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C | Mexican president decrees tax cuts for U S border region | MEXICO CITY Reuters Mexico s new leftist President Andres Manuel Lopez Obrador on Monday decreed tax cuts for northern states that he says will help power economic growth and deter migration to the United States An executive order in the government s official gazette granted lower rates for both value added and income taxes in more than 40 municipalities bordering the United States an area that has become a flashpoint over U S President Donald Trump s policies to deter immigrants including building a wall Lopez Obrador s tax cuts could reduce government tax income during 2019 when he will implement a budget that seeks to use spending cuts to help fund new social welfare and infrastructure projects At an event in Monterrey in the northern state of Nuevo Leon on Saturday Lopez Obrador said the minimum wage in the northern strip of municipalities would rise to 177 pesos 9 00 nearly double the national level starting Jan 1 and that fuel prices would be set on a par with U S prices This is a very important project to boost investment and job creation Lopez Obrador told business leaders The decree seeks to give an edge to northern Mexican businesses which compete with U S based companies across the border Lopez Obrador has vowed to increase economic development to deter migration to the United States Trump wants to make Mexico take in Central Americans who are seeking U S asylum The plan will give businesses in the region a tax credits worth 50 percent of VAT dues Companies that can show they earn more than 90 percent of their revenue in the area are eligible for an income tax credit worth one third of dues Last month Citigroup NYSE C economists estimated lower tax revenue from the north could cost the government around 120 billion pesos 6 10 billion a year A national chamber of business owners Coparmex welcomed the decree in a statement as a judicious measure that could spur investment in the region The center right National Action Party the biggest opposition to Lopez Obrador s leftist coalition in Congress said the decree was a scam since it fell short of a campaign promise to cut tax rates for consumers PAN leader Marko Cortes said in a statement the VAT tax cuts would only benefit intermediaries and that it would fail to boost investment since it was a presidential decree that could be removed at any moment |
JPM | Bitcoin The Blackest Of Swans | In his groundbreaking book The Black Swan Nassim Nicholas Taleb defines a Black Swan as follows
An event positive or negative that is deemed improbable yet causes massive consequences
With that in mind is bitcoin a Black Swan
I emphatically answer in the affirmative
Now let s get even more granular
Taleb says that all Black Swans have three characteristics
1 Blacks Swans are outliers as it lies outside the realm of regular expectations because nothing in the past can convincingly point to its possibility
I d say bitcoin definitely satisfies this requirement That is unless you had gifted insights and predicted a digital currency would emerge that operates beyond the control of any Central Bank and offers total anonymity
2 Black Swans carry an extreme impact
It s impossible to consider any geopolitical event without also considering its impact on bitcoin prices So I d say we re good here
3 In spite of its outlier status human nature makes us concoct explanations for its occurrence after the fact making it explainable and unpredictable
Since pundits have tried to rationalize the price of bitcoin every day since the most recent explosion put a check next to this box too
I believe it s official now
bitcoin is the biggest recent example of a Black Swan event and such events can be infinitely profitable
For example bitcoin s success is spawning a brand new cryptocurrency one quietly about to launch
The prospects here are wildly bullish For my full report on this upcoming ICO
And Martin Hutchinson further unpacks Blacks Swans below
Ahead of the tape
Taleb postulates that there are more Black Swan events than we think in other words that the unexpected is not all that unlikely to happen I would agree and I would argue that this is because markets are not Gaussian and random walk They have both hidden correlations which you can handle with fuzzy logic and fat tails which you can handle with a Cauchy distribution
Black Swans or non randomness is why Wall Street s risk management models don t work And we saw in 2008 and we saw again with the London trade in 2012 The big Wall Street institutions relying on their models can often have huge unexpected losses simply because the models stop working when some Black Swan event happens
David Viniar who was Chief Financial Officer of Goldman in August 2007 said that just as the crisis was emerging We are seeing 25 standard deviation events one day after another Well the reality is that if the market is anything like Gaussian you should see less than one of the 25 standard deviation days in the history of the universe Therefore that proves pretty well that the market is not Gaussian and life is more complex than simple market models think
The real cause of Black Swans is herd behavior by traders and others such as Central Banks not seeing possibilities that are perfectly obvious to an outside observer and therefore doing foolish things The housing meltdown of 2007 2008 is perfect example of that Everybody went on making risky home mortgage loans long after they should have done
Likewise the London Whale trade of 2012 a Black Swan behavior of a portfolio of credit defaults swaps These are particularly subject to Black Swan behavior for various technical reasons It lost JPMorgan NYSE JPM 12 billion
The New York Stock Exchange Black Monday stock market crash of 1987 when the market dropped 21 in one day was also a Black Swan It was caused by programmed trading which is a silly arbitrage strategy One of the advantages of getting old is you remember examples that nobody else now remembers
The bottom line is that with the extreme monetary policies for the last decade zero interest rates or even negative interest rates Black Swan events are now quite likely
For the individual investor there are two strategies
Firstly you should protect yourself with gold and long dated out of the money S P 500 put options The point of those options is if the market really crashes you ll make money on them and that will give you money to reinvest at the bottom
Then second obviously see if you can spot a Black Swan coming As a non trader and a non politician this is where you have an advantage over the pros
You re not hearing conventional wisdom every day If you think you ve seen a Black Swan invest only a small amount leveraged as much as possible For example out of the money long dated calls or puts
As the movie The Big Short showed spotting a Black Swan could be painful But it can also make you rich |
JPM | Bitcoin s Biggest Challenge Is Also The Investor s Biggest Opportunity | If you have invested in cryptocurrencies such as Bitcoin Ethereum Ripple and many others you probably know already that blockchain technology is the biggest thing in the market right now The decentralized nature of the blockchain that powers Bitcoin and Ethereum makes cryptocurrency a perfect replacement for fiat currencies Bitcoin is free from the control interference and manipulation of governments and its agents
Bitcoin s use a digital currency makes it a viable investment for early adopters who are brave enough to invest now and survive the rollercoaster ride before Bitcoin gains mass market adoption For what it s worth Bitcoin is currently trading above 4000 a piece now Bitcoin is already up more than 250 this year and Ethereum is up almost 3 500 in the year to date period
In contrast the S P 500 has only managed to score YTD gains of 10 32 the Dow is up 11 63 and NASDAQ is up 17 but the NYSE Bitcoin index is up 307 3 in the same period as seen in the chart below
However the unique value proposition that makes Bitcoin a great investment is also the biggest challenge Bitcoin is a digital currency in the real sense of the word and its use is restricted to the digital space The fact that it is purely digital means it lacks physical features for use in the real world Of course the world is gradually shifting towards a cashless economy yet a large number of transactions still happen in the physical space and Bitcoin will continue to lag behind fiat currencies if it remains as a purely digital currency
Don t give up on Bitcoin just yet
Bitcoin is still being bought as an asset but its true value will be realized when it takes it rightful place as a means of exchange Bitcoin has the potential for mass adoption which could in turn reward investors in the cryptocurrency market with massive ROI
Some blockchain based startups such as are creating tools to bring the digital nature of Bitcoin to everyday use with a debit card that can be used anywhere Visa debit cards are accepted Founded in 2013 Cryptopay has created a niche offering Bitcoin wallets Bitcoin debit cards and other payment processing solutions With CryptoPay s Bitcoin wallet users can conduct Bitcoin transactions buy store and send Bitcoin anywhere in the world
Bitcoin is still in infancy but the cryptocurrency is garnering a great deal of attention in the financial investment and economic landscapes All that Bitcoin needs is a bridge between its early adoption phase and its mass adoption phase fiat Bitcoin will eventually take its place as a currency but for now we wait and continue riding the wave of Bitcoin as an asset
Bitcoin s digital only barrier is an hurdle
Bitcoin should have already displaced fiat currencies because it makes better economic sense and fiat yet Bitcoin is still struggling in its transactional use Bitcoin is mostly being bought as an asset than as a currency In fact many of the U S companies that initially hung out a Bitcoin accepted here sign have started there Bitcoin payment programs
One of the reasons merchants are finding it hard to embrace Bitcoin is that the cryptocurrency is being plagued by low transaction volumes A market report by JPMorgan NYSE JPM revealed that only 3 out of 500 internet sellers accept Bitcoin down from 5 last year
Interestingly the main reason merchants aren t accepting Bitcoin is that not many people are interested in buying stuff with the cryptocurrency Bitcoin s price has soared above the 4 000 mark and most of the people who own Bitcoin are choosing to hold the cryptocurrency instead of spending it Merchants don t have much of a reason to invest in solutions that will make it easy for them to accept Bitcoin payments |
JPM | 4 Ways To Trade JP Morgan | JP Morgan NYSE JPM remains stuck in a box The stock got a boost after the election in November like all financial stocks but has since stalled in a range between 82 and 94 50 Since the beginning of June JPM has looked positive bouncing off the bottom of the range and reaching the top to start July It has held in a tighter range much closer to the top since then
The Bollinger Bands are tight and flat and if it should break to the upside there is a Measured Move to about 109 to match the move into the box The recent up leg would give a Measured Move to 102 50 along the way The RSI is pulling back though and is nearly at the lower edge of the bullish zone while the MACD is dropping and near zero Momentum does not currently support a move up There is no resistance above 94 50 and support sits below at 90 50 and 89 followed by 86 and 84 50 before 82 Short interest is low under 1 and the company is not expected to report earnings again until October 12
The options chain for this week shows large put open interest at the 90 strike which could act as support and spread on the call side from 91 to 95 September open interest ramps from 87 50 to a peak from 95 to 97 50 on the call side with the biggest at 90 on the put side though much smaller In October the first after the next earnings report open interest is biggest by far at the 95 and 100 Call Strikes with smaller size from 85 to 92 50 in the puts All this suggests options traders expect a drift higher through to the next earnings report
The Trades
Trade 1 Buy the stock with a stop at 90 50
Trade 2 Buy the stock and add an October 90 85 Put Spread 1 60 for protection Sell the December 100 Calls 70 cents to lower the cost
Trade 3 Buy the October 87 5 92 5 bullish Risk Reversal 20 cents for a run higher into earnings
Trade 4 Buy the October 92 5 September 95 Call Diagonal 1 65 Continue to sell shorter dated higher strike Calls as the September Calls expire |
MS | BOJ tankan shows slight pickup in corporate inflation expectations | By Stanley White TOKYO Reuters Japanese companies inflation expectations picked up slightly in June from three months ago as labor shortages and high material costs pointed to an acceleration in consumer prices over the next few quarters Companies surveyed by the Bank of Japan expect consumer prices to rise 0 8 percent a year from now higher than their projection for a 0 7 percent increase three months ago Companies also expect consumer prices to rise an annual 1 1 percent three years from now up from a 1 0 percent annual increase seen in the previous BOJ survey The data come one day after the BOJ s tankan survey on corporate sentiment showed big manufactures are the most confident in three years offering some hope that prices will rise albeit at a gradual pace Labor shortages will push up inflation expectations over time said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities However this is a slow process so the BOJ s monetary policy will be on hold for the time being Core consumer prices which include oil products but excludes fresh food prices rose 0 4 percent in May from a year earlier marking the fifth straight month of gains and accelerating from a 0 3 percent increase in April data last week showed However consumer prices were unchanged in May after stripping out the effect of energy costs underscoring the BOJ s struggles to push inflation to its 2 percent target The BOJ is likely to cut its consumer price forecast for the current fiscal year at a quarter review of its projections in July people familiar with its thinking told Reuters However a slight uptick in inflation expectations combined with increased optimism in the corporate sector could give the BOJ reason to keep its longer term price forecasts unchanged
The BOJ started the survey on corporate price expectations from the tankan in March 2014 to gather more information on inflation expectations key to its current stimulus program |
JPM | Seeking to restore confidence Turkey slashes growth forecasts | By Ezgi Erkoyun and David Dolan ANKARA Reuters Turkey sharply cut its growth forecasts for this year and next on Thursday but disappointed investors who had hoped for a plan to help banks and a deeper reduction in the estimates to reflect the fragile state of the economy Turkey has seen its lira currency plunge by 40 percent this year on concerns about President Tayyip Erdogan s influence over monetary policy and a bitter diplomatic rift with the United States The turbulence has shaken global financial markets and raised the prospect of a potential banking crisis at home Markets had been hoping that Finance Minister Berat Albayrak s medium term programme announced on Thursday would signal a clear break from the emphasis on credit fuelled growth that has characterised Turkey s rapid expansion over the last decade and a half under Erdogan s rule Albayrak said growth would be 3 8 percent this year and 2 3 percent in 2019 both revised down from forecasts of 5 5 percent He also did not deliver the big plans for the banking industry that some analysts had been hoping for particularly the creation of a bad bank vehicle to take over non performing loans Following the presentation the chairman of Turkey s BDDK banking watchdog said there would not be a transfer of problem loans to another institution At the moment the programme is a disappointment First when you look at the growth forecast the current account deficit forecast they are too ambitious said Guillaume Tresca a senior EM strategist at Credit Agricole PA CAGR We don t have anything new regarding a bad bank regarding the treatment of non performing loans regarding the foreign exchange funding of the banking system or the foreign exchange funding of the corporates It is lacking details and it is lacking news The lira weakened to 6 3100 by 1219 GMT from around 6 20 beforehand and a close of 6 2541 on Wednesday The currency has now erased almost all the gains made since the central bank s mammoth interest rate hike of 6 25 percentage points last week underscoring the difficulty policymakers face in putting a floor under the lira and restoring confidence Sources told Reuters on Wednesday there was a debate among top government officials about the extent of the growth revisions highlighting the delicate balance between Erdogan s long standing drive for economic expansion and investors calls for greater austerity STRONG AND WEAK POINTS Albayrak Erdogan s son in law had previously promised realistic macro targets and right action plans We will see a gradual growth increase from now on Our main goal is to establish 5 percent growth from 2021 onwards Albayrak told Thursday s presentation in Istanbul He did not take questions We will realise the necessary policies and measures to ensure economic hardships are overcome he said We are aware of the economy s strong and weak points For financial markets the biggest concerns remain inflation which Albayrak forecast would hit 20 8 percent this year and 15 9 percent next year and the banking sector Turkey s banks face a potential deluge of bad debt as the lira sell off has driven up the cost for companies to service their foreign currency loans For years Turkish firms borrowed in dollars and euros drawn by lower interest rates JPMorgan NYSE JPM estimates that the private sector has around 146 billion in external debt maturing in the year to July 2019 Ratings agencies Moody s and Fitch have both sounded the alarm about the outlook for banks Fitch has estimated that banks foreign currency lending stood at around 43 percent of all loans But the government has repeatedly said it does not expect problems in the banking sector The lack of burden sharing signs in the restructuring of the real sector debt in Minister Albayrak s speech seemed to have led to a sharp deterioration in sentiment Gokce Celik of QNB Finansbank said in a note to clients INVESTMENT PROJECTS Albayrak said that investment projects for which the tender process has not been finalised will be suspended a sign that some big ticket government projects could be put on hold Turkey s unemployment rate is expected to rise to 11 3 percent in 2018 and 12 1 percent in 2019 before falling to 11 9 in 2020 the presentation showed Albayrak said Turkey would prioritise investments in pharmaceuticals energy and petrochemicals to reduce its current account deficit which was seen falling to 2 6 percent of gross domestic product by 2021 from 4 7 percent seen in 2018
