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JPM | The Name Is Bond Long Bond | Stories about the death of the bond market have been circulating since 1992 Every one of them has been wrong
Deflationary Period Over
At Mauldin s latest conference Gavekal s Louis Vincent Gave stated
As told through the words of Steve Blumenthal Louis Vincent continued
Or simply look at this next chart I mean this is obviously the 30 year US Treasury bond yield which is now of course broken out decisively from its downtrend which makes sense if this deflationary environment that I ve described is now coming to an end And here I just want to spend a quick second on this because I think this is very important The markets today are giving us a very important signal
Crayon Shortage
There appears to be a shortage of crayons
Gave needs a fatter crayon a longer crayon or better vision
My chart shows the 30 year long bond has not broken its trendline Perhaps it will but it hasn t Until it does the alleged signal is as valid as the ones in 1990 1994 2000 and 2007
Don t Jump the Gun
We have not seen a secular change yet It s very tempting now just as it was in 2007 to jump the gun
Don t do it
Hoisington Management
Lacy Hunt at Hoisington Management is one person who has not jumped the gun
He also presented at Mauldin s conference
I do not have a copy of Hunt s presentation as it is still embargoed But I do have a copy of the Hoisington Management Quarterly Review and Outlook for Q1 2018 not yet posted online
Hunt discusses the Law of diminishing returns technology and debt Here are a few snips
The law of diminishing returns is already evident in all major economies as well as on a global scale Global GDP generated per dollar of total global public and private debt dropped from 36 cents in 2007 to just 31 cents in 2017
Diminishing returns is even more apparent in the case of China s public and private debt largely internally owned In terms of each dollar of debt China generated 61 cents of GDP growth in 2007 and only 33 cents last year In other words in the past ten years the efficiency of China s debt fell 45
The most advanced sign of diminishing returns is in Japan the most heavily indebted major country where a dollar of debt in the last year produced only 22 cents of GDP growth This economic principle applies equally to businesses
In 1952 3 42 of GDP was generated for every dollar of business debt compared with only 1 39 in 2017 In the corporate sector where capital as well as technology is most readily available GDP generated per dollar of debt fell from 4 50 in 1952 to 2 50 in 2007 to 2 21 last year The dismal trend in productivity confirms this conclusion
The percent change for productivity in the last five years 2017 2012 was equal to the lowest of all five year spans since 1952 It was also less than half the average growth over that period
Conclusion
Important to the long term investor is the pernicious impact of exploding debt levels This condition will slow economic growth and the resulting poor economic conditions will lead to lower inflation and thereby lower long term interest rates This suggests that high quality yields may be difficult to obtain within the next decade In the shorter run in accordance with Friedman s established theory the current monetary deceleration or restrictive monetary policy will bring about lower long term interest rates
Other Opinions
Other opinions are easy to find For example Bloomberg that yield inversion fear pits JPMorgan against Aviva fund managers
Some have started to fret the bond market is portending a recession Not James McAlevey
The fixed income fund manager at Aviva Investors which oversees 243 billion euros 301 billion of bonds is instead loading up on risk and yield curve steepener trades He expects the U S economy to expand not shrink
The recent trade shocks aside the U S economy looks like it s on pretty firm footing McAlevey said in an interview
The yield curve can t be trusted because overzealous central bank purchases have pushed down yields and the term premium or compensation for buying longer dated debt according to McAlevey And that s set to change as the Fed runs down its balance sheet holdings foreign buyers withdraw and growth and inflation pick up
If the term premium goes up through time the yield curve should start steepening he said He says the gap between two and 10 year notes now at 48 basis points could return to early 2017 levels of about 125 basis points
Steepening
I expect steepening but in the opposite sense of McAlevey
Steepening will occur when the Fed starts slashing rates in the next recession praying like mad to stave off debt defaults
One Sided Boat
Seldom is opinion as certain about anything as it is today
I discussed that idea a couple of days ago in
One Question
I have a simple question When is the last time such overwhelming consensus on a fundamental economic issue ever been right
I do not rule out an inflation scare just as we had in 2008 when crude spiked to 140
In fact the above Tweets and articles show it s clear we are in the midst of such a scare right now
When
Yes this bond bull will end But when
Meanwhile I side with Lacy Hunt
I asked him today about his average duration He replied a little over 20 years
That s quite a conviction and quite opposite what the consensus inflationista thinks |
MS | GoPro says open to sale but not actively pursuing | By Greg Roumeliotis and Laharee Chatterjee Reuters GoPro Inc O GPRO would be willing to partner with a larger sector player but is not actively engaged in a sale the action camera maker said on Monday as its shares partly rebounded from earlier heavy losses The comments followed reports by several media outlets including Reuters that GoPro had hired J P Morgan to help it with a sale process as the one time Wall Street favorite battles falling demand for its sports cameras and drones The company s shares which fell as much as 33 percent to a record low of 5 04 on Monday recouped some of their losses after the sale talks were first reported by CNBC We ve always been clear that we are open to any opportunity that will help us scale our mission JP Morgan is our banker but there is no active engagement to sell GoPro said in emailed comments to Reuters It is our responsibility to scale the business so if the right opportunity presented itself it s something we would consider it added J P Morgan declined to comment Earlier in the day the company lowered its fourth quarter revenue forecast following weak demand for its cameras in the holiday season and announced a plan to exit the drone business The company has suffered a decline in demand for its eponymous cameras and Karma drones mostly used by sports junkies and travel enthusiasts for several quarters Furthermore it forecasts that tough regulatory hurdles in Europe and the United States will likely reduce the market for drones in the years ahead Its exit from the drone business will take place after selling the existing Karma inventory it added The company cut the price of its latest HERO6 cameras to 399 from 499 this week a decision that it said would hurt revenue by around 80 million in the fourth quarter Morgan Stanley NYSE MS said in a research note on Monday that the price cut would make earnings growth difficult in fiscal 2018 The move followed weak demand for existing camera models Despite significant marketing support we found consumers were reluctant to purchase HERO5 Black at the same price it launched at one year earlier Chief Executive Nick Woodman said in a statement alongside results The company now expects fourth quarter revenue of 340 million compared with its November projection of 470 million plus or minus 10 million It also said it plans to cut more than 250 jobs as it restructures GoPro had 1 254 employees as of Sept 30 Cutting costs is a good move although now it s about if the company can turn this ship around themselves Daniel Ives analyst at GBH Insights said
Woodman will reduce his 2018 cash compensation to 1 the company said |
MS | Singapore property seen on path to recovery after prolonged slump | SINGAPORE Reuters Singapore s housing market is expected to build on its recovery over 2018 analysts say as private home prices marked their first annual rise in four years After hitting a record peak in the third quarter of 2013 a string of government cooling measures drove private residential home prices down for 15 consecutive quarters through to the second quarter of this year That downturn may be over if optimistic forecasts by analysts are anything to go by with a strong pick up on the cards after home prices edged up just 1 0 percent for the whole of 2017 Credit Suisse SIX CSGN forecast residential prices to rise 5 10 percent in 2018 and named UOL Group Ltd SI UTOS as its top pick for stocks among Singapore developers Particularly supportive of sustained property price increases is the breadth of household income growth and strong household balance sheets today Credit Suisse analysts said in a note on Wednesday Morgan Stanley NYSE MS forecast an increase of 8 percent this year and said the pace could be sustained even in 2019 as it expects rising home buyer demand to outweigh a tight supply of unsold inventory It named City Developments SI CTDM as its top pick in a research note on Monday If the forecasts stack up the city state s economy could get an extra fillip from the expected pick up in construction activity though there was scant data on the specific impact on output Jefferies expects a rise of low to mid single digits in residential prices in 2018
Real estate services firm Colliers on Wednesday said average home prices may rise by 17 percent over 2018 2021 supported by higher economic growth falling physical completions and ongoing collective sale deals |
MS | Singapore property seen on path to recovery after prolonged slump | Private home prices rise of 1 0 in 2017 indicates Singapore housing market is expected to recover over 2018 Credit Suisse SIX CSGN expects 5 10 rise in residential prices Morgan Stanley NYSE MS expects 8 increase and Colliers expects average home price rise by 17 over 2018 2021 Source Investing comETFs EWS Now read |
MS | Morgan Stanley cuts exposure to U S equities in favor of Europe | LONDON Reuters Morgan Stanley NYSE MS cut its exposure to U S equities and increased its weighting in European equities on Wednesday saying the U S stocks strong recent rally made it unlikely they could continue to outperform this year U S stocks have outperformed and are now close to our year end price target with limited upside while the backdrop for European stocks outperformance is intact the U S bank s strategists said in a cross asset note They increased their overweight in European equities from 2 percent to 3 percent relative to the benchmark and cut their U S equities overweight to 1 percent from 2 percent The S P 500 SPX has shot up more than 9 percent since the start of October 2017 while Europe s STOXX 600 has managed less than a third of that return over the same period The cross asset strategists kept their preference for equities over bonds with credit the least favored in a late cycle environment they said was heading for a tricky handoff at the end of the first quarter with PMIs likely to peak and inflation potentially rising
We think the best reflation plays lie in being overweight energy and financial equities they added |
JPM | JPMorgan Securities Exec Blockchain Is Still Far From Institutionalization | Joyce Chang global research chair at JPMorgan NYSE JPM Securities has said that blockchain technology is still far from institutionalization and must still overcome key hurdles before it can break through to cross industry adoption at scale Chang made her comments during an interview on the Bloomberg Daybreak Americas television show on Feb 7
Chang noted that blockchain adoption if not yet institutionalized is being spearheaded by industries with particular characteristics where the technology can bring real and immediate backend efficiency gains She highlighted those sectors that rely upon cumbersome legacy paperwork systems giving the example of trade finance where she said she expects blockchain to have a particular impact over the next three to five years |
JPM | Credicorp down 2 5 as BAML downgrades | A perky valuation combined with slowing economic growth in Peru and higher expenses isn t a good combination says BAML downgrading Credicorp BAP 2 7 to Underperform The 231 price target compares to the current 233 49 Now read |
JPM | China s Bond Rally Still Has Room to Run Ex HKMA Manager Says | Bloomberg China isn t done with easing yet which means shorter maturity bonds are set to extend last year s rally according to Edmund Ng a former head of investments at the Hong Kong Monetary Authority
The People s Bank of China may shift the interest rate corridor down by 10 basis points in the second quarter if economic data continue to show softness said Ng who left the HKMA in 2015 and established investment firm Eastfort Asset Management Pte Ltd
2019 should still be a mild bull market for China bonds at least for the first half of the year given a dovish Fed slowing onshore growth and more aggressive PBOC stance said Ng who favors the nation s five year notes A tweak in in the interest rate corridor would be a milder signal from the central bank though it would still achieve a reduction of financing costs he said
Yields on China s benchmark five and 10 year notes have tumbled by almost 100 basis points over the past year as the U S China trade war dent exports and factory output spurring investors to seek havens The nation s sovereign bonds posted the best returns last year among 34 markets tracked by Bloomberg
Ng joins other investors including Fidelity International in betting there will be further gains JPMorgan NYSE JPM Asset Management said in December that yields on sovereign notes due in five and 10 years may decline by as much as 30 basis points by the end of the first quarter
Yields on five year notes dropped to about 2 90 percent at the end of January from around 3 90 percent a year earlier while 10 year yields slipped to about 3 10 percent from almost 4 percent
Read How Low Can China Bond Yield Go 10 Year Rate Flirts With 3
Chinese bonds with maturities below five years should be a better risk reward trade compared with longer dated paper amid an upcoming influx of supply Ng said
Ng said he expects the yuan to strengthen in the next few months thanks partly to the inclusion of Chinese bonds into global benchmarks Bloomberg LP the parent company of Bloomberg News said last month it would add yuan denominated government and policy bank bonds to the Bloomberg Barclays LON BARC Global Aggregate Index from April
The Federal Reserve signaling it will likely pause rather than hike rates in the near term only means the PBOC can be more aggressive in providing liquidity or reducing financing costs of the real economy Ng said |
JPM | China Bond Rally Still Has Room to Run Ex HKMA Manager Says | Bloomberg China isn t done with easing yet which means shorter maturity bonds are set to extend last year s rally according to Edmund Ng a former head of investments at the Hong Kong Monetary Authority
The People s Bank of China may shift the interest rate corridor down by 10 basis points in the second quarter if economic data continue to show softness said Ng who left the HKMA in 2015 and established investment firm Eastfort Asset Management Pte Ltd
2019 should still be a mild bull market for China bonds at least for the first half of the year given a dovish Fed slowing onshore growth and more aggressive PBOC stance said Ng who favors the nation s five year notes A tweak in in the interest rate corridor would be a milder signal from the central bank though it would still achieve a reduction of financing costs he said
Yields on China s benchmark five and 10 year notes have tumbled by almost 100 basis points over the past year as the U S China trade war dent exports and factory output spurring investors to seek havens The nation s sovereign bonds posted the best returns last year among 34 markets tracked by Bloomberg
Ng joins other investors including Fidelity International in betting there will be further gains JPMorgan NYSE JPM Asset Management said in December that yields on sovereign notes due in five and 10 years may decline by as much as 30 basis points by the end of the first quarter
Yields on five year notes dropped to about 2 90 percent at the end of January from around 3 90 percent a year earlier while 10 year yields slipped to more than a three year low of 3 08 percent on Thursday from almost 4 percent
Read How Low Can China Bond Yield Go 10 Year Rate Flirts With 3
Chinese bonds with maturities below five years should be a better risk reward trade compared with longer dated paper amid an upcoming influx of supply Ng said
Ng said he expects the yuan to strengthen in the next few months thanks partly to the inclusion of Chinese bonds into global benchmarks It is a sentiment echoed by Morgan Stanley NYSE MS that sees the yuan rising to 6 55 per dollar by end 2019 as China opens its markets to foreign capital
Bloomberg LP the parent company of Bloomberg News said last month it would add yuan denominated government and policy bank bonds to the Bloomberg Barclays LON BARC Global Aggregate Index from April
The Federal Reserve signalling it will likely pause rather than hike rates in the near term only means the PBOC can be more aggressive in providing liquidity or reducing financing costs of the real economy Ng said
Updates prices adds Morgan Stanley comment in 8th paragraph |
JPM | Scandal hit Euribor s rebirth will still rely on bankers judgement | By Francesco Canepa
FRANKFURT Reuters The survival of Euribor interest rates which have been marred by a manipulation scandal will rely on the judgement of some of the very banks that rigged them only a few years ago under a new methodology proposed on Tuesday
Euribor is designed to reflect how much a bank pays to borrow euros for between a week and a year and is crucial for pricing trillions of euros worth of derivatives and mortgages
It is being overhauled after traders at seven financial institutions including Britain s Barclays LON BARC and Germany s Deutsche Bank DE DBKGn were found to have colluded for years to skew the benchmark and profit from it via bets on the derivatives market
In order to limit the risk of manipulation in future Euribor will now be calculated based on actual transactions whenever they are available rather than banks discretional submissions according to the proposal by the European Money Market Institute EMMI the Euribor index s administrator
Bankers however will still have some degree of discretion in making their contribution when there isn t enough data to go by and the rate must be inferred from other transactions such as smaller loans or rates in other markets
These so called Level 3 contributions will likely be essential for determining Euribor rates at longer maturities such as six and 12 months where volumes are thinner
Panel Banks should determine a Level 3 contribution using the above data through the combination of modeling techniques and or the Panel Bank s judgement EMMI said in its proposal
As a safeguard banks will be required to keep an audit trail of the data they use and EMMI which is owned by some European banking lobbies will periodically review how they calculate the rate
This hybrid methodology which won the industry s backing in a consultation now needs to be approved by the market regulator in Belgium where EMMI is based
But some banks may still be reluctant to participate out of fear of becoming embroiled in fresh legal issues
Each Panel Bank acknowledges that it bears full responsibility for the particular determination methodologies and data sourcing that it employs in arriving at its Level 3 contributions EMMI said
There are currently 19 banks on the panel that submits Euribor rates down from 50 in 2004 as many have withdrawn since the scandal
Euribor in its current form won t comply with new European Union rules on benchmark rates imposed in the wake of the scandal which were due to kick in next year but the deadline for compliance has been extended until the end of 2021
Barclays Deutsche Bank RBS LON RBS and Soci t G n rale PA SOGN settled cases with the European Commission over the Euribor cartel in 2013
Cr dit Agricole HSBC and JPMorgan Chase NYSE JPM were fined by the Commission three years later In total the seven banks paid more than 1 billion euros 1 1 billion in fines to the Commission |
MS | June 23 2016 The Brexit Vote Could Change Everything | On June 23rd a vote will be held in the United Kingdom to determine if Britain will stay in the European Union or not This is most commonly known as the Brexit vote and that term was created by combining the words Britain and exit If the UK votes to stay in the European Union things over in Europe will continue on pretty much as they have been But if the UK votes to leave it will likely throw the entire continent into a state of economic and financial chaos And considering how bad the European economy is already this could be the trigger that plunges Europe into a full blown depression
So if things will likely be much worse in the short term if Britain leaves the EU then it makes sense for everyone to vote to stay right
Unfortunately it isn t that simple Because this choice is not about short term economics Rather the choice is about long term freedom
The EU is a horribly anti democratic bureaucratic monstrosity that is suffocating the life out of most of Europe a little bit more with each passing year So if I was British I would most definitely be voting to leave the EU
And in recent days the campaign to leave has been rapidly picking up steam In fact two of the latest major surveys show that leave
An ORB poll for the Telegraph showed 48 percent of Britons would vote to remain in the European Union while 49 percent would vote to leave
A YouGov poll for the Times of London showed 46 percent preferred to leave while 39 percent wanted to remain
Two other recent polls have leave ahead by 10 points and there is another that actually has leave winning by 19 points
The leave movement got a big boost just recently when The following is an excerpt from the editorial that announced this decision
WE are about to make the biggest political decision of our lives The Sun urges everyone to vote LEAVE
We must set ourselves free from dictatorial Brussels
Throughout our 43 year membership of the European Union it has proved increasingly greedy wasteful bullying and breathtakingly incompetent in a crisis
Next Thursday at the ballot box we can correct this huge and historic mistake
It is our last chance Because be in no doubt our future looks far bleaker if we stay in
I must say that I agree entirely with the Sun However everyone needs to understand that a Brexit would be incredibly painful for the UK and for the rest of Europe in the short term I think that Ambrose Evans Pritchard of the made this point very well in his recent column
Let there be no illusion about the trauma of Brexit Anybody who claims that Britain can lightly disengage after 43 years enmeshed in EU affairs is a charlatan or a dreamer or has little contact with the realities of global finance and geopolitics
So what could we potentially see happen
Well for one thing big banks like Morgan Stanley NYSE MS are warning that the euro and the British pound
The pound and the euro will be hit on a Leave vote but even if Britain decides to stay in the EU there will be only modest gains Morgan Stanley expects the pound to weaken immediately on a vote to Leave but by year end we think Euro could weaken even more
Secondly there is a very strong probability that financial markets all over Europe could horribly crash and the European Central Bank and the Bank of England are already promising to provide artificial support for the markets if that happens The following comes from
The European Central Bank would publicly pledge to backstop financial markets in tandem with the Bank of England should Britain vote to leave the European Union officials with knowledge of the matter told Reuters
The preparations illustrate the heightened state of alert ahead of the June 23 referendum which will help determine Britain s future in trade and world affairs and also shape the EU The pound and euro have lost value on fears a Brexit could tip the 28 member bloc into recession
Such an announcement from the ECB would come on June 24 if an early morning result showed that British voters had chosen to leave the EU according to the sources
But no matter what the consequences are British voters should do what is right for their future and for the future of their children
If that means leaving the EU then so be it
Needless to say the prospect of leave winning has many among the European elite in full blown panic mode For instance just consider what the current chairman of the Bilderberg Group
Just day after their mysterious annual meeting in Dresden it appears The Bilderberg Group s gravest concern is Brexit While everything from The Middle East to Donald Trump was on the agenda the remarks this week from AXA CEO and Chairman of The Bilderberg Group Henri de Castries that there is an extremely high probability that the U K will vote to leave the European Union and investors will face a true landscape of uncertainties suggest the establishment is concerned
Certainly the potential of a coming Brexit was high on the list of priorities during their recent conference and it has been documented that the Bilderberg Group played a key role in the creation of the European Union in the first place So of course they are not exactly pleased that their grand experiment may now be unraveling right in front of their eyes
Meanwhile even without taking into account a potential Brexit things just continue to steadily get worse over in Europe On Tuesday European stocks hit their lowest levels since the stock market crash that ended in February and the stocks of both Deutsche Bank DE DBKGn and Credit Suisse SIX CSGN hit all time record lows
The truth is that those extremely prominent European banks are headed for a collapse even without a Brexit But if there is a leave vote that will just accelerate the process
And let us not forget that major stock indexes all over Europe
Meanwhile German stocks are in a bear market with the DAX down 23 2 from its April 2015 peak The French CAC 40 is down 21 8 The Spanish Ibex 35 and the Italian MIB are down 31 4 and 32 6 respectively
Here in the United States the smart money is dumping stocks like crazy right now and major investors such as George Soros are feverishly buying gold
So why are these things happening
Do those in the know have some information regarding what is about to happen over in Europe
For a long time I have been sounding the alarm about Europe If the British people vote to stay in the European Union on June 23rd the crisis in Europe will certainly continue to escalate it will just be at a slower pace But if the British people vote to leave which they should that could be the trigger that changes everything
I don t know exactly what is going to happen on the 23rd but without a doubt we should all be watching the outcome very very closely |
MS | Brexit Is Getting The Blame | Brexit is not the most important problem facing markets it is mounting problems in the European banks
But before looking at that systemic issue I will summarise the Brexit position from the trenches in the last few days before the referendum
In the run up to Britain s referendum on 23rd June the Treasury was tasked with modelling the economy post Brexit The result was George Osborn claimed that a Brexit vote could cost every household 4 300 This is the underlying reason that markets allegedly are frightened of Brexit
One suspects that if the Treasury models had suggested there is little cost to leaving the result would have not been published and George Osborne would have contrived a different argument Anyway we all know that econometric models suffer from garbage in garbage out but the Treasury is meant to be authoritative and trusted However a of the Cass Business school points out the extraordinary abuse of economic models in the EU Referendum debate and he is moved to term the two Treasury reports that gave the Chancellor his facts as dodgy dossiers i
Any good Austrian economist can tell you why economic models do not work Without going into it here models should simply be disregarded Professor Blake s paper exposes the techniques as well as the statistical assumptions employed by the British government when using econometric modelling to frighten voters into voting to remain Separately a new book co authored by Dr Radomir Tylecote and Sir Bill Cash charts the history of the EU project from America s post war strategy implemented through the American Committee on United Europe in 1948 with strategic assumptions that persist to the present day ii
The paper and the book taken together expose the truths withheld or obscured by the British government at the time of the first referendum and the use of a similar approach today This time the vested interests and scare tactics used by the government appear to have begun to smell to the electorate like a long dead rat Instead ordinary voters are more worried about the high levels of immigration and the strains placed on health and education services the housing shortage and the suppression of wages
George Osborne has admitted that the Treasury is working with the Bank of England on Brexit contingency plans but no plans have emerged so far to save the necks of cabinet ministers in the event of a Remain vote A win for Remain will be only the start of their problems unless as seems most unlikely Remain wins by a clear margin
In the event of a narrow win for the establishment which is the outcome pollsters currently expect claims that it would be better to be inside the EU where Britain can influence policy will almost certainly be proved to be an illusion The UK s referendum will have threatened the future of the EU project and it would be entirely natural for a very relieved Brussels to regard the British government as having lost its credibility and to treat it with disdain Britain is easily out voted in the Council of Ministers having only 13 of the votes and the Franco German duopoly will surely ensure Britain is side lined in all policy issues The idea that Britain is protected by opt outs will be exposed as wholly inconsistent with EU treaties and therefore the facts
Democracy is not only ignored by the EU s unelected commissioners it is written out of the EU s constitution There should be no doubt about Brussel s view of democracy and referenda Jean Claude Junker President of the European Commission is reported to have said There can be no democratic choice against the EU treaties and Celia Malmstrom the EU Commissioner for Trade said I don t take my mandate from the European people
Therefore a British government minister rooting for Remain today will be in an untenable position in the event that Remain actually wins Unless it is the overwhelming public choice a public which feels cheated by the political establishment will turn against it as will the members of the parliamentary party that campaigned for Brexit The Conservatives would be bound to face a severe internal crisis It appears likely that so long as the polls indicate a close result we can expect the self interests of the political class to wane in its support for Remain and to drift towards Brexit because both the party and power are more important to many of the Remainers than the European issue
This development is not currently discounted by the media and jumping ship is always risky in politics But if this analysis is correct it may further boost the Brexit cause Already the opinion polls are moving Brexit into the lead and if this momentum continues in the short time left Brexit could actually win the day But as they say a week is a long time in politics and we have one week to go before the referendum
Surprisingly perhaps Brexit would therefore be the least contentious and therefore the best outcome for the Conservative Party for the reasons mentioned above This would end an argument which has split the party since Macmillan was Prime Minister and when Conservative voters were first persuaded the Common Market was a free market If the referendum result is for Brexit politicians in favour of Remain will simply submit to the wishes of the electorate adapt to the new reality and wait for the controversy to blow over Nothing will happen immediately anyway because it is likely to take at least two or three years to disengage from the EU
The danger of this outcome to the EU project is suddenly becoming a real threat to the Brussels establishment Donald Tusk the Polish politician and historian who is the current President of the European Council warned earlier this week in an interview with Germany s Bild that Brexit could be the start of the process of destruction of not only the EU but also of the Western political civilisation A bit over the top perhaps but bear in mind that Poland feels insecure with its Eastern neighbours
It s all about the banks
Political instability for the EU is a significant and visible threat but is not the immediate problem which is financial As a result of savings and spending imbalances none of the core Eurozone states can stand on their own Substantially Germany s private sector savings are loaned to the governments of and businesses in France Italy Spain Portugal and Greece None of these governments are able to repay German savers nor are they able to roll over increasing debts indefinitely Furthermore bad debts are piling up in their private sectors with Italy now a basket case where non performing private sector bank loans officially amount to nearly 20 of GDP iii
Caught in the middle of these imbalances are the private sector banks Because of the scale of these problems it is no longer a patch and mend issue but a serious systemic problem The European banking system has been struggling for survival ever since the Lehman crisis reflected in the dismal performance of share prices for nearly all the major banks
The chart below illustrates how these problems are reflected in just three leading banks share prices over the last twelve months
Since this time last year UniCredit Credit Suisse SIX CSGN and Deutsche Bank DE DBKGn have seen their share prices more than halve Worryingly the crisis lows of last February when the Italian banking system s current difficulties began to surface in the financial press are being breached
