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JPM | Economists Downplay Indicators That Say U S Recession Is Coming | Bloomberg Market based recession indicators are flashing red To some economists they re better left ignored
At the moment that s easier said than done Among a slew of gauges maintained by JPMorgan Chase Co NYSE JPM one based on stocks and credit spreads puts the probability of a recession in the next 12 months at 50 percent though it was at 70 percent two weeks ago Another based on the gap between long term and short term Treasury yields the so called yield curve puts the figure at 46 percent according to economist Jesse Edgerton
When it comes to predicting recessions market based models carry one clear advantage Compared with hard economic data they re more forward looking But not only can markets get it wrong they re also prone to rapid reversal undermining their reliability as the harbingers of doom
Financial markets are efficient and they can be powerful predictors of future economic conditions including recessions said Joseph Davis chief economist at Vanguard Group the mutual fund giant That doesn t mean they re always accurate
Such caution may be warranted as the U S trade dispute with China and the partial U S government shutdown drag on While each looms as a threat to economic activity that has been priced in to financial markets and affected measures of business confidence neither has seriously damaged U S output and could disappear before that happens
If we can get a resolution on just one of these fronts some of the recession risks should subside Davis said
Equity markets in particular are notoriously alarmist As the late economist Paul Samuelson famously wrote in 1966 stocks had predicted nine out of the last five recessions Its mistakes he added were beauties
To its credit the yield curve has been more reliable The spread between three month bills and 10 year Treasuries has inverted before each of the past seven recessions But the usefulness of that signal is muted because the timing of subsequent recessions is so varied and unpredictable
According to Roberto Perli an economist at Cornerstone Macro LLC in Washington the time lag from inversion to recession has ranged from nine months for the 1981 82 downturn to 34 months for the 2001 recession with no discernible pattern
The first lesson is to avoid relying on any single indicator But even composite measures are at the moment attracting skepticism Perli s own model based on stocks corporate bond spreads and various portions of the Treasury yield curve warns of a 56 percent chance of recession within a year And yet he advised his clients in a note Tuesday that these models are best ignored
That s because Perli pins much of the recent market woes on angst over China which he thinks will eventually ease as monetary policy in China adjusts and prevents a hard landing
The markets are expressing worries about the Chinese economy and its potential repercussions on the U S economy wrote Perli a former Fed official There doesn t seem to be much specific to the U S economy that seems likely to go seriously wrong over the next few quarters
While Perli s optimism over China can be debated it s clearer that a potential recession in China is weighing on U S financial markets before it s baked into the economic outlook In other words it s a risk factor but not a hazard that has been struck
As for the hard economic data that may be slower than markets to reveal a deteriorating outlook but less likely to give firms and families a head fake on what s coming
Major Reversal
You cannot get the equivalent of a thousand point drop in the real economy in 24 hours but you can in the financial markets said Bill Dunkelberg chief economist for the National Federation of Independent Business So if the model you re looking at is dominated by financial numbers there s a much higher chance you can get a major reversal
It s somewhat comforting then that the hard data are signaling a slowdown in growth but no recession Edgerton said JPMorgan s preferred model based on economic data puts the probability of a recession in the next year at 41 percent
That compares with the 25 percent median chance of a slump seen by economists in a Bloomberg survey earlier this month
Vanguard s Davis has a model which blends economic data and market measures and has spit out a 35 percent probability We ll still have growth scares he said But fate hasn t been set for 2019 |
JPM | U S consumer sentiment at two year low manufacturing rebounds | By Lucia Mutikani WASHINGTON Reuters U S consumer sentiment tumbled in early January to its lowest level since President Donald Trump was elected more than two years ago as an ongoing partial shutdown of the federal government and financial market volatility stoked fears of a sharp deceleration in economic growth The drop in confidence reported by the University of Michigan on Friday is the clearest sign yet that the impasse in Washington over Trump s demands for 5 7 billion to help build a wall on the United States border with Mexico was negatively impacting the economy Trump has touted high consumer confidence as an indication of the good job he is doing on the economy While consumer sentiment remains relatively high the gathering dark clouds over the economy could make households more cautious about spending leading to slower growth Consumer spending accounts for more than two thirds of the U S economy This report on consumer sentiment is the first concrete evidence that the economy is going to fall and fall hard if Washington does not end the shutdown said Chris Rupkey chief economist at MUFG in New York It is going to be hard to see real GDP growth of more than 1 to 1 1 2 percent in the first quarter if the consumer goes on a buying strike The longest government shutdown in the history of the United States has left some 800 000 government workers without a paycheck Private contractors working for many government agencies are also without wages The University of Michigan said its consumer sentiment index fell 7 7 percent to a reading of 90 7 this month the lowest reading since October 2016 and the steepest drop since September 2015 Economists had forecast a reading of a 97 0 The survey s measure of current economic conditions decreased to 110 0 from a reading of 116 1 in December Its measure of consumer expectations tumbled to a reading of 78 3 the lowest since October 2016 from 87 0 in late December The University of Michigan attributed the decline in sentiment to a host of issues including the partial government shutdown the impact of tariffs instabilities in financial markets the global slowdown and the lack of clarity about monetary policies It said that half of the survey s respondents believed that these events would have a negative impact on Trump s ability to focus on economic growth Economists estimate the partial shutdown of the government which started on Dec 22 is subtracting as much as two tenths of a percentage point from quarterly GDP growth every week Other surveys have also shown an ebb in business sentiment Sentiment among both households and businesses has been coming off the sugar highs which were caused by tax cut hopes at the beginning of the Trump presidency said Harm Bandholz chief U S economist at UniCredit in New York U S financial markets shrugged off the fall in sentiment with investors focusing on another report on Friday showing manufacturing output surged by the most in 10 months in December and on hopes for progress in the U S China trade row Stocks on Wall Street rallied setting the three main indexes on track for their fourth week of gains The dollar rose against a basket of currencies while U S Treasury prices fell FACTORY ACTIVITY ACCELERATES The broad based jump in manufacturing output in December reported by the Federal Reserve could allay fears of a sharp slowdown in factory activity Manufacturing activity which accounts for about 12 percent of the economy is slowing as some of the boost to capital spending from last year s 1 5 trillion tax cut package fades In addition a strong dollar and cooling growth in Europe and China are hurting exports Lower oil prices are also slowing purchases of equipment for oil and gas well drilling Production at factories increased at a 2 3 percent annualized rate in the fourth quarter after expanding at a 3 7 percent pace in the July September period It increased 2 4 percent in 2018 the largest gain since 2012 after advancing 1 2 percent in 2017 While the manufacturing strength in December is a favorable signal for the economy we should keep in mind that it came after soft results in earlier months said Daniel Silver an economist at JPMorgan NYSE JPM in New York A broad range of manufacturing surveys also have been weakening lately so the strength in the manufacturing output in December may prove to be short lived Last month motor vehicle production surged 4 7 percent after gaining 0 2 percent in November Excluding motor vehicles and parts manufacturing advanced a solid 0 8 percent last month after gaining 0 1 percent in November
December s 1 1 percent surge in manufacturing output together with a rise in mining production offset a weather related drop in utilities leading to a 0 3 percent increase in industrial production Industrial output rose 0 4 percent in November It increased at a 3 8 percent rate in the fourth quarter after notching a 4 7 percent gain in the third quarter |
JPM | JPMorgan Favors Petrobras Over Vale in Battle of Brazilian Stocks | Bloomberg For investors looking to get in on the equity boom in Brazil via commodity titans Vale or Petrobras JPMorgan NYSE JPM has some ideas about the best bet
The bank examined output growth costs capital expenditure profitability free cash flow valuation and the outlook for commodities Its conclusion Oil giant Petroleo Brasileiro SA is the most appealing option for stock pickers
While Vale SA the world s biggest producer of iron ore benefits from higher profitability and an attractive valuation Petrobras has a more attractive structural case JPMorgan analysts Rodolfo Angele and Ricardo Rezende wrote in a report Jan 22
The analysts noted Petrobras s shift toward loosening its operational ties to the state over the past three years amid new Chief Executive Officer Roberto Castello Branco s move to oust the last top executives nominated during the Workers Party governments Moreover Castello Branco has vowed to increase oil production reduce debt and proceed with the firm s divestment program
JPMorgan also sees potential gains coming from asset sales and a bill in Brazil s Congress that would allow Petrobras to sell offshore crude reserves to other drillers The bank predicts output will pick up this year boosting free cash flow and helping the company deleverage
JPMorgan has buy recommendations for American depositary receipts from both Vale and Petrobras and likes Petrobras preferred shares over the common stock |
JPM | Shutdown Deprives Data Dependent Fed of Data It s Dependent On | Bloomberg Just when the Federal Reserve most needs fresh data to keep its policy in sync with the U S economy the government shutdown is getting in the way
Timely information on economic growth jobs consumer spending and inflation is always crucial to monetary policy making Now the longest shutdown on record is blocking the collection and reporting of many of these key numbers
While fourth quarter gross domestic product is due Jan 30 as the Fed wraps up a two day meeting a delay in the release is all but assured given that the Commerce Department unit that produces the figures has been closed for a month
Data Releases Jan 16 31
The absence of some government figures is wreaking havoc elsewhere Farmers aren t getting Agriculture Department reports on crop supply and demand Steel analysts don t have the latest customs data that inform them about imports And foreign exchange traders are deprived of options numbers from the Commodity Futures Trading Commission that help them navigate the 5 1 trillion a day currency market
The disruptions are especially problematic for the Fed right now as policy makers are feeling their way toward a peak in the rate hiking cycle a period when theoretical frameworks are less useful and fresh data become even more important
Unlike a year ago the economy is also giving off mixed signals The labor market and consumer spending look strong but slowing global growth the protracted trade war and the shutdown itself have darkened the picture In addition the housing market is struggling amid elevated borrowing costs and price gains
It s always true that you don t know where you are you kind of know where you were a month or two ago said William English an economics professor at Yale University and former senior Fed adviser The data gaps mean now there ll be just greater uncertainty about the state of the economy and that clearly creates its problems for monetary policy
Fed policy makers have recently indicated they will take at least a pause from their quarterly pace of rate hikes Analysts expect that the lack of timely and comprehensive economic data makes it even more likely the Fed will do nothing for several months
It clouds the picture of how the economy ended 2018 and how it is starting the year off said Michael Feroli chief U S economist at JPMorgan Chase Co NYSE JPM who formerly worked at the Fed It s just one more reason to be patient
Meanwhile Fed officials frequently emphasize the central bank s reliance on fresh economic data is growing Several participants expressed the view that it might be appropriate over upcoming meetings to remove forward guidance entirely and replace it with language emphasizing the data dependent nature of policy decisions according to minutes of the December meeting
Williams Speech
New York Fed President John Williams last week issued a reminder saying that gradually raising rates was the obvious and necessary choice at the start of 2018 when the economy was growing well above trend and interest rates were still quite low But now the tailwinds have less impact interest rates are closer to normal levels and inflation is tame he said
The motto of data dependence is more relevant than ever Williams NYSE WMB said in a speech Friday How should the Fed respond to an outlook of slowing growth and one that s less certain than say this time last year In a word carefully
The Fed isn t completely in the dark The Labor Department is funded and remains open so its reports are on schedule including employment and the consumer price index which showed inflation was relatively contained in December
However the Fed s own preferred gauge of inflation included in the Commerce Department s personal income and spending report due Jan 31 will probably be delayed That will make it difficult to know more precisely how close or far prices are from the central bank s 2 percent goal
For now there s only a patchwork of public and private data and anecdotal evidence to guide officials when they meet next week Following the meeting Fed watchers will look for any mention of the shutdown in the central bank s policy statement Recently released transcripts showed how officials had considered and rejected a reference to the shutdown in 2013
English who headed the Fed s division of monetary affairs from 2010 to 2015 summed up the current situation with a reference to a rule of thumb put forward in 1967 by economist William Brainard If you re uncertain about the effects of your policy greater uncertainty means do less |
JPM | Dimon says U S China could get enough done to extend deal deadline CNBC | Reuters JPMorgan Chase Co N JPM Chief Executive Officer Jamie Dimon said on Wednesday the ongoing U S China trade war was serious but expects the countries to get enough done to extend a March 1 trade deal deadline
U S President Donald Trump has vowed to increase tariffs on 200 billion worth of Chinese imports on March 2 if China fails to address intellectual property theft forced technology transfers and other non tariff barriers
I think they ll get enough done kind of agreements in principle to extend the deadline Dimon said in an interview with CNBC at the World Economic Forum in Davos
If you have tariffs put in place on March 1 that would be bad for the global economy
He said there was a lot of noise that may very well cause a slowdown or recession in the U S economy specifically citing geopolitical issues Brexit tensions and the government shutdown
The U S economy could also grow at a 3 percent rate if policymakers get things fixed Dimon said in the interview |
MS | Sterling Range Ahead | GBP USD
Price was going as projected in our Mar 7 Article and as of this writing we have started deploying our range strategy for the sterling We have been with the bears and the bulls not favoring any camp though we must say trading range market is one of the most difficult endeavors and sterling is currently one of the forex pairs that offers you to hone your range trading skills as the Brexit issue is in the limbo
Recent polls by Opinium for the Sunday s Observer newspaper showed that 43 support for the Kingdom to leave the European Union ahead of the 39 support for staying in the world s largest economic bloc The only thing that supports the GBP USD exchange rate from falling faster right now is that the demand for the greenback is not that strong either due to Fed s recent rate hike indecision hence the range market
Looking at the recent CoT report for the sterling futures contract speculators still bearish with net short increased by 1 2 for June delivery
On the institutional side we see Morgan Stanley NYSE MS standing firm in their bearish view as UK moves into the June 23 referendum shorting sterling from the 1 4320 level targeting 1 35 level Of the 42 instituitions surveyed 27 called for a lower sterling than what it is now around 1 4150 as of this writing and 15 more are not that far off with BNP Paribas PA BNPP being the most bullish predicting 1 48 in a month time
Halal Traders will continue deploying our range strategy until new trend develops |
MS | Earnings Watch Investment Bank Reports On Monday | Morgan Stanley Financials Capital Markets Reports April 18 Before Market Opens
Key Takeaways
The Estimize consensus is calling for EPS of 0 54 on 8 315 billion in revenue 8 cents higher than Wall Street on the bottom line and 535 on top
Investment banking units have suffered from weak trading activity and slower underwriting activity
Morgan Stanley expects to see greater revenue from its Wealth Management units supported by higher net interest income and lower transaction fees
Morgan Stanley NYSE MS kicks things off for investment banks on Monday with first quarter earnings Despite better than expected fourth quarter earnings the bank has a track record of disappointing investors In the past 12 months the stock is down 29 7 due to weak capital markets slower rate increases and lingering energy concerns The investment bank line in particular has suffered from weak trading activity slower underwriting activity ongoing litigation expenses and an ever changing regulatory environment
Morgan Stanley is seeing a slew of unfavorable revisions activity ahead of its earnings this Monday Per share estimates have been cut by 40 while revenue is down 13 since the bank last reported As a result the Estimize consensus is calling for EPS of 0 54 on 8 315 billion in revenue 8 cents higher than Wall Street on the bottom line and 535 on top Compared a year earlier earnings is predicted to fall 26 while revenue is tracking a 12 fall
Generally speaking Investment banking and energy will be Morgan Stanley s two most volatile business lines this quarter Investment banking units have been in a downturn primarily driven by lower underwriting revenues and reduced equity activity Energy on the other hand is a central theme plaguing all the banks with Morgan Stanley exposed to 15 9 billion in sector loans Fortunately 60 of these industry loans and lending commitments are with investment grade counterparties
On the bright side Morgan Stanley expects to see increased revenue in its Wealth Management units Greater net interest income and lower transaction fees on a less active trading patterns calendar is like to support revenue growth in this segment Meanwhile the bank has begun client re risking and re engagement which could generate very robust revenues in the near future
Do you think MS can beat estimates |
MS | European Markets Up Ahead Of German ZEW Data | The stability in oil prices has strengthened attitudes among traders who are developing a strong appetite for riskier assets After an initial plunge in oil prices due to a failed meeting in Doha oil prices recovered remarkably and this has served as a signal that no more adverse news can cause any major dents for oil However it is pairing some gains today
Investors over in Europe are taking their cue from the positive attitude which investors have in both Asia and the US
The quarterly earnings will remain the major focal point for investors After seeing the results issued by Morgan Stanley NYSE MS all eyes will be on Goldman Sachs earnings today The bank s trading revenue its risk appetite and their forecast will be just some of the smaller affairs that will catch the eye of traders If the bank does show a very cautious outlook it will immensely impact the trading session
Today marks the end of the first quarter and without any surprise the bounce in the oil prices along with solid gains in commodities has lifted the mining sector This rebound in commodity prices has provided a breath of fresh air for inflation which is constantly getting battered On the back of this traders are expecting a strong reading for the Eurozone s CPI number and the forecast is for 0 1 in contrast to the previous number of 0 2 If we do see this number showing encouraging signs then the ECB president Mr Draghi will not be able to stop himself from claiming some of the credit after another big bonanza landing under his watch
Moving away from earnings traders will also pay close attention to the upcoming economic data over in the Eurozone This will be especially important to investors ahead of the ECB press conference which will take place later on this week The ECB lending survey results will confirm how much risk appetite investors have developed The ECB released a large QE package last month and during their upcoming meeting the bank may emphasise reforms once again
The German ZEW economic results are due today The data will hit the deck at 09 00 GMT and the forecast is for 8 2 as compared to the previous reading of 4 2 This is a very optimistic number and if the actual number does come near the expectation it may boost confidence levels even further The number will also confirm that the downward trend has also eased off
by Naeem Aslam |
C | Citi s Atiq Rehman appointed head of EMEA emerging markets business | DUBAI Reuters Citigroup Inc N C has appointed Atiq Rehman currently Middle East and Africa head at the U S bank as the head of the newly created EMEA Emerging Markets Cluster according to an internal email sent on Monday and seen by Reuters
The new cluster will consist of three sub clusters Middle East and North Africa MENA Sub Saharan Africa SSA and Turkey Russia Ukraine and Kazakhstan TRUK
Atiq is one of our most experienced leaders and the ideal candidate to harness the opportunities in the emerging markets by ensuring that we have the right team in place the email said
Citi is expanding in the United Arab Emirates and in neighboring Saudi Arabia where it is considering seeking a full banking license to capitalize on Saudi economic reforms |
C | Citigroup tempers net interest income guidance | Reuters Citigroup Inc N C said on Monday that it expects net interest income to be up between 3 and 4 for the year compared with prior guidance of 4 growth
Speaking at the Barclays LON BARC Financial Services Conference Chief Financial Officer Mark Mason said the flattening of the yield curve and expectations of multiple interest rate cuts from the Federal Reserve by the end of the year have made the bank more cautious about its lending outlook
Mason also said third quarter trading and investment banking fees are expected to be lower |
C | Citigroup Says Gold May Top Record | Bloomberg Gold prices may rally to a record above 2 000 an ounce in the next two years according to Citigroup Inc NYSE C which gave a laundry list of positive drivers including rising risks of a global recession and the likelihood that the Federal Reserve will reduce U S interest rates to zero
We expect spot gold prices to trade stronger for longer possibly breaching 2 000 an ounce and posting new cyclical highs at some point in the next year or two analysts including Aakash Doshi said in a note received Sept 10 That would exceed the record of 1 921 17 set in 2011
Low or lower for longer nominal and real interest rates global recession risks exacerbated by U S China trade tensions and heightened geopolitical rifts are combining to buttress a bullish gold market environment the bank said Also in affinity to our U S rates research colleagues we believe the Fed will ultimately end up cutting rates all the way to zero the analysts wrote
Gold hit a six year high this month as central banks ease policy to address the slowdown in growth amid the trade war This week investors expect the European Central Bank to unleash more stimulus while next week the Fed is seen cutting rates again That s helped to drive flows into bullion backed exchange traded funds as investors track the trajectory of the U S economy
Market Signals
For now the U S consumer and potential growth story is holding up Citi said in the note However we remain more concerned about market signals three month to 10 year yield curve inversion and leading indicators that are weakening at the fastest pace since the Great Recession it said
Spot gold traded at 1 491 34 an ounce on Tuesday up 16 this year after rising for the past four months Citi said that it had upgraded its baseline forecasts for gold on the Comex by 125 to 1 575 an ounce for the fourth quarter and by about 14 to 1 675 for 2020
In July U S monetary policy makers reduced borrowing costs for the first time in more than a decade and they are widely expected to do so again at their Sept 17 18 meeting BNP Paribas PA BNPP SA which is also bullish on the outlook for bullion said it expects four quarter point reductions over the coming year
Citi s outlook did come with caveats including a hawkish turn from the Fed or a breakthrough in trade talks although that s not its base case A surprise trade deal coupled with a sharp upturn in global manufacturing data would probably suggest a peak for gold at the 1 550 an ounce level for this cycle
Updates price in sixth paragraph |
JPM | The Interesting Trio EMB HYG JNK | I see that the brief recess we got from braggadocio is gone Not only that but he explicitly mentioned the stock market again as evidence of how great things are So yeah our time machine back to January 26 apparently works
Anyway I wanted to turn our attention this Spring Forward morning to the three ETFs I find so interesting for their formations They all seem to have topped out and they all seem to have a clean stop loss level defined by a gap I have highlighted the level of these gaps in each image First there is the emerging markets bond fund
iShares JPMorgan NYSE JPM USD Emerging Markets Bond NASDAQ EMB Chart
The high yield corporate bond fund
iShares iBoxx High Yield Corporate Bond NYSE HYG Chart
And our old favorite the high yield junk fund
SPDR Barclays LON BARC High Yield Bond NYSE JNK Chart
I gotta tell ya the market action on Friday was troubling but so was the Friday before and that turned out to be meaningless I m on the edge of my seat to see whether February 2018 is just a repeat of February 2016 or something altogether different |
MS | British Labour leader Corbyn tells Morgan Stanley We re a threat | By Guy Faulconbridge LONDON Reuters Britain s opposition Labour leader Jeremy Corbyn warned Morgan Stanley NYSE MS that bankers are right to regard him as a threat because he wants to transform what he cast as a rigged economy that profits speculators at the expense of ordinary people Morgan Stanley cautioned investors on Nov 26 that political uncertainty in Britain was a bigger threat than Brexit given the risk of Corbyn winning power and then dismantling what was once seen as one of the world s most stable free market economies Bankers like Morgan Stanley should not run our country but they think they do Corbyn a 68 year old socialist said in a video posted on Twitter that showed the towers of the City of London and Canary Wharf financial districts So when they say we re a threat they re right We re a threat to a damaging and failed system that is rigged for the few he said Morgan Stanley declined to comment London which vies with New York for the title of the world s financial capital dominates the 5 1 trillion a day global foreign exchange market and is home to more banks than any other financial center But many bankers CEOs and investors were spooked by the shock 2016 vote for Brexit and have been dismayed by the political turmoil which followed including Prime Minister Theresa May s botched gamble on a snap election in June May lost her party its majority in parliament in that election while Corbyn s unexpectedly strong result in the vote has convinced many of Labour s opponents that Corbyn is a potential prime minister if May s government falls CUBA WITHOUT THE SUN Kept in power with the support of a small Northern Irish political party May has just over a year to negotiate Britain s divorce from the EU that will shape Britain s prosperity and global influence for generations to come Now many investors fear Corbyn who was once dismissed by his own party as an out of touch peace campaigner with no hope of ever winning power could win the top job if the political turmoil continues in London One senior executive at a top U S investment bank said that at a meeting in New York recently concerns over Corbyn trumped concerns about Brexit Their top concern was not what s happening in Germany and Spain or North Korea and Trump their main concern was what s happening in the UK and what Corbyn might mean for the country the executive who spoke on condition of anonymity said It s like Cuba without the sun the executive said Morgan Stanley said Britain now faced a double whammy of uncertainty from Brexit and the domestic political instability From a UK investor perspective we believe that the domestic political situation is at least as significant as Brexit Morgan Stanley analysts said in a note to clients Morgan Stanley said there was a high likelihood of another national election in late 2018 just months before Britain is due to leave the EU on March 29 2019 The bank s analysts said a Labour victory could mark the biggest shift in British politics since the late 1970s when Margaret Thatcher won victory started to privatize chunks of the economy and opened up London to U S and Japanese banks It is certainly plausible that the Labour Party could ultimately moderate some of its more radical policy ideas the alternative could be the most significant political shift in the UK since the end of the 1970s Morgan Stanley said SPECULATORS AND GAMBLERS Corbyn has cast bankers as the villains behind the 2008 financial crisis and has promised to increase taxes on the banks and investment funds which trade out of London including their staff through higher income taxes Corbyn who has promised sweeping renationalisation higher public spending and tax rises for the rich said banks like Morgan Stanley were speculators who had left ordinary people to pay the price for their greed These are the same speculators and gamblers who crashed our economy in 2008 and then we had to bail them out Corbyn said Their greed plunged the world into crisis and we re still paying the price Corbyn said Morgan Stanley CEO James Gorman earned tens of millions personally and banks paid out billions of pounds worth of bonuses while Labour was the party of the people and a government in waiting Such banker bashing could be popular with some voters in Britain where financiers are often portrayed as vastly overpaid Financial services contributed 11 5 percent of total UK government tax receipts in 2016 Corbyn s Labour won 40 percent of the votes cast in June 2017 while May s Conservatives won 42 percent
Morgan Stanley which opened on Wall Street in 1935 set up its European headquarters in London in 1977 and it now has over 5 000 staff most at a block in Canary Wharf Morgan Stanley did not receive a British government bailout during the 2008 crisis |
MS | Gladstone Commercial announces two purchases | Purchased were two office buildings one in Columbus OH and one in Salt Lake City for 37 6M The initial cap rate is 8 18 and the average cap rate 9 23 The properties are 100 leased with weighted average lease term of 8 6 years Morgan Stanley NYSE MS Smith Barney is the major tenant with 92 of the space Source Press ReleaseGOOD flat premarketNow read |
JPM | Palladium Pierces 1 400 in New Record Gold Treads Water | Investing com The lure of palladium and its importance to the auto sector is greater to precious metals investors than the shine of gold and the hedge the yellow metal offers to the world s political and financial troubles
The spot price of palladium the auto catalyst metal preferred by investors compared to its sister metal platinum soared to record highs above 1 400 per ounce on Thursday That made it the world s most valuable metal currently
Spot palladium was up 30 80 or 2 3 at 1 394 35 per ounce by 2 18 PM ET 19 18 GMT after reaching an all time peak of 1 440 35 earlier
In futures trade the benchmark March palladium contract on New York Mercantile Exchange s Comex was up 34 30 or 2 6 at 1 352 80 after an intraday peak at 1 397 40
While palladium is at least 500 short of the record highs above 1 900 per ounce hit by gold in 2011 its near 70 rally since August with 10 of that coming just this month alone has stunned investors
Gold prices have meanwhile treaded water at the 1 285 to 1 295 level after briefly breaking past 1 300 on Jan 4