He also said Turkey would suspend all investment projects for which the tender process has not been finalised He also said Turkey would revise its social insurance schemes and restructure its incentive scheme for exports |
JPM | Neiman Marcus bondholder says company may be in default | By Jessica DiNapoli NEW YORK Reuters Distressed investor Marble Ridge Capital LP said in a letter to Neiman Marcus Group Ltd LLC that the luxury department store company may be in default on its debt after it moved its Mytheresa business into an entity belonging to the retailer s private equity owners These recent actions threaten the viability of a storied franchise that includes marquee brands such as Neiman Marcus and Bergdorf Goodman another luxury department store also owned by the retailer said Dan Kamensky managing partner of Marble Ridge in a statement about the letter parts of which were made public on Friday Marble Ridge is working with law firm Brown Rudnick LLP and plans to organize with other creditors to look into the Mytheresa move according to a person familiar with the matter The hedge fund last year pursued a similar strategy with Singapore based Global A T Electronics Ltd We believe a more responsible board would have engaged in a strategic review to maximize value for the benefit of all of the company s stakeholders Kamensky said Buyout firm Ares Management LP and the Canada Pension Plan Investment Board CPPIB acquired Neiman Marcus for 6 billion in 2013 saddling the retailer with about 4 7 billion in debt Neiman Marcus said on Tuesday it moved the Mytheresa online business to an entity called Neiman Marcus Group Inc owned by Ares and CPPIB As publicly disclosed Mytheresa was already an unrestricted non guarantor subsidiary not part of our lenders collateral and it will remain outside of the collateral Neiman Marcus said in a statement This reorganization was expressly permitted by the company s credit documents Ares and CPPIB did not immediately respond to requests for comment The transfer may have made the company insolvent Marble Ridge said in the letter dated Sept 18 and seen by Reuters Marble Ridge owns bonds and a portion of the term loan of Neiman Marcus Moving Mytheresa strips an important and valuable asset away from the creditors of the company and gifts it to Ares and CPPIB for nothing in return according to the letter Mytheresa s earnings growth has outpaced Neiman Marcus its outlet stores Last Call and Bergdorf Goodman online Thomson Reuters IFR reported in a story this week citing a JPMorgan NYSE JPM analyst report Brick and mortar retailers including department stores have been hit hard by the rise in popularity of online shopping with dozens filing for bankruptcy over the past several years Reuters reported last year that Neiman Marcus was working with an investment bank to address its debt load J Crew Group Inc another upscale fashion retailer faced litigation from its creditors after it moved its intellectual property to an affiliated company in a debt restructuring deal |
JPM | Turkey not seeking economic aid from Berlin German Finance Minister | BERLIN Reuters Turkey did not seek economic aid from Germany during talks in Berlin on Friday and Turkish President Tayyip Erdogan will not ask for support when he meets Chancellor Angela Merkel next week either German Finance Minister Olaf Scholz said Turkey has not sought economic aid neither during our talks today nor will it do so in the talks that the president and the chancellor will hold Scholz said after meeting Turkish Finance Minister Berat Albayrak who is Erdogan s son in law German Economy Minister Peter Altmaier noted that Turkey had enjoyed in strong growth rates in recent years adding that makes us all optimistic that Turkey will be in a position to overcome the problems and challenges Turkey sharply cut its growth forecasts for this year and next on Thursday a reduction that failed to mollify investors who wanted a more sober assessment of the fragile economy and a sweeping plan to help banks The lira currency has plunged by 40 percent this year on concerns about Erdogan s influence over monetary policy and a rift with the United States The sell off has shaken global markets and raised the prospect of a banking crisis at home
Turkey s banks face a potential deluge of bad debt as the lira sell off has driven up the cost for companies to service their foreign currency loans For years Turkish firms borrowed in dollars and euros drawn by lower interest rates JPMorgan NYSE JPM estimates that the private sector has around 146 billion in external debt maturing in the year to July 2019 |
JPM | After Albayrak s economy program investor concern turns to Turkey s banks | By David Dolan and Ali Kucukgocmen ISTANBUL Reuters Investors had hoped Turkey would announce a sweeping plan to help its banks when Finance Minister Berat Albayrak rolled out a new economic program this week What they got fell far short of that Albayrak announced sharply lower growth forecasts for this year and next and promised 12 billion in new savings and revenue for 2019 but failed to mollify investors who wanted to see Ankara move quickly to stem worries about the banking sector Turkey s lira has fallen some 40 percent so far this year hit by concerns about President Tayyip Erdogan s control over monetary policy and a rift with the United States The sell off has stoked inflation which is expected to top 20 percent this year and raised the prospect of a banking crisis For years Turkish companies particularly construction firms have gorged themselves on cheap euro and dollar loans But the lira crisis has driven up the cost of servicing that debt meaning lenders face a wave of defaults It s quite clear that there will be defaults and there will be a need for restructuring in the corporate sector said Per Hammarlund chief emerging market strategist at SEB The medium term economic program would have been a perfect opportunity to present a more actionable clearer program for how they intend to deal with potential problem loans Turkey has a large and sophisticated banking sector that is dominated by a mix of listed lenders including Isbank IS ISCTR Garanti IS GARAN and Akbank IS AKBNK and state owned banks such as Ziraat and Halkbank IS HALKB Garanti is a unit of Spain s BBVA MC BBVA which along with Italy s UniCredit MI CRDI France s BNP Paribas PA BNPP Dutch bank ING AS INGA and Britain s HSBC L HSBA are the foreign banks most exposed to Turkey That exposure is significant JPMorgan NYSE JPM estimates that the private sector has around 146 billion in external debt maturing in the year to July 2019 In August Moody s downgraded its ratings on 20 financial institutions saying Turkey s operating environment had deteriorated beyond previous expectations Erdogan a self described enemy of interest rates wants to keep borrowing costs low and credit flowing to companies particularly construction firms His comments about monetary policy have undermined the central bank s credibility and caused much of the sell off The central bank last week hiked interest rates by a greater than expected 6 25 percent points although the lira remains under pressure UNDERWHELMING In a decade and a half in power Erdogan has transformed Turkey building roads hospitals high speed trains and high rise apartments But economists say the boom years focused more on consumption rather than productivity that Turkey built shopping malls when it should have been investing more in factories and its education Albayrak President Erdogan s son in law failed to signal an unambiguous break from the emphasis on credit fuelled growth saying a main goal was to establish 5 percent annual growth from 2021 onwards Markets had speculated that he would announce a bad bank vehicle to take over souring debt But the economic plan made no mention of such a move and the head of the banking watchdog said there would be no transfer of problem loans Albayrak failed to provide a convincing case that there has been a broad shift back to orthodox policymaking Jason Tuvey of Capital Economics said in a note to clients Hopes that the government would announce the creation of a bad bank to absorb souring loans were also disappointed Overall then a bit underwhelming Given their reliance on external funding Turkish banks are exposed to refinancing risk Ratings agency Fitch has that some 102 billion of loans are maturing in the next 12 months and that the refinancing requirement is probably around 55 billion The government has said it does not expect problems in the banking sector and Albayrak on Thursday dismissed concerns about refinancing risks Investors are less certain Istanbul s index of bank stocks is down 40 percent this year XBANK As of July some 37 percent of Turkish banks loans 144 20 billion were denominated in foreign currency according to data from the BDDK regulator with 15 percent of those short term BAD LOANS Non performing loans NPLs account for just 3 05 percent of all debt according to BDDK data But investors are wary Two important issues for the banking system are liquidity how much foreign financing they can get to roll over maturing external debt and second how will the NPL ratios develop said Inan Demir an emerging markets strategist at Nomura Of particular concern is the banking sector s exposure to construction real estate and power utilities The tumbling lira coupled with rising energy prices has squeezed power firms once seen as a darling of foreign investors Turkey has already seen some high profile restructuring Yildiz Holding the owner of global food brands including Godiva chocolate agreed to refinance 5 5 billion in May Some banks have started to sell project finance loans to foreign lenders to free up cash While questions remain around banks and diplomatic relations with the United States the extent of the lira sell off has made Turkey attractive to some We are relatively optimistic on having a macro adjustment in Turkey the big question is whether the central bank will be given the space to keep rates high said Brett Diment head of Emerging Market and Sovereign Debt at Standard Life LON SLA Aberdeen just returned from a trip to Turkey We are now at benchmark weight having been underweight for quite a while adding The currency is pretty undervalued
1 6 2690 liras |
MS | What To Do For The Rest Of 2012 | What should we make of this volatile stock market Just as it seems that the market starts to move in one direction it reverses course and violently punishes the traders to try to catch the breakouts or breakdowns I present my base case scenario below otherwise known as my wild eyed guess for the remainder of 2012 Bear case Market internals scream cyclical slowdown A review of the relative performance of the US equity sectors scream cyclical slowdown Consider this relative performance chart of the Morgan Stanley Cyclical Index CYC against the market Cyclical stocks have been in a relative downtrend since February The message of the market from relative underperformance of the cyclical sector says cyclical downturn The relative performance of Consumer Discretionary stocks also tell the same story This sector had been the leaders for quite some time but this sector is now rolling over on a relative basis which is not a good sign for the risk on high beta trade Technology which I characterize as a growth cyclical sector is not providing any leadership either The relative performance of the equal weighted NASDAQ 100 which takes out the effects of heavyweight and market darlings such as Apple has been rolling over on a relative basis Bull case Sentiment models screaming buy While the cyclical indicators appear to be pointing south long term sentiment models are screaming buy The Citi Panic Euphoria Indicator via has flashed a buy signal Similarly the which measures the average recommended equity exposure of Street strategists is showing an off the charts bearish reading that is contrarian bullish A US only cyclical effect How can we reconcile the apparently bearish macro outlook with a bullish sentiment outlook If we were to only look at the relative performance of US sectors the story would look dire However an analysis of globally cyclically sensitive indicators don t tell the same story of a cyclical downturn The chart of Dr Copper for example is showing signs of stabilization The price of the red metal stopped going down in June and has started to consolidate sideways indicating that the one big consumer of commodities i e China may be starting to bottom Similarly the AUD CAD exchange rate has been rallying Both the Australian and Canadian economies are similar in their commodity exposure The only difference is Australia is more sensitive to Chinese demand while Canada is more sensitive to American demand The rally in the AUD CAD rate is an indication that the growth expectations are turning around on the Chinese economy compared American title AUD CAD width 695 height 308 Another indication that the global cycle is not tanking is the relative performance of the cyclically sensitive South Korean market or economy The chart below of the relative performance of the Korean ETF against the MSCI All Country World Index ETF ACWI shows Korea to be range bound on a relative basis The relative performance of Korea against ACWI stands in marked contrast to the relative performance of the CYC against the SPX shown above The canary in the German coalmine So far we have discussed the US and Asia mostly China in considering the market outlook What about Europe My view is that Europe will oscillate back and forth in a volatile fashion as we go through the cycle of crisis rescue plan rescue plan failure followed by another crisis Mario Draghi has put together a plan with pre conditions of what is needed to try to save the eurozone once more see What did you really expect from the ECB The key to this latest plan remain the Germans Will the German elite the Bundesbank and German public acquiesce My best guess is that they won t blink until German society starts to feel serious pain and fear Fear will come in the form of a possible collapse of their beloved and financial system which is starting to show strains see The one canary in the German coalmine that I am watching is the share price of Commerzbank which is one German bank that is known to be close to edge of the precipice Should CBK collapse watch for the Germans to blink A volatile grind upward for the rest of 2012 In conclusion an investor who just focuses on the US market may be inclined to turn bearish My take is that the leadership will start to shift away from US equities to stocks more exposed to the global cycle The most likely scenario is that US stocks will follow the election cycle and continue to grind upward though in a highly choppy fashion Key macro risks loom large That s why the markets will be very volatile and frustrating for investors and traders alike Take positions but don t forget to maintain risk controls 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 | LIBOR Whittle Test For Serial Dependence Of 3 State Sequence | In earlier posts I discussed a little of my history of involvement with modeling and trading LIBOR derivatives eurodollar futures for Peter Muller s PDT Group then at Morgan Stanley and a little theory about the consequences of a cartel of banks fixing the LIBOR fixes The data for LIBOR is readily available from the Similarly data for the discount rates of is also available Our hypothesis is that in a free market the transmission of risk free policy rates to risky market rates should essentially be linear described by the equation This says that each bank s individual cost of funds is linearly related to the risk free rate and as a consequence the market average of the banks cost of funds is also linearly related to the risk free rate So in an efficient market the stochastic process that is LIBOR should have the same autocovariance structure as that of US Treasury Bills I m not saying that bill rates have to be i i d random I m just saying that LIBOR should have the same dynamic and Treasury Bills So to find out if the LIBOR fixing process is efficient we should test to see if the processes are statistically similar or not I m going to start with a simple model Let s say that the changes in rate are a Markov chain with three states up unchanged and down The actual change in rate is then the product of a direction variable and a size variable This state sequence possesses the advantages of being simple to compute and easy to understand We can then ask whether the state sequences show evidence of the Markov property that they are predictable from their prior instance or whether they are independent of their own history There is a nice test for this called Whittle s Test which is essentially about building a contingency table and appying a analysis to the observed counts It is simple and it is about counting things like the relative frequencies of sequences like up up versus up down etc so there is no introduction of hypotheses of normal distributions or leptokurtocity or GARCH or any time series sophistication This chart shows the result of applying this test independently to each year for which we can get LIBOR quotes and to the Bill Rates for the same years The shading indicates when the test rejects the null hypothesis of independent state sequences with a confidence of better than 99 meaning that for these years you can predict the next day s state from the prior day s state with better than neutral skill You can see that the LIBOR sequences are not independent from about 1996 onwards whereas the Treasury Bill sequences mostly are This is also remarkable in finance as being a time series that apparently got less efficient as time progressed We generally expect the opposite Furthermore without any statistical tests I think it is plain to the eye that the LIBOR series is unnaturally smooth in the latter half particularly when compared to the Treasury Bill series Thus the hypothesis if neutral transmission of policy rates to market rates is rejected from 1996 onwards I would suggest that something was going on with LIBOR since at least that date |
