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MS | Fraud hit Indian lender PNB slides for third day | By Devidutta Tripathy and Tanvi Mehta MUMBAI Reuters Stung by a 1 77 billion fraud Punjab National Bank shares sank for a third day on Friday with India s second largest state run lender losing nearly a quarter of its market value since its shock disclosure earlier this week With investors fretting over the extent of its liability The Economic Times newspaper reported that India s central bank had directed PNB to pay the entire amount to counterparties Morgan Stanley NYSE MS estimated on Thursday if PNB had to assume all the liability from the fraud it would need 80 billion rupees 1 25 billion in additional capital which at the stock s current valuation would mean a 14 percent dilution Comments from PNB Chief Executive Sunil Mehta on Thursday had fallen short of saying the bank would assume any potential liabilities Mehta said PNB would wait for the outcome of investigations but added it would comply with any regulatory order Analysts said the fraud case was likely to cast a long shadow over the banking sector particularly state run lenders several of which had also provided loans under the assumption they were being backed by PNB PNB has lost 90 billion Indian rupees 1 41 billion 23 4 percent of its market value since its disclosure on Wednesday that a investigation was underway into suspected fraud as a result of two junior officials at a branch in Mumbai steering unauthorized loans to customer accounts including some firms e linked to Nirav Modi a billionaire jeweler and diamond merchant Federal investigators have raided Nirav Modi s Mumbai home and offices though the jeweler is outside the country and his whereabouts is unknown Modi launched an eponymous jewelry business branded NIRAV MODI in capitals with a chain of boutiques stretching from New York to London to Beijing As recently as last month he was at the World Economic Forum in Davos Indian media carried a group photograph with Prime Minister Narendra Modi in the foreground and Nirav Modi who is no relation grinning between rows of Indian business leaders behind him In noon trade on Friday PNB s share was down 3 percent after sliding more than 18 percent in the previous two sessions The state run banking sector index was down 1 54 percent in a flat Mumbai market Jayant Manglik president of retail distribution at Religare Broking said he was recommended investors be cautious about India s state banking sector As a general rule I would suggest staying away till there is clarity on this he said PNB said in an announcement to the stock exchange on Thursday evening that it had suspended 10 employees during the investigation into the fraud which Mehta said had gone on undetected for years PNB also said it had requested Hong Kong branches of two other Indian banks Allahabad Bank and Axis Bank to provide it with documents and communications with the borrowers Companies related to Nirav Modi had used the fraudulent credit guarantees from PNB to get loans from overseas branches of Indian banks including Allahabad and Axis according to a previous police complaint from PNB Axis has said it sold down all its exposure based on the PNB guarantees without giving further details |
MS | Japan reappoints Kuroda as BOJ chief picks reflationist academic as deputy | By Tetsushi Kajimoto and Leika Kihara TOKYO Reuters Japan reappointed central bank chief Haruhiko Kuroda for another term on Friday and chose an advocate of bolder monetary easing as one of his deputies in a strong signal to investors that policymakers are in no rush to turn off a sweeping stimulus program The selection of the new BOJ leadership comes amid heightened anxiety in Japanese and global financial markets fueled partly by speculation over how quickly major central banks will wind down their crisis era policies In a widely expected move the government nominated Kuroda a 73 year old former finance ministry bureaucrat to serve another five year term when the current one ends in April That would make him the longest serving BOJ head in half a century a sign of premier Shinzo Abe s confidence in the governor s ability to pull Japan s economy out of stagnation Tokyo stocks rose on relief the BOJ will maintain its huge stimulus a cornerstone of the premier s Abenomics reflationist policies even as other major central banks head towards the exit In the short term the BOJ gave the stock market relief by not derailing Kuroda s monetary policy It sent a message to the market that the main part of Abenomics will not change said Norihiro Fujito senior investment strategist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities However many market watchers fear the BOJ s massive money printing project which is about to enter its fifth year is increasingly untenable distorting financial markets and hurting the country s banks While growth in the world s third largest economy has improved thanks largely to stronger global demand inflation remains far short of the BOJ s 2 percent target TIPPING THE BALANCE The government also nominated Masazumi Wakatabe a 52 year old Waseda University academic and an advocate of aggressive easing for BOJ deputy governor The choice of Wakatabe could complicate Kuroda s task of engineering a slow but steady exit from the BOJ s stimulus All the same it could also help the BOJ dispel market speculation it may dial back stimulus earlier than expected and allow it to shift gear back toward more easing if continued gains in the yen threaten Japan s economic recovery some analysts say The BOJ is in no position to tighten policy anytime soon given rises in the yen Contrary to market expectations the next step could be ease further if yen rises persist said Yasunari Ueno chief market economist at Mizuho Securities Wakatabe will tip the board s balance towards more easing The other deputy governor post went to BOJ Executive Director Masayoshi Amamiya a veteran central banker known for masterminding various monetary policy steps The nominations need approval by both houses of parliament which is a near certainty as Abe s ruling coalition has a comfortable majority YEN COMPLICATES EXIT As a former top Japanese currency diplomat Kuroda had criticized the BOJ for not doing enough to ease the pain a strong yen was inflicting on an export reliant economy His calls for more radical monetary steps drew Abe s attention and brought him to the BOJ helm in 2013 where he worked with Amamiya to deploy a sweeping asset buying program A workaholic who does not play golf or drink much making him a rare breed among Japanese policy elites Kuroda has proved to be a safe hand for the government with his unwavering commitment to keep the money spigot wide open He befriended many overseas policymakers during his stint as head of the Asian Development Bank from 2005 to 2013 Former Federal Reserve Chairman Ben Bernanke praised Kuroda s efforts during a visit to Tokyo last year saying he regretted his criticism of past BOJ policy People who work with him or know him well say Kuroda appears lively and fit for another term despite his age and the demanding schedule which involves frequent overseas trips and visits to parliament to answer lawmakers questions He s very lively and energetic said one of the people He seems ready to stay on Kuroda will face challenges different from five years ago in his second term The yen s ascent to 15 month highs has drawn verbal intervention from the finance minister a sign Abe s government may pile pressure on the BOJ to ramp up stimulus if yen rises persist And yet the BOJ has little ammunition left With the cost of prolonged easing rising Kuroda s biggest task would be to engineer a smooth exit from his radical stimulus program analysts say While Amamiya is unlikely to rock the boat Wakatabe may resist any attempts to signal a future withdrawal of stimulus In an interview with the Nikkei last November Wakatabe said the BOJ needs stronger measures to beat deflation and should accelerate its asset purchases That would require reversing a decision made in 2016 to abandon a target for asset purchases and contradict the mainstream approach of BOJ officials who believe the bank s next move should be a withdrawal of stimulus not an expansion
There are two hurdles Kuroda must overcome before seeking an exit One is a strong yen and another is Abe s pressure on the BOJ to continue easy money policy said Ueno of Mizuho |
MS | Japan Funds Waiting for Powell Before Return to Treasuries | Bloomberg U S Treasury yields may be a lot higher than can be found in Japan but Japanese investors beset by a strengthening currency are looking for some additional inducements before ramping up their purchases
First off potential buyers want to hear from newly installed Federal Reserve Chairman Jerome Powell who s scheduled to testify on the economy at Congress Feb 28 After stronger than anticipated U S wage and inflation data in recent weeks the key questions are what s his take on the outlook for monetary tightening and what does he make of the jump of almost a percentage point in the 10 year yield since September
Investors will be reluctant to take positions until Fed Chairman Powell s testimony said Kenta Inoue a senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities Co in Tokyo There is a vague concern about how the Fed would communicate with the market under the new leadership
Recent data back up that hypothesis
Japanese investors sold a net 973 2 billion yen 9 2 billion in overseas bonds and notes in the week ended Feb 9 data from the Ministry of Finance showed Friday
A separate set of figures released by the Treasury Department in Washington on Thursday showed Japan s holdings of U S Treasuries fell for the fifth straight month in December to 1 06 trillion from 1 09 trillion at the end of 2016 That s even as holdings by China increased last year by the most since 2010
The speed of the recent move up in U S yields has caught many by surprise And accompanied by a tumble in the dollar that s made it more costly for Japanese investors to hedge foreign exchange risks it s raised the bar for Japan based buyers The yen has climbed 6 6 percent this year It strengthened past the 106 per dollar level on Friday for the first time since November 2016 and was up 0 4 percent at 105 70 as of 2 06 p m in Tokyo
The question for Japan based investors is how do you balance the attractive yield with the cost of hedging if you expect the dollar to weaken said Jean Medecin a member of the investment committee at French asset manager Carmignac Gestion SA
The 10 year Treasury yield probably needs to hit at least 3 percent to spur the appetite of Japanese funds a number of market participants said
Japanese investors are expected to buy if the 10 year bond yield rises to 3 percent and markets stabilize after the recent selloff in global shares said Jun Kato chief market analyst at Shinkin Asset Management Co in Tokyo
Shuichi Ohsaki chief rates strategist for Japan at Bank of America Merrill Lynch had much the same take while adding that some investors may want to hold off further until the Japanese financial year begins on April 1
Before that comes Powell s testimony in what s referred to as Humphrey Hawkins hearings at House and Senate committees followed by the Federal Reserve s March 20 21 policy meeting that includes a press conference with the chairman
Given the danger that Trump administration s fiscal policies pose for bond yields investors will be watching whether Powell can convince that inflation and market volatility are under control Kato at Shinkin said |
JPM | Dovish Central Banks PBOC Rate Revamp MMT Explained Eco Day | Bloomberg Follow the latest global economic news and analysis economics
Welcome to Friday Asia Here s the latest news and analysis from Bloomberg Economics to help get your day started
China s monetary policy makers are making louder noises this year about a long postponed reform of interest rates that could ultimately see the abolition of the current benchmark
Central banks from the U S to Asia are turning dovish as they increasingly fret about getting inflation to pick up in a bruised global economy
What s up with Modern Monetary Theory Here s an overview of a once fringe school of economic thought that s suddenly of the moment
The grounding of Boeing s 737 Max after a second crash is poised to start percolating through major U S economic indicators ranging from international trade to durable goods says JPMorgan NYSE JPM
Argentina s economy sharply contracted in the fourth quarter while unemployment rose potentially hurting President Mauricio Macri s approval ratings as he seeks re election later this year Adriana Dupita says it won t be the last decline in GDP
Canada just recorded its biggest influx of immigrants in more than a century |
JPM | JPMorgan Falls 3 | Investing com JPMorgan NYSE JPM fell by 3 01 to trade at 99 77 by 11 46 15 46 GMT on Friday on the NYSE exchange
The volume of JPMorgan shares traded since the start of the session was 10 97M JPMorgan has traded in a range of 99 76 to 102 32 on the day
The stock has traded at 108 4000 at its highest and 99 7400 at its lowest during the past seven days |
JPM | Plummeting Lira Defies Turkey s Surprise Monetary Tightening | Bloomberg Turkey s central bank announced a surprise tightening of monetary policy and moved to calm concern over a sudden drop in official reserves in a failed attempt to stem a slump in the lira
The currency tumbled as much as 5 8 percent Friday as the central bank announced steps to push lenders toward its more expensive overnight borrowing facility It was 4 9 percent lower at 5 7457 per dollar as of 8 23 p m in Istanbul
A central bank official said late Friday that a drop in official reserves during the first two weeks of March wasn t anything out of the ordinary citing foreign debt repayments and sales of hard currency to state energy companies That statement came after the lira s slump picked up pace amid speculation the decline in reserves signaled the central bank was using its holdings to prop up the currency before elections on March 31
Today s move is about buying time said Timothy Ash a strategist at BlueBay Asset Management in London This could be the last chance for the current central bank management to prove themselves
A lack of clarity over policy direction after the election has seen the lira extend its declines over the past three months to more than 7 percent The risk of a flare up in tensions with the U S over Turkey s plans to purchase a missile defense system from Russia is also contributing
Emergency Hike
The central bank raised its benchmark interest rate by 625 basis points to 24 percent in September after the lira fell to a record low in August Now it wants banks to use one of two more expensive funding windows one which has an interest rate of 25 5 percent and another with a rate of 27 percent
The lira slump is being compounded by signs local investors are turning to foreign currencies amid runaway inflation that s eating into lira savings Turkish households and companies bought 4 billion of hard currency in the week ended March 15 the most since 2012 driving their holdings to 175 8 billion a fresh record
The central bank s net international reserves fell 6 3 billion in the two weeks through March 15 to 28 5 billion according to data published Thursday The erosion outstrips the Treasury s 3 8 billion external debt payments scheduled for March and analysts are having trouble squaring the discrepancy
Since external debt repayments can t explain the decline in reserves markets are assuming there is intervention going on Henrik Gullberg a strategist at Nomura Plc in London said before the central bank statement
Still a central bank official told Bloomberg that recent foreign debt repayments and foreign exchange sales to state energy companies amounted to 5 3 billion
JPMorgan Chase Co NYSE JPM recommended investors go long on the dollar against the lira targeting a move to 5 90 JPMorgan could only account for a 1 5 billion drawdown of reserves in the two weeks through March 15 which it attributed to the Treasury s Eurobond redemption It estimated reserves fell by another 1 5 billion as of March 20
We believe this pace of FX reserve fall is unsustainable JPMorgan strategists including Anezka Christovova said in a note to clients We see a high risk that FX reserve support will abate post local elections on March 31 which could lead to USDTRY trading substantially higher
The yield on benchmark government notes trimmed a surge to 59 basis points and the Borsa Istanbul 100 Index slumped by the most since August led by the nation s largest listed lenders |
JPM | Central Banks Should Leave Crypto to Facebook and JPMorgan PwC Partner | Central banks should leave issuance of digital currencies to corporations such as Facebook NASDAQ FB and JPMorgan NYSE JPM according to a blockchain and financial partner at PwC France Forbes reports March 22
According to PwC France s Pauline Adam Kalfon central banks should stay away from the issuance of central bank digital currencies CBDCs until large corporations test out the tokenization of fiat currencies themselves |
JPM | Populists Run 68 of GDP China Stimulus Trade Jaw Jaw Eco Day | Bloomberg Welcome to Monday Asia Here s the latest news and analysis from Bloomberg Economics to help get your day started
Some 68 of G 20 GDP is run by populists in democracies or non democratic regimes Tom Orlik calculates up from 33 in 2016 and there are increasing signs their bad policies are hurting growth
China s top officials pledged to lower tariffs and expedite debt sales in 2019 as they seek to manage an economic slowdown Meantime central bank chief Yi Gang said the nation s financial markets are still relatively closed so there s plenty of scope to increase access
The trade war between the U S and China comes back into focus this week as U S negotiators head to Beijing for another round of talks
A property market boom could lead to employees being more distracted at work as they spend extra time shopping online and show up late or leave early a study found
This looks like a textbook example of political meddling with a central bank in an emerging market except it s happening in the U S President Donald Trump s nomination of Stephen Moore to be a Fed governor has drawn swift pushback
The euro area economy looks poised to get some lift from what once helped to push it into crisis government spending It probably needs it given the weakness across France and Germany
The inversion of the yield curve all the way out to 10 year maturities poses a potentially troubling signal for the economic outlook if it s sustained our economists say in a preview of the week ahead The yield on Australia s 10 year note opened below 1 8 percent on Monday for the first time on record
India s economy is rebounding aided by a new central bank chief who pulled a policy U turn to support growth writes Abhishek Gupta
Turkey started an investigation into JPMorgan NYSE JPM and another probe of unspecified banks that the regulator reproached for stoking the lira s biggest plunge since last year s crash President Recep Tayyip Erdogan warned bankers deemed responsible for creating excessive demand for hard currency and making misleading predictions on currencies will pay a heavy price after elections |
JPM | Turkish Lira Rebounds as Erdogan Warns Bankers Will Be Punished | Bloomberg The Turkish lira rebounded recouping some of Friday s losses after President Recep Tayyip Erdogan warned that bankers deemed responsible for speculating against the currency would be punished
If you are soaking up foreign currencies from the market and engaging in provocative actions there will be a heavy price for that Erdogan said on Sunday in televised remarks during an election rally in Istanbul
The lira rose 1 3 percent to 5 6819 versus the dollar as of 8 39 a m in Singapore The currency plunged more than 5 percent on March 22 its biggest drop since last year s crash
There wasn t any follow through lira selling versus the yen in early Tokyo trade which probably encouraged some investors to buy back the lira after Friday s slump said Hironori Sannami an emerging market currency trader at Mizuho Bank Ltd in Tokyo The liquidity is thin and that probably made it a volatile move
Turkey started an investigation into JPMorgan Chase Co NYSE JPM and another probe of unspecified banks that the regulator reproached for stoking the lira s drop
The Banking Regulation and Supervision Agency known as BDDK on Saturday said a research note a day earlier by two JPMorgan analysts that recommended selling the lira against the dollar had misguiding and manipulative content that resulted in volatility in markets and hurt the reputation of Turkish banks The Capital Markets Board began its own investigation on similar grounds according to a statement on its website
The rebound in the lira contrasted with a risk off mood in most Asian currencies that were trading on Monday
The Turkish lira s comeback will be limited however as EM in Asia will be under pressure following the price action across markets on Friday said Jeffrey Halley senior market analyst at Oanda Corp in Singapore |
JPM | Positive German data tempers equity selloff lifts bond yields | By Karin Strohecker LONDON Reuters World stocks hit a 12 day trough on Monday as fears for economic growth sent investors dashing for safe haven assets but the selloff lost some momentum after better than expected data from Germany The Ifo Institute s March business climate index unexpectedly rose soothing nerves after Friday s dismal German manufacturing data which helped spark a global selloff that hammered stock markets and pushed key benchmark bond yields below zero Crucially an inversion in the U S bond yield curve on Friday had stoked fears that the world s largest economy was headed for recession But the Ifo report lent some cheer It helped European shares rise off early lows Paris traded flat London s FTSE was down 0 2 percent and Frankfurt inched up 0 14 percent after the numbers Europe s banking as well as industrial goods services sectors which were down 1 percent at one point recouped losses to trade flat by 950 GMT But the jitters were far from over We had a dire end to 2018 which was then recouped so you have a very good reason to lighten up on portfolios said Marie Owens Thomsen chief economist at CA Indosuez in Geneva adding that confusion over the state of play in Britain s impending departure from the European Union clouded the picture more Many people may have realized a major part of their expected returns for the year so in light of recent gains it makes sense for investors to should lighten up on risk The falls in Europe follow hefty tumbles in Asia Japan s Nikkei hit a five week low after diving 3 1 percent for its largest one day percentage fall since late December South Korea s Kospi index declined 1 7 percent while China shares was also in the red with the blue chip CSI 300 index down 1 4 percent MSCI s gauge of stocks across the globe slipped 0 5 percent The gloomy mood was expected to spread to U S markets with S P 500 futures skidding 0 2 percent However they were down as much as 0 5 percent earlier in the day The German data also helped Germany s benchmark 10 year bond yield move back into positive territory Spreads between U S three month and 10 year Treasury yields turned positive U S 10 year treasury yields stood at 2 7240 percent after yields inverted for the first time since 2007 on Friday Historically an inverted yield curve where long term rates fall below short term has signaled an upcoming recession The bond market price action is an enormous blaring siren to anyone trying to be optimistic on stocks JPMorgan NYSE JPM analysts said in a note to clients Growth and bonds yield curves will be the only thing stocks should be focused on going forward and it s very hard to envision any type of rally until economic confidence stabilizes and bonds reverse it added Politics was also in focus in the United States and Britain U S Special Counsel Robert Mueller concluded after a long investigation that nobody associated with President Donald Trump s campaign conspired with Russia during the 2016 presidential election according to a summary issued by Attorney General William Barr on Sunday Political turmoil in Britain over the country s exit from the European Union also remains a drag on risk assets Prime Minister Theresa May held crisis talks with senior colleagues and hardline Brexiteers on Sunday trying to breathe life into her twice defeated European divorce deal after reports her cabinet was plotting to topple her Rupert Murdoch s Sun newspaper said in a front page editorial May must announce on Monday she will stand down as soon as her Brexit deal is approved The British pound was 0 2 percent lower after three straight days of wild gyrations The currency had slipped 0 7 percent last week The Japanese yen a perceived safe haven traded 0 25 percent softer at 110 18 per dollar knocked off earlier six week highs
In commodities U S crude fell 13 cents to 58 91 per barrel Brent crude futures eased 22 cents to 66 81 |
MS | Will Kansas City Southern KSU Beat On Earnings In Q3 | Leading railroad operator Kansas CitySouthern NYSE KSU is slated to release third quarter 2016 results on Oct 18 before the market opens In the second quarter the MO based railroad operator reported better than expected earnings The bottom line also improved significantly on a year over year basis aided by low costs Operating ratio operating expenses as a percentage of revenues improved substantially to 61 3 in the second quarter Driven by its efficient cost management we expect the railroad operator to report impressive earnings in the third quarter as well KANSAS CITY SOU Price and EPS Surprise
Our quantitative model shows that Kansas City Southern is likely to beat earnings because it has the perfect combination of two key ingredients Zacks ESP The for Kansas City Southern is 0 83 with the Most Accurate estimate exceeding the Zacks Consensus Estimate of 1 20 per share by a penny Zacks Rank Kansas City Southern carries a Zacks Rank 3 Hold Note that stocks with a Zacks Rank 1 Strong Buy 2 Buy or 3 have a significantly higher chance of beating earnings estimates Conversely Sell rated stocks Zacks Rank 4 or 5 should never be considered going into an earnings announcement The combination of Kansas City Southern s favorable Zacks Rank and positive ESP makes us reasonably confident of an earnings beat What is Driving the Better than Expected Earnings The company has an impressive track record with respect to earnings per share It outpaced the Zacks Consensus Estimate in three of the last four quarters with an average earnings beat of 8 63 We expect the automotive sector to perform well in the third quarter At the Morgan Stanley NYSE MS 4th Annual Laguna Conference in Sep 2016 the company revealed that automotive volumes were up 13 as of Sep 13 The company expects mid single digit revenue growth on a sequential basis in the to be reported quarter Also cheap labor and lower transportation costs in the Mexican market compared with the U S bode well for the company it as it has service networks across both sides of the U S Mexico border We are also impressed by the company s efforts to reward shareholders through dividend payments However headwinds related to the energy segment are expected to hurt Kansas City Southern s third quarter revenues as has been the case in the past few quarters At the abovementioned conference the company had stated that revenues declined 4 in the third quarter as did carloads data as of Sep 13 Energy volumes were down 6 as were intermodal volumes on the same date Stocks to ConsiderHere are a few bank stocks that you may want to consider as our model shows that these have the right combination for an earnings beat this time around Genesee Wyoming Inc NYSE GWR has an Earnings ESP of 4 26 and a Zacks Rank 2 The company which will release its third quarter results on Nov 1 has an impressive history with respect to earnings per share having outpaced the Zacks Consensus Estimate in each of the last four quarters by an average of 5 71 You can see Canadian Pacific Railways Limited NYSE CP has an Earnings ESP of 0 47 and a Zacks Rank 3 The company which will release its third quarter results on Oct 19 has an impressive history with respect to earnings per share having surpassed the Zacks Consensus Estimate in three of the last four quarters by an average of 0 96 Alaska Air Group NYSE ALK has an Earnings ESP of 0 49 and carries a Zacks Rank 3 The carrier which has seen the Zacks Consensus Estimate for the third quarter increase 1 to 2 03 per share over the last month is scheduled to unveil its quarterly results on Oct 20 Confidential from Zacks Beyond this Analyst Blog would you like to see Zacks best recommendations that are not available to the public Our Executive VP Steve Reitmeister knows when key trades are about to be triggered and which of our experts has the hottest hand |
MS | Guide To Socially Responsible ETFs | Gone are the days when ETF issuers and investors used to consider market cap oriented dividend paying or style based products The industry has been expanding fast lately resorting to smarter approach and widening into new markets and niches Amid the whole bunch of newer themes socially relevant funds are in vogue lately read
Companies that focus heavily on environmental social and governance ESG practices are being craved by investors if we go by No wonder issuers have flocked to this emerging concept and are rolling out new products with full enthusiasm Renowned issuers like iShares Barclays LON BARC and ALPS have already made their presence felt in this category read
Inside Socially Responsible Investing Theme
Equities that are associated with social factors like low carbon emissions and righteous business practices come under the socially responsible theme On the other hand companies engaged in the manufacture and sales of products like tobacco alcohol and arms are not considered by many as socially responsible investment options
As per the latest data by 70 of all investors are interested in socially responsible investing while more than 80 of millennials intend to be socially responsible while making investment decisions
And with millennialsseemingly being the growth driver of the U S economy baby boomers in 2015 and comprising over one quarter of the nation s population their investing preferences are sure to be at the top of issuers minds read
Why is it a Surging Segment
Investors appear to be bothered about the future of the environment and the effect it might have on their investing portfolio For example since apprehension about the death of natural resources has urged global superpowers to boost clean energy and reduce carbon emissions investors believe that stocks with higher ESG scores will eventually outperform read
Apart from the social standpoint this investing practice has a valid reason for increased gains As per lesser focus on environmental issues by the companies may result in lawsuits fines and damages
For example businesses that use less water and less power have lower costs and operate more efficiently In most cases it has been seen that sound corporate governance leads to greater corporate durability As a result more companies are coming up with information on their economic environmental and social events unlike what we have seen in the 1990s
If this was not enough in 2015 the Department of Labor issued a new rule that indicates that can consider ESG issues in investment for retirement plans
How Successful is the Investment Proposition
As per roughly 90 of studies show that there is a nonnegative relation between ESG and Corporate Financial Performance CFP A 2015 research shows that in 2012 1 out of every 9 of US assets under professional management was invested in some form of sustainable investment primarily in public equities In 2014 that number increased to 1 out of every 6
The Morgan Stanley report also found that long term annual returns of the MSCI KLD 400 Social Index consisting of firms heavy with environmental social and governance criteria beat the S P 500 by 45 basis points till 2014 since its inception in 1990
ETFs in Focus
Below we highlight a few popular socially responsible ETFs that could be on investors wish list
iShares MSCI KLD 400 Social ETF DU DSI
The 624 million fund looks tomeasure the performance of U S companies with positive environmental social and governance characteristics The fund charges 50 bps in fees IT 26 64 and Health Care 13 59 are the top two sectors
iShares MSCI USA ESG Select ETF
The 419 3 million fund measures the equity performance of large cap companies having positive environmental social ESG characteristics relative to their industry sector peers and in relation to the broader market while exhibiting risk return characteristics similar to the MSCI USA Index The fund charges 50 bps in fees Here also IT 24 44 and Health Care 15 44 take the top two positions
iShares MSCI ACWI Low Carbon Target
The 286 5 million fund looks to give exposure to developed and emerging market equities with a lower carbon exposure than that of the broader market The U S takes the top position with about 50 73 weight while Japan 7 99 and U K 5 64 occupy the next two spots The fund charges 20 bps in fees read
SPDR SSGA Gender Diversity Index ETF
The 272 million fund looks to track the performance of U S large cap companies adopting gender diversity in their senior leadership positions The fund charges 20 bps in fees Health Care 20 03 IT 15 66 Industrials 13 16 Consumer Staples 12 31 and Consumer Discretionary 11 94 hold double digit weight in the fund read
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MS | Your Two Minute Earnings Preview For Morgan Stanley MS Stock | Today s quick video takes a closer look at Morgan Stanley NYSE MS ahead of their earnings report This financial giant is looking to ride the wave of similar companies which have already reported and saw solid results hopefully pushing MS to fresh 52 week highs in the process
Fortunately for MS investors the company is riding a nice streak when it comes to beating earnings estimates while the company is also surging so far in 2016 Additionally MS has a nice industry rank which includes a top 40 overall ranking always good news heading into a report
However investors should note that earnings estimates have been sliding heading into the release and MS has fallen into hold territory within the past week MS also has a VGM score of D so fundamentals aren t that strong for this name either This could be a time where rising tides lift this boat but a stronger earnings outlook will definitely be needed to boost MS back to previous heights
MORGAN STANLEY Price Consensus and EPS Surprise
Morgan Stanley reports on October 19th before the bell and we are looking for earnings of 0 64 share Make sure to watch the video for a quick guide to MS heading into the report but if you want to learn more about trading in earnings season check out our podcast below
The Best Worst of Zacks