Palladium s latest run up has been fueled by stimulus measures aimed at boosting car ownership in China and a projection by Metals Focus Ltd that the auto catalyst metal will remain in a supply deficit for an eighth straight year as its status as a byproduct of mines in South Africa and Russia restricts its output despite explosive short term demand
Palladium has entered uncharted territory after topping technical barriers such as the 50 100 and 200 day moving averages Thomas Anthonj technical analyst at JPMorgan Chase Co NYSE JPM in London was quoted saying by Bloomberg In such cases the only orientation we have is from a technical perspective
But some are skeptical about the rally going too much further
Investors appear to be ignoring the fact that weak sales figures have been reported for all major auto markets in recent days Commerzbank DE CBKG analysts including Daniel Briesemann said in a note Instead they are seeing news such as the planned widening of a strike to include the platinum mines of a major South African gold and platinum producer as being a good reason to buy
Philip Streible senior market strategist for precious metals at RJO Futures in Chicago also thinks a violent reversal may be coming
It s hard to say how the mine strike will stay in place Streible told Investing com Palladium could easily push past 1 500 but I expect it come down to more normalized levels closer to the 1 250 area A small crash could probably kick a lot of people off guard
Gold futures on Comex was down 1 95 or 0 2 at 1 291 85
Platinum futures rose by 4 10 or 0 5 to 812
Silver futures slid 11 cents or 0 7 to 15 53
In base metals copper futures were flat at 2 68 per pound |
JPM | JPMorgan board raises Dimon s compensation to 31 million | NEW YORK Reuters JPMorgan Chase Co NYSE JPM CEO Jamie Dimon is receiving a 5 percent raise bringing his total compensation for 2018 to 31 million the company said in a filing on Thursday
In setting the figure independent members of the JPMorgan board took into account the firm s strong performance in 2018 and through the cycle in categories including business results risk controls and conduct customer focus and leadership the filing said |
MS | Euro Forecast Ahead Of Upcoming ECB Meeting | In our past January 19th article Where is euro going next we explain the negative correlation between asset volatility and the euro When stock market declines the euro dollar goes up and vice versa The table below from Morgan Stanley NYSE MS confirms this inverse relationship We can see that other than the period between 2007 2009 and the period in 2011 this negative correlation between the euro and risky assets remains true
Since the peak in 2015 global indices have corrected in double digit figures Below is global indices correction from 2015 peak to 2016 low as of March 1 2016
Despite the already substantial correction looking at the world indices it s likely that the correction is not yet over Below we take a look at two indices Shanghai Composite Index and FTSE to make a case that the correction is not over
Weekly chart of Shanghai Composite Index above is showing an incomplete 5 swing sequence from 2015 peak and more downside is expected at least towards 1944 2370 area in the higher degree time frame
The weekly FTSE chart above is also showing a 5 swing sequence Please note 5 swing is a sequence count and it is not Elliottwave 5 impulse waves
ECB Meeting in March 10 is a possible key event for next market move
In December last year ECB disappointed the market by merely cutting deposit rate by 25 bps and extending QE program by six months until March 2017 Market was expecting the ECB to expand the Quantitative Easing program but ECB did not deliver The euro rallied strongly as a reaction at that time Since then headline inflation in the euro area has continued to dip lower and latest euro inflation rate report in February 29 shows a 0 2 yoy
As expected the energy component is the major drag with an 8 fall However euro core rate excluding energy food alcohol and tobacco also slowed down to 0 7 compared to 1 in the previous month
This number is far below ECB s 2 target and gives pressure to ECB to act more in the next coming meeting at March 10 ECB President Mario Draghi has said at the bank s latest monetary policy meeting in January that ECB will review and possibly reconsider the stimulus program at the March s meeting He also said that ECB will not hesitate to act if necessary
Market interprets his statement that more easing is likely in March and currently market has somewhat priced in a further deposit rate cut by ECB as evidenced by the steady decline in euro dollar since February The recent stabilization of risk asset and rally in indices in some ways also reflects the expectation that ECB might ease further
We have seen that cutting rate e g BOJ going to negative rates in January does not really push the currency lower In the case of BOJ despite cutting deposit rate into negative territory the yen selloff is a temporary reaction and it rallied sharply afterwards Thus even if ECB cut deposit rate by 25 bps at the next meeting then using the example of BOJ euro is likely not going to go lower significantly
The big unknown however is whether ECB will expand the QE program at March s meeting Germany has consistently opposed the idea of expanding the QE program and while ECB might be willing to expand they currently face the problem of limited eligible bonds to buy The ECB has a rule that it can t buy any bond that yields less than its current deposit rate which is minus 0 3 Using this rule 50 of German s debt is no longer eligible for the ECB s QE progam as they fall below the 0 3 yields German two year yields for example touched 0 57 on February 29 thus making it ineligible under the ECB s QE program
Should the ECB decide NOT to expand the QE program at the coming March meeting then a similar reaction euro dollar rally may happen like the one we saw in December last year Due to the inverse correlation with indices then without QE expansion it can also mean a turning point in indices for the next leg lower Chart below shows reaction of three euro pairs in December s meeting when ECB decided not to expand the QE program |
MS | FTSE Down Miners Reversed Early Gains | European markets lack direction this morning The FTSE found itself thrown into the hands of a confused market A very short lived rally followed the negative open as energy and materials gained on firmer oil and commodity prices Some profit taking is already underway An hour after the open all sectors in the FTSE are in the red
Anglo American LON AAL 3 53 Glencore LON GLEN 2 88 Rio Tinto LON RIO 2 56 Antofagasta LON ANTO 2 00 and BHP LON BLT 1 66 were among the frontrunners The picture altered quickly Glencore reversed gains and raced to the top of the red list and is already 3 16 in the negative at the time of writing
In summary the volatility is high and the visibility is low Randgold LON RRS InterContinental Hotels Group LON IHG and ARM Holdings LON ARM rank among the losers in London on broker downgrades
Randgold 3 22 cut to equal weight from overweight at Morgan Stanley NYSE MS
InterContinental Hotels 2 23 cut to sell vs neutral at Citi
ARM Holdings 1 47 cut to hold vs buy at Stifel
WTI advanced to 36 72 a stone s throw below the 200 dma 37 10 Oil managed to pick up by circa 40 since it hit a 12 year bottom hit in January The appetite is somewhat dented after Moody s announced to put most of oil producer nations under watch for possible downgrades Gold remained in demand above 1256
All eyes on Draghi
German factory orders contracted for a second month in January 0 1 m m The data dragged the general mood and the euro down into the European open
Comprehensibly the sensitivity increases as the ECB meeting due on March 10th approaches The market expects at least a 10 basis point cut in deposit rates and 10 billion euros worth of expansion in monthly bond purchases
Now the question is whether Mario Draghi could convince the markets that additional measures will help to boost the economy and bring back inflation in the Eurozone It seems like the recent measures had little impact We may expect Draghi to reiterate once again that the recovery is underway with modest growth in the credit market But it still seems that the pick up is far from what we would call sufficient as the time is somewhat limited as the ECB cannot carry on with its bond purchases forever The heavy distortion in risk to return ratio in this market has been the primary cause of high price volatility This being said the speculators are out there and Eurozone sovereign bonds are in demand this morning except for Greek bonds
The euro dollar eased below 1 09 mark last week and the 200 day moving average at 1 1050 level seems like it will be sheltering offers before the ECB meeting We have obviously seen a slowdown in the downside trend compared to what we have seen at the beginning of March The 1 0826 just above the 1 0810 February lows have been a support and breaking below the 1 08 support The EUR USD could easily find itself down at 1 0725 1 0700 level We had argued that this level would lend support to the EUR USD a couple of weeks ago Now it will all depend on Draghi s conviction power on Thursday Below 1 07 the attention will shift toward 1 0524 which has been the December dip before the ECB meeting and potentially down to 1 05 mark |
MS | US Crude Dips Below 37 | US crude futures have posted losses on Tuesday trading at 36 92 a barrel in the North American session Brent crude futures are trading just above the 40 level at 40 10 In economic news the sole event on the schedule is the NFIB Small Business Index The indicator slipped to 92 9 points well below the estimate of 94 5 points
US crude prices have stabilized in recent weeks This has been good news for global markets which have been in turmoil over the crash in oil prices coupled with weaker growth in China Higher oil prices could lead to higher inflation something sorely lacking in the US and other developed economies Indeed weak US inflation is one factor that weighs against the Fed raising interest rates later in March However the recent rally by the commodity could be short lived Earlier this week Morgan Stanley NYSE MS released a research note stating that much of the recent improvement in oil prices was due to the deprecation of the US dollar and warned that the huge oversupply of oil could again push prices lower
US employment numbers painted a mixed picture last week Nonfarm Payrolls impressed with a reading of 242 thousand in January much higher than the estimate of 195 thousand This was much stronger than the previous revised reading of 171 thousand The US economy has added an average of 225 000 jobs per month since December an impressive number considering that the economy has softened in the early part of 2016 However the positive news was tempered by a soft wage growth report which declined by 0 1 shy of the estimate of a 0 2 gain This marked the first drop in wages since December 2014 This indicator is closely linked to inflation since an increase in wages means workers have more money to spend The indicator s decline means that that Federal Reserve s inflation target of about 2 0 remains far off so the Fed which is keeping a close eye on the weak inflation picture is unlikely to raise rates before mid 2016
WTI USD Fundamentals
Tuesday March 8
6 00 US NFIB Small Business Index Estimate 94 5 Actual 92 9
Key events are in bold
All release times are EST
WTI USD for Tuesday March 8 2016
WTI USD March 78at 11 30 EST
Open 37 90 Low 36 59 High 38 40 Close 36 92
WTI USD Technicals
WTI USD lost ground in the Asian session and recovered in European trade The pair has posted losses in North American session
There is resistance at 37 75
35 09 is providing support
Further levels in both directions
Below 35 09 32 22 and 30 00
Above 37 75 40 00 and 43 45 |
MS | Bad News For Earnings | Markets are forecasting mechanisms and they typically shift into a weak technical profile for a reason One possible explanation for the concerning look of longer term charts is a sharp drop in earnings expectations for U S companies From Zack s Investment Research
We now have three quarters of back to back negative earnings growth and this picture isn t expected to change in the current Q1 and following Q2 periods either
As shown on the graph below it is possible the U S stock market will have to try to withstand five consecutive quarters of negative earnings growth
Earnings And Recession Odds
Given the statistics below regarding two consecutive quarters of earnings declines and recessions it begs the question how will the economy fare if earnings decline for five consecutive quarters From CNBC
Since corporate profits turned negative in mid 2015 Wall Street has pondered whether it s just a passing phase or a signal of something worse History strongly suggests the latter Recessions have followed consecutive quarters of earnings declines 81 percent of the time according to an analysis from JPMorgan Chase NYSE JPM strategists who said they combed through 115 years of records for their findings The news gets worse Of the remaining 19 percent of the time recession was only avoided through either monetary or fiscal stimulus With the Federal Reserve holding limited easing options and a deeply dysfunctional Washington thwarting a fiscal boost the prospects for help are not good
Central Banks Have Limited Ammo
History says the economy has avoided a recession after two consecutive quarters of earnings declines in cases that included some form of monetary Fed or fiscal Congress stimulus As described in detail in a the Fed s standard procedure for combating economic weakness is to lower interest rates With rates still hovering around zero the Fed has limited options in terms of leveraging their standard playbook Major Wall Street firms are voicing concerns about the depleted arsenals of central banks From Bloomberg
Central banks hold a declining number of less effective policy tools writes Andrew Sheets head of cross asset strategy at Morgan Stanley NYSE MS Their latest foray negative rates may do more harm than good
Largest Drop Since The Financial Crisis
The Wall Street Journal recently noted the last time the markets dealt with earnings revisions of this magnitude
Wall Street s earnings estimates for S P 500 companies are falling at the fastest pace since the height of the financial crisis Since the start of 2016 Wall Street has gone from anticipating 0 3 growth in first quarter earnings for S P 500 companies to an 8 decline according to FactSet It s the biggest shift since the first two months of 2009
Retail Sales Revised Downward
The latest read on the economy came Tuesday in the form of retail sales it contained disappointing data From Reuters
U S retail sales fell less than expected in February but a sharp downward revision to January s sales could reignite concerns about the economy s growth prospects Retail sales excluding automobiles gasoline building materials and food services were unchanged after a downwardly revised 0 2 percent increase in January These so called core retail sales correspond most closely with the consumer spending component of gross domestic product and were previously reported to have risen 0 6 percent in January
Investment Implications The Weight Of The Evidence
With the Fed getting ready to take center stage a lot of things can happen good or bad between now and the end of the week However given the facts we have in hand now the longer term outlook for stocks still falls into the concerning category as shown via the S P 500 chart below
The red line above is the 200 day moving average The blue line is the S P 500 s 50 day moving average They are used to keep an eye on the intermediate and longer term trends in the stock market The negative slopes of both moving averages tell us both the intermediate and long term trends remain bearish despite the four week countertrend rally This puts the chart above in some historical context 2000 2002 2007 2009 The chart above may improve and we are open to that but it has not shown meaningful improvement yet |
MS | Fiscal And Monetary Madness And What To Do About It | Global Currencies Madness
When central banks and politicians manage global currencies we can expect
Exponentially increasing debt and currency devaluations
Massive inflations and deflationary crashes
Transfer of wealth from the many to the few
Derivatives exceeding 1 000 Trillion and eventually a crash
A mathematically inevitable financial collapse
Monetary and fiscal madness
Booms and busts
Much higher gold and silver prices
It has happened before and it will happen again
Last Century Madness
Weimar inflation in Germany 1921 1923 The exchange rate for Marks changed from 90 Marks to the US dollar in 1921 to over 4 Trillion Marks to the US dollar in about 2 years
Argentina devalued their peso and exponentially expanded the currency in circulation so rapidly that Argentina lopped off 13 zeros since 1950
Zimbabwe printed so many trillions of Z dollars that inflation according to Wikipedia exceeded 200 million percent in 2008
Current Monetary Madness
Japan has created a national debt that exceeds 1 000 Trillion yen about 250 of their GDP According Japan s debt is unsustainable
The US national debt official only currently exceeds 19 Trillion up from 398 Billion in 1971 5 6 Trillion in 2000 and 10 1 Trillion in October 2008 National debt has increased at a compounded exponential annual rate of about 9 per year since 1971
Does anyone expect the debt will be repaid reduced or even stabilized I think it is clear that the debt will be rolled over and increased until it must be inflated away or defaulted This is political and central bank supported monetary madness Exponential increases inevitably end badly
The U S version of monetary madness
The Argentina version of monetary madness
Central Bank Monetary Madness
Exponential debt increases appear normal in a central bank controlled financial world that benefits the political and financial elite at the expense of the middle and lower classes QE ZIRP and NIRP negative interest rates are recent examples of central bank responses to their self created problems of debt based fiat currencies exponential increases in debt and uncontrolled deficit spending by governments Fiscal and monetary madness prevails
on the DANGERS of negative interest rates
Huw Van Seenis from Morgan Stanley NYSE MS calls negative rates NIRP a dangerous experiment that undermines the mechanism of quantitative easing rather than enforcing it
Narayana Kocherlakota ex head of the Minneapolis federal Reserve reluctantly backs NIRP as deep as 3 but calls it a gigantic fiscal policy failure that central banks must resort to such absurdities
Morgan Stanley said that once negative rates fall below 0 2 the damage to bank earnings goes exponential and ultimately endangers the whole system of free banking in Europe that we take for granted
My comment The financial world is descending into an abyss of monetary madness as indicated by
Negative interest rates are a dangerous experiment and NOT a solution 7 Trillion and counting
gigantic fiscal policy failure They address the consequences of bad policy with worse policy
damage to bank earnings goes exponential And then what Bail ins and bail outs More QE and even more negative interest rates Banking collapse
the debt will never be repaid It looks like a safe bet
helicopter money When all else fails
CONCLUSIONS
A world of fiat currencies managed by central banks descends into the trap of exponentially increasing debt that leads slowly or rapidly toward monetary madness and Train wreck ahead
QE has morphed into 7 Trillion of global sovereign debt paying negative interest rates Think gigantic fiscal policy failure At almost any other time in history negative interest rates would have been viewed as insane policy Monetary madness or desperate to do something
Gold and silver are better solutions and are antidotes to central bank devaluations One might object to gold for many reasons but those reasons seem minor or irrelevant in the face of exponentially increasing unpayable debt negative interest rates and ongoing monetary madness |
MS | Risky Assets Should Remain Supported By Yellen s Dovish Approach | Key quotes from the Morgan Stanley NYSE MS FX report
Short USD
Dovish Yellen means short USD for now
Fed Chair Yellen s speech yesterday was notably dovish and has opened the door for further USD weakness in the short term upwards of 3 on a trade weighted basis we think While the market reaction to the March FOMC could have been previously labeled as somewhat of an overreaction particularly in the context of some hawkish Fed speakers in the last few weeks Yellen s speech makes it clear that the Fed s reaction function has changed in the last few months towards the dovish side While official forecasts may have not changed much the doves have convinced the core that uncertainty around the inflation outlook asymmetric risks and international concerns makes caution especially warranted until we get further evidence of the output gap closing
Yellen s suggestion that in light of equilibrium real rates near zero the current real rate level of 1 25 may provide less accommodation than previously hoped is telling It suggests that real rates are likely staying negative making it easier for indebted entities inside and outside the US to deal with over extended balance sheets This is why higher yielding currencies that often have to deal with twin deficits such as NZD AUD GBP and many EM FX reacted euphorically to Yellen s speech
March NFP
What does Yellen s speech mean for the upcoming March NFP Ignore activity but be sensitive to costs In other words it now requires wages to exceed market expectations by a substantial degree to allow the USD to return to its bullish trend early Indeed Yellen noted specifically the uncertainty around the longer run rate of unemployment consistent with inflation stabilizing at 2 She highlighted that a lower NAIRU was more likely and as such a lower level of unemployment might be needed to fully eliminate slack in the labor market By doing so the Fed has now moved focus away from the headline number and squarely on to wages
Top Performers
Which currencies will do best Risky assets should remain supported by this new dovish approach as it suggests for each unit of GDP more monetary accommodation than previously thought Given the JPY s inverse relationship to risk we continue trading USD JPY from the long side although other JPY crosses such as ZAR JPY AUD JPY or NZD JPY should perform even better The high beta MXN is also likely to gain support in the current environment
Technicals To Watch
NZD USD is again trading towards the top end of its medium term channel at 0 69 A move above here would signify a new regime and mean we wait longer to re enter shorts Similarly AUD USD breaking above the recent high at 0 7850 and 61 8 retracement level could open room for potential back up to 0 8000 EUR USD will likely meet resistance at 1 1315 the February high We will be watching 1145 in USD KRW as this is the lower end of a trend channel formed since September 14 |
C | For the Roaring U S Dollar Factory Slowdown Is Just a Speed Bump | Bloomberg Even the first U S manufacturing contraction since 2016 can t keep the dollar down amid spiraling U S China trade relations and dim European economic prospects
That s the view of analysts at firms including Societe Generale PA SOGN and TD Securities who expect the dollar to power past Tuesday s surprisingly weak manufacturing release
While the print shows that the U S isn t immune to global trade weakness economic data will need to slow more dramatically before traders ditch the greenback according to SocGen s Kit Juckes given that U S yields are still higher relative to the rest of developed markets
It s like trying to start your car on ice or in mud said Juckes chief global FX strategist You re going to have to run this engine for a bit before you get any traction on a weaker dollar
The Bloomberg dollar index surged to its strongest level since May 2017 Tuesday following two months of gains amid weakness in the euro and yuan The gauge remained close to that level despite a 0 2 tumble
Unwinding Hedges
Washington s refusal to delay tariffs on China over the weekend is helping fuel the dollar s rally as traders unwind risk on hedges according to Jordan Rochester a currency strategist at Nomura International Plc The onshore Chinese yuan tumbled in August suffering its biggest monthly loss since January 1994 when the modern exchange rate regime was adopted
There were folks who had to hedge for the slight possibility that U S China found a way to de escalate trade tensions before the latest round of tariffs came in this weekend Rochester said adding that bullish offshore yuan and Australian dollar positions and short yen bets were likely the preferred methods Those short term risk on hedges were taken off yesterday As a result dollar headed higher
In the near term Rochester remains bullish on the dollar Factors that could see the greenback weaken would include fiscal stimulus from China the Federal Reserve embarking on a new round of quantitative easing or geopolitical events in Europe calming down but that s all unlikely for the time being he said
European Easing Expected
Investors would be remiss to pile into bullish euro positions ahead of the European Central Bank s meeting next week cautioned TD Securities analyst Mazen Issa He expects the central bank to deliver a 20 basis point deposit rate cut and renewed quantitative easing to the tune of 40 billion per month
EUR USD continues to trade on its backfoot after the floorboards at 1 10 broke on Friday Issa wrote in a note Tuesday We do not think the move should be faded ahead of the ECB s large scale easing next week
The common currency fell as low as 1 0926 Tuesday its weakest level since May 2017 The euro briefly erased losses following the weaker than expected U S manufacturing data before resuming its slide
Best of the Rest
While U S economic growth has slowed the latest evidence on display Tuesday with manufacturing data contracting for the first time in three years it still looks resilient relative to the rest of the world And with the global stock of negative yielding debt now amounting to 17 trillion it s little wonder the greenback remains bid as investors search for yield according to Juckes
Even as Citigroup Inc NYSE C s Economic Surprise Index for the U S is in negative territory meaning reports are tending to miss expectations it has rebounded in the past few months and is well above Europe s gauge
The U S has had more growth higher rates higher bond yields money flows to the U S Juckes said I wouldn t over think it when you ve got negative yields in Japan the Eurozone in Switzerland |
C | U K Retailers Earnings at Risk of 30 Drop in a No Deal Brexit | Bloomberg Follow Brexit sign up to our Brexit Bulletin and tell us your Brexit story
U K retailers may see their earnings tumble as much as 30 in the event of a no deal Brexit according to Citigroup Inc NYSE C
The companies may have to revisit their guidance in the event that the U K leaves the European Union without a deal meaning earnings per share could be cut by between 5 and 30 the broker said
A number of retailers have based their outlook on an orderly Brexit or made no assumptions given the uncertainty Citigroup analyst Adam Cochrane wrote in a note Wednesday At the very least there will be margin headwinds from the weaker sterling and the risk to consumption looks skewed to the downside that is not currently reflected
The FTSE 350 General Retailers Index has fallen 24 since the Brexit referendum in June 2016 as consumers curtailed spending amid uncertainty about how the economy would fare
Homewares seller Dunelm Group Plc said Wednesday it remains cautious about the full year outlook due to increased Brexit uncertainty and specifically the impact it may have on consumer spending as we enter our peak period Car parts and bicycles seller Halfords Group Plc said it expects economic and political uncertainty will continue to impact big ticket discretionary spend during the second half of the year |
C | UBS hires former Credit Suisse star Khan as part of broader shakeup | By Brenna Hughes Neghaiwi ZURICH Reuters Switzerland s biggest bank UBS on Thursday appointed former Credit Suisse SIX CSGN manager Iqbal Khan to co lead its flagship wealth management business as part of a broader shake up of its executive board The appointment of Khan alongside two internal promotions mark a significant revamp for the bank as it seeks fresh talent for its CEO succession planning efforts and drums up enthusiasm for its core business in an increasingly challenging landscape Khan a former head of Credit Suisse International Wealth Management and a rising star considered a CEO candidate in the future will replace Martin Blessing as UBS wealth management co head alongside U S counterpart Tom Naratil Suni Harford a Citigroup NYSE C veteran who joined UBS in 2017 was promoted from her current role as head of investment at the asset management business to leading the entire division She replaces Uelrich Koerner I m looking forward to having Suni and Iqbal join the Group Executive Board Chief Executive Sergio Ermotti said in a statement They are great additions to the team and will help us drive sustainable growth and profitability for UBS In addition Chief Operating Officer Sabine Keller Busse will take on the additional role of president of the Europe Middle East and Africa region from Koerner After benefiting from a shift to the traditionally steady wealth management business years ahead of rival Credit Suisse UBS has been hit by a slew of troubles in recent years They range from cash hoarding by wealthy clients to a multi billion euro legal fight in France prompting questions on whether it might need to refresh its strategy as banks come under pressure from geopolitical turmoil and low interest rates With Ermotti in the CEO role since 2011 and Chairman Axel Weber leading the non executive board since 2012 speculation over succession planning has been on the rise The appointment of Khan 43 should take pressure off management to present a long term prospect Keller Busse and Naratil are also seen as candidates for the role PROVEN RECORD Khan quit Credit Suisse in July to pursue other opportunities with sources saying he was mulling roles at UBS Julius Baer and a U S bank with the long term goal of procuring a top job as CEO Under Khan Credit Suisse s newly created International Wealth Management unit boosted profitability and revenues as Switzerland s second biggest bank underwent a major overhaul whittling down its investment bank and refashioning itself as a bank for wealthy entrepreneurs We welcome the appointments of Iqbal Khan and Suni Harford effective 1 October 2019 and believe the market will take the rejuvenation of UBS s Group Executive Board well Vontobel analyst Andreas Venditti wrote in a note Iqbal Khan clearly has a strong track record boosting Credit Suisse International Wealth Management s adjusted pre tax profit by almost 80 in 3 years UBS stock rose 1 4 by 0840 GMT while the European bank sector index gained 0 9
Blessing a former Commerzbank DE CBKG head who joined UBS in 2016 will remain with the bank through December while asset management head Koerner will become an adviser to Ermotti through at least March |
C | Effort to disqualify lawyer part of U S campaign against Huawei counsel | By Karen Freifeld Reuters The effort to stop a former U S Justice Department official from representing Huawei is another step in a broader U S government campaign against the Chinese company a lawyer for Huawei argued on Wednesday Lawyer Michael Levy said the company has not been given any material information as to why its counsel James Cole should be removed Cole is Huawei s lead lawyer in the U S case against the world s largest telecommunications equipment maker for allegedly misleading global banks about its business in Iran U S prosecutors have asked the judge in the case to disqualify Cole claiming his work as the No 2 official in the Justice Department created irresolvable conflicts of interest Prosecutors say Cole who served as former deputy attorney general until 2015 had access to confidential information that he could use against the government In oral arguments in Brooklyn federal court Levy told U S District Court Judge Ann Donnelly that the decision to try to disqualify Cole was part of a barrage against the company that also includes a separate Justice Department case alleging trade secret theft and a decision to place Huawei on a Commerce Department blacklist that bans most U S sales to the firm This case is quite clearly part of an overall agenda by the government against Huawei Levy argued The move to disqualify Cole Levy said can be seen as one more tactical step Assistant U S Attorney David Kessler told the judge the matter related to a single criminal case and that Huawei had numerous other lawyers Much of the government s argument is confidential and classified Prosecutors say Cole supervised and participated in aspects of an investigation related to the Huawei case which has not been made public The ultimate question is whether Mr Cole has the government s confidences Kessler said We don t think it s a close call Cole claims he has no recollection of matters referenced as the basis for him to be disqualified from the case according to another court filing He served as deputy attorney general until 2015 and he has represented Huawei for at least two years On Wednesday Cole said he would make his case to the judge after she closed her courtroom to the public because of the classified information involved The judge did not indicate when she would rule on whether to disqualify Cole and set the next court hearing for December 12 The case against Huawei is proceeding as Beijing and Washington engage in an escalating trade war It also is taking place as the United States has pressured other countries to drop Huawei from their cellular networks worried its equipment could be used by Beijing for spying which the company says are unfounded Huawei s chief financial officer Meng Wanzhou the daughter of Huawei s founder was arrested in Canada in December at the request of the United States in connection with the case Meng and others are accused of conspiring to defraud HSBC and other banks by misrepresenting Huawei s relationship with a company that operated in Iran putting them at risk of violating U S sanctions Meng has said she is innocent and is fighting extradition
