings release or is the stock due for a pullback Before we dive into how investors and analysts have reacted as of late let s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts
Recent Earnings
Morgan Stanley Tops Q3 Earnings Bond Trading SurgesSignificant improvement in trading revenues drove Morgan Stanley s third quarter 2016 earnings from continuing operations of 0 80 per share which easily surpassed the Zacks Consensus Estimate of 0 64 Further this shows a 138 jump from the prior year quarter which excludes DVA A drastic rebound in fixed income currency and commodities FICC trading revenues higher net interest income and a marginal increase in equity trading revenues were primarily responsible for significant improvement in earnings Further the company s capital ratios remained strong However weakness in underwriting income and advisory fees were on the downside Further a rise in compensation costs led to increase in operating expenses Net income applicable to Morgan Stanley was 1 60 billion up 57 year over year Rebound in Trading Supports Revenue Costs UpNet revenue amounted to 8 9 billion an increase of 15 from the prior year quarter Also it surpassed the Zacks Consensus Estimate of 8 2 billion Net interest income was 1 billion up 32 from the year ago quarter This was largely driven by a 20 rise in interest income Meanwhile total non interest revenue of 7 9 billion grew 13 year over year primarily supported by improvement in trading and investments Total non interest expenses were 6 5 billion up 4 year over year The rise is due to a 19 improvement in compensation and benefits Quarterly Segmental PerformanceInstitutional Securities IS Pre tax income from continuing operations was 1 38 billion up 101 year over year Net revenue was 4 6 billion a rise of 17 from the year ago quarter The improvement was primarily attributable to a 61 rise in FICC income partly offset by lower advisory revenues and underwriting fees Wealth Management WM Pre tax income from continuing operations totaled 901 million an increase of 9 on a year over year basis Net revenue was 3 9 billion up 7 year over year driven by higher transactional revenues and net interest income These were nevertheless partially offset by a fall in asset management fee revenues Investment Management IM Pre tax income from continuing operations was 97 million compared with pre tax loss of 38 million from the year ago quarter Net revenue was 552 million a surge of 101 year over year The rise reflected the reversal of previously accrued carried interest associated with the Asia private equity business As of Sep 30 2016 total assets under management or supervision were 417 billion up 3 on a year over year basis
How have estimates been moving since then
Following the release and in the last month investors have witnessed an upward trend for fresh estimates There have been five revisions higher for the current quarter compared to zero lower in the past thirty days As you can see in the chart below we are seeing a meaningful lift in the consensus as a result of these estimate revisions though the stock price is arguably surging thanks to this and a better rate environment
MORGAN STANLEY Price and Consensus
VGM Scores
At this time Morgan Stanley s stock has a poor Growth score of F however its momentum is doing a lot better with a C Following the exact same course the stock was allocated also a grade of C on the value side putting it in the middle 20 for this investment strategy So from a fundamental perspective at least there isn t a whole lot to like about MS shares In fact the company has an overall score of D for its VGM score
Outlook
Not only have estimates have been trending upward for the stock the magnitude of these revisions looks promising It comes with little surprise shares of MS have a Zacks Rank 2 buy and we are expecting more outperformance from MS over the next few months too
MORGAN STANLEY 12 Month EPS
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C | Citigroup Earnings Revenue Beat in Q4 | Investing com Citigroup NYSE C reported fourth quarter earnings that beat analysts expectations on Tuesday and revenue that topped forecasts
The firm reported earnings per share of 1 9 on revenue of 18 38B Analysts polled by Investing com anticipated EPS of 1 82 on revenue of 17 89B That compared to EPS of 1 61 on revenue of 17 12B in the same period a year earlier The company had reported EPS of 2 07 on revenue of 18 57B in the previous quarter
Citigroup NYSE C shares gained 1 24 to trade at 81 65 in pre market trade following the report
Citigroup NYSE C follows other major Financial sector earnings this monthOn Tuesday JPMorgan reported fourth quarter EPS of 2 57 on revenue of 29 21B compared to forecasts of EPS of 2 35 on revenue of 27 87B
Wells Fargo Co earnings missed analysts expectations on Tuesday with fourth quarter EPS of 0 93 on revenue of 19 86B Investing com analysts expected EPS of 1 12 on revenue of 20 11B
Stay up to date on all of the upcoming earnings reports by visiting Investing com s earnings calendar |
C | Citigroup Q4 reflects gains in consumer investment banking units | Citigroup NYSE C Q4 EPS of 2 15 improves from 2 07 in Q3 and 1 61 in Q4 2018
Beats consensus estimate of 1 83
Citi rises 1 0 in premarket trading
CEO Michael Corbat notes continued strong growth in branded Cards and momentum in attracting digital deposits in the U S consumer business while Investment Banking gained share and Treasury and Trade Solutions grew revenue
Q4 net interest revenue of 12 0B rose 3 Q Q and 1 Y Y
Q4 allowance for loan losses was 12 8B at quarter end or 1 84 of total loans vs 12 3B or 1 81 a year earlier
Full year return on tangible common equity of 12 1 exceeds the bank s target
Tangible book value per share of 70 30 increased from 69 03 at the end of Q3 2019
Conference call at 11 30 AM ET |
C | Citigroup Q4 reveals number of positive trends | Wolfe Research analyst Steven Chubak sees a good number of positive trends in Citigroup s C 2 2 Q4 helping to boost its shares
Those trends include revenue growth across Global Consumer Banking full year ROTCE of greater than 12 and better efficiency Chubak notes that Citi shares have been underperforming its peers YTD
Citi beat expectations on net interest income and noninterest revenue but missed on provision expense and loan growth KBW analyst Brian Kleinhanzl writes
Like JPMorgan s Q4 Citi s stronger than expected noninterest revenue was driven by trading which increased 31 Y Y and FICC up 49
On the earnings call Wolfe s Chubak says he ll focus on updated ROTCE targets CECL guidance strong consumer loan growth and sustainability and outlook for capital return
Conference call coming up at 11 30 AM ET
See Key Stats Comparison with those of its peers
Previously Citigroup Q4 reflects gains in consumer investment banking units Jan 14 |
JPM | Week Ahead U S Stocks Eye New Records As Earnings Take Center Stage | US major indices close higher on the week S P 500 now 2 4 percent from record
Russell 2000 under pressure demonstrating trade war could be of receding interest
Investors rotate into mega caps
Oil back above 70
Dollar under pressure
Markets appear to be pricing in another quarter of double digit economic growth after the most significant corporate tax cuts in history All of which on Friday spurred traders to bid up US equities for the second week in a row The Dow finished the day up 0 38 the S P 500 was up 0 11 while the NASDAQ Composite closed just a hair higher finishing up 0 03
Positive economic data is being buttressed by increasing hopes of a buoyant earnings season with early reports on Friday from JPMorgan Chase NYSE JPM and Citigroup NYSE C showing handsome beats for both major banks As we head toward the start of next week s trading most stocks are just a couple of percent from their all time highs
Trade Fears Waning
The S P 500 s climb on Friday was led by defensive Consumer Staples 0 65 percent demonstrating that investors are still mindful of the global trade dispute However Consumer Staples was followed closely by growth sector Energy 0 53 percent and more importantly Industrials 0 52 percent a sign that demand is picking up for the most beleaguered sector in a world beset by a trade war
The leading benchmark rallied 2 6 percent on a weekly basis advancing for a second week and posting a higher peak extending the uptrend since the February low to reach the highest close since February 2 closing just 2 6 percent below its January 29 all time high
The Dow Jones Industrial Average outperformed the S P 500 on Friday as ebbing trade concerns rendered the export reliant mega cap index under priced In this sense it mirrored SPX Industrials The Dow added 2 4 percent for the week leaving it 6 4 percent from its record high of January 26
The NASDAQ Composite posted a dual record on Friday both on a closing and high price basis Its increased 0 41 percent on the week The price on Friday formed a Doji Japanese candlestick which could signal that the rally is losing steam The gap between Thursday s and Friday s price action also sets this up for an Evening Doji Star a pattern that demonstrates bears are taking over
That will be more likely if Monday s price action gaps down as well a closing deeply into Thursday s candle s real body would be another sign price action between open and close excluding the shadows the intraday high and low it it s traded with heavy volume
The Russell 2000 bucked the upward trend It fell 0 2 on Friday The small cap index also retreated 0 32 percent on a weekly basis but still managed on Tuesday to post an intraday new all time high before it closed with a loss Technically the weekly price action formed a Doji confirming the resistance of a preceding Doji three weeks earlier in mid June which was the centerpiece of a bearish Evening Star pattern
While global trade remains in the headlines with the potential for another round of tariffs to the tune of 200 billion of Chinese goods still front and center pressure on small caps is an encouraging sign The only reason the Russell index has been outperforming is the small size of its listed companies which allows them continued growth from domestic sales alone providing immunity from a trade war which affects only companies relying on exports for growth
Should the tide turn and shares of local firms begin to significantly lose steam it would be a market indicator that traders are over the trade war Were that to be the case the Dow might stand to be the biggest winner since it would be considered underpriced in the post trade war market narrative after having been sold when trade dominated market psychology
However even if the new batch of tariffs directed against China were to stay on the docket it will take time for them to trigger Public comments and hearings on the matter are scheduled for August 20 23 followed by a decision due sometime in September That leaves investors precious time in which to focus on market nuts and bolts
With underlying economic fundamentals still positive and earnings expected to remain robust a trade dispute is likely to recede into the background From the current vantage point its impact is debatable and any assumed metrics about its possible effect primarily educated guesswork at best
That doesn t mean an escalation of diplomatic tensions won t increase volatility To be honest we d be surprised if they didn t Long term investors will need to keep their eyes on the prize buying and holding since we remain convinced prices will rise At the same time short term traders will have a target rich environment for quick trades preferably within the uptrend on the dips
Week Ahead
All times listed are EDT
Sunday
22 00 China GDP Q2 forecast to grow by 6 7 percent YoY from 6 8 percent and 1 6 percent from 1 4 percent QoQ
This particular read will carry additional weight during a trade war between the world s two largest economies We ve been saying that the US has been winning the trade disagreement in the sense that its assets have been rising while China s have been falling This includes its major equity benchmark the Shanghai Composite entering a bear market and its currency the yuan reaching an 11 month low Government economists might therefore be suspected of producing a positive surprise since China s data hasn t always been considered truly representative
The USD CNY pair did not only overcome its preceding September peak but closed above it in a sign of bullish determination As it did so it also closed above the 100 WMA after crossing above both the 100 and 200 WMA three weeks earlier Note however the Death Cross a couple of weeks earlier when the 50 WMA crossed below the 200 WMA
Monday
8 30 US Retail Sales June Empire State Manufacturing Index July sales expected to rise 0 6 percent Mom from 0 8 percent and Empire State Index to fall to 22 75 from 25
The Dollar Index fell on Friday down 0 22 forming a shooting star However it advanced 0 7 for the week driven by trade war worries and comments by US President Donald Trump against other countries during his Europe trip
Technically the dollar has been consolidating since May 30 Should the bearish implication of the Friday close push prices below 94 00 they may next cross below the neckline of an H S top guarded by the 50 DMA green Meanwhile the 100 DMA blue is attempting a bullish crossover of the 200 DMA red A failure would add to the bearish outlook of technically oriented traders
Tuesday
4 40 UK Employment Data May unemployment rate to rise to 4 3 from 4 2 June claimant count to be 11K from 7 7K and May average earnings to increase 2 7 from 2 5 including bonus
Wednesday
4 30 UK CPI June YoY inflation to rise 2 5 YoY from 2 4 and core CPI to be 2 3 from 2 1 YoY MoM CPI to be 0 4 in line with May
5 00 Eurozone CPI June final YoY figure to be 2 from 1 9 and 0 1 MoM from 0 5
8 30 US Housing Starts and Building Permits June starts to be down 4 MoM from a 5 rise and permits to be up 0 7 MoM from a 4 6 fall
10 30 US EIA Inventories w e 13 July stockpiles forecast to fall by 1 9 million barrels from a 12 6 million decrease a week earlier
The price of oil managed to remain above the 70 key level despite the sharpest one day decline in nearly 13 months after Libya renewed production amid an outlook for waning demand The narrative overshadows the most significant fall in US crude oil inventories in almost two years
As well Wednesday s selloff was followed by two consecutive Doji on Thursday and Friday demonstrating that the commodity s move has lost steam Finally the price found support above the 50 DMA green all signs that prices may be rebounding as the sharpest drawdown in almost two years gets priced in
19 50 Japan Trade Balance June deficit expected to be Y235 billion from Y578 billion a month earlier
21 30 Australia Employment Data June 18 000 jobs expected to have been created from 12 000 a month earlier while the unemployment rate rises to 5 5 from 5 4
Thursday
4 30 UK Retail Sales June forecast to rise 2 4 YoY from 3 9 and 0 4 from 1 3 MoM Markets to watch GBP crosses
8 30 US Initial Jobless Claims w e 14 July Philadelphia Fed Manufacturing Index July claims to rise to 217K from 214K while the Philadelphia Fed Index rises to 21 5 from 19 9
19 30 Japan CPI June inflation expected to be 0 9 YoY from 0 7 and 0 1 MoM in line with May Core CPI to be 0 7 YoY
