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C | Japan to Unveil Details of Fiscal Stimulus as Early as Thursday | Bloomberg Japanese Prime Minister Shinzo Abe is expected to announce a stimulus package as soon as Thursday to support growth in an economy contending with an export slump natural disasters and the fallout from a recent sales tax increase
The stimulus measures are likely to have a headline figure of about 25 trillion yen 230 billion according to a senior Abe administration official making it equivalent to around 4 5 of gross domestic product at face value Still economists and investors will be watching how much fresh spending the package actually contains and how much financing it will require
Japan Cherry Blossom Scandal Starts to Drag Down Abe Support
With the package Abe looks intent on minimizing the risk of a recession that would tarnish the record of his Abenomics growth program while shoring up his own political support after recent scandals To that end an array of measures with a large price tag that can be paid for with the bare minimum of extra borrowing would fit the bill for a country with the developed world s largest debt load
Japan s economy is forecast to shrink 2 7 in annualized terms this quarter following the tax hike and a destructive typhoon according to economists surveyed by Bloomberg The package would aim to get Japan s economy up and running again and avoiding a further deterioration in global demand triggering a recession early next year
A draft of the government stimulus package obtained by Bloomberg sets out the need for spending on upgrading disaster prevention infrastructure an extension of a cashless payment rebate program and information technology help for small and mid sized companies that are raising wages The draft didn t set out how much money would be spent though Liberal Democratic Party policy chief Fumio Kishida said Tuesday that its economic measures would go well beyond 10 trillion yen
Japan s Government Calls for Decisive Fiscal Action
The headline figure is typically inflated with promised loans and private sector assistance But even if the main fiscal measures reach 13 trillion yen in line with the scale of a 2016 package the amount of financing required in an extra budget would likely be far less especially if funding is spread into next year s regular budget Extra budget financing for the 2016 stimulus came to only 3 5 trillion yen
An immediate spending bump of that size might not have such an impact on the economy In a note to clients Citigroup NYSE C economists Kiichi Murashima and Katsuhiko Aiba said the package s effect on growth was likely to be limited because any spending on public works would be spread out quite gradually over time The stimulus would expand gross domestic product by no more than 0 4 percentage point in the fiscal year starting April 2020 they wrote
What Bloomberg s Economist Says
Japan s latest economic package isn t likely to boost growth by much but it should be enough to avoid a contraction this quarter turning into a recession early next year That said Prime Minister Shinzo Abe may need to ramp up the fiscal stimulus in 2020 if overseas demand deteriorates again
Yuki Masujima economist |
C | Citi Tells Rich Clients Stop Being So Nervous About Stocks | Bloomberg Citigroup Inc NYSE C s private bank wants its clients to work on an attitude adjustment
Next year will be brighter than many expect Citi Private Bank said in its 2020 outlook Staying Positive in a Negative Yielding World published Thursday It rejects the idea that a recession is imminent
The point of view of many family clients I meet is one of a world full of angst due to politics and trade David Bailin the private bank s chief investment officer said in an interview That uneasy feeling is pervasive yet when you look at the economy you see facts that are completely different than that
Bailin said he hopes the report will help clients stay fully invested and avoid the fear and paralysis that led many to miss this year s market rebound A November survey by UBS Global Wealth Management found that among more than 3 400 global respondents each of whom had more than 1 million in investable assets cash made up 25 of portfolios on average
Staying Strong
Strong consumer spending and a high U S savings rate feed into Bailin s argument for a rosier outlook
Manufacturers both for consumer goods and industrial goods were expecting a downturn that never happened he said Between the consumer staying strong and the Federal Reserve and other central banks being accomodative there was success in extending an already long expansion
The bank predicts the expansion will continue anticipating global corporate earnings to rise 7 or more from current levels barring an escalation of trade disputes Citi also forecasts equity returns in the U S and abroad of about 7 in 2020
See also In parting shot Dennis Gartman tells investors to get into cash
The bond market is one area where Citi has a negative outlook
In the U S we take positive yield for granted but at one moment this year there was around 18 trillion in negative yielding global debt Bailin said He sees no reason for clients to own bonds when the only upside is capital appreciation
Citi suggests switching out some bond holdings for certain equities with histories of earnings and dividend growth Some of Citi s private clients are already making outright bets on improvements in the markets said Bailin Our Asian clients have been buying Asian equities which in my mind is anticipatory of a trade deal he said
Citi s report also suggests investors look well beyond 2020 to what it calls unstoppable trends that will unfold regardless of the economy Those include opportunities in leading companies that help protect against cybersecurity threats have innovative financial technologies and that are part of the transition to renewable energy
Updates with equity selection in 10th paragraph |
JPM | 5 Best Low Carbon Mutual Funds Focused On Clean Energy | Companies that have significantly lower exposure to fossil fuels are considered a good investment proposition In fact many regulating bodies investors and consumers play an important role in guiding the companies to lower their carbon emission levels Moving away from fossil fuels could be a costly affair for companies in the short term but will ensure its long term sustainability In this context it is essential to pick those mutual funds that have invested a considerable amount of their assets in low carbon mutual funds These are basically mutual funds with low carbon risk courtesy of investment in low or no fossil fuel stocks These funds are strong investment choices for those seeking stable gains and at the same time maintaining social responsibility Why Buy Low Carbon Over Fossil Fuel Funds Fossil fuel funds or low carbon funds invest in companies investing in fossil fuels or have high climate risk Actually in the past few years investors divested at least 6 trillion of assets from fossil fuel funds Fossil free funds on the other hand bear minimal climate risk The best possible way to identify a company that is focused on reducing its carbon footprint on the earth is through assessing its total carbon emissions derived from the company s operations One more thing that is assessed is that whether a company s management is taking necessary actions to reduce carbon emissions and produce products that are less carbon intensive Companies with low carbon emission risk will be at an advantage to adapt to stricter carbon standards in the coming days In this context we have analyzed some of the key fund families that have lower exposure to fossil fuel stocks Fund Families Less Vulnerable to Fossil Fuel FundsAccording to Fossil Free Funds and Morningstar the top three fund families American Funds 10 Vanguard 9 and Fidelity 7 in terms of assets under management have exposure of not more than 10 in fossil fuel stocks The total number of Vanguard mutual funds and exchange traded funds that have no fossil fuels stocks are nine As of April 2018 the number of Five badge fossil free funds funds having no fossil fuel stocks for Fidelity was 52 Although American Funds have no fossil free funds it has one Carbon Underground 200 free fund Additionally T Rowe Price and MFS have 11 and three Five badge fossil free funds respectively 5 Low Carbon Mutual Funds to BuyFollowing the development we have selected five low carbon mutual funds that have no or low exposure in fossil fuel stocks All these mutual funds have a Zacks Mutual Fund Rank 1 Strong Buy Moreover these funds have an encouraging one year and year to date YTD returns and their minimum initial investment is within 5000 Also these funds have low expense ratios We expect these funds to outperform their peers in the future American Funds New Economy A focuses on securities of those companies that are expected to benefit by exploiting new technologies or by providing products to meet demands of the changing global economy ANEFX carries an of 0 78 compared with the category average of 1 08 Moreover ANEFXrequires a minimal initial investment of 250 The fund has one year and YTD returns of 25 2 and 5 7 respectively Further Timothy D Armour is one of the fund managers of ANEFX since 1991 Fidelity Select Biotechnology invests the majority of its assets in securities of companies principally engaged in the research development manufacture and distribution of various biotechnological products FBIOX carries an expense ratio of 0 73 compared with the category average of 1 25 Moreover FBIOX requires a minimal initial investment of 2 500 The fund has one year and YTD returns of 10 2 and 1 respectively Further Rajiv Kaul is the fund manager of FBIOX since 2005 T Rowe Price Blue Chip Growth Fund seeks capital appreciation for the long run by investing heavily in common stocks of large as well as mid cap blue chip companies TRBCX carries an expense ratio of 0 70 compared with the category average of 1 08 Moreover TRBCX requires a minimal initial investment of 2 500 The fund has one year and YTD returns of 28 2 and 7 6 respectively Further Larry J Puglia is the fund manager of TRBCX since 1993 JPMorgan NYSE JPM Large Cap Growth A invests a large chunk of its assets in equity securities of large cap companies The fund focuses on large cap companies that are included on the Russell 1000 Growth Index OLGAX carries an expense ratio of 1 05 compared with the category average of 1 08 Moreover OLGAX requires a minimal initial investment of 1 000 The fund has one year and YTD returns of 27 4 and 6 3 respectively Further Giri K Devulapally is the fund manager of OLGAX since 2004 Vanguard International Explorer Investor invests primarily in equity securities of small cap companies based in countries outside the United States that an advisor expects to offer capital growth potential VINEX carries an expense ratio of 0 38 compared with the category average of 1 53 Moreover VINEX requires a minimal initial investment of 3 000 The fund has one year and YTD returns of 20 4 and 0 9 respectively Further Matthew Dobbs is one of the fund managers of VINEX since 2000 Want key mutual fund info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing mutual funds each week |
JPM | What European Slowdown Here Are 4 ETFs Beating S P 500 | Europe may be slowing down The Eurozone economy expanded 0 4 sequentially in the first three months of 2018 matching market expectations and following 0 7 growth in the preceding three month period GDP grew 2 5 year over year after 2 8 expansion in the previous period and
The Euro zone superpower German economy seasonally adjusted sequentially in the first quarter of 2018 following a 0 6 expansion in the previous period and below market expectations of 0 4 It represented the slowest clip of expansion since the third quarter of 2016
The French economy too logged the feeblest growth rate since the third quarter of 2016 Its economy grew 0 3 sequentially in Q1 slowing from a expansion in Q14 of 2017 and below market expectations of 0 4
Not only Euro zone the British economy saw the weakest growth since a 0 1 shrinkage seen in the fourth quarter of 2012 The GDP growth rate of the United Kingdom was 0 1 sequentially in Q1 which slowed from a 0 4 rise in the previous quarter The growth rate also fell short of 0 3 market expectations read
But this slowdown couldn t dent the European markets While weakness in any economy is dreaded sometimes it bodes well for investors This is because a slowdown in economies will compel the central banks to remain accommodative on their monetary policies
The ECB has already acknowledged the moderation in economic growth in its latest meeting held on Apr 26 The bank stressed on the need to keep the policy rate constant The bank also maintained that net asset purchases are likely to run at a monthly pace of 30 billion until the end of September or beyond should need be read
Probably this is why investors should not fear the slowdown in Europe rather they can target some of the ETFs that not only outperformed the broader Europe fund Vanguard FTSE Europe ETF down 0 3 in the last one month as of May 16 2018 but also beat the S P 500 ETF AX SPY up 0 8 see all here
Deutsche X trackers MSCI United Kingdom Hedged Equity Fund Up 7 5
The MSCI United Kingdom US Dollar Hedged Index provides exposure to the equity market of the United Kingdom while at the same time mitigating exposure to fluctuations between the value of the U S dollar and British pound sterling A currency hedged approach proves beneficial in the current rising dollar environment Its net expense ratio is 0 45 and it yields 3 95 annually
JPMorgan NYSE JPM Diversified Return Europe Currency Hedged ETF Up 5 9
The underlying FTSE Developed Europe Diversified Factor 100 Hedged to USD Index comprises equity securities from developed Europe It employs a multi factor security selection including value quality and momentum factors It charges 49 bps in fees and yields 2 76 annually
iShares Currency Hedged MSCI Switzerland ETF Up 4 4
The Swiss economy seems to be better placed Moody s Investors Service expects economic growth to pick up to this year and 1 7 in 2019 compared with 1 for 2017 So investors can try this fund thanks to the better growth rates This currency hedged fund charges 52 bps in fees
WisdomTree Europe Hedged Equity ETF Up 3 7
The currency hedged Europe ETF is heavy on France 26 3 and Germany 25 2 The fund charges 58 bps in fees
Want key ETF info delivered straight to your inbox
Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing ETFs each week |
JPM | The Steady Descent Of Emerging Market Bonds | In sharp contrast to the likes of say small cap equities one financial instrument that has been reliably sliding week after week month after month continues to be the iShares JPMorgan USD Emerging Markets Bond ETF NASDAQ EMB I have managed to lay out five successive horizontal lines indicating its diminishing levels of price resistance typically based on a gap down
A longer look reveals how this is far from over |
MS | Japan s robust labor demand bolsters outlook for wage increases | By Stanley White TOKYO Reuters Labor demand in Japan rose in December to its highest in more than 40 years which could help workers pressing for bigger pay increases at annual wage negotiations and push stubbornly slow consumer price growth towards policymakers inflation target The strong labor market data out on Tuesday suggests employers may be more likely to heed the government s call to raise wages by 3 percent or more at annual negotiations with unions increasing the prospects for consumer spending and inflation to pick up The labor market is tight and companies are having trouble hiring workers so this puts some upward pressure on wages said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities Retail sales jumped a hefty 3 6 percent in December from a year earlier handily topping a median market forecast for a 1 8 percent increase and the biggest annual increase since the 4 9 percent seen in April 2015 when retail sales rebounded sharply after a sales tax increase the previous year It s fair to say consumer spending will remain in a gradual recovery trend Miyazaki added The jobs to applicants ratio rose to 1 59 from 1 56 in November which is more than the median forecast of 1 57 and the highest since January 1974 The seasonally adjusted unemployment rate edged up to 2 8 percent from 2 7 percent in November data from the Internal Affairs ministry showed Economists median forecast was for the jobless rate to remain at 2 7 percent the lowest since November 1993 The jobless rate rose slightly as some people voluntarily left jobs to find better work an internal affairs ministry official said The labor participation rate for men was 83 2 percent up 0 6 percentage point from a year earlier while the labor participation rate for women was 68 2 percent up 1 4 percentage points from a year ago as government policies drew more women into the workforce In addition to the increase in female workers Japan has also been recruiting foreign workers to ease labor shortages In October 2017 the number of foreign workers in Japan was 1 3 million the highest on record separate data from the labor ministry showed One widely overlooked factor driving Japan s growth in recent years has been a surge in the number of foreign workers Marcel Thieliant senior Japan economist at Capital Economics said in a research note This appears to be continuing as employers face labor shortages and recent legal changes have made it easier for foreigners to work in the country To be sure there is still some reason to be cautious about how much wages will rise Two thirds of Japanese firms think the government s push to raise wages by 3 percent is a tall order with some dismissing it out of hand a Reuters survey last month showed Japan s Keidanren business lobby has thrown its considerable weight behind the government s push for big cash rich companies to raise wages by 3 percent or more this year Some companies have little choice but to raise wages as they battle to secure workers in the face of the labor shortage economists say Japan logged seven straight quarters of economic expansion to end September its longest uninterrupted stretch of growth since 1994 Exports have been robust corporate profits are near record highs and Tokyo stocks are at their highest in 26 years The improving economic outlook has increased expectations that Japan s consumer prices will start rising more quickly making it easier for the Bank of Japan to meet its 2 percent inflation target Japanese household spending which is different from retail sales because it is based on surveys sent to a small sample of consumers fell 0 1 percent in December from a year earlier in price adjusted real terms
This is counter to economists median estimate of a 1 7 percent annual increase but an unusually large 23 3 percent annual decline in spending on home repairs pulled down household spending in December |
MS | Signs of upswing as slide s over in Singapore s playground for the rich | By Aradhana Aravindan SINGAPORE Reuters A nascent recovery in Singapore s housing market is showing signs of reaching Sentosa a tiny isle off the southern tip of Southeast Asia s wealthy island state that is both a playground for partying Singaporeans and home for rich ex pats Measuring just 5 square kilometers less than 2 square miles Sentosa is a niche market Offering a resort lifestyle just a bridge away from the city Sentosa is the only place in Singapore that foreigners can buy landed property Once a Malay graveyard and a British military base in the colonial period Sentosa was developed as a tourist attraction in the 1970s when it was enlarged through land reclamation to merge with two neighboring islets It was during the 2000s when the government actively sought to persuade Asia s jetsetters to take up residence in Singapore that the Sentosa Cove residential enclave was developed Constructed on more reclaimed land and hosting over 2 000 homes Sentosa Cove has private houses but 80 percent of the properties are condominium apartments overlooking the marina and man made waterways snaking through the complex That kind of lifestyle you can t get it anywhere else in Singapore said realtor Bruce Lye whose agency SRI is currently marketing several properties including a house that comes with a Lamborghini sports car But nowhere is perfect When Singapore s property market began a slide in end 2013 that lasted for nearly four years Sentosa was hardest hit During the downturn prices for Sentosa Cove apartments fell 35 percent from where they started 2013 compared with a 10 percent drop on the mainland according to real estate services firm Colliers International The Singapore market stabilized in 2017 recording its first annual rise in four years albeit a meager 1 1 percent and even Sentosa stopped falling Sentosa prices appear to be finding a footing Tricia Song Colliers head of Singapore research referring to apartments as the market for houses is more rarefied and difficult to assess Song expects Sentosa properties to lag prime real estate on the mainland as the location is less convenient for most people NEW TUNNEL The sea views the greenery the two 18 hole golf courses a casino and a marina festooned with quayside restaurants are selling points transport links aren t Day trippers visiting the Universal Studios theme park or the bar restaurants that line the beach use a cable car and a monorail Otherwise access and connectivity to the mainland are awkward for residents Motorists have to use a causeway though jams have been reduced by a one way tunnel for traffic leaving Sentosa that was opened in April The kids might still have a longer commute to school than their classmates and residents may pay over the odds for groceries but these are choices that some people can afford to make A Singaporean woman who runs a commercial property business and lives with her husband in a Sentosa Cove apartment that she paid S 3 8 million 2 91 million for in 2016 and she isn t cribbing They enjoy the lifestyle renting yachts on the weekend and having relaxed brunches at sea front restaurants We have to drive five minutes into the Cove so it s a bit inside but we all have cars so it s not too bad for me said the 36 year old mother of three who did not wish to be named Getting the kids to school wasn t a problem I have a chauffeur for them After the hiatus of the past few years there are signs that interest in buying on Sentosa is reviving though more slowly than for the rest of Singapore Property services firm JLL said 65 units were transacted in 2017 more than double the 31 in 2016 It expects deals to increase further in 2018 As prices in Sentosa Cove have fallen significantly some buyers are seeing value in the properties there leading to a pick up in transaction volume said Ong Teck Hui JLL s national director of research Singapore Morgan Stanley NYSE MS forecast Singapore prices will increase 8 percent in 2018 and Credit Suisse SIX CSGN forecast prices to go up by as much as 10 percent Ong predicts average prices of non landed homes on Sentosa could rise 4 7 percent this year |
JPM | World shares edge higher on U S China trade deal hopes | By Ritvik Carvalho LONDON Reuters Global shares rose on Monday amid growing optimism the United States and China will reach a trade agreement as soon as this month U S President Donald Trump and Chinese President Xi Jinping might seal a formal trade deal around March 27 given progress in talks between the two countries the Wall Street Journal reported on Sunday The two nations have imposed tit for tat tariffs on billions of dollars worth of each others goods roiling financial markets disrupting manufacturing supply chains and shrinking U S farm exports A source briefed on the negotiations told Reuters the two countries appear close to a deal that would roll back U S tariffs on at least 200 billion worth of Chinese goods Stock markets welcomed the news with European markets following their Asian counterparts higher The pan European STOXX 600 index was up 0 4 percent MSCI s All Country World Index which tracks shares in 47 countries was up 0 1 percent on the day The key question is will all tariffs will be removed instantly or will they be gradually dialled back wrote Lukman Otunuga research analyst at FXTM While the renewed risk appetite is seen boosting European and U S stocks investors should consider how much upside is left given that markets have been actively pricing in the possible resolution to the trade saga E mini futures for the S P 500 index of U S stocks were up 0 3 percent in London In Asia Chinese shares were the biggest gainers with the blue chip index up as much as 3 percent The CSI300 index rallied last week after index provider MSCI quadrupled its weighting for mainland shares in its global benchmarks Australian shares rose 0 4 percent and Hong Kong s Hang Seng index added 0 7 percent That left MSCI s broadest index of Asia Pacific shares outside Japan with gains of 0 3 percent The index has risen almost 10 percent so far this year Japan s Nikkei strengthened more than 1 percent POLICY EASING March is expected to be a crucial month for global markets Britain s parliament will vote on an agreement to leave the European Union the U S Federal Reserve will hold a policy meeting that could yield clues on its plans for interest rates and balance sheet reduction and the European Central Bank will hold its scheduled policy meeting this week While it will take time for economic data to stabilise from the current slowdown policy shifts by central banks and governments especially in the U S and China should help support investor confidence for now said Tai Hui Asia Pacific chief market strategist at JPMorgan NYSE JPM Asset Management Surveys last week highlighted manufacturers pain particularly those exposed to China s slowdown and added to expectations that central banks are finished tightening policy In the United States manufacturing activity dropped in February to its lowest since November 2016 consumer confidence fell short of forecasts inflation was tame and U S personal income fell in January for the first time in more than three years The modest inflation lends support to the Fed s patient posture on raising U S interest rates analysts said Greece s benchmark 10 year government bond yields dropped to their lowest since 2006 on Monday after Moody s raised its rating late last week bolstering investor optimism towards the euro zone s most indebted country Moody s on Friday lifted Greece s issuer ratings to B1 from B3 citing the effectiveness of the country s reform programme The dollar index rose against a basket of major currencies to its highest in a week It was last higher 0 1 percent at 96 604 Speculators have ramped up long dollar bets with the latest positioning data showing net positions rising to 27 24 billion for the week ending March 1 Most of those bets are positioned to take advantage of higher U S interest rates The euro fell to its lowest in a week down 0 25 percent on the day at 1 1339 The Australian dollar a liquid proxy for risk hedges gained but disappointing domestic data curbed the gains The currency was last at 0 7076 after earlier rising as high as 0 7118 Elsewhere oil prices gained on Monday with Brent futures up 0 7 percent at 65 53 a barrel U S crude rose 0 6 percent to 56 12 |
JPM | U S construction spending falls fourth quarter GDP seen revised lower | By Lucia Mutikani WASHINGTON Reuters U S construction spending unexpectedly fell in December as investment in both private and public projects dropped leading economists to expect that the government will trim its economic growth estimate for the fourth quarter The report from the Commerce Department on Monday was further evidence the economy lost momentum at the tail end of 2018 Growth is slowing as the stimulus from a 1 5 trillion tax cut and increased government spending ebbs Trade tensions between the United States and China as well as slowing global economies are also hurting domestic activity The construction spending report extended the run of weak December economic data that has included retail sales housing starts trade and home sales The report is in line with the U S economy losing some steam at the end of the year said Steven Shields an economist at Moody s Analytics in West Chester Pennsylvania Construction spending declined 0 6 percent after an unrevised 0 8 percent increase in November Economists polled by Reuters had forecast construction spending rising 0 2 percent in December Construction spending increased 1 6 percent on a year on year basis It rose 4 1 percent in 2018 the weakest reading since 2011 The release of the December report was delayed by a five week partial shutdown of the government that ended on Jan 25 Based on the construction spending data economists expect the government will pare its fourth quarter gross domestic product estimate by at least one tenth of a percentage point to a 2 5 percent annualized rate The government reported last Thursday that the economy grew at a 2 6 percent rate in the October December period slowing from the third quarter s brisk 3 4 percent pace It is scheduled to publish revisions to the fourth quarter GDP data at the end of the month The stream of soft December reports set the economy on a slower growth path in the first quarter We continue to see downside risk to our 1 5 percent growth forecast for the first quarter with much of the related monthly source data now reported through December said Daniel Silver an economist at JPMorgan NYSE JPM in New York In December spending on private construction projects fell 0 6 percent after surging 1 3 percent in November Investment in private residential projects tumbled 1 4 percent after rebounding 3 4 percent in November The housing market has been weighed down by higher mortgage rates expensive building materials as well as land and labor shortages Residential investment contracted 0 2 percent in 2018 the worst performance since 2010 Spending on private nonresidential structures which includes manufacturing and power plants gained 0 4 percent in December after declining 1 1 percent in November Spending on nonresidential structures contracted in both the third and fourth quarters Investment in public construction projects fell 0 6 percent in December to an eight month low after decreasing 1 0 percent in November Spending on federal government construction projects plunged 2 2 percent after rising 0 3 percent in November
Investment in state and local government construction projects fell 0 5 percent in December to an eight month low after dropping 1 1 percent in November |
JPM | Even Talk of Rate Cut in Turkey Would Be Too Much for Market | Bloomberg Turkey s central bank will have to choose its words carefully as it charts its course back toward interest rate cuts
With annual inflation just below 20 percent and the lira under pressure again a reduction is unlikely to be on the table when the Monetary Policy Committee gathers on Wednesday for the last meeting before local elections Instead the market is focused on two hawkish sentences that have remained unchanged in the statements that accompanied the past couple of decisions to hold rates
Any change in these sentences could make the market nervous said Yarkin Cebeci an economist at JPMorgan Chase Co NYSE JPM who expects the rhetoric to stay the same We believe any reference to easing could hurt credibility
The unease has played out in the market with investors anticipating the Turkish currency will remain among the world s most unstable The gauge of expected price swings over a one month period as implied by options extended a surge to more 300 basis points on Monday before trimming its advance a day later The cost of insuring against a default in Turkish government debt climbed for a fourth day to 313 basis points
No longer hounded by President Recep Tayyip Erdogan who s previously insisted that high borrowing costs cause inflation the central bank has zeroed in on price stability increasing rates by 625 basis points last September to halt a plunge in the currency Facing bellwether municipal elections in less than four weeks the government has resorted to battling price pressures directly cracking down on hoarding cracking down on hoarding and selling discounted food
After the March 31 vote Turkey isn t scheduled to hold another ballot for the next four years
Economists now predict the central bank won t resume rate cuts before the next quarter and will deliver 4 75 percentage points of monetary easing by the end of the year The benchmark rate will be kept at 24 percent for a fourth straight meeting on Wednesday according to all 25 analysts surveyed by Bloomberg
Governor Murat Cetinkaya is waiting for what he s called a convincing deceleration in price growth before resuming monetary easing Headline inflation in February slowed to an annual 19 7 percent from 20 4 percent in the previous month
Before last month s decision to lower the amount of cash lenders are required to hold in reserves Cetinkaya said any steps to free up liquidity wouldn t necessarily mark a shift in monetary policy
The question is how long Erdogan will give the central bank free rein
The economy is sinking into its first recession in a decade as Turkish companies endure higher borrowing costs and loan growth remains sluggish The lira is another concern It s depreciated against the dollar for four straight weeks losing about 3 percent in one of the worst performances in emerging markets
Policy makers should wait at least until June to start a gradual easing cycle according to economists at Turkiye Garanti Bankasi AS
High levels of trend inflation and sticky inflation expectations should still be the main concern for Turkey s central bank analysts led by Adem Ileri said in an emailed report
A previous version of this story corrected an economist s name in final paragraph
Updates with markets in fourth paragraph |
JPM | Digital banking startup Chime valued at 1 5 billion in new 200 million round | By Anna Irrera
Reuters Digital only banking startup Chime has raised 200 million from investors in a new round of funding which values the company at 1 5 billion it said on Tuesday
The investment was led by venture capital firm DST Global with participation from new investors General Atlantic Coatue ICONIQ Capital and Dragoneer Investment Group the company said Existing investors Forerunner Ventures Cathay Innovation Menlo Ventures and others also participated Chime said
San Francisco based Chime will use the cash injection to launch new products in credit building and short term lending Chief Executive and Founder Chris Britt said in an interview Chime curently offers checking and savings accounts and a debit card
Everybody knows their credit score because of all the services out there that are free but what people struggle with is how to improve their credit score Britt said
Chime is among a number of digital only banking providers that have sprung up in the United States and globally in recent years with the aim of taking advantage of new technologies to offer easier to use and cheaper services built for the smartphone era
Online banks in the United States include Varo Money Inc and Ally Bank while established financial institutions such as JPMorgan Chase Co NYSE JPM have also recently launched digital only accounts
Globally some of the most well funded digital banks include Germany s N26 UK based Monzo and Brazil s Nubank
In the United States Chime also competes for deposits with financial technology startups which have recently started to expand beyond their initial area of focus and are trying to lure consumers by offering high rates
Online wealth management firm Wealthfront last month launched a cash account with an interest rate on deposits of 2 24 percent while student lender SocialFinance offers a checking account with a 2 25 percent rate
Chime which has no minimum deposit and charges no monthly service fees or fees for transfers and foreign transactions has more than 3 million bank accounts it said
It does not have a bank license but accounts are protected by the Federal Deposit Insurance Corporation FDIC through a partnership with The Bancorp Bank
Britt said applying for a bank charter might be something the company will consider down the line but that it is curently more focused on building new products
It plans to grow its headcount to 200 people from 120 by the end of the year Britt said |
JPM | Even Talk of a Rate Cut in Turkey Would Be Too Much for Markets | Bloomberg Turkey s central bank will have to choose its words carefully as it charts its course back toward interest rate cuts
With annual inflation just below 20 percent and the lira under pressure again a reduction is unlikely to be on the table when the Monetary Policy Committee gathers on Wednesday for the last meeting before local elections Instead the market is focused on two hawkish sentences that have remained unchanged in the statements that accompanied the past couple of decisions to hold rates
Any change in these sentences could make the market nervous said Yarkin Cebeci an economist at JPMorgan Chase Co NYSE JPM who expects the rhetoric to stay the same We believe any reference to easing could hurt credibility