Today you are invited to download the full up to the minute list of 220 Zacks Rank 1 Strong Buys free of charge From 1988 through 2015 this list has averaged a stellar gain of 26 per year Plus you may download 220 Zacks Rank 5 Strong Sells Even though this list holds many stocks that seem to be solid it has historically performed 11X worse than the market |
MS | Morgan Stanley MS Tops Q3 Earnings Bond Trading Surges | Significant improvement in trading revenues drove Morgan Stanley s NYSE MS third quarter 2016 earnings from continuing operations of 80 cents per share which easily surpassed the Zacks Consensus Estimate of 64 cents Further this shows a 138 jump from the prior year quarter which excludes DVA Shares of Morgan Stanley gained more than 1 in pre market trading perhaps driven by a massive turn around in fixed income currency and commodities FICC trading income Notably the stock s price performance after the full day s trading will give a better indication about the investors sentiments A drastic rebound in 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 Strong Capital PositionAs of Sep 30 2016 book value per share was 37 11 up from 34 97 as of Sep 30 2015 Tangible book value per share was 32 13 up from 29 99 as of Sep 30 2015 Morgan Stanley s Tier 1 capital ratio Advanced Transitional was 18 9 up from 15 6 in the year ago quarter and Tier 1 common equity ratio Advanced Transitional was 16 9 up from 14 0 in the prior year quarter Share RepurchasesDuring the reported quarter Morgan Stanley bought back around 41 million shares for nearly 1 25 billion This was part of the share buyback program announced by the company under which shares worth up to 3 5 billion can be repurchased through second quarter 2017 Our TakeRebound in FICC trading was the highlight of the recently concluded quarter boosting Morgan Stanley s results Further interest income continued to show improvement However a slump in investment banking remains a weakness Nonetheless Morgan Stanley s initiatives to offload its non core assets in order to lower balance sheet risks and shift focus toward less capital incentive IM and WM segments are commendable
MORGAN STANLEY Price Consensus and EPS Surprise
Currently Morgan Stanley carries a Zacks Rank 3 Hold You can see Among other banking giants JPMorgan Chase Co NYSE JPM Bank of America Corp NYSE C and Citigroup Inc NYSE C have already come up with their third quarter results The performances of these companies have been encouraging Confidential from ZacksBeyond this Analyst Blog would you like to see Zacks best recommendations that are not available to the public Our Executive VP Steve Reitmeister knows when key trades are about to be triggered and which of our experts has the hottest hand |
C | Citigroup names Chubak head of U S retail banking | Citigroup C 0 9 names David Chubak head of U S retail banking effective immediately
It s the first major appointment made by global consumer banking head Jane Fraser since she was named to that role in October
Chubak was previously global head of retail banking and consumer lending and also served as head of productivity where he focused on cost cutting He joined Citi in 2013 |
C | Why Shares of Citigroup Gained More Than 50 in 2019 | What happened
Citigroup NYSE C was among the biggest losers in the financial sector when a panic about the health of the economy swept through the markets in late 2018 with the company s stock losing more than 20 of its value in the final two months of the year But that late year swoon set the stock up well for a recovery in 2019
Shares of Citi were up 53 5 in 2019 according to data provided by S P Global Market Intelligence as fears of a downturn subsided and the bank made strides toward eliminating the perception that it was the most vulnerable of the large U S banks to make it out of the 2009 recession
SPX data by YCharts
So what
Citigroup has traditionally marched to a different drummer than its big bank brethren because it s more reliant than most on international operations which represent nearly half of its deposit base The company also took longer than most to shed the assets it quarantined during the financial crisis
2019 was a year for the bank to play catch up but it was not an easy operating environment for bank stocks The Federal Reserve reversed course on plans to raise interest rates midyear eating into bank hopes for expanded net interest margins A midyear inversion of the yield curve which market watchers often see as a harbinger of a recession temporarily sent investors in Citi and other financial institutions running for the exits Concerns about tariffs and trade wars which were especially worrisome to Citi because of its oversized international presence also weighed on investor outlooks
But overall the worst of the fears never materialized and Citi was able to generate earnings in the second half of the year that came in ahead of Wall Street expectations The company s consumer banking division led the way with branded card revenue up 11 year over year in the third quarter
Now what
After a year like 2019 the obvious question is whether Citigroup shares can continue to outperform In one sense the shares are still relatively inexpensive trading at 10 4 times earnings compared to JPMorgan Chase s 13 5 times multiple Bank of America s 12 8 times multiple and Wells Fargo Co s 11 4 times multiple
On the other hand a lot of the cost cutting and restructuring work that Citi did over the past few years to help fuel better results is now in the rearview mirror and the company s large consumer credit card portfolio and international operation remain reasons for concerns Citigroup has done a lot of good work to close the gap between it and its rivals but it will be a challenge for the bank to continue to outperform the way it did in 2019 |
JPM | Treasury Action And Time For The Financial Sector To Rally | Investing is about assessing probability and the performance of the Financial sector the last 5 months the Financial Select Sector SPDR NYSE XLF anyway has been less than robust and is testing critical technical support
Bernie Schaeffer s Chart of the Week Schaeffer Investment Research out of Cincinnati featured the XLF this week but Bernie s comments around the put call open interest for the ETF did not seem bullish
Here is some of Bernie s commentary surrounding the chart
The XLF drop below its 200 day was the latest stumble in an ongoing downtrend from the fund s late January peak just north of 30 as the shares have formed a series of lower highs since then However the 26 50 27 neighborhood has reliably contained XLF s lows in 2018 The resulting descending triangle pattern most often has bearish implications suggesting a reversal of the longer term XLF uptrend is taking shape
Against this backdrop note also that put open interest on XLF is remarkably low at the moment Call open interest remains fairly robust 2 1 million contracts in open interest which Trade Alert pegs in the 71st annual percentile and has been climbing consistently since the post expiration decline in mid June Conversely XLF put open interest languished near its post expiration lows over the last week arriving Friday at 1 6 million contracts an accumulation that ranks below 95 of other daily readings from the past year
Perhaps a More Important Chart
Gary Morrow a hedge fund manager Yosemite Fund from San Luis Obispo California and an excellent technician put up the following chart on the website This Week on Wall Street this weekend
Note the commentary the 10 year Treasury yield if it closes Friday June 29th above 2 915 will be poised for its first close above the 50 quarter moving average since September 1985 or 33 years ago
That s a long time
Conclusion
Treasury s and Financial performance seem to be tied at the hip The XLF has been pulled lower by Wells Fargo NYSE WFC none held but JPMorgan Chase Co NYSE JPM JPM long is down from its late February 18 119 print to close at 105 75 Friday The XLF is down 2 25 YTD per the Morningstar data while the KRE Regional bank ETF is up about 7
If the yield curve steepens expect Financial s to trade better
There are a a number of tailwinds at present for the Financial sector 1 a better US economy 2 greatly improved consumer balance sheets 3 regulatory reform which should take some pressure off the sector without sending us back to pre 2008 days and 4 higher rates and a steeper yield curve which unfortunately can t seem to stay steep
Watch Friday s 10 year Treasury yield close That s an important chart from Gary Morrow |
JPM | Why Are Financial Stocks So Weak | Stock and ETF charts in this post are powered by MarketSmith
I keep getting the questions why are financials so weak and shouldn t bank stocks be outperforming in a rising interest rate environment
Not all rising interest rate environments are good for financials Banks tend to borrow on the short end of the yield curve and lend on the long end Their margins expand when long term interest rates rise faster than short term interest rates The opposite has been happening for most of 2018 In fact the 10 Year 2 Year yield spread has been declining since 2014
There are many other factors that impact financials margins For example if you look at JPMorgan s NYSE JPM chart below you will notice that the decline in the 10 2 year yield spread hasn t really affected their profitability JP Morgan s earnings have increased by 50 since 2014 For the same period its stock has appreciated 79 not counting the dividends
Overall financials as a group have been showing relative weakness for most of 2018 With a relative strength of 52 the Financial Select Sector SPDR ETF NYSE XLF is right in the middle of the stack 24 25 seems like a logical level of potential support A move above 28 50 would be a bullish development |
MS | Plains All American Pipeline upgraded at Morgan Stanley as concerns fade | Plains All American Pipeline PAA 1 6 is higher after Morgan Stanley NYSE MS upgrades shares to Overweight from Equal Weight with a 26 price target saying short term concerns are fading with the focus shifting to debt paydown rising producer volume and growth in 2018 and 2019 Concerns about high S L expectations 2018 guidance decreases volume degradation arising from competitive pressure and funding availability all have faded Stanley says After lowering its distribution twice PAA is now in a strong position to fulfill its plan to reduce debt by 1 4B over the next five quarters the firm says Stanley also upgrades Plains GP PAGP 2 4 to Overweight from Equal Weight Now read |
MS | Japan posts longest growth streak since 1980s bubble economy | By Stanley White TOKYO Reuters Japan s economy posted its longest continuous expansion since the 1980s boom as fourth quarter growth was boosted by consumer spending moving Prime Minister Shinzo Abe s revival plan a step closer to vanquishing decades of stagnation The long run of growth is an encouraging sign for the Bank of Japan hinting that the economy may at last be building up momentum to lift consumer prices toward its 2 percent inflation target The economy expanded at a 0 5 percent annualized rate in October December less than the median estimate for annualized growth of 0 9 percent Cabinet Office data showed on Wednesday That followed a revised 2 2 percent annualized increase in July September Japan s economy grew a real 1 6 percent in calendar 2017 the fastest increase since a 2 0 percent expansion in 2013 An extended run of growth could lead to some speculation that the Bank of Japan can afford to scale back quantitative easing but economists say it is unlikely as long as the yen is rising and Japan s consumer prices remain subdued Financial markets are already on edge from worries that central banks in the United States and Europe will raise interest rates faster than expected to stay ahead of inflation but the BOJ is expected to lag well behind those peers Economic fundamentals look good and growth this year is likely to be above the economy s potential said Hiroaki Muto economist at Tokai Tokyo Research Center However I don t see any talk of an exit for the BOJ when the yen is rising like this When financial markets are volatile this hurts Japan s animal spirits he said referring to investor and consumer confidence The dollar slid to a 15 month low against the yen on Wednesday as investors remained on edge ahead of U S inflation numbers later in the day underscoring fragile sentiment following a recent shakeout in global equity markets A rising yen which tends to push down Japan s import prices and depress exporters earnings took the gloss off an otherwise respectable report on the world s third largest economy The GDP data comes after news that Abe s government has decided to nominate Haruhiko Kuroda for a rare second term as Bank of Japan governor a sign his ultra loose monetary policy will remain in place although investors still have questions about who the deputy governors will be and what policies they are likely to favor Japan s economy has now posted the longest continuous expansion since a 12 quarter stretch of growth between April June 1986 and January March 1989 around the height of Japan s notorious economic bubble The headline figures are somewhat weaker than expected but that s not something to worry too much about said Yoshiki Shinke chief economist at Dai ichi Life Research Institute Capital expenditure and consumption are picking up Exports are also strong Other recent data are also strong It s safe to say the economy is in pretty good shape Compared to the previous quarter gross domestic product GDP grew 0 1 percent slightly less than the median estimate of 0 2 percent growth and following a 0 6 percent quarter on quarter expansion in July September Cabinet Office data showed on Wednesday A Cabinet Office official said increased spending on mobile phones cars and dining out drove gains in private consumption which accounts for about two thirds of GDP To be sure some economists are cautious about domestic demand because any further declines in global stocks could hurt sentiment and returns on investors portfolios Real wages fell 0 4 percent in the fourth quarter the first decline in three quarters which is another risk to domestic demand although the tightest labor market in about 40 years may give unions more bargaining power in impending wage talks I m a little worried about sluggish wage growth said Daiju Aoki regional chief investment officer at UBS Securities I m also worried about a negative wealth effect from a falling stock market Capital expenditure rose 0 7 percent in October December from the previous quarter less than the median estimate for a 1 1 percent increase but up for the fifth straight quarter and a sign of sustainable gains in business investment Overseas demand subtracted fractionally from GDP in October December Exports rose 2 4 percent but this gain was offset by a 2 9 percent jump in imports thanks to robust domestic demand Since taking office in late 2012 Abe has enacted reforms to draw more women and elderly people into the workforce raise wages for part time workers liberalize the labor market and encourage business investment Domestic demand is strong enough that it can stand on its own two feet so you can say Abenomics has matured said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities
Financial market moves pose risks but I still expect consumption and business investment to drive future growth |
MS | India s PNB says has ability to recover after uncovering giant fraud | By Manoj Kumar and Krishna N Das NEW DELHI Reuters Punjab National Bank India s second largest state run lender said on Thursday it has the capability and capacity to recover after uncovering a staggering 1 77 billion fraud at one of its branches that went undetected for years The loan fraud the largest ever in Indian history has sent PNB s NS PNBK shares tumbling about 20 percent this week This cancer that s been going on since 2011 we have brought it out and we are resolving it PNB s Chief Executive Sunil Mehta said at a press briefing adding that the bank would honor all its commitments If the entire onus is on us we will take responsibility Mehta said adding the bank has taken action to book culprits and protect its financial interests The bank said Nirav Modi a billionaire jeweler and diamond merchant it believes to be at the center of the fraud case has so far not come up with any concrete plan to repay PNB The bank said it has asked Modi to come up with a formal repayment plan Modi s jewelry stores and other business establishments were raided by law enforcement officials in Mumbai and New Delhi on Thursday Reuters witnesses said Modi who has not spoken about the case so far could not be reached for comment His flagship company Firestar Diamond has said it had no involvement in the case Indian bank shares slid further on Thursday a day after being hit by news of the bank fraud PNB which has assets of 120 billion disclosed the fraud in a regulatory filing on Wednesday saying it had referred the matter to law enforcement agencies Given the scale of the fraud the fallout from the case could spread and give rise to fresh questions about lending procedures at Indian lenders particularly public sector banks mired in soured debt ONGOING PROBE PNB first notified India s Central Bureau of Investigation CBI of its discovery in late January and on Monday it issued a caution notice to warn other lenders about the suspected fraud PNB has said that two junior officials at one of its branches in Mumbai had illegally issued letters of undertaking to get overseas branches of other lenders to extend credit to a few select account holders most notably companies with ties to Modi who runs a global diamond jewelry business Indian federal agents last week said they were investigating the jeweler and others over accusations that they defrauded PNB of 44 million A CBI official said told Reuters on condition of anonymity that the cases were related Television news channels reported that investigators also raided Modi s home in Mumbai on Thursday A finance ministry official said the Enforcement Directorate a government agency that fights financial crime would investigate the case to see whether it involved money laundering SHARES TUMBLE On Thursday PNB shares sank more than 14 percent its biggest fall since 2009 after having dropped 9 8 percent the day before The steep fall has wiped tens of billions of rupees off PNB s market value The fall dragged the National Stock Exchange s Nifty PSU bank index NIFTYPSU down 2 percent on Thursday after it fell as much as 2 8 percent on Wednesday India s broader NSE share index NSEI was up 0 2 percent by mid afternoon tracking gains in Asian shares after losing less than 0 4 percent on Wednesday PNB has not named the other banks it said had advanced money to customers based on the fraudulent transactions The BTVI news channel cited unnamed sources saying that Axis Bank NS AXBK had discounted 40 billion rupees 624 4 million worth of fraudulent LoUs from PNB and that it had sold a majority of this to SBI Axis Bank said on Thursday that it had dealt in transactions that had been guaranteed with letters of undertaking from Punjab National Bank but that it had since sold those transactions Axis shares were down less than one percent in mid afternoon trading We await more details but if the other banks have advanced money to overseas suppliers against PNB s letter of credit PNB would have to honor the payments in our view and would have to seek to recover the money from these overseas suppliers said Morgan Stanley NYSE MS analyst Sumeet Kariwala in a note to clients on Thursday
This could subject PNB to significant potential impairments he wrote adding this could increase the bank s capital requirement by 80 billion rupees |
MS | U S producer prices rise in January industrial output falls | By Lucia Mutikani WASHINGTON Reuters U S producer prices accelerated in January boosted by strong gains in the cost of gasoline and healthcare offering more evidence that inflation pressures were building up While other data on Thursday showed an increase in the number of Americans filing for unemployment benefits claims continued to point to a tightening labor market Economists were also unfazed by an unexpected dip in industrial production last month citing strong business sentiment surveys The relatively strong producer inflation report came on the heels of data on Wednesday showing a broad increase in consumer prices in January Rising inflation was also corroborated by two regional manufacturing surveys on Thursday which showed sharp increases in prices paid by factories for inputs The drumbeat of higher inflation is getting louder said Joel Naroff chief economist at Naroff Economic Advisors in Holland Pennsylvania It does appear as if higher inflation is here to stay Firming inflation could force the Federal Reserve to raise interest rate a bit more aggressively than is currently anticipated The U S central bank has forecast three rate increases this year with the first hike expected in March The Labor Department said its producer price index for final demand rose 0 4 percent last month after being unchanged in December That lifted the year on year increase in the PPI to 2 7 percent from 2 6 percent in December A key gauge of underlying producer price pressures that excludes food energy and trade services jumped 0 4 percent last month The so called core PPI edged up 0 1 percent in December Core PPI rose 2 5 percent in the 12 months through January the largest increase since August 2014 That followed a 2 3 percent gain in December The cost of hospital outpatient care surged 1 0 percent in January the largest increase since August 2014 after gaining 0 1 percent in December There was also an increase in the price of hospital inpatient care Overall the cost of healthcare services shot up 0 7 percent in January These costs feed into the Fed s preferred inflation measure the personal consumption expenditures PCE price index excluding food and energy The Fed has a 2 percent inflation target Following the CPI and PPI reports Morgan Stanley NYSE MS is forecasting the core PCE price index rising 0 31 percent in January after increasing 0 2 percent in December That would raise the year on year increase in the core PCE price index to 1 6 percent from 1 5 percent in December The data is scheduled for release on March 1 The dollar fell to a 15 month low against the yen while stocks on Wall Street were trading higher Prices for U S Treasuries were mixed JOBLESS CLAIMS RISE Wholesale goods prices increased 0 7 percent last month after nudging up 0 1 percent in December Gasoline prices which rose 7 1 percent accounted for nearly half of the increase in the cost of goods last month In a second report on Thursday the Labor Department said initial claims for state unemployment benefits increased 7 000 to a seasonally adjusted 230 000 for the week ended Feb 10 Claims fell to 216 000 in mid January which was the lowest level since January 1973 Last week marked the 154th straight week that claims remained below the 300 000 threshold which is associated with a strong labor market That is the longest such stretch since 1970 when the labor market was much smaller The labor market is near full employment with the jobless rate at a 17 year low of 4 1 percent Last week the four week moving average of initial claims considered a better measure of labor market trends as it irons out week to week volatility rose 3 500 to 228 500 The trend in the claims data continues to signal that conditions remain favorable in the labor market There has been no week with initial claims filings above 231 000 since early in January said Daniel Silver an economist at JPMorgan NYSE JPM in New York Another report from the Fed showed industrial production fell 0 1 percent in January as output at factories failed to increase for the second straight month Industrial production which rose 0 4 percent in December was also weighed down by a 1 0 percent drop in mining output We have to remember that the early releases of industrial production are driven more by the hours worked data than physical product data and we may see the production data revised higher as more physical product data are received and incorporated into the estimates of production said John Ryding chief economist at RDQ Economics in New York A fourth report from the Philadelphia Fed showed factory activity in the mid Atlantic region accelerated in February amid a surge in demand for manufactured goods Manufacturers reported hiring more workers They also reported paying more for raw materials with the survey s measure of prices paid rising to its highest level since May 2011 which suggests further increases in producer prices While another report from the New York Fed showed a slowdown in manufacturing activity in New York state in February factories reported strong order growth and were upbeat about business prospects over the next six months
The survey s measure of prices paid by factories for inputs rose to its highest level in nearly six years |
JPM | Powell Pessimism Trump Keeps Tariffs Dimon on Brexit Eco Day | Bloomberg Welcome to Thursday Asia Here s the latest news and analysis from Bloomberg Economics to help get your day started
The tone of the March FOMC statement was recalibrated to acknowledge the recent string of soft economic data which was to be expected The pessimistic shift in the Summary of Economic Projections was more noteworthy says Carl Riccadonna Here s the FOMC statement text and the Fed s forecast downgrades in a chart
President Donald Trump said he ll keep tariffs on China until he s sure Beijing is complying with any trade deal refuting expectations they will agree to roll back duties as part of a lasting truce
JPMorgan NYSE JPM CEO Jamie Dimon said Theresa May s request to the EU for a three month extension of the Brexit deadline won t remove uncertainty Dan Hanson meanwhile is calling an end to disinflation
Japanese Prime Minister Shinzo Abe and his deputy Taro Aso tried to close a perceived difference with the Bank of Japan over its 2 percent inflation target but ultimately left open a gap
Australia s worst property slump in a generation has the central bank and government worried But mortgage bonds still look attractive to some of the biggest buyers Over in New Zealand the economy expanded at a faster pace driven by construction and services
Central bank watchers in the Philippines are monitoring Governor Benjamin Diokno s debut policy meeting closely while in Indonesia the central bank will likely keep rates on hold through 2020
Brazil s central bank held its key rate at an all time low but signaled it could lower borrowing costs if growth continues to disappoint
France began jockeying for positions at the ECB and the EC saying Mario Draghi s replacement will be crucial to President Emmanuel Macron s vision of Europe Hungarian Prime Minister Viktor Orban was suspended from the EU s biggest political family sharpening a divide between mainstream parties and euroskeptic forces
Anyone who believes the system is rigged and inequality entrenched would have experienced a grim told you so moment when U S federal prosecutors charged 33 parents who d bought into a scheme to ensure their children spots at elite universities |
JPM | Cryptocurrency industry needs banks to survive JP Morgan | Traditional financial institutions should be regarded as partners not rivals to cryptocurrency market according to the head of e commerce department in JPMorgan Chase NYSE JPM Ron Karpovich
Speaking in the interview with CNBC he said that the two industries do not need to compete but rather work together These comments came just a month after the bank announced the launch of JPM Coin that will function as a stable coin to facilitate J P Morgan s internal payment network for clients
Karpovich believes that cryptocurrency companies will have to use traditional banking services to move funds around even if they don t want to admit it
Ultimately behind the scenes they are going to have to use a bank to move funds There s more partnership instead of competition in that space When it comes to margins and capabilities payments is never something that grows in margin nobody wants to pay for a payment That s one of the hardest parts of this process you have limited resources in the capability to sell so you need highly efficient and large players he said
He also mentioned that blockchain may be used to improve the existing payment infrastructure make payments faster and cheaper |
JPM | U S labor market solid manufacturing sector slowing | By Lucia Mutikani WASHINGTON Reuters The number of Americans filing applications for unemployment benefits fell more than expected last week pointing to still strong labor market conditions though the pace of job growth has slowed after last year s robust gains Other data on Thursday showed a measure of factory activity in the mid Atlantic region rebounding sharply this month after falling into negative territory in February for the first time in more than 2 1 2 years But manufacturers perceptions about the outlook were the least favorable in three years and their expectations for capital spending were also less upbeat These findings support the view that the manufacturing sector is slowing in line with softening economic growth The Federal Reserve held interest rates steady on Wednesday and its policymakers abandoned projections for further rate increases this year noting that growth of economic activity has slowed from its solid rate in the fourth quarter The U S economy has clearly slowed and will cause job growth to moderate which isn t alarming as long as it is orderly said Ryan Sweet a senior economist at Moody s Analytics in West Chester Pennsylvania Initial claims for state unemployment benefits dropped 9 000 to a seasonally adjusted 221 000 for the week ended March 16 the Labor Department said on Thursday Economists polled by Reuters had forecast claims falling to 225 000 in the latest week Claims have been drifting in the middle of their 200 000 253 000 range this year The four week moving average of initial claims considered a better measure of labor market trends as it irons out week to week volatility rose 1 000 to 225 000 last week The claims data covered the survey week for the nonfarm payrolls portion of March s employment The four week average of claims fell 11 000 between the February and March survey periods suggesting a pickup in job growth after hiring almost stalled last month Nonfarm payrolls increased by only 20 000 jobs in February the fewest since September 2017 The slowdown followed big gains in December and January Average job growth has moderated to about 165 500 per month from 223 250 per month in 2018 Despite the slowdown in employment growth the labor market remains solid The unemployment rate is at 3 8 percent and annual wage growth in February was the strongest since 2009 The step down in hiring reflects a shortage of workers and softening economic growth as the stimulus from a 1 5 trillion tax cut package fades A trade war between the United States and China slowing global growth and uncertainty over Britain s exit from the European Union are also hurting domestic activity EBBING MOMENTUM The slow growth theme was also underscored by another report on Thursday from the Conference Board showing its leading economic index which measures future U S economic activity rose in February for the first time in five months February s 0 2 percent increase in the leading indicator followed an unchanged reading in January The leading indicator s growth rate has slowed in the past six months which the Conference Board said suggested that while the economy will continue to expand in the near term its pace of growth could decelerate by year end Gross domestic product estimates for the first quarter are as low as a 0 4 percent annualized rate The economy grew at a 2 6 percent pace in the fourth quarter The dollar firmed against a basket of currencies while stocks on Wall Street rose U S Treasury prices were generally higher In a third report on Thursday the Philadelphia Fed said its business conditions index jumped to 13 7 in March from 4 1 in February which was the first negative reading since May 2016 But the survey s measure of new orders received by factories in the region which covers eastern Pennsylvania southern New Jersey and Delaware rebounded moderately from negative territory in February and unsold goods piled up In addition the survey s six month business conditions index dropped to a reading of 21 8 this month the lowest since February 2016 from 31 3 in February Its six month capital expenditures index fell to a reading of 19 5 in March from 31 7 in the prior month The index dropped below 20 for the first time since 2016 The details within the report were much more of a mixed bag and more downbeat than one might think given the solid improvement in the headline reading said Daniel Silver an economist at JPMorgan NYSE JPM in New York These readings are in line with other surveys showing signs of slowing national factory activity A report from the New York Fed last week showed a gauge of factory activity in New York state dropped to a two year low in March The Philadelphia Fed survey also showed more factories experiencing difficulty finding workers which could weigh on production in the future Nearly 74 percent of the firms reported labor shortages up from 63 8 percent last year
Just over half of the companies also reported they had positions that have remained vacant for more than 90 days That compared to 47 8 percent in 2018 |
JPM | U S services data suggests downward revision to fourth quarter GDP | WASHINGTON Reuters U S economic growth for the fourth quarter is likely to be revised lower after data on Thursday showed less consumer spending on services and business investment in intellectual property products than previously estimated
The findings of the Commerce Department s quarterly services survey or QSS follow recent data showing a bigger trade deficit in December and weaker construction outlays than had been assumed in the government s initial fourth quarter GDP report published last month December retail sales were also softer than previously reported
Before the QSS data economists had expected that GDP growth for the October December quarter would be cut to between a 2 0 percent and 2 3 percent annualized rate from the 2 6 percent pace reported last month
Based on the QSS data economists at JPMorgan NYSE JPM estimated that fourth quarter GDP could be cut to a 1 8 percent rate when the government publishes its revision next Thursday According to JPMorgan economist Daniel Silver the revisions to fourth quarter GDP would be centered around consumer spending and investment in intellectual property products
Within consumption it appears that spending at nonprofit hospitals which alone accounts for about five percent of consumption is set to be revised down noticeably said Silver
Should economists predictions prove correct this would suggest a considerable loss of momentum in the economy that appears to have persisted early in the first quarter Growth estimates for the first quarter are as low as a 0 4 percent rate