Friday
8 30 Canada CPI June forecast to be 2 5 YoY from 2 2 and 0 3 MoM from 0 1 Core CPI to be 1 5 from 1 3 YoY |
JPM | Will Risk Appetite Resume In The Week Ahead | The S P 500 rose 1 5 last week for the second week in a row reflecting the return of risk appetite and putting the trade war noise in the back seat The index is currently up 4 8 year to date and trading above the key level of 2 800 Whether the rally in equities will be sustained this week will likely depend on multiple factors including earnings politics and monetary policy
So far earnings from the big U S banks have been mixed JPMorgan Chase Co NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC all saw their shares decline after reporting results on Friday However out of the 5 of companies who announced actual results 89 of the S P 500 companies managed to beat EPS which sounds encouraging Investors shouldn t just focus on Q2 figures but also on the guidance for coming quarters especially given that the stronger Dollar and trade worries may start having a negative impact on forecasts
Last week the U S proposed fresh tariffs on 200 billion worth of Chinese goods China still has yet to respond to the new threat which is likely to dominate the headlines again It will also be interesting to see if today s E U China summit will lead to a stronger coalition between the two economic powers as both continue to struggle with Trump s administration
The summit between presidents Trump and Putin will also take centre stage today especially after 12 Russian agents were indicted in Mueller Investigation The summit also comes after Trump clashed with his NATO allies last week in Brussels over their defense spending policies It s hard to expect the outcome of the meeting but the U S current European allies are certainly worried
Investors and traders will also keep a close eye on Fed Chair Jerome Powell who will deliver his semi annual testimony before Congress on Tuesday Although he s likely to remain upbeat on the U S economic growth prospects he still needs to address how central bank will react if the ongoing trade disputes escalate further in the coming months Any signs of slowing down the pace of interest rate hikes will drag the Dollar lower
Sterling will face a new test today as Theresa May s Brexit strategy will be put to vote in Parliament Brexiters want May to change course on her strategy which has already led to several resignations from senior Tories Although May is not likely to be defeated in this vote a high number of opposition is still likely to undermine negotiations going forward
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MS | Lithium prices 45 by 2021 Morgan Stanley says in cutting Albemarle SQM | Albemarle NYSE ALB 3 7 premarket as Morgan Stanley NYSE MS downgrades shares to Underweight from Equal Weight with an 85 price target cut from 100 forecasting lithium prices to plunge 45 by 2021 Stanley says new lithium projects and planned expansions by the largest producers in Chile threaten to add 500K metric tons year to global supply by 2025 and battery electric cars would have to comprise 31 of global sales in 2025 from less than 2 currently to clear the market The firm also has material concerns on the supply side following the recent Chilean government agreement with SQM which the firm also downgrades to Underweight SQM 2 4 premarket Notable Calls says this is the type of call that could send ALB and AQM down 7 10 Now read |
MS | Banks increase CLO forecasts after Dodd Frank court ruling | By Kristen Haunss NEW YORK LPC Banks are expecting increased US Collateralized Loan Obligation CLO fund issuance after a US court ruled that the funds will shortly be exempt from regulations that require managers to hold some of their deal Morgan Stanley NYSE MS increased its 2018 US CLO forecast by US 10bn to US 110bn following the decision and Deutsche Bank DE DBKGn raised its forecast to US 120bn from US 110bn according to reports this month The US CLO market the largest buyer of leveraged loans cheered a decision by a US Court of Appeals on February 9 that the funds will be exempt from Dodd Frank risk retention rules which require managers to hold 5 of their fund Removing the retention hurdle should help more firms to raise deals especially smaller managers that lacked the required capital Issuance is off to a strong start this year with US 13 5bn of CLOs printing through February 16 showing an increase of more than 700 in volume from the same period in 2017 according to Thomson Reuters LPC Collateral data CLO forecasts for 2018 were already strong ranging from US 90bn to a record US 140bn but some banks now expect the court decision to fuel even more funds Citigroup NYSE C kept its record US 140bn forecast in place but increased its estimate for the number of deals that will be reworked according to a February 20 report The bank says US 110bn will be refinanced and US 120bn will be reset up strongly from a January forecast of US 60bn of refinancings and US 105bn of resets JP Morgan also increased its forecast for US CLO refinancings and resets raising it to US 115bn from US 70bn according to a February 23 report Refinancings keep funds maturities in place but change the interest rate on one or more debt tranches whereas resets extend maturities to allow CLOs to stay outstanding longer Decreasing spreads paid to senior CLO debtholders increases the payout to investors in the most junior tranche as equity holders receive the interest left over after all other investors are paid With the ruling managers no longer need to raise long term capital to refinance and improve the economics of older deals which may drive more refinancing and reset activity according to Maggie Wang head of US CLO and Collateralized Debt Obligation research at Citigroup Doing a reset will allow managers to modify terms and boost CLO equity valuations at the same time she said in an email Citigroup estimates US 11bn was raised to help managers comply with risk retention and about US 3bn is still left to be deployed according to the report The retention vehicles will stay in place but may seek more flexibility in order to invest in the equity of existing funds the bank said Risk retention vehicles brought new investors into the market that offered CLO managers long term capital said Jonathan Insull managing director at Crescent Capital Group The advantage of a dedicated pool of capital has been proven he said Earlier this month the US Court of Appeals for the District of Columbia Circuit ruled in favor of the Loan Syndications and Trading Association LSTA the trade association representing the US CLO and leveraged loan markets The LSTA sued the Federal Reserve and Securities and Exchange Commission in 2014 arguing risk retention was arbitrary capricious and an abuse of discretion Regulators have 45 days from the ruling to seek an en banc review a hearing in front of the active US Court of Appeals judges There is also a separate 90 day window to request a Supreme Court review The market remains optimistic while it waits to see if the court s decision will stand
The court ruling will encourage more asset managers particularly smaller ones to issue CLOs in the US market Wang said |
MS | Soft new home sales number buoys bond market | This just in Bonds are higher for a third straight session Helping sentiment today was a stinker of a new home sales number for January with the seasonally adjusted annualized rate of 593K down 7 8 from December and well shy of hopes for 648K It s also 1 weaker than the rate in January a year ago This report s numbers are subject to sometimes sizable revisions In any case the 10 year Treasury yield at one point last week flirting with 3 is off another 3 6 basis points today to 2 83 In other fixed income news bullish contrarians may surely be hearing a bell ringing for a top in yields after Goldman over the weekend started talking about the implications of the 10 year yield hitting 4 5 How about punching through 3 first Put Morgan Stanley NYSE MS in that group of contrarians The rates strategy team there is happy to take the other side of bearish bets by the likes of Goldman and Warren Buffett TLT 0 6 TBT 1 2 Now read |
MS | Gogo aims for positive FCF in 2019 | Gogo NASDAQ GOGO says it s on target to reach positive FCF in 2019 and FY20 The comment comes in an investor presentation via a regulatory filing Previously Gogo 7 4 after Q4 revenue beat in line guidance Feb 22 Previously Gogo continues to slide after earnings Morgan Stanley NYSE MS comments on weakness Feb 22 Previously JPMorgan NYSE JPM downgrades Gogo on weak guidance Feb 23 Now read |
JPM | ECB Looks to Ease Banks Pain in Era of Sub Zero Interest Rates | Bloomberg The European Central Bank looks increasingly set to throw a fresh lifeline to the euro area s cash strapped banks a tacit acknowledgment about the side effects of their aggressive stimulus measures
President Mario Draghi s hint that the institution may soften the impact suggests officials are now listening to the squeals of banks straining from almost half a decade of negative interest rates
The ECB has previously signaled that it s keeping an eye on the fallout but is now being forced into a deeper rethink because of plans to keep rates below zero for even longer Extending the stimulus is part of its response to an economic slowdown that s proved deeper than many anticipated
Draghi s challenge is how to tweak the system without sending the wrong signal either of watering down the policy or cementing an approach that will push out expectations for interest rate increases even further into the future Another complication is how to avoid changes that overly favor one country over another In any case the ECB looks increasingly committed to providing a lifeline for banks
Monetary policy is operating though the financial sector said JPMorgan Chase NYSE JPM International Chairman Jacob Frenkel a former governor of the Bank of Israel A financial sector not strong enough weakens the effect of the transmission So we must make sure the financial system is strong enough
In the meantime the ECB is planning to offer euro area banks another round of cheap funding if they want it However it will probably be less generous than previous rounds and much of the detail still hasn t been disclosed
What Bloomberg s Economists Say
Draghi s comments today suggest the Governing Council is taking a closer look at its options The most likely tool for pain relief is the targeted longer term refinancing operations
David Powell and Maeva Cousin euro area economists Click here to view the piece
A so called tiering system where some reserves institutions hold at the central bank are excluded from the penalty of negative rates has been the typical approach used by other central banks It s also one that the ECB previously rejected partly out of concern on its complexity
Tiering would certainly work to support profitability in the banking sector but also in terms of lifting confidence in the sector said Anatoli Annenkov an economist at Societe Generale PA SOGN in Paris A key problem is likely what kind of message it would send in terms of how long rates would remain negative
Here is how the tiering system looks in other countries
Japan
When Japan decided to go negative in 2016 it rolled out a three tier system that effectively excluded most deposits A zero interest rate and a positive interest rate apply to financial institutions current account balances at the Bank of Japan up to certain thresholds
Governor Haruhiko Kuroda said the arrangement was openly designed in a way that would mitigate a concern over undue impact on financial institutions earnings That hasn t stopped banks from complaining
Switzerland
The Swiss National Bank unveiled negative interest rates in December 2014 as part of a last ditch attempt to save its doomed currency ceiling which was buckling under pressure from Russian inflows and a weakening euro in the prelude to the ECB s quantitative easing
The system has two elements All institutions with a banking license can deposit overnight up to 20 times the minimum capital required of them before having to pay negative interest of 0 75 percent For other institutions such as insurers and foreign banks with sight deposit accounts the negative rate applies on balances exceeding 10 million Swiss francs 10 million
More than 50 percent of the deposits with the SNB were exempt from the negative rate as of the end of 2018 while for the ECB it was just 6 2 percent according to calculations by Maxime Botteron an economist at Credit Suisse SIX CSGN in Zurich
Denmark
The euro area s Nordic neighbor first introduced negative rates in 2012 with the aim of weakening the currency It operates a two tiered system Some overnight money can be parked for free at the central bank but any excess is kept instead in one week deposits penalized at minus 0 65 percent
Sweden
Alongside the ECB the Riksbank stands out as a proponent of a single tier negative rate The country was cited critically in a paper co written by former U S Treasury Secretary Lawrence Summers on negative rates for the lack of overall transmission of the rate across the economy while it also hurt bank profits The central bank rejected those findings
Other Approaches
Simply raising the deposit rate currently at minus 0 4 percent is probably unpalatable for Draghi since it might be seen as a withdrawal of stimulus at a time when the economy is slowing
The ECB could alternatively adapt its newly revamped program of long term loans for banks to effectively pay them to boost lending to offset the impact of negative rates |
JPM | Lira Resumes Retreat Even as Turkish Swap Rates Surpass 1 000 | Bloomberg The Turkish lira resumed declines on Thursday even as the nation orchestrated a currency crunch to stem the currency s losses days before an election that will test support for President Recep Tayyip Erdogan s rule
Investors dumped bonds and stocks on Wednesday and the cost of borrowing liras overnight on the offshore swap market soared past 1 000 percent because local banks are under pressure not to provide liquidity to foreign fund managers who want to bet against the lira A government official said the measures are temporary
This has forced investors who want out of their lira positions to instead sell other Turkish assets to get the cash they need to close those trades The yield on two year Turkish bonds jumped above 20 percent and stocks slid the most since July Fund managers including Japan s Daiwa SB Investments Ltd said they are rethinking investments in the country
I ve never seen a move like this in the 21 years I ve been watching this market said Julian Rimmer a trader at Investec Bank Plc in London This amounts to sacrificing long term pragmatism for a short term political expedient Such tactics will make many traders question the investability of the lira
By engineering a situation whereby investors can t move out of liras easily Turkish authorities have averted a currency slide before a March 31 vote that ll determine who governs Turkey s cities That s good for Erdogan who s already contending with a recession soaring inflation and opposition parties trying to undermine him But it comes at the cost inflicting pain on the investors Turkey needs to roll over 177 billion of foreign currency debt coming due within the next 12 months