MS | More Good News From Sprott | More news yesterday that Sprott s 200 million dollar offer just received another 20 million in support By my math this is nearly 9 million ounces of silver We ll see how long it takes to procure this metal since there is plenty of paper metal but not very much of the real stuff also stay tuned to the price of the white metal which has been languishing recently From mineweb The recent fully subscribed 200 million offering of new units by the Sprott Physical Silver Trust has received an additional boost by the offer underwriters Morgan Stanley and RBC Capital Markets taking advantage of an option that enables them to buy additional units on their own accounts The two underwriters have between them taken up1 8 million units in addition to the 18 1 million units on offer at US 11 15 each bringing the amount raised by the Trust to a little over 220 million |
MS | Getting Bullish While Waiting For A Pullback | I have been seeing signs of healing in global markets except for in the U S With the recent strength we ve seen in stocks I am finally seeing signs of a bullish resolution to the risk on risk off trade Consider the relative performance chart of the Morgan Stanley Cyclical Index shown in black and the relative performance of Utilities against the market shown below Recently cyclical stocks have staged a bullish reversal while the defensively oriented utilities sector has staged a bearish reversal on a relative basis Wait For The Pullback Despite the bullish underpinnings for the risk on trade I wouldn t get too excited just yet Many of my short term indicators are in deeply overbought territory While the intermediate term trend may be up I would be patient and wait for a pullback before committing fresh funds to stocks Turbulence AheadThe macro environment has been relatively positive for the last couple of weeks but we remain in a seesaw and volatile environment With a generally positive backdrop in Europe the market is setting itself up for disappointment and could hit an air pocket at any time Possible triggers include more Grexit talk likely disappointment at the annual Jackson Hole meeting over pre announcment of more quantitative easing and possible disappointment over the August NFP as Gallup has shown deterioration in unemployment surveys Investor vs Trader My inner investor is getting ready to average into stocks over the next few weeks My inner trader wants to wait or even raise a little cash here in preparation to buy when the correction hits in the days ahead Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd 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 |
C | Citi reorganizes prime brokerage unit | Reuters Citigroup Inc N C is shuffling its prime brokerage business according to an internal memo seen by Reuters amid reports that the unit could lose millions on a bad loan to an Asian hedge fund Bloomberg earlier reported that Citi faces a loss of up to 180 million related to risky foreign exchange bets Citi and the hedge fund are in talks on how the positions should be valued the report said Citi declined to comment on the reported losses Citi the third largest U S bank by assets will move its foreign exchange prime brokerage business under the same umbrella as its prime financing and securities services business removing it from the foreign exchange and local markets unit according to the memo viewed by Reuters
The business will be led by Chris Perkins who also oversees the banks over the counter clearing business |
C | Five Themes to Watch for European Miners After Humbling Year | Bloomberg It all started so well in 2018 for investors in European metal and mining stocks but as the year closes out the sector index is languishing about 25 percent below its June peak
Fractious trade war rhetoric between Washington and Beijing plus growing worries about the state of China s economy undid the good work of the first half And there are plenty of signs that these worries will remain top of mind for traders in 2019
While a slump of 16 percent this year means the Stoxx 600 Basic Resources Index isn t among Europe s worst performing sectors the SXPP is now trading at the cheapest valuations since 2012 and the highest dividend yield since 2016
As investors ponder whether those numbers signal that it s time to buy or sell the sector here are five key themes to consider for 2019
Trade and the Economy
While some of the heat has gone out of the trade conflict in December it remains a major topic for 2019 given its bearing on demand for metals On a positive note ArcelorMittal s global presence seems to have worked in its favor as the company didn t report any damage to its business so far Specialized steelmakers such as Voestalpine AG and Kloeckner AG are less fortunate already warning of the consequences
Stainless steel is another beaten down subsector Aperam SA Outokumpu Oyj and Acerinox SA have all slumped at least 30 percent since October as they struggle to contend with cheaper imports and oversupply
Lately commodity markets have shown persistent concerns over China macro conditions into 2019 according to Citigroup Inc NYSE C strategists wrote in a note on Dec 17 Mixed China macro data including a sharp slowdown in household consumption call for more policy fine tuning into 2019 On the positive side investment across infrastructure manufacturing and property improved with levels of infrastructure investment surging in November following weak readings over the past few months
Chinese Policy
It s been a year of slowing economic growth and weaker purchasing managers index readings for the world s biggest metals consumer The Chinese government has said repeatedly that it will support the economy but investor pleasing measures have yet to materialize
Credit Suisse SIX CSGN analysts have seen cause for a degree of optimism While fiscal caution should limit the scope of stimulus we cannot rule out the Chinese government reacting to trade tensions and growth pressures by going back to what it knows via infrastructural construction investment which would provide a boost for commodity demand the analysts wrote in a note on Dec 17
Beijing s environmental policies also have implications for steel prices and iron ore consumption Investors will look for further updates on local production curbs that may have been offset by imports The picture could prove positive for ArcelorMittal which will update investors on Feb 7
Tougher pollution rules are also driving a shift to high grade iron ore among Chinese steelmakers Top quality producers BHP Group Plc and Rio Tinto LON RIO Plc are obvious beneficiaries as is high grade iron ore pure play Ferrexpo Plc
M A and Cash Returns
Miners showed progress in deleveraging by selling large assets to focus on core areas BHP and Rio Tinto have cleaned up their balance sheets and rewarded investors generously with buybacks and special dividends BHP alone returned about 21 billion over the past two years
This is unlikely to happen again in 2019 so attention will turn to regular payments in a sector that trades at a dividend yield of about 5 7 percent and to capital spending on new projects and M A
Talking of deals progress in a few transactions will engage investors The combination of Randgold Resources LON RRS Ltd and Barrick Gold Corp is due to be completed by the end of 2018 There are questions about the future of Acacia Mining Plc about 64 percent owned by Barrick With gold producers struggling to contain cost inflation further consolidation can t be ruled out A battle to control SolGold Plc is looming with both BHP and Newcrest Mining Ltd building stakes in the promising copper and gold producer
Precious Metals
Gold reclaimed its haven status late in 2018 delivering a boost to bullion producers in the final quarter of the year Randgold Acacia Mining and Polymetal International Plc could prolong recent gains into 2019 should doubts about the global economy and volatility in equities persist continue to dog investors
Palladium topped gold this year as demand from the auto industry soared in a switch from diesel engines to gasoline powered cars which tend to use more palladium in autocatalysts The metal should continue to benefit from strong fundamentals in 2019 according to Bloomberg Intelligence analysts potentially favoring palladium exposed Lonmin Plc and MMC Norilsk Nickel PJSC
Special Cases
Glencore LON GLEN Plc will again demand investor attention The world s largest commodity trader is under investigation by the U S Department of Justice for alleged bribery practices in the Democratic Republic of Congo Venezuela and Nigeria The miner has lost about 20 percent of its value since the investigation was made public on July 3 Glencore is the cheapest among large cap mining and metals companies trading at a 7 8 forward price to earning ratio Based on recent copper mine transactions Glencore s red metal assets would be worth more than its total market value according to Sanford C Bernstein Co analysts
Aluminum has been a disrupted market in 2018 Sanctions continue to overshadow United Company RUSAL Plc the largest producer while Norsk Hydro ASA s Alunorte plant in Brazil the world s biggest aluminum factory remains at reduced capacity pending a water pollution investigation A return to full output at Alunorte will be key for Norsk Hydro s earnings and would ease tensions in aluminum supply
Stretched balance sheets will be another potential red flag With prices falling and margin pressure mounting difficulties may deepen for leveraged companies Copper smelter Nyrstar NV lost more than 90 percent of its value in 2018 on cash flow concerns and doubts about its debt repayment capacity The final chapter of this story could come in September 2019 when a large chunk of its bond burden matures |
C | Markets Join Trump in Pleading for the Fed to Stop | Bloomberg Opinion Federal Reserve Chairman Jerome Powell was a lot more popular when stocks were setting records
Now he and other Fed officials can t seem to find friends anywhere they turn President Donald Trump has lambasted the central bank several times since the S P 500 peaked on Sept 21 Investors questioned Powell when he remarked in early October that we re a long way from neutral at this point probably pushing Treasury yields to the highest levels in years and sending equity prices tumbling Bond traders held out a bit longer pricing in two full 2019 interest rate increases as recently as Nov 8 They have since lost faith too seeing only one more move at best in the next 12 months
For the first time since early 2017 the financial markets are truly fighting the Fed U S equities are in outright revolt with the S P 500 falling to the lowest intraday level of the year on Tuesday Parts of the Treasury yield curve inverted earlier this month for the first time in more than a decade signaling that bond traders don t see any real risk of rate increases in the years after 2020 Nor do they see many in the immediate future either The two year yield is 2 66 percent or just 40 basis points above the upper bound of the fed funds target rate It s by far the narrowest gap for the day of a Fed decision at which a rate hike was expected since June 2017 It was at a similar level in February 2017 when the market was unwilling to price in a March interest rate boost until Fed speakers forced the issue
This time around the Fed seems more likely to cave to the markets demands Odds are still in favor of policy makers raising the fed funds rate to a range of 2 25 percent to 2 5 percent on Wednesday at this point standing pat would probably raise more questions than just sticking to the plan But the overwhelming expectation is for the Fed to communicate a dovish outlook reiterating data dependency and perhaps even shifting down their median expectations for future interest rates If they don t a whole bunch of markets look mispriced most notably short term rates
Of course Fed officials might just not care about investors being caught offside After all their mandate focuses on the labor market and price stability both of which fall well within appropriate ranges The unemployment rate is the lowest in 49 years and inflation is right around the central bank s 2 percent target Powell has called the U S economy extraordinary referring to the combination of low unemployment higher wage growth and seemingly lessened risk that prices will skyrocket
Yet comments last month from Richard Clarida the Fed vice chairman betray that singular focus He said that policy makers have to factor the outlook for global growth into their decisions and that there s some evidence that it s slowing On top of that domestically Citigroup Inc NYSE C s U S economic surprise index is near the lowest since late August
By all accounts Powell doesn t want the Fed to be viewed as the world s central bank nor does he want to be seen as subject to the whims of Wall Street Under his leadership the Fed has largely gone on tightening alone while the European Central Bank and Bank of Japan lagged behind He has looked through emerging market turmoil and volatility inspired weakness in stocks By and large the message from the Powell Fed has been that the economy is strong it can handle gradual rate increases and policy makers are going to keep doing that until they see data that says they shouldn t
I m not sure anything has changed much from that standpoint That s why my initial read on the reaction to Clarida s comments was that bond traders were just hearing what they wanted to hear about the Fed slowing down With the S P 500 down an additional 7 percent since then though I m no longer as convinced Policy makers may attempt to ease the market angst with at least some combination of scaling back their projected pace of increases and removing the further gradual language
A telegraphed pause would probably bring some relief to markets into the end of the year From the Fed s perspective the problem with a pause is that it s never just that A quick look at the fed funds rate shows that over the past 30 years once the Fed stops tightening it s practically always followed eventually by a cut Still assuming the central bank moves on Wednesday as planned the short term rate will have increased by 2 percentage points since the beginning of December 2016 That s quite an accomplishment considering just how long it remained locked near zero If this is as far as the Fed can go then it s been a good run
Bloomberg s Fed reporters called this perhaps its most scrutinized session in years and for good reason Given the rapid market moves there s no way to interpret the central bank s decision apart from them The question then is if this latest bout of Wall Street turbulence is just another tantrum about higher rates or if it s truly sowing the seeds of a bear market and reflecting a dim view of the U S economy Either way the Fed doesn t sound as if it wants to push its luck |
