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MS | Stocks Inovalon Holdings Rallies Following Analyst Upgrade | Investing com Inovalon Holdings Inc NASDAQ INOV shares rallied on Tuesday after analysts at Morgan Stanley NYSE MS upgraded the company to Equal Weight from Underweight The bank raised its price target on the company to 14 from 9 Also the company presented at the Morgan Stanley 15th Annual Global Healthcare Conference on Tuesday
Shares were up over 18 at 17 33 Tuesday afternoon |
JPM | JP Morgan CEO says has no interest in buying Deutsche Bank Handelsblatt | FRANKFURT Reuters JP Morgan N JPM has no interest in buying Deutsche Bank DE DBKGn the U S bank s chief executive told German daily Handelsblatt It would not make any sense Jamie Dimon told the paper If you only buy a company just to consolidate it it is almost impossible to do without killing the patient Dimon told the paper that consolidation among Europe s banks could make sense and appealed for a common deposit insurance scheme in Europe Dimon s remarks about Deutsche come on the same day that activist investor Hudson Executive Capital led by JP Morgan s former Chief Financial Officer took a 3 1 percent ownership stake in Germany s flagship lender |
JPM | JPMorgan spreads its urban development money to Paris | By David Henry and Inti Landauro
NEW YORK PARIS Reuters JPMorgan Chase Co N JPM the biggest U S bank by assets said on Sunday that it has selected impoverished areas around Paris as the first foreign focus of an urban economic development strategy it started four years ago in Detroit
The bank will contribute 30 million over five years to programs to teach job skills and expand small businesses in Seine Saint Denis and other places with high unemployment and poverty JPMorgan said in a statement provided to Reuters
Located north of Paris Seine Saint Denis has the highest poverty and crime rates in France Dotted with large social housing projects the area is separated from wealthy Paris only by an extremely congested highway circling the city The area was in the center of the riots that devastated suburbs all over France a decade ago
CEO Jamie Dimon planned to follow the announcement with a visit to the city on Tuesday Dimon has been leaving more day to day operations of the New York based bank to lieutenants while he promotes policies and public private partnerships which he believes will promote economic growth
His advocacy work has been primarily in the United States where JPMorgan earns about 80 percent of its revenue
The Paris effort is part of JPMorgan s Advancing Cities program which builds on investments of 150 million in Detroit and 40 million in Chicago cities where JPMorgan has the biggest market share of bank deposits
JPMorgan executives have said they want more business abroad particularly commercial lending to mid sized companies
JPMorgan employs about 200 people in France among some 255 000 worldwide
JPMorgan employees in Paris work in investment banking money management and capital markets They do not serve low income individuals or small businesses who could be the first to benefit from the new effort
Peter Scher JPMorgan Head of Corporate Responsibility said the program will provide workers the skills needed by the bank s business clients some of which are in office towers near areas where unemployment rates reach 35 percent
That is a good bet for the economy and it is a good bet for our firm said Scher
The job training will focus on the construction information technology and environmental sustainability industries which are important in France he said
The 30 million for Paris is part of 500 million JPMorgan said in September that it would spend in as many as 30 cities including some outside of the United States
JPMorgan reported net income in 2017 of 24 4 billion |
JPM | Ex Wall Street banker s insider trading conviction overturned | By Jonathan Stempel NEW YORK Reuters A divided federal appeals court on Monday overturned the insider trading conviction of a former Wall Street investment banker accused of passing tips about five mergers in the healthcare industry to his father and ordered a new trial In a 2 1 decision the 2nd U S Circuit Court of Appeals said Sean Stewart who worked at JPMorgan Chase Co N JPM and Perella Weinberg Partners should have been allowed to challenge a crucial piece of evidence a recorded conversation between his father and a friend who was cooperating with prosecutors The Manhattan based appeals court had in June released Stewart 37 from prison after just one year of his three year sentence signaling he would likely to win a reversal new trial or lesser sentence It had heard his appeal in February A spokeswoman for U S Attorney Geoffrey Berman in Manhattan declined to comment Alexandra Shapiro a lawyer for Stewart was pleased the conviction was overturned calling the excluded evidence critical to Mr Stewart s defense Stewart was convicted in August 2016 on nine fraud and conspiracy counts for passing tips to his father Robert from 2011 to 2015 Prosecutors said this led to 1 16 million of profit for Robert Stewart and his friend Richard Cunniffe to whom he had forwarded some tips In the recorded conversation Robert Stewart recounted to Cunniffe how his son had complained about his failure to take advantage of some inside information by saying I handed you this on a silver platter and you didn t invest in this Sean Stewart sought to introduce statements his father later made to the FBI suggesting he did not intend to commit insider trading or had been drinking when he made the silver platter comment The trial judge Laura Taylor Swain rejected this request because Robert Stewart never specifically said his son had not made the silver platter statement But in an unsigned decision the appeals court said this was an error that was not harmless It cited the importance to the government s case of the statement which prosecutors repeatedly called devastating and the jury s five day struggle to reach a verdict Robert s FBI interview offered fundamentally distinct recollections of the silver platter exchange that cast a different light on Sean s intentions and could have tempered the statement s devastating effect the majority said U S District Judge Richard Berman sitting by designation dissented He called evidence of Sean Stewart s guilt overwhelming even without the silver platter statement Robert Stewart pleaded guilty to a related conspiracy charge and Cunniffe to fraud and conspiracy charges Both were sentenced to probation
The case is U S v Stewart 2nd U S Circuit Court of Appeals No 17 593 |
MS | Don t Fall For This Treacherous Pick Up Line | Last week the most feared technical indicator in all the land was triggered for the second time in less than a month And that means a nasty stock market crash of 20 or more is nigh At least that s what the Chicken Little followers of the esoteric Hindenburg Omen want us to believe I give them credit They make a compelling argument The Hindenburg Omen allegedly predicted every severe stock market drop since 1987 Heck it flashed a whopping seven times before the S P 500 cratered 37 in 2008 Plus the math whiz who invented the Omen Jim Miekka recently confessed to being scared stockless As he told The Wall Street Journal s MoneyBeat blog We re on our way down from here I m hunkering down for a possible rough ride Talk about fearmongering Should we fall for it and follow suit Not a chance And here s why Myth Busting the Hindenburg Omen For those of you unaware of the Hindenburg Omen named after the famous German zeppelin that suddenly crashed and burned on May 6 1937 it attempts to predict a stock market crash by combining five different technical indicators The list includes the 10 week moving average for the New York Stock Exchange NYSE the McClellan Oscillator a measure of market breadth and the percentage of new 52 week highs and lows on the NYSE The key rationale behind the Omen is that during normal market conditions a large number of stocks should either be hitting new highs or new lows But not both Followers posit that if a large number of highs and lows were being hit simultaneously it would signal confusion And history dictates that investor confusion quickly gives way to panic i e stock market crashes Sounds simple and logical enough That is until you actually try to measure such confusion and use it as a predictive tool A Calculation As Clear As Mud Ultimately if the percentage of securities on the NYSE hitting new highs and lows each day both exceed 2 5 followers predict that all hell will break loose But simply exceeding these thresholds isn t enough To weed out false signals devotees insist that four concomitant technical indicators need to be triggered at the same time Then and only then can we declare that a Hindenburg Omen is official Oh yeah Then there s that bit about one Omen not being enough Apparently it takes a second Omen within 36 days of the first to confirm that a stock market crash is imminent And some contend that it could even take up to five Omens before we have confirmation Confused yet Don t worry Most investors who dig into the Omen this much inevitability get confused too The problem is many mistake the Omen s complexity as being synonymous with credibility and accuracy when they should be running the other way Indeed the Omen is just too darn complicated to be useful or accurate And the hard data backs me up The Complete Track Record and the Mother of All False Signals Adherents love to trumpet that the Omen flashed before every stock market crash in the last 25 years Yet few reveal that more than 75 of the time after the Omen is triggered a selloff never materializes And that includes recent history The last time the Omen flashed was in mid August of 2010 Instead of crashing mightily the S P 500 Index rallied about 25 over the next 11 months Miekka swears the Omen didn t work that time because wait for it everybody was watching it Come on That s the best you got At least Zero Hedge s Tyler Durden an obvious Hindenburg devotee gives a more plausible explanation He said the only reason the Omen didn t topple the market in 2010 is because Ben Bernanke announced another round of quantitative easing right around the same time Whether you believe the baloney excuses or not it doesn t matter Here s the straight truth At best the Omen is only right 25 of the time So we d be better served flipping a coin each day to decide whether or not to invest in stocks Oddly enough that s the case for most technical indicators Keep the Fancy Technicals I ll Cling to the Octogenarian From Omaha I ve always been leery of technical analysis Forget the complexity or their ominous and off putting names like the death cross or the moving average convergence divergence I just find it hard to put stock in strategies that turn a blind eye to the underlying business And with good reason As I ve shared before research out of Massey University and Macquarie Capital concludes Technical analysis is not consistently profitable in the 49 countries that comprise the Morgan Stanley Capital Index We show that over 5 000 technical trading rules do not add value beyond what may be expected by chance when used in isolation If not technicals then what Fundamentals duh As octogenarian Warren Buffett famously observed long ago If a business does well the stock eventually follows Simple as that In case you forgot he s used that guiding principle to climb to the No 2 spot on Forbes latest list of The World s Richest People As for the man behind the Hindenburg Omen or any other convoluted technical indicator You guessed it They don t even show up on Forbes radar So technical traders can have their fancy indicators and games of chance I ll cling to Buffett and my fundamentals thank you very much And of course two proven disciplines for mitigating risk position sizing and trailing stops Bottom line All the chatter and ominous headlines about the Hindenburg Omen should be completely ignored Its clairvoyant infallibility to predict a stock market crash is largely a myth Or if you prefer a more blunt assessment here s what Big Picture blogger extraordinaire Barry Ritholtz has to say The Hindenburg Omen is a common pick up line at permabear cocktail parties good for attracting sexual partners but of little use for anything else I couldn t put it better myself if I tried So I won t |
MS | Talking Forex EUR USD Moved Higher On Good Jobs Reoprt | EUR USDAbsence of policy easing as well as marginal upward revision to 2014 GDP forecast from the ECB supported EUR in the closing stages of the week which in turn saw market participants were forced to cover their lower rates bets While an announcement that the central bank is to implement negative deposit rate was always seen as an outside probability it was viewed more likely that the ECB will announce that it is to loosen its collateral policy and potentially focus on ABS haircuts Given that this did not materialise in turn resulted in an aggressive unwind of upside Euribor positions and in turn lifted money market rates Still Draghi has said that the governing council has discussed negative deposit rates and that they are technically ready for negative deposit rates Again this is no different than what the President said last month Draghi also said that the central banks stands ready to act but council judged no action was necessary The pair pared some of the move higher on Friday after the release of an encouraging jobs report from the BLS supported the USD GBP USDThe pair traded in tandem with EUR USD throughout the week and settled with solid gains Similarly to the ECB the MPC of the BoE also refrained from announcing any new policy easing measures The pair was also supported by the release of decent macroeconomic data releases which is a stark contrast to the recent data coming out of Europe USD JPYThe aggressive liquidation of long USD JPY positions on the back of sharp declines by the Nikkei 225 index which fell just over 5 also saw the pair break few technical levels which in turn prompted analysts at Morgan Stanley to revise down their Q2 forecast to 98 00 from 100 00 The sell off by the Nikkei 225 index saw the benchmark move into bear market territory having trimmed over 20 off highs In terms of Japan specific commentary the Bank of Japan are said to be divided on measures to quell bond volatility According to people familiar with the talks the BoJ board are said to be split on allowing two year funding operations and the expansion of Japanese real estate investment trust buys is opposed within the bank |
MS | Talking Forex Weekly Outlook Volatility Expected | EUR USDMarket participants set to remain volatile this week and not only continue to scrutinise comments from the Fed on the prospect of reducing the QE but also debate over the recent slide by USD JPY which threatens to result in a downward spiral amid long position liquidations Still it is worth remembering that the pair settled last week with solid gains after the press conference by Draghi took on a more distinct hawkish tone Again there is a risk that some members of the ECB will seek to downplay the significance of the event and instead reiterate that the central bank remains committed to providing liquidity for as long as necessary GBP USDThe pair is set to remain a by product of the risk on off sentiment stemming from the newsflow surrounding the looming constitutional vote in Germany which may yet undermine the effectiveness of the proposed OMT program Also comments from various Fed members on the future of the QE set to remain the driving force for the USD which in part has lost some of its appeal due to long USD JPY liquidation flows USD JPYThe aggressive liquidation of long USD JPY positions on the back of sharp declines by the Nikkei 225 index which fell just over 5 also saw the pair break few technical levels which in turn prompted analysts at Morgan Stanley to revise down their Q2 forecast to 98 00 from 100 00 The sell off by the Nikkei 225 index saw the benchmark move into bear market territory having trimmed over 20 off highs Given the extreme volatility there is a risk that follow through liquidation flows will remain the prevalent theme over the coming weeks which in turn may result in further downside for the pair |
C | Australia s Economy Is Slowing Its Stock Market Isn t | Bloomberg When a country s economic growth slows its stock market usually follows suit Not in Australia
Despite a backdrop of troubling economic signals the nation s benchmark S P ASX 200 Index rallied almost 10 percent in the first quarter its best ever performance to begin a year in data going back almost three decades Strong commodity prices and promises of easy monetary policy from central banks are working in the gauge s favor even as Australia s property slump deepens and its economy continues to wane
It s defied all odds and we have continued Eleanor Creagh Sydney based Australia market strategist at Saxo Capital Markets said of the benchmark s rally I would question for how long this rally can continue
Australia experienced its weakest six month expansion since the global financial crisis according to gross domestic product data released last month It s also in the middle of its worst housing slump in a generation as plummeting property prices and a credit squeeze weigh on consumers
Consumer staples stocks bore the brunt of a weakening economy after a disappointing earnings season The S P ASX 200 Consumer Staples Index is up only 4 4 percent this year and the outlook isn t all that rosy as households spend less And while that has hit a corner of the stock market the key equity gauge has kept calm and rallied on
Even the International Monetary Fund s cut in its global growth outlook to the lowest since the financial crisis has barely moved the needle for the nation s equity market Japan s Topix and Hong Kong s Hang Seng Index fell but Australian stocks managed to eke out a gain
Resource Rally
The key stock gauge has persevered in part thanks to strength in commodities markets which have propelled resources to become Australia s second best performing sector this year
Iron ore s supply shock in Brazil has helped prices of the raw material rally lifting miners like BHP Group Ltd and Fortescue Metals Group said Aaron Binsted Sydney based portfolio manager at Lazard Asset Management BHP which has the second highest weighting on the gauge is up 17 percent this year while Fortescue has soared 95 percent
But extended gains in the resources sector are expected to subside as shares become more pricey Citigroup NYSE C analysts led by Tony Brennan wrote in an April 8 note
With commodity prices as they are profitability could be as high as at any time outside of the super cycle and reflecting this in share prices even only partially could start to make the sector expensive the analysts said
Dovish Central Banks
The benchmark has also benefited from the dovish slant by major central banks which sparked a global rally amid bets that accommodative policies could bolster earnings Closer to home Reserve Bank of Australia Deputy Governor Guy Debelle said Wednesday that the central bank remained in wait and see mode for now and didn t hint at a switch to an easing bias something analysts had expected
Still Creagh cautioned that central bankers pledges for patience on rate moves can only prop up markets for so long
We ve had a lot of dovish talk but we haven t actually had any real action she said The fundamentals are being pushed to the side and we re just seeing this rally being driven off the back of the sentiment that central banks are going to be easing
And even though the nation s stocks are on the upswing their performance is still underwhelming compared to their overseas counterparts The ASX 200 lags behind other benchmarks ranking 19th among 24 developed markets
The next earnings season in Australia and the one now underway in the U S will be crucial to see how companies perform against slow global growth Creagh said
It s going to be pretty hard for earnings to continue to support the performance that we ve seen in equity markets so far she said
Financial stocks in particular which make up about a third of the gauge may be in for a rough time They gained earlier this year after the Royal Commission inquiry into industry misconduct didn t recommend a structural overhaul of the nation s banks or tighter lending rules which was widely seen as a reprieve for the sector But financials are up a mere 4 4 percent this year the worst performers in the benchmark
We don t see much prospect for earnings growth over the coming quarters for the Australian banks particularly as the property market continues to slide Creagh said |
C | Coal s Collapse Crowns Winners and Losers From China to the U S | Bloomberg It s been a stormy month for benchmark coal prices in Asia with the potential for reverberations across the globe
A double whammy of Chinese import curbs and collapsing gas prices in Europe have whacked Australian thermal coal at a time when demand weakens after the winter heating season and Asian buyers typically shut power plants for maintenance
While the International Monetary Fund this week cut its outlook for global growth on concerns over the effects of a long running trade war between the U S and China analysts say coal s current collapse owes less to weaker economic activity than a slew of disparate market forces
The European Effect
Coal prices at Newcastle in Australia the world s second biggest exporter of the power station fuel slumped 20 percent from early March to the lowest level since 2017 on April 3 The fall can trace some of its origins to Europe
European gas tumbled last month on an oversupply subsequently dragging Atlantic Basin coal lower which in turn weighed on Newcastle prices according to Citigroup Inc NYSE C However prices could start to recover as warmer temperatures boost air conditioning use according to Credit Suisse SIX CSGN Group AG
Opportunity for Some
Newcastle s slump is already crowning winners and losers Global miner Glencore LON GLEN Plc last month locked in some annual volumes to Japanese utilities at about 95 a ton prior to the steep price drop U S exporters may lose out as they become priced out of the Asian market according to Citigroup The bank also predicts China may lift import curbs to access cheaper Australian coal if prices hold around current levels
Speculation Lingers
Lack of clarity over China s import curbs has caused uncertainty in the market Ongoing delays to Australian imports by the world s biggest consumer has discouraged traders from ordering cargoes according to Wood Mackenzie Ltd
As speculation lingers about the Asian nation s go slow tactics and producers redirect shipments Australian miner Whitehaven Coal Ltd said Thursday that China s policies are to support its miners which came under pressure from lower domestic prices in 2018 Shares of producer China Shenhua Energy Co have risen almost 5 percent this year while Yanzhou Coal Mining Co has soared nearly 40 percent
Australia naturally ends up the victim of what is essentially an attempt by the Chinese government to cap overall coal imports to protect the domestic coal market said Ralph Leszczynski head of research at shipbroker Banchero Costa Co in Singapore
LNG Link
Royal Dutch Shell LON RDSa Plc last week agreed to sell liquefied natural gas to Tokyo Gas Co at prices that include a link to coal the world s first such contract By diversifying its price exposure for LNG which has historically been linked to oil the Japanese utility said it stabilized costs of the supercooled fuel
If the trend catches on coal may face even more pressure in some markets as gas generators are better able to compete with power suppliers using the world s dirtiest fossil fuel
In Asia gas is competing closely with coal in power generation said Xi Nan a senior gas and power analyst with Rystad Energy AS However we have started seeing dropping coal to gas switching prices since Q3 2018 suggesting that the two fuels are moving towards the same direction and not always in line with oil prices
Far From the End
The current collapse isn t indicative of a global shift away from the dirty fuel While cleaner energy sources such as wind and solar are making inroads into the power mix throughout Asia they haven t come close to ringing the death knell for coal yet
The fossil fuel will continue to be a key provider of heat and light through to 2040 according to the International Energy Agency while BHP Group sees India and other low income emerging markets driving demand into the future |
C | Citigroup s institutional clients group CEO James Forese to retire memo | Reuters James Forese president and chief executive officer of Citigroup NYSE C Inc s institutional clients business has decided to retire according to an internal memo seen by Reuters This will be the biggest departure from the third largest U S bank s executive team since former consumer banking head Manuel Medina Mora left three years ago Forese 56 had told acquaintances that he was frustrated and unhappy sources told Reuters Forese who began overseeing the business in 2011 is the second highest paid executive at the bank after Chief Executive Officer Michael Corbat He will be succeeded by Paco Ybarra the global head of markets and securities services Ybarra had been serving as Forese s deputy since October 2018 and will take over his role on May 1 Forese s unit which includes treasury services the investment bank corporate lending capital markets delivered 50 percent of revenue and more than two thirds of profit for the bank last year His division fell short of annual targets in 2018 and Forese was the only executive on the operating committee not to receive a raise for the year according a recent filing Forese retires after having spent his entire career at the firm He came to the company through Salomon Brothers which he joined in 1985 and cut his teeth in the securities trading business eventually working his way up to become head of the markets division This story has been refilled to correct Forese s age to 56 from 55 in third paragraph |
C | The Future of China s Growth Glimpsed in Historic Town s Revamp | Bloomberg A 300 million plan to turn a country town famous for fine porcelain into a major tourist destination gives clues as to how China s new approach to stimulus works in reality
Shenhou in central Henan province home to the delicately colored jun pottery since the Song dynasty about 1 000 years ago began work in 2016 restoring its main street The investment is starting to pay off During February s week long Lunar New Year holiday Shenhou saw a quarter of a million visitors boosting tourism revenue 90 percent from a year earlier
About 500 million yuan 74 million alone was spent restoring Shenhou s previously dilapidated Ancient Street or Lao Jie and its surroundings Now a walled archway greets visitors to the newly paved thoroughfare where red lanterns and ornate roofs overlook shops stocked with fine earthenware
Before only those interested in porcelain culture came here but now even many young people come to check out the place said Li Jing owner of a nearby ceramics shop This has driven business across the board at hotels restaurants businesses every way you can imagine
Since last year the government has doubled down on this kind of targeted stimulus emphasizing the role of consumption and the promotion of a long standing shift toward services and higher value manufacturing and away from expensive mega projects
It s a big jump for a country more used to the command economy style of Communist tradition according to James Laurenceson deputy director of the Australia China Relations Institute at the University of Technology in Sydney
Governments in China have less experience with delivering in this way he said It s not immediately clear how many jobs it can create and I expect there will still be significant waste as some default to old approaches
Despite policy makers determination to avoid a repeat of previous investment binges the new stimulus strategy shares a lack of transparency over financing arrangements that plagued old style investment spending Local government offices contacted multiple times by telephone declined to provide details of the town s financing arrangements
The 2 billion yuan investment that s planned for Shenhou is almost 30 times the town s 2016 fiscal revenue That s largely because it s among 1 000 special towns prioritized for development by 2020 to encourage traditional culture the natural environment or modern manufacturing
Overall though the relative restraint of the new stimulus strategy should help slow a build up of debt that s headed toward 300 percent of gross domestic product That holds out the hope that economic growth becomes more sustainable in the longer term The flip side is that the boost to growth is weaker lacking the credit driven sugar highs that helped China support the global expansion after the 2008 financial crisis
The muted impact of China s more calibrated approach to stimulus is expected to be confirmed in economic data scheduled for release Wednesday Growth is seen ticking down a notch to 6 3 percent in the first quarter from a year earlier according to the median estimate of economists in a Bloomberg survey
More importantly the full year expansion is seen slowing to 6 2 percent from 6 6 percent last year the weakest pace since 1990 The moderate stimulus approach represents Beijing s acquiescence in the long term deceleration of the world s second largest economy
Industrial production fixed asset investment and retail sales are all seen picking up a tad underscoring what some economists see as early signs of the economy s stabilization after slowing continuously since early 2018
China s policy stimulus is now both more decentralized and consumption orientated than in the past reflecting a broader permanent reconfiguration of the economy said Citigroup Inc NYSE C analysts led by Mark Schofield in a note
Policy makers have implemented sweeping tax cuts to help shore up consumption are striving to funnel more credit to efficient private companies rather than lumbering state enterprises and cut red tape
President Xi Jinping has also given himself more wiggle room by lowering the annual growth target to a range of 6 to 6 5 percent this year down from about 6 5 percent last year
In Henan the provincial government plans to spend 1 9 trillion yuan this year to boost effective investment About 20 percent of that spending is directed toward modern services that include tourism developments such as Shenhou shopping malls and logistics centers
Half a dozen businesses interviewed last week in Shenhou a town of about 50 000 two hours drive from Henan capital Zhengzhou were upbeat about the recent surge in tourist arrivals Some even complained about chronic traffic jams and a shortage of parking at weekends and public holidays
Stage two scheduled to get underway next month will see another 800 meter stretch of Ancient Street restored over more than two years Overall investment upgrading Shenhou will reach 5 billion yuan over an unspecified period says the local government
Future plans include the construction of a traditional porcelain heritage park and a culture and art center said Shanghai based Joyu Group the company contracted to run the town s tourist area in an emailed response to questions
Longer term prospects for China s new stimulus approach are hard to judge just yet For Shenhou much will depend on whether the second stage of the development can create a more varied experience for visitors said the owner of cafe Heshuiba on Ancient Street who asked to be referred to by only her family name Miao
People who come here once won t come back said Miao There aren t enough specific attractions here Our success depends on the second stage I hope they can build it up well
To contact Bloomberg News staff for this story Xiaoqing Pi in Beijing at xpi1 bloomberg net Kevin Hamlin in Beijing at khamlin bloomberg net
To contact the editors responsible for this story Jeffrey Black at jblack25 bloomberg net Malcolm Scott at mscott23 bloomberg net
2019 Bloomberg L P |
JPM | Wall Street Doesn t Love Cryptocurrency But It Likes Blockchain | Cryptocurrency is reducing the influence of governments over the global monetary landscape and it has shown an impressive ability to steal the attention of investors away from traditional investments on Wall Street
Now a whole industry is born around the idea of trading of cryptocurrencies with different kinds of new digital currencies popping up in the market There s also a new market to trade cryptocurrency futures as traditional investors start to pay more attention to the trend of the cryptocurrency markets More so many VC s are starting to look for opportunities to back blockchain startups as the growth of Internet companies start to reach a peak
Retail investors who invested in cryptocurrencies such as Bitcoin Ethereum and Litecoin have also had reasons to consistently smile on their way to the bank The chart below shows the year to date performance of Bitcoin in relation to other assets available on Wall Street
From the chart the NYSE Bitcoin Index has gained an incredible 849 9 in the last year In contrast the leading Wall Street indices have only gained low double digits The NASDAQ Composite is up 28 91 in the last one year the Dow Jones is up 24 27 and the S P 500 is up 19 31 in the same period
The clouds of a disruptive change are gathering on Wall Street
Cryptocurrency already has its attention on Wall Street and there s not much that can be done to slow down the onslaught Of course Wall Street would be waiting patiently as Bitcoin undergoes a choppy phase over talks of forks among others Yet the fact that the cryptocurrency industry is currently undergoing changes akin to a civil war doesn t necessarily mean that Wall Street s plan to destabilize the cryptocurrency industry has succeeded Below are two Wall Street firms that are embracing blockchain technology in the hopes of building their competitive advantages
NAGA Group
Fintech powerhouse NAGA Group DE N4G is launching a blockchain solution that will forever transform the operations of the financial market NAGA Group has the pedigree of a traditional yet forward thinking fintech firm The company which is listed on the German Stock Exchange in Frankfurt currently holds the record as the fastest German IPO in 15 years as its stock currently trades at more than 400 above the issue price as seen in the chart below In the last year NAGA has moved from a 52 week low of 2 60 to a 52 week high of 22 80 and it currently trades around 12 86 per share
Naga Group has an extansive experience building and marketing fintech solutions The firm created SwipeStox a mobile first social trading platform for trading forex CFDs and Indices The firm created SwiteX a unique platform that gamifies trading for an entertaining learning experience
Now NAGA Group is working on the first Blockchain platform for decentralized trading investing and education in financial markets virtual goods and cryptocurrencies One of the key aims of Naga is to make it simple rewarding and entertaining for everyone to trade the financial markets The NAGA Wallet offers a unique platform for traders to deposit and exchange cryptocurrencies in order to access the financial markets
Interestingly the NAGA Coin NGC which will be available in an upcoming token sale has the potential to become another major coin on the cryptocurrency landscape For one the token sale for NAGA Coin is not an attempt to raise funds in order to build something from scratch Rather NAGA Coin is a tool for tackling the largest markets in the world by offering decentralized access to the global financial markets
JPMorgan Chase On a first glance JPMorgan Chase Co NYSE JPM doesn t look like a potential support for Bitcoin or its underlying Blockchain technology JPMorgan s CEO James Dimon has riled Bitcoin at every opportunity going as far as calling it a fraud yet JPMorgan is leading what is probably the biggest blockchain revolution on Wall Street
Last month JPMorgan announced its pilot program the Interbank Information Network IIN which it will use blockchain technology to process faster and secure cross border payments JPMorgan Chase in collaboration with Royal Bank of Canada and an Australian and New Zealand Banking Group Ltd wants to use a version of Blockchain that powers Ethereum to process banking operations across international borders
With current banking technology international payments processing could take as much as 15 days for individual and enterprise clients as banks try to go through a complex layer of communications International payments processing is most often encumbered by the usual lack of information from different parties JPMorgan alone notes that it processes about 150 000 inquiries annually to provide full names missing numbers date of birth or a missing digit in an account number
With Blockchain technology JPMorgan strongly believes that it could significantly cut down the processing times for cross border payments In the words of the firm Blockchain capabilities have allowed us to rethink how critical information can be sourced and exchanged between global banks |