Turkey s main stock index fell 5 7 percent on Wednesday almost erasing all of its 2019 gains The yield on two year bonds climbed 47 basis points to 20 45 percent and the cost of insuring Turkish debt against default jumped
Even the lira which rallied on Monday and Tuesday couldn t escape the rout as local companies and individuals loaded up on dollars according to two traders who declined to be identified As a sign of how bearish Turks are on their currency s prospects households and businesses are now holding more of their savings than ever before in dollars and euros
The currency fell on Thursday morning weakening 2 4 percent to 5 4584 per dollar as of 9 47 a m in Istanbul Default swaps edged down five basis points to 454 Two year bond yields were eight basis points lower at 20 37 percent
Turkish officials confirmed on Wednesday that foreigners were struggling to get out of lira positions One senior official said the measures are backed by the government and aren t permanent Policy makers remain committed to a freely floating currency although regulators will act to prevent any excessive depreciation even after the elections said the official who declined to be named because civil servants aren t allowed to speak to the media
The turmoil for foreign investors started late last week when after months of relative calm the lira slid 5 1 percent in a single day on Friday The selling came on the heels of a research note from JPMorgan Chase Co NYSE JPM recommending investors get out of the lira
That marked a U turn because the lira had become a darling for currency traders since the central bank raised interest rates to 24 percent last September But with elections only a week away the bearish call provoked a stern reaction from Turkish authorities who accused the New York based lender of giving misleading and manipulative advice Erdogan even warned on Sunday that bankers deemed responsible for speculating against the currency would be punished
The threats increased the resolve of foreign hedge funds to close their lira positions only to find the Turkish banks they usually do business with weren t willing to provide cash for the trade Even before the latest developments Turkey imposed a limit last summer on how much banks could lend to overseas counterparties of 25 percent of equity a move designed to help prevent speculative attacks on the lira
As an indication of how bad the liquidity crunch is the cost of borrowing the lira overnight in the offshore market surged more than 50 fold this week to the highest since Turkey s 2001 financial crisis That s why the lira s gains this week aren t offering an relief to investors with long positions the high foreign exchange funding rates are likely to wipe out any money they might have made in closing those trades
Erdogan who was sworn in with vast executive powers last June has been campaigning across the country for the ruling AK Party which is facing competitive municipal races in the capital of Ankara and the commercial hub of Istanbul this weekend That poses a threat to its quarter century long hold on the two cities
The important thing to watch is policy after elections said Shamaila Khan the New York based director of emerging market debt at AllianceBernstein Holding LP The government tends to veer towards more orthodox policy when under pressure
One of the reasons investors suddenly soured on the lira last week was data that revealed the central bank had drawn down billions of dollars in foreign exchange reserves in March prompting speculation it was using them to prop up the lira before the elections to avoid the kind of volatility that happened last year
Some analysts and investors contacted by Bloomberg who declined to go on the record for fear of backlash from Turkish authorities said that as the lira becomes a very difficult currency to trade investors may be less inclined to invest in Turkey in the future
Takeshi Yokouchi an emerging market fund manager at Daiwa SB was forced to backtrack on a plan to add to his Turkish bond investments because of the constraints in trading Instead he s going to rotate some of his lira holdings into longer duration bonds or cash
With the swap moves I m now forced to take an unusual strategy he said
Updates with Thursday lira stocks moves in eighth paragraph |
JPM | Top 5 Things to Know in The Market on Thursday | Investing com Here are the top five things you need to know in financial markets on Thursday March 28
1 U S Q4 GDP Final Estimate
Following a batch of underwhelming economic reports the final reading of fourth quarter U S growth will be the main event for financial markets as investors watch for further signals on the strength of the economy
The U S Commerce Department will release final figures on fourth quarter economic growth at 8 30AM ET 12 30 GMT
It is expected to show the economy expanded at an annual rate of 2 4 in the last three months of 2018 downwardly revised from a preliminary estimate of 2 6 It expanded by 3 4 in the third quarter of last year
A report on initial jobless claims is also due at 8 30AM ET 12 30 GMT followed by the latest data on pending home sales at 10AM ET 14 00 GMT
U S stock index futures pointed to a cautiously higher open ahead of the data
At 5 50AM ET 9 50 GMT the blue chip Dow futures were up 27 points or about 0 1 the S P 500 futures inched up 3 points or around 0 1 while the tech heavy Nasdaq 100 futures indicated a gain of 7 points or roughly 0 1
In the bond market the yield on the benchmark 10 year Treasury note was at 2 38 after hitting an overnight low of 2 34 a level not seen since December 2017 Meanwhile the yield on the three month Treasury bill stood at 2 44
The U S dollar index which measures the greenback s strength against a basket of six major currencies was up 0 2 at 96 49
2 Fed Speakers
Market players will also pay close attention to comments from a parade of Federal Reserve officials for insights into the outlook for monetary policy in the months ahead
Fed Vice Chair Richard Clarida Governors Randal Quarles and Michelle Bowman and St Louis Fed President James Bullard are all set to comment on the world s largest economy at separate events throughout the day
The Fed last week suggested no rate increases would come this year after indicating in December that two could take place The U S central bank also indicated it intends to end the reduction of its massive 4 2 trillion balance sheet by September
3 U S Trade Team Arrives in Beijing
U S Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin arrived in Beijing for a new round of talks with Chinese officials to work on a deal that would end a months long trade war
The in person talks which will be followed by a round in Washington next week are the first face to face meetings the two sides have held in weeks after missing an initial end of March goal for a summit between U S President Donald Trump and Chinese President Xi Jinping to sign a pact
China has made unprecedented proposals on a range of issues including forced technology transfer as the two sides work to overcome remaining obstacles U S officials said ahead of the talks U S officials said ahead of the talks
4 Turkey Turmoil
The Turkish lira plunged as much as 5 against the dollar in the latest day of turbulent trading ahead of the local elections this weekend that may see President Tayyip Erdogan s ruling party lose control of some major cities
The lira was last at 5 5375 against the U S currency down around 4 on the day
Polls suggest Erdogan could be defeated in the capital Ankara in what would be a damning judgment on the President s increasingly autocratic style of government
The nationwide local elections are the first since last year s currency meltdown
Turkey s central bank has taken a range of measures to stop the lira being shorted something for which Erdogan has blamed foreign speculators notably JPMorgan Chase Co NYSE JPM
Read more Turkey Markets Unraveling Fast Jesse Colombo
5 Brexit Stalemate
The U K s House of Commons voted against all eight of the alternatives to Prime Minister Theresa May s divorce deal last night in London leaving the Brexit process as deadlocked as ever
May told her Conservative lawmakers she would step down if her Brexit deal was finally passed by parliament at the third attempt in a last ditch bid to win over many of her party s euroskeptic rebels
But some were unmoved and the Northern Irish Democratic Unionist Party which is crucial to getting the agreement through said it would reject the deal again
As such the default outcome is still that the U K leaves the EU on April 12th without a deal
Sterling was down 0 4 against the dollar at 1 3130
Reuters contributed to this report |
JPM | AllianceBernstein Looks to Japan EM as U S Equities too Rich | Bloomberg U S equity valuations have become too stretched after the recent rally and that is opening up opportunities in other stock markets according to AllianceBernstein LP
Equities have had a hell of a run and valuations are fairly rich in the U S for sure but there are a lot of places Japan being an example and emerging markets were there is considerable value Chief Executive Officer and President Seth Bernstein said at a briefing in Sydney on Thursday We are going to see less correlation in some of these markets as valuation issues become more apparent
The S P 500 Index has risen 12 percent in 2019 just days away from its best quarter since 2012 At the same time Japanese stocks are headed for the first monthly loss this year as the sharp decline in developed market sovereign bond yields escalates concerns surrounding global economic growth
Bernstein is less concerned about a closely watched segment of the U S yield curve inverting last week which he attributes mainly to increased issuance Inverted curves are an okay predictor of recessions they are a terrible predictor of the timing of that recession he said He expects the curve to be flat for a very long time and it will invert as we get closer to a recession
Ultimately markets are more concerned about the shift in the global trade landscape said Bernstein who joined the money manager with about 547 billion in assets in a shakeup in 2017 after a 32 year career at JPMorgan Chase Co NYSE JPM
What I think the market is increasingly worried about are macro events which are less about the longer term cycles of economic expansion and contraction and more concerned about the ongoing transition of the global trade framework Bernstein said
The Federal Reserve is done with raising interest rates though the authority won t be cutting them this year because the U S is not yet going into a recession he said |
JPM | JPMorgan is reportedly slashing hundreds of jobs in asset management | JPMorgan NYSE JPM is set to cut hundreds jobs as part of a periodic review of its asset management business to Bloomberg Employees in support roles and some wealth management staff will be among those being let go It is normal course of business for us to review our staffing annually to ensure appropriate levels and adjust as necessary Darin Oduyoye a spokesman for the New York based bank in a statement to Bloomberg JPMorgan is slashing roles as part of a shake up in its asset management business The New York based bank is set to cut hundreds of support and other roles in its wealth management unit as part of a periodic review of its staffing to Bloomberg JPMorgan employed 24 000 people in asset management last year Bloomberg a 4 increase from 2017 even though the firm cut another 100 jobs August It is normal course of business for us to review our staffing annually to ensure appropriate levels and adjust as necessary Darin Oduyoye a spokesman for JPMorgan in a statement to Bloomberg We continue to invest in our business and talent including hiring top advisers in key markets and expanding our product and service offering JPMorgan declined to comment for this article JPMorgan is also preparing for upheaval in Brexit A person familiar with the matter said that around 300 JPMorgan staff have been asked to sign contracts agreeing to leave London in the event of a no deal Brexit Bloomberg |
MS | Wha Next For Crude Oil Higher Prices Or Crash | If the doors of perception were cleansed everything would appear to man as it is infinite For man has closed himself up till he sees all things thru chinks of his cavern William Blake
2106 started with all the Drs of Gloom stating that oil was heading lower and many even predicted that it would trade down to 10 00 It was kind of interesting to watch this circus as there is a saying the cure for low prices is usually low prices
It would have made sense to take a firm stance against oil when it was trading above 100 but not when it was trading in the 30 00 ranges These same experts were busy proclaiming higher prices when oil was trading north of 100 00 Only when oil was close to putting in a bottom did they muster the courage to issue even lower prices they would have been well served by simply keeping quiet Experts were all trying to outdo each other each one is releasing lower prices and a gloomier scenario Here are some examples of the stories being put out at the time
Get Ready for 10 Oil Bloomberg on Feb 2016
Oil could crash to 10 a barrel warn investment bank bears telegraph co uk on Jan 2016
Oil Seen Heading to 20 by Morgan Stanley NYSE MS on Dollar Strength Bloomberg on Jan 2016
Goldman Sees Risk of Oil Below 20 Bloomberg Feb 2016
At that point we knew that a bottom was close at hand and on the 20th of January 2016 we penned the first of many articles on oil This is what we said back in Jan
As it has closed below the psychological level of 30 on a weekly basis it is likely it will experience one more downward wave before a tradable bottom is in place A move to the 23 25 ranges is now a strong possibility and as long as oil does not close below 23 00 on a weekly basis oil will start putting in a slow bottoming formation Once a bottom is in do not expect miracles from oil trading will probably be limited to a tight range of 24 00 36 00 for some time Only a monthly close above 40 will signal that the trading range is going to shift to a slightly higher zone of 36 00 58 00 with a possible overshoot to 65 00 Full Story
It is remarkable how these so called experts always start to clamour and make the most noise when a market is either going to top or bottom It would be fine if the advice they offered were of value but they seem to tell you to buy when it is time to sell and sell when it is time to buy In other words their advice is usually on par with rubbish
Marketwatch com jumped the gun when they penned the following article
Why oil prices will head back toward 20 next winter Market watch May 2016
Now that oil is trending upwards we won t be surprised if articles calling for oil 100 start to surface again
Oil traded as low as 26 14 and then reversed course and started to trend higher It came within 1 of the top of our suggested targets We also stated that oil needed to trade above 40 00 on a monthly basis which it has done It s now on course for a test of the 55 00 58 00 ranges with a possible overshoot to the 60 00 ranges Fulfilling what we stated in an article titled predicted crude oil bottom 2016 that was published in March of 2016 an excerpt of this article is listed below