The unease has played out in the market with investors anticipating the Turkish currency will remain among the world s most unstable The gauge of expected price swings over a one month period as implied by options extended a surge to more 300 basis points on Monday before trimming its advance a day later The cost of insuring against a default by Turkey s government on its debt for five years climbed to more than 313 basis points on Tuesday
No longer hounded by President Recep Tayyip Erdogan who s previously insisted that high borrowing costs cause inflation the central bank has zeroed in on price stability increasing rates by 625 basis points last September to halt a plunge in the currency Facing bellwether municipal elections in less than four weeks the government has resorted to battling price pressures directly cracking down on hoarding and selling discounted food
After the March 31 vote Turkey isn t scheduled to hold another ballot for the next four years
Economists now predict the central bank won t resume rate cuts before the next quarter and will deliver 4 75 percentage points of monetary easing by the end of the year The benchmark rate will be kept at 24 percent for a fourth straight meeting on Wednesday according to all 25 analysts surveyed by Bloomberg
Governor Murat Cetinkaya is waiting for what he s called a convincing deceleration in price growth before resuming monetary easing Headline inflation in February slowed to an annual 19 7 percent from 20 4 percent in the previous month
Before last month s decision to lower the amount of cash lenders are required to hold in reserves Cetinkaya said any steps to free up liquidity wouldn t necessarily mark a shift in monetary policy
The question is how long Erdogan will give the central bank free rein
The economy is sinking into its first recession in a decade as Turkish companies endure higher borrowing costs and loan growth remains sluggish The lira is another concern It s depreciated against the dollar for four straight weeks losing about 3 percent in one of the worst performances in emerging markets
Policy makers should wait at least until June to start a gradual easing cycle according to economists at Turkiye Garanti Bankasi AS
High levels of trend inflation and sticky inflation expectations should still be the main concern for Turkey s central bank analysts led by Adem Ileri said in an emailed report
A previous version of this story corrected an economist s name in final paragraph |
JPM | Australia GDP slowdown opens door wide for rate cuts this year | By Swati Pandey SYDNEY Reuters Australia s top central banker sounded sanguine about a sharp slowdown in the country s property market on Wednesday saying it was unlikely to derail momentum even as data showed the 1 3 trillion economy hit an airpocket last quarter Domestic activity slowed sharply in the second half of last year the figures released on Wednesday showed with gross domestic product GDP rising 0 2 percent in the December quarter following a sub par 0 3 percent in the previous three month period Annual GDP rose a below trend 2 3 percent the slowest pace since mid 2017 and confounding expectations for a 2 5 percent increase The dismal figures sent the Australian dollar to a two month trough of 0 7029 as investors wagered the Reserve Bank of Australia RBA would ease policy to stimulate the economy We think rate cuts this year while not guaranteed are now more likely than not said Nomura economist Andrew Ticehurst in a report Ticehurst cited weak regional and global growth and debt laden consumers in a deteriorating housing market among reasons for his bearish case We expect another round of material growth forecast reductions from the RBA and see an increasing risk that inflation continues to fall short of the target band for an extended period he added Australia s top investment bank Macquarie also revised its rate outlook to two cuts this year from no change previously as did JPMorgan NYSE JPM With growth now below trend the labor market will soon start softening So you can support the economy with further cuts said Macquarie economist Ric Deverell Interest rate futures have moved too now pricing in a 100 percent chance of a cut to the 1 50 percent cash rate this year from an 86 percent probability on Tuesday The RBA drifted away from its previous tightening bias last month to a neutral stance although recent comments and reports from the central bank show the outlook on the economy remain broadly optimistic It expects growth to pick up to around 3 percent this year a forecast many economists believe will be downgraded in the months to follow A revival in business investment strong government spending higher commodity prices and a still robust jobs market are among reasons for the RBA s optimism But dark clouds are now gathering as the house price slowdown hits dwelling investment and construction activity in Australia s two biggest cities of Sydney and Melbourne The property downturn is also expected to further weigh on already stretched household balance sheets At the same time wage growth is slow and there is still a fair degree of spare capacity in the labor market On a per capita basis GDP fell in December and September quarters marking only the third time in the past 30 years per capita activity contracted for two consecutive quarters The last time that happened was in 2006 RBA Governor Philip Lowe still believes there is fire left in Australia s economy which has not had a recession since 1991 The adjustment in our housing market is manageable for the overall economy It is unlikely to derail our economic expansion he said in a speech in Sydney before the GDP data on Wednesday While focussing on economic bright spots Lowe emphasized current monetary policy settings were clearly stimulatory We have the flexibility to adjust monetary policy in either direction as required he said At the moment the probabilities appear reasonably evenly balanced FISCAL STIMULUS Defying the gloom higher prices for Australia s resource exports boosted corporate profits and GDP in current dollar terms which in turn provides a windfall to tax revenues As a result nominal GDP climbed 1 2 percent in the quarter and a rapid 5 5 percent for the year The stellar nominal growth has led many economists to speculate the government will shower tax sweeteners on households including one off cash transfers ahead of state and federal elections in coming months Fiscal stimulus is the key risk to our forecast for two rate cuts this year said Sally Auld Sydney based chief economist at JPMorgan
The government has a bit of spare money up its sleeve If they deliver a large pre election spending for households that will enable the RBA to stay on hold for the forseeable future |
MS | iFOREX Daily Analysis July 26 2016 | The dollar fell before the U S Federal Reserve s two day policy meeting that begins today while the yen gained despite expectations that the Bank of Japan will ease its monetary policy later this week as investors grow increasingly skeptical about the impact of further stimulus Later this week most economists surveyed by Reuters expect the BOJ to take some form of easing steps at its two day meeting that ends on Friday A Nikkei report on Tuesday said Japan was likely to inject 6 trillion yen in direct fiscal outlays into the economy over the next few years Meanwhile the U S central bank is widely expected to stand pat on policy at its meeting that ends on Wednesday but investors were bracing for any possible signals from the Fed about a tightening later this year Britain could borrow nearly 65 billion pounds more than planned in the next couple of years as new finance minister Philip Hammond seeks to reset government budget policy in order to lower the impact from last month s vote to leave the European Union Ratings agencies and economists widely expect borrowing to rise materially next year for the first time since 2010 For today the U S is to release data on new home sales as well as a private sector report on consumer confidence
EUR USD
The dollar showed little movement holding steady close to four month highs against most major currencies on Monday as investors await for the Federal Reserve and the Bank of Japan s upcoming meetings Trading volumes remained low on Monday with no major U S data released throughout the day Despite German Ifo business climate index dropping to 108 3 in July from 108 7 in June the euro managed to end the day in positive territory against the dollar While most investors expect the Fed to leave its monetary policy unchanged this week it could give hints on the timing of future rate hikes For today the U S is to release data on new home sales as well as a private sector report on consumer confidence
Pivot 1 095Support 1 0951 09351 091Resistance 1 10351 1051 108Scenario 1 long positions above 1 0950 with targets 1 1035 1 1050 in extension Scenario 2 below 1 0950 look for further downside with 1 0935 1 0910 as targets Comment the RSI shows upside momentum
Gold
Gold prices fell on Monday due to a firm dollar as market players looked ahead to the start of the Federal Reserve s two day meeting in Washington D C for further clues on the path of the U S central bank s long term interest rate outlook Investors prepare for the start of the FOMC two day July monetary policy meeting on Tuesday morning While the FOMC is unlikely to make any adjustments to its benchmark Federal Funds Rate the U S central could provide key hints on the timing of its next interest rate hike For today the U S is to release data on new home sales as well as a private sector report on consumer confidence
Pivot 1312Support 13121304 51300Resistance 133013341338 5Scenario 1 long positions above 1312 00 with targets 1330 00 1334 00 in extension Scenario 2 below 1312 00 look for further downside with 1304 50 1300 00 as targets Comment a support base at 1312 00 has formed and has allowed for a temporary stabilisation
WTI Oil
Oil prices dropped on Monday reaching fresh three month low as continuing fears related to global oversupply and recent gains in the U S Dollar remain in focus Crude fell to its lowest level since late April as investors responded to further signs of a supply glut on global energy markets Over the weekend analysts from Morgan Stanley NYSE MS issued warnings on continued oversupply among refined products as gasoline stocks rose to a five year high Elsewhere investors reacted to developments out of Libya after Petroleum Guard Commander Ibrahim Jathran announced that the national oil guard is ready to halt a lengthy blockade of three main ports in the Northern African nation For today oil traders will be focusing on U S stockpile data from the American Petroleum Institute
Pivot 44 4Support 42 741 740 6Resistance 44 444 9545 45Scenario 1 short positions below 44 40 with targets 42 70 41 70 in extension Scenario 2 above 44 40 look for further upside with 44 95 45 45 as targets Comment the RSI is capped by a declining trend line
US 500
U S stocks fell from record high levels on Monday after a month long rise as oil prices slipped to three month lows weighing heavily on the major indices on Wall Street On Monday WTI crude for September delivery fell below 43 for the first time since late April as analysts from Morgan Stanley warned that the oversupply in the market could curb demand in crude over the next several months pushing prices down even further On the S P 500 nine of 10 sectors closed in the red as Energy Industrials and Financials lagged Energy stocks plunged by more than 2 for the session Wall Street is expecting support from restaurant quarterly results over the next few days Restaurants have been doing well following recent improvements in U S employment and wages as consumers spend more of their disposable income on going out and less on clothes and other retail products
Pivot 2072 Support 2072 1992 1950 Resistance 2190 2220 2250 Scenario 1 long positions above 2072 00 with targets 2190 00 2220 00 in extension Scenario 2 below 2072 00 look for further downside with 1992 00 1950 00 as targets Comment the RSI is bullish and calls for further advance |
MS | Outlook for oil gloomy | The price of oil continued to fall again today as expectations surfaced on more drilling activites from the US as well as a general oversupply of petroleum products on the market WTI is currently trading at US 42 69c while Brent crude oil is sitting around US 44 76c Supply continues to return from disruptions refined products are severely oversupplied crude demand is falling well short of product demand and key product demand is decelerating noted analysts from Morgan Stanley NYSE MS Predicting more downside are analysts at JBC Energy who noted that there are more pessimists than optimists at the moment when it comes to the direction of the oil price and we may yet see some further falls Inputs on the speculative side are certainly more bearish than bullish Crude fundamentals could certainly be used to make a case that there is some more downside to prices yet to be flushed out they said Improved economic data out of America has raised expectations of an imminent rate hike from the US Federal Reserve which is also weighing on the oil price as a higher greenback tends to put pressure on dollar priced commodities as they become more expensive for holders of other currencies |
C | Resilient Growth in Canada Just Got a Fresh Warning Signal | Bloomberg For the first time this year the Canadian economy is coming in below analyst expectations according to a closely watched gauge of economic surprises
The index from Citigroup Inc NYSE C which falls when data prove worse than forecast dropped below zero on Tuesday for the first time since December It indicates that Canada s growth might be slowing down at a faster pace than what analysts expect fueled by trade war concerns The Canadian dollar has also weakened against the greenback this month making it one of the worst currencies against its Group of 10 counterparts
The negative reading follows a series of disappointing economic reports this month including jobs trade and housing starts giving economists some pause on the extent of the country s deceleration Manufacturing numbers Tuesday the most recent release from Canada s federal statistics agency were also weak Despite a better than expected headline result factory volumes and inventories declined
Read More Stocks Are Reaching Records in Canada The Economy Not So Much
While the nation s economy is nowhere near peak growth the data so far this year have been strong enough to keep the Bank of Canada from cutting interest rates making it an outlier among other major central banks But a slew of bad data may provide the central bank with more ammunition if it decides to lower borrowing costs at its next meeting on Dec 4
Economists surveyed by Bloomberg expect the economy to decelerate to a yearly pace of 1 5 in 2019 and 2020 in line with expectations for slower global growth |
C | Investors Fear Colombia Could Join Latin America s Year of Rage | Bloomberg Colombia is bracing for its largest protests in years Thursday with labor unions students and indigenous groups leading a nationwide strike aimed at the deeply unpopular President Ivan Duque
Investors have been burned by mass unrest in Chile Ecuador and Bolivia in recent weeks and are pricing in a risk that Colombia may also see more political instability
Organizers initially called the strike to raise pressure on Duque as his government plans to reform pension and labor laws But it has morphed into a broad based rejection of his administration with groups from air traffic controllers to yoga teachers pledging to join in
Similar anti government sentiment has fueled protests across Latin America with large scale demonstrations pushing leaders to roll back austerity programs and helping drive Bolivia s long standing president Evo Morales out of office
I m following it pretty closely The government has something to be nervous about said Oren Barack managing director of fixed income at AGP Alliance Global Partners in New York which holds Colombia sovereign and corporate debt There s a lot of tension in Latin America right now
Sealed Borders
Groups taking part are protesting a range of issues including education funding corruption and unsolved murders of social leaders The government said it will seal the borders and allow local authorities to take measures such as imposing curfews to control violence
We re tired of policies that don t serve the people said Iliana Bermudez 34 a member of a Movimiento Social E24 a group helping organize the strike This government doesn t listen
In response to the planned strike the 43 year old Duque has defended his record and offered to listen to all communities through a permanent dialogue His office has also gone on the offensive describing many of the strike organizers grievances as myths and releasing videos juxtaposing images of violent protests with those of people happily working urging Colombians to construct not destroy
Investor Fears
Sovereign bonds of Ecuador Chile and Bolivia have all sold off since violent clashes began
The cost of insuring Colombia s sovereign bonds against default with credit default swaps a gauge of perceived risk has risen the most in the Americas this week
Because they were blindsided by what happened in Chile they re even more concerned by what could happen in Colombia said Sergio Guzman director of Colombia Risk Analysis a Bogota based consultancy
Discontent has been quietly simmering in the country but hasn t boiled over into mass street violence like that seen in neighboring countries Colombia last saw large scale demonstrations in 2013 during an agriculture strike in which vast swaths of the country were paralyzed by highway blockades and buildings in downtown Bogota were vandalized by masked demonstrators
Approval Rating
Thursday s marches are expected to be mostly peaceful but may create negative headlines that will weigh on assets this week said Dirk Willer head of emerging market fixed income strategy at Citigroup Inc NYSE C
The protests may also succeed in pressuring the government into delaying and watering down its pension reform plans he said
The marches could further weaken Duque s already flimsy support His approval rating fell this month to 26 its lowest level since he took office last year A lack of a majority in Congress complicates his plans to push through a tax reform this year and pension and labor bills next year And a scandal over a bombing raid on a guerrilla camp that killed several minors forced his defense minister to quit this month
Duque s flaws have contributed to a growing level of discontent said Claudia Navas an analyst at Control Risks in Bogota It s uncertain where the president is taking the country |
C | India Must Clean Up or Clear Out Dodgy Brokers | Bloomberg Opinion Any attempt at sweeping out a corner of India s financial system means bringing investors face to face with creepy crawlies Disagreeable as the task is it s also necessary
More than 200 billion in bad loans tumbled out when banks were made to open their attics to the regulatory broom four years ago That cleanup isn t over and already it s the stockbrokers turn Who knows what will emerge
Investors are waiting to find out after the Securities and Exchange Board of India or Sebi banned Karvy Stock Broking Ltd a middleman for nearly 250 000 clients from taking on new customers The regulator said in its interim order that the broker may have helped itself to investors money and securities and diverted as much as 150 million to its real estate business
Karvy s management has denied the charges and told employees that it can provide necessary clarifications to the regulator The amounts involved aren t large enough to cause system wide panic What worries market participants however is that they all know the practice that Sebi wants to uproot commingling clients and broker assets is rampant
Unearthing bad behavior is a welcome first step At stake is the integrity of markets including sanctity of contracts and guaranteed settlement of trades The authorities are keen that assets where the underlying risk emanates in India should be traded onshore and not via derivatives in Singapore Hong Kong or London
However when a foreign investor enters into an option trade in India he could risk facing off against a broker who s using stolen client securities as margin If such trades are then annulled the party that won the market bet feels cheated That s what happened to Citigroup Inc NYSE C earlier this year in a deal involving Allied Financial Services Pvt a broker whose owner has since been charged by India s economic offenses wing
This case which has been keenly followed even outside India seems to have woken up the regulator
India is hardly immune to the global trend of sliding fees and trading commissions Unlike other places market pressures haven t led to the kind of brutal consolidation that should have taken place Too many small independent shops are still open for business even as their owners try to sell themselves to bigger intermediaries Meanwhile nearly a million active mostly younger Indian traders have moved to the likes of Zerodha an online broker that charges nothing for shares held for longer than a day and collects less than 30 cents on intraday and derivative orders
To mask the underlying problem of missing industry wide profitability some traditional brokers are boosting their proprietary trades or extending leverage to customers by dipping into clients funds The Business Standard estimates it to be a 100 billion rupee 1 4 billion problem with three dozen brokers under investigation The true extent will only become clear as Sebi presses on with enforcement The regulator read the riot act in June and said that from September clients securities couldn t be pledged to raise funds by brokers even with their owners permission
Now that Sebi has started the cleanup it must take its broom to the dark crevices Fundamentally the regulator must ask if it s safe to let so much client money and stock be entrusted to so many poorly capitalized brokerages just to make equity investing accessible to the wider public Even the conduct of bigger intermediaries needs closer supervision Derivative contracts have built in leverage When brokers lure day traders to these products by offering additional leverage for trades they must enter and exit in five minutes they aren t helping foster a healthy equity culture Technology and economics have done their bit to nudge the industry toward a much delayed consolidation It s time for the regulator to do its job regardless of the unpleasantness that crawls out |
C | Bank of England fines Citigroup 44 million pounds for regulatory failures | LONDON Reuters The Bank of England fined Citigroup N C 43 9 million pounds 56 3 million on Tuesday saying the U S banking group s British operations failed to provide accurate regulatory returns to the BoE between 2014 and 2018
While Citi remained in surplus to its liquidity and capital requirements at all times the failings persisted over a significant length of time and were serious and widespread in nature the BoE said |
C | Citigroup Fined 57 Million in U K for Regulatory Failings | Bloomberg Citigroup Inc NYSE C was fined 44 million pounds 57 million by the Bank of England for years of inaccurate reporting to regulators about the lender s capital and liquidity levels
The central bank s Prudential LON PRU Regulation Authority said that between June 2014 and December 2018 two of the Wall Street firm s units in the U K had flaws in the systems they used to report financial information to regulators as well as failings in internal governance There were significant errors in reports that had material or potentially material impact on the returns according to the PRA
The bank failed to meet the standards of governance and oversight of regulatory reporting which we expect of a systemically important bank Sam Woods deputy governor for prudential regulation and chief executive officer of the PRA said in a statement
While there were widespread problems the PRA said the bank had surplus liquidity and capital requirements at all times
Citi has fully remediated the past regulatory reporting issues identified by the PRA and settled this matter at the earliest possible opportunity the New York based bank said in a statement |
MS | NAFTA negotiators open key round of talks amid upbeat signs | By David Ljunggren and Anthony Esposito MONTREAL Reuters Officials opened a key round of negotiations to modernize NAFTA on Tuesday amidst optimistic signs as U S President Donald Trump said the talks were going pretty well and Canada s chief negotiator said he had high hopes for progress Trump s remarks helped the Mexican peso stem its losses a reflection of how closely markets are watching efforts by the United States Canada and Mexico to revamp a 1994 pact that the U S president has frequently threatened to abandon Trump vowing to undo what he portrays as disastrous trade deals has in recent days expressed different views of the North American Free Trade Agreement stoking investor worries NAFTA is moving along pretty well I happen to be of the opinion that if it doesn t work out we ll terminate it Trump said in the Oval Office as he signed orders imposing tariffs on imported solar panels and washing machines With time running out to address U S demands for major changes to NAFTA officials met in a Montreal hotel for the sixth and penultimate round of scheduled talks which are to conclude by the end of March to avoid a clash with Mexico s elections We have come to Montreal with a lot of new ideas a lot of creative strategies to try to bridge some of the gaps in the negotiations Canadian chief negotiator Steve Verheul told reporters adding that he had high hopes of progress Insiders say the Canadian and Mexican governments are prepared to be flexible on a U S demand that the amount of North American content in autos be boosted to qualify for duty free status in NAFTA But Ottawa and Mexico City strongly oppose the proposal that autos produced on the continent should have 50 percent U S content Differences also remain over how to address the U S push for changes to various dispute resolution mechanisms Mexico s chief negotiator Ken Smith said he hoped progress could be made on less contentious areas such as telecommunications anti corruption and food safety measures In a note to clients Morgan Stanley N MS said the United States had motivations to remain engaged in NAFTA We believe it is unlikely that the U S will exit the treaty in the months to come the brokerage said Many Canadian officials however are downbeat about the talks amid uncertainty over whether Washington really wants to negotiate If you re unsure where the other side wants to go it is really difficult to know what would please them unless you capitulate and that s not going to happen one person briefed on Ottawa s negotiating stance said on condition of anonymity With NAFTA s future up in the air Canada is taking steps to diversify its trade Canada currently sends 75 percent of its goods exports to the United States Earlier on Tuesday Canada and 10 other nations agreed to sign a reworked Trans Pacific Partnership trade pact The United States pulled out of an earlier version of that deal
Canadian Prime Minister Justin Trudeau is currently attending the World Economic Forum meeting in Switzerland to drum up investment Next month he will spend five days in India which Canada sees as potentially a bigger trading partner |
MS | China s Premier Li calls for more targeted economic policy | BEIJING Reuters China s Premier Li Keqiang has called for more targeted economic policies and measures to cope with structural changes in the world s second largest economy His comments come after China reported growth of 6 9 percent in 2017 compared with its target of about 6 5 percent The economy beat the government s expectations reflecting quantitative expansion as well as an improvement in the quality of growth Li told economic experts and entrepreneurs in a closed door meeting on Monday A statement on the meeting published by the central government on its website late on Tuesday did not include any specifics on how policy might be changed In recent years China has been cutting excess capacity in heavy industries as part of its so called supply side reforms while pushing for new growth drivers such as technology and moving up the value chain But policymakers walk a fine line as they shutter polluting and idle factories without causing massive unemployment and stunting local economies Authorities efforts to contain financial risks and slow a build up in corporate debt have added a layer of complexity in China s economic transformation The central bank has so far refrained from raising benchmark policy interest rates to rein in risks choosing instead to nudge up money market rates incrementally Any broad monetary policy tightening could risk destabilizing economic growth economists say We should increasingly rely on reform opening up and innovation to propel transformation and foster new economic drivers Li said at the meeting on Monday The meeting was held to gather opinions on the annual government work report scheduled to be published in March FAW Group SASACJ UL Chairman Xu Liuping said at the meeting that China should expedite mixed ownership reform in state owned enterprises
Zhang Shiping chairman of Shandong Weiqiao Pioneering Group SDWQP UL said stable policies can stimulate private investment while Morgan Stanley NYSE MS economist Robin Xing said China should tap the potential of small cities to drive consumption |
MS | Davos s unlikely man British socialist puts Alpine elite on notice | By Ivor Bennett DAVOS Switzerland Reuters John McDonnell a proud socialist who wants to run Britain s economy and tear up the rules of capitalism isn t the kind of guy you expect to find rubbing shoulders with the global elite at a Swiss ski resort But at the World Economic Forum in Davos this week that is exactly what he ll be doing telling bankers investors and chief executives that the current capitalist system is living on borrowed time It s a bit like being Daniel in the lion s den but someone has to come here and just give them a bit of a shake McDonnell who cites Karl Marx among his key economic influences told Reuters in Davos Grey haired and soft spoken belying decades of experience rallying crowds for Britain s hitherto fringe hard left movement McDonnell said people in Britain and other countries couldn t relate to the economic optimism expressed in Davos When they are told wealth is being restored the economy is growing and they do not share in that growth that s when people get alienated People need to wake up and listen to that he said McDonnell 66 has been at the vanguard of a left wing revival within Britain s opposition Labour Party He has promised sweeping nationalization higher public spending and an overhaul of the banking system Led by his fellow veteran leftist Jeremy Corbyn Labour captured the imagination of young voters at last year s election depriving center right Prime Minister Theresa May of an outright victory and weakening her position as she negotiates Britain s exit from the European Union Although no election is due until 2022 investors already looking askance at Britain because of Brexit are asking Will May s government collapse Will Labour win power And what would that mean for the British economy What we re looking for so people are clear is to transform our society We want a society that s radically more equal radically fairer radically more democratic McDonnell said The man who would be Corbyn s finance minister said he had been approached by energy firms and tech companies keen to meet him at Davos and had already spoken to other corporate leaders He was due to speak in two panel debates on Friday Last year Morgan Stanley NYSE MS cautioned investors that the risk of Corbyn winning power and dismantling what was once seen as one of the world s most stable free market economies was a bigger political risk in Britain than Brexit But McDonnell said the message is simple for anyone who has concerns Pay your workers a decent wage make sure they share in the profits make sure they have a say in the company make sure you pay your taxes and at the same time make sure you re investing for the long term future RADICAL REFORM Labour has promised to end austerity seizing on the fatigue among voters with seven years of Conservative attempts to reign in Britain s huge budget deficit McDonnell who once theatrically offered in parliament to lend his copy of Chairman Mao s Little Red Book to then finance minister George Osborne has big plans for Britain s economy Among the policies in last year s election campaign was a pledge to invest 250 billion pounds 286 50 billion in capital projects such as roads and hospitals over a decade bypassing London s financial center That would add to an already soaring 1 6 trillion pound national debt and push back the elimination of a budget deficit which the government expects will take until the mid 2020s to wipe out Aware that voters worry about Labour s plans for the economy McDonnell has stressed the need to control spending He has promised to close the deficit in day to day spending over five years and observe a fiscal credibility rule that Labour can borrow only for capital projects which will pay for themselves over time Labour also wants to return infrastructure like rail and water to the public sector and end the outsourcing of government functions to private companies such as Carillion which went bust earlier this month Rather than rushing into forced acquisitions Labour would phase in state ownership that might only bring Britain into line with European rivals France and Germany which have higher levels of state involvement in industry and finance RATHER BE AT HOME But for an island nation with a centuries long laissez faire tradition it would represent a major change reversing three decades of almost uninterrupted economic liberalization started by Conservative Margaret Thatcher and continued under more centrist Labour governments Nevertheless McDonnell says the public is ready to hear Labour s message predicting an early election and a win for his party Labour is tied with the Conservatives in opinion polls a far better position than before last year s election was called when they trailed by over 20 percentage points But while many in May s Conservative Party have doubts about her leadership the risk of losing power to Labour is seen as a deterrent to any attempt to topple her Ever the campaigner McDonnell said that he d prefer be at home in his west London constituency talking to voters rather than in the Swiss mountains but that it had been his duty to come to Davos and set out Labour s position It s part of my job I d rather be back in Hayes and Harlington to be honest or I d rather be at a public meeting somewhere up north in England he said This is beautiful but I haven t got time for the view
1 0 6981 pounds |
MS | Oil firms as dollar falls further but weaker crude demand looms | By Henning Gloystein SINGAPORE Reuters Oil prices reversed earlier falls on Friday as ongoing weakness in the U S dollar was seen supporting fuel consumption Brent crude futures were at 70 40 per barrel at 0756 GMT down 3 cents from their last close after dropping as low as 70 07 earlier in the day U S West Texas Intermediate WTI crude futures were at 65 52 a barrel up 1 cent from their previous close recovering from a session low of 64 91 a barrel Crude oil futures have received support from a weakening dollar which on Friday hit fresh 2014 lows against a basket of other leading currencies As oil is traded in dollars swings in the greenback can also impact oil demand as it affects the price of fuel purchases for countries using other currencies The weakening of the U S dollar against a basket of global currencies has positioned 2018 to lead off with strong levels of oil demand said BMI Research Despite this crude prices were prevented from further rises by a seasonally weakening demand outlook Georgi Slavov head of research at commodities brokerage Marex Spectron said despite a generally healthy outlook for oil demand there were short term headwinds due to the upcoming end of the peak demand period during the northern hemisphere winter season Many refiners shut down after winter for maintenance resulting in lower orders for crude their most important feedstock Demand is starting to weaken as refining capacity was taken out of the market Slavov said U S bank Jefferies said a fairly heavy maintenance season was starting in the United States adding there was also upcoming scheduled maintenance in the Middle East including the 400 000 barrels per day Aramco Jubail refinery This is reflecting in oil inventories Global oil stocks built overall in the week ending Jan 19 as both crude and product stocks saw small builds U S bank Morgan Stanley NYSE MS said On the supply side U S oil production is expected to hit 10 million bpd soon after reaching 9 88 million bpd last week Output has grown by more than 17 percent since mid 2016 and is now on par with top exporter Saudi Arabia s Only Russia produces more averaging 10 98 million bpd in 2017 Rising U S output threatens to undermine the supply restraint led by the Organization of the Petroleum Exporting Countries OPEC and Russia aimed at propping up prices