Analysts at Morgan Stanley are also worried According to a recent article published by Reuters they believe that Unicredit LON 0Q54 and Deutsche Bank may struggle to pay coupons on their Additional Tier 1 capital or contingent capital bonds cocos Morgan Stanley NYSE MS added that cocos issued by Credit Agricole PA CAGR BNP Paribas PA BNPP and Credit Suisse Group AG NYSE CS could also be at risk
The other evidence of banking woes is the flight of investment capital into government bonds from cash and deposits held within the banking system so much so that Germany s 10 Year bund now carries a negative redemption yield The flight into tangible bonds is so pronounced that 400bn of investment grade corporate bonds are also on negative redemption yields Market commentators are blaming this on fear of Brexit but one look at the financial condition of the European banks tells us a different story The banks must be struggling with deposit contraction on their balance sheets fuelled by a combination of negative interest rates and systemic fears at a time when their loan books are burdened with bad and irrecoverable debts It looks like the modern equivalent of an old fashioned run on the banking system led by the pension and insurance companies which are becoming increasingly concerned about leaving balances with the banks
Even though the ECB s Mario Draghi has committed to do whatever it takes the Eurozone has become a dangerous place for savings and investment
Whatever the outcome of the Brexit referendum next week it would appear that nothing can stop a systemic crisis developing in Europe The two issues are unrelated though Brexit could be blamed as a trigger Brexit will come and go but a European banking failure will remain with us whatever happens on June 23rd |
C | Citigroup Earnings Revenue Beat in Q3 | Investing com Citigroup NYSE C reported third quarter earnings that beat analysts expectations on Tuesday and revenue that topped forecasts
The firm reported earnings per share of 1 97 on revenue of 18 57B Analysts polled by Investing com expected EPS of 1 95 on revenue of 18 52B That compared to EPS of 1 73 on revenue of 18 39B in the same period a year earlier The company had reported EPS of 1 95 on revenue of 18 76B in the previous quarter
Citigroup shares lost 0 34 to trade at 70 00 in pre market trade following the report
Citigroup follows other major Financial sector earnings this monthOn Tuesday JPMorgan reported third quarter EPS of 2 68 on revenue of 30 06B compared to forecasts of EPS of 2 45 on revenue of 28 46B
UnitedHealth earnings beat analysts expectations on Tuesday with third quarter EPS of 3 88 on revenue of 60 35B Investing com analysts expected EPS of 3 75 on revenue of 59 75B
Stay up to date on all of the upcoming earnings reports by visiting Investing com s earnings calendar |
C | NewsBreak Citigroup Ekes Out Small Rise in 3Q Profit | Investing com Citigroup Inc NYSE C eked out a modest increase in revenue and earnings in the third quarter as a lower effective tax rate supported a bottom line squeezed by tighter lending margins and higher credit losses Revenue inched up by 1 but the bank s per share earnings of 1 97 still beat expectations for 1 95 as its buyback program cut the number of shares outstanding
CEO Michael Corbat said that the global consumer bank had posted underlying revenue growth of 4 and pretax earnings of 17 despite an unpredictable environment throughout the quarter
Key points
Revenue 18 57 billion up 1 vs 18 39 billion
Earnings per share 1 97 vs 1 73 in 3Q 2018
Net credit losses up 9 vs 3Q 2018 at 193 million
Net income 4 91 billion up 6 vs 3Q 2018 |
C | Consumer banking powers Citigroup s profit beat | Reuters Citigroup Inc N C beat analysts estimates for quarterly revenue and profit on Tuesday as growth in its consumer banking business tempered weakness in trading Citi the most global of the U S banks said revenue in its consumer unit rose 4 excluding the impact of currency fluctuations outpacing its institutional clients business where revenue grew 3 Consumer business was padded by more U S credit card customers beginning to pay interest as promotional periods wore off North America branded card revenue jumped 11 in the third quarter Expenses in the consumer business fell 2 Trading revenue fell 1 as a decline in equities offset stable revenue in fixed income trading JPMorgan Chase Co N JPM and Goldman Sachs Group Inc N GS both reported a rise in revenue from bond trading Citi also reached a key efficiency target The third largest U S bank by assets hit a return on tangible common equity ROTCE of 12 2 above the goal of 12 it has promised investors for the year ROTCE is a widely watched measure of how well a bank uses shareholder money to generate profits Citi has been focused on building credibility with investors after missing targets in recent years Estimates often hovered below the bank s stated goals indicating Wall Street analysts were skeptical management could reach the targets it had set Net income applicable to the bank rose 6 to 4 9 billion or 2 07 per share in the third quarter from 4 6 billion or 1 73 per share a year earlier Excluding a tax benefit the bank earned 1 97 per share Revenue was up about 1 at 18 57 billion
Analysts were expecting a profit of 1 95 per share and revenue of 18 5 billion according to IBES data from Refinitiv |
JPM | Zacks Earnings Trends Highlights Wells Fargo And JPMorgan | For Immediate ReleaseChicago IL April 12 2018 Zacks Director of Research Sheraz Mian says Earnings growth is expected to be in double digit territory from the year earlier level for 11 of the 16 Zacks sectors Bank Earnings in the SpotlightNote The following is an excerpt from this week s report You can access the full report that contains detailed historical actual and estimates for the current and following periods Here are the key points Total Q1 earnings for the S P 500 index are expected to be up 16 from the same period last year on 7 4 higher revenues the highest quarterly earnings growth pace in 7 years Earnings growth is expected to be in double digit territory from the year earlier level for 11 of the 16 Zacks sectors including the Technology and Finance sectors Only two sectors Autos Conglomerates are expected to show earnings declines in Q1 Energy sector earnings are expected to be up 60 1 from the same period last year on 16 1 higher revenues Excluding the Energy sector total S P 500 earnings growth drops from 16 1 to 14 6 The Finance sector which dominates the early reporting cycle is expected to have a very strong showing in Q1 and the coming quarters Earnings estimates for Q1 and the following quarters have gone up in a notable way since the quarter got underway with estimates for 13 of the 16 Zacks sectors going up In percentage terms estimates have gone up the most for the Basic Materials Energy Construction and Industrial Products sectors In absolute terms positive revisions to the Finance and Technology sectors account for more than half of all estimate upgrades since the quarter got underway This positive revisions trend is the most dramatic change on the earnings scene in recent years it will be interesting to see if the trend will continue in the coming days as the Q1 earnings season unfolds For the S P 600 index total Q1 earnings are expected to be up 13 4 from the same period last year on 6 9 higher revenues This would follow 15 2 earnings growth on 7 6 revenue growth in the preceding quarter For full year 2018 total earnings for the S P 500 index are track to be up 17 9 on 5 3 higher revenues with full year 2019 earnings and revenues for the index expected to be up 9 4 and 4 3 respectively The implied EPS for the index calculated using current 2018 P E of 17 3X and index close as of April 11th is 153 80 Using the same methodology the index EPS works out to 168 30 for 2019 P E of 15 7X The multiples for 2018 and 2019 have been calculated using the index s total market cap and aggregate bottom up earnings for each year The most profound change on the earnings scene lately has been the unusually positive revisions trend for Q1 and the following quarters The chart below shows how 2018 Q1 earnings growth expectations have evolved since mid December 2017 This is a sight that we haven t seen in a very long time definitely not in the last 6 years The most important factor driving this positive revisions trend is the tax cuts The rise in oil prices and the impact of higher bond yields on banks profitability are some of the other factors Estimates have gone up across the board for 13 of the 16 Zacks sectors with the highest percentage positive revisions for the Basic Materials Energy Construction and Industrials In absolute terms the positive revisions to the Finance and Technology sectors account for more than half of all aggregate positive revisions since mid December 2017 The Finance sector s earnings outlook has notably improved as a result of tax cuts higher interest rates and generally favorable economic backdrop The sector is expected to report 19 2 higher earnings on 4 5 higher revenues which will follow the sector s flattish performance in the preceding period The Major Banks industry which alone brings in roughly 45 of the sector s total earnings in the S P 500 index and which includes JPMorgan NYSE JPM and Wells Fargo NYSE WFC that kick off the reporting cycle for the industry this week is expected to have 11 3 earnings growth on 4 8 revenue growth The combination of improved net interest margins following additional Fed hikes benign credit trends and favorable momentum on the capital markets front should help produce solid results in Q1 These favorable trends should remain in place over the coming quarters as well as reflected in current expectations for the coming quarters Follow us on Twitter Join us on Facebook NASDAQ FB Zacks Investment Research is under common control with affiliated entities including a broker dealer and an investment adviser which may engage in transactions involving the foregoing securities for the clients of such affiliates Media ContactZacks Investment Research800 767 3771 ext 9339Zacks com provides investment resources and informs you of these resources which you may choose to use in making your own investment decisions Zacks is providing information on this resource to you subject to the Zacks Terms and Conditions of Service disclaimer Past performance is no guarantee of future results Inherent in any investment is the potential for loss This material is being provided for informational purposes only and nothing herein constitutes investment legal accounting or tax advice or a recommendation to buy sell or hold a security No recommendation or advice is being given as to whether any investment is suitable for a particular investor It should not be assumed that any investments in securities companies sectors or markets identified and described were or will be profitable All information is current as of the date of herein and is subject to change without notice Any views or opinions expressed may not reflect those of the firm as a whole Zacks Investment Research does not engage in investment banking market making or asset management activities of any securities These returns are from hypothetical portfolios consisting of stocks with Zacks Rank 1 that were rebalanced monthly with zero transaction costs These are not the returns of actual portfolios of stocks The S P 500 is an unmanaged index Visit for information about the performance numbers displayed in this press release |
JPM | Why Is GoPro GPRO Stock Gaining Today | Shares of GoPro NASDAQ GPRO were up about 5 in afternoon trading Thursday after a report said that Chinese tech giant Xiamoi Corp has considered making a bid for the action camera manufacturer
GoPro chief Nick Woodman recently said that he is open to a sale and earlier this year hired investment bank JPMorgan Chase NYSE JPM to advise the company on a potential deal A person familiar with the matter said that Xiaomi is interested in an offer but does not want to overpay according to
GoPro shares bounced to an intraday high of 5 30 shortly after the story emerged That move represented the stock s biggest jump since February 14
The report also suggested that GoPro could fetch up to 1 billion mirroring the price Hewlett Packard paid for Palm a similarly struggling electronics maker back in 2010 GoPro was once valued at more than 10 billion but its market cap has since fallen to about 750 million
While the popular action camera maker continues to pump out high quality products the proliferation of smartphone cameras and increasing competition in the outdoor camera market continue to hurt the company s revenue stream Analysts expect GoPro to witness net sales of 1 07 billion in 2018 down about 9 year over year
Meanwhile the firm has struggled to turn a profit and debt issues now pose a serious threat to its chances of survival In 2017 GoPro reported an adjusted loss of 69 cents per share and our current consensus estimate is calling for the company to post a per share loss of 42 cents in the current fiscal year
It is also worth noting that GoPro s earnings outlook has deteriorated significantly over time Just 90 days ago our consensus estimate for fiscal 2018 earnings was projecting a profit of 4 cents per share In its most recent full quarter GoPro reported a non GAAP loss of 30 cents per share dramatically missing the Zacks Consensus Estimate of a 10 cent loss
GoPro investors will hope that further takeover speculation will rejuvenate the stock which has lost more than 40 over the past year
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MS | Top 5 Things to Know in the Market on Monday | Investing com Here are the top five things you need to know in financial markets on Monday January 8
1 Global equities continue to rally
Wall Street looked set to continue leading the bullish trend in global stocks on Monday after all three major benchmarks hit new record highs and both the Dow and the Nasdaq registered their best start to year since 2006 At 5 53AM ET 10 53GMT the blue chip Dow futures rose 43 points or 0 17 S P 500 futures advanced less than a point or 0 01 while the Nasdaq 100 futures edged forward 2 points or 0 05
Elsewhere European equities moved higher on Monday as investors digested better than expected confidence and retail sales data from the euro zone Traders also watched as German Chancellor Angela Merkel entered talks with a rival party in a last ditch effort to form a coalition government after months of political uncertainty in the euro zone s largest economy
The benchmark Euro Stoxx 50 advanced 0 39 by 5 54AM ET 10 54GMT Germany s DAX rose 0 37 though London s FTSE 100 slipped 0 05 after having hit a new record high earlier on Monday
Earlier Asian shares edged higher on Monday with markets in Tokyo shut for a holiday China s Shanghai Composite closed with gains of 0 5
2 Earnings season set to capture focus
Investor attention will return to earnings this week as the fourth quarter reporting season kicks off with big banks on Friday
Traders are betting on a string of solid earnings reports to justify last year s stock market rally while Wells Fargo NYSE WFC and JPMorgan NYSE JPM will get the ball rolling at the end of the week
The focus will likely be on full year guidance with particular attention paid to any comments on how firms will react to the recent Trump administration tax overhaul
Morgan Stanley NYSE MS already warned last week that it will take a 1 25 billion charge to 2017 earnings primarily because its deferred tax assets will be worth less under the new tax code
3 Dollar continues recovery from 3 month low ahead of Fedspeak
The dollar moved higher against major rivals on Monday for a second consecutive session pulling away from a three and a half month low of 91 47 hit on January 2
At 5 55AM ET 10 55GMT the U S dollar index which measures the greenback s strength against a trade weighted basket of six major currencies gained 0 15 at 91 89
Worse than expected job creation in the U S economy failed to make a lasting dent in the greenback with investors still looking ahead to the Federal Reserve s next move
The dollar found support after San Francisco Fed president John Williams said on Saturday that the Fed should raise interest rates three times this year given that economy will benefit from tax cuts
The comments came a day after Cleveland Fed chief Loretta Mester said she expects about four interest rate hikes this year thanks to solid U S economic growth and low unemployment
However not all policymakers were convinced as Philadelphia Fed president Patrick Harker recommended caution and argued for just two rate hikes this year
Later on Monday Atlanta Fed chief Raphael Bostic will speak on the economic outlook and monetary policy while both heads of the Boston Fed Eric Rosengren and the San Francisco Fed John Williams will participate at the Should the Fed Stick With the 2 Percent Inflation Target or Rethink It Forum in Washington
Markets price in odds of 68 for the next 25 basis point hike to occur in March according to Investing com s Fed Rate Monitor Tool
Investors will pay close attention to Friday s release of inflation data in order to make any adjustments to projections for policy tightening
4 Oil breathes sigh of relieve from drop in active U S oil rigs
Crude oil prices were hovering near recent multi year peaks on Monday helped by news of a decline in U S oil rigs although ongoing concerns over rising U S production were expected to limit gains
Oil services firm Baker Hughes on Friday reported a decline by five to 742 in the number of U S rigs in the week to January 5
However concerns still remained that rising U S production in 2018 could undermine production cut efforts led by the Organization of the Petroleum Exporting Countries and Russia
U S crude oil futures fell 0 49 to 61 74 at 5 56AM ET 10 56GMT while Brent oil traded up 0 19 to 67 75
5 Global rating outlooks most positive since crisis
The prospect of rating upgrades outnumbering downgrades this year and next is higher than at any time since the financial crisis Fitch Rating noted on Monday in its most recent report on the global credit outlook
However the credit rating agency warned that credit quality may start to weaken beyond this as ultra supportive monetary policy is phased out and rising interest rates start to affect funding costs and asset quality
The continued tightening of monetary policy together with significant policy and political uncertainty is likely to pose increasing challenges to ratings Monica Insoll managing director of Fitch s Credit Market Research said in the report |
JPM | U S trade deficit narrows in November as imports decline | By Lucia Mutikani WASHINGTON Reuters The U S trade deficit fell for the first time in six months in November as cheaper oil and higher domestic petroleum production helped to curb the country s import bill leading economists to boost their economic growth estimates for the fourth quarter The Commerce Department s report on Wednesday also showed a drop in imports of consumer goods such as cellphones and other household goods The decrease in imports followed five straight monthly increases likely as businesses stocked up amid an escalating trade war between the United States and China It is possible that some of the consumer goods imports were brought into the country in greater numbers to build a stockpile before the import tariffs took effect or grew even worse said Chris Rupkey chief economist at MUFG in New York The good news is this will temporarily boost real GDP in the fourth quarter The trade deficit dropped 11 5 percent to 49 3 billion in November It had increased for five straight months Economists polled by Reuters had forecast it would fall to 54 0 billion in November The release of the report was delayed by a recently ended five week partial shutdown of the federal government The politically sensitive goods trade deficit with China fell to 37 9 billion in November from 43 1 billion in October The overall trade deficit has remained elevated despite the Trump administration s America First policies which have led Washington to impose tariffs on a range of imported goods from China sparking a trade war with Beijing President Donald Trump has long railed against China s trade surplus with the United States and accuses Beijing of not playing fairly on trade The United States has also slapped duties on imported steel aluminum solar panels and washing machines The dollar rose against a basket of currencies while stocks on Wall Street were trading lower after disappointing forecasts from videogame makers U S Treasury yields mostly fell BOOST TO GROWTH When adjusted for inflation the goods trade deficit decreased 7 5 billion to 80 8 billion in November The drop in the so called real trade deficit led some economists to raise their fourth quarter GDP growth forecasts by as much as six tenths of a percentage point to as high as a 3 0 percent annualized rate We had thought that trade would subtract more than half a point from GDP growth in the fourth quarter but now it looks like trade will be close to neutral for fourth quarter growth said Daniel Silver an economist at JPMorgan NYSE JPM in New York The release of the fourth quarter GDP report has been delayed by the government shutdown which ended on Jan 25 after Trump and Congress agreed to temporarily fund the government without money for his U S Mexico border wall Trade subtracted 1 99 percentage points from GDP growth in the July September quarter The economy grew at a 3 4 percent pace in the third quarter In November imports of goods and services tumbled 2 9 percent to 259 2 billion Imports of petroleum products fell 1 4 billion with crude oil imports dropping 0 7 billion Cheaper oil prices weighed on the petroleum import bill The crude oil price averaged 57 54 per barrel in November the lowest since April A domestic energy boom has enabled the United States to reduce its dependence on foreign oil leading to a reduction in the volume of crude imports Consumer goods imports decreased 4 3 billion pulled down by a 2 3 billion drop in imports of cellphones and other household goods Some economists said the drop in cellphone imports was puzzling as they were not on the list of goods impacted by tariffs on Chinese imports The reason for the decline is less clearly attributable to an effect of tariffs and could be more idiosyncratic said Veronica Clark an economist at Citigroup NYSE C in New York Exports of goods and services fell 0 6 percent to 209 9 billion Exports of consumer goods decreased 0 9 billion and those of petroleum products fell 0 6 billion There were also declines in exports of soybeans which have been targeted by China in the trade dispute Exports of capital goods however increased 1 4 billion lifted by a 1 0 billion rise in civilian aircraft shipments Given the dollar s strength and hopeful signs in the U S China trade talks economists expected the drop in imports to be temporary The weakness in exports was however expected to persist against the backdrop of slowing global economic growth Last week Trump said he would meet with Chinese President Xi Jinping soon to try to seal a trade deal
The 2018 trade detente between Trump and Xi has carried into the new year as weaker momentum in China has made Chinese policymakers more conciliatory said Jake McRobie a U S economist at Oxford Economics in New York We now believe the 10 percent tariffs on 200 billion of imports from China will not be raised to 25 percent |
JPM | New York Grand Hyatt Trump s first big project faces demolition | By Herbert Lash NEW YORK Reuters A New York developer and a partner plan to demolish the Grand Hyatt New York the hotel that launched U S President Donald Trump s real estate career in Manhattan decades ago the two companies said on Thursday Developer TF Cornerstone and MSD Partners which manages the assets of Dell Technologies founder Michael Dell and his family said they would develop 2 million square feet 186 000 square metres of office and retail space and a new luxury Grand Hyatt Hotel The redevelopment would be in collaboration with an affiliate of Hyatt Hotels Corp TF Cornerstone and MSD Partners said in a statement The Grand Hyatt is immediately east of the Grand Central train station on 42nd Street and was the former Commodore Hotel a derelict stone building built in 1919 that Trump gutted and re skinned with a glass facade after its purchase in 1978 The hotel was Trump s first success in Manhattan after he started in real estate with his father a wealthy developer in the New York City borough of Queens where the president grew up Entering Manhattan established Trump s name as a businessman and made him a source of tabloid fascination The new development would provide new subway entrances and enhanced connectivity to the subway system underneath Grand Central and a significant increase in tax revenue according to the statement The project marks a further step in the revitalization of east Midtown where a 1 401 foot 427 m skyscraper One Vanderbilt is rising next to Grand Central on its west side and JPMorgan Chase Co NYSE JPM plans to build a new headquarters nearby on Park Avenue State and city approval is required and construction financing must be arranged the statement said The project may deter potential tenants from relocating to Hudson Yards a district rising on Manhattan s West Side where a number of marquee companies have decided to relocate This will be a draw for new office tenants and potentially lure tenants away that would have otherwise considered Hudson Yards said Myers Mermel chief executive and co founder of TenantWise a real estate research and advisory firm It will re establish Midtown East as the pre eminent office district he said |
JPM | JPMorgan appoints former Finland leader Aho to advisory body | LONDON Reuters JPMorgan NYSE JPM has appointed former Finnish Prime Minister Esko Aho to its Europe Middle East and Africa advisory council according to a memo seen by Reuters on Friday as the Wall Street bank prepares its strategy for the region after Brexit The memo signed by Walter Gubert Chairman of JPMorgan in EMEA was shared with bank staff on Friday and said insights from Aho s political and business career would be invaluable to JPMorgan clients
A spokesman for the bank confirmed the content of the memo but declined to comment further |
MS | Aussie A Temporary Rebound | The short at 0 7790 as of last article netted more than 500 pips as the position was exited last week before the dismayed NFP was released 0 7100 level indeed was defended as we forecasted when sellers exited the market around 0 7150 in anticipation of the NFP last Friday to book profits for the month
One aspect retail traders have to understand about trading is that institution are more interested in stable long term positive performance than a short term aggressive and choppy performance We could not afford to make 30 return for three straight months and lose 10 on the fourth and fifth months while hoping to recover those losses Depending upon the portfolio objectives and expected return compatible investment and trading strategies have to be deployed to meet investors expectation
Aussie closed last week with bullish engulfing candle and 80 of the time this signify a buyers market though we believe the rise is temporary before sellers set back in to sell at a better price in anticipation of RBA rate cut in August So depending upon your strategies and trading style you could be a short term buyer or long term sellers We must also say that the size of your fund could also affect your style as we know it is a lot easier to liquidate smaller positions than a significantly large one When everybody is selling it is not easy to find a buyer who would bid at your asking price and subsequently you are forced to close at any price This in essence is how market crash happen
The Australian economy was not all that bad or as bad as market had expected when the GDP data was released last week Indeed market consensus was proven wrong when Q1 2016 economic growth was reported at 1 1 almost doubled the market expectation at 0 6 and previous report was also revised higher from 0 6 to 0 7 Prior to that unemployment was also reported stable at 5 7 compared to market expectation of 5 8 For this very reason we expect the RBA to hold rates in June meeting though we expect another rate cut later especially if wages and inflation remain weak
We must agree that the rise in Aussie was also strengthen by the weaker greenback as market responded to the shockingly low NFP number released by the US Bureau of Labor Statistics World largest economy only added 38 000 non farm jobs last month although the private report from Automatic Data Processing lodged 173 000 additions Interestingly US unemployment fell by 0 3 to 4 7 from 5 0 previously as less workers claim for unemployment benefits This definitely strain the Feds intention to raise funding rate as early as next week s FOMC meeting
Looking at the recent CoT report Aussie flipped from net long to net short as large and small speculators shorted the commodity currency with 4 758 and 3 860 contracts respectively It was also reported that market participants were net short in all currencies against the dollar except for yen kiwi and loonie On the institutional side Morgan Stanley NYSE MS has reinstated another short targeting 0 6800
Halal Traders decided to stay flat for now looking for a better entry to reinstate another short
Please read our risk warning disclaimer |
C | Citi pays 30 million fine to settle real estate violations regulator | By Katanga Johnson WASHINGTON Reuters Citibank N C has agreed to pay a 30 million fine to settle charges of repeated violations of real estate holding rules and for failing to meet its commitment to take corrective actions the U S Office of the Comptroller of the Currency OCC said on Friday Federal law limits the time a national bank may hold foreclosed and other real estate owned OREO assets In 2015 Citi said it lacked adequate processes to effectively monitor the holding period and committed to developing and taking corrective actions but it did not do so the OCC said As a result between 2017 and 2019 the bank committed over 200 violations in South Dakota related to the statutory holding period for OREO assets On Friday a Citi spokesman said the bank did not meet the holding requirement in some instances but customers were not affected
Since identifying the issue we have strengthened controls processes and procedures to ensure the timely disposition of these assets the Citi spokesman said |
C | Yuan Is Key to Gauging Whether China U S Deal Is Real Thing | Bloomberg Investors are looking to China s daily fixing of the yuan for a sign of goodwill toward the U S after President Donald Trump said a phase one trade deal had been reached
So far the signs aren t too positive
The People s Bank of China fixed the yuan at almost exactly the same rate on Monday as they did on Friday A stronger fix would have allayed concern they are manipulating the currency to boost exports
All eyes now turn to Tuesday s fix In the onshore spot market on Monday the yuan appreciated for a fifth day to 7 0670 per dollar stronger than the 7 0725 fixing The offshore yuan also extended a four day winning streak to trade at 7 0683 per dollar
The PBOC may now revert to quietly shoring up the currency as a gesture of goodwill said Julian Evans Pritchard senior China economist at London based Capital Economics Ltd
China wants to hold more talks to iron out the details of a deal touted by Trump before agreeing to sign it according to people familiar with the matter
Treasury Secretary Steven Mnuchin indicated on Friday that he ll consider lifting a U S designation that China manipulates its currency once the first phase of a trade agreement is complete
Still Evans Pritchard is skeptical that Beijing and Washington are any closer to a lasting resolution and he s far from the only one
A comprehensive trade deal before America s 2020 election seems unlikely Citigroup NYSE C analysts Lu Sun and Gaurav Garg said in a client note The currency pact in the phase one agreement will likely entail a commitment not to devalue the yuan instead of forced one way yuan appreciation Citi said Bullish momentum for the offshore yuan could extend for a bit though obstacles to the currency staying strong past 7 0 per dollar seem high according to the analysts
Deutsche Bank AG DE DBKGn described the pact agreed over the weekend as very limited and noted that it won t be signed for several weeks
Not many businesses that have been disturbed by the trade war will yet be able to see a clear pathway ahead Deutche Bank strategists including London based Jim Reid and Craig Nicol said in a note to clients We re not close to solving many of the bigger issues behind the conflict |
C | Citigroup plans to set up wholly owned securities business in China sources | HONG KONG Reuters Citigroup Inc N C plans to set up a wholly owned securities business in China people with knowledge of the matter said on Tuesday taking advantage of Beijing s move to fully open up some of its financial sectors to foreigners next year
Citi is currently in the process of completing its exit from a minority owned securities joint venture in China a process that one of the sources said is expected to be completed by end of this year
The exit which was first announced late last year was seen as paving the way for the U S bank to set up its own brokerage in the world s second largest economy
Citi s plans to set up a wholly owned securities business in China are in the early stages said the sources who declined to be identified due to the sensitivity of the matter Bloomberg first reported the development
Citi continues to evaluate opportunities to further support its clients in China a spokesman for the bank said in an emailed statement declining to give details
Global investment banks are currently able to own up to 51 of their China operations That requires a joint venture with local Chinese partners Beijing has pledged to ease foreign ownership limits in the financial sector over a period of time
Last week China announced a firm timetable for opening its futures brokerage and mutual fund sectors fully to foreign investors next year the latest step to deregulate the country s trillions of dollars worth of financial industry
Limits on foreign ownership of securities firms will be removed on Dec 1 2020
The China Securities Regulatory Commission will start taking in applications in the second quarter of 2020 and plans to give at least couple of licenses for wholly owned securities business by end of the year said a source with knowledge of the plans
Citi which has a large retail and corporate banking presence in China will become one of the first foreign banks to set up a wholly owned securities business in China if the plans are finalised