Notice that the 30 00 price point level has held on a monthly basis Oil has not closed below this important level on a monthly basis for two months in a row and this has to be viewed a very bullish development Our overall view is for crude oil to trend higher with the possibility of trading past the 55 00 ranges In the face of extreme negativity oil is reversing just as it collapsed in the face of Euphoria A weekly close above 35 00 will set the foundation for oil to trade past the main downtrend line and in doing so send the first signal for a move to the 50 plus ranges
Now that oil has traded as high as 52 22 what does the future hold for oil Is it going to reverse and crash due to a stronger dollar as was the case with Gold or is it going to continue trending higher Let s take a look at the charts
We would like to start off by stating that the trend is still up so all pullbacks have to be viewed through a bullish lens We did not feel the same way about Gold and we stated that early in the year that we did not expect much from Gold That has panned out so far as oil has buried gold regarding gains on a percentage basis
Oil is now sitting on a zone of former resistance and while the market is somewhat overbought oil could still trend to our higher targets 55 00 58 00 without pulling back For this to occur oil cannot close below 49 00 on a weekly basis A close below 49 00 on a weekly basis will result in a minor pullback to the 45 00 ranges Long story short oil either trades to the 55 00 58 00 ranges from here with a possible overshoot to the 60 00 ranges or it pulls back to the 45 00 ranges before trading to the above suggested targets After oil trades to the 58 00 ranges we do not expect much from it After topping out we expect it to test the 45 00 48 00 ranges
Conclusion
The trend is still bullish and until the higher end targets of 55 00 58 00 are hit or the trend turns negative all sharp pullbacks should be viewed through an optimistic lens The trend is showing no signs of weakness so it would take a rather significant development for it change As oil has traded as high as 52 00 the bulk of the upward move we projected earlier in the year is completed all that is left is for the upper end targets to be hit after that oil is expected to trend lower slowly We are not expecting a crash but a consolidation we will examine the longer term outlook after crude oil tops out
Only in quiet waters things mirror themselves undistorted Only in a quiet mind is adequate perception of the world Hans Margolius |
MS | Morgan Stanley MS Shares March Higher Can It Continue | As of late it has definitely been a great time to be an investor in Morgan Stanley NYSE MS The stock has moved higher by 14 5 in the past month while it is also above its 20 Day SMA too This combination of strong price performance and favorable technical could suggest that the stock may be on the right path
We certainly think that this might be the case particularly if you consider MS recent earnings estimate revision activity From this look the company s future is quite favorable as MS has earned itself a Zacks Rank 2 Buy meaning that its recent run may continue for a bit longer and that this isn t the top for the in focus company You can see
The Best Place to Start Your Stock Search
Today you are invited to download the full up to the minute list of 220 Zacks Rank 1 Strong Buy stocks absolutely free of charge Since 1988 Zacks Rank 1 stocks have nearly tripled the market with average gains of 26 per year Plus you can access the list of portfolio killing Zacks Rank 5 Strong Sells and other private research |
C | Citigroup Q4 2019 Earnings Preview | Citigroup NYSE C is scheduled to announce Q4 earnings results on Tuesday January 14th before market open
The consensus EPS Estimate is 1 83 13 7 Y Y and the consensus Revenue Estimate is 17 95B 4 8 Y Y
Over the last 2 years C has beaten EPS estimates 100 of the time and has beaten revenue estimates 63 of the time
Over the last 3 months EPS estimates have seen 5 upward revisions and 4 downward Revenue estimates have seen 4 upward revisions and 11 downward |
C | Citigroup EPS beats by 0 07 beats on revenue | Citigroup NYSE C Q4 Non GAAP EPS of 1 90 beats by 0 07 GAAP EPS of 2 15 beats by 0 32
Revenue of 18 38B 7 4 Y Y beats by 430M
Shares 1 4 PM
Press Release |
JPM | Opening Bell Metals Sink Global Shares Drop On New U S Tariff Threats | European shares fall a full percent
Asian benchmarks slip but pare earlier losses suggesting traders remain hopeful
Metals plunge
Today s volatility in contrast to yesterday s bullish US session
Key Events
Global stocks Treasury yields and industrial metals took a hit this morning after US President Donald Trump s administration yesterday threatened to slap additional tariffs on as much as 200B worth of Chinese goods re igniting investor fears of a full fledged trade war The latest levies would affect a broad array of consumer goods including tuna salmon dog leashes tires and luggage
Asian markets and the Chinese yuan bore the brunt of the widespread flight to safety which abruptly halted the global equity rally of the last few days Futures on the S P 500 Dow and NASDAQ 100 are all sliding lower confirming the abrupt shift to risk off trading
Still despite the increased likelihood of added volatility we believe the broader US uptrend will remain intact given the diverging pattern between US and Chinese shares since the trade dispute began While China s Shanghai Composite entered a bear market and the renminbi remains in a downtrend US indices are in a bull market trading close to their record highs If investors are able to hang on for the next few weeks in order to see if earnings meet their high expectations we could yet see US benchmarks hit new record highs
The pan European STOXX 600 Index slumped a full percent this morning ending a six day straight rally with all sectors in the red Shares of companies most reliant on overseas markets for growth took the brunt of the losses Basic resources plunged 2 6 percent and car makers dropped 1 5 percent
Japan s TOPIX slumped over 1 5 percent initially but rebounded during the second hour trimming the setback by nearly half to 0 8 percent though still ending a three day advance China s Shanghai Composite pared an initial 2 65 percent plunge to 1 8 percent Unlike the TOPIX which trended higher with the rebound the Chinese benchmark ranged
Along with regional indices the Chinese yuan also fell losing 0 4 percent after trimming an initial 0 7 drop This is the second day of the currency s selloff for an aggregated 0 66 percent loss Technically the USD CNY pair provided an upside breakout to a bullish pennant pattern
Hong Kong s Hang Seng trimmed a 2 4 percent collapse to a 1 55 percent loss finding demand at the 28 000 level a support since October 2017 South Korea s KOSPI initially slid 1 35 percent but it too trimmed losses to 1 6 percent
Australia s S P ASX 200 declined almost 0 7 percent extending Tuesday s fall to an overall 1 10 percent setback Technically this is considered a correction within an uptrend a return move to Friday s upside breakout of a bullish pennant The mechanics that make up a return move following a breakout where traders who are long take profits and short are squeezed may explain why the Australian gauge which has lately been rising even as Asian market peers were selling off was the only benchmark to fall without any rebound
Global Financial Affairs
The return of trade war jitters generated a rush back to the security of Treasurys Yields on the 10 year note dropped a full percentage point However the safe haven yen weakened against the dollar as there is no BoJ tightening in sight
Today s risk off mood follows yesterday s exuberant US session in which equities rose to their highest in almost a month with additional technical milestones achieved
The S P 500 gained 0 35 percent hitting its highest close since February 2 However the two sectors that outperformed were growth oriented Consumer Staples 1 19 percent and Utilities 0 95 percent signaling that traders are managing their fears even as they bid up prices Yesterday s trading overcame the preceding mid June peak at 2791 47 confirming an uptrend since April 3 just 3 8 percent from the benchmark s record high
The Dow Jones Industrial Average rose 0 6 percent for a fourth straight day with an aggregate advance of 3 1 percent to its highest level in 3 weeks The NASDAQ Composite added less than 0 05 percent of value after paring back from a 0 2 percent higher open Still it was the fourth daily advance for the tech heavy index which closed just 0 6 percent below its all time high
Perhaps the most reliable sign that traders are ready to put aside their trade concerns was the underperformance of the Russell 2000 The small cap index whose listed companies have a domestic focus bucked the trend falling 0 53 percent ending five day advance This trimmed an aggregate gain of 3 8 percent to 3 2 percent albeit after registering an all time intraday high
The slide that followed could indicate a double top in the making with the 50 DMA guarding the neckline As well the RSI provided a negative divergence
Metals have borne the brunt of today s flight to safety on added trade fears with copper nickel and zinc all sinking Oil dropped below 74 a barrel in New York even as an industry report was said to show shrinking U S crude stockpiles Nevertheless seven regional events are likely to drive the price of oil higher in the longer term
Up Ahead
Earnings season begins with JPMorgan Chase Co NYSE JPM and Citigroup Inc NYSE C reporting results on Friday
The most noteworthy US data may be the June inflation report on Thursday Consensus expects it will show both headline and core growth picking up There s another deluge of Treasury debt sales too with a total 156 billion of notes and bills offered
Chinese trade data due at the start of the next week will probably show slightly slower export growth after early indicators pointed to softer overseas demand and weaker export orders Bloomberg Economics said
Market Moves
Stocks
Futures on the S P 500 were down 0 8 percent after dropping as much as 1 1 percent earlier
The Stoxx Europe 600 Index retreated 0 8 percent
The U K s FTSE 100 declined 0 9 percent
Japan s TOPIX dropped 0 8 percent
Hong Kong s Hang Seng fell 1 6 percent and the Shanghai Composite lost 1 8 percent
South Korea s KOSPI dropped 0 6 percent
Currencies
The Dollar Index is flat
The Japanese yen was flat at 111 per dollar compared with 111 27 before the tariff report came out
The offshore yuan fell 0 4 percent to 6 67 per dollar
The euro edged 0 1 percent lower to 1 1729
Bonds
The yield on 10 year Treasuries slipped about one basis point to 2 84 percent
Commodities
West Texas Intermediate crude slid 0 4 percent to 73 81 a barrel
Gold lost 0 3 percent to 1 251 88 an ounce |
JPM | JP Morgan Sending Up Bearish Signal Before Earnings | Big bank earnings will roll in on Friday with JPMorgan Chase Co NYSE JPM among the companies slated to report While JPM stock is on pace for its best week in two months and on Monday enjoyed its biggest one day percentage gain of 2018 the shares are now sending up a historical short term sell signal on the charts
Since notching a record high of 119 33 in late February JPMorgan stock has surrendered more than 10 The stock seems to have found support in the 105 area representing a 38 2 Fibonacci retracement of its rally from mid 2017 to the aforementioned high but is now back within striking distance of its overhead 40 day moving average potentially sending up a bearish warning if past is prologue
There have been just six other times where JPM stock has come within one standard deviation of its 40 day trendline after sitting below the moving average for 60 of the time over the past two months and ending south of the moving average at least eight of the last 10 trading sessions After those instances JPM shares were lower one week later every single time averaging a drop of 2 5 per data from Schaeffer s Senior Quantitative Analyst Rocky White At last check the bank stock was up 0 3 at 106 93 a similar pullback in the next week would put JPM around 104 26 south of the 105 level
It should also be noted that JPMorgan Chase stock retreated 2 7 the day after the company s mid April earnings report In fact the security has ended lower the session after four of the last five earnings releases
Nevertheless it seems options buyers are betting on a big bounce for the shares Data from the International Securities Exchange ISE Chicago Board Options Exchange CBOE and NASDAQ OMX PHLX PHLX shows JPM has racked up a 10 day call put volume ratio of 3 57 the very top of its annual range In other words JPM options traders have initiated bullish bets over bearish at a much faster than usual pace during the past two weeks
As such the equity s Schaeffer s put call open interest ratio SOIR sits at 0 53 indicating calls nearly double puts among options set to expire within three months This ratio is at the bottom of its 52 week range suggesting near term traders haven t been more call biased on JPM during the past year
The July 115 and 110 calls carry the most open interest among all JPMorgan options with roughly 26 000 and 23 000 contracts outstanding respectively It appears the majority of the calls were bought to open too suggesting the traders expect a rebound north of the strikes before the options expire on Friday July 20 Should the bank disappoint in the earnings confessional later this week a mass exodus of option bulls could weigh on the shares |
JPM | Tax Reform Leaves JP Morgan With Extra 4B | Financials Diversified Financial Services July 13th BMO JPMorgan Chase Co
JPMorgan Chase Co NYSE JPM is set to release its FQ2 18 earnings Friday before the market opens Estimize consensus projects an EPS of 2 28 a 31 YoY growth while Wall Street predicts an EPS of 2 24 Estimize is more accurate than Wall Street on JPM EPS predictions 67 of the time We anticipate a revenue of 27 821B while Wall Street expects JPM to report 27 664B in revenue
JP Morgan will gain 4B in annual profits as a result of the U S corporate tax break that reduces their taxes from 35 to 21 They plan to use this money to raise employee salaries open 400 new branches and increase lending to small businesses The company also plans to buy back up to 20 7B in stock The bank has increased its dividend from 56 to 80 cents Lastly the company has launched Finn a user friendly mobile application for managing personal finances marketed towards millenials
Original post |