The cuts coupled with demand growth have contributed to a near 60 percent rise in oil prices since mid 2017 as excess crude inventories have been drawn down |
JPM | JPMorgan hires commercial bankers leaders across Europe Asia | By Elizabeth Dilts NEW YORK Reuters JPMorgan Chase Co NYSE JPM on Wednesday named half a dozen people to a commercial banking team in Europe and new international and Asia Pacific regional leaders as the U S bank closes in on business clients it hopes to poach from rivals abroad For two years JPMorgan s commercial banking business has been building a list of around 1 500 middle market European companies that it wants to attract through its global approach to investment banking credit hedging and treasury services The targets are companies with between 500 million to 2 billion in annual revenue and international ambitions including known brands that already use JPMorgan for their U S business and companies whose owners are JPMorgan private wealth clients We see a lot of opportunity for local corporations in these markets to grow and they can benefit from working with a global banking partner Rob Holmes head of the bank s corporate client banking specialized industries CCBSI group said in a statement Andrew Kresse was named head of CCBSI international banking Kresse comes from JPMorgan s corporate and investment bank and he will build local teams to expand commercial banking activity in European and Asia Pacific markets where the investment bank already has a foothold Bertrand Cousin was named head of CCBSI Europe and will be based out of Paris managing bankers in Germany Italy the Netherlands Spain France and the UK His team includes Claude Craciun in Paris who joined from Societe Generale PA SOGN SA Bernhard Brinker in Frankfurt who joined from UniCredit Bank AG Marco Mariano in Milan who joined from HSBC and Hein Broerse in Amsterdam previously of Citigroup Inc NYSE C Ignacio lvarez Cedr n previously head of global markets for Iberia for JPMorgan s corporate and investment bank will be based in Madrid
Pravid Advani will lead CCBSI for the Asia Pacific region based in Singapore He previously led global trade and loans for the corporate and investment bank |
JPM | JPMorgan Considering China Onshore Private Bank Business | Bloomberg JPMorgan Chase Co NYSE JPM is considering setting up a private bank in China as new regulations give foreign firms a better chance to compete with local players in the world s second biggest pool of wealthy people
The New York based bank is doing a feasibility study on China s onshore wealth business as part of broader plans to expand in the nation said Kam Shing Kwang chief executive officer of JPMorgan s private banking business in Asia Deliberations are at an early stage and any business would start not in the distant future she said declining to elaborate
CEO Jamie Dimon has vowed to bring JPMorgan s full force to China as policy makers open up their financial sector Rivals UBS Group AG and Credit Suisse SIX CSGN Group AG which already have a domestic wealth presence are looking to boost operations in the market that was earlier protected by stiff regulations and strong competition from homemade brands
JPMorgan has also sought permission to run a majority owned securities joint venture in China The move follows policy makers decision last year to treat overseas financial institutions the same as local companies which allows global firms the chance to build the necessary infrastructure and expertise
The biggest international firms mostly manage Chinese money from offices in Hong Kong and Singapore Asia s offshore financial centers That may change as China further opens given the potential for private banks Boston Consulting Group estimates that personal wealth in the nation surged to a record 24 trillion in 2018 with only 1 trillion held abroad
JPMorgan plans to hire in China across banking asset management custodian services and markets Mark Leung chief executive officer for China said in September |
JPM | U S economic growth in 2018 misses Trump s 3 percent target | By Lucia Mutikani WASHINGTON Reuters The U S economy fell short of the Trump administration s 3 percent annual growth target in 2018 despite 1 5 trillion in tax cuts and a government spending blitz and economists say growth will only slow from here A better than expected performance in the fourth quarter pushed gross domestic product up 2 9 percent for the year just shy of the goal Commerce Department data showed on Thursday President Donald Trump has touted the economy as one of the biggest achievements of his term and declared last July that his administration had accomplished an economic turnaround of historic proportions On the campaign trail Trump boasted that he could boost annual economic growth to 4 percent a goal that analysts always said was unachievable We are moving back to a sustainable growth pace that we experienced during most of the Obama years said Joel Naroff chief economist at Naroff Economic Advisors in Holland Pennsylvania With the tax cut impacts largely done with it is hard to see how growth can accelerate sharply Gross domestic product increased at a 2 6 percent annualized rate in the fourth quarter after advancing at a 3 4 percent pace in the July September period Economists polled by Reuters had forecast GDP rising at a 2 3 percent rate in the fourth quarter Growth in 2018 was the strongest since 2015 and better than the 2 2 percent logged in 2017 The expansion will be the longest on record in July The stronger than expected fourth quarter performance which reflected solid consumer and business spending was despite many headwinds including financial market volatility and the United States trade war with China raising optimism that an anticipated slowdown this year would not be abrupt The fiscal stimulus is believed to have peaked sometime in the fourth quarter December economic data such as retail sales exports homebuilding and business spending on equipment weakened sharply In addition most manufacturing measures softened in January and February and motor vehicle demand has eased The labor market is also exhibiting signs of cooling with a report from the Labor Department on Thursday showing the number of Americans receiving unemployment benefits rising to a 10 month high in the week ended Feb 16 The first quarter won t be this good said Paul Ashworth chief economist at Capital Economics in Toronto As the stimulus fades and the lagged impact of past monetary tightening continues to feed through we expect GDP growth to slow to 2 2 percent this year Slowing growth together with weakening global demand and uncertainty over Britain s departure from the European Union support the Federal Reserve s patient stance towards raising interest rates further this year Fed Chairman Jerome Powell reaffirmed the U S central bank s position in his testimonies before lawmakers on Tuesday and Wednesday Inflation was largely muted in the fourth quarter The dollar trimmed losses against a basket of currencies on the GDP data and was last trading little changed U S Treasury prices fell while stocks on Wall Street were lower following weak earnings from a handful of companies SOLID CONSUMER SPENDING The fourth quarter GDP report was delayed by a 35 day partial shutdown of the government that ended on Jan 25 which affected the collection and processing of economic data The Commerce Department said it could not quantify the full effects of the shutdown on fourth quarter GDP growth Economists expect the longest shutdown in history will hurt growth in the first quarter Growth in consumer spending which accounts for more than two thirds of U S economic activity increased at a still strong 2 8 percent rate in the fourth quarter Consumer spending grew at a robust 3 5 percent rate in the third quarter Consumption continues to be underpinned by a strong labor market with inflation adjusted income at the disposal of households jumping at a 4 2 percent rate in the fourth quarter compared to a 2 6 percent pace in the prior period A moderation in spending is however likely amid reports 2018 tax refunds have been smaller than in the previous years Business spending on equipment accelerated in the fourth quarter from the prior period growing at a 6 7 percent rate after losing speed since the first quarter of 2018 The trade deficit widened further as a combination of the U S China trade dispute strong dollar and weakening global demand restrained export growth The trade tensions also led businesses to hoard imports The trade shortfall subtracted 0 22 percentage point from fourth quarter GDP growth after slicing off 2 percentage points in the July September period With consumer spending slowing some of the imports ended up in warehouses accelerating the pace of inventory accumulation While that offset some of the drag on GDP growth from the trade deficit the piling up of stock is bad news for first quarter growth Inventories increased at a 97 1 billion rate in the fourth quarter after rising at an 89 8 billion pace in the July September quarter Inventory investment added 0 13 percentage point to GDP growth last quarter after contributing 2 33 percentage points in the prior period There was a rapid buildup of inventories in the fourth quarter so inventories likely will be a headwind for growth in the future said Daniel Silver an economist at JPMorgan NYSE JPM in New York Residential construction contracted at a 3 5 percent rate marking the fourth straight quarterly decline Homebuilding has been weighed down by higher mortgage rates land and labor shortages as well a tariffs on imported lumber
Government investment increased at a 0 4 percent rate the slowest since the third quarter of 2017 Nondefense investment contracted at a 5 6 percent rate the biggest decline in five years likely reflecting the effects of the five week government shutdown |
JPM | JPMorgan stays with Venezuela in emerging bond indexes fund managers | SYDNEY Reuters JPMorgan NYSE JPM has retained dollar denominated debt issued by Venezuela s state run oil company PDVSA in a key emerging market bond index as part of its monthly rebalancing according to two fund managers Investors have been concerned about the status of PDVSA debt after Washington imposed sweeping sanctions on the company earlier this year JPMorgan which declined to comment on its monthly rebalancing also sent out a survey to its clients asking more specific questions about Venezuela Tina Vandersteel Boston based head of emerging country debt at Grantham Mayo Van Otterloo Co told Reuters JPM had launched a survey which I d completed about what to do about VENZ The feedback I gave them was per their index liquidity rules while the sanctions prevailed they should be removed Vandersteel said in an email At the end of January PDVSA had a weight of 0 53 in JPMorgan s EMBI Global Diversified index while Venezuela Republic bonds were at 0 66 according to the index provider Reuters did not have access to February index weight data Venezuela the country with the largest oil reserves in the world has defaulted on most of its 63 billion of debt as it has spiraled into its worst ever economic crisis The International Monetary Fund has forecast inflation will hit 10 million percent this year Since the start of the year bonds issued by Venezuela and PDVSA chalked up steady gains amid weeks of protests that saw pressure mount on President Nicolas Maduro However trading in PDVSA bonds almost ground to a halt after Washington imposed a swathe of sanctions including a ban on U S investors from trading in the secondary market other than divestment
JPMorgan communicates any changes of index constituents to its clients on the last trading day of the month The EMBI Global index includes 24 1 billion of dollar denominated PDVSA debt according to the index provider |
JPM | U S consumer spending factory data point to weak first quarter GDP growth | By Lucia Mutikani WASHINGTON Reuters U S personal income fell for the first time in more than three years in January and consumer spending dropped by the most since 2009 in December putting the economy on a weak growth path early in the first quarter The economic outlook was also darkened by other data on Friday showing factory activity hit a more than two year low in February with manufacturers reporting slowing new orders and hiring The reports extended the run of soft data on an economy that lost momentum at the tail end of 2018 and gave more credence to the Federal Reserve s patient stance towards raising interest rates further this year The economy is losing speed as the stimulus from a 1 5 trillion tax cut package and increased government spending fades A trade war between the United States and China higher interest rates softening global growth and uncertainty over Britain s exit from the European Union are clouding the outlook A modest slowdown remains the most likely path for 2019 said Eric Winograd senior U S economist at AllianceBernstein in New York We shouldn t expect any action from the Fed into at least the second half of the year The Commerce Department said personal income slipped 0 1 percent in January the first decline since November 2015 after jumping 1 0 percent in December Income was weighed down by decreases in dividend farm proprietors and interest income Income was boosted in December by a one time special dividend by information technology firm VMware Inc as well as government payments to farmers caught up in the U S China trade war Wages increased by a moderate 0 3 percent in January after rising 0 5 percent in December Economists polled by Reuters had forecast incomes rising 0 3 percent in January The Commerce Department did not publish the January consumer spending portion of the report as the collection and processing of retail sales data was delayed by a 35 day partial shutdown of the government that ended on Jan 25 It reported that consumer spending which accounts for more than two thirds of U S economic activity dropped 0 5 percent in December That was the biggest decline since September 2009 and followed a 0 6 percent increase in November Households cut back on purchases of motor vehicles and recreational goods in December leading to a 1 9 percent plunge in spending on goods Spending on goods increased 1 0 percent in November Outlays on services edged up 0 1 percent held back by a decline in spending on household electricity and gas Spending on services advanced 0 4 percent in November When adjusted for inflation consumer spending fell 0 6 percent in December also the largest drop since September 2009 after rising 0 5 percent in November The December data was included in the fourth quarter gross domestic product report published on Thursday which showed consumer spending growing at a 2 8 percent annualized rate during that period slower than the third quarter s robust 3 5 percent pace The economy grew at a 2 6 percent rate in the October December quarter after notching a 3 4 percent pace in the third quarter The dollar was little changed against a basket of currencies Stocks on Wall Street were trading higher while U S Treasury prices fell STRONG SAVINGS The sharp deceleration in consumer spending in December puts consumption on a lower growth trajectory in the first quarter and bolsters analysts expectations that the economy will slow down further in the first three months of the year Unless there is a big upward revision to the disastrous December retail sales figure the weak end of quarter consumption profile provides for very challenging arithmetic for first quarter consumption growth said Michael Feroli an economist at JPMorgan NYSE JPM in New York Still consumer spending likely remains supported by a strong accumulation of savings which surged to a six year high of 1 2 trillion in December from 961 3 billion in November The saving rate jumped to a three year high of 7 6 percent In addition consumer sentiment remains high With spending tanking inflation remained tame in December The personal consumption expenditures PCE price index excluding the volatile food and energy components rose 0 2 percent after a similar gain in November That left the year on year increase in the so called core PCE price index at 1 9 percent The core PCE index is the Fed s preferred inflation measure It hit the U S central bank s 2 percent inflation target in March for the first time since April 2012 Inflation is likely to remain benign despite a tight labor market as supply constraints at factories ease A third report on Friday showed the Institute for Supply Management s ISM national factory activity index fell 2 4 points to 54 2 last month the lowest reading since November 2016 A reading above 50 in the ISM index indicates an expansion in manufacturing which accounts for about 12 percent of the U S economy Raw material prices fell for a second straight month in February after nearly three years of increases Manufacturers offered mixed views of business conditions Machinery manufacturers said orders remained strong but makers of fabricated metal products expressed concern about indicators showing a slight recession for the second half of the calendar year Plastics and rubber products manufacturers said general business conditions started to slow at the end of January continuing through February
This supports our move to lower our first quarter GDP forecast said Jennifer Lee a senior economist at BMO Capital Markets in Toronto We need to see a turnaround in coming months |
MS | Morgan Stanley MS Tops Q2 Earnings Advisory Fees Rise | Improved advisory fees and efficient cost control drove Morgan Stanley s NYSE MS second quarter 2016 earnings from continuing operations of 75 cents per share which handily outpaced the Zacks Consensus Estimate of 60 cents However this shows a 5 decline from the prior year quarter which excludes DVA Shares of Morgan Stanley gained more than 3 in early market trading implying a positive market reaction to the earnings beat However as the challenging operating backdrop persisted the company s top line witnessed a decline Hence the stock s price performance after the full day s trading will give a better indication about the investors sentiments Prudent cost management was one of the driving factors behind the earnings beat However though the quarter witnessed improvement in net interest income and advisory fees it wasn t sufficient to ward off trading weakness that largely led to the revenue fall Morgan Stanley recorded lower fixed income currency and commodities FICC trading income in this quarter as well Further equity trading and underwriting income depicted weakness Net income applicable to Morgan Stanley was 1 58 billion down 12 year over year Revenue Decline Offset by Lower CostsNet revenue amounted to 8 91 billion a decrease of 9 from the prior year quarter However it surpassed the Zacks Consensus Estimate of 8 34 billion Net interest income was 913 million up 31 from the year ago quarter This was driven by a 10 fall in interest expenses and 20 growth in interest income Meanwhile total non interest revenue of 8 billion fell 12 year over year as all components witnessed deterioration Total non interest expenses were 6 43 billion down 8 year over year The fall is attributable to an 8 decline in non compensation expenses and a 9 reduction in compensation and benefits Quarterly Segmental PerformanceInstitutional Securities IS Pre tax income from continuing operations was 1 51 billion down 7 year over year Net revenue was 4 58 billion a decline of 11 from the year ago quarter The fall was primarily due to lower FICC income underwriting fees and equity sales and trading net revenues partly offset by higher advisory revenues Wealth Management WM Pre tax income from continuing operations totaled 859 million a dip of 3 on a year over year basis Net revenue was 3 81 billion down 2 year over year due to a fall in transactional revenues and asset management fee revenue These were nevertheless partially offset by a rise in net interest income Investment Management IM Pre tax income from continuing operations was 118 million down 46 from the year ago quarter Net revenue was 583 million a fall of 22 year over year The decrease reflected lower investment gains and carried interest in infrastructure and private equity investments As of Jun 30 2016 total assets under management or supervision were 406 billion up 1 on a year over year basis Strong Capital PositionAs of Jun 30 2016 book value per share was 36 29 up from 34 52 as of Jun 30 2015 Tangible book value per share was 31 39 up from 29 54 as of Jun 30 2015 Morgan Stanley s Tier 1 capital ratio Advanced Transitional was 18 8 versus 15 7 in the year ago quarter and Tier 1 common equity ratio Advanced Transitional was 16 9 versus 14 0 in the prior year quarter Share RepurchasesDuring the reported quarter Morgan Stanley bought back around 23 million shares for nearly 625 million This was part of the share buyback program announced by the company under which shares worth up to 3 1 billion can be repurchased through the second quarter of 2016 Further Morgan Stanley announced a new share repurchase plan of up to 3 5 billion shares beginning third quarter of 2016 through the end of second quarter of 2017 This is part of the company s 2016 capital plan that was approved by the Fed last month Dividend HikeConcurrent with the earnings release Morgan Stanley declared 20 cents per share quarterly dividend representing 33 increase from the prior payout The dividend will be paid on Aug 15 to shareholders of record as on Jul 29 Our TakeContinued tough operating environment led to a substantial decline in the top line Though interest income showed improvement a slump in trading activities drove the results down Also stringent capital norms may somewhat reduce the company s flexibility with respect to its investments and lending volumes 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 Also a full control of Morgan Stanley Wealth Management joint venture continues to aid the diversification of the company s revenue base MORGAN STANLEY Price Consensus and EPS Surprise Currently Morgan Stanley carries a Zacks Rank 3 Hold Among other banking giants JPMorgan Chase Co NYSE JPM Bank of America Corp NYSE C and Citigroup Inc NYSE C already have come out with their second quarter results The performances of these companies have been encouraging |
MS | Morgan Stanley Rises After Earnings Beat | Morgan Stanley NYSE MS released its second quarter earnings report before opening bell this morning posting earnings of 75 cents per share on 8 9 billion Analysts were expecting earnings of 59 cents per share on 8 3 billion in revenue In last year s second quarter the firm posted earnings of 85 cents per share on 9 7 billion in revenue
Morgan Stanley sees strength in Equities
Morgan Stanley NYSE MS s Institutional Securities net revenues amounted to 4 6 billion on the back of strength in Equity trading and and solid performance in trading and sales for Fixed Income The firm recorded 3 8 billion in net revenues for its Wealth Management segment which had a pre tax margin of 22 5 Fee based asset flows amounted to 12 billion The Investment Management division brought in 583 million in net revenues Assets under management or supervision were 406 billion at the end of the quarter
Our results this quarter reflect solid performance in an improved but still fragile environment said Morgan Stanley Chairman and CEO James Gorman in a statement In the midst of market uncertainty we maintained our leadership positions across our core franchises and continued our focus on prudent risk management and judicious expense control We remain committed to executing for our clients and delivering on our strategic priorities for our shareholders
Morgan Stanley updates capital positions
The firm had a Common Equity Tier 1 under the Basel III Advanced Approach transitional approach of about 16 9 at the end of the quarter Its Tier 1 risk based capital ratio was about 18 8 at the end of the quarter Morgan Stanley s pro forma fully phased in Common Equity Tier 1 risk based capital ratio under the Advanced approach was about 15 8 while its pro forma fully phased in Supplementary Leverage Ratio was about 6 1
The firm s value per share was 36 29 at the end of the quarter while its tangible book value per share was 31 39
Shares of Morgan Stanley NYSE MS rose in premarket trading following this morning s print rising by as much as 2 87 to 29 |
C | Citigroup names North America M A heads | Reuters Citigroup Inc N C said on Tuesday that Brian Link and Sameer Singh will become co heads of North America mergers acquisitions effective immediately according to a memo viewed by Reuters
These appointments come at a time when North America is driving an even larger share of the global M A market including half of all 1B deals and three out of every four mega deals said the memo signed by the global and regional leaders of Citi s newly formed Banking Capital Markets and Advisory group |
C | London forex trader accuses Citigroup of unfair dismissal | By Kirstin Ridley
LONDON Reuters A former top Citigroup N C trader who was fired in 2014 but acquitted of foreign exchange rigging charges after a trial in New York told a London employment tribunal he was unfairly dismissed despite being in the eye of the storm at the time
Rohan Ramchandani who headed European spot forex trading has already filed a 112 million plus case against Citigroup in New York alleging the bank framed him by making false and malicious statements to U S prosecutors after sacking him
Citigroup which has paid more than 2 billion in fines and civil settlements to date over forex allegations says it will vigorously contest Ramchandani s claims
Individual accountability continues to be important to Citi and for that reason we are disputing Ramchandani s request for compensation reinstatement and re engagement at the employment tribunal it said in a statement
The former Citigroup veteran who says he first heard of his dismissal when his manager phoned him on holiday in India told the east London tribunal on Wednesday he had had no opportunity to explain potentially confusing or misleading electronic chats
Ramchandani conceded that his name was bandied about in news reports in 2013 as British and U S authorities honed in on allegations of price fixing in the 6 6 trillion per day currency markets
But he told the tribunal I do not accept it was fair for me to put me on leave when the bank said there were issues about my chats electronic communications
Ramchandani alleges he was fired without a disciplinary process and was given no right of appeal The former trader whose annual pay stood at around 1 0 million pounds is seeking a pay out of around 80 000 pounds 102 000 and either his old job back or a comparable role
But if the court agrees he should be reinstated or re engaged in a different role he is eligible for compensation equal to the pay and benefits he would have accrued if he had not been dismissed
The former London based trader was one of three who were members of electronic chatrooms in which dealers were alleged to have shared sensitive client order information
A global investigation into alleged forex manipulation that kicked off in 2013 resulted in some of the world s biggest banks paying fines of more than 11 billion Dozens of traders were fired
Citibank which says Britain s Financial Conduct Authority FCA watchdog prohibited it from sharing information with Ramchandani about chats it had identified as concerning has conceded that his dismissal was procedurally unfair
But it alleges that senior managers were clear that his conduct had precipitated an irreparable breakdown in trust and confidence |
C | Legendary Oil Trader Says the End of Demand Growth in Sight | Bloomberg Andy Hall one of the most successful oil traders of his generation is now predicting the biggest shift yet in the global market the end of demand growth
While the view may not be original it underscores the gloomy forecast earlier this week from the Paris based International Energy Agency saying that global oil consumption will plateau in about a decade The prospect of peak demand would end an expansion that dominated the past century and comes as investors and governments face pressure to move away from fossil fuel based economies
There s a non zero chance that by 2030 we will see a plateauing or decline in global oil consumption the former hedge fund manager said at an industry event in New York It ll happen because of technology electric cars renewable energy
Even as new oil supplies from places including the U S Brazil Norway and Guyana soar there s growing concern from the oil and gas industry that it s running up against a shift in energy consumption That transition will increasingly limit its ability to make ends meet with some shale firms and oil service providers already struggling or going under
Oil demand has grown exponentially since the end of World War II Hall said at the event which was organized by Orbital Insight and RBC Capital Markets It was just a given that oil consumption would grow from here to eternity Except we knew logically that couldn t happen
Hall speaking later in an interview also said that solar and wind energy are already cheaper than coal
If the world fully transitions to renewable energy what is the role of a fossil fuel company he said I think renewables is the new oil
Hall s career stretches back to the 1970s and includes stints at oil major BP LON BP Plc and famed trading house Phibro Energy Inc But he shot to fame during the global financial crisis when Citigroup Inc NYSE C revealed that in a single year he had a 100 million payout trading oil for the bank In 2017 Hall closed down his Astenbeck Masters Commodities Fund II a capitulation of one of the best known figures in the commodities world
He quoted Sheikh Ahmad Zaki Yamani the former Saudi Arabian oil minister who famously said that the Stone Age didn t come to an end for lack of stones and the Oil Age will end long before the world runs out of oil
Global benchmark Brent crude traded little changed at 62 33 a barrel at 8 58 a m New York time Friday While prices are up about 16 this year they are still well below lofty highs above 100 from earlier this decade
Could we see 100 oil again Absolutely Hall told Bloomberg News That would only be temporary and hasten the ultimate demise |
C | Japan s Bark Worse Than Bite in South Korea Trade Spat Citi Says | Bloomberg Japan s trade curbs on South Korea have so far been a case of the bark was worse than the bite with only limited fallout for South Korea s economy according to Citigroup Inc NYSE C
Japan s tighter scrutiny of exports of three key materials used in the chip industry and Tokyo s removal of its neighbor from a list of trusted trading partners have had little impact on South Korea s imports of industrial and capital goods Citigroup economists Marie Kim and Jeeho Yoon wrote in a report Friday The moves have however spurred South Korean efforts to reduce economic reliance on Japan the analysts wrote
Ironically we feel that this tension rather brought in positive implication to the Korean economy albeit small the economists wrote Since Japan began applying trade pressure South Korea s government has encouraged domestic production of key manufacturing items and boosted spending on research and development in the 2020 budget according to the report
Meanwhile South Korean boycotts have led to a plunge in sales of Japanese consumer goods in the country and a decrease in tourists to Japan who may have decided to travel domestically instead according to Citi
The spat between the two neighboring countries has its roots in a dispute over Japan s colonial past Tension escalated in July when Japan tightened export controls on chemicals used by South Korean companies to make chips and displays Tokyo then removed South Korea from its list of trusted trading partners South Korea responded by stripping Japan from its own list and announcing a planned withdrawal from an intelligence sharing pact
Last month South Korean exports to Japan fell 14 while imports from Japan slid 23 South Korea s trade ministry attributed the declines to industrial factors rather than trade curbs
Japan could toughen the export regulation at any time and this limbo situation could last for a while without a concrete resolution Citi s economists wrote |
C | Oil Slides as China Concern On Impeachment Adds Another Twist To Trade Deal | Investing com It was a matter of time and the Chinese have finally said it They have concerns over the impeachment proceedings of President Donald Trump Oil prices slid Monday on that news leveling some of Friday s pop that came on the hype that the two sides were close to a deal
Prices of U S West Texas Intermediate and London s Brent fell more than 1 each recouping some of the previous session s losses and decoupling for the first time in days from the stock market Wall Street s major stock indexes still managed to set new highs on news that the Trump administration had granted another 90 day license for U S firms to do business with blacklisted Chinese telco giant Huawei
NYME traded WTI settled down 69 cents or 1 2 at 57 14 per barrel On Friday it gained 1 7 soaring to a seven week high of 57 97 after Commerce Secretary Wilbur Ross and White House economic adviser Larry Kudlow suggested that Washington and Beijing were closing in on a deal
ICE futures traded U K Brent closed down 86 cents or 1 4 at 62 44 It rose 1 6 in the previous session hitting a seven week peak of 63 64
Despite the slide WTI is still up 25 on the year and Brent almost 16
Monday s drop in oil came after CNBC cited a source in China as saying that Beijing was minded not to make any further concessions in talks in the near term and that they preferred to wait and see how the impeachment proceedings against Trump play out
If substantiated that would reduce the odds of the phase one trade deal that both sides have publicly talked up but repeatedly pushed back due to reported differences over issues ranging from tariffs to intellectual property rights
Citigroup NYSE C analysts meanwhile said the recent rise in put skews in oil suggests that investor sentiment may turn sour again if the brinkmanship between Washington and Beijing continues
If the situation persisted there could also be a sharp pullback in crude prices before the Dec 5 6 OPEC meeting between the 14 member Organization of the Petroleum Exporting Countries and its 10 allies led by Russia the Citi report said
Olivier Jakob of Zug Switzerland based oil risk consultancy PetroMatrix concurred
We are two weeks away from the next OPEC meeting and nothing has changed on that front Jakob said At current prices and the upcoming Saudi Aramco IPO there is nothing to expect from that meeting The latest updates from OPEC and the IEA still point to a global petroleum stock build in 2020
OPEC agreed in December 2018 to cut supply by 1 2 million barrels per day As that agreement comes up for review in the next three weeks members of the cartel have already been sounding out that it might not want to deepen cuts
Analysts at Bernstein said If the OPEC doesn t cut production by a further 500 000 to 1 million bpd Brent crude may return to 50 in the short term
Current CTA positioning hasn t been this long since September s Abqaiq attacks in Saudi Arabia Citigroup s analysts said referring to the brief double digit gains in oil after the aerial raid on the kingdom s largest oil processing facility that knocked out about 5 of daily world output |
JPM | Market Report for April 25 2018 | US30 Fundamentals
A major catalyst for the market was the start of the earnings season with financial companies such as JPMorgan NYSE JPM beating on estimates Some surprise from missed earnings in the consumer staples sector holds the market from rallying In the broader macroeconomic backdrop there are still concerns on rising inflation in the country and on the recent spike in bond yields Global political concerns ease as North Korea pauses its nuclear program and as talks begin with China on trade tariffs Technicals APrice action still remains within the long term uptrend line and above the 200 SMA Recently breaking the counter trendline and now potentially re testing the same level
OilFundamentals
The market hass benefited from major news coming from China One of the largest oil importing country Hengli Group said it had gained state approval to import 400 000 barrels of crude oil a day The recent OPEC meeting also led to the oil market remaining bid as oil producers had got together and managed to pull off a production cut among themselves News of two oil producers in Libya have halted production lead to less supply with the growing demand Technicals Bullish price action as momentum increases and an accelerated trendline is placed from the primary trendline Price remains above both 200 SMA and 50 SMA Price action testing the next psychological 70 handle GoldFundamentals
The safe haven remains indecisive as the market continues the inconsistency between risk on and risk off Traders tend to get pulled out of the stock markets that carry risk and get invested into safe havens as risks in the markets and in the world increase See Recent dollar strength as the expectation for rate hikes from the Fed increase Technicals Recent risk on sentiment led to the gold sell off towards the lows of the range Price action has been consolidating between the 1310 and 1360 Pending breakout to establish market direction