French lender Societe Generale PA SOGN has also ditched a plan for a securities joint venture in China in favor of a wholly owned subsidiary a senior executive of the bank said over the weekend |
JPM | Should You Buy JPMorgan Chase JPM Stock Ahead Of Earnings | Shares of JPMorgan Chase NYSE JPM gained about 2 3 on Tuesday just a few days before it will alongside fellow banking giants Citigroup NYSE C and Wells Fargo NYSE WFC kick off Q1 earnings season with the release of its latest quarterly financial report Investors will want to keep a close eye on this finance bellwether in the lead up to and aftermath of its pivotal earnings announcement
JPM has outpaced the S P 500 over the past year but interest rate uncertainty has created for big financials lately Yields on the benchmark 10 year Treasury bond have moved sideways over the last two months marking a change to the uptrend in treasury yields that had been in place since September
Regardless the Fed appears ready to continue tightening its policies and lingering uncertainty is really related to whether the central bank will announce four rates hikes or more this year Bank investors will continue to monitor this as the industry clamors for the earnings growth catalyst that is a higher benchmark borrowing rate
But investors will also need to monitor the results of JPMorgan Chase with its interesting mix of investment and commercial banking serving as an important indicator of the finance sector s health
Latest Outlook and Valuation
Based on our latest Zacks Consensus Estimates we expect JPMorgan to report earnings of 2 28 per share and total revenue of 27 5 billion These results would represent year over year growth rates of 38 2 and 11 6 respectively
Heading into the report JPM is trading with a Forward P E of 12 1 which is basically in line with the Banks Major Regional industry average of 11 8 JPMorgan Chase has traded as high as 15 7x forward 12 month earnings within the past 52 weeks and its median earnings multiple over this timeframe is about 12 7x
Earnings ESP Whispers
Investors will also want to anticipate the likelihood that JPMorgan surprises investors with better than anticipated earnings results For this we turn to our Earnings ESP figure
Zacks Earnings ESP Expected Surprise Prediction looks to find earnings surprises by focusing on the most recent analyst estimates This is done because generally speaking when an analyst posts an estimate right before an earnings release it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago
A positive Earnings ESP paired with a Zacks Rank 3 Hold or better ranking helps us feel confident about the potential for an earnings beat In fact our 10 year backtest has revealed that this methodology has accurately produced a positive surprise 70 of the time
Just a few days ahead of its report JPM is sporting a Zacks Rank 3 Hold and an Earnings ESP of 0 8 This is because the company s Most Accurate Estimate for earnings sits at 2 26 per share meaning that the most recent analyst estimates have been lower than the consensus In other words our model is not conclusively calling for a beat
Surprise History
Another important thing to consider ahead of JPMorgan s report is the company s history of earnings surprises and the effect that these surprises have had on share prices JPMorgan has met or surpassed earnings estimates in each of the trailing nine quarters but its bottom line results have not always translated into upward momentum for the stock
We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report Over the course of JPM s recent streak the stock has turned positive just four times during this timeframe in each respective quarter
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JPM | Banks To Release Earnings This Week | Earnings report of large financial and banking companies such as JPMorgan Citigroup NYSE C and Wells Fargo NYSE WFC is scheduled to release their respective quarterly reports later this week
JPMorgan Chase Co NYSE JPM
The American financial institution is scheduled to release its quarterly earnings report before the market opens this Friday April 13 JPMorgan Chase Co NYSE JPM is set to report earnings of 2 28 per share compared to their earnings of 1 65 per share during the same quarter last year
Financial earning reports of financial stocks were affected during the previous quarter due to a one time tax charge This cost JPMorgan 2 4 billion during the fourth quarter where it posted earnings of 1 76 per share which beat most expectations of 1 69 per share The company also had a revenue of 24 45 billion beating expectations of 25 15 billion
Citigroup
Citigroup shares rallied back in January when the company topped most expectations during its fourth quarter earnings call when the company posted solid earnings of 1 28 per share exceeding expectations of 1 19 per share in earnings The bank which suffered around 19 billion in one time tax charges also delivered a revenue of around 17 3 billion in line with most analyst expectations
Later this week the company is scheduled to release its first fiscal quarter earnings report before the market opens on April 14 and is expected to deliver earnings per share of 1 62 on a revenue of 18 84 billion which represents a rise of 4 from the same quarter last year Analysts have predicted an earnings growth of as much as 20 from the same period last year
Wells Fargo
Wells Fargo which is also set to release its earnings for the first fiscal quarter of 2018 before the market opens this Friday is expected to deliver 1 07 in earnings per share to earnings as much as 1 17 per share compared the company s earnings of 1 per share during the same quarter last year The revenue of the financial company is set to come at around 21 71 billion which is a decline of 1 3 from the same period a year ago
During the previous quarter Wells Fargo had earnings of 6 2 billion on a revenue of 22 05 billion compared to expectations of 22 38 billion due to a number of challenges that Wells Fargo chief executive Tim Sloan announced in a statement The company has been suffering over the past year due to its fake accounts scandal which has cost the company billions in fines and settlements Wells Fargo is also set to update its investors during its earnings call regarding the actions it has taken in rebuilding the company which included massive cost cutting programs it has conducted over the past year |
JPM | Ahead Of Q1 Earnings Season | Wednesday April 11 2018Sorry for the delay on this report Technical difficulties caused it to be published after the bell today It won t happen again As we await the dawning of a new earnings season Q1 begins in earnest with big banks like JPMorgan NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC reporting late this week into early next Numbers are expected to continue to improve both on general economic traction and the huge windfall of corporate tax cuts gracing the bottom lines But much of these fortunes have already been baked into expectations so quarterly results are hotly anticipated once again Ahead of today s opening bell we saw new Consumer Price Index CPI numbers hit the tape Results were cooler than yesterday s Producer Price Index PPI results but in line with expectations 0 1 on the headline 0 2 on the core PPI headline reached 0 3 well ahead of the 0 1 expected So with the other shoe dropping what we see is resilient if not exactly spectacular pricing on both sides This keeps in line with the Goldilocks scenario the economy has enjoyed for a while now Markets are selling off a bit at the open today but this follows a big leg up Tuesday as the relief that a trade war with China may not transpire after all was pretty much palpable It s too early to say for sure there won t be any pain felt as both sides forge out their visions of a new world of trade but for now the worst of the worst seems to be abating The Dow has given up a half a percent in the early minutes of trading with the S P 500 following suit and the Nasdaq halving that deficit Later today we get new federal budget numbers and the minutes from Jay Powell s inaugural Fed meeting from last month when the committee raised interest rates another quarter percent Currently analysts generally expect two more raises this year Mark VickerySenior Editor5 Medical Stocks to Buy NowZacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia AIDS muscular dystrophy hemophilia and other conditions New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline Early investors could realize exceptional profits |
JPM | Q1 Earnings What To Expect | Sorry for the delay on this report Technical difficulties caused it to be published after the bell today It won t happen again As we await the dawning of a new earnings season Q1 begins in earnest with big banks like JPMorgan NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC reporting late this week into early next Numbers are expected to continue to improve both on general economic traction and the huge windfall of corporate tax cuts gracing the bottom lines But much of these fortunes have already been baked into expectations so quarterly results are hotly anticipated once again Ahead of today s opening bell we saw new Consumer Price Index CPI numbers hit the tape Results were cooler than yesterday s Producer Price Index PPI results but in line with expectations 0 1 on the headline 0 2 on the core PPI headline reached 0 3 well ahead of the 0 1 expected So with the other shoe dropping what we see is resilient if not exactly spectacular pricing on both sides This keeps in line with the Goldilocks scenario the economy has enjoyed for a while now Markets are selling off a bit at the open today but this follows a big leg up Tuesday as the relief that a trade war with China may not transpire after all was pretty much palpable It s too early to say for sure there won t be any pain felt as both sides forge out their visions of a new world of trade but for now the worst of the worst seems to be abating The Dow has given up a half a percent in the early minutes of trading with the S P 500 following suit and the Nasdaq halving that deficit Later today we get new federal budget numbers and the minutes from Jay Powell s inaugural Fed meeting from last month when the committee raised interest rates another quarter percent Currently analysts generally expect two more raises this year |
JPM | 7 Figure Bet On Big Bank Earnings | A handful of big U S banks will later this week with JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC stepping up to the plate on Friday Ahead of the flood of quarterly reports it looks like one options trader is betting big money on a short term rally in the Financial Select Sector SPDR NYSE XLF
The exchange traded fund ETF has seen roughly 96 000 call options change hands today almost twice the average intraday pace and three times the number of XLF puts traded More than half of the action has transpired at the April 28 call which has seen over 48 000 contracts exchanged mostly in a block of 35 000
Specifically it appears one trader bought to open the block of front month calls for 36 cents apiece or 1 26 million 0 36 x 100 shares per contract x number of contracts per By purchasing the calls to open the buyer will make money if XLF shares top 28 36 strike plus premium paid by next Friday s close when April options expire
The bank ETF has been struggling beneath the 28 level since March 22 and this area is also home to its formerly supportive 120 day moving average However XLF s 200 day moving average has emerged as support since the fund s drop from 10 year highs Further the 26 50 neighborhood also represents a 23 6 Fibonacci retracement of XLF s rally from early 2016 until the late January peak and contained the ETF s downward momentum during the February correction At last check XLF was up 1 7 at 27 78 |
MS | Citigroup follows Morgan Stanley UBS quits recruiting pact bank | NEW YORK Reuters Citigroup Inc NYSE C became the latest firm on Friday to say it would quit a 14 year old agreement reached among Wall Street s biggest securities brokerages to not sue each other when a broker switches firms Morgan Stanley NYSE MS and UBS Group AG s Wealth Management Americas discontinued the agreement called the broker protocol earlier this year Similar to others in the industry Citi has decided to exit the protocol starting on Jan 8 said Citi spokesman Drew Benson Benson said the decision was reached because it allows us to continue to invest in our growing team of award winning financial advisors Citi has around 1 000 advisers and relationship managers according to Bloomberg which reported the news earlier Friday The broker protocol was created in 2004 to bring an end to costly legal battles in which firms would seek court orders to prevent ex brokers from contacting and recruiting their former clients Firms that signed the protocol agreed to let ex brokers to take basic information with them to contact clients and inform them after they moved to a new employer But as firms face growing regulatory expenses and greater competition from independent firms and robo advisers they are looking for new ways to keep wealthy clients and their assets
Nearly 1 700 firms are still party to the agreement including two of the industry s largest wealth management firms Bank of America s Merrill Lynch and Wells Fargo NYSE WFC Advisors |
MS | RPM declares 0 32 dividend | RPM NYSE RPM declares 0 32 share quarterly dividend in line with previous Forward yield 2 39 Payable Jan 31 for shareholders of record Jan 17 ex div Jan 16 Now read |
MS | Premarket Losers as of 9 05 am | LB 10 on reporting December 2017 sales and updating Q4 earnings guidance REXX 9 RENN 7 ROKU 6 as Morgan Stanley NYSE MS cuts to underweight RAD 6 on Q3 earnings FH 6 Now read |
MS | Sprint appoints former Altice head Michel Combes as CFO | By Laharee Chatterjee Reuters Sprint Corp N S on Thursday appointed former Altice NV AS ATCA CEO Michel Combes as chief financial officer replacing Tarek Robbiati who had chalked out a turnaround plan for the telecom company that involved sweeping cost cuts Sprint s shares were down 4 8 percent at 5 61 on Thursday morning on fears that Robbiati s departure could derail the plan at a time when the company is spending heavily to launch its 5G network We believe this feeds the narrative of concern that Sprint needs to spend on network and continue to aggressively cut costs Wells Fargo NYSE WFC analyst Jennifer Fritzsche wrote in a note Robbiati did a very impressive job as to what he was tasked to do lower the company s cost of capital she added Sprint has sought to strengthen its balance sheet by cutting costs and mortgaging a portion of its airwaves and equipment but industry analysts have raised concerns about its 38 billion debt Combes sudden exit from Altice NV AS ATCA last November also appeared to weigh on investors minds but some analysts were upbeat given his more than 30 years of experience in the telecoms industry While Combes abrupt departure from Altice last November will be a focal point for investors it is important to note that Combes has extensive telecom experience including as CFO of Orange CEO of Vodafone LON VOD Europe and of Alcatel Morgan Stanley NYSE MS analyst Simon Flannery wrote in a note Combes 55 was ousted from Altice NV as the company sought to reassure investors after its shares dropped 30 percent within a week He had been brought to put Altice s ailing French mobile operator SFR back on track The appointment comes a month after Sprint struck a deal with Altice s U S business that will allow the U S telecom provider to use Altice s cable infrastructure to transmit cellular data and develop a 5G network Combes has strong Street credibility and comes to Sprint as the company is looking to turn the ship around in a choppy environment GBH Insights analyst Daniel Ives said He will also be appointed to Sprint s board at a later date and will be responsible for leading the company s financial operations strategy and continued cost transformation the wireless carrier said
Sprint and T Mobile recently called off their merger talks to create a stronger U S wireless company to rival market leaders leaving Sprint to engineer a turnaround on its own |
JPM | Emerging assets post best month in years with late boost from Fed | By Rodrigo Campos NEW YORK Reuters Emerging market assets further extended their inflated January gains on Thursday to close a stellar month a day after the Federal Reserve all but ended its monetary policy tightening cycle Emerging market stocks up almost 9 percent this month closed above their 200 day moving average for the first time since May The index s monthly gain is the largest since March 2016 and compares to a 7 8 percent increase in MSCI s gauge of stocks globally On the hard currency bonds side the JPMorgan NYSE JPM EMBI Global Diversified index tightened 46 basis points during the month the most for any month since mid 2012 while the MSCI EM currencies index is up 2 6 percent this month for its largest monthly gain in a year The emerging market outperformance follows a dire 2018 in which faster U S economic growth alongside higher interest rates and a stronger dollar weighed heavily on emerging market returns On Wednesday a sharp change in direction at the Fed sent the dollar lower while boosting equities across the board The U S central bank signaled that its drive to tighten monetary policy which started late in 2015 may be at an end and said it would pause before raising rates further The dovish Fed has a lot to do with emerging market outperformance because if the Fed isn t going to hike you have dollar stability and you get a change in perception said Kathryn Rooney Vera head of research and emerging market strategy at Bulltick LLC in Miami Flows are showing that emerging markets are quite in style now Monthly flows to emerging equity funds were 8 48 billion to Wednesday according to Lipper data the most for any month in a year and second highest since January 2013 while 1 66 billion in flows to bond funds were also the most since January 2018 But the Fed s pause could also bring bad news to emerging markets The rebound in the region s assets will hinge on the trajectory of economic growth outside the United States said Juha Seppala director of macro asset allocation strategy at UBS Asset Management Seppala who said Wednesday s move by the Fed is very supportive of emerging markets said that that support will remain as long as the Fed s pause responds to expected underperformance from the U S economy as it will weaken the dollar A global economic slowdown on the other hand could lift the greenback s allure as a safety asset to the detriment of emerging markets Global economic growth has deteriorated in recent months he said noting that the U S China trade war and the U S government shutdown were some of the reasons behind that
If there is something deeper going on he said It is possible that economic performance continues to deteriorate |
JPM | Asia Stocks Having a Bear Market Bounce JPMorgan Asset Says | Bloomberg What we ve been witnessing in Asia and the emerging markets could just be a bear market bounce
That s how JPMorgan NYSE JPM Asset Management views the January rally While Jasslyn Yeo global market strategist at the money manager sees the potential for more gains in the first half of the year investors will need to reassess their positions for the second half
Slowing economic growth globally is clouding the outlook for stocks even as a potential trade deal between the U S and China will help risk on sentiment according to Yeo Moreover while the Federal Reserve signaled it s pausing its interest rate increases there are still higher odds of hikes than cuts she said
I am not willing to back off on the whole bear market bounce story because there are increasing downside risks to growth she said in an interview Friday Her firm managed 1 71 trillion of assets as of September But the rebound could last only in the first half of this year because we are in such a late stage of the cycle and recession risks have increased she said about the U S economy
With a 6 8 percent rally in January the MSCI Asia Pacific Index had its best start to a year since 2012 The benchmark gauge for emerging market equities climbed even more 8 7 percent Both are still marred in bear markets
While Yeo didn t provide any stock market estimates she said she remains bullish on Asian shares excluding Japan and emerging markets in general for the first half of the year Her reasoning There s a higher chance of a U S China trade agreement this time around as President Donald Trump faces a reelection bid in 2020 and the world s second biggest economy is slowing Trump said he may meet soon with his Chinese counterpart to finalize details of a deal
Here are other points she made
Among Asian equities Yeo prefers China Korea and Indonesia and remains cautious on India and the Philippines
Emerging markets are likely to outperform their developed counterparts in a risk on environment because of their higher beta
She is selective in emerging markets because of upcoming elections in some Asian countries and the different stages of the economic cycle in Latin America
She s positive on U S Treasuries after the Federal Reserve pause in rate hikes and amid their safe haven appeal |
JPM | JPMorgan Says 2020 Might Not Be a Year to Think About Recession | Bloomberg The Federal Reserve s change in tone may mean investors should reconsider the timing of the investment cycle according to JPMorgan Chase Co NYSE JPM
That means investors shouldn t be driven by fears of recession for now JP Morgan analysts said
The Fed signaled last week that it s done raising rates for at least a little while and that it ll be flexible in reducing bond holdings The Fed s changes have already been welcomed by equity investors who boosted the S P 500 2 5 percent over three sessions while rates traders have been working to figure out the implications of the newfound caution about shrinking the balance sheet Demand for gold has increased as well
Apart from the immediate implications the Fed s adjustments may warrant changes to JPMorgan s previous outline that investors should consider moving fully to neutral and tilting defensive in the second half of 2019 to reposition for durable challenges in 2020 the firm said
If the Fed is less spooked by full employment more tolerant of an inflation overshoot and less anxious to reach restrictive policy then 2020 might not be a year to think about recession and so late 2019 early 2020 would be premature to position defensively cross asset strategists led by John Normand wrote in a note dated Feb 1
Many global measures of assets are pricing in slower economic growth than the current pace the report said including on risk premiums
Cyclically oriented gauges like the S P 500 European Autos Chinese Equities Topix Emerging Market Equities and MSCI Mining still seem to trade as if global growth were running about a percentage point weaker than its roughly 2 6 current pace the report said
JPMorgan arrived at the figure by regressing annual returns on a PMI index comparing actual to predicted returns and backing out from this risk premium an implied global growth rate
This framework is quite crude in that a single variable like the global PMI explains only about half of the variation in most of these assets returns the strategists wrote But as the signal is consistent with those of other fundamental frameworks we are comfortable asserting that even modest improvements in global growth can push markets higher because there is no evidence of overvaluation |
JPM | U S services sector activity at six month low shutdown blamed | By Lucia Mutikani WASHINGTON Reuters U S services sector activity slowed to a six month low in January as businesses worried about the impact of a partial shutdown of the federal government on the economy Despite showing a second straight monthly moderation in activity the Institute for Supply Management ISM report on Tuesday continued to suggest solid economic growth The five week government shutdown ended on Jan 25 after President Donald Trump and Congress agreed to temporarily fund the government without money for his U S Mexico border wall This was clearly a disappointing non manufacturing reading aggravated by a number of factors one of which was temporary said Jennifer Lee a senior economist at BMO Capital Markets in Toronto We anticipate a retracement of this setback in February but that temporary factor may return to the fore The ISM said its non manufacturing activity index dropped 1 3 points to a reading of 56 7 last month That was the lowest reading since July and marked two straight monthly declines A reading above 50 indicates expansion in the sector which accounts for more than two thirds of U S economic activity The ISM s new orders sub index for the services sector tumbled 5 0 points to a reading of 57 7 last month the lowest since December 2017 Its business activity or production gauge also fell sharply There was also a steep decline in the survey s measure of export orders The survey s services employment measure rose to 57 8 from a reading of 56 6 in December U S financial markets were little moved by the data as traders awaited Trump s State of the Union address due at 9 p m EST 0200 GMT on Wednesday The dollar was up against a basket of currencies while U S Treasury yields fell Stocks on Wall Street were trading higher SHUTDOWN HURTS SENTIMENT According to the ISM respondents were concerned about the impacts of the government shutdown but remain mostly optimistic about overall business conditions Some businesses complained about higher prices because of import tariffs and others said they were struggling with capacity constraints Eleven services industries including transportation and warehousing healthcare and social assistance finance and insurance utilities and public administration reported growth in January That was down from 16 in December and the fewest since August 2016 Seven non manufacturing industries including retail trade educational services and information reported contraction in January The ebb in sentiment was also mirrored by another survey from data firm Markit which showed its services sector PMI falling to a four month low of 54 2 in January from a reading of 54 4 in December
We think that concerns about the government shutdown may have been depressing sentiment said Daniel Silver an economist at JPMorgan NYSE JPM in New York Now that the shutdown is over we think that sentiment could bounce back at least somewhat but this is not guaranteed |
MS | Fairmount Santrol Holdings FMSA Jumps Stock Up 8 9 | Fairmount Santrol Holdings Inc NYSE FMSA was a big mover last session as the company saw its shares rise nearly 9 on the day The company has been upgraded by Morgan Stanley NYSE MS which drove the stock price This also led to far more shares changing hands than in a normal session This continues the recent uptrend of the company as the company is now up almost 42 in the past one month time frame
The company has seen six positive and one negative estimate revision in the last 30 days while its Zacks Consensus Estimate moved higher suggesting more solid trading ahead So make sure to keep an eye on this stock going forward to see if yesterday s jump can turn into more strength down the road Fairmount Santrol Holdings currently carries a Zacks Rank 3 Hold A better ranked stock in the broader Basic Materials sector is Asahi Kasei Corporation OTC AHKSY sporting a Zacks Rank 1 Strong Buy
Is FMSA going up Or down Predict to see what others think or |
MS | Morgan Stanley Bounces Toward Critical 29 30 Area | Morgan Stanley NYSE MS has almost hit the descending triangle target and is bouncing towards the critical 29 30 area |
MS | Sterling Where Do We Go From Here | Our limit to sell at 1 4670 as planned in our May 4th article was filled on May 25th and as of this writing the trade is on a risk free ride though we expect a rebound ahead on the daily uptrend channel that the GBP USD exchange rate is about to encounter
The recent rise in sterling was primarily due to short covering and improved polls on the Brexit referendum where Oddschecker marked that 58 53 votes favor to stay in the EU while 41 47 favor to leave
It seems that President Obama s visit and Bank of England s warning of a systemic downside risk recently dubbed Project Fear by the pro leave campaigners have started to pay off In early May Bank of England warned that the decision to leave EU could cause a sharp slowdown in economic growth leading to recession resulting in job loss for many and a possible skyrocketing inflation BoE indeed has reduced it s growth forecast by 0 2 to 2 for 2016 and 2 3 for 2017 and 2018
The latest imminent threat is from Spain that warned the closing of the border with Gibraltar a land mass viewed as illegal occupation which was captured by the UK in 1704 by Madrid Spain may try to exploit the EU referendum as it said it would no longer have to respect the directives from Brussels on the free movement of capital goods and workers to Gibraltar through it s border if UK leaves the EU
Yesterday UK voters dropped a bomb when suddenly The Guardian ICM polls showed that 52 of voters surveyed want to leave the EU while 48 favored to remain in the economic block The sudden swing change saw the exchange rate dropped by more than 250 pips and US rate hike probability to fall back to 15 as markets doubt that the Fed will hike rates in the midst of all this drama that could lead to a financial market meltdown \
Over to the United States the Fed is more hawkish than expected as minutes of the latest FOMC meeting reveal that the Fed is almost certain to raise the rate for the second time in June if all economic data especially GDP inflation and employment are in order to warrant the hike
Recent GDP reports support the move as the first quarter of 2016 recorded a 0 8 growth higher than 0 5 recorded in the last quarter of 2015 Inflation was 0 1 higher than expected with 0 4 in April versus only 0 1 reported in March
The next report markets look forward to seeing is the NFP report this Friday that expects a meager 3 000 job additions from 160 thousands added last month Though the unemployment rate is expected lower at 4 9 compared to 5 previously
Looking at the latest CoT report sterling saw the biggest short covering with 5 587 shorts reduced bringing the net shorts to about 38 200 contracts
On the institutional side Morgan Stanley NYSE MS has reinstated their short targeting 1 37 leveraging on the Brexit issue SEB of Sweded on the other hand is bullish expecting markets to resume focus on the economy and outlook citing recent inflation and employment data showing no sign of rising costs that warrant a policy tightening this year
In the likely event the UK stays in the EU SEB targets GBP USD at 1 49 by the end of June
Halal Traders holds the short and will continue to move the stop in our favor |
JPM | Will The Earning Season Steal The Spotlight From Trade | Friday s steep declines in Wall Street driven by weak employment report and a war of words between U S China seem to have been shrugged off in Asia trade President Trump s tweets are becoming a little confusing to investors After threatening to impose tariffs on additional 100 billion of Chinese exports Trump tweeted that he will always be friends with President Xi and China will take down its barriers because it is the right thing to do The trade drama will continue to create noise in the coming weeks but it will be interesting to hear from the Chinese President at the Boao Forum on Tuesday where he will likely show his country s readiness to retaliate while indicating a willingness to negotiate
Oil traders will continue eyeing situation in Syria after the Pentagon denied conducting air strikes on an airport in Homs The missile strikes came a couple of hours after Trump warned of a big price to pay in response to the attack on rebel held Douma
While trade tensions and geopolitical risks are likely to keep appetite for risk in check investors will have new information to digest this week particularly earnings from big banks and U S inflation data
Inflation data FOMC Minutes U S Consumer Price Index is expected to increase by 0 1 YoY to 2 3 Meanwhile the core reading is anticipated to hit back the Fed s target of 2 after falling short for the past 11 months The inflation reading along with the FOMC minutes release on Wednesday will probably lead to a repricing of interest rates expectations given any surprise An upside surprise will likely push U S 10 year Treasury yields bonds towards 2 9 having fallen 17 basis points from its February s peak of 2 96
It s the Earnings Season As usual the U S earnings season kicks off with big banks JPMorgan NYSE JPM Citigroup Inc NYSE C and Wells Fargo NYSE WFC will report their Q1 results on Friday According to FactSet the estimated earnings growth for the S P 500 in Q1 is 17 1 marking the highest earnings growth since Q1 2011 More interestingly 26 companies in the Tech sector issued positive Earning Per Share guidance well above the 5 year average of 11 With the S P 500 down 2 6 for the year I think there will be many buying opportunities especially if trade tensions abate The forward 12 month P E ratio at 16 5 looks much more reasonable compared to a year ago
Disclaimer This written visual material is comprised of personal opinions and ideas The content should not be construed as containing any type of investment advice and or a solicitation for any transactions It does not imply an obligation to purchase investment services nor does it guarantee or predict future performance FXTM its affiliates agents directors officers or employees do not guarantee the accuracy validity timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same
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JPM | S P 500 And NASDAQ 100 Analysis April 9 2018 | US equities had another turbulent day on Friday with a deep selloff However yet another tweet from President Trump over the weekend signalling a possible softening in his approach to a trade war with China has been improving sentiment Traders should be aware of a speech by Chinese President Xi Jinping at the Boao Forum on Tuesday in case of comments about the country s readiness to retaliate or possibly negotiate in the trade dispute
This week sees the start of earnings season with JP Morgan Chase NYSE JPM and Citigroup NYSE NYSE C being the first big US corporations reporting on Friday Technology stocks will also be in focus as Facebook NASDAQ FB has suspended another data analytics company called CubeYou pending investigations Moreover Facebook CEO Mark Zuckerberg will testify before Congress on Tuesday and Wednesday with regards to the Cambridge Analytica scandal