MS | Foreigners dump Japan stocks as North Korea yen take gloss off bright economic news | By Tomo Uetake TOKYO Reuters Foreign investors are ditching Japanese stocks as worries about a rising yen eclipse the brightest earnings season in years an economy brimming with vigor and business confidence at its highest since before the global financial crisis Tensions on the Korean peninsula and lingering concerns about U S President Donald Trump s economic policies are playing spoil sport pushing the yen closer to its strongest level in 10 months against the dollar in a discouraging sign for Japanese exporters profit outlook The benchmark Nikkei average N225 has duly slumped hitting 4 month lows on Wednesday as foreigners have dumped Japanese shares over the past six weeks despite relatively cheap valuations versus other major markets In the past five years Japanese shares have been more expensive than Europe but they are now traded at 14 4 times forecast earnings over the next 12 months almost on par with Europe and much cheaper than the U S Canada Australia and India based on data from Thomson Reuters Yet foreign investors who appear to have priced in the recent positive earnings and economic news worry that a rising yen could spell trouble for export reliant Japan Renewed yen appreciation could result in revisions to earnings forecasts of export oriented companies said Sean Taylor chief investment officer for the Asia Pacific at Deutsche Asset Management The geopolitical risk radiating from the tensions between North Korea and the U S could limit the short term upside in the equity market Foreigners have sold a net 2 1 trillion yen 19 4 billion worth of Japanese equities both cash and futures for six weeks in a row since mid July according to data from the Japan Exchange Group It was the biggest selling spree since between December 2015 and March 2016 when they sold 6 3 trillion yen worth of stocks YEN FOR STABILITY The yen tends to gain during times of economic and political uncertainty because traders assume Japanese investors repatriation will outweigh selling of domestic assets by foreign investors given Japan s huge net international assets And there is plenty of uncertainty to go around these days starting with North Korea s belligerent pursuit of nuclear weapons Pyongyang s biggest ever nuclear test over the weekend has further ramped up tensions with the United States Investors also worry a sharply divided U S political landscape could scupper Trump s economic agenda and force a government shutdown before an agreement on the U S debt ceiling can be reached by the end September deadline The yen stood at 108 60 per dollar up 7 7 percent for the year and analysts say a rise above the April peak of 108 13 yen could force many companies to downgrade their profit outlook Atsushi Watanabe quants analyst at Mitsubishi UFJ Morgan Stanley NYSE MS estimates a rise of one yen in the dollar yen would reduce the overall operating profits of corporate Japan by 0 5 percent That is a major reason for investors to quickly move past the April June quarter reporting season where net profit at 1 017 top Japanese firms hit 7 9 trillion yen making it the best first quarter in 11 years according to Watanabe In the same quarter Japan s economy grew at its fastest pace in more than two years while business confidence in August was at its highest in a decade Still the Nikkei fell to a four month low on Wednesday and its 1 percent gain so far this year pales in comparison with a rise of 6 percent in Germany s DAX GDAXI 10 percent in S P500 SPX and 26 percent in Hong Kong s Hang Seng HSI DEATH CROSS Fund managers say the July Sept quarter earnings season starting mid October when firms are typically more likely to announce their forecasts could sway the market s outlook for the rest of the year In the meantime technical indicators are also flashing bearish signals The Nikkei formed a death cross where the 25 day moving average line falls below the 75 day average line seen as a major bear signal A closer look at data suggests the selloff has been led by players focused on the short term Of foreigners total net selling value of 2 1 trillion yen selling in the Nikkei futures JNIc1 JNMc1 a favorite tool of short term players accounted for an unusually hefty 49 percent
If the yen strengthens further long term foreign investors would sell Japan on a full scale and the stocks would take a bigger hit said Takehiro Okada head of trading at Rheos Capital Works |
MS | Top German politician and banker back Frankfurt as post Brexit hub | By Tom Sims FRANKFURT Reuters A senior German politician and the country s top banker threw their weight on Wednesday behind making Frankfurt a post Brexit banking hub in a rare show of public support for building up the city as a financial center Wolfgang Schaeuble Germany s finance minister and the most influential politician in government after Chancellor Angela Merkel has shied away from backing Frankfurt since Britain s vote to leave the European Union mindful of animosity toward the financial sector at home Naturally there is no better place in continental Europe than Frankfurt to take business from London Schaeuble told a room full of leading German bankers via videolink from Berlin In his most outspoken comments on the subject to date Deutsche Bank DE DBKGn Chief Executive John Cryan told the same bankers that only one European city had the structures in place to assume a large portion of business from London And that city is Frankfurt The comments from influential political and financial leaders in Europe s largest economy are unusual because Germany has so far been more subtle in its campaign to lure business from London than rivals such as France and Ireland Ever since World War Two Germany has sought to avoid the impression it is trying to grab power in Europe by competing for institutions and influence Britain s planned departure from the EU has prompted banks and investors in London to examine other cities to keep a foothold in the bloc so they can sell products across the continent without extra costs or trade hurdles after Brexit Frankfurt has emerged as the most popular center with Morgan Stanley N MS JPMorgan N JPM and Citi N C among major banks saying they will expand operations there due to Brexit It s not about a choice between Dublin Paris or Frankfurt it s about a choice between New York Singapore or Frankfurt said Deutsche Bank s Cryan He said Frankfurt s supervisory authorities law firms consultancies and international airport all spoke in favor of the city For years Deutsche Bank sought quick and risky growth by reaching out from Frankfurt to London and New York But it has recently retrenched following a series of scandals that cost it billions of euros in fines and settlements Cryan has said Deutsche Bank would focus more on its German roots and support of Frankfurt was part of that effort Brexit could become a large stimulus package for Frankfurt s economy Cryan said All that is needed is the will of the city and the state And I believe that will is there Pierre Gramegna Luxembourg s finance minister acknowledged that Frankfurt was ahead of the pack in attracting bankers so far but said EU centres had to club together to support the finance sector
It s not an issue of taking business from London he said It is an issue of making sure that the remaining 27 European Union countries after Brexit can remain competitive with Asia and America |
MS | Property and Casualty shares rebound Morgan Stanley issues upbeat note | Investing com Wednesday was a volatile session for the shares of major property and casualty companies which first plunged as Hurricane Irma approached Florida but later regrouped following a bullish note from Morgan Stanley NYSE MS
The likes of Renaissancere Holdings Ltd NYSE RNR Everest Re Group Ltd NYSE RE Axis Capital Holdings Limited NYSE AXS and XL Group Ltd NYSE XL have plunged in recent weeks as Hurricane Harvey hit the U S Gulf Coast causing billions of dollars worth of damages They were initially lower on Wednesday as Hurricane Irma one of the largest storms to ever form in the Atlantic headed toward Florida But the losses were limited and shares turned higher after Morgan Stanley said reinsurance stocks are pricing in the kind of loss that happens once every century and that the industry balance sheet should be able to withstand such a catastrophic scenario
Morgan Stanley also noted that historically these stocks tend to underperform immediately following major losses and then outperform after losses become certain and investors focus shifts to stabilizing improving pricing |
MS | Traders see U S debt ceiling risks shift to December | By Richard Leong
NEW YORK Reuters The U S Treasury bill market may have dodged a bullet on Wednesday when President Donald Trump and top Democrats backed a plan to raise the debt ceiling but it implied that traders believe the risk of a U S default has not disappeared only been deferred to December and beyond
Interest rates on Treasury bills due in October which are most vulnerable to the government being late to repay them if it cannot borrow more after late September tumbled after the potential deal to raise the debt ceiling
In contrast T bill rates in December jumped because the proposal would suspend the borrowing cap currently at 19 9 trillion until Dec 15 Reuters data showed
That took pressure off the rates market but we could see a replay in December said Guy LeBas chief fixed income strategist at Janney Montgomery Scott in Philadelphia
To be sure while Trump and Democrats agreed to raise the debt ceiling into year end to fund the government and to provide relief aid to areas devastated by Hurricane Harvey Republican leaders blasted the three month debt limit extension
Even though it looks like it s a done deal it hasn t been set in stone said Tom Simons Jefferies Co s money market strategist in New York
Even if a showdown on the debt ceiling re emerges in mid December the Treasury may have raised enough cash and opt to engage in another round of extraordinary measures so the government has enough money to meet their debt and non debt obligations possibly into mid 2018 Simons said
Morgan Stanley NYSE MS analysts estimated the Treasury would sell 373 billion in net bill supply to achieve a cash balance of 360 billion at the end of December after cutting it to 60 billion in September
Based on this scenario T bills due in December may not be vulnerable to a default Simons said
Still traders bet the risk of another possible showdown on the debt ceiling will rear its head in mid December
Late Wednesday the interest rate on the T bill issue due on Dec 14 jumped 7 basis points to 1 045 percent after hitting its highest since Aug 10
On the other hand the T bill rate on the issue due Oct 5 fell 21 basis points to 1 040 percent after hitting its lowest level since July 19 |
MS | Banks weigh on European shares as market focuses on ECB | By Danilo Masoni MILAN Reuters European shares inched lower on Thursday with banks under pressure before a European Central Bank policy meeting that is expected to provide little detail on plans to cut monetary stimulus A fifth day of gains in auto stocks however helped German shares hit their highest level in two weeks as cheap valuations have revived investor interest in the sector While the pan European STOXX 600 index STOXX was down 0 1 percent the German blue chip DAX index GDAXI was up 0 5 percent and Britain s FTSE FTSE traded flat ECB President Mario Draghi is set to start laying the groundwork for stimulus reduction when policymakers meet on Thursday giving investors some hints but probably holding off on any major commitment Nearly everything suggests that Draghi will be particularly accommodating with no mention therefore of a QE quantitative easing recalibration today a Natixis trader said Financials were the biggest weight on the STOXX with banking stocks SX7P down 0 4 percent on track for their fourth straight day of losses Banks whose lending business benefits from higher interest rates and yields have been under pressure recently after strength in the euro fueled talk the ECB could delay monetary policy tightening Among top euro zone bank decliners were Spain s Sabadell MC SABE and Italy s UBI Banca MI UBI and UniCredit MI CRDI all down more than 1 percent The head of Deutsche Bank DE DBKGn Europe s biggest lender on Wednesday called on the ECB to change course on providing cheap money despite the strong euro warning he sees price bubbles in stocks bonds and property Carmakers SXAP were a bright spot up 0 7 percent and on track for their fifth straight day of gains Traders said investors were lured by cheap valuations expectations that sales could be driven up by people replacing cars damaged during hurricanes in the United States while efforts by German Chancellor Angela Merkel to avert bans of diesel vehicles in some cities also buoyed interest Ferrari MI RACE lagged with a fall of 5 1 percent after a double downgrade from Morgan Stanley NYSE MS to underweight from overweight Tobacco firm Imperial Brands L IMB rose 3 percent after selling part of its stake in Spanish logistics company Logista MC LOG British outsourcer Capita L CPI fell 4 7 percent after restating its 2016 profit following accounting changes |
JPM | Papa John s spikes after a report says private equity firms are fighting for a stake in the pizza chain | Private equity firms are fighting to acquire a stake in the pizza chain according to Reuters Shares of the pizza chain rallied 10 following the news Papa John s is likely to be valued at 63 50 per share during a potential acquisition Jefferies analyst Alexander Slagle recently said shares rallied 10 Tuesday after a Reuters report said private equity firms are fighting to acquire a stake in the pizza chain Reuters reports Bain Capital and CVC Capital Partners are among the private equity firms Private equity firms KKR Co and Roark Capital have also been vying for Papa John s with binding offers expected in the next few weeks according to Reuters sources Hedge fund Trian Fund Management an investor in fast food chain Wendy s that had expressed interest in Papa John s is said to be considering a potential investment should a deal for the sale of the company not be reached A special committee formed by Papa John s board of directors is exploring a sale as part of a wide review of strategic alternatives and there is no certainty that the company will agree to a sale the sources added No matter who buys Papa John s investors care most about what the pizza chain might be worth in the event of an acquisition Jefferies analyst Alexander Slagle recently said that Papa John s is likely to be valued at 18 above where shares settled on Tuesday Slagle made the conclusion by comparing Papa John s potential deal with I Pap John s was down 6 this year through Tuesday An earlier version of this post incorrectly stated the private equity firms were trying to buy the 30 stake owned by the former CEO and chairman John Schnatter Read more stories on Papa John s Now read |
JPM | Facebook Bulls Cut Projection on Zuckerberg s Instagram Tilt | Bloomberg Facebook Inc NASDAQ FB s newest strategy to lead with Instagram and video as the company s next catalysts of growth has investors buying in at least for now Following a mixed third quarter earnings report shares of the social network are climbing the most in six months up 6 percent in early trading Wednesday
While Wall Street has sounded off on its confidence in the tech giant s ability to scale reductions to price targets from Facebook s biggest bulls reveal some level of concern as Chief Executive Officer Mark Zuckerberg begins to pivot away from a feed centric platform At least four analysts have slashed their price targets by 30 or more
Here s what Wall Street is saying
RBC Capital Mark Mahaney
Fundamentals for Facebook in the third quarter weakened with revenue growth decelerating and operating margin decline
Still Facebook has arguably the best risk reward in large cap Internet in our view writes Mahaney in a note to clients The firm remains bullish given that Facebook still owns two of the largest media and messaging assets in the world
Monetization of core Facebook and Instagram assets still have material upside potential and Messenger and WhatsApp are beginning early stages of monetization
Reiterates outperform rating but lowers estimates and price target to 190 from 225
Cowen John Blackledge
In line results and more clarity on 2019 should offer some relief Cowen tells clients
Advertising pricing growth decelerated as impression growth is increasingly coming from ad units like Instagram Stories and developing markets that monetize at lower rates
Maintains outperform lowers price target to 195 from 200
Susquehanna Shyam Patil
2019 should see bottoming out for margins and pace of revenue growth decel Patil writes in a note to clients We are buyers
Facebook also seems to be incrementally more confident in its ability to monetize Stories and execute on the longer term growth opportunities We believe this is positive news for the stock as uncertainty around the forward growth and margins had driven the valuation less than 11 times 2019 Ebitda
Maintains positive rating cuts price target to 220 from 250
Nomura Mark Kelley
Facebook s third quarter report was a bit of a mixed bag with a lighter top line and user metrics offset by better margins and lighter operating expense growth versus expectations
The revenue trajectory from here seems to depend on how effectively the company is able to switch from a feed centric platform to Stories as the primary driver A process in which management noted will take some time
Remains neutral slashes price target to 161 form 183
JPMorgan Douglas Anmuth
The firm is more positive on Facebook coming off of its third quarter earnings report adding it once again to the J P Morgan US Equity Analyst Focus List as a value pick
Expectations are lower as the shares have become more washed out over the past few months
JPMorgan NYSE JPM believes the revenue deceleration is manageable particularly as Facebook continues to improve advertising products and drive strong return on investment and as marketers do not have good alternatives to the social platform s scale returns
While concerns will remain around engagement and shifting social behavior Anmuth views the more than 2 billion user base as stickier than many believe And Facebook is both adapting to and shaping user behavior
Maintains overweight rating with 195 price target
Raymond James Aaron Kessler
Facebook reported relatively in line revenues for the third quarter which were likely better than feared and positively revised its fourth quarter revenue deceleration expectation
Facebook Family of Services Facebook WhatsApp Instagram Messenger increased users to 2 6 billion versus 2 5 billion last quarter and more than 2 billion people use at least one of its Family of Services daily on average
Retains outperform rating cuts price target to 180 from 210
JMP Securities Ronald Josey
While we acknowledge the impact to profitability from the investments around Stories Video and security among others we also think there is the potential for significant ROI over the next 1 2 years as a result of these investments
Investments in Facebook s family of applications can revamp user growth improve engagement and potentially accelerate ad revenue as users increasingly gravitate to Stories watch video and communicate via private messages when using online social platforms
Outperform lowers price target to 176 from 206
Pivotal Research Brian Wieser
As before we continue to view the long run revenue opportunities for Facebook more negatively than much of the investment community does because we see limits to growth for the overall advertising industry
Facebook s budgets won t be meaningfully altered by the establishment of new ad products for Stories unless they appeal to advertisers the company doesn t already serve comprehensively
Comments on platform security did little to persuade us that the company has a handle on the operational problems it faces
Sell rating reduces price target to 125 from 131
Updates shares in first graph |
JPM | JPMorgan s Blockchain Platform Quorum Used to Tokenize Commodity Assets | Quorum the blockchain platform developed by US based banking giant JPMorgan NYSE JPM is used to tokenize gold bars the Australian Financial Review AFR citing an executive that was present at the Sibos conference in Sydney Quorum is the enterprise version of Ethereum the popular blockchain network that supports smart contracts Quorum is currently applied to digitize gold bars and move them on blockchain which will permit sustainable miners to generate a premium on the gold markets
Speaking about Quorum Umar Farooq head of blockchain initiative at JPMorgan s New York branch reportedly said
We are the only financial player that owns the entire stack from the application to the protocol
We are big believers in Ethereum he added
While Ethereum is a decentralized open source blockchain network Quorum has been adjusted to offer a high level of privacy as it represents a permissioned blockchain
In the last few months the distributed ledger technology DLT is being used increasingly to tokenize real world assets such as company shares real estate and commodities including gold The end result is the production of security tokens which ensure higher liquidity and enable investors to trade the assets more conveniently and in a more secure environment |
MS | Commodities Giving The Bulls The Benefit Of The Doubt | OK I was partially right Last Monday I wrote that commodities were setting up for a rebound see Commodities poised to rally All of these conditions are lining up to suggest that commodities are poised to rebound The euro commodity sensitive currencies and gold are all at key technical support levels As I write these words precious metal prices are substantially in the red Watch for signs of stabilization or better yet reversal If that were to happen expect that the rotation back into cyclical sectors will continue and stock prices to continue to grind higher I was partly right Gold appears to be turning around here though it is more correlated with the safety trade than the risk trade The chart of the SPDR Gold Trust ETF GLD below shows a constructive bottoming process with overhead resistance at about the 150 level On the other hand the rotation into deep cyclicals hasn t fully developed yet Consider copper as an example The red metal has rallied through a downtrend and seems to be consolidating sideways Other industrial metals remain in a downtrend though And oil prices as measured by the Brent global oil price benchmark are still in a downtrend and have not participated yet in a commodity upswing Though natural gas seems to march to the beat of its own drummer as it staged an upside breakout driven by positive fundamentals I remain constructive on the rotation into the deep cyclicals Despite the market s freakout over Bernanke s off the cuff remarks about the possibility that the pace of QE might be tapered followed by a poor HSBC manufacturing PMI out of China and Japanese stocks cratering by 7 though they are recovering as I write these words the technicals for the cyclical trade look intact Consider this relative performance chart of the Morgan Stanley Cyclical Index CYC against the market These stocks held up well in light of the mini panic over the last couple of trading days wrote that he is seeing very jittery traders and signs of panic which suggests to me that any pullback is likely to be short lived Today is May 22 2013 The general market declined by less than 1 0 82 to be exact and my phone has been blowing up with panic by people who are IN the market My trading friends are either calling or texting me with serious worry and even a few stories of mini blow ups today I ve never seen anything like this in my 17 year career God help these people when not if we get a serious correction As well pointed out this piece of analysis from Jeff deGraaf emphasis added Jeff deGraaf technician extraordinaire formerly of Lehman now at Renaissance Macro Research makes an interesting observation about the heavily overbought markets Last week the S P500 had 93 of all stocks trading over their 200 day moving average Normally this degree of overbought should lead to a correction As you can see in the inset box it sometimes does However if you are looking out a year we see that over the past 3 instances markets have been higher Is the market overbought Yes But these conditions constitute what my former Merrill Lynch colleague termed a good overbought condition I am inclined to give the bull case the benefit of the doubt for now though I am maintaining a risk control discipline of tight and trailing stops Paul Volcker once remarked that as Fed Chairman he was so guarded about his public remarks that if he went to a restaurant he would say I ll have the steak but that doesn t mean that I don t like the chicken or the lobster Disclosure Cam Hui is a portfolio manager at Qwest This article is prepared by Mr Hui as an outside business activity As such Qwest does not review or approve materials presented herein The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives financial situation or particular needs of any specific recipient Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions Past performance is not indicative of future results Either Qwest or Mr Hui may hold or control long or short positions in the securities or instruments mentioned |
MS | Gold Silver Speculative Interest At A High | Short interest speculative in Gold and Silver is higher than it s been since the early part of the 2000s Gold is retesting the 1413 levels from the Bernanke day confusion When the boat is loaded one way it doesn t take a whole lot to get them scurrying the other way Crowded rooms small doors Gold just traded 1415 Be careful if you re short There have been 513 interest rate cuts globally since mid 2007 I can t figure out exactly how many hikes but my hunch is it s less than 40 Central Banks everywhere want growth and they are clearly willing to tolerate inflation they re still waiting on both Another case of be careful what you wish for US GDP came in 1st revision at 2 4 v expectations of 2 5 Weekly Jobless claims were roughly in line a bit worse than expected The Nikkei was down another 700 points overnight June Nikkei futures are down 15 3 from high to low since May 22nd THAT S ONE WEEK AGO That s insane In my opinion it looks like the strong Dollar days came to an end about a week ago From last months Economist Excessively low rates help to create bubbles because they allow investors to ignore the cost of financing and concentrate on the capital gains if their strategy works they let people forget risk and focus too much on reward Encouraging the revival of a property market in the doldrums risks creating a boom that will simply lead to another bust Bubbles may not have emerged yet But if they do the eventual task of returning to normal monetary policy will be made even more complicated This time round the appetite for high returns that low rates are meant to bring about has been slow to arrive Investors were so shell shocked by the impact of the banking collapse of 2008 that they stuck to safe assets But several years on investors are getting more restless The key point is not that nominal interest rates are low It is that outside Japan real after inflation interest rates are negative money stashed in a bank buys less when it comes out than it could when it went in And not only are government bond yields low given the high debt to GDP ratios of many nations they aren t even all that safe In the joke of Jim Grant who writes a financial newsletter instead of offering risk free return they offer return free risk Low rates have not just made life easier for some consumers and big companies by reducing their borrowing costs They have also allowed firms to substitute debt for equity This usually boosts earnings per share which makes it an attractive choice for executives motivated by share options American companies spent around 400 billion last year buying back their own shares the equivalent of 2 6 of GDP British ones spent 3 1 of GDP the same way The trend has continued in 2013 By March 7th 111 6 billion of American share buy back programmes had been announced a 96 increase on the same period in the previous year according to Thomson Reuters Easy money also lets you buy other companies In 2007 America saw 1 6 trillion in mergers and acquisitions part of a world total of 4 6 trillion according to Dealogic a data provider The world s 2013 total for takeovers was just 2 7 trillion in America the market has been bumping along at or below 1 trillion a year These high profile takeovers and the strong level of buy backs may be a sign of greater corporate confidence particularly in America But it could also be a sign that companies are finding it hard to increase profits organically by selling more goods or improving margins By end March the S P 500 was up by 11 4 on the previous year But first quarter profits were expected to be just 1 3 higher according to Soci t G n rale an investment bank Another sign that growth may not be wholesome is the revival of the asset backed security When Americans borrow money to buy a car or a house their debts are often repackaged as the backing for a bond Before 2007 investors believed that such bonds were safe investments because large numbers of car buyers and homeowners were unlikely to default at once But low subprime credit standards made default more likely When the penny dropped the prices of subprime securities plummeted So far this year 5 7 billion of subprime car loans have been issued a 30 increase on last year And there has also been a revival in the issuance of collateralised loan obligations CLOs These act like mutual funds buying a portfolio of loans and then selling portions of the portfolio tranches to investors The different tranches reflect the different risks the riskiest portions bear the first loss if the loans default In the first quarter of 2013 CLO issuance reached 27 billion half the entire total for 2012 around the levels of 2007 and higher than many would have imagined in the days after the crisis when CLO was a dirty word A further sign of an appetite for financial risk is the willingness of investors to buy loans with minimal protection in the case of a deterioration in the debtor s financial position so called covenant lite loans More than half of loans sold to non bank lenders in January were covenant lite the highest proportion ever said Morgan Stanley a bank Leveraged loans those made to highly indebted borrowers have also bounced back issuance in the first quarter of 2013 was a record 286 6 billion according to Thomson Reuters Crude Gasoline Distillate Inventories at 10 AM Chicago time because of Memorial Day Natural Gas Inventories regular 9 30 AM release Watch the 12 30 close in Gold If we re above 1413 I expect we ll see some nervous shorts |
MS | Fed Speculation Leads To Solid Month For US Dollar | The dollar was set to complete a monthly gain against all of its 16 major counterparts amid speculation the Federal Reserve will reduce monetary stimulus The greenback rose versus the yen ahead of U S data on first quarter growth today The Japanese currency climbed earlier against the euro after weekly government data showed Japanese investors cut their holdings of foreign debt by the most in more than a month A gauge of implied volatility for Group of Seven currencies climbed to a three month high The dollar will be resilient said Daisaku Ueno a senior foreign exchange and fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities Co in Tokyo The U S appears to be the closest to an exit strategy among major economies he said referring to monetary stimulus |
MS | Overproduction In the Steel Industry A Global Problem | The global steel industry is facing some serious issues of overcapacity and like the aluminum industry so much comes down to China A recent Telegraph article quoted World Steel Association figures saying that production in April was 132 million tons an increase of 1 2 percent year on year Modest growth you might think but look a little deeper and yet again the new production is heavily skewed to China This growth is almost solely attributable to China where 6 8 more steel was produced in April than in the same period last year the article said noting most key producing regions reduced output so China s market share of worldwide steel production climbed to 49 8 Morgan Stanley quoted in the same article agrees saying the bulk of overcapacity is in China and Europe The long term trend is for slower global growth in steel demand suggesting that 3 percent per year is likely to be the norm over the next five years compared to 5 percent over the last 10 The bank reported China s overcapacity is some 200 million tons Cutting production by such an amount would involve 800 000 redundancies or 20 percent of the steel industry s workforce a step the new administration is unlikely to take Given that steel is not hindered from being exported from China by tariffs like aluminum metal is flowing into the international marketplace a trend that is likely to increase as domestic demand softens more China s manufacturing sector shrunk for the first time in seven months suggesting the economy is more fragile than previously thought Steel producers such as ArcelorMittal have already called for barriers against Chinese imports into Europe saying cheap imports are adding fuel to the fire of already weak demand and domestic over production leading major steelmakers there to post losses for the first quarter by Stuart Burns |
MS | ThyssenKrupp ArcelorMittal Post Q1 Losses Struggling With Officials | As we reported recently the response from European steelmakers is hampered by local politicians keen to maintain employment in difficult times Only Tata Steel has really bitten the bullet in Europe with a recently announced plan to slash 900 jobs in the U K and close 12 sites In the process they have taken a 1 billion 1 5 billion impairment charge and plunged themselves into a first quarter loss but at least the firm will be better positioned to weather the new normal in Europe Meanwhile ThyssenKrupp and ArcelorMittal are posting first quarter losses and fighting local battles with politicians and unions tenaciously intent on preventing closures in their backyard Global overcapacity is estimated at some 334 million tons according to Morgan Stanley Over the major producing regions only North America which has shown more resilient growth and is set to benefit from lower energy costs appears best able to cope With so much steel and so little demand prices are likely to remain subdued for some time Iron ore and coking coal prices have fallen and there seems to be little prospect of a reverse in that trend unless Chinese mills look to restock at lower prices later in the year Even so a sharp turnaround in raw material prices seems unlikely The longer over production continues in China and the issue of European overcapacity is kicked down the road the worse the problem will become The silver lining Steel consumers can look forward to lower input costs for the foreseeable future a trend that will be welcomed across manufacturing and construction sectors by Stuart Burns |
MS | U S senators urge Trump admin to raise pressure over China financial market access | By Michelle Price WASHINGTON Reuters Republican U S senators on Tuesday called on the Trump administration to increase pressure on China to remove foreign ownership curbs that bar American financial companies from freely operating in the world s second largest economy Foreign banks securities firms and insurers seeking to conduct certain kinds of business in China are required to partner with local firms that retain a majority interest in the joint venture The arrangement has long frustrated Wall Street players operating in China including Morgan Stanley N MS JPMorgan Chase Co N JPM and Citigroup Inc N C because it limits their ability to make strategic decisions and maximize profits In a letter sent to the administration and dated Tuesday 16 Republican U S senators urged the government to seek a timely commitment from China to allow U S financial firms to own 100 percent of their Chinese operations as part of the U S China Comprehensive Economic Dialogue a forum created in April by President Donald Trump and Chinese President Xi Jinping to discuss pressing economic issues Such restrictions effectively block U S financial companies from owning and controlling their investments as they do in almost every other market in which they operate the letter said They also harm U S companies in other sectors of the economy like manufacturing that rely on the scale scope and expertise of U S financial services providers to compete with Chinese competitors The Chinese government has been gradually loosening foreign investment curbs as part of its pledge to open up the country s capital markets and in December unveiled plans to further liberalize joint venture rules but did not provide details The U S financial services industry hopes to capitalize on President Donald Trump s pro business agenda and tough stance on China trade relations to push Beijing to follow through on its promise to allow greater market access The letter was addressed to Secretary of Commerce Wilbur Ross Treasury Secretary Steve Mnuchin National Economic Council director Gary Cohn and U S Trade Representative Robert Lighthizer The 16 senators who signed the letter included Tim Scott who sits on the Senate Finance Committee and Mike Crapo chairman of the Senate Banking Committee China s barriers to market entry have put U S financial institutions at a competitive disadvantage through numerous administrations said Kenneth Bentsen Jr president and chief executive of the Securities Industry and Financial Markets Association trade group and chairman of the Engage China group which has been lobbying on this issue
By tackling these barriers we will give U S financial companies the same competitive rights given to Chinese companies operating in the U S Bentsen said in a statement |
MS | Gasoline supply crunch set to ease soon but consumers will still feel the pinch | U S gasoline pump prices rose to new two year highs on Tuesday but the futures market signaled a coming end to the fuel supply crunch created by Hurricane Harvey as oil refineries return to service
While gasoline futures NYSEARCA UGA yesterday fell 2 8 to 1 6991 per gallon the average price for a gallon of gasoline at the pump rose 1 1 cents to 2 65 a gallon extending the 27 cent surge for the week ended Monday
Consumers could continue to see elevated pump prices for a number of weeks as refiners and pipelines gradually ramp up and depleted inventories are slowly replenished analysts at AAA thinks retail gasoline prices could increase another 5 10 cents in the next week
Few refineries have reported the kind of major damage that hobbled plants for months following hurricanes Katrina and Rita in 2005 but some are likely to be offline for several weeks Morgan Stanley NYSE MS says it took 3 5 weeks for refining capacity to return to normal levels after storms in 2005 and 2008
Now read |