The economy is losing speed as stimulus from a 1 5 trillion tax cut and increased government spending fades Slowing global economies a strong dollar and a trade war between the United States and China are weighing on exports
The U S economy enjoyed a banner year in 2018 juiced up by massive deficit financed tax cuts for individuals and businesses and increases in government spending said Abhilasha Singh an economist at Moody s Analytics in West Chester Pennsylvania
By late 2019 the fading effects of the fiscal stimulus higher interest rates slower immigration and more limited trade will weigh on the economy and spending gains |
C | China s Inflation May Hit 5 in January on Oil Spike Citi Says | Bloomberg China s surging consumer inflation will rise further on the current oil spike but the jump won t last long and probably won t affect the pace of monetary easing in 2020 according to Citigroup Inc NYSE C
Consumer inflation in China will hit 5 in January as higher oil prices combined with a low base from 2019 drive up the cost of vehicle fuel petrochemicals and other by products such as plastic packaging Yu Xiangrong a Hong Kong based Citigroup economist wrote in a note
He also said producer prices are more likely to turn positive in the month as China relies heavily on foreign supplies for oil and more expensive imports pass through to downstream sectors
Inflation data for December is due for release on Jan 9
Yet the surge caused by supply shocks won t last long since there s still a possibility that Iran and the U S could find common cause in a new agreement Yu said The central bank will keep its easing bias to contain downside risks in 2020 he said
To contact Bloomberg News staff for this story Yinan Zhao in Beijing at yzhao300 bloomberg net
To contact the editors responsible for this story Jeffrey Black at jblack25 bloomberg net Sharon Chen
2020 Bloomberg L P |
C | Gold Holds Near Six Year High as Traders Await Iran s Next Moves | Bloomberg Gold held near the highest level in more than six years as risk appetite crept back into equity markets with investors on alert for Iran s next move in the showdown with the U S
Gold which climbed 2 4 over the past two days to approach 1 600 an ounce was little changed Tuesday as equities in Europe and Asia jumped
Bullion investors have been in thrall to developments in the Middle East in the past few days after a U S drone strike killed General Qassem Soleimani Iran is assessing 13 scenarios to respond and even the weakest of those options would be a historic nightmare for the U S the head of Iran s national security council was cited as saying by the nation s semi official Fars news agency
Elevated geopolitical risks across the heart of the Middle East should support a stronger gold price environment this winter Citigroup Inc NYSE C analysts including Tracy Liao wrote in a note The bank cautioned that it s difficult to trade gold purely from the angle of heightened military tensions but noted there are bullish fundamental tailwinds in place
Spot prices edged higher to 1 568 40 an ounce at 11 40 a m in London On Monday gold hit 1 588 13 the highest since April 2013
History suggests that gains driven by geopolitical tensions alone may be short lived Macquarie Group Ltd strategists including Marcus Garvey said in a report
To illustrate this with the examples of Gulf War 1 the World Trade Center attack of 9 11 and last year s strike on Saudi Aramco s Abqaiq facility gold prices initially jumped higher but were ultimately unable to sustain their newly elevated level they said
Still there are several other factors in place that are supportive for gold prices Credit Suisse SIX CSGN analysts including Fahad Tariq said in a note this week Those include a weaker dollar dovish central bank policies and uncertainty over a more comprehensive deal between Washington and Beijing
In other precious metals palladium hit a fresh record with spot prices reaching 2 042 91 an ounce Tuesday Silver was little changed and platinum gained |
JPM | 6 Small Cap ETFs At 52 Week High With More Room To Run | If any investment is firing on all cylinders right now then that is small caps The segment has been on a steady uptrend since mid March following the onset of President Trump s protectionist policies Since then trade war fears have taken Wall Street in its grip which started weighing on large cap stocks that have considerable international exposure
Inside Trade Tensions
The main clash is with China President Trump s levy on Chinese imports has lately been retaliated by a Chinese levy on an equal worth of goods including U S crude and gasoline Both will now enact a on each other s 34 billion of goods from Jul 6 The remaining 16 billion worth of goods will be under public review read
The situation took an ugly turn when White House said this week that if China keeps retaliating to U S tariffs announced last week the United States will enact tariffs on an extra worth of Chinese goods If this was not enough Trump announced tariffs on steel and aluminum imports from Canada Mexico and some EU countries read
Strong U S Economy and a Hawkish Fed
In addition to trade tensions there were some other factors that played their role in dragging large cap stocks lower The U S economy has been on a steady ground The Fed has also enacted two rate hikes this year and may ratify two more This should give a boost to the greenback and extend the small cap rally read
Small cap stocks are more domestically focused and thus not exposed to geopolitical risks and negative currency translations These criteria enabled a bunch of small cap funds to cash in on an improving U S economy while dodging tensions stemming from trade war and a rising dollar Apart from this upbeat earnings sent small caps rallying in recent times read
Given this we would likely to highlight a few small cap ETFs that have been hovering around their 52 week highs These are also at their one month highs and appear to be strong momentum plays Given no signs of a slowdown in trade tensions and an upbeat U S economy these ETFs are poised for further rally
These funds outperformed iShares Russell 2000 ETF up 1 77 in the last 10 days as of Jun 19 2018
VictoryShares US Small Cap Vol Weighted ETF Up 1 9 in the last 10 days
JPMorgan NYSE JPM Divers Ret US Small Cap Equity ETF Up 2 2
WisdomTree US SmallCap Dividend ETF MNE DES Up 2 1
iShares Morningstar Small Cap Growth ETF Up 3 2
iShares Edge MSCI Min Vol USA Small Cp ETF Up 1 8
Vanguard Russell 2000 ETF Up 1 8
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MS | LatAm currencies to emerge unscathed from stock market rout | By Bruno Federowski BRASILIA Reuters A strong outlook for global economic growth is likely to guide Latin American currencies safely through the recent turmoil in global financial markets the latest Reuters poll showed Strategists and economists polled by Reuters either strengthened or maintained their forecasts for five of the six regional currencies even as world stocks suffered their biggest selloff in six years earlier this week The two main currencies in the region the Brazilian real BRBY and the Mexican peso are set to trade at 3 35 and 18 6 to the dollar in a year respectively unchanged from the January poll That underscores the view that the ructions in equity markets have had very little impact on the much larger global bond and foreign exchange markets The currencies of Chile Colombia and Peru are all expected to trade at slightly stronger levels than previously forecast according to the Feb 1 6 Reuters poll This suggests that sharp losses seen last week are unlikely to hold as economic growth strengthen both at home and abroad At the end of the day faster growth is the main story much more than the debate over whether U S rates will rise two three or four times this year said Banco J Safra chief economist Carlos Kawall Data last week showing a solid annual rate of increase in U S wages driven by higher paid workers kindled a jump in U S Treasuries yields that helped trigger a global stock market rout Higher U S rates could drain funds away from emerging markets which tend to offer higher yields Still moves in Latin American currencies have been somewhat limited In a report Morgan Stanley NYSE MS estimated that the Brazilian real the Mexican peso the South African rand and the Turkish lira have historically weakened around 2 percent for each 4 percent decline in the S P 500 SPX But Brazilian and Mexican currencies lost only slightly more than 2 3 percent while the S P 500 dropped 6 1 percent between Friday and Monday a disparity that Morgan Stanley attributed to a stronger fundamental position of EM macro An improved outlook for Latin American economies as highlighted by a recent Reuters poll should cushion their currencies from major volatility ahead of major elections in the region ECILT LTAM Voters will decide in Brazil in October on President Michel Temer s successor Temer whose approval rates have tumbled due to corruption accusations has pledged not to run casting a shadow on the continuity of his austerity efforts Temer s administration has struggled to gather support for a bill cutting social security spending which investors see as key to curbing growth of public debt and boosting long term growth But it could increase the burden on his successor Should the new president unwind Temer s measures to cut red tape and privatize state companies Brazil s real would trade closer to 3 50 to the dollar said Jason Vieira chief economist at Infinity Asset Still Vieira does not expect that to be the case particularly after an appeals court upheld former President Luiz In cio Lula da Silva s conviction for corruption Lula who has sharply criticized Temer s policies has been leading voting intention polls but could be barred from running Meanwhile nationalist candidate Andr s Manuel L pez Obrador continues leading polls in Mexico stoking concerns of increased tensions with U S President Donald Trump s administration as trade talks drag on A recent Reuters poll showed the peso would take a bigger hit if Trump killed the North American Free Trade Agreement than from an election victory for Obrador A combination of both would drive the peso to near record lows the survey showed
Other stories from the February Reuters global foreign exchange poll |
MS | Trillion dollar risk lurks if market volatility doesn t abate | By Saikat Chatterjee and Saqib Iqbal Ahmed LONDON NEW YORK Reuters As world markets catch their breath after a week of turmoil investors are concerned that a new era of heightened volatility could eventually lead to a second wave of selling as investment strategies popular for years are forced to unwind U S stocks SPX plunged nearly 8 percent in three trading days until Tuesday as an explosion in implied volatility readings prompted investors to dump equities on growing anxiety about overheating economies inflation and rising borrowing rates The epicenter of the selloff was in the highly leveraged world of exchange traded funds and related products where investors had successfully bet for years on market volatility remaining extraordinarily low for long periods These complex products hinged on being short on volatility futures such as the CBOE s Vix gauge of one month implied volatility betting on low volatility in other words When the Vix shot up over two turbulent trading days however these trades faced a near total wipeout triggering reversals a further huge spike in volatility and then some of the biggest one day falls in U S and world equities in years Although the washout was violent it was extremely quick and stock markets have bounced more than 5 percent off Tuesday s lows Nevertheless volatility gauges remain at more than twice the previous year s average If they don t retreat further soon analysts fear another wave of selling in the weeks ahead Highly leveraged yield seeking strategies in high yield bonds or commodity linked currencies that have mushroomed in the aftermath of the 2008 global financial crisis are likely to come under pressure the longer volatility stays high If vol implied volatility stays between 20 and 30 for a protracted period of time some of the existing volatility targeting strategies would have to de risk said Vineer Bhansali chief investment officer at California based investment adviser LongTail Alpha a firm that runs tail risk strategies using options and other types of derivatives But the path from here to that point is likely to be somewhat disorderly While markets have focused on leveraged exchange traded notes as a guide to how large these bets are Morgan Stanley NYSE MS strategists estimate these products lost about 3 4 billion in the selloff investors believe the scale may be far bigger At the height of its popularity last month Credit Suisse s inverse VIX note P XIV the second biggest publicly traded product tracking the VIX had 1 8 billion of assets according to Thomson Reuters data But thanks to years of generally low volatility in part due to money printing and bond buying policies pursued by the world s major central banks investors have shovelled billions of dollars into so called carry trades that often depend on financial calm persisting for long periods LARGE BETS These trades typically involve borrowing in near zero interest rate currencies to invest in high yield bonds and notes in emerging markets or junk rating companies and praying there s no sudden foreign currency spike to wipe out accumulated profits But the risk of the latter grows the longer financial volatility measures stay high Though estimates of how much money is actually parked in such strategies are hard to come by given a general lack of transparency some broad numbers exist A November paper by Bhansali and Lawrence Harris a professor at USC Marshall School of Business estimated that total assets under management in volatility contingent strategies is about 1 5 trillion including implicit volatility sellers such as risk parity funds volatility targeting funds risk premium harvesting funds and trend followers AQR a hedge fund says that so called risk parity strategies alone hold about 70 billion in global equities Those strategies of selling volatility and buying risky assets have proved to be tremendously profitable in recent years The VIX has drifted lower since early 2016 staying at depressed levels below its 20 year average for nearly two years with spikes only a handful of times in the last decade But this week s brief spike above 50 and its subsequent partial retracement to below 30 more than double its trading range last year has turned the spotlight on such strategies UBS analysts estimate that a U S equity decline of 7 4 percent as seen over the last five working days has historically been associated with a high yield spread widening of 75 80 basis points while the actual move has only been 21 basis points That spread is likely to adjust higher as funds who have become very comfortable in selling volatility in recent years take a more cautious view Davide Silvestrini EMEA Head of global quantitative and derivatives strategy at JP Morgan said the sharp losses experienced by short vol strategies will likely lead to reduced volatility selling flows from institutional investors Not only do we expect volatility to increase in 2018 and would urge investors to remain cautious of leveraging positions too far but we also anticipate that markets will retain the effects of volatility shocks more deeply in their collective conscience said Eoin Murray head of investments at Hermes Investment Management which controls 31 billion pounds of assets HIDDEN RISKS Though market volatility has come back down significantly a global head of equity trading strategy at a bank in London said many bank desks who are holding long volatility bets thanks to funds who have had to exit their positions are comfortable holding them as they expect volatility to remain high And that has large implications for other asset classes namely fixed income and currencies where low volatility has been a principal driver of large returns Indeed three month implied volatility for the euro this week is well below 2017 highs Hans Redeker global head of currency strategy at Morgan Stanley in London said though the initial focus of these funds have been in the U S commodity linked currencies such as the Australian dollar and the Canadian currency which have been the focus of global macro funds will come under pressure thanks to worsening fundamentals
I am a bit surprised that we haven t seen the contagion effect on other markets and that makes me wary about the outlook in the near term said Morgan Stanley s Redeker |
MS | Australian NZ dollar seen defying volatility in the year ahead Reuters poll | By Swati Pandey SYDNEY Reuters Analysts have lifted their forecasts for the Australian and New Zealand dollars although the antipodean currencies still seem set for a remarkably dull year despite raging volatility in global markets recently a Reuters poll showed The survey of 50 analysts charted a steady course for the Australian dollar which is seen at 0 7900 three months out 0 7800 in six and back at 0 7900 in one year Analysts had earlier forecast the Aussie at 0 7700 over the year The currency slid from a 2 1 2 year peak of 0 8136 in late January to a more than one month trough of 0 7766 on Friday as investors fled from perceived risky assets to safer harbors of bonds and the Japanese yen The Aussie is a favored liquid hedging proxy during times of financial stress and moves can often be volatile in the currency That might explain the wide range in the forecasts from as low as 0 7000 and as high as 0 8500 on a one year horizon The bearish case rests mainly on the Aussie s vanishing yield premium with the Federal Reserve widely expected to lift U S interest rates above Australia s this year perhaps as early as March That would be a rare event The last time U S rates were higher was in January 2001 when the Aussie was around 0 5600 Bond markets have already shifted to reflect that outlook with the premium paid by Australian two year debt over U S paper turning negative for the first time since 2000 It had been as high as 60 basis points as recently as September The problem is that Australia s economic growth has come with leverage said analysts at Morgan Stanley NYSE MS which sees the Aussie at 0 7000 in one year We expect the Australian economy to weaken via moderating domestic demand with rising global funding costs working as the catalyst The country s household debt to income ratio is at a record high 190 percent The heavy indebtedness means that ordinary Australians are penny pinching at a time when wages growth is painfully slow That is one reason the Reserve Bank of Australia RBA has left rates at a record low 1 50 percent for more than 1 1 2 years and is likely to stay there for a while yet Yet the Aussie has shrugged off most bearish indicators to jump almost 3 percent in January It climbed 8 7 percent in 2017 to be among the best performing major currencies last year The buoyancy has largely come from optimism about global growth and in turn higher prices for Australia s major commodity exports The story was much the same for the New Zealand dollar The median forecast put the kiwi at 0 7300 for one month 0 7175 for three 0 7100 for six and one year The kiwi is currently at a one month low of 0 7203 having stumbled in the past week as risk appetite waned globally Helping the bears the Reserve Bank of New Zealand left interest rates at record low 1 75 percent on Thursday while signaling the period of easy monetary policy would last for months to come Polling by Shaloo Shrivastava and Khushboo MittalEditing by Shri Navaratnam |
MS | Shipping shares buoyed by bullish Morgan Stanley outlook | Shares of shipping companies enjoyed broad gains in today s trade after Morgan Stanley NYSE MS issued an upbeat outlook for the tanker sector NAT 11 1 TOO 9 8 EURN 8 4 GLNG 7 TNP 5 7 GOGL 5 4 GNRT 5 1 NVGS 4 9 TGP 4 6 STNG 4 4 TK 4 1 DHT 3 9 LPG 3 5 NMM 3 4 SALT 3 3 SB 3 2 TNK 3 1 SFL 3 1 DRYS 2 7 FRO 2 6 KNOP 2 5 GLOG 1 1 GLOP 0 2 Stanley says investors can expect the tanker market to recover due to upcoming increases in OPEC production rising U S exports contango trade in oil which should lead to more trading activity and higher scrapping due to new IMO regulations The firm upgraded TOO DHT and EURN while downgrading GLOG SB and GOGL on valuation Now read |
JPM | How to Trade Around a Fed Meeting Full of Potential Wild Cards | Bloomberg The Federal Reserve s policy decision Wednesday is being eagerly anticipated by investors looking for further details about what the pivot to patience on rates means how the new dot plot will look and how policy makers will approach inflation targeting and balance sheet runoff
While there s a lot of uncertainty surrounding these issues markets are optimistic as shown by a rally in stocks and cross asset volatility near historic lows There s a feeling in markets that policy clarity is improving not just at the Fed but also at central banks in Europe Japan and China
Having said that there are a number of possible wild cards that may be come out of the Fed decision due 2 p m Wednesday in Washington Here are some thoughts from analysts and strategists on how to navigate markets through the Fed announcement
UBS AG Stuart Kaiser et al New York
The euro has larger average and absolute moves 0 9 percent and 1 2 percent respectively than assets like the S P 500 or 10 year Treasury yields when dots are lowered strategists led by Kaiser wrote in a note Monday The yen has also responded to lower dots but to a lesser extent they said
FX moves suggest a global risk on dynamic so low FX implied volatility offers attractive optionality for the FOMC UBS said
Most of the impact on stocks from the Fed meeting will come before the announcement they said The S P 500 has moved 0 6 percent on days of Federal Open Market Committee statements since 2012
However on the five occasions dots were lowered the gauge rallied an average 1 8 percent in the week before the meeting suggesting the moves were well telegraphed the strategists wrote S P 500 returns were negative on average in the following week he said
Goldman Sachs Zach Pandl Ian Wright New York London
Goldman is looking for confirmation that the FOMC s move away from trying to tighten financial conditions will last for some time which is one of the key points in the company s medium term bearish U S dollar view strategists led by Pandl wrote March 15
Focus on a potential shift by the Fed to an average inflation target remains and is likely contributing to U S break even inflation and real rates moving in opposite directions recently strategists led by Ian Wright wrote March 18
During four periods since 1980 when the Fed held rates relatively high for an extended time at face value we find equities tended to do relatively well although toward the end or the beginning of each period performance appears more mixed Wright said adding that the tech bubble influences some of the observations
BMO Capital Markets Jon Hill Ian Lyngen New York
The Fed decision has a strong possibility of being a buy the news sell the fact event given extremely dovish expectations Hill and Lyngen wrote in a March 18 note
They re watching the 2s 10s curve particularly if the set up for Wednesday corresponded to price movements probing multi week lows they said This would indicate that momentum going into the decision is clearly leaning toward a flattening bias at least in this benchmark curve and open the door for a quick steepening back toward 20 basis points were the median 2019 dot to imply zero additional hikes
The Fed s aim is certain to be a continuing of the peaceful low vol regime the strategists wrote Although the FOMC represents a potential risk event they said any resulting vol spike would likely be interpreted as a Powell produced policy error
JPMorgan Chase Co Marko Kolanovic et al New York
Commodity sectors of the stock market are likely to benefit from the Fed s greater tolerance of an inflation overshoot JPMorgan Chase Co NYSE JPM strategists led by Kolanovic wrote in a March 14 note Those include European miners beneficiaries of rising oil prices and stocks that are helped by rising inflation
They raised their rating of commodities to a 2 percent overweight from a 0 percent active weight in the note a monthly report on global asset allocation
Our commodity overweight also serves as an inflation hedge given the Fed s expected strategic shift they said
Evercore ISI Krishna Guha Washington
While the Fed s plan to conclude its balance sheet reduction is likely to come in the second half of the year when the reinvestment plan comes it will skew towards bills and other shorter dated Treasuries favoring a slightly steeper yield curve according to Guha Any comments from Powell in the press conference on reinvestment should be consistent with that he said
AMP Capital Investors Ltd Nader Naeimi Sydney
Nader Naeimi a portfolio manager at AMP Capital Investors is going long the dollar versus a basket of currencies including the yen Thai baht and South African rand into the Fed meeting
The Fed won t be hawkish so rates will be on hold but the Fed will be more hawkish than what s priced into the markets Naeimi said Markets will be surprised when the Fed decides to go ahead with what s planned instead of calling an end to the balance sheet roll off
Mizuho Bank Ltd Vishnu Varathan Singapore
A pure short on the long end may be also on the cards if one believes that patient has been too stretched as of now and so long end yields may have to go a little higher or at least adjust off the lows according to Vishnu Varathan head of economics and strategy at Mizuho Bank in Singapore
Pendal Group Vimal Gor Sydney
Gor is long duration at the front end of the Treasury curve and has yield curve steepeners in place he said in an interview Tuesday
The market will take virtually all of their utterances as dovish he said of the FOMC |
JPM | Currencies Need a Proper Crisis to Start Swinging Again | Bloomberg Only a crisis is likely to awaken market volatility from its deepest sleep in more than four years according to strategists
A JPMorgan Chase Co NYSE JPM measure of price swings in global currencies has dropped to the lowest level since September 2014 as the world s largest economies show signs of slowing and global central banks signal caution in terms of their future monetary policy With officials on hold and few interest rate increases forecast this year volatility in the 5 1 trillion a day foreign exchange market has been suppressed
Still the tranquility may not last forever according to MUFG Bank and Russell Investments They cite such possibilities as a hawkish turn by the Federal Reserve a Chinese slowdown and a U S recessions as events that could rouse currency markets from their slumber There is no point having a long volatility strategy just yet MUFG said
It looks increasingly likely that some form of fresh crisis could be required said Derek Halpenny European head of global markets research at MUFG Markets are pricing a long period of monetary policy stability
In 2014 volatility was sapped from currency markets as central banks from Japan to the U S found themselves maintaining stimulus to prop up the economy in the wake of the financial crisis That didn t change until the Federal Reserve began to signal that it would be the first to raise rates doing so in December 2015
For Russell investment strategies that follow foreign exchange trends will also benefit from a proper crisis because commodity and cyclical currencies such as the Australian dollar would sell off having traded in very narrow ranges recently
If we had a big crisis possibly caused by the onset of the U S recession you would see big draw downs in those currencies said Van Luu head of currency and fixed income research at Russell |
JPM | Foreign funds cash up after Ukraine debt surge to sit out election | By Karin Strohecker LONDON Reuters A wave of new year optimism toward emerging markets lifted Ukraine s sovereign bonds to multi month highs just weeks before a closely fought presidential election but foreign funds are already cashing up and are keen to sit out the poll Ukraine holds the first round of its presidential election on March 31 If no candidate wins 50 percent the top two contenders will face each other in a run off on April 21 Comic actor Volodymyr Zelenskiy a political novice is ahead in the polls causing jitters among investors One of the top performing bond markets in 2019 the Ukraine component of JPMorgan s EMBI hard currency total return index has risen nearly 10 percent since the start of the year to the highest level in nearly 14 months The broader index gained 6 1 percent in 2019 Some of those gains represent catch up after uncertainty over the outlook for Ukraine s International Monetary Fund IMF program and slow progress on reforms saw bonds underperform over the past 12 months A new 3 9 billion IMF stand by agreement in late December added fresh momentum GRAPHIC Ukraine flying high Yet some major Western asset managers say they have in recent days cut back their exposure amid uncertainty over how the election with Zelinksiy extending his lead over incumbent Petro Poroshenko in the opinion polls Poroshenko is a case of better the devil you know he is a known quantity for markets we know what he has done and what he hasn t done said Zsolt Papp emerging market debt investment specialist at JPMorgan NYSE JPM Asset Management Critical for investors is what the election outcome means for Ukraine s continued cooperation with the IMF which has propped up the country through war and recession since 2014 Ukraine was one of the consensus overweight calls at the beginning of the year By now the overweight has been scaled back to a more neutral position he said adding this was also broadly reflecting JPMorgan AM s position Fund managers are wary over the 41 year old Zelenskiy s lack of an economic plan should he be elected though they expect him to stick with the IMF program Former prime minister Yulia Tymoshenko has also emerged as a key challenger to Poroshenko She has pledged to reverse IMF backed gas price hikes if she wins the election though she wants Ukraine to stay in the IMF program GRAPHIC Ukraine bond roller coaster INCONCLUSIVE ROADSHOWS Fund managers have been meeting a number of Ukraine s power brokers as the election race nears the finishing line Speaking in London this month Ukraine s respected former central bank governor Valeria Gontareva painted a stark picture of what would lie ahead if Zelenskiy wins asset managers said Former finance minister Oleksandr Danylyuk who was sacked in June 2018 after a spat with the prime minister and is associated with Zelenskiy s campaign met asset managers in London in another crowded meeting Yet the meetings did little to allay investors concerns about the prospect of the wild card comedian coming to power He lacks political and public administration experience and that is where the market reacts with its feet said Kevin Daly investment director at Aberdeen Standard Investments Daly ascribed many of the recent gains in Ukraine s dollar bonds to valuations a benign environment for emerging markets and spread compression across single B rated countries Adding to momentum since the start of the year has also been the first tranche of IMF aid totaling 1 4 billion as well as 500 million euros worth of assistance from the European Union received by Kiev in late December Yet Daly said his firm had cut holdings to neutral after a visit to Kiev in February and being overweight for two years The risks are skewed to the downside because on a Poroshenko win you probably have a mild rally and if you get Zelenskiy or Tymoshenko you ll have a much larger sell off said Daly Ukraine s economic backdrop has raised more questions While inflation stood at just below 10 percent by end 2018 gross domestic product is expected to grow by 2 9 percent this year compared to 3 2 percent expected for 2018 according to a Reuters poll
Of course politics is important but at the end of the day you will always return to fundamentals and once the political noise is over markets will look back and ask what is the financing framework and most importantly what is the current account deficit doing said JPMorgan s Papp That s where we really need to see an improvement |
JPM | JPMorgan Chase Exec Crypto Innovators Will Ultimately Have to Use a Bank to Move Funds | Ron Karpovich Global Head of eCommerce Solutions at JPMorgan Chase NYSE JPM stated that there is more partnership instead of competition between the financial establishment and crypto disruptors when it comes to the payments space Karpovich made his remarks during an interview on CNBC s Squawk Box today March 20
In response to a question from CNBC s host as to how the banking giant is poised to compete with new and disruptive actors than can leverage blockchain and cryptocurrencies to offer the same services as the old guard but with lower fees Karpovich said |
MS | Have Fed Policy Decisions Propped Up Equities | Summary The stock market rises on days when the FOMC releases its policy statement probably as a result of some uncertainty being removed for market participants This pattern has existed for more than 30 years The Fed s ability to jawbone the market higher is no more exceptional now than it was during any prior bull market
Morgan Stanley s NYSE MS chief economist this week stated that the Fed s low rate policy and jawboning are responsible for most of the stock market s gains since 2009 In doing so Sharma is repeating the popular meme that the Fed s actions have been exceptional in pushing the market higher from Market Watch
Is this view accurate
Sharma is correct in saying the stock market typically rallies on days when the FOMC announces its policy decisions That s not terribly surprising rate decisions represent some uncertainty which is resolved with the release of the policy statement That investors are continually uncertain about Fed policy is a testament to its ability to keep complacency in check This is remarkable moreover since Fed policy very rarely changes
But where Sharma is wrong and this is the key point is in saying that the Fed s aggressive monetary easing and policy utterances have had an anomalous influence during the current bull market They haven t
Quantifiable Edges has repeatedly looked at the performance of the S P 500 on days when the FOMC policy statement is released From 1982 to mid 2009 the average FOMC day outperformed the average of all days by 7 5 times Gains on FOMC days were common during the 1980s the 1990s and became more exceptional during the 2000s both during and after the 2003 07 bull market chart below as of September 2009
Since then FOMC days have continued to be very good for the S P 500 but less exceptional than during 2006 09 In other words a pattern that has existed for more 30 years continues to exist chart below as of May 2016
Current equity valuations are high but only slightly more so than during 2006 2007 and much less so than during 1996 2000 The late 1960s were also similar to today So the assertion that price has outpaced fundamentals in any anomalous or exceptional way due to the Fed is not supported by the facts chart from Yardeni