Cole entered a not guilty plea on behalf of Huawei and its U S subsidiary in Brooklyn in March |
C | Trump Can t Win Them All Neither Can Powell | Bloomberg Opinion Even if you re not the biggest fan of the Federal Reserve you have to feel a little sorry for Chair Jerome Powell As everyone involved in financial markets is acutely aware he and the central bank have been a favorite target of President Donald Trump s ire for months now
And yet the latest Twitter jab on Friday ahead of the August jobs report and Powell s remarks on the economy in Zurich seemed especially demeaning
The answer of course is that Trump found Powell already among the Fed s board of governors when he was making his pick in late 2017 He won out over other candidates that the president reportedly spoke with about the position including incumbent Janet Yellen former Fed Governor Kevin Warsh and former National Economic Council Director Gary Cohn At the time Powell was seen as largely following Yellen s blueprint of steady gradual interest rate increases until the fed funds rate returned to a more neutral level He delivered on that promise through the end of 2018
The past few months have been notably more difficult In particular two voters on the Federal Open Market Committee dissented in July when the central bank cut interest rates for the first time in more than a decade Powell himself sounded somewhat conflicted during a much anticipated speech last month in Jackson Hole Wyoming where he admitted that the Fed doesn t really have a playbook for dealing with a prolonged damaging international trade war
Powell spoke on Friday in Zurich and largely stuck to script staying fairly upbeat on the economy overall while being careful not to criticize trade policy The labor market is in quite a strong position he said and the jobs report released four hours earlier is very much consistent with that story He added that the outlook is still a favorable one arguing that was due in part to the Fed s pivot starting at the beginning of this year
Markets didn t react too much to that What was somewhat novel however was Powell s discussion of the inner workings of the FOMC and how he leads the central bank based on his experience
To a large extent it s a policy of putting together a consensus My nature is to want to incorporate people s thinking and develop a consensus Sometimes it s me convincing sometimes it s me trying to move people into a group Collective decision making can work and in our case I think it has worked well
Sometimes it s easy to get unanimity on things when the path is clear Other times it s murky out there and there s a range of views This is one of those times Trade policy uncertainty is not something that central banks have a lot of practice in dealing with We re trying to look through short run developments and try to assess what the implications for the outlook in the medium and longer term will be of those developments
We re clearly at a time where there are a range of views I do think that s a very healthy thing We will of course reach a decision I expect we will have a strong support for the decision we make as we did in July
With the Fed now headed into its self imposed blackout period it seems doubtful that Powell will form a unified front among FOMC voting members at its Sept 17 18 meeting
Boston Fed President Eric Rosengren one of the voters who sided against lowering interest rates in July reiterated on Sept 3 that he sees no need for immediate action if the economic data stay on track It is clearly reasonable to make the assessment that risks are elevated Should those risks become a reality the appropriate monetary policy would be to ease aggressively However to date these elevated risks have not become reality at least for the U S economy
No economic reports since then are likely to have changed his mind The Labor Department report on Friday showed total nonfarm payrolls climbed by a below forecast 130 000 but average hourly earnings beat estimates by rising 3 2 from a year earlier remaining close to the highest level in a decade It was more of a mixed bag then the unambiguously strong data from Thursday which flipped Citigroup Inc NYSE C s U S Economic Surprise Index to positive for the first time since February and caused two year Treasury yields to rise as much as 14 basis points the most since May 2010 In one day bond traders priced out about one third of a rate cut for the remainder of the year
Mere minutes before Rosengren s comments earlier this week St Louis Fed President James Bullard took the exact opposite view telling Reuters that the central bank should slash interest rates by 50 basis points The trade war in his mind is a global shock requiring aggressive action He has the ISM manufacturing index on his side which fell into contraction in August Carl Riccadonna chief U S economist for Bloomberg Intelligence said fear itself was evident among businesses because of economic uncertainty fomented by market volatility and ongoing trade war escalation
Of course Powell doesn t have to win every voter over as the past two decisions have shown It s a foregone conclusion that he ll meet the two factions in the middle and gradually lower the fed funds rate by another quarter point
Perhaps that s the prudent move But it s fair to ask what exactly a quarter point cut to interest rates will truly do for the U S economy a question that Powell has struggled to answer in the past It won t suddenly boost inflation Companies aren t going to go out and immediately hire more workers It seems unlikely to sharply weaken the dollar and make U S exports more competitive At best a rate cut will appease financial markets though in July it didn t even do that At worst it invites a more prolonged trade war while inching the Fed ever closer to the zero bound
To make matters even more challenging for the Fed policy makers will give an update this month on their interest rate projections known as the dot plot For the first time since June they re going to have to estimate just how far they re willing to drop their benchmark to combat the ramifications of lasting trade disputes That s where the dissent within the FOMC ranks could really shine through |
JPM | 3 ETFs Worth Watching JNK HYG EMB | Here are three ETFs well worth watching I ve already shorted two of them today
SPDR Barclays LON BARC High Yield Bond NYSE JNK Chart
iShares iBoxx High Yield Corporate Bond NYSE HYG Chart
iShares JPMorgan NYSE JPM USD Emerging Markets Bond NASDAQ EMB Chart |
JPM | S P 500 One Month Hence | The inability of the stock market to hold a downtrend more than two days is driving me insane again It has been two years since there has even been a drop off lasting a couple of weeks
It was just a month ago that we were in the throes of an all too brief bout of excitement But looking back it s evident that 90 of the move was confined to just two trading sessions Yep That was it For two years of waiting we got just two days of glory The next morning was a panic low and bang we were back into the unending quagmire
S P 500
So things have become dull quickly again Even with what should be super bearish news Gary Cohn fleeing the White House and a major trade war loudly telegraphed the market doesn t seem to care anymore At the moment we re close to medium term a rather important level of resistance This is our fifth white bar day in a row so it s clear the bulls are fighting back and want to seize control again
For myself I remain rather aggressively short at 233 A substantial amount of this sum is in slow moving instruments but fascinating charts iShares JPMorgan NYSE JPM USD Emerging Markets Bond NASDAQ EMB iShares iBoxx High Yield Corporate Bond NYSE HYG and SPDR Barclays LON BARC High Yield Bond NYSE JNK indeed those are my only ETFs and my only large positions The rest is scattered amongst a hodgepodge of small shorts
For my bearish brethren if there are any left I can only offer this piece of exciting news hot off the press |
MS | Tribune Media 1 3 on word of 7M share Oaktree offering | Tribune Media NYSE TRCO shares have fallen 1 3 after hours after it announced a secondary offering of its class A common stock The company will sell 7M shares on an underwritten basis by a stockholder affiliated with Oaktree Capital Management to Morgan Stanley NYSE MS as the underwriter Tribune isn t selling shares and won t receive proceeds Morgan Stanley will offer those shares from time to time The offering is expected to close Dec 4 Now read |
MS | Japan October industrial output rebounds manufacturers see good times ahead | By Stanley White TOKYO Reuters Japan s industrial output rose less than expected in October but companies forecast production to rise strongly in November and December as robust overseas demand continues to support factory activity and broader economic growth The 0 5 percent increase in October was less than the median market projection for a 1 9 percent increase and followed a revised 1 0 percent decline in September Though October s performance was slightly disappointing forecasts for an acceleration in factory output suggest Japan could extend its longest uninterrupted period of growth in more than a decade as exports and domestic demand drive the economy Manufacturers surveyed by the Ministry of Economy Trade and Industry expect output to rise 2 8 percent in November and 3 5 percent in December I expect the economy to continue expanding said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities Industrial production forecasts suggest we will see some good numbers in October December but we need to confirm that companies actually ramp up production as much as they expect to Tonouchi said Industrial output rose in October due to increased production of semiconductors car parts and machines used to make flat panel displays trade ministry data showed on Thursday A breakdown of forecasts for December shows that makers of construction equipment and heavy machinery needed to manufacture other goods expect their output to rise to a record high in December a trade ministry official told reporters at a briefing This reflects strong global demand for capital goods and increased capital expenditure overseas the official said The industrial output data is yet another reason for optimism about the economic outlook Many economists expect consumer spending to rebound in the second half of this year due to a tight labor market Capital expenditure is also likely to continue expanding as companies invest in new equipment to deal with labor shortages and capacity constraints economists say Japan s economy grew faster than expected in the third quarter thanks to strong exports posting the longest period of uninterrupted growth in more than a decade data showed earlier this month
The Bank of Japan is likely to point to the country s steady economic growth as an indication that price pressures will eventually build up and inflation reach the central bank s 2 percent target |
MS | Aviva to generate extra 4 billion of cash planning payback some MA | By Carolyn Cohn LONDON Reuters Aviva L AV expects to generate an extra 3 billion pounds 4 billion in cash over the next two years and will make acquisitions as well as giving money back to shareholders it said on Thursday sending its share price to three month highs Insurers and reinsurers among them Allianz DE ALVG and Swiss Re S SRENH have been returning cash to shareholders as strong competition cuts opportunities for expansion Aviva has made a number of disposals in the past year including in France Spain Italy and Taiwan and says its Indian joint venture is under strategic review The franchises we have left have a pretty decent track record Chief Executive Mark Wilson told an investor day in Warsaw We are moving into a new phase and we have the capital to be able to do it Aviva expects to deploy 2 billion pounds of cash in 2018 by spending 900 million pounds on repaying expensive debt and using the remaining 1 1 billion pounds for bolt on acquisitions and returning cash it said in a statement ahead of the investor day Some analysts had anticipated Aviva would announce a share buyback of 1 billion pounds on Thursday but Wilson said the firm had an appetite for M A Aviva has said it is only looking at small purchases following its 5 6 billion pound 7 5 billion takeover of Friends Life in 2015 and is interested in expanding in insurtech and artificial intelligence Aviva s cash promise helped send its shares to three month highs They were up 2 17 percent at 520 pence at 1035 GMT the second biggest gainer on the FTSE 100 index FTSE Morgan Stanley NYSE MS analyst Jon Hocking reiterated his overweight rating on the stock in a note to clients Taken as a package we think this is a bullish set of goals from Aviva and if achieved the current multiple on the shares looks too low he said giving the shares a 649p price target Aviva said it was raising its expectations for earnings growth to more than 5 percent annually from 2019 onwards from a previous target of mid single digit growth It also said it would increase its dividend pay out ratio to 55 60 percent of earnings per share by 2020 from 50 percent
The new targets are achievable JP Morgan analysts said in a note reiterating their overweight investment rating on the shares |
MS | Brexit is much ado about nothing Unicredit CEO | By Lawrence White and Huw Jones LONDON Reuters Britain s exit from the European Union will not have a major impact on European Banks or London s status as a major financial center the chief executive of Italian bank Unicredit MI CRDI said on Thursday Brexit is much ado about nothing Jean Pierre Mustier told a Financial Times conference Mustier said regulators and authorities are likely to find practical solutions to the problems posed by Britain s exit from the bloc meaning there would be no big revolution in the continent s banking landscape Let s just be calm Mustier said Britain s pending exit from the European Union and consequent possible loss of access to the bloc s markets has prompted a debate among lawmakers and bankers as to whether banks will move business from Britain to the continent Around 10 000 jobs are likely to move from Britain to Europe in the first wave if a deal maintaining access to Europe s markets is not found the Bank of England has said An official for the European Central Bank cautioned that Brexit could damage Britain s reputation as a stable sound center for global financial markets Pentti Hakkarainen a member of the European Central Bank s supervisory board on banking supervision said the ECB was in close contact with UK regulators about licensing new euro zone hubs for banks in London looking for an EU base after Brexit With only 2 percent of loans to euro zone households coming from Britain the impact of Brexit looked absorbable he told the conference However he said that Britain s long standing reputation for having a predictable legal framework could be viewed by international firms to be deteriorating since Brexit This is perhaps a long term issue and with consequences for the future Hakkarainen said Clare Woodman global chief operating officer for institutional securities at Morgan Stanley N MS also sounded a note of caution about the impact of Brexit on European banking saying that clients were concerned
Having hundreds of banks repapering or moving accounts from London to new EU hubs at the same time was a worry for them she added |
JPM | The White House now thinks the shutdown will be twice as bad for the economy than they originally thought | The federal government shutdown is hurting the US economy most economists agree The White House thinks that the pain is even worse than originally thought A White House official told INSIDER that after a change to the internal model the Trump administration now estimates the shutdown is taking 0 13 percentage points off of quarterly GDP every week The model change incorporated the negative effects for federal contractors The new White House estimate is much higher than the general Wall Street consensus that the shutdown is shaving 0 05 points off of quarterly GDP every week The from the partial shutdown of the federal government and even the White House thinks it may be even worse than originally estimated After a tweak to the internal White House model the administration now expects that the shutdown will deduct 0 13 percentage points from quarterly GDP for every week the closure persists a White House official told INSIDER Most Wall Street economists believe the shutdown will shave off 0 05 percentage points from quarterly GDP growth per week though some have bumped up their estimates recently This means that the White House number is more than twice as pessimistic as the consensus Originally the model only included the lost productivity from But now the model also incorporates the downsides caused by the loss of revenue to federal contractors third party companies that are paid by the shut down agencies for services according to the official The new model found that 0 08 percentage points of GDP is shaved off every week due to the furlough while 0 05 points is lost due to lost work from federal contractors This means that has knocked off roughly 0 25 points from first quarter GDP so far Given the economic hit from the shutdown could continue for a long time Most economists also estimate that the economic pain from the shutdown will increase as key federal programs experience disruptions For instance the economic fallout would be devastating if SNAP benefits also known as food stamps run dry at the end of February According to Ian Shepherdson chief economist at Pantheon Macroeconomics if the shutdown continues through March then Additionally that the shutdown could have major negative consequences for the US Neil Bradley the chief policy office at the US Chamber of Commerce also cautioned the president and congressional lawmakers that the shutdown was causing chaos for consumers and companies The shutdown is harming the American people the business community and the economy Bradley The Chamber strongly urges Congress and the administration to resolve this impasse and reopen the government Based on the White House revision the pain that Bradley warned about could be even worse than expected For more on the government shutdown s effects |
JPM | U S import prices fall year on year drop largest since 2016 | By Lucia Mutikani WASHINGTON Reuters U S import prices fell for a second straight month in December as the cost of petroleum products tumbled and a strong dollar curbed prices of other goods leading to the largest year on year drop in more than two years The report from the Labor Department on Wednesday added to weak producer and consumer prices data in strengthening economists expectations of a pause in interest rate increases from the Federal Reserve in the near term Fed Chairman Jerome Powell said last week that low inflation afforded policymakers the ability to be patient and watch patiently and carefully while they monitored economic data and financial markets for risks to growth The U S central bank has forecast two interest rate increases this year In 2019 we see a weaker inflationary impulse from abroad on domestic prices said Jake McRobie a U S economist at Oxford Economics in New York This will give the Fed some breathing room in adjusting rates slowly Import prices declined 1 0 percent last month after dropping 1 9 percent drop in November Economists polled by Reuters had forecast import prices decreasing 1 3 percent in December In the 12 months through December import prices fell 0 6 percent the biggest year on year drop since September 2016 after rising 0 5 percent in November Prices declined 0 6 percent in 2018 the first calendar year decrease since 2015 after surging 3 2 percent in 2017 U S financial markets were little moved by the data Last month prices for imported fuels and lubricants fell 9 2 percent after tumbling 13 3 percent in November Imported food prices edged up 0 1 percent in December after dropping 2 2 percent in the prior month There were decreases in the cost of capital goods but prices for motor vehicles and consumer goods eked out small gains Excluding fuels and food import prices were unchanged last month after slipping 0 1 percent in November The so called core import prices rose 0 6 percent in the 12 months through December Imported core inflation is being restrained by the strong dollar which gained about 7 5 percent last year against the currencies of the United States main trade partners Import prices do not include tariffs The cost of goods imported from China was unchanged last month Prices for imported Chinese goods fell 0 2 percent in 2018 and have not increased on a calendar year basis since 2011 DOWNSIDE RISKS Against the backdrop of low inflation and slowing growth in China and Europe some economists believe the Fed will not hike interest rates in the first half of 2019 There are signs the U S economy slowed at the end of 2018 with consumer and business sentiment surveys weakening sharply in December Downside risks are developing for U S inflation said Ryan Sweet a senior economist at Moody s Analytics in West Chester Pennsylvania Therefore the Fed has the green light to pause until June if not longer But an ongoing partial shutdown of the federal government which has delayed the release of data from the Bureau of Economic Analysis and Census Bureau is making it hard to get a good read on the economy and could complicate policy decisions The government partially shut on Dec 22 amid demands by President Donald Trump that the U S Congress give him 5 7 billion this year to help build a wall on the country s border with Mexico The longest government shutdown in history has delayed the release of December retail sales and November business inventory data which were scheduled for Wednesday The publication of November construction spending and trade figures has also been delayed and the December housing starts and building permits report due on Thursday is likely to be postponed Economists estimate the shutdown is cutting at least two tenths of a percentage point from quarterly gross domestic product growth every week Other data on Wednesday suggested a recent moderation in mortgage rates was boosting the struggling housing market The number of people seeking loans to buy a home and to refinance one rose to an 11 month high last week the Mortgage Bankers Association said Separately homebuilders sentiment climbed this month buoyed by optimism over sales conditions now and over the next six months Homebuilding weighed on economic growth for three straight quarters in 2018
While housing activity probably hasn t changed drastically over the past month the improvement in the NAHB survey suggests that the recent decline in mortgage rates likely has boosted activity somewhat said Daniel Silver an economist at JPMorgan NYSE JPM in New York |
MS | Pound Rallies To The Bottom FTSE Down | The UK is watching the pound lose ground on Brexit risks and the rally toward the bottom is certainly not over
The pound traded below the 1 40 mark against the US dollar for the first time in seven years while the euro pound surged to 0 78876 The Brexit risks continue weighing on the pound as leading names including Morgan Stanley N MS and Societe Generale PA SOGN call for a possible pound depreciation toward the 1 30 level versus the dollar
The FTSE is again in bears hands All sectors are trading in the red Materials and energy stocks lead losses in London given that oil and commodity prices face rising selling pressure WTI gave back the 2 it gained yesterday as Iran called the Saudi Russia agreement to freeze production ridiculous and Saudi Oil Minister made it clear for everybody there will be no such thing as a production cut Hence the possibility of a slide to 25 could be kept on the table
BHP Billiton L BLT is down by another 5 60 Glencore L GLEN and Anglo American L AAL have already lost more than 5 Barratt Developments PLC L BDEV saw a bump in its share price after announcing a 35 rise in its first half profits The rest of the sector enjoys the move enhanced by news that loans for house purchases expanded faster than expected in January BBA Persimmon L PSN 1 23 is the biggest gainer in London followed by London Stock Exchange still benefiting from merger talks with Deutsche Boerse DE DB1Gn
Gold the Swiss franc and the yen are in demand as cash flows into safe havens with risk off seen for European equities in early trading Gold is ready to grasp the 1250 60 level
The yen strengthens no matter how determined the BoJ is to fight back its appreciation In his testimony BoJ s Kuroda said the bank is ready to ease if market rout hurts economy that the excessive risk aversion is hurting stocks USD despite the negative interest rate policy The market gave little attention to his words The USD JPY is ready to challenge the 110 support |
C | Explainer U S dollar intervention What would it take | By Saqib Iqbal Ahmed
NEW YORK Reuters The strength of the U S dollar has long been a thorn in President Donald Trump s side That has put the almost unthinkable scenario of currency intervention up for debate in global foreign exchange circles
Forcibly halting the U S dollar s strength would be a drastic step not deployed in more than three decades
The last big concerted effort to weaken the dollar was after the Plaza Accord in 1985 when five of the largest industrialized countries agreed to act to bring down the value of the dollar
Most recent FX interventions by policymakers in developed economies have been to address currencies getting out of whack from historical exchange rates or to counter disorderly markets
Analysts agree that while the possibility of a unilateral intervention in currency market by the United States is low it is not completely unthinkable
I think with this administration the mantra always has to be everything is on the table Gennadiy Goldberg senior interest rates strategist at TD Securities told the Reuters Global Markets Forum on Tuesday
WHAT IS CURRENCY INTERVENTION
Currency intervention refers to the practice of a country s monetary authorities buying or selling their own currency in the foreign exchange market with a view to steering its value
This is usually done to curb volatility and lend stability to a currency A number of countries including Japan Switzerland and China have in the past intervened in currency markets
The United States most recent intervention in currency markets was in 2011 when it joined other countries in a concerted intervention to weaken the yen after the Japanese currency appreciated sharply following a massive earthquake in Japan
The U S Treasury and the Federal Reserve generally collaborate on foreign exchange intervention decisions
WHAT ARE THE MAIN TOOLS AVAILABLE TO TRUMP
The President has several tools at his disposal if he wants to curb the strength of the dollar
1 Exchange Stabilization Fund
Trump s biggest weapon is the Exchange Stabilization Fund ESF which is operated by the Secretary of the Treasury with the approval of the President without the need for approval of the legislative branch It was created in the 1930s to stabilize the exchange value of the dollar
As of July 31 the ESF had 93 77 billion in assets that the Trump administration could deploy to buy and sell foreign currencies That included 20 68 billion in foreign currencies 50 49 billion in Special Drawing Rights and 22 60 billion in U S government securities
Additional funds can be generated by warehousing where the Fed and the U S Treasury swap foreign currency holdings
In addition to these funds the Fed has traditionally matched Treasury intervention funds thus essentially doubling the Treasury s firepower In principle the Fed could also expand its balance sheet beyond that to buy foreign assets and other countries could agree to join the United States in the intervention
Taking all of these into consideration Citigroup NYSE C strategists said U S firepower for an intervention is potentially unlimited but realistically up to around 200 billion to begin with
2 BADGER POWELL FURTHER
Tighter Federal Reserve policy has been one of the significant drivers of the dollar s strength While there are legislative hurdles to tweaking the Fed s mandate Trump could continue to try to influence the Fed by continuing to publicly push Fed chair Jerome Powell to cut rates faster
3 VERBAL INTERVENTION
For a President Trump is unusually vocal about the strength of the greenback He has repeatedly called for a weaker U S dollar in a bid to help U S exporters and could continue to talk down the dollar
U S President Trump has actively used verbal intervention this year in an effort to push down the value of the U S dollar His efforts however have been largely unsuccessful Jane Foley senior FX Strategist at Rabobank said in a note
4 PRESSURE TRADING PARTNERS TO STRENGTHEN THEIR CURRENCIES
As the United States renegotiates trade deals with various trading partners it could pressure them to strengthen their own currencies by adding currency clauses to any new trade deals analysts said
LEVELS TO WATCH
For now currency intervention is seen unlikely But it could become a possibility if the dollar rises significantly further
Recent comments by U S policymakers suggest that FX intervention is off the table for the time being We agree BofA Merrill Lynch Global Research strategists said in a note
The dollar needs to be stronger in disorderly conditions to warrant a response they said
EURUSD would likely need to decline into the 1 05 1 07 zone by September before a potential intervention would start to look justified in the context of history and international commitments the strategists said
Citi FX strategists also see the chances of intervention rising if the dollar strengthens about 10 further from here with the risk of intervention becoming acute around EURUSD at 1 05
Graphic EUR USD link
IS INTERVENTION LIKELY AND WILL IT BE EFFECTIVE
This would go against the grain of years of G7 accords which maintain that markets should set exchange rates Rabobank s Foley said
Even if the United States were to intervene in FX markets analysts doubt whether that alone would be enough to stymie the dollar s strength
The effectiveness of such an intervention is something I would question the U S has limited capacity to intervene and can create perverse feedback loops TD Securities Goldberg said
For example during the U S downgrade in 2011 Treasury yields actually declined If a U S intervention which we don t expect ends up triggering a global risk off we could perversely see the U S dollar strengthen instead of weaken he said
Strategists at Citi expect a U S FX intervention would weaken the greenback by 2 3 over the first few day they said in a recent note The medium term impact could also be substantial but is more uncertain they said
Overall analysts are skeptical about the success of such a move
History suggests currency intervention only works when accompanied by shifts in relative monetary policies and coordination across nations Dario Perkins managing director global macro at TS Lombard said in a recent note
The conditions for coordination do not exist today and unilateral U S attempts to force the dollar down could get messy he said |
C | Argentine Markets Sink as IMF Lifeline Hangs in the Balance | Bloomberg Argentine bonds tumbled to new lows as the central bank s efforts to support the peso drain foreign currency reserves while a lifeline from the International Monetary Fund hangs in the balance
Sovereign bond prices fell as much as 7 with euro denominated notes trading around 40 cents per euro and the dollar denominated century bonds at the weakest level on record near 43 cents on the dollar The peso weakened as much as 4 2 before paring losses as officials intervened in the market
Investors are taking an increasingly dim view of the country just as a team from the IMF visits Buenos Aires to determine whether to disburse the next tranche of its 56 billion credit line A refusal could spark renewed capital flight and bring about default An agreement would enable Argentina to live to fight another day The team s recommendation should be known within the next few weeks
Argentina needs the 5 3 billion disbursement to make debt payments by year end said Carolina Gialdi a senior fixed income strategist at BTG Pactual Argentina in Buenos Aires If they don t disburse the government will need to use international reserves to repay dollar debt
Yet reserves are already falling fast as people pull their money out of the country with the cache down more than 10 billion over the past month to 57 5 billion
Argentina s credit default swaps imply an 89 probability of a default within five years according to CMA data
Running Mate
The central bank is seeking to limit demand for dollars by telling financial institutions to hold off on peso loans to exporters who would then buy greenbacks according to a statement Wednesday
More drama was inserted into the market Wednesday morning when President Mauricio Macri s running mate in the October election said the government is considering measures to halt capital flight Argentina isn t planning to announce any new economic measures in the short term according to the Economy Ministry s press office
I am convinced that they are going to take measures that provide stability to the economy and fundamentally to stop dollars flowing out Miguel Angel Pichetto told Radio Metro
Pichetto added that he believed the opposition was lobbying to block the disbursement from the IMF Opposition candidate Alberto Fernandez criticized the IMF accord yesterday saying the Fund and Macri were now responsible for getting the country out of the economic crisis
Central Bank