S P 500
On the daily chart the S P 500 SPX is trading around the 200MA highlighted in our previous reports The sustained break of this critical support at 2599 opens the way to the February lows at 2530 with more immediate support at 2550 A break of the February lows could lead to deeper declines to 2490 However a bullish reversal and close above the 38 2 retracement and falling resistance trend line at 2640 is needed to change the outlook with further upside resistance at the 50 retracement level of 2675
Nasdaq 100
On the daily chart the Nasdaq 100 NDX has tested but is still trading above the 200MA at 6310 Immediate support is at 6430 and if broken another test of the 200MA at 6310 is possible A decisive break of this critical level would open the door to a test of February lows at 6160 On the flip side a bullish reversal and break of 6630 would lead to further upside resistance at 6740 |
MS | Hotelier IHG sees mid to high single digit percent tax rate cut on U S tax reform | Reuters Hotelier InterContinental Hotels Group IHG L IHG said the new U S tax bill is expected to reduce the group s tax rate by a mid to high single digit percentage point next year from the current rate in the low 30s The operator of brands such as Crowne Plaza Holiday Inn and InterContinental in a brief statement said the measure in the tax bill will result in one off tax credit in the year it is signed into law The Republican controlled U S House of Representatives gave final approval on Wednesday to the biggest overhaul of the U S tax code in 30 years The bill keeps the existing number of tax brackets but adjusts many of the rates and income levels for each The top tax rate for high earners is reduced The United States is the largest market for the hotel group in terms of room numbers and contributed to about 58 percent of company s revenue in 2016 according to their last annual report Morgan Stanley NYSE MS in a client note said that a 5 9 percent tax rate reduction would be equivalent to a 7 13 percent EPS upgrade pushing up its target price on the stock to 46 pounds from 42 pounds Shares in the company which runs over 5 000 hotels in about 100 countries were up 1 2 percent at 0941 GMT |
MS | Bank of Japan board members press for debate on rates ETF purchases | TOKYO Reuters Some Bank of Japan board members have called for a debate about raising interest rates or lowering purchases of exchange traded funds in response to the improving outlook a summary of opinions expressed at last week s policy meeting showed If the outlook for prices and the economy is expected to improve the BOJ will need to consider whether adjustments in the level of interest rates will be necessary one board member said Another board member said the BOJ should examine the policy effects and the possible side effects of ETF purchases from every angle because of rising stock prices and earnings Japan s growth this year has exceeded some economists expectations and its stock markets have rallied due to rising corporate earnings causing some traders to question whether the BOJ should rein in its aggressive monetary easing Consumer spending is doing well supported by rising stock markets The BOJ s policy focus is on interest rates so it is only natural to question its purchases of risk assets said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities The summary of opinions does not identify individual speakers and it is unclear whether a majority of the BOJ s nine person board shares these views Governor Haruhiko Kuroda also said clearly last week that as long as consumer prices remain distant from the BOJ s 2 percent inflation target he does not want to raise rates The BOJ board s comments were published against a background of solid economic growth and robust industrial production
Japan s industrial output rose a more than expected 0 6 percent in November and retail sales rose 2 2 percent in November from a year earlier more than the median forecast for a 1 2 percent increase government data showed on Thursday |
MS | Japan s factories retailers rev up as some central bankers call for debate on rates | By Stanley White TOKYO Reuters Japan s best run of growth in a decade looks set to stretch into 2018 with data on Thursday showing most factories and consumers stepping up a gear giving policymakers more reasons to discuss an end to crisis era stimulus Industrial production marked its first back to back months of increases this year with a 0 6 rise in November following a 0 5 percent gain in October the government said Factories are churning out memory chips for smart phones and semiconductor manufacturing equipment to fill orders from Asia and North America Japan s long cautious consumers are also spending more on electronics cars and fuel numbers showed Retail sales in November increased 2 2 percent from a year earlier better than the 1 2 percent predicted by economists Consumer spending is doing well supported by rising stock markets said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities The Bank of Japan s policy focus is on interest rates so it is only natural to question its purchases of risk assets Manufacturers project output will jump 3 4 percent in December but then drop 4 5 percent in January suggesting some moderation The numbers add to a string of data showing Japan s economy is in its best shape in more than a decade The jobless rate is at a 24 year low exports have risen every month this year business investment is up for four straight quarters and GDP has expanded every quarter for nearly two years Japan s stock market meanwhile has rallied more than 20 percent this year to reach 26 year highs which has also boosted consumer sentiment The surprisingly strong growth in recent months prompted some BOJ board members to raise the prospect of reducing the central bank s massive stimulus a summary of opinions from last week s meeting showed on Thursday Such policies were aimed at jolting Japan out of deflation but some BOJ board members are encouraging debate about raising rates or lowering purchases of exchange traded funds If the outlook for prices and the economy improves the BOJ will need to consider whether adjustments in the level of interest rates will be necessary one board member said Another board member said the BOJ should examine the policy effects and the possible side effects of ETF purchases from every angle because of rising stock prices and earnings The BOJ buys long term government debt to keep 10 year yields around zero and also buys ETFs which are traded on the stock market increasing its holdings by around 6 trillion yen 53 billion a year The summary of opinions does not identify individual speakers and it is unclear whether a majority of the BOJ s nine person board shares these views But it is clear that the economy s strength has spurred debate about when and how to end the central bank s aggressive monetary easing which includes buying massive amounts of government bonds stocks and other assets to keep interest rates low and flood the market with money to spur inflation POLICY CHALLENGES Inflation however remains stubbornly low with the core consumer price index up 0 9 percent in November data this week showed far from the BOJ s target of 2 percent BOJ Governor Haruhiko Kuroda said last week that as long as consumer prices remain distant from the BOJ s 2 percent inflation target he does not want to raise rates When the BOJ first launched its ETF purchases in 2013 it argued such buying of unconventional assets would lower risk premiums and help the economy overcome deflation But some traders argue that the BOJ s ETF purchases artificially push up the prices of underlying shares and that strong stock market gains this year mean these purchases are no longer warranted The economy is doing well but that doesn t make the BOJ s job any easier said Norio Miyagawa senior economist at Mizuho Securities I personally think the BOJ should stop buying ETFs but if they did now stocks would fall the yen would rise and that would actually worsen the economic outlook |
MS | India s Reliance Jio to buy RCom s wireless assets in 3 75 billion deal sources | MUMBAI Reuters Debt laden Reliance Communications has signed a deal to sell its wireless assets to Reliance Jio Infocomm for a total value of nearly 240 billion rupees 3 75 billion two sources familiar with the matter told Reuters on Friday The two companies had announced late on Thursday that Reliance Communications backed by businessman Anil Ambani would sell all its spectrum tower fiber optic and other telecom infrastructure assets to Jio which is owned by Reliance Industries and is controlled by Anil Ambani s elder brother Mukesh Ambani India s richest person They did not give the value of the deal The sale if finalised would mark a big step in Reliance Communication s quest to cut down its debt which had sent its shares to record lows and led creditors such as China Development Bank CDB to start insolvency proceedings over missed payments CDB said earlier on Friday it is in talks with Reliance Communications or RCom as it is called RCom shares rose as much as 29 9 percent on Friday while Reliance Industries rose as much as 0 9 percent The sale would also mark the return of the telecom operations back into the fold of Reliance Industries which forayed into telecoms in 2002 spearheaded by the elder Ambani under the name of Reliance Infocomm Ltd A feud between the two brothers in 2005 led to the split of Reliance Industries with Mukesh Ambani keeping the cash cow oil and gas business and Anil Ambani walking away with telecoms and power But Mukesh Ambani has re entered the telecoms space with the launch of Jio in September 2016 upending the sector with cut price data and free voice service and pushing RCom into a debt spiral RCom has said it is retreating from the consumer telecom space to focus on its enterprise business and on Tuesday announced a new plan to slash its debt pile by 390 billion rupees 6 09 billion without any haircut by the banks leaving it with only around 60 billion rupees in debt Morgan Stanley NYSE MS analysts said the deal would allow Jio to further expand into India s telecom space though it would also add to its debt Acquisition of RCom s telecom infrastructure should bring synergies and lower costs while raising clarity on growth capex The deal could potentially raise balance sheet leverage by 10 12 percent near term Morgan Stanley wrote in a note on Friday Reliance Jio is India s fastest growing telecoms company with a subscriber base of close to 140 million Through the deal Jio gets access to four bands of spectrum and 43 000 telecom towers and a countrywide fiber optic network |
JPM | Britain s banks face funding crunch as Brexit looms | By Lawrence White Iain Withers and Abhinav Ramnarayan LONDON Reuters A funding crunch is squeezing British banks profits and hitting their share prices as the threat of a disorderly Brexit and the end of cheap cash from the Bank of England begin to bite The average cost for British lenders of issuing secured debt has leapt to its highest since just after the 2016 EU referendum JPMorgan NYSE JPM data shows as investors fret that political turmoil could tip the economy into recession Graphic Conversations with bank executives investors and analysts and analysis by Reuters of data on the cost of British banks funding from various channels show lenders under increasing strain as Brexit approaches on March 29 The tough funding market is likely to have the most impact on so called challenger banks which are less able to rely on savers deposits to finance lending This could be tested within months Metro Bank is seen by analysts and investors as likely to need fresh funds after an accounting mistake last week hit capital levels and sent its share price diving Lenders have already been hit by the end of the BoE s 127 billion pound 167 14 billion cheap funding scheme launched after the Brexit vote to support lending to consumers and businesses After years of government and regulatory efforts to promote competition and shake up the banking sector it remains dominated by six huge lenders RBS LON RBS Lloyds LON LLOY Barclays LON BARC HSBC Santander MC SAN and building society Nationwide Below them challengers like Metro Bank and Virgin Money LON VM recently acquired by Clydesdale Bank owner CYBG and specialists such as OneSavings Bank have taken advantage of cheap funding since the 2008 crisis to grow The end of the BoE scheme last February is forcing those banks into new forms of funding such as issuing debt secured against assets or trying to attract more deposits from savers Because those tend to be more expensive banks could face a hit to earnings of between 10 and 20 percent analysts at KBW said and by up to 40 percent for CYBG CYBG shares fell 17 percent on Nov 20 when it signaled its profit margins would shrink in 2019 CYBG declined to comment The cost of funding is crucial for banks which make money by lending at higher rates than they pay to borrow A spiral in funding costs as credit markets seized up accelerated the 2008 financial crisis and while banks are in better condition now a cost spike could put pressure on their business models The central bank has recently begun asking more pointed questions about funding costs during regular conference calls with the banks bank executives told Reuters The BoE did not respond to a request for comment but has previously said Britain s banking system is robust enough to cope with a disruptive Brexit One bank executive said they believed funding pressure may force some challengers to pull back from the mortgage market pointing to a recent move by Secure Trust to stop writing new loans until market conditions improve Paul Lynam chief executive of Secure Trust said the move was not driven by funding costs and was instead a response to tightening margins in the competitive home loans market RISING CONCERN Metro Bank offered an example of the potential for concerns about the challenger banks to boil over when its shares fell 37 percent after it disclosed the hefty hit to its capital levels A bond Metro Bank issued last year is trading at about 80 percent of face value suggesting investors fear a potential restructuring of the lender s debts that could see them lose money Metro Bank declined to comment Broader concerns about funding costs and Brexit are reflected in bond prices with investors demanding a premium for British lenders debt over German and French peers For example Barclays September 2023 euro bond was trading on Tuesday at a yield of 1 85 percent some 56 basis points more than Deutsche Bank s August 2023 issue despite the latter s well publicised woes We are quite cautious on British bank bonds especially given that they are much more focused on mortgages It is unclear what the outcome of the current Brexit discussions will be which has implications for the UK economy said Arnaud Guilhem Lamy fixed income portfolio manager at BNP Paribas PA BNPP Asset Management If top names like Barclays and HSBC are finding it costly to borrow smaller banks will have to pay even more bankers who work on such deals said POISED TO ACT Increased costs have already started to hit some lenders specializing in higher risk mortgages Alex Maddox digital and capital markets director at Kensington Mortgages said it had raised money late last year to preempt an anticipated funding squeeze caused by Brexit concerns regulators demands for higher capital levels and lenders refinancing the BoE s loans They ve all come to a head at the same time so there have been a few lenders that have been caught out by that he said We re wholesale funded only It definitely got more expensive throughout last year We did our first deal at 0 65 percentage points over Libor and by the end of the year it was 0 95 over Libor It s gone up since then it s probably at 1 15 now Some analysts believe the central bank would offer more cheap funding if a no deal Brexit caused market conditions to worsen further The BoE stands ready to act potentially even via a new version of the TFS Term Funding Scheme This is not my base case scenario but should the need arise the BoE will intervene said Filippo Alloatti senior analyst at fund manager Hermes Investment Management
1 0 7598 pounds |
JPM | The Fed maintains fed funds rate at 2 25 2 50 | The Federal Open Markets Committee keeps the federal funds rate at 2 25 2 50 as had been widely expected Introduces patient into its monetary policy statement U S stock averages move up Dow 1 4 Nasdaq 1 5 and S P 500 1 1 10 year Treasury price rises and the yield which had been as high as 2 734 before the announcement falls to 2 708 TLT 0 3 TBT 0 6 In light of global economic and financial developments and muted inflation pressures the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes it says Many economists interpret the FOMC members recent comments on patience to mean that the fed funds rate will stay where it is until at least June Just as important the statement removes language that further gradual rate increases would be consistent with continued economic growth The FOMC still sees sustained economic expansion inflation near its 2 objective and strong labor market conditions as the most likely outcomes Last year the Fed increased the federal funds rate four times with the last 25 basis point hike bringing the rate to 2 25 2 50 on Dec 19 2018 It s raised interest rates nine times in all since late 2015 Previously JPMorgan NYSE JPM sees Fed allowing 1T of excess reserves Jan 30 ETFs IEF PST IEI VGIT UST DTYS TYO GSY SCHR TBX TYD ITE DTYL HYDD DFVL TYNS DFVS |
JPM | JPMorgan CEO No problem paying higher taxes if used properly | Reuters JPMorgan Chase NYSE JPM Chief Executive Officer Jamie Dimon who leads one of Wall Street s biggest banks said on Wednesday that the ultra rich could afford to pay more taxes as a wider political debate rages over increasing taxes for the wealthy I believe that individuals earning the most can afford to pay more and I have no problem paying higher taxes to address some of the fundamental challenges and inequities in our society Dimon said in a statement emailed by JPMorgan in response to questions posed by reporters over the past week However we need to ensure that our tax dollars are going where they can be most effective like expanding the earned income tax credit and other programs that support the people and communities who really need it Dimon added Dimon s remarks come as senior Democrats prepare to write a fiscal blueprint this year that would cut annual budget deficits and possibly include tax hikes on corporations and the wealthy U S Representative Alexandria Ocasio Cortez part of a new crop of Democrats that swept into office this year on a stronger liberal platform has advocated taxes as high as 70 percent on taxable earnings above 10 million That represents a large increase over the current 37 percent which kicks in at 500 000 for a single earner Meanwhile Massachusetts Senator Elizabeth Warren another Democrat and liberal firebrand who has taken on Wall Street has proposed a tax on the accumulated wealth of the ultra rich through an annual payment of 2 percent of the value of net assets between 50 million and 1 billion and a 3 percent rate above that
Dimon received 31 million in total pay for 2018 according to a regulatory filing by JPMorgan |
JPM | U S weekly jobless claims jump to near one and a half year high | By Lucia Mutikani WASHINGTON Reuters The number of Americans filing applications for unemployment benefits surged to near a 1 1 2 year high last week but economists dismissed the jump as a fluke and said temporary factors including a partial government shutdown were to blame A strike by teachers in California cold weather and difficulties adjusting the data around moving holidays like Martin Luther King Jr Day also likely were factors in the spurt in claims reported by the Labor Department on Thursday We are skeptical the rise could reflect a true weakening in the labor market given that there are few other signs of weaker labor markets in January said John Ryding chief economist at RDQ Economic in New York Nonetheless if we maintain this higher level of jobless claims in the coming weeks that would indicate a pickup in layoff activity Initial claims for state unemployment benefits jumped 53 000 to a seasonally adjusted 253 000 for the week ended Jan 26 the highest level since September 2017 the Labor Department said The rise was also the largest since September 2017 Claims dropped to 200 000 in the prior week which was the lowest level since October 1969 Economists polled by Reuters had forecast claims rising to only 215 000 in the latest week The claims data covered the Martin Luther King Jr holiday which occurred later this year than in the past Economists believe non federal government workers who were temporarily unemployed during the longest government shutdown in the country s history likely helped to boost claims last week The surge in claims came amid a recent deterioration in business and consumer confidence which was partly blamed on a five week government shutdown that has since ended The Federal Reserve on Wednesday kept interest rates steady but said it would be patient in lifting borrowing costs further this year in a nod to growing uncertainty over the economy s outlook The U S central bank removed language from its December policy statement that risks to the outlook were roughly balanced The four week moving average of initial claims considered a better measure of labor market trends as it irons out week to week volatility rose 5 000 to 220 250 last week The claims data has no bearing on January s employment report which is scheduled for release on Friday as it falls outside the survey period According to a Reuters survey of economists non farm payrolls likely increased by 165 000 jobs in January after jumping by 312 000 in December The 35 day government shutdown is not expected to have an impact on January s job growth as workers who were furloughed will be paid retroactively together with colleagues who worked without pay However those workers who stayed at home during the shutdown are expected to temporarily push up the unemployment rate in January The dollar fell against most major currencies dropping to a two week low versus the yen pressured by the Fed s cautious economic outlook U S Treasury yields fell while stocks on Wall Street were trading mostly higher STEADY WAGE GAINS Underscoring the labor market s strength another report on Thursday from the Labor Department showed its Employment Cost Index the broadest measure of labor costs increased 0 7 percent in the fourth quarter after rising 0 8 percent in the July September period The fourth quarter rise lifted the year on year rate of increase in labor costs to 2 9 percent the biggest gain since June 2008 from 2 8 percent in the 12 months through September Wages and salaries which account for 70 percent of employment costs rose 0 6 percent in the fourth quarter after advancing 0 9 percent in the prior period They were up 3 1 percent in the 12 months through December That was the biggest increase since June 2008 and followed a 2 9 percent gain in the year through September It supports our view that the tightness in the labor market is generating upward pressure on compensation said Daniel Silver an economist at JPMorgan NYSE JPM in New York While the labor market is on solid footing manufacturing appears to be slowing A third report on Thursday showed the MNI Chicago business barometer dropped 7 1 points to a reading of 56 7 in January as new orders tumbled to a two year low The survey s measure of production dropped to a 10 month low There was some good news on the housing market The Commerce Department reported new home sales vaulted 16 9 percent in November to a seasonally adjusted annual rate of 657 000 units The surge erased October s 8 3 percent plunge in single family home sales The November home sales report was delayed by the government shutdown which affected the Commerce Department The housing market struggled in 2018 weighed down by acute shortages of homes for sales which boosted prices as well as higher mortgage rates But there are glimmers of hope as house price inflation has slowed significantly and mortgage rates have eased after shooting up last year Supply however still remains tight
We expect a further rise in new home sales during 2019 as homebuyers look to new builds with inventory conditions for existing homes still extremely tight said Ben Ayers senior economist at Nationwide in Columbus Ohio |
MS | Markets Choppy As Dollar Consolidates | The dollar may be a touch weaker this morning but given how expectations have risen for a June rate hike albeit at a 28 probability according to sovereign debt markets we may simply be in a consolidation pattern before the next leg up
CFTC data would imply that the cutting of dollar shorts means that Fed members are marginally succeeding with hawkish comments
This renewed dollar bullishness seems to forget that the Presidential election will be upon us in a mere 6 months and you d have to question whether a Trump Tantrum should be priced in a little better
Still the FOMC seem determined to get the market in a zone that is better prepared for a hike May employment numbers will now bear even greater importance than before Even a number around 150 000 would likely satisfy the conditions needed
We will perhaps get more clarity when FOMC member Bullard an actual voting member speaks in Beijing later this morning
The G7 meeting over the weekend was in the main a discussion about Japanese intervention in the FX market The US is of the view that the recent gyrations in the yen do not warrant intervention and the BoJ deputy governor is having to defend the implementation of NIRP a tool that has done very little to hold back yen strength and if anything has had the opposite effect
Despite quashing fears of a recession with a surprise Q1 GDP beat the story remains the same more private investment is needed
Customs figures released this morning show Japan posted a trade surplus of 823 billion yen 9 1 billion in April compared with a deficit of 58 3 billion yen a year earlier
Given that yen strength has only served to exaggerate the decline in exports shipments also fell in volume terms Last month s PMI data falling to 47 6 would indicate that exports may continue this soft trend
USD JPY remains below the 110 marker
Oil prices are a touch weaker this morning as are gold prices One could say that both are at the mercy of the stronger greenback but the firmer global supply in the case of oil is also a key factor
All eyes are firmly on European PMIs today which have so far managed to beat expectations with the notable exception of French manufacturing which came in at 48 3 against the consensus for 49 0
Germany s private companies are more encouraging the composite index rose to 54 7 for May from 53 6 in April better than what was expected
EUR USD is finding buyers at the 1 1180 level and retains the overall uptrend from the mid March lows for the time being Any declines through the 1 1150 level would indicate that the monetary divergence trade is actually beginning to work
Any indications that the ECB is ready to up the ante in terms of the assets purchased as well as perhaps being more creative in respect of the variety of assets could well be the catalyst needed to push the single currency lower This coupled with higher oil prices could stall any recent concerns regarding deflation
Wage growth or the lack thereof is still one of the negative omens for Eurozone growth
While equity markets in Europe may have started the morning underwater the miss in the European Composite PMI seems to have reversed some of the early losses The potential for a weaker euro is likely helping proceedings here
Despite softness in Bayer AG DE BAYGN the Dax has managed to scrape some 0 4 upside The 62bn all cash offer for Monsanto NYSE MON is certainly one of the biggest in German history Bayer s share price has been under pressure all week
The FTSE is fairly flat with Royal Mail LON RMG leading the gainers after a surprise upgrade from RBC Meanwhile Inmarsat LON ISA is lagging down 2 91 owing to a downgrade from Morgan Stanley NYSE MS
Depending on where you look the Remain camp seems to be ahead in the polls this week One would question if this will be different next week the to and fro of the arguments for and against are beginning to heat up and one could say there are issues in both camps when it comes to credibility and factuality
The pound seems fairly well entrenched above the 1 45 level but with a slew of data due this week in respect to the UK economy we cannot rule out some serious choppiness in the FX space over the coming days |
MS | Weakness Envelopes Crude Oil | Long Term Damage
Oil prices are struggling on short term fundamentals but we continue to get a disturbing outlook for our long term energy future Weakness enveloped crude oil driving it down for the fourth day in a row on reports of oil disruptions getting back on line Yet a report from Rystad Energy says that global oil discoveries fell to the lowest level in 63 years as oil companies slashed spending on oil exploration by the most in history
According to a report by Rystad Energy as reported by Bloomberg News and Morgan Stanley NYSE MS oil discoveries fell to the lowest level since 1952 The report said that only 12 1 billion barrels of oil reserves were found in 2015 more than three quarters of which were in the U S The report citied drilling capital expenditure cuts on searching for new oil to about 95 billion last year down 45 percent from 2013 The impact of today s lack of discovery will be felt for decades as it takes 5 to 10 year to bring discoveries online It takes a lot longer if you haven t even discovered it yet
Oil prices were weak on reports that Canada s oil sands producers re entered evacuated sites raising hope that we will see oil sands production restart in Alberta Yet as far as inventory damage in the U S we may be just starting to see the impact Oil prices recovered after private forecasters saw oil inventories drop of 978 862 barrels in Cushing Oklahoma The oil sands production losses will weigh on U S inventories for at least the next couple of weeks We should see supply fall by 3 0 million barrels in today s API report
We also had pressure on crude oil from reports that Libya s oil production hit 300 000 barrels per day bpd after the re opening of the Marsa al Hariga export terminal in the east of the country late last week a spokesman for the Tripoli based National Oil Corporation NOC said on Monday
Yet we are seeing signs that Iraq s output has peaked It was reported that crude exports from Iraq s southern oil fields have fallen by more than 200 000 barrels per day bpd to around 3 15 million barrels so far in May according to an industry source and loading data That followed the previous month s near record of 3 36 million bpd
Despite near term weakness oil prices rebounded from the lows and have been very impressive We still believe that this market is consolidating for another leg higher Oil demand is surging around the globe The oil market has had to fight the Fed and the dollar but I think that trade may have run its course New polls are showing that it looks like the Brits will vote to stay in the Eurozone which would raise demand expectations Look to buy breaks and also look to the back end of the curve
Natural Gas is the biggest bargain on the board If we get a hot summer look out While short term heat forecasts moderated longer term we believe that natural gas prices could surprise The Wall Street Journal reported that the summer months often bring higher demand for gas fired power to run air conditioners which had helped push prices to a 10 day high in early trading But Monday s midday weather forecasts showed cooler temperatures in the southeast than the overnight updates showed and that weakens demand expectations in the biggest region for gas fired power said Zane Curry a gas analyst at Mobius Risk Group in Houston The gas market may need an extreme amount of heat to drive enough demand for air conditioning and gas fired power to burn off a glut left over from winter analysts have said Storage levels as of May 13 hit 2 8 trillion cubic feet 40 above levels from a year ago and 41 above the five year average for the same week
Storage inventory is still extremely bloated Mr Curry said So any time the market sees cool below normal temperatures in the southern tier of the country then you re going to have a tendency to push prices back to the bottom of the trading range
Overnight weather updates have shown the beginning of summer like weather in large parts of the country Futures jumped as soon as electronic markets opened Sunday evening often a sign gas traders are reacting to weather updates MDA Weather Services in Maryland forecast highs of 70 degrees Fahrenheit from Chicago to New York throughout this week and into early next week and 80 degree highs in Dallas and Houston High temperatures in Chicago and New York will at times be more than 10 degrees above normal and feeds an increase in national energy demand according to MDA and Commodity Weather Group
We haven t had a hot summer in a few years but if we do get one people might be shocked about how much gas we use in the summer said Phil Flynn senior market analyst at the Price Futures Group in Chicago Natural gas is looking more and more like it s hit bottom |
C | Vietnam Growth Forecasts Upgraded After Quarterly GDP Exceeds 7 | Bloomberg Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars Sign up here
Economists are upgrading their growth projections for Vietnam after data this weekend showed the economy surged more than 7 in the third quarter
Citigroup Inc NYSE C revised its full year forecast to 6 9 from 6 7 previously on the basis of another solid performance in the fourth quarter Analysts at Maybank Kim Eng Research Ltd now see 7 growth for the year versus a prior call of 6 8
Solid exports and manufacturing growth underpinned the third quarter gain of 7 31 flouting a regional slowdown triggered by U S China and Japan South Korea trade tensions and waning global demand The expansion was the fastest pace since the start of last year and reflects growing foreign investment into Vietnam as businesses shift production from China to bypass higher tariffs
Rising foreign direct investment and buoyant domestic demand as suggested by the recent robust retail sales growth will keep the momentum going through year end and in early 2020 Maybank economists Linda Liu and Chua Hak Bin said in a research note |