Written by Gavin Pannu MSTA CFTe |
MS | Singapore Exchange Eyes Startup IPOs With Dual Class Shares | Bloomberg Singapore Exchange Ltd will allow companies with dual class share structures to list a month after Hong Kong s stock market announced a similar proposal
SGX will consult on the rules this quarter and expects the first listing soon after Chief Executive Officer Loh Boon Chye said Friday at the company s quarterly earnings briefing
The moves by the two Asian exchanges come as some of the world s largest technology companies from Alibaba NYSE BABA Group Holding Ltd to Facebook Inc NASDAQ FB use stock with enhanced voting power to protect the influence of their founders and management Such structures have faced opposition from investors who fear their rights could be eroded amid corporate governance concerns
SGX shares rose 2 1 percent to S 8 15 as of 9 50 a m on Monday the highest level since July 2015 according to data compiled by Bloomberg Analysts including Nick Lord of Morgan Stanley NYSE MS and RHB Bank Bhd s Leng Seng Choon wrote in research reports that the stock would probably gain as revenue increases
The Monetary Authority of Singapore said Friday it supported SGX s decision to allow dual class share structures and that it would review the safeguards the exchange will propose to mitigate the risks involved
Read Why Facebook to Snap Make Investors Feel Second Class QuickTake
Hong Kong Exchanges Clearing Ltd proposed allowing innovative companies to list with dual class shares as part of a package of measures released last month Its plan would see each multiple vote share represent no more than 10 times the votes of ordinary shares and only companies with a focus on new technologies would be eligible Founders and executives would need to demonstrate how their contribution merits the structure
SGX also said that it would go ahead with the introduction of stock futures on some of India s largest companies on Feb 5 The National Stock Exchange of India Ltd was asking the Singapore bourse to delay the start Bloomberg reported last week The exchange operator is also planning a medium term note program to raise as much as S 2 billion 1 51 billion in debt to fund its growth
The company s plan to launch the Indian single stock futures and dual class share scheme are positives Leng of RHB wrote on Monday RHB recommends investors buy SGX shares and has a target price of S 9
Adds share price move and analyst comments in fourth paragraph |
MS | Oil rises as Saudi Arabia says producers will cooperate beyond 2018 | By Julia Payne LONDON Reuters Crude futures edged higher on Monday propped up by comments from Saudi Arabia that cooperation between oil producers who have cut production to boost prices would continue beyond 2018 Strong global economic growth coupled with a drop in U S drilling activity and the dollar also supported crude traders said while additional Libyan output capped further gains Brent crude futures were at 68 69 a barrel at 1008 GMT up 8 cents from their last close Brent on Jan 15 rose to 70 37 its highest since December 2014 U S West Texas Intermediate WTI crude futures were at 63 50 a barrel up 13 cents WTI climbed to 64 89 on Jan 16 also its highest since December 2014 A weak dollar and the weekend JMMC oil producers meeting are supporting prices but the restart of As Sarah in Libya is serving as a brake on the rally said Tamas Varga analyst at PVM oil brokerage Production at Wintershall s As Sarah concession in eastern Libya resumed on Sunday and was expected to add 55 000 barrels per day bpd by Monday Libya s oil production has been fluctuating around 1 million bpd Saudi Arabia the world s top oil exporter and de facto leader of the Organization of the Petroleum Exporting Countries said on Sunday major oil producers agreed that they should continue cooperating on production after their deal on supply cuts expires this year There is a readiness to continue cooperation beyond 2018 The mechanism hasn t been determined yet but there is a consensus to continue Saudi Energy Minister Khalid al Falih said in Oman U S drillers cut five oil rigs in the week to Jan 19 bringing the count down to 747 energy services firm Baker Hughes said on Friday Despite this the rig count in 2017 and early this year remains much higher than in 2016 resulting in a 16 percent rise in U S production since mid 2016 to 9 75 million bpd Beyond supplies strong global economic growth was also supporting oil prices During the last four quarters the underlying global growth dynamic began to shift Global growth has become synchronized and accelerated above trend U S bank Morgan Stanley NYSE MS said over the weekend in a note Despite the well supported market analysts warned oil had lost some steam since last week
Bernstein Energy said on Monday that oil inventories might start rising soon due to a slowdown in demand that typically happens at the end of the northern hemisphere winter |
MS | Forget tax cuts there s another clear reason stocks look unstoppable | The effect of tax cuts on the stock market is being overstated as the S P 500 continues to hit record highs according to Credit Suisse SIX CSGN
Looking at two performance measures the firm says it s clear that the market s torrid rally is instead being driven by two tried and true catalysts earnings growth and economic strength
It s easy to look at the timing of the s blistering move to record highs and assume that is to thank
Credit Suisse is here to dispel that idea
Sure it s a convenient reason and one that makes some sense but Jonathan Golub the firm s chief US equity strategist says the torrid rally is being driven by good old fashioned and strength And he has the charts to back it up
The first chart shows year to date equity returns by region with emerging markets leading the way If taxes were the driver Golub says the US would be outpacing other regions
The next chart provides a breakdown of stock performance by industry with non interest rate sensitive sectors like consumer discretionary healthcare and tech leading the way Golub says that if the stock market s strength were being spurred by taxes sectors benefitting more from tax changes e g energy and discretionary would be leading sectors with smaller tax burdens e g healthcare and tech
With Golub s arguments in mind it s important to note that one of the true drivers he cites profit growth has been the foremost contributor to equity strength during the 8 1 2 year bull market It s a tried and true catalyst for further gains and if Golub is correct that s actually good news for the longevity of the streak of new highs
Further the stock market s latest batch of records has come as earnings season gets underway and that upward profit revisions were also underpinning equity gains No matter how you look at it recent strength comes down to one core driver corporate fundamentals
Fundamentally driven rallies are far more sustainable Golub said |
MS | What debt ceiling worries Markets hum along | By Richard Leong NEW YORK Reuters Government shutdown So yesterday Debt ceiling Yawn Investors and traders are taking in stride that the partisan fight in Washington which resulted in the first government shutdown in over four years may snowball into a showdown over raising the cap on how much the federal government can borrow beyond its statutory limit of 20 trillion Analysts and investors saw little chance Republican and Democratic lawmakers would allow a government default that would roil financial markets even if the road to a deal to raise the debt ceiling will likely be a bumpy one There may be a lot of noise but a deal will be done said Sean Simko head of global fixed income at SEI in Oaks Pennsylvania Still Monday s proposed patch to reopen the government through Feb 8 might mark the start of a high stakes game when the government is expected to run out of cash by early April The U S government shutdown combined with the possibility of a default might be the catalyst that shakes investors confidence and pares their appetite for stocks and other risky assets analysts said If the two issues become linked it will get the market a bit nervous said Gennadiy Goldberg interest rates strategist at TD Securities in New York GRAPHIC U S shutdowns on markets GRAPHIC Rising U S debt burden Goldberg cautioned it is too early to tell whether Congress would rely on more temporary funding measures to operate federal agencies and pay government workers and contractors or it could reach a bipartisan deal for a longer term funding agreement If they get a deal done before the debt ceiling deadline that would be good for the market Goldberg said UNWELCOMED ENCORE On Monday Wall Street stocks opened slightly lower the dollar hit three year lows and Treasury yields were marginally lower They all reversed course after a temporary funding plan was announced and moved toward a vote in the Senate The House of Representatives would also need to vote on the plan and President Donald Trump would need to sign the measure before the shutdown can end The market is barely reacting said Eric Stein co director of global income group at Eaton Vance Management in Boston The markets are getting desensitized when these things happen multiple times Before the latest shutdown government funding elapsed for 16 days in October 2013 during a standoff between conservative Republican House members in a bid to use the budget process to delay or defund the implementation of the Affordable Care Act commonly known as Obamacare The most significant showdown on the debt ceiling was back in August 2011 which led the Standard Poor s rating agency to strip its top notch AAA rating on the United States If the latest shutdown were to drag on it would inflict damage on the economy in which thousands of federal workers would go on furlough and the government would suspend payments on discretionary expenses Morgan Stanley NYSE MS analysts estimated each week of a shutdown would subtract 0 2 percentage point from economic growth
Rating agencies Fitch and Moody s said a shutdown may hurt the economy but would not have an impact on their ratings on the world s largest economy as long as it makes its debt payments on time |
JPM | Standard Chartered resets growth targets with cost cuts divestment plans | By Sumeet Chatterjee and Lawrence White HONG KONG LONDON Reuters Standard Chartered LON STAN PLC has unveiled plans to double returns and dividends in three years by cutting 700 million in costs and boosting income even though the bank missed its previous targets in tough market conditions Chief Executive Bill Winters now aims to achieve a return on tangible equity RoTE of at least 10 percent by 2021 despite only reaching 5 1 percent last year short of the 8 percent by 2018 goal he set himself three years ago StanChart which makes most of its revenue in Asia has seen its fortunes slump as restructuring under Winters repaired a balance sheet hit by excessive lending in the previous decade but left the bank struggling to lift profit The 150 year old group s latest plans coincide with a risk of a slowdown in its core emerging markets due to the China U S trade war as well as economic uncertainties in China and Britain two of its main markets Winters on Tuesday said selling low returning business such as ship leasing and private equity and growing income in markets such as India and Korea would help StanChart hit the new goals despite tougher global economic conditions We ve transformed the bank over the last three years and we re going to transform it again Winters said after the bank published full year results StanChart shares fell 1 2 percent in London following the results as analysts were disappointed by the bank s full year profit of 2 5 billion RESTRUCTURING The bank also said its 45 percent stake in Indonesia s PT Bank Permata Tbk valued at around 835 million was no longer core indicating a potential move towards a sale StanChart did not elaborate on divestment plans Top investors in the bank signaled a willingness to back Winters plan to tweak rather than completely overhaul StanChart s strategy despite the failure to hit previous goals Never a quick fix said Hugh Young managing director for Asia Pacific at Aberdeen Standard Investments StanChart s third largest shareholder The combination of cost containment tidying Permata and revenue growth could and hopefully will get them back to that double digit RoTE he said StanChart said it aimed to improve returns in India South Korea the United Arab Emirates and Indonesia four large markets that have been a drag on its financials accounting for 21 percent of costs but just 13 percent of profit Winters ruled out selling any of those four businesses saying the bank would try to win more affluent customers and partner with financial technology firms to increase market share StanChart shares have fallen 40 percent since Winters a former JPMorgan Chase Co NYSE JPM banker took over in June 2015 Total returns to shareholders have fallen 35 percent Winters was paid 5 95 million pounds 7 82 million in 2018 up 27 percent from the previous year as long term incentives vested for the first time since he joined the bank Last year the bank s London shares dropped 22 percent compared with a 15 6 percent fall for rival HSBC Holdings LON HSBA Winters in addition to cutting risky lending has also worked to improve senior bankers accountability and exit some businesses COST TARGETS To stimulate growth StanChart has invested in retail banking and wealth management technology platforms in the last couple of years which increased costs but has yet to yield significant return Chief Financial Officer Andy Halford told staff in October the bank had made virtually no progress in meeting cost targets and urged managers to consider cutting jobs paring back travel expenses and freezing recruitment The bank s costs rose 2 percent in 2018 to 10 1 billion But it said continued cost discipline would enable sustained investments as well as the potential doubling of full year dividend by 2021 from 15 cents per share last year The bank reported a 5 5 percent rise in 2018 pre tax profit to 2 55 billion hit by 900 million in provisions to cover any impact from regulatory investigations in the United States and Britain
StanChart last week said the provision related to the potential resolution of U S investigations into alleged sanctions violations and foreign exchange trades |
JPM | Julius Baer gets into crypto banking with SEBA partnership | By Brenna Hughes Neghaiwi ZURICH Reuters Julius Baer plans to offer access to digital assets through a partnership with Swiss start up SEBA Crypto in the latest move into cryptocurrencies by a Swiss private bank The partnership which follows a similar move by smaller rival Falcon Private Bank will enable customers of Julius Baer Switzerland s third largest listed bank to store trade and invest in digital assets the two firms said on Tuesday Banks see promise in the blockchain technology underpinning cryptocurrencies but have not rushed into an industry which has faced regulatory scrutiny and extreme price swings Falcon has allowed private and institutional clients to invest in bitcoin ether and litecoin and has gradually expanded its offerings since a partnership with Bitcoin Suisse in 2017 Meanwhile JPMorgan Chase NYSE JPM this month said it would launch its own digital coin We are convinced that digital assets will become a legitimate sustainable asset class of an investor s portfolio Julius Baer markets head Peter Gerlach said in a statement SEBA is seeking a license from Switzerland s financial market supervisor to build a bank offering cryptocurrency services as well as extending traditional banking services to firms in the new industry It closed a 100 million Swiss franc 100 million funding round in September and plans to launch its own cryptocurrency via an initial coin offering in the third quarter this year It aims to go live during the second quarter of this year SEBA s partnership with Julius Baer which also made a minority investment into the startup last year will come into effect when it gets a banking and securities dealer license
Prior to this the companies could not specify which digital assets and services would be offered to Julius Baer s clients a spokeswoman for the bank said |
JPM | JPMorgan keeps key profit goal cautious on U S recession risks | By Elizabeth Dilts and David Henry NEW YORK Reuters JPMorgan Chase Co NYSE JPM the biggest U S bank by assets said on Tuesday it expects to face rising costs for deposits a key part of its business and slowing global economic growth Still senior executives speaking at the bank s annual investor day painted a picture of stable financial performance and maintained a key profit goal for the next three years Chief Financial Officer Marianne Lake said while JPMorgan is strong in many of its businesses the bank was uncertain whether the near term future for interest rates and the U S economy would provide the underlying strength that could boost its bankwide profit targets JPMorgan s annual investor day is closely watched by investors as the bank accounts for about 14 percent of U S banking industry revenue according to estimates by analysts at Barclays LON BARC Lake said the bank expects growth in deposits to slow and the interest it pays for them to rise reducing profit margins on its loans At the same time new regulations are making those loans less profitable and pushing the bank to invest more in securities The further out you go the less confidence we have that we won t see changes in interest rates and a downturn in the economy Lake said when asked why the bank did not raise its target for profitability Chief Executive Officer Jamie Dimon said the bank s decision not to raise its profitability target was not a warning about the economy We are not predicting a recession We are prepared for a recession Dimon said Like last year the bank said it expects its return on tangible common equity a key profit measure for how well it uses shareholder money to be 17 percent over the medium term which the bank considers roughly three years The bank may exceed its key growth targets Lake said but its forecast is set with a cautious view of future risks including global trade worries as well as Britain s pending withdrawal from the European Union or Brexit she said Recent declines in business sentiment have driven recessionary risk higher she said referring to the United States Still she added the U S economy remains consumer led and consumers are strong and healthy JPMorgan faces a balancing act reassuring investors while not making pledges that are likely to haunt it in the future amid growing economic turbulence In the fourth quarter JPMorgan and several other big banks took a hit in their fixed income trading operations as a market swoon kept clients on the sidelines Trading revenue in the first quarter is expected to be down in the high teens in percentage terms after an unusually strong quarter a year earlier when the U S tax overhaul boosted results said Daniel Pinto head of JPMorgan s corporate and investment bank In a recession Dimon said the bank would continue to invest in its businesses We would take advantage of a recession to build our branches network etcetera We would take advantage of a recession While executives trumpeted market share gains from recently increased spending on technology and marketing they also acknowledged problems It is a tough time to be in the mortgage business said Gordon Smith chief executive officer of consumer and community banking Mike Weinbach head of home lending said mortgage originations will likely remain near cyclical lows in the coming years The industry is struggling with excess capacity for making loans even as the cost of new loans continues to rise he said The bank sketched out its views before the stock market opened in a slide presentation ahead of the investor day JPMorgan shares fell 1 2 percent at 104 84 after dropping as much as 2 percent early in the session The bank stuck with its previous targets of an expense overhead ratio of 55 percent as adjusted expenses were set to rise this year by 2 3 billion or 3 6 percent The higher expense forecast includes 600 million of new technology investments and 1 6 billion for marketing front office hiring new branches and a new headquarters building
The additional spending is down from 2 7 billion a year ago when it boosted the technology budget by 1 4 billion |
JPM | U S housing market stuck in soft patch confidence rises | By Lucia Mutikani WASHINGTON Reuters U S homebuilding tumbled to a more than two year low in December as construction of both single and multi family housing declined the latest indication that the economy had lost momentum in the fourth quarter But there was some good news on the economy with other data on Tuesday showing a rebound in consumer confidence in February after three straight monthly declines Still the economy s outlook continues to be overshadowed by fears of a slowdown in global growth fading fiscal stimulus trade tensions and uncertainty over Britain s departure from the European Union These risks were again highlighted by Federal Reserve Chairman Jerome Powell when he reaffirmed before lawmakers on Tuesday the U S central bank s patient stance towards raising interest rates further this year Regardless the economy is moderating which means the Fed should be able to maintain its cautious approach to monetary policy said Joel Naroff chief economist at Naroff Economic Advisors in Holland Pennsylvania Housing starts dropped 11 2 percent to a seasonally adjusted annual rate of 1 078 million units in December the weakest reading since September 2016 Data for November was revised down to show starts at a 1 214 million unit rate instead of the previously reported pace of 1 256 million units Other details of the report were also downbeat suggesting the housing market could remain sluggish for a while despite an easing in mortgage rates Housing completions hit a more than one year low in December and while building permits rose they were driven by the volatile multi family housing segment Economists polled by Reuters had forecast that housing starts would slip to a pace of 1 250 million units last month The release of the December housing starts and building permits report was delayed by a 35 day partial shutdown of the federal government that ended on Jan 25 No date has been set for the release of January s report The Commerce Department said while delays in data collection could make it more difficult to determine the exact start and completion dates of construction processing and data quality were monitored and no significant issues were identified The report joined weak December retail sales and business spending plans on equipment in suggesting that economic growth cooled down significantly at the tail end of 2018 It also implied that residential investment likely contracted in the fourth quarter extending a decline that began in early 2018 As a result the Atlanta Fed trimmed its fourth quarter gross domestic product estimate by one tenth of a percentage point to a 1 8 percent annualized rate The economy grew at a 3 4 percent pace in the third quarter A second report from the Conference Board on Tuesday showed its consumer confidence index increased 9 7 points to a reading of 131 4 in February after being held back by financial market volatility and the government shutdown Despite the rebound in confidence the Conference Board said it expected the pace of economic growth to moderate in 2019 The U S dollar fell to a three week low against a basket of major currencies U S Treasury prices rose while stocks on Wall Street were little changed in volatile trade SOFT PATCH The housing market hit a soft patch last year amid higher mortgage rates as well as land and labor shortages which led to tight inventories and more expensive homes But there are some glimmers of hope A third report from S P Case Shiller on Tuesday showed house prices in the 20 metro area increased 4 2 percent from a year ago in December the smallest gain since November 2014 after rising 4 6 percent in November Slowing house price inflation was also corroborated by a fourth report from the Federal Housing Finance Agency showing house prices rose 0 3 percent on a monthly basis in December after advancing 0 4 percent in November Moderating house prices together with declining mortgage rates and steadily rising wages could make home buying more affordable though economists expect the housing market weakness to persist at least through the first half of 2019 We do expect the housing data to pick up at some point in response to the recent decline in mortgage rates but it likely will take some time before we start to see firming across many of the relevant figures said Daniel Silver an economist at JPMorgan NYSE JPM in New York A survey last week showed homebuilder confidence increased in February but builders continued to say costs were being kept high by land and labor shortages and tariffs on lumber and other key building materials Permits for future home construction rose 0 3 percent to a rate of 1 326 million units in December Single family homebuilding which accounts for the largest share of the housing market dropped 6 7 percent to a rate of 758 000 units in December the lowest level since August 2016 It was the fourth straight monthly decline in single family homebuilding Single family starts dropped in the Northeast Midwest and West but rose in the South Permits to build single family homes fell 2 2 percent in December to a pace of 829 000 units Starts for the multi family housing segment dropped 20 4 percent to a rate of 320 000 units in December Permits for the construction of multi family homes rose 4 9 percent to a pace of 497 000 units
Housing completions fell 2 7 percent to 1 097 million units the fewest since September 2017 Realtors estimate that housing starts and completion rates need to be in a range of 1 5 million to 1 6 million units per month to plug the inventory gap |
C | Mega Auction a Flop Petrobras Investors Are Doing Fine Thank You | Bloomberg Brazil s largest ever sale of oil prospects frustrated those waiting for strong dollar inflows and cast doubt on foreign appetite for the country s assets but state controlled Petroleo Brasileiro SA s investors seem unfazed by the auction s outcome
Preferred shares of the oil giant which initially sold off on the view that the bigger than expected bid for the Buzios field would hurt the company s ongoing deleveraging process are up more than 3 since the auction while Petrobras s 2 75 billion of bonds due 2028 are little changed in the period
The auction result was positive for Petrobras Credit Suisse SIX CSGN Group AG s Regis Cardoso wrote in a Nov 7 report Buzios is one of the very best pre salt fields with proven high productivity wells and low breakevens said Cardoso who has an outperform rating for the company s American depositary receipts
Banco Bradesco BBI Citigroup NYSE C and Banco Itau BBA also reiterated buy equivalent ratings for the stock calling the oil giant s investment accretive offsetting a higher cash expenditure Asset management firm Dogma Capital said this week s event doesn t change its bullish view for Petrobras Most importantly analysts say the lack of participation by oil majors isn t necessarily a sign of bad capital allocation
There was a significant asymmetry in favor of Petrobras in the auction Cardoso wrote citing the compensation to be paid to Petrobras for investments it has already made The company already operates in these areas and taking the surplus volumes allows for many synergies with the existing operations
Petrobras s Chief Executive Officer Roberto Castello Branco said in an interview that regulatory uncertainties and the amount of money bidders would have to commit upfront were the culprits for the absence of most major oil companies He said the firm can develop the Buzios field it won on its own without compromising financial discipline Even though Petrobras needs to pay 17 billion by year end just in licensing fees leverage levels will stay fairly stable in the fourth quarter compared with net debt at 1 96 times Ebitda in the third quarter he said
While the investment is more expensive and impacts Petrobras s ability to cut down debt in short term the asset is pretty good said Ray Zucaro the chief investment officer at RVX Asset Management in Miami At the end of the day the company is acquiring assets in one of the more premium areas said Zucaro who owns Petrobras shares |
C | China s Consumer Inflation Could Hit 5 in January Analysts Say | Bloomberg China s consumer inflation will continue rising and could peak at around 5 or even 6 in January before gradually falling back according to economists
The consumer price index rose to a 7 year high of 3 8 in October due to soaring pork prices and the demand from the Spring Festival in late January will push it higher to at least 5 according to economists from Barclays LON BARC Plc Citigroup Inc NYSE C and Bank of China International Ltd Huachuang Securities Co said the headline number could even hit 6
Inflation will then likely slow down from that January peak according to China Merchants Securities Co While non pork price rises remain benign for now the brokerage house warned that the cost of eggs seafood and cooking oil are most likely to rise based on previous periods of pork price inflation
The rising prices will complicate monetary policy with markets closely watching how the People s Bank of China balances the competing demands from rising consumer prices and falling producer prices over the rest of the year
The demand supply imbalance of pork will likely become acuter and push pork inflation to a near term high around Chinese New Year Yu Xiangrong an economist at Citigroup in Hong Kong wrote in a note The window for further policy easing will open wider when consumer inflation starts to decline after the new year
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 James Mayger Jiyeun Lee
2019 Bloomberg L P |
JPM | Last Four Sessions Lowest Volume Of The Year | Index Futures Net Changes and Settlements
Foreign Markets Fair Value and Volume
In Asia 10 out of 11 markets closed higher Shanghai Comp 0 80 Hang Seng 0 74 Nikkei 1 42
In Europe 8 out of 12 markets are trading higher CAC 0 31 DAX 0 05 FTSE 0 83
Fair Value S P 0 27 NASDAQ 9 38 Dow 31 64
Total Volume 1 2mil ESM and 792 SPM traded in the pit
Today s Economic Calendar
Today s economic calendar includes MBA Mortgage Applications 7 00 AM ET William Dudley Speaks 8 30 AM ET EIA Petroleum Status Report 10 30 AM ET Beige Book 2 00 PM ET William Dudley Speaks 3 15 PM ET and Randal Quarles Speaks 4 15 PM ET
S P 500 Futures ES Never Sell A Quiet Market
The volume over the past five sessions has been the lowest of the year Traders cut back last week when Trump started to talk about bombing Syria With so many shorts no real bad news and first quarter earnings beating expectations the ES rallied sharply and the VIX tumbled to 15 39
Yesterday trade started with a Globex range of 2678 25 to 2699 50 and total volume of 192k S P 500 futures contracts traded The first trade off Tuesdays 8 30 CT futures open came in at 2697 50 After a quick dip down to 2692 50 the ES started taking out buy stops above 2698 00 up to 2701 50 From there the futures pulled back down to 2697 25 at 9 22 and at 10 09 had traded up to 2708 00 up 28 50 handles or up 1 00
After three lower lows at 2704 00 2703 50 and 2701 25 the ES back and filled up to a new high at 2709 25 at 1 06 CT The next move was back down to a higher low at 2701 75 followed by a push back up to 2713 25 at 2 23 as the MiM went to 310 million to buy 2711 25 traded on the 2 45 cash imbalance and 2706 50 on the 3 00 cash close The ES then went on to settle at 2706 75 on the 3 15 futures close up 25 00 handles or 0 92 on the day
In the end total ES volume was higher but still very low When you combine all the short covering all the buy stops strong corporate earnings and add in the cooling geopolitical tensions it all adds up to higher prices
Big Piles Of Money And Nowhere To Go But Stocks
According to the Wall Street Journal s Ben Eisen companies are holding on to a ton of cash that could end up in shareholders hands one reason some investors are turning more optimistic about the stock market
S P 500 companies excluding financials had 2 39 trillion in cash and investments in 2017 according to JPMorgan Chase Co NYSE JPM researchers That s up from 2 2 trillion in 2016 and 1 75 trillion in 2010
No other time in history have companies held so much cash in a low rate environment said the JPMorgan analysts led by Dubravko Lakos Bujas in a research note
A lot of that could go towards buybacks as companies figure out what to do with their fatter profits and bring back overseas money as a result of the recent tax code overhaul The bill included a one time tax on profits held abroad that was meant to encourage companies to bring their foreign profits back to the U S
Buybacks were a significant force during much of the post crisis stock rally but they began to decline in the last few years as the economy strengthened and corporate profits accelerated Now the tax bill is reversing those expectations Based on the amount of buybacks already announced this year by S P 500 companies JPMorgan analysts project roughly 800 billion in total buybacks in 2018 up from 530 billion last year
That means buybacks would once again underpin the stock market at a time when tensions are running high over geopolitical risks a spring slowdown in global growth and the possibility of heightened regulation in the technology industry The S P 500 is down 6 8 from its all time high in late January
Because buybacks reduce the amount of a company s outstanding stock lifting per share earnings they can make the remaining shares more valuable and increase stock prices Others are critical of the practice reasoning that it artificially inflates stock prices without delivering actual growth That cash they argue is better invested in research and development and capital expenditures
The flurry of buyback program announcements this year hasn t necessarily translated into actual buyback executions yet Securities rules typically prohibit companies from buying back their shares during the weeks leading up to their earnings reports But if companies ultimately choose to spend their tax windfalls on buybacks as they did during a tax repatriation holiday in 2004 it could turn out to be a crucial support for the stock market
Disclaimer Trading Futures Options on Futures and retail off exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors You should carefully consider whether trading is suitable for you in light of your circumstances knowledge and financial resources Any decision to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person s authorizing such transaction s BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE S AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS |
JPM | Steer Clear Of Philippines ETFs For Now | Philippines stocks continue to plunge on multiple concerns Adding to the agony a depreciating peso is bad news for foreign investors as they calculate their returns in their home currency
What is Pulling Down the Market
Apart from global issues multiple factors at home are impacting the markets negatively Per a Philstar net foreign selling has amounted to 39 billion pesos so far this year As a result the markets moved drastically lower thanks to high dependence on foreign investors
Moving on to economic data consumer prices increased 4 3 year over year in March owing to the new tax reform law s impact on food and oil prices The Tax Reform for Acceleration and Inclusion TRAIN law does indeed reduced personal income taxes however it also increased the taxes on household products and fuel The figure compared with 3 8 reading for February Inflation crossed the central bank s 2 4 target range As a result investors are worried about consumer spending taking a hit and economic growth being impacted negatively
We could still see more selloff as there are concerns in the market that consumer spending is getting hurt from the weaker peso and higher inflation per a Bloomberg article citing Jonathan Ravelas chief market strategist at BDO Unibank The optimism that consumer spending will pick up from the tax reform has been replaced by questions such as how much earnings will be hit by the weaker peso and higher oil prices he
Adding to the agony of investors a downgrade by foreign banks has further led to a reduction in attractiveness of these investments Despite increasing inflation the central bank has held on to rates As a result earlier in March JPMorgan Chase Co NYSE JPM s equity strategy team downgraded the country to underweight Foreign investment plays a pivotal role in determining an economy s success President Rodrigo Duterte s deadly war on drugs might be another factor keeping foreign investors at bay
Adding to the woes trade war fears on increasing tensions between Washington and Beijing also concern investors Rising oil prices thanks to increased geopolitical worries is another factor unnerving investors read
Let us now discuss the most popular ETF focused on providing exposure to Philippines equities
iShares MSCI Philippines ETF