The central bank is taking increasingly drastic action to defend the peso It sold 367 on the currency market Wednesday and 302 million the day before according to a people with knowledge of the matter
While the markets tumble Argentines are taking to the streets Tens of thousands joined protests across the country on Wednesday demanding the government take measures to mitigate the impact of the economic crisis
The peso has slumped more than 20 since the opposition unexpectedly routed Macri in a primary election on Aug 11 ahead of the election proper on Oct 27
It appears that the political harmony created by an implicit agreement between Macri and Fernandez is fading fast Citigroup NYSE C strategists including Dirk Willer and Kenneth Lam wrote on a Wednesday report Volatility is going to be high into the election
Updates with dollar auctions in the 11th paragraph |
C | U S officials defend new citizenship rules for some military families | By Jan Wolfe
Reuters U S immigration officials on Thursday defended a new policy that ends automatic citizenship for some children born to U S citizens stationed abroad as government employees or members of the U S military saying it would only affect a handful of families every year
It bears repeating that this affects a very small population of individuals and they have another means of obtaining citizenship for their children a U S Citizenship and Immigration Services USCIS official said in a call with reporters adding that the new pathway just requires different paperwork
Under current policy children of service members and other officials stationed abroad are considered to be residing in the United States so they receive the same automatic citizenship as if they were born on U S soil
But under a policy USCIS announced on Wednesday effective Oct 29 certain parents will be required to go through a formal application process seeking U S citizenship on their children s behalf by their 18th birthday
USCIS officials said the policy may affect children born to non citizens serving in the military as well as children adopted by U S citizens stationed abroad The policy could also affect children born to two U S citizens who do not meet requirements for showing a physical presence in the United States the officials said
A fact sheet posted on the USCIS website suggested the new policy would be limited in scope saying it would exempt children born abroad to a U S citizen who was physically present on U S territory for at least five years
This really is a very small population a different USCIS official said Our records that we ran reflected possibly 20 to 25 people over the past five years per year
The announcement of the new policy swiftly drew criticism particularly from critics of U S President Donald Trump who has pushed for policies that make it harder for immigrants to come to and settle in the United States
Acting USCIS director Ken Cuccinelli said on Twitter on Wednesday that the new rule does NOT impact birthright citizenship the doctrine criticized by Trump by which anyone born in the United States or its possessions automatically acquires U S citizenship
The new policy which is not retroactive sparked immediate consternation on the part of some organizations representing members of the armed forces
Military members already have enough to deal with and the last thing that they should have to do when stationed overseas is go through hoops to ensure their children are U S citizens said Andy Blevins executive director of the Modern Military Association of America which advocates for gay and lesbian service members
The USCIS officials said the agency was changing its interpretation of a statute known as the Immigration and Nationality Act in order to match State Department policies
C onsistent decision making is important no matter the size of the affected group so when the Department of State approached us USCIS about making this change we agreed the official said
The State Department did not immediately respond to a request for comment |
C | Japan s curbs on high tech materials exports to South Korea could backfire | By Makiko Yamazaki and Heekyong Yang TOKYO SEOUL Reuters Japan s curbs on exports of high tech materials to South Korea could backfire in the long run eroding its dominance over a key link in the global chip supply chain suppliers and experts say Japan tightened restrictions last month on exports of three chipmaking materials to South Korea home to memory chip titans Samsung KS 005930 and SK Hynix KS 000660 threatening to disrupt the global tech supply chain as it provides about 70 or more of the restricted products to the world While the move highlights Japan Inc s firm place in the industry even after its once mighty giants like Sony T 6753 lost out to nimble Chinese and Korean rivals it has fueled concerns that its grip on the niche market for fluorinated polyimides photoresists and hydrogen fluoride could loosen South Korean companies cite quality and stable supply as reasons for choosing Japanese materials But this has made them aware of the need for change and they are already taking action a source at a Japanese materials supplier said This will hit us like a body blow Samsung for instance has stepped up testing of non Japanese photoresists and hydrogen fluoride several sources familiar with the chip supply chain said Soulbrain KQ 036830 a supplier of hydrogen fluoride to the Samsung and Hynix the world s No 1 and No 3 chip vendor is aiming to match the purity of Japanese hydrogen fluoride at a plant that is still under construction Industry experts however note it would take time for South Korean firms to move up the value chain as the three high tech materials are not easy to replicate Japanese suppliers have built up their capabilities through decades long experience of developing products Atsushi Ikeda Citigroup NYSE C analyst said The accumulation is just too big for new players Top photoresist supplier Tokyo Ohka Kogyo T 4186 says it takes up to two years to develop new resists RARE EARTH SHOCK From South Korea the curbs are likely to elicit a response similar to Japan s during the rare earth shock nearly a decade ago when China s restriction on exports of rare earth minerals used in electronic devices forced Japan Inc to find alternate supplies industry participants said Under the circumstances anyone would do that said the source at the Japanese supplier that has been hit by the curbs Seoul has already pledged to subsidizes the domestic chip supply chain to accelerate the buildup of knowledge needed for firms to catch up in more advanced fields A senior executive at Soulbrain said the government had expedited paperwork so its new plant could be completed faster Soulbrain is looking to complete the construction by end September and run tests to see if it can mass produce high purity hydrogen fluoride the executive said In photoresists Samsung is trying to curb its reliance on Japan for advanced material although sources say it faces high hurdles The company however uses material from local supplier Dongjin Semichem KQ 005290 for photoresists used in chips with less finer circuit patterns Japanese supply chain sources said Only three Japanese firms Tokyo Ohka JSR T 4185 and Shin Etsu Chemical T 4063 currently supply high quality materials used in advanced chip production technology known as extreme ultraviolet lithography globally REPERCUSSIONS Tokyo Ohka and other materials makers grew hand in hand with electronics conglomerates NEC T 6701 Toshiba T 6502 and Hitachi T 6501 the world s top chipmakers in the late 1980s Even after Japanese chipmakers lost ground to South Korea the suppliers continued to thrive thanks to early inroads in overseas markets and the strength of their local supply chains But in the wake of the latest curbs prompted by a decades old row between the Asian nations over compensations for forced South Korean laborers at Japanese firms during World War Two suppliers in Japan are having to deal with repercussions beyond the three restricted materials industry sources said Korean chipmakers are now asking Japanese suppliers to front load shipments of materials Japan has large market shares of from silicon wafers to polishing slurries for fear of further restrictions the sources said Japanese suppliers have so far refrained from directly commenting on how the curb will impact their business claiming they had no inkling of the government s decisions beforehand We have very good relations with our Korean clients said Hideo Ohhashi a spokesman for Tokyo Ohka
But this is up to politics |
C | Britain s banks face 25 earnings hit from no deal Brexit Citigroup | LONDON Reuters Britain s banks face a hit of up 25 to their earnings if Britain crashes out of the European Union without a deal analysts at Citigroup N C said in a research note
The economic slowdown that would result from a no deal Brexit as well as the likelihood of lower interest rates and borrowers defaulting on loans would hit earnings per share by between 15 to 25 the analysts at Citi wrote in the note published on Thursday
The research is one of the most concrete assessments yet of the impact of no deal on Britain s banking sector which has thus far shown few signs of the impact of Brexit other than declining confidence among business and retail customers
Royal Bank of Scotland L RBS on Aug 2 said deteriorating economic conditions before Brexit were likely to derail next year s profitability and that some customers were already struggling
The impact of a no deal scenario on the shares of big British lenders Barclays L BARC HSBC L HSBA Lloyds L LLOY RBS L RBS and Standard Chartered L STAN could be more muted the Citi analysts said as the risks of that outcome are already partly priced in
The FTSE index of banks in Britain FTNMX8350 has fallen 7 this year as lenders grapple with pressure on profits from competition in the mortgage sector ultra low central bank interest rates and high fixed costs |
C | ANZ Citi Deutsche cartel case inches ahead in Australia | SYDNEY Reuters An Australian magistrate shifted hearings to a larger room as a long awaited criminal cartel case against Australia and New Zealand Banking Group AX ANZ and the local units of Citigroup N C and Deutsche Bank DE DBKGn inched ahead on Tuesday
Lawyers for each of the banks and individual executives packed out the Sydney courtroom for a short administrative hearing ahead of legal argument scheduled for later this month giving a sense of the size and complexity of one of the country s biggest white collar crime prosecutions
The case is being closely followed by brokers and banks globally because it could lead to increased regulator scrutiny
Authorities last year charged the financial giants and six bankers over the 2015 sale of A 3 billion 2 billion ANZ shares and subsequent trading by underwriters saying they colluded to keep from ordinary shareholders the fact that they had not found buyers for all the stock
All the accused banks and executives have said they will fight the case although they have not yet entered a formal plea If they plead not guilty the matter would proceed to trial although no date has been set
Magistrate Jennifer Atkinson said it appeared the court would need to make room for 20 barristers an unusually large number in Australia even for large cases
The room of Sydney s Downing Centre Local Court normally used for early hearings of commonwealth matters was so crowded lawyers had to stand behind the bar table that had room for just five chairs
Atkinson also accepted commitments from lawyers on both sides to deliver briefs of evidence to each other a week before the next hearings scheduled for Sept 25 and 27
At those hearings lawyers for the banks and bankers will press to be allowed to cross examine prosecution witnesses who have not been named yet in hearings
If convicted the banks could face penalties of A 10 million or triple the benefit of the conduct The individuals charged could face 10 years in jail
Citi and JP Morgan which also worked on the 2015 share issue declined to comment while Deutsche and ANZ were not immediately available for comment |
JPM | Deutsche Bank To Settle Libor Manipulation Case For 240M | Per a Reuters article Deutsche Bank DE DBKGn Aktiengesellschaft NYSE DB has agreed to settle an antitrust case in the United States that accuses it of plotting with some other banks and manipulating the Libor benchmark interest rate
The German bank is required to pay about 240 million despite denying of any wrongdoings While the preliminary settlement documents were filed in the U S District Court in Manhattan on Tuesday court approval for the same is still awaited
Deutsche Bank took the step toward settlement in order to steer clear of extra costs of litigation Per Troy Gravitt the bank s spokesman Deutsche Bank was pleased to settle
The lawsuit was filed in 2011 by investors including the city of Baltimore and Yale University in New Haven CT accusing 16 banks of conspiring to manipulate Libor
Libor or the London Interbank Offered Rate an important benchmark set by the British Bankers Association is used by the financial institutions across the globe to set the interest rates for lending purposes on several transactions
Rigging of the benchmark interest rates has resulted in billions of dollars of regulatory fines against the banks worldwide Over the years Deutsche Bank and other banks such as Citigroup NYSE C JPMorgan Chase Co NYSE JPM and HSBC Holdings Plc NYSE C have made settlements with the U S financial regulators over such manipulations
On Monday Deutsche Bank had confirmed its plans to float a minority stake in DWS its asset management arm by mid March 2018 as promised in during the capital raise in 2017 Read more
Though this settlement is a step for the bank in the right direction it will lead to rise in litigation expenses Also the bank s revenues remain under pressure owing to the low interest environment and a horde of legal issues
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MS | U S Labor Department delays final part of fiduciary rule | By Elizabeth Dilts NEW YORK Reuters The U S Department of Labor issued an 18 month delay on Monday for key parts of its retirement rule including one that would require brokers to ask clients if they feel that accounts that charge commissions are in their best interests The Labor Department said the delay would give it time to review public comments received in recent months and to satisfy President Donald Trump s request in February that it review the cost the rule poses to the wealth management industry and investors The so called fiduciary rule took partial effect this past summer requiring securities brokers at firms like Morgan Stanley NYSE MS and Edward Jones to charge reasonable fees make no misleading statements and to do what is in a retirement saver s best interest The parts of the rule now delayed until July 1 2019 are provisions that articulate what brokers must do to follow those guidelines Those provisions also could create the basis for a claim if a client believes the broker did not do what is in his or her best interest Consumer advocates fear the delay is a sign that the thorniest parts of the rule will eventually be scrapped The mechanisms that make this rule enforceable in the marketplace are delayed and the signal from the Department of Labor is that those provisions are on the chopping block long term said Barbara Roper investor protection director for the Consumer Federation of America The Obama administration crafted the rule in 2016 to eliminate conflicts of interest in the financial advice that savers receive on retirement accounts The original version of the rule limited brokers ability to earn commissions and sell some higher fee products Wall Street lobbyists have argued the best interest contracts and the principal transactions exemption also subject to the delay will reduce the number of investment products brokers can offer to retirement savers They say it will also drive up compliance costs and thereby fees forcing firms to drop less profitable investors and small business 401 k clients
This delay will allow the DOL to conduct a thorough review of the rule to ensure investor choice and access to retirement savings advice is protected said Dale Brown president of the Financial Services Institute |
MS | Analysts raise Pure Storage price targets after earnings | Analysts make Pure Storage NYSE PSTG price target adjustments after yesterday s aftermarket earnings report Adjustments Maxim Group 20 was 18 Morgan Stanley NYSE MS 18 was 15 BofAML 22 was 19 Barclays LON BARC 19 was 15 UBS 22 was 18 Pure Storage shares are down 3 1 premarket Previously Pure Storage drops 3 despite Q3 guidance beats Nov 28 Now read |
JPM | As loans and revenue shrink Wells Fargo leans on cost cuts | By Imani Moise and Aparajita Saxena Reuters Wells Fargo NYSE WFC Co s loan book shrank and revenue fell across all its major businesses last quarter as the fourth largest U S lender continued to work through the consequences of wayward sales practices at its consumer bank Wells Fargo has struggled to regain its footing since sales abuses came to light in that business more than two years ago when the bank said employees had opened millions of fake accounts in customers names without their permission Management has since centralized risk controls overhauled employee compensation and pushed a renewed focus on customer wellness to address underlying problems Some of those changes are hurting revenue executives acknowledged on Tuesday when discussing fourth quarter results For instance the bank now sends customers real time low balance alerts to protect them from overdraft fees Wells Fargo is also experiencing cyclical pressure in mortgage lending which was once its main money maker and has intentionally pulled back from some areas like auto lending where executives felt profit potential was limited Combined with legal and regulatory penalties for its sales abuses which also involved overcharging hundreds of thousands of customers on auto loans mortgages and account features they did not request the bank has struggled to get its profit engine humming again In lieu of revenue growth Chief Executive Officer Tim Sloan has laid out an aggressive cost cutting plan to buoy profits The bank s shares were down 1 9 percent to 47 52 in midday trading ASSET CAP Sloan said on Tuesday he expects the Federal Reserve to maintain an asset cap on the bank through the remainder of the year The Fed imposed that penalty in February as punishment for the sales abuses saying it would only be lifted once the bank proved it had fixed what was wrong Wells Fargo executives initially said the cap would not hinder the bank s business growth and as recently as July predicted it would be lifted by mid 2019 But progress has been slower than expected Sloan said on a call with analysts who peppered him with questions about the profit impact of the asset cap It is hard not to feel like the regulatory penalty box is endless said Brian Foran an analyst with Autonomous Research The bank has already paid billions in combined fines and settlements with regulators and private litigants over its sales abuses and remains on a tight leash with the U S Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency as it continues remediation efforts Wells Fargo also faces probes from the U S Department of Justice and the Securities and Exchange Commission During the fourth quarter the bank s loan book shrank 1 percent and deposits fell 3 percent Consumer loans posted the biggest decline hurt primarily by more people paying off their mortgages than taking out new ones Mortgage banking revenue fell by half Wells Fargo s overall quarterly profit of 5 71 billion or 1 21 per share was down 1 percent from the 5 74 billion or 1 16 per share a year earlier Those results reflected special items including some 432 million in operating losses from legal costs regulatory penalties and customer remediation and a 614 million gain on the sale of troubled mortgage loans that predate the 2007 2009 financial crisis Analysts on average expected earnings of 1 19 per share according to IBES data from Refinitiv Revenue fell 5 percent to 20 98 billion below Wall Street s 21 73 billion estimate Wells Fargo met Sloan s expense target last year when excluding big one time items like legal costs regulatory penalties and customer remediation expenses The bank is now aiming to slash expenses to a range of 52 billion to 53 billion this year and 50 billion to 51 billion by 2020 Wells Fargo is on track to hit those goals through efficiency programs that will reduce overall headcount by 5 percent to 10 percent Chief Financial Officer John Shrewsberry said
Earlier in the day JPMorgan Chase Co NYSE JPM reported lower than expected quarterly profit and a slump in bond trading revenue |
MS | AUD USD Aussie Gains Ground On Positive Australian CPI Reports | The Australian dollar is showing limited movement on Wednesday as AUD USD trades at 0 7040 in the European session On the release front Australian CPI posted a gain of 0 4 above the estimate In the US all eyes are on the Federal Reserve which will release a policy statement and set the benchmark interest rate for January
The Aussie remains has posted strong gains climbing 100 points since the start of the week The Aussie was bolstered by positive inflation numbers on Tuesday Australian CPI one of the most important economic indicators posted a gain of 0 4 in the 4th quarter beating the forecast of 0 3 Trimmed Mean CPI which excludes the most volatile items which make up CPI gained 0 6 in the 4th quarter ahead of the estimate of 0 5 We ll get a look at Import Prices later on Wednesday with the markets braced for a decline of 0 8 Despite a strong start to the week the risky Aussie is down about 250 points in January as it struggles to stay above the psychologically significant 0 70 level
It s showtime for Janet Yellen and Co as the Federal Reserve concludes a 2 day meeting and issues a policy statement later on Wednesday The markets are predicting that the Fed will leave interest rates at the current level of 0 25 Economic conditions have changed significantly since the Fed raised rates in mid December with global stock markets down and oil prices sharply lower since the historic rate hike in December According to Morgan Stanley NYSE MS Chief Economist Ellen Zentner financial conditions have tightened by the equivalent of 4 rate hikes so the Fed could hold off from further tightening until mid 2016 or even later The January statement could well be a balancing act with the Fed acknowledging weaker economic conditions in the US while emphasizing that the economy is still growing and moving in the right direction The collapse of oil prices has contributed to the weak inflation picture in the US with current inflation levels well below the Fed target of 2 0 Low inflation which is indicative of slack in the economy remains a significant concern for Fed policymakers who are unlikely to approve another rate hike without an upturn in inflation Traders should be prepared for possible volatility in the currency markets following the Fed policy statement
AUD USD Fundamentals
Tuesday Jan 26
19 30 Australian CPI Estimate 0 3 Actual 0 4
19 30 Australian Trimmed CPI Estimate 0 5 Actual 0 6
Wednesday Jan 27
10 00 US New Home Sales Estimate 501K
10 30 US Crude Oil Inventories Estimate 3 8M
14 00 FOMC Statement
14 00 Federal Funds Rate Estimate 0 50
19 30 Australian Import Prices Estimate 0 8
Upcoming Key Events
Thursday Jan 28
8 30 US Core Durable Goods Orders Estimate 0 0
8 30 US Unemployment Claims Estimate 281K
Key events are in bold
All release times are EST
AUD USD for Wednesday January 27 2016
AUD USD January 27 at 6 00 EST
AUD USD Open 0 7004 Low 0 6979 High 0 7052 Close 0 7034
AUD USD Technical
The pair posted slight gains in the Asian and has leveled off in European trade
0 6931 is providing support
There is resistance at 0 7063
Current range 0 6931 to 0 7063
Further levels in both directions
Below 0 6931 0 6848 0 6754 and 0 6625
Above 0 7063 0 7100 and 0 7213
OANDA s Open Positions Ratio
AUD USD ratio is showing little movement reflective of a lack of movement from the pair The ratio remains close to an even split between long and short positions indicative of a lack of trader bias as to which direction the pair will take next |
MS | Crude Oil Choppy Ahead Of Fed Statement | US crude is choppy on Wednesday as crude futures are trading at 31 41 a barrel in the North American session In economic news US New Home Sales surged to 544 thousand well above expectations Crude Oil Inventories posted a surplus of 8 4 million much higher than the estimate All eyes are on the Federal Reserve which will issue its monthly policy statement and set the benchmark interest rate later in the day
Oil prices have clawed back above the 30 level but remain under pressure The supply glut shows no signs of improving anytime soon as crude oil Inventories posted a huge surplus of 8 4 million compared to 4 0 million a week earlier This reading was much higher than the forecast of 3 8 million China is in the midst of a slowdown and recent soft numbers from the Asian giant notably a drop in the most recent GDP report has led to a significant drop in demand for oil resulting in lower oil prices Adding to oil s woes is the return of Iran as an oil exporter as well as high production in North America Russia and OPEC The deck seems stacked against crude oil and the ongoing oversupply of oil could last well into 2016
Janet Yellen and company are in the spotlight on Wednesday as the Federal Reserve concludes a two day meeting and issues a policy statement The Fed is expected to maintain interest rates at the current level of 0 25 Economic conditions have changed significantly since the Fed raise rates in mid December with global stock markets down and oil prices sharply lower since the historic rate hike in December According to Morgan Stanley N MS Morgan chief economist Ellen Zentner financial conditions have tightened by the equivalent of four rate hikes so the Fed could hold off from further tightening until mid 2016 or even later The January statement could well be a balancing act with the Fed acknowledging weaker economic conditions in the US while emphasizing that the economy is still growing and moving in the right direction The collapse of oil prices has contributed to the weak inflation picture in the US with current inflation levels well below the Fed target of 2 0 Low inflation indicative of slack in the economy remains a significant concern for Fed policymakers who are unlikely to approve another rate hike without an upturn in inflation
WTI USD Fundamentals
10 00 US New Home Sales Estimate 501K Actual 544K
10 30 US Crude Oil Inventories Estimate 3 8M Actual 8 4M
14 00 FOMC Statement
14 00 Federal Funds Rate Estimate 0 50
Upcoming Key Events
Thursday Jan 28
8 30 US Core Durable Goods Orders Estimate 0 0
8 30 US Unemployment Claims Estimate 281K
Key releases are highlighted in bold
All release times are EST
WTI USD for Wednesday January 27 2016
WTI USD January 27 at 11 15 GMT
Open 31 45 Low 30 15 High 31 56 Close 31 41
WTI USD Technicals
WTI USD has been choppy throughout the day
The round number of 30 00 is under pressure It is a weak line
There is resistance at 32 22
Further levels in both directions
Below 30 00 26 64 22 88 and 20 00
Above 32 22 35 09 37 75 and 39 87 |
MS | Miners Lead FTSE Lower | Last week s surge in equities on the BoJ negative rate decision was confounding but is essentially old news this week It would seem that central bank impact is really beginning to lose its charm and the days of buying the dip on the back of stimulus expectations is no longer the winning strategy it once was
We re back to the same old story today with materials and energy providing a drag on the FTSE as BP L BP delivered what was frankly a terrible set of results its worst loss in 20 years
Adding insult to injury oil prices are 1 50 lower this morning with downside momentum and basic economic fundamentals all conspiring to ensure that it will revisit the 30 support in the near term
Even a minor bounce in copper prices to 2 08 lb has failed to give the mining sector a boost this morning and now the FTSE is back below the 6000 level as the ratings cut on BHP Billiton L BLT invites investor caution towards the sector
All capital flow seems bent on heading towards the safer defensive sectors with IT utilities and healthcare faring better than the cyclicals in early trade Eurozone bonds are also in demand which is only exacerbating the issue as the euro pushes higher against the dollar despite the ECB s dovish refrains The DAX is lower by 1 14 111 points
BP 6 72 Given that oil prices have fallen by 25 since the beginning of this year alone it s no surprise that BP reported sharp decline in underlying operating profit for the full year 2015 Annual profit fell 51 year on year to 5 9bn 4 1bn while underlying operating cash flow plunged 38 compared with the corresponding period a year earlier to 32 8bn
Shell L RDSa 1 94 is being dragged down in sympathy but not many are upbeat about the set of results it is set to post later this week
BHP Billiton 3 78 credit rating at S P on lower price forecasts Lowered from A to A
Ocado L OCDO 8 24 posted its second consecutive year of full year profits before tax with earnings rising 65 to 11 9m on revenue up 17 per cent to 1 1bn Ocado also built on its customer base from last year
Hikma Pharma L HIK 2 76 Raised to buy from Neutral at BOFAML
Sports Direct L SPD 2 Down 48 from the August highs someone had to find value as it plummeted to all time lows Raised to overweight at Morgan Stanley N MS
Sainsbury OTC JSAIY 2 agreed to buy Home Retail for 1 9bn 1614 3p shr The offer represents a 63 premium to Home Retail s 1 24 share price on 4 January
We expect the Dow to open down by 160 points to 16280 |
C | Citigroup BNP caught up in U S case against Huawei CFO documents | By Karen Freifeld NEW YORK Reuters U S based Citigroup Inc N C and French bank BNP Paribas PA BNPP are caught up in the U S criminal case against the chief financial officer of China s Huawei Technologies according to newly available documents The banks were named in documents released on Tuesday after a hearing in British Columbia Supreme Court where Huawei CFO Meng Wanzhou is fighting extradition to the United States on bank fraud charges The two are among at least four financial institutions that had banking relationships with Huawei when Meng and others allegedly misled them about its business dealings in Iran despite U S sanctions Two others HSBC Holdings Plc L HSBA and Standard Chartered L STAN have been previously reported The banks are considered victim institutions in the 13 count indictment the United States brought against Meng and Huawei which includes charges of bank and wire fraud violating sanctions against Iran and obstructing justice Both she and Huawei have denied wrongdoing Spokespeople for Citigroup BNP Paribas Standard Chartered and HSBC all declined to comment as did a spokesman for U S prosecutors Huawei did not immediately respond to a request for comment on the newly public information The British Columbia court made public hundreds of pages of documents and other materials including video of Meng s detention in advance of a hearing scheduled to begin Sept 23 in Vancouver Meng the daughter of Huawei s billionaire founder Ren Zhengfei was arrested at Vancouver s airport in December on a U S warrant and her lawyers argue she was unlawfully detained They claim Canadian authorities delayed her arrest to allow the border patrol to gather evidence for the United States as part of a covert criminal investigation In the video Meng can be seen moving through the Vancouver airport customs and immigration area escorted by border agents and being questioned In a transcript Meng repeatedly asks why she was being detained and is eventually told she can contact a lawyer but not her family My family members will be worried if they can t find me she says Meng was searched and interrogated for hours in violation of her constitutional rights her lawyers say She spent more than a week in detention before being granted bail TRADE WAR Diplomatic relations between Canada and China turned icy after Meng was detained and China subsequently arrested two Canadian citizens charging them with espionage It has also blocked imports of some Canadian commodities Meng and Huawei also have become part of the escalating U S and China trade war U S President Donald Trump told Reuters in December he would intervene in her case if it would help secure a deal with China leading her lawyers to argue the extradition proceedings are being used for economic and political purposes In Tuesday s court documents they describe Trump s comments about Meng as corrosive of the rule of law The United States also has made a broader push against Huawei the world s largest telecommunications maker which it maintains is involved in activities contrary to U S national security or foreign policy interests Huawei was placed on a U S trade blacklist in May that bans the sale of U S parts and components to the company without special licenses So far the licenses have not been granted except to allow the repair and maintenance of existing products and networks Besides alleged sanctions busting the United States says the company s smartphones and network equipment could be used by China to spy on Americans allegations the company also has repeatedly denied In one document released on Tuesday the United States describes the evidence against Meng including articles published by Reuters in 2012 and 2013 about a company in Iran called Skycom Tech that had tried to sell computer equipment from a U S firm to a customer in Iran The reporting detailed links between Huawei and Skycom including that Meng had served on Skycom s board of directors between February 2008 and April 2009 The articles were concerning to at least four financial institutions that banked for Huawei according to the document which was drafted by a U S federal prosecutor in Brooklyn New York where the case was brought against Meng and Huawei U S laws and regulations generally prohibited the banks from providing U S dollar transactions tied to Iran through the United States Meng and others defrauded HSBC and other banks by misrepresenting Huawei s relationship with Skycom according to U S prosecutors who claim Skycom s operations in Iran were controlled by Huawei from at least 2007 until 2014 U S authorities claim Huawei used Skycom to obtain embargoed U S goods technology and services in Iran and to move money via the international banking system According to the newly available document about the evidence witnesses for the prosecution of the U S case will include executives from HSBC Standard Chartered and Citigroup and an FBI forensic accountant is expected to testify about documents showing BNP Paribas provided banking services for Huawei between at least 2013 and 2018 In February when Reuters exclusively reported that HSBC conducted a probe that helped bring the case against Meng and Huawei a spokesman said the bank was legally obligated to provide the information it did to the U S Department of Justice