C | Republican frustrations grow as SEC chair proves frequent ally of Democrats | By Katanga Johnson and Pete Schroeder WASHINGTON Reuters Republicans are starting to wonder if they accidentally picked a Democrat to run the country s top securities regulator Jay Clayton was appointed by the Trump administration to chair the U S Securities and Exchange Commission SEC with a partisan mandate to help public companies by relaxing rules and enforcement But the SEC chair an independent has moved cautiously on rule changes and sided with Democrats on more than a third of decisive votes since he came to office A bipartisan consensus builder in his 20 months leading the SEC Clayton has emerged as a surprising source of frustration among Republican lawmakers and some business groups While the former Wall Street lawyer represents a step to the right from his Democrat picked predecessor many Republicans and industry lobbyists say he is not being aggressive enough in pursuing President Donald Trump s business friendly agenda The relationship hasn t been one where we re exactly on the same page but we re communicating said Republican Representative Bill Huizenga who chairs the House of Representatives subcommittee overseeing capital markets and meets with Clayton regularly Could he have personally done more Could the SEC have done more Maybe he said adding he did not believe Clayton had a political agenda Clayton is one of several financial regulatory appointees recruited by former White House economic advisor and Democrat Gary Cohn who are proving to be far more moderate than anticipated by Republicans and industry groups Others steering a cautious course on financial rules include Federal Reserve Vice Chair Randal Quarles the Federal Deposit Insurance Corporation s head Jelena McWilliams and Chris Giancarlo chair of the Commodity Futures Trading Commission Representatives for Giancarlo Quarles and McWilliams declined to comment A representative for Cohn did not respond to a request for comment Republicans are pushing Clayton both publicly and privately to act faster on measures recommended by the U S Treasury in October 2017 to promote public company listings and boost private company access to capital Of more than 30 recommendations including overhauling crowdfunding rules modernizing shareholder voting rules and opening up private companies to more investors the SEC has so far made progress on just a handful Diego Zuluaga policy analyst at the libertarian Cato Institute said the current SEC lacks the vision of market driven change that many conservatives had hoped to see on issues such as trading capital formation cryptocurrencies and emerging technologies One might expect more active leadership from regulators who have said that this will not be business as usual Clayton s voting record on rule makings and enforcement actions has also raised eyebrows in conservative circles At full strength the SEC has two Democratic and two Republican commissioners with the chairman typically casting a deciding vote A Reuters analysis of Clayton s voting record through the end of November shows that of the 75 votes split down party lines Clayton sided with Democratic commissioners on 37 percent By comparison his predecessor Mary Jo White voted with Republicans just 15 percent of the time according to an analysis of the last 20 months of her tenure The SEC is most frequently divided on enforcement actions with Democrats typically backing harsher penalties and Republicans preferring a softer touch Clayton has sided with Democrats on levying penalties against Merrill Lynch Citigroup NYSE C and TD Ameritrade among others The SEC declined to comment but Clayton told the Senate last week the SEC had taken meaningful steps toward his goals of creating an innovative and responsive agency and facilitating capital formation Under Chairman Clayton s leadership the SEC has been a critical partner in working with the Treasury Department to advance the President s core principles for financial regulation said a Treasury spokesman NO GUNSLINGER Clayton s record so far reflects his management style of gathering feedback and feeling out areas of consensus say those who have dealt with him The SEC chair is ready to defer to division heads takes advice from his staff and is willing to listen to all sides said lobbyists and lawmakers I have not seen him be a gunslinger Even in private meetings I ve been with him he s measured he s thoughtful said Huizenga Clayton has also refrained from ramming through an agenda with just Republican backing as some conservatives would prefer Sometimes the party in the majority just rolls the party in the minority and that s not happening here said Chris Iacovella chief executive officer of the American Securities Association He s not a partisan operative One key issue on which Clayton has parted ways with his Republican colleagues is the oversight of cryptocurrencies The SEC chair has led a crackdown on firms offering investments and trading in digital tokens due to worries retail investors may be hurt by scammers and market manipulation Earlier this year he voted with Democrats to reject a bitcoin exchange traded fund product a decision the Cato Institute s Zuluaga described as most disappointing Free market conservatives and many industry advocates called for Clayton to be more accommodating to the emerging digital token industry Jay Clayton has shown the industry that he lives in an ivory tower with his resistance to approve registration statements for token offerings It is frustrating said Anthony Tu Sekine head of the Blockchain and Cryptocurrency Group at law firm Seward Kissel Clayton also has gone slow on Republican pet projects opposed by Democrats to force shareholders into arbitration and to review rules requiring companies to disclose if they use minerals from conflict ridden parts of the world In October he politely rebuffed calls by President Trump to drop quarterly reporting for big companies Much to the chagrin of some in the financial industry the SEC chair has also taken a surprisingly tough stance on stock exchange trading data reporting and trading fee pricing leading some lobbyists to privately question why the pro business administration picked him How did we end up with this guy said one lobbyist We can t get anything out of him Some observers say Clayton s careful approach promises a productive 2019 and he may become more aggressive with the departure of Obama era Democratic commissioner Kara Stein They expect the SEC to move on shareholder voting rules and provide greater clarity on cryptocurrencies I think a lot of people would like things to move more quickly but that s the system said Paul Atkins a former Republican SEC commissioner who advised the Trump administration on staffing the financial regulators
In the new year you ll see a lot of these seeds he s planted will start to germinate |
C | Carney Braces for Final Year With BOE Tied to Brexit s Mast | Bloomberg Mark Carney is headed into his last full year at the helm of the Bank of England and it could be his most turbulent yet
In a tenure that has seen the Scottish referendum two general elections and the Brexit vote the BOE governor is now in charge of keeping the ship steady as the divorce from the European Union comes to fruition With consumer and business confidence tumbling there s little chance of a policy move until officials get more clarity over the U K s future relationship with the bloc
With the domestic economy you have to wait until the big event happens and then make a judgment at that point about whether you should be hiking reducing or sticking Catherine Mann Citigroup NYSE C chief economist said in a Bloomberg Television interview The uncertainty is really the problem
On Thursday the BOE kept its benchmark interest rate unchanged at 0 75 percent and said Brexit worries have intensified considerably
Investors are no longer fully pricing in another rate increase in 2019 seeing about a 60 percent chance of a quarter point hike by the end of next year
While Prime Minister Theresa May hammered out a draft deal with the EU she then saw mass resignations from her Cabinet in protest faced down internal party factions and postponed a planned Parliament vote on the agreement
The broader economic outlook will continue to depend significantly on the nature of EU withdrawal the MPC said The monetary policy response to Brexit whatever form it takes will not be automatic and could be in either direction
The BOE is also grappling with how to exit years of ultra loose policy alongside the rest of the world s biggest central banks The Federal Reserve on Wednesday lifted borrowing costs while cutting the outlook for more hikes next year The Bank of Japan kept its policy unchanged on Thursday Sweden raised its benchmark for the first time since 2011
If Brexit goes smoothly policy makers have said that limited and gradual rate increases will be needed over the next few years to keep inflation in check But turmoil puts that assessment in doubt
A disorderly Brexit would put the BOE in crisis fighting mode the pound would fall fanning inflation while new trade barriers would put the brakes on growth It warned on Thursday there could be greater than usual short term volatility in U K data
Even if a Brexit deal can be reached with the transition favored by Carney the economic outlook is troubled Officials lowed their growth forecast to 0 2 percent this quarter and see little improvement at the start of 2019 Further complicating matters inflation is set to drop below the BOE s 2 percent target in January on lower oil prices At the same time the bank sees domestic price pressures getting stronger |
JPM | ETFs To Buy Or Dump Post Upbeat July Jobs Data | U S employers added 209 000 new jobs in July breezing past expectations of 183 000 but falling shy of an upwardly revised 231 000 in June Solid job gains in food services and drinking places business services and health care sectors led to the estimate beat Notably May s job data was also revised up to from 145 000
U S unemployment rate fell to 4 3 in July from 4 4 last month Average job gains this year came in at 184 000 per month easily surpassing 75 000 to 100 000 required to maintain growth in the working age population The last three months average job growth remained more upbeat at
What About Wage Growth
Wage growth picked up year over year in July against expectations of a decline to 2 4 On a sequential basis wage growth was at 26 36 in July However the market is still viewing this wage growth as slow and find the job report
As per a senior economic analyst for consumer financial services firm Bankrate com while the pace of jobs creation in 2017 may not be as strong as the year before it s still respectable for mature economic expansion The analyst reconfirmed that employers are hopeful about the economy
Market Impact
Whatever the case market watchers are upbeat about the job market and the economy Markets are now pricing in chance of an interest rate hike in December
PowerShares DB US Dollar Bullish ETF NYSE UUP was up about 0 9 on August 4 The 30 year Treasury bond s yield rose 3 basis points to 2 84 while the 10 year benchmark U S Treasury bond yields increased 3 bps to 2 27
Against such a backdrop several ETFs are expected to gain in the weeks ahead whereas some are likely to retreat Below we have highlighted these options read
ETFs to Gain
PowerShares S P SmallCap Health Care Portfolio ETF
As per trading economics health care added 39 000 jobs in the month with employment specifically rising in ambulatory health care services added 30 000 jobs and hospitals added 7 000 jobs The sector has generated about 327 000 jobs over the past year
The index of the fund looks to track stocks of health maintenance organizations hospitals clinics dentists opticians nursing homes etc The fund added about 0 3 on August 4
Nasdaq Bank ETF FT
Post job data the banking sector started enjoying the benefit of a rising rate environment The fund added over 0 9 on August 4
PowerShares Dynamic Food Beverage Portfolio
The food and beverage industry added substantial jobs in July Plus rising wages should boost consumers sentiment and business of the segment the fund added about 0 12 on August 4 see here
iShares Core S P Small Cap ETF
Since job data reflects U S economic growth momentum small cap ETFs like IJR should get a boost Note that small cap stocks better reflect the domestic economy IJR gained about 0 4 on August 4 read
JPMorgan NYSE JPM Diversified Return International Currency Hedged ETF
With the greenback gaining strength yen shed its value CurrencyShares Japanese Yen ETF NYSE FXY was down about 0 7 on August 4 This should bode well for Japan investing as those companies have huge export exposure and perform better in a falling yen environment
ETFs to Lose
SPDR Gold Trust ETF V GLD The upbeat jobs report cast a pall on gold prices as the greenback gained strength The fund lost about 0 8 read
iShares 20 Year Treasury Bond ETF V TLT U S Treasuries dropped on the news pushing yields higher This long term Treasury bond ETF lost about 0 9 on the day
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MS | Staples in 6 9 billion sale to private equity firm Sycamore | By Lauren Hirsch Reuters Sycamore Partners said on Wednesday it would acquire U S office supplies chain Staples Inc O SPLS for 6 9 billion a rare bet by a private equity firm this year in the U S retail sector which has been roiled by the popularity of internet shopping Buyout firms largely have refrained from attempting leveraged buyouts of U S retailers in the past two years amid a wave of bankruptcies in the sector that have included Sports Authority Rue21 Gymboree and BCBG Max Azria LLC Sycamore s deal for Staples however which Reuters was first to report would come this week illustrates that some buyout firms are distinguishing between mall based fashion retailers which are vulnerable to changing consumer tastes from retailers with a niche and rich cash flow such as Staples The acquisition also shows that Sycamore whose buyout fund is dedicated to retail deals is willing to take on the risk of falling store sales at Staples because of the potential it sees in Staples delivery unit which supplies businesses directly Sycamore said it would pay 10 25 per share in cash for Staples The shares ended trading at 9 93 on Wednesday after Reuters reported the exact deal price Staples said the deal was expected to close by December Shira Goodman will remain as Staples CEO Sycamore will be organizing Staples along three lines its stronger delivery business its weaker retail business and its business in Canada two sources familiar with the deal said This structure will give Sycamore the option to shed Staples retail business in the future one of the sources said Framingham Massachusetts based Staples which made its name selling paper pens and other supplies has 1 255 stores in the United States and 304 in Canada It previously tried to merge with rival retailer Office Depot Inc O ODP but the deal was thwarted by a U S federal judge on antitrust grounds last year Staples has the largest share of office supply stores in the United States at 48 percent according to Euromonitor and generated 889 million of adjusted free cash flow in 2016 Sycamore has a reputation amongst private equity peers for taking bets on retail investments others might eschew Its previous investments include regional department store operator Belk Inc discount general merchandise retailer Dollar Express and mall and web based specialty retailer Hot Topic Barclays LON BARC and Morgan Stanley Co NYSE MS LLC are acting as financial advisors and Wilmer Hale LLP is acting as legal advisor to Staples BofA Merrill Lynch and Deutsche Bank DE DBKGn Securities Inc are acting as financial advisors and Kirkland Ellis LLP is acting as legal advisor to Sycamore Partners
UBS Investment Bank BofA Merrill Lynch Deutsche Bank Credit Suisse SIX CSGN Royal Bank of Canada Jefferies Wells Fargo NYSE WFC Bank National Association and Fifth Third Bank are providing debt financing for the deal |
MS | SEC probes bankers from Barclays Morgan Stanley on Puerto Rico bond sales | Reuters The U S Securities and Exchange Commission may take action against bankers from Barclays Plc L BARC and Morgan Stanley N MS for their roles in Puerto Rico bond sales according to filings with the Financial Industry Regulatory Authority FINRA
According to records filed with FINRA the SEC s staff has recommended the agency file an enforcement action against Barclays Luis Alfaro and James Henn for alleged violation of fair dealing rules for their roles in the island s debt sales
The SEC staff suggested that Henn who has worked at Barclays since 2008 and Alfaro who worked at First Bank Puerto Rico Securities before moving to Barclays in 2013 allegedly violated securities and municipal bond rules on fraud deception and misrepresentation during the sale of Puerto Rico bonds
The SEC staff also suggested sanctioning Morgan Stanley s Charles Visconsi the co head of public finance and his former colleague Jorge Irizarry in connection with disclosures Puerto Rico made in documents circulated to investors according to FINRA records
Barclays Morgan Stanley and the SEC were not immediately available for comment Reuters could not obtain contact information for Alfaro Henn and Visconsi
Bloomberg earlier reported on the allegations on the bankers
Puerto Rico s financial oversight board said on Wednesday that it was still in debt restructuring talks with creditors of the island s power utility PREPA a day after rejecting a proposed deal to restructure 9 billion of the utility s bonds |
MS | Morgan Stanley raises U S quarter second GDP view to 3 2 percent | NEW YORK Reuters Morgan Stanley NYSE MS economists said on Thursday they upgraded their estimate on the U S gross domestic product in the second quarter to 3 2 percent from 3 0 percent following the government s final GDP reading for the first quarter Earlier Thursday the Commerce Department said U S GDP grew at a 1 4 percent annual rate in first three months of 2017 compared with 1 2 percent reported last month due to stronger consumer spending and exports |