JPM | JPMorgan says mid cycle stress test ratios exceed regulatory thresholds | JPMorgan Chase NYSE JPM issues the results of its company run 2018 mid cycle stress test using a severely adverse scenario All measures exceeded the regulatory minimum Under the stressed scenario its minimum common equity tier 1 capital ratio of 8 0 calculated exceeds the regulatory minimum of 4 5 The minimum Tier 1 risk based capital ratio calculated came to 9 5 more than the regulatory minimum of 6 0 The minimum Tier 1 leverage ratio calculated of 5 1 exceeded the regulatory minimum of 3 0 Previously JPMorgan gains 1 4 after Q3 beat on strong consumer banking growth Oct 12 Now read |
MS | Financials Are On Fire | Financials were on fire Tuesday as the capital market and market sensitive names like Goldman Sachs GS Schwab SCHW and JP Morgan JPM start to get a persisent bid The SP 500 is hitting all time highs every day and credit spreads and the corporate bond markets remain well behaved We ve been recommending financials to readers for some time see here here and here The OutperformerThe Morgan Staney MS chart caught our eye so we added MS to a few accounts I m not a big fan of Citi C or AIG by any stretch so I am looking for financial names that will outperform in 2013 Current EPS consensus for MS is looking for 2 06 and 2 53 in 2013 and 2014 after earnings just 0 13 in 2012 so the stock is trading about 11 12 x expected 2013 earnings for hefty growth this year and next I ve followed the brokers for years and with the markets as a tailwind Wall Street consistently underestimates results That said the political incorrectness of proprietary trading these days means the brokers are intermediaries rather than outright risk takers although I m sure prop trading isn t gone completely EPS OutlookMy guess is if 2013 continues apace particularly with the SP 500 making new highs daily coupled with Japan and signs of life out of Europe MS could earn at least 3 per share by 2014 The dilution in 2008 and to date has been horrendous thus with curtailed risk appetites and shareholders diluted in the extremus don t expect to see 100 or the 2000 high for many many moons What Worries Me About MS Here is a fully diluted shares outstanding at the end of each fiscal year since 2008 In 2009 MS started reporting on calendar year Source ThomsonReuters Datastream 12 31 12 1 886 bl12 31 11 1 67512 31 10 1 41112 31 09 1 185 bl11 30 08 1 096 blIf this dilution stops the stock will get legs in a hurry Brian Gilmartin CFA Portfolio managerTrinity Asset Management Inc |
MS | Consider The Most Nagging Question About Stocks | If you constantly find yourself asking when the market is going to crash you re a paranoid freak And you re not alone either By our best estimates there are roughly 1 2 million such freaks trading the market each day What would happen if all these paranoid maniacs decided to sell Well it d look a lot like the Hindenburg crash of 1937 which I just happened to watch a documentary about last night Look we re all human which means it s perfectly natural to be a bit paranoid given that the market keeps hitting new all time highs on what seems like a daily basis However asking about it with no way of arriving at an answer makes no sense at all Didn t you know that only purpose driven paranoia is productive and acceptable To that end on Wednesday I introduced you to my trusty Bear Market Checklist which provides a systematic way to assess whether or not anxiety over a stock market collapse is indeed warranted Full disclosure I can t take credit for the checklist It actually represents a compilation of reliable bear market indicators monitored by myself along with other noteworthy Wall Street veterans Like Richard Bernstein and Morgan Stanley s MS Chief Investment Strategist and author of the must read investment book The Art of Asset Allocation David Darst However the fact that others find the indicators worthwhile should only boost your confidence in using it Now earlier in the week I just had time to cover the first four indicators out of nine Today I m finishing the job so you ll be fully equipped to answer the most nagging question about the stock market Let s get to it Bear Market Warning Sign 5 A Peak in New 52 Week Highs Bull markets can t keep rising on the backs of a few stocks To the contrary the rally must be broad based It must have breadth as Wall Street pros like to say And we can easily measure the rally s breadth by monitoring the number of new 52 week highs An early warning sign that a run up might be losing steam is a declining number of stocks hitting new 52 week highs As I ve shared before Ned Davis Research found that the average bull market ends 30 weeks after the number of new 52 week highs tops out So when was the last time this occurred during this bull market Two weeks ago Two months ago Try two days ago As Bespoke Investment Group reports An astounding 37 2 of stocks in the S P 500 hit new 52 week highs on Wednesday Based on the averages even if that reading ends up being the tippy top this bull market could endure until December 11 2013 Bear Market Warning Sign 6 Cash Crunch For stocks to keep hitting new highs investors need to keep buying more shares And that takes cash But unlike the government which can simply print more money as needed individuals can t So by monitoring cash balances on the sidelines we can determine if there s any fuel left to propel share prices higher once investors find themselves in the buying mood Again there s nothing to worry about right now Although I shared on Monday that investors are rotating out of money market funds into stocks there s still plenty more cash to go around To be exact there s another 2 583 trillion in money market mutual funds according to the latest tally by the Investment Company Institute That s down about 1 2 trillion since the bull market began But it s about 1 trillion more than right before the dot com collapse And it s about 2 trillion more than the lows hit during the early 1990s Any way you look at it there s more than enough cash to keep fueling this rally Bear Market Warning Sign 7 Get Shorty The smart money has a pretty good track record of increasing their short bets ahead of stock market declines Therefore if we re so overdue for a correction we should see short interest creeping higher Yeah that s not happening Short sellers appear to be borrowing a page from Taylor Swift s book They remain completely noncommittal The short interest as a percentage of float for the S P 1500 Index stands at a measly 5 7 That s almost exactly where it stood one month ago when I last brought this indicator to your attention Yet the S P 500 Index has rallied another 5 since that time Bear Market Warning Sign 8 Runaway Valuations Bull markets give way to bear markets when valuations get overstretched Consider Prior to the dot com collapse and the Great Recession the price to earnings P E ratio for the S P 500 Index reached almost 30 Today though it stands a tad over 16 We re nowhere close to the danger zone Not to mention we re looking good on a forward P E ratio basis too As of May 10 the forward P E ratio stood at 14 2 which is only slightly above the 10 year average of 14 1 according to FactSet Bear Market Warning Sign 9 Stocks Can Only Go Up The time to be wary of a stock market collapse comes when everyone and their mom gets bullish and starts buying stocks That s not now As Darst says Nobody is buying stocks Exaggeration Maybe a little bit But the point remains We re nowhere close to a Great Rotation into stocks There s no one running around saying that stocks can only go up like they did about real estate not too long ago The data backs me up too Take the most recent sentiment readings from the American Association of Individual Investors AAII for instance They re not even close to being out of whack The latest bullish sentiment reading checked in at 38 5 compared to an average reading of 38 8 since 1987 And the latest bearish sentiment reading clocked in at 29 3 which is right in line with its long term average of 30 6 Then there s the STALSTOX Index which measures the average recommended allocation for stocks by U S chief strategists It s not overwhelmingly bullish either Currently it rests at 49 2 down from 61 at the start of 2012 Bottom line If you re prone to worry I suggest you keep this checklist handy It s a much more reliable way of pinpointing exactly when this bull market is losing steam |
MS | Morgan Stanley Undiscovered Gem | Morgan Stanley MS is a global financial services company that through its subsidiaries and affiliates provides its products and services to a range of clients and customers including corporations governments financial institutions and individuals The Company is a financial holding company The Company operates in three segments Institutional Securities Global Wealth Management Group and Asset Management The Company provides financial advisory and capital raising services to a group of corporate and other institutional clients worldwide Morgan Stanley is listed in NYSE I had bought Morgan Stanley at 22 90 Morgan Stanley is trading below tangible book value Yet Morgan Stanley continues to generate profits When market gains confident on this stock share price is likely to move up significantly upwards Morgan Stanley is trading in an uptrend on the chart Morgan Stanley is a popular stock among the elite hedge fund community see below |
C | Belt and Road Without China It s Possible | Bloomberg Opinion Italy s new role in the Belt and Road Initiative has alarmed G 7 allies fearful of China s expanding reach Give it time This project is going to look a lot less Chinese as it unfolds
At the moment the heft of the funding for President Xi Jinping s global infrastructure project comes from policy banks such as China Development Bank and the Export Import Bank of China The 40 billion state backed Silk Road Fund and to a lesser extent the Asia Infrastructure Investment Bank also contribute
Global competitors may soon join the fray Standard Chartered LON STAN Plc said it plans to allocate as much as 20 billion in coming years to Belt and Road projects That s just a drop in the bucket considering the 1 trillion tag on Xi s ambition to connect China by land and sea to cities as far flung as Nairobi and Rotterdam But more could be coming
Chinese banks could use the help The currency of the global construction industry is dollars and Beijing doesn t have an endless supply of them With the country heading into a current account deficit and the economy slowing down cash isn t flowing as freely as it once did Martin David the Asia Pacific head of Baker McKenzie s projects group says the growing involvement of international banks is inevitable There isn t a bottomless pit of Chinese bank money
Chinese banks aren t the only patriots facing stiffer competition As the funding net widens the country s construction firms may lose their hitherto guaranteed pipeline of work Mainland companies tend to secure waivers on foreign worker quotas which has enabled them to import laborers from home a sticking point for locals in countries where projects are based European Commission President Jean Claude Juncker said he doesn t object to Chinese projects if you don t only meet Chinese workers on these construction sites but also European workers In contrast multilateral banks follow strict procurement rules that forbid awarding work to preferred contractors according to Citigroup Inc NYSE C Even Beijing based AIIB abides by such restrictions
For the large swath of Chinese construction and engineering giants many of them state owned the overseas market is crucial particularly as their domestic market slows Hong Kong traded Metallurgical Corp of China Ltd posted a whopping 167 percent surge in overseas new orders in January and February from a year earlier Shanghai listed Sinoma International Engineering Co China made 81 percent of its revenue in 2017 from abroad according to China International Capital Corp
For borrowers a more diversified source of lending would be a good thing The weighted average interest rate of Chinese funding for Belt and Road countries was between 3 5 percent and 5 percent borrowing costs can reach as high as 6 percent in countries like Sri Lanka and Pakistan The World Bank meanwhile tends to lend at 100 basis points to 200 basis points over Libor according to Moody s Investors Service Inc These exorbitant rates prompted Malaysia s Prime Minister in his first few months of office to suspend work on one of the biggest of Belt and Road projects the 20 billion East Coast Rail Link U S Vice President Mike Pence referring to the program as a constricting belt and one way road
Chinese government statements indicate that 50 state owned firms have invested or participated in almost 1 700 projects in countries along Belt and Road s path over the past three years according to Baker McKenzie The wider the road the more drivers are bound to crowd in |
JPM | JPMorgan Global Growth Income Undergoing Period Of Change | Launched in 1887 JPMorgan NYSE JPM Global Growth Income LSE JPGI has undergone a period of change in the past 18 months changing its name from JPMorgan Overseas and introducing a high distribution policy under which it pays out 4 of year end NAV in equal quarterly instalments However its research based value orientated investment process seeking capital growth from a portfolio of global equities remains unchanged In this video portfolio manager Jeroen Huysinga explains where he is currently finding value why he sees particular opportunities in Europe and how exposure to high growth emerging markets can be achieved by investing in undervalued developed market stocks as well as explaining how JPGI s new distribution policy has helped the trust substantially narrow its discount to NAV |
MS | Insurers see more demand from banks for cover against cyber attacks rogue staff | By Carolyn Cohn
LONDON Reuters Banks are increasingly turning to insurance to protect their capital from operational risks like cyber attacks and rogue traders and insurers say they can help safeguard lenders by providing an extra layer of expertise
After a spate of expensive court cases and IT outages banks including Credit Suisse SIX CSGN Deutsche Bank DE DBKGn and Lloyds LON LLOY are looking for ways to mitigate the costs of such episodes by taking out insurance
Most such insurance contracts are arranged privately and the details never publicized But the practice gained new attention last year when Credit Suisse sold a 220 million Swiss franc bond tied to its operational risk
Buyers were given generous coupons of more than 4 percent but could lose their investment if the bank is hit with charges from employee malfeasance cyber attack or other issues
The bond was linked to coverage provided by Zurich Insurance which said it was seeing growing interest in operational risk policies due to the rising frequency and severity of such risks
Banks were interested in de risking their balance sheets by transferring a portion of their operational losses and so mitigating the impact on equity capital a Zurich spokesman said by email
As with all insurance there can be a risk of moral hazard with banks that offload some of their risk becoming laxer about their own controls said Domenico del Re director at consultants PwC Smaller financial firms in particular might prefer to buy insurance than spend much greater sums on risk management he added
But he said insurers can also help cut those risks by scrutinizing firm s controls closely
Insurers are getting more and more sophisticated as risk management partners he said If you think of the parallel with fire risk by helping companies getting advice on where sprinklers should located the same is happening with cyber where insurers are linking up with IT and cyber specialists
Insurers are employing risk specialists with experience at major banks to help assess the practices of the financial institutions they cover said Angelos Deftereos senior underwriter for operational risk at XL Catlin
He cited his own background as an example Before joining XL Catlin I was responsible for implementing the operational risk framework at the asset management division of Morgan Stanley NYSE MS So I have an insight into these risks as well as how they are managed controlled
BACK TO FUNDAMENTALS
The Basel Committee on Banking Supervision defines operational risk as the risk of loss resulting from inadequate or failed internal processes people and systems or from external events
It can include cyber attacks general IT outages rogue traders and financial fraud and is one of the risk areas against which banks need to set aside regulatory capital along with market and credit risk
Regulators permit the largest banks to use insurance to reduce the their capital buffers for operational risk by up to 20 percent although this might change the Basel Committee that sets global rules has yet to release the results of a consultation on the issue last year
Banks first started to look at operational risk insurance before the financial crisis struck a decade ago Their interest has renewed in the past year insurers say
The crisis is over banks are getting back to fundamentals and now it s back in focus said Mark Fellows financial institutions manager at U S insurer AIG
Major cyber attacks WannaCry and NotPetya earlier this year have driven more interest There has been rising demand for operational risk insurance from banks in Britain continental Europe Australia and other parts of the developed world brokers and insurers say
Banks can buy insurance against different aspects of operational risk such as property cyber or professional indemnity but an umbrella policy fits more closely with their needs they add
Paul Search financial institutions practice leader at Willis Towers Watson said the insurance can cover the whole spectrum of operational losses incurred by a bank in contrast to traditional insurance which remains siloed risk type by risk type
Siobhan O Brien managing director financial and professional practice at broker Marsh UK said banks could typically buy operational risk insurance to cover three different aspects of operational risk for a total cover of up to 1 billion from a range of insurers
Deutsche and Lloyds are among major banks that have said in company statements that they use operational risk insurance Both declined to comment
Policies still usually require that the bank itself bears a big chunk of any losses to ensure they do not loosen their controls
That s the tool the insurance industry uses to protect itself from the moral hazard said Daniel Butler managing director operational risk solutions at broker Aon Benfield
There are additional risks for the insurers themselves For example offering insurance to banks classed by regulators as having global systemic importance such as Barclays LON BARC Credit Suisse or JP Morgan could potentially leave insurers themselves facing a similar burden
If you provide operational risk insurance to an institution of systemic importance you become systemically important yourself said one senior insurer in the Lloyd s of London market whose firm did not provide operational risk insurance Because of this only the largest insurers tended to offer such insurance he added
A second Lloyd s market source said many insurers were reluctant to offer cover against operational risk because of the huge bills firms can run up as a result of rogue trading
Societe Generale PA SOGN rogue trader Jerome Kerviel triggered 4 9 billion euros 5 78 billion in losses in 2008
Kweku Adoboli caused 1 4 billion pounds 1 80 billion in losses at his employer UBS in 2011
Those who have offered operational risk insurance have found the insurance profitable however as there have been few claims insurance specialists say
Providers of operational risk insurance include U S firms AIG and XL Catlin and Switzerland s Zurich Insurance
Operational risk insurance can also be of use to other financial firms such as asset managers to cover risks such as dealer error or being accused by investors of violating their mandates said XL Catlin s Deftereos
Policies can take months or even years to develop because they are custom tailored to meet the institution s needs and may also need to be signed off by regulators brokers say
There is no single price for operational risk insurance as there are too many variables to consider and each financial institution is different Deftereos said |
MS | U S consumer spending rises modestly inflation retreats | By Lucia Mutikani WASHINGTON Reuters U S consumer spending rose slightly less than expected in July and annual inflation advanced at its slowest pace in more than 1 1 2 years diminishing expectations of an interest rate increase in December Inflation remains stubbornly low even as the labor market is near full employment a conundrum for the Federal Reserve Other data on Thursday showed a small increase in new applications for unemployment benefits last week amid a tightening job market The consumer continues to do the heavy lifting when it comes to economic growth said Chris Rupkey chief economist at MUFG in New York Inflation is in the slow lane for now and this is likely to make Fed officials cautious on the need to raise rates a third time this year The Commerce Department said consumer spending which accounts for more than two thirds of U S economic activity increased 0 3 percent last month after a 0 2 percent gain in June Economists had forecast consumer spending rising 0 4 percent in July The personal consumption expenditures PCE price index excluding food and energy edged up 0 1 percent in July The so called core PCE price index which is the Fed s preferred inflation measure has now risen by the same margin for three straight months The 12 month increase in the core PCE price index dipped to 1 4 percent the smallest gain since December 2015 The index rose 1 5 percent in the 12 months through June The annual rate has dropped by half a percentage point since February and the PCE price index has undershot the U S central bank s 2 percent target for the past five years The combination of moderate consumer spending and tepid inflation casts doubts on whether the Fed will increase interest rates at its December policy meeting as most economists expect The Fed has raised borrowing costs twice this year It is however expected to announce a plan to start reducing its 4 2 trillion portfolio of Treasury bonds and mortgage backed securities next month We expect core inflation to get worse on a year over year basis before it gets better making it an easy decision for the Fed to skip raising rates at its September meeting and focus on the balance sheet only said Ellen Zentner chief U S economist at Morgan Stanley NYSE MS in New York Financial markets are pricing in a roughly 31 percent probability of a rate increase at the Fed s December meeting down from about 35 percent earlier according to CME Group s FedWatch program U S stocks were trading higher on the diminishing rate hike prospects as were prices of U S Treasuries The dollar was flat against a basket of currencies STRONG LABOR MARKET The consumer spending report still suggested the economy got off to a strong start in the third quarter after gross domestic product increased at a 3 0 percent annualized rate in the April June period the fastest in more than two years Growth in the second quarter was buoyed by robust consumer spending The continuing strength of the labor market should support consumer spending In a separate report on Thursday the Labor Department said initial claims for state unemployment benefits rose by 1 000 to a seasonally adjusted 236 000 for the week ended Aug 26 The four week moving average of claims considered a better measure of labor market trends as it irons out week to week volatility fell by 1 250 to 236 750 last week the lowest reading since May Claims have now been below 300 000 a threshold associated with a robust labor market for 130 consecutive weeks That is the longest such stretch since 1970 when the labor market was smaller In July consumer spending was lifted by a 0 4 percent rebound in personal income after being unchanged in June Consumers also tapped into savings which fell to a seven month low of 510 2 billion from 515 7 billion in the prior month While consumers will continue to drive the economy housing will probably remain a drag A third report from the National Association of Realtors showed contracts to purchase previously owned homes fell in July the fourth drop in five months Housing is being hurt by an acute shortage of properties available for sale The latest figures come at a time when much of the housing data have turned weaker said Daniel Silver an economist at JPMorgan NYSE JPM in New York We will likely see the softness in at least some of the housing data persist over the next month or two
In a fourth report on Thursday the Institute for Supply Management Chicago said its MNI Chicago Business index was unchanged at a reading of 58 9 in August |
MS | Brazil consumers drive recovery as investment lags | By Bruno Federowski SAO PAULO Reuters Brazilian policymakers and economists have for years promised that a surge in corporate investment would lift Latin America s largest economy out of its worst recession Investors are not buying it While consumers are loosening their purse strings Brazilian companies must deal with heavy debt loads and employ idle capacity before they boost investment in new machines or facilities economic data shows Instead the economic recovery has some investors betting that consumer facing firms such as retailers healthcare companies and apparel makers are better positioned to benefit from Brazil s first economic growth in three years outperforming heavy industry That defies expectations that an upswing in capital spending would lay the groundwork for the recovery fueled by President Michel Temer s business friendly reforms as well as sharp interest rate cuts After private investment fell 30 percent since 2013 Finance Minister Henrique Meirelles forecast in June that it would recover faster than consumer spending Economists at Morgan Stanley NYSE MS had also stressed the case for an investment driven recovery while Ita BBA analysts recommended buying stocks in the capital goods sector this year That story is now looking far fetched Marcelo Toledo chief economist at Bradesco Asset Management said households have already turned the corner on cutting debt but companies are only are only a quarter of the way toward cleaning up their balance sheets after the crisis Net debt at 263 listed companies tracked by financial data provider Econom tica has declined 16 percent from a 2015 peak but is still more than double what it was five years ago In contrast household debt as a percentage of income has returned to levels last seen in 2011 central bank data showed Business leaders may also be shelving capital spending plans until after a wide open 2018 presidential race with several populist candidates in the wings As long as companies prioritize deleveraging they will not pursue any new investments he said It will take a long time before investments return to levels needed to fuel growth rates of 3 percent or 4 percent CONSUMERS VS INDUSTRY Some investors are catching on An index tracking retailers and consumer goods companies on the S o Paulo Exchange ICON is up 23 percent this year The median net revenue of those companies rose 6 percent in the second quarter from a year ago the biggest rise in a year and a half according to a Reuters analysis of earnings statements On the other hand the bourse s industrial index INDX rose just 12 percent lagging an 18 percent increase by the benchmark Bovespa stock index BVSP Industrial companies saw net revenue slip 2 percent in the three months through June the fifth straight quarter of decline Alexandre Silv rio who manages 1 9 billion reais of stocks as head of equities at AZ Quest Investimentos Ltda said he is banking on consumer goods and retailers to outperform other sectors in the coming quarters Those are the big winners Silv rio said With demand recovering slowly and debt levels forcing players in several sectors to sell assets many firms are prioritizing mergers and acquisitions over new capital spending as a means to expand Investment has fallen to levels barely enough to maintain capacity Capital spending at companies covered by Fitch Ratings amounted to only 1 1 times depreciation in 2016 compared to 2 2 times four years earlier To cut its huge debt oil company Petr leo Brasileiro SA SA PETR4 has sold assets and cut its five year investment plan the world s largest program of its kind in 2012 at nearly 250 billion to less than 100 billion Steelmaker Usinas Sider rgicas de Minas Gerais SA SA USIM5 is using just 60 percent of its capacity after investing 14 billion reais from 2008 to 2014 in plants that came on line in the middle of Brazil s recession and a global steel crisis Our focus now is what to do to get all our installed capacity working Chief Executive Sergio Leite said last month commenting on capital spending that has fallen to around 250 million reais per year Meanwhile employment and retail sales data have shown an upswing in recent months leading economists to raise forecasts for this year Brazil s GDP is expected to grow 0 4 percent in 2017 according to a central bank survey of economists after shrinking 8 percent over the prior two years |
MS | Euro slips after six months of gains ECB eyed | By Saikat Chatterjee LONDON Reuters The euro fell on Friday after ending its sixth straight month of gains as investors prepared for a European Central Bank meeting next week where policymakers are expected to discuss the impact of the currency s strength With only 15 out of 79 analysts in the latest Reuters poll expecting the ECB to announce a timeline for its withdrawal in bond purchase plans the market expects the currency s strength will invite some comments from officials The ECB is highly unlikely to take any decision on trimming its asset purchases which will be phased out only slowly as the euro s rapid gains against the dollar are worrying a growing number of policymakers three sources familiar with discussions told Reuters The ECB story expressing some concern about the euro strength was to manage market expectations but we think the impact will be temporary as the currency remains a buy on dips story said Christin Tuxen an FX strategist at Danske Bank The single currency slipped 0 25 percent to 1 1881 on Friday It rose for six consecutive months through August briefly touching a 2 1 2 year high above 1 20 this week Morgan Stanley NYSE MS strategists said the euro is expected to remain supported against the dollar as it remains undervalued compared with its peers Elsewhere the dollar DXY stayed in familiar ranges before jobs data later in the session U S consumer spending rose slightly less than expected in July and annual inflation increased at the slowest pace since late 2015 There was also a small rise in new applications for unemployment benefits last week amid a tightening job market Friday s nonfarm payrolls report is expected to show that employers added 180 000 jobs in August according to the median estimate of 93 economists polled by Reuters |
JPM | Technical Pieces May Be Aligning for S P 500 Bottom Near 2 700 | Bloomberg The S P 500 Index s drop to its lowest level in nearly five months could be a sign of better days ahead according to JPMorgan Chase Co NYSE JPM technical strategist Jason Hunter
The break to new correction lows puts the pieces in place for a bottom Hunter wrote in a note We expect any residual weakness to find buying interest below 2 700
The S P 500 tumbled as much as 2 3 percent to 2 691 43 Tuesday its lowest intraday level since May 29 before rallying back to close down 0 6 percent at 2 740 69 Today the gauge fell as low as 2 703 33 before bouncing back again though it was still on track for its sixth straight negative close
Hunter still expects a fourth quarter rally that could reach new cycle highs into early 2019 In that he s joined by Evercore ISI technical analyst Rich Ross who said the setup exists for an inflection higher calling yesterday s move a classic drawdown to support and noting extreme oversold conditions as well as a period of strong seasonality in which stocks tend to go higher
Dennis Gartman publisher of The Gartman Letter also sees the 2 700 level as key for the S P 500 He believes it is support for now though questions whether that can last But he said a bounce back toward the 2 820 2 850 range is reasonable
Piper Jaffray sounded a note of caution focusing on the fact that the benchmark closed yesterday below its 200 day moving average as a major red flag for investors
The technical environment for U S equities remains challenging as recent volatility severely damaged market breadth and momentum Piper Jaffray s Craig Johnson and Adam Turnquist wrote in a note published before the market open today Based on the overall technical evidence we see building risk for further downside and recommend investors proceed with caution In terms of support we are watching the October lows followed by the 2 692 2 700 range and 2 677
JPMorgan is watching the mid 2 700s as possible confirmation on the direction
The S P 500 Index break to a new correction low and test of the 2 674 2 693 support zone triggered bullish momentum divergence signals on the intraday time frames JPMorgan s Hunter wrote A move through 2 755 2 768 resistance would confirm a short term trend reversal and turn our attention to the 2 816 2 826 and 2 865 resistance layers
Updates with today s market levels and commentary from Piper Evercore |
JPM | Soothing words from Fed as rate hits ceiling for first time | By Jonathan Spicer
NEW YORK Reuters Federal Reserve officials have tried this week to ease concerns on Wall Street that bank reserves are growing scarce and that the Fed s key rate will edge up above a policy range possibly forcing it to permanently hold more assets than planned
Thursday marked the third straight day in which the federal funds policy rate traded at its effective ceiling of 2 20 percent Before this week the policy rate had approached but never landed on the rate the Fed pays banks on excess reserves IOER activated in 2015 to keep the policy rate contained
The policy rate has drifted higher in its range throughout the year causing the Fed in June to tweak the IOER lower To provide a buffer it now sits 0 05 percent below the upper end of the overall policy range of 2 00 2 25 percent
The upward drift has renewed a debate over whether the Fed s reduction of its massive bond holdings which started a year ago has made it more expensive for banks to borrow excess reserves to meet regulatory requirements or fund their daily needs Graphic Bank excess reserves held at the Fed
Reserves have fallen more quickly than the Fed s portfolio leading some in the market to believe a scarcity is behind the upward creep in the policy rate and that the portfolio trimming would have to stop soon That in turn could leave the Fed with a more accommodative policy stance overall
If one thought that the drift higher in the funds rate were the result of growing scarcity of reserves in the interbank market then it would signal to the Fed a need to slow or stop pulling reserves out of the banking system via their balance sheet normalization wrote Michael Feroli chief U S economist at JPMorgan NYSE JPM
He added however that there was so far little evidence that reserves are becoming scarce
Central bankers agree
Cleveland Fed President Loretta Mester discussed the issue twice over two days of events in New York telling investors on Thursday that a series of other one off factors was driving the policy rate s upward drift including the supply of fed funds from government sponsored home loan banks
Another downward tweak to the IOER to provide more of a buffer wouldn t bother me she said We can think about that separately from the ultimate size of the balance sheet and longer term operating framework Mester added
Hours later at a conference on Friday at the Bank of France in Paris the Fed official running market operations argued that even if the effective policy rate rose above IOER it would not signal reserves scarcity At any rate it was unrelated to any future decision on how much to shrink the current 4 trillion in bonds on the Fed s balance sheet said Simon Potter executive vice president at the New York Fed
Let me be clear observing the policy rate and other rates above the IOER is not a sufficient condition for reserve scarcity Potter said at the conference
The Fed bought some 3 5 trillion in bonds to spur recovery from recession in the last decade leaving it with a total of 4 5 trillion in overall assets as of October last year
Since then it has shed some 250 billion even as bank reserves have dropped by more than twice that value The Fed has never specified how much it wants to trim its asset holdings |
MS | QE A Complete And Utter Failure | The Fed is now blaming Congress for the failures of its QE policies This is to be expected given that no one in the power elite ever accepts responsibility for their own failures Congressional members blames each other depending on which party they re in the Fed blames Congress the White House blames the GOP and on and on Behind this fa ade of bickering is the total and complete failure of the Fed s policies to generate economic growth OR jobs Regarding 1 the US has not had a single year of 3 GDP growth since Bernanke became Fed Chairman End of story As for QE there is not one single example in history in which QE has successfully created jobs The UK has engaged in QE equal to over 20 of its GDP and hasn t seen a real recovery in employment Similarly Japan has employed QE equal to nearly 25 of its GDP and GDP growth continues to slow while unemployment stays elevated As for the US the Fed has spent roughly 2 trillion in the last year via QE During that time a little over 500 000 jobs were created So the Fed is spending roughly half a MILLION dollars to create each job There s a word for this it s pathetic Actually insane would be a better choice This is what happens when you put Central Planners who have little if any real world experience in charge of an economy You spend millions of dollars to create low paying jobs And the Fed s argument is to keep doing this until unemployment falls The fact that the Fed continues to engage in QE despite its clear failure to create jobs indicates the Fed literally is either totally clueless OR is engaging in QE for other reasons My view it s a bit of both The Fed is largely comprised of academics like Bernanke who have little if any experience in banking interesting that he s in charge of the Central bank since he NEVER worked in a bank in his life or the private sector Indeed even the pro Wall Street crowd at the Fed Dudley and Evans don t see how their policies are crushing the banking sector Citigroup plans to lay off 11 000 JP Morgan is laying off 14 000 Morgan Stanley is laying off 1 600 And yet the Evans and Dudley keep asking for more QE Investors take note the markets are sending multiple signals that things are not going well in the world Companies based on the real economy are dropping hard And it s clear the Fed doesn t know how to get things back on track |