All four banks have resolved their own sanctions issues with U S authorities in recent years The agreements range from BNP Paribas paying 8 9 billion in 2014 and pleading guilty in U S court to Citigroup agreeing to pay 217 841 the same year over potential civil liability for its apparent violations of sanctions programs |
C | Is the U S economy sinking or the strongest ever For the Fed no clear answer | JACKSON HOLE Wyo Reuters The U S Federal Reserve is under pressure from President Donald Trump to cut interest rates Investors expect the Fed to cut perhaps by a lot What s the holdup Perhaps more than at any time in the last few years the data flowing into the Fed isn t telling a clear story partly because of contradictory signals rising employment but slowing factory output for example but also because everything may be clouded by a trade war that shows no signs of ending Of late when economic data has come in outside consensus forecasts the surprises have been to the downside GRAPHIC Citigroup NYSE C economic surprise index Other indicators have been discouraging as well GRAPHIC Should the Fed Trump or anyone be worried But deciding what it all means is not straightforward particularly at a time when the Fed is less confident about some of its underlying ideas about how the economy works and also has to think not just about today but about how its current actions may shape the economy a year or more down the road In that context the recent yield curve inversion may either be a signal investors are losing faith a result of the trade war pushing money into safe U S bond markets or a more benign byproduct of the fact that the yield on the 10 year German bond is now negative Who would buy that over a U S Treasury with positive return Trump was upset about the low German rates on Thursday But it actually is evidence of the United States relative strength Long term U S Treasury yields may have been pulled down as a result and that may help consumers here by driving down things like home mortgage rates And plenty else is going right Consumer spending is so strong many think a U S recession is still a distant threat GRAPHIC For the optimists some evidence as well The S P 500 helps bridge the two sides of the story Still up 16 on the year it has fallen 3 since the Fed met in late July and worries over a more extended trade war intensified GRAPHIC Wall Street vs the Fed |
C | Mexico Central Bank Deputy Sees Room for More Interest Rate Cuts | Bloomberg A Mexican central bank board member on Tuesday said that he sees room for more interest rate cuts in the future after the first reduction in five years earlier this month
With Mexico s key interest rate at 8 Banco de Mexico has room to relax monetary policy without completely unwinding its restrictive stance Jonathan Heath said Tuesday in a presentation in Mexico City Heath was named to the board by leftist President Andres Manuel Lopez Obrador last year
Mexico reduced borrowing costs by a quarter point from a decade high 8 25 on Aug 15 after inflation slowed the economy faltered and the U S cut its own rate Analysts in a survey published by Citigroup Inc NYSE C s Mexico unit last week expect the five member board to cut again in its next scheduled decision on Sept 26
In my very personal opinion I believe we now have the opportunity to start to relax the monetary position Heath said at an event in Mexico City I m not thinking about abandoning a restrictive stance but rather making it less restrictive
This process could happen very soon or in the coming months depending on the data that emerges he added
The board is also scheduled to release its quarterly inflation report Wednesday when Governor Alejandro Diaz de Leon has said the bank will update its projections for growth and inflation The annual inflation rate slowed to 3 29 in early August The central bank targets inflation at 3 |
C | Citi Sees a Bullish Break for Gold | Bloomberg Citigroup Inc NYSE C has raised the possibility gold may extend its impressive rally should it breach a technical level against a major U S equity market benchmark adding to positive commentary around the metal
The ratio between bullion and the S P 500 Index is testing key pivots that extend up to the Christmas highs Shyam Devani senior technical strategist said in a note It is only a matter of time before a significant bullish break occurs that could trigger a rally to the tune of 25 in favor of gold
Gold has powered ahead this year hitting a six year high above 1 500 an ounce as global trade tensions slowing economic growth and investors seeking alternatives to risk assets including equities boost demand Among bulls UBS Group AG says prices will surge to 1 650 over 12 months as central bank easing spurs flows into bullion backed exchange traded funds
Equity markets continue to look vulnerable especially given the deeper inversion of the U S yield curve Citigroup said highlighting the potential for gains in bullion Sometimes the ratio between asset classes is too hot Sometimes too cold But sometimes the chart signals Just right |
JPM | Speculator Record Short On 10 Year Futures Short Squeeze Coming Up | JP Morgan s quantitative and derivatives strategy team warns of potential short squeeze in US treasuries
Marko Kolanovic on JPMorgan NYSE JPM s quantitative team offers a word of warning to treasury bears When there is such a large short position there is always risk of profit taking or worse a proper short squeeze wrote Kolanovic in a research note
We also note extreme sentiment swings and the media playing into fears of inflation while largely ignoring important points such as those most recently voiced by the Fed s Harker and Bullard he said referring to Federal Reserve district bank presidents Patrick Harker and James Bullard
Inflation discussions have recently centered around linear extrapolation of inherently noisy data points and focus on old news such as minutes from the Fed s January policy meeting he wrote There is no mention of structural deflation via demographics or technology AI
Speculator Short Interest
Open interest did decline in the past week but once again the data is old We do not have a real time position on this COT data typically comes out on Friday as of the prior Tuesday I will update the above chart when the data is posted later today
Short Squeeze
For starters profit taking should not be a concern And in general listening to Fed presidents is not a winning strategy
However the current inflation bet is getting quite long in the tooth as is the recovery When the next recession hits I expect treasury yields will collapse |
MS | HPE CEO Whitman s surprise exit stumps Wall Street | By Supantha Mukherjee Reuters Shares of Hewlett Packard Enterprise Co N HPE fell 6 percent on Wednesday after Chief Executive Officer Meg Whitman s decision to step down from the role took Wall Street by surprise Whitman one the most high profile executives in the United States said on Tuesday she would quit as CEO in February and hand over the reins to company veteran Antonio Neri After reports surfaced that she was being considered for the top job at Uber Whitman reinforced her dedication to the role in July by saying that she was fully committed to HPE and planned to remain CEO We have a lot of work still to do at HPE and I am not going anywhere Uber s CEO will not be Meg Whitman she had tweeted On Wednesday Whitman told CNBC that talks with Uber had not been a factor in her decision to leave HPE at all But her move caught analysts off guard HPE is in the middle of a restructuring to cut costs invest in research and focus on high margin businesses Its mainstay server business has been struggling as customers increasingly buy non branded assembled servers that are much cheaper We are surprised by the timing of the CEO transition given commentary at the recent analyst day that seemed to imply a CEO transition was not in the offing BMO Capital Markets analyst Tim Long said in a research note Long however added that Neri s experience running the company s Enterprise Group made him a strong fit for the CEO role The restructuring which was announced last month and called HPE Next was supposed to be led by Neri a computer engineer who has spent more than two decades with the company and is HPE s current president Neri s appointment is not a surprise given his increased visibility in recent months Morgan Stanley NYSE MS analyst Katy Huberty wrote in a research note Neri began his career in Hewlett Packard as a customer service engineer in the EMEA call center He previously led HP s technology services business and then its server and networking businesses before taking over the whole Enterprise Group in 2015 Barclays LON BARC analyst Mark Moskowitz and Morgan Stanley s Huberty expect Neri to shift gears and aggressively develop technology in house rather than focus on mergers Since its split from Hewlett Packard in late 2015 HPE has spent billions buying companies providing cloud software and data storage to better position itself to serve customers who are moving their operations to the cloud HPE s shares have risen 5 percent this year compared with a 16 percent gain in the S P 500 index SPX They were trading at 13 28 in early trading on Wednesday
This version of the story was refiled to fix typo 2105 to 2015 in penultimate paragraph |
MS | Vanguard s Davis makes case for index funds even in tough times | By Ross Kerber BOSTON Reuters The rush of money into big index funds has raised concerns about whether they would still prove attractive in a downturn an issue taking on more importance especially for industry leader Vanguard Group Inc as its passive products soar in scale A common view is that while passive funds would face loses in declining markets active managers could be better prepared because of factors like cash holdings or farsighted stock selection Greg Davis named chief investment officer of Vanguard in July acknowledged some active funds would fare better But many active managers especially in bond funds have taken on more risk to boost returns and make up for their higher costs thus setting themselves up for problems he said You could actually see them underperform by even more than what you would expect Davis said Davis spoke with Reuters just after the company held a rare shareholder meeting for fund investors in Scottsdale Arizona last week For the 12 months ended Sept 30 its passive funds took in 335 billion easily beating rivals according to Morningstar Another 6 4 billion went into Vanguard s own active funds and its total assets are approaching 5 trillion the most of any mutual fund firm Helping Vanguard and other passive fund managers has been the fact that 88 percent of large cap active managers underperformed their benchmarks over the five years ending Dec 31 2016 according to S P Dow Jones Indices Mid cap and small cap managers fared even worse Passive fund performance generally tracks market indexes At times both fund types decline in value In 2008 when the S P index fell over 38 percent in its worst year ever actively managed large cap equity funds on average fell by 38 35 percent according to Morningstar Index funds fared little better that year falling 37 67 percent Active proponents still make a case for stock picking Benchmarks used by passive funds can overweight risky holdings favoring active managers in down markets wrote Morgan Stanley NYSE MS Wealth Management s head of investment and portfolio strategies Lisa Shalett in a paper earlier this year Faster growth or more volatility could also help Active managers may soon have an edge she wrote Morningstar found 49 percent of active U S stock funds beat their benchmark for the 12 months ended June 30 up from 26 percent for the 12 months ended Dec 31 Ben Johnson a Morningstar research director said the uptick reflects active managers benefiting from factors like buying high performing stocks outside their benchmarks gaining from what he called stylistic messiness But some active funds have taken on more risk along the way Johnson said echoing points made by Vanguard s Davis While about 85 percent of intermediate term bond funds outperformed for the 12 months ended June 30 Johnson said many did so by holding sub investment grade credit not present in some index funds That debt that could be hard to sell in tough times It could be a while before an actual economic downturn guides the debate Davis said it is hard to predict when U S economic growth might end and said We don t see any catalysts that would cause a recession in the next 12 to 18 months |
MS | Euro zone shares get PMI boost Centrica sinks | By Helen Reid
LONDON Reuters European shares dipped on Thursday tracking more timid Wall Street trading as volumes thinned out for the Thanksgiving holiday while euro zone stocks drove higher boosted by strong business growth figures for the bloc
The pan European STOXX 600 STOXX slid 0 2 percent while euro zone blue chips STOXX50E erased early losses to trade up 0 2 percent after business surveys for the bloc cemented optimism on the economy
Euro zone businesses boomed into the year end as November composite services and manufacturing PMIs beat all forecasts in Reuters polls
This supports our view that the economy is in a very healthy condition said Britta Weidenbach head of European equities at Deutsche Asset Management
Societe Generale PA SOGN strategists however warned the eurozone recovery is now a well known story and were less enthusiastic about the potential for equities in the new year adding that a heavy political agenda in Europe could affect markets
British stocks lagged peers down 0 3 percent as energy firm Centrica plummeted after results
Centrica L CNA dropped 16 4 percent set for its biggest daily drop ever after it lost 823 000 or about 6 percent of its energy customers in four months and full year earnings missed market estimates
The question now is whether this weakness will persist in to 2018 and the longer term potential impact on the dividend said Morgan Stanley NYSE MS analysts
Leading European gainers was Altice AS ATCA jumping 4 7 percent after a report the debt ridden French telecoms and cable group was looking to sell its telecoms network in the Dominican Republic
Its shares are still down nearly 60 percent from the start of the year as funds sold out of the company s U S unit
The shares have de rated but we remain neutral given our continued concerns about the long term impact from Altice s strategy said Credit Suisse SIX CSGN analysts adding the company s strategy shift and asset sales could however be an upside risk
Thyssenkrupp DE TKAG reversed early losses to trade up 1 percent after demand for elevators helped boost its orders to a five year high
Telecom Italia MI TLIT shares rose 4 7 percent on speculation about a possible spin off of its telephone network and after the firm said it would work with Rome under special golden powers to protect it as a strategic asset
Ongoing discussions with Rome aimed at easing tensions are welcome said Mediobanca analysts in a note adding Network separation with disposal of minority stake would be a value creative option
As the earnings season drew near its close MSCI Europe earnings growth was tracking 10 1 percent in dollar terms while companies in the MSCI EMU enjoyed 11 1 percent earnings growth
The Q3 results season was exactly in line with our expectations definitely supporting the view that the European equity market will show double digit earnings growth this year in euro terms said Weidenbach
This is really the turnaround that we were awaiting beforehand we had not seen earnings growth over five years
Analysts have been revising down earnings estimates for European companies this quarter Deutsche s Weidenbach put this down to the strengthening euro denting expectations for earnings from foreign exposed companies especially in healthcare and consumer staples |
MS | Euro up for a third day as outlook brightens | By Saikat Chatterjee LONDON Reuters The euro rose for a third consecutive day on Thursday after breaking through a key technical level when a flurry of European business surveys pointed to a strengthening growth outlook for the region Surveys covering both the services and manufacturing industries in Europe outshone even the most optimistic forecasters in Reuters polls indicating growth is broad based The euro was up 0 2 percent on the day at 1 1850 against the dollar and not far from a one month high of 1 1862 set last week in a holiday shortened week Trading conditions were thinner than usual on Thursday with Japanese financial markets shut for a public holiday and U S markets closed for Thanksgiving The economy seems to be on autopilot for now not dependent on reform or leadership to the same extent as in 2003 04 when the euro zone required reforms and thus strong leadership Morgan Stanley NYSE MS strategists said in a note It conclusively broke above a 100 day moving average on Wednesday There is a general trend of euro positive sentiment going through the markets and that is keeping the euro firmly supported and the ECB minutes were along expected lines said Commerzbank DE CBKG currency strategist Esther Reichelt in Frankfurt The minutes of the European Central Bank for its October meeting didn t yield anything new with policymakers broadly agreeing last month on extending its asset purchase scheme It also chalked up steady gains against the Swiss franc EURCHF and the British pound EURGBP respectively Meanwhile the dollar nursed losses after posting its biggest loss in five months on Wednesday as investors trimmed bets on the outlook for U S interest rate hikes next year based on minutes from the Federal Reserve s latest policy meeting With Chinese stocks down between 2 3 percent in Asian trade low yielding currencies such as the Japanese yen and the Swiss franc remain firmly supported against the greenback as investors shied away from taking positions in a holiday shortened week The Fed minutes however also highlighted concern among some of the members over the inflation outlook with the emphasis placed on economic data in determining the timing of future rate rises The dollar DXY edged 0 1 percent lower against a broad trade weighted basket of currencies on Thursday to 93 15 after falling 0 8 percent in the previous session its biggest daily percentage fall since June Chinese shares took a sharp hit in the Asian session with mainland indexes down between 2 3 percent exacerbating investor caution and dampening risk appetite Reflecting the growing uncertainty about the future outlook for U S interest rates an overnight rally in June futures contracts meant that markets were pricing in a U S Fed funds target rate of 1 58 percent by then implying only 2 more rate hikes below market consensus |
MS | Samsung Electronics shares drop after Morgan Stanley cuts view sees chip boom peaking | By Joyce Lee and Dahee Kim SEOUL Reuters Samsung Electronics Co Ltd s KS 005930 shares fell more than 4 percent to a one month low on Monday after Morgan Stanley NYSE MS cut its recommendation on the South Korean tech giant citing concerns that a boom in memory chips is likely to peak soon A so called memory chip super cycle of increased prices due to demand for more firepower in servers and smartphones was the major driver of Samsung s record third quarter profit of 14 5 trillion won 12 91 billion announced in October with investors focused on how long it will last A Morgan Stanley research report issued on Sunday downgraded its view of Samsung to equal weight from overweight and trimmed its price target on the stock by 3 4 percent to 2 8 million won saying its earnings in the memory segment are not seen growing materially next year We see downside risk as NAND prices have started to reverse in 4Q17 Meanwhile visibility on DRAM supply demand dynamics has reduced beyond 1Q18 the report said Samsung Electronics shares were down 4 2 percent by 0347 GMT on Monday at 2 66 million won their biggest intra day percentage loss in more than a year Still the shares are up more than 47 percent this year giving it a market value of around 353 billion Some analysts said Samsung Electronics is less likely to be affected by the predicted trends in chip prices than competitors like SK Hynix Inc KS 000660 the world s second largest maker of memory chips after Samsung The reaction is a bit over sensitive as all this was known said Greg Roh analyst at HMC Investment Securities We all knew that NAND prices are going down which is actually needed to encourage sound demand and increase shipments And Samsung is strong in NAND chips for data center SSDs solid state drives which will be less affected Roh said Shares of SK Hynix KS 000660 fell as much as 3 6 percent the biggest intra day drop since late October
Samsung Electronics said in October that it expects a continued tight supply demand position in the NAND and DRAM space in 2018 |
MS | UBS exits recruiting pact following Morgan Stanley | By Elizabeth Dilts NEW YORK Reuters UBS Group AG s Wealth Management Americas said on Monday it was quitting a 13 year old recruiting agreement that ended the practice of suing brokers who quit for jobs at competing firms following a similar move by rival Morgan Stanley NYSE MS last month In an email to the firm s nearly 10 000 brokers UBS Wealth Management Americas President Tom Naratil said his priority was for current advisers to increase productivity not recruiting advisers from our competitors The agreement called the Broker Protocol was struck in 2004 between Smith Barney Merrill Lynch and UBS then called UBS Financial Services It allowed brokers to take certain client information with them to new jobs which they used to call clients and invite them to move their accounts In recent years the wealth management industry has splintered and boutique independent investment firms now compete with the industry s largest firms for the same brokers and clients More than 1 600 firms have signed the agreement meaning firms both large and small have equal protection to recruit top brokers and their wealthy clients without fear that the former firm will try to legally stop that Last year UBS announced it was pulling back on recruiting triggering similar reactions at other firms
UBS will no longer be subject to the protocol starting on Friday Naratil said |
JPM | JP Morgan Q4 Results Miss Forecasts as Volatility Hits Bonds Business | Investing com Shares in JPMorgan Chase Co moved lower in premarket trade on Tuesday after a weak end to the year in its bond and currency trading business made its fourth quarter revenue and earnings miss analysts estimates
The largest U S lender reported revenue of 26 8 billion just below expectations for 26 9 billion Adjusted earnings per share were 1 98 also missing consensus for 2 20 Revenue in the fixed income currencies and commodities business fell an underlying 18 from a year earlier reflecting the volatility in global markets toward the end of 2018
Chairman and Chief Executive Officer Jamie Dimon stated in the earnings release that 2018 was a strong year with record revenue and income even as volatility and lower market levels impacted fourth quarter results
At 7 02 AM ET 12 02 GMT shares in JPMorgan NYSE JPM were quoted down 1 92 to 99 00 in premarket trade compared to the previous closing price of 100 94
For the year JPMorgan shares are up 3 4 broadly in line with the Dow 30 which is up 2 49 year to date
JPMorgan follows Citigroup NYSE C in reporting weak bond trading in 4Q
On Tuesday UnitedHealth reported fourth quarter EPS of 3 28 on revenue of 58 42 billion compared to forecasts of EPS of 3 21 on revenue of 57 93 billion
Citigroup reported mixed results on Monday with fourth quarter EPS of 1 61 on revenue of 17 12 billion Investing com analysts expected EPS of 1 55 on revenue of 17 5 billion
Stay up to date on all of the upcoming earnings reports by visiting Investing com s earnings calendar |
JPM | Wells Fargo s Cost Cuts Save Q4 Bottom Line as Revenue Drops | Investing com Wells Fargo Co NYSE WFC missed revenue forecasts but its fourth quarter earnings beat analysts expectations on Tuesday as the company cut its operating costs and risk provisions
The firm reported earnings per share of 1 21 on revenue of 20 98 billion Analysts polled by Investing com forecast EPS of 1 19 on revenue of 21 75 billion That compared to EPS of 0 97 on revenue of 24 90 billion in the same period a year earlier The company had reported EPS of 1 13 on revenue of 21 94 billion in the previous quarter
Our focus on reducing expenses enabled us to meet our 2018 expense target and we are on track to meet our 2019 expense target as well Chief Financial Officer John Shrewsberry said in the earnings statement
Wells Fargo shares lost 0 35 to trade at 48 42 in pre market trade following the report
For the year Wells Fargo shares are up 5 08 a little ahead of the S P 500 which is up 3 02 year to date
Wells Fargo follows pattern set by Citigroup NYSE C JPMorgan NYSE JPM
On Tuesday JPMorgan reported fourth quarter EPS of 1 98 on revenue of 26 80B compared to forecasts of EPS of 2 2 on revenue of 26 9B
UnitedHealth earnings beat analysts expectations on Tuesday with fourth quarter EPS of 3 28 on revenue of 58 42B Investing com analysts expected EPS of 3 21 on revenue of 57 93B
Stay up to date on all of the upcoming earnings reports by visiting Investing com s earnings calendar |
JPM | JPMorgan just posted its worst bond trading results since the financial crisis | JPMorgan s fourth quarter results missed estimates on lighter than expected corporate and investment banking revenue and expenses that came in slightly higher than analysts average estimate Bond trading was particularly bad with the bank posting the worst results since the end of 2008 Rival Citi JPMorgan Chase NYSE JPM announced fourth quarter results Tuesday and posted earnings of 1 98 a share Analysts had expected earnings of 2 21 It was a rare miss from JPMorgan the first time in 10 quarters and was driven by lower than expected revenue in the firm s investment bank Here are the key numbers Revenue 26 8 billion up 4 from last year Analysts had predicted 26 9 billion Expenses 15 7 billion up 6 Analysts had predicted 15 6 billion Adjusted net income 7 1 billion up 67 from last year Corporate and investment banking revenue 7 2 billion in revenue down 4 KBW analysts had predicted revenue of 7 6 billion based on weakness in trading Adjusted bond trading came in particularly light at 1 9 billion down 18 compared to 2 2 billion estimate from KBW It was the bank s worst period for bonding trading since the fourth quarter of 2008 Consumer and community banking revenue Revenue came in at 13 7 billion up 13 from the prior year JPMorgan Chase is the biggest US bank by deposits and this is the unit that holds most of that money on behalf of households KBW had analysts predicted revenue of 13 6 billion Commercial banking Revenue was 2 3 billion down 2 from the prior year KBW analysts predicted 2 2 billion in revenue Asset and wealth management Revenue of 3 4 billion fell 5 KBW analysts predicted 3 6 billion in revenue Our customer centric business model has benefited from a healthy and engaged U S consumer that is spending saving and investing CEO Jamie Dimon said in the statement Despite a challenging quarter we grew Markets revenue in the Investment Bank for the year with record performance in Equities and solid performance in Fixed Income Investment Banking fees were a record for the year driven by strength in both CIB and Commercial Banking JPMorgan follows rival Citi which reported earnings on Monday Citi posted an earnings beat for our weekly newsletter Wall Street Insider a behind the scenes look at the stories dominating banking business and big deals |
JPM | Weak U S producer prices support tame inflation picture | By Lucia Mutikani WASHINGTON Reuters U S producer prices dropped by the most in more than two years in December as the cost of energy products and trade services fell adding to signs of tame inflation that may allow the Federal Reserve to be patient about raising interest rates this year Other data on Tuesday suggested manufacturing activity slowed further at the start of the year with a measure of business confidence in New York State tumbling to more than a 1 1 2 year low in January Fed Chairman Jerome Powell said last week that low inflation afforded policymakers the ability to be patient and watch patiently and carefully while they monitored economic data and financial markets for risks to growth The U S central bank has forecast two rate increases for 2019 We expect the Fed to sit tight until June and odds are rising that it could be an even longer pause given the absence of an acceleration in inflation past tightening in financial market conditions slowing in the global economy and uncertainty surrounding geopolitical events said Ryan Sweet a senior economist at Moody s Analytics in West Chester Pennsylvania The Labor Department said its producer price index for final demand dropped 0 2 percent last month after edging up 0 1 percent in November That was the first decline since February 2017 and largest decrease since August 2016 In the 12 months through December the PPI increased 2 5 percent matching November s gain Economists polled by Reuters had forecast the PPI would slip 0 1 percent in December and gain 2 5 percent on a year on year basis Wholesale energy prices tumbled 5 4 percent in December with gasoline falling 13 1 percent after plunging 14 0 percent in the prior month That offset a 2 6 percent jump in wholesale food prices Food prices increased 1 3 percent in November The cost of services fell 0 1 percent pulled down by a 0 3 percent drop in the index for trade services which measures changes in margins received by wholesalers and retailers Services increased 0 3 percent in November A key gauge of underlying producer price pressures that excludes food energy and trade services was unchanged last month The so called core PPI increased 0 3 percent in November In the 12 months through December the core PPI increased 2 8 percent following a similar rise in November Data last week showed the consumer price index falling 0 1 percent in December the first drop in nine months amid cheaper gasoline airline fares used trucks and motor vehicles as well as motor vehicle insurance The CPI was unchanged in November Inflation remains tame despite a tightening labor market that is starting to push up wage growth The Fed s preferred inflation measure the personal consumption expenditures PCE price index excluding food and energy is hovering just below the U S central bank s 2 percent target U S financial markets were little moved by the producer price inflation data The dollar rose against the euro after data showing German s economy slowed in 2018 underscored worries about a broader slump in Europe Prices of longer dated U S Treasuries fell while stocks on Wall Street were trading higher SHUTDOWN HURTING SENTIMENT The core PCE price index increased 1 9 percent on a year on year basis in November after rising 1 8 percent in October It hit 2 percent in March for the first time since April 2012 The cost of wholesale healthcare services which feed into the core PCE price index increased 0 2 percent in December after gaining 0 1 percent in November Core PCE data for December is scheduled for release later this month but it is likely to be delayed because of the ongoing partial shutdown of the federal government The shutdown now the longest in U S history has delayed the release of data from the Bureau of Economic Analysis and Census Bureau including November trade figures as well as December retail sales and housing starts reports The incomplete data is making it difficult to get a good read on the economy and analysts have said that could complicate policy decisions Economists also said the impasse in Washington could be hurting business confidence pointing to a separate report from the New York Fed on Tuesday showing its Empire State index on current business conditions fell to a reading of 3 9 in January from 11 5 in December The January reading was the lowest since May 2017 and reflected a slowdown in new orders and hiring The New York Fed survey suggests national manufacturing activity likely moderated further in January after hitting a two year low in December
The Empire State survey is an early indication that conditions continued to deteriorate early this year said Daniel Silver an economist at JPMorgan NYSE JPM in New York We think the government shutdown is probably adversely affecting business sentiment although the size of its impact is hard to gauge |
MS | Oil Sinks Lower FTSE Treads Water | On a morning where RBS L RBS releases a note that cries sell everything and warns of a global deflationary crisis it s a wonder equity markets are holding up at all today
US markets ended up mostly higher overnight following a late afternoon bounce while Asian markets were mostly lower with the Nikkei 225 underperforming after Monday s holiday
As WTI establishes itself akin to Brent crude oil with a 30 handle the bearish sentiment surrounding the commodity has intensified Already down 20 this year so far the strong dollar supply glut and weakening global demand are all drivers and no real change is expected to these in the near term Morgan Stanley N MS has thrown its hat into the ring as it suggests oil prices could go as low as 10 bbl Short positions on oil prices are now at a record high but it s times like these that a surprise squeeze higher can occur