The stock market rises on days when the FOMC releases its policy statement probably as a result of some uncertainty being removed for market participants This pattern has existed for more than 30 years The Fed s ability to jawbone the market higher is no more exceptional now than it was during any prior bull market |
MS | Morgan Stanley Charged For Unethical Business Practices | Within a month Morgan Stanley NYSE MS has become the second major U S financial firm to be accused of dishonest business practices Massachusetts finance regulator has sued the company over dishonest and unethical business practices that put pressure on brokers to sale loans to their clients Last month Wells Fargo Company NYSE WFC was fined by regulators for unauthorized account opening Since then banks are under spotlight for their cross selling tactics read more Brokers Provided Cash Incentives to Cross Sell LoansPer the complaint filed by Secretary of the Massachusetts Commonwealth William Galvin Morgan Stanley had set up internal sales contests in Massachusetts and Rhode Island with brokers being provided with cash incentives worth up to 5 000 for selling securities based loans SBLs SBLs allow the clients to borrow against the value of their investment accounts Nearly 30 financial advisors in Morgan Stanley s offices located in Massachusetts and Rhode Island had joined this contest Galvin further added that their performance was being closely monitored by the supervisors While such contests are internally barred at Morgan Stanley it continued to run for nearly one year before the company s compliance and risk office took notice of this practice Notably this did not stop until Apr 2015 Driven by these tactics Morgan Stanley was able to triple its loan origination volume and added around 24 million in new loan balances In a statement Galvin said This complaint lays bare the culture at Morgan Stanley that bred the high pressure effort to cross sell banking products to its brokerage customers without regard for the fiduciary duty owed to the investor He further added Morgan Stanley s firm wide culture emphasizes the aggressive cross selling of banking and lending products to wealth management clients The regulator is seeking a fine along with a cease and desist order Morgan Stanley to Fight the CaseMorgan Stanley has been striving hard to be a full service bank to its 3 5 million clients of its wealth management division In second quarter 2016 the company recorded 69 billion as loans in its wealth management division The company has come up with new incentives including credit card transactions and savings accounts to boost client engagement Morgan Stanley plans to defend itself vigorously against the charges filed The company spokesperson in a statement said The securities based loan accounts were opened only after discussing the product with each client and obtaining their affirmative consent Importantly clients pay no fee to open a securities based loan account They are charged only if they choose to borrow money The complaint is without merit and Morgan Stanley intends to defend itself vigorously Nevertheless whatever be the outcome of this case the fact that cross selling is the lifeline for banking sector cannot be denied Following the Wells Fargo incident Thomas J Curry Comptroller of the Currency had stated I have directed that we are to do a horizontal review so we will be looking specifically at sales practices at our largest banks and midsized banks So this has become an added concern of the banking industry which is already grappling with a numbers of issues Currently Morgan Stanley carries a Zacks Rank 3 Hold Some better ranked stocks in the finance space include Farmers Capital Bank Corporation NASDAQ FFKT and Fidelity Southern Corporation NASDAQ LION Farmers Capital witnessed an upward earnings estimate revision of approximately 0 9 over the past 60 days Its share price has gained 11 1 over the past three months It currently sports a Zacks Rank 1 Strong Buy You can see Fidelity Corporation also sports a Zacks Rank 1 Its earnings estimates have been relatively stable over the past 60 days while its share price is up 21 9 over a three month period Confidential from ZacksBeyond this Analyst Blog would you like to see Zacks best recommendations that are not available to the public Our Executive VP Steve Reitmeister knows when key trades are about to be triggered and which of our experts has the hottest hand |
C | China Liquidity Jitters Are About to Test Bond Market Again | Bloomberg China s government bond investors will soon be looking for reassurance from the central bank that there s plenty of cash in the financial system
The country will see a liquidity hole of 2 8 trillion yuan 400 billion in January in large part because people across the nation will withdraw cash for the Lunar New Year holiday according to Guotai Junan Securities Co That means bond traders expect the central bank to unlock funds to avoid the liquidity driven panic seen in October when the benchmark 10 year yield spiked the most in six months
Some analysts expect the People s Bank of China to cut the amount of cash lenders must hold as reserves It could also opt to inject funds through its daily open market operations others say But no analyst is calling for a massive net liquidity injection or a benchmark interest rate cut as Beijing won t want to risk inflating prices when the consumer price index is at a seven year high That s capping gains for government bonds as it has for months
Bonds will get a short term boost next month as China may cut reserve ratios to offset the liquidity drainage said Tommy Xie an economist at Oversea Chinese Banking Corp adding this can t be viewed as the start of a broad easing cycle The central bank just wants to tailor the solution to the liquidity problem The long term outlook for the debt market will still hinge on China s economy and the trade negotiations
Cash supply tends to tighten ahead of the week long holiday which in 2020 falls at the end of January Households and corporates typically withdraw money from banks to pay for gifts and travel That alone will drain 1 5 trillion yuan from the financial system next month Guotai Junan analysts led by Hua Changchun wrote in a note
Another 1 3 trillion yuan will be drained due to factors such as banks buying newly issued local government bonds according to China s second largest brokerage More than 2 trillion yuan of those notes mature in 2020 and fresh debt to refinance the borrowing thus shoring up economic growth will probably start hitting the market soon China in November ordered local governments to speed up the issuance of special bonds earmarked for infrastructure projects
The central bank reduced the reserve requirement ratio by 1 percentage point before the holiday this year and also injected more than 1 trillion yuan via open market operations over a week In 2018 a targeted RRR cut went into effect before the celebrations The 10 year sovereign yield edged lower in the month before Lunar New Year in both years
On Wednesday the PBOC injected a net 200 billion yuan into the financial system via reverse repurchase agreements after skipping those operations for 20 sessions It also lowered the rate on 14 day reverse repos to 2 65 from 2 7
Worst Isn t Over for Chinese Bonds as Supply Surge Looms
Citigroup Inc NYSE C economist Liu Li gang said the central bank will cut RRR to unleash cash because it can immediately inject massive liquidity to the system Lu Ting chief China economist at Nomura International Ltd said Beijing is more likely to offer medium term loans to banks instead or the targeted version of that tool Rising consumer prices fueled by the surging cost of pork are seen capping how much liquidity Beijing can provide without further stoking inflation
The policy dilemma has cornered China s government bond investors with the yield stuck in a 6 basis point range over the past month While the economy is growing at its slowest pace since the 1990s November data was more encouraging Throw in a phase one trade deal agreed with the U S last week and Beijing has even fewer reasons to go aggressive on stimulus measures
It all means that after a brief spell in the sun in January a rally in Chinese sovereign debt is unlikely to last The return of risk appetite is already hurting the notes with the 10 year yield rising to the highest level in a month on Tuesday The rate rate was little changed at 3 23 as of 9 45 a m in Shanghai
In 2020 the bond market will be torn by transitory improvements in sentiment triggered by the trade deal and economic data and concerns on long term growth and risks such as defaults said David Qu an economist for Bloomberg Economics
Adds 8th paragraph to show the PBOC s operation on Wednesday and updates prices |
C | Bad to worse pain not over for Australia s beleaguered banks | By Byron Kaye and Scott Murdoch SYDNEY Reuters Australia s biggest lenders are bracing for another year of pain as the fallout from a string of scandals shows no sign of letting up following a blistering public inquiry into financial sector misconduct On top of the massive regulatory and reputational blows taken by the banks are a host of commercial challenges including record low interest rates a soft economy and subdued lending growth The Royal Commission didn t mark the end of their problems said Sean Sequeira chief investment officer at Australian Eagle Asset Management referring to the government led inquiry into wrongdoings in the industry Sequeira s firm has capped its bank exposure due to weak earnings outlook The pressure will be on earnings for quite some time and we can t quite see where they will attain earnings growth from and hence dividend growth in the near term This week National Australia Bank executives endured a six hour annual general meeting as investors grilled management a day after regulators filed a lawsuit against the bank over fee charges You even have a tougher job than you signed up for one shareholder at the AGM said to NAB Chairman Philip Chronican who only started in that job in March Thank you replied Chronican That is exactly how it feels ROYAL HANGOVER Since the Royal Commission began its hearings in 2018 the so called big four banks have lost a combined A 27 billion in market capitalization according to Refinitiv data and underperformed peers elsewhere in the world Credit Suisse SIX CSGN wrote in a client note earlier this month that capital spending at Australian banks has been pushed out by more than 12 months due to urgently needed investment in risk and compliance Against this backdrop we do not consider banks to be cheap Credit Suisse said The main index of Australian financials is down 6 since the beginning of the hearings in March 2018 lagging the 10 gain enjoyed by U S rivals or the 2 decline for peers in Britain CBA was the first bank in Australia to be hit with scandal fined 700 million in 2018 after AUSTRAC the finiancial crimes watchdog charged it with 53 750 money laundering breaches With that hit out the way CBA delivers first half results on Feb 12 and analysts expect the bank to build on its first quarter profit of A2 3 billion which was up 5 on the same time last year The Royal Commission revealed wrongdoing that included charging fees to dead people but the banks biggest pain has been felt in the months since as regulators stepped up enforcement in a bid to dispel accusations of overly light oversight For Westpac that culminated in a November lawsuit from AUSTRAC accusing it of failing to report 23 million suspect transactions including payments between known child sex offenders That prompted the company s CEO to leave and its chairman to bring forward his retirement Analysts have factored in a A 1 billion fine for Westpac over the AUSTRAC matter due in court next year NAB has been sued twice by ASIC in September last year and again on Tuesday over practices aired during the Royal Commission including a suit accusing it of taking fees from financial advice customers for no service ANZ in May was stripped of the right to set its own lending tests in New Zealand where it is the biggest lender after the central bank there accused it of failures in its internal controls The bank is also a defendant in a criminal lawsuit brought by Australia s antitrust regulator accusing it of colluding with investment banks Citigroup Inc NYSE C and Deutsche Bank AG DE DBKGn over a 2015 capital raising All the banks are defending the case which returns to court in January |
C | PBOC Sets Policy Pace for 2020 With Reserve Cut to Aid Credit | Bloomberg China s central bank trimmed the amount of cash that lenders must hold in reserve and signaled continued action in 2020 to reduce borrowing costs for companies
The required reserve ratio for commercial lenders will be lowered by 50 basis points from Jan 6 releasing about 800 billion yuan 115 billion of liquidity into the financial system the People s Bank of China said on its website Wednesday The cut aims to help banks reduce their lending rate to businesses the PBOC said in a separate statement Currently the required reserve ratio is 13 for big banks and 11 for smaller ones
Chinese shares headed for their best start to a year since 2015 on the upcoming cash injection with the benchmark Shanghai composite index rising by 1 2 to 3 087 16 before the lunch break The interbank 7 day repo rate dropped below 2 1 as of 1 45p m down the most in at least five years
The move flagged in advance by Premier Li Keqiang late last month shows the central bank is sticking to its practice of keeping domestic liquidity conditions relatively supportive amid a broader government drive to shore up the private sector At the same time small firms still face hurdles in raising funds and a recent revamp of the interest rate system is still bedding in making further efforts likely
We expect the PBOC to keep an easing bias by maintaining a measured pace in the rate cut cycle in addition to RRR cuts economists including Li Gang Liu at Citigroup Inc NYSE C wrote in a note adding that policy rates such as the medium term funding rate will likely drop by 5 to 10 basis points in the first quarter of 2020 Accommodative monetary policy would support domestic demand particularly fixed asset investment
The injection will be offset to an extent as banks provide more cash to the public before the Spring Festival later this month and the overall liquidity level at banks will be kept stable the central bank said The prudent monetary policy stance remains unchanged it added
With the deceleration in economic growth policy supports are still needed said Bloomberg Economics David Qu We continue to expect a 20 30 bps decline in the official one year loan prime rate for 2020 and think the PBOC will also reduce the interest rate for its medium term lending facilities
The cut is in line with market expectations that the PBOC will increase funding to the financial system in January to ease a possible liquidity crunch caused by rising local government debt sales and increasing cash demand during the Spring Festival holidays In a statement published earlier Wednesday the PBOC said it ll keep monetary policy flexible and work to make credit cheaper for businesses as the economy still faces strong headwinds
The reserve cut is timely as local governments resume debt sales Thursday to raise funding for infrastructure projects The sales started this year earlier than ever as policy makers front load such spending to stimulate the economy In the first batch of issuance authorities in Sichuan and Henan provinces will offer a combined 87 6 billion yuan of so called special bonds on Thursday
China s manufacturing sector continued to expand output in December adding to evidence that the world s second largest economy is stabilizing as the signing of a phase one trade deal with the U S nears
Uncertain Recovery
Still a firm overall economic recovery is not for certain particularly as small and private companies struggle to find cheap funding The PBOC said the planned reduction will save about 15 billion yuan in funding costs for banks in a year indicating that the benchmark loan prime rate will likely be lowered as banks reduce their submissions for the rate s calculation in late January
If the rate s recent performance is a guide the one year loan prime rate will likely fall by five basis points this month while the five year rate will be kept unchanged the same with last September when a similar amount of liquidity was released
Looking ahead there s still room for more reserve ratio cuts in 2020 to mitigate the impact of deleveraging at small banks Eva Yi an economist at China International Capital Corp in Hong Kong wrote in a note Should economic growth show more signs of stabilization and recovery after the cut it s likely the central bank will slow down the pace of further reserve ratio cuts |
JPM | Zacks Investment Ideas Feature Highlights Berkshire Hathaway And J P Morgan Chase | For Immediate ReleaseChicago IL June 11 2018 Today Zacks Investment Ideas feature highlights Features Berkshire Hathaway and J P Morgan Chase NYSE JPM Focusing Long Term Like Warren Buffett and Jamie DimonThe leaders of two of the world s biggest companies weighed in on Thursday on the state of the investing environment in the U S specifically the focus on quarterly earnings and guidance and their effect on investor behavior In an Opinion piece published in the Wall Street Journal and a subsequent joint television appearance Warren Buffett Chairman of Berkshire Hathaway and Jamie Dimon CEO of J P Morgan Chase posited that investor focus on short term results caused companies to make inefficient decisions that allowed them to meet or exceed earnings estimates but sometimes at the expense of long term results They even went so far as to attribute a two decades decline in the number of public companies to an unwillingness to operate in the glare of the public eye Berkshire and J P Morgan are America s 8th and 9th largest companies with market capitalization of 478B and 382B respectively Share prices of both firms have risen steadily for decades Buffett and Dimon stressed that they are not opposed to financial reporting requirements stating Our views on quarterly earnings forecasts should not be misconstrued as opposition to quarterly and annual reporting Transparency about financial and operating results is an essential part of U S markets and we support being open with shareholders about actual financial and operational metrics U S public companies will continue to provide annual and quarterly reporting that offers a retrospective look at actual performance so that the public including shareholders and other stakeholders can reliably assess real progress The pair instead took aim at the practice of companies providing future revenue and or earnings guidance to analysts opining that the practice encourages managers from the CEO down to focus on making the numbers in the short term and to do things that they otherwise wouldn t have done Dimon said the long view includes having the courage to make a decision specifically to spend money that might hurt short term results but that sets the company up for long term success He stressed the importance of an understanding board that allows a CEO to make such tough decisions He also pointed out that it s easy for a CEO to finesse any given reported number by cutting back on marketing not opening new outlets or selling more product at a cheaper price all of which could have negative long term effects He even joked that in the extreme a company could cut costs by reducing airplane maintenance but it would obviously be a bad idea Buffett added I tell our managers just pretend this is the only position you or your family are going to own for the next 50 years and that you can t sell it The duo does not believe that forward looking guidance should be disallowed but rather that forward looking management should probably simply decline to provide it What It Means to YouHearing from Buffett and Dimon on these issues is the closest thing you can get to a free lunch The message to individual investors is clear Great companies are built over many years and individual quarters are barely blips on the radar Pay attention to earnings understand the history of a company s results and fully understand their vision for the future Do not sell a stock that you fundamentally believe in because they missed a quarterly estimate by 10 cents If others are selling consider it a favor and an opportunity to pick up some shares on the cheap Will You Make a Fortune on the Shift to Electric Cars Here s another stock idea to consider Much like petroleum 150 years ago lithium power may soon shake the world creating millionaires and reshaping geo politics Soon electric vehicles EVs may be cheaper than gas guzzlers Some are already reaching 265 miles on a single charge With battery prices plummeting and charging stations set to multiply one company stands out as the 1 stock to buy according to Zacks research It s not the one you think Follow us on Twitter Join us on Facebook NASDAQ FB Zacks Investment Research is under common control with affiliated entities including a broker dealer and an investment adviser which may engage in transactions involving the foregoing securities for the clients of such affiliates Media ContactZacks Investment Research800 767 3771 ext 9339Past performance is no guarantee of future results Inherent in any investment is the potential for loss This material is being provided for informational purposes only and nothing herein constitutes investment legal accounting or tax advice or a recommendation to buy sell or hold a security No recommendation or advice is being given as to whether any investment is suitable for a particular investor It should not be assumed that any investments in securities companies sectors or markets identified and described were or will be profitable All information is current as of the date of herein and is subject to change without notice Any views or opinions expressed may not reflect those of the firm as a whole Zacks Investment Research does not engage in investment banking market making or asset management activities of any securities These returns are from hypothetical portfolios consisting of stocks with Zacks Rank 1 that were rebalanced monthly with zero transaction costs These are not the returns of actual portfolios of stocks The S P 500 is an unmanaged index Visit for information about the performance numbers displayed in this press release |
JPM | Rising Inflation Fuels Demand For TIPS ETFs | Growing inflationary pressures are bothering Americans as cost of living in the United States has risen steadily on higher gas prices This is especially true given that inflation has been trending above the Fed s 2 target over the past few months The latest data showed that it accelerated at the fastest pace in more than six years in May The Consumer Price Index rose 0 2 in May bringing the annual inflation 12 months through May to 2 8 the biggest gain since February 2012 and following a 2 5 increase in April The trend is likely to continue in the coming months given that the economy has expanded for nine years and the United States has now entered its second longest expansion phase since 1785 After two months of lackluster gains hiring in the United States rebounded with the addition of more than expected 223 000 jobs in May Unemployment dropped from 3 9 to 3 8 the lowest since 2000 while average hourly wages rose eight cents pushing the year over year increase to 2 7 This has sparked a record inflows into the top 10 ETFs focused on Treasury Inflation Protected Securities TIPS last week that hedge against the risk of inflation according to a JPMorgan Chase NYSE JPM Over the past two weeks these TIPS ETFs have accumulated 1 74 billion in capital read Why TIPS ETFs TIPS ETFs offer shelter against rising inflation It not only combats increasing prices but also protects income for the long term To explain in details consider a fixed interest rate of 2 0 on five year TIPS with initial face value of 1 000 In the first six months when inflation is zero the semi annual interest payment would be 10 but when inflation rises 5 annually in the next six months the semi annual interest rate would be 10 25 1 025 2 1 2 10 25 This is because TIPS pays interest on an inflated principal amount principal rises with inflation and in this case principal becomes 1 025 when the semi annual inflation is accounted for As a result both principal amount and interest payments will go on rising with increasing consumer prices Given this investors are considering TIPS ETFs in order to combat inflationary fears While there are several options in the space to tap rising consumer prices we have highlighted five that have garnered enough capital this month and could be better picks With the economy and job market gaining strength inflation will definitely increase in the coming months making these products compelling investments see Schwab U S TIPS ETF SIX SCHP This fund tracks the Bloomberg Barclays LON BARC US Treasury Inflation Linked Bond Index Series L holding 45 securities in its basket It has effective duration of 7 5 years and average maturity of 8 2 years SCHP is the cheapest option in the TIPS space charging just 5 bps in annual fees It has pulled in nearly 1 1 billion in capital this month bringing its total AUM to 5 3 billion The product trades in solid volume of 634 000 shares a day Vanguard Short Term Inflation Protected Securities ETF This fund saw inflows of 79 53 million this month bringing its AUM to more than 5 billion It offers exposure to TIPS that have remaining maturity of less than five years by tracking the Bloomberg Barclays U S Treasury Inflation Protected Securities TIPS 0 5 Year Index Holding securities 15 in its basket the ETF has average duration and average maturity of 2 7 and 2 8 years respectively The product trades in average daily volume of 687 000 shares and charges 6 bps in annual fees read SPDR Bloomberg Barclays TIPS ETF AX IPE This ETF has gathered 27 million in its asset base bringing its total AUM to 1 3 billion It follows the Bloomberg Barclays U S Government Inflation linked Bond Index and holds 40 securities in its basket Average maturity comes in at 8 96 years while adjusted duration is 6 02 years The fund charges 15 bps in annual fees and trades in good volume of 114 000 shares a day iShares 0 5 Year TIPS Bond ETF TN STIP This fund offers exposure to short term TIPS with effective duration of 2 64 years and average maturity of 2 69 years It holds 12 securities in its basket and follows the Bloomberg Barclays U S Treasury Inflation Protected Securities TIPS 0 5 Years Index Series L STIP has pulled in 10 million capital this month pushing it AUM to 1 8 billion It has 0 06 in expense ratio and trades in average daily volume of 114 000 shares FlexShares iBoxx 3 Year Target Duration TIPS Index Fund This ETF tracks the iBoxx 3 Year Target Duration TIPS Index holding 19 securities in its basket Average maturity comes in at 4 25 years while adjusted duration is 3 11 years The fund has AUM of more than 2 billion with inflows of nearly 2 million this month It charges 18 bps in annual fees and trades in volume of 210 000 shares a day on average Want key ETF info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing ETFs each week |
MS | Rolling world stock sell off runs to 4 trillion | By Marc Jones LONDON Reuters World stock markets nosedived for a fourth day running on Tuesday having seen 4 trillion wiped off from what just eight days ago had been record high values Europe s main bourses started down as much as 3 percent leaving investors with little option but to seek the traditional refuges of gold the Japanese yen FRX and one of the initial triggers for the selloff benchmark government bonds Wall Street futures offer a chink of light as they turned higher but commodities suffered too with oil and metals all tumbling backwards as what had been one of their best starts to a year also soured rapidly Playtime is officially over kids analysts at Rabobank said Rising volatility painfully reminds some investors that one way bets don t exist The stock selloff had been viewed by some as a healthy correction following their rapid rise over the last year but as it snowballed through Asia and then Europe nerves were starting to fray Wall Street s Dow Jones and S P 500 benchmarks had slumped 4 6 percent and 4 1 percent on Monday their biggest drops since August 2011 It was also the Dow s biggest fall on a pure points basis of all time Europe s early drop sent the region s STOXX 600 to its lowest level in six months There was intense trading activity with more than 40 percent of the average daily volume traded on Germany s DAX and Europe s STOXX 50 by 0845 GMT TIDE TURNING Since last autumn investors had been betting on the Goldilocks economy solid economic expansion improving corporate earnings and stable inflation But the tide seems to have changed said Norihiro Fujito senior investment strategist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities In Asia MSCI s broadest index of Asia Pacific shares outside Japan slid 3 4 percent Taiwan s main index lost 5 0 percent its biggest since in 2011 and Hong Kong s Hang Seng Index dropped 4 2 percent Japan s Nikkei dived 4 7 percent its worst fall since November 2016 to four month lows The original trigger for the sell off was a sharp rise in U S bond yields late last week after data showed U S wages increasing at the fastest pace since 2009 That raised the alarm about higher inflation and with it potentially higher interest rates That could be painful for markets that have been propped up by central banks stimulus for many years The 10 year U S Treasuries yield rose to as high as 2 885 percent on Monday its highest in four years and up 47 basis points since the end of 2017 But a massive fall in share prices prompted an about turn and on Tuesday it fell back to as low as 2 662 percent German Bunds Europe s equivalent benchmark then fell 5 basis points in early trading their biggest drop in over two months ONLY TWO FED HIKES U S interest rate markets are now pricing in only two Federal Reserve rate hikes this year a big shift from only a few days ago when they were pointing to three or even four hikes The CBOE Volatility index the closely followed fear index measure of expected near term stock market volatility jumped 20 points to 37 its highest level since August 2015 That left some popular exchange traded products that investors use to benefit from calm market conditions facing potential liquidation Keen to avoid further risk investors are closing their positions in other assets including the currency market where a popular strategy has been to sell the dollar against the euro and other currencies seen as benefiting from higher interest rates in the future The euro was sold off on Monday but popped back up to 1 2435 on Tuesday It took it away from last week s low of 1 2335 That could usher in a further correction after its rally to a 3 year high of 1 2538 late last month Against the yen which is often used as a safe haven currency because of Japan s solid current account surplus the dollar slipped as much 0 2 percent to 108 86 yen before clawing back to 109 3 Oil prices also dropped with international benchmark Brent futures hitting a one month low before recovering to stand at 67 28 per barrel down 0 5 percent on the day
U S crude futures traded at 63 87 per barrel down 0 6 percent while safe haven gold was up for a fourth day in the last five at 1 340 per ounce |
MS | New BoE policymaker warns on London commercial property prices | By Huw Jones and David Milliken LONDON Reuters Central London s fully valued commercial property market should be a wake up call for the sector the newest member of the Bank of England s Financial Policy Committee FPC said on Tuesday Elisabeth Stheeman said commercial property is used by small firms to back loans creating a potentially large source of credit risk for banks and a threat to the wider economy if things go wrong While commercial real estate prices in Britain as a whole remain 13 percent below their peak in 2007 they are 22 percent above that level in central London she said To me that was really a wake up call in a sense they are very fully valued to say the least Stheeman told parliament s Treasury Select Committee in a hearing on her appointment If prices fell small companies could see access to finance being choked off she said The FPC however does not urgently need any extra powers to direct regulators to take action in addition to existing powers over banks capital levels and loan to income ratios on household mortgages she said Stheeman has a long standing involvement in the real estate industry She currently serves on the supervisory boards of German and French real estate companies and is a member of the supervisory boards of German and French property companies and Germany s real estate focused lender Aareal Bank DE ARLG Before that she was the chief operating officer for divisions of Morgan Stanley N MS and Jones Lang LaSalle N JLL that were focused on real estate investment Brexit is the other potential risk to financial stability that should be a major focus for the FPC this year she said Banks insurers and asset managers operating in Britain are already applying for licences to work in the European Union after Britain leaves the bloc in March 2019 forcing them to decide how many people to move Britain is negotiating the details of a transition period to cover the period immediately after March 2019 but long term trading relations remain unclear It s important to create some kind of certainty for firms otherwise they may be pushed into taking decisions Stheeman said Asked if the risk of Britain leaving the EU without a deal had fallen she said she would hope that was the case adding that it was not clear that the EU rather than Britain would be worse off if it lost easy access to the City of London BoE Governor Mark Carney said last week that he believed the risk of a disorderly Brexit had fallen and that EU firms would suffer if they could no longer arrange finance in London The FPC was created after the 2007 09 financial crisis in a bid to spot risks faster before they get out of control But finding people to serve in senior BoE roles who do not have conflicts of interest has proven a challenge for Britain s finance ministry Stheeman said she would recuse herself from any FPC discussion of German or French real estate markets to avoid conflicts of interest as well as matters affecting British government gilt issuance such as the reversal of quantitative easing as her husband is chief executive of the UK Debt Management Office Typically people with the financial industry experience needed to serve as external members of the FPC are in high demand for more lucrative non executive roles in the financial sector Stheeman said she wanted to give something back after being encouraged by the finance ministry to apply The BoE paid external members of the FPC were paid 92 990 pounds 129 247 each during the last financial year