MS | P2P Lending Surpassed 2B In Loan Origination | Since 2006 P2P and online lending have enjoyed explosive growth and America s two largest P2P lenders have now surpassed 2B in loan origination and P2P has captured the attention of industry legends the financial media the investing public and even today s technology giants Lending Club s board is comprised of such recognized leaders as former Visa Inc President Hans Morris the former U S Secretary of the Treasury Lawrence H Summers Morgan Stanley Chairman Emeritus John Mack and Kleiner Perkins Caufield Byers general partner Mary Meeker Prominent venture capitalist firms invested in the sector include Draper Fisher Jurvetson Accel Partners Sequoia Capital Union Square Ventures Foundation Capital Thomvest and Kleiner Perkins Caufield Buyers But the industry reached a new pinnacle last Thursday when Google announced it has led a 125 million deal to buy a stake in Lending Club from existing investors This transaction values Lending Club at 1 55 billion nearly tripling the valuation of its last fund raising round less than a year ago Upon the announcement hitting the wires lendingclub enjoyed well over 5 000 mentions on Twitter compared with 5 10 on a typical day and at its peak averaged 5 7 tweets per minute Google s investment into Lending Club is further evidence of the current sea change that has begun in financial services It signals a decisive moment for the validity of P2P lending the disruption of traditional banking as well as the convergence of finance and information technology I look forward to hearing Lending Club s CEO Renaud Laplanche discuss the implications of the Google investment at next month s LendIt conference the world s first conference dedicated exclusively to the P2P online lending industry stated Peter Renton Founder of Lend Academy and author of The Lending Club Story the definitive guide to the world s leading peer to peer lender Although momentous for the consumer credit sector many have been wondering how P2P s triumphs relate to securities based crowdfunding The fact is because P2P lending is the precursor to securities based crowdfunding its achievements are not only dramatically impacting the emerging crowdfunding industry they are helping shape it Securities based crowdfunding or Peer to Business P2B is simply the next iteration of P2P However instead of peers providing personal loans to its peers securities based crowdfunding will allow peers to invest in the businesses of its fellow peers in exchange for equity or debt By demonstrating that people are more efficient at financing each other through the use of social media than with conventional banking intermediaries P2P has effectively validated the crowdfinance model for the entire industry even compelling the financial establishment to enter the fray In just seven years P2P lending has not only awakened Wall Street and secured funding from many of the same venture capitalists that had the foresight to fund some of the most disruptive industries in history it has attracted the attention and capital from the world s most prominent Internet company While we can all speculate on what interest a search engine would have in social finance one cannot help but view Google s assimilation of P2P as a defining moment for the global financial markets As the next evolution of fintech the union between finance and technology descends rapidly upon us traditional banking methods and financing structures are about to become as obsolete as the phone booth Much like P2P s prominence began escalating after the SEC effected the rules for P2P lending in 2008 upon the implementation of title III of the JOBS Act expect securities crowdfunding to quickly garner similar enthusiasm from the Street the venture community and yes even tech behemoths As P2P continues to mark major milestones it is paving the way for the mainstream adoption of securities based crowdfunding As such P2P s achievements should be carefully observed as well as celebrated by the entire crowdfunding movement Securities based crowdfunding is tomorrow s P2P |
MS | Brent Settles Below 105 On Profit Taking | Brent crude oil rose to its highest in nearly a month on Monday after geopolitical worries overcame demand concerns and lifted crude prices However profit taking pushed the commodity downward to settle at 104 95 at 5 55 GMT on Tuesday morning An Israeli airstrike near Damascus is reported to have killed dozens of Syrian soldiers and heightened fears that the ongoing conflict in Syria could be spreading However Israeli officials downplayed their roll in the conflict claiming the attack was not related to the Syrian civil war Instead Israel claims it was attempting to stop Lebanese Hezbollah militants from obtaining Irainian missiles which could be used against Israel if it makes good on threats to attack Iran s nuclear installations In any case the weekend s events have kept a floor under Brent prices as the threat of supply interruption remains if the conflict spreads The Standard Poor s 500 Index closed at a record high on Monday which also lent support to Brent Many investors saw the positive data as a glimmer of hope that the US could slowly be getting back on track According to Reuters analysts at Morgan Stanley are expecting crude to increase in the second half of 2013 Analysts from the bank released a research note on Monday which forecast Brent prices hitting 110 115 per barrel at the end of 2013 In the near term most see crude falling from its current level if the conflict in Syria doesn t escalate further but the commodity is not likely to break the 100 barrier again BY Laura Brodbeck |
C | Crucial Week Has Citigroup Touting a Bet on Higher Volatility | Bloomberg Citigroup Inc NYSE C is warning that investors should brace for a pick up in turbulence next week which will be packed with global economic data that could make or break the market s thirst for risk
To position for what could be either a hefty bounce in risk appetite or a further darkening of the global economic outlook Citigroup strategist Calvin Tse recommends an options wager on the dollar yen currency pair which has a tendency to move along with global risk sentiment
By owning a one week call on the pair at 111 50 and an equal sized put at 110 at a cost of 32 5 basis points investors can benefit if dollar yen breaks either above or below that range The pair was around 110 77 as of 2 p m Friday in New York
Next week will be crucial for the macro world Citigroup s North American head of Group of 10 foreign exchange strategy wrote in a note to clients Friday With one week dollar yen implied volatility near the lower end of where it has been in the past couple of years a so called strangle position is an attractive way to bet on potential outsize moves in markets according to Tse
In the span of seven days global markets will get updates on how manufacturing is performing in China Germany and the U S as well as readings on American jobs and retail sales Friday s U S employment report will be especially watched given last month s surprisingly soft print Tse wrote in a note to clients Next week also marks the start of the new fiscal year in Japan which should also bring volatility as new capital is put to work he said
Dollar yen volatility isn t currently reflecting hurdles on the horizon and they will will drive the near term risk outlook according to Tse |
C | Online lender CommonBond expands to target medical and dental students | By Anna Irrera
NEW YORK Reuters Online student lender CommonBond on Monday started offering loans designed explicitly for medical and dental students as the startup expands its suite of discipline specific loans
The new service aims to offer a more affordable alternative to would be doctors and dentists than what they typically access through the U S government Peter Wylie vice president of in school lending at CommonBond said in an interview
Students will be able borrow up to the cost of attendance each year with no co signer required at fixed and variable interest rates ranging between 5 56 percent and 7 06 percent according to the company s website The federal government s Direct PLUS Loan has a fixed interest rate of 7 6 percent
New York based CommonBond which also offers student loan refinancing is one of several startups looking to upend the traditional lending market by using technology to lower costs and offer services that are less expensive and easier to use
Other well known online student lenders include SoFi and Prodigy Finance
Founded in 2012 CommonBond has issued more than 2 5 billion in loans so far and raised 130 million in equity funding from investors including Fifth Third Bank and Neuberger Berman Backers also include former Citigroup Inc NYSE C Chief Executive Vikram Pandit
The medical and dental loans which have durations of 10 15 or 20 years come after the launch of the startup s loans specifically for MBA students Wylie said
As with other online lenders CommonBond sells the loans to institutions such as banks but remains the first point of contact for borrowers
Earlier this year the startup laid off around 18 percent of its staff or 22 people citing a plan to shift investment into new areas such as growing its in school business |
JPM | Why These Commodity ETFs Are On A Tear | It seems that commodities are back with a bang especially the industrial metals Metals are riding high on favorable demand supply dynamics and a subdued greenback Powershares DB US Dollar Index Bullish Fund is off about 8 6 so far this year and has lost about 2 in one year as of Oct 20 2017 Since most commodities are priced in the greenback a dip in the U S dollar bodes well for metal investing see here
Plus an uptick in global growth has added to the metal strength Be it developed economies or the developing ones all are exhibiting harmonized growth as DoubleLine Capital s deputy CIO He believes that we haven t witnessed this coordinated growth since 04 05 and 06
Industrial metals which have long been in stagnation are now getting the love of hedge funds too Reduction in output has finally adjusted excess supplies leading to higher prices for industrial metals PowerShares DB Base Metals ETF is up 21 4 so far this year read
After all readings in several big economies manufacturing activities have come in favorable in recent times giving cues of strength in global superpowers which should catapult in Q4 This area had long been an issue since global growth worries translated into softer demand However the weakness is dispersing now Most of the PMI readings came in higher than 50 pointing to an expansion in activity read
DoubleLine Capital s deputy CIO also likes the commodity because of its diversification benefits from the stock or bond market
ETFs to Profit
Below we highlight a few winning metals and their related ETF investments that could shower gains on investors in the coming days
ETFS Physical Palladium NYSE PALL Up 42 8
The precious metal ETF Palladium is the best performing industrial metal this year Rising deficit and demand from the automotive industry is driving the rally Palladium using petrol fueled cars are the primary type sold in the two largest markets of China and the US as per So increased usage of is contributing to the recent rise in palladium price
This fund seeks to match the spot price of palladium net of fees and expenses The ETF owns palladium bullion in plate or ingots kept in Zurich or London under the custody of JPMorgan Chase NYSE JPM Bank The fund has an expense ratio of 0 60 see
iPath Bloomberg Copper SubTR ETN Up 25 9
Copper prices are on a tear right now on renewed optimism about the health of the Chinese economy China s economic growth eased to 6 8 in the third quarter from 6 9 in the second quarter read
However it is on its way to surpass the as per analysts Plus China s central bank governor expects the economy to expand of this year gaining momentum from the first half China matters the most for copper as the country is the world s biggest consumer of this industrial metal
The copper ETN tracks the Bloomberg Copper Subindex Total Return which seeks to deliver returns through an unleveraged investment in the futures contracts on copper The product charges investors 75 bps a year in fees read
iPath Bloomberg Aluminum SubTR ETN Up 24 1
Aluminum prices are on a tear this year thanks to China s efforts of lowering illegal or polluting capacity to curb overcapacity and heavy cuts in production over the winter months to ease choking pollution led to a surge in Aluminum prices as per the source The product follows the Bloomberg Aluminum Subindex Total Return which delivers returns through an unleveraged investment in the futures contracts on aluminum Expense ratio comes in at 0 75 read
Bottom Line
While demand supply dynamics may favor these products investors should note that hawkish Fed policies can deter the rising momentum of metal and mining ETFs
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Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing ETFs each week |
JPM | 3 Zacks Rank 1 JP Morgan Mutual Funds For Striking Returns | JPMorgan NYSE JPM is a well known financial management company in the world The company pioneered innovative inflation protected municipal products Its primary principle is to understand the needs of its clients and advice the best investment solutions for surplus returns It has a legacy of investment management since 1865 Also JPMorgan is the eighth largest mutual fund firm in the United States and prides itself as the nation s leader in equity fund flows JPMorgan offers managed accounts and retirement products Below we share with you three top ranked JPMorgan mutual funds Each has earned a Strong Buy and is expected to outperform its peers in the future Investors can JPMorgan Dynamic Small Cap Growth Fund A seeks long term growth of capital VSCOX invests the lion s share of its assets in equity securities of primarily small cap companies The fund normally invests in those companies that have a Russell 2000 Growth Index and market cap of under 4 billion JPMorgan Dynamic Small Cap Growth Fund A has three year annualized returns of about 16 As of August 2017 VSCOX held 119 issues with 1 94 of its assets invested in Kite Pharma Inc JPMorgan Dynamic Growth R5 seeks appreciation of capital in the long run DGFRX invests a bulk of its assets in equity securities of those large cap companies that are included on the Russell 1000 Growth Index The fund not only invests in both U S but also in non U S companies JPMorgan Dynamic Growth R5 has three year annualized returns of 15 6 DGFRX has an expense ratio of 0 71 compared with the category average of 1 12 JPMorgan Intrepid GrowthFund A seeks to offer growth of capital in the long run JIGAX invests primarily in a broad portfolio of equity securities of large and mid capitalization companies that have attractive valuations JPMorgan Intrepid Growth Fund A has three year annualized returns of 14 1 Jason Alonzo has been one of the fund managers of JIGAX since 2005 To view the Zacks Rank and past performance of all JPMorgan mutual funds investors can Want key mutual fund info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing mutual funds each week |
MS | Fiat Chrysler rallies on Maserati spinoff hopes | Jefferies raises targets on Fiat Chrysler Automobiles NYSE FCAU with the automaker now seen as in play
The firm notes that a top priority of Fiat shareholder Exor is to exit the volume auto business The analyst team also teases the prospect of Maserati or Alfa Romeo going independent
The European based price target on Fiat from Jefferies goes to 16 from 14
Morgan Stanley NYSE MS has similar thoughts on Fiat setting free Maserati and Alfa Romeo in an IPO spinoff scenario as it boosts the automaker stock to Overweight with a price target of 15
Source Bloomberg
Fiat 0 35 to 11 51 In the U S shares are up 2 23 premarket to 13 77
Now read |
MS | Snap 2 6 as Cantor sees share gains MS cuts target | After a market open tug of war Snap NYSE SNAP is up 2 6 alongside a bullish update from Cantor Fitzgerald and a price target cut from Morgan Stanley NYSE MS
Cantor reiterated its Overweight rating and 15 price target noting that it sees the social media camera company gaining share among younger consumers and predicting more engagement with the rapid rise of its shows
Video could mean another incremental tailwind for ARPU in the coming 12 months says analyst Kip Paulson h t Bloomberg
Morgan Stanley meanwhile has cut its price target to 14 from 16 now implying 6 downside and trimmed its ad revenue estimates by 8 for 2018 and by 9 for 2019
The ad business is taking longer to scale says analyst Brian Nowak who has an Equal Weight rating the core ad product still lacks performance measurability and ROI
We re six days from the company s next IPO lockup expiration
Now read |
MS | Frankfurt hopes to become little London after Brexit | By John O Donnell FRANKFURT Reuters Frankfurt could become a miniature version of London after Brexit a city official has predicted after a study said tens of thousands of jobs would be created bolstering Germany s banking capital The research commissioned by the city s chief promoter is the first comprehensive tally on possible job creation in Frankfurt as London its dominant British rival prepares for life outside the EU The analysis predicts there will 10 000 bankers and finance professionals in Frankfurt within four years and that their arrival could create more than 41 000 further jobs from estate agents to taxi drivers and building workers It s not the City of London but perhaps it can become a little London said Oliver Schwebel chief executive of Frankfurt Economic Development the state agency that promotes the city known for skyscrapers that house Deutsche Bank DE DBKGn and others Britain s departure from the EU has prompted banks and investors in London to examine other cities to keep a foothold in the bloc allowing them to sell across the continent without additional costs or trade hurdles after Brexit Frankfurt and Dublin have emerged as the most popular centers and the Germany city s international schools have seen a deluge of calls as bankers anticipate a move Morgan Stanley N MS Citigroup N C and JPMorgan N JPM say Frankfurt will be their EU trading base after Brexit AMBITION TO GROW But some remain skeptical of the German city whose culinary attractions include local ciders and sausages but where night life is subdued and cafes remain largely empty during the working week A common local joke is that the best thing about the city is its airport which makes it easy to leave The study commissioned by city promoter Frankfurt Main Finance comes as Frankfurt attempts to discard its small town image It is also an attempt to persuade skeptical locals of the economic benefits in welcoming London bankers Many residents are worried about being squeezed out of an already expensive property market in a city some have dubbed Bankfurt At a press conference to outline the findings Schwebel was forced to defend the city s record on providing affordable accommodation to locals The city s population has jumped by more than 10 percent since 2010 while a property boom across Germany has seen house prices and rents in cities such as Frankfurt rise sharply Although it remains small by international standards with roughly 730 000 inhabitants the supply of property is tight partly because the city wants to keep its large green belt of forests and parks Schwebel faced a series of critical questions from German journalists about whether attracting such high earners from London was desirable in what turned into an at times noisy debate They local residents won t be pushed out he said Lutz Johanning the author of the study said Frankfurt was more likely in any event to attract risk and regulatory experts rather than investment bankers The city is already home to the European Central Bank which monitors lenders
Frankfurt won t have the glitter jobs Johanning said |
JPM | Global banks curb China travel after UBS banker stopped from leaving | By Sumeet Chatterjee and Clare Jim HONG KONG Reuters Global banks including Citigroup NYSE C and Standard Chartered LON STAN have asked their private banking staff to postpone or reconsider travel to China after authorities there prevented a UBS banker from leaving the country sources said BNP Paribas PA BNPP and JPMorgan NYSE JPM have also asked their private banking employees to reconsider their China travel plans after the authorities action against the UBS banker two people familiar with the matter said Swiss private bank Julius Baer which manages assets worth 390 billion globally has asked staff to be cautious about China travel plans a separate person familiar with the matter told Reuters The Singapore based UBS banker who is a client relationship manager in the Swiss bank s wealth management unit still has her passport but was last week asked to delay her departure from Beijing and remain in China to meet with local authority officials this week Her identity was not known The purpose of the meeting with Chinese authorities is not clear UBS has declined to comment on the matter However the uncertainty has led the Swiss bank and now several of its rivals to require their private banking staff carefully consider trips to China the sources said Their caution highlights the risks involved for global private banks in pursuing what is arguably the biggest opportunity worldwide in the wealth management business China is the biggest growth driver of the wealth industry in Asia with its large and growing pool of millionaires and billionaires spawned by the country s booming technology sector making it a key battleground for global private banks But its financial sector is under sharp scrutiny as Beijing attempts to lower high debt levels in the economy and curb an outflow of capital from the country to shore up the yuan meaning there is very little room for error by industry players BNP Citi JPMorgan Standard Chartered and Julius Baer declined to comment All the sources declined to be named due to the sensitivity of the issue FREQUENT TRAVEL UBS is unusual in having an onshore wealth management business in China as well as its offshore operations but almost all other banks advise wealthy Chinese individuals from offshore locations mainly in Hong Kong and Singapore Most offshore wealth managers travel frequently to China for informal meetings with clients but they are not allowed to either solicit onshore business or market widely offshore investments to onshore clients Citi asked staff in its Asia Pacific private banking team via a brief email on Sunday to postpone all China travel a source with direct knowledge of the matter told Reuters JPMorgan has informally advised its private banking managers to review their upcoming China travel plans three people said Bank of Singapore the private banking arm of Singapore s OCBC Bank has told staff they can continue with their ongoing China trips but should be cautious in future travel to the mainland according to people with knowledge of the matter A Bank of Singapore spokesman declined to comment UBS is the largest wealth manager operating in Asia with 383 billion of assets under management according to Asian Private Banker magazine ahead of Citi Credit Suisse SIX CSGN HSBC and Julius Baer Credit Suisse has not imposed any travel ban on its private bankers on China travel a spokeswoman said
The number of high net worth individuals those with at least 1 million to invest rose by 12 percent last year in Asia Pacific exceeding growth rates anywhere else in the world according to consultant CapGemini |
JPM | Accenture Tech Now Connects Corda Fabric DA and Quorum Blockchains | Enterprise blockchain customers might not need to worry any longer about having picked the wrong platform to build on thanks to a new interoperability solution being unveiled by Accenture
Revealed at the annual Sibos conference on Monday the consulting giant has created an interoperability node which it says can house the business logic of different blockchains in other words the rules which allow them to perform various tasks
According to Accenture the interoperability node can connect the four major enterprise platforms Hyperledger Fabric R3 s Corda Quorum developed by global bank JPMorgan Chase NYSE JPM and Digital Asset DA |
JPM | Saudi sees deals worth billions at summit despite boycotts | By Andrew Torchia and Marwa Rashad RIYADH Reuters Saudi Arabia brushed off an outcry over the killing of journalist Jamal Khashoggi and went ahead on Tuesday with an investment conference boycotted by Western political figures leading international bankers and company executives Speaking at the opening session prominent Saudi businesswoman Lubna Olayan said the killing of the Washington Post columnist was alien to our culture and voiced confidence that the kingdom will emerge stronger Saudi Arabia the world s largest oil exporter is expected to sign deals worth more than 50 billion in the oil gas industries and infrastructure sectors on the opening day with companies including Trafigura Total Hyundai Norinco Schlumberger Halliburton NYSE HAL and Baker Hughes Hundreds of bankers and company executives joined officials at a palatial Riyadh hotel for the Future Investment Initiative an annual event designed to help attract billions of dollars of foreign capital as part of reforms to end Saudi dependence on oil exports But while last year s inaugural conference drew the global business elite this year s event has been marred by the pullout of more than two dozen high level speakers following an international outcry over Khashoggi s killing Many foreign investors see a risk that the Khashoggi case which drew global condemnation could damage Riyadh s ties with Western governments Saudi Arabia s stock index was down 1 6 percent in early trading on Tuesday But it later recovered most of the losses Khashoggi a critic of Saudi Arabia s crown prince disappeared after he entered the Saudi consulate in Istanbul on Oct 2 to obtain documents for his upcoming marriage After two weeks denying any involvement in his disappearance Riyadh on Saturday said Khashoggi died during a fight in the consulate Later a Saudi official attributed the death to a chokehold U S Treasury Secretary Steven Mnuchin and senior ministers from Britain and France pulled out of the event along with chief executives or chairmen of about a dozen big financial firms such as JP Morgan Chase NYSE JPM and HSBC and International Monetary Fund chief Christine Lagarde The managing director of the kingdom s sovereign wealth fund the main backer of the event said Saudi Arabia was becoming more transparent and that the Saudi Public Investment Fund continued to develop new industries under economic reforms launched by Crown Prince Mohammed bin Salman IMPORTANT FOR THE WORLD Yasir al Rumayyan said the fund has invested in 50 or 60 firms via SoftBank Group s T 9984 Vision Fund and would bring most of those businesses to the kingdom PIF has made substantial commitments to technology companies or investments including a 45 billion deal to invest in Vision Fund Many Western banks and other companies fearful of losing business such as fees from arranging deals for Saudi Arabia s 250 billion sovereign wealth fund sent lower level executives even as their top people stayed away Others are still sending strong representation Total Chief Executive Patrick Pouyann said on Monday he would attend Russia is sending a large delegation led by Direct Investment Fund head Kirill Dmitriev Dmitriev said Saudi Arabia s economic diversification drive was important for the world and that Russian companies mainly oil and petrochemcial firms want to enter the Saudi market Saudi Arabia is a great partner for us not just a partner in investments or oil we believe modernization and transformation in Saudi Arabia is truly historic Top executives of Asian companies were hesitant to pull out so the participation of Chinese and Japanese institutions may keep the three day conference which has no connection to the World Economic Forum s annual meeting in Davos Switzerland busy enough for Riyadh to claim it as a success For these reasons the Western boycott may have little long term impact on Saudi economic prospects Foreigners sold a net 4 01 billion riyals 1 07 billion of Saudi equities last week by far the biggest pull out of overseas money since the stock market opened to direct foreign investment in mid 2015 The event is being held at the Ritz Carlton hotel in Riyadh where scores of princes businessmen and officials were detained in a crackdown on corruption just days after last year s conference ended
Authorities said the crackdown extracted over 100 billion from suspects in financial settlements But that figure has not been verified and details of the alleged crimes were never made public fuelling investors concern about legal transparency |
JPM | A new ultra safe kind of bank may emerge but the Fed s not interested Bloomberg | James McAndrews a former co director of research at the New York Fed wants to start a new kind of bank an ultra safe private bank whose only purpose is to park institutional investors cash at the Federal Reserve Bloomberg reports Apparently the Fed won t let him open an account So his bank TNB USA it stands for the narrow bank is suing the Fed to let it open an account that earns a higher interest rate than most which would then be passed on to its depositors At this point only a relatively small group of commercial banks with master accounts at the New York Fed can earn what s called the interest on excess reserves rate or IOER from the government on their deposits Several others have access to the Fed s lower paying overnight reverse repurchase agreement facility If these new narrow banks emerge then the deposits that TNB attract would likely be pulled from banks that can t offer a competitive rate or from some money market fund options according to Alex Roever head of U S rates strategy at JPMorgan Chase NYSE JPM If McAndrews succeeds it could make waves across the financial system exerting pressure on short term funding markets and possibly on repurchase agreements and Treasury bills Previously Banks see customers pull billions from accounts that don t pay interest WSJ Oct 22 ETFs MINT NEAR RAVI FTSM ICSH HOLD ULST FTSD FMHI ISHG BWZNow read |
JPM | JPMorgan Sees Technical Pieces in Place for a Bottom on S P 500 | Bloomberg The S P 500 Index s drop Tuesday to its lowest level in nearly five months could be a sign of better days ahead according to JPMorgan Chase Co NYSE JPM technical strategist Jason Hunter
The break to new correction lows puts the pieces in place for a bottom Hunter wrote in a note We expect any residual weakness to find buying interest below 2 700
The S P 500 tumbled as much as 2 3 percent to 2 691 43 yesterday its lowest intraday level since May 29 before rallying back to close down 0 6 percent at 2 740 69
Hunter still expects a fourth quarter rally that could reach new cycle highs into early 2019
Dennis Gartman publisher of The Gartman Letter also sees the 2 700 level as key for the S P 500 He believes it is support for now though questions whether that can last But he thinks a bounce back toward the 2 820 2 850 range is reasonable
The S P 500 Index break to a new correction low and test of the 2 674 2 693 support zone triggered bullish momentum divergence signals on the intraday time frames JPMorgan s Hunter wrote A move through 2 755 2 768 resistance would confirm a short term trend reversal and turn our attention to the 2 816 2 826 and 2 865 resistance layers |
MS | Volatility Reflects Bearish Mood | Wall Street continued on Frida yafter disappointing forecasts by eBay and other heavy weight U S companies Present quarterly results raise increased doubt on the market s recent strength eBay dropped 5 9 and Apple shares extended their slide from Wednesday breaking the USD 400 level The S P technology index fell 1 4 after two sharp declines earlier in the week The volatility index Wall Street s fear index gained 6 4 as a reflex of increased market nervousness Other decliners included Morgan Stanley The flagship bank fell 5 4 adding to the bearish mood As global policymakers started their G20 meetings in Washington concern about currency fluctuations and volatility increased Key central banks are printing money and pumping new liquidity into markets This tends to create more speculative bubbles than working places The yen JPY fell broadly Friday morning after the Japanese FM stated that the BOJ s aggressive monetary stimulus is aimed at defeating deflation The USD JPY is trading at 98 53 with the dollar raising 0 4 As the G20 meeting ends there are deep worries that a currency war could easily develop The U S put Japan on noticeIn its semi annual report on currency practices Japan s economic policies are watched closely to ensure that it is not aiming at devaluing the yen to gain competitive advantage Competitors in South East Asia such as South Korea are especially concerned A rapid raise in the dollar versus yen at these level however seems unlikely The USD JPY has already depreciated 20 since last November A strong short term gain in the USD JPY might however occur after the G20 meeting concludes The G20 is expected to confirm February s pledge to avoid competitive currency devaluations The EUR USD recovered to 1 3068 after a sharp drop on Thursday In a meeting on Thursday the EU agreed to move ahead with a system of winding down banks without changing the EU law This would give the EU bank resolution mechanism a stronger legal basis This resolution comes after a stormy debate in the European Parliament where both the EU Commission and the European Central Bank came under heavy fire for their handling of the Cyprus banking crisis In an interview Olli Rehn EU Commissioner for Economic and Monetary affairs stated that changes to EU treaties are more of a long term goal than a condition for a banking union to operate The recent plunge in gold prices have led to a rally in India and China to buy gold and silver coins and products Retail buyers see the steep fall in prices as a buying opportunity Gold trades at USD 1 398 up from a bottom level on 1 322 earlier in the week Silver has rebounded from USD 22 76 to 23 46 It is too early to say whether we are witnessing a more firm upward trend Increasing prices will be seen as a natural technical correction |
MS | The Law Of Unintended Consequences | Gold has worked down from Alexander s time When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory Bernard M Baruch Something most unusual happened yesterday in the aftermath of the one of the most brutal one day price drops in gold that I ve ever witnessed a paper futures driven sell off mind you U S retail buyers bought 63 500 ozs of gold American eagles from the U S mint This is by far a one day record This is nearly 2 tonnes of gold purchased in one day by retail buyers A staggering amount That s 20 of the amount the falsely reported gold sale from the Cyprus Central Bank What s most stunning about this is that historically gold silver buyers have scattered like frightened deer when gold undergoes a big price drop But this time was different While the widely reported price drop in gold has made great media shock and awe headlines quietly the nationwide coin dealer supply of 1 oz silver eagles and maple leafs has been rapidly depleted Dealers two weeks ago were selling silver eagles for spot 2 50 Yesterday I spoke with a very large owner of silver eagle mint boxes 500 ozs box who was offered bid spot 3 75 by two large coin dealers for everything he owned In fact if you can find dealers with silver eagles to offer you ll pay spot 7 50 8 50 plus shipping So in fact despite the big sell off in the price silver again driven by the paper futures Comex the true price of 1 oz of real physical silver that gets delivered to your possession has not declined at all large buyers might be able to find silver eagles in quantity at more like spot 4 50 5 00 If you see offers from your bank or insurance company employed financial advisor to invest in an account that has gold silver in it run the other way ABN Amro the large Dutch bank recently defaulted on investors who invested in a gold account and who wanted delivery of that gold If you had invested in that account and called to have the account liquidated and the gold sent to you you got a letter back with a check in it This is exactly what gold market professionals have been warning about for years Coming soon to a fractional paper precious metals account near you And don t think that can t happen in this country like many Americans are delusionally wont to believe But it already has Morgan Stanley settled a big lawsuit several years ago because it defaulted on a silver investment account product When enough investors went to redeem their account and have the silver delivered Morgan Stanley didn t have the silver The account was a Ponzi scheme The lawsuit filed in August 2005 alleged that Morgan Stanley had told clients it was selling them precious metals that they would own in full and that the company would store But Morgan Stanley was actually making either no investment specifically on behalf of those clients or making an entirely different investment of lesser value and security according to the complaint The unintended consequence of all this banking system and corporate fraud that is going unprosecuted by the Obama Administration contrary to what he promised to do in 2008 when he was campaigning is that a larger cross section of the American public are starting to catch on to the game being played by the banking and political elite Yesterday s gold sales by the mint is proof A paper currency that has no wealth backing in the form of real substantiated economic growth or stored wealth created in the form of gold and silver see Bernard Baruch s quote above is illegitimate Any Government that issues and prints such a currency is illegitimate The U S Government is illegitimate and the massive and growing amount of unpayable Treasury debt and unpayable future liabilities is the proof That more Americans are understanding the necessity of converting illegitimate paper dollars into physical gold and silver especially when given the gift of a big price correction is the unintended consequence of the past week s attempt to discredit the legitimacy of gold and silver by the banking political elite |