Rumours that an emergency OPEC meeting is in the offing has done little to steady the price Clearly nobody is expecting to see any OPEC members risk loss of market share by altering output in light of these declines
The FTSE 100 treads water with the usual suspects in the red as falling commodity prices keep investors wary Copper trades below 2 lb iron ore is down by another 4 73 Thus we see UK miners languish again at the bottom of the index with little signs of recovery
The main bright spot is amongst the UK retailers The Kantar survey on UK supermarkets is out and indicated that UK retail is in a fairly healthy state It showed J Sainsbury PLC L SBRY 3 16 to be the best performer Its sales rose 0 8 in the 12 weeks to Jan 3 and saw its market share edge up by 0 1
WM Morrison Supermarkets PLC L MRW 9 72 the 4th biggest supermarket chain saw its sales rise 0 2 over the Christmas trading period Morrison has told investors to expect 60m of restructuring costs at the top of a previously guided range of 50m 60m The new chief exec appears to be making a difference since he began his tenure in March of last year
Tesco L TSCO 6 6 is a high riser on the day adding to its recent gains and taking the top spot on the index despite its sales being down 2 in the 12 weeks to January and a decrease in its market share to 27 3 from 28
It would seem that the more frugal consumer habits of yesteryear borne out of the financial crisis are here to stay as discounters Aldi and Lidl saw sales growth of 13 3 and 18 5 respectively
With some brokers looking for value amongst the more put upon stocks in the past few weeks we have a host of upgrades and downgrades both aiding and constraining the UK benchmark
Jefferies International has upgraded Berkeley Group Hldgs L BKGH 2 8 to Buy with a price target of 4650 00p
Barratt Developments L BDEV 2 19 also upgraded to Buy with a price target of 807 00p
BHP Billiton L BLT 3 38 Barclays L BARC has cut its price target on the stock and HSBC expects it to cut its dividend by half at the next result release HSBC also speculates that Rio Tinto L RIO 1 83 will need to cut later in the year in order to reduce capex and protect its balance sheet
As copper prices slide Glencore s debt load and cost to insure it is now at a 6 year high The stock is the main laggard today and has fallen 3 65 in early trade
Sports Direct L SPD 3 42 The fall in the stock price continues for the 7th consecutive session The share price is now 52 below its highs of early August Last week s profit warning and reputational damage following an investigation into its treatment of staff is not encouraging and the likelihood of the company falling out of the FTSE 100 at the next reshuffle is beginning to look very realistic |
MS | Plunging Oil And Looming Bankruptcies | The plunge in the oil price is raising more fear of U S energy bankruptcies and the United Arab Emirates UAE are dancing on our graves The Wall Street Journal Is reporting that one third of U S energy producers will go bankrupt as the UAE oil minister says that the OPEC strategy is working The shale revolution is under attack and we are going to see a big retreat
Let s start with the Journal Story They report as many as a third of American oil and gas producers could tip toward bankruptcy and restructuring by mid 2017 according to Wolfe Research Survival for some would be possible if oil rebounded to at least 50 according to analysts
They go on to say more than 30 small companies that collectively owe in excess of 13 billion have already filed for bankruptcy protection so far during this downturn according to law firm Haynes Boone
They point out that Morgan Stanley N MS issued a report this week describing an environment worse than 1986 for energy prices and producers referring to the last big oil bust that lasted for years The current downturn is now deeper and longer than each of the five oil price crashes since 1970
On the other hand the UAE oil minister Suhail al Mazrouei said that the OPEC strategy is working By that I assume they mean they are driving U S shale producers out of business Many shale producers have lost more than 90 of their market value and many can t survive this meltdown I would expect 4 or 5 bankruptcies to be announced in the coming days
There is also some talk from Nigeria of a possible emergency OPEC meeting if prices don t stabilize Of course there is no report that Saudi Arabia or the UAE want a meeting
The UEA is right about one thing prices will rebound and the market will balance But we will probably be buying more OPEC oil next year
Oil prices will also look for the API report tonight to see if the glut will continue to grow While crude oil supply may rise I expect that gasoline supply will fall pretty hard
Heating oil is below a dollar for the first time since June 2004 That should make you fell warmer even as cold winter winds blow |
MS | The Oil Crash Of 2016 Has The Big Banks Running Scared | Last time around it was subprime mortgages but this time it is oil that is playing a starring role in a global financial crisis Since the start of 2015 42 North American oil companies have filed for bankruptcy 130 000 good paying energy jobs have been lost in the United States and at this point 50 percent of all energy junk bonds are distressed according to Standard Poor s As you will see below some of the big banks have a tremendous amount of loan exposure to the energy industry and now they are bracing for big losses And the longer the price of oil stays this low the worse the carnage is going to get
Today the price of oil has been hovering around 29 dollars a barrel and over the past 18 months the price of oil has fallen by more than 70 percent This is something that has many U S consumers very excited The average price of a gallon of gasoline nationally is just 1 89 at the moment and on Monday it was selling for as low as 46 cents a gallon at one station in Michigan
But this oil crash is nothing to cheer about as far as the big banks are concerned During the boom years those banks gave out billions upon billions of dollars in loans to fund exceedingly expensive drilling projects all over the world
Now those firms are dropping like flies and the big banks could potentially be facing absolutely catastrophic losses The following examples come from CNN
For instance Wells Fargo N WFC is sitting on more than 17 billion in loans to the oil and gas sector The bank is setting aside 1 2 billion in reserves to cover losses because of the continued deterioration within the energy sector
JPMorgan Chase N JPM is setting aside an extra 124 million to cover potential losses in its oil and gas loans It warned that figure could rise to 750 million if oil prices unexpectedly stay at their current 30 level for the next 18 months
Citigroup N C is another bank that also has
Citigroup C built up loan loss reserves in the energy space by 300 million The bank said the move reflects its view that oil prices are likely to remain low for a longer period of time
If oil stays around 30 a barrel Citi is bracing for about 600 million of energy credit losses in the first half of 2016 Citi said that figure could double to 1 2 billion if oil dropped to 25 a barrel and stayed there
For the moment these big banks are telling the public that the damage can be contained
But didn t they tell us the same thing about subprime mortgages in 2008
We are already seeing bank stocks start to slide precipitously People are beginning to realize that these banks are dangerously exposed to a lot of really bad deals
If the price of oil were to shoot back up above 50 dollars in very short order the damage would probably be manageable Unfortunately that does not appear likely to happen In fact now that sanctions have been lifted on Iran the Iranians are planning to flood the world with massive amounts of oil that they have been storing in tankers at sea
Iran has been carefully planning for its return from the economic penalty box by hoarding tons of oil in tankers at sea
Now that the U S and European Union have lifted some sanctions on Iran the OPEC country can begin selling its massive stockpile of oil
The sale of this seaborne oil will allow Iran to get an immediate financial boost before it ramps up production The onslaught of Iranian oil is coming at a terrible time for the global oil markets which are already drowning in an epic supply glut
Just the other day I explained that some of the biggest banks in the world are now projecting that the price of oil could soon fall much much lower
Morgan Stanley N MS says that it could go as low as 20 dollars a barrel the Royal Bank of Scotland L RBS says that it could go as low as 16 dollars a barrel and Standard Chartered L STAN says that it could go as low as 10 dollars a barrel
But the truth is that the price of oil does not need to go down one penny more to have a catastrophic impact on global financial markets If it just stays right here we will see an endless parade of layoffs energy company bankruptcies and debt defaults Without any change junk bonds will continue to crash and financial institutions will continue to go down like dominoes
We are already experiencing a major disaster Things are already so bad that some forms of low quality crude oil are literally selling for next to nothing The following comes from
Oil is so plentiful and cheap in the U S that at least one buyer says it would pay almost nothing to take a certain type of low quality crude
Flint Hills Resources LLC the refining arm of billionaire brothers Charles and David Koch s industrial empire said it offered to pay 1 50 a barrel Friday for North Dakota Sour a high sulfur grade of crude according to a corrected list of prices posted on its website Monday It had previously posted a price of 0 50 The crude is down from 13 50 a barrel a year ago and 47 60 in January 2014
While the near zero price is due to the lack of pipeline capacity for a particular variety of ultra low quality crude it underscores how dire things are in the U S oil patch
A chart that I saw posted on earlier today can help put all of this into perspective Whenever the price of oil falls really low relative to the price of gold there is a major global crisis Right now an ounce of gold will purchase more oil than ever before and many believe that this indicates that a new great crisis is upon us
The number of barrels of oil that a single ounce of gold can buy has never ever been higher
All over the planet big banks are absolutely teeming with bad loans And to be honest the big banks in the U S are probably in better shape than some of the major banks in Europe and Asia But once the dominoes start to fall very few financial institutions are going to escape unscathed
In the coming days I would expect to see more headlines like we just got out of Italy Apparently Italian banks are nearing full meltdown mode and short selling has been temporarily banned To me it appears that we are just inches away from full blown financial panic in Europe
However just like with the last financial crisis you never quite know where the next explosion is going to happen next
But one thing is for sure the financial crisis that began during the second half of 2015 is raging out of control and the pain that we have seen so far is just the beginning |
C | Investors Are Worrying About Hong Kong Banks as Protests Roll On | Bloomberg Investors are getting anxious about the impact anti government demonstrations are having on Hong Kong s banks
Things will be going down if people start seeing Hong Kong which is an international financial center differently said Ronald Wan CEO of Partners Capital International Ltd There will be concern over banks if we see significant capital outflows as they will lose support for business
It s not just anti government demonstrations now in their 11th week that are hurting banks in the city a slowing economy weaker Chinese currency down 2 5 since the end of June and the trade dispute with the U S create a troublesome mix And it s showing in the stock market
HSBC Holdings LON HSBA Plc s shares have plunged 13 in just three weeks and are the most oversold since at least 1989 while BOC Hong Kong Holdings Ltd has dropped 12 this month Lenders losses have weighed on the benchmark Hang Seng Index which is among the worst performing major equity gauges in the world this August
Citigroup Inc NYSE C has turned more cautious on Hong Kong banks saying in a research note last week that the weakening yuan would cause a drastic decline in loans to mainland China clients and hurt asset quality We see bigger earnings risk to Hong Kong banks analysts including Yafei Tian wrote downgrading the rating on BOC Hong Kong to neutral They also said there s 20 to 60 downside in the sector s earnings per share
Read more Hong Kong s Next Crisis May Be Economic as Protest Fallout Grows
Demonstrations in Hong Kong sparked by opposition to an amendment to the extradition law show no sign of letting up and have become increasingly disruptive The city s airport one of the busiest in Asia was brought to a standstill earlier this week as protesters swarmed the terminal resulting in the cancellation of flights
How Months of Protests Have Unfolded in Hong Kong
Investors don t want to delve deeply into politics but this is something they don t want to see Wan said
Hong Kong s Financial Secretary Paul Chan said Thursday that the city s economy will struggle to expand at all this year slashing the gross domestic product growth forecast to just 0 1 from 2 3 previously Chan also announced fiscal support measures with a stimulus package worth more than 2 billion |
C | Hedge Funds Throw Heft Behind 2019 s Best Performing Currency | Bloomberg The yen s dominant 2019 rally has finally caught the attention of hedge fund managers
Speculators haven t been this bullish on the yen since November 2016 Commodity Futures Trading Commission data show Before early this month the group had been short Japan s currency for more than a year but they ve gradually brightened on its prospects as U S China trade tensions have fueled concern about global economic growth
The yen has gained against all of its Group of 10 peers this year and given the shaky risk outlook it should keep climbing according to Citigroup Inc NYSE C
The yen by far and away is the best safe haven currency in the G 10 despite where risk off originates said Calvin Tse the bank s head of North American G 10 currency strategy In the current environment we continue to believe that risks to the yen are heavily skewed towards strength
The yen has risen almost 3 against the dollar in 2019 more than any other G 10 currency It appreciated to 105 05 per dollar last week close to its strongest level of 2019 as the bond market sent an alarm signal on the global economy
A Bank of Japan that is less inclined than other central banks to aggressively add stimulus in the face of slowing growth would also benefit the yen according to Credit Suisse s Shahab Jalinoos
Credit Suisse SIX CSGN expects the dollar yen pair to fall to 100 over the next 12 months from 106 60 currently It hasn t been that low since 2016
The BOJ may prove more conservative in terms of what it s willing to do going forward than some other major central banks said Jalinoos global head of foreign exchange trading strategy The BOJ hasn t rushed to get ahead of the curve in terms of messaging |
C | Lira Takes a Hit as Dollar Strength Catches Up With Turkey Bulls | Bloomberg The strength of the U S dollar is finally catching up with the lira
After a rally that saw the Turkish currency buck an emerging market rout over the past few months as the dollar gained the lira is back to leading losses It slumped as much as 1 5 to a one month low of 5 7485 against the U S currency as of 1 10 p m on Tuesday
The U S currency on Tuesday touched its strongest level this year against major peers as measured by the Bloomberg Dollar Index Traders with knowledge of the matter said foreign accounts were seen closing out their long lira positions compounding the move
The Turkish currency one of the highest yielding anywhere in the world has been a favorite among offshore carry traders looking to profit as funding costs in the U S and Europe nosedived in anticipation of central bank stimulus But those wagers start to look hollow if the prospect of looser policy in the developed world fails to weaken the dollar
Falling inflation in Turkey also opened the way last month for an easing cycle bolstering lira bulls Societe Generale PA SOGN SA this month recommended investors back the lira targeting a rally to 4 70 per dollar Citigroup Inc NYSE C opened a long position against the euro with a target of 5 85
Some investors are now fretting that authorities are moving ahead with more aggressive policy easing than anticipated after the central bank on Monday tweaked its reserve rules to encourage credit growth |
C | DBS Bank to enter India s credit card market next year | By Nupur Anand MUMBAI Reuters Southeast Asia s biggest bank DBS Group Holdings SI DBSM is preparing to enter the local credit card market in India in 2020 a senior company executive said on Tuesday The Singapore based lender s move highlights its efforts to tap growth outside its home market to offset weakness in the local economy We will launch our credit card by the second or the third quarter of next year said Shantanu Sengupta head of consumer banking for DBS in India on the sidelines of a banking industry event in Mumbai Global rivals such as Citigroup N C are also looking to expand their credit card customer base in India Earlier this year India s top digital payments player Paytm announced plans to launch a card with Citi giving the U S bank an opportunity to service some of Paytm s more than 300 million clients India s credit card market is still small in comparison to its debit card market The latest data from May showed 48 9 million credit card users in the country compared with some 825 million with debit cards DBS which had set a target of reaching a 5 million customer base in India by 2023 now expects to achieve this target early We ve crossed more than half the customer target already and hence we ll be able to cross the mark before the deadline said Sengupta He said DBS was not daunted by the ongoing economic slowdown in India and was currently focusing on increasing its domestic branches India is trying to boost adoption of electronic payments and recently moved to require banks and card payment networks to offer no fee debit card transactions |
JPM | JP Morgan Launches Emerging Market Bond ETF | JP Morgan launched a new fund JPMorgan NYSE JPM USD Emerging Markets Sovereign Bond ETF on Jan 30 2018 focused on providing long exposure to emerging market bonds
Emerging market USD denominated bond funds offer great diversification benefit as it is well spread out between multiple emerging market nations It provides higher yields than what investors can expect to earn domestically while keeping the portfolio safe from currency fluctuations
Fund Characteristics
The fund seeks to provide exposure to USD denominated sovereign debt across emerging markets The fund seeks investment results that closely correspond to the performance of the JPMorgan Emerging Markets Risk Aware Bond Index before fees and expenses
The fund has amassed 48 7 million within a few days of trading and charges a fee of 49 basis points a year It has 140 holdings in its portfolio and has top exposure to government bonds corporate bonds and agency bonds with 81 14 and 4 exposure respectively
How Does it Fit in a Portfolio
This ETF is a good play for investors looking for some high risk exposure to emerging markets while mitigating some risk that comes with emerging market equity investments It has the potential to serve as a diversifying investment for investors as it exposes investors to international fixed income markets while mitigating currency risk
Fixed income ETFs continue to be amongst the fastest growing areas of the ETF industry a momentum which we expect to continue as these products mature and evolve Fixed income ETFs offer lower cost convenience transparency and intra day access and can be used to help build more robust portfolios and solve for a variety of investment needs concluded Bryon Lake international head of ETFs for J P Morgan Asset Management
As a result we believe this ETF has good potential to diversify investors portfolio of across asset classes and geographies
Competition
The fund faces immense competition from other funds focused on providing exposure to the same space Below we discuss a few ETFs that seek to provide exposure to this corner see
iShares J P Morgan USD Emerging Markets Bond ETF AX EMB
This fund offers exposure to USD denominated emerging market bonds From a geographical look it has high exposure to Mexico Indonesia and Russian Federation with 6 2 5 0 and 4 4 exposure respectively as of Feb 14 2018
It has AUM of 11 7 billion and charges a fee of 39 basis points a year It has returned 3 8 in a year but has lost 3 2 so far this year
PowerShares Emerging Markets Sovereign Debt TO PCY
This fund offers exposure to USD denominated emerging market bonds From a geographical look it has high exposure to El Salvador Ukraine and Brazil with 4 2 3 9 and 3 8 exposure respectively as of Feb 14 2018
It has AUM of 5 1 billion and charges a fee of 50 basis points a year It has returned 2 5 in a year but has lost 3 8 so far this year
Vanguard Emerging Markets Government Bond ETF
This fund offers exposure to USD denominated emerging market bonds From a geographical look it has high exposure to China Mexico and Brazil with 16 3 8 1 and 7 1 exposure respectively as of Jan 31 2018
It has AUM of 978 7 million and charges a fee of 32 basis points a year It has returned 3 5 in a year but has lost 2 2 so far this year
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MS | Analysts flee Wall Street with gallows humor as research changes loom | By Olivia Oran Reuters Having covered financial stocks at big and small banks for more than two decades David Hilder was accustomed to the ebb and flow of Wall Street job cuts and hiring sprees But he threw in the towel as an analyst last year after deciding customers simply will not pay what it costs to produce research in the years ahead especially after a regulation called MiFID II upended the pricing model It certainly seemed that the difficulty of being paid for research was going to increase not decrease said Hilder who is now trying to reinvent himself as an investment banker Many share Hilder s grim outlook Reuters spoke to dozens of current and former analysts who moved to independent research shops or investment firms joined companies in industries they covered or have launched new careers or are considering doing so after nearly a decade of cost cutting that is likely to accelerate under MiFID Major global investment banks have slashed their equity research budgets by more than half from a peak of 8 2 billion in 2008 to 3 4 billion in 2017 according to Frost Consulting The top 10 banks are expected to cut those budgets by another 30 percent in the near term due largely to MiFID McKinsey projects The rule handed down by European regulators aimed at boosting transparency on costs is changing the way brokerages can charge for research Instead of offering free reports and advice in exchange for some minimum amount of trading business as they do now brokerages will have to charge separately for research products and services Although U S regulators are not immediately forcing firms here to comply many banks are implementing changes globally Pricing models rolled out recently by Morgan Stanley N MS and JPMorgan Chase Co N JPM charge thousands of dollars an hour for meetings or phone calls and tens or even hundreds of thousands of dollars a year for basic research The change has put renewed pressure on senior analysts who typically earn anywhere from 500 000 to 2 million a year to prove their worth The heads of research at two Wall Street banks told Reuters they measure productivity by logging analysts phone calls emails and meetings then gauge how much customers actually value their advice with methods like tracking how many messages they open That helps bosses decide who should be cut and who the real stars are industry sources said Management teams worry that top analysts and young up and comers they want to keep will follow colleagues out the door In some areas you are seeing money being thrown at talented analysts to make sure they stay through the MiFID implementation period said Erick Davis chief executive officer of Autonomous Research a boutique shop not attached to a brokerage But ultimately he said the asset management world doesn t need 30 analysts covering a stock PHONE CALL HAGGLING The dynamic has created a morbid atmosphere in research divisions where analysts said it feels like the Sword of Damocles is hanging over their heads On earnings calls in October analysts asked bank chief executives how the research model would change effectively checking in on their own jobs Evercore ISI analyst Glenn Schorr recently titled a research note Writing My Obituary with a follow up called Stay of my Execution For the last few years it s been all about morgue humor like flat is the new up and no bonus but at least you get to keep your job said one former analyst who recently left a large bank but would not be quoted by name to avoid upsetting former or future employers Contrast that with Silicon Valley he continued It s not even the money it s the optimism that I envy Those guys are building a brighter future and this just feels like death Some have decided to launch career makeovers Sean McGowan spent 25 years covering consumer stocks at small and mid size brokers before losing his job early last year amid broad cost cutting After considering analyst roles at other banks he took a job at an investor relations firm
The more I started to do research on the impact of MiFID and what was likely to happen to the industry the more I realized that going back to that world would be like swimming upstream said McGowan A lot of the jobs on the sell side are going to disappear and inevitably some of the more enjoyable parts will be peeled back I don t want to haggle someone about the price of a phone call |
MS | Vivendi s music unit UMG worth more than 40 billion CEO says | By Mathieu Rosemain and Sophie Sassard BARCELONA LONDON Reuters Vivendi s Universal Music Group UMG could be worth more than 40 billion Chief Executive Arnaud de Puyfontaine said on Friday helping buoy shares in the French media group following third quarter results where UMG was a highlight Vivendi PA VIV has floated the idea that UMG the world s biggest music label could be ripe for a stock market listing boosting the group s shares in recent months amid concerns about its investments in Italy Shares in Vivendi were up 4 percent at 1450 GMT after falling in early trade Strong trends in UMG and signs of recovery at Vivendi s Canal Plus unit helped offset overall third quarter results that fell short of analyst forecasts on Thursday Asked about UMG s valuation at the Morgan Stanley NYSE MS European Technology Media and Telecoms conference in Barcelona de Puyfontaine said he had seen an estimate this week that valued the division at 40 billion I wouldn t put a number but I think that number is higher than the highest one that is currently expressed by the markets he said When asked if he thought UMG was worth more than 40 billion he said yes In April Vivendi General Counsel Frederic Crepin had said estimates given by banks proposing a listing for UMG had valued the business at up to 20 billion euros While UMG has significant growth potential as the leading player in a market dominated by three global music labels which pocket the largest part of streaming revenues Louis Citroen an analyst at independent firm Arete Research said he currently valued the business at 18 billion euros 21 billion The rising value of UMG which has a partnership with music streaming business Spotify has also fueled speculation that Vivendi chaired and controlled by billionaire Vincent Bollore could sell a minority stake of the music division This is an option de Puyfontaine said when asked about it We are not pro actively working on that option he added Vivendi has built up stakes in Telecom Italia MI TLIT MediaSet and video games group Ubisoft and it bought advertiser Havas this year Its shares are up by around 20 percent in 2017 outperforming a 6 percent decline on the STOXX Europe Media Publishing index TRICKY VALUATIONS UMG s core operating profit jumped 25 5 percent excluding currency moves acquisitions and disposals in the first nine months of the year to 442 million euros 521 million helped by rising revenues But that might not be enough in itself to justify such high valuations said Mark Mulligan a senior music analyst at MIDIA The traditional ways of valuing record labels are becoming less useful he said Especially the value of catalog which is becoming less valuable as we are moving away from the age of greatest hits albums and classic album re releases Interest in a potential UMG flotation comes as investors as trying to gauge the main beneficiaries of the digitalization of music products distributors such as Spotify or rights owners such as UMG Spotify is gearing up to file for an initial public offering IPO late this year in order to float in the first quarter of 2018 sources have told Reuters
The listing would value the platform at 16 20 billion sources said in September |
JPM | Forex Dollar Subdued Despite Sterling Giving Up Gains Ahead of Key Brexit Vote | Investing com The dollar edged lower Monday even as the pound gave up most of its gains ahead of a vote on UK Prime Minister Theresa May s Brexit deal
The U S dollar index which measures the greenback against a trade weighted basket of six major currencies fell by 0 09 to 95 18
May s Brexit deal is widely expected to be voted down in the UK parliament on Tuesday but the pound continued to add to gains against the greenback amid falling expectations the UK will leave the European Union without a trade deal
Still we believe the probability of a no deal Brexit has sufficiently reduced JPMorgan NYSE JPM said Any of the following outcomes extended stalemate second referendum and even no Brexit are now significantly more likely
GBP USD rose 0 19 to 1 2866 but remained below its session high of 1 2930 While EUR USD rose 0 01 to 1 1469
The dollar was also held back by a stronger yen on the back of safe haven demand as weak data from China fuelled concerns that the world s second largest economy is slowing
USD JPY fell 0 33 to Y108 20
The dollar which recorded a fourth straight weekly slump last week is expected to continue its decline albeit at a moderate pace amid expectations that the Federal Reserve will adopt a slower pace of monetary policy tightening following dovish comments from various Fed members including Chairman Jerome Powell
Powell said last week the central bank will be patient on policy tightening as it weighs the pace of global growth and domestic inflation
We are neither extreme dollar bears nor dollar bulls but merely expect a moderate weakening of the U S currency Commerzbank DE CBKG said
USD CAD rose 0 04 to C 1 3268 as falling oil prices weighed on the loonie supporting the pair |
JPM | JPMorgan Chase Q4 2018 Earnings Preview | JPMorgan Chase NYSE JPM is scheduled to announce Q4 earnings results on Tuesday January 15th before market open The consensus EPS Estimate is 2 21 25 6 Y Y and the consensus Revenue Estimate is 26 9B 5 7 Y Y Early in December JPMorgan said trading results are roughly equivalent to the year ago level Citigroup NYSE C which reported on Monday saw Q4 FICC revenue slide 21 Y Y Consumer and community banking may prove a stronger performer according to analysts Over the last 2 years JPM has beaten EPS estimates 100 of the time and has beaten revenue estimates 100 of the time EPS estimates this quarter have seen 4 upward revisions and 14 downward Revenue estimates have seen 0 upward revision and 14 downward Citi shares have fallen 5 4 since Oct 12 the day it announced Q3 earnings Recent earnings Analysis from our contributors Next Up In Bank Earnings JPMorgan And Wells Fargo NYSE WFC Take The StageNow read |
JPM | Wells Fargo Q4 2018 Earnings Preview | Wells Fargo NYSE WFC is scheduled to announce Q4 earnings results on Tuesday January 15th before market open The consensus EPS Estimate is 1 20 3 4 Y Y and the consensus Revenue Estimate is 21 75B 1 6 Y Y The focus will be on what further steps are being taken to strengthen the bank after its string of scandals since 2016 and how much longer the Federal Reserve will keep a cap on Wells Fargo s assets Over the last 2 years WFC has beaten EPS estimates 63 of the time and has beaten revenue estimates 25 of the time EPS estimates this quarter have seen 7 upward revisions and 6 downward Revenue estimates have seen 8 upward revisions and 3 downward Wells Fargo is down 7 2 from its close on Oct 12 the day it released Q3 results Recent earnings Analysis from our contributors Next Up In Bank Earnings JPMorgan NYSE JPM And Wells Fargo Take The StageNow read |
MS | 30 Point Gain In Gold | Specific to gold s 30 point 2 8 gain this past week in the spirit of our oft referring to the otherwise foundationless fluff of fiat monies as bow wow currencies we rightly ask Who let the dogs out Baha Men 2000 Answer A couple of entities really The first was the International Monetary Fund which on Monday welcomed China s renminbi to become yuan with the world reserve currency basket
The second was the European Central Bank by a less than anticipated degree further planning to debase its uroDog in turn sending it through a violent Thursday thrashing the whipsaw of which resulted in the largest percentage low to high intra day gain in history 4 097 from 1 0490 to 1 0984 in just nine hours Can you imagine working amongst such currency chaos that day in one of those tourist cambio shacks along the Piazza Duomo in Pisa Mamma Mia And as for the fallout for the dollar index that day the intra session percentage drop of 2 992 from 100 600 to 97 590 was the 16th worst in the last 30 years