C | Dollar powers to 29 month high bonds turn choppy | By Marc Jones LONDON Reuters The dollar climbed to a 29 month high on Tuesday as a blizzard of soft global data left the U S economy as the only one still looking reasonably healthy European stocks EU and the euro FRX both suffered shaky mornings after euro zone manufacturing data showed the sharpest contraction in almost seven years Australia s dollar tumbled after its central bank cut interest rates in its trade war hit economy for the third time this year That dragged the neighboring New Zealand dollar to a four year low Emerging markets were also in the firing line The South African Turkish Russian Indian and Mexican currencies fell 0 3 to 0 8 as the dollar charged to May 2017 highs DXY N EMRG FRX On we go with the dollar said Societe Generale PA SOGN strategist Kit Juckes It is the pick of the major economies and I don t think anything is going to change for the dollar until the economy slows And if you are sensitive to global trade and sensitive to manufacturing you are having a very tough time at the moment there is no doubt about it The dollar s advance did slow before U S trading and manufacturing data but economic surprise indices published by Citigroup NYSE C underscored just why it was looking so good The U S version is currency at its highest in nearly two years while Europe s has fallen to a 2019 low BUMPY BOND MARKETS Wall Street which is up almost 20 this year looked set for another positive start N but bond markets were grumbling again A weak auction of Japanese government debt after news the Bank of Japan will scale back some of its bond buying this month underscored the lack of enthusiasm for the negative interest rates that more and more countries seem to be heading for That fed across to higher bond yields in major markets with 10 year German French and Spanish and U S Treasury yields all up 2 to 4 basis points GVD EUR British government bonds also sold off as Prime Minister Boris Johnson pitched new proposals for an amended Brexit agreement that would remove the contested insurance policy for the Irish border We had reached extreme lows for bond yields in August but now the central banks have delivered the easing markets were expecting I think we needed this correction said Pooja Kumra a European rates strategist at TD Securities HOT CHIPS In Asia the world s largest contract chipmaker TSMC TW 2330 of Taiwan jumped 2 9 to a record high MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS rose 0 23 Japan s Nikkei N225 gained 0 6 despite a six year low in big business confidence Australia s benchmark AXJO rose 0 8 some of that after the central bank s rate cut White House trade adviser Peter Navarro dismissed reports on Monday that President Donald Trump s administration was considering delisting Chinese companies from U S stock exchanges as fake news China and the United States are due to resume trade talks next week in Washington Whether it was a fake news or not it is becoming harder to know exactly what the U S administration will be doing said Takashi Hiroki chief strategist at Monex Securities The World Trade Organization cut its forecast for growth in global trade this year by more than half on Tuesday and said further rounds of tariffs and retaliation a slowing economy and a disorderly Brexit could squeeze it even more Back in the currency market the euro reached 1 09 after trading as low as 1 0877 EUR near a two and a half year low The yen spent most of the day around 108 25 yen to the dollar not far from last month s low of 108 48 Gold also fell to a two month low as the stronger dollar took its toll on metals markets It was last trading at 1 468 per ounce Oil prices rebounded after data showed production at the world s largest oil producers fell in the third quarter It also came after an 8 drop over the past few months U S West Texas Intermediate WTI crude CLc1 rose 0 6 to 54 39 per barrel after falling 3 3 on Monday Brent LCOc1 was up 0 8 at 59 70 a barrel
Any rallies though are likely to be met with plenty of sellers as a slowing global economy and the recovery of Saudi production outweigh any Middle East risk factors for now said Jeffrey Halley a senior market analyst for Asia Pacific at OANDA in Singapore |
C | King dollar reigns supreme as U S outshines the euro area | By Saikat Chatterjee and Tommy Wilkes
LONDON Reuters The dollar surged to a 29 month high against a basket of rival currencies on Tuesday while pummeling the euro to its weakest since May 2017
While the U S currency has been in favor for several years thanks to its relatively high interest rate and a strong economy the ongoing trade war with China and a scramble for funding in U S money markets has added fuel to the fire
The list of reasons for the dollar s strength won t make for easy reading for U S President Donald Trump who has frequently accused other countries of manipulating their currencies and called for a weaker dollar
Below are a series of charts explaining just why the U S currency DXY EUR EBS is so strong
HOW WELL IS THE DOLLAR DOING
The dollar s outperformance is particularly broad with an index compiled by Commerzbank DE CBKG showing that measured against a swathe of rival currencies it has risen more than 3 5 since July 1
The euro has not declined as much given it has held up well against a weakening yuan China is one of the euro zone s biggest trading partners but the sheer size of the dollar s rally has left the single currency down 0 5 over a similar period
USD EUR indexes
The dollar has gained almost regardless of what has happened with U S China trade negotiations which have emerged as a principal determinant of market sentiment under Trump
When talks with Beijing have broken down investors have piled into the dollar looking for a safe haven thanks to its deep liquid markets
Yet when a truce in the trade war has seemed within reach traders have also bought the greenback anticipating an economic boost from any trade deal
SENTIMENTS DIVERGE
The relative outperformance of the U S economy has been a significant driver for dollar strength in the last two years but it is signs of a deepening downturn in the euro zone that have played a major role recently
According to Citigroup NYSE C the gap between the euro zone and the United States on an economic surprise index has risen sharply Europe is now underperforming by a bigger margin than at any time since late 2017
That corresponds with a move lower in the euro from around 1 20 to below 1 09 The euro hit a low of 1 03 in January 2017
Euro zone manufacturing surveys last week were the most recent to miss expectations although so have some in the United States and a Reuters story on Monday on German economic institutes preparing to slash German economic growth forecasts again sent the euro hurtling lower
GRAPHIC CESI and EURUSD
MONEY MARKET PRESSURES
Ructions last month in the U S repo market a market for short term funding may also explain why dollars are so in demand
Interest rates in the 2 2 trillion market for repurchase agreements rose as high as 10 on Sept 17 as demand for overnight cash from companies banks and other borrowers exceeded supply
GRAPHIC US overnight repo and libor OIS spread
Banks and investors called it the most serious disturbance in the U S money markets since the 2008 2009 financial crisis
While the jury is out on the significance of the spike in repo rates concerns about a shortage of short dated dollar denominated funding have increased
Demand for offshore dollars has also grown sharply according to cross currency basis swaps an agreement in which one counterparty borrows one currency from another institution and lends the same value in a different currency
GRAPHIC Money market pressures and DXY
RATE EXPECTATIONS
And then there is the relatively high yield investors earn on U S government bonds versus those in the euro zone
While the Federal Reserve has launched a rate cutting cycle this year so has the European Central Bank and expectations are that U S rates will remain far higher than other developed markets for the foreseeable future
Money markets on balance expect a 25 basis point rate cut to the current Fed rate of 2 in October but that would still leave rates far above the 0 6 of the euro zone
Overnight index swaps in the United States all yield more than 1 5 out to a 1 year maturity
GRAPHIC Money market expectations |
C | London forex trader sues Citigroup over malicious forex prosecution | By Kirstin Ridley
LONDON Reuters A London based former Citigroup N C trader is suing the U S bank for more than 112 million alleging it made materially false and malicious statements to U S prosecutors that led to his trial in New York on foreign exchange rigging charges
Rohan Ramchandani the former European head of Citigroup s forex spot market trading desk alleges in a lawsuit filed on Wednesday that Citigroup made false and gravely derogatory assertions against him to government investigators and the media after firing him in 2014 without cause
Ultimately Citi quite literally fabricated an antitrust case for the United States Department of Justice against Ramchandani based upon knowingly false allegations that he engaged in market manipulation and collusion read the complaint filed in the federal court in Manhattan
A spokeswoman for Citigroup in London said the bank rejected the allegations and would fight the case
Mr Ramchandani s claims of malicious prosecution are without merit and we will contest them vigorously she said
A New York jury last year cleared Ramchandani alongside two other London based currency traders of scheming to rig benchmark exchange rates in the 5 3 trillion per day foreign exchange markets after just hours of deliberation
The verdict was a blow for U S authorities which alongside Britain s Financial Conduct Authority FCA had fined some of the world s most powerful banks including Citigroup a total of around 10 billion over the foreign exchange scandal
The UK Serious Fraud Office SFO abandoned its own criminal investigation into currency rigging allegations in 2016 saying it lacked sufficient evidence for a successful prosecution
Ramchandani alleges that a Citigroup lawyer who is not named in the filings but who he said had full knowledge of the facts had recognized that he had not engaged in intentional wrongful conduct or violated any law or regulation
He also alleges his manager at Citigroup an experienced forex spot market trader tasked with reviewing and evaluating Ramchandani s communications had volunteered that Ramchandani had not engaged in collusion or price fixing and there was nothing criminal in his intent or actions
Citigroup only pleaded guilty in May 2015 to conspiring to manipulate currencies in order to pin the blame on Ramchandani and to limit the regulatory consequences for their senior managers and officers the former trader alleged
Ramchandani alleged that although he had been acquitted Citigroup s conduct had cost him tens of millions of dollars damaged his reputation and ended his successful and well paid professional career
He is demanding a trial by jury |
C | Bull Run in Global Equities Is Old But Not Dead Citigroup Says | Bloomberg The global rout in equities that kicked off October hasn t dissuaded Citigroup Inc NYSE C strategists from their optimistic view of the market
The bull run in stocks that began a decade ago isn t over Robert Buckland Citigroup s chief global equity strategist wrote in an Oct 2 note Citi forecasts a 9 gain in global equities by the end of 2020 albeit with dips along the way
Stocks worldwide tumbled in the first two days of the month as unexpectedly poor data on U S manufacturing and payrolls stoked worries about economic growth Citi sees a global recession as the biggest threat to its positive view
It is too early to call the end of this 10 year global bull market although the risks remain considerable Citi wrote in a note Our market targets suggest that U S equities will continue to lead the way
Global equities have had a stellar run in the past decade with the MSCI All Country World Index nearly tripling from a low in March 2009 While the recent string of bad data is threatening stocks best annual gains since 2017 Citi expects central banks to continue supporting risk assets in 2020 by easing policy in response to slowing economies and low inflation
Citi endorses U S equities while it s underweight on emerging market shares as earnings growth is weakening U K stocks among the worst performers in Europe this year are its preferred value trade Within sectors information technology and health care stocks are favored while financials are an underweight despite tempting valuations |
C | Oil Prices Head Higher as Jobs Data Brightens Demand Picture | Investing com Oil prices jumped around 40c after the U S government s monthly labor market report cast a slightly more favorable light on the state of the economy than a succession of dire business surveys earlier in the week
By 9 25 AM ET 1325 GMT West Texas Intermediate blend futures were at 52 98 a barrel up from 52 60 directly before the news That s a rise of 1 0 from late Thursday s levels but is down a little after spiking to 53 30
The international benchmark Brent was at 58 47 up 1 4 on the day
The labor market report showed that the U S economy had created more jobs than thought in August and that while hiring slowed in September it didn t fall off a cliff as some had expected after reading business surveys from the Institute of Supply Management this week
The ISM s manufacturing purchasing managers index fell to a 10 year low while its non manufacturing PMI fell to the lowest in three years
The bounce is taking the edge off what had promised to be one of the worst weeks of the year for crude in which the easing of geopolitical risks in the Middle East had combined with a weakening demand picture to provoke fears of a new glut
Some however think that a premium on supply risks is still warranted
Oil markets are focusing on severe macro risks but are also shrugging off the most heightened geopolitical risk in years newswires cited Citigroup NYSE C analysts including Ed Morse as saying in a report As markets shed just about any consideration of supply risk attention stays focused on what is nearly universally expected to be a significantly weaker year of demand growth
Earlier Friday Nigeria s Minister of State for Petroleum Resources Timipre Sylva had told Bloomberg TV that the so called OPEC group would look at making additional output cuts to keep the market in balance if necessary
Everybody agrees in OPEC that we need to stabilize the market We cannot allow prices just to plummet Sylva said
Elsewhere gasoline futures rose 1 6 to 1 5808 a gallon while Natural Gas Futures futures fell 2 2 to 2 28 per 10 000 MM Btu |
C | Oil Recovers on U S Jobs Report Brent Still Has Worst Week Since July | By Barani Krishnan
Investing com Crude prices steadied on Friday but still finished with big weekly losses after a decent U S jobs report helped staunch the market s bleeding over the past eight sessions without covering the gaping hole left by oil bears
U S West Texas Intermediate crude settled up 36 cents or 0 7 at 52 81 per barrel after the Labor Department reported a Nonfarm Payrolls growth of 136 000 in September which helped lower the unemployment rate to a 50 year low
U K Brent oil settled up 66 cents or 1 1 at 58 37
For the week though WTI was down 5 5 its largest drop in three weeks
Brent was down 5 7 on the week its most since mid July
In just two weeks oil s fortunes have been dramatically turned on its head A market that seemed poised for WTI in the high 60s and 70 for Brent in the aftermath of the Sept 14 attack on Saudi Arabian oil facilities is now back to the pre attack lows
Analysts attributed the shifting sentiment to renewed worries about a global recession and prospects for a continued drag in the U S China trade war although White House economic adviser Larry Kudlow said on Friday that the two countries would resume negotiations next week
A core group of speculative traders is always long oil holding positions on higher prices since banks and hedge funds need to hedge Their current positioning suggests they have been paralyzed and neutral since June New York based Energy Intelligence said in a note
Some however think that a premium on supply risks is still warranted
Oil markets are focusing on severe macro risks but are also shrugging off the most heightened geopolitical risk in years newswires cited Citigroup NYSE C analysts including Ed Morse as saying in a report As markets shed just about any consideration of supply risk attention stays focused on what is nearly universally expected to be a significantly weaker year of demand growth
Earlier Friday Nigeria s Minister of State for Petroleum Resources Timipre Sylva told Bloomberg TV that the so called OPEC group would look at making additional output cuts to keep the market in balance if necessary
Everybody agrees in OPEC that we need to stabilize the market We cannot allow prices just to plummet Sylva said |
JPM | Book Closes On 2017 GDP Q4 2 9 | Wednesday March 28 2018Today saw the second revision third take on Q4 Gross Domestic Product GDP among the most important metrics to follow regarding economic growth Expectations for Q4 were to have seen a 20 basis point rise from the previous read s 2 5 but the results were even stronger 2 9 for Q4 GDP very nearly marking the third straight quarter of 3 growth Overall Q4 slowed down a bit from Q3 in terms of real Gross Domestic Income GDI a gauge of wage growth in relation to overall economic growth we saw a Q4 rise of 0 9 as compared to the previous quarter s 2 4 Averaged out between both GDP and GDI reads Q4 reached 1 9 and Q3 was 2 8 Real GDP for full year 2017 arrived at 2 3 with no further coming revisions to last year s numbers Recall Q1 2017 started off slowly its initial GDP read was sub 1 though revisions moved this higher over time but picked up steam in a big way in Q2 and Q3 Even with a slight pullback to 2 9 in Q4 Q3 s final read was 3 2 economic growth is on a good trajectory Combine this chain of three strong quarters in a row with new corporate taxes having been slashed and Q1 prospects look pretty solid The first report on Q1 GDP is expected April 27 2018 That said there is always a matter of seasonal slow down associated with the first quarter of a new year Most notably among estimates from various Federal Reserve entities around the country was in the Atlanta Fed reads which had recently been ratcheted down to 1 9 What s notable about this is that Atlanta s previous forecast was for an eye popping 5 4 growth in Q1 This was an outlier at the time and has now become one of the more conservative outlooks a month from the initial look Elsewhere in GDP data Consumption rose to 4 0 from 3 8 in the last previous read the Price Index reached 2 3 and Personal Consumption Expenditures were exactly in line with the prior look of 1 9 Wholesale Inventories were up a bit to 1 1 indicating incremental increases in production Q1 earnings season will be here before the first read on Q1 GDP so the robust expectations for publicly traded companies will have manifested before the next GDP results are released Expectations for Q1 are very good although with a higher bar set it remains to be seen whether a majority of the S P 500 will be able to outperform Tax cuts are currently being baked into estimates but this is new territory The calendar end to Q1 is tomorrow which is shortened by a day for the Good Friday holiday We expect earnings results from the bank majors like J P Morgan NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC If you re looking to get ahead of the curve read Zacks Director of Research Sheraz Mian s latest Earnings Trends report Mark VickerySenior Editor5 Medical Stocks to Buy NowZacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia AIDS muscular dystrophy hemophilia and other conditions New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline Early investors could realize exceptional profits |
JPM | What To Expect From Q1 GDP | Today saw the second revision third take on Q4 Gross Domestic Product GDP among the most important metrics to follow regarding economic growth Expectations for Q4 were to have seen a 20 basis point rise from the previous read s 2 5 but the results were even stronger 2 9 for Q4 GDP very nearly marking the third straight quarter of 3 growth Overall Q4 slowed down a bit from Q3 in terms of real Gross Domestic Income GDI a gauge of wage growth in relation to overall economic growth we saw a Q4 rise of 0 9 as compared to the previous quarter s 2 4 Averaged out between both GDP and GDI reads Q4 reached 1 9 and Q3 was 2 8 Real GDP for full year 2017 arrived at 2 3 with no further coming revisions to last year s numbers Recall Q1 2017 started off slowly its initial GDP read was sub 1 though revisions moved this higher over time but picked up steam in a big way in Q2 and Q3 Even with a slight pullback to 2 9 in Q4 Q3 s final read was 3 2 economic growth is on a good trajectory Combine this chain of three strong quarters in a row with new corporate taxes having been slashed and Q1 prospects look pretty solid The first report on Q1 GDP is expected April 27 2018 That said there is always a matter of seasonal slow down associated with the first quarter of a new year Most notably among estimates from various Federal Reserve entities around the country was in the Atlanta Fed reads which had recently been ratcheted down to 1 9 What s notable about this is that Atlanta s previous forecast was for an eye popping 5 4 growth in Q1 This was an outlier at the time and has now become one of the more conservative outlooks a month from the initial look Elsewhere in GDP data Consumption rose to 4 0 from 3 8 in the last previous read the Price Index reached 2 3 and Personal Consumption Expenditures were exactly in line with the prior look of 1 9 Wholesale Inventories were up a bit to 1 1 indicating incremental increases in production Q1 earnings season will be here before the first read on Q1 GDP so the robust expectations for publicly traded companies will have manifested before the next GDP results are released Expectations for Q1 are very good although with a higher bar set it remains to be seen whether a majority of the S P 500 will be able to outperform Tax cuts are currently being baked into estimates but this is new territory The calendar end to Q1 is tomorrow which is shortened by a day for the Good Friday holiday We expect earnings results from the bank majors like J P Morgan NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC If you re looking to get ahead of the curve read Zacks Director of Research Sheraz Mian s latest Earnings Trends report |
JPM | Zacks Earnings Trends Highlights JPMorgan | For Immediate ReleaseChicago IL April 5 2018 Zacks Director of Research Sheraz Mian says Total Q1 earnings for the S P 500 index are expected to be up 16 from the same period last year on 7 4 higher revenues Looking Ahead to Q1 Earnings SeasonNote The following is an excerpt from this week s report You can access the full report that contains detailed historical actual and estimates for the current and following periods Here are the key points Total Q1 earnings for the S P 500 index are expected to be up 16 from the same period last year on 7 4 higher revenues the highest quarterly earnings growth pace in 7 years Earnings growth is expected to be in double digit territory from the year earlier level for 11 of the 16 Zacks sectors including the Technology and Finance sectors Only two sectors Autos Conglomerates are expected to show earnings declines in Q1 Energy sector earnings are expected to be up 60 2 from the same period last year on 15 6 higher revenues Excluding the Energy sector total S P 500 earnings growth drops from 16 to 14 6 The earnings season wouldn t be in the spotlight till the big banks come out with results in a couple of weeks but the reporting cycle has actually begun as 22 S P 500 members with fiscal quarters ending in February have reported results already Earnings estimates for Q1 and the following quarters have improved in a notable way with estimates for 13 of the 16 Zacks sectors going up In percentage terms estimates have gone up the most for the Basic Materials Energy Construction and Industrial Products sectors In absolute terms the positive revisions to the Finance and Technology sectors account for more than half of all estimate upgrades since the quarter got underway This positive revisions trend is the most dramatic change on the earnings scene in recent years and will be closely watched whether the trend will continue in the coming days as the Q1 earnings season unfolds For the S P 600 index total Q1 earnings are expected to be up 14 1 from the same period last year on 10 higher revenues This would follow 14 8 earnings growth on 7 7 revenue growth in the preceding quarter For full year 2018 total earnings for the S P 500 index are track to be up 17 9 on 5 3 higher revenues with full year 2019 earnings and revenues for the index expected to be up 9 4 and 4 1 respectively The implied EPS for the index calculated using current 2018 P E of 17X and index close as of April 4rd is 153 80 Using the same methodology the index EPS works out to 168 30 for 2019 P E of 15 5X The multiples for 2018 and 2019 have been calculated using the index s total market cap and aggregate bottom up earnings for each year The most profound change on the earnings scene lately is the unusually positive revisions trend for Q1 and following quarters This is a sight that we haven t seen in a very long time definitely not in the last 6 years The most important factor driving this positive revisions trend is the tax cuts The rise in oil prices and the impact of uptrend bond yields on banks profitability are some of the other factors Estimates have gone up across the board for 13 of the 16 Zacks sectors with the highest percentage positive revisions for the Basic Materials Energy Construction and Industrials In absolute terms the positive revisions to the Finance and Technology sectors account for more than half of all aggregate positive revision since mid December 2017 For example JPMorgan s NYSE JPM Q1 EPS estimate of 2 27 has gone up 13 5 over the past three months Note Sheraz Mian manages the Zacks equity research department He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks com and in the print and electronic media His weekly earnings related articles include Earnings Trendsand Earnings Preview He manages the and portfolios and writes the article for subscribers Zacks Editor in Chief Goes All In on This StockFull disclosure Kevin Matras now has more of his own money in one particular stock than in any other He believes in its short term profit potential and also in its prospects to more than double by 2019 Today he reveals and explains his surprising move in a new Special Report Note Sheraz Mian manages the Zacks equity research department He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks com and in the print and electronic media His weekly earnings related articles include Earnings Trends and He manages the and Focus List portfolios and writes the article for Zacks Premium subscribers If you want an email notification each time Sheraz Mian publishes a new article please About Zacks Equity ResearchZacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long term Continuous analyst coverage is provided for a universe of 1 150 publicly traded stocks Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance Recommendations and target prices are six month time horizons Strong Stocks that Should Be in the NewsMany are little publicized and fly under the Wall Street radar They re virtually unknown to the general public Yet today s 220 Zacks Rank 1 Strong Buys were generated by the stock picking system that has nearly tripled the market from 1988 through 2015 Its average gain has been a stellar 26 per year See these high potential stocks free Follow us on Twitter Join us on Facebook NASDAQ FB Zacks Investment Research is under common control with affiliated entities including a broker dealer and an investment adviser which may engage in transactions involving the foregoing securities for the clients of such affiliates Media ContactZacks Investment Research800 767 3771 ext 9339Past performance is no guarantee of future results Inherent in any investment is the potential for loss This material is being provided for informational purposes only and nothing herein constitutes investment legal accounting or tax advice or a recommendation to buy sell or hold a security No recommendation or advice is being given as to whether any investment is suitable for a particular investor It should not be assumed that any investments in securities companies sectors or markets identified and described were or will be profitable All information is current as of the date of herein and is subject to change without notice Any views or opinions expressed may not reflect those of the firm as a whole Zacks Investment Research does not engage in investment banking market making or asset management activities of any securities These returns are from hypothetical portfolios consisting of stocks with Zacks Rank 1 that were rebalanced monthly with zero transaction costs These are not the returns of actual portfolios of stocks The S P 500 is an unmanaged index Visit for information about the performance numbers displayed in this press release |
MS | Dutch high frequency trader drifts in becalmed markets | By Alasdair Pal LONDON Reuters This year s unusually quiet markets may have soothed the nerves of many investors but for Dutch market maker Flow Traders AS FLOW the lack of volatility spells bad news The trading house based in the fashionable Eastern Docklands area of Amsterdam sold shares to the public in 2015 after honing a form of high frequency trading of Exchange Traded Funds ETFs and their underlying stocks in Europe and elsewhere Bigger market gyrations meant bigger profits the company says But stock indices across the world have calmly hit multi year highs in 2017 with little of the volatility that has characterised previous rallies The Euro Stoxx Volatility index V2TX and the VIX index VIX tracking volatility in U S stocks are both near all time lows Shares in Flow Traders have fallen 38 percent year to date to an all time low as its profits were depressed by a lack of market activity Graphic Flow Traders share price has tracked volatility lower Several analysts have cut their earnings expectations for the company in recent months and are questioning whether the continued lack of market volatility will hurt business even more UBS Credit Suisse SIX CSGN and Morgan Stanley NYSE MS all downgraded the stock in September and October no longer recommending its clients buy the shares With equity market volatility at decade low levels and little sign of recovery in the near future Flow Traders revenues will remain depressed due to lower ETF trading activity UBS analyst Michael Werner said in a note Investors too have turned more cautious At the time it was a reasonably attractive opportunity to play the rise of the ETF said Will James a fund manager at Standard Life LON SLA Investments who sold his holding in Flow Traders in June When the investment case doesn t come through or is proved to be wrong then we are quite happy to take a view we got it wrong and move on Flow Traders which has annual revenue of around 350 million euros 410 million and some 300 employees is confident volatility will pick up in 2018 and it can maintain its dominant position in Europe where it accounts for around 20 percent of ETF trading Periods of relative quietness give us time to work on our business model more Chief Financial Officer Marcel Jongmans told Reuters What we have shown during the last few quarters is that we grow our market share But it will take more than a spike in volatility to regain favor Werner said We think earnings will have to improve before investors regain interest |
MS | Saudi Aramco hires Citi to lead 2 billion UK backed loan sources | By Dasha Afanasieva and Davide Barbuscia LONDON DUBAI Reuters Saudi Aramco IPO ARMO SE has appointed U S investment bank Citi to lead a 2 billion financing backed by Britain sources familiar with the deal said The loan mandate will not be particularly lucrative the sources said but is seen by some banks as a way of getting closer to securing work on Aramco s planned initial public share offer which may value the company at 2 trillion a sum some prospective investors have said appears unrealistically high Banks look at these kinds of operations for relationship purposes said a source at a European export credit agency in the Middle East This kind of loan is a bit of a test that Aramco makes on the market and given the name there s high competition among banks he added The loan financing announced in November is guaranteed by UK Export Finance UKEF the British export credit agency and will enable Saudi Aramco to buy British goods and services more easily UKEF is engaged in finalizing the operational arrangements regarding a significant finance facility with Saudi Aramco UKEF s support will take the form of a 2 billion guarantee on bank lending said a UK government spokesperson in an emailed response to a request for comment adding that Aramco would select the banks involved in the transaction Aramco and Citi declined to comment Citi is keen to win a much coveted role in the IPO expected to raise 100 billion as soon as late 2018 and a cornerstone policy in Crown Prince Mohammed bin Salman s plan to diversify the Saudi economy away from its over dependency on oil One source said proposals were due on Wednesday for the IPO roles but banks without an established lending role did not expect to be successful We can t get on their loans so we don t expect to get a mandate It s really frustrating said one banker who did not want to be identified because of the sensitivity of the issue Earlier this year Aramco formally appointed JPMorgan Chase Co NYSE JPM Morgan Stanley NYSE MS and HSBC to advise it on the listing alongside independent advisors Moelis and Evercore
Citi also recently received an investment banking license for Saudi Arabia after more than a decade out of the kingdom |