JPM | Argentina peso rises as IMF sees progress and Macri submits budget bill | By Hugh Bronstein and Eliana Raszewski BUENOS AIRES Reuters Argentina s battered peso currency inched higher and the risk of its bonds defaulting declined on Monday after the government unveiled its budget plan and the IMF said important progress had been made on revamping the country s standby loan agreement The peso rose 0 76 percent to close at 39 57 to the U S dollar and country risk tightened by 10 basis points after the government released its 2019 budget proposal which pledges to erase the primary fiscal deficit next year The deficit is expected at 2 6 percent of gross domestic product this year The currency has lost over 6 percent of its value against the dollar this month and more than half its value so far this year as confidence collapsed in Argentina s ability to make its 2019 debt payments But market sentiment has improved in recent days President Mauricio Macri s budget bill aims to use increased taxes on exports as well as spending cuts to bring about fiscal equilibrium a formula that some analysts say could get the country through next year without major disruptions Cuts have already sparked protests and relying on them alone would likely heap political pressure on Macri as he heads into his October 2019 re election campaign The business community is expected to reluctantly accept the export tax hikes as the price of keeping Macri a free market advocate in power The JPMorgan NYSE JPM Emerging Markets Bond Index Plus EMBI which measures the perceived likelihood of default against safe haven U S Treasury bonds pegged Argentina at a spread of 651 basis points on Monday 5 points tighter than on Friday and more than 120 tighter than 773 at the start of the month The country s central bank said on Monday that based on preliminary estimates its international reserves are at 49 6 billion dollars down from 63 9 billion last January but far from the all time low of 9 billion the country saw in August 2002 BUDGET GOALS The budget bill projects an average exchange rate of 40 1 pesos to the dollar in 2019 and forecasts an economic contraction of 2 4 percent this year and 0 5 percent in 2019 The budget goals are being worked out with the International Monetary Fund which is revamping Argentina s standby financing deal In June Argentina signed a 50 billion standby deal with the IMF that projected a 2019 primary fiscal shortfall of 1 3 percent of GDP The deal was not enough to halt the run on the peso which slid 26 percent in August alone forcing Macri to re negotiate stricter fiscal targets with the Fund Important progress is being made toward strengthening Argentina s economic policy plan supported by a stand by arrangement with the IMF We are working hard to conclude these staff level talks in short order and present a proposal to the IMF executive board the IMF said in a statement Achieving a zero deficit will not come from spending cuts alone A big component would be tax increases on exports economist Gustavo Ber said This can be advantageous from the point of view of generating a financial calm that is the tip of generating a greater expectation of economic recovery which is where social pressures come from Ber said
Fiscal belt tightening items included in the budget bill will not be easy for Macri to implement ahead of his expected re election bid with inflation also pressuring wages The government expects consumer prices to rise by 42 percent this year and 23 percent in 2019 |
JPM | U S Consumers Dragged Into Trade War as Bigger Growth Hit Seen | Bloomberg President Donald Trump s decision to impose tariffs on an additional 200 billion of imports from China drags the biggest part of the U S economy into the thick of the trade war threatening to deliver a more direct hit to growth
The 10 percent tariffs announced on Monday which take effect Sept 24 and will rise to 25 percent in January affect everyday items including food furniture and clothing making grocery shopping and holiday gifts potentially pricier That broadens the trade fallout more directly into the realm of household spending which accounts for about 70 percent of the U S economy
Previously announced levies on 50 billion of Chinese imports as well as metals from Europe and elsewhere in the world already are forcing U S producers to pay higher input costs which they re trying to pass along to customers
While data indicate the tariffs so far have had little material impact on the 20 trillion U S economy the latest levies also include more manufacturing inputs and boost the risk that businesses will become more wary about investment and hiring which along with lower taxes has been a pillar of support for household consumption in 2018
The more you expand the list of targeted goods the less you can isolate the shock and the more there s going to be a visible impact said Gregory Daco head of U S macroeconomics at Oxford Economics in New York
Higher prices will deter household spending and weigh on confidence and companies may encounter increased prices on more inputs As a result businesses might turn a bit more cautious on hiring and on employment in general and that in turn might feed back on to consumers Daco said
Tariffs that push up prices and restrain growth could also complicate the Federal Reserve s task as officials debate how fast to raise interest rates beyond this month Economists at UBS Group AG say even a 10 percent tariff will slow the economy in the fourth quarter by enough to stop the Fed from hiking interest rates again in December
Assuming retaliation from China Daco reckons that the tariffs will shave about 0 4 percent from U S gross domestic product in 2019 more than the 0 1 percent before the latest announcement and the drag may even be worse given the tariffs will rise to 25 percent
Growth Estimate
While Daco is maintaining his 2 9 percent GDP growth estimate for 2018 he now expects a slowdown next year to 2 1 percent compared with an earlier estimate of 2 3 percent
The latest tariff move means U S retailers counting on cheaper China made merchandise could be forced to lift prices or take a hit on profits depending on their ability to quickly flip to purchasing from U S companies or find sources in other nations that are ready to deliver at competitive rates
Economists so far have seen growth as strong enough to withstand the tariff battles The latest Bloomberg monthly survey shows GDP will advance at an annualized 3 percent pace this quarter and 2 8 percent in the final three months of the year before easing to 2 5 percent for the first half of 2019 It expanded 4 2 percent in the second quarter
Consumer spending which grew 3 8 percent last quarter is forecast to rise 2 9 percent in the July September period and 2 5 percent in the fourth quarter according to the survey
The second order effects from tariffs are a wild card in terms of what the uncertainty has the potential to do said Michael Feroli chief U S economist at JPMorgan Chase Co NYSE JPM There s a risk you could see business sentiment which has been quite upbeat turn a little more cautious That would affect hiring capital investment and presumably the pace of economic growth
The outlook for household spending looked bright ahead of Monday s news Consumer sentiment jumped more than forecast in September to a six month high according to a University of Michigan report released last week as Americans views of buying conditions for houses vehicles and long lasting goods improved
While people are benefiting from a strong job market and income and wealth gains supported by higher stock prices and property values the unease about trade tensions is brewing The Michigan report showed concerns about the negative impact of tariffs on the U S economy were spontaneously mentioned by nearly one third of all consumers in the past three months up from one in five in the prior four months |
JPM | Metal Prices Mixed as Copper Surges but Gold Downed by Dollar Rebound | Investing com Copper prices surged Tuesday as the latest volley of tit for tat tariffs announced by the U S and China were less harsh than many had feared easing concerns about a downtick in Beijing s demand for metals
Copper prices gained 3 02 to 2 73 zinc prices rose 1 95 to 2 371 00 and nickel futures rose 0 77 to 12 367 50
China said it will impose new tariffs on U S goods worth 60 billion on Sept 24 but levies would be instituted at lower rates than had been expected according to a Reuters report
China s tariff rate on a list of 5 207 U S products will range between 5 and 10 below the previously touted 10 to 20 rate Reuters said
Investors seemingly took this as a sign that both sides were reluctant to enter a full scale trade war keeping hopes alive that the monthslong trade dispute could be resolved ahead of planned meetings between President Donald Trump and Chinese counterpart Xi Jinping in November
Beyond trade metals have been sullied on concerns over a wobble in emerging markets Emerging markets fueled by dollar dominated debt tend to struggle in a rising dollar environment as it becomes more expensive to pay down their debt obligation
Rising U S interest rates have been the reason behind the fall in emerging market currencies this year JPMorgan NYSE JPM said in a client note Riskier and more volatile currencies such as EM currencies started to fall in April because data had started missing expectations outside the U S it added
Aluminum prices fell 0 17 to 2 032 00
In precious metals Gold prices were pressured by a stronger dollar and bullish U S bond yields as the U S 10 year Treasury yield rose above the psychologically important 3 level
Gold futures for December delivery on the Comex division of the New York Mercantile Exchange fell by 2 80 or 0 23 to 1 203 00 troy ounce
The U S dollar index which measures the greenback against a trade weighted basket of six major currencies rose by 0 16 to 94 25 from a session low of 93 88
Gold is sensitive to moves higher in both bond yields and the U S dollar A stronger dollar makes gold more expensive for holders of foreign currency while a rise in U S rates lifts the opportunity cost of holding gold as it pays no interest
Silver futures fell 0 20 to 14 20 a troy ounce while platinum futures rose 1 47 to 812 70 |
JPM | WeWork tops JPMorgan as No 1 New York tenant as coworking booms | NEW YORK Reuters WeWork Cos said it surpassed JP Morgan N JPM the biggest U S bank as the largest tenant of Manhattan office space a milestone highlighting growing demand for flexible leases WeWork a provider of co work spaces with flexible leases that now has more than 50 locations in Manhattan said in a blog post on Monday it signed a lease for 258 344 square feet at 21 Penn Plaza The move makes it the largest private occupier of office space on the island with more than 5 3 million square feet JPMorgan the largest U S bank by assets has 5 2 million square feet according to brokerage Cushman Wakefield Flexible space accounted for 12 percent of Manhattan leasing activity in the first six months of the year according to brokerage CBRE and WeWork was responsible for about half of that as companies in search of extra space embrace coworking Flex space providers sign long term leases with a landlord and then rent the leased space to clients on a short term basis Coworking s appeal has become more mainstream across the United States not just in New York Mall operator Macerich Co N MAC in August announced a partnership with Industrious to roll out flexible workspaces in its portfolio of high end U S shopping centers WeWork s torrid growth has not gone unnoticed Brookfield one of the world s largest property owners plans on offering flexible space in most of the 1 000 office buildings it owns globally Anybody that s not thinking about it now and not doing it risks being road kill said Kevin Danehey global head of corporate development at Brookfield Properties
From an owner s perspective this isn t something where we re just seeing this as a trend but as something that s core to how we re viewing the operation of our assets he told a Rethink conference about the future of the office two weeks ago |
MS | From Eurozone To US Fiscal Cliff A Shift In Sentiment | Google Insights for Search continues to be a good tool to track trends in issues that concern the public Here are two key recent trends 1 The number of searches for the term euro spiked in June but had since declined 2 The term fiscal cliff discussed here on the other hand certainly caught the public s attention recently Other similar search terms that show a breakout spike in search are 1 fiscal cliff 2013 2 fiscal cliff definition 3 the fiscal cliff 4 us fiscal cliff This demonstrates a clear shift from concerns over the eurozone crisis toward the situation in the US And US based issues will have a larger impact on the US economy This new uncertainty over the fiscal cliff s impact may already be feeding through into consumer confidence chart below And analysts are now seeing this shift feed through into the US corporate sector For much of the year economists worried about the impact of the slowdown in Europe on the U S economy Now analysts say anxiety about the impact of the fast approaching fiscal cliff the series of federal spending cuts and tax hikes set to take effect at the beginning of 2013 if Congress and the Obama administration do not act is displacing Europe as the primary threat to the nation s sputtering economy Morgan Stanley said this week that concerns about the fiscal cliff are reaching new heights across a wide range of industries It is already seeing reductions in business orders and hiring among other areas While our analysts are somewhat less worried about the impact of European bank strains a Morgan Stanley report said Monday the negative impact of fiscal cliff uncertainty is becoming more widespread |
MS | Two Energy Stocks Poised For Success | Energy stocks look to be lucrative investments heading into the summer months Two energy stocks I particularly like are Schlumberger NYSE SLB and El Paso NYSE EP Below are my thoughts on the two Schlumberger NYSE SLB is an oilfield services company that sells project management technology and information services to oil and gas companies across the globe This company has been soaring as of late and its business as a whole is gaining momentum heading into the summer months The past few quarters SLB has beat analysts earnings expectations Adding to this the stock is trading at a great value compared to historical averages Analysts are projecting this stock to rise over the course of the next 12 months SLB receives a Buy recommendation from 86 of all research analysts a huge upside going forward SLB is finally moving in the right direction last February they acquired Smith another energy services company in an 11 billion dollar stock deal SLB is now finally using these assets to the best of their ability increasing revenues all across the board Smith helped contribute 275 million in income last quarter Higher costs have dropped SLB s net profit margin however this is nothing to worry in the long term as business is so good SLB continues to dominate the sector Schlumberger s stock sells for a forward earnings multiple of 22 a 9 discount to the energy equipment and services industry average Schlumberger s stock sells for a forward earnings multiple of 22 a 9 discount to the energy equipment and services industry average Some analysts expect SLB to kill it in the next year Morgan Stanley has a bullish scenario target of 180 for Schlumberger a total yield of 110 More realistically though I expect Schlumberger s stock to advance 125 a total yield of 48 El Paso NYSE EP is one of the top natural gas transmission exploration and production companies EP has a very impressive book of business resulting in them receiving a buy rating from an impressive 80 of analysts El Paso has significant interests in the 42 000 mile North American natural gas pipeline system which will increase in importance in coming years as the U S segues from foreign produced oil to domestically abundant natural gas Over the past several years EP s net income has grown statistically 7 2 a year I think EP is a very attractive investment due to its pricing power compared to companies who need to transport store natural gas which hurts profit margins Over the past year gross margin and operating margin both rose 10 Adding to this EP has a very stable pipeline business and their exploration unit has interested many investors as they continue to find new territories to explore The explorative part of El Paso makes the stock attractive long term due to its very lucrative prospects backed by stable cash flow EP sells at a trailing earnings multiple of 11 a forward earnings multiple of 13 a book value multiple of 2 2 a sales multiple of 2 1 and a cash flow multiple of 5 4 All these are huge discounts compared to industry peers I forecast EP to rise 22 to 21 a share within the next 12 months |