MS | Italian Politics And Downbeat Eanings | Italian presidential vote still inconclusive third round of voting begins today Growth worries persist as soft data and downbeat earnings weigh on sentiment Markets OvernightItalian Presidential Vote Still InconclusiveHopes of breaking the deadlock in Italian politics were dealt a blow yesterday as the first two rounds of voting failed to elect a new president Shortly before the election Mr Bersani leader of the Democratic party had struck a deal with the centre right coalition led by Berlusconi to back Franco Marini as candidate However in the first round of elections several democrats voted against him and he failed to secure the two third majority required to be elected As a by product this created further divisions within the Democratic party and raised doubts over Bersani s continued leadership The second round of elections also failed to yield a result and voting continues today see Focus today and Financial Times for further information Growth Worries PersistThe latest round of U S economic data released yesterday was unable to ease concerns that a soft spot is materialising Initial jobless claims rose slightly while the Philly Fed survey and leading indicators dropped Overall however the readings were not too surprising mirroring the softness seen lately in other indicators That said although the decline in commodity prices and robust fundamentals should imply that the US slowdown is only temporary the data add to worries in a week where markets have also received downbeat data from Germany ZEW and China Q1 GDP Stock Markets Stay Volatile As Risk Appetite Retreats AgainVolatility has dominated this week as earnings reports and economic data have set the direction on stock markets interchangeably This is mirrored in the VIX index representing the expected volatility of the S P500 index spiking 6pp over the week Yesterday risk aversion gained the upper hand as soft U S data coupled with downbeat results from Morgan Stanley set the course U S Treasuries Gain Well Received EU Bond AuctionsU S Treasuries extended their gains with small decline in yields in the 10yr segment being underpinned by relatively soft comments from Fed s Kocherlakota and Lacker In Europe Ireland and Spain tightened versus Germany despite the fragile overall market sentiment on the back of strong auctions In Ireland the NTMA issued three month bonds in its fourth show of market access this year see Irish Times and Spain beat the upper target in yesterday s issuance of 10 year maturities see Bloomberg France was also able to secure record low funding possibly supported by anticipation of Japanese buying flows see Wall Street Journal The market reaction to the Italian presidential vote was limited as Italy widened some 9bp in the 10 year segment during the afternoon Yen Trades LowerDespite soft sentiment the yen extended its decline versus both EUR and USD yesterday as comments from the G20 meeting in Washington suggest that members will withhold direct criticism of Japan s aggressive monetary easing To Read the Entire Report Please Click on the pdf File Below |
C | British police end inquiry into witness in Libor trials | LONDON Reuters London police are ending a review of complaints about an expert witness used by prosecutors in four high profile trials over the manipulation of interest rates saying there was insufficient evidence an offence had been committed
After a near two year review into testimony given during London trials of bankers accused of rigging Libor benchmark interest rates the Metropolitan Police said on Tuesday it had sought legal guidance and had now completed its assessment
In 2017 the Metropolitan Police Service received complaints regarding witness testimony it said These complaints were assessed to establish whether any criminal offences had been committed It was determined there was insufficient evidence to suggest that any criminal offences had been committed
Tom Hayes a former UBS and Citigroup NYSE C trader and the first to be convicted by jury of Libor offences in 2015 and two other former traders sent reports to the Metropolitan Police in 2017
We re very disappointed by the decision and we proposed to explore making further representation said Karen Todner Hayes s lawyer in London |
C | GF Securities Says One of Its Hedge Funds Lost 139 Million | Bloomberg GF Securities Co said one of its hedge funds wiped out an amount equivalent to more than 10 percent of its profit for all of 2017 after suffering significant losses due to fluctuations in the foreign exchange market
The GTEC Pandion Multi Strategy Fund SP lost 139 million in 2018 and its net value was negative 44 million at the end of December according to a Hong Kong exchange filing Wednesday The loss reduced GF Securities net income by 919 million yuan 137 million equal to more than 10 percent of the brokerage s profit the year prior the statement said
The debacle has impacted Citigroup Inc NYSE C which faces losses of as much as 180 million on loans made to a hedge fund managed by a unit of GF Holdings Hong Kong Corp a person briefed on the matter said in December That s prompted board level discussions and a business shakeup at the New York based bank
READ MORE Citigroup Said to Face 180 Million Loss on Asia Fund Loan
The Pandion Fund established in 2016 invested mainly in on market equity derivatives and has gradually expanded to buy interest rate products foreign exchange derivatives and foreign exchange volatility variance swaps GF s Hong Kong units may face potential litigation according to Wednesday s statement
The China Securities Regulatory Commission s Guangdong bureau has requested GF Securities enhance its internal controls strengthen its investment in information systems and personnel and improve risk management of overseas units according to a separate filing Wednesday
To contact Bloomberg News staff for this story Jun Luo in Shanghai at jluo6 bloomberg net Bei Hu in Hong Kong at bhu5 bloomberg net
To contact the editors responsible for this story Sam Mamudi at smamudi bloomberg net Katrina Nicholas Paul Panckhurst
2019 Bloomberg L P |
C | Recession Risks Creep Beyond Yield Curve Into U S Economic Data | Bloomberg As the bond market s yield curve flashes warning signs of a U S recession some key economic indicators are offering more conflicting signals about the outlook
Recent government and private data show weakness from housing to retail sales and consumer sentiment prompting a more dovish tone from the Federal Reserve and pushing rates traders to price in a good chance of an interest rate cut this year The more downbeat signs also have economists cutting estimates of fourth quarter gross domestic product and projecting a weaker start to this year
At the same time as data wrinkles are ironed out after a partial government shutdown delayed reports a healthy American labor market with rising wages is propelling the economy toward the longest expansion on record
Market Signs
Compared with the mixed signals in the data the market looks more conclusive A closely watched segment of the U S yield curve the gap between three month and 10 year rates inverted last week for the first time since 2007 In the lead up to the economic downturn that began in December 2007 this part of the curve initially dipped below zero just under two years before the recession started
Strategists at Citigroup Inc NYSE C prefer to track the spread between the three month Treasury bill rate and five year five year forward rates which has narrowed to about 26 basis points That has lifted the probability of a recession occurring in the next year to a range of 37 percent to 45 percent Citigroup strategist Ruslan Bikbov wrote in a March 22 note
Money market traders see the economy turning so sour that the Fed will actually cut rates this year Federal funds futures contracts are pricing in almost a full 25 basis point Fed rate reduction
State of Business
Chief executives at the country s largest companies were less optimistic for a fourth straight quarter highlighting the broader trend among corporations After the initial boost to earnings and some investment that tax cuts provided last year the effects are expected to weaken in 2019 In addition the trade war with China and tariffs have increased the price of goods and curbed demand for U S exports with no end in sight
Peak Factory
Manufacturers are bearing the brunt of the global slowdown with three regional Fed surveys showing weakness in new orders this month A strong dollar is also holding back demand for American goods With labor costs rising factories in February added the fewest jobs since 2017 A national gauge of factory expansion recently hit a two year low
Still orders for business equipment rose by the most in six months at the start of the year boding well for production in the near term
Consumer Slump
Consumers drive most of the American economy so their state of mind matters Lately some confidence measures are tapering off The Conference Board s index dipped for the fourth time in five months and missed all analyst estimates in March led by dimmer views of present economic conditions
But there s how consumers feel and there s what they actually do Retail sales that had stumbled in December bounced back in January but the most recent report also showed that the prior month s drop was bigger than initially reported It s an indication that consumers are on more even footing in the first quarter but could be more concerned about the economy than the data are showing so far
We expect solid consumption growth to outweigh a slowdown in business fixed investment and export growth but persistent sharp declines in confidence and labor market perceptions would clearly reduce the likelihood of this outcome economists at Berenberg Capital Markets said Tuesday in a note to clients
Housing Woes
One reflection of consumers changing appetites is showing up in residential real estate While existing home sales which comprise 90 percent of the market rebounded by the most since 2015 in February and homebuilder sentiment has been on the upswing virtually all other data are cooling New home sales declined in January starts in February faded by the most since June and a gauge of prices in 20 major U S cities advanced by the least in six years
New York Fed President John Williams NYSE WMB said earlier this month that he s seen a sustained construction slowdown in part reflecting constrained financial conditions At the same time economists including Blerina Uruci at Barclays LON BARC Plc say that rising wages a dip in mortgage rates and some recent easing of home prices should help counter any affordability concerns that might be weighing on the market
Labor Light
The job market currently a pillar of strength with sustained wage growth and a rising prime age participation rate may provide a counterweight to any signs of a recession The market has shown some cracks recently as companies struggle to find employees and some put off investment amid economic uncertainty But payroll gains have averaged about 215 000 per month in the past five years as employers draw in workers from the sidelines
That strength is keeping economists and investors alike careful when talking about any recession risk
There may at some point be a recession but it doesn t seem like it is imminent said Thomas Wacker head of credit in the chief investment office of UBS Global Wealth Management |
C | Bond Trading Is Only for the Brave in This Shock Rally | Bloomberg Opinion It s bad enough writing about another steep plunge in bond yields across the globe and prognosticating about the market s next move It s almost certainly worse to be putting money on the line
Just some things to consider The benchmark 10 year Treasury yield fell to as low as 2 35 percent a level unseen since 2017 from 2 62 percent just a week ago Yields on two year notes which drew strong demand at a 40 billion auction on Tuesday reached 2 16 percent as more than one full rate cut from the Federal Reserve is priced in by the end of the year Elsewhere Germany sold 10 year bunds with a negative yield for the first time since 2016 while New Zealand 10 year yields tumbled by 11 basis points after its central bank said its next move is more likely to be a cut
If you believe that the world economy is on the verge of a significant slowdown then sure the trading decision is easy Load up on haven assets like Treasuries and bunds even if yields are the lowest in years There is certainly enough data to justify such concerns from the big slump in Germany s purchasing managers index last week to weakening confidence among U S consumers and chief executives Broadly Citigroup Inc NYSE C s global economic surprise index fell earlier this month to the lowest level since 2013 and it has barely rebounded
Investors may also be reverting to their playbook of not fighting the central banks dovish turn After all the alternative is wading through a mess of headlines Who wants to handicap the odds of various Brexit scenarios Or grapple with Turkey engineering a currency crunch Or wondering whether Stephen Moore whom Donald Trump is expected to nominate for a Fed seat is serious when he says the central bank should immediately lower interest rates by 50 basis points
At the same time it s hard to shake the feeling that a lot of what s happening is a rapid repricing that s more technical in nature Case in point A Bloomberg News article titled Here s Why U S Bond Yields Plunged So Much Over the Past Week You won t find the words recession slowdown or growth anywhere Instead this is the key takeaway
The Federal Reserve s surprise policy shift last week shook markets but even still the intensity of the ensuing drop in U S bond yields has puzzled many observers A massive wave of hedging in the swaps market helps explain the scale of the eye catching move
Treasuries rallied after the Fed signaled it was done raising interest rates for the moment driving yields on 10 year notes down to levels last seen in 2017 That forced two sets of traders those who had bought mortgage bonds and those who had bet markets would remain calm to turn to derivatives markets to tweak their portfolios or stanch their losses They snapped up positions in interest rate swaps pushing Treasury yields down even more
On top of it all fund managers are fast approaching the end of the month and the quarter which is usually a time for rebalancing portfolios In Japan March 31 is the end of the fiscal year and Treasury holdings in the country have increased three consecutive months through January the longest stretch since early 2017 Japanese investors historically tend to buy in March and then sell in April
Put it all together and it s no surprise that traders are feeling a bit run over in the words of Bloomberg News s Cameron Crise Every time that I think that the U S bond market can t rally much more yields take another leg lower he wrote
You have to be brave to trade macro right now given just how abruptly global central banks have changed their tune After all Fed Chairman Jerome Powell went from saying that U S interest rates were a long way from neutral and that the balance sheet runoff was on automatic pilot to halting further rate increases and specifying the end of tapering in just a matter of months It seems unlikely that he or his colleagues will flip back to hawkish It s easier to imagine them turning extra dovish in the face of continued economic uncertainty
At the risk of getting trampled again the most likely path forward is yields hovering around their current levels rather than dropping more As mundane as it may seem I buy the argument that mortgage convexity receiving hedging from money managers and real estate investment trusts sparked a duration grab And it seemed pretty clear just two weeks ago that traders were bracing for a range bound bond market so it follows that those who got caught selling volatility had to hedge by effectively going long Treasuries Nothing gets a market moving quite like a short squeeze
Technical analysis signals that 10 year Treasury yields are bumping up against key levels of 2 37 percent and 2 29 percent Relative strength indexes show the 10 year note is overbought Intuitively the current fair value of the global borrowing benchmark should be close to 2 5 percent or the top of the fed funds target range if Powell s comments are to be believed that the next rate move could be up or down
It s one thing to argue that the bond rally is about done for now Actually betting on that view though That s an entirely different matter especially considering that the S P 500 Index isn t too far off its record high If stock investors decide the party s really over this time Treasuries will surely extend gains Indeed as equities slid on Wednesday 10 year yields approached new lows further inverting the yield curve
After a boring range bound start to 2019 it s no doubt painful to see the highest yield levels in years disappear in what feels like an instant But as volatility returns it could be even more perilous for investors to assume they know what will happen next in the world s biggest bond market |
C | StockBeat Markets Rise but Banks Fall as ECB Plays Down Tiering Hopes | By Geoffrey Smith
Investing com What the ECB giveth the ECB taketh away
Bank stocks had outperformed on Wednesday after traders jumped on comments by European Central Bank President Mario Draghi suggesting that the ECB would do something to offset the losses that they make on the billions of euros they hold in reserves at the central bank
But they re retreating today after the ECB s chief economist Peter Praet walked back those comments in an interview saying there would have to be a monetary policy case for tiering the rates on excess deposits
It s an arcane debate but one worth paying attention to because the weakness of the euro zone s banks is an obvious risk to the broader economy if the global slowdown persists and triggers another rise in bad loans across the region And as the Deutsche Bank Commerzbank merger plans show it s not like there is an abundance of other bright ideas out there for saving a sector riddled with zombies
At 04 00 AM ET 0900 GMT the benchmark Euro Stoxx 600 was up 1 32 points or 0 4 at 378 60 It s now up 12 0 for the year while the Euro Stoxx banks sectoral index is up only 2 7 the worst performing of all the major sectors
Germany s Dax was up 0 4 while the U K FTSE 100 was up 0 7 sauced by another dip in sterling after Wednesday s inconclusive Brexit votes
Of course Europe s banking problems don t end with the ECB Swedbank ST SWEDa is among the worst performing bank in Europe this morning down 3 8 as three major shareholders withhold their support from CEO Birgitte Bonnesen over a widening money laundering scandal According to the Financial Times U S authorities are now investigating the bank for whether it lied to them about the extent of its involvement in money laundering documented by the so called Panama Papers leak
Elsewhere German chemicals giant Bayer DE BAYGN is down another 1 4 after a U S jury said it must pay 80 million to a man for causing his cancer with its weedkiller Roundup The company faces over 10 000 similar cases but continues to dispute the science behind the ruling
Fiat Chrysler MI FCHA is down 1 0 as takeover speculation cools after Volkswagen DE VOWG p reportedly ruled out any form of combination with it
On the bright side British American Tobacco LON BATS and Imperial Brands LON IMB are higher after a tobacco sector upgrade from Citigroup NYSE C according to Bloomberg while luxury names such as Kering PA PRTP and Burberry LON BRBY continue to attract bids being seen as relatively immune to an economic slowdown |
C | Bayer shares sag after U S jury verdict in Roundup cancer trial | By Ludwig Burger FRANKFURT Reuters Bayer AG DE BAYGN shares sank to their lowest in almost seven years on Thursday after a U S jury awarded 80 million to a man who claimed use of the group s weed killer Roundup caused his cancer with thousands of similar lawsuits looming The jury in San Francisco federal court on Wednesday found Bayer liable because its Monsanto NYSE MON unit did not warn plaintiff Edwin Hardeman of the herbicide s alleged cancer risks German chemicals giant Bayer which bought Roundup maker Monsanto last year for 63 billion said it would appeal the verdict Its shares were down 1 3 percent at 55 59 euros at 1023 GMT That added to last week s 9 6 percent plunge after the jury concluded part way into the trial that there was a causal link between the weedkiller and Hardeman s disease The steep steady slide since the first adverse verdict in a Roundup lawsuit in August 2018 has pushed Bayer s value down to about 52 billion euros 58 billion which is several billion dollars less than what the drugs and crop chemicals group paid to acquire Monsanto in 2016 On Wednesday the jury awarded Hardeman 5 million in compensatory and 75 million in punitive damages Under a 2003 U S Supreme Court ruling punitive damages are generally limited to less than 10 times the compensatory damages award meaning the current verdict will likely be reduced said Adam Zimmerman a law professor at Los Angeles based Loyola Law School The trial is only the second of more than 11 200 Roundup lawsuits set to go to trial in the United States In the first trial a California man was awarded damages by a jury in state court in August which were later reduced to 78 million from an original 289 million that Monsanto sought to throw out The case is on appeal A third Roundup trial handled by the same plaintiff lawyers who won the August verdict is scheduled to start in California s Superior Court in Oakland on Thursday It was brought by California couple Alva and Alberta Pilliod who were diagnosed with non Hodgkin s lymphoma in 2011 and 2015 respectively They allege their decades long use of Roundup caused their cancers Analysts at JP Morgan and Liberum said Bayer s stock price shows the market expects an eventual settlement of up to 20 billion euros or 40 billion euros They said that was overly pessimistic and they expected the final amount to be substantially lower than that Even if Monsanto Bayer may win some cases there is great uncertainty about the number of victories and defeats That is why we expect Bayer to try to settle the remaining cases said Bryan Garnier analyst Jean Jacques Le Fur Peter Verdult an analyst at Citigroup NYSE C said more focus should be paid to trials later in the year outside of California to better determine settlement estimates At least two trials are scheduled to take place in St Louis Missouri state court this fall Hardeman s case was considered a bellwether trial to help determine the range of damages and define settlement options for the more than 760 other federal cases pending in the same court before U S District Judge Vince Chhabria Other cases will be heard in state courts This verdict does not change the weight of over four decades of extensive science and the conclusions of regulators worldwide that support the safety of our glyphosate based herbicides and that they are not carcinogenic Bayer said Monsanto s Roundup was the first to contain glyphosate the world s most widely used weed killer But it is no longer patent protected and many other versions are available Bayer does not provide sales figures for the product and analysts no longer deem it a major profit driver Genetically modified crops that resist glyphosate s plant killing effect however contribute heavily to earnings at Bayer s agricultural division
The U S Environmental Protection Agency the European Chemicals Agency and other regulators have found that glyphosate is not likely carcinogenic to humans The World Health Organization s cancer arm in 2015 reached a different conclusion classifying glyphosate as probably carcinogenic to humans |
JPM | BancorpSouth s BXS Q3 Earnings Beat Estimates Costs Down | BancorpSouth Inc NYSE BXS reported third quarter 2017 adjusted operating earnings of 43 cents per share beating the Zacks Consensus Estimate of 42 cents Also the bottom line compared favorably with the year ago quarter earnings of 39 cents Results benefitted from an improvement in net interest revenue and lower expenses partially offset by lower non interest revenue Loans and deposit balances remained strong during the quarter However the company recorded provisions in the quarter which was a headwind Including mortgage servicing rights MSR valuation adjustment the company s net income amounted to 39 5 million or 43 cents per share increasing from 37 8 million or 40 cents reported in the year ago quarter Net Interest Revenues Up Expenses DownQuarterly net revenues increased 1 2 year over year to 186 5 million However the reported figure missed the Zacks Consensus Estimate of 191 2 million Net interest revenues came in at 120 6 million up 5 2 year over year Fully taxable equivalent net interest margin NIM was 3 58 increasing 7 basis points bps from the prior year quarter figure Non interest revenues decreased 5 3 year over year to 66 million The decline was primarily due to a fall in mortgage banking revenues and deposit service charges These decreases were partially offset by high insurance commissions and other income Non interest expenses were 126 9 million decreasing 1 1 on a year over year basis As of Sep 30 2017 total deposits were 11 8 billion down 1 4 sequentially while net loans and leases grew marginally to 10 9 billion Credit Quality A Mixed BagNon performing loans and leases were 0 59 of net loans and leases as of Sep 30 2017 down from 0 85 as of Sep 30 2016 Additionally allowance for credit losses to net loans and leases was 1 08 down from 1 18 registered in the comparable period last year Further non performing assets were nearly 71 million decreasing from 102 3 million registered in the prior year quarter However annualized net charge offs as a percent of average loans and leases were 0 09 compared with 0 04 in the prior year quarter Also the company recorded 0 5 million of provisions in the quarter as against no provisions registered in the year ago quarter Capital Ratios DeterioratedAs of Sep 30 2017 Tier I capital and tier I leverage capital was 12 04 and 10 02 down from 12 32 and 10 53 respectively at the end of the prior year quarter The ratio of its total shareholders equity to total assets was 11 52 at the end of the quarter down from 11 80 as of Sep 30 2016 The ratio of tangible shareholders equity to tangible assets contracted 30 bps to 9 56 Share RepurchasesDuring the quarter the company repurchased 0 7 million common shares at an average price of 28 99 per share Our ViewpointPersistent decline in mortgage banking revenues continues to be a major concern for the company Though NIM improved in the quarter it has been declining since the past few years Thus lower NIM might hurt the company s top line growth Further the company s significant exposure to risky loan portfolios might hamper its financials in the near term BancorpSouth Inc Price Consensus and EPS Surprise BancorpSouth currently carries a Zacks Rank 4 Sell You can see Performance of other BanksWells Fargo Company NYSE WFC reported third quarter adjusted earnings of 1 04 per share which came in line with the Zacks Consensus Estimate Results were hurt due to a decline in revenues and higher expenses However credit quality witnessed improvement Despite weak fixed income market revenues Citigroup Inc NYSE C delivered a positive earnings surprise of 7 6 in third quarter 2017 on prudent expense management Earnings per share of 1 42 for the quarter easily outpaced the Zacks Consensus Estimate of 1 32 Rising rates and loan growth drove JPMorgan Chase Co s NYSE JPM earnings of 1 76 per share which easily surpassed the Zacks Consensus Estimate of 1 67 Also the figure reflects a rise of 11 from the year ago period Solid loan growth driven mainly by improved credit card loans and higher interest rates supported net interest income Moreover a slight fall in operating expenses acted as a tailwind Today s Stocks from Zacks Hottest StrategiesIt s hard to believe even for us at Zacks But while the market gained 18 8 from 2016 Q1 2017 our top stock picking screens have returned 157 0 128 0 97 8 94 7 and 90 2 respectively And this outperformance has not just been a recent phenomenon Over the years it has been remarkably consistent From 2000 Q1 2017 the composite yearly average gain for these strategies has beaten the market more than 11X over Maybe even more remarkable is the fact that we re willing to share their latest stocks with you without cost or obligation |
MS | Infosys shares extend losses as leadership issues outweigh share buyback | By Sankalp Phartiyal MUMBAI Reuters A planned 2 billion share buyback by Infosys failed to lift shares in India s No 2 IT services company which dropped on Monday for a second straight trading day on concerns over a dispute between its board and founders Infosys shares fell 5 4 percent to a more than three year closing low extending Friday s 9 6 percent decline The declines have wiped 5 2 billion off its market value after Chief Executive Vishal Sikka s resignation following attacks from retired founders of the company Infosys s board over the weekend announced a share buyback programme of up to 130 billion rupees 2 billion at a significant premium Analysts said while it could lend some support to the stock management issues will likely play a bigger role Brokerages including JPMorgan NYSE JPM and Nomura have downgraded Infosys on worries the once poster child of India s IT sector will struggle to stick with a turnaround strategy begun by Sikka who became the first non founder CEO in 2014 Investors are also concerned about the rift between the founders who own 12 75 percent of the company and its board who the founders have accused of governance lapses Sikka who pushed Infosys to focus on areas such as cloud computing big data and AI announced his resignation after a public spat with the founders led by Narayana Murthy GOVERNANCE ISSUES V Balakrishnan a former finance head at Infosys who still owns shares in the company and has sided with Murthy in the dispute said a restructuring of the board was needed calling for some board members including Chairman R Seshasayee and Co Chairman Ravi Venkatesan to quit Even if you get a new CEO I don t think that is going to solve the problem because the core issues are governance issues Balakrishnan told Reuters The board members should take responsibility they have not handled issues well they have clearly let down investors the governance standards have clearly come down The dispute comes at a time when India s more than 150 billion information technology sector has seen growth slow amid growing calls against outsourcing visa curbs and a push to hire more local workers in its biggest market the United States There is now a real risk that the force and ability with which the strategy gets executed will suffer at least near term a risk that Infosys can ill afford in the current difficult climate for Indian IT JPMorgan analyst Viju K George wrote in a note downgrading the stock to neutral Morgan Stanley NYSE MS said Sikka s exit could lead to a possible slowdown in the execution of a new strategy and that there were risks of more management and board level exits and further issues of corporate governance being brought to light
We are not worried about Infosys s ability to attract fresh talent but we worry about the possible impact on growth and margins the Morgan Stanley analysts wrote in a note |
MS | Media stocks weigh on European shares as WPP sinks | By Helen Reid LONDON Reuters Unloved media stocks weighed on European markets on Wednesday led lower by sharp declines in advertising giant WPP after it cut sales forecasts on weakening demand Investors were keeping a close eye on monetary policy a day ahead of the start of a central bank symposium in Jackson Hole though dovish comments by European Central Bank chief Mario Draghi had little market impact Markets also shrugged off a PMI survey showing euro zone manufacturing businesses had their best month of growth in six and a half years in August The last couple of weeks everyone has been sitting on the fence there hasn t been a big directional view and people are struggling to decide which way to get off said Graham Secker chief European equity strategist at Morgan Stanley NYSE MS The pan European STOXX 600 STOXX dipped 0 3 percent while euro zone stocks and blue chips STOXX50E fell 0 2 percent WPP L WPP shares lost as much as 10 percent value after the world s largest advertising group cut its full year sales outlook after a drop in demand caused it to miss first half targets The agency has been among the worst performing stocks in the media sector which has declined 4 8 percent overall this year against a buoyant broader European market Deteriorating trading conditions are a concern and we are minded to trim our full year profit before tax forecasts by 4 to 5 percent said Roddy Davidson media analyst at Shore Capital The sector index SXMP fell 2 percent with WPP s French peer Publicis PA PUBP down 3 percent Potash miner K S DE SDFGn was a bright spot jumping more than 4 percent after a report in German business newsletter Platow Brief that hedge fund Elliott could be interested in the company With uncertainty over upcoming monetary policy pronouncements weighing on sentiment utilities SX6P made the biggest gains as investors reached for defensives Belgian chemicals group Umicore BR UMI fell 3 5 percent after Berenberg cut the stock to hold on valuation concerns It has gained around 19 percent year to date outperforming the chemicals sector Generating substantial upside to the current share price would require us to assume around 15 percent global pure electric vehicle sales penetration by 2025 base case 11 percent or that Umicore captures over 60 percent of the global market for automotive grade NMC batteries by 2025 Berenberg analysts wrote Earnings for the STOXX 600 were set to grow 15 3 percent in the second quarter year on year Thomson Reuters data showed Nine of the ten sectors were expected to see an improvement in earnings in what analysts have called a good but not great earnings season after a record breaking first quarter
Energy stocks have seen the strongest earnings growth at 47 8 percent while pharmaceutical companies whose high exposure to the U S has made the stronger euro a headache saw the weakest earnings growth rate at 3 4 percent |