We thus begin our graphics parade with this two panel view of daily bars for the last three months of the euro on the left and of gold on the right Note those Baby Blues the dots which depict the day by day consistencies of the respective 21 day linear regression trends That s one heckova uroLeap
In fact whilst we re at it let s as well consider a third entity behind gold s boost for given the inverse logic our Sell the Rumour Buy the News Dept offers the furtherance of the week s FedSpeak as having removed all doubt save for the dubious fact itself that a rate rise has been essentially declared thank you Madame looking forward Chair Add to which yesterday s Friday s report on November payrolls was nothing short of fantastique non
Not really That said and wrong as we may well turn out to be we re still standing firm that the Federal Open Market Committee shan t nick up The Bank s overnight lending rate come 16 December Course were our Economic Barometer to suddenly spike up into hyper growth next week a back loaded one rife with inflation and retail sales data tis our Reserve to change our tune but don t hold your breath Here s the Econ Baro as updated right through yesterday s glowing payrolls report and unspoken trade deficit demise
Wow mmb it actually kinked down huh
It surely do did Squire which highlights the fact that one number in this case payrolls does not an economy make As we ve explained in the past payroll creation hardly equates to job creation i e one 40 hr wk job employing two 20 hr wk payrolls Folks make emotive declarations on headline numbers but yesterday s Baro down kink resulted from declines in the growth of both payrolls and hourly earnings whilst average hours worked ticked lower plus the trade deficit for which the prior read was revised for worse the new read coming in worse still and far worse than was expected Economic negatives one and all Fax it to the Fed
Moreover do you recall two weeks ago Atlanta Fed Pres Lockhart s pointing to global financial turmoil as having settled down thus furthering the case to raise the rate Faux dough fiat follies aside the equity markets too are getting royally roiled given an expected daily trading range of 19 points coming into Thursday the S P 500 then fell by as much as 37 points but yesterday went back up by as much as 44 points When this Great American Savings Account starts making such 2 daily swings you might consider actually opening a real Savings Account better to not grow one s dough than to see it go And just between you and me our live S P price earnings ratio is presently 46 5x but mum s the word mum
Oh and from the Oh By The Way Dept did you happen to catch the results issued during the week of the Business Roundtable s survey of CEOs economic outlooks Tis now three quarters in a row wherein growing caution is being expressed over StateSide economic prospects near term with a curtailing of capital investments going six months out Good thinking guys why borrow to invest and have to pay an increased rate of interest sans the desired results
A tip of the cap as well to Mohamed El Erian whose superb and in depth 2008 tome When Markets Collide could really further its due here the author this past week penning a piece entitled As Fed Hikes and ECB Eases Markets Could Get Wild You got dat right Mo Maybe the rate ought instead go to zero
As for somewhat getting on the go there s gold our having already noted its 30 point gain for the week in sporting its fourth best percentage up move for 2015 Nonetheless as we see here in the weekly bars both the declining dashed regression trendline and red dots Short parabolic trend remain well in force
To be sure many up weeks such as this last one are necessary toward determining how we ll know when the bottom is in our key technical criteria as stacked in this next graphic showing gold needing to
1 turn the weekly parabolic trend to Long at 1157
2 eclipse the 300 day moving average at 1174 and in due time turn that average itself upwards and
3 have at least one full trading week above the 1240 1280 resistance zone
Gold s good week notwithstanding pictured this way price presently remains pitiful per its daily settles since the All Time Closing High of 1900 on 22 August 2011
Still with respect to you nearer term traders out there gold s strong finish to the week has placed its 10 day Market Profile in a far more supportive stance than we ve seen of late Thus below we ve on the left gold s volume per price point from 20 November to date and on the right the same for Sister silver The white bars are the markets respective 04 December settles
And speaking of trading we ll wrap it for this missive with the following observation In a week run amok with frenzied markets headlines we did read of the venerable Morgan Stanley N MS planning to eliminate 25 of their currency and bond trading jobs again not necessarily their payrolls nudge wink elbow hint But to stay on point such scaling back is reportedly due to what has become a month long slump in revenue from those trading activities And let s face it tis perhaps become a bit harder for the Big Guys to compete given that in recent years the GLOBEX trading mechanism has essentially leveled the playing field for us little guys in terms of ease of electronic entry on a first come first served first filled basis For example if our man Squire puts in his limit bid to buy one euro futures contract at 1 0884 one second of ahead of Morgan s putting in to buy 100 contracts at same upon someone hitting the bids Squire gets his filled first Clearly he s changing the game even at the highest levels
I m the man mmb
Oh you market movin non professional rogue trader you What a guy eh Just keep those bids in on gold baby |
MS | Monetary Policy Divergences And The Stock Market | This week s central bank speak fest and the December decisions were just the beginning of the divergence though Whilst we expect the Fed to hit the pause button after its first hike and only raise rates again in June we expect a total of 200bp of US rate increases between now and the end of 2017 Meanwhile we expect the ECB to leave rates in negative territory expand its balance sheet further and maintain an easing bias From a macroeconomic standpoint this policy divergence between the US and Europe is surprising In the late 80s the US economy was sliding towards recession whilst the German economy was overheating in the wake of reunification Today no such cyclical divergence between the US and Europe exists In fact on our forecasts we expect both economies to expand at a similar pace of almost 2 next year and inflation to rise towards 1 25 to 1 5 on both sides of the Atlantic While the euro area business cycle lags the US in terms of resource utilisation notably the unemployment gap it is not heading in a different direction as it was in the 80s In my view the great monetary policy divergence will be a high wire balancing act There is a risk that the still fragile global recovery could lose its footing if one side pushes too hard Excessive US dollar strength would not only dent growth and inflation in the US it could also cause dislocations in dollar indebted EM economies notably Brazil South Africa Turkey and Malaysia and undermine financial stability more broadly
Source Morgan Stanley N MS Sunday Start December 6 2015 Ringing in the Great Monetary Policy Divergence by Elga Bartsch Global Co Head of Economics and Chief European Economist Morgan Stanley Research
We ve excerpted Elga Bartsch s analysis above to set the stage for today s discussion At Cumberland we have a range of forecasts on growth and inflation in the US and Europe Some of us think Elga Bartsch is about right Others think she will be high on both inflation and growth But the key assertion in her commentary is that monetary policy divergence entails a risk that the still fragile global recovery could lose its footing if one side pushes too hard We agree
So what does history tell us about this divergence and stock markets
For an answer to this question we examined some brilliant work by Tom Lee and his team at Fundstrat Global Advisors Tom was kind enough to give us permission to quote his December 4 analysis
Tom examined US European divergences since 1971 He used the euro from 1999 forward and the deutsch mark for the previous period His analysis begins at the time when the Bretton Woods fixed currency regime was breaking down and the US was leaving the gold standard President Richard Nixon ended the gold standard in 1971 the complete demise of Bretton Woods followed For some history see research by Sandra Kollen Ghizoni of the Atlanta Fed
Tom Lee found that Since 71 45 of time when the Fed hikes while ECB or Bundesbank eases the dollar weakens The median policy divergence lasted 17 months Tom notes that this historical record is a direct counter to those who argue that today s policy divergence is unprecedented
Tom Lee found that the S P 500 performs well when the Fed diverges gaining 80 of the time 6 months out The median gain was 9 The rest of the details in Tom s work regarding sectors and industry groups and their relative performance in a divergence are proprietary Fundstrat research Cumberland is a user of that research which is a paid service We respect the proprietary work of others just as others respect ours Firms cannot stay in business by giving their work away We thank Tom for permission to share the summary of his findings with our clients and readers Clients will see the direct application of Cumberland s conclusions in their accounts
Please note that today s commentary is written before the Fed has officially announced any policy change for December 2015 As of today markets and pundits widely expect the Fed to lift off a quarter point at their December meeting
We remain nearly fully invested in our US ETF strategies and we remain favorably positioned in US dollar denominated bonds with desirable spreads over US Treasury notes and bonds We are still able to position clients in a 4 or so high grade tax free bond at a time when the referenced US Treasury bond is yielding closer to 3 or lower We believe that is a market mispricing that has been created and sustained by ongoing American investor fear of higher interest rates US tax free muni bond buyers have been afraid of rising rates for seven years and have paid a severe price in lost income Four percent tax free is very desirable in a climate of 2 growth and 1 5 inflation
If the European and American monetary policy makers cannot achieve this 1 5 2 inflation target and a 2 growth target those 4 tax free muni bonds become even more desirable The achievement of higher inflation and faster growth is not a foregone conclusion but the 4 tax free payment stream is money good if the correct bond is purchased and held
Note that Japan has been at near zero inflation near zero interest rates and near zero growth for two decades now The one attempt to move Japanese policy away from zero came in 2006 and the results were disturbing Japan reversed that policy and has been at the zero boundary ever since As an irony of history one of the ministers in that 2006 government was named Abe hat tip to Brian Barnier for joggling memory
We expect the Bank of Japan to continue with its zero policy for several more years There is presently no way to know if the BOJ will move to negative rates although they have announced that they have no present plan to do so Nor is there any way to know if they will add purchases of gold or other precious metals to the asset list for their central bank holdings notwithstanding that others in Asia are doing so
David R Kotok Chairman and Chief Investment Officer |
MS | JNK Plummets To 34 44 | The extreme carnage that we are witnessing in the junk bond market right now is one of the clearest signals yet that a major U S stock market crash is imminent For those that are not familiar with junk bonds please don t get put off by the name They aren t really junk They simply have a higher risk and thus a higher return than other bonds of the same type And yesterday I explained why I watch them so closely If stocks are going to crash you would expect to see a junk bond crash first This happened in 2008 and it is happening again right now On Monday a high yield bond ETF known as N JNK crashed through the psychologically important 35 00 barrier for the very first time since the last financial crisis On Tuesday high yield bonds had their worst day in three months and JNK plummeted all the way down to 34 44 When I saw this I was absolutely stunned This is precisely the kind of junk bond crash that I have been anticipating that we would soon witness
Normally stocks and junk bonds track one another very closely but just like before the 2008 crash they have become decoupled in recent months Anyone that even has an elementary understanding of the financial world knows that this cannot continue indefinitely And when they start converging once again the movement could be quite violent
When I chose to use the word carnage to open this article I was not exaggerating what is going on in the junk bond market one bit On Tuesday evening Jeffrey Gundlach used the exact same word to describe what is happening
Jeffrey Gundlach the widely followed investor who runs DoubleLine Capital said on a webcast on Tuesday that the junk bond market has come under severe selling pressure ahead of the Federal Reserve s policy meeting next week
We are looking at real carnage in the junk bond market Gundlach said Gundlach also said it was too early to buy high yield junk bonds and energy debt securities I don t like things when they go down every single day
Sometimes a chart can be extremely helpful in understanding what is going on The following chart was posted by Zero Hedge on Tuesday and it shows that yields on the riskiest junk bonds are heading into the stratosphere
And for those that are not familiar it is important to note that when yields go up bond prices go down So the chart above is what a crash looks like
Another leading indicator that I watch is the behavior of Dow Transports
Dow Transports started crashing before the Dow Jones Industrial Average did back in August and now it is happening again
Dow Transports are in reverse Down over 3 today the biggest drop since the Black Monday collapse Trannies are now below the lows of the Bullard bounce from October 2014 and down a shocking 16 in 2015 This would be the first four quarters in a row drop in Transports since 1994 and the worst year since 2008
In addition we are also seeing trouble signs erupt at major financial institutions just like we did during the run up to the 2008 crash For example I have been concerned about Morgan Stanley N MS for quite a while and on Tuesday we learned that they have just laid off more than a thousand workers
Struggling Morgan Stanley slashed 1 200 jobs around the world in recent days a person familiar with the matter told CNNMoney
The cuts were broad based and eliminated 25 of the positions within the fixed income and commodities businesses the person said Those divisions are grappling with tumbling trading revenue and shrinking fees
Morgan Stanley also eliminated about 730 back office jobs like human resources and IT positions
Virtually all of the things that we would expect to see just prior to a 2008 style stock market crash are happening right now
If just two or three leading indicators were flashing red we could have a really good debate about what they might mean
But the fact that virtually all of the numbers are screaming a warning at us should mean that the debate is over Anyone with an open mind should be able to very clearly see what is coming next
Very quickly let me give you just 10 signs that indicate that we are right on the precipice of a major recession and a very substantial financial downturn
1 Global GDP growth has gone negative for the first time since 2009
2 Corporate earnings growth has turned negative
3 S P 500 net profit margins are steeply declining According to Tony Sagami since 1973 there has been only one 60 bps decline in S P 500 net profit margin that didn t lead to a recession
4 In October U S imports of goods declined by 6 6 percent on a year over year basis
5 In October U S exports of goods declined by 10 4 percent on a year over year basis
6 U S manufacturing is contracting at the fastest pace that we have seen since the last recession
7 Corporate debt defaults have risen to the highest level that we have seen since the last recession
8 Credit card numbers that were recently released show that holiday sales have gone negative for the first time since the last recession
9 The velocity of money in the United States has dropped to the lowest level ever recorded
10 Of the 93 largest stock market indexes in the entire world 47 of them slightly more than half have already plunged at least 10 percent year to date
Just like in 2008 other global financial markets are imploding ahead of a U S collapse
On Tuesday the Dow Jones Industrial Average was down another 162 points but we are still within 1000 points of the market peak that was set earlier this year We are still in far better shape than most of the rest of the world but that will soon change
I can t think of a single leading indicator that is telling us that everything is going to be okay All of the numbers are pointing to major trouble ahead So I hope that you are being smart and doing what you can to get prepared while there is still time |
MS | Do You Have To Settle For Mediocre Returns In The Stock Market | Morgan Stanley surprised everyone or at least tried to by stating that it was no longer going to be easy to make money in the equity markets Let s stop right there was it ever really easy If it were everyone that jumped into the markets would be wealthy instead the opposite is true Right of the bat we can state that the best place for such advice is the dustbin
They went on to inform portfolio managers that the days of easy money were over and that they should expect paltry gains of roughly 5 Well most investors have been used to paltry gains as they have parked their money into treasuries risking returns in their quest for safety
They then went to state that the so called Efficient Frontier model is about to collapse as indicated in the image below
The only thing that caught our attention was the word collapse and that to us means opportunity We are not going to bother with the rest of the analysis because it s total hogwash It has never been easy to make money in the markets and that is why the majority of players lose At the same time it is not as hard as many would have you believe Some effort on your part is needed the saying all play and no work make Jack a dull boy comes to mind Trends come and trends go and the only way to make money consistently is to identify new trends at the onset you certainly are not going to make any headway listening to these talking heads
So what these chaps are in effect stating is that you can now only make money if you opt for risk as opposed to growth Was there ever such a thing as a risk free investment and has not the Fed forced individuals to speculate by maintaining an environment of ultra low rates for an inordinate period
The mere act of getting up and going to work entails some risk you could get hit by a bus on the way to work or drop dead from a heart attack In that sense living is a risk as your life could and will come to a sudden end one day Do you see what we mean when we state this line of thinking is utter rubbish
Morgan Stanley N MS suggests that the traditional portfolio that contains a mix of stocks and bonds won t work and only provide one with mediocre to paltry returns However they are basing this on a 50 50 stock bond portfolio This strategy has two problems over emphasis on bonds and focussing on traditional stocks even worse it is their focus on a specific model We believe that the Model is the problem and not the market The solution is simple Instead of focussing or obsessing over a single strategy the focus should be on finding the new trends Look for companies that are growing and leaving their competition in the dust Even in the worst of markets there are always companies that innovate and find new ways to improve the bottom line If you focus on the traditional model then Morgan Stanley has a point but that point is only valid because the advice is based on an outdated strategy Do not fixate on a strategy or a model focus on selecting the right mix of assets
The chart below indicates that you do not have to settle for mediocre All one needs to do is change the model and the result changes We used ETF s only had we used individual stocks the results would have been even more stunning Additionally we do not even choose the best ETF s and we purposely threw in the Gold ETF and over the long run it the performance is not too shabby However if you were following trends you would have got out this sector long ago Now imagine what your gains would look like if you decided to focus on the fasted growing sectors and then invested in some of the top stocks in that sector The point we are trying to make is that stock gains will always be mediocre if the model itself is mediocre in nature Change the model and the outcome changes
High priced firms seem to be great at doing only one thing and that is constantly telling you how the paradigm has changed and in most cases delivering mediocre returns So perhaps the title should have been high priced investments firms will only deliver mediocre returns due to their inability to adapt to changing market conditions Which then begs the question why do you need them if that is all they can deliver
Game plan
Stop listening to the so called experts and take control of your money If you are young then you can take on extra risk and dedicate some money to plays that are more speculative in nature but that offer the potential for larger gains In general investors should stop stop basing your investments decisions on outdated models The focus should be on finding the fastest growing sectors stocks that offer high growth potential and on corporations whose profits are trending upwards and you will fare a lot better than the average investor There are other strategies such as writing covered calls or selling naked puts that can be used to increase your income without taking on an extra risk Both these options strategies carry the same risk or even less than buying stocks
We are not in the age of mediocrity the only mediocrity we see is the advice that so called top firms are dishing out to their clients Lastly the best time to get into an investment is when it s despised and the best time to get out is when the crowd is jubilant |
MS | Fed A Creature Of Financial Markets The Draghi PUT | Creature of Financial Markets
Stephen Roach former Chairman of Morgan Stanley N MS Asia and the firm s chief economist blasts the Greenspan Fed the Bernanke Fed and the Yellen Fed in his latest post
After an extended period of extraordinary monetary accommodation the US Federal Reserve has begun the long march back to normalization It has now taken the first step toward returning its benchmark policy interest rate the federal funds rate to a level that imparts neither stimulus nor restraint to the US economy
A majority of financial market participants applaud this strategy In fact it is a dangerous mistake The Fed is borrowing a page from the script of its last normalization campaign the incremental rate hikes of 2004 2006 that followed the extraordinary accommodation of 2001 2003 Just as that earlier gradualism set the stage for a devastating financial crisis and a horrific recession in 2008 2009 there is mounting risk of yet another accident on what promises to be an even longer road to normalization
The problem arises because the Fed like other major central banks has now become a creature of financial markets rather than a steward of the real economy This transformation has been under way since the late 1980s when monetary discipline broke the back of inflation and the Fed was faced with new challenges
The challenges of the post inflation era came to a head during Alan Greenspan s 18 and a half year tenure as Fed Chair The stock market crash of October 19 1987 occurring only 69 days after Greenspan had been sworn in provided a hint of what was to come In response to a one day 23 plunge in US equity prices the Fed moved aggressively to support the brokerage system and purchase government securities
In retrospect this was the template for what became known as the Greenspan put massive Fed liquidity injections aimed at stemming financial market disruptions in the aftermath of a crisis As the markets were battered repeatedly in the years to follow from the savings and loan crisis late 1980s and the Gulf War 1990 1991 to the Asian Financial Crisis 1997 1998 and terrorist attacks September 11 2001 the Greenspan put became an essential element of the Fed s market driven tactics
The Fed had in effect become beholden to the monster it had created The corollary was that it had also become steadfast in protecting the financial market based underpinnings of the US economy
Largely for that reason and fearful of Japan Syndrome in the aftermath of the collapse of the US equity bubble the Fed remained overly accommodative during the 2003 2006 period
Over time the Fed s dilemma has become increasingly intractable The crisis and recession of 2008 2009 was far worse than its predecessors and the aftershocks were far more wrenching Yet because the US central bank had repeatedly upped the ante in providing support to the Asset Economy taking its policy rate to zero it had run out of traditional ammunition
Today s Fed inherits the deeply entrenched moral hazard of the Asset Economy In carefully crafted highly conditional language it is signaling much greater gradualism relative to its normalization strategy of a decade ago The debate in the markets is whether there will be two or three rate hikes of 25 basis points per year suggesting that it could take as long as four years to return the federal funds rate to a 3 norm
But as the experience of 2004 2007 revealed the excess liquidity spawned by gradual normalization leaves financial markets predisposed to excesses and accidents With prospects for a much longer normalization those risks are all the more worrisome
Only by shortening the normalization timeline can the Fed hope to reduce the build up of systemic risks The sooner the Fed takes on the markets the less likely the markets will be to take on the economy Yes a steeper normalization path would produce an outcry But that would be far preferable to another devastating crisis
Beholden to Financial Markets
Roach provides a nice historical perspective but he misses the boat in regards to risks
Not only is the Fed a creature of the Financial markets it is beholden to the markets For some treasury durations the Fed became the market
Unfortunately it s not just the Fed
Global Crisis Coming Up
Global imbalances have never been worse
The Bank of Japan is the only market for Japanese government debt And in Europe government debt trades at preposterously low and sometimes negative yields The Draghi PUT is at least as big as any PUT by Greenspan
The risk is not that the Fed central banks in general will spawn more asset bubbles It s far too late to raise that concern Massive bubbles in equities and bonds have already been blown
Banks that were too big to fail are far bigger now than ever before
Beggar thy neighbor competitive currency debasement is the order of the day in China Europe and Japan
Let s not pretend we have a choice that will prevent another devastating financial crisis We don t Only the timing is in question |
C | Medina Mora powerful Citigroup exec who battled scandals dies at 69 | MEXICO CITY Reuters Manuel Medina Mora one of the most influential Mexican bankers to work on Wall Street during a long career at Citigroup Inc N C has died the bank s Mexican unit Citibanamex said on Wednesday He was 69
Citibanamex said Medina Mora died of amyotrophic lateral sclerosis a form of motor neuron disease Earlier the bank had said multiple sclerosis was the cause of death
Medina Mora was a powerful executive at what became Citi s most important foreign unit credited with turning a laggard Mexican lender into a lifeboat for the large U S bank as it rebounded from the 2007 2009 financial crisis
However money laundering and loan fraud scandals at the Mexican unit tarnished his legacy even as he managed to keep a hold on power and run the bank at arm s length from New York
Citi bought the lender known as Banamex in 2001 and the unit came to account for about 15 of the parent company s global consumer revenue by 2016 when Medina Mora resigned
Medina Mora was the third generation in his family to work at Banamex according to prominent businessman Alfredo Harp Helu and had the nickname Mr Mexico within Citigroup In 2016 the Mexican subsidiary was renamed Citibanamex
Citigroup Chief Executive Officer Mike Corbat paid tribute to Medina Mora saying he had been a mentor to many and helped turn the business into one global franchise
Manuel was a pillar of Mexico s business community yet his impact extended well beyond his home country Corbat said in a statement expressing his sadness at Medina Mora s passing
Seen as an effective manager who smartly navigated internal affairs Medina Mora was described by powerbrokers who knew him as a brilliant and respected banker Under his leadership Banamex one of the oldest Mexican banks in continuous operation became Mexico s second largest bank with more than 26 billion in deposits and over 1 000 branches
However a series of scandals damaged his reputation leading to a significant pay cut in 2014 and likely contributed to his retirement in 2016
In 2014 loans made to a Mexican company backed by bogus work orders from state oil firm Petroleos Mexicanos PEMX UL or Pemex cost Citi more than 500 million In addition anti money laundering issues and soured loans created hundreds of millions of dollars in losses
Medina Mora started as an intern at the bank in 1971 working his way up to lead the privatization of Banamex in 1991 He became chief executive of the resulting Banamex Accival Financial Group in 1996 before eventually running Citi in Latin America in 2004 and heading its global consumer banking business in 2010 |
C | Nickel Proves It s the Wildest Metal With Sudden 2 000 Spike | Bloomberg Nickel has long had a reputation as the most volatile base metal but its biggest daily jump in a decade has left even the most seasoned traders astonished
The metal spiked as much as 13 or almost 2 000 a ton in thin Asian morning trading extending a rally over the past month triggered by rumors that top producer Indonesia might bring forward a ban on nickel ore exports Prices eased after the nation s mining ministry denied that any policy changes are imminent but were still up a hefty amount as London trading opened
You can see that the market is barely trading now because people just don t know what to do said George Daniel a hedge fund manager at Red Kite who s been trading metals since 1993 It could come off from here but everyone s just waiting to see if China comes in and buys it again
Nickel has in recent years become one of the most actively traded contracts on the London Metal Exchange as short term investors have been drawn to its sharp price moves Trend following funds have added fuel to the recent rally as have options traders who were forced to hedge their exposure as prices started surging late Wednesday Daniel said
Nickel touched 16 690 the highest since April 2018 and was last up 4 8 at 15 525 on the LME Shanghai Futures Exchange contracts surged by the daily limit reaching the highest since trading began in 2015
As rumors swirled over Indonesia s export policy the country s director general for minerals and coal said the industry should follow existing rules and not pay heed to speculation about bringing forward a previously announced ban on exports of nickel ore by 2022
Not Justified
There has been no notable changes in fundamentals to justify the bullish mood Shanghai Metals Market wrote in a note
Nickel prices are not set by fundamentals at the moment Celia Wang an analyst at trading house Grand Flow Resources said by phone from Shanghai The price surge showed that investors tend to believe the Indonesia ore export ban speculation otherwise how can we explain the spike
Nickel is by far the best performing base metal this year with most other contracts declining It has benefited from dwindling global stockpiles long term prospects for a demand boost from its use in electric vehicle batteries as well as concerns that Indonesia could curb supplies
The Asian nation is the world s top source of mined nickel most of which goes to China and its policies to restrict raw materials are closely watched by investors The government said it will revoke export permits of companies failing to meet smelter construction targets set out by the ministry
Liquidation Likely
Investors appear to be positioning for the ore ban to be brought forward Citigroup Inc NYSE C analysts wrote in a note Wednesday before the sudden surge in prices Were the ban to not be brought forward substantial liquidation is likely
The frenzied trading earlier also came as investors grappled with the implications of a weaker yuan Although China has set its daily fixing weaker than 7 per dollar for the first time since 2008 it was stronger than expected soothing investor nerves and supporting metals
Nickel s roller coaster may also be affecting other LME metals all of which traded higher on Thursday
Copper doesn t know what to do with itself either Daniel said A lot of people have been short copper and zinc and they just don t know what to do off the back of this nickel move |
C | HSBC Greater China chief Wong leaves for external role | By Sumeet Chatterjee
HONG KONG Reuters HSBC Holdings L HSBA Greater China Chief Executive Helen Wong is leaving a bank spokeswoman said on Friday the second senior departure this week after the ousting of group CEO John Flint