MS | European share rebound loses steam steel stocks gain on US move | By Danilo Masoni MILAN Reuters European shares dipped in choppy trade on Monday as a poor update from Reckitt Benckiser L RB hit consumer staples outweighing gains among financials and strength in steel makers after the U S outlined proposals for hefty import curbs Shares in Tenaris MI TENR Outokumpu HE OUT1V and Arcelor Mittal AS MT which have facilities in the United States were the biggest gainers in Europe up between 1 7 and 3 1 percent Their gains and strength in financial stocks helped STOXX 600 STOXX post small gains at the open but the pan European benchmark index was later dragged lower by a fall in consumer staple stocks The index was down 0 1 percent by 0930 GMT Monday s slight decline took place after the STOXX posted a 3 3 percent gain last week when strength of corporate updates and a return of inflows into equity funds helped global equities rebound from a turbulent start of the month The index needs to rise another six percent to climb back to the 2 1 2 year peak hit at the end of January Reckitt Benckiser L RB missed profit expectations and its profit margins declined hurt by a tougher pricing environment in developed markets and increased commodity costs It said these issues would continue in the near term nL8N1Q910Z Reckitt Benckiser L RB the maker of Durex condoms Lysol disinfectant and Mucinex cold medicine fell 5 4 percent Shares in Unilever L ULVR Diageo L DGE Nestle S NESN and Danone PA DANO also declined Analyst at Investec affirmed their sell rating on Reckitt following the update saying operating margin missed expectations and sales growth fell a little short of the more optimistic hopes given the strong flu performance from peers The U S Commerce Department has recommended that President Donald Trump impose steep curbs on steel and aluminum imports from China and other countries ranging from global and country specific tariffs to broad import quotas nL2N1Q60V8 Morgan Stanley NYSE MS analysts said the European Commission could respond with measures to limit steel imports to the European Union and that ArcelorMittal and SSAB ST SSABa would benefit the most from rising U S spreads SSAB rose 2 5 percent Banks SX7P were among the leading gainers up 0 4 percent The sector was supported by a 1 6 percent gain in shares of Deutsche Bank DE DBKGn after analysts at BofA Merrill Lynch upgraded the German lender to neutral on optimism over investment banking trading revenues nL8N1Q911U German industrial giant Siemens DE SIEGn rose one percent after announcing plans to list its healthcare division in the first half of the year
Mercedes maker Daimler DE DAIGn was a weak spot down 1 7 percent after reports said U S investigators probing Daimler had found that its cars were equipped with software which may have help them to pass diesel emissions tests nL8N1Q8080 |
MS | Corbyn warns bankers finance will serve Britain under Labour government | LONDON Reuters Britain s financial sector will be the servant of industry not the masters of us all if the opposition Labour Party gets into power its leader Jeremy Corbyn will say on Tuesday accusing bankers of taking the economy hostage Corbyn a socialist who has won over many voters with his promises to renationalize services and increase public spending has long targeted London s lucrative financial sector saying politicians have become in thrall of money makers for too long In a speech to a manufacturers conference Corbyn will renew his pledge to rebalance Britain s economy if he wins power in an election not due until 2022 and will also criticize Prime Minister Theresa May for offering little clarity over Brexit For a generation instead of finance serving industry politicians have served finance We ve seen where that ends the productive economy our public services and people s lives being held hostage by a small number of too big to fail banks and casino financial institutions he will say No more The next Labour government will be the first in 40 years to stand up for the real economy We will take decisive action to make finance the servant of industry not the masters of us all Big business has been cautious toward Labour with financial services company Morgan Stanley NYSE MS warning investors that Corbyn winning power was a bigger political risk than Brexit But they have also started engaging with the party and Corbyn s deputy Labour s finance policy adviser John McDonnell took his message that capitalism was living on borrowed time to the global elite at the World Economic Forum in Davos this year Any deep mutual understanding looks far off for now with Corbyn promising to end the spread of finance s extractive logic that has spread into all areas of life with short term performance and narrow shareholder value prioritized over long run growth and broader economic benefit The 68 year old leader will say if in power his party would protect companies from hostile bids citing the takeover bid of aero engineer GKN L GKN by Melrose L MRON We rightly praise the growth of companies like GKN and their location in the UK And yet when we are facing the possible destruction of that company we are powerless to act he will say
That s why the next Labour government will broaden the scope of the public interest test allowing government to intervene to prevent hostile takeovers which destroy our industrial base |
MS | Singapore Property Stocks Fall on Higher Home Purchase Tax | Bloomberg Singapore property stocks declined after the government raised taxes on home purchases of more than S 1 million 761 600 just as the housing market starts to recover from a four year slump
UOL Group Ltd and City Developments Ltd fell more than 2 percent in early trading making them the biggest decliners on the benchmark Straits Times Index CapitaLand Ltd the city state s largest developer dropped for the first time in a week
Stamp duty on the portion of a property s price above S 1 million will be raised effective immediately to 4 percent from 3 percent the government said in its budget Monday The move comes after home prices rose the past two quarters ending a four year decline
The tax increase isn t enough to derail an ongoing home price recovery Morgan Stanley NYSE MS said in a note to clients on Monday but this could weigh on sentiment on Singapore developer stocks in the near term
Source Inland Revenue Authority of Singapore
Given the heightened interest in the residential market the government has timed the increase well as prices and transaction volumes could return with a vengeance after Chinese New Year Christine Li a director of research at Cushman Wakefield Inc The effective increase in the tax revenue is quite minimal hence this measure acts more as a deterrent to the red hot property market
The move is less about cooling the real estate market than about making the tax system more progressive S Iswaran minister of trade and industry said in a Bloomberg Television interview on Tuesday Existing property curbs have had the desired effect and if there was any concern about the real estate market we would have seen far more significant measures he said
The increase will have more of an effect on ultra luxury properties Li said The stamp duty on a S 10 million property will increase by about 0 9 percentage point to 3 8 percent she estimates
Singapore developers have been aggressively bidding for land as rising apartment sales and prices signaled an end to the downturn Still the central bank has warned that rising vacancies and slowing population growth may undermine a residential property recovery
While a recovery in home prices is not a cause for concern exuberance in the so called en bloc market for redevelopments may not be warranted Ravi Menon the managing director of the Monetary Authority of Singapore said at a conference last month
Collective apartment sales for redevelopment in the first two months of 2018 totaled more than S 3 1 billion almost double the S 1 66 billion seen in same period during the last en bloc market peak in 2007 Nomura analyst Min Chow Sai wrote in a note dated Feb 19
Li said developers may pull back from these purchases as the price tag can be hefty for most collective sale deals which easily run into hundreds of millions of dollars
Adds comment from minister in second paragraph below table |
MS | Morgan Stanley Says Stock Slide Was Appetizer for Real Deal | Bloomberg The U S stock market only had a taste of the potential damage from higher bond yields earlier this year with the biggest test yet to come according to Morgan Stanley NYSE MS
Appetizer not the main course is how the bank s strategists led by London based Andrew Sheets described the correction of late January to early February Although higher bond yields proved tough for equity investors to digest the key metric of inflation adjusted yields didn t break out of their range for the past five years they said in a note Monday
While many have warned that faster inflation could hurt stocks in theory bigger price gains should be at worst neutral if they boost earnings along the way Higher real yields on the other hand mean a bigger discount rate to value future earnings Should they break out of the range over the past five years as investors anticipate greater central bank policy normalization that could hit stocks harder according to the Morgan Stanley thinking
Relatively low real yields were a big support for equity valuations so a break higher would indicate that stocks will have to rely on earnings not multiple expansion to drive them higher Sheets and his colleagues wrote And the challenge there is that a slowdown may loom starting in the second quarter they said
It s when growth softens while inflation is still rising that returns suffer most the strategists wrote Strong global growth and a good first quarter reporting season provided an important offset We remain on watch for tricky hand off in the second quarter as core inflation rises and activity indicators moderate
JPMorgan Chase Co NYSE JPM strategists have also pointed to real rates as a potential inflection point for markets though they identified in December the inflation adjusted cash rate as the one to watch That measure has a ways to go until their threshold
Updates with alternative view on real yields in final paragraph |
MS | Post earnings slide for Dine Brands Global | Dine Brands Global NYSE DIN reports domestic system wide comparable same restaurant sales increased 1 3 at Applebee s in Q4 and fell 0 4 at IHOP Average weekly sales at domestic units were 3 3 up to 44 2K at Applebee s and fell 1 4 to 36 3K at IHOP Restaurant count Applebee s 84 Y Y to 1 936 IHOP 55 to 1 762 CEO update We continue to make excellent progress against our plan to stabilize and grow performance at both brands We are working on several exciting initiatives to expand our revenue channels continually enhance the guest experience improve operations and grow our global presence while investing in the long term health of our two strong brands Previously DineEquity beats by 0 05 beats on revenue Feb 20 Shares of Dine Brands are down 10 83 premarket to 48 75 Now read |
MS | JPMorgan Says Earnings Trump Bond Yields for European Equities | Bloomberg Healthy corporate earnings can help shield European stock valuations from the negative impact of rising bond yields according to JPMorgan Chase Co NYSE JPM
With more than half of Stoxx Europe 600 Index companies having reported fourth quarter earnings 54 percent have beaten estimates according to the bank That translates into year on year growth of 17 percent it says the strongest since 2017 s first quarter thus far
Investors have turned their focus to earnings after the recent global stock selloff shook their confidence Rising profit momentum can help alleviate their concerns London based equity strategist Emmanuel Cau says noting that the return of inflation is ultimately a positive development for equities as it reflects a stronger economy
Healthy earnings growth globally including in Europe will help offset the negative impact on valuations from higher bond yields Cau said by phone The reason why you see inflation picking up is that growth is picking up
Other banks including Morgan Stanley NYSE MS agree that earnings momentum is on the rise After a lackluster start results have improved as the season has progressed according to analysts at Bloomberg Intelligence with last week being the season s best thus far Updates by energy technology and financial companies are the most favorable while industrials are trailing BI says
Even so worries remain about the stronger euro taking a bite from European exporters profits Earnings revisions which measure the number of analysts raising estimates relative to those cutting them have been negative for four of the past five weeks a Citigroup Inc NYSE C gauge shows BI cautions that revisions of 2018 forecasts are still lacking
Cau says there is some proof of resilience on this front as well European profits depend more on sales volume relative to peers elsewhere he says given companies higher fixed cost bases That means top line growth can benefit more easily from a boost in economic activity The trend has resulted in the relative sales beat of the U S versus Europe slightly narrowing in the fourth quarter according to JPMorgan
European companies positive operating leverage can help offset the stronger euro s drag on earnings Cau said This is related to the very strong pickup in activity that we have seen in the region and globally |
MS | Hedge funds just made a big mistake on tech stocks | Hedge funds and other large speculators made a poorly timed decision to go net short tech stocks for the first time in 21 months The tech heavy Nasdaq 100 index surged 5 6 during the week in question Everyone reacted to the s recent correction in their own special way Some investors rushed to protect their holdings to a 14 month high Others of the short volatility trade Hedge funds meanwhile turned their backs on tech stocks As of last week they had a net short position on the tech heavy index for the first time in 21 months according to data compiled by Bloomberg It also makes them the most negative on tech stocks since 2011 And that would be all well and good except the bearish shift came as tech stocks surged 5 6 their best weekly performance since October 2014 It was unfortunate timing for hedge funds and other large speculators who were net bullish on tech for 62 straight weeks without enjoying an increase of that size It s worth noting this could be a very brief foray into short territory if hedge funds see recent tech strength as a reason to cover their positions or close them through purchases That would not only push the likes of the Nasdaq 100 even higher but could also re orient large speculators as net buyers once again And as the dust settles following the equity blow up earlier this month there s a lot to be excited about in the US market especially when it comes to tech Companies in the industry are expecting to see of 31 for the full year 2018 which is 10 full basis points more than the benchmark Since profit expansion has been a long running pillar of the nearly nine year bull market these forecasts would suggest hedge funds are better off being long tech And if that change leaves them seeking hedges |
MS | Japan s Equity Faithful Want Foreigners to Revive Market Rally | Bloomberg Japanese retail investors bought domestic stocks for a fourth consecutive week stoking hope that foreign buyers will join them in helping the market make a full recovery from a rout that started last month
Individual investors last week added to their record net purchases of the nation s stocks yet foreigners were net sellers for a sixth straight week Overseas players who generated 68 percent of the market s equity trading value last month have to start buying more if Japan s equity benchmark is to rebound from its 10 percent correction analysts said