This fund seeks to provide exposure to Philippine stocks primarily in the large cap segment
It has AUM of 144 6 million and charges a fee of 62 basis points a year From a sector look Financials Real Estate and Industrials are the top three allocations of the fund with 27 9 23 8 and 22 9 exposure respectively Ayala Land Inc SM Prime Holdings Inc and BDO Unibank Inc are the top three holdings of this fund with 9 7 9 2 and 8 5 exposure respectively The fund has lost 16 1 year to date and 8 8 in a year
We will now compare the fund s performance to a broader South East Asia based ETF ASEA
Global X Southeast Asia ETF
This fund provides broad exposure to the five members of the Association of Southeast Asian Nations namely Singapore Indonesia Malaysia Thailand and the Philippines It is appropriate for investors looking for diversified exposure to South East Asia
ASEA is less popular with AUM of 21 5 million and charges a fee of 65 basis points a year From a geographical perspective the fund has 30 7 exposure to Singapore 22 3 to Thailand 21 4 to Malaysia 19 1 to Indonesia and 6 5 to the Philippines Financials Telecommunication Services and Consumer Staples are the top three sectors of the fund with a 47 9 13 7 and 7 9 allocation respectively DBS Group Holdings Ltd Oversea Chinese Banking Ltd and United Overseas Bank Ltd are the top three holdings of the fund with an allocation of 9 1 7 7 and 6 5 respectively The fund has returned 24 8 in a year and 4 1 year to date
Below is a chart comparing the year to date performance of the two funds
Source Yahoo NASDAQ AABA Finance
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MS | Japan government upgrades economic view for first time in seven months | By Stanley White TOKYO Reuters The Japanese government raised its assessment of the economy in January for the first time in seven months due to rising consumer spending an encouraging sign that inflation could start to pick up this year Japan s economy is gradually recovering the Cabinet Office said in its monthly economic report on Friday That marked an upgrade from December when the Cabinet Office said the economy was on a recovery path The government also raised its assessment of consumer spending for the first time since June after retail sales household spending and new car sales gained momentum toward the end of 2017 Consumer spending is recovering which is an upgrade from the phrase gradual recovery used in last month s report The assessment increases the chance that the government will declare an end to deflation which would amount to a declaration of victory for Prime Minister Shinzo Abe s ambitious campaign to reflate the economy The difference between previous recoveries and the current recovery is that right now both the corporate sector and the household sector are steadily improving said Japanese Economy Minister Toshimitsu Motegi Data for November and December showed consumer spending bounced back from a lull caused by bad weather a Cabinet Office official told reporters However the Cabinet Office left unchanged its assessment that consumer prices are flat showing it may still take some time for improvements in the economy to feed through to consumer prices The Cabinet Office also stayed with its view that industrial output and capital expenditure are gradually expanding Abe took office in late 2012 with a bold plan to shake off 15 years of deflation and sub par growth Gross domestic product has expanded for the past seven quarters the strongest run of growth in a decade The output gap shows demand exceeds supply by the most in more than nine years Stock prices are at their highest in 26 years and corporate profits are near an all time high Business investment is rising exports are growing and the labor market is the tightest in decades due partly to a shrinking population BRIGHT GLOBAL PICTURE Japan s robust outlook coincides with increasing evidence that the global economy is also in good health China s economy grew faster than expected in the fourth quarter defying concerns of a slowdown World shares have rallied at the start of 2018 on optimism about growth and earnings Traders also expect a withdrawal of monetary stimulus in the United States and Europe The outlook for the global economy is good and that influences things like Japan s exports said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities In addition there are no domestic factors that suggest Japan s growth will falter Japan s economy minister has hinted that it is possible to declare an end to deflation before consumer prices reach the Bank of Japan s 2 percent inflation target
In November core consumer prices rose 0 9 percent year on year This is an improvement over 2016 when prices fell but still not close to the BOJ s price target |
MS | ECB to end QE by Dec but should do so sooner economists | By Shrutee Sarkar
BENGALURU Reuters The European Central Bank will stop printing money by the end of the year but should do so much sooner a majority of economists polled by Reuters said citing a solid and synchronized growth outlook for the currency bloc
The debate on the central bank ending its quantitative easing QE program has now moved to when rather than should
That is largely driven by robust growth expectations with upgrades for a majority of the euro zone economies in the latest Reuters poll of over 100 economists taken Jan 11 19
The ECB should not have run such a big and extended QE program in the first place but given that they have committed themselves to not halting purchases before September they should obviously stick to that idea said Elwin de Groot head of macro strategy at Rabobank
Minutes from December s ECB meeting signaled a revisit to its communication stance in early 2018 and specifically a pledge to continue its more than 2 5 trillion euro money printing program
But a separate Reuters story based on three sources close to the matter last week showed any change to guidance was likely to come later than the Jan 25 meeting
About 90 percent of 70 respondents who answered an extra question said the ECB will completely shut its bond buying program by year end including 26 economists who said September and four October The remaining seven economists expect the central bank to end it sometime next year
But over 60 percent of the poll s participants who answered another question said the ECB should pull the plug on its 30 billion euros worth of monthly asset purchases by the end of September at the latest That included almost a fifth of the economists who said it should happen well before September
There is no need to extend QE beyond September 2018 given that growth will remain clearly above potential for the time being and that there are increasing signs that underlying inflation will trend higher said Martin Wolburg senior economist at Generali MI GASI Investments
Prolonging QE in this environment would do more harm than good
EURO RISING ON SOLID GROWTH NOT INFLATION
The euro zone economy is forecast to grow on average 2 2 percent this year and 1 8 percent next compared to 2 1 percent and 1 8 percent respectively in the previous poll
Surging business and consumer confidence and steady job creation have left economists repeatedly raising their estimates for major economies in the region
The German economy Europe s largest is expected to continue its solid upswing with GDP growth forecast at 2 4 percent for 2018 compared to 1 9 percent in the previous poll
Economists were increasingly bullish about France s economic outlook forecasting on average 2 0 percent growth this year up from 1 7 percent in a poll in October
But the ECB is expected to keep its interest rates on hold this year The central bank is forecast to have raised its refinancing rate by 25 basis points to 0 25 percent and deposit rates by 40 basis points to zero percent by the end of 2019
The ECB is expected to take its deposit rates higher for the first time since 2011 in the second quarter of 2019
Those expectations come on the back of solid growth for the euro zone economy in 2017 during which it surpassed that of the U S and Britain
The strength of the bloc s economy has driven the euro s best run since 2003 last year and a separate Reuters poll showed the single currency was expected to trade slightly higher by end 2018 EUR POLL
Euro strength will be one of the challenges the central bank needs to deal with as a stronger currency tends to dampen inflation by making exports dearer and imports cheaper
Since the ECB s last meeting the single currency has gained over 4 percent and policymakers need to evaluate the impact of this rise on prices and the economy
Indeed the euro zone economy expanding at its fastest pace in a decade and jobless rate at nine year lows has not converted into significantly faster price growth
Inflation is not expected to reach the ECB s target until 2020 at least with the consensus ranging between 1 3 and 1 6 percent in each quarter through to the middle of next year
For the full year inflation is forecast to average 1 5 percent this year and 1 6 percent next
The risk though is skewed more to the upside for inflation as the latest expectations were higher compared to the previous poll and the range of forecasts show pessimism has dissipated
In the context of an upwardly revised growth path 2018 will likely mark the beginning of three key shifts from negative to positive output gap from below to above average core inflation and from ECB QE to the end of it noted Daniele Antonucci senior European economist at Morgan Stanley NYSE MS
For other stories from the Reuters global long term economic outlook polls package see
Polling and additional reporting by Indradip Ghosh and Manjul Paul in Bengaluru Michael Nienaber in Berlin Leigh Thomas in Paris and Viviana Venturi in Milan Editing by Toby Chopra OLUSECON Reuters US Online Report Economy 20180119T150112 0000 |
JPM | Don t Be Fooled This Boring Week in Stocks Was Full of Drama | Bloomberg It was a heck of a week considering nothing much happened
U S stocks just finished marginally higher for the past four days The S P 500 Index rose 0 6 percent having not closed up or down more than 18 points in any session In fact the so called fear gauge for equities the Cboe Volatility Index posted the lowest average reading in the past four months
That won t ring many alarm bells for investors After all the S P 500 has gained 16 percent over the past nine weeks so a pause is understandable No cause for panic Unfortunately there are plenty of other reasons for that
A menace was lurking in plain sight amid this sea of tranquility Growth fears have sent so many investors into the safety of Treasuries now with benchmark yields not far from the lowest in a year The term premium has collapsed Bond volatility is evaporating And the bad economic omens have appeared by the day
It raises a question How long can this kind of stock performance survive
The rally definitely has meat on it no way could it be resilient to that data otherwise said John Roe the head of multi asset funds at Legal General with a combined 985 billion pounds 1 3 trillion under management What we re now getting is Goldilocks being priced through 2019 with no Fed hikes growth okay and recession risks fading
Yet a Goldilocks scenario requires economic growth to be neither too hot nor too cold Given the speed at which expansion appears to be cooling the resilience in equities seems remarkable Sure the bond rally is helping valuations and the hunt for yield for now but the global data looks ugly
German manufacturing shrank the most in six years Japan s factory sector contracted for the first time since 2016 and South Korean exports tumbled Shares in the world s biggest shipping line a bellwether for trade plunged on its downbeat outlook for the year
Numbers in the U S were hardly more impressive Orders placed with U S factories for business equipment unexpectedly fell in December while there was a steep decline in business conditions in the February Philadelphia Fed Survey
Despite this retail investors are becoming more bullish on U S equities The share of mom and pop investors saying they re bearish on U S stocks in the weekly American Association of Individual Investors survey is near the lowest level since June while positive sentiment is around the highest since November
It s definitely the case there s a divergence between the macro data and stock markets said Anna Stupnytska head of global macro and investment strategy at Fidelity International which manages about 379 billion of client assets The risk on mood in the markets is becoming much sharper and more intriguing
It s probably because for many investors the equation has now changed thanks to the surprise pliability of Jerome Powell and his counterparts around the world
The apparent capitulation of policy makers to the turmoil in markets seen late last year at January s rates decision the Fed chair acknowledged that financial conditions matter means that bad news is now good news Weak economic readings mean easier monetary policies and that keeps financial conditions loose
Central bankers repeatedly remind people that most expansions don t die of old age they are killed by aggressive monetary tightening said Brian Jacobsen a senior investment strategist at Wells Fargo NYSE WFC Asset Management which oversees about 500 billion in assets If aggressive tightening is off the table recession fears don t have to become a recession reality
Because of this shift in outlook an irony emerges The growth fears that sparked the late 2018 selloff are now a necessary part of the rebound Should economic expansion get back on track it would increase the chances of a Fed rate hike tightening liquidity and potentially triggering more losses and volatility
We are starting to see a bit of complacency seep into markets said William Hobbs chief investment officer at Barclays LON BARC Investment Solutions in London Too much may be being made of the apparent change of direction from the world s major central banks
Whichever is the bigger threat to the equity rally higher rates or sliding growth a consensus seems to be building that there may be limited upside following the recent epic rally
For all that the bears are being contained the bulls are hardly rampant Investors are still not getting into the cheapest stocks which tend to do well during economic booms while growth shares are outperforming signaling a willingness to pay more for growth because it s scarce
The market is currently in a glass half full mood said Michael Strobaek global chief investment officer at Credit Suisse SIX CSGN Group AG This optimism will soon require some fundamental support either from the micro or the macro side In the near term we see the risks for equities as being skewed to the downside We may have to wait for growth to improve to see renewed support
The good news may be that any downside shocks may be limited Roe at Legal General said it s a bit worrying when bad data gets little response but it shows a lack of extreme positioning in the market and that means it s not very vulnerable to bad news
Ultimately perhaps that balance of limited upside and capped downside risk may help explain this go nowhere week
A lot of the good news has been priced in now and for equity markets from here to hold up and to make further gains they re going to need a trade deal to be done for the Fed not to raise rates and for the global economy to continue growing over the next couple of years said Mike Bell a global market strategist at JPMorgan NYSE JPM Asset Management There s a risk that at least one of these things doesn t happen |
JPM | How Hong Kong s Property Slump Could Clobber the Economy | Bloomberg Real estate is the main game in Hong Kong and as the drop in housing prices nears correction territory concern is mounting about the toll the downturn will exact on the city s economy
Home values in the world s most expensive property market have fallen about 9 percent from their August peak as the China U S trade war and potential rate hikes hurt consumer confidence While the likes of JPMorgan Chase Co NYSE JPM say prices will bottom this quarter Jones Lang LaSalle Inc says there s worse to come forecasting home values will slump a further 15 percent in 2019
Here s what s at stake if the downturn worsens
In a city where land is in short supply the government is able to generate a large amount of revenue from selling vacant plots Land sales were the biggest contributor to government coffers in the fiscal year ended March 2018
That also makes the administration highly reliant on the fortunes of the property market This year s budget to be released Wednesday will probably show the surplus will shrink 63 percent in fiscal 2019 largely because of diminished income from land sales according to Deloitte LLP
When the SARS outbreak crushed Hong Kong s property market in 2003 04 slashing the revenue contribution from land sales to just 3 percent the budget deficit came in at more than HK 40 billion 5 billion With land sales revenue at a two decade high it s unlikely the good times will last
The property downturn could also weigh on the broader economy by making homeowners and borrowers feel poorer as the value of their house declines That could act as a brake on consumer spending according to Tommy Wu a senior economist at Oxford Economics
When sentiment worsens as prices fall people will be more cautious on consumption Wu said And when the value of the pledged property drops there will also be more pressure on borrowing
Developers also play an outsize role in Hong Kong s stock market comprising the third largest sector by weighting following finance and communications data compiled by Bloomberg shows
That makes the share market s performance closely linked to the property sector During the last decline in home prices between 2015 2016 the Hang Seng Index dropped about 10 percent Then as the property market boomed with house values peaking at a record high in mid 2018 the index surged about 40 percent |
JPM | Asian shares slip from five month highs pound jumps on Brexit delay hopes | By Swati Pandey SYDNEY Reuters Asian shares lost steam on Tuesday after scaling a five month high as investors waited to see if Washington and Beijing can clinch a trade deal while the pound advanced on hopes UK Prime Minister Theresa May will delay a Brexit deadline Spreadbetters pointed to a weak start for Europe with futures for London s FTSE off 0 6 percent even as fears of a no deal Brexit faded U S stock futures were down too with E Minis for the S P 500 falling 0 4 percent MSCI s broadest index of Asia Pacific shares outside Japan fell 0 5 percent from its highest since mid September as U S and Chinese negotiators work to hammer out a deal that would end a protracted tit for tat tariff battle President Donald Trump said on Sunday he would delay a tariff hike on 200 billion of Chinese imports in the clearest sign yet that both sides were making progress in the talks but he also sounded a note of caution saying a deal could happen fairly soon or it might not happen at all Tuesday s losses in Asian stock markets came as JPMorgan NYSE JPM analysts urged investors to curb some of their enthusiasm over the trade talks saying the extension to the deadline was a foregone conclusion Most assumed this action would occur they added And it is notable that 1 no new deadline date has been set and 2 there weren t any formal statements published from either side following the talks in Washington Elsewhere Indian markets were battered amid concerns about flaring border tensions between India and Pakistan both of which have nuclear arms The broader NSE stock index skidded the rupee fell and bonds rose in a flight to safety Australian shares lost 0 9 percent weighed by energy stocks as oil prices tumbled overnight Chinese shares see sawed between positive and negative territory after a sharp rally the previous day Japan s Nikkei stumbled 0 4 percent as some selling pressure built ahead of the fiscal year end Investors were also wary of weakening estimates for current quarter earnings with Wall Street on Monday expecting a 0 9 percent decline in S P first quarter earnings per share compared with expectations for 5 3 percent growth on Jan 1 according to IBES data from Refinitiv BREXIT DEADLINE In currency markets sterling jumped to 1 3149 a near four week high in early Asian trade after Bloomberg reported May was expected to allow her cabinet to discuss extending the Brexit deadline beyond March 29 at a crunch meeting later in the day The news was a relief to investors who had feared Britain would crash out of the European Union without a deal However a delay could anger May s pro Brexit colleagues who might then support a vote of no confidence in the government potentially triggering a general election The dollar fell against the safe haven Japanese yen from its highest since late December The greenback was last at 110 77 The dollar index was mostly flat at 96 399 against a basket of currencies Markets are now awaiting testimony from U S Federal Reserve Chairman Jerome Powell to a U S Senate committee on Tuesday after the central bank last month shifted to a more cautious stance on further interest rate hikes The market will be looking for signs the Fed remains comfortable with the current state of policy said Steven Dooley currency strategist at Western Union Business Solutions The markets will also want to hear details about the eventual end of the Fed s balance sheet reduction program Investors will also keep an eye on a two day U S North Korea summit this week where leaders of the two countries will try to reach an agreement on Pyongyang s pledge to give up its nuclear weapon program Oil prices fell again after posting their largest daily percentage drop this year on Monday as Trump called on OPEC to ease its efforts to boost crude prices which he said were getting too high
U S crude was last down 32 cents at 55 16 a barrel while Brent eased 20 cents to 64 56 |
JPM | Education First considers partial sale in China business sources | By Kane Wu and Julie Zhu
HONG KONG Reuters Global private language tutor Education First EF is considering selling a part of its China business which could value the unit at over 2 billion people with knowledge of the situation told Reuters
The company privately held by founder Bertil Hult s family has tapped JPMorgan Chase Co NYSE JPM to work on the potential sale the people said cautioning however EF is still weighing which part of the China business to sell and that a process has yet to start JPMorgan declined to comment
EF opened its first school in Shanghai in 1993 and now has teaching centers in over 50 cities in China offering language courses for children of all age groups and adults as well as study tours its website says
One of the people close to the company said EF is looking for a private equity investor in its children s business in China only and should be rolling out the stake in about three months
EF did not respond to a request for comment The people declined to be named as the information is confidential
The sale will likely attract interest from private equity firms the people said as education assets are usually cash rich with stable income from prepaid tuitions and other fees
Last year Chinese investors spent 7 8 billion on 64 education deals at home and overseas up from 2 2 billion in 2017 according to Refinitiv data
China s overall private education market was worth about 260 billion last year according to a June note from LEK Consulting and is growing at around 9 percent a year in the next two years
The country makes up a big portion of EF s global revenue with the bulk coming from children s language learning programs according to two of the people familiar with the company
Founded in Lund Sweden in 1965 EF features language travel programs and now has 612 schools in 114 countries or regions according to its website It also runs boarding schools and business schools in the United States and Britain
The company now headquartered in Lucerne Switzerland also boasts sponsorship deals with a number of sports tournaments including the Olympic Games and a professional cycling team |
MS | Blow To Deutsche Bank Santander Fed Rejects Capital Plans | The latest stress test results turned out to be continued embarrassments for Deutsche Bank AG DE DBKGn NYSE DB and Banco Santander MC SAN S A NYSE SAN as the Federal Reserve objected to the capital plans of their U S units once again While both the U S units of these European banks Deutsche Bank Trust Corporation and Santander Holdings USA Inc remain well capitalized the capital plans were rejected based on qualitative concerns under the U S Fed s Comprehensive Capital Analysis and Review CCAR 2016 Notably for Santander Holdings this year marked the third straight year of failing the Fed stress tests while it s the second consecutive year for Deutsche Bank s U S wing ConcernsThe Fed noted that the capital plans of the two banks were rejected due to broad and substantial weaknesses across their capital planning processes and insufficient progress these firms have made toward correcting those weaknesses and meeting supervisory expectations For Deutsche Bank Trust the Fed identified shortcomings in the risk management and control infrastructure that limits the reliability of the capital planning process of the company On similar concerns the Fed stated that capital planning processes at Santander depicted deficiencies in the risk management framework including key features of the risk measurement and monitoring function Precisely the Fed found that both the banks assumptions and analysis underlying the capital plans are not reasonable or appropriate However on a positive note the Fed acknowledged that Deutsche Bank Trust showed improvements in certain features of capital planning while Santander made progress in enhancing some approaches to loss and revenue projection The rejection of the capital plan prohibits these banks to distribute capital to their parent companies However they may choose to resubmit their capital plans to the Fed after substantial progress in the resolution of the issues ResponseChief Executive Officer CEO of Deutsche Bank USA Bill Woodley stated The capital adequacy of Deutsche Bank Trust Corporation has never been in doubt Woodley added We appreciate the Federal Reserve s recognition of our progress and we will implement the lessons learned this year in order to strengthen our capital planning process for future CCAR submissions Scott Powell Santander Holdings USA CEO said We are well on our way to making the enhancements necessary to improve our qualitative assessment Bottom LineThe periodic tests evaluate the financial stability of the large banks under hypothetical stressful situations These banks come under the U S Fed s CCAR which is conducted in compliance with the stress test rules of the Dodd Frank Act Assessing the health of the financial institutions since 2009 stress tests have been one of the important measures to prevent any further financial crisis Apart from assessing the adequate capital levels qualitative check is of equal importance in the stress test as it examines banks controls and procedures in risk management technology stress test management and the appropriate measures taken by the banks in business practices following the crisis The CCAR process determines whether the banks have enough capital strength to support its capital actions like dividend payments and share buybacks Overall thirty financial institutions including Citigroup Inc NYSE C and Bank of America Corp NYSE C received Fed s no objection on their capital plans however Morgan Stanley NYSE MS was issued a conditional non objection and is required to resubmit its plan by the end of 2016 Deutsche Bank currently carries a Zacks Rank 5 Strong Sell while Banco Santander carries a Zacks Rank 3 Hold |
MS | Markets advance as Central Banks consider cutting rates | US stocks were on the rise on Thursday on expectations the Bank of England is to add some stimulus to the economy and ease its monetary policy while the US consumer staples were driving the markets further up Moreover the economic data were positive with factory activity rising in June to almost 1 1 2 year high S P 500 index advanced 1 36 to 2 098 86 with all ten its major sectors closing in the black and consumer staples leading the growth 2 2 Hershey stocks sky rocketed 16 8 on the news of its rejected takeover Dow Jones industrial average added 1 33 to 17 929 99 Nasdaq composite advanced 1 33 to 4 842 67 US Treasury yields slumped to 4 year lows not far from all time lows on the talks Central Banks may go further with easing monetary policies Today at 15 45 CEST the Markit manufacturing PMI for June will come out the tentative outlook is neutral It will be followed by the same index from ISM at 16 00 CEST May construction spending and June ISM prices paid will come out at the same time Today at 19 00 CEST the Baker Hughes US oil rig count will come out the tentative outlook is positive European stocks retreated in early trading on Thursday on weak performance of the banking sector but managed to rebound and closed higher Only healthcare stocks managed to show steady growth yesterday British drug companies AstraZeneca and GlaxoSmithKline added 10 5 and 7 5 in the past three trading days The pharmas are advancing as their revenues mostly come from abroad so they benefit from weaker pound STOXX EUROPE 600 and FTSEurofirst indices both lost 0 6 yesterday in early trading and around 10 since the start of 2016 FTSE added 0 14 DAX30 fell 0 19 and CAC40 rose 0 30 The British FTSE has completely erased the Brexit sell off while is pound was traded at 1 33 on Thursday At the same time the Band of England Governor Marc Carney said on Thursday the Bank may ease its monetary policy to support the country s economic growth EURUSD fell 0 30 to 1 1090 Deutsche Bank DE DBKGn stocks dipped 4 and Santander MC SAN stocks fell 2 9 as their US divisions failed US stress tests once again Moreover the German Deutsche Bank has a too high derivative exposure which makes it the biggest potential risk to the global financial system according to IMF Royal Bank of Scotland LON RBS stocks slumped more than 30 since Brexit on June 24 but partly rebounded then It lost another 4 7 on Thursday as Morgan Stanley NYSE MS cut its rating on the stock On the other hand Italian banks advanced after the Italian government adopted a plan to allocate funds to the banks if needed Still investors remain risk averse and avoid European equities given economic uncertainty in the region Today in the morning the Markit manufacturing PMI for June came out positive in Germany The May unemployment fell in Italy from 10 6 to 10 5 The UK s and European manufacturing PMIs from Markit were on the rise No more significant news is expected today in Europe Asian stocks advanced on Friday as global financial markets continued to recover from Brexit MSCI index of Asia Pacific shares outside Japan added 0 5 Japanese Nikkei gained 0 7 as yen weakened after the strong growth this week The yen rose 4 9 this week which is its record pace of growth since mid April USDJPY is traded at 102 81 yen up from 99 00 touched this week South Korean KOSPI closed 0 9 higher today ending the week 3 2 higher Oil futures prices were advancing on expectations of rate cuts and improving imbalance of demand supply Brent crude was up 0 6 to 50 03 on Friday up 3 4 this week The WTI added 0 6 to 48 60 a barrel today up 2 1 this week Gold continues gaining ground in the wake of Brexit as a safe haven currency It gained 0 9 to 1 333 70 an ounce rising more than 1 4 in a week |
C | Citigroup to launch digital savings account for American Airlines cardholders | Reuters Citigroup Inc NYSE C said on Monday it was planning to offer a high interest online savings account early next year to users of its American Airlines NASDAQ AAL co branded credit card The savings account Citi Miles Ahead savings account will offer up to 50 000 miles as a sign on bonus and a 25 boost on miles earned through the card the bank said in a statement The digital service will only be available in areas where the bank does not have physical branches American Airlines did not immediately respond to Reuters request for comment |
C | Thailand s Battle to Curb Strong Baht Increases Rate Cut Chances | Bloomberg Thailand s battle to keep its surging currency at bay is increasing the odds of a second interest rate cut this year
The Bank of Thailand is set to reduce its benchmark policy rate Wednesday by 25 basis points to 1 25 matching a record low according to 16 of 26 economists in a Bloomberg survey The rest expect the rate to stay at 1 5
In the spotlight is the baht s 9 2 climb against the dollar in the past year the strongest in emerging markets and in defiance of periodic foreign exchange intervention by the Bank of Thailand an August interest rate cut and efforts to stem short term inflows
The urgency seems to be more now said Radhika Rao an economist at DBS Group Holdings Ltd in Singapore who changed her view for the rate cut timing to Wednesday from December She sees such a policy easing as tantamount to the central bank s signaling its discomfort with a strong baht
Still Rao says a cut might lower the baht s yield appeal but it will be no panacea
Sluggish growth and inflation also have tipped the scales for some analysts now eyeing a rate cut at Wednesday s meeting
With growth significantly disappointing the BOT s latest forecasts and inflation further undershooting its target we now expect the BOT to deliver a 25 basis point policy rate cut this week versus an earlier forecast of December Charnon Boonnuch and Euben Paracuelles economists at Nomura Singapore Ltd wrote in a Nov 1 research note
Here s what to watch for in the statement
Currency Gains
The hit to exports and tourism from currency strength has put the economy on course for the slowest growth in five years The central bank has said it s planning to ease rules on capital outflows in a further effort to restrain the baht s surge
At the same time speculation is growing that the country could be added to a watchlist of potential currency manipulators in a forthcoming U S report on the foreign exchange policies of key trading partners
Such a step would complicate currency and monetary policy according to Citigroup Inc NYSE C The U S on Oct 25 said it will suspend 1 3 billion in trade benefits for the Asian nation which some analysts interpreted as a warning shot
U S Commerce Secretary Wilbur Ross said Nov 4 the planned suspension had been blown out of proportion with the Thai government adding that the U S agreed to reconsider the step
Thailand which ran a 19 6 billion goods surplus with the U S in the 12 months through August denies intervening in the foreign exchange market for an unfair advantage in trade The central bank has said it only acts against excessive baht swings
Low Inflation
Coinciding with the baht strength is a consistent dip in inflation with the consumer price index remaining stubbornly below the 1 to 4 goal for five months
The monetary authority intends to narrow the target but has yet to reveal the proposed new range
Financial Stability
The Bank of Thailand has continued to flag financial stability risks with lingering concern that consumer debt could be bubbling including for homes and automobiles
Bangkok Bank Pcl Chief Economist Burin Adulwattana said the economic slowdown is overshadowing these fears
Financial stability risks aren t a key concern for the economy now said Burin who expects a reduction in borrowing costs sometime in the fourth quarter Cutting rates won t significantly boost household debt |
C | China Analysts Already Calling Time on Yuan s Surge Past 7 | Bloomberg China s yuan rallied past 7 per dollar only yesterday and analysts are already warning the strength won t last
The currency jumped as much as 0 60 to 6 9880 a dollar Tuesday trading stronger than the key level for the first time since August The offshore rate rose as much 0 66 The level had been a key support for the currency for years until August when the central bank allowed it to weaken past 7 for the first time in more than a decade
China s yuan has proven to be a good barometer of progress in trade talks between Beijing and Washington Its surge in the past month came as the two sides inched toward a deal and the greenback weakened Still the latest gains coincide with China s slowest economic growth since the early 1990s a factor that prompted the central bank to lower one of its many interest rates on Tuesday
The yuan s rally above 7 will only be temporary said Commerzbank DE CBKG AG s Zhou Hao the top yuan forecaster The MLF cut shows the Chinese central bank may see a strong currency as harmful to the economy
Zhou also pointed to the People s Bank of China s daily reference rate which was set weaker than expected in the four sessions through Tuesday as a factor limiting more gains The fixing has been closely watched after the PBOC set it weaker than 7 per dollar in August shattering a psychological barrier that officials had spent years defending
The central bank set the daily reference rate at 7 0080 on Wednesday slightly stronger than predicted The offshore yuan gained 0 05 to 6 9989 after the fixing
The Chinese currency has now rebounded 2 4 since it fell to the weakest level since 2008 in early September U S Commerce Secretary Wilbur Ross said Tuesday that reaching a phase one deal will help rebuild trust between the two sides and could serve as a precursor to more talks