MS | Central banks trade and bubbles threaten the 2018 status quo | By Jeremy Gaunt LONDON Reuters After a year of relatively healthy global economic growth economists are predicting pretty much the same for 2018 a neither too hot nor too cold Goldilocks scenario but with little sight of the three bears The idea is that all is pretty much on track for growth that will be stronger than in 2017 Part of this may come from the fact that forecasters generally got it wrong last year underclubbing this year s economic performance particularly for the euro zone and Japan The International Monetary Fund for example saw 2017 global growth at 3 4 percent with advanced economies advancing 1 8 percent It now reckons them at 3 6 percent and 2 2 percent It had the euro zone and Japan growing 1 5 percent and 0 6 percent respectively It now has them at 2 1 percent and 1 5 percent Faster growth is reaching roughly two thirds of the world s population the IMF said in a December blog post This performance has made some economists optimistic Nomura is among the more bullish Global growth has far more self reinforcing characteristics at present than at any time over the last 20 30 years But Goldilock s bears do have a habit of showing up There are huge numbers of potential political and economic risks to the status quo But as in the fairy tale let s go with just three central banks trade and bubbles In the first case the danger is that there will be a policy mistake squeezing debtors The second relates to renewed U S protectionism or anger over Chinese exports triggering tit for tat growth stifling trade barriers The third is about sudden market losses that dry up spending and demand BEAR ONE IN THE WOODS Part of 2017 s global economic success was put down to a combination of extraordinarily loose monetary policy and competent management by central banks of their attempts to wean the world off such largesse Entering 2018 the U S Federal Reserve is lining up for three more hikes the European Central Bank is slowly cutting back on its asset purchases and China is increasing rates All of this is being carefully flagged by the policymakers but mistakes can happen and any significant shift of gear could cause a sharp retrenchment in consumer and corporate spending The amount of U S corporate debt outstanding for example is nearly 8 8 trillion according to Sifma the U S securities industry group That is up 35 percent since 2010 and a major driver behind corporate expansion Financial stability risks pose a bigger threat to the continuation of the growth cycle than price stability risks Morgan Stanley NYSE MS co head of economics Chetan Ahya wrote in a 2018 outlook saying U S corporates were the most exposed to higher interest rates This implies that central bank tightening to curb overly robust growth or inflation risks creating a credit squeeze hence the caution in Washington Frankfurt Beijing and Tokyo BEAR TWO IN THE WOODS U S President Donald Trump s 2016 election campaign was peppered with America First rhetoric and a dollop of belligerence about other countries In office the Trump administration has done a few things in the name of U S interests to upset multilateralists It has for example launched an investigation into steel imports blocked the appointment of judges at the World Trade Organization and withdrawn the United States from a now 11 member Pacific Rim trade pact Other measures have not progressed as far notably the threat to withdraw from the North American Free Trade Agreement and the pledge to bring China to heel over its allegedly unfair trade practices But the U S trade deficit increased to 43 5 billion despite growth driven U S exports The U S China deficit dropped a bit but was still 34 6 billion in Beijing s favor The massive TRADE deficits must go down quickly Trump tweeted after a trip to Asia in November Were rhetoric to turn to practice the economic climate of 2018 could quickly turn chilly According to the U S Conference board China s economic exposure to the United States is nearly five times higher than the U S exposure to China That would suggest that any impositions of trade barriers could hit growth in China that is behind much of the wealth in exporting nations like Germany It is far from just a U S China matter the World Bank estimates world trade accounts for 52 percent of world GDP more than doubling its clout over the past 50 years ago BEAR THREE IN THE WOODS Bubbles are hard to gauge until they have popped there is a tendency to say this time it is different until it isn t But if economists have learnt one thing from this century s financial market crashes it is that they bring the house down with them The World Bank estimates that the global growth rate fell from around 4 4 percent in 2000 to some 1 9 percent in 2001 when the dot com bubble burst and that the financial crisis prompted a plunge from a roughly 4 3 percent growth rate in 2007 to a 1 7 percent contraction in 2009 What happens is that sudden losses in financial instruments cause companies and consumers to stop spending leading to tumbling growth layoffs and debt defaults There are plenty of examples of assets that have soared continually and steeply in the past year Bitcoin s staggering rise is but the most obvious Albert Edwards a Societe Generale PA SOGN strategist who is always on the lookout for bubble poppers reckons that with stock markets in the stratosphere it won t take much to reverse things
It may be just some as boring as some unexpectedly poor profits he suggests |
JPM | Cryptocurrencies Trade Lower on JPMorgan Criticism Stronger Gold | Investing com Bitcoin and other cryptocurrencies tracked lower on Friday extending a recent trend that has seen them trade in inverse correlation to gold
Gold Futures were supported Friday by a report in the Wall Street Journal suggesting that the Federal Reserve will likely stop the wind down of its crisis era measures earlier than previously thought resulting in a larger balance sheet and a consequently looser monetary policy stance than previously thought
The report adds to impressions that the Fed is close to ending its policy tightening cycle something that supports the gold price because it makes reduces the risk of a widening gap in attractiveness between interest bearing assets and the precious metal
At 10 20 AM ET Bitcoin was trading at 3 62 on Bitfinex down 0 3 while Ethereum was down 0 7 at 117 77
XRP was down 0 4 at 0 314 while Litecoin was bucking the trend up 1 0 at 32 28
Cryptocurrencies came under pressure late Thursday after JPMorgan Chase NYSE JPM analysts said Bitcoin may fall as low as 1 260 or even lower due to its failure to prove their worth and break into the financial mainstream
Pension funds and asset managers have largely stayed clear despite some advances in market infrastructure that have seen safer methods to store digital money emerge with most worried about volatility security flaws and propensity for illicit usage
The usage of cryptocurrencies for payments the intended purpose of bitcoin will remain challenged JPMorgan said adding that it was unable to pinpoint any major retailers that accepted digital coins in 2018
Bitcoin is likely to have cost support at around 2 400 but could fall below 1 260 if a bear market persists JPMorgan said
Reuters contributed to this report |
JPM | JPMorgan Says Stocks Credit Still Haven t Priced Fed Pivot | Bloomberg While U S stocks and corporate debt have rallied from their December lows there s scope for further gains from an official Federal Reserve confirmation that it s pivoting away from monetary tightening for now according to JPMorgan Chase Co NYSE JPM
While we share almost every reservation about limited upside when the Fed pauses late cycle we still think that stable policy for another several months isn t fully in the price of markets outside of Treasuries John Normand head of cross asset fundamental strategy wrote in a Jan 25 note
The S P 500 Index has climbed more than 13 percent from its Christmas Eve low helped by a slew of comments from Fed officials that they are prepared to be patient with further interest rate hikes Investors will be eyeing whether the policy shift seen in large part as prompted by the fourth quarter sell off across risk assets will be cemented in the Federal Open Market Committee statement on Wednesday and Chairman Jerome Powell s press conference later that day
There may be plenty of reason for caution with regard to stocks and credit the outlook for earnings is under a cloud thanks to continuing U S China trade tensions with no guarantee of a deal by the March 1 deadline for a pause in further tariff hikes And President Donald Trump s battle with Congress over building a Mexican border wall leaves funding for the federal government in coming months in question
That backdrop might help explain why only Treasuries appear to have fully discounted a Fed pause according to JPMorgan Ten year Treasury yields have tumbled about half a percentage point since early November to around 2 75 percent And futures trading suggests no change in the Fed s policy rate is the most likely outcome through year end
Entering this meeting only the U S money market has front loaded what typically happens when the Fed is on hold Normand wrote ahead of Wednesday s FOMC gathering Credit spreads typically tighten and equities always rally after policy pivots and there is no evidence that corporate markets have front loaded this path just because the Fed rhetoric has been dovish for several weeks he concluded
The S P 500 remains about 9 percent lower than its September record while investment grade corporate debt yield premiums over Treasuries at 1 32 percentage points remain above last year s low of 85 basis points Bloomberg Barclays LON BARC data show
If the Fed ended this ambient tightening some markets might retest their 2018 highs Normand said
Updates yield in fifth paragraph |
JPM | U S consumer morale at one and a half year low house price gains slow | WASHINGTON Reuters U S consumer confidence fell to a 1 1 2 year low in January as a partial shutdown of the government and financial markets turmoil left households a bit nervous about the economy s prospects The drop in confidence reported by the Conference Board on Tuesday mirrors another survey earlier this month showing sentiment tumbling to its lowest level since President Donald Trump was elected more than two years ago strengthening analysts expectations that the economy was losing momentum There s no way the Trump economics team forecast of 3 percent growth is going to be accurate this year if consumers spirits don t brighten up a little said Chris Rupkey chief economist at MUFG in New York The Conference Board s consumer confidence index dropped 6 4 points to 120 2 this month the lowest reading since July 2017 It blamed the third straight monthly decline in confidence to financial market volatility and the government shutdown The survey s expectations measure tumbled to levels last seen in October 2016 The cutoff date for the Conference Board s survey was Jan 17 in the midst of the shutdown which shuttered about one quarter of federal agencies as of Dec 22 impacting 800 000 government employees The longest shutdown in U S history ended on Friday when Trump and Congress agreed to temporary government funding without money for his U S Mexico border wall According to the nonpartisan Congressional Budget Office the economy lost about 11 billion during the five week shutdown With the government shutdown over for now and financial markets stabilizing some economists expect a rebound in confidence in the months ahead Others are not convinced pointing out that the Conference Board s confidence index has shed 17 7 points over the past three months the most since 2011 The survey s so called labor market differential derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful rose to 33 7 in January from to 33 3 in December but was below its peak of 34 2 in November That measure closely correlates to the unemployment rate in the Labor Department s employment report Consumers views of the labor market over the next six months were less upbeat A LITTLE CHILLY There appears more to this than just the shutdown said Jennifer Lee a senior economist at BMO Capital Markets in Toronto Things are looking a little chilly The confidence survey adds to recent data showing home resales plummeting in December Some regional Federal Reserve manufacturing surveys have weakened in January Economists believe economic growth slowed in the fourth quarter from the July September period s brisk 3 4 percent annualized rate The advance fourth quarter GDP report which was scheduled for release on Wednesday has been delayed as the government shutdown prevented the collection of source data including December retail sales housing starts durable goods and trade figures November construction spending trade business inventories factory orders as well as new home sales reports were also impacted by the government s closure U S Treasury prices rose on the confidence data while the dollar was little changed against a basket of currencies Stocks on Wall Street were mostly lower amid concerns about the upcoming U S China trade talks Other data on Tuesday showed the S P CoreLogic Case Shiller composite index of home prices in 20 metropolitan areas rose 4 7 percent in November on a year on year basis the smallest gain since January 2015 after advancing 5 0 percent in October House price inflation is slowing as demand cools and housing inventory rises The moderation in house prices together with an easing in mortgage rates should help support demand and lift the housing market this year after struggling for much of 2018 With the weakness across much of the housing data in 2018 we have seen the pace of house price appreciation moderate across a range of different measures said Daniel Silver an economist at JPMorgan NYSE JPM in New York
The house price data tend to lag many other housing indicators and some of the more timely indicators have perked up a bit now that mortgage rates have declined over the past couple of months |
JPM | JPMorgan Notes Marginal Improvements to Payment System With Blockchain Technology | Experts at financial services giant JPMorgan NYSE JPM say that blockchain technology will provide benefits to banks and payment systems Bloomberg reports on Jan 29
JPMorgan s chair of global research Joyce Chang said Blockchain isn t going to reinvent the global payment system but it will provide marginal improvements The most meaningful impact will probably be three to five years away and mostly on trade finance |
MS | Swing Trading Watch List ADS RLGY XYL WLK MS | Here s your swing trading watch list
Short Alliance Data Systems NYSE ADS
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Long Westlake Chemical NYSE WLK
Long Morgan Stanley NYSE MS |
MS | Awaiting U S Payrolls | US stocks were looking down on Thursday ahead of crucial US payrolls data US dollar index a measure of a greenback s value against a basket of six major currencies lost 0 1 to 93 697 having rebounded already 2 from the fresh low of 91 919 hit this week the lowest in 4 months The payrolls data are expected to show the 202 thousand increase in jobs in April down from 215 thousand in March After the weak ADP report investors are not optimistic about the payrolls S P 500 index lost 0 02 to 2 050 63 see S p 500 live chart while Dow Jones industrial average rose 0 05 to 17 660 71 Today at 14 30 CEST the US April unemployment rate is anticipated it is expected to remain unchanged at 5 0 At the same time the change in non farm and private payrolls in April will come out the outlook is negative Several other minor US labour market indicators for April are due at the same time At 19 00 CEST Baker Hughes US rig count is expected the latest number is 420
European stocks steadied on Thursday on positive corporate earnings The pan European FTSEurofirst rose 0 2 after its 1 2 slump on Wednesday The index has already lost 10 this year on worries about global economic slowdown and uncertainty with US monetary tightening and the overall bearish sentiment persists Nevertheless low prices start attracting bargain hunters
Today on Friday European stocks opened with a negative bias ahead of US payrolls and on losses in mining and energy sectors Britain s FTSE 100 is losing 0 42 so far Germany s Dax 30 index is down 0 32 and France s CAC40 is down 0 50 The pan European Stoxx 600 index is already 0 8 down following weak trading in Asia EUR USD is 0 17 up to 1 1424 having touched on Tuesday the 8 month high of 1 1616 Morgan Stanley NYSE MS has revised up its EUR USD forecast today from 1 06 to 1 16 emphasizing the ECB is running out of options to prevent further strengthening of single currency Bank gave the same forecast about the yen and Bank of Japan with new expected USD JPY rate of 103 instead of previous 110 Both Central Banks go on with their monetary easing programs which are boosting the fixed income products prices and are driving yields down This morning the Markit construction and retail PMIs for April came out negative in Germany No other significant data are expected today in Europe
Japanese stocks retreated today on stronger yen which hurts corporate profits Nikkei index lost 0 3 to 16 106 72 on Friday after three days of national holidays when the markets were closed and ended this week 3 4 lower Broader Topix slid down 0 1 to 1 298 32 to end this short week 3 1 lower While the stock markets were closed the yen strengthened on Tuesday to a new 18 month high against the US dollar weighing further on exporters outlook Today USD JPY was traded at 106 92 having lost 0 31 Moreover negative corporate earnings added to investors concerns Sharp stocks slumped 8 5 on the news it could have had a net loss of 300 billion yen 2 80 billion in a year to March 2016 Olympus Corp OTC OCPNY fell 4 6 on disappointing profit outlook On the other hand Mitsubishi Motors Corp T 7211 rose 5 2 due to its strong April sales in North America
Oil futures prices are edging lower as investors have played off the news on wildfires in Canada s oil sands region that disrupted oil deliveries As a result Brent oil prices lost 0 6 to 44 73 a barrel
Gold being an asset typically sensitive to US dollar moves and Fed monetary policy rose 4 to 1 281 an ounce as US dollar was looking down ahead of US jobs data For the first time in more than a year gold has climbed above the level of 1 300 an ounce on Monday the day when US dollar hit a 18 month low against the Japanese yen |
MS | Aussie Testing The Breakout | Aussie behaved as we forecasted in our April 11th article making the last push to the upside before testing the breakout area expected this week Our limit at 0 7790 was filled on the 19th of April alongside with Morgan Stanley NYSE MS that had a better fill at 0 7800 though market went as high as around 0 7830 on the 21st of April when many were exiting the market Selling pressure continued on the 27th of April when Australian Bureau of Statistics reported the first quarterly deflation since end of January 2009
That week s Friday Deputy Gabenor Guy Debelle in his speech to the Financial Markets World Congress in Jakarta hinted that RBA coming decision is for the good of the country We picked that up as a sign of a rate cut and true enough RBA reduced the cash rate by 25bp last week making it the lowest in history The AUD USD exchange rate has fallen more than 5 since then
RBA in its recent quarterly Statement of Monetary Policy SoMP revised the inflation and wage growth downward hence raising concerns about the economic growth prospect of OZ nation RBA reduced its inflation forecast from 2 3 to 1 2 for this year and wage growth is expected to stay low for longer before rising very gradually The full percentage point reduction in inflation forecast has led many analysts to believe that another rate cut is around the corner ANZ in its recent report expected another 25bp cut most likely in August but the possibility of a cut as early as June shouldn t be discounted
Looking at the recent CoT report speculators reduced their net long by more than 14 last week for the second time since March 15th The first time speculators went bullish was back in mid February when the exchange rate was around 71 US cents per Aussie We expect that level to be defended On the institutional side Morgan Stanley has closed its short in view that recent commodity and risk rally can continue
Halal Traders is still holding onto our short looking to exit upon reversal signal
Please read our risk warning disclaimer |
MS | Citizens Financial CFG Prices 1B Senior Unsecured Notes | Citizens Financial Group Inc NYSE CFG priced a debt offering by its wholly owned subsidiary Citizens Bank The company priced 1 billion of 2 550 senior unsecured notes due May 13 2021 at an issue price of 99 907 Subject to customary closing conditions the offering is anticipated to close on May 13 2016 Notably the offering is made under the bank s Global Bank Note Program The senior notes offering will aid in diversifying the funding sources of Citizens Bank The company plans to use the net proceeds from the offering to meet general corporate purposes Joint bookrunning managers of the notes offering include Morgan Stanley Co NYSE MS LLC Citigroup NYSE C Global Markets Inc Credit Suisse SIX CSGN Securities USA LLC and J P Morgan Securities LLC Since the RBS LON RBS Group offloaded its remaining stake in Citizens Financial last November the company is operating independently with focus on its several strategic initiatives which are likely to boost revenues and improve efficiency Citizens Financial boasts a healthy balance sheet position as well As of Mar 31 2016 period end total loan and lease balances increased 7 year over year to 101 7 billion reflecting a growth in commercial and retail loan portfolios Also period end total deposits rose 4 from the prior year quarter to 102 6 billion Citizens Financial currently carries a Zacks Rank 3 Hold Some better ranked stocks in the finance space include Northwest Bancshares Inc NASDAQ NWBI OceanFirst Financial Corp NASDAQ OCFC and Flagstar Bancorp Inc NYSE FBC each sporting a Zacks Rank 1 Strong Buy |
C | SNB Bows to Pressure From Banks for Relief From Subzero Rate | Bloomberg Want the lowdown on European markets In your inbox before the open every day Sign up here
The Swiss National Bank offered banks additional relief from its negative interest rates a move that could give it some leeway to cut them further if needed
With the SNB s policy rate at minus 0 75 the finance industry has long complained about the impact on profitability Officials led by Thomas Jordan responded on Thursday saying they ll exempt more of banks reserves from the cost of their monetary policy
The SNB won t impose charges on amounts as much as 25 times minimum reserves from Nov 1 up from 20 currently and review the level monthly The move could help to prevent any further easing being passed on by banks to retail savers Explaining the decision the SNB said the low rate environment around the world has become more entrenched and could persist for some time yet
The measure comes a week after the European Central Bank cut its deposit rate and introduced a tiering system While the SNB kept rates on hold a deteriorating global outlook and no deal Brexit could put upward pressure on the haven franc forcing a policy response
Despite not acting at this meeting the SNB signaled strongly that further policy easing is on the way economists at Citigroup NYSE C including Christian Schulz said in a note
In its policy statement the SNB also said the franc is highly valued and reiterated its intervention pledge The currency touched a two year high against the euro earlier this month
The franc was up 0 3 at 1 0965 per euro at 11 25 a m in Zurich
Citing downside global risks the SNB also made huge downgrades to the outlook It now sees growth as low as 0 5 this year from around 1 5 previously Inflation will almost stagnate in 2020 and be just 0 6 in 2021
The Swiss policy decision comes in a busy week for central banks On Wednesday the Federal Reserve cut its key rate for the second time this year
The Bank of Japan left policy unchanged on Thursday but said it ll take a closer review of the economy next month Indonesia s central bank cut its key interest rate for a third straight month Norway bucked the global trend with a rate hike
Updates with comment from economist in fifth paragraph |
MS | U K Gilts Rally as Cracks Appear in Brexit Compromise | Bloomberg U K bonds headed for the biggest gain in a week as cracks began to show in the Brexit compromise agreed upon between Prime Minister Theresa May s government and the European Union
Benchmark 10 year notes snapped a two day drop while the pound edged lower as EU envoys made clear that the bloc will halt the next phase of talks if Britain tries to unpick the deal agreed last week Ministers including Brexit Secretary David Davis had sent signals over the weekend that the U K wasn t really committed to what it signed up to although he has since distanced himself from the comment The U K s yield curve bull flattened supported by a lack of debt supply heading into the end of the year
It is clear that there is plenty of confusion still around Brexit said Jason Simpson a strategist at Societe Generale PA SOGN SA in London We may be moving to phase two but criticism that the deal was far from watertight and that things may still fall apart has probably provided a little support There is no further conventional supply and risk assets are still a bit wobbly
The yield on 10 year gilts fell eight basis points set for the biggest drop since Dec 1 to 1 20 percent The move almost erased last week s increase The pound fell 0 2 percent to 1 3361 and weakened 0 5 percent to 88 32 pence per euro
Gilts Bull Flatten After Friday s Bear Steepening Reflecting Asymmetry
Differences of opinion on Brexit talks could compromise the ability to move talks on to trade which would likely benefit gilts on haven demand said John Wraith the London based head of U K rates strategy at UBS Group AG Brexit Secretary David Davis told BBC TV on Sunday that the deal agreed with the EU Friday was much more a statement of intent than it was a legally enforceable thing However he told LBC Radio on Monday that the deal is legally enforceable under the withdrawal agreement
Supply of gilts should come down by approximately 4 4 billion pounds 5 9 billion in the fiscal year 2018 19 from the current year Morgan Stanley NYSE MS said in a note this month
Updates Brexit developments prices in fourth paragraph |
MS | Morgan Stanley upgrades Zayo Group | Morgan Stanley NYSE MS upgrades Zayo Group Holdings NYSE ZAYO to Overweight from Equal Weight and raises the price target from 33 to 40 Analyst Simon Flannery cites the upcoming REIT conversion and Zayo s improving revenue Flannery expects the company s recent churn to moderate and help net adds Zayo shares are up 3 9 Now read |
MS | Bitauto Holdings 2 5 as Morgan Stanley joins Overweight club | Bitauto Holdings ADRs NYSE BITA are up 2 5 premarket after getting a new Overweight rating from Morgan Stanley NYSE MS That joins an exclusively bullish chorus on the stock with seven previous Buys marking the only other ratings Bloomberg notes Morgan Stanley has a below average price target of 45 implying 54 upside Now read |
MS | Marcato likely to pull off win in proxy war with Deckers | By Svea Herbst Bayliss and Gayathree Ganesan Reuters Deckers Outdoor Corp shareholders looked set to hand three board seats to Marcato Capital Management at the UGG boots maker s annual meeting on Thursday capping a months long bitter proxy contest Half a dozen investors interviewed by Reuters said they will or already have voted for Marcato while two people familiar with votes cast by dozens of other shareholders said the hedge fund was leading Deckers in the proxy fight There is no argument for not having a shareholder on the board in order to hold management accountable said Ken Squire a portfolio manager at 13D Activist Fund which owns 0 51 percent of Deckers outstanding shares I would be surprised if Marcato does not win Deckers has put up for reelection all nine incumbents Marcato is targeting to remove three of the company s longest serving board members John Perenchio John Gibbons and Karyn Barsa The current board has demonstrated that they re not proactive enough in their corporate guidance a Deckers investor who is throwing his weight behind Marcato told Reuters The San Francisco based hedge fund which owns 8 5 percent of the Goleta California based company first disclosed a stake in February and has since run an aggressive campaign where it initially sought to replace the entire board Marcato has criticized Deckers retail strategy and pushed the management into considering a sale cutting costs and improving its capital allocation Deckers was ripe for this kind of attack said one investor who is not permitted to discuss holdings publicly Margins were decreasing and management was not really being held accountable for the money they were losing A sale did not materialize but the company said it would buy back 400 million in shares through 2020 a move several investors said would help boost the stock price considerably within the next year Deckers shares have risen 71 4 percent since Marcato disclosed a stake in the company on Feb 8 this year In the 12 months before that the stock had slipped nearly 6 percent Marcato and Deckers declined to comment and pointed Reuters to publicly available documents PRAGMATIST MCGUIRE Deckers has lost some of its premium cachet in the past few years as department store chains including Macy s Inc which sells the company s shoes have discounted heavily to reduce inventory The company is heavily dependent on the UGG brand whose boots sell mainly through winter months UGG is a great brand and they ve had issues with the wholesale and other things said Laura McGonagle portfolio manager at Deckers investor Trillium Asset Management LLC which owns 0 10 percent of Deckers outstanding shares It can t hurt to have new people who are from a retail and branding background to come in and provide a fresh perspective To be sure the election could turn on votes from large index funds which like other investors still have hours to submit or change votes The two sides could settle as well an option they have considered in the past As the meeting date approaches the index funds can have a meaningful influence on the outcome especially if they encourage a settlement of some sort essentially saying to both sides work it out guys said Michael Fein head of U S operations at shareholder advisory firm Kingsdale Advisors which is not directly involved in the Deckers contest If Marcato wins it would mark the second proxy victory this year for the fund s 41 year old portfolio manager Mick McGuire who got his start in the activist world at billionaire investor William Ackman s firm McGuire has established his credentials as a savvy negotiator by gradually dialing back demands to replace Deckers board after large proxy advisory firms said it was a risky strategy Mick is a pragmatist who often looks for solutions with management He wants to be known as a top notch investor and not just another corporate raider who puts a company in play one Deckers investor said McGuire finally settled for three nominees Steve Fuller former marketing chief of apparel brand L L Bean Anne Waterman who once led Michael Kors Holdings Ltd s communication team and Kirsten Feldman who previously advised Morgan Stanley NYSE MS on retail investment banking Still with roughly 24 hours to go before one of the season s most hotly contested proxy fights is decided on Thursday the race remains tight |
MS | Japan to cut JGB sales to market leaving BOJ with less debt to buy sources | By Takaya Yamaguchi and Tetsushi Kajimoto TOKYO Reuters Japan is planning to slash the amount of government bond sales to the market by about 7 trillion yen to around 134 trillion yen 1 2 trillion in fiscal 2018 from the current year government sources told Reuters on Friday This would be the biggest cut in 11 years and mark the fifth straight year of reduction in the amount of government bond JGB sales through auction The government plans to sell 141 2 trillion yen of JGBs for the current fiscal year ending March The amount of next year s JGB sales via auction would be the lowest since fiscal 2009 the sources said on condition of anonymity as the plan has not been finalised yet It will be finalised on Dec 22 when the government is expected to endorse its draft annual budget for fiscal 2018 Declines in the amount of JGB sales via auction leave the Bank of Japan with less debt to buy The central bank has been quietly slowing its purchases in what analysts call stealth tapering since it switched its target last year to interest rates from the pace of money printing under its yield curve control policy Cuts in JGB issuance tighten the supply demand tension in the market which will in turn lower interest rates leading the BOJ to further reduce JGB purchases some analysts say As a result the plan will help the BOJ proceed with stealth tapering although it s unclear whether the finance ministry has such intention said Katsutoshi Inadome senior bond strategist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities Prime Minister Shinzo Abe s administration is leaning toward cutting the amount of new debt issuance as well as government bonds used to roll over the existing bonds or refinancing bonds Government officials contacted by Reuters declined to comment on the plans for cutting bond issuance The government in recent years has shifted to increase issuance of super long JGBs while reducing those of shorter maturities to lock in benefits from the BOJ s massive monetary stimulus which keeps long term interest rates low Now the government is set to cut issuance of 30 year and 40 year JGBs as well as 10 year 5 year 2 year JGBs and discount treasury bills in the next fiscal year the sources said Taking demand such as by institutional investors into account the government is set to maintain the amount of 20 year JGBs and inflation linked bonds while increasing the number of auctions for enhanced liquidity they said The latest move towards cutting 30 year and 40 year JGBs is due to widening differentials between coupon rates and long term interest rates under the BOJ s negative interest rate policy Widening rate differentials cause government income to overshoot the face value of these super long JGBs The actual amount of JGBs issued through auction tends to deviate upwards due to the central bank s aggressive monetary stimulus 1 112 2700 yen |
JPM | Davos Elites Rush to Barricades to Defend International Order | Bloomberg The agenda in Davos may be expansive but one clear priority remains at the top of the list defending the global order
In speeches at the World Economic Forum s annual meeting on Wednesday German Chancellor Angela Merkel Japanese Prime Minister Shinzo Abe and Chinese Vice President Wang Qishan offered full throated and by now largely familiar defenses of globalization and multilaterism while calling for an end to the trade wars that President Donald Trump has launched
Shifting blame for one s own problems onto others will not resolve the problems Wang told delegates in an address that defended globalization as an inevitable trend and warned the international order was facing serious challenges from unilaterialism protectionism and populism