Wong has decided to leave to pursue an external opportunity the spokeswoman said adding that her role will be dropped and the Greater China region which includes Hong Kong and Taiwan would be run by the respective country heads
Greater China is HSBC s biggest profit driver but the banking sector outlook in the region has been clouded by the tit for tat tariff war between China and the United States as well as unrest in Hong Kong
Flint and Wong s exit also follows weeks of adverse Chinese media coverage over HSBC s role in the arrest of Huawei finance chief Meng Wanzhou
Wong who joined HSBC in 1992 and rose to become its China CEO before being given the newly created role of Greater China chief in 2015 did not immediately respond to a request for comment sent to her official email
The HSBC spokeswoman said Wong s resignation was submitted at the end of July and there was no connection between her decision and Flint s departure
Flint s ousting was announced on Monday in a move that the chairman of Europe s biggest bank said was needed to speed progress in priority areas
Our growth strategy in China is unchanged HSBC has been steadfast in its commitment to China for over 150 years We will continue to support China s growth and economic prosperity going forward the HSBC spokeswoman said
Last month HSBC also announced the departure of the head of its U S business Patrick Burke after three decades with the bank Burke will be replaced by Citigroup s N C Michael Roberts |
C | Recession Warnings Pile Up for the Battered Global Economy | Bloomberg Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars Sign up here
Another day another round of bad news highlighting the risk that the global economy is headed for a serious downturn
China reported the weakest growth in industrial output since 2002 Germany s economy shrank as exports slumped and euro area production plunged the most in more than three years as the overall expansion cooled U S and U K bond markets sent their biggest recession warnings since the global financial crisis
News from the economic giants dented the market relief in the wake of U S President Donald Trump s decision to delay some tariffs on Beijing European stocks declined on Wednesday and bonds rose The gap between two year and 10 year government debt in both the U K and U S fell below zero a shift that typically predates a contraction
With trade spats cooling global demand and geopolitical crises all coalescing to hit growth the world economy is heading for its weakest expansion since the financial crisis Central banks have rushed in to provide support with the U S Federal Reserve among those cutting interest rates in recent weeks The European Central Bank is widely expected to follow next month
The downturn is also ramping up pressure on governments to step up to the plate with fiscal stimulus
The impact of trade tensions on business uncertainty in terms of sapping export confidence and investment is bad and that s persisting said Mike Gallagher head of strategy at Continuum Economics in London The broader thrust is still negative for the global economy as far as the trade position is concerned
German big name companies from Siemens to Daimler have issued warnings about pressure on sales and political uncertainty The economy s 0 1 contraction paired with a protracted slump in business expectations is the result of what Citigroup NYSE C described as an unholy trinity of China s slowdown U S trade wars and Brexit
In addition to the cyclical weakening of the global economy especially in China the fast moving global trade conflict is damping growth said Alexander Krueger chief economist at Bankhaus Lampe Unclear Brexit terms and growing geopolitical tensions also have a damping effect All these factors are likely to weigh on economic activity
What Bloomberg s Economists Say
The data flow from industry keeps getting worse particularly in the euro area which is highly exposed to external demand The data flow from industry keeps getting worse particularly in the euro area which is highly exposed to external demand
David Powell Read the full EURO AREA REACT
The weakness is already weighing heavily on the euro area where France and Spain are also slowing and Italy s situation looks increasingly dire The latest numbers on Wednesday showed industrial production in the currency bloc plunged 1 6 in June Economic growth slowed to 0 2 in the second quarter half the pace of the previous three months
Tariff Woes
In China growth in industry slowed sharply to 4 8 from 6 3 On Monday the world s second largest economy reported a drop in credit demand growth adding pressure on Chinese officials to boost stimulus In June the government unveiled a plan to help spur demand for automobiles and electronics
The tariff delay announced by the U S on Tuesday doesn t really change the outlook on the trade tensions said Louis Kuijs chief Asia economist at Oxford Economics in Hong Kong We expect further policy easing in the coming months to help stabilize growth amid the above headwinds
Just this week Dusseldorf based Henkel AG issued a profit warning that summed up Germany s woes The industrial firm is facing pressure on two fronts a slowdown in the auto industry and weaker demand in China the same environment that s crippled manufacturing across the country
Germany has tooled up as this massive global manufacturer benefiting from lower interest rates and a weaker currency than if they hadn t been in the euro said Trevor Greetham of Royal London Asset Management And now the world s deglobalizing and we re at the low ebb in the business cycle So its really hard pressure |
JPM | Mitsubishi UFJ To Pay 30M To Resolve Yen LIBOR Rigging Case | Mitsubishi UFJ Financial Group Inc s NYSE MTU two units have agreed to settle the anti trust case in the United States related to manipulation of the benchmark yen Libor and Euroyen Tibor rates The news was reported by Reuters Mitsubishi UFJ denying any wrong doing will be paying 30 million for the settlement of the lawsuit that alleged it of conspiring with other banks to rig these benchmark rates While the preliminary settlement documents were filed in the U S District Court in Manhattan last week court approval for the same is still awaited Manipulation of Benchmark RatesThe lawsuit had alleged that more than 20 banks manipulated the benchmark rates from 2006 to at least 2010 to reap profits The plaintiffs in the case include Hayman Capital Management LP Sonterra Capital Master Fund and California State Teachers Retirement System Notably in February 2016 one of defendants Citigroup NYSE C became the first bank to settle the lawsuit by agreeing to pay 23 million It was followed by Deutsche Bank NYSE DB HSBC and JPMorgan NYSE JPM In aggregate these four banks paid roughly 206 million to settle the alleged charges Other defendants include Barclays LON BARC PLC and Sumitomo Mitsui Trust Holdings Inc among others Libor or the London Interbank Offered Rate an important benchmark set by the British Bankers Association is used by the financial institutions across the globe to set the interest rates for lending purposes on several transactions The Euroyen Tibor is a reference rate that is overseen by the Japanese Bankers Association Manipulation of such benchmark rates by financial institutions has triggered detailed investigations by regulatory bodies across Europe Asia and America and has claimed billions of dollars as settlements and fines Our TakeThe settlement of yen LIBOR rigging allegations is a step in the right direction for Mitsubishi UFJ The company is already facing pressure on the bottom line owing to weak domestic economy The negative interest rates in Japan will likely lead to muted revenue growth However Mitsubishi UFJ s efforts to expand through acquisitions will go a long way in supporting profitability The company also remains focused on its business upgradation plan Over the last six months Mitsubishi UFJ s shares have rallied 15 9 outperforming the s growth of 6 6 Mitsubishi UFJ carries a Zacks Rank 3 Hold You can see The Hottest Tech Mega Trend of AllLast year it generated 8 billion in global revenues By 2020 it s predicted to blast through the roof to 47 billion Famed investor Mark Cuban says it will produce the world s first trillionaires but that should still leave plenty of money for regular investors who make the right trades early |
JPM | Is JPMorgan Large Cap Growth A OLGAX A Strong Mutual Fund Pick Right Now | Large Cap Growth fund seekers should consider taking a look at JPMorgan NYSE JPM Large Cap Growth A OLGAX holds a Zacks Mutual Fund Rank of 2 Buy which is based on nine forecasting factors like size cost and past performance ObjectiveOLGAX is classified in the Large Cap Growth segment by Zacks an area full of possibilities Companies are usually considered to be large cap if their stock market valuation is more than 10 billion Large Cap Growth mutual funds invest in many large U S firms that are projected to grow at a faster rate than their large cap peers History of Fund ManagerJ P Morgan is based in Boston MA and is the manager of OLGAX JPMorgan Large Cap Growth A debuted in February of 1994 Since then OLGAX has accumulated assets of about 2 83 billion according to the most recently available information Giri K Devulapally is the fund s current manager and has held that role since August of 2004 PerformanceInvestors naturally seek funds with strong performance This fund has delivered a 5 year annualized total return of 17 48 and is in the middle third among its category peers If you re interested in shorter time frames do not dismiss looking at the fund s 3 year annualized total return of 16 95 which places it in the top third during this time frame When looking at a fund s performance it is also important to note the standard deviation of the returns The lower the standard deviation the less volatility the fund experiences Over the past three years OLGAX s standard deviation comes in at 13 27 compared to the category average of 9 07 Looking at the past 5 years the fund s standard deviation is 12 17 compared to the category average of 10 92 This makes the fund more volatile than its peers over the past half decade Risk FactorsInvestors cannot discount the risks to this segment though as it is always important to remember the downside for any potential investment In OLGAX s case the fund lost 47 74 in the most recent bear market and outperformed its peer group by 1 15 This could mean that the fund is a better choice than comparable funds during a bear market Nevertheless investors should also note that the fund has a 5 year beta of 1 07 which means it is hypothetically more volatile than the market at large Another factor to consider is alpha as it reflects a portfolio s performance on a risk adjusted basis relative to a benchmark in this case the S P 500 OLGAX has generated a positive alpha over the past five years of 0 66 demonstrating that managers in this portfolio are skilled in picking securities that generate better than benchmark returns HoldingsInvestigating the equity holdings of a mutual fund is also a valuable exercise This can show us how the manager is applying their stated methodology as well as if there are any inherent biases in their approach For this particular fund the focus is primarily on equities that are traded in the United States As of the last filing date the mutual fund has 92 89 of its assets in stocks with an average market capitalization of 202 83 billion The fund has the heaviest exposure to the following market sectors TechnologyFinanceTurnover is about 22 so those in charge of the fund make fewer trades than the average comparable fund ExpensesAs competition heats up in the mutual fund market costs become increasingly important Compared to its otherwise identical counterpart a low cost product will be an outperformer all other things being equal Thus taking a closer look at cost related metrics is vital for investors In terms of fees OLGAX is a load fund It has an expense ratio of 1 05 compared to the category average of 1 12 From a cost perspective OLGAX is actually cheaper than its peers Investors need to be aware that with this product the minimum initial investment is 1 000 each subsequent investment needs to be at least 50 Bottom LineOverall JPMorgan Large Cap Growth A as a high Zacks Mutual Fund rank and in conjunction with its comparatively similar performance average downside risk and lower fees JPMorgan Large Cap Growth A looks like a good potential choice for investors right now This could just be the start of your research on OLGAXin the Large Cap Growth category Consider going to for additional information about this fund and all the others that we rank as well for additional information If you want to check out our stock reports as well make sure to go to Zacks com to see all of the great tools we have to offer including our time tested Zacks Rank |
MS | Hedge Funds Fingered as Sellers as Japan Stock Rout Deepens | Bloomberg In one telling the selloff in Japanese equities is a natural reaction to shares rising too far too fast But another theory is emerging one that involves hedge funds
For Noriyuki Sato of Asset Management One SP Pte one reason for the declines is that hedge funds and others are closing their books for the year so they ve been making trades to lock in profits The Topix index fell for a fifth day Wednesday capping the longest losing streak this year as the rout deepens after the measure closed at its highest in 26 years
We re at the time of year when investors want to close up their positions Sato the chief investment officer at the money manager said in a phone interview from Singapore A lot of hedge funds for example end their fiscal year in November so the market is kind of short on liquidity
It s a view echoed by Norihiro Fujito of Mitsubishi UFJ Morgan Stanley NYSE MS Securities Co in Tokyo who says the Japanese stock market is in a struggle between short term players who are selling and investors with a longer horizon who are bullish on the country s shares
Short term players possibly hedge funds are locking in profits after the market peaked last Thursday said Fujito a senior strategist at the brokerage in Tokyo On the other hand long investors such as overseas pension funds and mutual funds continue to favor Japanese stocks he said The picture is of a tug of war
Futures Trading
While the Tokyo bourse publishes data on buying and selling by investor category it comes with a lag Figures released Thursday will show trading for the five days through Nov 10 which includes two days of the prolonged selloff Futures trading however has intensified with the volume of active Nikkei 225 Stock Average contracts traded in Osaka reaching a multiyear high on Nov 9 the first day of declines
Fujito like many other investors and strategists says he isn t concerned about the five day drop He notes that Japanese individuals and institutions tend to buy on downturns The Bank of Japan has also jumped back into the market through exchange traded fund purchases since the stocks started falling late last week It bought 71 7 billion yen 636 million in ETFs under its main program Wednesday according to BOJ data released after market close
There s a high chance that individual investors and domestic institutional investors which had been sellers will consider buying if valuations fall further Fujito said In that sense this is a healthy correction
Updates with BOJ s latest stock purchases in seventh paragraph |
MS | Vodafone Data expertise will help avoid Italy price war | Vodafone LON VOD VOD 0 6 will be able to avoid an India style price war in its Italy operations thanks to expertise in customer data according to CEO Vittorio Colao The company s facing a hotter market in Italy thanks to low cost French entrant Iliad OTCPK ILIAY which is pursuing a 25 share on price competition a similar threat to the one Vodafone faced from Reliance Jio in India Speaking at a Morgan Stanley NYSE MS conference in Barcelona Colao said analytics have pointed the company to its most vulnerable Italian customers allowing for offers conditioned to their needs Do we expect something crazy Honestly after India you can expect everything We are ready to see everything Colao says Now read |
MS | ASML expects to announce new share buyback plan in January CFO | By Eric Auchard and Toby Sterling
BARCELONA Reuters Dutch semiconductor equipment supplier ASML is currently buying back its own shares and expects to announce a new buyback program in January its finance chief said on Thursday
Speaking at the Morgan Stanley NYSE MS European Technology Media and Telecoms conference in Barcelona Wolfgang Nickl also said that although memory chip firms were expanding rapidly demand was as well and he did not believe there was overcapacity
The boom and high margins are one reason Chinese manufacturers are entering the market and ASML expects to ship to five customers in China next year two of them logic chip makers and three of them memory chip makers he said
ASML is one of the world s two largest tool suppliers to semiconductor makers and its share price is up 42 percent in the year to date It is Europe s second most valuable technology stock after software maker SAP
As of the end of the third quarter ASML had completed just 569 million euros of a 1 5 billion euro share buyback program that expires at the end of the year
At current levels there is no consideration to stop buybacks It is a very good use of our cash It is shareholder friendly Nickl said
In China Nickl said he saw the market as worth 3 billion euros in sales in the coming years specifying that he meant native Chinese manufacturers and not the many big foreign chipmakers that already have facilities in China
Right now our memory customers particularly in the DRAM space have off the chart profitability he said referring to the type of memory chip most commonly associated with personal computers
Eventually the entry of Chinese and other manufacturers into that segment could lead to price pressure he said but that seemed several years away given the time it takes to build manufacturing capacity
Discussing ASML s newest line of lithography systems which cost more than 100 million apiece Nickl said the company expected to ship more than 20 in 2018 and targets 30 in 2019 In 2019 output will be limited by a production bottleneck
We are unclogging that bottleneck in 2020 where we should have 40 tools or so he said
The new systems called EUV systems because they use Extreme Ultraviolet light waves to help create the circuitry of modern chips are seen as the centerpiece of the company s profitability over the next decade
Nickl said its new EUV line was close to breakeven and is targeting margins around 40 percent starting around 2020 |
MS | T Mobile to roll out U S 5G network by 2020 | BARCELONA Reuters T Mobile US the third largest U S mobile operator will roll out its fifth generation network across the United States by 2020 Chief Technology Officer Neville Ray said on Thursday
We are committed to roll out 5G across the nation by 2020 Ray said at the Morgan Stanley NYSE MS European Technology Media and Telecoms Conference in Barcelona |
MS | T Mobile US to propose significant share buyback | By Douglas Busvine BARCELONA Reuters T Mobile US will propose a significant share buyback that could start in December CFO Braxton Carter said on Thursday a sign that the third biggest carrier in the United States is confident in its outlook after the collapse of a merger with Sprint Corp T Mobile s shares have shed around 10 percent since the collapse of the Sprint merger which promised estimated benefits of 40 billion The buyback plan signals management s strong conviction on the business outlook to investors Carter speaking at a Morgan Stanley NYSE MS TMT conference in Barcelona said the buyback proposal would be put to the board this month He said Deutsche Telekom DE DTEGn which owns around 64 percent in T Mobile would not tender shares and may even buy stock itself The issue of control was one of several deal breakers in the T Mobile Sprint talks By participating in a buyback Deutsche Telekom would concentrate its T Mobile holding strengthening its hand in any future merger talks Carter said he was excited about the potential in a rational way to start returning cash to shareholders citing T Mobile s strong free cash flow and manageable debt levels T Mobile had briefed credit ratings agencies on the buyback he said Moody s last week upgraded its rating on T Mobile to Baa2 to reflect the company s strong performance and improved financial leverage Carter said he expected S P to follow suit The shares would be held in treasury and deployed as acquisition currency for future M A Carter also said highlighting interest in targets in the so called Internet of Things or regional players T Mobile expressed confidence in its ability to grow as a standalone company having invested 8 billion in 600 MHz spectrum that will position it to launch countrywide fifth generation coverage by the turn of the decade
We are committed to roll out 5G across the nation by 2020 Chief Technology Officer Neville Ray also told the conference |
MS | Hammond Is Said to Leave BOE s Inflation Target Index Unchanged | Bloomberg U K Chancellor of the Exchequer Philip Hammond doesn t plan to change the inflation gauge that the Bank of England targets in the Budget next week according to two officials familiar with the matter
While there has been speculation of a switch from CPI after the Office for National Statistics changed its preferred price measure to CPIH this year no related alteration by the Treasury is imminent said the people speaking on condition of anonymity because the plans haven t been published The index is relatively new and needs time to build credibility one of the people said
The ONS moved to CPIH the consumer prices index including owner occupiers housing costs because it believes that provides a more accurate gauge of the prices people actually face The decision raised the possibility that the Treasury could switch the BOE s goal which is to keep inflation at 2 percent from CPI to CPIH
That idea was reinforced after the measure regained its crucial National Statistics status in July It was stripped of the standard in 2014 over quality concerns
In the Budget which will be presented in Parliament on Nov 22 Hammond will restate the BOE s mandate one of the people said While the remit letter was previously published with the government s spring Budget Britain s main fiscal event now takes place in the fall
The central bank is in the spotlight after it raised interest rates this month for the first time in more than a decade Inflation is at 3 percent and the bank forecasts a slow easing to the goal only on the basis of two or three rate hikes over the next three years A switch to CPIH would probably not have a major bearing on policy as the two measures usually track one another closely
Economists at Morgan Stanley NYSE MS and RBC have both said a change is possible in the upcoming Budget At Morgan Stanley Melanie Baker and colleagues said it s an intriguing possibility and if it happened could be seen as marginally dovish given CPIH is currently below CPI
CPI has been the BOE s target since 2003 when it was changed by then Chancellor Gordon Brown from the Retail Prices Index That measure continues and is used for setting payments on index linked gilts rail fare increases and student loan repayments It s a controversial index as there are questions over its quality and at 4 percent it s well above both CPI and CPIH |
MS | SAP sees margins flattening out in fourth quarter CFO | By Douglas Busvine and Eric Auchard BARCELONA Reuters Europe s biggest technology company SAP DE SAPG expects profit margins to flatten out during the fourth quarter after three years of declines with improving margins to begin to show up in 2018 Chief Financial Officer Luka Mucic said on Friday The German software maker is in the midst of a transition to offer cloud based services to business customers and management have flagged that 2017 would be the low water mark for margins as it invested in datacenters and redeployed staff We see now the advent of a period when the margin inflection point should be reached soon Mucic told investors at the annual Morgan Stanley NYSE MS European Technology Media and Telecoms conference in Barcelona In Q4 fourth quarter I see at least the chance to reach flat margins in non IFRS terms he said SAP has invested heavily to shift its business to the cloud but sees that paying off in coming years Mucic said margins would start to climb back up next year and expand further in 2019 and 2020 Analysts on average forecast margins to hit bottom this year at around 29 percent before starting to rebound in 2018 Mucic also told investors not to expect any dramatic improvements in the coming year saying that SAP would continue to invest to move its business to the cloud and would not scale this back to meet short term margin targets The market should not be overly ambitious in terms of the margin increase especially in 2018 he said The finance chief reiterated that SAP had no plans to return to the large scale acquisitions that accelerated a shift from its classic packaged software for financial planning to deliver more cloud based internet services We will continue to look for opportunities to expand our portfolio in tuck in mode Mucic said of small scale technology focused deals He said that SAP would continue to strongly invest in organic internally generated growth A succession of multi billion dollar deals earlier this decade culminated in its largest ever merger in 2014 when it paid 8 3 billion for travel and expense management firm Concur
SAP s shares traded roughly flat at 96 31 euros at 1038 GMT The stock is up 16 percent so far in 2017 having touched all time record levels above 100 euros earlier this month |
JPM | In the Riskiest Corners of the Stock Market Exuberance Is Back | Bloomberg Investors are throwing down the gauntlet to anyone who pronounced the last rites for stock bulls in the grip of the December meltdown
Spurred by reassuring signals on trade monetary policy and growth the S P 500 jumped 2 5 percent last week after staging its biggest 10 day rally in a decade
As money managers recite the buy the dip mantra once more and traders cover their shorts the safer equities tracked by quants offering low volatility or outsize dividends are losing their mojo
Instead U S companies riddled with leverage have posted their best two week run in nearly three years while value shares rebounded at the fastest pace since 2016 according to portfolios compiled by Bloomberg
A mere bounce from an overwrought sell off or proof there s life yet in the famed bull market On that battle weary market players are taking the skeptical side of the wager
If you look at what investors are starting to do they re starting to believe that we may be in some type of recovery mode said Khuram Chaudhry a quantitative strategist at JPMorgan Chase Co NYSE JPM But I think it s mean reversion from oversold positions I m not of the view that this will persist in February and March
The Federal Reserve s more dovish tone resilient U S data and ebbing trade tensions appear to be breathing life into investing strategies hit in the December chaos Last year as volatility jumped widening credit spreads punished levered companies while cheaper shares sensitive to economic swings took a battering
Now cyclical stocks are besting defensives at the fastest pace in almost a year as the volatility futures curve and implied price swings signal easing fears of another market blow up
As earnings season and U S policy gridlock loom large bulls need plenty of nerves of steel
Sentiment got extremely overdone to the downside said David Holohan a strategist at Mediolanum Asset Management Ltd in Dublin People caught off side by the move in December probably put on some shorts as protection and are having to unwind those positions
In a risk on signal for computer and human traders alike small caps dubbed a lead indicator for sustainable rebounds are also outperforming their larger peers The Russell 2000 gained 4 8 percent last week its best run versus the Russell 1000 since 2017
The small cap index is three points from 1 450 a level trend following quants known as commodity trading advisers will accelerate their short covering according to Nomura Holdings Inc As momentum builds it could be a matter of time before hedge funds naysayers to the rally thus far boost their exposures en masse according to the Japanese lender
U S equity markets are at a critical tipping point quant strategist Masanari Takada wrote in a Jan 10 note
Gear up for another headfake warns JPMorgan s Chaudhry Until fundamental macro data bottoms it seems very premature to be putting too much money in very high beta areas of the market he said
With cash rich investors re balancing portfolios at the start of the year there s good reason to fret the rebound is on thin ice according to Cyrille Collet Paris based head of quantitative investing at CPR Asset Management an Amundi SA unit with 46 billion euros 53 billion
His funds remain in a bearish regime favoring equities with low volatility strong balance sheets and high dividend yields
A lot of investors are buying stocks that have strongly underperformed last year he said It s too early to say that the market is now totally bullish |
JPM | Former banking executive Walter Shipley dead at 83 JPMorgan Chase | Reuters Walter Shipley a former banking executive credited with helping spur a series of mergers that led to the creation of JPMorgan Chase N JPM has died at age 83 the company said on Saturday
Shipley was a critical force behind what is now JPMorgan Chase Chief Executive Officer Jamie Dimon said in a note to employees He died on Friday Dimon said
The company did not provide details on Shipley s death
Shipley served as chairman and chief executive of both Chase Manhattan Bank and Chemical Bank Dimon said and retired in 1999 the year before Chase acquired J P Morgan
Over four decades he helped to orchestrate mergers with Texas Commerce Bank in 1987 Manufacturers Hanover in 1991 and Chase Manhattan Bank in 1995
Walter had a vision of where the banking industry was going and he had the courage and ability to act former Chase CEO Bill Harrison said in a statement
Born the son of a Wall Street investment banker in Newark New Jersey Shipley was forced to leave Williams NYSE WMB College due to poor grades The six foot eight inch former basketball captain subsequently had to work and pay for his education and attended night school determined to prove himself to his family the bank said in an obituary
Dimon said Shipley was widely respected as a straight shooter who fostered an open entrepreneurial meritocracy
He is survived by five children seven grandchildren two siblings and a companion the bank said |
JPM | ACWA considers supporting solar panel manufacturing in Saudi | By Stanley Carvalho ABU DHABI Reuters ACWA Power is considering supporting the manufacturing of solar panels in Saudi Arabia its chief executive said as the power and water plants developer seeks to facilitate Saudi Arabia s plans to develop its renewable power industry Riyadh based ACWA Power partly owned by Saudi s Public Investment Fund PIF does not plan to become a manufacturer of solar panels but is open to the idea of supporting and enabling the right environment in the Kingdom to welcome in manufacturers a spokesman told Reuters SoftBank Chief Executive Masayoshi Son announced in March last year a plan to invest in creating the world s biggest solar power project in Saudi Arabia a project expected to have the capacity to produce up to 200 gigawatts GW by 2030 The project is set to create thousands of jobs and develop a manufacturing industry in line with Saudi Arabia s economic diversification plans laid out in its Vision 2030 ACWA Power plans to double its power production capacity by 2025 and to expand its operations to 25 markets from the current 12 We expect renewables to be a significant part of that growth ACWA s CEO Paddy Padmanathan said ACWA mandated banks last year to sell a 30 percent stake through an initial public offering IPO Sources told Reuters at the time that JPMorgan NYSE JPM Citigroup NYSE C Natixis and Riyad Capital had been appointed to advise on that process Padmanathan said on Monday that the IPO was postponed as the company had a lot of preparatory work to do and its balance sheet had to be positioned in the right way but added that the company is still committed to a listing and the banks that were mandated have retained their role This story has been corrected to remove incorrect quote change headline and body to reflect ACWA is considering supporting manufacturing but does not plan to manufacture itself |
JPM | MarketPulse Citigroup Rallies Despite Reporting Mixed Fourth Quarter | Investing com Citigroup NYSE C soared on Monday driving broader gains in financial stocks even though its fourth quarter results were a mixed bag its earnings beat forecasts while revenue missed
Citigroup reported earnings of 1 61 a share topping expectations for earnings of 1 55 a share while revenue of 17 12 billion missed estimates of 17 57 billion Its shares rose 4 4
The weaker than expected revenue was driven by a decline in the bank s fixed income business which the company blamed on a volatile fourth quarter
The mixed report from Citigroup did little to deter market participants as investors viewed the recent sell off as perhaps being overdone given the overall quality in the Citigroup report according to Briefing com
Citi s strong gains triggered a wave of buys across banking stocks as JPMorgan Chase Co NYSE JPM and Wells Fargo Company NYSE WFC both of which report fourth quarter earnings tomorrow before U S markets open gained 1
Analysts are expected to parse JPMorgan s report for clues on credit quality as market volatility economic uncertainty and falling oil prices during the fourth quarter has raised concerns about liquidity
Financial Select Sector SPDR NYSE XLF gained 1 but remains down about 16 over the last year |
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