JPM | Saudi conference boycott over Khashoggi shows political threat to economy | By Andrew Torchia and Hadeel Al Sayegh DUBAI Reuters A Western boycott of a major business conference in Riyadh next week suggests rising political risks in Saudi Arabia could harm its ambitions to attract foreign capital and diversify its economy away from oil Rather than whipping up interest in Saudi investment opportunities the event risks becoming a public relations debacle because of the disappearance of Saudi dissident Jamal Khashoggi company executives and analysts say Turkish officials have said Khashoggi was killed inside the Saudi consulate in Istanbul Saudi Arabia denies this More than two dozen top officials and executives from the United States and Europe including U S Treasury Secretary Steven Mnuchin and the chief executives of JP Morgan Chase NYSE JPM and HSBC have canceled plans to attend the Future Investment Initiative due to unease over the Khashoggi affair That may not prevent the event from proceeding over 150 speakers from more than 140 organizations originally signed up organizers said But it deprives the conference of much of its star power As Western companies fret over the risk to their reputations of doing deals and possible exposure to any sanctions imposed over the Khashoggi case they are likely to put much new business in Saudi Arabia on hold for now The freeze may apply to both new Western contracts or investments in Saudi Arabia and the Saudi government s own program of buying corporate assets abroad through its 250 billion Public Investment Fund PIF Most Western businesses will come under pressure to reconsider their exposure to Saudi Arabia in light of the Khashoggi affair said Ayham Kamel head of the Middle East practice of political risk consultancy Eurasia Group But the freeze on new deals may start to ease within a few months Many Western firms have too much at stake to abandon the Middle East s biggest economy privately some told Reuters they would send lower level executives to the conference BILLIONS AT STAKE Larry Fink chief executive of U S investment manager BlackRock said he was pulling out of the conference but would not cut ties with Saudi Arabia as he wanted to preserve the relationships that we d worked so long for Companies in China and Japan have shown little or no sign of withdrawing from the event so U S and European firms may lose out on business if they stay cool toward Riyadh for too long In the new year the impact may start to ease particularly given that the U S seems to be helping Saudi Arabia sweep the incident under the carpet said Jason Tuvey senior emerging markets economist at Capital Economics U S President Donald Trump has said he wants to protect Washington s security cooperation with Saudi Arabia and billions of dollars of military equipment sales to Riyadh He raised the possibility that rogue killers murdered Khashoggi a theory which could absolve Saudi leaders from responsibility British foreign minister Jeremy Hunt said on Friday that allegations about Khashoggi s case would be totally unacceptable if true but he added Britain had a strategic relationship with Saudi Arabia and that any British action would be considered Tuvey and others predicted the cost of any sanctions would be small The option most widely discussed by U S politicians is the so called Magnitsky Act which can impose visa bans and asset freezes on individuals over human rights issues If a small group of Saudis were found responsible for Khashoggi s death and sanctioned this way it could be embarrassing for Riyadh but have no significant economic impact A Gulf banker who works with Saudi Arabia said that however the Khashoggi affair ended the opportunities to earn fees arranging deals for the PIF meant Western banks would ultimately be back on their knees seeking business from it After the killing of student protesters in Beijing in June 1989 direct foreign investment in China sank over 20 percent in the first half of 1990 but about a year later it was once again growing strongly Financial market moves show investors are worried about the Khashoggi affair but not nearly as fearful as they were after oil prices began plunging in 2014 The Saudi riyal fell in the forwards market and the cost of insuring Saudi debt against default is up but by small margins compared to past bouts of instability LONG TERM But even after normal business ties with the West resume Khashoggi may cast a shadow over foreign capital flows into Saudi Arabia Western companies may be keen to earn fees and win contracts but perceptions of rising political risk could limit foreign direct investment A Gulf banker said she was receiving many queries about the Khashoggi affair from foreign clients as it was the latest in a series of crises under Crown Prince Mohammed bin Salman including the arrest of scores of officials and businessmen in a corruption purge last year It s cumulative the Yemen war the dispute with Qatar the tensions with Canada and Germany the arrests of women activists They add up to an impression of impulsive policy making and that worries investors If Riyadh escapes major sanctions over Khashoggi it may still face a less sympathetic U S Congress This could for example lead to a revival of efforts to pass legislation exposing OPEC oil producers to anti trust lawsuits And some fear the affair could weaken the 33 year old Prince Mohammed s domestic authority creating political instability or slowing his reform drive which has included slashing the state budget deficit and lifting a ban on women driving The reforms and the corruption crackdown have won Prince Mohammed support among many Saudis but have also hurt some royal family members and businessmen The Khashoggi affair could conceivably become the catalyst for a backlash
We re worried that this could derail all the work that has been put in the past year towards the economic and social reforms said a banker in Riyadh |
JPM | JPMorgan to build Silicon Valley fintech office | By David Henry NEW YORK Reuters JPMorgan Chase Co N JPM said on Friday that it was building a new fintech campus in Silicon Valley for more than 1 000 employees as it pushes to keep abreast of changes in digital payments The building is set to open in Palo Alto California in 2020 the bank said in a statement and interviews Most of the employees at the site will work for JPMorgan s Chase Merchant Services division which is the second biggest U S processor of card payments for merchants The division last year bought WePay a young Silicon Valley based firm that specializes in connecting payment software with bank networks WePay now has about 275 employees who will move to the new building WePay s co founder Bill Clerico said the bank will also hire hundreds of people for new jobs at the site This year JPMorgan made its digital products strategy a major theme of its annual February conference for investors and stock analysts The bank the largest in the U S by assets has said it believes that handling more payments for consumers and companies will bring it more of their deposit and loan business Matt Kane chief executive of JPMorgan s merchant services division said the bank was prepared to pay the high costs of operating in Silicon Valley for the chance to hire local software engineers They are intended to complement payments industry specialists that JPMorgan employs now largely in Plano Texas and Tampa Florida
Chase Merchant Services ranks second to Atlanta based First Data Corp N FDC in processing card transactions for merchants |
JPM | MUFG says bank s CEO will not attend Saudi conference | TOKYO Reuters The CEO of Mitsubishi UFJ Financial Group s T 8306 banking arm will not attend the Future Investment Initiative conference in Saudi Arabia the group said on Sunday joining a growing list of business executives to withdraw over concern about the death of journalist Jamal Khashoggi A spokesman for the Japanese company said that MUFG Bank Deputy President Eiichi Yoshikawa will attend the Saudi event in place of CEO Kanetsugu Mike MUFG said the decision was made after evaluating factors in a comprehensive manner Khashoggi a U S resident and Washington Post columnist critical of Riyadh s policies disappeared on Oct 2 after entering the Saudi consulate in Istanbul Saudi Arabia on Saturday said he had died in a fight there Two Saudi officials have since attributed the death to a chokehold More than two dozen top officials and executives from the United States and Europe including U S Treasury Secretary Steven Mnuchin and the chief executives of JP Morgan Chase N JPM and HSBC L HSBA have canceled plans to attend the Future Investment Initiative |
MS | Small Canadian Healthcare Provider With Upside Potential | The landscape of healthcare is changing and whoever is smart will watch closely With the introduction of Obamacare in 2013 the US stands to see a substantial increase in the number of insured individuals And because the correlation between time and age has always been positive Uncle Sam will be attending to millions of North Americans turning 65 yearly their growing healthcare bill in tow While the US moves towards a government dominated system familiar in Europe and Canada the latter are beginning to loosen the reigns creating an interesting effect where the two systems shall meet in the middle After reading Bain and Company s 2013 I became interested in acquisition targets in the healthcare services field One such target Greenestone Healthcare Corp GRST is positioned well for growth trading in the US while operating in Canada where supplementary care is attractive and in high demand The company could quite possibly be a diamond in the rough easy to miss if you are not watching In total 21 billion worth of private equity capital was invested in healthcare companies in 2012 The shape of deal activity shifted in 2012 with fewer mega deals and more middle market deals Interest in the healthcare provider and services sector outstripped other sectors in 2012 Top 10 healthcare private equity buyout deals announced in 2012 click to enlarge The provider and services sector leads North American buyouts while activity is more evenly distributed in Europe and Asia Paci c click to enlarge Macro Environment North America Healthcare private equity buyout activity in North America is dominated by the US where both cost pressures and incentives to contain costs are robust US based employers especially the larger employers that typically subsidize healthcare insurance for employees have long been trying to contain their costs for pragmatic reasons Legislative reforms namely the Patient Protection and Affordable Care Act PPACA are expected to accelerate the trend by creating more incentives for healthcare organizations and insurance companies to reduce costs themselves while improving outcomes For the most part private equity investors in the US are looking to ride the trends that have been set in motion or accelerated by healthcare reform such as cost containment payment reform new care delivery models and hospital physician alignment without getting ensnared in the uncertainty about future reimbursement levels That theme has led to meaningful increases in the number of deals within the provider and services categories with more limited or indirect reimbursement risk such as retail health healthcare related IT and outsourced services however an in ux of new entrants in these healthcare light sectors is leading to increased valuations and trickier return equations Looking ahead there is no question that healthcare investing remains attractive thanks to the unique combination of stability and innovation it offers Fortunately some of the major drivers of the market are trending in investors favor Debt is cheap making it easier to nance deals and the hunting ground is large At the same time the stock market is rebounding and the appetite of strategic buyers remains strong portending more and bigger exits These are ripe conditions for investors with healthcare expertise to achieve excellent returns if they choose the right opportunities Within the provider and services sector that was so popular in 2012 consolidation opportunities should remain plentiful Healthcare reform in multiple countries is intensifying the drive toward better outcomes at lower costs such as in Canada as more providers aim to get smarter about their operations both in terms of supply chains and treatment outcomes Healthcare continues to be an attractive area not only for private equity investment but also for private investors alike thanks to its historically strong returns and low default rates The following three companies could be interesting acquisition targets going forward Vanguard Health Systems Vanguard Health Systems Inc VHS is an operator of healthcare delivery networks with a presence in various urban and suburban markets The company had 28 acute care and specialty hospitals with 6424 licensed beds with outpatient facilities and related businesses which allow it to provide a range of inpatient and outpatient services in the communities it serves The company has about 6 billion in revenue and management Blackstone Morgan Stanley and Capital Partners own 60 of the company The stock trades around 15 with price targets between 15 and 18 Most analysts consider the company a BUY LifePoint Hospitals LifePoint Hospitals LPNT was founded in 1999 and has grown to a leading hospital company with more than 3 5 billion in revenues and nearly 60 hospital campuses in 20 states The company s fourth quarter revenues from continuing operations grew to 893 million up 14 from the same period last year EBITDA was 135 million up 3 8 over last year and EPS was 0 76 exceeding the high end of the adjusted guidance range And for the year revenues from continuing operations were up 12 compared to 2011 EBITDA increased 1 8 over the prior year and EPS was 3 14 During 2012 LifePoint completed three hospital acquisitions with over 400 million in annualized revenues Management indicates that their acquisition pipeline remains very active During the past several years the company has taken a deliberate approach to invest in growth opportunities and maintaining a balanced capital deployment strategy Since 2010 approximately 470 million was spent to acquire nine hospitals with approximately 700 million in annual revenues During this same time the company invested 600 million in CapEx to support organic growth and quality initiatives and the company repurchased 400 million in stock representing approximately 20 of LifePoint s outstanding common shares Given LifePoint s strong cash flow the company can invest more going forward without increasing leverage The stock trades around 45 with price targets between 36 and 48 Most analysts consider the company a HOLD GreeneStone Healthcare Corp GreeneStone Healthcare Corp GRST OB is a Canadian healthcare company listed in the US focusing on mental health and behavioral treatment The company is an attractive candidate to play the role of the next big healthcare sector private equity buyout target The company has had early success building and operating a residential treatment facility along with an outpatient and aftercare facility With their 2013 expansion plans GreeneStone is poised for its next major phase of revenue growth The company operates in a highly underserviced sub sector of the healthcare space that has been undergoing consolidation in the recent past Private equity and strategic buyers have scooped up many of the available facilities in the US at valuations averaging 800K 900K per bed With many niche service areas still untouched such as eating disorders GreeneStone is capitalizing on this opportunity by opening complementary practice areas through a buy and build growth strategy On April 2 2013 the company released their 2012 results For the twelve months ending December 31 2012 the company reported total revenues increase of 230 to 5 540 909 as compared to 1 678 804 for the same period in 2011 For the same twelve month period the company reported total net loss of 1 553 797 or 0 08 EPS compared to 2 462 288 or 0 34 EPS for the same period ending in 2011 This increase in revenue was mainly attributable to a steady increase in business volume since the company began operations The company believes that revenue growth will continue to increase steadily and the company will become more profitable as most of its costs such as rent and salaries and wages are relatively fixed and therefore will reduce as a percentage as business and bed capacity volume grows Shawn Leon President and Chief Executive Officer of GreeneStone Healthcare Corporation commented The Company expected these operational results for the fiscal year 2012 and we anticipate even stronger growth in 2013 where we have all the reasons to believe that by the end of our second quarter the Company will be profitable The buy and build growth strategy will lead to expansion in their current addiction treatment capacity to 184 beds from 36 beds through strategic acquisitions and internal growth Final Note Healthcare in Canada is delivered through a publicly funded system that covers all medically necessary hospital and physician care as well as prescription drugs for seniors and curbs the role of private medicine While the system has widespread public and political support costs have soared well above the rate of inflation and are expected to climb further as the baby boom generation ages It is often stated that Canadian healthcare costs much less than American healthcare This is of course a myth Canadian costs are set per procedure Hidden healthcare costs are high in Canada because of excessive wait times The costs of under or non performance at work due to these longer wait times are huge costs on employers and the economy not to mention the individual patients who are laid up These are the hidden factors that hide the massive cost of universal healthcare in Canada Changes are needed include more treatment of patients outside of hospitals GreeneStone s medical clinics are a great opportunity to play the healthcare field in Canada From a valuation point of view Healthcare provides the most upside potential GreeneStone currently trades at an implied per bed valuation of 160 000 a discount of 68 to the very conservative rate for facilities acquisitions of 500 000 The current valuation of 0 21 looks absurd and I think with the coming expansion plans the stock price could see a nice short term rebound to levels above 1 00 Current analysts target prices are around 5 Private investors can still jump on the bandwagon before private equity steps in Disclosure I am long GreeneStone Healthcare |
C | U S bank regulator fines Citigroup 25 million for violating fair lending rules | WASHINGTON Reuters The U S Office of the Comptroller of the Currency OCC said on Tuesday it had fined Citigroup NYSE C 25 million for violating the Fair Housing Act by denying some borrowers preferential rates on the basis of their race color or other factors In 2012 Citi implemented a program that provided reduced pricing for mortgage borrowers that kept certain levels of assets with the bank typically referred to as relationship pricing The bank later identified some errors with the program which resulted in some mortgage customers failing to receive the benefit for which they were eligible the OCC said The errors affected borrowers across gender race and ethnicity in violation of the Fair Housing Act the OCC found Reuters previously reported that the OCC had been investigating Citi over the problem and initially decided to issue the bank with a written reprimand Citi has no tolerance for discrimination in any form the bank said in a statement
Citi self reported the issue to the appropriate regulators conducted a comprehensive review strengthened processes and controls to help ensure correct implementation going forward and has largely completed reimbursements to the identified customers |
C | Citigroup to sell Venezuelan gold in setback to President Maduro sources | By Mayela Armas and Corina Pons CARACAS Reuters Citigroup Inc NYSE C plans to sell several tons of gold placed as collateral by Venezuela s central bank on a 1 6 billion loan after the deadline for repurchasing them expired this month sources said a setback for President Nicolas Maduro s efforts to hold onto the country s fast shrinking reserves Maduro s government has since 2014 used financial operations known as gold swaps to use its international reserves to gain access to cash after a slump in oil revenues left it struggling to obtain hard currency In the past two years however it has struggled to recover its collateral Under the terms of the 2015 deal with Citigroup s Citibank Venezuela was due to repay 1 1 billion of the loan on March 11 according to four sources familiar with the situation The remainder of the loan comes due next year Citibank plans to sell the gold held as a guarantee which has a market value of roughly 1 358 billion to recover the first tranche of the loan and will deposit the excess of roughly 258 million in a bank account in New York two of the sources said The ability of Maduro s government to repay the loans have been complicated by the South American country s dire economic situation as well as financial sanctions imposed by the United States and some European nations Most Western nations say that Maduro s re election to a six year term last year was marred by fraud and have recognized opposition leader Juan Guaido as Venezuela s legitimate president Guaido invoked Venezuela s constitution to announce an interim presidency in January However Maduro retains control over state institutions in Venezuela and has the support of the powerful military He has branded Guaido a U S puppet With Washington s support Guaido s team has taken control of state oil company PDVSA s U S refining subsidiary but its attempt to negotiate a 120 day extension of the repurchase deadline for the collateral was unsuccessful the sources said Citibank was told that there was a force majeure event in Venezuela so the grace period was necessary but they did not grant it said one of the sources who belongs to Guaido s team A Venezuelan government source familiar with the matter confirmed that the country s Central Bank did not transfer the money to Citibank this month Citigroup declined to comment The Venezuelan Central Bank did not immediately respond to a request for information In a report presented to the U S securities regulator in February Citibank said Venezuela s Central Bank had agreed four years ago to buy back in March 2019 a significant volume of gold as part of a contract signed to obtain some 1 6 billion Citibank said that following the transaction it owned the gold Guaido is attempting to freeze bank accounts and gold owned by Venezuela abroad much of which remains in the Bank of England At the end of 2018 the Central Bank paid investment bank Deutsche Bank AG DE DBKGn about 700 million to recover ownership of a portion of gold used as collateral for a loan However the bullion remained in the custody of the Bank of England despite the Central Bank s request to repatriate it In light of that transaction the sources said there was no incentive for the Central Bank to repay Citibank RENEGOTIATE DEBT Guaido s team also began preparing this month for a possible debt restructuring in a bid to ease payments and stop any hostile action by creditors said two sources who took part in the discussion In meetings between members of Guaido s team with legal advisors in the United States there were discussions of starting renegotiations soon not only with Venezuelan bondholders but also with the Chinese and Russian governments and companies affected by a wave of nationalizations said the sources We want to address the debt in a comprehensive way We calculate that it totals 200 billion said one of the sources The Citgo refinery unit Venezuela s main asset abroad is under scrutiny because it serves as a guarantee for the issuance of a PDVSA bond and a loan from Russian oil company Rosneft
Guaido s advisers are also evaluating the payment in the coming weeks of around 72 million in interest coming due on PDVSA s 2020 bonds to avoid any action by creditors against Citgo |
C | Citi aims to grow Asia wealth management client base by 10 pct in 2019 | HONG KONG Reuters Citigroup Inc NYSE C said on Tuesday it planned to grow its Asia Pacific wealth management client base by 10 percent this year stronger than the 8 percent growth it posted in 2018 as it hires more client advisers and boosts digital offerings Citi s regional wealth management business which is a part of its Asia Pacific and Europe the Middle East and Africa EMEA consumer banking unit targets clients in Asia Pacific and EMEA with investible assets of between 100 000 and 10 million in 17 markets Asia has become the main battleground for global wealth managers including Credit Suisse SIX CSGN HSBC and Standard Chartered LON STAN looking to benefit from surging incomes in countries such as China and India Asia Pacific saw total household wealth grow by 3 percent in 2018 from a year ago to 114 6 trillion making it the largest wealth region globally and putting it ahead of the United States and Europe according to a Credit Suisse global wealth report With 256 billion worth of assets under management in 2017 Citi ranks second in the Asia wealth management league table after Swiss bank UBS according to data compiled by Asian Private Banker We are confident the investments we have made and continue to make will support double digit client growth rates in 2019 Gonzalo Luchetti Citi s head of consumer banking for Asia Pacific and EMEA said in a statement Growth will be driven by increased investments the bank plans to make to bolster the headcount for client relationship managers as well as the usage of digital technology to offer wealth advice it said Citi also expects its China wealth management client base to grow faster in 2019 than last year at more than 30 percent the bank s country chief said in January despite a slowdown in the world s second largest economy
This story corrects paragraph 2 to say clients in Asia Pacific and EMEA and adds dropped word regional |
MS | Forex Kiwi down slightly after retail sales yen gains ahead of GDP | Investing com The kiwi eased after reporting better than expected retail sales in the second quarter while the yen gained slightly as tensions on the Korean peninsula remain in focus along with second quarter GDP figures
New Zealand reported retail sales jumped 2 0 in the second quarter on quarter far exceeding a 0 7 rise seen In Japan second quarter GDP is expected to rise a provisional 2 5 on year and at a 0 6 pace on quarter
NZD USD traded at 0 7319 down 0 01 while USD JPY changed hands at 109 16 down 0 03 AUD USD traded t 0 7888 down 0 06
The U S dollar index which measures the greenback s strength against a trade weighted basket of six major currencies was last quoted down 0 33 at 92 99 late Friday For the week the index shed 0 49
Later in China fixed asset investment is due with 8 6 gain seen in July on year along with industrial production expected up 7 2 and retail sales up 10 8
Last week the dollar slid against a basket of the other major currencies on Friday as weaker than expected U S inflation data tempered expectations for a third interest rate hike by the Federal Reserve this year
A Labor Department report showed that U S consumer prices edged up 0 1 in July from the prior month below the 0 2 increase forecast by economists
Consumer prices were up 1 7 on a year over year basis from 1 6 in June
The data was the latest in a string of weak inflation readings that investors worry will make the Fed more cautious about plans to raise interest rates again this year
Futures traders are pricing in about a 35 chance of another rate hike by December according to Investing com s Fed Rate Monitor Tool
Expectations that rates will remain lower tend to weigh on the dollar by making U S assets less attractive to yield seeking investors
The euro moved higher against the dollar after Morgan Stanley NYSE MS raised its forecasts for the currency predicting it would reach the 1 25 level against the dollar early next year
The yen and the Swiss franc posted large gains against the dollar for the week rising 1 47 and 1 14 respectively as heightened tensions between the U S and North Korea sparked a flight to safety The currencies are often sought in times of geopolitical tension or market turbulence because both countries have large current account surpluses
In the coming week Wednesday s minutes of the Fed s latest meeting will be in focus as investors look for more hints on the timing of the next U S rate hike A report on U S retail sales will also be closely watched
Elsewhere UK data on inflation and employment will be in the spotlight amid ongoing concerns over the economic fallout from Brexit |
MS | Forex Yen weaker in Asia after surprise GDP gains | Investing com The yen weakened on Monday in Asia after better that expected GDP led investors to back off on recent gains slightly as tensions on the Korean peninsula remain in focus and after China data showed some weakness
In China fixed asset investment rose 8 3 compared with a 8 6 gain seen in July on year along with industrial production which gained 6 4 missing a 7 2 gain seen and retail sales increased 10 4 compared to a 10 8 gain seen
Japan s second quarter surged an unexpected 4 0 on year as investment in plant and equipment lifted sentiment for the sixth straight quarter of expansion official data released on Monday showed for the fastest pace of growth since January March 2015
USD JPY changed hands at 109 36 up 0 16 after the data
The figure beat a 2 5 gain expected on year and saw the quarter pace at 1 0 well above the 0 6 seen Japan second quarter GDP was expected to rise a provisional 2 5 on year and at a 0 6 pace on quarter
Earlier New Zealand reported retail sales jumped 2 0 in the second quarter on quarter far exceeding a 0 7 rise seen NZD USD traded at 0 7311 down 0 11
The U S dollar index which measures the greenback s strength against a trade weighted basket of six major currencies eased 0 03 to 92 96 AUD USD rose 0 4 to 0 7905
Last week the dollar slid against a basket of the other major currencies on Friday as weaker than expected U S inflation data tempered expectations for a third interest rate hike by the Federal Reserve this year
A Labor Department report showed that U S consumer prices edged up 0 1 in July from the prior month below the 0 2 increase forecast by economists
Consumer prices were up 1 7 on a year over year basis from 1 6 in June
The data was the latest in a string of weak inflation readings that investors worry will make the Fed more cautious about plans to raise interest rates again this year
Futures traders are pricing in about a 35 chance of another rate hike by December according to Investing com s Fed Rate Monitor Tool
Expectations that rates will remain lower tend to weigh on the dollar by making U S assets less attractive to yield seeking investors
The euro moved higher against the dollar after Morgan Stanley NYSE MS raised its forecasts for the currency predicting it would reach the 1 25 level against the dollar early next year
The yen and the Swiss franc posted large gains against the dollar for the week rising 1 47 and 1 14 respectively as heightened tensions between the U S and North Korea sparked a flight to safety The currencies are often sought in times of geopolitical tension or market turbulence because both countries have large current account surpluses
In the coming week Wednesday s minutes of the Fed s latest meeting will be in focus as investors look for more hints on the timing of the next U S rate hike A report on U S retail sales will also be closely watched
Elsewhere UK data on inflation and employment will be in the spotlight amid ongoing concerns over the economic fallout from Brexit |
MS | Japan second quarter GDP blows past expectations on robust domestic demand | By Stanley White and Leika Kihara
TOKYO Reuters Japan s economy expanded at the fastest pace in more than two years in the second quarter as consumer and company spending picked up highlighting a long awaited bounce in domestic demand
The world s third largest economy expanded by a much stronger than expected annualized rate of 4 0 percent in April June posting its longest uninterrupted run of growth in a decade government data showed on Monday
Activity is expected to continue to improve in coming quarters offering the Bank of Japan BOJ hope that a tight labor market is finally starting to boost wages and consumer spending which in turn should make it easier to generate sustained inflation
The rosy data was also a vindication for Japanese Prime Minister Shinzo Abe s government which has faced criticism that its economic agenda has not done enough to revive the country s fortunes
The engines of consumer spending and capital expenditure both fired well in the second quarter and that s why domestic demand was so strong said Hidenobu Tokuda senior economist at Mizuho Research Institute
The pace of growth may moderate slightly but we are still in recovery mode This is a positive development for inflation
Gross domestic product expanded an annualized 4 0 percent in April June government data showed more than the median estimate for 2 5 percent annualized growth and the biggest increase since January March 2015
Compared to the previous quarter the economy expanded 1 0 percent versus the median estimate for 0 6 percent growth
Japan s growth had been largely reliant on robust exports earlier in the year though there were signs private consumption was picking up
Annualized GDP for previous quarter was revised up to a 1 5 percent increase while quarterly real inflation adjusted GDP was revised up to 0 4 percent growth from a 0 3 percent increase
The economy grew for six straight quarters in April June The last time the economy had a run of six consecutive quarters of growth was January March 2005 through April June 2006
Private consumption which accounts for about two thirds of GDP rose 0 9 percent from the previous quarter more than the median estimate of 0 5 percent growth
That marked the fastest expansion in more than three years as shoppers splashed out on durable goods such as cars and home appliances Consumers also spent more money on dining out the data showed These are all encouraging signs that consumer spending is no longer the weak spot in Japan s economic outlook
Employees wages rose 0 7 percent in April June from the previous quarter which was the biggest increase since July September last year and another sign of the economy s vigor
The fact that the economy was able to grow this much without gains in exports shows our fundamentals are solid said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities
Consumption gains could slow a little in the following quarter but the foundations for a recover in consumer spending are in place
Capital expenditure jumped by 2 4 percent in April June from the previous quarter doubling the median estimate for a 1 2 percent increase That was the fastest growth in business investment since January March 2014 as companies spent more on software and construction equipment
Japanese Economy Minister Toshimitsu Motegi was more cautious on the outlook for domestic demand and pledged to implement extra measures to strengthen the economy
If you ask me whether private consumption has fully recovered I would say it still lacks strength in some areas which will need to be followed with policy Motegi told reporters
We ll make sure that the domestic demand led recovery continues What is needed is supply side reform We ll focus our efforts on human resource investment improvement in productivity and new growth strategies
While growth was faster than expected it is not expected to nudge the Bank of Japan into dismantling its massive stimulus program any time soon as inflation remains stubbornly weak
External demand subtracted 0 3 percentage point from GDP growth in April June in part due to an increase in imports This is notable because Japan usually relies on exports to drive growth
Since launching quantitative easing in April 2013 the BOJ has pushed back the timing for reaching its 2 percent inflation target six times due in part to weak consumer spending
The GDP data for April June show private consumption is finally starting to move in the direction that the BOJ and other government ministers have long predicted |
MS | Dollar near three week highs though gains capped | By Saikat Chatterjee LONDON Reuters The dollar held near a three week high on Wednesday against a trade weighted basket of its rivals as strong U S retail sales data boosted risk appetite though markets were wary of chasing gains due to lurking geopolitical risks The North Korea missile fears seems to be abating for now and if the recent bunch of strong U S data translates into higher inflation then markets will start pricing more interest rate increases from the Fed in the coming months said Ulrich Leuchtmann an FX strategist at Commerzbank DE CBKG in Frankfurt The dollar index DXY edged higher to 93 86 and was consolidating most of its overnight gains when it hit its highest level since July 26 at 94 14 in the previous session U S retail sales jumped 0 6 percent in July handily beating economists estimate of a 0 4 percent reading to post their biggest gain in seven months as consumers bought more cars and increased discretionary spending But despite the strong data interest rate expectations remain broadly unchanged with markets expecting the Federal Reserve to raise rates only once over the next 12 months according to the CME s Fedwatch tool Easing fears of armed conflict between the United States and North Korea also prompted investors to buy back riskier assets they had sold last week as fiery rhetoric between the two countries escalated Morgan Stanley NYSE MS strategists were wary about reading too much into the dollar s overnight bounce pointing out that economic data from other countries such as Sweden and Japan have been robust indicating further dollar gains may be slow The euro was steady at 1 1734 after falling as low as 1 1687 overnight its lowest since late July |
JPM | Lack of Italy debt contagion explodes notion of euro periphery | By Abhinav Ramnarayan and Ritvik Carvalho LONDON Reuters The striking lack of financial contagion across the euro zone from Italy s bond market blowout this year shows investors are breaking an eight year habit of lumping together the bonds of Italy Spain and Portugal In an apparent vindication of European Central Bank efforts to reduce spillover across the bloc each time one of the southern European economies gets into trouble the market has so far treated the Italian budget dispute as a domestic storm For years after the 2010 2012 euro zone debt crisis Italy Spain and Portugal collectively referred to as the periphery by bond investors saw their bonds track each other Anything that risked a repeat of the euro zone s existential angst six years ago tarred all the weaker credits with the same brush Spain Portugal stay strong during latest Italy selloff Yet six years after ECB chief Mario Draghi pledged to do whatever it takes to save the euro zone the correlation is fading An uproar over Italy s budget deficit and risks of a clash between Rome and European Union authorities have barely touched Portuguese and Spanish debt Such has been the divergence that the premium demanded by investors to hold Italian risk over Spain s hit its widest in over 20 years We are very close to record low levels in terms of correlation between peripheral countries and it s very clear that from the market perspective for the first time in a while a major euro zone bond market incident is not being seen as a threat to the euro system said Frederik Ducrozet a global strategist at Pictet Wealth Management One reason is that the budget concerns are so far confined to Italy But idiosyncratic risks have in the past spread across southern European bond markets too one example being the approach to the Catalan independence referendum last year Confidence is higher this time that the Italian debt problem will not threaten the country s euro membership The country s anti establishment coalition government has been at pains to stress it has no interest in exiting the zone Contagion would return only if the euro s future is in danger said Arnaud Guilhem Lamy a portfolio manager at BNP Paribas PA BNPP Asset Management Iain Stealey a fixed income portfolio manager at JPMorgan NYSE JPM Asset Management said the fund he oversees has been buying Spanish government debt through the recent Italian ruckus If you re a fund manager and you don t want to own Italy Spain and Portugal are the only realistic alternatives he told Reuters Spain has been the poster child for European growth in recent years if you think about 2012 where unemployment rates were how strong concerns were over the banking system in the periphery we are in a very different place now he said Spain Italy bond yield correlation dips since May selloff Spain has led the euro zone economic recovery in 2016 and 2017 growing more than 3 percent a year and earning multiple credit ratings upgrades to Baa1 from Moody s and A from both S P Global and Fitch Portugal not long ago rated junk by all three major agencies last week was restored to full investment grade status after a Moody s upgrade Its economy grew 2 7 percent in 2017 outperforming the euro zone Both countries have benefited from their share of the ECB s 2 6 trillion euro 3 trillion stimulus program But even countries partly or fully outside the ECB program have felt its effect Cyprus recorded stellar growth of 3 9 percent last year and Greece exited its bailout program in August This week Greece said it achieved a primary budget surplus well above target for the year so far Italy Spain spread hits widest in 20 years The type of investors invested in Spain and Portugal is not the same as it was before said BBVA MC BBVA rates trading strategist Jaime Costero Denche We have seen new investors such as Scandinavian accounts and Middle East and Asian investors who didn t want to buy peripheral debt in the past A major factor limiting contagion from Italy is that Portuguese and Spanish banks are in better shape thanks to authorities success in tackling bad loans a road Italy embarked on only recently Portuguese banks have mostly returned to profit In June Moody s lifted its outlook for Spain s banking system to positive It cited robust economic growth and improved asset quality after disposals of troubled assets