He didn t mention either the U S or Trump by name but left little doubt about his targets at one point calling for a rejection of the practices of the strong bullying the weak and self claimed supremacy a thinly veiled dig at Trump s America First foreign policy
Merkel used her own speech to call on counterparts to pull together to reform the international system while also urging Trump to embrace the art of compromise he espoused in his previous career in real estate
A global architecture will only work if we re capable of compromise she said
Abe whose government is about to embark on potentially fraught trade negotiations with the Trump administration and is facing the threat of potential new U S auto tariffs used his time in Davos to declare his government s backing for enhancing the free open and rules based international order
I call on all of you ladies and gentlemen to rebuild trust toward the system for international trade he said
In a separate meeting with reporters the Japanese prime minister said he also was hoping for the U S and China to resolve their trade war which continues to loom as one of the biggest threats to a global economy that is already slowing
I hope President Trump will make a wise decision in the interests of the American people the interests of the international community and the global economy Abe said
For all the focus on Trump there are plenty of signs too of a growing skepticism toward China which has done little to build its case as a defender of the global order since President Xi Jinping used an appearance at Davos in 2017 to try and claim that mantle
In a veiled swipe at Beijing Abe used his speech to call for change at the World Trade Organization especially in its rules on government subsidies Japan has been working with the European Union and the U S on a plan to update the rules for industrial subsidies in particular which many countries believe China has used unfairly to build its economy and introduce a new herd of state backed corporate giants on the global economy in recent decades
There are issues that we would like to see China addressing and resolving Abe later told reporters
Charm Offensive
China has been on a charm offensive at this year s forum Davos this lovely small town with its unique appeal has become an important platform for China to learn about the world Wang said on Wednesday
But at a dinner Tuesday with Xiao Yaqing chairman of the State owned Assets Supervision and Administration Commission foreign executives from more than 20 global companies including HSBC Holdings Plc LON HSBA JPMorgan Chase Co NYSE JPM and Siemens AG DE SIEGn raised concerns about China s treatment of intellectual property and the Made in China 2025 policy to lead the world in industries such as robotics
Those issues are the heart of the Trump administration s complaints about China which have led the U S to impose tariffs on some 250 billion of imports from the nation and will be at the top of the agenda when the two sides meet in Washington next week for negotiations
In an interview Wednesday Xiao confirmed that foreign executives had expressed their concerns on some uncertainties adding China s economic slowdown to the list of complaints Still he called the dinner a great gathering |
JPM | Postponing Brexit Is Worse for U K Economy Than May s Deal | Bloomberg The prospect of a delayed Brexit may be pushing up the pound but it s not the best news for the U K economy
Sterling has rallied above 1 30 this week amid increasing signs of support from lawmakers across Parliament for extending the negotiating period set to expire on March 29 While that would remove the imminent possibility of a chaotic no deal scenario it would leave the U K worse off than if Parliament accepted Prime Minister Theresa May s current plan according to economists
Pushing back the departure prolongs the uncertainty that has already hit business investment and pushed consumer confidence to the lowest since 2013 according to JPMorgan NYSE JPM Asset Management Worse still it would be unlikely to help the government reach any better outcome
Kicking the can down the road has a cost said JPMorgan AM global market strategist Mike Bell Time has a cost dragging on growth
For Dan Hanson at Bloomberg Economics it s a question of how long the delay lasts His uncertainty model suggests a three month postponement could slow growth to 1 5 percent this year from his central projection of 1 7 percent which is based on some form of Brexit agreement being reached with the EU in time for a March departure But six months would crimp it to 1 3 percent
Beyond that time period he sees a less clear impact as the cliff edge disappears from the view of businesses and households potentially lifting some of the paralysis
Still the economic hit from a delay is likely to be far smaller than the disruption caused by a no deal helping to explain the pound s recent strengthening Last year the Bank of England s worst case scenario saw the economy shrinking by 8 percent within a year property prices plunging almost a third and the pound losing a quarter of its value
BOE Governor Mark Carney may discuss Brexit when he speaks on two panels at the World Economic Forum in Davos Switzerland on Thursday
No Deal
Most economists still see a no deal Brexit as unlikely The Centre for Economics and Business Research puts only a 10 percent probability on that outcome
On Wednesday May faced repeated questions in the House of Commons over whether she should extend the exit process known as Article 50 and delay Brexit beyond March She remains against the idea but her answers didn t close the door on it
Extending Article 50 I don t believe resolves any issues May said Parliament will still need to decide if it wants a deal a no deal Brexit or no Brexit she added
That final option stopping the process altogether is still possible according to a European Court of Justice ruling in December which confirmed that the U K has the right to unilaterally revoke Article 50 although lawmakers have so far been loathe to discuss overriding the outcome of the 2016 referendum
It s the hardest outcome to assess according to Hanson as the likely weak start to this year will continue to weigh on the annual figure in any scenario The most he can see the 2019 economic growth rate picking up is to 2 percent
Some of the damage to the U K from the Brexit referendum won t be reversible The biggest banks looking to serve continental European customers intend to move 750 billion euros 855 billion of balance sheet assets to Frankfurt |
JPM | Despite Previous Criticism JPMorgan CEO Jamie Dimon Doesn t Celebrate Bitcoin s Decline | JPMorgan NYSE JPM CEO Jamie Dimon has reiterated his negative stance on Bitcoin BTC stressing that he does not really care about the cryptocurrency Dimon spoke on the subject in an interview with CNBC s Squawk Box on Jan 23
When asked if he was pleased with Bitcoin s collapse in 2018 Dimon stated that he was not noting that multiple media outlets have over reported his sceptical comments The CEO argued that he had not intended to become the spokesperson against the biggest cryptocurrency |
JPM | Crypto value unproven blockchain years away from mainstream JP Morgan | By Tom Wilson LONDON Reuters The value of cryptocurrencies is unproven and the widely hyped blockchain technology that grew out of them will not make any real difference to banks for at least three to five years JP Morgan analysts said on Thursday The comments underscored widespread scepticism about the assets by established finance firms while offering some succor for advocates of blockchain who are still waiting to see it take root Last year bitcoin the original and biggest digital coin lost nearly three quarters in value putting the brakes on cautious curiosity from mainstream finance and investors that emerged during its vertiginous ascent in 2017 JP Morgan said it was skeptical of the value of cryptocurrencies suggesting the assets would only make sense in a dystopian scenario where investors have lost all faith in gold the dollar other major reserve assets and the global payments system Even in extreme scenarios such as a recession or financial crises there are more liquid and less complicated instruments for transacting investing and hedging it said in a report on on crypto and blockchain Using bitcoin futures trading volumes as a proxy JP Morgan said participation by financial institutions in crypto markets had slipped over the last six months with individuals taking up an increasing share of the market Pension funds and asset managers have largely stayed clear despite some advances in market infrastructure that have seen safer methods to store digital money emerge with most worried about volatility security flaws and propensity for illicit usage The usage of cryptocurrencies for payments the intended purpose of bitcoin will remain challenged JP Morgan said adding that it was unable to pinpoint any major retailers that accepted digital coins in 2018 Marketplaces where small businesses and individuals have control over payment methods would prove most fertile ground for the spread of cryptocurrencies it said citing a Reuters analysis of the usage of bitcoin in commerce Bitcoin which stood at around 3 565 in afternoon trade is likely to have cost support at around 2 400 and could fall below 1 260 if a bear market persists JPMorgan NYSE JPM said The New York based bank struck a more optimistic tone on blockchain The shared ledger technology which can process and settle transactions in minutes without third parties for checks has the potential to cut costs for global banks and digitalize complex process it said
Trade finance would likely benefit from blockchain the bank said cautioning that the lack of integration between private platforms could present a stumbling block for wider use |
JPM | U S labor market remains strong economy slowing | By Lucia Mutikani WASHINGTON Reuters The number of Americans filing applications for unemployment benefits fell to more than a 49 year low last week but the drop likely overstates the health of the labor market as claims for several states including California were estimated Still labor market conditions remain strong which for now should help to temper fears of a sharp slowdown in economic growth Other data on Thursday showed a gauge of future U S economic activity fell in December The economy is facing several headwinds including a bitter U S trade dispute with China and a month long partial shutdown of the federal government which are hurting consumer and business confidence Higher interest rates fading fiscal stimulus and cooling global economies are also seen crimping domestic growth If you re looking for good news on the economy look no further than the labor market said Jim Baird chief investment officer at Plante Moran Financial Advisors in Kalamazoo Michigan Growth may be slowing but the overall picture for workers and those seeking work remains quite positive Initial claims for state unemployment benefits dropped 13 000 to a seasonally adjusted 199 000 for the week ended Jan 19 the lowest level since mid November in 1969 when 197 000 applications were recorded the Labor Department said Economists polled by Reuters had forecast claims rising to 220 000 in the latest week The Labor Department said claims for California Kansas North Dakota Virginia West Virginia and Hawaii were estimated last week because of Monday s Martin Luther King holiday The four week moving average of initial claims considered a better measure of labor market trends as it irons out week to week volatility fell 5 500 to 215 000 last week About one quarter of federal agencies have been shuttered since Dec 22 impacting 800 000 government employees with many working without pay and others furloughed All workers will be paid retroactively when the shutdown ends But economists expect the longest shutdown in history will push the unemployment rate above 4 0 percent in January as the furloughed workers would be considered unemployed The jobless rate rose two tenths of a percentage point to 3 9 percent in December as strong labor market conditions attracted some unemployed people back into the labor force Stocks on Wall Street were trading mixed after U S Commerce Secretary Wilbur Ross said Washington and Beijing were a long way from resolving their trade dispute The dollar was stronger against a basket of currencies while prices of U S Treasuries rose DATA VACUUM Thursday s claims report showed the number of people receiving benefits after an initial week of aid decreased 24 000 to 1 71 million for the week ended Jan 12 The so called continuing claims data covered the week of the household survey from which January s unemployment rate will be calculated Continuing claims rose 5 000 between the December and January survey periods If there were no government shutdown the modest gain between the survey weeks would suggest little change in the unemployment rate this month The number of federal workers filing for jobless benefits rose 14 965 to 25 419 in the week ending Jan 12 President Donald Trump is demanding 5 7 billion to build a wall along the U S border with Mexico Democratic lawmakers have refused to provide the funding for the wall The Commerce Department is one of the agencies whose funding has lapsed as a result of the deadlock in Washington The publishing of data produced by the department s Bureau of Economic Analysis and Census Bureau has been suspended leaving economists investors businesses and policymakers in the dark about the economy s health The limited data available from independent institutions including the Federal Reserve suggests the economy slowed in the fourth quarter and continued to lose momentum in early 2019 In a separate report on Thursday the Conference Board said its leading indicator slipped 0 1 percent in December after gaining 0 2 percent in November It said the moderation suggested that the economy could decelerate towards 2 percent growth by the end of 2019 The report adds to recent data showing home resales plummeting in December and consumer sentiment tumbling to more than a two year low in January Some regional Fed manufacturing surveys have weakened in January While a third report on Thursday from data firm IHS Markit showed factory activity firming in early January growth in the services sector slowed Economists estimate the government shutdown is subtracting at least two tenths of a percentage point from quarterly GDP growth every week Although three quarters of the government is funded for the fiscal year delays in government contracts for the remaining unfunded agencies could hurt private contractors said Maria Cosma an economist at Moody s Analytics in West Chester Pennsylvania
Some Wall Street banks including JPMorgan NYSE JPM and Barclays LON BARC have slashed their first quarter GDP growth forecasts to as low as a 2 0 percent annualized rate from as high as a 3 0 percent pace Growth estimates for the fourth quarter are around a 2 8 percent rate The economy grew at a 3 4 percent pace in the July September quarter |
JPM | Is Climate Change Drying Up German Rivers and Growth | Bloomberg Opinion Greg Fuzesi an economist at JPMorgan NYSE JPM has estimated that the low level of the Rhine and other important German rivers shaved off 0 7 percentage points of economic growth in 2018 The phenomenon caused by a year of extraordinarily warm and dry weather was almost certainly related to human driven climate change
The damage to the economy makes it even more urgent for Germany and other countries to start figuring out what weather anomalies will be more frequent because of climate change While it was next to impossible until recently to determine whether a certain event was due to global warming there now are methods that make such attribution possible
The German economy only grew 1 5 percent in 2018 If Fuzesi is right growth wouldn t have dropped from the 2017 level of 2 2 percent had major waterways not dried up According to his calculations the drought was the second biggest slowdown factor for Germany after new emissions regulations that undercut car sales
Rivers especially the Rhine play a central role in moving fuel raw and construction materials in Germany According to official statistics inland waterways carry about 5 percent of all cargo in Germany almost two thirds as much as the railroads In January through September 2018 the rivers carried 156 7 million tons of cargo That s 6 1 percent less than the previous year but the available data don t cover the full extent of the decline which was especially pronounced in the fall Water in the Rhine is still considerably lower than average and according to a recent report from the broker Riverlake Barging a standard 2 500 ton fuel barge traveling down the river can only be loaded to about 80 percent of capacity
Germany has certainly experienced a weather anomaly 2018 was the warmest and sunniest year since records began And between February and November the country was hit by an extraordinary drought with only 75 percent of the average precipitation for the year Not all the news was bad however The elevated temperatures probably contributed to making 2018 the ninth consecutive record year for the country s tourist industry and helped the beer industry register some growth after a considerable drop in 2017 There s a higher than usual grape harvest too On the other hand grain farmers were hard hit by the drought and called for government support
Given the relatively slow growth of Germany s mature economy with its high capacity utilization low unemployment and a population that s barely increasing extreme weather can wreak havoc with forecasts It can even turn growth into decline A few months of lightly loaded fuel barges on the Rhine can mean the difference between market pessimism and optimism about the state of the economy
Climate scientists predict that extreme weather events will be more frequent with climate change No country can fight this alone and it s probably impossible to prevent more economically damaging weather anomalies So policy makers and businesses need to at least figure out what to expect
For that they must determine to what extent a particular weather anomaly can be attributed to climate change As Paul Becker vice president of the German Weather Service put it Only with this knowledge is it possible to see which extreme events will change their frequency and intensity in the future and develop the measures necessary to adapt to it
Recently developed methods allow this kind of attribution for specific events Friederike Otto a climate modeler at the University of Oxford found that last year s summer heat wave in northern Europe was twice as probable under current conditions than if human activities hadn t affected climate
The German weather service plans in the near future to start using similar methods and reporting the climate change component in extreme weather events Hopefully though this won t just serve to increase Germany s preparedness for more droughts heat waves and other unusual phenomena Collective action is needed to mitigate climate change adapting to it can only be a half measure and if the change accelerates it may turn out to be a hopeless race |
MS | GBP Risk Premium Remains High | Key quotes from the Morgan Stanley NYSE MS FX report
The Fed is running a triple put and the impact of this enlarged Fed safety net could be seen yesterday Although the failed Doha meeting led to some commentators suggesting an effective break of the OPEC cartel USD declined while oil recovered from earlier losses The Russell 2000 has closed above its 200 DMA and the Dow Jones has reached its highest level since July suggesting that the Fed put works on the US side too supported by further gains of US high yield markets suggesting that the risk premium is in decline EM and commodity currencies should remain supported today
Risk Vs inflation
The US will be able to run a more global mandate as long as its domestic inflation outlook remains benign Its capacity utilization rate falling 4 from its November 2014 high of 78 9 indicates that the global deflationary pressure within tradeable good sectors such as manufacturing goods will help to keep US inflation benign for now Domestically generated service sector inflation seems more a threat to the Fed s enlarged responsibilities but even here there seems no immediate danger No wonder that market pricing for the 25bp hike is not until July 2017
GBP Rebound
With risk premia coming down globally investors will be looking around for laggards GBP s risk premium has remained high for very good reasons mostly associated with the upcoming June 23 EU referendum However with risk premia melting away elsewhere we think GBP will look increasingly supported From now it may take persistently bad news to keep GBP near current levels while a marginal improvement in the news flow may be already sufficient to push GBP higher
USD JPY targets 112 50 With the start of a new Japanese reserve period the JPY OIS rate has declined by 4 5bp to 7 5bp suggesting that lower rates are now passed through to asset managers Buoyant global risk appetite driven by the Fed s broadened mandate reducing the global USD shortage has put Japan s JPY supportive repatriation flow to hold for now USD JPY has the potential for a short term rebound to 112 50 where we would sell again |
MS | Earnings And Downgrades Limit SPX Upside | Four in a row That s how many consecutive 3 point baskets Andre Iguodala scored against the Houston Rockets in Monday night s playoff game
There has also been a 4 for 4 in the financial markets One after another major banks have lowered their year end targets for the S P 500 Most recently the global equity team at HSBC shaved its year end target to 2 050 from 2 100
On the surface HSBC s cut is less severe than other bank revisions to S P 500 estimates That said J P Morgan NYSE JPM pulled its projection all the way down from 2200 to 2000 Credit Suisse NYSE CS Down to 2 050 from 2 200 And Morgan Stanley NYSE MS slashed its year end projection from 2175 to 2050
So what s going on We had four influential banks expressing confidence in the popular benchmark a few months earlier Their analysts originally projected total returns with reinvested dividends between 5 10 in the present 12 month period Now however with the S P 500 only expected to finish between 2000 2050 these banks see the index offering a paltry 0 2 Another way some have phrased it Excluding dividends there is zero upside
Here is yet another 4 for 4 that makes a number of analysts uncomfortable Year over year quarterly earnings have fallen four consecutive times That has not happened since the Great Recession And revenue Corporations have put forward year over year declines in sales growth for five consecutive quarters That hasn t happened since the Great Recession either
The bullish investor case is that the trend is going to start reversing itself in the 2nd half of 2016 However forward estimates of earnings growth and revenue growth are routinely lowered so that two thirds or more companies can surpass expectations And it is not unusual for estimates to be lowered by 10 Take Q1 Shortly before the start of the year Q1 estimates had been forecast to come in at a mild gain Today We re looking at 9 or worse for Q1
Over the previous five years Forward P Es averaged 14 5 They now average 16 5 on earning estimates that will never be realized In essence S P 500 stock prices are sitting a softball s throw away from an all time record 2130 while the forward P E valuations sit at bull market extremes that do not justify additional appreciation in price
And what about earnings quality Wall Street typically presents two kinds Generally Accepted Accounting Principles GAAP earnings and non GAAP earnings that excludes special items non recurring expenses and a wide variety on one time charges The foolishness of non GAAP presentations notwithstanding one might disregard the manipulation when non GAAP and GAAP are within the usual 10 range This was more or less the case between 2009 and 2013 By 2014 however the gap between the two different earnings per share reports began to widen By 2015 manipulated pro forma ex items earnings exceeded actual earnings per share by roughly 250 billion or 32 Can you spell c h i c a n e r y
Of particular interest there was a similar disconnect between GAAP and non GAAP in 2007 Non GAAP in the year when the last bear market began 10 07 was 24 higher than GAAP earnings per share It follows that the discrepancy today in earnings quality is even wider than it was prior to the stock market collapse
But Gary you protest As long as the Federal Reserve and central banks are exceptionally accommodating stocks should excel In truth however the long term relationship between the S P 500 SPDR Trust SPY NYSE SPY and the Vanguard Total Bond Market ETF NYSE BND demonstrate that the bond component of one s portfolio has been more productive over the last 12 months than the stock component
Bulls can point to the market s eventual ability to shake off the euro zone crisis of 2011 That was the last time that the SPY BND price ratio struggled for an extended length of time Back then however the Federal Reserve offered two aggressive easing policies Operation Twist and QE 3 Today Stocks are not only extremely overvalued on most historical measures but the Fed has only lowered its tightening guidance from four hikes down to two hikes Is that really enough ammunition to power stocks to remarkable new heights
Okay you acknowledge But rates are so low they are even lower than they were in 2013 And that means going forward there is no alternative to stocks
Not only does history dispel the myth that there are no alternatives to stocks but many corporations that have been buying back their stocks at attractive borrowing costs are now at risk of debt downgrades higher interest expenses and even default For example the moving 12 month sum of Moody s debt downgrades hopped from 32 a year ago to 61 in March of 2016 Meanwhile the longer term trend for the widening of credit spreads between investment grade treasuries in iShares 7 10 Year Treasury NYSE IEF and high yield bonds in iShares High Yield Corporate Bond NYSE HYG suggests that the corporate debt binge may soon come to an ignominious end
Foreign stocks emerging market stocks as well as high yield bonds all hit their cyclical tops in mid 2014 when the credit spreads were remarkably narrow The IEF HYG price ratio spikes and breakdowns notwithstanding the general trend for 18 plus months has been less favorable to lower rated corporate borrowers
The implication With corporate credit conditions worsening at the fastest pace since the financial crisis companies may be forced to slow or abandon stock share buybacks What group of buyers will pick up the slack when valuation extremes meet fewer stock buybacks |
MS | Gold Tactics For Bull Era Fun | All institutional analyst eyes are on this week s central bank announcements from Japan and America Most gold community analysts seem to have a difficult time grasping the idea that Japan s fiat currency is viewed by top forex money managers as a safe haven albeit less of one than gold
The Japanese government is a huge debtor but the citizens are even bigger creditors and the bottom line is that the weakness of the debtors is superseded by the strength of the creditors
It s possible that the Bank of Japan fires a bazooka this week but how that will affect the Japanese stock market the dollar yen trade and gold is unknown
Goldman Sachs analysts believe that a Kuroda bazooka shot will strengthen the dollar and make the Japanese stock market surge higher
In contrast Morgan Stanley believes the bazooka shot will have the opposite effect the Japanese stock market rally will fail and the dollar will fall against the yen
I think Morgan Stanley s team will likely prevail Here s why
Kuroda is attempting to send the stock market higher just as the seasonally weak month of May arrives and that s a tall order especially when powerful money managers at Morgan Stanley NYSE MS are going to use any strength to exit the market
The US central bank is also in an interesting position right now The NIRP policies adopted by Japan and Europe are viewed as failures by more and more top money managers around the world yet just one small US rate hike caused a huge global stock market sell off and a safe haven surge into the yen and gold
If Janet Yellen raises rates at any time this year an even bigger global stock market tumble than the last one is likely If she leaves rates unchanged or joins Team NIRP and actually cuts rates it could cause a loss of confidence event with central banks in general and an enormous institutional gold buying binge is quite likely to happen
In terms of the fear trade gold is clearly sitting in the best win win position of many years
I ve been emphatic that India is entering a one hundred year gold oriented bull era Stock market enthusiasts in the Western gold community should focus on Indian stock market ETFs rather than on hail Mary plays with the aging empire of America
From a technical perspective the Bombay Stock Exchange BSE index looks truly spectacular
I think the BSE is likely beginning the greatest bull move in the history of global stock markets Eager investors can use INDA NYSE to get in on the upside action
Interestingly as Indian markets soar the US stock market rally is likely to drift aimlessly and a crash to below the 2009 lows cannot be ruled out
That s because US stock buybacks have massively distorted price earnings ratios and without the QE lifeline large money managers are showing real concern about being invested in American markets
Gold is the world s ultimate asset and it s showcasing a beautiful rectangular consolidation pattern against the dollar on this daily chart
Sizable volatility is likely as the Fed and the BOJ make their announcements After a likely pullback towards 1190 gold should rise towards my 1305 target price and then onto 1320 1350 and 1380
Fear needs to be tossed aside Short term pullbacks offer superb entry points for all ultimate asset enthusiasts
This is the hourly bars oil chart Oil is the largest component of most commodity indexes and there s a nice bull wedge pattern in play
Chinese demand for commodities is rising again and many large US money managers believe an up cycle for inflation lies just ahead I don t think they will stop allocating money to the sector because of any short term concerns and most gold stock charts look somewhat like the oil chart on steroids
This is the Market Vectors Gold Miners NYSE GDX hourly bars chart The bull wedge pattern is almost identical to the oil chart wedge All ten percent price corrections in gold stocks should be bought aggressively Stock market investors can t avoid India just because they lost money in US markets after Y2K Likewise Western gold stock investors can t focus on past gold stocks losses It s a new era It s a gold bull era and it s time for the Western gold community to embrace it with open arms
This is a nice Chinese commodity exchanges volume chart I predicted a soft landing for the transition of the Chinese economy from an exports orientation to domestic consumption followed by a surge in gold buying That s exactly what has happened and I ll dare to suggest the upside fun has only just started
Western mainstream media is beginning to note the growing power of Chinese exchanges in major commodity price discovery
Russia s central bank continues its relentless monthly gold buy program as does the PBOC the central bank of China Western gold and silver community investors should be modest buyers of all small pullbacks and bigger buyers of any price correction that ultimately appears It s time to say good bye to tears and fears and say hello to about one hundred years of bull era fun
Risks Disclaimers Legal Stewart Thomson is no longer an investment advisor The information provided by Stewart and Graceland Updates is for general information purposes only Before taking any action on any investment it is imperative that you consult with multiple properly licensed experienced and qualified investment advisors and get numerous opinions before taking any action Your minimum risk on any investment in the world is 100 loss of all your money You may be taking or preparing to take leveraged positions in investments and not know it exposing yourself to unlimited risks This is highly concerning if you are an investor in any derivatives products There is an approx 700 trillion OTC Derivatives Iceberg with a tiny portion written off officially The bottom line Are You Prepared |
MS | Fratboys At The Punchbowl | The Federal Reserve like chaperones at a fraternity house party has appeared overly concerned about the prospect of upsetting the party goers and has backed off from earlier indications that it would raise rates four times this year says Joe McAlinden of McAlinden Research Partners
William McChesney Martin the longest sitting Federal Reserve Chairperson in history once famously quipped that it was the Fed s job to order the punch bowl removed just when the party really starts to get going His point was that the Fed should raise interest rates and restrict liquidity to preempt an overheating economy before the economy actually overheats and it is too late The metaphor is a bit dusty as it s been over a decade since the Fed was in a tightening mode but the punchbowl reference is increasingly relevant again
Following the first interest rate hike last December the Fed like chaperones at a fraternity house party has appeared overly concerned about the prospect of upsetting the party goers and has backed off from earlier indications that it would raise rates four times this year In mid March the Fed not only passed on hiking rates but also issued its updated FOMC median projection for the year end Fed Funds rate The median forecast was lowered by 50 basis points effectively signaling there will now be only two rate hikes over the course of 2016 At the April FOMC meeting the Fed remained cautious about raising rates As things stand rates will remain below 1 for the rest of the year
The news was greeted by some including me as a total capitulation by the central bank to the more dovish views held by traders in the financial markets It added fuel to the notion that central banks have lost control and are letting markets dictate monetary policy Fed Chair Janet Yellen s comments about a very gradual path were reinforced at a recent speech before The Economic Club of New York where she used the word gradual nine times But those assurances may be part of what s driving expectations in the Fed Funds futures market where traders are not even pricing in those two hikes At this point traders don t believe the Federal Funds Rate will hit a full 1 by the end of 2018 As that famous monetary economist Crocodile Dundee might have said Now that s gradual