1 0 7195 pounds |
MS | Volatility means trend is no longer the hedge fund s friend in 2018 | By Maiya Keidan and Simon Jessop LONDON Reuters Trend following hedge funds were stopped in their tracks by global market volatility this week with some giving up all of their gains from a stellar start to the year Investors locked into steady moves had enjoyed strong gains as markets melted up with the aid of easy monetary policy that leading central banks have said they plan to tighten But this week s sudden halt in the trend has not sparked investor panic fund managers contacted by Reuters said Performance statistics gathered by HSBC in the week to Feb 2 showed double digit gains in January for a clutch of trend following funds after human led hedge funds beat these machine driven funds during 2017 Four of the top five best performing funds in January ran algorithmic strategies while only one was human led according to the data compiled by HSBC Among the trend following funds to set the running were Netherlands based Tulip Trend Fund which was up 14 4 percent to Jan 31 and the Cantab Capital Partners Quantitative Fund which had risen by 9 2 percent to Jan 26 Aspect Capital s Diversified fund made 8 8 percent in January while Sweden s Lynx Asset Management fund made 8 6 percent in January according to its website But fears that rising inflation could prompt central banks to hit the monetary brakes more quickly prompted profit taking with U S stocks posting their worst day in 7 years on Monday and volatility surging knocking trend followers As the sell off accelerated and volatility rose hedge funds sought to protect against further losses by hedging and also cut back on their use of leverage Morgan Stanley NYSE MS said in a note As trend following funds typically invest more heavily into their positions the longer the trend continues including using leverage to amplify the bets the falls were felt more keenly TULIP WILTS The Tulip fund named because of the association with its Dutch trading adviser s homeland was among those to give up gains said Thomas Kummer at Progressive Capital Partners which manages the fund The fund was down around 6 percent on Friday and was down around an estimated 13 percent on Monday Kummer said Another to suffer was Dunn Capital whose WMA Institutional UCITS Fund had been up 10 1 percent in late January We have given back the January profits in our WMA strategy like other trend followers have Niels Kaastrup Larsen Dunn s managing director for Europe said This was to be expected from such a strategy when there were big reversals in many sectors at the same time he added Lynx s fund meanwhile was down 11 3 percent at the close on Tuesday its website showed Anthony Lawler co head GAM Systematic which manages Cantab as part of its business told Reuters the falls would be unlikely to change much in the mind of fund managers
The reversal moves in the past few days are not likely to scare systematic trend managers as they are within expectations over a market cycle and our risk management is built with the long term in mind he said |
JPM | Australia s Spending Bonanza Gives Central Bank Breathing Room on Rates | Bloomberg Australia s economy is set for a fiscal injection as a government trailing in opinion polls ahead of a May election tries to buy its way back into contention and the opposition seeks to hang onto its lead
The expected spending bonanza in the April 2 budget will be well received by the nation s heavily indebted households It may also win favor in a more unlikely quarter the traditionally buttoned down inflation fighting Reserve Bank of Australia which is keen to avoid resuming interest rate cuts
RBA Governor Philip Lowe is under intensifying pressure to end a 2 1 2 year pause as tumbling house prices spook households and slow economic growth But with rates already at a record low the impact of further easing might prove limited In contrast well directed tax cuts and cash disbursements could be just the stimulus the economy requires
Fiscal easing is what we d expect said Sally Auld a senior strategist for interest rates at JPMorgan Chase Co NYSE JPM in Sydney Lowe would also have a preference for fiscal given he s spoken repeatedly about how monetary policy can only do so much that it doesn t have the answers to all the problems
She nonetheless predicts the central bank will end up cutting rates twice this year because between an election drawing up legislation and then passing it through a Senate the government doesn t control the cash wouldn t hit the economy until late this year That might be too late to arrest the momentum of the slowdown
Growth Slowdown
While hiring is strong unemployment has fallen to 5 percent and firms are continuing to plan spending economic growth decelerated to about 1 percent in the second half of last year from almost 4 percent in the first
Sydney house prices have tumbled more than 13 percent from their peak prompting a sharp slowdown in residential construction and wage stagnation and subdued inflation show little sign of lifting The biggest concern is the drop off in consumption which accounts for almost 60 percent of gross domestic product
With rates already at 1 5 percent parliament might be better placed to respond
The government has legislated some income tax cuts and said in its mid year fiscal and economic outlook it has about 0 5 percent of GDP penciled in for decisions taken but not yet announced widely regarded as a nod to further giveaways
Policy Lever
The main opposition Labor party is pledging to scrap tax concessions that it says are skewed toward the wealthy freeing up money to deliver tax cuts and rebates for low and middle income earners that may inject more stimulus into the economy
Michael Blythe chief economist at Commonwealth Bank of Australia expects the RBA to keep standing pat and says the government should step in
Fiscal policy redistributes income around the economy he said Use that policy lever to give some money to households who we know represent the biggest downside risk to the economy
Regardless of fiscal action it may prove difficult for the RBA to resist a rate cut according to Auld who says the economy is experiencing a cyclical shortfall in domestic demand
At some point Lowe will sit there and say to himself do I really want to be the guy in six months time where everyone points the finger at me and says you sat there and did nothing when blind Freddy could ve told you that things are going south she said He doesn t want to be that person |
JPM | As Australia s economy slows predictions of a rate cut rise Reuters poll | By Swati Pandey SYDNEY Reuters Predictions that Australia s central bank will lower interest rates this year have increased significantly in recent weeks a Reuters poll showed as a steep downturn in the housing market is seen likely to further hit domestic activity The Reserve Bank of Australia RBA has shifted away from its long held tightening bias and put rate cuts back on the table However it is still confident about the A 1 9 trillion economy which has avoided a recession since the early 1990s Awaiting a pick up in inflation and further falls in the jobless rate the RBA has left policy at a record low 1 50 percent since its last easing in August 2016 And this record period of holding is likely to stretch into early 2021 according to the median view of 45 economists polled by Reuters Still 20 economists 44 percent of the total polled forecast at least one cut to the cash rate in 2019 double the percentage predicting that in the February poll Two of Australia s major banks Westpac and NAB as well as Macquarie Perpetual and AMP are tipping cuts this year as are UBS JPMorgan NYSE JPM and Nomura Of the 30 economists who gave a forecast for March 2021 nine saw at least one rate rise while 14 predicted at least one cut by then The other seven expected no rate change The change in 2019 outlook follows disappointing fourth quarter gross domestic product data this month while retail sales a gauge of consumer health have remained tepid Data this week showed Australian consumers have turned gloomy while a closely watched measure of business conditions slipped below the long run average in February The dismal reading on the economy coupled with the U S Federal Reserve s patient policy approach have led markets to fully price in at least one RBA rate cut by August Macquarie economist Justin Fobo said a rate cut is needed to stimulate the economy as there were no downside risks to easing policy with the housing market already on a slippery slope and banks tightening lending standards Take the path of least regret Fobo said in a March rate outlook report If additional policy support is necessary then it should be provided best to provide it early than have to take more drastic action if growth actually turns down sharply The RBA has repeatedly underlined the limits of further easing when the policy setting is already stimulatory while recently noting the success fiscal stimulus has had during the 2008 global financial crisis
Australia s center right government will deliver the federal budget on April 2 It is expected to announce personal income tax cuts and infrastructure spending ahead of general elections due in May |
JPM | BOJ to Join Chorus on Global Growth Concerns Decision Day Guide | Bloomberg The Bank of Japan is likely to underscore the cautious tilt of global central banks by downgrading some of its economic assessments Friday The focus is whether the gloomier international outlook prompts any hints of further monetary easing
The BOJ will keep its yield curve control program and asset purchases unchanged at the end of a two day meeting according to all 46 economists surveyed by Bloomberg With signs of a weakening economy the bank is likely to discuss lowering its assessment of exports production and overseas economies according to people familiar with the matter
Even if the BOJ changes some economic assessments it is unlikely to change its overall view that the economy is expanding moderately the people said
While increasing gloom has prompted the Federal Reserve to pause on interest rate hikes and the European Central Bank has added to its monetary easing Governor Haruhiko Kuroda is expected to avoiding signaling any change in policy could come soon which would roil trading in the yen bonds and stocks
Most surveyed economists still see the BOJ sticking with its current policy before reining in its stimulus at some point in the future But a growing minority of them are forecasting additional easing as the next policy step rather than tightening
They cite growing concerns that Japan s economy is weakening and the likelihood that inflation will head toward zero or even below later in the year while a tax increase is set to further complicate matters
The BOJ typically releases its policy statement around lunchtime followed by a press briefing by Kuroda at 3 30 p m in Tokyo
What to look for
Japan s Finance Minister Taro Aso this week indicated Japan could be a little bit flexible in its approach toward the 2 percent inflation target Kuroda is likely to be asked whether there is any divergence with the government on the goal he sees as a global standard
Comments on the yen will warrant close attention since it is seen as a decisive factor that might push the BOJ to boost its stimulus a view strengthened by Kuroda himself recently While the yen has fallen from a January high of 104 87 economists warn the direction could quickly change on bad growth or trade news
Kuroda may also field questions on the extent to which BOJ policy contributed to a slashed profit forecast by Japan s third largest lender Mizuho Financial Group an indication that side effects may be starting to hurt mega banks not just local lenders
I expect the BOJ to hold off any additional easing until the probability of a recession gets high because they want to save their scarce policy resources said Hiroshi Ugai chief Japan economist at JPMorgan Chase Co NYSE JPM and a former BOJ official
What Bloomberg s Economists Say
The signs of a weakening economy have appeared in recent data But at this point it s not bad enough to prompt much alarm in our view We think the BOJ is ready to ride out any mild turbulence within its current framework keeping its policy settings unchanged
Yuki Masujima Japan economistClick here to view the piece
Policy Recap
Pledge to keep interest rates extremely low for an extended period of time
A rate of 0 1 percent on some reserves financial institutions keep at the central bank
Yield target of about zero percent for 10 year Japanese government bonds with a trading range of about 0 2 percentage point on either side of the mark
A target of increasing JGB holdings by about 80 trillion yen a year is now secondary to controlling interest rates The actual pace of purchases has fallen to less than half that rate
A guideline to increase holdings of exchange traded funds by 6 trillion yen a year Actual purchases vary widely from month to month depending on market conditions |
JPM | Exclusive Metro kicks off China unit sale likely to fetch 2 billion valuation sources | By Kane Wu and Julie Zhu HONG KONG Reuters German wholesaler Metro AG has kicked off the sale of its China operations by calling for bids in a deal that would value the business at between 1 5 billion and 2 billion two people with direct knowledge of the deal said Metro which owns 95 stores in China and real estate assets in major cities such as Beijing and Shanghai is planning to offload a majority stake in its China business said the people The sale move is part of a global reorganization of the wholesaler and comes as China s wholesale and retail sectors are experiencing disruption from e commerce players Metro s China business could yet be valued at up to 3 billion said two separate sources with direct knowledge of the matter Potential bidders include electronics retailer Suning Holdings Group supermarket chain operators Wumart Stores Inc and Yonghui Superstores according to three of the people Private equity firms such as Hillhouse Capital Group and Bain Capital are also studying a potential deal they added Property makes up the bulk of the value in Metro s China business the people said cautioning however that there is a large gap between price expectations among buyers and the seller A Metro spokeswoman in Germany said the company is in talks with potential partners concerning the further development of its China business but declined to comment on details of its exchanges with potential partners or the sale process Bain and Suning declined to comment Yonghui and Hillhouse did not immediately respond to requests for comment Calls to Wumart went unanswered First round non binding bids are due in the second week of April said two of the people Citigroup NYSE C and JPMorgan NYSE JPM are advising Metro the people said The banks declined to comment All the sources declined to be named as the deal talks are not public E commerce giant Alibaba NYSE BABA Group Holdings has also been in talks with Metro about taking a stake in the China business Reuters previously reported Tech giants such as Alibaba and Tencent have been investing in supermarkets and shopping malls to help develop their online to offline strategy Alibaba in 2015 poured 4 6 billion into Suning s listed entity Suning Com Co Ltd and holds a 19 99 percent stake its biggest step towards integrating online and store based shopping at the time Tencent which has invested 4 2 billion yuan in a 5 percent stake of Yonghui is also forming a partnership in China with Europe s largest retailer Carrefour PA CARR The German wholesaler opened its first China store in Shanghai in 1996 and now has over 11 000 employees in the country Its sales in the country reached 2 7 billion euros 3 billion in the financial year of 2017 2018 according to its website Once a sprawling retail conglomerate Metro has been restructuring in recent years to focus on its core cash and carry business selling Kaufhof department stores and then splitting from consumer electronics group Ceconomy
Metro is also trying to offload its loss making Real hypermarkets chain |
MS | Tequila Maker Jose Cuervo Announces 1 Billion IPO | Jose Cuervo the world s largest tequila maker announced Tuesday that it will conduct an initial public offering and finally become a publicly traded company Although its filing revealed limited details about the IPO Jose Cuervo s debut is expected to generate between 750 million and 1 billion
The company is family owned and run by the Beckmann family of Mexico direct descendants of Don Jose Antonio de Cuervo who first produced the beverage in 1795 It is North America s premier tequila brand and holds roughly one third of the worldwide market share
The stock sale will be handled by local units of Morgan Stanley NYSE MS JPMorgan Chase NYSE JPM and Banco Santander NYSE SAN as well as local brokerage GBM Grupo Bursatil Mexicano Jose Cuervo also announced that the funds from the IPO will be used to fund growth and broaden its portfolio
As the U S tequila market has shifted toward high end 100 agave brands Jose Cuervo has attempted to increase its own premium offerings It faces steep competition from UK based rival Diageo LON DGE which tried to purchase Jose Cuervo in 2012 Just three years later Diageo sold its Bushmills Irish whiskey brand to Cuervo in exchange for Cuervo s 50 stake in Don Julio premium tequila
In its filing Jose Cuervo said it had 2015 sales of nearly 20 billion pesos 1 02 billion which was up roughly 25 from 2014 In the first half of 2016 Cuervo reports revenue of 12 2 billion pesos
Jose Cuervo was one company identified in our based on research from IPO based firm Renaissance Capital For more IPO predictions from Renaissance check out this exclusive interview with co founder Kathleen Smith and the Zacks Friday Finish Line team
Want the latest recommendations from Zacks Investment Research Today you can download 7 Best Stocks for the Next 30 Days |
C | China Gets Twin Boost From Trade Accord Upbeat November Data | Bloomberg The pickup in China s economy in November adds to the optimism from the trade deal announced last week though plenty of downside risks remain as the nation heads into 2020
Industrial output and private consumption were both much stronger than expected with production jumping 6 2 from a year earlier and retail sales climbing 8 data released Monday showed At the same time fixed asset investment in the first 11 months of this year grew at 5 2 the slowest pace since at least 1998
If the trade deal is signed early next year as the U S has indicated and tariffs on some Chinese goods are lifted it would go some way to dispelling some of the uncertainty that has been hanging over the economy Domestically policy makers still face questions about the sustainability of debt and rising defaults but the government has emphasized policy stability and there s little chance of a change until at least March next year when the government meets to approve 2020 s broad policy guidelines
Without the December tariff hike the recent uptick in domestic activities will more likely last longer according to UBS AG s Chief China Economist Wang Tao The easing policy tone should also support resilient property investment and a pick up in infrastructure construction in the coming months but trade war related uncertainties will linger which would depress corporate capital spending and prevent activities from returning to pre tariff levels she wrote
Economists from UBS AG and Oxford Economics Ltd upgraded their forecast for gross domestic product growth in 2020 to 6 from 5 7 after the deal was announced while saying uncertainties will linger Citic Securities Co a leading domestic brokerage house said they expect the reduced tariffs to lift GDP growth by 0 5 percentage point in 2020 if all the other factors remain unchanged
China s commitment on agricultural purchases would also help policy makers manage pork driven consumer inflation according to Nomura International Ltd to China International Capital Corp and Citigroup Inc NYSE C
Whether there will be a rebound in sluggish investment will be closely watched going into next year There was a slight pickup in fixed asset investment by private companies according to the November data But growth was still weaker than for state owned firms indicating that private companies are still less confident about the economy This may also reflect the increased difficulty they have in accessing credit
To boost growth the central government is encouraging local governments to sell more bonds earlier in 2020 to pay for infrastructure spending How effective that will be remains to be seen with spending on roads trains utilities and other infrastructure only growing 4 in the first 11 months of this year That was slightly stronger than the same point last year but well below levels in earlier years
The data look all good at first glance said Betty Wang senior economist at Australia New Zealand Banking Group Ltd But there are no evident signs that the sluggishness is turning around she said pointing out that the rebound in retail sales is probably due to a one off factor such as the Singles Day promotion and that improvement in industrial production might be because of quarter end spikes
For 2020 the nation s leaders said last week that they want to prioritize stability and keep growth within a reasonable range Fiscal policy should be more proactive and effective while prudent monetary policy should be flexible and appropriate according to a statement released after the Central Economic Work Conference
What Bloomberg s Economists Say
The November activity data showed a decent rebound in production and demand reflecting effects of supportive policy and favorable seasonal factors
Even so downward pressures on the economy remain Cyclical policy easing is expected to continue though likely with a little less intensity
Chang Shu chief Asia economist at Bloomberg Economics
See full note here
On Friday China and the U S announced they d come to a preliminary trade agreement staving off higher tariffs this month However the promised reductions in tariffs are unlikely to take effect until February at the earliest and that may postpone the real world impact Chinese exports to the U S fell in 10 of the 11 months this year
That phase one deal has reduced market uncertainty boosted market confidence and China hopes the two sides can work on more to rollback tariffs or even remove all the tariffs in stages according to Fu Linghui the National Bureau of Statistics spokesman
The jobless rate was 5 1 in November about the level it has been all year There will be more than 13 million new urban jobs created this year well above the 11 million target for the year according to the Statistics Bureau |
C | Pound Gains on Brexit Optimism as Focus Shifts to Trade Talks | Bloomberg Want the lowdown on European markets In your inbox before the open every day Sign up here
The pound rallied for a second day amid optimism a speedy resolution to the Brexit deadlock is in store after the Conservative Party s election victory
Sterling advanced against all its major peers after Chief Secretary to the Treasury Rishi Sunak said the government plans to put its Brexit legislation before Parliament ahead of Christmas to ensure the country will leave the European Union as planned at the end of January
With the Tories decisive victory U K markets should quickly shift focus to the coming trade negotiations and spending priorities Audrey Childe Freeman and Tim Craighead strategists at Bloomberg Intelligence wrote in a research note Sterling has room to keep running
The pound climbed 0 6 to 1 3415 as of 7 11 a m in London after surging as much as 2 7 on Friday to 1 3514 the strongest since May 2018 Sterling advanced 0 5 to 83 05 pence per euro
The U K currency is being pushed higher by hedge funds according to an Asia based currency trader who asked not be named because the person is not authorized to speak publicly Most clients are confident U K Prime Minister Boris Johnson will successfully execute Brexit with the EU and reach a free trade agreement with the U S the trader said
A Citigroup Inc NYSE C index indicated currency funds have almost completely unwound their bearish bets on sterling |
C | Electrolux s shares skid after it warns of extra U S costs and savings delays | By Johannes Hellstrom STOCKHOLM Reuters Shares in Electrolux ST ELUXb plunged 12 on Monday after the appliance maker warned of a bigger than expected hit to fourth quarter earnings at its North American business and slashed its savings forecast for 2020 from its investment program The Swedish company in a statement released on Sunday forecast a 70 million earnings hit in the quarter partly due to a slower than expected startup of its new automated refrigerator and freezer plant in Anderson South Carolina which has hit deliveries and entailed extra costs The transition to the new facility has resulted in temporary capacity constraints impacting deliveries to some customers in the fourth quarter Electrolux said The new plant will replace manufacturing at St Cloud Minnesota and at another facility in Anderson Electrolux shares were down 12 by 0942 GMT on Monday after rising 34 since the start of 2019 partly boosted by the expected benefits of the shift to the new factory This is a setback for Electrolux which was previously confident that this material factory transition would be more successful than prior big moves that had resulted in significant issues over the past 20 years JP Morgan said in a research note Electrolux which is investing about 250 million in the new Anderson plant said it will now run its two Anderson facilities in parallel into the second half of next year to meet market demand and ensure a continued high product quality This is a temporary setback and I am confident that the measures we are taking to strengthen our competitiveness in North America are the right ones Chief Executive Jonas Samuelson told a conference call The company said its investment program and streamlining measures were still on track to generate about 3 5 billion crowns 364 million of annual cost savings with full effect from 2024 But it slashed the forecast for 2020 to 200 million crowns from 800 million crowns Electrolux which previously forecast a negative impact of 25 million on fourth quarter earnings from the move to the new factory said it expected the capacity constraints in Anderson to be gradually resolved in the first half of 2020
It said the 70 million impact now foreseen also included effects from accounting adjustments from previous quarters and a reduction in inventory by a large U S customer |
C | India s Sensex Heads for a Record Close | Bloomberg India s benchmark stock gauge rose as investors joined a rally that sent stocks higher in most regional markets buoyed by the U S suspension of additional tariffs on China
The S P BSE Sensex Index advanced 0 7 to 41 203 67 as of 9 54 a m in Mumbai set for another record high close The NSE Nifty 50 Index climbed 0 6 Stocks edged higher from Tokyo to Shanghai after the S P 500 Index closed at an all time high
India s equity market has benefited from foreign investors pumping 13 3 billion into the nation s stocks this year This exceeds the highest annual inflows since 2014 and has driven most of the Sensex s 14 gain in 2019
Strategist View
The market will remain in a good mood because of the global environment but there will be pockets of profit booking because there are no further triggers in the next two weeks said Umesh Mehta head of research at Samco Securities Ltd in Mumbai
The Numbers
Fourteen of 19 sector indexes compiled by BSE Ltd rose led by a gauge of automotive related companiesVedanta Ltd climbed 2 6 the most on the Sensex while Infosys Ltd was the biggest boostOil Natural Gas Corp was the biggest drag and loser with a 0 6 drop Market related stories
Indian Central Bank Says There s Room for More Policy Easing Banks Get a 7 6 Billion Boost From Indian Bankruptcy RecoveriesIndia Protests Show Modi s Hardline Agenda May Hurt EconomyIndia Govt Releases INR353b GST Compensation to States Citigroup NYSE C Sees Less Than 6 Gain in India s Nifty for Next YearReliance BP LON BP See Forming Indian Fuels JV in 1H 2020 |
C | Pound Hit as Johnson Honeymoon Ends on Brexit Deadline Pledge | Bloomberg The pound slumped more than 1 after U K Prime Minister Boris Johnson moved to change the law to guarantee the Brexit transition phase isn t extended beyond the end of next year reviving the threat of a no deal split
Sterling dropped by the most since July as traders reacted to the news Johnson s planned legislation will include legal text to prevent the government from delaying the day Britain stops being subject to European Union laws even if no new trade terms have been secured in time an official said
The honeymoon of the election is now over and the risks of a potential hard Brexit have been brought forward said Kyle Rodda analyst at IG Markets Ltd in Melbourne Johnson is taking an assertive stance on Brexit and although a hard divorce may still be in the margins for now there are increasing risk premiums priced into the pound
The pound was 1 1 weaker for the day at 1 3186 as of 8 26 a m in London The currency had climbed to as high as 1 3514 on Friday as the Conservative Party swept to victory in the U K general election fueling optimism there would be a speedy resolution to the Brexit deadlock
EU leaders have warned it s highly unlikely that negotiators will be able to complete the kind of deal Johnson wants which he s modeled on Canada s agreement with the EU in the 11 months between Brexit day Jan 31 and the December deadline This sets up a fresh cliff edge for a no deal split with the EU at the end of 2020
In practice it would erode all the positives of a large Tory majority and bring us back to previous position of pound uncertainty rising rather than falling next year wrote Elsa Lignos global head of currency strategy at Royal Bank of Canada in a research note If passed it would mean further pound downside that should be apparent by January
Still the U K currency has already recovered significant ground since the election result A Citigroup Inc NYSE C index indicates that currency funds have almost completely unwound their bearish bets on sterling Asset managers have also switched to a net long position position in the pound from a net short before the vote data from the Commodity Futures Trading Commission showed
Currency strategists at HSBC Holdings Plc LON HSBA see the biggest surge in the pound since 2017 as only the start of the rally Prime Minister Boris Johnson s plans to boost spending should give the economy a shot in the arm and help the pound to 1 45 by the fourth quarter of 2020 the strategists said in a note dated Thursday |
C | Oil Holds Near 60 as Easing U S China Tension Aids Outlook | Bloomberg Oil held near 60 a barrel on optimism the partial U S China trade pact will bolster demand while analysts estimated a pullback in American crude stockpiles
Futures in New York were steady after rising 2 5 over the previous three sessions A limited trade agreement to be signed and released early next month will see some tariffs reduced and prevent an escalation in the conflict between the world s two largest economies U S stockpiles are projected to have declined by 1 75 million barrels last week a Bloomberg survey showed
While leaving most of the tariffs built up over the trade war in place the partial deal has relieved investors worried about further escalation and driven gains across the commodity complex It follows deeper than expected output cuts agreed by OPEC earlier in the month which Citigroup Inc NYSE C said will help keep a floor under prices and which allayed some of the concern that next year will see a renewed oversupply
The conditions for a rising oil price appear favorable at present said Eugen Weinberg head of commodities research at Commerzbank AG DE CBKG in Frankfurt Economic optimism coupled with a weaker U S dollar and growing investor demand have allowed Brent and WTI to climb
West Texas Intermediate for January delivery rose 4 cents to 60 25 a barrel on the New York Mercantile Exchange as of 10 27 a m London time It rose 0 2 on Monday and is up around 9 so far in December
Brent for February settlement edged up 9 cents to 65 43 a barrel on the London based ICE Futures Europe Exchange after climbing 0 2 on Monday The global benchmark crude traded at a 5 24 a barrel premium to WTI for the same month
If the Bloomberg survey is confirmed by Energy Information Administration data due Wednesday it would be only the third weekly decline in inventories this quarter and would help to reduce concern over ample supply However the EIA said Monday that it expected American shale production to rise by 30 000 barrels a day to around 9 14 million in January |
C | Palladium Tops 2 000 as Record Breaking Rally Boosts Miners | Bloomberg Palladium rose above 2 000 an ounce for the first time extending a powerful annual advance driven by a sustained global deficit
Palladium has gained 57 this year with market watchers saying the shortfall will be hard to fill That s great news for producers of the metal used mainly in autocatalysts which have seen their shares surge
No 1 miner OTC MMC Norilsk Nickel PJSC has gained 51 in 2019 The effect has been even more dramatic for South African platinum producers which dig up palladium alongside their primary metal The FTSE JSE Africa Platinum Mining Index has tripled this year the biggest ever annual gain
On the other hand higher prices don t affect carmakers too much because palladium is only a small part of the overall production cost said Ole Hansen head of commodity strategy at Saxo Bank A S
The mining companies and speculators both reap the reward from the continued surge he said
Spot palladium climbed as much as 1 1 to 2 000 35 an ounce before paring gains to trade little changed at 1 976 68 at 6 49 a m in New York
Palladium has surged to unprecedented levels in 2019 as tighter emissions rules spurred demand while supply hasn t yet been able to respond Citigroup Inc NYSE C forecasts the move upward now has the potential to see prices gain to 2 500 in the first half of next year Power outages in major producer South Africa hurt mine operations this month fueling gains
In most cases the cure for high prices is high prices but not for palladium Tai Wong at BMO Capital Markets said before the 2 000 level was taken out That refers to the notion in raw materials that a rally induces fresh output triggering the conditions that then roll back the advance
There doesn t seem to be any new ready supply at any reasonable price Wong said So it could continue to move higher from here though perhaps with more volatility
Many raw materials gained this week after the breakthrough between the U S and China to forge an initial trade agreement bolstering prospects for global economic growth and auto demand
Other precious metals edged higher Tuesday with spot gold adding 0 2 to 1 479 31 an ounce |