The market won t resume its rising trend unless foreign buyers come back said Norihiro Fujito a senior strategist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities Co in Tokyo Buying by Japan s individual investors can work as a shock absorber for the market as it reduces the downside risks
Japan s individual investors bought 85 1 billion yen 791 million more shares than they sold in trading at the Tokyo and Nagoya securities exchanges in the week ended Feb 16 according to data released Thursday That came after a record net buying of 745 8 billion yen in the week ended on Feb 9 an amount that exceeded purchases in 1987 during the week of Black Monday
A global equity meltdown sent the Nikkei 225 Stock Average to a four month low last week attracting retail investors who have traditionally used a contrarian approach according to Hisao Matsuura a strategist with Nomura Securities Co in Tokyo Retail investors tend to buy on dips and sell on rallies after having suffered heavy losses during the lost decades following the asset bubble burst of the early 1990s Mitsubishi UFJ Morgan Stanley s Fujito said
Individual investors buying could be temporary Nomura s Matsuura said If stocks rise considerably then they may become sellers Their contrarian strategy is unlikely to change anytime soon
Foreigners may start buying Japanese stocks when U S Treasury yields stop rising Mitsubishi UFJ Morgan Stanley s Fujito said They sold a net 36 2 billion yen of Japanese shares in the week ended on Feb 16 following 644 6 billion yen of selling in the previous week the biggest reduction since March 2016 Ten year Treasury yields reached 2 95 percent on Wednesday their highest level since January 2014
It may take some more time until foreign investors return to the Japanese stock market as buyers Fujito said If Treasury yields break above 3 percent it may spur a risk off mode in the global markets and foreigners probably won t buy Japanese stocks On the other hand if yields stabilize in a range between 2 7 and 2 8 percent they may come back |
JPM | European shares pare losses following upbeat German data | By Medha Singh Reuters European shares fell on Monday on concerns over sluggish global growth but an unexpected rise in German business sentiment eased fears of a recession in the bloc s largest economy The pan European STOXX 600 index pared early losses to dip 0 12 percent while Frankfurt s DAX Milan s Madrid s and Paris s briefly turned positive after data showed German business morale improved unexpectedly in March suggesting the country s economy is likely to pick up in the coming months London s FTSE was marginally lower European stocks on Friday witnessed their biggest weekly decline this year following weak manufacturing data from Europe and the United States that inverted a part of the U S yield curve In the past that has signaled an upcoming recession It s the uncertainty around the outlook of the manufacturing sector which is causing the selloff which should be put into context of still a very healthy service sector said Mike Bell global market strategist at JPMorgan NYSE JPM Asset Management There seem to be conflicting signals from the data with one survey telling things that things are deteriorating a bit in the manufacturing side but on the other hand the IFO survey is showing a pick up Among the biggest weights on the pan region index was Germany s Bayer DE BAYGN down 2 1 percent Its chief executive said over the weekend that management retained the backing of its supervisory board despite a second U S ruling that its glyphosate based Roundup weed killer caused cancer While losses in health and technology sectors weighed on the index a rise in auto stocks and banks limited losses Fiat Chrysler jumped 3 2 percent The Wall Street Journal reported that the Italian carmaker had rebuffed merger approaches by Peugeot earlier this year British satellite operator Inmarsat jumped 8 6 percent to lead gains on STOXX after a private equity led consortium agreed to buy the company for about 3 4 billion in cash Majestic Wine tanked 11 2 percent on course for its worst day since November after it said it would review its dividend policy as it looks to focus on its online wine retail business Naked Wines Investors are also dealing with the uncertainty surrounding the United Kingdom s exit from the European Union with the risk of a potentially major no deal shock to the European economy just over two weeks away
Prime Minister Theresa May is under pressure to give a date for leaving office to swing Brexit supporting rebel lawmakers in her party behind her twice defeated European Union divorce treaty |
JPM | JPMorgan asks 300 staff to move if no Brexit deal source | LONDON Reuters JPMorgan NYSE JPM is asking around 300 staff in its London office to sign new contracts that will require them to move to one of the bank s other hubs in the European Union if there is a no deal Brexit according to a person familiar with the matter This is part of JPMorgan s plans to shift hundreds of staff if Britain leaves the EU without an exit deal so that it can continue to offer clients in the bloc trading advisory and banking services The U S investment bank is currently building up its offices in Frankfurt Paris and Luxembourg as part of its Brexit planning A source said that JPMorgan staff in London asked to sign new contracts had already been consulted on the matter and those who did not wish to move would not be made redundant The news was first reported by Bloomberg Britain was due to leave the EU on March 29 but that was delayed last week Now the country will leave the EU on May 22 if Prime Minister Theresa May s proposed withdrawal agreement is approved by parliament this week
If not Britain will have until April 12 to offer a new exit plan or decide to leave without a treaty |
JPM | Bankers to Kurds Under Fire as Erdogan Feels Election Heat | Bloomberg From international bankers to Kurdish politicians Turkish President Recep Tayyip Erdogan s finding plenty of enemies as economic troubles bedevil his campaign for local elections seen as a referendum on his rule
Faced with Friday s biggest slump in the lira since last summer and opinion polls indicating the ruling party shedding support in the two biggest cities in the March 31 municipal ballot the president s risking market credibility and diplomatic rifts in his bid to maintain the ruling AK Party s quarter century hold over the capital
Erdogan s using every kind of tool available to him to avert the risk of a defeat at the ballot box Nihat Ali Ozcan a strategist at the Ankara based Economic Policy Research Foundation of Turkey said Monday While the local elections don t threaten his rule a decline in support could make it more difficult for him to deal with an economic downturn and a showdown with the U S
On Sunday Erdogan started by warning those soaking up foreign currencies from the market and engaging in provocative actions they would pay a heavy price The threat made at a rally in Istanbul came a day after Turkish regulators began investigating JPMorgan Chase Co NYSE JPM two of whose analysts had suggested selling the lira and other unspecified banks
In the evening Erdogan accused more than 300 election candidates of having links to separatist Kurdish militants threatening to remove those who win from office as he did after a 2015 ballot that temporarily ended his Islamist rooted AK Party s parliamentary majority And he again politicized this month s mosque shootings in New Zealand
Erdogan has almost untrammeled executive power following a double victory in 2018 parliamentary and presidential elections Yet a significant loss of votes this weekend would be deeply troubling for the AKP leader as it would invalidate his appearance of being popular and invincible according to Teneo Intelligence Co President Wolfango Piccoli
The lira rebounded on Monday after central bank action but Turks will vote against a grim economic backdrop The country is in its first recession for a decade unemployment s at a nine year high and food stalls are selling discounted goods to insulate the poor from the impact of last year s currency crash
That was triggered by U S sanctions imposed amid a diplomatic standoff and a repeat is possible with NATO member Turkey pledging to proceed with the purchase of a Russian S 400 missile defense system over American objections
Denouncing what he says is growing prejudice against Islam Erdogan has upset Wellington and Canberra by showing rallies some of the footage recorded by the Australian white supremacist who killed 50 people at two Christchurch mosques including a manifesto that mentioned the minarets of Istanbul s famed Hagia Sophia
Soon after the attack he ruled out calls from his supporters to allow Muslims to worship at the building originally a Byzantine church then an Ottoman era mosque and now a museum saying doing so would put mosques around the world at risk
But on Sunday Erdogan proposed a halfway measure that would rename it the Mosque of Hagia Sophia and allow people to visit without paying an entrance fee
Like how tourists are not making a payment when they visit the Blue Mosque we can do the same with Hagia Sophia he said It can be taken out of the museum status
Doing so would throw another roadblock in front of Turkey s already troubled attempt to join the European Union A recent EU report opposed any extreme view that promotes alterations to the physiognomy of the Hagia Sophia historical religious monument and its conversion into a mosque
Campaigning has been especially fierce in Ankara where Erdogan has lashed out at the man tipped to win Mansur Yavas of the Republican People s Party He s been fielded by an opposition bloc that s supported by the pro Kurdish HDP and has a double digit lead in some pre election polling
Since 2015 Erdogan has sought to conflate the HDP with the militant separatist PKK leading to a broad crackdown on its leadership and the eviction of about a hundred local party mayors The PKK is designated a terrorist group by Turkey the U S and EU
This year the HDP is sitting out races outside its southeast stronghold and reached an agreement to back the main opposition grouping On Sunday Erdogan said the arrangement was a ruse in which Kurdish candidates were running on the tickets of other parties
We will seek to cancel their election as mayors or members of municipal councils after the elections he told pro government TGRT television criticizing the election commission for not properly vetting candidates We can t allow this country to be run by terrorists or people mired in terrorism |
JPM | Hot Emerging Markets May Be in for a Shock | Bloomberg Opinion The U S Federal Reserve s pivot to easier monetary policy has had a positive impact on emerging markets Both the MSCI EM Index of equities and the Bloomberg Barclays LON BARC Emerging Markets Local Currency Government Debt Index are poised for their best quarters since the start of 2017 Also several key currencies have risen against the dollar
Recent bond market developments in the U S and Europe however suggest that policy easing is no longer an unalloyed positive Negative yielding debt globally has just risen to 10 trillion suggesting economic weakness Lower interest rates in developed countries are likely to have different impacts on emerging markets in the short run relative to the fallout that may come in 2020 and 2021
While lower rates for borrowers in hard currencies would reduce debt service expenses and alleviate pressure on their balance of payments the economic slowdown that lower rates and yields portend would ultimately be negative Emerging markets feasting on cheaper credit in the short term may be in for a rude shock as importing nations cut purchases in response to their economic weakness
To perform well over the short and medium term investors should divide emerging market investments into two components The first would consist of countries such as Turkey dependent principally on speculative capital inflows that policy easing in the U S and Europe may benefit This would be the high risk portion of the portfolio
The second component would include countries such as Brazil dependent on direct investment flows to finance the bulk of their development needs Foreign direct investment flows tend to be sticky and provide more stability to the economies of recipient countries reducing downside risk to foreign portfolio investors This component would be a low risk manner of investing
Turkey has historically run large current account deficits that have increased over time The shortfalls have been financed largely by short term capital inflows that could easily reverse direction and leave the country That is what happened Friday when the lira fell by 5 8 percent after news that official international reserves had fallen following authorities failed attempt to support the currency
Turkey s prospects of attracting capital during coming months however should improve as foreign investors reach for higher yields Turkish bonds yield about 5 percentage points more than U S Treasuries significantly more than the 3 73 percentage point spread of the JPMorgan NYSE JPM Global Emerging Market debt index
Looking beyond the immediate future Turkey s external accounts suffer from a serious problem Imports of goods and services significantly exceed exports and foreign direct investment flows constitute a smaller and smaller portion of the funding For investors this structural weakness means that the lira will experience bouts of volatility as capital flows change direction It also implies that government policies are not conducive to attract long term investors
At the other end of the emerging market risk spectrum Brazilian sovereign debt yields only 3 46 percentage points more than Treasuries seeming to diminish its attractiveness to yield seekers in a dovish central bank environment
On the other hand Brazil s fundamentals are on a sounder footing Its external balance has steadily improved since 2015 and it has almost eliminated the deficit Foreign direct investment flows have been more than enough to finance the deficit contributing to an increase in international reserves held by the central bank That should provide greater currency stability and reassure investors
The widely held view that lower global interest rates are positive for emerging markets applies only in the short term Beyond that the impact of easier monetary conditions will be offset by a slower global economy Countries making themselves attractive to long term investors are likely to offer higher as well as more stable returns |
JPM | Investors Scramble for Liras as Turkish Swap Rates Touch 1 000 | Bloomberg Want the lowdown on European markets In your inbox before the open every day Sign up here
Investors dumped Turkish bonds and stocks on Wednesday after the nation orchestrated a currency crunch to prevent the lira from sliding days before an election that will test support for President Recep Tayyip Erdogan s rule
The cost of borrowing liras overnight on the offshore swap market soared past 1 000 percent at one point on Wednesday because local banks are under pressure not to provide liquidity to foreign fund managers who want to bet against the lira