The easing trade tensions helped to override the downside surprises seen in the dreary China domestic economic data and have contributed to a convincing rally on the yuan said Stephen Innes a strategist at AxiTrader Ltd
While Citigroup Inc NYSE C strategists say the yuan might strengthen toward 6 9 if Washington agrees to roll back tariffs imposed on Chinese goods in September Li Liuyang an analyst at China Merchants Bank Co said doubts will remain until a deal has been finalized
Societe Generale PA SOGN SA s Jason Daw says the yuan is more likely to weaken to 7 2 in the coming months rather than strengthen to 6 8 That means there s no point chasing the rally now he wrote in a Wednesday note
The median forecast of analysts surveyed by Bloomberg is for the yuan to end the year at 7 15
Adds analyst comment in second to last parapraph |
JPM | No WW3 And WPP | The avoidance of World War 3 has created an eerie calm across the markets The limited and targeted strikes in Syria that provoked no serious response from Russia were a relief to markets that were pricing in escalation Stocks fell across Europe but that may have been more a function of a resurgent euro than concern about Syria If it really is Mission Accomplished as Trump says markets can stop worrying and move on We are now looking for signs the market can finally refocus on strong earnings without the geopolitics
WPP NYSE WPP led a decline in the FTSE 100 where the rising value of the British pound was a problem for British based multinationals A seven day winning streak saw the pound strike 1 43 against the dollar for the first since January Banks were among the worst performers despite some well received quarterly results from their cousins on Wall Street JPMorgan NYSE JPM and Citigroup NYSE C beat Q1 earnings estimates last week
Not to overplay the maritime analogy A rudderless WPP without Martin Sorrel at the helm isn t very attractive when markets are in choppy waters Breakup risk is very tangible The multitude of smaller advertising agencies that make up WPP may go their own way with Sorrel binding them together If there is going to be any advertiser backlash against Facebook NASDAQ FB for its privacy scandal we don t think WPP will be in a position to best take advantage without Sorrel
The dollar lost ground against most major currencies despite a pickup in US retail sales in March Now that a US Russia confrontation has been avoided in Syria FX traders are cutting back on the need for dollars as a haven
Oil prices pulled back after a week long winning streak Brent crude oil fell after a five day winning streak as risks to Middle Eastern supplies receded following the airstrikes For now we think this oil pausing for breath rather than the beginning of some great unwind The support for Syria s Bashar al Assad puts Iran square in the firing line for the re introduction of sanctions on its energy exports |
MS | Premarket analyst action healthcare | Nabriva Therapeutics NASDAQ NBRV initiated with Overweight rating by Morgan Stanley NYSE MS Pieris Pharmaceuticals NASDAQ PIRS initiated with Outperform rating by William Blair NuVasive NASDAQ NUVA downgraded to Market Perform by Wells Fargo NYSE WFC Now read |
MS | Banks expected to share tiny proportion of mammoth Saudi Aramco IPO | By Dasha Afanasieva and Clara Denina LONDON Reuters The banks that will advise and execute Saudi Aramco s stock market listing are expected to share a tiny proportion of the 100 billion Riyadh hopes to raise in its initial public offering according to banking sources and industry insiders Investment banks involved in the listing are expected to share a fifth of a percent of the money raised they said but noted that could still amount to about 200 million The listing of 5 percent of the state oil company s shares could be the largest IPO in history almost five times the size of current record holder Alibaba N BABA the Chinese e commerce company which went public in New York in 2014 Banks are competing fiercely for mandates in the IPO because it is viewed as a gateway to other deals expected to emerge from Saudi Arabia s plan to revamp its economy via privatization Saudi Aramco is known for having paid relatively low banking fees in the past banking industry sources said The company declined to comment when asked how much it would offer for this IPO The estimate of the fee pot is based on forecasts by industry insiders that have been cross checked with bankers who are working to grab a share of the pie They asked not to be named because of the sensitivity of the matter Freeman Consulting estimates the pot compares to an average of 2 2 5 percent for IPOs by companies in the region International banks JP Morgan N JPM Morgan Stanley N MS and HSBC L HSBA have been appointed global coordinators with more banks expected to be named in addition to a team of book runners The 35 banks who worked on Alibaba s 21 8 billion float led by six main underwriters pocketed an estimated 300 million among them according to Thomson Reuters data Those jostling for a role in Aramco s listing are doing it for the status and league table ranking as well as the hope that it will put them in pole position for more Saudi business Some such as JP Morgan and HSBC have been informally working on this since at least 2016 This is the IPO of Saudi Arabia not just Saudi Aramco Saudi Aramco is very tight and for something of this size in basis points terms it will be the lowest ever said one London investment banker with knowledge of the process This will set a new precedent An investment banking industry source said it was very unlikely that the fees would reflect the size of the issuance Aramco is known for paying very little fees for a transaction of this magnitude in the ECM equity capital market you are looking at 100 to 150 basis points but Aramco will pay just 10 basis points he told Reuters LEAGUE TABLES Advisers to Saudi Arabia s National Commercial Bank IPO the world s second largest after Alibaba at 6 billion in 2104 received just 4 8 million in fees Thomson Reuters data shows According to the data Aramco which produces 10 5 million barrels of crude oil per day has paid out 180 million to advisers globally since 2002 By comparison the biggest corporate fee payer of last year Japan Post Holdings Co Ltd T 6178 paid 382 million for investment banking advice including on its IPO in 2017 alone One of the attractions for banks is a much coveted top spot on the equity capital market league tables which are calculated on the basis of deal value as opposed to fees and are included in every client presentation if they make a bank look good Being a regional leader will be important for banks such as Citi N C and HSBC which are expanding their operations in the kingdom to take advantage of opportunities created by Vision 2030 the reforms launched by Crown Prince Mohammed bin Salman to end the economy s reliance on oil exports It s about prestige said another banking industry source He said all the league table places will be taken up by banks involved in the listing because of its size
The chief executive and senior management are going to ask questions if you re not on it |
MS | Morgan Stanley s Shares Jump After Q4 EPS Beat | Investing com Shares in Morgan Stanley NYSE MS jumped in pre market trade on Thursday after reporting fourth quarter earnings
The financial services firm reported adjusted earnings per share EPS of 0 84 excluding the impact of the recent tax legislation passed by the U S Congress in the three months ended December 31
Analysts forecast pointed to earnings of 0 77 a share
For the fourth quarter net income hit 686 million or 0 29 per diluted share
However Morgan Stanley noted that the figure included a net discrete tax provision of 990 million or a loss of 0 55 per diluted share
Excluding net discrete tax items net income applicable to Morgan Stanley was 1 7 billion or 0 84 per diluted share compared with net income of 1 5 billion or 0 74 per diluted share for the same period a year ago the bank explained in its release
Meanwhile the firm s revenue increased 5 3 from the same quarter a year earlier to 9 5 billion beating the forecast for 9 19 billion
Over the course of the full year we achieved the strategic objectives outlined two years ago Morgan Stanley chairman and CEO James Gorman said in the release pointing to the increase of 10 in 2017 revenue leading to growth of 18 in pre tax earnings
We enter 2018 with strong momentum aided by rising interest rates tax reform and an evolving regulatory framework Gorman added
Traders will now turn their attention to the firm s conference call due to start at 8 30AM ET 13 30GMT
Following the release of the report Morgan Stanley NYSE MS rose 1 32 to 56 07 at 7 10AM ET 12 10GMT in pre market trade from the previous closing price of 55 35 Shares had been trading down around 0 2 at 55 22 prior to the publication |
JPM | BOJ may ease further say small but growing number of economists Reuters poll | By Kaori Kaneko TOKYO Reuters The Bank of Japan s next move will be to loosen its already super easy monetary policy a small but growing contingent of economists say amid risks of a slowdown and skepticism inflation will hit the central bank s target Most economists polled by Reuters 29 of 38 still expect the BOJ s next step would be to scale back its massive stimulus program But nine analysts up from five in last month s poll said the central bank would instead boost stimulus with steps such as buying even more assets to flood the financial system with cash and tweaking the wording in forward guidance U S China trade friction and an upcoming sales tax hike in October are casting a pall over the economy If the risk of a recession rises the BOJ will likely ease further said Hiroshi Ugai chief economist at JPMorgan NYSE JPM Securities Japan one of the nine Nearly all economists polled 33 of 36 said they disagreed with the BOJ s insistence that inflation was maintaining momentum toward reaching 2 percent The latest Reuters poll was taken Feb 7 20 Last month the central bank cut its inflation forecasts but maintained the status quo in its massive stimulus program as Governor Haruhiko Kuroda warned of growing economic risks from trade protectionism and faltering global demand Many economists who forecast the central bank will scale back stimulus said that will happen sometime in 2020 or later Shigeto Nagai head of Japan economics at Oxford Economics said the BOJ has already missed a chance to normalize policy before the sales tax hike due to rising global uncertainty The BOJ will stick to the current yield curve target at least until they confirm the impact of consumption tax hike is limited as expected he said Among possible steps for normalization the BOJ could expand its 10 year Japanese government bond yield fluctuation from a 0 2 percentage point band and raise its yield target from around zero percent economists said The median in the poll projected the nationwide core consumer price index which includes oil products but not fresh food costs would rise 0 8 percent in both fiscal 2019 which starts in April and fiscal 2020 That s lower than the BOJ which sees core CPI rising to 1 1 percent in the coming fiscal year and 1 5 percent in fiscal 2020 The BOJ will place emphasis on core CPI projections to include the effects from the planned sales tax hike when the bank releases its next outlook report in April the Nikkei business daily reported earlier this month Previously the central bank focused on core CPI excluding the tax hike effects but policymakers think those will be offset by government measures such as free education the report said Economists projected Japan s economy will contract 2 5 percent in the October December quarter due to the sales tax hike but eke out 0 7 percent growth in all of fiscal 2019 For the following fiscal year growth is expected to slow to 0 5 percent the poll showed |
JPM | Fed permanently bars former JPMorgan banker over China hiring scandal | WASHINGTON Reuters The U S Federal Reserve said on Thursday it was barring former JPMorgan Chase Co NYSE JPM Managing Director Timothy Fletcher from the industry for life over his role in a China hiring program for which the bank was fined 264 million in 2016 The Fed alleged that Fletcher had improperly administered the program to hire relatives of Chinese officials in order to obtain improper business advantages for the firm The Fed said Fletcher consented to the prohibition Fletcher who had worked at JPMorgan s Hong Kong unit could not could immediately be reached for comment In 2016 the bank agreed to pay a total of 264 million to the U S Securities and Exchange Commission the Justice Department and the Fed to resolve the allegations its hiring program had violated the U S Foreign Corrupt Practices Act The Fed said on Thursday Fletcher had engaged in unsafe and unsound practices breaches of fiduciary duty and violations of law The regulator said it was also requiring Fletcher to cooperate in any pending or potential enforcement action against other individuals who are or were affiliated with the firm |
MS | Blue Buffalo Pet Products BUFF Announces Pricing Of Secondary Offering | Blue Buffalo Pet Products Inc NASDAQ BUFF announced today the pricing of a secondary offering of its common stock as existing shareholders are looking to sell 15 million shares of common stock The underwriters of the offering will have a 30 day option to purchase up to an additional 2 25 million shares of common stock
The price of the offering is 22 per share and it is expected to close next week on July 5th Joint book running managers for the offering include JPMorgan NYSE JPM Citigroup NYSE C Barclays Inc NYSE C Deutsche Bank NYSE DB and Morgan Stanley NYSE MS
Blue Buffalo is up nearly 26 year to date and was up over 1 Wednesday after news of the pricing was released BUFF is currently a Zacks Rank 2 Buy stock with an A for its Growth Style Score and a B for its Momentum Score It will be interesting to see if next week s closure of the deal will have any effect on the stock moving forward
BLUE BUFFALO Price |
C | Barclays Sees Challenging 2020 Even as Investment Bank Rallies | Bloomberg Barclays LON BARC Chief Executive Officer Jes Staley warned that low interest rates and Britain s Brexit hit economy will make it tougher to meet the bank s targets next year even as his traders outperformed most of Wall Street in the third quarter
The outlook for next year is unquestionably more challenging now than it appeared a year ago in particular given the uncertainty around the U K economy and the interest rate environment Staley said in a statement on Friday Barclays LON BARC joins other British lenders such as Royal Bank of Scotland LON RBS which has blamed the domestic economic environment for putting its targets at risk
The corporate and investment bank s third quarter total income jumped 17 from the same period last year as revenue from fixed income and equities both advanced Barclays said in the statement Barclays outperformed its U S peers whose trading income rose an average of 6 4 according to Bloomberg calculations
Barclays aims to boost return on tangible equity a key measure of profitability above 9 this year and then raise it past 10 in 2020 While Staley didn t revise those targets Citigroup Inc NYSE C analysts have said 7 is a more realistic goal in the near term To have any hope of meeting the targets the American born CEO must maintain a tight grip on expenses
Staley repeated that Barclays plans to reduce expenses beyond its previous guidance which had a lower bound of 13 6 billion pounds 17 5 billion The CIB unit s revenue of 2 62 billion pounds beat the 2 42 billion pound consensus analyst estimate
According to the bank s first half results Barclays shed about 3 000 jobs in the second quarter and cut variable compensation by more than 20 Staley s brake on costs has come at the expense of executive tumult in a dispute over bonus cuts he ousted his hand picked head investment banker Tim Throsby and took direct control of the unit last spring
The stock has lost almost 25 since Staley took the top job in December 2015 That sluggish performance led activist Edward Bramson to launch a campaign against the CEO s strategy last year arguing that the bank should redeploy capital from its investment bank to higher returning businesses like retail banking and credit cards Bramson has repeatedly said the lender is following a destructive strategy |
C | Lazard appoints Girodolle CEO of Lazard France | PARIS Reuters Lazard N LAZ said on Sunday it had appointed Louis Girodolle as CEO of Lazard Investment Banking in France just a week after its chairman and CEO Matthieu Pigasse resigned For the 171 year old bank this is a critical appointment as it needs to retain clients and market share in Europe after Pigasse s departure as well as cope with a slowing pipeline of merger and acquisition M A deals The firm has come under increasing pressure from U S boutique banks including Evercore N EVR and Centerview which are looking to open offices in Paris and have poached some of Lazard s dealmakers including Nicolas Constant Girodolle joined Lazard in 2007 and he primarily advises companies on M A and financial transactions Previously he worked at the French APE state holding company and at the finance ministry Lazard said in a statement it had also appointed Charles Henri Filippi and Fran ois Kayat as co chairs Filippi joined the firm in 2018 from Citigroup NYSE C and has also worked at HSBC and Credit Commercial de France He began his career in the French civil service and government departments Kayat joined Lazard in 2010 from Credit Agricole PA CAGR CIB Previously he chaired the European Mergers and Acquisitions Group of Credit Suisse SIX CSGN First Boston Lazard founded in New Orleans in 1848 by three French brothers opened its Paris Investment Banking office in 1854
Today it is one of the firm s principal investment banking offices and the base of several global investment banking businesses in particular sovereign advisory Africa Middle East and Central Eastern Europe advisory Lazard said |
C | RBA Could Embark on Unorthodox Policies in February Citi Says | Bloomberg The Reserve Bank of Australia could turn to unconventional monetary policy as soon as February following the decision by lenders to only pass on part of the latest interest rate cut according to Citigroup Inc NYSE C
The central bank is likely to cut again in February and with lenders ability to pass on such reductions now constrained this date is the first opportunity for the RBA to announce a QE program Joshua Williamson a senior economist at Citi in Sydney said in a research note Tuesday
The call comes after the central bank cut its key rate to 0 75 earlier this month with economists and money markets expecting it to be reduced another quarter percentage point to 0 5 in the next quarter
Although RBA Governor Philip Lowe has been vocal in pushing back against any hard assumptions that unorthodox policy is inevitable Williamson points out that the major banks failure to pass on much of the rate cut hampers the effectiveness of policy transmission
As to the likely form QE could take Williamson prefers a U K style program where funding is provided to banks at an interest rate close to the cash rate and is then on lent to households and firms at the cheaper rate That would help facilitate transmission he said
He sees it as unlikely the central bank will buy residential mortgage backed securities as issuance only sits at less than 2 of total bank mortgages rendering purchases insufficient for influencing funding costs which quantitative easing seeks to achieve
READ Aussie QE Drumbeat Skews Toward Corporates Mortgage Bonds
In a separate research report Tuesday HSBC Holdings Plc LON HSBA Australian chief economist Paul Bloxham said it is more likely the RBA would buy sovereign bonds than MBS or commercial paper
We see outright sovereign bond purchases as the most likely approach said Bloxham who previously worked at the central bank |
C | China s bitcoin miner Canaan Creative files for 400 million IPO on Nasdaq | BEIJING Reuters Canaan Creative one of China s biggest bitcoin mining hardware makers filed to publicly list on the Nasdaq on Monday to raise 400 million marking at least its third attempt to do so after previous failed tries in mainland China and Hong Kong The Hangzhou based company which describes itself as the world s second largest bitcoin mining machine designer and maker in its prospectus said it wanted to use the cash to fund research into artificial intelligence and blockchain research as well as pay off debts It did not say why it had decided to try again for another initial public offering at this time It tried to list itself in China three years ago through a reverse merger by buying a Shandong based electric equipment maker and then again filed for a Hong Kong float last year however both plans fell through as regulators had doubts about its business model and prospects Its application on Nasdaq comes shortly after Chinese President Xi Jinping made comments last week encouraging the development of blockchain technology which sent the shares of blockchain and digital currency linked firms and the bitcoin price soaring The fate of bitcoin and bitcoin mining in China however remains unclear as Beijing shut down local cryptocurrency exchanges in 2017 and in April signaled that it wants to eliminate bitcoin mining in the country Chinese state media have also said that blockchain innovation should not be seen as a boost for virtual currency speculation
Founded in 2013 Canaan designs and sells high performance integrated circuits and is behind the Avalon series of bitcoin mining machines Banks working on Canaan s Nasdaq IPO are Credit Suisse SIX CSGN Citigroup NYSE C China Renaissance and CMB International |
C | Bond Market Is Dialing Back Just a Bit on Recession Gloom | Bloomberg It might not exactly be a fully fledged reflation trade but the bond market is dialing back on tail risks in the global economy shrinking the universe of negative yielding debt from its 17 trillion August record
Driving the sell off signs of steady progress towards an interim U S China trade deal that averts further tariff hikes and the receding threat of a hard Brexit A slew of PMI readings across major economies later this week and Friday s U S jobs report may determine how prolonged the slide is and affect bets on a Federal Reserve pause after the expected easing on Wednesday
Investors were panicking about the trade war global growth and Brexit in the summer and now they realized the situations aren t that bad said Ken Peng a Hong Kong based investment strategist at Citigroup Inc NYSE C I d recommend investors to focus more on equities and high yielding bonds in the coming three to six months
And indeed they have been The S P 500 Index hit a record high Monday Credit markets have rallied shrinking premiums on both high yield and investment grade debt in the U S and Europe in recent weeks In sovereigns the global stockpile of negative yielding debt has dropped 25 since the August high to 12 8 trillion the smallest in three months
President Donald Trump had kicked off the August bond rally which featured the best monthly return on Treasuries since 2008 with his latest tariff escalation announcement U S 10 year yields sank down below 1 5
Now they re closer to 2 adding some cushion to the premium over two year rates A brief inversion of the yield curve in August had added to recession fears as such an event has preceded past U S downturns
In Japan 10 year yields have returned to the Bank of Japan s loosely set tolerance zone of 20 basis points either side of zero They were at 0 12 Wednesday morning in Tokyo With Japan responsible for roughly two fifths of negative yielding debt globally the rise in rates offers some relief to the nation s beleaguered institutional investors
Chinese Bonds
This sell off is notable as well for a slide in Chinese government bonds which often show little correlation with the U S and other markets Ten year yields there have hit 3 30 the highest since May
China s central bank isn t helping to soothe nerves it has skipped open market operations so far this week effectively draining 500 billion yuan 71 billion from the financial system A wall of maturing local government debt may soon add more strain to the sovereign bond market
It s important to distinguish between investment horizons warned Sue Trinh managing director for global macro strategy at Manulife Investment Management Short term the rally in risk might have legs but we see quite a few ominous signs on the horizon through 2020 she said
Manufacturing has already tipped into a downturn globally while recent indications showed even the often reliable American consumer is reining in appetite for spending China s economy is heading for sub 6 growth for the first time in decades
And then there s the support from central banks The Fed is projected to cut interest rates Wednesday and has started expanding its balance sheet again even if the focus is on short dated securities European policy makers may not expect more monetary easing in coming months even if they cut forecasts in December but the European Central Bank is also boosting its bond stockpile
It s a good opportunity to get back into the bond market if you haven t had the chance to accumulate said Kelvin Tay regional chief investment officer at UBS Wealth Management in Singapore On a structural basis yields are likely to remain low because there s hardly inflation anywhere whether it is Japan Europe or the U S
Updates prices in 7th paragraph adds 9th paragraph to show China s central bank refrained from injecting cash on Wednesday |
C | Citi plans to withdraw from two thirds of foreign exchange platforms FT | Reuters Citigroup Inc N C plans to compete on fewer foreign exchange platforms to win business from clients Financial Times reported earlier on Wednesday citing sources familiar with the matter
The Wall Street bank plans to cut the number of websites and systems from 45 to 15 by the first quarter of 2020 the report said
Citi could save 5 million 10 million a year through this move the report added citing one of the sources
The bank has sent a survey to the platforms to score themselves on the breadth of products they offer and their fees among other metrics the report said
Citigroup was not immediately available for comment |
JPM | Q1 18 Earnings Optimism Vs Dour Investor Sentiment | With the plethora of opinions out in the market about Q1 18 earnings expectations the above spreadsheet should give good perspective on sector earnings and revenue growth looking all the way back to 2014
While the financial media focus on earnings for good reason note how revenue comes in for the quarter With the big banks on Friday JPMorgan Chase Co NYSE JPM beat on revenue as did Wells Fargo NYSE WFC but Citigroup NYSE C missed slightly
The remarkable stat to Q4 17 earnings was that 77 of the S P 500 came in above consensus on revenue versus the normal 60 beat rate and Q1 18 has started off as strong but we need to see roughly half of the S P 500 report before drawing firm conclusions
Thomson Reuters I B E S data by the numbers
Fwd 4 qtr est 162 02 vs last week s 161 92
P E ratio 16 4x
PEG ratio 0 83x
S P 500 earnings yield 6 10 vs last week s 6 22
Year over year growth of fwd est 19 86 vs last week s 19 82
Conclusion
Ryan Detrick of LPL Financial wrote about this past week noting that quarters 2 and 3 of the second year tend to be weak historically so can we expect more of the same
The S P 500 is still range bound between the January 26th high of 2 872 87 and the low of February 9th of 2 532 69 so until one of the range extremes is broken then the market action is defined Fundamentals around the S P 500 and the US economy are fair to good but investor sentiment has turned very negative which is actually a positive for expected returns for stocks
According to AAII released Thursday April 12th pessimism has risen again over the 40 level while individual investor bullish sentiment has fallen back to 26
It s tough to experience a real bear market with that kind of pessimism
Think about too what that says about the state of individual investors today when after a 21 year for the S P 500 in 2017 with little volatility the last two years we see a minor correction in stocks and investor pessimism rises over 40
Q1 18 earnings should be robust and healthy but much of that is in the numbers
Q1 18 earnings optimism and investor sentiment today are somewhat like dueling banjo s they pull on each other and in the end the expectation is still a normal 5 10 7 12 year for the S P 500
The S P 500 earnings yield is still above 6 still think that portends more reward than risk in S P 500 |
MS | BOJ Kuroda s optimism on economy price outlook sends yen to 4 month high | By Leika Kihara and Stanley White TOKYO Reuters Bank of Japan Governor Haruhiko Kuroda offered a positive view on the economy and inflation on Monday sending the yen to a four month high against the dollar on simmering speculation it may exit its ultra loose monetary policy earlier than expected Financial markets ignored Kuroda s reminder that the BOJ will maintain its massive stimulus in a sign of how nervous investors have become on when it might follow the footsteps of other central banks in dialing back crisis mode stimulus The BOJ also offered its most optimistic view on regional areas of Japan in nearly a decade in a quarterly report underscoring its conviction a broadening recovery will help accelerate inflation to its ambitious 2 percent target Kuroda said in a speech to BOJ regional branch managers that core consumer inflation was moving around 1 percent a slight change from three months ago when he said core consumer prices were around zero The economy is expected to continue expanding moderately he added reiterating his optimism on prospects for a sustained recovery The comments sent the dollar falling as low as 110 58 yen as some traders bought the yen on expectations the BOJ could dial back stimulus earlier than expected a view that heightened after a slight cut in its debt purchases last week Kuroda s change in language merely reflects recent price gains but people have become sensitive to even the subtlest difference since the BOJ cut bond purchases said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities Members of the government are also making more positive comments about escaping deflation Policymakers are gradually changing their tone Kuroda also said a moderate economic expansion now under way will help accelerate inflation toward the BOJ s 2 percent target signaling its desire to maintain the status quo on monetary policy for the time being RECOVERY BROADENING In the quarterly report the BOJ raised its assessment for three of Japan s nine regional economies and maintained its rosy view for the remaining six regions The central bank said two regions were seeing their economies expanding the first time it has used such an upbeat assessment for as many regions since April 2007 Shinichi Uchida head of the BOJ s Nagoya branch in central Japan said conditions for wage increases were falling into place as firms face intensifying labor shortages We re seeing some positive moves toward an end to deflation Uchida told a news conference adding that companies were benefiting from robust domestic and overseas demand Japan s economy grew an annualized 2 5 percent in July September to mark a seventh straight quarter of growth thanks to robust exports and capital expenditure Core consumer prices in November rose 0 9 percent from a year earlier far from the BOJ s 2 percent target but posting the 11th straight month of gains offering policymakers some hope firms are finally starting to raise prices on brightening prospects Japan s economy minister raised eyebrows last week when he talked up the government s progress in reflating the economy and suggested it is possible to declare an end to deflation before consumer prices reach the BOJ s inflation target Given the rising cost of prolonged easing such as the hit to bank profits from ultra low interest rates the BOJ has been sending subtle yet intentional hints it could edge away from crisis mode policy earlier than expected But a small cut to its regular bond purchases last week pushed global yields and the yen higher underscoring the challenge the BOJ faces in communicating its policy intentions
Japan s financial system remains stable and monetary conditions are very accommodative Kuroda said in the speech holding off from repeating recent warnings about the rising cost of ultra easy policy |
MS | Crude Oil Prices Gain In Asia With API Estimates Awaited | Investing com Oil prices gained in Asia on Wednesday ahead of US industry weekly estimates on crude and refined product inventories and overcoming dips overnight
On the New York Mercantile Exchange WTI crude futures for January delivery rose 0 28 to 63 91 a barrel while on London\ s Intercontinental Exchange Brent gained 0 06 to 69 33 a barrel
Overnight crude oil prices eased from three year highs on profit taking but remained well supported amid expectations OPEC led output curbs would further tighten global supplies offsetting rising US production
It what was a thin trading day following the Martin Luther King holiday Monday oil prices fell as traders took profit on the recent rally which saw both Brent crude and WTI crude prices hit three year highs supported by rising global demand growth and OPEC s ongoing commitment to the output cut pact
We see that the market is becoming balanced We see that the market surplus is decreasing but the market is not completely balanced yet he told reporters Of course we need to continue monitoring the situation said Russian Energy Minister Alexander Novak
Rising US oil production however remains a concern for investors as data last week showed the number of U S oil rigs drilling for oil an early indicator of future production rose by 10 to 752 its highest level in more than four months
Production has yet to rise above 10 million barrels per day bpd as data on Friday showed US oil production dropped by the most since October as the bomb cyclone winter storm disrupted output
That said however sentiment on oil prices at current levels remains positive as Morgan Stanley NYSE MS raised its Brent forecast for the third quarter of 2018 to 75 per barrel up from 63 per barrel
With many equity markets at all time highs interest rates still low and oil prices lagging their usual correlation with inflation this is should keep oil futures well underpinned said Morgan Stanley in a note to clients |
JPM | China Stocks Rally as Trade Credit Optimism Inject Confidence | Bloomberg Chinese stocks gained as investors were encouraged by signs of progress in trade talks and strong January credit data
The benchmark Shanghai Composite Index rose 1 7 percent as of 10 45 a m local time erasing its decline from the end of last week The benchmark is up 9 4 percent this year Shenzhen s composite gauge advanced 2 2 percent to its highest in nearly five months Hong Kong equities were also strong with the Hang Seng Index climbing 1 8 percent to 28 386
The U S and China are set to hold further talks in Washington following meetings in Beijing last week that U S President Donald Trump described as very productive after being briefed by his team on its return New yuan loans which expanded to a record in January also fueled optimism on Chinese stocks
The only two things that investors are looking forward to seeing are easing trade tensions between China and the U S and a more proactive policy stance at home said Shen Zhengyang a Shanghai based analyst with Northeast Securities Co Now that there are positive signs on their biggest concerns the market will definitely trend up
Brokerages and energy producers were among the best performers with sector gauges up at least 3 4 percent Macau casino stocks rebounded from a bruising Friday when they fell on concerns the Chinese government s focus on illegal lending would hurt gaming revenue JPMorgan NYSE JPM said that reaction in stocks was perhaps overdone MGM China Holdings Ltd led casino gains rising 6 5 percent its biggest jump since Dec 3
To contact Bloomberg News staff for this story Amanda Wang in Shanghai at twang234 bloomberg net
To contact the editors responsible for this story Richard Frost at rfrost4 bloomberg net Will Davies David Watkins
2019 Bloomberg L P |