MS | Libor Scandal Trader Highlights Manipulation In 1991 | When did the scandalous manipulation of the London Interbank Overnight Rate that is Libor really begin I have posed that question often over the course of the last month E mails emanating from Barclays point to manipulation of Libor back in 2005 The industry and regulators would clearly like to keep the focus of this scandal to the crisis period of 2008 Why is that The excuse of We were trying to save the system would seem to provide a very wide cover for all parties involved But again I ask when did it really begin Is there any reason why we should believe the manipulation of this rate only began in 2005 No reason whatsoever Could it have begun in 2003 2001 1998 1995 Well how about 1991 Why not 1991 Yes 1991 Really Yep the year a full 21 years ago The Financial Times provides a bombshell today indicating that there was manipulation of Libor back when the Dow crossed 3 000 for the first time and Jody Reed was playing shortstop for the Boston Red Sox You remember Jody right 1991 is a long time ago If the manipulation was ongoing back then it only goes to show just how long our financial regulators have been in the tank Let s navigate as former Morgan Stanley trader Douglas Keenan writes in the FT In 1991 I had live trading screens that showed the Libor rates In September of that year on the third Wednesday at 11 o clock I watched those screens to see where the futures contract should settle Shortly afterwards Liffe announced the contract settlement rate Its rate was different from what had been shown on my screens by a few hundredths of a per cent As a result I lost money The amount was insignificant for me but I believed that I had been defrauded and I complained to Liffe Liffe explained that the settlement rate was not determined by what rates were actually in the market Instead the British Banker s Association polled banks asking them what the rates were The highest and lowest quoted rates were discarded and the rest were averaged giving the settlement rate Liffe explained that in doing this they were adhering to the terms of the contract I talked with some of my more experienced colleagues about this They told me banks misreported the Libor rates in a way that would generally bring them profits I had been unaware of that as I was relatively new to financial trading My naivety seemed to be humorous to my colleagues Simply put then it seems the misreporting of Libor rates may have been common practice since at least 1991 Although the difference between the reported rate and the actual rate might seem small the total amount of money involved is material given that Libor rates affect contracts worth hundreds of trillions Also important is what such misreporting says about the culture of finance During 1991 at the London office of Morgan Stanley the head of interest rate trading was a person who has been at the centre of the current scandal Bob Diamond I do not recall discussing Libor misreporting with Mr Diamond but since the misreporting was common knowledge among traders I presume he was aware That however is not a criticism of Mr Diamond what could he have done about this There have been two distinct motivations for banks to misreport Libor rates One motivation is discussed above to directly increase profits The other motivation arose during the 2008 financial crisis to mask liquidity problems Libor misreporting has been going on for decades Why have investigations only recently begun It seems highly implausible that all the investigating agencies could have been unaware for decades Indeed the regulators have a reputation among traders of being like Potemkin villages I suspect what has happened is that after the financial crises of 2008 the agencies decided they ought to perform more of their stated duties That would also explain why the investigations appear to be ignoring any misreporting in years before 2005 to cover up the illusoriness of their earlier work One of the investigations is being undertaken by the House of Commons Treasury Committee I telephoned the Committee on July 3 and spoke with a Committee specialist I told the specialist about the foregoing and said that I was willing to testify under oath The specialist seemed extremely interested They said they were to have a meeting about the Libor scandal and would call me back afterwards I did not hear back however so I telephoned to ask what was happening My testimony was not wanted the specialist told me Major props to Mr Keenan for having the courage and character to speak his mind His words speak volumes and only one other thing need be said Can you say racket |
MS | Defensive Stocks Becoming Overvalued | The Russell 1000 Defensive Index touched a multi year high on Friday while the Morgan Stanley Cyclicals Index continues to lag The performance gap over the past two years is now 20 showing an ongoing defensive posture of US equity investors As with other defensive asset classes such as USD or US Treasuries defensive US equities are potentially becoming a crowded trade Barclays Sector Rank Index shows defensive stocks significantly overvalued relative to cyclicals and the overall equity market Barclays A crowded trade Our chart of the week shows that the defensive sector trade in the US is at prior peak levels We are not convinced we ve seen the bottom in equity markets but would be prepared to exit these high flying sectors on improvements in the macro environment In anticipation of any such unwind our Data Miner highlights defensive stocks that have significantly outperformed and are trading at premium valuations vs the overall market and their sector peers |
MS | Is Inflation Flowering | To know that you re standing before a cherry tree you needn t have cherries cherry blossoms suffice The seasons are long so if you want to be able to harvest the fruit you need to look early for the signs So it is with inflation and some would say it is with markets in general We look for the early hints a less poetic scribe might call them green shoots that signal when the season has turned With inflation indeed when core inflation bottomed in Europe the U S and Japan in 2010 and in the UK even earlier But as we have seen markets have not yet internalized this turning or in some cases as with nominal yields have begun the recognition and then reversed it Consider now the humble 7 5 gain this month in the DJ UBS Commodity Index and comparably large moves in many other indices It isn t the size of the move or its consistency that is interesting to me rather it is that the movement has come partnered with a break of commodities relationship to the dollar Since commodities for the most part are priced in dollars it is natural that they tend to move in the opposite direction from the greenback When the dollar strengthens then commodities are more expensive to non dollar consumers and they demand less Yes of course there are other factors but when there are no stronger underlying currents then commodity indices tend to move inversely to the dollar The chart below Source Bloomberg illustrates the strong coupling of the Dollar Index here inverted and the DJ UBS Commodity Index in yellow both normalized to August 1st 2011 But note that this recent movement in commodities has come not in conjunction with a weakening in the dollar but in spite of a strengthening albeit a modest one of the unit This I think may be the first blossoms of spring in commodity land Some may object that the rise in commodity prices is primarily driven by grains but this is not the source of this divergence The chart below Source Bloomberg shows the Dollar Index again and again inverted against the DJ UBS ex Agriculture Commodity Index I am not a disinterested observer of the Commodity Spring as readers well know our models have for some time now indicated that commodities were the only outright cheap major asset class and our main strategy has been heavily overweight them for quite a while So perhaps I will be accused of seeing blossoms where none have yet bloomed But as commodity indices approach their highs of the year they are still only 14 15 off their lows and far below their highs of a few years back They remain the cheap asset class Moving to inflation more broadly it seems the market is growing comfortable with the notion that core inflation may have topped since it hasn t risen appreciably in a few months It is certainly useful for those expecting QE3 as am I if that perception gains currency no irony intended since de fanging the hawks on the Federal Reserve Board would seem to be a sine qua non for loosening policy appreciably But I believe that comfort is ill placed I had been expecting based on the lagged effect of the large inventory of unsold homes last year for the housing portion of core inflation to ebb from its recent pace It has merely flattened out and while inventories are coming down those declines shouldn t begin to push shelter CPI up for another quarter or two But long lag relationships are inherently difficult since the lags can shift over time So let s look at a shorter lag relationship The housing component of CPI is driven by rents both for consumers who rent their residence Primary Rents and for the consumption value of owner occupied housing Owners Equivalent Rent or OER The chart below shows the relationship between OER and the CBRE index of rents on multifamily property lagged 2 quarters the red dot marks the last OER point The goodness of fit of this relationship shown for the period 2001 present in the Chart below Source Bloomberg and BLS is quite reasonable 1 but interestingly the recent rises in rents suggests that OER is significantly understated The number for the rental series ending in Q1 suggests that OER which was last at 2 03 year on year in June should be more like 3 4 Since OER has a 23 5 weight in CPI and a 30 7 weight in core CPI if OER were to converge it would be worth 0 4 on core inflation And rental increases do not yet show much sign of ebbing In short the flattening out of core inflation over the last few months may represent the extent of what we can get out of housing at this point The last piece of evidence is really more corroboration of a speculation I ve previously mentioned here The sudden revival in apparel pricing this year has caught many analysts by surprise and most have been expecting for the series to relapse soon the price of cotton is often blamed as if cotton hasn t had any previous spikes in the last twenty years My speculation was that the flattening and declining of apparel prices beginning in the early 1990s could plausibly be related to the opening of the U S textile industry to global competition but if that is true then there must eventually come a time when the globalization has run its course and there are no more gains to be had from the declining domestic labor content in apparel Thereafter the rise in prices going forward should reflect rising wages in the source economies without the dilution of changing composition Now Morgan Stanley has published a piece by Joachim Fels et al called Margin Call July 25 2012 The authors illustrate that the U S margins of Chinese exporters have shrunk by 20 30 between 2004 and 2010 and argue among other things that Price increases for Chinese imports and the spillover effects these are likely to generate may contribute to meaningful upward pressure on inflation This is not inconsistent with my speculation above but adds a separate potential cause for the rise in apparel prices and other China sourced prices significant among them incidentally resin prices All in all these pieces of evidence contribute to my belief that as consumers we ought to take time to smell the flowers because the harvest of cherries is likely to follow in train And in this case that would be the pits The R2 should be taken with a grain of salt however since these are overlapping observations |
C | Deutsche Bank stock surges after government looks at Commerzbank merger idea | German government officials are said to have had high level discussions about the possibility of merging Deutsche Bank DE DBKGn with fellow lender Commerzbank DE CBKG Deutsche Bank s shares rose 6 2 on the news having fallen more than 50 so far this year after numerous scandals rocked the lender Deutsche Bank s difficult year may well end with some festive cheer after all The German government is increasing its efforts to aid Deutsche Bank with officials said to be looking at different ways the bank could merge with Commerzbank more easily Finance Minister Olaf Scholz and Deutsche Bank s CEO Christian Sewing appointed in April are said to have discussed possibilities to Bloomberg Deutsche Bank shares rose as much as 8 5 on the news and are up 6 2 as of 4 50 p m in London 11 50 EST while Commerzbank rose 5 9 The talks are said to have included conversations about changing existing laws to make the potential merger cheaper with a change to tax laws a possibility Deutsche Bank could become a holding company to make a potential merger smoother although this could create a large tax burden on the lender if it s required to revalue assets Making German tax legislation less disadvantageous to holding structures is among the topics discussed in the high level talks Deutsche Bank shares have fallen more than 50 in 2018 hitting record lows on numerous occasions Takeover or merger talk is nothing new for Deutsche Last month Citigroup NYSE C CEO Michael Corbat told German business publication Manager Magazin that there was too much overlap between Citigroup s and Deutsche Bank s businesses and that a takeover based purely on cost savings wasn t a A combined German lender is said to have been on the country s agenda for a while in an attempt to prevent the exodus of foreign capital from the economy and create a banking heavyweight Deutsche Bank has been embroiled in scandals throughout 2018 and its Frankfurt headquarters were recently raided by the German public prosecutor s office as part of an investigation into the Panama Papers global money laundering scandal Similarly Deutsche Bank was last month named as the bank at the centre of a 150 billion money laundering scandal centred on Danske Bank s operations in Estonia It s alleged that Deutsche Bank processed a large chunk of money for Danske Bank from Russia into international markets via Tallinn between 2007 and 2015 Deutsche Bank declined to comment Commerzbank didn t immediately respond to enquiries |
C | Mexico s new budget fiscal miracle or a December disaster | By Michael O Boyle MEXICO CITY Reuters Nervous bond holders will pore over Mexico s budget like never before this weekend to see if leftist President Andres Manuel Lopez Obrador can pull off higher social spending tax cuts and pricey oil ventures without increasing debt On Saturday Lopez Obrador submits his 2019 budget to lawmakers with markets on tenterhooks to see how he will marry his commitment to fiscal discipline to a long list of campaign pledges If he fails to convince the market he has a savings plan to fund welfare programs and new infrastructure it could deepen a run on Mexican assets and put Mexico on course for ratings downgrades as early as next year investors and analysts said We are at a crossroads here where delivery is going to be as important as the numbers themselves said Andrew Stanners an emerging markets fund manager at Aberdeen Standard The budget is going to be super scrutinized If it is not credible then you have the international community that can wobble on its commitment to Mexico The government must show it is ready to rein in spending if its saving plans do not pan out as expected Stanners added During the last two decades global markets have warmed to Mexico s U S trained technocrats who backed orthodox policies and drew in a tide of investment to build up one of the world s most liquid local currency bond markets But Lopez Obrador has promised a radical break from that era which he has described as neo liberal and which he blames for widespread corruption Finance Minister Carlos Urzua has promised a budget with a primary surplus of about 1 percent excluding debt payments while his deputy Arturo Herrera has said the government will use conservative economic estimates to realize its plan The big question is how they will achieve enough savings to fund plans to boost spending on youth unemployment and the elderly plus major building projects that include a new oil refinery and two rail lines in southern Mexico Lopez Obrador this week hinted that roll out of the programs could be gradual His team has sought to court wary international investors However debt yields have spiked since late October after he used a straw poll to justify scrapping a partly built 13 billion airport As the peso tanked following the decision Lopez Obrador declared that democracy not markets governed Mexico BELIEVING THE NUMBERS Backed by the first outright majority in Congress in two decades Lopez Obrador is better placed to make bolder cuts in discretionary spending than his predecessors You need these strong arm presidents to make the tough decisions like this said Aaron Gifford an emerging markets analyst at T Rowe Price calling the president a fanatic on cost cutting Lopez Obrador won office promising to root out graft claiming he could save billions of dollars But analysts warn he could worry investors if the budget projects significant gains from such measures Already public sector pay cuts he has ordered have been temporarily frozen by the Supreme Court raising questions about his room for maneuver Questions also remain over the cost of his plan to lower value added tax and income tax along Mexico s northern border which he hopes will stem migration into the United States Private sector analysts calculate those tax cuts could cost around 120 billion pesos 6 billion If the administration s estimated gains in tax revenue outstrip growth estimates the market and rating agencies could see them as unrealistic and react negatively On Thursday Lopez Obrador said several arms of government would receive higher spending such as the military which is battling a record surge in violence Aside from pay reductions he has not flagged where the cuts will come That will require close scrutiny of the budget
I don t think the market is going to completely believe the fiscal responsibility of the Lopez Obrador administration until they see the execution said Ernesto Revilla head of Latin America economics at Citigroup NYSE C Nobody is going to take their eyes off of Mexico even if the budget looks good |