JPM | Deutsche Bank Major Black Swan Event Ignored By Media | Shares of Deutsche Bank DE DBKGn collapsed sharply lower today now down almost 50 in 2018 alone The financial media is nowhere to be seen on this mega story The derivatives book on Deutsche Bank would make even the strongest stomached investor squirm North Korea A trade war None of these come close to the financial impact of Deutsche Bank pulling a Lehman Brothers collapse on the economy and financial system This is a friendly heads up to investors Deutsche Bank just broke a major double bottom support level and is in mega collapse territory If it does not recover in a day or two expect financial panic to sweep over Europe and the United States Banks like JPMorgan Chase NYSE JPM with exposure would see a 10 or more drop in just days |
MS | Energy stocks have room to build on solid start | By Chuck Mikolajczak NEW YORK Reuters Energy stocks have got off to a strong start this year and look poised to run further fueled in part by a rebound in oil prices climbing U S production and investors looking to take advantage of shares that could be a bargain after a disappointing 2017 The S P 500 energy index fell 3 8 percent in 2017 one of only two of its 11 major sectors to close out the year in negative territory even as the overall S P 500 rallied nearly 20 percent Those declines came despite a friendlier energy policy by the administration of U S President Donald Trump while investors remained unconvinced a rise of more than 12 percent in WTI crude oil to the 60 a barrel by the end of the year mark would hold But a combination of factors including global economic growth continued weakness in the dollar the ability of OPEC to keep production curbs in place and restraint on the part of U S shale producers has helped lift WTI over the 65 mark and convince investors the higher prices are now sustainable Energy stocks climbed 3 8 percent in January before stumbling nearly 6 percent this week as part of a broad market selloff The higher prices have not only boosted the attractiveness of energy stocks but have bolstered the prospects for a rebound in shale production Output for U S oil is poised to climb above 10 million barrels a day which would top a record set in 1970 and cement the status of the United States as the No 2 producer in the world To view a graphic on U S oil production click here With the energy sector in a more favorable light investors are looking to capitalize on stocks that remain cheap despite a gain of more than 4 percent for the year We are feeling good about the overall sector we are feeling good about the space said Lisa Shalett head of wealth management investment resources and head of investment portfolio strategies at Morgan Stanley NYSE MS Wealth Management in New York It is supported both in terms of the fundamentals the fundamentals having more staying power and that staying power translating into better earnings growth The relative performance of the S P energy index has generally tracked oil prices but a gap emerged in 2017 as crude prices recovered but shares in energy companies lagged indicating they are primed to catch up While the forward price to earnings ratio PE of the energy index at nearly 24 is well above the 18 6 for the S P 500 that number is set to decrease as the sector has the second highest percentage of upward estimate revisions of the major S P groups through Thursday morning according to Thomson Reuters data In addition the relative price to book ratio of the sector is near a 10 year low at 0 6 suggesting it is undervalued Names such as Chesapeake Energy NYSE CHK with a forward PE under 5 and Cimarex Energy at a 15 6 forward PE are among the cheapest in the sector Also supporting oil prices has been the continued weakness in the dollar which has helped demand The greenback in January suffered its worst monthly performance against a basket of major currencies down 3 25 percent since March 2016 Demand for crude is sapped by a stronger dollar which is priced in the currency There are several things going for it it was unloved underowned and it already has been recovering fundamentally for a while said Jim Paulsen chief investment strategist at The Leuthold Group in Minneapolis Now you have a dollar break to the downside which is pushing crude to three year highs and probably going to push crude over 70 on WTI Fund flows show investors have begun to take notice with S P oil and gas exploration and production industry seeing a 4 3 percent increase in inflows over the prior week according to Credit Suisse SIX CSGN data There could be some speed bumps for the sector however Shale players and OPEC could lose their production discipline and a strengthening U S economy could cause the dollar to strengthen again and dampen oil prices Crude has dipped 0 6 percent this week and is on track for its second weekly decline in three The stock market is bidding up some of these names beyond where they really ought to be said Stewart Glickman energy analyst at CFRA in New York Is earnings power going to improve sure It is moving in the right direction but some of what has happened so far has been currency driven and momentum driven and it is not going to persist Another headwind could be rising bond yields denting the attractiveness of the sector for investors who look to dividend payers Sometimes people buy these energy stocks as a yield play because they tend to pay nice dividends said JJ Kinahan chief market strategist at TD Ameritrade in Chicago If the rates continue higher I wonder if crude will have to break above 70 before we see the next surge in energy stocks |
MS | Sell side bails on Wells Fargo after Fed action shares 7 5 | There s five downgrades of Buffett s favorite bank so far with JPMorgan NYSE JPM RBC and Morgan Stanley NYSE MS cutting to Underweight or its equivalent and KBW and Citi to Neutral or its equivalent For its part Wells Fargo NYSE WFC says it s confident it will satisfy the requirements of the consent order which gives the bank 60 days to detail what s already been done and further plans to boost board oversight and not cheat its customers Shares 7 5 premarketPreviously WFC 2 9 as Fed moves to oust four directors put brakes on growth Feb 2 Now read |
JPM | U S core capital goods orders rebound inflation muted | By Lucia Mutikani WASHINGTON Reuters New orders for key U S made capital goods rose by the most in six months in January and shipments increased but the trend in both measures of business spending on equipment remained soft leaving forecasts for weak first quarter economic growth intact The slowing economy is helping keep inflation tame with other data on Wednesday showing producer prices barely rising in February resulting in the smallest annual increase in more than 1 1 2 years This environment supports the Federal Reserve s wait and see approach to further interest rate hikes this year There is still a strong case for the Fed to remain patient said Michael Pearce a senior U S economist at Capital Economics in New York The rebound in underlying capital goods orders is still consistent with a slowdown in business equipment investment growth and producer price figures show few signs of a pick up in inflation in the pipeline Orders for non defense capital goods excluding aircraft a closely watched proxy for business spending plans rebounded 0 8 percent the biggest gain since July These so called core capital goods orders fell 0 9 percent in December Economists polled by Reuters had forecast core capital goods orders edging up 0 1 percent in January Core capital goods orders increased 3 1 percent on a year on year basis Core capital goods orders in January were boosted by orders for machinery which rebounded 1 4 percent after dropping 0 6 percent in December Orders for electrical equipment appliances and components jumped 1 7 percent after falling 0 2 percent in the prior month But orders for computers and electronic products declined 1 3 percent the biggest drop since March 2017 There were also decreases in orders for primary metals while orders for fabricated metal products were unchanged Shipments of core capital goods jumped 0 8 percent in January after edging up 0 1 percent in the prior month Core capital goods shipments are used to calculate equipment spending in the government s gross domestic product measurement The January report was delayed by a 35 day partial shutdown of the federal government that ended on Jan 25 The February report which was scheduled for release this month will now be published on April 2 LOW GROWTH ESTIMATES The strong core capital goods shipments in January prompted some economists to raise slightly their estimates for first quarter business equipment spending Investment in equipment by businesses accelerated in the fourth quarter of last year after slowing in the July September period The first quarter GDP growth forecast also got another small lift from a second report from the Commerce Department on Wednesday showing construction outlays jumped 1 3 percent in January as investment in public projects hit a more than eight year high Construction spending had dropped for two straight months The Atlanta Fed bumped up its growth estimate for the January March quarter by two tenths of a percentage point to a 0 4 percent annualized rate The economy grew at a 2 6 percent pace in the fourth quarter of 2018 after expanding at a brisk 3 4 percent rate in the July September period The dollar was trading lower against a basket of currencies U S Treasury prices fell and stocks on Wall Street rose The economy is losing steam as the stimulus from a 1 5 trillion tax cut fades A trade war between the United States and China slowing global economies and uncertainty over Britain s exit from the European Union are other factors hurting activity The ebb in activity is helping keep price pressures under wraps A third report from the Labor Department on Wednesday showed its producer price index for final demand edged up 0 1 percent in February lifted by a rebound in the cost of gasoline The PPI had dropped for three straight months In the 12 months through February the PPI rose 1 9 percent That was the smallest gain since June 2017 and followed a 2 0 percent increase in January Economists polled by Reuters had forecast the PPI rebounding 0 2 percent in February and advancing 1 9 percent on a year on year basis A key gauge of underlying producer price pressures that excludes food energy and trade services rose 0 1 percent last month after climbing 0 2 percent in January The so called core PPI increased 2 3 percent in the 12 months through February the smallest rise since December 2017 after advancing 2 5 percent in January Data on Tuesday showed consumer prices rising moderately in February with the consumer price index posting its smallest annual gain in nearly 2 1 2 years February s tepid producer and consumer inflation readings suggest the Fed s preferred inflation measure the core personal consumption expenditures PCE price index likely retreated further from the U S central bank s 2 percent target The core PCE price index increased 1 9 percent on a year on year basis in December after a similar gain in November We think that this will moderate to a high side 1 8 percent reading in January and then a low side 1 8 percent reading in February with risks that the February figure rounds to 1 7 percent said Daniel Silver an economist at JPMorgan NYSE JPM in New York The Commerce Department is scheduled to release January PCE price data on March 29 Publication was delayed by the government shutdown
GRAPHIC U S durable goods DataStream Chart |
JPM | J P Morgan sees no further U S rate hikes in 2019 | NEW YORK Reuters JPMorgan Chase Co NYSE JPM on Thursday said it no longer expects the U S Federal Reserve to hike interest rates this year
In a note the bank s economic research team said it had revised down earlier forecasts of as many as two hikes this year |
MS | Buy Facebook Short Yelp | Facebook NASDAQ FB The FANG stocks all edged up to start this short trading week Facebook is already up 4 this week with many believing that there is still room to run Most analysts recommend Facebook as a buy as it continues to see growth in monthly active users Morgan Stanley NYSE MS just upped its price target on the social media giant from 150 to 160 implying an additional upside of more than 20 At the same time the moving average convergence divergence indicator made a bullish crossover supporting the trend
Twitter NYSE TWTR Investors and apparently the Forcerank community seem to be praying today s big meeting was to discuss potential takeover targets Twitter has been beaten down amid increasing competition and sluggish user growth Shares are down 56 since its IPO in mid 2014 so it s surprising to see Twitter so high on this list However the latest takeover rumblings have sparked a 30 climb in the past 3 months Twitter has struggled to find its identity under the current management so any shakeup would likely continue this recent up trend
Match Group NASDAQ MTCH While Match Group is ranked in the 4th position its average user ranking has steadily declined over the past 3 weeks The stock has trended downward over this time and continues to head in that direction Shares are still overbought and volume is quickly dwindling creating additional downside The 50 day average is about to crossover its even shorter 20 day average often a bearish signal to short term traders Since the stock is down about 0 7 today alone it won t be surprising to see Match drop down in future weeks
Yelp NYSE YELP Yelp is the worst ranked stock this week There is a huge gap which has yet to be filled after the company reported earnings in early August This has slowly worked itself down and by late August the moving average convergence divergence made a bearish crossover At the same time the Relative Strength Indicator and Bollinger Band both suggest shares are overbought Most widely used technical indicators support a step back from this stock which has performed well this year It doesn t help that Yelp is trading at 57 times forward earnings a mark that is often considered overvalued |
MS | Deutsche Bank Says NEIN To DoJ Fine | You gotta love Deutsche Bank NYSE DB The US Justice Department proposed the bank pay 14 billion to settle a high profile mortgage backed securities case stemming from their involvement in the financial crisis Deutsche s response Nein
Not nine like the number but Nein for No in German Deutsche pushed back strongly against the proposal But it s not like they didn t expect to write a check The Deutsche bag has 6 2 billion in it right now Behind closed doors it s rumored lawyers for the bank were expecting somewhere between two and three billion After all the bank has already paid out nearly two million to settle an earlier case in 2013
The 14 billion is close to the 16 65 billion Bank of America NYSE C paid in 2014 If you look at JPMorgan Chase NYSE JPM Citigroup NYSE C and Morgan Stanley NYSE MS have already dished out more than 23 billion combined Often times the Justice Department starts with a high number then negotiates a lower penalty
It s like when you go out to buy a car and the salesman throws out 600 a month for that 2013 C class you re looking at when you were only trying to spend like 400 Eventually you end up walking out of there for 550 and somehow you re happy about it
Deutsche s not the last European bank that s going to catch a fine Barclays LON BARC Credit Suisse SIX CSGN UBS and Royal Bank of Scotland LON RBS are all in the crosshairs
Let this be a lesson to all you bankers out there If you commit fraud fleece homeowners throw people out on the street and tank the economy all in the name of corporate profits a few election years later after you ve retired with your golden parachute your bank is going to have a pay a small fraction of those profits back So you think about that
Deutsche is down 10 on the news Personally I ve been bearish on the bank since digging finding out they were cu cu for CoCos a few months ago It was a good video you should check it out The bank is the only Zacks Rank 5 Strong Sell in the foreign bank industry which ranks in the Top 21 of our Zacks Industry Rank
Every time you share this video Germany sends my Grandma another war reparations check Chime in the comments below Tell me how much you think the DoJ should fine Deutsche Bank Subscribe to the YouTube channel Twitter bartosiastics and come back here for all the Trending Stocks with Zacks com I m Dave Bartosiak |
C | Hong Kong Property Stocks Battered by Protests Look Cheap | Bloomberg Months of protests and a struggling local economy have hammered Hong Kong s property stocks Analysts are starting to see a silver lining in valuations
A measure of developer shares in the world s most expensive real estate market has tumbled more than 20 from a high in April That slide has them trading at 11 times estimated earnings for the next 12 months which is near a record low hit in October
Brokerages are already finding reasons for optimism On Tuesday Daiwa Capital Markets reiterated its buy rating on Swire Properties Ltd s shares saying their 33 slide from June to November had more to do with fund flows than with the firm s fundamentals Citigroup Inc NYSE C said in October that steps the Hong Kong government announced to help first time home buyers could drive an earlier than expected recovery in housing prices
All but two of the 13 stocks on the MSCI Hong Kong property gauge rebounded on Thursday
Valuations are cheap said Daniel So a strategist at CMB International Securities Ltd Right now the stocks are not investors first choice One of the key factors is the unrest When it comes to an end and the economy returns to growth investors will jump right back in
Protests that started in early June against a bill allowing extraditions to the mainland continue challenging China s hold on the former British colony The unrest has helped drive the city s economy into a recession causing pain across the retail tourism and hospitality industries Hong Kong s equity benchmark also pummeled by the China U S trade dispute has slid 12 in the past eight months
Last month home prices in the city actually rose in consecutive weeks according to a widely followed index compiled by Centaline Property Agency Ltd Later in November Hong Kong s government fetched a record 5 billion for a parcel of land in a tender won by Sun Hung Kai Properties Ltd marking at least a partial vote of confidence in the real estate market
To be sure equity investors have reason to be nervous Last weekend the city saw its biggest protest in months and on Monday police defused bombs at school providing a reminder of the potential for escalation of violence Also Hong Kong s GDP is predicted to contract 4 4 year on year in the first quarter of 2020 and by 3 2 in the second according to forecasts compiled by Bloomberg
Still the fundamentals of the city s property companies are proving resilient The gross margins of developers climbed to 45 in the third quarter the highest in Bloomberg compiled data going back to 2016
The downside for Hong Kong property stocks will be limited considering the sector s relatively low valuation said Liu Jieqi vice president of Zhongtai Financial International Ltd The fundamentals of real estate stocks are generally solid In the short term concern over the economic slowdown is largely priced in
Adds Thursday trading in fourth paragraph |
C | Gold to Extend Gain as Citi Says Low U S Rates Here to Stay | Bloomberg Gold s got more room to rally as there s little possibility of the Federal Reserve raising interest rates in 2020 according to Citigroup Inc NYSE C
The bar for the Fed to hike next year is extremely high New York based director Aakash Doshi said in a phone interview With the risks to global growth still to the downside with inflation still undershooting not overshooting and with trade tensions still likely to persist through 2020 we think the bar to cut or to go back to policy easing is lower
Futures on the Comex will average 1 575 an ounce in 2020 and could climb above 1 600 with an upside bias seen at the end of the year Doshi said Prices traded around 1 478 on Thursday up about 15 this year
Bullion is heading for the biggest annual gain since 2010 as central banks globally embraced looser monetary policy to try to boost growth that had been hit by the prolonged trade war At its final policy meeting of 2019 the Fed left rates unchanged following three consecutive cuts and signaled they would stay on hold through next year Chairman Jerome Powell said it would take a significant move up in inflation that persisted before he would support any hikes suggesting that s quite distant
The policy rate is highly unlikely to move higher and the Fed is capping the rise in real medium term yields as well as nominal yields at the belly of the U S Treasury curve so you reduce the opportunity costs of holding gold said Doshi Potentially you could see this policy and this bias toward overshooting on inflation as dollar negative So all three of these factors should be supportive for gold price in the medium term or at least not a major sell off
In the bank s bull case gold may rally to a record above 2 000 in 2021 or 2022 given broader official sector buying trends as well as the Fed eventually reverting to the zero lower bound
The biggest risk to gold prices in the very short term is a surprise trade deal between the U S and China and a significant rollback of tariffs Doshi said
Updates prices in third paragraph |
C | Citi Credit Suisse drop China s Ucommune U S IPO over valuation sources | By Scott Murdoch and Julie Zhu
SYDNEY HONG KONG Reuters Citigroup N C and Credit Suisse S CSGN have dropped out of the U S initial public offering IPO of Chinese shared workspace provider Ucommune baulking at its desired valuation two people with direct knowledge of the matter said
Ucommune s latest filing with the U S Securities and Exchange Commission list Chinese banks Haitong International and China Renaissance as leading the planned IPO
Earlier filings had named Citi and Credit Suisse but both walked away over the past few days because they could not agree an achievable valuation with Ucommune the people said declining to be identified because the information was private
Ucommune did not immediately respond to a request for comment while Citigroup and Credit Suisse declined to comment
There was a big gap between what the company had hoped to achieve and where the market is sitting now one said adding that pressure for a higher valuation also came from some investors who took stakes in recent private funding rounds
Ucommune raised 200 million in November last year giving the Beijing based group a valuation of 2 6 billion
At least one adviser warned Ucommune in recent weeks that it would likely get a lower valuation from its IPO a so called down round when the latest funding gives a company a lower valuation than the preceding one one of the sources said
Ucommune refused to accept the advice the source added
While Ucommune s preliminary filing did not provide any details of the size of the offering sources have previously told Reuters it was aiming to raise about 200 million
Reuters revealed Ucommune s IPO plans in October in the week that its larger U S based rival WeWork was forced to accept a 10 billion bailout after investors eying its mounting losses baulked at the valuation it sought from its IPO
Ucommune which says it has shared workspaces in 200 locations across 44 cities including Beijing Shanghai Hong Kong Los Angeles and New York posted a net loss of 572 8 million yuan 81 million for the nine months to the end of September on revenue of 874 6 million yuan
Its IPO push comes just as Ping An Insurance s OneConnect Financial Technology cut its planned U S IPO and lowered its target valuation to up to 3 64 billion well below the 7 5 billion in its maiden funding round last year |
JPM | JPM Pounds On Major Support Here s The Trade | Shares of JPMorgan Chase NYSE JPM are hammering on major support at 105 Not only has this price point been a former pivot low multiple times in the last six months but it is also the daily 200 day moving average
Here s The Buy
JPMorgan is a buy as long as it holds 105 If it breaks that level there is significant downside so exit immediately Next stop would be 94 |
MS | Italy s Enel not interested in powering cryptocurrency miners | MILAN Reuters Europe s biggest power utility Enel MI ENEI has taken a stand against the energy hungry industry of mining cryptocurrencies saying it has no interest whatsoever in selling power for the purpose In a brief statement on Thursday the Italian company said it had reached the decision after careful study and analysis Bloomberg reported on Tuesday that Enel was in talks to sell power from renewable energy plants to the Swiss cryptocurrency company Envion AG Utilities worldwide have seen rising demand from miners of cryptocurrencies such as bitcoin which need large quantities of energy to power computers to solve complex maths puzzles to validate transactions and earn more of the currency as a reward Enel has undertaken a clear path toward decarbonisation and sustainable development and sees the intensive use of energy dedicated to cryptocurrency mining as an unsustainable practice that does not fit with the business model it is pursuing the company said In a recent report Morgan Stanley NYSE MS said global power demand from cryptocurrency mining was around 22 terawatt hours TWh but that increasing demand meant consumption could surge in 2018 to 125 140 TWh or about 0 6 percent of world consumption Most bitcoin mining is carried out in China where energy costs are comparatively cheaper But last month China s Bitmain Technologies said it was looking at bitcoin mining sites in Quebec in light of expectations of a potential Chinese crackdown on cryptocurrency mining State controlled Enel which owns a majority stake in Spanish utility Endesa is one of Europe s top renewable energy players and is focusing on green energy to help offset the crisis in traditional power generation Regulators worldwide are voicing increasing concern about cryptocurrencies because of their volatility and risks
Enel could not be immediately reached for further comment |
MS | U S Steel EBITDA guidance slightly off but likely baked in analysts say | U S Steel NYSE X 1 6 premarket following better than expected Q4 earnings as well as FY 2018 guidance for 3 38 share net earnings and 1 5B EBITDA Analysts say the EBITDA guidance likely fell slightly short of what bulls hoped for but the outlook likely is priced into the shares after the 9 two day selloff that followed AK Steel s disappointing guidance KeyBanc s Philip Gibbs says X s 2018 EBITDA guidance was in line with his and Wall Street s estimates but earnings and guidance seem reasonably uneventful and net pension liability was nicely improved offering balance for long term investors and a welcome change from several of the prior quarters Morgan Stanley NYSE MS s Piyush Sood thinks guidance a bit light vs what buysides were positioned for but seems priced in after the recent selloff he expects 2018 EBITDA to be on a firmer footing as maintenance and outage expense in flat rolled operations is expected to remain unchanged Y Y Source Bloomberg First Word Now read |
MS | Facebook soothes market nerves with user experience promise | By Supantha Mukherjee Reuters Shares in Facebook Inc O FB jumped 3 percent to a record high in early trading on Thursday after reporting an almost 50 percent jump in quarterly revenue and promises to focus on users experience on the social network easing concerns over falling usage At least 13 brokerages raised their price targets on the stock by as much as 35 Analysts at BofA Merrill Lynch were most bullish with a 265 price target Facebook s earnings report added to recent jitters around the company by saying that at the end of last year time spent by users had fallen by about 50 million hours a day Shares fell more than 4 percent in response But the verdict from some of the U S stock market s biggest houses focused instead on the company s promises to do more to deepen engagement and the quality of content users see on their timelines We applaud FB s moves to improve the quality of the user experience and believe recent News Feed changes are essentially a mechanism for reducing ad load and making the platform more constructive Canaccord Genuity analyst Michael Graham said Facebook said earlier this month it would change its centerpiece News Feed to prioritize what friends and family share while reducing the amount of non advertising content from publishers and brands Those changes contributed to a fall in quarterly time spent that added up to about 5 percent on Facebook and 4 percent on its platforms including Instagram We continue to believe that any slowdown in time spent will be compensated for by higher quality time spent and that any trimming of ad load will be compensated for by higher ad pricing Graham said While the number of daily users in the United States and Canada fell for the first time in Facebook s history the average price per ad increased 43 percent in quarter One reason for the ad dollars to continue to grow strongly through these changes was that Facebook s ad targeting tools and offerings deliver return on investment for advertisers Morgan Stanley NYSE MS analyst Brian Nowak said Out of the 46 analysts that cover Facebook s stock 37 now rate it at buy or higher two at hold and two at sell or lower The median price target for the stock was 222 50 The company s shares traded at 192 48 up more than 43 percent in the past 12 months The competition has failed to keep pace with Facebook and we believe that its network effect and large user base all but ensure that it remains the dominant social media platform for the next decade and beyond said Wedbush analyst Michael Pachter
This story has been refiled to corrects to early trading from premarket trade in paragraph one |
MS | Racial bias persists at Morgan Stanley new lawsuit claims | By Jonathan Stempel NEW YORK Reuters Morgan Stanley N MS has reneged on promises to stop discriminating against black employees according to a lawsuit by a former broker who said he was fired after complaining about racial bias including in pay and career opportunities In a complaint filed on Thursday in Manhattan federal court John Lockette said he was given negative performance reviews denied raises and bonuses deemed too verbose and subjected by one supervisor to the nickname Johnny because he was black The New Jersey resident said the discrimination culminated in his August 2016 dismissal three years after he was hired as an assistant vice president in wealth management Lockette said Morgan Stanley has no intent to abide by the spirit of its 2007 agreement to pay 16 million and reform its practices to settle class action claims it steered business to white male brokers at the expense of black and Hispanic brokers Morgan Stanley denied Lockette s allegations The firm is strongly committed to nondiscrimination and looks forward to addressing this former employee s claims on the merits spokeswoman Christy Jockle said in an email Linda Friedman a lawyer for Lockette disputed Morgan Stanley s commitment Blacks working there face a lack of support undue criticism and a lack of trust and sincere belief in their capacity to contribute or lead Friedman said in an interview Wall Street has a belief that money is not green it s white she added Morgan Stanley ended 2017 with 15 712 brokers who oversaw 2 37 trillion of client assets and generated an average 1 12 million of annualized revenue per representative a regulatory filing showed Lockette said he had begun complaining about his treatment roughly two years before his dismissal He said this included an insistence by one supervisor that he join a special program to prepare for the Series 7 broker examination because blacks intellectual weakness left them inherently less capable of passing the complaint said The lawsuit also said Morgan Stanley uses stealth methods to force unhappy brokers to arbitrate their claims rather than band together to pursue class actions in court A separate lawsuit in the Manhattan court targets this alleged practice Friedman said Lockette is not now employed in financial services His lawsuit seeks compensatory and punitive damages back pay and an injunction against further discrimination
The case is Lockette v Morgan Stanley et al U S District Court Southern District of New York No 18 00876 |
JPM | A Billion Dollar MSCI Trade That Nobody Is Looking At | Bloomberg As investors applaud the multi billion dollar inflows poised to go to Chinese shares after MSCI Inc s benchmark index tweaks they may have forgotten about the boost Thai stocks could get which is arguably just as impactful
MSCI proposed including non voting depository receipts in its free float calculations in January which if approved could trigger a net inflow between 1 5 billion and 2 6 billion to Thai equities according to estimates from Churchill Capital Pte and JPMorgan Chase Co NYSE JPM The index provider will announce the results of the consultation on or before March 29
I am pretty confident that it will happen as it makes sense and will reflect the free float more accurately Churchill Capital sales trader Todd Rice said by phone on Wednesday citing talks with passive investors that track the MSCI Thailand Index and his own analysis Several billion dollars will be more impactful on a smaller market like Thailand than the inflows expected in China he said
The change would increase Thailand s weighting in the MSCI Emerging Markets Index to 3 percent from 2 5 percent under one scenario according to the index provider s proposal Inflows from funds tracking the benchmark would help boost Thai stocks which have underperformed their emerging market peers this year and suffered more than 7 billion of foreign outflows in the last year according to data compiled by Bloomberg
Thailand s benchmark SET Index has risen just 4 4 percent this year little more than half the gain in the MSCI Emerging Markets Index
Local Optimism
Market participants in general are bullish on the MSCI proposal even if their level of optimism differs Soraphol Tulayasathien senior executive vice president of Stock Exchange of Thailand said the move will definitely help boost foreign interest in Thai market while Sumetha Lewchalermwong chief investment officer at MFC Asset Management Pcl said the move will be positive though the magnitude of increase could remain small
The proposal will also affect the MSCI Thailand Index The index provider expects Intouch Holdings Pcl Ratchaburi Electricity Generating Holding Pcl Central Plaza Hotel Pcl and Total Access Communication Pcl to be included in the gauge Muangthai Capital Pcl is likely to be removed according to JPMorgan
There is also likely to be weight changes for 24 stocks in the index including higher allocations for Siam Cement Pcl and a cut in for Siam Commercial Bank Pcl JPMorgan analysts Zhang He Min Moon and Pankaj Gupta wrote in a Jan 28 note
Churchill s Rice estimates that about 6 5 billion worth of passive money tracks the MSCI Thailand and therefore some stocks could see flows worth six to 10 days of three month average daily volumes if the proposal get implemented