Janet Yellen has defended the Fed s dovish shift on the grounds that financial conditions had tightened during the first quarter She cited declines in broad measures of equity prices and higher borrowing rates for riskier borrowers In other words stocks went down and junk bond spreads widened But those moves in securities prices were more a function of the fleeting fear and greed impulses of Wall Street traders than that of some highly complex model that measures financial conditions Could it then be that the whims of Wall Street traders are driving monetary policy at the most powerful central bank in the world
There is an even more scary feedback loop from the frat boys to the Fed Some Fed officials had cited a sharp decline in long term inflation expectations as another concern during the first quarter Inflation expectations in the markets are usually quantified by taking the difference between the yield to maturity YTM of a conventional Treasury coupon bond and that of a Treasury Inflation Protected Security TIPS bond of the same maturity term This difference produces the breakeven inflation rate so named because if future inflation were equal to this value then the realized return of the conventional UST bond would be the same as for the TIPS bond One can extract inflation expectations for the next five years beginning five years from now by using the 10 year and 5 year conventional and TIPS bonds
But as we show in the chart above inflation for the five year period beginning five years from now seems to correlate highly with changes in the spot price of oil from two nanoseconds ago When hedge funds were heavily shorting crude and prices were plunging into the high 20s the inflation expectation for five years from now plunged as well The correlation is over 0 9 Huh And now with spot oil prices having risen smartly since mid February traders expectations of what inflation will be in the five year period beginning five years from now have risen accordingly Bizarre Even more bizarre was the fact that some FOMC members would cite the plunge as worrisome
This punchbowl experience is somewhat reminiscent of the prolonged cycle of easy money maintained by the Fed in the period leading up to Y2K an era of monetary policy aptly characterized by the notion of the Greenspan Put This was the idea that by lowering interest rates to create cheap money and prop up markets whenever they might get shaky then Fed Chairman Alan Greenspan was essentially providing investors with a put option used to insure against market declines
So Now What Will every dip in stock or junk bond prices be justification for further delaying the path to more normal interest rates In our view if the Fed continues to postpone further tightening market participants will experience a worse hangover than we are already headed for As the WSJ characterized recently it is as if the Fed has given inflation a hall pass suggesting that the central bank is willing to fall behind the curve on inflation as opposed to getting ahead of it At the risk of sounding like the old curmudgeon at the party things are likely to end badly
But perhaps not The Fed Committee has repeatedly stated that it is going to be data dependent and there are reasons to expect a strengthening GDP through the second half of 2016 More importantly since the Fed has already achieved its target for unemployment which is now at 5 greater attention is likely to be paid to the 2 inflation target Already the CPI for March is showing an inflation awakening although the aggregate index is up only 0 9 year over year that figure masked the upward trend of Services 60 of CPI which rose 2 7 from a year ago Even the core PCE Deflator the Fed s preferred inflation measure was up 1 6 YoY in March and has matched the FOMC expectations of 1 6 for year end 2016 We believe future inflation numbers will rise sharply as energy prices recover
At this point the markets have improved dramatically since the mid February trough junk bond yields have dropped almost 200 basis points and stocks have rallied 15 and are now flirting with all time highs By keeping the fed funds rate unchanged in March the Fed has certainly made the frat boys happy But it won t take much further deterioration in the inflation numbers for the data dependent Fed to get back to cutting off the punch bowl If the Fed is indeed data dependent new inflation numbers suggesting it is falling behind the curve could lead it to put those rate hikes right back on the table causing the markets to slip once again into correction mode Notably in the April statement the Fed deleted the reference to financial developments
Fortunately there are always groups of securities that do well even when the leading indexes are not MRP has outlined four themes in our Market Viewpoints reports over the past six months that should prove to be resilient even in a renewed broad market correction First MRP believes that during periods of increasing interest rates value stocks will outperform growth stocks We also believe that as the Fed gradually tightens monetary policy U S inflation will be rising faster than interest rates causing the inflation adjusted rate to fall This in turn will cause the USD to weaken
As the USD falls investors will turn to inflation protected assets such as gold which will also boost gold miner shares In recent months the dollar has fallen more than 8 since its peak last year The downturn has sparked a rally in emerging markets which we recommended as an attractive opportunity in early December And finally we believe that crude oil prices have bottomed and will rise steeply as supply shrinks while demand surges ahead
Joe McAlinden has over 50 years of investment experience He is the founder of McAlinden Research Partners and its parent company Catalpa Capital Advisors Previously McAlinden spent more than 12 years with Morgan Stanley NYSE MS Investment Management first as chief investment officer and then as chief global strategist where he articulated the firm s investment policy and outlook He received a bachelor s degree cum laude in economics from Rutgers University and holds the Chartered Financial Analyst designation McAlinden has served on the board of the New York Society of Security Analysts
Disclosure 1 Statements and opinions expressed are the opinions of Joe McAlinden and not of Streetwise Reports or its officers Joe McAlinden is wholly responsible for the validity of the statements Streetwise Reports was not involved in any aspect of the article preparation or editing so the author could speak independently about the sector Joe McAlinden was not paid by Streetwise Reports for this article Streetwise Reports was not paid by the author to publish or syndicate this article
2 This article does not constitute investment advice Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility By opening this page each reader accepts and agrees to Streetwise Reports terms of use and full legal This article is not a solicitation for investment Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security Streetwise Reports does not endorse or recommend the business products services or securities of any company mentioned on Streetwise Reports
3 From time to time Streetwise Reports LLC and its directors officers employees or members of their families as well as persons interviewed for articles and interviews on the site may have a long or short position in securities mentioned Directors officers employees or members of their families are prohibited from making purchases and or sales of those securities in the open market or otherwise during the up to four week interval from the time of the interview until after it publishes |
C | Record low rates deliver competitive advantages to Australia s biggest banks regulator | By Paulina Duran
SYDNEY Reuters Australia s banking watchdog on Friday said record low interest rates are likely to benefit the country s Big Four lenders over their smaller counterparts due to their better capital position and access to cheaper funds
Speaking at an industry event in Melbourne the Chairman of the Australian Prudential LON PRU Regulation Authority APRA Wayne Byres said all banks should adapt to lower interest rates that will hurt profitability and their ability to generate capital and that smaller banks would be at a competitive disadvantage
Given their different funding profiles these trends may well impact smaller banks more forcefully than larger ones reducing the ability of the former to apply competitive pressure to the latter Byres said
Australia s central bank in June and July cut interest rates to a record low of 1 and financial futures show investors are pricing in two further cuts by mid 2020 which would put further pressure on banks interest margins the difference between interest paid and earned
Australian bank earnings have already suffered by the central bank s move to cut the cash rate as it gets harder to reduce already low deposit rates to offset the cheaper mortgages banks must offer borrowers
Smaller banks however would fare worse as they do not have the high capital levels of the four biggest Commonwealth Bank of Australia AX CBA Westpac Banking Corp AX WBC National Australia Bank Ltd AX NAB and Australia and New Zealand Banking Group Ltd ANZ AX ANZ and therefore must pay higher rates for funds
Byres said the regulator was considering the long term challenges this dynamic would pose on the banking system and to competition which has been lacking in a sector where those four banks dominate 80 of the market
APRA needed to think harder about the impact on business models and business lines of a very low interest rate environment persisting for a lengthy period of time Byres said
NO FALLOUT WITH NEW ZEALAND COUNTERPART
The regulator also denied suggestions of a falling out with the Reserve Bank of New Zealand RBNZ after banking analysts at Citigroup Inc N C said their divergent policies were leading into unnecessarily higher capital levels for the big four banks that fund both economies
The RBNZ last year proposed the Big Four Australian lenders that provide almost 90 of banking products in its country to raise NZ 20 billion 12 81 billion over the next five years
The Australian regulator then responded with its own directive for the banks to limit their capital exposure offshore to a maximum of 25 down from half prompting ANZ who has the largest New Zealand operation to say it would need to start ring fencing profit in that country
There has been some suggestion that this reflects some kind of falling out between us or evidence of trans Tasman one upmanship Byres said
In fact the opposite is the case and we communicate frequently at all levels
The processes underway are a natural by product of both regulators working to protect their respective communities from the costs of financial instability Byres said We are entirely comfortable with that |
C | China Backs U S Farm Purchases as Trade Talks Atmosphere Warms | Bloomberg China said it is encouraging companies to buy U S farm products including soybeans and pork and will exclude those commodities from additional tariffs in the latest move to ease tensions before the two sides resume trade talks
The Commerce Ministry s announcement on Friday follows a move earlier this week to exempt a range of American goods from 25 extra tariffs put in place last year as the government seeks to lessen the impact from the trade war China didn t specify the amount of purchases of pork and soybeans which are key exports from agricultural states important for President Donald Trump s 2020 reelection bid
Equity markets have rebounded in recent days as both Trump and Chinese leader Xi Jinping sought to lower tensions that are clouding the outlook for the world s biggest economies Adding to the pressure on Beijing China is facing pork shortages that are pushing up prices during a holiday period prompting officials to ration sales in some areas Still major differences on the substantive issues that sparked the trade war remain
It is hoped the U S side can keep goodwill reciprocity with China through practical actions Global Times editor in chief Hu Xijin said in a tweet shortly before the move was announced
Trump administration officials have discussed offering a limited trade agreement to China that would delay and even roll back some U S tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases Working level teams from both countries are set to meet next week
The ice is thawing said Chua Hak Bin an economist at Maybank Kim Eng Research Pte in Singapore China s reciprocity to Trump s goodwill gesture will set the stage for more cooperative trade talks
Soybean futures were little changed in Chicago after the Xinhua announcement Prices had jumped 3 3 on Thursday and hog futures rose the most allowed by the exchange amid optimism that China will boost imports of American farm products The U S government also cut its outlook for soybean stockpiles more than expected in a monthly crop report
The Shanghai Composite Index increased for a second consecutive week and the S P 500 Index was on course for its third straight week of advances
The Chinese government is growing increasingly concerned about soaring prices and its potentially to mar celebrations for the 70th anniversary of the People s Republic of China s founding on Oct 1 China is hoping to import 2 million tons for the year some of which would be added to state reserves according to people with knowledge of the plans
China bought about a million tons of pork so far this year of which about 87 771 tons were from the U S according to Chinese customs data Even if purchases tripled imports would only make up about 6 6 of domestic supply Citigroup Inc NYSE C said in a report on Sept 12 The world s biggest consumer of pork accounted for about half of global demand last year while it produced about 54 million tons Citigroup said
More imports are only going to go part of the way to addressing shortages The country is likely to see a 10 million ton pork deficit this year more than the roughly 8 million tons in annual global trade according to Vice Premier Hu Chunhua That means the country will need to fill the gap by itself he said
China s Fight Against Pork Prices Could Include U S Imports
China had halted U S farm product imports in August after trade deal negotiations deteriorated Before that Beijing had given the go ahead for five companies to buy up to 3 million tons of U S soybeans free of retaliatory import tariffs people familiar with the situation had said
The goods exempted from additional tariffs this week by China included pharmaceuticals lubricant oil alfalfa fish meal and pesticides The exemptions are effective from Sept 17 to Sept 16 2020 and will cover 16 categories of products worth about 1 65 billion according to Bloomberg calculations based on China s 2018 trade data Further rounds of Chinese exemptions will be announced in due course the ministry said
Wednesday s exemptions apply to the round of tariffs Beijing imposed on U S goods starting last July in retaliation for higher U S levies China began accepting applications for tariff exemptions in May but it is the first time they have stated which products will be excluded The U S Trade Representative s Office has announced six rounds of exclusions for the punitive tariffs on 34 billion in Chinese goods since December
We can all see there is a likelihood of a mini deal given China s pork problems and to a lesser degree the 2020 election issue said Michael Every head of Asia financial markets research at Rabobank in Hong Kong Does this mean we get a real deal Let s just say that this is still highly unlikely |
C | A 185 Million Bond Payment Is Late and Stuck in Argentina | Bloomberg It was the kind of transaction that would have been mundane just a few weeks ago in Argentina a company owed a bond payment to foreign and local creditors It was a large payment 185 million in principal alone but the company a real estate firm called IRSA had plenty of cash to cover it When it turned over the money to the firm processing the payment though things got complicated Under the new currency rules imposed by the government to try to staunch dollar outflows and stabilize the peso the cash couldn t be sent to creditors overseas accounts As the payment was coming due Sept 9 the firm Clearstream began releasing a series of statements confirming the money was at least temporarily frozen All of which has added another layer of confusion and worry to markets in a country already paralyzed by a financial crisis that has the government on the cusp of default for the third time in the past 20 years Among the most pressing questions traders and investors were grappling with Friday was whether this blocked payment was a technical glitch that the government would resolve soon or a more permanent feature of the controls that would imperil payments by other companies and the government itself in coming weeks
For the time being most observers seemed willing to wait the situation out expecting that Argentine officials will quickly tweak the rules so as to avoid corporate bond defaults
Argentina doesn t want an accidental default and will fix the problem said Siobhan Morden the head of Latin America fixed income strategy at Amherst Pierpont Securities in New York
An IRSA spokesman declined to comment
Read More on Argentina s History of Defaults
At this stage it appears this snag in the payment chain will affect dollar bonds governed by local laws rather than foreign law bonds where payments are made directly abroad Companies provinces and the federal government often sell both types of notes those that are subject to New York law and those under domestic regulations
A central bank official who asked not to be identified said the capital controls announced this month do indeed limit these sorts of local transactions Non resident holders of local law bonds need to be paid locally and rules limiting overseas dollar transfers to 1 000 a month apply to them the person said
Amos Poncini who holds the IRSA bond as a fund manager at CBH Compagnie Bancaire Helvetique SA in Geneva said he feels burned by the delayed payout and said it reflects poorly on Argentina as a whole
Investors will fly away from there he wrote in an email
IRSA depositary receipts dropped 4 8 to 5 60 in New York trading Friday while its 71 million of notes due in July 2020 were little changed at about 86 8 cents on the dollar Securities from oil producer YPF due in 2021 fell 2 1 cents to 82 7 cents on the dollar while the government s century bonds due in 2117 fell 1 8 cents to 41 7 cents on the dollar
Of course the bond payment hiccup is only the latest in the list of recent disasters for Argentine investors Assets have tumbled since an Aug 11 primary vote showed the opposition was likely to unseat the business friendly President Mauricio Macri in October elections The peso has weakened almost 20 since the ballot prices for the century bond fell by almost half and the Merval stock index lost 46 in dollar terms
Capital controls are blunt instruments and frequently need to be revised as authorities discover surprise implications and loopholes according to Dirk Willer an analyst at Citigroup Inc NYSE C Officials want to preserve the country s foreign reserves but likely want companies to be able to repay debts he said
This is likely an unintended consequence of the controls and will likely be revised Willer wrote in a note to clients
Adds fund manager s comment in ninth paragraph |
JPM | Lines And Values That Matter DIA EEM EMB IYR OEF QQQ SPY XLU | With the help of I hereby present to you The Lines and Values That Matter It would be awfully nice if we stayed below these lines particularly with whatever fireworks we get tomorrow It makes via ursae much easier
SPDR Dow Jones Industrial Average NYSE DIA Chart
iShares MSCI Emerging Markets NYSE EEM Chart
iShares JPMorgan NYSE JPM USD Emerging Markets Bond NASDAQ EMB Chart
iShares US Real Estate NYSE IYR Chart
iShares S P 100 NYSE OEF Chart
PowerShares QQQ Trust Series 1 NASDAQ QQQ Chart
SPDR S P 500 NYSE SPY chart
Utilities Select Sector SPDR NYSE XLU Chart |
MS | Singapore Property Bulls Ignore Central Bank s Warning Into 2018 | Bloomberg Singapore developers may extend their share rally into 2018 on a reviving home market according to money managers and analysts who say the central bank s warning on a potential oversupply may not play out for years
After double digit gains this year Morgan Stanley NYSE MS sees a 42 percent jump in shares of CapitaLand Ltd the nation s largest developer and a 24 percent increase in City Developments Ltd the second biggest in the next 12 months Property companies such as City Developments and UOL Group Ltd are among the top performers in Singapore in 2017 with developers collectively on track for their best annual performance in five years
Signs of a revival in Singapore s property market include record prices paid for land deals the first increase in home prices in four years and the first gain in office rents in 2 1 2 years The buoyant sentiment was tempered last week by the Monetary Authority of Singapore which flagged the risk of rising vacancies amid slowing population growth
The risk of housing oversupply may not be imminent because of the lead time needed to complete property projects With the government only recently starting to increase the supply of land the resulting developments won t hit the market before 2020 said Raj Vaswani a director of the Tolaram family office in Singapore which manages 500 million The firm owns shares in Singapore listed developers Guocoland Ltd Frasers Centrepoint Ltd and CapitaLand
Not everyone is bullish on Singapore s housing market Nicholas Teo trading strategist at KGI Securities Singapore Pte said many factors will weigh on a sustainable rally in home prices including rising vacancy rates weakness in rental demand and the prospect of rising global interest rates
In addition Singapore still has some stringent home purchase restrictions in place that limit the possibility of runaway home prices
Still an up cycle for property may last into 2020 Morgan Stanley said which estimates that home prices will climb as much as 8 percent next year Wilson Ng a property analyst at Morgan Stanley said developers valuations are attractive based on discounts to net asset value and price to book ratios Ng has overweight ratings on CapitaLand and City Developments
Here s what three money managers said about their outlook for Singapore developer stocks
Xin Yan Low a property securities analyst at asset manager Janus Henderson Group Plc Developers earnings will be underpinned by projects lined up to be launched in 2018 and valuations remain attractive Developers with big landbanks will benefit from rising land prices City Developments is among her top picks Jason Low an investment strategist at DBS Wealth Management Developers share prices have further to run with the property market at the early stages of a recovery Kristy Fong a senior investment manager for Asian equities at Aberdeen Standard Investments Housing demand is starting to outpace supply on an improving economic outlook and because people got tired of waiting for a relaxation of property measures Aberdeen likes City Developments and Bukit Sembawang Estates Ltd |
MS | Proxy firm ISS advises shareholders to back Marcato at Deckers | By Svea Herbst Bayliss BOSTON Reuters Proxy advisory firm Institutional Shareholder Services on Wednesday suggested shareholders back hedge fund Marcato s choice of directors at Deckers Outdoor Corp switching its recommendation after the U S fund made changes In one of the season s most hotly contested proxy contests activist investor Marcato Capital Management has proposed its own slate of directors to influence strategy at the maker of UGG boots But after having spent months campaigning to replace all nine members of the board Marcato on Monday slimmed its proposal to three directors who are all independent of it On Wednesday ISS a proxy advisory firm that issues voting recommendations for shareholders wholly threw its weight behind Marcato saying that the Deckers board has been too slow in addressing problems at the company and that it was time for a shake up Shareholders are therefore advised to directly support dissident nominees Fuller Waterman and Feldman by voting FOR their election on the dissident GOLD card ISS wrote Steve Fuller was previously marketing chief of apparel brand L L Bean while Anne Waterman was a former Michael Kors executive Kirsten Feldman is a former Morgan Stanley NYSE MS executive The new ISS report praised the candidates retail expertise Last week ISS essentially signaled its supported for Marcato but stopped short of urging investors to vote outright for the dissidents for fear of toppling the entire board a move it considered too harsh However Deckers got some good news on Wednesday when rival proxy advisory firm Egan Jones recommended that shareholders vote for all of Deckers incumbent directors Last week Glass Lewis another proxy advisory firm also threw its weight fully behind the company directors Deckers said in a statement on Wednesday that it was pleased that Egan Jones and Glass Lewis recognize that Deckers has the right board and the right strategy It did not mention the ISS recommendation and did not immediately respond to a request seeking comment about the new ISS report Marcato which owns an 8 5 percent stake in Deckers comes into the Dec 14 Deckers annual meeting with strong credentials having already won one proxy contest at Buffalo Wild Wings this year and posting some of the hedge fund industry s strongest returns Its flagship fund up was 24 percent through November |
MS | Morgan Stanley pulls bearish view on Shake Shack | Morgan Stanley NYSE MS upgrades Shake Shack NYSE SHAK after noting the strong performance for new stores in key markets Analyst John Glass now sees a more balance risk reward profile on the restaurant stock due to the sales momentum Shares of Shake Shack are now rated at Equal weight from Underweight and assigned a price target of 41 from 34 Sources CNBC and Morningstar SHAK 1 15 premarket to 42 26 Now read |
MS | Morgan Stanley fires former U S lawmaker for misconduct | NEW YORK Reuters Morgan Stanley N MS fired former U S Democratic lawmaker Harold Ford Jr a managing director at the Wall Street bank for inappropriate conduct related to an undisclosed event a spokeswoman said on Thursday Ford a frequent guest on news and finance TV shows and a five term congressman from Tennessee s 9th district denied wrongdoing in a statement emailed to Reuters by Ford s lawyer This simply did not happen Ford who has worked at Morgan Stanley as a managing director since 2011 said in a statement He also said in the statement that he never forcibly grabbed any woman or man in my life Ford s lawyer John Singer said the firm has not explained the reason for Ford s termination The Huffington Post reported news of Ford s departure earlier on Thursday citing interviews with an unnamed woman who claimed Ford harassed her on a night several years ago Morgan Stanley spokeswoman Margaret Draper said Ford was let go for conduct inconsistent with our values and in violation of our policies The entertainment and media industries and Congress have grappled with how to address a string of harassment allegations against prominent men
Democratic Senator Al Franken resigned on Thursday after a series of sexual misconduct allegations against him |
MS | Japan s third quarter growth twice as fast as first estimated outlook brightens | By Stanley White TOKYO Reuters Japan s economy grew twice as fast as originally estimated in the third quarter thanks to big gains in capital expenditure revised data showed on Friday with expansion seen to continue thanks to buoyant exports The economy grew an annualized 2 5 percent in July September handily beating the preliminary reading of 1 4 percent annualized expansion The capital expenditure component of gross domestic product was revised to a rise of 1 1 percent from the previous quarter well over the forecast 0 4 percent growth and soaring above the preliminary 0 2 percent reading Economists say the rate of growth reported on Friday is unsustainable but they are still confident that the economy will continue to expand next year at a moderate pace The economy is doing well but annualized growth above 2 percent seems a little too quick said Norio Miyagawa senior economist at Mizuho Securities I expect that exports and capital expenditure will lead growth next year but the pace will moderate to around 1 percent Japan s economy has expanded for seven consecutive quarters and many economists expect growth to continue as consumer spending gains strength and export growth is seen on track to continue You can say Abenomics is doing well and producing results Monetary policy is contributing to nominal growth Revisions to past data show the government s fiscal spending had a bigger impact than previously thought The structural reform that has made the most obvious impact is allowing more tourists to visit Japan said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities The government can be satisfied with these numbers Prices are not rising that much which is a problem for the Bank of Japan but at this point officials are starting to worry about how to exit from their easing Friday s updated third quarter data followed revised 2 9 percent annualized growth in April June The initial second quarter data put annualized GDP growth at a stellar 4 0 percent which was later revised down Friday s revised third quarter figures showed that Japan is in its longest uninterrupted period of growth since comparable data became available in 1994 This is a boon to the government as it is expected to agree later on Friday a spending package to subsidize education and encourage more corporate investment Friday s figure translates into quarter on quarter growth of 0 6 percent versus a preliminary reading of 0 3 percent growth and the median estimate for 0 4 percent growth Capital expenditure was revised up because wholesale companies and retailers are increasing investment to deal with increased inbound tourism a Cabinet Office official told reporters Inventories contributed 0 4 percentage point in the third quarter which was revised up from a preliminary 0 2 percentage point contribution due to a build up of chemicals and plastics used in manufacturing the official said Net exports contributed 0 5 percentage point in the third quarter unchanged from the preliminary reading In one worrying sign private consumption fell 0 5 percent in July September unchanged from the preliminary reading as consumers spent less on cars dining out and mobile phone charges Weak consumption disappointed some economists who had expected a slight upward revision
Real wages rose 0 2 percent in October marking their first rise since December 2016 in a sign a tight job market may finally be leading to higher salaries |
MS | Top 5 Things That Moved Markets This Past Week | Investing com Take a peek at the top 5 things that rocked U S markets this week
Final Jobs Report of the Year Boosted Risk on Sentiment
The US jobs market continue its post hurricane recovery as nonfarm payroll on Friday showed the US economy created 228 000 jobs in November while wage growth undershot expectations
That added to risk on sentiment as investors piled into US equities amid growing optimism on tax reform after the Senate this week agreed to talks with House of Representatives to reconcile their differences on a tax bill
The tax bill is widely expected to provide the US economy with a fiscal lift stoking expectations for a prolonged period of strong US economic growth boosting demand for equities
Investors however had to contend with a sell off earlier this week in tech stocks as traders were said to have reduced their bullish bets on tech names amid expectations that the potential of lower corporate taxes would provide more of boost to other sectors such as financials and energy
The S P 500 closed at record highs on Friday
Traders Cheered the Bitcoin Bump But Reversal Soon Followed
Bitcoin went on a wild ride rising to a record high on Friday before retreating sharply as traders appeared to take profit on an impressive rally this week ahead of the launch of bitcoin futures
Cboe Global Markets said earlier this week it will start trading bitcoin futures on Dec 10 after receiving the green light last week from US futures regulator Commodity Futures Trading Commission CFTC The news comes after CME Group announced last week that it would launch bitcoin futures on Dec 18
The launch of futures trading would allow traders to place bearish bets on bitcoin which could pressure the price of digital currency Some market participants believe however that the launch of futures trading paves the way for bitcoin to become an established asset class which would spur institutional demand
Oil Attempted Comeback But Failed
Oil futures struggled to pare losses after falling sharply on Wednesday following the release of inventory data which pointed to possible demand weakness after gasoline inventories rose more than expected
Sentiment on oil remained positive however as Morgan Stanley NYSE MS said oil prices were entering a phase of gradual recovery as demand for petroleum based products continued to outpace its historical average growth ahead of the winter peak period
Crude futures for January delivery rose 1 2 to settle at 57 36 a barrel
Sterling Slumped Amid Buy The Rumor Sell The News Scenario
Sterling eased from two month highs against the dollar after news reports emerged that the UK agreed to pay up to 50 billion to settle the so called brexit divorce bill as the UK seeks to negotiation its exit from European Union
Sterling struggled to hold onto gains amid what many viewed as a buy the rumor sell the fact scenario after the currency surged last week on rumours of an UK EU divorce bill agreement first surfaced
GBP USD fell 0 62 to 1 3391
Gold Prices Slipped to Third Straight Weekly Loss
Gold prices ended the week languishing at five month lows pressured by a firmer dollar on signs of progress on tax reform and better than estimated nonfarm payrolls data
The yellow metal s bearish week comes just days ahead of Federal Open Market Committee two day meeting on Dec 12 13 during which central bank members are expected to vote to raise interest rates for the third time this year
Gold Futures fell 0 24 to 1 250 on Friday |
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