JPM | JPM Global Convertibles Income Fund Steady NAV Progression | JPMorgan s NYSE JPM Global Convertibles Income Fund LON JGCI is the only UK listed closed end fund specializing in convertible bonds aiming to generate income along with the possibility of capital growth Increased investment flexibility granted to the managers in late 2015 means the fund can now invest more in the balanced to equity like segments of the convertible bond market NAV performance since launch in 2013 has been fairly steady in spite of an environment of falling yields and tighter spreads on high yield bonds However share price performance has been volatile at times so the board has introduced a new discount control policy and has stepped up the pace of share buybacks There has been a recovery in the share price since the policy was put in place in May 2017 yet JGCI still offers an attractive yield of 4 5
Investment strategy Income tilted convertibles fund
JGCI is managed by J P Morgan Asset Management s dedicated convertible bonds team who run a range of mandates and thus have broad coverage of the whole convertible bond market The fund invests mainly in the bond like and balanced parts of the market see Exhibit 2 Security selection is largely bottom up but the process also allows for an assessment of industry dynamics and more top down factors such as economic strength The portfolio is diversified by geography sector credit quality and issuer size and is currently spread across c 80 issuers Gearing may be used tactically and currency exposure is hedged back to sterling
To read the entire report Please click on the pdf File Below |
JPM | Here s What Excessive Optimism Is Indicating | I implement these seasonality charts as they have been a great framework into all of my trading investing technical analysis Seasonality charts are constructed from the past thirty years of historical data
I implement them as contrarian indicators The extreme bullishness is perceived as bearish and the extreme bearishness is perceived as bullish
In the chart below it displays the spread between the percentage of bulls and percentage of bears rather than just looking at bulls or bears in isolation Many deeper internals of the BIGGER PICTURE of the overall market sentiment become more relevant
The sentiment consensus scenario seems to be lulling everyone to become extremely bullish which is a FLASHING RED WARNING SIGNAL
The chart below displays only the total put call ratio to provide the most comprehensive view of options sentiment A high put call ratio indicates negative sentiment
Latest Value s
Last Reading 0 33 JULY 28th 2017
Extreme Values
Excessive Optimism 0 2
Excessive Pessimism 0 2
The Rule
If the 4 week average of the CBOE total put call ratio is less than or equal to 0 90 indicating optimism you should be out of the market
Current Reading 1 08
Data Source CBOE
Seasonal trends are extremely helpful in identifying typical supply demand patterns or even new trend changes These are self reinforcement patterns that have emerged over time and can be taken advantage of over the years as they have proven to be highly reliable I use seasonality as a secondary concern for any analysis
Bull markets are born on pessimism grown on skepticism mature on optimism and die on euphoria John Templeton
Is The Party Over
It is not a coincidence that within the same window of time of the writing of this market report Howard Marks a quant strategist at JPMorgan NYSE JPM is issuing an alarm regarding the markets
I quote him as saying the upcoming mean reversion will leave many in ruin and that while there is still time to get out of the market we may be very close to the turning point
Colin Cieszynski
The Chief Market Strategist at CMC MARKETS in CANADA noted that Thursday s July 27 2017 breakout to a new all time high by the Nasdaq 100 and subsequent sell off was a bearish key reversal day that may represent the peak of the recent bull market Other bearish signs emerging include a negative RSI divergence and a failure at 6 000 a big round number
It seems that everyone is distracted by many topics including discussions of inflation Fed fund rates and the lack of progress of the Trump administrations policies and yet no one is addressing the continuing rise of our already massive debt The money to drive these markets higher has been borrowed While this can continue for quite some time it is not a solid fundamental factor of stability
There is not a strong argument to be long stocks now other than the fact that the trend remains up and we have yet to see total euphoria in the market
Sector rotation is strong and it warning that skilled traders and insiders are moving their money around to only be in the hot spots and avoiding those of weak This is what happens during late stages of a bull market In fact we say this last year and the markets were on the verge of rolling over until Trump became president and that rejuvenated the markets for one last bull market surge before the end
While analysts like the two quoted above are yelling the sky is falling It s not the case just yet but the end is nearing and next year could be the year to be heavily invested in cash and digital currencies
Currently the SPX continues to trade around our upside price target There is little room left on the upside When confirmed a correction of 150 points to 200 points is highly probable on the SPX I will immediately send out an ALERT followed by a new market analysis update With new positions that need to be added to my subscribers
Based on rough mathematical projections it will be approximately no greater than 10 but a minimum of at least 5 Traders and Investors will feel like the U S equity markets are crashing but they aren t It s just a much needed CORRECTION
My general rule is that a trend is in effect until it proves that it is NOT
American consumers have reached an almost record level of optimism over the past 8 months It is not the most perfect timing mechanism The only other times that optimism for rising stock prices occurred over such a long time was when it reached those levels in June 1987 December 1997 June 1999 and January 2004 which were all followed my mutli month corrections
Conclusion
In short active traders should be defensive over the next few days as we could have one more bout of selling in stocks and a spike in the vix Thrusday Friday as we forecasted in our last article I feel the best plays right now are short metals short oil long dollar |
JPM | 3 Zacks Rank 1 Legg Mason Mutual Funds For Sturdy Returns | With nearly 728 billion of assets under management as of March 31 2017 Legg Mason has 33 years of experience in providing financial services throughout the world Legg Mason along with its nine investment affiliates currently manages more than 90 mutual funds across a wide range of categories including both equity and fixed income funds Most of the company s clients 67 are domiciled in the U S This Baltimore based company serves both individual and institutional investors with around 3 400 employees in 40 offices throughout the globe Below we share with you three top ranked Legg Mason mutual funds Each has earned a Strong Buy and is expected to outperform its peers in the future Investors can Western Asset Municipal High Income A seeks tax exempted current income The fund invests a major portion of its assets in municipal securities rated in the Baa BBB categories or below investment grade In case of no rating the sub adviser determines the fund s credit quality Western Asset Municipal High Income A has one year annualized returns of 0 6 STXAX has an expense ratio of 0 80 compared with the category average of 0 94 ClearBridge Large Cap Value R invests a bulk of its assets in equity securities of large cap companies LCBVX seeks appreciation of capital for the long run as well as maximization of income ClearBridge Large Cap Value Rhas one year annualized returns of 17 1 As of June 2017 LCBVX held 57 issues with 4 13 of its assets invested in JPMorgan Chase Co NYSE JPM ClearBridge Small Cap A seeks growth of capital LMSAX invest the lion s share of its assets in common stocks and other equity securities of small cap companies and other investments which are expected to have similar kind of economic characteristics ClearBridge Small Cap Ahas one year annualized returns of 21 5 Brian Lund is one of the fund managers of LMSAX since 2013 To view the Zacks Rank and past performance of all Legg Mason 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 | Abadi leaves Safra National Bank for Morgan Stanley sources | By Guillermo Parra Bernal SAO PAULO Reuters Mauricio Abadi resigned on Friday as an executive vice president of Safra National Bank of New York to join Morgan Stanley Co NYSE MS three people familiar with the situation said According to one of the people who requested anonymity because of the sensitivity of the issue Abadi had had some of his responsibilities cut back over the past year The other two said he often disagreed over strategy with Chief Executive Officer Simoni Morato Efforts to contact New York based Abadi were unsuccessful A media relations company representing Safra National said the lender does not comment on personnel matters Abadi s departure comes amid a flurry of high level staff changes at private banking firms with strong links to wealthy Latin Americans as competition for clients and assets escalates Private banks offer transaction services and help wealthy families devise financial planning strategies Safra National is the U S based private banking unit of billionaire Joseph Safra s family Forbes Magazine ranks the Brazilian Lebanese banker as the world s richest with a fortune of about 19 billion Safra National had 16 4 billion of client assets at the end of 2016 Abadi worked with Safra National for almost two decades one of the people said At some point Brazil born Abadi oversaw more than 3 billion of Safra National s client money the first person added It was unclear what Abadi s responsibilities would be at Morgan Stanley the people said |
JPM | JPMorgan edges lower on trading revenue comments | Few details are available but JPMorgan NYSE JPM CFO Marianne Lake says trading revenues in Q3 will be down about mid single digits Those words have caused a modest wiggle lower in the stock price now up just 0 3 on the session Now read |
JPM | JPMorgan sees small drop in third quarter markets revenue vs year earlier | NEW YORK Reuters Third quarter markets revenue at JPMorgan Chase Co N JPM is down by a small percent from a year earlier after adjusting for tax law changes Chief Financial Officer Marianne Lake said at an investor conference on Thursday Lake said reported the revenues look like they will be down by a mid single digit percent
On Wednesday Citigroup Inc N CFO Chief Financial Officer John Gerspach said his bank s third quarter markets revenue will likely be flat to slightly higher |
JPM | China s export dependent provinces scramble for shelter from U S trade storm | By Stella Qiu and Ryan Woo BEIJING Reuters China s export dependent cities and provinces are scrambling to provide relief to exporters stabilize employment and avert the possibility of social unrest as an intensifying trade dispute with the United States threatens to further erode business Guangdong China s biggest province by gross domestic product this week offered to cut corporate taxes slash electricity prices and reduce transport and land costs as additional U S tariffs since July exposed Chinese manufacturers to the prospect of empty order books The tariffs have come at a particularly bad time for the southern province which is in the midst of an economic restructuring as it tries to move away from low end labor intensive manufacturing The shift has already led to job losses Fujian another big exporting province on the coast unveiled a similar package of measures in August to soften the blows of the trade war The plight of the provinces is just a taste of what could come if the United States carries out its threat to impose additional tariffs on all of its Chinese imports All out U S retaliation would scuttle China s plan to pivot away from basic industries to higher value manufacturing and could result in job losses in the hundreds of thousands according to one private estimate To some this is a microcosm of what could happen to other export dependent provinces should Trump roll out the full tariffs said Jonas Short head of Beijing office at brokerage Everbright Sun Hung Kai It s also structural cost rises due to land usage as well as social security and funding pressures But also the shock of these tariffs acted as a double whammy CITIES UNDER SIEGE Guangdong s exports fell 2 percent in the first seven months from a year earlier with shipments of machinery accounting for more than half of its exports up only 2 2 percent Three Guangdong cities Zhongshan Foshan and Shenzhen are racing to meet criteria for a program under which exporters both domestic and foreign owned are exempted from a value added tax of 16 percent Small firms with no export licenses can also bundle their products with trading firms that have permits Zhongshan which shares the Pearl River Delta with Guangzhou and Shenzhen is especially vulnerable being one of the Chinese cities most dependent on U S customers Directly in the line of fire is Zhongshan s Guzhen district the largest production base of lighting fittings in China U S tariffs have already hit makers of light emitting diodes LEDs The Trump administration is readying more duties on 200 billion worth of Chinese imports that will include most lighting products The finance ministry said last week it would raise tax rebates on more than 300 products including LEDs semiconductors and machinery The trade war is partly to be blamed for the declining exports said a businessman who runs a trading company in Zhongshan who only gave his surname Xu The Zhongshan government is applying for the program because of the fall in exports Xu said he expected Zhongshan to join the program in September or October Zhongshan s exports slumped 21 3 percent in the first half with the customs agency attributing that to factors including the trade tension which started to flare in March Exports to the United States slumped 19 percent The Zhejiang city of Yiwu the largest wholesale market for general merchandise exports was the first to join the program in 2013 It has helped double the city s exports that year according to official data But there is no guarantee Guangzhou joined the program last year and exports grew 9 1 percent in 2017 Since then its exports have fallen Shipments declined 8 8 percent in the first seven months of this year The Zhongshan government said the commerce ministry had not yet approved its application to join the program The cities of Wenzhou and Quanzhou in the provinces of Zhejiang and Fujian are also looking to join the program with Wenzhou aiming to boost its exports by 2 billion annually JOB CONCERNS JPMorgan NYSE JPM estimated China could lose 700 000 jobs if the United States imposes 25 percent tariffs on 200 billion worth of Chinese exports and if China were to retaliate by devaluing its currency by 5 percent and adding to levies on U S goods In January July the number of jobs at Guangdong s industrial firms fell 4 5 percent from a year earlier to 13 15 million Guangzhou s statistics bureau told Reuters Xu Yangneng general manager at an LED firm in Foshan city in Guangdong said his company stopped its export business after the tariffs in July as profits were being squeezed and would focus on the domestic market instead Business at many factories in Foshan whose biggest market is the U S is quite slow Xu said
Some just put their workers on holiday or simply lay them off |