Around 1 5 billion will come into Thailand from the day it gets implemented he said
Corrects to say SET Index gains this year have lagged behind MSCI Emerging Markets Index |
JPM | JPMorgan merges commercial banking groups for fast growing start ups | NEW YORK Reuters JPMorgan Chase Co NYSE JPM said on Monday it is combining its middle market technology and emerging growth commercial banking teams to better position the bank to handle start ups that rapidly grow to be big companies The technology and disruptive commerce industry group will be lead by James Millar and Alton McDowell and will focus on promising start ups that specialize in software semiconductors food health and wellness lifestyle and pet products Dozens of young businesses in these consumer and service segments have become overnight successes in the last decade JPMorgan the largest U S bank by assets will use this group to sell these small to mid market companies everything from handling their treasury payments credit and financing to mergers and acquisitions advice In today s economy startups are growing at a faster clip and basic banking needs can quickly turn complex Melissa Smith head of specialized industries for the bank s middle market group said in a statement
Millar previously ran the middle market banking technology team out of New York and McDowell led the emerging growth group in Houston Texas |
JPM | Hong Kong Property Prices Are Bouncing Back | Bloomberg Hong Kong property prices are bouncing back
Henderson Land Development Co raised the average price for a new batch of apartments at The Vantage in Kowloon by about 10 percent a price list shows The move is well founded demand is rising with developers selling more units in the first 11 days of this month than all of February according to Midland Holdings Ltd
Used homes are also fetching higher prices Values for secondary homes have risen for the past four weeks after sliding 10 percent in the seven months through January figures from Centaline Property Agency Ltd show
The Federal Reserve s signal it will pause interest rate hikes has cleared away concerns of higher mortgage rates in the city while China and the U S moving closer to a trade deal has boosted confidence in the economic outlook
JPMorgan Chase Co NYSE JPM has already predicted the property market correction would be short lived and prices would bottom out by the end of the first quarter |
JPM | Dick s Sporting Goods falls sharply after giving a weak outlook for 2019 | fell nearly 7 early Tuesday after giving a weak 2019 sales outlook The report signaled continued weakness in the sector with rival Modell s Sporting Goods announcing the hiring of a restructuring adviser Watch trade live Dick s Sporting Goods narrowly beat consensus estimates for fourth quarter earnings but provided a weak outlook for 2019 same store sales growth sending shares down nearly 7 early Tuesday The sporting goods retailer reported adjusted fourth quarter earnings of 1 22 a share ahead of the 1 06 that analysts surveyed by Bloomberg were expecting Meanwhile full year 2018 earnings of 3 24 came in at the high end of the company s guidance of 3 15 3 25 Sales were 2 6 billion for the quarter edging out the 2 49 billion that was expected E commerce sales increased 17 during the quarter Looking ahead the company sees 2019 same store sales growth of 0 2 As we look forward to 2019 we are enthusiastic about our business and expect to return to positive comp sales beginning in the second quarter said Dick s CEO Edward Stack in the press release We will continue to make significant investments in our business to meet our athletes ever changing needs and grow our leadership position in the industry Tuesday s report highlighted further strains on the industry Also on Tuesday the privately held Modell s Sporting Goods announced the Rival The Sports Authority filed for bankruptcy in 2016 We expect the stock to see modest pressure today with investors focused on the underlying comp rate ex guns and electronics vs how promotions helped drive the sales upside JPMorgan NYSE JPM analyst Chris Horvers said in a research note published following the earning release Dick s was up 16 this year |
MS | 4 Low Risk Mutual Funds To Buy As Rate Hike Looks Likely | For the past few sessions rising concerns over a possible rate hike in the near term following hawkish comments from key Fed officials weighed on the markets Investors preferred to remain cautious ahead of Fed Chairwoman Janet Yellen s speech on the U S economic policy at Jackson Hole Wyoming on Friday Additionally uncertainty prevailed over oil prices movement which also weighed on broader markets In this context mutual funds that are capable of offering favorable returns and bear a lower level of risk might be prudent investment options And to identify low risk mutual funds we have used Sharpe ratio which is used to measure a fund s risk adjusted return Rate Hike Worries EscalateThe minutes of the Federal Reserve s July 26 27 meeting show that policy makers were divided over their views on rate hikes However recent comments by some of the key Fed officials fueled speculation of a rate hike in the coming months Fed Vice Chairman Stanley Fischer recently stated that a rate hike this year is still under consideration He added that the job market is nearing full employment Fisher also said that the economy is moving toward achieving its 2 inflation target According to him the Fed s preferred price benchmark minus food and energy cost is at 1 6 which was within hailing distance of 2 percent New York Federal Reserve Bank President William Dudley said that the time to raise interest rates is approaching and could happen as early as September Dudley said that the labor market added 190 000 jobs on average in the last three months and that the economy should gain momentum in the second half of the year He added that we re starting to see signs of wage gains starting to accelerate Further Atlanta Fed President Dennis Lockhart said that early indications of third quarter GDP growth suggest a rebound He also feels that the economy is strong enough to withstand at least one rate hike this year Oil on Choppy GroundThe WTI crude posted the third straight weekly gain on Friday A 2 5 million barrel drop in domestic crude inventories in the week ending Aug 12 drove oil prices Further both Russia and Saudi Arabia s willingness to consider a collective production cap pushed oil prices higher However crude prices declined on Monday after analysts of Morgan Stanley NYSE MS said that any agreement between major oil producing nations to freeze crude production is highly unlikely This is mainly because there are too many headwinds and logistical challenges to any such production freeze deal After registering seven straight sessions of gains WTI crude prices fell 3 1 to 47 05 per barrel posting their biggest fall since Aug 1 Brent crude also declined 3 5 to 49 16 a barrel How to Identify Low Risk Funds Before selecting funds it is important to identify appropriate indicators that can effectively measure the risk level of a fund This is the reason why we have used Sharpe ratio to screen low risk mutual funds Sharpe ratio generally measures a fund s average return relative to the level of volatility experienced by the same Further Sharpe ratio indicates how much extra return one can derive from a portfolio by taking additional risk This means that the higher the Sharpe ratio the more attractive the fund will be among risk averse investors Now in terms of an ideal Sharpe ratio most investors think mutual funds with a Sharpe ratio higher than 1 are good investment options Read 4 Funds on FocusWe have selected four mutual funds that carry either a Zacks Mutual Fund Rank 1 Strong Buy or 2 Buy and have 3 year Sharpe ratio greater than 1 Moreover these funds have impressive year to date YTD returns They also have minimum initial investment within 5000 and low expense ratios We expect these funds to outperform their peers in the future Remember the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers Unlike most of the fund rating systems the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund American Funds American Balanced A seeks growth of income and capital for the long run ABALX invests mainly in securities and investment grade bonds The fund invests its assets in securities of both U S and non U S companies The fund has YTD return of 7 3 and an expense ratio of 0 58 as compared to the category average of 0 94 ABALX has a Zacks Mutual Fund Rank 1 and 3 year Sharpe ratio of 1 19 Commerce Value normally invests more than 65 of its assets in equity securities CFVLX seeks appreciation of capital and income for the long run The fund invests mainly in those companies which fall within the range of the Russell 1000 Value Index The fund has YTD return of 12 5 and an expense ratio of 0 70 as compared to the category average of 1 11 CFVLX has a Zacks Mutual Fund Rank 1 and 3 year Sharpe ratio of 1 08 American Century Utilities Investor seeks long term growth of capital and income BULIX invests the major portion of its assets in securities of companies involved in the utilities sector The fund has YTD return of 19 6 and an expense ratio of 0 67 as compared to the category average of 1 38 BULIX has a Zacks Mutual Fund Rank 1 and 3 year Sharpe ratio of 1 17 Baird Intermediate Bond Investor invests the large chunk of its assets in various types of dollar denominated bonds BIMSX seeks returns higher than the total annual return of the Barclays LON BARC Intermediate U S Government Credit Bond Index The fund aims to invest only in those bonds which are rated investment grade The fund has YTD return of 4 6 and an expense ratio of 0 55 as compared to the category average of 0 79 BIMSX has a Zacks Mutual Fund Rank 2 and 3 year Sharpe ratio of 1 46 Want key mutual fund info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing mutual funds each week |
MS | Gold s Nominal Near Term Negativity | If the final trading day for 2016 had been yesterday Friday gold having settled at 1324 would be as presently tis a gain of 24 8 for the year the fifth best annual performance of the last four decades Yet with over four months still to run in 2016 extrapolate that pace to year s end and we d find gold settling this full year at 1463 for a 37 9 annual gain its best since 1979 Not only can a lot happen between now and year end but from the You Ain t Seen Nuthin Yet Dept we d not be surprised to actually see that 1463 level in spite of having revised our forecast high for this year to only Base Camp 1377 which after trading on 06 July has yet to be breached And should gold clear 1377 for at least one week we spect we ll revise our year s target yet again up to the 1430s
We re merely making mention of this as in our prior two weekly missives we ve pointed to gold s near term path of lesser resistance being lower and that the near term strictly technical read is mildly bearish Which is exactly what gold has been reflecting even in the face of yesterday s momentary Fed Chair fundamental flier up to 1346 which then fizzled For as we turn to the following three panel graphic of the last 21 trading days for gold silver and the Swiss franc the latter s Friday fallout representative of the dollar s seventh strongest session year to date the negative writing for the precious metals has been on the wall these past few weeks And the Baby Blues those dots which measure the day to day consistency of the 21 day linear regression trends diagonal grey lines pointed the way their en route having run out of puff thus abetting these lower levels
Does this concern us Not really Gold is plentifully padded with supports of all sorts including structurally so at 1306 thereunder by those dreaded Whiny 1290s and further by the 1280 1240 support zone See too the gold Stack at the foot of this week s piece In fact we re far more fascinated with how twill all play out to the upside rather than to the downside through the year s balance In chatting this past week with a charter reader of The Gold Update I said paraphrased The most interesting price to watch for the rest of this year is 1377 and upon returning there whether we can get up through it or not So further nominal near term negativity notwithstanding tis all about the then ensuing bounce back to the year s high and what then happens at that point For the present here are gold s weekly bars which indeed appear more consolidative than negative
As noted gold had an intra session bounce yesterday to 1346 amongst the FedFolk frolicking about up there in Jackson Hole Tis interesting how the more irrelevant become the Federal Open Market Committee follies indeed how more widespread is becoming that opinion bizarrely the more excited anticipation we hear and read for every upcoming address member interview and gesture therein Remember when the entirety of the monetary policy focused world would be fixated on the thickness of Alan Greenspan s briefcase as he d trot up the steps into the Eccles Building on Constitution Avenue Now a decade later the repetitiveness through this past week of such anticipation for Janet Yellen s Friday speech at Jackson Hole was virtually non stop And yet if we assume the FOMC has been reduced to a sideshow who cares Still in the wee hours of yesterday Friday morning on Bloomy radio we heard that Bond traders are sitting like a coiled spring waiting for remarks from Fed Chair Janet Yellen or as the FinTimes put it Investors wait for hints about pace of US monetary tightening only to then get what was expected nothing which Gold loved and then a tinge of tightening bias misguided or otherwise which then found Gold unloved
And why must it be tightening What about rescinding Today s monetary policy as instituted by nudging the rate this way or that is akin to Joe Sixpack s keeping his old car going by changing its spark plugs to bandage a roughly running engine rather than having it dropped its crankcase split open and the worn out values rings seals etc replaced The same can be said for the Fed
Indeed both the Fed and market analysts alike seem driven by impressive headline data rather than by the wearing bearings within the economic engine itself Oh the Fed is close to hitting targets for full employment and 2 inflation says FedFischer Oh the labour market is improving says FedDudley Oh waiting too long to lift rates could be costly for the economy says FedWilliams Oh U S economic indicators are looking healthy says AnalystGan Here s what we say running your Formula One car with no wing also is impressive until upon entering a curve the bounds of adhesion are exceeded and instantaneously you re traveling backward in a forward gear the car having swapped ends Then you re forced to rebuild it Similarly the Fed will be forced to rebuild itself when it all goes wrong In the meantime here s the circuit upon which the economy s driving looks like a downhill sector to us
Economic weakness ignored again the dollar finished the week with an upside flurry from the frolicking Fed follies sufficiently so such that all the BEGOS Markets suffered a down week This peek for the week from the Misery Loves Company Dept
And specific to the precious metals we next turn to their 10 day Market Profiles yesterday s settles the white bar in each panel buried deeply therein For gold on the left having run out of near term trading supporters twould not be untoward to take a run at the 1306 structural support of 02 May For Sister Silver on the right should 18 50 fail her like structural support also of 02 May would come in at 18 06
So as to how it all stacks up here we ve
The Gold Stack Gold s Value per Dollar Debasement from our opening Scoreboard 2629 Gold s All Time High 1923 06 September 2011 The Gateway to 2000 1900 Gold s All Time Closing High 1900 22 August 2011 The Final Frontier 1800 1900 The Northern Front 1750 1800 On Maneuvers 1579 1750 The Floor 1466 1579 Le Sous sol Sub 1466 Base Camp 1377 Year to Date High also 1377 06 July 10 Session volume weighted average price magnet 1343 Trading Resistance 1325 1329 1343 1348 1352 1355
Gold Currently 1324 expected daily trading range EDTR 15 points 10 Session directional range down to 1321 from 1364 43 points or 3 Trading Support None Structural Support 1306 Neverland The Whiny 1290s The Weekly Parabolic Price to flip Short 1277 Support Band down to 1240 from 1280 The 300 Day Moving Average 1192 Year to Date Low 1061 04 January
Finally we ve these few notes
You many have read this past week about Morgan Stanley NYSE MS being tapped for apparent mismanagement by its own employees of their 401k retirement plan One can only wonder what Henry M and Harold S would have to say about that It does beg the question how is yours being managed Got Gold
MarketWatch has assembled an article with some ten charts dutifully including an earnings table suggesting Why the Stock Market May Be Ripe for Correction From our purview all that is really necessary to stave off a crash our more descriptive lexiconic selection indeed are earnings Either double them or halve the stock market Got Gold
Remember bitcoin that stuff borne of blockchain technology that is basically a bunch of algorithms effecting cryptocurrencies which are verifiably traded using a computer network that exclaims Look Ma No central ledger Well four major banks one of which we re embarrassed to say is Swiss expect to launch another one of these phreak phaux phantasms in 2018 toward making intra bank et alia financial settling more efficient Imagine the plug gettin pulled on that baby Oh my have you Got Gold
And an op ed in the FinTimes this past week suggests that Negative rates are not the drama they seem Twas a fair piece although to us oldsters and the yield chasers out there having to pay an entity to save your dough is again a bit like that Formula one car having swapped ends As for the drama bit twill take on that of Wagnerian proportions upon banks converting your deposits into their equity Oh mercy we trust you ve Got Gold
So toward September we go with 21 metrics coming into the Econ Baro in the new week Shall another bazillion payrolls have been created in this election year s August Mind your Gold and at least it hold |
C | Central Banks Set to Keep Pumping Out Cash Through 2020 | Bloomberg Major central banks are set to keep pumping money into financial markets and economies next year although at a slower pace than recently
The combined monthly balance sheet expansion of the Federal Reserve European Central Bank and Bank of Japan will end this year at the highest level since 2017 as each sucks up bonds either to boost their economies or ease strains in money markets according to Bloomberg
While the rate of buying will peak at the turn of the year and slow throughout 2020 the expansion still marks a reversal from the start of this year when the total balance sheet was shrinking with the Fed actively paring its holdings and only the BOJ adding purchases Debatable is how potent the buying will prove as the world economy remains threatened by the U S China trade war
The Bloomberg calculations show the combined balance sheet growth of the three biggest central banks will reach almost 100 billion a month by the end of this year The spike will fade somewhat in 2020 reaching about 50 billion by the middle of next year
One difference from previous episodes of QE is that although the ECB and BOJ are actively seeking to stoke economic growth by restraining market borrowing costs the Fed argues it s purchasing Treasury bills at an initial monthly pace of 60 billion because of recent turmoil in money markets
One force which is back in evidence is central bank liquidity Matt King global head of credit product strategy at Citigroup Inc NYSE C wrote in a recent note to clients Despite the Fed s protestations that its adjustment to bank reserves is not QE its turnaround this year has helped drive global central bank securities purchases from 10 year lows to decade average levels
Nevertheless investors are welcoming the extra liquidity That s despite Fed Chairman Jerome Powell s protests that the new U S purchases are in no sense quantitative easing because they re focused on very short term assets and aimed at alleviating a cash shortage in the money markets The MSCI World Index of stocks is up 21 this year
The bulk of the effect is psychological said Stephen Stanley Amherst Pierpont chief economist The Fed is expanding the balance sheet The public sees this as an easier monetary policy even as the Fed insists that it is not a change in policy and thus asset prices rise
Whether the bigger balance sheets will actually power economic demand is still in doubt though Global growth remains modest despite a decade of ultra loose monetary policy
There is plenty of liquidity sloshing around but firms are reluctant to invest said Chua Hak Bin at Maybank Kim Eng Research Pte in Singapore pointing to the U S China trade war as a source of uncertainty
Ben Emons managing director for global macro strategy at Medley Global Advisors in New York is more optimistic He argues that the renewed burst of QE will be more effective than previous cycles given the world economy isn t in crisis and so the liquidity is more likely to spur spending
At the Fed the balance sheet is growing faster than when it was first on its way to 4 trillion six years ago The institution had been gradually shrinking its massive securities holdings but the process drained too much cash out of the system contributing to a spike in market rates in September It reversed course to restore ample liquidity and officials have uniformly argued it s not aimed at affecting asset prices
Economists at Societe Generale PA SOGN SA say it ll be less clear cut whether the new round of buying amounts to QE when the Fed replaces temporary funds with permanent purchases which could total 200 billion The strategy of swapping maturing agency mortgage backed securities with U S Treasuries may also have QE style effects they said in a report to clients this month
Meantime the BOJ s balance sheet which has expanded rapidly since Governor Haruhiko Kuroda launched massive monetary easing in 2013 has grown 4 2 over the past year to 577 trillion yen 5 3 trillion as of Nov 20 well beyond the economy s size
The pledge to pump cash into the economy until inflation stays above 2 in a stable manner means there s no prospect of it shrinking any time soon Inflation stripped of food and energy prices grew just 0 4 last month
Over at the ECB President Christine Lagarde is taking on a balance sheet that has soared to almost 4 7 trillion euros 5 2 trillion or four times the size it was prior to the global financial crisis Much of the increase has come from quantitative easing which spent 2 6 trillion euros from 2015 until the end of last year and which has just resumed at 20 billion euros a month to combat renewed economic weakness
Others may even join in Reserve Bank of Australia Governor Philip Lowe this week delivered a speech which highlighted a reluctance for quantitative easing yet laid out the conditions required for the unorthodox measures as well as what the RBA would buy |
C | Wall Street s Fear Gauge Is Acting Up That Could Signal Trouble | Bloomberg At this point most investors probably just want the year to be over to book their gains especially now that the Cboe Volatility Index is behaving in a way that s preceded stock losses in the past
The VIX also known as Wall Street s fear gauge jumped 16 on Monday to 15 86 while the S P 500 Index retreated just 0 3 and is still less than a percent away from its record high
Citigroup NYSE C Global Markets Inc strategists William O Donnell and Edward Acton saw the action as very interesting noting that the VIX experienced a bullish hammer reversal pattern against major horizontal support In other words a technical indicator shows the gauge is likely to keep rising
That happened just after the S P 500 and VIX which move in opposite directions about 80 of the time rose in tandem for two straight weeks for the first time since early May Back then an almost 7 slump in the S P 500 followed in the next month
There are several events this week that may be spurring investors to hedge rate decisions by the Federal Reserve and European Central Bank and the Dec 15 date the Trump Administration is set to impose tariffs on another 160 billion of imports from China
Investors looking for levels on the VIX might want to focus on the 18 area which represents half of the closing high from last December and is about 50 above this year s low according to strategist Todd Salamone of Schaeffer s Investment Research The 20 strike is another one to watch as that s where heavy call option open interest begins for the Dec 18 expiration he said in a note Monday
Salamone highlighted one more key level the 24 25 zone which would be a test of the year over year breakeven as the VIX ended 2018 at 25 42 |
C | Deutsche Bank Vows to Avoid Capital Raise as ECB Cuts Burden | Bloomberg Deutsche Bank AG DE DBKGn Chief Executive Officer Christian Sewing vowed that the bank will execute one of the largest restructurings in its history without the need for extra shareholder funds as he seeks to build credibility with investors
The lender s common equity Tier 1 ratio a key metric of financial strength will be above 13 throughout the end of the year while the lender s main regulator reduced its capital burden on the bank for next year as Sewing begins to shrink and simplify Germany s biggest lender The bank has said that it wants to keep its CET1 level at 12 5 or higher through 2022
Sewing is rolling back years of aggressive expansion when Deutsche Bank sought to compete as a global securities firm and bolstering controls to avoid a repeat of misconduct charges that eroded its financial strength and reputation alike The CEO is funding the overhaul by running a lower capital buffer prompting some analysts to say the margin for error is slim and that the lender could be forced to tap long suffering shareholders for fresh cash
The bank can stick to our commitment to manage our transformation without asking our shareholders for more capital Sewing said in a message to staff accompanying the bank s first investor update in four years on Tuesday Under previous CEOs the company raised about 30 billion euros 33 2 billion in four capital increases since the financial crisis
Citigroup NYSE C analysts said last month that they cannot rule out a highly dilutive capital increase until there is more clarity on how European regulators implement new banking standards Deutsche Bank s common equity Tier 1 ratio stood at 13 4 at the end of September The key driver of Deutsche Bank s lower capital bar is a decline in the ECB s so called Pillar 2 requirement an assessment of the risk an individual lender poses
That component will fall to 2 5 next year from 2 75 in 2019 the highest level among the euro area s 10 biggest banks by assets While several other lenders had seen their ECB set requirements decline in recent years Deutsche Bank s 2 75 bar hadn t budged since 2017 company filings show
Banks need capital to absorb losses rather than being forced to ask taxpayers for help if they run into trouble The issue also matters to investors and staff because falling below the requirements triggers restrictions on dividends and bonuses
Andrea Enria who leads the ECB s oversight arm said last month that bank capital requirements are levelling off as repairs to Europe s banking sector after the financial crisis come to an end |
C | Palladium Nears Record 1 900 on South Africa Power Cuts | Bloomberg Sign up to our Next Africa newsletter and follow Bloomberg Africa on Twitter
Palladium neared a record 1 900 an ounce and platinum gained after South African mining companies halted operations in response to the country s power cuts
South Africa the world s biggest producer of platinum and No 2 palladium supplier is facing a sixth day of rolling blackouts State utility Eskom Holdings SOC Ltd is struggling with breakdowns at plants and heavy rains that have soaked coal used as fuel
Tight supply that potentially could get even tighter due to production problems in South Africa helps provide the underlying support said Ole Hansen head of commodity strategy at Saxo Bank A S
Palladium may pause at 1 900 given some technical resistance but overall the price could go higher he said
Spot platinum added 0 7 to 901 98 an ounce Palladium rose 0 6 to 1 893 85 Prices have climbed for 13 straight days the longest stretch since 2014
Palladium has smashed through new record highs over the past two years because of limited supply and higher demand for the metal which is used in autocatalysts The auto industry has boosted purchases to meet stricter emissions rules sending prices up 50 this year
Carmakers are not that price sensitive given how little palladium contributes to their total costs said Hansen
Citigroup Inc NYSE C sees palladium prices jumping to 2 500 by mid 2020 because of a persistent supply deficit There are no signs of substitution with cheaper platinum or significant amounts of scrap metal coming to market the bank said
Analysts have been less bullish on the outlook for platinum given weaker demand for the metal mainly used in autocatalysts for diesel vehicles Prices are up 13 this year helped by investment buying
Longer term platinum may benefit from Asia s push for fuel cell electric vehicles which use platinum catalysts in the electrodes according to a report this week from precious metals refiner Heraeus Holding GmbH |
JPM | The Zacks Analyst Blog Highlights Wells Fargo Citigroup And JPMorgan | For Immediate ReleaseChicago IL May 21 2018 Zacks com announces the list of stocks featured in the Analyst Blog Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets Stocks recently featured in the blog include Wells Fargo NYSE WFC Citigroup NYSE C and JPMorgan NYSE JPM Here are highlights from Friday s Analyst Blog Bank Stock Roundup Wells Fargo Shakes Investor Confidence Again MoreOver the last five trading days banking stocks put up a lackluster show Though improving U S economic data and rising 10 year Treasury bond yields were positives investors were a bit concerned on the time uncertainty related to the easing of banking regulations and soft loan growth Nevertheless strong economy and increasing commodity prices aided a rise in bond yields followed by mortgage rates Mortgage rates improved to 4 61 recording a seven year high since May 2011 as the 10 year Treasury yield hit 3 122 the highest level since July 2011 on a sell off recorded in the bond market However homeowners seeking lower rates for refinancing are definitely big time losers Increases in mortgage rates will limit refinancing activity Further litigations and probes pertaining to banks past shoddy activities dominated headlines The law enforcement agencies are also on track to work to resolve such issues and avoid lengthy litigations Important Developments of the Week1 Wells Fargo is in trouble again as its employees have been accused this time for modifying or adding false information related to the bank s corporate customers without bringing to their notice in order to meet a regulatory deadline Despite strict regulatory scrutiny and promises made by the bank to improve internal controls disclosures of such misconducts have shattered the bank s image Per the report the scandal took place between late 2017 and the first few months of 2018 Employees at its Wholesale Banking segment have added or changed some personal information such as birth dates social security numbers and addresses for clients it dealt with during that period Wells Fargo has been facing a Jun 30 deadline to comply with a regulatory order related to anti money laundering controls In an internal investigation Wells Fargo became aware of these misdoings The matter has been brought up with the Office of the Comptroller of the Currency who is currently investigating the matter 2 Citigroup has been fined 7 3 million by Hong Kong s securities regulator The Securities and Futures Commission said that the bank had failed to discharge its duties of conducting proper due diligence as a sponsor for China based Real Gold Mining Ltd s initial public offering IPO in 2009 The mining company has been banned from trading since 2011 after irregularities were discovered in its accounting system The SFC noted that the bank failed to conduct adequate and reasonable due diligence on Real Gold s customers and properly supervise its staff when carrying out the sponsor work on Real Gold s listing application 3 With an aim to provide access to its sophisticated alternative investment strategies to a broader client base JPMorgan is reducing the minimum requirement needed to participate in various alternative investment strategies that the company s asset management arm offers The new limit has been set at 100 000 down from the previous requirement of 10 million This reduction will expand access to certain J P Morgan Global Alternative strategies to the masses which was earlier restricted only to the institutions and the ultra rich For this J P Morgan Asset Management the asset management arm of the bank has agreed to use the technology of iCapital Network Inc a financial technology platform Per the agreement J P Morgan Asset Management will partner with iCapital so that high net worth investors and their advisors can access certain J P Morgan Global Alternative strategies by using iCapital s digital platform Media ContactZacks Investment Research800 767 3771 ext 9339 Past performance is no guarantee of future results Inherent in any investment is the potential for loss This material is being provided for informational purposes only and nothing herein constitutes investment legal accounting or tax advice or a recommendation to buy sell or hold a security No recommendation or advice is being given as to whether any investment is suitable for a particular investor It should not be assumed that any investments in securities companies sectors or markets identified and described were or will be profitable All information is current as of the date of herein and is subject to change without notice Any views or opinions expressed may not reflect those of the firm as a whole Zacks Investment Research does not engage in investment banking market making or asset management activities of any securities These returns are from hypothetical portfolios consisting of stocks with Zacks Rank 1 that were rebalanced monthly with zero transaction costs These are not the returns of actual portfolios of stocks The S P 500 is an unmanaged index Visit for information about the performance numbers displayed in this press release |