This has forced investors who want out of their lira positions to instead sell other Turkish assets to access the currency they need close those trades The yield two year Turkish bonds jumped above 20 percent on Wednesday and stocks slid the most since August Fund managers including Japan s Daiwa SB Investments Ltd said they are rethinking investments in the country
I ve never seen a move like this in the 21 years I ve been watching this market said Julian Rimmer a trader at Investec Bank Plc in London This amounts to sacrificing long term pragmatism for a short term political expedient Such tactics will make many traders question the investability of the lira
By engineering a situation whereby there isn t enough lira liquidity for investors to move in and out easily Turkish authorities have averted a currency slide before a March 31 vote that ll determine who governs Turkey s cities That s good for Erdogan who s already contending with a recession soaring inflation and opposition parties trying to undermine him But it comes at the cost inflicting huge pain on the investors he needs to sustain the economy that consistently needs to fund current account deficits
While it s down 2 percent today the lira has climbed 6 percent so far this week reversing a slide on Friday that had taken foreign investors by surprise and led many to analysts to recommend selling the currency after months of bullish sentiment
One of the bearish forecasters was JPMorgan Chase Co NYSE JPM which came under fire from Turkish authorities who accused the New York based lender of giving misleading and manipulative advice Erdogan warned on Sunday that bankers deemed responsible for speculating against the currency would be punished
The threats only increased the resolve of foreign hedge funds to exit the country But they ve been unable to execute the trades because Turkish banks are under pressure not to provide liquidity four bankers with direct knowledge of the transactions said yesterday
Turkish banks had already faced a limit on how much they can lend to overseas counterparties of 25 percent of their equity a rule imposed after last summer s rout to stop foreign investors from trying to flee all at once
Many analysts and investors contacted by Bloomberg who declined to go on the record for fear of backlash from Turkish authorities said that as the lira becomes a very difficult currency to trade investors may be less inclined to invest in Turkey in the future
With the swap moves I m now forced to take an unusual strategy said Takeshi Yokouchi an emerging market fund manager at Daiwa SB who backtracked on a plan to add to his Turkish bond investments because of the constraints in trading Instead he s going to rotate some of his lira holdings into longer duration bonds or cash
As an indication of how bad the liquidity crunch is the cost of borrowing the lira overnight in the offshore market surged more than 40 fold over the last three days to the highest since Turkey s 2001 financial crisis
That s why the lira s gains this week aren t offering an relief to investors with long positions the high foreign exchange funding rates are likely to wipe out any money they might have made in closing those trades
Investors soured on the lira after data last week revealed the central bank has drawn down its foreign exchange reserves in March leading to speculation it s trying to prop up the lira before the elections What s more Turkish households and businesses are holding record amounts of their savings into dollars an euros usually a harbinger of waning confidence in the local currency
Their selling was also behind the lira s 2 1 percent decline to 5 4406 per dollar by 4 05 p m in Istanbul on Wednesday
Erdogan who was sworn in with vast executive powers last June has been campaigning across the country for the ruling AK Party which is facing competitive municipal races in the capital of Ankara and the commercial hub of Istanbul this weekend That poses a threat to its quarter century long hold on the two cities
In the lead up to the vote last year the lira tumbled as Erdogan threatened to meddle more in monetary policy if he won A market rout in August led authorities to take steps to prevent similar selloffs from happening again and up until last week many foreign investors had piled into Turkish assets to take advantage of the nation s high interest rates |
JPM | Wells Fargo s corporate bank struggles to regain footing | By Imani Moise NEW YORK Reuters Wells Fargo NYSE WFC Co s corporate bank has a revenue problem As its consumer bank begins to see signs of recovery from a sales practices scandal that erupted more than two years ago the San Francisco based lender has struggled to expand its customer base in the unit catering to businesses and institutional clients Revenue in the corporate bank dropped 4 percent last year Before the scandal it was rising 6 percent a year on average Because it offers better margins the health of the corporate bank is critical to Wells Fargo it represents about a third of revenue but roughly half of 22 billion in annual profit The bank first told investors in September that while it retained most customers throughout its scandals it was having a harder time recruiting new clients This trend has been even more dramatic with the corporate bank where customers tend to stay put It s been a little bit more challenging for us to bring in new customers corporate bank head Perry Pelos told Reuters in a recent interview Corporate clients are harder to win in part because commercial banking relations are more complex Business customers seek cash management services assistance with importing and exporting transactions and various forms of credit such as asset backed loans or revolving lines of credit These services are usually locked in with multi year contracts some clients can only switch providers every five years Wells Fargo executives say they are playing the long game having their teams reach out to prospective clients to build relationships that they hope will pay off down the road I ve lived through an entire generation of ownership before we won the business said Greg O Brien the division manager for commercial banking in New England REPUTATIONAL PROBLEMS Last year executives and analysts identified signs of life in Wells Fargo s consumer unit for the first time since the 2016 scandal that rocked the bank Primary checking accounts grew 1 2 percent in 2018 and auto loan originations jumped 9 percent in the most recent quarter The corporate bank however continues to languish When business clients consider switching banks Wells Fargo s lingering reputational problems make it a harder sell analysts say Consumers don t have to justify their decision to open a new credit card to anyone but themselves said Autonomos analyst Brian Foran Decision makers at companies such as the treasurer have to answer to the board and other executives At the margin some of them are going to say Wells Fargo is very good but so is JPMorgan NYSE JPM he said Right now no one gets fired for hiring JPMorgan Wells Fargo officials acknowledge the scandals remain a concern with certain customers I ve certainly been in meetings where it comes up said O Brien The scandal began with the disclosure the lender had opened unauthorized accounts for consumers Later Wells Fargo disclosed that corporate bank employees had improperly altered customer information on certain documents Wells Fargo has racked up billions in fines Last year the Federal Reserve imposed a punitive asset cap on the bank preventing it from growing its balance sheet until it improves risk management Pelos the corporate bank chief has tried to compensate for the declining revenue by slashing costs But the 3 percent reductions last year weren t enough to offset the revenue slide Though 2018 profit increased the unit became less efficient A key metric that measures the cost of one dollar of revenue increased to 56 percent from 55 percent a year earlier Wells Fargo has not provided 2019 revenue projections for its corporate bank There s a lot of confidence that they are going to hit their expense targets but there s much less confidence that revenue is going to be able to grow as they do that Foran the Autonomous analyst said Revenue declines are bad for any company but for Wells Fargo it raises questions about whether the kind of growth it reported before its scandals is achievable with tighter oversight analysts said In the past the corporate bank focused on growing its cross selling metric which measured how many products employees hawked to clients according to filings The bank still tracks referrals across different parts of the business today but the company no longer reports them publicly O Brien the northeast middle bank head said the cross selling system which led to the creation of the fake accounts in the consumer bank didn t cause similar problems in the corporate bank We have never been in the business of creating false needs to sell he said Corporate bank revenue has also been hurt by the Fed asset cap The unit no longer carries deposits for central banks and it has sold off some smaller businesses In January Wells Fargo pushed back the timeline for when it expects to get the asset cap lifted by six months Executives told Reuters they are being pleasantly persistent with prospective corporate clients by pitching them ideas and connecting them with existing clients So far their efforts have failed to bear much fruit but executives say they have seen signs that customer acquisition trends are beginning to shift As evidence that business was looking up Wells Fargo pointed to recent transactions it helped advise like Berry Global s 4 39 billion takeover bid for RPC Group Plc Earlier this month Wells Fargo also advised its first ever USD global benchmark for the World Bank My expectation is that it s going to be better Pelos said Is it going to be back to where it was before It s hard to call The story fixes misspelling of Autonomous research firm on second reference |
MS | Kinder Morgan Rating Increased To Outperform At Credit Suisse | Kinder Morgan Inc NYSE KMI was upgraded by stock analysts at Credit Suisse SIX CSGN Group AG to an outperform rating in a research note issued on Thursday reports
Other research analysts have also issued research reports about the stock Morgan Stanley NYSE MS raised shares of Kinder Morgan from an equal weight rating to an overweight rating and raised their target price for the company from 23 00 to 24 00 in a research note on Thursday August 18th upgraded shares of Kinder Morgan from a strong sell rating to a sell rating and set a 19 80 price target on the stock in a research report on Monday July 18th
TheStreet upgraded shares of Kinder Morgan from a sell rating to a hold rating in a report on Wednesday June 22nd Jefferies Group restated a hold rating and set a 17 00 target price on shares of Kinder Morgan in a report on Thursday July 21st Finally Stifel Nicolaus downgraded shares of Kinder Morgan from a buy rating to a hold rating and set a 24 00 target price on the stock in a report on Tuesday October 4th
Twelve equities research analysts have rated the stock with a hold rating nine have issued a buy rating and one has given a strong buy rating to the stock Kinder Morgan has a consensus rating of Buy and an average price target of 21 35
Kinder Morgan opened at 20 71 on Thursday MarketBeat com reports Kinder Morgan has a 12 month low of 11 20 and a 12 month high of 31 42 The stock has a market capitalization of 46 23 billion a P E ratio of 739 64 and a beta of 0 69 The company s 50 day moving average is 21 79 and its 200 day moving average is 19 68
Kinder Morgan NYSE KMI last issued its quarterly earnings data on Wednesday October 19th The company reported 0 10 EPS for the quarter missing analysts consensus estimates of 0 16 by 0 26 Kinder Morgan had a return on equity of 4 82 and a net margin of 1 63
The company had revenue of 3 33 billion for the quarter compared to the consensus estimate of 3 47 billion During the same period in the prior year the company earned 0 08 EPS The firm s revenue was down 10 2 compared to the same quarter last year Equities analysts anticipate that Kinder Morgan will post 0 67 earnings per share for the current year
The company also recently announced a quarterly dividend which will be paid on Tuesday November 15th Investors of record on Tuesday November 1st will be paid a 0 125 dividend This represents a 0 50 annualized dividend and a dividend yield of 2 41 Kinder Morgan s dividend payout ratio is presently 833 33
Several institutional investors have recently added to or reduced their stakes in the stock Hudock Capital Group LLC boosted its position in Kinder Morgan by 12 0 in the second quarter Hudock Capital Group LLC now owns 5 394 shares of the company s stock valued at 100 000 after buying an additional 576 shares in the last quarter
Stelac Advisory Services LLC purchased a new position in Kinder Morgan during the first quarter valued at 110 000 Hallmark Capital Management Inc purchased a new position in Kinder Morgan during the second quarter valued at 157 000 Pure Financial Advisors Inc purchased a new position in Kinder Morgan during the third quarter valued at 203 000
Finally Reliance Trust Co of Delaware purchased a new position in Kinder Morgan during the third quarter valued at 204 000 54 58 of the stock is owned by institutional investors and hedge funds
Kinder Morgan Company Profile
Kinder Morgan Inc KMI is an energy infrastructure company in North America The Company segments include Natural Gas Pipelines carbon dioxide CO2 Terminals Products Pipelines Kinder Morgan Canada and Other The Company s Natural Gas Pipelines segment includes interstate and intrastate pipelines and its liquefied natural gas LNG terminals |
MS | All Eyes On ECB | Asian markets firmed with strong US corporate earnings and rising oil prices supporting risk taking In addition the third and final US presidential debate ended lowering political uncertainty risk Perhaps the one lingering issue concerning this debate was Republican Donald Trump s suggestion that he would reject the outcome of the Nov 8th presidential election
An unprecedented challenge to American democracy and the reason why traders are buying the skew on such currencies as USD CAD and USD MXN Now this risk can be pushed off till a later date Wall Street gained for the second straight session as energy prices lead the way on the back of higher oil price There was also a solid surprise from financial including earnings from Morgan Stanley NYSE MS
Yet with the ECB meeting ahead Asian regional equity markets are tempering any over optimism The Nikkei rallied 1 39 as the JPY was weaker against the USD and the Softbank Saudi Arabia deal to create a 100bn investment fund The Hang Seng rose 0 048 while the Shanghai Composite had a hard time keeping its head above water
In the FX markets the USD was stronger against the G10 and EM currencies AUD USD led the losers falling from 0 7734 to 0 7660 as economic data disappointed Australian September employment change fell 9 8k vs 15k exp The weak read has increased speculation that the RBA will cut rates again