JPM | Pennies before a steamroller Nigerian vote delay a reminder of investment risk | By Karin Strohecker LONDON Reuters A surprise delay in Nigeria s presidential ballot has served foreign asset managers another reminder of political risk and volatile investment returns in Africa s biggest economy just days after piling into assets in a bet on a smooth election run The electoral commission announced a week s delay to voting in the early hours of Saturday citing logistical problems even as some of Nigeria s 84 million registered voters were already making their way to polling stations The vote pitches President Muhammadu Buhari against former vice president Atiku Abubakar in what is seen as a tight race The delay adds to uncertainty for investors who have endured a wild ride in the West African country The 2014 oil price crash and election in 2015 followed by currency controls and dollar shortages that tipped the oil exporting economy into recession in the same year its first in more than two decades Its bonds got ejected from key indexes A new exchange rate mechanism launched in 2017 drew back some investors but concern has built around the election that has proved hard to call threatens to spark violence and promises little material change The likelihood of violence is now higher than before said Thierry Larose at Vontobel Asset Management And we have seen some effect on markets Below are four charts that show foreign investor exposure and positioning in Nigeria FLOWS COMING BACK Lured by a rekindled appetite for emerging markets and an upbeat oil price outlook foreign investors have recently raised exposure to Nigeria according to flow tracker EPFR Nigeria s debt in particular has seen a sharper acceleration of inflows since the start of the year than emerging market debt more widely TAKING STOCK Nigeria s debt may have got kicked out of key indexes but its stocks escaped a similar fate They comprised a chunky 6 4 percent in 2017 in MSCI s frontier market index of smaller and often riskier stocks Year to date MSCI s Nigeria index has risen just over 2 percent with an 8 percent jump in February making up for losses earlier in the year Broader frontier and emerging equities have performed better however Moreover trading volumes have decreased steadily overall and the percentage of foreigners trading has also shrunk to 48 percent from a peak of 65 percent in September 2017 according to stock exchange data Interactive This is a deeply unloved market whether measured by overall market volumes foreign participation valuation relative to history or performance versus frontier or oil exporter peers said Hasnain Malik at Exotix Capital That level of despair usually means opportunity EXTERNAL OUTPERFORMER With the International Monetary Fund estimating Nigeria s debt to GDP ratio at just under 27 percent in its 2018 outlook the country compares favorably to the Sub Saharan average of 50 percent Nigeria s dollar denominated debt has long been a favorite off benchmark play The issues have outperformed both wider emerging market sovereign debt and African peers returning some 10 percent year to date Eurobond valuations still look attractive as yields are likely to remain anchored regardless of outcome and the election means we are unlikely to get issuance until 3Q said Diana Amoa emerging market debt portfolio manager at JPMorgan NYSE JPM Asset Management Nigeria Eurobonds Outperform LOCAL LURES Investors are split on local debt markets On T bill markets the arbitrage between high yields and stable hedging costs through currency forwards delivers solid returns for anything up to a year The picture is less clear further out We continue to like the t bill trade as it s an attractive carry play on oil said Kevin Daly investment director at Aberdeen Standard Investments in London Others say the trade has become too crowded And plans by presidential contender Abubakar to possibly float the naira currency makes it a risky play It is like picking up pennies in front of a steam roller you pick up a lot of pennies but the losses are huge if the steamroller gets you said Lutz Roehmeyer at Capitulum Asset Management
Local government 10 year benchmark yields |
MS | Brexit Wins But At What Cost To British Firms | As Britain voted to leave the European Union EU the British Prime Minister David Cameron announced his resignation The European project of greater unity that was conceived from the ashes of World War 2 also received a deathblow making this the most significant historical moment perhaps of all times Of course a Brexit poses serious treats to the British economy While Britain s banks took a 130 billion battering with Lloyds LON LLOY and Barclays LON BARC PLC NYSE BCS getting hammered the most tech majors are also subjected to disappointment Most of the tech majors were for Bremain as Britain s tech firms need unrestricted access to the European market in order to compete efficiently British firms will now face skill shortage regulatory headaches and less investment on top of rising borrowing costs that they had to bear because of the uncertainty ahead of the referendum on EU membership Bank of England and the European Central Bank have promised to protect markets from Brexit panic by injecting liquidity if required but for the time being the global markets are subject to fresh bouts of volatility and one hardly expects Britain to be spared Britain Votes to Leave European Union British voters have decided to leave the EU a stunning development indeed Market pundits had warned that a Brexit will negatively affect financial conditions and the global economy Fed Chair Janet Yellen had said that such a move would usher in a period of uncertainty and fuel volatility in world markets We have already witnessed the pound crashing to its lowest level since 1985 with the sterling falling below 1 35 The leave campaign secured around 51 8 vote while the remain camp received 48 1 vote England overwhelmingly voted for Brexit but Scotland and Northern Ireland backed remain indicating a split down the middle Those who campaigned for Brexit must be on cloud nine as the U K escaped EU s shackles and are now in a position to utilize its full potential as a thriving economy However we shouldn t forget that such a vote goes against common wisdom of economic prudence and the redoubtable opinions of notable economists Brexit to Hamper Britain s EconomyAs U K opts to leave the EU their future relationship hangs in the balance Spanning across 28 countries and encompassing more than 500 million consumers the EU is Britain s biggest trading partner About 75 of British firms that trade goods globally do so with the EU Access to a single market has helped British firms expand their business But a Brexit will now push Britain s economy into a recession resulting in a drop of 3 6 in GDP and around 500 000 job cuts U K also stands to lose other essential benefits including free movement of goods services capital and people Moreover U K won t be able to tweak or play a significant role in influencing the laws of the single market Cameron had earlier cautioned that a potential Brexit will adversely affect British spending on healthcare He forewarned that Brexit will dry up around 40 billion pounds in U K public finances by 2020 Britain s Financial Sector Faces the AxeFinancial services that account for almost 10 of the U K s economic activity will largely be affected by the vote Around 2 2 million financial industry workers face years of uncertainty Many also fear the risk of job cuts as London s status as Europe s premier financial hub is now at stake All international and British banks had warned that they could move thousands of jobs if Britain opts out of the EU Morgan Stanley NYSE MS had said that it could move around 1 000 of its roughly 6 000 employees currently in Britain to the EU The CEO of rival firm JPMorgan Chase Co NYSE JPM Jamie Dimon told staffers that the bank may have no choice but to overhaul its UK business model casting doubts over its 16 000 workforce Job security fears climbed to levels unseen since the 2008 financial crisis which has made the mood somber in the high rise banking hub of Canary Wharf home to banks such as HSBC Holdings LON HSBA plc NYSE HSBC and Barclays read Brexit to Hurt U K Tech Firms U K leads the tech firm industry in Europe and so it isn t surprising which camp they were for Their allegiance was further cemented by EU s move toward a single digital market They are now in the process of making sure phone users can enjoy movement from member state to member state without having to pay roaming fees Such policies have become popular with U K network operators as they believe EU membership is good for their business BT Group plc NYSE BT has clearly mentioned that the company s prospects are better if the UK stays in a reformed EU Many of U K s unicorns favor a EU membership according to a report published by The Guardian in May But now they are in for a shocker A survey of U K s tech workers by Juniper Research has found that seven in ten believe a Brexit will have a negative on the tech industry and U K will find it immensely hard to lure and employ individuals from the EU countries read Bottom LineAs discussed above Britain s decision to leave the EU has dropped a bombshell on two of its major sectors finance and technology Energy and big auto companies are also expected to fall victim of Brexit read British firms are already reeling under heavy borrowing costs thanks to the referendum on EU s membership According to analysts at Standard and Poor s companies such as Travis Perkins LON TPK and Travelodge have both raised funds with new bonds in recent months eventually paying more than what one would expect for companies of their size and creditworthiness The vote has dampened the capital expenditure of many firms In fact the vote will now heighten volatility in the capital markets which will lessen demand for U K s assets until and unless we get a greater clarity about the exit settlement |
MS | Carrols Restaurant Group HSBC Holdings Barclays Morgan Stanley And JPMorgan Chase Highlighted As Zacks Bull And Bear Of The Day | For Immediate Release
Chicago IL June 27 2016 highlights Carrols Restaurant Group as the Bull of the Day and HSBC Holdings LON HSBA as the Bear of the Day In addition Zacks Equity Research provides analysis on Barclays LON BARC PLC Morgan Stanley NYSE MS and JPMorgan Chase Co NYSE JPM
Here is a synopsis of all five stocks
That whole Brexit event sure rocked the domestic stock and international equity markets last week But that doesn t mean that there aren t some great deals to be had out there When looking for which stocks you should be swooping in and buying here you should stick to the basics I m searching for stocks which analysts are still very bullish on in the intermediate term that do a majority of their business domestically That s why I ve made today sBull of the Day the purveyor of fast food here in the US Carrols Restaurant Group
The company basically serves as a proxy for shares of Burger King The company owns and operates 705 locations in 16 states Analysts have been forced to jack up their earnings estimates for the company as they just keep on surprising to the upside Last quarter analysts were looking for an 8 cent loss and the company came in at 5 cent EPS The quarter before the company reported 18 cents while analysts were only looking for 3
So when looking at the current year analysts had been looking for 53 cents sixty days ago Now two analysts have increased their estimates pushing our Zacks Consensus Estimate up to 58 cents The increased estimates and recent surprises are a big reason for the Zacks Rank 1 Strong Buy the stock currently enjoys
If you ve read some of my other pieces you d see that it s been a long while since I ve been bullish on European banks For me there s just too much going on over there with BASAL regulatory requirements and contingent convertible securities also known as CoCos If you haven t heard of CoCos you should check out my Trending Stocks video on it
In my opinion the recent Brexit vote has only put more stress on European Banks So it should come as no surprise that these recent events have done little to sway my opinion of them Today s Bear of the Day is Zacks Rank 5 Strong Sell HSBC Holdings HSBC Holdings is one of the largest banking and financial services organizations in the world and is headquartered at Ground Zero for Brexit London England
Recent earnings estimate revisions for HSBC have been to the downside Two analysts have dropped their earnings estimates for the current year over the last sixty days The bearish sentiment has lowered our Zacks Consensus Estimates from 3 60 to 3 13 for the current year A single analyst has also dropped their estimate for next year lowering the Zacks Consensus Estimate from 3 44 to 3 21 for next year
It s been a tough ride for shares of HSBC over the course of the last several months The stock was trading in the high 40s ahead of the August 2015 market selloff that sent major market indexes tumbling to lows Since then the stock s price has struggled to recover bouncing between 29 and 34 for the last several months Friday s selloff took shares down over 9 to 30 68
Additional content
Brexit Wins But at What Cost
As Britain voted to leave the European Union EU the British Prime Minister David Cameron announced his resignation The European project of greater unity that was conceived from the ashes of World War 2 also received a deathblow making this the most significant historical moment perhaps of all times
Of course a Brexit poses serious treats to the British economy While Britain s banks took a 130 billion battering with Lloyds LON LLOY and Barclays PLC getting hammered the most tech majors are also subjected to disappointment Most of the tech majors were for Bremain as Britain s tech firms need unrestricted access to the European market in order to compete efficiently British firms will now face skill shortage regulatory headaches and less investment on top of rising borrowing costs that they had to bear because of the uncertainty ahead of the referendum on EU membership
Bank of England and the European Central Bank have promised to protect markets from Brexit panic by injecting liquidity if required but for the time being the global markets are subject to fresh bouts of volatility and one hardly expects Britain to be spared
Britain Votes to Leave European Union
British voters have decided to leave the EU a stunning development indeed Market pundits had warned that a Brexit will negatively affect financial conditions and the global economy Fed Chair Janet Yellen had said that such a move would usher in a period of uncertainty and fuel volatility in world markets We have already witnessed the pound crashing to its lowest level since 1985 with the sterling falling below 1 35
The leave campaign secured around 51 8 vote while the remain camp received 48 1 vote England overwhelmingly voted for Brexit but Scotland and Northern Ireland backed remain indicating a split down the middle Those who campaigned for Brexit must be on cloud nine as the U K escaped EU s shackles and are now in a position to utilize its full potential as a thriving economy However we shouldn t forget that such a vote goes against common wisdom of economic prudence and the redoubtable opinions of notable economists
Brexit to Hamper Britain s Economy
As U K opts to leave the EU their future relationship hangs in the balance Spanning across 28 countries and encompassing more than 500 million consumers the EU is Britain s biggest trading partner About 75 of British firms that trade goods globally do so with the EU Access to a single market has helped British firms expand their business
But a Brexit will now push Britain s economy into a recession resulting in a drop of 3 6 in GDP and around 500 000 job cuts U K also stands to lose other essential benefits including free movement of goods services capital and people Moreover U K won t be able to tweak or play a significant role in influencing the laws of the single market
Cameron had earlier cautioned that a potential Brexit will adversely affect British spending on healthcare He forewarned that Brexit will dry up around 40 billion pounds in U K public finances by 2020
Britain s Financial Sector Faces the Axe
Financial services that account for almost 10 of the U K s economic activity will largely be affected by the vote Around 2 2 million financial industry workers face years of uncertainty Many also fear the risk of job cuts as London s status as Europe s premier financial hub is now at stake All international and British banks had warned that they could move thousands of jobs if Britain opts out of the EU
Morgan Stanley had said that it could move around 1 000 of its roughly 6 000 employees currently in Britain to the EU The CEO of rival firm JPMorgan Chase Co Jamie Dimon told staffers that the bank may have no choice but to overhaul its UK business model casting doubts over its 16 000 workforce
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MS | Is Silver And Bitcoin China s Net Momentum Play | The roulette game started in the fall of 2014 about 2 years after Chairman Xi Jinping came to power and became the General Secretary of the Communist Party of China
Xi Jinping had campaigned for socialist economic reform including a sweeping anti corruption drive cutting excess production capacity tightening of housing credit and clamping down on gaming in Macau Public feedback was initially positive However largely as a result of those policies Beijing was facing an increasingly grim economic growth outlook which was the worst in more than two decades Manufacturing activity in China slowed along with the global economy and the construction sector stagnated
In late 2014 the light bulb came on someone in the higher echelon thought the stock market could be a cure all for the economic and social malaise The stock market is easily accessible to the public and can serve to fill occupy their free time A rising stock market provides a desirable savings vehicle as opposed to low yield bonds enables listed companies to raise capital and invest while local governments and banks can piggy back on the taxes and fees generated
As reported by China Daily Asia on September 5 2014
State run media in China are trying to do something the securities industry has failed to accomplish for much of the past three years get the world s biggest population to buy more stocks
The Xinhua News Agency published at least eight articles this week advocating equity investing after similar stories appeared in the People s Daily newspaper and on State run television last month part of what Everbright Securities Co said is an increased government push to bolster the market Authorities have also cut trading fees made it cheaper to open new accounts and organized investor presentations by the biggest listed banks 1
1 State media campaign aimed at getting investors to buy equities China Daily Asia September 5 2014
The banks started margin lending a practice that has been prohibited since 2007
The results speaks for itself
In the aftermath the government stepped in and since July 2015 purchased stocks banned short selling banned IPOs and restricted insider selling All this did was drive speculators away from the market with volumes collapsing
In early 2016 as Chinese economic growth and fundamentals continued to worsen the government turned back to what had worked during the 2009 slump aggressive lending in the property and infrastructure sectors in Q1 2016 provided relief and revived the housing market and construction industry It also sparked speculation away from the stock market and into the iron ore and steel sectors
According to the Financial Times
The commodities futures market is the most equal in China avows one successful trader before admitting to one drawback It s difficult to meet women 2
2 Chinese retail investors throw global commodities into a tailspin Financial Times May 6 2016
Trading commodities in China also the world s biggest consumer of raw materials is relatively straightforward
To set up a commodity futures brokerage account in China an individual needs to provide his identity in some cases with a video verification and bank details A deposit is needed to start trading
Morgan Stanley NYSE MS estimates 160 000 new accounts were set up online between July 2015 and February 2016 Individual investors tend to be most active when markets are rising and have dominated past rallies in Chinese futures
The following chart speaks to Chinese investment speculation
According to an article published by Business Insider Australia on March 9
the equivalent of 977 million tonnes were traded on the Dalian exchange on Wednesday March 9 2016 Not only was it the highest daily turnover on record it exceeded the entire amount of physical iron ore imported by China over the past year
In the 12 months to February China imported a total of 962 6 million tonnes of an iron ore the largest year on year total on record
If the level of turnover recorded in Dalian futures on Wednesday was to be replicated over the course of any one typical trading year it would equate to around 240 billion tonnes of ore 3
3 China is becoming a nation of iron ore traders Business Insider Australia March 9 2016
The annual world production of iron ore was 3 22 billion ton in 2014 according to Wikipedia
The government stepped in and since May it has raised margin requirements increased trading fees and imposed daily movement limits Excessive speculation on property and commodity sectors and the undesired restarting of marginal iron ore mines and steel mills have prompted the government to issue a warning in the state owned People s Daily which said on Monday May 9 that China s economic trend will be L shaped rather than U shaped and definitely not V shaped Speculators promptly retreated from the iron ore market resulting in crashing price and volume
The following chart shows where speculators turned
According to a Bitcoin article dated May 31 2016
Huobi and OKCoin the two largest Chinese exchanges that now account for some 92 percent of Bitcoin global trading by self reported volume both reported almost double the usual trading volume over the past weekend BTCC China s third largest exchange also reported a surge in bitcoin trading volume setting a new record on its Pro Exchange 4
4 J Williams Bitcoin Price Soars as Chinese Investors Look for Safe Haven From Devaluation and Capital Controls Bitcoin Magazine May 31 2016
Huobi s CEO Leon Li said that More and more Chinese investors and their hot money need a new investment market and a convenient alternative investment like Bitcoin is easy to be accepted by the traders 5
5 Ibid
Since it s impossible to curb bitcoin trading and with limited supply I would not be surprised at all if Bitcoin approaches US 1 000 BTC in the near term
Curiously if a crypto currency without intrinsic value can muster such popularity why not speculate on gold and silver Particularly silver as it stands out as a poor man s gold ideal for action seeking Chinese investors
Indeed open interest in silver on the Shanghai Composite futures has been steadily increasing this year with open interest now roughly equal and equivalent in size to that of COMEX
Shanghai Futures Exchange Silver contract open interest
The contract size is 15kg roughly 500oz or 1 10 of the COMEX silver contract size 5 000 oz The open interest ballooned from less than 200 000 contracts in 2012 to over 600 000 since April 2016
COMEX silver open interest 000
What s The Take Away
1 The world is welcoming a new class of investors numbering in the tens of millions with hundreds of billions in speculative dollars 2 Those investors may prefer metals over stocks and bonds 3 When those finicky investors arrive they will create a torrential wave
They may not happen in silver this month or the next but I suspect they will buy into this compelling easy to understand investment choice I own physical silver and manage a company engaged in silver exploration
Silver trading at 18 month highs |
MS | Sterling Post Brexit | As we had expected in our last article dated June 1 2016 sterling rebounded on the daily uptrend channel before resuming the downward pressure and selling tops at around 1 5 The pair then slammed more than 1 700 pips down to the low of around 1 3275 after Brexit was officially confirmed on early Friday morning last week
We were not in the trade as earlier shorts were closed out at around 1 43 as the market rebounded Fortunately we were in the FTSE 100 sell stop order that was triggered on Friday and still riding the expected downtrend
One thing that retail traders must understand in order to succeed in trading is intermarket analysis If you are a forex trader then it is wise to know how different markets react to one another as they are all interconnected The demand in UK gilts for example as well as the UK equity markets surely affects the demand for the UK currency sterling
There is not much we can say in this article as we expect sterling to drift lower but at current level around 1 3180 as of this writing we don t think it is a good level to sell nor a good level to buy either Right now we d rather place a sell limit around 1 38 to reinstate another short
Alternatively the FTSE 100 still offers a good level to sell for those who missed the Brexit trade We expect the index to drift lower in the weekly downtrend channel testing the 50 Fibonacci retracement from the low of March 2009 to the high of April 2015 around 5300 to 5280 in the months to come
On the institutional side Morgan Stanley NYSE MS closed their short at significant gains as target 1 37 was reached post Brexit
Recent CoT report highlighted that market participants were net short in all currencies against dollar except yen franc and loonie which signifies market fears as confirmed by the kagi chart of the CBOE Volatility Index a k a The Fear Index which is at its highest in 4 months
Halal Traders is currently flat on the sterling |
C | Pound Suffers Setback After 8 Rally as Brexit Deal Put on Hold | Bloomberg The pound weakened against all its major peers as U K lawmakers rejected Prime Minister Boris Johnson s plan to fast track his Brexit accord through parliament
After a rally of more than 8 since early September currency strategists had predicted that only a win for the government would enable sterling to extend its gains Many said losses would be limited in the event of a defeat since the risks of a no deal exit from the European Union had already been largely neutralized
In the event sterling slid as much as 0 8 against the dollar before recovering from its intra day low The decline was contained as the government won an initial vote on the deal and Johnson opened the door to a potential extension to an Oct 31 deadline after earlier threatening to throw out the deal if lawmakers rejected his plans Citigroup Inc NYSE C analysts said the lower pound created a buying opportunity
For now it seems the market is still generally expecting this is a setback but not a fatal setback to a negotiated Brexit said Jeremy Stretch head of G 10 currency strategy at Canadian Imperial Bank of Commerce There hasn t been a rapid uptick in no deal pricing at this point
Parliament s vote to reject the planned schedule makes it virtually impossible for Johnson to get his agreement ratified by the end of the month Still the two votes taken together potentially move the U K even further from a no deal scenario while also raising the chances of an extension to the deadline Another possibility is a general election to try to break a parliamentary deadlock
The market simply wants some degree of certainty at this stage and if an election is part of that journey it will accept that said Shahab Jalinoos global head of foreign exchange strategy at Credit Suisse SIX CSGN The alternative is that PM Johnson agrees to the delayed timetable for this bill which is also unlikely to be upsetting to the market at this point
The U K currency had stayed in a tight range in Tuesday s session before the vote trading close to its average level since the Brexit referendum in 2016 based on Bloomberg s British Pound Index It was at 1 2897 at 9 21 p m London time after touching 1 1959 on Sept 3
For strategists at Citigroup there s room for it to build on those gains
We would buy dips our view remains that Johnson is not a no deal Brexiteer and that no deal risk on Oct 31 or indeed ever remains relatively low said Adam Pickett a foreign exchange strategist at the bank Even on an election the two most likely outcomes are Johnson getting his deal through with a majority or that a coalition leads the U K to ultimately remain in the EU and both of those outcomes are sterling bullish in the medium term
Adds strategist comments from Credit Suisse Citigroup |
C | Flight Shame Is Real Will Make Carbon Big Business Citi Says | Bloomberg Flight shame flyers feeling guilty about their carbon footprint is a real phenomenon and will raise costs for airlines consumers and companies while catapulting emission offsetting into a big business Citigroup Inc NYSE C predicts
The cost of offsetting planes carbon emissions could become as much as 10 times higher than the airline industry currently estimates Citi analysts including Mark Manduca said in a note on Wednesday For economy seats alone the cost could balloon to 3 8 billion a year by 2025 hurting airlines earnings they said
Groups such as Greenpeace and Extinction Rebellion and activists like 16 year old Swedish environmentalist Greta Thunberg are fueling the flight shame movement by highlighting aviation s role in global warming People shunning planes in favor of more climate friendly alternatives or abstaining from traveling altogether has already had an impact on passenger numbers in parts of Europe
The so called winners of this generational shift will likely be the rail operators governments forest owners and carbon schemes the Citi analysts said If the flight shaming gathers pace carbon is likely to become a big business in its own right
While the automobile industry has made strides in using cleaner fuel the aviation industry continues to warn that reducing carbon emissions will take years if not decades given technological limitations and expansion of air travel to an ever wider slice of the global population Meanwhile regulators around the world are considering levying taxes on carriers to offset the environmental impact and high speed rail systems are emerging as rivals to airlines
Every 1 increase in average fares due to higher aviation taxes could curb airline passenger volumes by 0 65 the analysts wrote
Many flyers are opting to spend on carbon offsets or certificates that mitigate their emissions by reducing greenhouse gases elsewhere in the world The money passengers pay on top of their ticket goes to low carbon or clean energy projects such as planting trees installing solar panels or handing out cleaner cooking stoves Some airlines offer offsets directly when the buyer pays for the ticket while dozens of online companies advertise personal certificates tailored to each flight |
C | Citibank s 434 million claim against Czech miner should be eligible CTK | PRAGUE Reuters A Czech court ruled that Citibank s N C claim to debt worth over 10 billion crowns 434 10 million owed by Czech miner OKD was eligible CTK news agency reported on Wednesday
CTK reported OKD s former insolvency administrator and representative of the state which now owns OKD s mining operations both said they would appeal the ruling
OKD filed for insolvency in 2016 while a unit of miner New World Resources which went into liquidation that year OKD s insolvency administrator rejected Citibank s claim leaving it out of proceedings
The state later acquired OKD which employs around 9 000 in the country s industrial northeast |
C | Sterling falls on election uncertainty traders eye EU meeting on Friday | By Stanley White
TOKYO Reuters The British pound fell on Friday versus the dollar and the euro after Prime Minister Boris Johnson s call for an election cast yet more uncertainty over Britain s divorce from the European Union
Sentiment for sterling is likely to remain fragile ahead of a meeting later on Friday where European Union officials may decide how long they will extend Britain s deadline to leave the EU beyond the current date of Oct 31
At this stage an election looks unlikely because the main opposition Labour Party has withheld its support and other opposition parties have rejected the offer
However the twists and turns of the Brexit process have proved too complex to predict which is likely to discourage some investors from taking on excessive risk before the EU agrees a new deadline for the UK s departure from the bloc
We re constructive on sterling in the mid term because we don t see a high chance for a general election said Osamu Takashima head of G10 FX strategy at Citigroup NYSE C Global Markets Japan in Tokyo
My personal concern is once political uncertainty lifts people will focus more on the UK s economy which is weakening This could be a negative for sterling
The pound fell 0 14 to 1 2841 in Asia on Friday For the week sterling was on course for a 1 18 decline versus the greenback its biggest weekly decline since Sept 27
Sterling fell 0 1 to 86 49 pence per euro EURGBP D3 on course for a 0 45 weekly decline
Opposition Labour leader Jeremy Corbyn said he would wait to see what the EU decides on a Brexit delay before deciding on a general election
However Corbyn also repeated he could only back an election when the risk of Johnson taking Britain out of the EU without a deal to smooth the transition was off the table
The euro EUR EBS held steady at 1 1103 in Asia on Friday on course for a 0 62 weekly decline
The Ifo economic institute s closely watched measure of German business sentiment due later on Friday is expected to weaken slightly in October highlighting fears that Europe s largest economy is slipping into recession due to the U S China trade war and Brexit
The European Central Bank left monetary policy unchanged on Thursday after unveiling a big stimulus package last month but there are concerns the ECB s firepower has largely been spent
The dollar index DXY against a basket of six major currencies was little changed at 97 688 but up 0 42 on the week The U S currency held steady at 108 61 yen on course for a 0 18 weekly advance
The focus shifts next week to a U S Federal Reserve meeting ending Oct 30 and a Bank of Japan meeting ending Oct 31
The Fed is expected to cut interest rates for a third time this year but fixed income analysts say this is largely priced into the market
The BOJ is leaning toward keeping policy on hold next week but the decision is a close call as policymakers struggle with the fallout from the U S China trade war |
C | Citi names Fraser as president putting her in line to be first female CEO | By Imani Moise and Sumeet Chatterjee Reuters Citigroup Inc N C has promoted Jane Fraser to head of its global consumer bank and president putting her in a position eventually to become the first female chief executive of the U S bank Fraser is replacing Stephen Bird as head of the consumer business the bank said in a statement on Thursday adding Bird is leaving Citi after more than 20 years to pursue an external opportunity Citi s current CEO Michael Corbat said the move did not suggest an imminent change at the top of the bank However promoting someone into a president role typically means that person is being groomed for the top spot That position has been vacant since former head of Citi institutional clients group Jamie Forese left the bank earlier this year I remain committed to leading our firm in the coming years and look forward to working even more closely with Jane in her new roles Corbat said in the statement Fraser 52 has been seen as a rising star on Wall Street and was recently reported to be among the candidates Wells Fargo Co s N WFC board was considering for its next CEO That bank settled on another executive A 15 years veteran at Citi who first joined to run client strategy in the investment bank Fraser had been running the bank s Latin America business including its Citibanamex division in Mexico for the past few years She ran Citi s private bank and its troubled mortgage business and is credited internally with helping the bank recover after the financial crisis when it had to take 45 billion in taxpayer funds to survive Before then Fraser was a McKinsey consultant and has spent much of her career hopping between countries and regions developing a global approach to business strategy She will be succeeded in Latin America by Ernesto Torres Cantu who had been CEO of Citibanamex Bird the outgoing Citi global consumer business head was last month reported to be one of the shortlisted external candidates for the role of HSBC Holdings Plc s L HSBA chief executive A HSBC spokesman in Hong Kong declined to comment on the move on Friday HSBC which makes more than 80 of its profit in Asia began a search for a new chief executive in August after ousting John Flint following just 18 months in that role The bank appointed its global commercial banking unit head Noel Quinn as interim CEO HSBC Chairman Mark Tucker said in August that the search for a new chief executive which will include both internal and external candidates could take up to a year London headquartered HSBC will report its third quarterly results on Monday Before becoming head of global consumer banking at Citi Bird was chief executive of the U S bank s Asia Pacific business responsible for all of Citi s consumer and institutional businesses across 17 markets in the region
Prior to joining Citi in 1998 in Singapore as the bank s Asia Pacific head for operations and technology Bird who was also a Citi executive management team member held senior management positions in GE Capital and British Steel in the U K |