Bad loans falling in periphery |
JPM | U S weekly jobless claims data bolsters labor market outlook | By Lucia Mutikani WASHINGTON Reuters New applications for U S unemployment benefits dropped last week and the number of Americans on jobless rolls fell back to levels last seen in 1973 suggesting a further tightening in labor market conditions The labor market strength was also underscored by another report on Thursday from the Philadelphia Federal Reserve showing manufacturers in the mid Atlantic region boosting employment and increasing hours for workers in October That together with a robust economy likely keep the Federal Reserve on course to increase interest rates again in December The U S central bank raised rates in September for the third time this year and removed the reference to monetary policy remaining accommodative The labor market is tight by any quantitative metric and companies are holding on to labor because of the difficulty of replacing workers said John Ryding chief economist at RDQ Economics in New York Initial claims for state unemployment benefits decreased 5 000 to a seasonally adjusted 210 000 for the week ended Oct 13 the Labor Department said Claims fell to 202 000 during the week ended Sept 15 which was the lowest level since November 1969 Economists polled by Reuters had forecast claims slipping to 212 000 in the latest week The Labor Department said claims for South and North Carolina continued to be affected by Hurricane Florence which drenched the region in mid September Claims for Florida were impacted by Hurricane Michael The four week moving average of initial claims considered a better measure of labor market trends as it irons out week to week volatility rose 2 000 to 211 750 last week The claims data covered the survey period for the nonfarm payrolls component of October s employment report While the four week moving average of claims rose 5 750 between the September and October survey periods that did not change expectations for a rebound in job growth this month after Florence depressed restaurant and retail payrolls in September We think that job growth could bounce back in October if the weakness from the September report that was tied to Hurricane Florence reverses said Daniel Silver an economist at JPMorgan NYSE JPM in New York The economy created 134 000 jobs in September the fewest in a year The labor market is viewed as being near or at full employment with the unemployment rate close to a 49 year low of 3 7 percent There are a record 7 14 million open jobs SHRINKING UNEMPLOYMENT ROLLS Minutes of the Fed s Sept 25 26 meeting published on Wednesday showed policymakers generally agreed that labor market conditions continued to strengthen and united on the need to raise interest rates further The dollar firmed against a basket of currencies and U S Treasury yields rose marginally Stocks on Wall Street were trading lower also weighed down by a raft of weak earnings reports from industrial companies Thursday s claims report also showed the number of people receiving benefits after an initial week of aid fell 13 000 to 1 64 million for the week ended Oct 6 the lowest level since August 1973 The four week moving average of the so called continuing claims dipped 1 250 to 1 65 million also the lowest level since August 1973 In a separate report the Philadelphia Fed said employment at factories in the region which covers eastern Pennsylvania southern New Jersey and Delaware increased in October It said more than 30 percent of responding firms reported increasing payrolls this month The Philadelphia Fed s employment index rose 2 points to a reading of 19 5 this month and firms also reported increasing hours for workers The workweek index jumped to a reading of 20 8 from 14 6 in September The survey s business conditions index slipped to a reading of 22 2 in October from 22 9 in September amid a drop in new orders But firms were upbeat about new orders over the next six months and many expected to increase capital spending in 2019 Businesses also reported raising prices for their goods with the survey s prices received index rising 4 5 points in October to a reading of 24 1 Further prices increases are expected over the next six months While more companies reported paying more for raw materials this month the survey s prices paid index slipped 1 4 points to a reading of 38 2 The prices paid index had dropped 15 points in September The survey s findings suggest inflation could push higher over the coming months
Firms pricing power is likely to grow and inflation is likely to accelerate said Joel Naroff chief economist at Naroff Economic Advisors in Holland Pennsylvania |
JPM | China GDP Preview Fed s Quarles on Hikes Doctor Love Eco Day | Bloomberg Happy Friday Asia Here s the latest news from Bloomberg Economics
With China s expansion expected to slow as trade wars heat up this closer look at the data ahead of today s GDP print may offer a better take on what s happening in the world s second largest economy
While the U S Treasury stopped short of labeling China a currency manipulator in its latest semiannual report it devoted a section to concerns on China s trade surplus and lack of FX disclosure
Fed Governor Randal Quarles said he favors gradual hikes and voiced optimism that the U S economy might be able to grow faster without overheating potentially meriting a slower hiking path ahead
The ECB should switch to targeting an annual inflation level or even let price gains run above its current target according to JPMorgan Chase NYSE JPM
St Louis Fed President James Bullard is proposing a new monetary policy rule effectively the Bullard rule that concludes there s no reason to raise interest rates further
Tom Orlik takes a look back at the late 1960s and what s changed since then and finds clues to the path for inflation
Meet Dr Love who s hoping to lure Thailand s latest tourist targets to a luxury spa in central Bangkok |
JPM | China Economic Growth Slows More Than Expected in Third Quarter | Bloomberg Gross domestic product increased 6 5 percent in the third quarter from a year earlier compared to 6 6 percent in a Bloomberg survey and down from the 6 7 percent pace in the previous quarter
Industrial output rose 5 8 percent last month from a year earlier versus the forecast of 6 percent the statistics office said
Retail sales increased 9 2 percent in September compared with the forecast 9 percent
Fixed asset investment climbed 5 4 percent in the first nine months versus a forecast of 5 3 percent
The urban monthly surveyed unemployment rate stood at 4 9 percent at end September
China s economy faced increasing headwinds in the third quarter with worsening trade tensions and the government s deleveraging campaign undercutting growth Those problems prompted officials to step up stimulus but the impact of those measures has yet to kick in and more may be needed
We expect further escalation of US China trade tensions going into 2019 which will likely be partially offset by CNY adjustment and more growth supportive fiscal and monetary policies wrote JPMorgan NYSE JPM economists led by Zhu Haibin who expect growth to slow to 6 1 percent next year We expect fiscal and monetary policies to become more growth supportive providing a lift to headline GDP growth they wrote |
MS | Bad Reasons For Avoiding Stocks | There is a broad group of individual investors who are completely out of stocks or significantly under invested Many were paralyzed by fear in the time after 2008 They have still not returned to investments in stocks This is a natural and normal reaction to risk People fear losses more than they crave gains This natural human trait causes most investors to do exactly the wrong thing at the wrong time There are multiple sources of fear but the current theme is that it is too late for this year If you have not been invested you have missed the rally for three reasons The market has already made most of its gains for the year getting close to the targets of the most bullish of prognosticators The move has been too far and too fast The time of seasonal weakness is upon us Let us focus on the first of these reasons the price target Why We Need Moving Targets Here is an idea that can liberate investors Ignore calendar year market forecasts If you are looking for an investment edge here it is Most people analyze portfolios based upon the calendar World events march to a different drummer This year is a great example The annual forecasts were done at a point when everyone was worried about the fiscal cliff a downgrade of US debt an imminent recession and a hard landing for China When this did not happen an eleventh hour result that I predicted the market rallied about 6 Suppose that you missed that rally Should you pretend that the facts did not change Should you remain anchored to your December 2012 forecast Or should you adjust your thinking to reflect new evidence Just suppose that the fiscal cliff issues had been resolved in November 2012 We would have started 2013 from a higher level My Method I have a personal method that has worked well for more than a decade I use a rolling twelve month forecast I do this for individual stocks and also for the market I refuse to be chained to the calendar When the underlying data change so does my price target The calendar does not matter My thinking is flexible taking what the market is offering Some Agreement from The Street I am surprised and pleased to see that some top analysts are recognizing the need for more frequent reviews of their price targets Instead of going with the knee jerk reaction please give some careful attention to who see S P targets as high as 1760 for this year There are others in the club As background Bespoke noted more than a month ago that the rally was approaching the Street targets check the from 1575 to 1625 Morgan Stanley s boosts to 1600 These are all analysts who recognize that circumstances have changed since the time of their original forecasts This is in sharp contrast to what happened at the end of last year when analysts stubbornly held to foolish forecasts Investment Implications This is one of the easiest ways for the average investor to get an advantage over the big time sell side forecasts Most data sources provide earnings for a calendar year Here at A Dash I try to do better by finding the best sources Isn t it obvious that a rolling one year forecast is better than locking into the calendar If you had the data you would do it I often provide such information I get it from and occasionally I explain to all of my new investors that even good years will include a correction of 15 or so regardless of the fundamentals I cannot time these and neither can anyone else It just comes with the territory Develop and stick to your forecast Looking at the long term fundamentals is the key to long term success There are many stocks trading at significant discounts based upon current earnings These can often be found via Chuck Carnevale s Some current favorites from assorted sectors are AFL CAT and JPM I will try to elaborate further on this theme but this installment is timely |
MS | Morgan Stanley s Chart Looking Weak | Morgan Stanley MS is looking very weak vulnerable to a significant drop lower In recent months MS has been trending downards towards previous support at 21 78 MS has been chopping around this level recently but has not tested it again Price action has formed two descending triangle patterns both dependent on the single base at 21 78 What make this level so important is that there is NO support below until 20 30 or about 6 lower and even that support is weak The strong support is at 19 15 or 12 lower or 18 50 or 15 lower The potential support levels are also right near the price targets for the descending triangles It is very possible that MS can bounce off these levels again but a longer term descending triangle is in play and MS would need to climb 6 and get aove 23 50 for it be voided Keep a strong eye on this stock and watch for the break if it does it could signal lower prices for other financial stocks which in turn will put pressure on the market This chart pattern looks very similar to AAPL chart pattern before it dropped only to bottom lower 420 |
C | Japanese firms offer smaller pay raises as economy wobbles | By Tetsushi Kajimoto and Izumi Nakagawa TOKYO Reuters Big Japanese firms offered smaller pay increases at annual wage talks on Wednesday as the economy sputters tempering hopes that domestic consumption will offset external risks to growth Major firms are set to raise wages for a sixth straight year as Prime Minister Shinzo Abe kept up the pressure on businesses to boost pay in an effort to beat deflation that has dogged Japan for nearly two decades But as economic growth slows firms have grown wary about offering big pay increases because that commits them to higher fixed costs at a time of uncertainty as company profits are leveling off Caught between the fear of a profit squeeze and the need to raise pay scales for low paid part timers and those employed at small firms to address the country s labor shortages Japanese firms cannot afford to hike wages much for full time workers analysts say Momentum towards wage hikes may weaken as underlying inflation remains weak said Hisashi Yamada senior economist at Japan Research Institute Uncertainty is high on the external outlook such as the U S China trade war and Europe s unstable politics On top of that a national sales tax is scheduled to increase in October Without enough wage hikes it s difficult to defeat deflation The results of the shunto talks between management and unions announced by major companies in sectors such as cars and electronics set the tone for full time employees wages across the nation which have implications for consumer spending and inflation GLOBAL UNCERTAINTIES A slowdown in the global economy the Sino U S trade war and trepidation over the final shape of a deal to seal Britain s exit from the European Union have sharply increased strains on businesses worldwide Faced with the heightened uncertainty about the growth outlook cautious Japanese firms focus more on the annual total sum payment including bonuses than monthly base pay which will determine retirement payment and pension benefits Bellwether Toyota Motor Corp T 7203 Japan s largest automaker offered on Wednesday a pay raise of 10 700 yen 96 21 on average down 1 000 yen from last year We made the decision as the sales tax rises in autumn while taking into account the need to raise productivity competitiveness and respond to unionists motivations Tatsuro Ueda chief officer at Toyota s general administration and human resources group told reporters Honda Motor Co T 7267 offered a base salary increase of 1 400 yen down 300 yen from 2018 while Nissan Motor Co T 7201 came up with a rise of 3 000 yen unchanged from last year Electronics giants such as Panasonic Corp T 6752 Hitachi Ltd T 6501 and Mitsubishi Electric Corp T 6503 all offered a base pay raise of 1 000 yen down 500 yen from last year The trend of wage hikes remains intact I hope wage growth will continue to boost the economy s virtuous cycle Chief Cabinet Secretary Yoshihide Suga told reporters A survey by the Institute of Labour Administration a think tank predicted wage growth will slow to 2 15 percent this year pulling away from last year s 2 26 percent and the 17 year peak of 2 38 percent in 2015 despite hefty corporate cash piles A Reuters Corporate Survey last month found a slim majority 51 percent of firms polled saw wages rising around 1 5 2 percent this year But while companies are conservative with pay raises many have directed their large cash piles toward share buybacks to ensure better returns for their investors PAY HIKE OR WORK STYLE REFORM In the coming fiscal year from April 1 Abe s government will start to implement work style reform to curb Japan s notoriously long work hours The reform also includes equal pay for equal work aimed at narrowing the pay gap between full time employees and contract workers or part timers and raising the retirement age to cope with the ageing population The move has shifted focus away from pay hikes with both unions and management dashing policymakers hopes of stoking a virtuous cycle of a tight job market boosting wages to stimulate consumption and spur inflation to the BOJ s 2 percent target Japan s unions tend not to be so aggressive in pressing their demands as those in the West because they attach greater importance to job security and retain a sense of company loyalty The dwindling union membership has deprived unionists of bargaining powers with companies hiring more non unionized part timers and nonregular employees who represent nearly 40 percent of workers At this year s shunto both companies and unions don t seem to put greater emphasis on wage hikes than before said Kiichi Murashima economist at Citigroup NYSE C Global Markets Japan Instead they are considering a wider range of issues like pay disparity labor productivity and work life balance
1 111 2200 yen |
C | Saudis Head to OPEC Talks Reluctant to Do Trump s Bidding | Bloomberg Four months ago Saudi Arabia s devotion to its decades old oil partnership with the U S was stronger than ever
President Donald Trump was poised to choke off crude exports from the kingdom s political nemesis Iran And the Saudis shunned by other nations after the murder of journalist Jamal Khashoggi were readily obliging the White House with record supplies
But the Trump administration stunned Riyadh by softening its crackdown on Iran at the last minute allowing many customers to continue buying and triggering a crash in oil prices Since then the Saudis trust in their main political ally has frayed
When the kingdom meets with allied oil producers in the Azeri capital of Baku this weekend that sense of betrayal may loom large in its decision making
The way that the Saudis were misled by the U S president concerning Iran sanctions is something that they can still taste said Ed Morse head of commodities research at Citigroup Inc NYSE C in New York
Although Trump has once again called on the Organization of Petroleum Exporting Countries to moderate prices the group s biggest member is doubling down on a strategy to support them at least for now Crude climbed to a four month high above 58 a barrel in New York on Wednesday as U S inventories shrank
A 24 nation coalition known as OPEC made up of members of the cartel and former competitors such as Russia has entered its third year of curbing supply in order to defend crude prices While they ve helped engineer a 25 percent recovery in Brent this year current prices of about 67 a barrel remain well below the levels that most of the producers need to cover government spending
Saudi Arabia requires an average oil price of 80 a barrel to fund plans for increased spending this year according to Bloomberg calculations based on its 2019 budget The kingdom s financial pressures are growing as Crown Prince Mohammed bin Salman pursues a radical overhaul to diversify the economy away from oil while waging a proxy war in Yemen and dealing with the fallout from the Khashoggi killing
That aim is driving the Saudis to stick with their strategy despite the threat of potential antitrust legislation known as NOPEC which gained momentum in the U S Congress after Khashoggi s death in Istanbul in October
When Trump tweeted on Feb 25 that OPEC should relax its stance on tightening supplies he was gently rebuffed by Saudi Arabian Energy Minister Khalid Al Falih who said he favors maintaining output curbs in the second half of the year
Al Falih s defiant tone has been backed up by the kingdom s recent actions
Saudi Arabia has cut production by even more than it pledged in the OPEC accord and will continue to do so next month a Saudi official familiar with the policy said this week Its crude shipments to the U S fell in February to the lowest since at least 2010 according to the Energy Information Administration
It s a marked contrast with last autumn Back then the Saudis bowed to intense pressure from Trump as his administration s promises to squeeze Iranian supply to zero propelled crude prices to a four year high above 86 a barrel
New Strategy
To avert a shortage and assist Trump s diplomatic campaign against Tehran the kingdom raised production eventually reaching record levels above 11 million barrels a day But in early November the president chose to let a number of Iran s customers keep buying and the ensuing oil oversupply sent prices slumping by 35 percent in the fourth quarter of last year
We re going to see quite a different Saudi Arabia maybe than what we saw in the fall said Mohammad Darwazah a director at Medley Global Advisers I don t think they re going to be as accommodative
A panel drawn from key nations in the OPEC alliance the Joint Ministerial Monitoring Committee is gathering in Azerbaijan this weekend to review oil markets before the whole group meets next month and again in June
The Saudis will probably repeat their preference to prolong the accord and try to persuade Russia to follow suit Darwazah said With prices down around 22 percent from last year s October peak the pushback from Washington won t be so acute
The kingdom could nonetheless soften its position if production losses in Iran and Venezuela now both under U S sanctions escalate enough to cause a shortfall
This U S role with sanctions on two big exporters is really the big wild card for the market said Mike Wittner head of oil market research at Societe Generale PA SOGN SA in New York Could the Saudis surge production again Absolutely
Saudi Arabia s decades long reliance on U S diplomatic and military support the current ties between Crown Prince Mohammed Bin Salman and the Trump administration and the lingering threat of NOPEC legislation mean that Riyadh would likely still heed a sufficiently urgent call from Washington
Unplanned Cutbacks
Iran s production has already fallen to the lowest since 2013 amid the re imposition of U S sanctions following Trump s decision to abandon an accord on the country s nuclear program
Venezuela s output has plunged to the lowest in decades amid a spiraling economic crisis which culminated this week in widespread electricity blackouts and as the U S deploys sanctions against President Nicolas Maduro s regime for fraudulently clinging to power
Both countries could see oil production slump further in coming months especially as the U S ban on Venezuelan crude trade takes full effect in late April and measures against Iran could be tightened in early May
While that could induce Saudi Arabia to raise production there s a critical difference between now and 2018 Societe Generale s Wittner said In the autumn the kingdom pre empted an anticipated supply disruption but this time it will be reactive
They ll wait and see those losses first said Wittner Last year the Saudis were left hanging having already ramped up production Those memories are very fresh
Updates with oil price in sixth paragraph |
C | Why Fed May Need to Follow Through on Pivot to Sustain Stocks | Bloomberg Stocks have barnstormed their way into 2019 but investors may soon enter a show me the money phase as they contemplate a slowing U S economy and a pending plan from the Federal Reserve to bring its liquidity tightening to an end
The coming few months will be critical to see if sentiment ranging from consumers to businesses can weather what s likely to be a patchy period for economic data says Steven Wieting at Citigroup NYSE C Private Bank And that in turn will determine where the markets go he says
We ve arrested the tightening in financial conditions but they need to follow through Wieting the bank s global chief investment strategist said of the Fed The U S central bank has clearly put interest rate increases on pause but needs to proceed with its plan to stop shrinking its bond portfolio he said in an interview last week in New York
Last quarter was a warning sign that the Fed badly needed to shift gears Wieting said Now that it has put plans for interest rate hikes on pause the chance of a hard landing has lessened
Lots of things have to go wrong to get a recession he said
Clarity is still pending on the central bank s plans for running down its bond portfolio Chairman Jerome Powell said earlier this month that policy makers are well along in our discussions of a plan to conclude balance sheet runoff later this year without indicating when an announcement will be made
The Fed needs to be in a mode where it s protecting the expansion not restraining it Wieting said in a subsequent Bloomberg Television interview In the scenario where a new downturn is avoided we ll still be higher a bit in U S markets looking at it over the next year We ll have decent returns over two years |
JPM | iFOREX Daily Analysis October 13 2017 | The dollar trades lower on Friday awaiting for the U S inflation data for a potential boost following this week s fall from 10 week highs The dollar index which tracks the U S currency against six other major currencies is almost 1 lower for the week A major drag in the dollar was the Fed s September meeting minutes which showed that while policymakers are open to raising interest rates in December they were still concerned about inflation
On Thursday the U S Department of Labor said its producer price index for final demand increased 0 4 percent on month and 2 6 percent on year in September the biggest annual gain since February 2012
The number of individuals filing for jobless benefits in the last week declined by 15 000 to 243 000 from the previous week s revised total of 258 000 the U S Department of Labor said Analysts expected a drop by 7 000 to 251 000 last week
The main U S indices traded slightly lower following the data due to limited risk appetite in the markets while in the commodities markets gold was strongly supported by safe haven demand while crude oil prices settled lower after the International Agency Energy suggested that global demand for oil could come under pressure next year
Bitcoin prices rose on Thursday as reports that China could reserve its ban on domestic bitcoin exchanges pushed the digital currency above 5 000 for the first time in its nine year history
For today the U S is to release data on inflation and retail sales as well as preliminary data on consumer sentiment
EUR USD
Despite the positive data on rising producer prices on Thursday the dollar continues to lose ground against the euro as concerns of a weakness in inflation still add pressure on the dollar and raise questions on whether a third rate hike is appropriate this year
Several policymakers believe additional tightening of monetary policy will depend on upcoming inflation data and that is why today s report on inflation is key
Later in the day additional data from the U S is expected including retail sales as well as preliminary data on consumer sentiment
Pivot 1 1855Support 1 1821 17951 176Resistance 1 18551 1881 19Scenario 1 short positions below 1 1855 with targets at 1 1820 1 1795 in extension Scenario 2 above 1 1855 look for further upside with 1 1880 1 1900 as targets Comment intraday technical indicators are mixed and call for caution
Gold EUR
Gold prices trade right below 1 300 supported by concerns on low inflation and doubts over a third rate hike despite Thursday s reports pointing to underlying strength in the U S economy
Gold traders will be looking at today s inflation report for further indications on the monetary policy path that the Fed could take
In Europe meanwhile political uncertainty supported demand for safe haven gold after Spanish Prime Minister Mariano Rajoy gave the Catalan government eight days to abandon its independence bid
Pivot 1289 5Support 1289 512841281Resistance 130113061310Scenario 1 long positions above 1289 50 with targets at 1301 00 1306 00 in extension Scenario 2 below 1289 50 look for further downside with 1284 00 1281 00 as targets Comment the RSI advocates for further advance
WTI Oil
Crude oil prices ended lower on Thursday as a weak outlook on global oil demand for 2018 offset data showing U S crude oil inventories fell for the third straight week
The Energy Information Administration EIA showed crude inventories fell more than expected while gasoline supplies gained
The mixed report on inventories from the EIA came ahead of a monthly update from the International Agency Energy on Thursday suggesting that global demand for oil could come under pressure next year
Data on active U S oil rigs count will remain in focus for Friday
Pivot 50 25Support 50 2549 7549 2Resistance 51 151 451 75Scenario 1 long positions above 50 25 with targets at 51 10 51 40 in extension Scenario 2 below 50 25 look for further downside with 49 75 49 20 as targets Comment the RSI advocates for further advance A strong support base around 50 25 the previous swing low has formed and should limit any downward attempts
US 500
The main US indices fell on Thursday as AT T NYSE T shares sank after it said it lost subscribers in the last quarter and banks slipped following results from JPMorgan and Citigroup
JPMorgan Chase Co NYSE JPM and Citigroup Inc NYSE C said they had set aside more money for credit card lending losses in the third quarter stoking concerns about consumer credit even as they reported results that topped analyst estimates
JPMorgan shares eased 0 9 percent and Citigroup fell 3 4 percent making them among the biggest drags on the S P 500
Earnings will continue to be in focus for today along with inflation data from the U S which could pave the way for the Fed s monetary policy path
Pivot 2545 Support 2545 2542 2540 Resistance 2553 5 2558 2562 Scenario 1 long positions above 2545 00 with targets at 2553 50 2558 00 in extension Scenario 2 below 2545 00 look for further downside with 2542 50 2540 00 as targets Comment the RSI calls for a rebound The prices are now trading sideways with the range between 2545 and 2553 50 Nevertheless as long as 2545 is not broken the intraday outlook remains bullish |
JPM | 3 Ways To Play A Fed Trade That Works Every Time | The next Federal Open Market Committee FOMC meeting is slated for Nov 1
Traders give Team Yellen a 98 5 probability that the Federal Reserve is going to raise rates in November and an 86 7 probability that it ll raise rates in December
Are you and your money ready
I hope so
There are huge profits at stake and now s a perfect time to trade the Fed using a play that s worked 100 of the time ahead of interest rates since 1990
It all comes down to financials and specifically buying banks
According to Kensho a three and a half year old startup that uses artificial intelligence to parse big data related to real world events buying financials two months before a rate hike has generated an average return of 10 74 every single time since 1990
Granted there have been only four December rate hikes over that time frame so you need to take that research with a grain of salt But don t let that stop you when it comes to pursuing profits
My research shows that year end rate hikes are typically part of a much broader financial setup that includes everything from window dressing to performance enhancing trades that portfolio managers use to position hundreds of millions or even billions of dollars for the following calendar year
Key moves include shedding losers deferring income harvesting winners and more all of which should sound familiar considering we ve talked about doing the same things in years past
This time around though there s a little more incentive
You see raising rates towards the end of this year is really a vote of confidence in upcoming economic conditions rather than just a rate hike like most investors think
That s what makes today s trade so attractive and potentially very profitable
Remember we re talking about an opportunity that s worked 100 of the time according to Kensho s research The probability of success drops to only 62 for rate hikes at other times of the year in case you re wondering
In other words the calendar not the Fed is giving you an edge
Here s how I break the situation down
A Fractured Fed That Doesn t Know How Money Works
Team Yellen continues to struggle with the control it supposedly exerts
The latest minutes from September show members openly debating whether or not low wages and price pressure are more of a long term problem than a short term market risk That tells me they have no idea what it really is let alone how to fix it Not that they ever did but that s a story for another time
The key is that they re going to try anyway as long as the medium term economic outlook remains unchanged according to the official account of what transpired at the last meeting That s like trying to bake a cake when you don t understand the ingredients and about as futile
Unbelievably the minutes also show that the majority of Fed officials including Ms Yellen herself still believe higher inflation is just around the corner so they re not ready to recalibrate the models used to make policy decisions
Makes me want to beat my head against a wall
The Fed does not understand how real money works let alone why its models are broken a point I ve made frequently since the global financial crisis began I see this latest statement as proof positive that that s still the case
Inflation is not caused by tight labor markets and higher salaries like Team Yellen and her band of merry economic misfits think Rather it is caused by excess money in the system
What most investors and many professional economists are missing is very simple
The Fed can control liquidity but it cannot control credit which is constantly expanding That s what s really holding inflationary pressure down in the monetary system
People accuse the Fed of playing with imaginary money all the time but in this instance it s the banking system that s creating it out of thin air Every loan application every credit card offer every derivative contract those are all backed by nothing except the financial condition of the institution making the offer
Yellen and her team cannot model what s happening so they pretend the relationship between foreign exchange rates loans derivatives bond markets and traders does not exist and do their meddling anyway
Traders on the other hand do understand the linkage I ve just described and very well They have to because they have trillions of dollars of real money on the line every day not just broken academic models
Now for the fun part
You can make this trade any number of ways depending on your risk tolerance and trading objectives
If you like to trade stocks I think buying the best bank you can get your hands on makes sense as determined by its return on common equity or ROCE for short To me that s a choice like Phoenix based Western Alliance Bancorporation NYSE WAL which has reported an average ROCE of 14 92 for the past four quarters
If you d rather spread your money around via an exchange traded fund a choice like iShares US Financials NYSE IYF makes sense Just understand that some of the upside will be limited by weaker banks with lower return on shareholder equity that are included in the fund
If you d like to play along more aggressively consider a choice of call options or options related spreads on JPMorgan Chase Co NYSE JPM which will likely grow loans and key business lines aggressively as Yellen s Fed raises rates I think the JPM Jan 19 2018 97 50 call JPM180119C00097500 is worth a closer look
As always remember that we re talking about a trading opportunity here not investing as is usually the case
So you re going to want to do two things if you want to follow along 1 limit the amount of capital you put at risk to only the money you can afford to lose if things don t go as expected and 2 remember that past results never guarantee future results
I suggest you implement a trailing stop to capture profits and minimize losses if the markets have other ideas
Over the years I ve suggested 25 below your purchase price as a good place to begin but there s nothing wrong with running a much tighter 5 trailing stop if you don t have that kind of risk appetite
In closing I hope you ve enjoyed today s column
We don t get the chance to talk about the nuts and bolts of a trade like this as often as I d like so it s always fun when we do
Especially when it comes to a fluid situation that s got this kind of profit potential
Don t Miss This Strategy Could Unlock Life Changing Wealth
With gridlock in D C and rising geopolitical tensions many are concerned about a market downturn that could set them back years
But here s the thing none of that matters Because I ve identified a pattern that takes a lot of the guesswork out of finding those lucrative opportunities
This pattern is a way to see that a stock is rising with near 100 certainty When it appears the stock is going up in price fast