MS | The dollar s slump risks sending the US economy into a boom bust cycle | The US dollar last year had its steepest decline since 2003 and the slump has gathered pace this year A falling dollar no longer reflects expectations of low long term interest rates relative to other nations potentially reflecting a loss of confidence in the US economy Combining a weak dollar with aggressive trade protectionism increases the chances the economy will undergo a boom bust cycle Lisa Shalett of Morgan Stanley NYSE MS Wealth Management warns The Federal Reserve meets this week against the backdrop of a key market development that will undoubtedly influence its policy deliberations a slumping US dollar Though investors are not counting on another interest rate increase at the Fed s January meeting they will be looking for signals about the likely number of hikes this year And the dollar s recent downturn exacerbated by comments from Treasury Secretary will certainly be high on policymakers minds The US currency last year experienced its steepest drop since 2003 and the drop has gained momentum in early 2018 This means investors are now less worried about the risk of the Fed s persistently low inflation target as they bet that the combination of tax cuts and a falling currency will boost consumer prices Still a dollar devaluation is just about the worst way to get inflation higher from an economic standpoint since what the Fed is really trying to stimulate is wage growth for workers not a higher cost of living While a weak dollar may boost economic momentum it could also stoke inflation and force bond yields higher which would be a headwind for the stock market Lisa Shalett the head of investment and portfolio strategies at Morgan Stanley Investment Management wrote in a research note More concerning combining a weak dollar with aggressive trade protectionism increases the chances the economy will undergo a boom bust cycle The Fed has been undershooting its 2 inflation target for the much of the economic recovery which many see as a sign that the US economy despite a 17 year low unemployment rate of 4 1 But getting there more quickly because consumers are losing ground rather than experiencing wage increases doesn t really help the economy Easy financial conditions One thing hasn t changed since the Fed s December meeting A record setting stock market that looked bubbly last month has continued to set new peaks raising increasing concerns about market complacency According to minutes from the Fed s December meeting some participants observed that financial conditions remained accommodative citing a range of indicators including low interest rates narrow credit spreads and some evidence of easier terms for lending to risky borrowers Shalett warned that recent jawboning by the US Treasury secretary for an even weaker dollar combined with the administration s sabre rattling on trade on top of the deficit financed tax cut raises serious risks That s because the dollar s fate appears increasingly disconnected from yield differentials in international bond markets and instead reflects a deeper pessimism about longer term US economic prospects she said Witness the rise in 10 year Treasury rates trading above 2 7 Monday at their despite the ongoing dollar softness But in 2017 relative yield differentials started to fade as a dollar determinant replaced by capital flows she said Now the strong growth of non US economies is causing global investors to sell dollars |
MS | World markets can absorb some trade turbulence as Trump digs in | By Sujata Rao and Tom Miles LONDON GENEVA Reuters Booming global trade and economic growth have cushioned world markets against the political turbulence of Donald Trump s first year in the White House but that resilience will be tested if the U S president wants protectionism to define 2018 With stocks on one of their longest bull runs in history they are particularly vulnerable to upsets although the global economy s strength means they could probably absorb greater trade conflict provided governments keep it all within limits Emboldened after finally pushing his signature tax cut reforms through Congress Trump seems likely to train his sights on trade another pillar of his election pledge to Make America Great Again by fixing its deficit and punishing countries deemed to be profiting at U S expense His administration is beating the trade drum ever louder This month it has announced steep U S tariffs on imported washing machines and solar cells Commerce Secretary Wilbur Ross has warned China over intellectual property practices and Treasury Secretary Steve Mnuchin has endorsed a weaker dollar to help American exports Discussing trade wars at the World Economic Forum in Davos Ross said U S troops are now coming to the ramparts That warning provoked only a short lived wobble in world stocks with investors reluctant to bail out of a market still clocking record highs at an accelerating pace even after adding 9 trillion in value last year Much of that bullishness is down to a sustained rebound in trade in recent years with volumes growing at a faster pace than world gross domestic product Despite Trump s protectionist rhetoric of the past year and actions such as pulling the United States out of the TPP trade pact for Pacific rim countries indicators show no let up Global trade is expanding at annualized rates of more than 4 percent the strongest performance since 2011 according to the Netherlands Bureau of Economic Policy Analysis Freight volumes are surging at the fastest pace this decade To view a graphic on freight volumes click Merchandise trade is likely to have expanded 3 6 percent in 2017 in volume terms rebounding from the post crisis low of 1 3 percent growth in 2016 the World Trade Organization reckons Overall the IMF forecasts global GDP will expand 3 9 percent this year But investors fear a shift from rhetoric to action may still hurt markets even if the robust growth acts as a shock absorber Protectionism means lower growth and higher inflation That s the worst possible combination you can have when markets are at record highs said Luca Paolini chief strategist at Pictet Asset Management However the world economy s strength and double digit company earnings allow markets to absorb a lot Paolini said He cited short lived reactions to Britain s impending exit from the European Union political upsets elsewhere on the continent such as Catalonia s failed referendum on independence from Spain and North Korea s nuclear weapons program as examples of how much flak the market was able to take Protectionism is neither new nor a U S monopoly Since 2008 the 60 top world economies have adopted over 7 000 protectionist trade measures in net terms international law firm Gowling WLG reported last November And yet these have failed to scupper the bull market in equities Among the upcoming flashpoints are talks with Mexico and Canada on Trump s demand that the North American Free Trade Agreement NAFTA be renegotiated His State of the Union speech later on Tuesday could also detail steps against China s tech sector A U S Treasury report on trade partners currency practices plus decisions on steel and aluminum import restrictions are due in April A trade shock is something you have to keep in mind given how stretched markets are but there has to be a credible decision not just a threat Paolini said To view a graphic on U S trade deficits click WHAT S THE DAMAGE Most expect forthcoming curbs and the fallout to be limited Trade wars have had little direct impact on equity markets in the past JPMorgan NYSE JPM analysts wrote citing a dispute between Washington and Tokyo in 1993 95 over Japanese car exports to the United States as an example Trump could double or triple the number of trade penalties without harming risky markets more than intra week they said adding that they had made no portfolio changes to account for additional trade risks Even 100 percent tariffs on steel and aluminum would dent Chinese exports by just 0 3 percentage points while semi conductor and telecommunications import curbs may lower exports by 0 8 percentage points Morgan Stanley NYSE MS said Given multinational firms reliance on complex cross border supply chains Wall Street would undoubtedly suffer but other markets may be hurt more The United States relying on trade for 28 percent of its economic output has less to lose than Mexico with a trade to GDP ratio of 78 percent or Germany with 84 percent China s ratio is 34 percent World Bank data shows As a result any U S pullout from NAFTA would cut 2019 GDP by half a percent in the United States while reducing Mexico s by almost 1 percent Oxford Economics predicts adding that Mexico s economy could be 2 percent smaller by 2022 However it is Asia that accounts for three quarters of the U S goods trade deficit led by China South Korea and Japan and over a third of global exports The annual deficit with China at 370 billion is the biggest implying that this is where Trump and Ross have set their sights Some analysts argue that the United States would also lose if trade partners retaliated by cutting purchases of American goods or halting supplies of components to U S firms perhaps along the lines of the China s decision in 2010 to ban exports of rare earth metals to Japanese electronics makers Another threat lies in the quest for a weaker dollar should that spur inflation by pushing up the cost of imports in the United States This could prompt faster and bigger rises in interest rates which feed through to equity markets But Trump may be wary of disrupting the equity boom which he has cited as evidence of his administration s successful policies At today s share price valuations a trade war would be material said Andrew Milligan head of global strategy at Aberdeen Standard Investments I m sure he s received a lot of advice that a trade war would damage the Dow
To view a graphic on global trade and GDP growth click |
MS | Morgan Stanley upgrades Veeva Systems to 19 upside | Morgan Stanley NYSE MS upgrades Veeva Systems NYSE VEEV from Equal Weight to Overweight and raises the price target from 69 to 72 a 19 upside to yesterday s closing price Analyst Stan Zlotsky writes that Veeva has durable growth with an expanding 17B TAM and margin potential that s not reflected in current trading levels Zlotsky forecasts longer term operating margin of 43 which is the highest margin potential in the firm s coverage universe and well above the 18 average among mature SaaS peers Firm estimates 16 revenue growth on a CAGR basis to 1 7B a 36 operating margin and FCF of 593M by CY23 Veeva Systems shares are up 3 to 62 07 Now read |
MS | HubSpot 2 9 on analyst downgrade | Morgan Stanley NYSE MS downgrades HubSpot NYSE HUBS from Overweight to Equal Weight but raises the price target from 98 to 105 a 5 upside on yesterday s closing price Analyst Stan Zlotsky writes that most of the near term upside is already priced in due to shares moving 100 over the last year and 40 in the past four months Zlotsky attributes the runup to a general SaaS rally and HubSpot s sustained growth and expectation beating profitability The analyst sees expansion opportunity in the customer service market with this year s introduction of Customer Hub but sees limited margin expansion due to operating expense increases related to the newer product offerings New price target implies 6 8x EV CY19 sales and 0 27x growth adjusted compared to the 0 25x for its SaaS peers HubSpot shares are down 2 9 to 97 15 Now read |
MS | Shutterfly to buy photography company Lifetouch for 825 million | Reuters Online retailer Shutterfly Inc said on Tuesday it would buy privately held Lifetouch for 825 million in cash gaining access to the company s school photography customers Shares of Shutterfly surged 14 7 percent to 61 82 in trading after the bell Lifetouch photographs more than 25 million children annually during the fall picture day tradition serving more than 10 million households It had revenue of about 963 9 million for the fiscal year ended June 30 2017 Shutterfly also reported fourth quarter profit and sales above analysts estimates Morgan Stanley Co NYSE MS LLC is the financial adviser to Shutterfly while BMO Capital Markets advised Lifetouch s board |
MS | Morgan Stanley to decide on Brexit staff moves early this year | DUBLIN Reuters Morgan Stanley N MS will make decisions on redeploying staff to its chosen locations of Frankfurt Paris and Dublin as a result of Brexit very early this year its president said on Wednesday We ll be making decisions very early this year What the politicians don t understand is these are people Colm Kelleher told a conference in Dublin in reference to Britain s planned exit from the European Union in March 2019
Asked if the bank would need to know by the end of March the terms of the transition agreement that will ease Britain out of the bloc Kelleher said that was pretty fair and that the size of any moves would depend on the shape of the Brexit deal |
MS | Post earnings rip for Knight Swift Transportation | Shares of Knight Swift Transportation NYSE KNX roar higher after the company sets the stage for rate increases in 2018 Just as crucial to the bottom line execs said during the conference call that the trucking giant is hitting synergy targets ahead of schedule Morgan Stanley NYSE MS is a believer raising its price target on Overweight rated KNX to 60 and calling the stock the top pick in freight transportation KNX 13 6 premarket to 51 50 Shares could be on track for their first 50 close Sources Bloomberg Knight Swift conference call Now read |
MS | Two ex Morgan Stanley advisers to plead guilty to U S fraud charges | BOSTON Reuters Two former Morgan Stanley NYSE MS advisers have agreed to plead guilty to U S charges that they misused client funds to make their own investments in a wind farm project federal prosecutors said on Wednesday Federal prosecutors in Boston said James Polese 51 and Cornelius Peterson 28 misappropriated 500 000 to invest in and support the wind farm project Polese also used funds from a client s account to pay for personal expenses prosecutors said The conduct took place from 2014 to 2017 prosecutors said Court papers did not identify Morgan Stanley by name but records maintained by the Financial Industry Regulatory Authority show the bank terminated both men in June Lawyers for the two Massachusetts residents did not respond to request for comment Morgan Stanley also did not immediately respond to a request for comment Polese and Peterson were each charged with one count conspiracy and investment adviser fraud and several counts of bank fraud prosecutors said Polese also was charged with aggravated identity theft The U S Securities and Exchange Commission also filed a related civil lawsuit on Wednesday against Polese and Peterson |
JPM | Watching the Global Flows Explains Why the Dollar Won t Be Kept Down | Bloomberg The dollar s resilience after what some have categorized as the most dovish Federal Reserve turnaround in history comes as little surprise to Exante Data s Jens Nordvig
U S President Donald Trump may be looking to jawbone the greenback But for Exante it s still all about the grab for yield with rates on dollar denominated assets remaining more attractive relative to the painfully low or negative ones found in Europe and Asia The firm s analysis of the holdings of global asset managers suggests that isn t going to change anytime soon
Exante s flagship global flow analytics product aggregates fund managers positioning in fixed income and currencies to pinpoint extremes It s readings which have helped snag Exante clients willing to pay 60 000 a year for its insights include gauges of activity tied to carry trades
Inflows into this strategy a bet in which an investor borrows in a lower yielding currency and invests in one with higher rates using purchases of dollar denominated assets surged this quarter to multiyear highs That s come even as Fed Chairman Jerome Powell and his colleagues have indicated a resolve to stand pat on policy normalization for now
People are using the dollar as the long in the carry trade with European investors still having very little to buy at home that they can accumulate yield in said Nordvig who launched Exante in 2016 You can absolutely see this in the global fund flows we track It really explains the dollar holding up in the face off this U turn by the Fed
The Bloomberg Dollar Spot Index is barely changed this year while money market traders have pretty much priced out all Fed hikes for 2019 and see a cut as the most likely path for 2020
Low volatility in currencies has also been a boon to carry trades as it reduces the chance that changes in currency values will erode gains made on interest rate differentials A JPMorgan Chase Co NYSE JPM option index of swings in global currencies has tumbled to about 7 percent from 9 4 percent in January
Exante aggregates and filters reams of fund holdings then breaks the data down into individual currency exposures The firm pulls from publicly distributed sources pays some managers directly for information and uses joint ventures with data providers for intelligence of other funds positioning The New York based team then uses quantitative tools to piece it all together and model it
While some of the biggest hedge funds likely are doing similar analysis they aren t sharing it That s helped Exante attract clients to several dozen from just a few when the first began about two and a half years ago
One of the firm s clients is Sao Paulo based Verde Asset Management whose chief investment officer is Luis Stuhlberger He s became one of the most revered managers in Brazil after posting a total return of over 16 000 percent since his fund s inception two decades ago
What s key to us about Exante is its ability to put a lot of data sources into one single place and make it coherent and then help us with what story that data is telling said Luiz Parreiras chief strategist and portfolio manager at Verde which has about 9 billion in assets We as of the fourth quarter were getting very bullish on Brazil Exante s data helped us believe that the move has a lot of legs because positioning across EM was fairly low
Exante s data showed in the fourth quarter during a rout in emerging markets that global fund managers allocation to the region overall had fallen to about zero That compared to about a 5 percent to 10 percent average allocation to emerging markets and marked an extreme level of pessimism that only happens every five to six years said Nordvig who advised clients that a reversal was coming Emerging markets shares and currencies have mostly rebounded since
Another value of Exante for Verde is what Nordvig s team and its indicators can tell them about the intricacies of foreign exchange dynamics in China
This is important because the yuan is a heavily intervened currency and China is a country where there are massive capital controls and a lot of opacity in terms of what is really happening Parreiras said
Trump and Chinese counterpart Xi Jinping are still trying to come to an agreement on trade with the U S asking China to keep its currency stable The U S president deferred a March 1 deadline that would have triggered a batch of new tariffs on China
But even Nordvig admits positioning data has its limits such as the unanticipated hit India s currency and debt incurred upon escalating friction with Pakistan
Our capital flow data on emerging markets has remained very bullish but then India attacked Pakistan said the 44 year old Nordvig That s the kind of stuff that we can t pick up in the flows But still people do always want to know how real money is positioned |
JPM | JPMorgan Asset Bets Australian Dollar Will Make a Comeback | Bloomberg Australia s dollar had a tough year in 2018 and is still a popular short but JPMorgan Asset Management sees potential for the beaten down currency to make a comeback
The 1 7 trillion money manager took a small long position in the Aussie late last year according to Julio Callegari lead portfolio manager for local rates and FX in Asia A dovish Federal Reserve a likely global economic growth recovery in the second half of the year and thawing U S China trade tensions should outweigh domestic risks Down Under including a worsening housing slump he said
We ll look at the currency with a bias to add Hong Kong based Callegari said in a telephone interview He thinks the Aussie could rise to 75 U S cents over the long term from 70 3 cents as of 8 p m Sydney time Wednesday However he s waiting for more concrete signs of a pickup in worldwide economic growth before ratcheting up his long position
Australia s dollar tumbled 9 7 percent to become the worst performing Group of 10 currency last year as rising U S interest rates and America s trade war with China dampened demand for riskier assets While some global pressures have abated a slowing domestic economy and dovish Reserve Bank of Australia are spurring funds to maintain short bets on the Aussie
Investors are returning to developing nation assets after a rout last year and Callegari has his own favorites He likes China s yuan as well as Indonesia s rupiah and bonds for carry amid a favorable economic backdrop He favors the short end of the curve for India bonds but is cautious on the rupee amid geopolitical and election risks
Callegari s prediction that Australia specific growth could be slower for now has some data on its side
The central bank kept benchmark interest rates at a record low 1 5 percent on Tuesday On Wednesday the Aussie got a double whammy from worse than expected economic growth data followed by JPMorgan Chase NYSE JPM Co s Sally Auld changing her RBA forecast to cuts in July and August
Callegari s optimism about the global growth story comes amid talks that the U S and China are close to clinching a trade deal although it may not necessarily spell the end to the wider trade dispute Still working toward a deal is better than all out conflict and this bodes well for the Aussie he said
We already saw a significant slowdown in the U S Callegari said That s much more favorable to emerging market and the cyclical currencies |
JPM | As appetite for Asia improves cautious investors leave banks till last | By Swati Pandey and Daniel Leussink SYDNEY TOKYO Reuters The chances of recession have faded enough for emerging market investors to plow billions of dollars into Asian stock markets but not enough to buy shares in the region s banks After a year long sell off stocks in Asian banks are languishing at multi year crisis era lows even though their lending business should benefit from the Federal Reserve and other central banks easing up on monetary tightening as they switch to a pro growth stance Rising hopes that the United States and China will soon de escalate their trade war has encouraged buying in other cyclical sectors but few banks are making it onto investors shopping lists Besides the reduced but still abiding risk of a sharp economic slowdown investors are deterred by onerous regulatory changes introduced for lenders since the last crisis Valuations are cheap but they are cheap for a reason said Olivia Mayell London based investment specialist of multi asset solutions at JPMorgan NYSE JPM Asset Management We re not currently confident enough to want to own banks we d look for more stable value for recession proof assets Not to say recession is coming soon but these things get priced into asset values well in advance of when they happen Asian banks are cheap Going by the broadest measure MSCI s index for Asia ex Japan banks trades at a price to book P B ratio of 0 9 lower than it has been during financial crises in 1997 2001 and in 2008 The price to book P B ratio a popular metric for measuring valuation compares stock price with underlying assets A ratio below 1 could indicate either an undervalued stock or that investors have concerns about how well the stock is backed up by assets The low banks P B is a red flag for investors Graphic Asian banks price book ratio lags other sectors Some analysts who think banks are a good buy argue that banks book values which reflect net assets may have been undermined by the past three years of rising interest rates and a broad reduction in corporate borrowing But as policy interest rates are cut book values will recover they say Yet there are more reasons to regard them as risky investments Banks would be prime losers if the United States slips into recession dragging down global growth and demand Even if Asian growth holds up investors have for long struggled to evaluate the quality of banks assets and quantum of bad loans New regulations are also being rolled out that potentially hamper bank profitability ranging from India s new bankruptcy code and requirements for capital to South Korea s plans for internet banks and capital raising by traditional big banks A lot of people still remember what happened during the financial crisis That made banks really out of favor and that is reflected in the really trough valuations said Jian Shi Cortesi an Asian equities portfolio manager at GAM Investment Management in Zurich HOSTAGE TO POLICY The idea that banks fortunes are hostage to sometimes fickle government policy also scares investors In many cases one share in a bank equals one share in a country Banks in emerging markets are a regulated business They are often driven by what s happening in government policy said Sean Taylor chief investment officer for the Asia Pacific at Deutsche Bank s asset manager DWS in Hong Kong Taylor cites China as an example where despite easing policy some banks have been squeezed in a scramble for funds South Korean banks are also trading at lows last seen before the 2008 09 financial crisis he said because domestic regulations are limiting their ability to make money The other big risk is that despite all efforts the U S economy slips into recession dragging global demand down Some analysts see more value in owning sectors like technology or healthcare which are just as sensitive to growth and demand as banks but are more resilient The extreme cheapness of banks could mean there is room for a rally in the next 6 months to a year said GAM s Cortesi Still she said If you are investing in Asia growth you probably don t want to be in banks Consumer stocks technology and real estate have all posted double digit growth in the past two months Banks gained 5 percent underperforming the broad Asian shares 10 percent jump Even among banks plenty of investors see value in India s better capitalized private sector banks and Thai banks Outliers include Indonesia s Bank Mandiri which has risen 33 percent since 2015 outperforming the broader Jakarta index s near 25 percent gain Singapore s DBS is up by a quarter in four years having defied a fall in Singapore markets In a sign of investor enthusiasm for Asian assets global emerging market funds have registered net inflows of about 21 billion since the week of Nov 7 with gains in 14 of the past 16 weeks Nomura said in a report released on Feb 26 Yet only six banks feature in Nomura s list of 52 buy rated stocks in Asia India s SBI ICICI and Axis Indonesia s Bank Mandiri and Metropolitan Bank and BPI in the Philippines
Asian tech giants Alibaba NYSE BABA Group and Tencent Holdings insurance group Ping An Hong Kong property firm China Overseas Land and Hong Kong s MTR are among Nomura s top 5 picks |
JPM | Ripple CEO Says JPM Coin Lacks Interoperability Just Use the Dollar I Don t Get It | Ripple XRP CEO Brad Garlinghouse says the recently announced digital asset from United States banking giant JPMorgan Chase NYSE JPM lacks the interoperability that would make it a significant innovation Garlinghouse made his remarks during an interview at the 4th Annual DC Blockchain Summit in Washington D C on March 6
As Cointelegraph has reported JPMorgan Chase announced the forthcoming launch of its new blockchain settlement offering in mid February a stablecoin dubbed JPM Coin to be backed 1 1 by the bank s USD reserves |
JPM | Euro bank stocks bond yields tumble as ECB pushes out rate hike unveils new loans | By Virginia Furness and Dhara Ranasinghe LONDON Reuters The euro and euro zone government bond yields fell sharply on Thursday after the European Central Bank changed its rate guidance while banking stocks tumbled as a fresh round of cheap loans was less generous than previous packages The ECB pushed out the timing of its first post crisis rate hike to next year at the earliest and offered banks a new round of cheap loans to keep credit flowing to the euro zone economy The decisive policy action sparked a sharp rally in euro zone government bonds while the euro fell moves that gathered momentum after ECB chief Mario Draghi said the central bank had also slashed its growth and inflation forecasts They are being extremely realistic about the challenges ahead of them and have noted that they have limited ammunition in the toolkit but you tend to get the biggest bang for your buck when the market least expects it said Karen Ward chief market strategist for Europe at JPMorgan NYSE JPM Asset Management So they have rightly used what they have pre emptively to try and get a market impact and in terms of that we have the euro and government bond yields down Banking stocks were initially cheered by the ECB s decision to launch a new package of Targeted Long Term Refinancing Operations TLTROs but soon sold off The euro zone banking sector index was last down 3 6 percent while the broader stock index was down 0 7 percent Analysts put the move down to the ECB s weaker growth forecasts the change in interest rate guidance and the less generous terms of the new TLTRO The ECB s third such lending package will consist of two year loans partly aimed at helping banks roll over 720 billion euros 811 billion of TLTROs extended in 2016 and 2017 that start maturing next year The big move in banks today has to do with the ECB announcement that there s no increase in rates this year said Martin Moeller co head of Swiss and Global equities at UBP Analysts had in their models higher interest rates over time and that s something they now have to push out so net net we are not seeing earnings upgrades to banks YIELDS SLIDE Germany s 10 year bond yield fell to its lowest level since October 2016 down over five basis points to 0 07 percent while France s 10 year government bond yield also hit its lowest level since late 2016 The ECB had previously said that rates would be on hold through the summer of 2019 although in recent months weak economic data had already prompted investors to push out their rate hike expectations well into 2020 Graphic Compared ECB statement link This certainly goes further than most of us thought that the ECB would said Aberdeen Standard Investments economist Paul Diggle At this stage it is about as far as the ECB will go toward admitting that the European economy faces some serious headwinds in the months ahead The ECB s TLTRO announcement gave a powerful boost to southern European bond markets Italian and Spanish banks have been among the biggest beneficiaries of previous cheap loan packages Italy s two year government bond yield fell 14 bps to 0 125 percent its lowest since May 2018 Ten year Italian yields fell to their lowest since July 2018 at 2 49 percent Spain s 10 year bond yield fell to its lowest since October 2016 to 1 047 percent while Portuguese 10 year bond yields edged down to reach their lowest since at least 1999 at 1 347 percent The euro fell 0 65 percent to 1 12345 from above 1 13 before the ECB s policy announcement and then recovered most of its losses |
MS | Sterling Range Ahead | Our limit to sell at 1 38 was not triggered and FTSE 100 did not behave as we expected in our June 27th article as lower Sterling value has attracted investors back into the UK equity market Bank of England further decision to cut rates by 25 basis points expand its asset purchase program and set up a new funding scheme for lenders in reaction to cushion any adversary impact of Brexit has drove Sterling lower and the UK equity market higher
Bank of England in its recent meeting minutes indicated that the committee were already in favor of lowering its rate to close to but a little above zero On top of that Governor Carney has stated that there is scope to expand all aspects of the stimulus package
UK economic outlook has changed significantly post Brexit Though official reports are not yet available business surveys have implied a sharp deceleration of economic activity One in particular is manufacturing PMI that recorded the largest monthly drop since 2009
Looking at the recent CoT report Sterling saw its net short increased the most among its peers Net shorts increased by 7 567 contracts to 90 1 thousands contracts Furthermore markets participants are reported to be net long in all currencies against Dollar except Mexican Peso Euro Kiwi and Sterling
On the institutional side BNP Paribas PA BNPP and Morgan Stanley NYSE MS remain bearish and target 1 24 in the weeks to come Currently at around 1 3035 as of this writing we believe buyers are looking as low as the 1 28 handle before heavy bidding started Looking at the chart we believe a descending triangle is forming and range market is expected in the band of 1 28 to 1 33 handle before further downward pressure is seen
Halal Traders looks forward to deploying our range strategy in the weeks to come
Please read our risk warning disclaimer |
C | China Merchants breaks five year REIT listing drought for Hong Kong market | By Scott Murdoch
HONG KONG Reuters Hong Kong is set to welcome its first listing of a real estate investment trust in five years with the China Merchants Commercial REIT seeking to raise up to 400 million
The REIT which owns five commercial and office properties in Shenzhen wants to expand in the Greater Bay Area which has a population of about 70 million and includes Hong Kong Macau and Guangdong province
It plans to issue 750 million units priced between HK 3 42 and HK 4 each according to a term sheet seen by Reuters That would raise 330 million to 380 million
A greenshoe option of 5 of units outstanding could lift the deal value to 400 million At the top end of the range and including the greenshoe the REIT would have a market value of around 575 million
Singapore has long been seen the Asian hub for REITs and Hong Kong has just 11 listed The last Hong Kong REIT listing was December 2014 when Dalian Wanda raised 4 billion which was the largest on record for the city according to data from Refinitiv
China Merchants Commercial REIT executives started briefing investors in Hong Kong on Thursday and will shift to Singapore on Friday ahead of the deal progressing next week
Sumeet Singh head of research and IPOs at research firm Aequitas also said Hong Kong investors tended to prefer bigger fry
Hong Kong has always been a growth market with investors looking for the next Tencent Meituan or now even Alibaba NYSE BABA A REIT is just not as exciting in terms of future prospects he said in research published on the Smartkarma platform
The China Merchants REIT bookbuild started on Thursday and the units are expected to be priced on Tuesday with trade due to start on Dec 10 The deal was first proposed in September and put on hold while financial market sentiment improved
Hong Kong s IPO market has seen 21 8 billion raised so far this year on par with the New York Stock Exchange and just behind the Nasdaq s 23 6 billion
Citigroup NYSE C is leading the deal as the sole listing agent and is the joint global co ordinator alongside China Merchant Securities and DBS |
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