JPM | Markets Turn Optimistic As Risks Moderate Michigan Sentiment Eyed | Here are the latest developments in global markets FOREX The US dollar index traded higher on Friday but by less than 0 1 extending the gains it posted yesterday as geopolitical and trade risks moderated and the yields on longer term US Treasuries surged The yen traded 0 2 lower against both the euro and the dollar as the risk on environment curtailed demand for the safe haven Japanese currency STOCKS US markets closed higher boosted by signals that the situation in Syria may not escalate after all and hints from the US administration that it may finally join the Trans Pacific Partnership TPP trade deal which it previously rejected The Dow Jones led the pack gaining 1 2 while the NASDAQ Composite and the S P 500 climbed by 1 0 and 0 8 respectively That said futures tracking the Dow S P and NASDAQ 100 are mixed pointing to a slightly higher open for the Dow today but a lower one for the S P and NASDAQ 100 The risk on sentiment was evident in Japan today with the Nikkei 225 and the Topix rising by 0 55 and 0 6 correspondingly helped also by a tumble in the yen In Hong Kong the Hang Seng was practically unchanged In Europe futures tracking most of the major indices were flashing green COMMODITIES Oil prices pulled back on Friday with both WTI and Brent declining by nearly 0 3 This modest correction is likely owed to the fact the US may not attack Syria in the end following tweets from President Trump suggesting as much That said one has to note that this correction is extremely small compared to the spectacular surge in oil prices earlier in the week after the US said it may strike Syria This suggests either that there are still concerns the Syrian situation could impact oil production elsewhere in the Middle East or that other factors were at play in pushing prices higher recently In precious metals gold is 0 2 higher today recouping some of the significant losses it posted yesterday as geopolitical concerns eased
Major movers Risk appetite returns as geopolitical and trade risks moderate
Thursday was another rollercoaster ride in markets with the general theme being an improvement in risk sentiment as anxieties around geopolitics and protectionism declined The risk on moves followed a tweet from the US President suggesting a military action in Syria may not be so imminent after all aiding speculation that a US Russia standoff may be averted Safe havens such as the yen and gold started to crumble in the aftermath while US stock futures surged helping the major indices to open higher in the day
Later in the day these moves were exacerbated by news the US may join the Trans Pacific Partnership TPP a trade deal the US pulled out of directly after President Trump was elected and that the President criticized extensively on the election trail This signal alongside comments from Trump that now we re really negotiating with China likely heightened speculation that a trade war may be never occur and that all the recent rhetoric was simply posturing ahead of crucial talks
In the big picture US China trade risks seem to be gradually easing and while the US may still attack Syria any strike appears increasingly more likely to be an isolated event as opposed to the beginning of a prolonged military operation Judging by the latest market moves investors seem to be siding with this view as well and barring some unforeseen headline that alters this outlook risk appetite could remain supported for a while The key risk to this argument is a WSJ report that circulated overnight suggesting the US plans to introduce new tariffs against China next week While this was largely overlooked by markets if true it may trigger a further deterioration in sentiment before the situation improves
Elsewhere the euro underperformed yesterday after the March ECB minutes were perceived as dovish Policymakers discussed downside risks emanating from a potential escalation in trade conflicts while also expressing concerns that a euro appreciation may weigh on inflation While the Bank did take a more optimistic view on growth the overall cautious bias combined with negative surprises in economic data after that meeting probably led to speculation that any future policy adjustments will be very gradual
The commodity linked currencies are all on the front foot today with aussie dollar gaining 0 4 and reaching a one month high while kiwi dollar rose by 0 2 The loonie was also marginally higher against the US dollar
Day ahead JOLTS job openings and University of Michigan survey due out of US
The calendar is mostly empty of important releases on Friday barring a few readings out of the US that are expected to generate interest In the absence of data market participants may remain focused on developments on the geopolitical and trade fronts
February s JOLTS job openings report and the preliminary University of Michigan report on consumer sentiment for the month of April have the capacity to lead to positioning on the US currency Both prints are scheduled for release at 1400 GMT The University of Michigan consumer sentiment index is anticipated to ease a bit though still remain at elevated levels after rising to a more than a decade high in March Besides the headline figure the surveys gauging the inflation outlook will also be of particular importance
Of significance to oil traders will be the US Baker Hughes oil rig count due at 1700 GMT
In equites JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC are among companies releasing quarterly earnings results on Friday all three are reporting before Wall Street s opening bell Beyond corporate releases any updates on global trade issues or the conflict in Syria have the capacity to drive sentiment as well
Regional Fed Presidents Eric Rosengren James Bullard and Robert Kaplan will be making public appearances at 1130 GMT 1300 GMT and 1700 GMT respectively None of them holds voting rights within the FOMC in 2018 ECB President Mario Draghi will also be talking at 1100 GMT though the topic of discussion renders any market sensitive comments unlikely
Technical Analysis USD JPY rises to 1 month high short term bullish USD JPY has risen to touch a one and a half month high of 107 65 during Friday s trading while it is currently trading not far below that mark The Tenkan and Kijun sen lines are positively aligned in support of a bullish picture for the pair in the short term
Upbeat US releases later in the day could provide an additional boost to USD JPY Immediate resistance could be met around late February s near two month high of 107 67 An upside break would shift the attention to the 108 round figure as an additional barrier to the upside
Weaker than anticipated releases might weaken the pair with immediate support potentially coming around 107 48 a previous peak Further declines would eye the area around the current level of the Tenkan sen at 107 17 which also includes the Kijun sen at 107 13 and a peak from the recent past at 107 29
Rising geopolitical and or trade uncertainty can also spur movements in the pair particularly pushing it lower The opposite holds true as well |
JPM | Investors To Remain Sensitive To Market Tensions | Friday April 13 Five things the markets are talking about
Capital markets are to remain sensitive until there are clear signs that tensions are not escalating
Ahead of the US open global equities are adding to this week s advances as investors take comfort from further signs of trade tensions easing The big dollar is steady and Treasury yields have dipped after rising above the psychological 2 80 yesterday
President Donald Trump hinted yesterday that the US might re join the Trans Pacific Partnership free trade deal he pulled out of in January 2017 and this weeks oil rally take a pause as investors reassess the likelihood of direct US military action in Syria
Stateside market focus is now turning back to US earnings season with some financial firms posting some of the biggest gains yesterday JP Morgan Chase NYSE JPM and Citigroup NYSE C are set to release theirs today
1 Stocks mostly in the black
In Japan the Nikkei share average rallied overnight as suggestions from Trump that a military strike on Syria may not be imminent supported investor sentiment and higher US bond yields helped financial stocks The Nikkei ended 0 6 higher For the week the index added 1 0 posting a third straight week of gains The broader TOPIX gained 0 6
Down under Australia shares gained on Friday helped largely by materials and health care stocks following global markets higher after fears of an imminent US attack on Syria eased The S P ASX 200 index rose 0 2 In South Korea the KOSPI rallied 0 5
China and Hong Kong stocks slid on Friday after data showed China s exports fell unexpectedly in March amid trade tensions with the US China data showed that exports in yuan terms slid 9 8 in March The market consensus was looking for a 8 gain In Hong Kong the Hang Seng index closed down 0 1 while the China Enterprises Index lost 0 2 In China the CSI300 index fell 0 4 while the Shanghai Composite Index lost 0 5
In Europe regional indices trade mixed following strong gains on Wall Street and mixed futures this morning as risk appetite returns now that Trump has dialed back claims on an immanent strike on Syria
US stocks are set to open in the black 0 1
Indices STOXX 600 0 2 at 379 6 FTSE 100 flat at 7257 DAX 0 5 at 12473 CAC 40 0 2 at 5320 IBEX 35 0 5 at 9793 FTSE MIB 0 2 at 23358 SMI 0 1 at 8765 S P 500 Futures 0 1
2 Oil heads for biggest weekly gain since July
Oil prices have edged a tad higher heading for their largest weekly gain in 10 months after Trump s comments about possible military action in Syria and reports of dwindling global oil stocks
Brent crude rose by 44c to 72 46 a barrel up about 8 on the week WTI crude for May delivery gained 45c to 67 52 putting the contract on track for a weekly jump of nearly 9
Note Both benchmarks hit their highest in four years on Wednesday after Trump warned that missiles will be coming in response to a suspected gas attack in Syria
Also providing a market bid was OPEC s statement yesterday which stated a global oil stocks surplus is close to evaporating adding that its collective output fell to 31 96m bpd in March down 201k bpd from February
Ahead of the US open gold has edged up a tad after posting its biggest percentage fall in over two weeks yesterday and is set to post a small gain for a second consecutive week amid tensions over Syria and a US China trade stand off Spot gold has rallied 0 2 to 1 337 17 an ounce and is set for a weekly gain of 0 3
Note Gold prices dropped 1 3 on Thursday the biggest one day percentage fall since the end of March
3 Sovereign yields climb
Borrowing costs in the euro and US have backed up overnight as geopolitical worries eased On Thursday Trump cast doubt over the timing of a threatened strike on Syria lifting risk appetite in world markets and in turn denting demand for safe haven US and euro zone debt
Overnight the yield on US 10 year Treasuries fell less than 1 bps to 2 83 In Germany the 10 year Bund yield increased 1 bps to 0 52 the highest in more than three weeks In the UK the 10 year Gilt yield gained 2 bps to 1 46 the highest in more than three weeks
Note Expect caution heading into the weekend to limit any rise in government bond yields
Yesterday Mexico s Central Bank Banxico left the overnight rate unchanged at 7 50 as expected Policy makers are expected to take quick action if necessary to anchor inflation expectations and achieve convergence to target
4 Dollar steady on higher yields
The USD is trading somewhat steady against G10 pairs supported by higher yields resulting from improved risk appetite
USD JPY 107 63 was at six week highs as the pair moved above the key 107 50 resistance level
The GBP USD 1 4284 saw its fifth straight session of gains with the pair approaching the key 1 43 level for its three month highs on BoE rate differentials The EUR GBP cross was lower by 0 3 below 0 8640 as dealers noted that the recent ECB minutes showed that the debate on normalizing its policies appeared to be moving very slowely
The Hong Kong Monetary Authority HKMA last night bought the local currency HKD for the first time since the current trading band was imposed 13 years ago after the exchange rate sank to the weak end of its permitted range The intervention is significant because the HKMA s purchases have the potential to boost borrowing costs by draining liquidity That would signal the end of an era of ultra cheap money
TRY 4 0836 0 71 has rebounded helped by Central Bank Statements Bank Governor Murat Cetinkaya sais he is closely monitoring recent lira developments with respect to their effect on the inflation outlook and that there may be additional tightening depending on where the lira heads next
5 Eurozone trade Feb
Data this morning showed that in February the euro zone s seasonally adjusted nominal goods trade surplus widened from January s 20 2B to 21 0B beating market expectations
Digging deeper on the national front Germany s trade surplus narrowed from 21 5B to 19 2B while France s trade deficit was little changed at 5 2B
Analysts note that the detail in the euro zone release was somewhat discouraging The surplus only widened because a 3 1 fall in imports outpaced a 2 3 fall in exports |
JPM | Traders Remain Cautious Heading Into The Weekend | Heightened Geopolitical Risk May Weigh on Gains into End of the Week
The end of the week is looking a little quieter in some respects and yet with geopolitical risk heightening in recent days and first quarter earnings season getting under way it s unlikely to be entirely peaceful
The open in Europe and trade in Asia was broadly mixed with investors clearly adopting more of a cautious tone US futures are a little higher but again given the backdrop of a trade conflict with China and rising tensions with Russia over Syria any rallies may be somewhat gradual and dependent on the situations not deteriorating further We are seeing small signs of encouragement but the unpredictable nature of all concerned doesn t provide much confidence
With Donald Trump being so active on Twitter it s unlikely the day will pass without at least some mention of one or both of the above the question is whether his comments will act to calm or inflame the situation Any indication that strikes in Syria are likely over the weekend could trigger risk aversion into the close in case of a negative fallout in the markets at the open next week
Earnings Season to Provide Timely Distraction
Something that may provide some distraction over the coming weeks is earnings season with JPMorgan Chase NYSE JPM Wells Fargo NYSE WFC and Citigroup NYSE C kicking things off today Expectations for the quarter and year as a whole have grown in recent months following the passing of tax reforms at the back end of last year and this comes on the back of already improving and impressive numbers
Lower taxes will likely play a big role in the improved earnings numbers and outlook but higher interest rates on the horizon will likely also have an impact On the flipside the prospect of a trade war may also feature in some reports and the impact that could have on the outlook for the coming year
Is This Another False Dawn For Bitcoin
Bitcoin has sprung back to life in the last 24 hours and while numerous people have tried to explain the sudden surge as being a short squeeze or numerous other things it s at least brought the cryptocurrency space back to life having become somewhat lifeless by its own standard In terms of where it goes from here the move yesterday was certainly encouraging for the bulls and came amid a clear lack of selling appetite in the weeks previous but I remain unconvinced this is the end of the sell off as some are already claiming
For one every time we ve seen a resurgence in prices over the last four months cryptocurrency enthusiasts have claimed the good times are back and we ll be back at 20 000 before you know it While I m not saying we won t get back there I think we need a little more evidence that the bulls are back in force before I believe it s happening and one day of sudden gains just doesn t cut it Let s see what the weekend brings but we ve not even touched the last peak in March We ve had good days on numerous times this year and they turned out to be false dawns this could be another |
JPM | Markets Rise As Syria Tensions Ease | US Stocks Close Higher As Financials Rally
US stock indices ended higher on Thursday as Syria tensions eased after President Trump tweeted that a missile strike was not imminent Dow rose 1 2 to 24483 05 The S P 500 added 0 8 to 2663 99 led by financial stocks up 1 8 The NASDAQ Composite gained 1 to 7140 25 The dollar strengthened the live dollar index data show the ICE US Dollar index a measure of the dollar s strength against a basket of six rival currencies rose 0 3 to 89 745 Stock indices futures indicate mixed openings today Geopolitical tensions eased after President Trump tweeted a US military strike in Syria Could be very soon or not so soon at all The focus is now on earnings season which started yesterday by better than expected results from BlackRock world s largest asset management firm Today JPMorgan NYSE JPM and Citigroup NYSE C are scheduled to release their quarterly reports Economic data were positive initial jobless claims fell in the first week of April and returned near the lowest levels since the early 1970s
DAX leads European indices recoveryEuropean stocks ended higher on Thursday as fears of escalation in Syria conflict eased after President Trump s tweet The euro turned lower against the dollar while the British Pound extended gains The Stoxx Europe 600 index added 0 7 Germany s DAX 30 outperformed rallying 1 to 12415 01 France s CAC 40 rose 0 6 and UK s FTSE 100edged up less than 0 1 to 7258 34 Indices opened 0 1 0 4 higher today
Euro weakened after minutes of the European Central Bank s meeting indicated the central bank plans to move only gradually in phasing out its 30 billion euro 37 billion a month bond buying program and starting to raise interest rates Economic data were weak industrial production in the euro zone fell for a third straight month in February
China posts surprise trade deficitAsian stock indices are mostly higher today despite surprise China trade deficit for March Nikkei rose 0 6 to 21778 74 helped by continued yen weakening against the dollar Chinese stocks are mixed as China s trade balance turned to a deficit of 4 98 billion in March from a 33 7 billion surplus the previous month the Shanghai Composite Index is 0 7 lower while Hong Kong s Hang Seng Index is up 0 1 Australia s All Ordinaries Index is up 0 2 despite continued rise in Australian dollar against the greenback
Brent slidesBrent futures prices are edging lower today as geopolitical tensions subsided They ended lower yesterday Brent for June settlement lost less than 0 1 to close at 72 02 a barrel on Thursday |
JPM | Quick Take The Risk Of Algorithmic Trading | From TV series Billions Episode A Generation Too Late
Mike Wags Wagner You studied the Flash Crash of 2010 and you know that Quant is another word for wild f ing guess with math
Taylor Mason Quant is another word for systemized ordered thinking represented in an algorithmic approach to trading
Mike Wags Wagner Just remember Billy Beane never won a World Series
My friend Doug Kass made a great point on Wednesday this week
General trading activity is now dominated by passive strategies ETFs and quant strategies and products risk parity volatility trending etc
Active managers especially of a hedge fund kind are going the way of dodo birds they are an endangered species Failing hedge funds like Bill Ackman s Pershing Square NYSE SQ is becoming more the rule than the exception and in a lower return market backdrop accompanied by lower interest rates the trend from active to passive managers will likely continue and may even accelerate this year
He s right and there is a huge risk to individual investors embedded in that statement As JPMorgan noted previously
Quantitative investing based on computer formulas and trading by machines directly are leaving the traditional stock picker in the dust and now dominating the equity markets
While fundamental narratives explaining the price action abound the majority of equity investors today don t buy or sell stocks based on stock specific fundamentals Fundamental discretionary traders account for only about 10 percent of trading volume in stocks Passive and quantitative investing accounts for about 60 percent more than double the share a decade ago
As long as the algorithms are all trading in a positive direction there is little to worry about But the risk happens when something breaks With derivatives quantitative fund flows central bank policy and political developments all contributing to low market volatility the reversal of any of those dynamics will be problematic
There are two other problems currently being dismissed to support the bullish bias
The first is that while investors have been chasing returns in the can t lose market they have also been in order to increase their return Negative free cash balances are now at their highest levels in market history
Yes margin debt does increase as asset prices rise However just as the leverage provides the liquidity to push asset prices higher the reverse is also true
The second problem which will be greatly impacted by the leverage issue is liquidity of ETF s themselves As I noted previously the head of the BoE Mark Carney himself the risk of disorderly unwinding of portfolios due to the lack of market liquidity
Market adjustments to date have occurred without significant stress However the risk of a sharp and disorderly reversal remains given the compressed credit and liquidity risk premia
As a result market participants need to be mindful of the risks of diminished market liquidity asset price discontinuities and contagion across asset markets
When the robot trading algorithms begin to reverse it will not be a slow and methodical process but rather a stampede with little regard to price valuation or fundamental measures as the exit will become very narrow
Importantly as prices decline it will trigger margin calls which will induce more indiscriminate selling The forced redemption cycle will cause large spreads between the current bid and ask pricing for ETF s As investors are forced to dump positions to meet margin calls the lack of buyers will form a vacuum causing rapid price declines which leave investors helpless on the sidelines watching years of capital appreciation vanish in moments
Algos were not a predominant part of the market prior to 2008 and so far they have behaved themselves by continually buying the dips That support has kept investors complacent and has built the inherent belief this time is different
But therein lies the risk of the robots
What happens when these algos reverse course and begin to sell the rallies in unison
I don t want to be around to find out |
MS | Morgan Stanley downgrades Appian | Morgan Stanley NYSE MS downgrades Appian NASDAQ APPN from Equal Weight to Underweight Latest analyst recommendations 1 Buy 6 Hold and 1 Underperform Median price target 22 50 Appian shares are down 4 5 premarket to 33 01 after closing yesterday up 8 5 Previously Appian 6 8 on analyst downgrade Jan 8 Now read |
MS | SS C boosts banking software heft with 5 4 billion DST deal | Reuters SS C Technologies Holdings Inc said on Thursday it would buy DST Systems Inc in a 5 4 billion deal expanding its financial technology software prowess through its largest deal to date SS C s offer of 84 in cash for each DST share represents a premium of 29 percent to the stock s closing price on Tuesday a day before Reuters reported the companies were in advanced talks The report sent DST s shares surging nearly 23 percent on Wednesday while SS C s closed up 12 8 percent Both stocks jumped to record highs on Thursday before easing to trade up about 5 percent each The deal is Windsor Connecticut based SS C s latest in its quest to build out its financial software expertise that serves banks and the investment industry It also gets an entry into the healthcare information technology market SS C Chief Executive Bill Stone said in a statement that the combination would better meet the demand for outsourcing in financial services and help its clients address competitive and regulatory pressures Morgan Stanley NYSE MS analysts said investors should not be too concerned with DST s lower margins particularly within financial services SS C has a long track record of acquiring underperforming businesses reducing cost and increasing efficiency to bring performance more closely in line with its average margins Morgan Stanley s Brian Essex said in a client note DST is SS C s first large deal since its 2 3 billion takeover of accounting software maker Advent Software in 2015 A year earlier SS C had bought DST s investment data analytics unit for 95 million Given that the combined SS C DST will get its revenue mainly from the United States it will also benefit from the recently enacted tax reforms JP Morgan said in a research note SS C said it plans to fund the acquisition and refinance existing debt with a combination of debt and equity It expects the deal to immediately add to adjusted earnings before synergies after closing in the third quarter Excluding DST s debt the transaction is valued at about 5 06 billion according to Reuters calculations
Morgan Stanley and Credit Suisse SIX CSGN advised SS C while Davis Polk Wardwell gave legal counsel BofA Merrill Lynch advised DST and Skadden Arps Slate Meagher Flom gave legal counsel |
MS | German property developer Instone targets March IPO sources | FRANKFURT Reuters German residential property developer Instone Real Estate is targeting a flotation on the Frankfurt stock exchange in March adding to a growing pipeline of spring listings in Germany people close to the matter said The company is working with Morgan Stanley NYSE MS BNP Paribas PA BNPP and Unicredit MI CRDI as bookrunners on the deal alongside global coordinators Deutsche Bank DE DBKGn and Credit Suisse SIX CSGN the sources said Instone and the banks declined to comment or were not immediately available for comment The transaction which may value the company at 700 to 800 million euros 845 970 mln joins Siemens Healthineers unit and healthcare group Dermapharm both of which plan to go public before Easter as well |
JPM | Africa s Back in Vogue as Eurobond Investors Lap Up High Yields | Bloomberg Africa is the place to be for emerging market bond investors
The continent s dollar securities are outperforming those of all other regions this year as the U S Federal Reserve s dovish tilt entices traders to buy up riskier high yielding assets
African names dominate the list of best countries in the Eurobond space Kenya is out in front its debt having returned 9 9 percent while Zambia is in second place Oil producers including Nigeria Angola and Gabon also feature
The continent s Eurobonds have returned 6 4 percent in 2019 according to JPMorgan Chase Co NYSE JPM s indexes The average gain for emerging markets is 4 4 percent |
JPM | J P Morgan cuts forecast for U S rate hikes | NEW YORK Reuters JPMorgan Chase Co NYSE JPM on Thursday cut its estimates of where the U S Federal Reserve will leave interest rates over the next two years with just one hike this year and another in 2020 The bank previously forecast two quarter point federal funds rate hikes this year to a target range of up to 3 percent and another two increases in 2020 to 3 5 percent
With a Fed more tolerant even welcoming of an inflation overshoot we see less near term tightening in our forecast economist Michael Feroli wrote in a research note The more dovish policy path should allow the economy to continue growing faster than potential longer than previously projected |
MS | Titleist Parent Company Acushnet Holding Corp Files For IPO Monday | One day after the PGA s U S Open came to a conclusion the holding company of popular golf brands Titleist and FootJoy Acushnet Holding Corporation filed for an initial public offering
Acushnet is hoping to raise up to 100 million with the offering though this figure is usually more of a place holding figure rather than an actual projected amount of capital to be raised According to the company s filing with the SEC all shares to be sold will come from the holdings of investors who bought the business back in 2011 meaning that Acushnet will not receive any of the profits from the launch
Fitting accordingly with the brands it owns the company will be listing under the ticker GOLF though the exchange on which it will do so is unclear The IPO will be lead by banks J P Morgan NYSE JPM and Morgan Stanley NYSE MS
In its filings Acushnet reported an adjusted loss of 966 000 on revenue of 1 5 billion in fiscal 2015 which represented a 2 3 drop in revenue compared to the year prior Though the golf industry struggled after seeing a decline in the number of rounds played between 2006 and 2014 the company has seen better numbers in the past couple of years
Footwear is a leading catalyst of growth in the company as its FootJoy business enjoyed growth of 16 6 last quarter Acushnet s other brand Titleist saw growth of 9 4 and 8 7 for its clubs and gear businesses as well as a 2 5 decline in golf ball sales
With the rising popularity of golfers like Jordan Spieth Rory McIlroy and Jason Day many in the gold industry are hoping that the sport can become more popular especially with younger generations Either way Acushnet s IPO will be one to watch for as investors will be able to get a piece of the company that s been supplying them on course for years |
JPM | Opening Bell Oil Hits 3 Year High On Mid East Tensions HK Dollar Sinks | International and domestic political jitters increase headwinds for equities
Simmering Middle East tensions push oil to 3 year high
Russian markets continue to spiral on fallout from US sanctions
Hong Kong dollar plunges to lowest level since central bank intervention
Highest US core inflation in a year further supports Fed s plans for faster policy tightening
Key Events
European stocks edged higher on Thursday morning alongside US futures for the S P 500 the NASDAQ 100 and the Dow following an Asian session that saw local exchanges plunge across the board The US dollar ended a four day slide
Oil company shares saved the STOXX Europe 600 from slumping helping it to eke out a gain
Mounting risk of war in the Middle East has pushed the price of WTI crude to its highest level in 3 years after Trump s threat of a military head to head with Russia in Syria ignited fears of supply glitches We expect oil to climb further especially if Russia which risks taking a major economic hit from the extended effects of US sanctions withdraws from its commitment to oil production cuts
Complicating the picture Saudi Iranian diplomatic tensions are also on the rise Saudi Arabia a US ally is threatening to trigger a nuclear arms race if sanctions against Iran Russia s ally fail to be ratified This would put Iran s cooperation on oil supply cuts into question
Moreover the main equity benchmarks in the UAE Kuwait and Oman including the ADX in Dubai Kuwait s Premier Market and the MSM 30 in Oman all slid today amid growing concerns regarding US military action in the region
Global Financial Affairs
During the Asian session investors faced a deluge of geopolitical and economic risks including increased likelihood of a faster pace of monetary policy tightening in the US the escalating tensions in the Middle East and a fresh White House scandal after President Trump s vicious attack on Special Counsel Robert Mueller added yet more fuel to that fire
Japan s TOPIX fell for a second day posting a 0 37 percent loss for an aggregate two day 0 8 percent decline South Korea s KOSPI opened higher but ended lower also extending losses to a second day as did Australia s S P ASX 200 down 0 23
China s Shanghai Composite slipped 0 88 percent while Hong Kong s Hang Seng opened 0 7 percent higher but began to fall immediately It closed 0 21 percent in the red halting a four day advance and revealing the bearish foothold of that bullish attempt
The Hong Kong dollar fell to the bottom of its targeted trading band for the first time since the range was set by the Hong Kong Monetary Authority HKMA in 2005 While triggering this key level raises the monetary watchdog s scrutiny the South China Morning Post reported that the regulatory body will not intervene as long as banks are willing to pay 7 85 HKD per USD The rate gap between the HKD and the USD prompted traders to borrow the local currency to buy the greenback in order to capitalize on the positive interest rate differential
Gold and the Japanese yen weakened on the dollar s strength while 10 year US Treasury yields edged lower confirming widespread risk off sentiment
Yields have been trending downward since topping out at 2 957 percent on February 21 underscoring an overall risk off mood despite some extremely bullish sessions in global and US equity markets
US core inflation saw its biggest annual gain in a year boosted by reduced mobile phone prices Although there was little room for this milestone in an overcrowded market narrative it stands to bolster the Fed s arguments for accelerating its tightening schedule as revealed by the FOMC minutes
Russia s ruble slumped to a 16 month low and the country s Finance Ministry canceled a weekly bond auction for the first time since 2015 as worries over Syria added to the US sanctions headache
Copper retreated and aluminum pulled back after a six day rally that took it close to a six year high
Up Ahead
Citigroup NYSE C is scheduled to release corporate results before market open on Friday for the fiscal quarter ending in March with a 1 62 EPS consensus vs 1 36 for same quarter last year The global bank may be facing some unexpected headwinds going forward
JPMorgan Chase NYSE JPM will also report earnings before market open for the same fiscal quarter with a 2 28 EPS forecast The same quarter last year yielded 1 65 EPS
Market Moves
Stocks
The STOXX Europe 600 fell 0 1 percent
Futures on the S P 500 Index climbed 0 1 percent
The UK s FTSE 100 declined 0 1 percent to 7 252 39
Germany s DAX dipped 0 2 percent
The MSCI Emerging Market Index sank 0 2 percent
Currencies
The Dollar Index gained 0 05 percent to 89 55 ending a four day decline
The Japanese yen dipped 0 1 percent to 106 86 per dollar
The euro advanced less than 0 05 percent to 1 2368 reaching the strongest level in more than two weeks on its fifth straight advance
The Turkish lira climbed 0 1 percent to 4 1334 per dollar
Bonds
The yield on 10 year Treasurys dipped one basis point to 2 78 percent
The yield on 2 year Treasurys fell less than one basis point to 2 30 percent
Germany s 10 year yield declined less than one basis point to 0 50 percent the lowest in more than three months
Commodities
Gold fell 0 1 percent to 1 351 85 an ounce the first retreat in a week
WTI crude climbed 0 4 percent to 67 06 a barrel the highest in about three years
The Bloomberg Commodity Index dropped 0 3 percent to 88 96 the largest dip in more than a week |
JPM | Earnings Watch JPMorgan Citi Wells Fargo | Before the market opens on Friday top American financial banks such as Citigroup Wells Fargo and JPMorgan Chase Co is scheduled to release their respective earnings report for the first quarter of the year While the market sentiment is currently unstable the earnings report of the following financial companies is expected give the U S market a boost during Friday s session
Wells Fargo
The embattled company is scheduled to release its first quarter earnings for the fiscal year 2018 on Friday before the market opens Wells Fargo Company NYSE WFC is expected to post earnings of 1 07 per share on a revenue of 21 71 billion which represents a decline of 1 3 from the same quarter last year
Wells Fargo has suffered over the past years following a fake accounts scandal that has left the company s finances almost negative However the company s cost cutting efforts have helped the company rebuilding its business to be able to meet the required settlements it needed to meet with regulators and people who were affected by the scandal
The company posted an earnings of 6 2 billion during the previous quarter with their revenue hitting 22 05 billion missing estimates of 22 38 billion due to the company s struggles and challenges that the company faced
JPMorgan Chase
JPMorgan Chase Co NYSE JPM is expected to post earnings of 2 28 per share which is considerably higher than their earnings of 1 65 per share during the same period a year ago Revenue of the company is expected to come at around 27 53 billion
The shares of the company recently recorded a new high of 119 33 per share last month and were last seen trading at the 112 level JPMorgan shares are expected to rise in the coming trading sessions especially on Friday should the company post an upbeat earnings report
The company previously suffered one time tax charges of 2 4 billion due to the changes made in the U S tax code However the company s revenue during the previous quarter still came at 24 45 billion exceeding expectations of 25 15 billion
CitiGroup
After a positive fourth quarter earnings report Citigroup Inc NYSE C is expected to post another set of positive results during its upcoming first quarter earnings results for this year this Friday Analysts have forecast earnings of 1 62 per share on a revenue of 18 84 billion showing a growth of 4 from the same period a year ago |
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