In the UK labor markets continued to disprove the critics The UK unemployment rate remained at the lowest level since 2005 at 4 9 while wage growth increased 2 2 Brexit should eventually drive unemployment higher but at this point there is scant evidence of a mass migration of jobs
Yesterday the BoC kept rates unchanged but actively discussed additional easing While the risk remains toward further accommodated we anticipate the BoC will hold off any additional cuts
In Brazil the BCB reduced the SELIC rate by 25bp starting an easing cycle The Copom will likely move cautiously as will significantly macro uncertainties on the horizon We can expect additional rate cuts at the November 30th meeting but then a pause
In the US housing starts came in well below consensus dropping 9 0 m m to 1 047mn against 1 173mn expected in September This weak read will be a negative drag on growth lowering Q3 GDP estimates
Today s ECB monetary policy decision will dominate trading We do not expect any changes to policy likely wait till December meeting or changes to QE Even an announcement of adjustments to technical parameters such as a removal of yield floor is a low probability event although not to be ruled out This will put the emphasis on the Q A session to see how Draghi handles questions on framework extensions and inflationary outlook
Elsewhere the Central bank of Turkey will announce its monetary decision today Given the political uncertainty and interference as government officials have hinted there is unease and with the TRY weakness there is a high likelihood of no move
ECB aside traders will be watching UK retail sales and US Philly Fed and existing home sales
Currency TechEUR USDR 2 1 1616R 1 1 1428CURRENT 1 1013S 1 1 1046S 2 1 0913
GBP USDR 2 1 2857R 1 1 2477CURRENT 1 2229S 1 1 2090S 2 1 1841
USD JPYR 2 111 45R 1 107 49CURRENT 103 91S 1 102 80S 2 100 09
USD CHFR 2 1 0093R 1 0 9950CURRENT 0 9881S 1 0 9632S 2 0 9522 |
MS | 4 Ways To Trade Morgan Stanley | Morgan Stanley NYSE MS completed a move lower with its second deep draw down in February That was followed by a slow trending channel higher through June It dropped again following the Brexit vote at the end of June below the channel to a lower low But the uptrend was not over In fact from that lower low it has now made two legs higher to get back to the January dropping off point
It consolidated there for almost 6 weeks before a renewed push higher last week Friday s strong Marubozu candle sealed the deal for a third leg higher That would give a target to 35 50 at the December dropping off point The RSI is rising in the bullish zone and the MACD is rising and bullish both supporting a move higher
The Bollinger Bands are opening to the upside to allow a move higher too There is resistance at 35 50 and then 37 70 followed by 40 and 41 Support lower comes at 32 35 and 330 85 followed by 29 35 Short interest is low at 1 2 The company pays a dividend and the stock trades ex dividend on the 27th
The October 28 Expiry options chain shows largest open interest at the 33 Call Strike In the regular November options show the largest open interest at the 32 Call Strike with big open interest at the 33 Call and 31 Put as well Even in January options the open interest is biggest below the current price and it is very large Options traders do not expect much out of this stock
4 Ways To Trade
Trade Idea 1 Buy the stock now over 32 35 with a stop at 31 30
Trade Idea 2 Buy the stock now and add a November 33 31 Put Spread 50 cents also selling the November 35 Covered Calls 20 cents
Trade Idea 3 Buy the November 34 35 Call Spread and sell the November 30 Put 20 cents
Trade Idea 4 Buy the December 31 35 Bullish Risk Reversal free
After reviewing over 1 000 charts I have found some good setups for the week These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which heading into the last week before the election sees equity markets looking stable long term and mixed in the short run with the QQQ leading and the SPY falling
Elsewhere look for gold to continue to press higher short term while crude oil continues to show its strength The US Dollar Index is also strong moving higher while US Treasuries are bouncing short term in their downtrend The Shanghai Composite continues to drift higher while Emerging Markets mark time in consolidation
Volatility looks to remain subdued and falling adding a tailwind to the equity index ETF s SPY IWM and QQQ They are mixed short term though with the QQQ moving higher with the IWM flat and the SPY at risk for more downside Use this information as you prepare for the coming week and trad em well |
JPM | Bank Leadership JP Morgan Could Be Slipping Below Support | The chart above looks at JP Morgan NYSE JPM over the past 16 years JP Morgan has been done very well since the 2009 lows as its gains have surpassed the S P 500 and Banks overall by a large percent See Chart below
We applied Fibonacci to the 2007 highs and 2009 lows for JPM It hit the 261 extension level at 1 earlier this year and started creating a couple of reversal patterns Since hitting the 261 level JPM has been soft and could be creating a bearish descending triangle pattern
JPM could be slipping below support 2018 lows at 2 What this market leader does at 2 will be important to the stock the banking sector and the overall market
Stock market bulls would get a bulls price message if JPM can climb back above support at 2 Stock market bulls would get a caution message from JPM if it kisses the underside of 2018 lows and selling pressure continues
Keep a close eye on what JPM does at 2 as it will send an important message to the banking sector and the broad market too |
JPM | Expected S P 500 Q2 18 Sector Revenue Growth | Here is what the Street is expecting by sector for Q2 18 revenue growth
Energy 19 9 vs 17 8 as of April 15 2018
Basic Materials 13 2 11 3 as of April 15 2018
Technology 12 4 vs 10 9 as of April 15 2018
Real Estate 10 4 vs 6 5 as of April 15 2018
Consumer Discretionary 8 1 vs 7 4 as of April 15 2018
Industrials 7 9 vs 7 1
Health Care 5 8 vs 6 3
Consumer Staples 4 8 vs 4 2
Financials 4 5 vs 4 1
Telecom Services 3 2 vs 3 2
Utilities 0 vs 0 9 as of April 15 2018
S P 500 8 1 ex Energy 7
These snapshots of S P 500 data courtesy of Thomson Reuters IBES don t tell us as much as the trends in the above numbers hence the expected Q2 18 revenue growth by sector is shown as of April 15 2018 The only two sectors to show an expected slowing in revenue growth the last 90 days are Health Care and Utilities
Of course this is uncorrelated to performance since Utilities and the basic defensive sectors have rallied since the trade war headlines started
Even the Financial sector is looking for slightly faster revenue growth the last 90 days
The other aspect to this that i wanted to point out to readers is that revenue isn t directly impacted by the corporate income tax rate reduction Tax Cuts Jobs Act hence in my opinion it gives perhaps a better read on how much growth is from a stronger economy and how much earnings growth is tax rate related
Thomson Reuters IBES data by the numbers
Fwd 4 qtr est 168 23 vs last week s 164 16 This blog talked about the pending jump in the estimate last weekend as the data rolls into a forward quarter
P E ratio 16 4x
PEG ratio 0 79x
S P 500 earnings yield 6 10 vs last week s 5 99
Year over year growth of forward estimate 20 85 vs 21 84 as of last week
Most blog readers won t notice the mathematical anomaly where the S P 500 rose 1 6 last week but because the forward estimate roll jumped more than that the S P 500 earnings yield jumped back over 6 again Historically an S P 500 earnings yield over 6 has been a good time to own US stocks
Q2 18 earnings should be solid The big banks start reporting Friday July 13 when Wells Fargo JP Morgan Citigroup and PNC all report Financial s have traded poorly the last 5 weeks and you d have to think expectations are low coming into Friday morning s flood of bank releases Long JPM XLF KRE |
JPM | Opening Bell USD Rebounds Earnings Outlook Fuels Global Stock Rally | Investors switch to risk on trading rotating out of bonds into stocks
Rebound in European Asian shares looses steam through trading session
US futures point to more upward momentum
Stock rally helps trigger technical signals on SPX Dow Jones
Pound recovers from government turmoil after Johnson Davis resign over May s Brexit strategy
Key Events
Equities in Europe and Asia and US futures on the S P 500 Dow and NASDAQ 100 all traded higher on Tuesday pressing forward with a rally that was triggered by last week s favorable US employment report and further boosted by a bullish outlook for the upcoming earnings season The upbeat momentum allowed investors to place trade war fears on the back burner
Energy and resource companies helped the pan European STOXX 600 seal a sixth straight advance though profit taking by traders is paring much of those early gains In currency markets sterling found its footing after the latest high ranking resignation over PM Theresa May s soft Brexit plan with Boris Johnson and David Davis stepping down from their roles as foreign secretary and Brexit secretary on Monday and Sunday respectively see below for more analysis on the pound
Regional markets also lost steam through their trading sessions The Shanghai Composite Hong Kong s Hang Seng and South Korea s KOSPI gave up half or more of the day s gains
Japan s TOPIX outperformed climbing for the fourth consecutive session Australia s S P ASX 200 was the only key Asian benchmark to slip lower However this setback can be viewed as a correction a return move following a bullish pennant pattern the Aussie index is the only one in the region currently posting an uptrend
Global Financial Affairs
Today s rally follows a strong performance during yesterday s US session which saw shares advance to their highest levels in nearly a month The S P 500 climbed 0 88 percent helped by gains in Financials 2 32 percent Two of the only three sectors sliding in red territory were defensive Utilities 3 08 percent and Consumer Staples 0 38 percent This provides further evidence of a markedly risk on market
This shift in sentiment is also backed by the fact that both the SPX and the Dow Jones Industrial Average have achieved technical milestones
The former reached the top of a consolidation since late February as it tests the 2 800 round psychological level after bouncing off the 100 DMA and crawling above the 50 DMA last week in a sign of support for the price
The Dow Jones pierced through the 50 DMA and 100 DMA closing at the top of the session showing that bulls were in charge Investor willingness to bid the mega cap benchmark higher even after its week long slump under the 200 DMA red clearly illustrates this sentiment reversal
With US President Donald Trump focusing on his pick for the next Supreme Court judge and on his upcoming trip to Europe trade war headlines have eased from their peak on Friday when the US formally pressed ahead with tariffs on 34 billion worth of Chinese products and Chinese officials responded with comparable levies
As investor focus moves to the corporate earnings season which kicks off later this week there s a growing expectation that strong company results will complement the recent run of positive economic data
The dollar stabilized for a second day finding support at the 50 DMA as the 100 DMA blue closes the gap with the 200 DMA red demonstrating that more recent prices are outperforming older levels More notably yesterday s rebound which was extended today places the USD price back into its rising channel
The dollar may have benefited from the same dynamic that pushed US yields higher investors are rotating funds out of bonds and into risk assets However yields on 10 year Treasurys may find resistance under the downtrend line since the May peak compounded with the 100 DMA blue and 50 DMA red
Additionally should the 10 year yield start tumbling lower it would complete an H S top reversal which coincides with falling below the 200 DMA red a telltale sign of how significant this level is
In Europe the pound rebounded from a plunge after Johnson became the third high ranking minister to resign in under two days over May s Brexit strategy which is seen by many hard Brexiters as a watered down version of what the country should pursue in negotiations with the EU This latest development within May s cabinet increases the probability of a leadership challenge which would throw the current government into chaos
However despite losing a third of her cabinet in just nine months May still holds the numbers to remain in power which reassured traders into buying the dip on Tuesday Technically however today s advance is considered a correction within a downtrend as the price fell in the two preceding sessions confirming the resistance at the top of a falling channel compounded with the 50 DMA
WTI crude held near 74 a barrel in New York as US stockpiles were seen dropping lower for the fourth week out of five
Turkey s lira recovered from an extension of yesterday s selloff after President Recep Tayyip Erdogan named his son in law as the new economy tsar removing the last member of a market friendly financial team that has been gradually pushed to the sidelines The move drove the lira to its deepest plunge since the failed governmental coup in 2016
Up Ahead
Chinese trade data due at the end of the week will probably show slightly slower export growth after early indicators pointed to softer overseas demand and weaker export orders according to Bloomberg Economics
The most noteworthy US data is the June inflation report on Thursday which consensus expects will show both headline and core price growth picking up There s another deluge of Treasury debt sales too with a total 156 billion of notes and bills offered
Earnings season gets going with JPMorgan NYSE JPM and Citigroup NYSE C among the largest companies due to give results on Friday
Market Moves
Stocks
The STOXX Europe 600 gained 0 1 percent hitting the highest level in more than three weeks
Futures on the S P 500 climbed 0 1 percent to the highest level in almost four months
The MSCI All Country World Index gained less than 0 05 percent to the highest level in more than three weeks
The MSCI Emerging Market Index ticked 0 1 percent higher to the highest level in more than two weeks
Currencies
The Dollar Index edged almost 0 1 percent higher to nearly a two day climb of 0 2 percent
The euro was unchanged at 1 1751 the strongest level in almost four weeks
The British pound climbed less than 0 05 percent to 1 3266
The Japanese yen slipped 0 2 percent to 111 07 per dollar the weakest level in almost six months
Bonds
The yield on 10 year Treasuries gained one basis point to 2 86 percent the highest level in more than a week
Germany s 10 year yield gained two basis points to 0 32 percent the highest level in more than a week
Britain s 10 year yield climbed four basis points to 1 252 percent the highest level in two weeks
Commodities
The Bloomberg Commodity Index gained 0 1 percent
West Texas Intermediate crude increased 0 6 percent to 74 28 a barrel the highest level in more than three years
LME copper climbed 0 2 percent to 6 400 00 per metric ton the highest level in a week
Gold slipped less than 0 05 percent to 1 257 24 an ounce |
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