I m talking nine gains in one week 30 triple digit gains this year and 46 triple digit winners in the last 12 months
The post appeared first on Total Wealth
We re not sure what else we can do to convince you |
JPM | Daily Market Analysis 13 10 2017 | Market Summary
Asian markets finished broadly higher Thursday extending gains as investors remain confident about the health of the global economy Japan s Nikkei hit a fresh 21 year high despite a stronger Yen which normally weighs on export related shares South Korea s Kospi rose for a third consecutive session hitting a new record closing level
European markets ended flat after a directionless session The lack of any economic reports kept investors on the sidelines choosing to avoid trading with the lack of a catalyst London s FTSE outperformed however rising to a new record high for the first time since May in response to weakness from the Pound
U S markets ended broadly lower coming off their record high levels as the financial sector weighed despite better than expected earnings reports from both JPMorgan NYSE JPM and Citigroup NYSE C The banks kicked off earnings season in the U S in earnest and investors are expecting it to be a good earnings season which could help markets continue to make new record highs
Today s Assets
Bitcoin
The cryptocurrency was expected to struggle to get through the 5 000 so you can imagine the markets surprise when it sliced right through that key level early Thursday After reaching as high as 5 360 by noon it pulled back somewhat in the afternoon but then took off again in the evening touching the 5 440 level With the cryptocurrency back in uncharted territory at all time highs it s impossible to say how high it can go but there is a feeling that traders are buying Bitcoin ahead of the November hard fork in order to collect an equal amount of the new Bitcoin Gold when it is created and if this is true Bitcoin has significantly higher to go in the coming weeks
Gold
The yellow metal gained Thursday but is up against severe resistance at the 1 300 level and could easily pullback now especially if the U S inflation and retail sales data due out today is stronger than expected We would expect such a pullback to take gold to the 1 283 level at least but it could go much lower |
MS | Sun Art Retail takes on e commerce rivals | Sun Art Retail Group OTCPK SURRY OTCPK SURRF is jumping into the online grocery delivery market in China with its new Feiniu Fresh service The move follows Alibaba s NYSE BABA launch of Hema Fresh last month and JD com s NASDAQ JD expansion of its Yonghui s Super Species chain Sun Art which is China s second largest hypermarket operator is also a pioneer in the unmanned convenience store concept Morgan Stanley NYSE MS is positive on the new direction for Sun Art We think Sun Art could potentially become the largest merchant for daily consumer goods both online and offline in the roughly 200 cities where it operates stores reads the firm s note Now read |
MS | Morgan Stanley predicts euro parity with pound for 2018 | LONDON Reuters U S investment bank Morgan Stanley NYSE MS raised its currency forecasts for the euro on Friday predicting it would hit 1 25 early next year and be one for one versus Britain s pound for the first time in its 18 year history Morgan Stanley also cut its forecast for the Mexican peso to 20 per dollar in the third quarter of next year saying it would come under pressure ahead of the country s elections |
JPM | Bank of Korea Holds Fire on Rates as Risks to Economy Grow | Bloomberg The Bank of Korea left its key interest rate unchanged citing an escalating U S China trade war as among rising risks to Asia s fourth largest economy It trimmed growth forecasts for this year and next
Governor Lee Ju yeol made clear that for now price stability and caring for the economy the BOK s primary goals by law he noted would take priority over trying to curb financial imbalances such as record household debt and soaring house prices Still he said those imbalances are a growing concern and the time to focus on them is coming near
Should the economy grow stably and inflation near the target the main focus for the BOK will certainly become maintaining financial stability because mounting financial imbalances will eventually affect the real macro economy Lee said
Eleven of 18 analysts surveyed by Bloomberg had forecast the central bank would keep the seven day repurchase rate at 1 5 percent on Thursday The rest predicted a hike to 1 75 percent
Two board members dissented from the decision calling for a hike Lee said
Hawkish Signs
Some BOK watchers took Lee s comments and the two dissenting votes versus one in the last meeting as hawkish signs
Governor Lee s comment that the time is nearing to put greater focus on financial instability was sort of a signal that there was discussions among the policy board today that there will be an imminent rate hike in the near future said Park Seok gil an economist at JPMorgan Chase Co NYSE JPM
The won weakened as much as 0 7 percent against the dollar the most in a week after the decision and Lee s comments The yield on 10 year government bonds was steady at 2 34 percent as of 1 33 p m in Seoul
Competing Pressures
When Lee convenes the next policy meeting in November a year will have passed since the BOK raised the benchmark rate from a record low Lee has repeatedly said that policy accommodation needed to be reduced further
Yet worries about spillover effects from the trade battle and emerging market turmoil have been reasons for caution So has a sharp slowdown in hiring at home The central bank trimmed its 2018 growth forecast to 2 7 percent from 2 9 percent and its 2019 outlook to 2 7 percent from 2 8 percent It left its 2018 inflation forecast at 1 6 percent
The central bank needs to balance the need to reduce policy accommodation against a weak labor market and slowing economic growth said Woei Chen Ho economist at United Overseas Bank Ltd While we expect the headline inflation to remain close to or slightly exceed the BOK s 2 percent target in the next few months inflation risks should be contained due to weak demand side pressure from a sluggish jobs market she said
Lee has also cited the need to more closely monitor the widening gap between Korean and U S interest rates
Though it s slowing a bit South Korea s economy has grown roughly in line with projections in recent quarters and inflation in September ticked up to 1 9 percent just below the BOK s target Meanwhile household debt continues to break one record high after another supporting the argument among hawks that higher rates are needed
Lee stressed Thursday that growth is expected to remain in line with the economy s potential rate and that the BOK s position is to consider addressing risks to financial instability when the macro economy is stable
The time to put more emphasis on financial stability is near he said
Adds comments from Lee s news conference economist |
MS | ECB To Stay On Message | ECB expectations are firmly anchored to inaction on interest deposit and marginal rates yet outlying thoughts still look for a continued dovish stance from ECB President Mario Draghi and the board Rates have been at current levels for the last 8 months and only a small percentage of analysts surveyed believe we will see a cut this afternoon Recent hard and soft data point to a continued muted growth profile for the euro area for at least the first half of 2013 The most worrying part of recent releases isn t just the anaemic output from member states but the growing disparity between Germany and everyone else Fourth quarter Eurozone GDP figures announced at the start of the month confirmed a 0 6 contraction marking the deepest quarterly downturn in nearly four years But it isn t just growth showing a divergence Unemployment levels across the continent have continued to rise with the exception of Germany Compared with January 2012 unemployment rose by 1 890 million in the EU27 and by 1 909 million in the euro area according to Eurostat data Unemployment across Italy is now running at 11 7 of the population up from 11 3 in January partly explaining the high turn out of votes for the 5 Star Movement of Beppe Grillo Currently inflation levels do not appear to be a barrier to further ECB action If the ECB suggests in its policy statement that inflation risks have shifted to the downside this would provide the code word for an April rate cut write economists at Morgan Stanley On the currency front last month s feverish chatter around the high level of the euro has dissipated and shouldn t play a significant role in reporters questioning at tomorrow s press conference Growing speculation for more monetary easing has dampened the appeal of the single currency which today trades at 1 3023 against the Dollar just above the psychological level of 1 3000 Any use of words like competitive devaluation or currency war would indicate that the ECB is much more concerned about the euro appreciation than we expect said Marco Valli an economist with Unicredit Milan Speaking at the end of last month Mario Draghi said at this point our monetary policy remains accommodative because we are far from being in a situation where we can actually start having an exit in mind He also acknowledged that Eurozone inflation should be significantly lower than 2 in 2014 So all things considered as with the central bank decisions already seen so far this week we expect the ECB to stay on message polls suggest only a 10 probability of a change to the main rate this month |
MS | Mainstream Misconceptions About Likely Stock Market Returns | It seems like everywhere you look in the mainstream financial media bullish market analysts are talking about how the stock market is reasonably valued and poised for substantial gains The consensus tends to project the current trend forward indefinitely which works well during the early or middle stages of a cyclical move However this tendency fails at likely cyclical inflection points Recall that the vast majority of analysts remained extremely bearish in March 2009 while judicious chart analysis identified the best trading opportunity in a generation The consensus view suffers from a chronic case of myopia focusing on short term data and trends which causes it to miss the big picture often Additionally mainstream analysts will tend to latch on to supposed market maxims that support the continuation of the current trend even if those beliefs have very little support historically In his latest weekly commentary fund manager John Hussman examines the current mainstream bullish arguments and outlines their failings The present market euphoria appears to be driven by two myths and a legend Make no mistake When investors cannot possibly think of any reason why stocks could decline and are convinced that universally recognized factors are sufficient to drive prices perpetually higher euphoria is the proper term Myth 1 As long as quantitative easing is underway stocks will advance indefinitely This first myth is embodied in statements like since 2009 there has been an 85 correlation between the monetary base and the S P 500 not recognizing that the correlation of any two data series will be nearly perfect if they are both rising diagonally As I noted last week since 2009 there has also been 94 correlation between the price of beer in Iceland and the S P 500 Alas the correlation between the monetary base and the S P 500 has been only 9 since 2000 and ditto for the price of beer in Iceland though beer prices and the monetary base have been correlated 99 since then Correlation is only an interesting statistic if two series show an overlap in their cyclical ups and downs If you want to talk about causation the case for X causing Y is more compelling if the fluctuations in X precede fluctuations in Y Even in that case we say that X causes Y only if observing X gives us additional information beyond previous movements in Y itself In the case of quantitative easing much of what we observe as causality actually runs the wrong way Market declines cause QE in the first place and the result is a partial recovery of those declines As I noted a few weeks ago see Capitulation Everywhere the effect of monetary easing has undeniably been very powerful in recent years However if you examine the data closely this powerful effect is almost entirely isolated to a three step pattern 1 stocks decline significantly over a 6 month period 2 monetary easing is initiated and 3 stocks recover the loss that they experienced over the preceding 6 month period Regardless of whether one looks historically or even since 2009 a careful examination of the data is very clear the essential feature of QE has been the recovery of preceding market losses that the market experienced in the months preceding the initiation of QE with the impact of QE on investor risk preferences invariably wearing off after about 40 weeks We would not rely on that precise horizon but it s worth noting that the relevant market low in the most recent instance was on June 1 2012 Keep in mind that QE has no transmission mechanism other than inducing discomfort among investors The entire stock of additional reserves created by QE is still sitting idle in the banking system earning next to nothing It s just that someone has to hold that zero interest cash until it is removed from the system and the entire objective of QE is to make each successive someone as uncomfortable as humanly possible so they will go out and speculate enough to drive the prices of risky assets higher and their prospective returns toward zero The problem with investors excessive faith in QE is likely to emerge at the point when sporadically emerging economic or financial strains Europe global recession U S fiscal policy weaken the inclination of investors to speculate pitted against a monetary policy that has no material transmission mechanism other than to encourage speculation As we observed in 2008 when the Fed was aggressively slashing interest rates well before Bear Stearns got in trouble much less Lehman Fed easing is not terribly helpful in a market where risk premiums are depressed and have not spiked materially The same was true in early 2002 when I noted Wall Street s cheerleading position at the time that the economy was still too weak for the Fed to raise rates Again the Fed s easing did not prevent the market from plunging about 30 between March and October of that year despite positive GDP growth and an ISM above 50 Presently investors are entirely ruling out the possibility that the stock market could decline significantly in the face of continued monetary easing by the Fed This belief has far less basis in evidence than investors widely believe Still there s no denying the recent market advance So at least for a while myth has been more convenient and profitable than fact I doubt that this will remain the case much longer Myth 2 Stocks are reasonably valuedThe second myth supporting investor euphoria here is the notion that stocks are cheap on the basis of forward operating earnings It s actually very fascinating how hard this myth dies given how preposterously wrong the identical assertions turned out to be in 2000 and 2007 both points where our standard valuation methodology indicated dismal prospective returns for the market see The Siren s Song of the Unfinished Half Cycle for a historical review of these estimates Part of the problem here is that year ahead estimates for operating earnings earnings without the bad stuff are typically dramatically higher than trailing 12 month net earnings As a result forward price earnings ratios are almost always much lower than trailing P E ratios But Wall Street conveniently disregards this fact the historical norms that analysts assert for forward P E ratios are really only applicable to the much higher trailing P E ratios The result is that stocks almost always look cheap relative to those inappropriately inflated norms Another technique of course is to use norms that are heavily influenced by the late 1990 s bubble period a period where valuations were high enough to produce near zero total returns for investors for more than a decade If you use a period of overvaluation to derive your norm then your norm is overvaluation How is that not obvious One way to reduce this problem somewhat is to compare the forward P E ratio of each stock to its own average forward P E over the previous 5 year period This doesn t solve the entire problem as we ll see but it s notable that on a relative basis forward operating P E ratios are at about the same point they were at the 2000 and 2007 market peaks The following chart is from Morgan Stanley via ZeroHedge The larger problem with forward operating P E ratios is that they purport to value a very long term asset based on a single year s financial results which is only appropriate if that single year is adequately representative of long term cash flows This is where myth and reality are strikingly out of line At present corporate profits as a share of GDP are roughly 70 above their historical norm Despite seemingly endless rationalizations and arguments for the permanence of this situation the reason profit margins are elevated is actually very straightforward The deficit of one sector must be the surplus of another This is not a theory It s actually an accounting identity But the effect of that identity is beyond question Elevated corporate profits can be directly traced to the massive government deficit and depressed household savings that we presently observe I should note that this result is the outcome of hundreds of millions of individual transactions so it s tempting to focus on those transactions as if they are alternate explanations For example one might argue that corporate profits are high because people are unemployed many workers have been outsourced and government transfer payments are allowing corporations to maintain revenues from consumers despite low wage payments That s a perfectly reasonable of saying the same thing but the transaction detail does not change the basic equilibrium that profits are elevated because government and household savings are dismal One will not be permanent without the other being permanent To see this notice that corporate profit margins have always moved inversely to the sum of government and household savings Notice that elevated profit margins are also strongly mean reverting over the economic cycle In general elevated profit margins are associated with weak profit growth over the following 4 year period The historical norm for corporate profits is about 6 of GDP The present level is about 70 above that and can be expected to be followed by a contraction in corporate profits over the coming 4 year period at a roughly 12 annual rate This will be a surprise It should not be a surprise To understand how profoundly imbalanced the present surpluses and deficits in the economy are the following chart shows the sum of government and household saving as a percent of GDP The historical norm for the combination of these is positive at about 4 At present household and government saving sum to a combined deficit of 5 of GDP Here is the punch line Any normalization in the sum of government and household savings is likely to be associated with a remarkably deep decline in corporate earnings Notice that over the past three years we ve seen a very slight improvement in the sum of government and personal savings as a fraction of GDP That change shows in the following chart as a decline in the blue line the right scale is inverted Accordingly though corporate profits are still extraordinarily elevated we have also observed a significant decline of earnings momentum in recent quarters This is not some temporary anomaly It should be clear from the previous chart that the normalization of government and household savings is just getting started As I noted a few weeks ago it would be one thing if the reason for presently elevated profit margins was even a mystery But there is no mystery here Wall Street is grossly overestimating the value of stocks based on profit margins that are 70 above the historical norm The expansion of profit margins is the mirror image of the plunge in government and household savings in recent years Stocks are not cheap Forward operating P E ratios indeed any metric that does not adjust for the elevated position of profit margins are presenting a wildly misleading picture of market valuation Recognize the reasons for this now or discover the consequences of this later |
C | UBS StanChart settle 2009 Hong Kong IPO misconduct case | By Alun John
HONG KONG Reuters UBS Group AG and Standard Chartered LON STAN PLC have agreed to settle a case of alleged misconduct related to a 2009 IPO in Hong Kong in a move expected to end uncertainty about the Swiss bank s ability to lead stock listings in the city
While StanChart closed its equity business in 2015 UBS was expected to appeal an unprecedented 18 month ban on sponsoring initial public offerings IPOs in the Asian financial hub which was imposed sources say because of its role in the listing of a firm that subsequently collapsed
StanChart and UBS banker Cen Tian were scheduled to also appeal against disciplinary action by the Securities and Futures Commission SFC over alleged misconduct during the listing of a now defunct Chinese timber company which the two banks led
But the banks reached a settlement ahead of the appeals a counsel for SFC Jat Sew Tong told a three member Securities and Futures Appeals Tribunal on Monday adding that details of the settlement would be released at a later date
The high profile case one of many being investigated by the SFC is seen as a test of mounting scrutiny of IPO practices in a city where helping firms list is big business for banks
The settlement is good news for UBS as at least now it knows what its capabilities are said Benjamin Quinlan CEO of consultancy Quinlan Associates
A ban on leading IPOs if implemented would begin once the appeals process has been exhausted but the uncertainty around whether or when it might come into effect has already hurt UBS ability to pitch for sponsor work in Hong Kong
Last year UBS which was also fighting a HK 119 million 15 million fine from the 2009 IPO case sponsored just one IPO according to Dealogic though it advised on ten in total
UBS and Standard Chartered in Hong Kong declined to comment on news of the settlement An SFC spokesman said the regulator had nothing more to add
While UBS has not identified the IPO in question and the SFC has not confirmed it people with knowledge of the matter have said it was that of China Forestry
The timber merchant raised 216 million in its IPO but 14 months after listing trading of its shares was suspended when its auditor KPMG discovered irregularities
The company was subsequently liquidated
REGULATORY ACTION
In the wake of a slew of scandals among newly traded firms earlier this decade the SFC has been cracking down on banks not properly carrying out their duties as sponsor
In October the SFC said it had issued nine IPO sponsors with decision notices informing them of intended enforcement measures
Hong Kong IPOs need at least one sponsoring bank which typically takes the lead in running the IPO and collects a larger proportion of fees than banks listed only as bookrunners
Sponsors must conduct due diligence to assess the company being listed and are responsible for assuring potential investors that its IPO prospectus is accurate
Last year the SFC imposed a 7 million fine on Citigroup NYSE C for due diligence failures during its sponsorship of Real Gold Mining s 2009 IPO and 3 million on China Construction Bank International over its sponsorship of the failed 2014 IPO of seafood company Fujian Dongya Aquatic
We expect to see a number of the SFC s sponsor actions reach a conclusion during the course of 2019 law firm Freshfields said in a recent report |
C | Citigroup looks to speed up 2019 expense cuts | NEW YORK Reuters Citigroup Inc NYSE C has accelerated some of its 2019 plans to cut expenses through simplification of its organization and improvements in its internal processes Chief Financial Officer Mark Mason said on Tuesday at an investor conference Mason made the comment in response to a question about whether the bank has ways to reduce expenses if revenues fall short of expectations
Mason also said that first quarter revenue from fixed income and equity trading looks like it will be down by percentages in the high single digits from a year earlier |
JPM | Would The Interest Rates Be Hiked At All | For those market participants not yet convinced the Fed is serious about raising rates again before the end of the year particularly at its December meeting this morning s Producer Price Index PPI numbers for September ought to finish you off With a lofty 0 4 PPI read as expected but still lofty double the August figure of 0 2 and also 0 4 ex food and energy this is the type of inflation metric the Fed had long been seeking It s here now PPI ex energy year over year core reached 2 2 in this latest read trade year over year was 2 1 These are signs of solid and maintainable inflation now clear and present within the domestic economy As the Fed minutes from the committee s last meeting released just yesterday attest our monetary safekeepers were unconvinced inflation had made enough of an impression within the economy to justify another rate hike this year And while the Federal Open Market Committee FOMC does meet in November currently analysts are looking at only a very slim chance of a hike next month however prior to this morning s PPI read estimates were roughly 80 that the FOMC would raise another quarter percent in December The Consumer Price Index CPI to be released before the opening bell tomorrow is an even more important number regarding the FOMC s likelihood to bump up rates And if we do see a raise in December it may have an immediate positive effect on U S banks including the biggest players on Wall Street which are in the process of reporting today tomorrow and into next week JPMorgan Chase NYSE JPM beat on both top and bottom lines 1 76 per share on 26 2 billion in quarterly revenues bested the 1 67 and 25 7 billion expected respectively This marks at least the fifth straight quarter of earnings beats with the trailing 4 quarter average positive surprise was north of 14 These figures are particularly impressive considering the challenging quarter just passed with investment banking fees 1 equity market revenues 4 and fixed income 27 Citigroup NYSE C also topped estimates for both earnings and revenues 1 42 per share surpassed the 1 32 expected and 18 2 billion on the top line improved on the 17 7 billion in the Zacks consensus Citi has also beaten earnings estimates for at least five straight quarters with the trailing 4 quarter average above 6 Net income of 8 year over year was a highlight of Citi s solid Q3 results Finally Initial Jobless Claims fell back within their long term range of 225 250K 15 000 claims lower from the downwardly adjusted previous week to 243K What s remarkable about this is that the labor market has endured 2 massive hurricanes in recent weeks and we never saw jobless claims peak above 300K This illustrates a real resilience in the U S jobs market nationwide Continuing claims also fell to 1 89 million from 1 92 million the previous week another good sign At first glance it would not appear Puerto Rico devastated by Hurricane Maria two weeks ago job losses are tallied here Also massive wildfires throughout inland California are causing loss of life and millions of dollars in damage Although these fires have not struck populous hubs like Los Angeles or San Francisco iconic regions like wine country in Napa Valley have been decimated To whatever extent jobs are going up in smoke along with everything else there the wildfires show no end in sight through the rest of this week we may see this pass through in next week s jobless claims |
JPM | Bitcoin Is Here To Stay | Crypto currencies have been one of the hottest topics these days as J P Morgan s NYSE JPM Jamie Dimon has expressed his disgust of the asset currency in recent months The price of bitcoin and other crypto currencies have gained market share in the past several years While many call it a bubble and a fad it has weathered storms and is now making me think that it could be here to stay
Investors and crypto currency users should note that these new currencies will be volatile as they become more mainstream I see it as a growing pain for this new technology
Here s Why Crypto Is Here To Stay
Distrust in governments Many people around the world are losing their trust in governments Just look at what has happened around the world in Syria Venezuela Greece Cyprus Libya Zimbabwe and many others nations Even in the United States there is more division and distrust between the citizens and politicians than most can remember This distrust will only continue over the years to come
Bitcoin and other crypto currencies use blockchain technology This technology is a basically a digitized public ledger of all crypto currency transactions It is important to understand that bitcoin isn t regulated by a central bank or any government authority thus eliminating a need for a middleman or third party to process trade or payments The completed transaction is publicly recorded into blocks and eventually into the blockchain It is then verified and relayed by other Bitcoin users The bottom line people are tired of paying a middleman for their transactions and this efficiently eliminates the middleman This is why the large banks are not favoring bitcoin and other crypto currencies
It is simple to trade peer to peer You can trade or exchange with anyone around the world in just minutes Companies are also starting to embrace Bitcoin and other crypto currencies because they will no longer have to pay the credit card companies a transaction fee which is usually between 3 to 5 percent of the transaction Again the middleman is eliminated |
JPM | Rally Stalls Despite Solid Bank Reports | JPMorgan Chase NYSE JPM JPM and Citigroup NYSE C C both beat earnings expectations on Thursday but these financial giants were unable to keep stocks on their record setting pace here in the early days of earnings season The S P slipped 0 17 to 2550 9 while the Dow was off 0 14 to 22 841 and the NASDAQ declined 0 18 to 6591 5 This earnings season is not expected to be as robust as the past two as Sheraz Mian discussed in his recent Earnings Trends article Nevertheless there s a good deal of optimism that the quarter will be strong enough to justify the market s lofty valuations at the moment More financial giants will be reporting tomorrow before the season really kicks into high gear next week The chop of earnings season begins As companies report it will likely cause ebbs and flows in equities in a very uneven matter Expect to be the hero one day and the villain the next Keep your faith in long term earnings trends and you ll come out richer on the other side said Dave in Momentum Trader The editors weren t very active in the session They ve been spending the last several weeks preparing their portfolios for earnings season and now it s time to watch how their positions report and what new opportunities will be presented So today s highlights section has a couple excerpts from the commentaries and some info on our newest service Technology Innovators Today s Portfolio Highlights Technology Innovators This brand new portfolio will be making its first picks on Tuesday Brian Bolan plans to add about 7 names at that time and then another 6 or 7 on Thursday as he hopes to get to 15 positions rather quickly The upper end goal is to have about 30 names While you wait for the inaugural picks read this new service s Guide and FAQ And make sure that you receive the TI summary emails and text alerts by choosing them on your preferences page If you have any questions send an email to technologyinnovators zacks com Counterstrike This morning we saw some earnings out from a couple banks Both JPMorgan and Citigroup beat on EPS but both stocks were sold for most of the day This is a common theme from the banks they always seem to sell into earnings but then grind higher over the next few months If you re long these stocks I wouldn t be worried about today s price action From what I saw the selling was pretty normal Domino s Pizza DPZ also released earnings They saw a 5 cent beat but just like the banks the stock sold off I would be surprised if we start to see a lot of selling into earnings reports based on how highs stocks have gone A company is going to really have to kill it to get a bullish gap and go situation Jeremy MullinOptions Trader Most of the major indexes are within striking distance of making it five weeks in a row of weekly gains And it won t take much to get there I m not surprised at this at all As you know I m expecting at least 2 600 in the S P by year s end But at this pace I think we can get even higher These are historic times Kevin Matras All the Best Jim Giaquinto
Recommendations from Zacks Private Portfolios Believe it or not this article is not available on the Zacks com website The commentary is a partial overview of the daily activity from Zacks private recommendation services If you would like to follow our Buy and Sell signals in real time we ve made a special arrangement for readers of this website Starting today you can see all the recommendations from all of Zacks portfolios absolutely free for 7 days Our services cover everything from value stocks and momentum trades to insider buying and positive earnings surprises which we ve predicted with an astonishing 80 accuracy |
JPM | Market Timers Get Bullish VIX back Under 10 Dow S P And Nasdaq All Make New | How many times over the last four or five years have you heard Elliott Wave Dennis Gartman or Tom DeMark say the high is in or get short the S P It s not just those three all of the well known market timers have done it so many times it s hard to believe that people pay for their services
At MrTopStep we offer 100 of your money back if you join our forum and decide it s not for you but that s not what the market timers do If they did they would be out of business I know every trader out there wants to see high volatility larger ranges and higher volumes but that may not happen for a long time The fed has 4 trillion to pay back from all the the quantitative easing they did and Europe is printing money just like the U S did
While the Chicago Board of Trades fed funds show an 88 chance of a rate hike in December raising rates at a quickened pace is not going to happen Historically low interest rates are going to stay low for a long time and that is why I keep saying that the current rally is going to continue There is an old saying and this applies to the Fed I would rather fight than switch and that is exactly where the federal reserve is today
S P Makes 45th New High In 2017 On Record Low Volume
At 10 00am Wednesday morning the ES had been held to a 4 handle trading range 2546 00 to 2550 00 After a little pull back down to 2546 00 the ES went into a slow motion upside grind At 11 50 the ES traded up to 2551 00 6 ticks above Tuesday high and 5 ticks above Wednesday nights Globex high There was a total of 419k es traded 112k came from globex and the ES is on path for another lowest volume day of the year After the 2551 high the ES pulled back to the 2549 50 area rallied back to 2550 75 and retested 2549 25 before trading up to a new high at 2552 00
I really can t believe what s happening At 1 25 CT total volume was 512 000 with like I said above 112 000 of that coming from Globex that is 400 000 contracts in five hours of trade Our sayings about up too high to buy and too firm to sell and thin to win are being applied Like I said on Twitter the volume is so low the algos can t eat I think most of you know I love talking and writing about the markets but there is so little to say The ES keeps going up and the volume keeps dropping
From 2552 00 the ES sold back off and traded 1 tick below the previous low down to 2549 00 but when the MiM started to show 260 million to buy the ES ran some buy stops up to a new high at 2552 75 At 2 45 the NYSE net MOC came out buy 480 million and the ES popped back up and made a new high by 1 tick at 2553 00 pulled back a few ticks and traded 2553 50 just after 3 00 and then settled at 2552 75 Total ES volume was 798 000 one of the lowest full session days of the year
While You Were Sleeping
Overnight equity markets in Asia and Europe traded mixed across the board This seems to the pattern this week Tight trading ranges all night and wait for news to come out of the U S
In the U S the S P 500 futures opened last night s globex session at 2552 25 and immediately printed the overnight high of 2552 50 From there it was a steady grind lower with the low at 2547 25 being printed just before 6 30am CT As of 7 20am CT the last print in the ES is 2549 00 down 4 00 handles with 97k contracts traded
In Asia 7 out of 11 markets closed higher Shanghai 0 02 and in Europe 7 out of 12 markets are trading lowder this morning FTSE 0 33
Today s economic includes Jobless Claims 8 30 a m ET PPI FD 8 30 a m ET Bloomberg Consumer Comfort Index 9 45 a m ET EIA Natural Gas Report 10 30 a m ET EIA Petroleum Status Report 11 00 a m ET Fedspeak Jerome Powell Speaks 10 30 a m ET Earnings JPMorgan NYSE JPM 7 00 a m ET Domino s 7 30 a m ET Citigroup NYSE C 8 00 a m ET
How High Is High
Our View How high is high Well the way I see it the S P has gone way further than anyone thought it would go especially when you throw in the lack of selloffs pullbacks That said the S P is a steamroller that just keeps rolling Our view is we still see the 2558 2560 area as the next spot to the upside Market timer Bert Dohmen is talking 2580 to 2600 As long as the volume in the S P remains so light you have to buy the pullbacks I know there is a down day coming but playing the short side is not where the money trade is right now
In Asia 7 out of 11 markets closed higher Shanghai Comp 0 02 Hang Seng 0 24 Nikkei 0 35
In Europe 7 out of 12 markets are trading lower CAC 0 30 DAX 0 10 FTSE 0 33
Fair Value S P 2 09 NASDAQ 2 88 Dow 54 90
Total Volume 813k ESZ 417 SPZ traded in the pit |
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