JPM | Analysis Emerging market currency crisis could lead to broader economic trouble | By Karin Strohecker and Ritvik Carvalho LONDON Reuters Emerging market investors are trying to gauge whether a currency crisis and the steep interest rate hikes being used to fight it could turn into a broader slowdown and even recession On Thursday Turkey s central bank attempted to draw a line under a lira collapse of almost 40 percent this year by hiking interest rates more than 6 percentage points to 24 percent Argentina is struggling to shore up its peso which has more than halved in value despite punitive interest rate rises to 60 percent Other currencies have been caught in the slipstream with India s rupee plumbing record lows and South Africa s rand Russia s rouble and Brazil s real losing 15 20 percent this year so far For a graphic showing the losses click Signs are appearing that months of market turmoil are starting to take the toll on real economies South Africa unexpectedly entered recession in the second quarter of this year Argentina is predicted to follow suit and Turkey is now widely forecast to experience a hard landing over the next year For a graphic showing GDP growth rates click So what is growth like in these countries right now what signs are there of a shock to business and consumer confidence and has the near sudden stop in investment flows seen 2019 economic forecasts deteriorate markedly BUSINESS CONFIDENCE Purchasing manager indexes have suffered sharp drops across many developing nations according to data earlier in the month When you have an environment where the U S dollar is strengthening and U S front end rates are going up that tightens external financial conditions for emerging markets especially for the deficit economies said Murat Ulgen global head of emerging markets research at HSBC DOMESTIC FINANCIAL CONDITIONS Meanwhile faced with capital outflows many emerging market policy makers have opted to hike rates thereby also tightening domestic financial conditions Ulgen added Given that markets have been volatile generally speaking and rates have been higher and equity markets have been lower in summer months it is highly likely that financial conditions are still staying in the negative territory he said Having tumbled some 22 percent from their January peaks emerging equity markets are in territory commonly regarded as a bear market is often considered to be self sustaining decline Tighter financial conditions are going to weigh on economic activity going forward predicted Ulgen HISTORY OF SUDDEN STOPS Emerging markets are familiar with such crises The Institute of International Finance found nine episodes since 1980 where when real exchange rates fell 30 percent or more the devaluation was sustained for at least three years and the decline did not reverse a previous overvaluation Mexico suffered such a fate in 1995 Indonesia and Russia in 1998 and Brazil a year later Meanwhile Argentina and Uruguay recorded such declines in 2002 Egypt in 2003 and 2016 and Ukraine in 2014 There are only 9 episodes historically where the real exchange rate has fallen as much and as permanently Robin Brooks chief economist at the IIF wrote in a recent paper Real GDP falls sharply in the year of devaluation followed by a relatively rapid recovery The current account shifts from sizeable deficit to surplus in the wake of devaluation powered initially by import compression and over time rising export volumes IMPROVING TERMS OF TRADE AT A COST A weaker currency helps close balance of payments gaps by boosting export competitiveness but also by pinching domestic purchasing power while tighter credit saps demand and growth What s more analysts are also closely assessing the impact of a growing number of trade conflicts and tariffs on emerging economies which have seen trade become an increasingly important factors in generating economic activity Ulgen who has already chopped his economic outlook for Turkey Argentina Brazil and South Africa predicts the growth differential of emerging versus developed market growth will shrink in the near term SUDDEN STOP Meanwhile capital flows will play a key role in how the most vulnerable economies will weather the latest crisis Last year saw healthy flows into emerging markets according to HSBC which estimates that in 2017 bond markets saw inflows of 70 billion dollars while equity flows were 65 billion Following a healthy start to 2018 emerging bond markets have suffered a full reversal of flows equity markets have seen just under half of the 55 billion that had come in until the end of May leave again HSBC found Luis Organes at JPMorgan NYSE JPM warned that a sudden stop or abrupt reduction in capital flows into emerging markets and associated negative feedback loops should bring an extended period of adjustment for countries running a large current account deficit Despite recent EM growth downgrades activity data continue to point to downside risks to our GDP forecasts he wrote in a recent note to clients This could be the start of the next phase of a more prolonged downturn for EM assets given negative feedback loops from EM growth downgrades to financial markets EM positioning levels which have not lightened meaningfully and a more enduring contagion from Turkey and Argentina Graphic Emerging market manufacturing surveys slide in August Graphic Shifting gears png Graphic Emerging market stocks enter bear market Graphic Trade openness leaves EM economies vulnerable png Graphic Leading indicators take a hit Graphic Forecasted widening of EM DM growth gap in question Graphic Real exchange rates devaluation episodes IIF |
JPM | JP Morgan chief Dimon says shouldn t have made remarks about Trump | WASHINGTON Reuters JPMorgan Chase Co NYSE JPM Chief Executive Jamie Dimon on Sunday said he regretted comments that he was smarter than U S President Donald Trump and could beat him in an election I shouldn t have said it It also proves I would not be a good politician Dimon said in an interview on ABC s This Week On Wednesday Dimon quickly backtracked after saying he could beat Trump in a campaign but not liberal Democrats Trump had a sharp rejoinder for Dimon on Thursday saying the JPMorgan chief executive lacked the smarts to be president but was otherwise wonderful Dimon said he was speaking more out of frustration and my own machismo and had no plans to run for president I never say never to anything but no Dimon said when asked if he would run for president The bank executive said he felt Trump s policies were helping the economy He should take some credit Dimon said for regulatory and tax changes That has helped the economy It is impossible to tease out how much |
JPM | Dollar hold gains in cautious trade ahead of new U S tariffs on China | By Swati Pandey SYDNEY Reuters The dollar held above a recent 1 1 2 month trough against a basket of major currencies on Monday with investors cautiously awaiting news on the implementation of U S tariffs on an additional 200 billion of Chinese imports U S President Donald Trump is likely to announce the new levies as early as Monday a source told Reuters The tariff level will probably be about 10 percent the Wall Street Journal reported below the 25 percent the administration had said it was considering The WSJ also reported that China may decline to attend trade talks due next week as Beijing won t negotiate under threat Further escalation looks very likely in which the rate will likely be raised to 25 percent and more US tariffs threatened while China may potentially pull out of trade talks entirely and escalate on the new front of outright export restrictions JPMorgan NYSE JPM analysts said in a morning note This would of course only inflame the situation further The dollar index DXY against a basket of major currencies held at 94 965 well above Friday s 94 359 which was the lowest since end July The dollar was last at 111 99 yen within kissing distance of Friday s 112 16 which was the highest since mid July It gained 0 9 percent last week The dollar has seen a surge in safe haven demand from an escalation of global trade tensions involving the United States China Canada and the European Union Expectations of faster U S rate rises have also pulled the currency higher Investors continue to be bullish on the greenback with net long positions of 19 2 billion according to calculations by Reuters and Commodity Futures Trading Commission CFTC data released on Friday The CFTC report also showed the major positioning changes were in the euro with net longs increasing Net shorts in sterling and the Swiss franc also declined The euro EUR and sterling each rallied last week on encouraging developments on terms for Britain s exit from the European Union paring some safe haven demand for the dollar The euro EUR was last at 1 1624 down from a three week top of 1 1721 set on Friday The pound also retreated dropping from last week s peak of 1 3145 to trade at 1 3071 The first of three Brexit summits are set for the coming week where EU leaders hope to settle an agreement within the next two months over the terms of Britain s departure Investors will watch for European inflation data later in the day and a speech by European Central Bank President Mario Draghi on Tuesday The Australian dollar which is a proxy for global growth and Chinese assets has been battered in recent months as Trump s tariff threats became a reality The Aussie is among the worst performing major currencies in the developed world so far this year having tumbled 8 6 percent
The currency was last down 0 1 percent at 0 7146 not far from a recent 2 1 2 year trough of 0 7085 |
JPM | Forex Dollar Slips Aussie Dollar Edges Higher Ahead of Tariff Announcement | Investing com The U S dollar slipped while the Aussie dollar edged higher on Monday as markets awaited an announcement of additional U S tariffs on 200 billion in Chinese goods
The U S Dollar Index which tracks the greenback against a basket of other currencies traded 0 04 lower to 94 47 by 12 35AM ET 04 35 GMT
Reports on the weekend suggested that U S President Donald Trump wants to move forward with tariffs on 200 billion in Chinese goods
The tariff level will probably be about 10 the Wall Street Journal reported quoting people familiar with the matter This is below the 25 the administration said it was considering for this possible round of tariffs
The U S dollar will take guidance this week from any trade discussion and bond and equity market movements said Richard Grace chief currency strategist and head of international economics at Commonwealth Bank of Australia
Meanwhile the AUD USD pair gained 0 7 to 0 7160 The Australian dollar which is a proxy for global growth and Chinese assets was under pressure in recent months as Trump s tariff threats became a reality The Australian currency plunged 9 so far this week and is one of the worst performing major currencies this year The Reserve Bank of Australia is set to publish the minutes of its latest policy setting meeting on Tuesday
This week AUD USD will take some guidance from the minutes of the Reserve Bank of Australia s September policy meeting on Tuesday We don t expect much of a currency market reaction said Grace
Elsewhere the USD JPY pair was down 0 1 to 111 97 The Japanese stock market is closed in observance of Respect for the Aged Day A monetary policy announcement from the Bank of Japan is due this week though no change is expected
The USD CNY pair gained 0 03 to 6 8732
Further escalation looks very likely in which the rate will likely be raised to 25 percent and more US tariffs threatened while China may potentially pull out of trade talks entirely and escalate on the new front of outright export restrictions JPMorgan NYSE JPM analysts said in a morning note
This would of course only inflame the situation further |
JPM | Turkey allows companies to exclude forex losses from bankruptcy calculations | By Can Sezer ISTANBUL Reuters Turkish companies will no longer be required to count foreign currency losses when assessing whether to file for bankruptcy according to a legal change introduced at the weekend a move that could dent productivity by propping up unhealthy companies The move is the latest government measure to help companies squeezed by a sell off in the Turkish lira this year and highlights the difficulty firms and banks face in what analysts say is likely to be a wave of debt restructuring For years Turkish companies have borrowed in hard currency drawn by lower interest rates But a 40 percent decline in the lira this year triggered by investor concerns about President Tayyip Erdogan s growing authoritarianism and the lack of central bank independence has driven up the cost of servicing that debt JPMorgan NYSE JPM estimates that Turkey s private sector has around 146 billion in external debt maturing in the year to July 2019 While the measure could help keep otherwise healthy companies going it also runs the risk of propping up unhealthy ones There s always a delicate balancing act with these type of things said Jason Tuvey of Capital Economics You wouldn t want what would be otherwise profitable and efficient companies going out of business due to some extreme shock But on the other hand there s a clear risk that you end up with a large number of zombie firms that weighs on productivity growth in the wider economy Under the temporary article added to Turkey s trade law and published in the Official Gazette on Saturday companies no longer have to include losses from foreign currency liabilities when determining whether they need to declare bankruptcy A company is required to file a bankruptcy application if its management deems that its assets are not sufficient to cover a certain percentage of its liabilities an assessment that up until now included losses on its foreign currency obligations The new measure will be in effect until Jan 1 2023 according to the declaration in the Official Gazette where the government publishes its decrees If there were a suspicion that a company was over indebted the company s management would prepare an interim balance sheet it said Under the measures a company that has suffered a capital loss or is mired in debt can merge with a company that has sufficient assets to offset that loss in capital Erdogan a self described enemy of interest rates wants to see more cheap credit flowing to the real economy particularly to the construction sector to keep economic growth going Investors are worried about a hard landing and are particularly concerned about the potential impact on banks |
MS | Are Cyclicals At The Forefront Once Again | I and others have noted that the stock market seems increasingly divorced from economic reality But that is not entirely true As the chart shows one sector comprised of economically sensitive issues has been lagging the broader market for several months In fact the Morgan Stanley cyclical index has just hit its lowest level relative to the S P 500 index in three years Given that cyclical stocks led the way up when the bull market began more than three years ago the obvious question is Are they at the forefront once again |
MS | Commodities Getting Past The Negative | I recently spoke at FreedomFest in Las Vegas along with the world s best and brightest minds such as Steve Forbes Senator Rand Paul and Whole Foods CEO John Mackey I discussed the growing global demand of resources and gold to a crowd of 2 000 Half of the group was attending for the first time which demonstrates to me a growing curiosity to learn about macro trends shaping the world and affecting our investments Among investors these days a fellow commodity bull is about as rare as finding a positive story in the media especially when you look at the results of metals and natural resources during the first half of 2012 Only four commodities on our periodic table pulled off a positive return Wheat grew the most rising 13 percent followed by single digit rises in corn gold and copper On the negative side coal lost more than 19 followed by crude oil 14 1 nickel 13 6 and lead 12 3 Fear of slowing global growth and how it will affect commodities has caused many investors to dig in their heels and resist owning natural resources Perpetuating this negative investor sentiment is the constant 24 7 news cycle punctuated with pessimism During a natural resources conference Jeremy Grantham of GMO pounded the table for an investment in resources but you wouldn t know it by reading the headline of the CNN piece that covered the topic In its article called Our planet will truly be toast CNN discussed Grantham s comments on a global commodities shortage saying he was bearish on human resources but bullish on natural resources investments His argument focused on the swelling population in China and the fact that the world experienced a great paradigm shift around 2000 when commodity prices which were negative for decades abruptly reversed course He told the crowd in the long run you can t afford to miss this opportunity We agree As you can see on McKinsey Company s chart above the past decade shows a clear tipping point for resources In 2000 I became the chief investment officer of U S Global Investors at a time when no one wanted to touch resources We recognized the significance of China and Eastern Europe ushering in free markets believing this to be a positive change with emerging markets as big beneficiaries of this massive shift I like to use the metaphor of an ice cube to explain how new equilibriums can have significant effects We all naturally understand what happens when you take ice out of the freezer It changes from solid to liquid but it s still made up of hydrogen and oxygen Change MattersA change in something the size of an ice cube does not have much impact it ll only leave a puddle of water on your counter Instead picture a melting glacier and how such a huge chunk of ice drastically affects the world s ocean levels Or take H20 in steam form At 211 degrees water is way too hot to touch but it s still one degree below the boiling point As explained in the motivational book 212 The Extra Degree Applying one extra degree of temperature to water means the difference between something that is simply very hot and something that generates enough force to power a machine The significance of the changes in states of matter whether it s a chunk of melting ice or a steam engine is that there is a tipping point that significantly alters the dynamics Tremendous population growth changes in government policies development of new technologies and urbanization trends work the same way It s what Grantham called the great paradigm shift and they have equally dramatic effects on how we invest in commodities change opportunities and adjust for risk Patterns Of OpportunitySmart investors look past the rampant negativity in the media to see these patterns and anomalies to determine where the opportunities and threats lie Americans can see how shale gas technology has changed the dynamics of oil and natural gas The chart from the U S Energy Information Administration s Annual Energy Outlook 2012 shows how consumption of petroleum and other liquids in the U S have significantly changed while production has been rising Consumption rose throughout the 1980s until about 2005 when it dropped off Meanwhile domestic production was declining Between 2005 and 2010 a significant change happened consumption dropped then leveled off and the rate of production shifted higher The EIA estimates that because of these shifts net imports will decrease to 36 in 2035 from about 49 today As Brian Hicks a portfolio manager of the Global Resources Fund PSPFX pointed out in a Smart Money article when oil prices rise people put more resources into getting the commodity out of the ground He says before the oil price boom these reserves would have been unprofitable now they re anchoring a gold rush Similar to higher production in the U S Iraq production is on the rise Libya s supply is climbing while demand remains tepid Morgan Stanley Commodity Research believes that the path of least resistance for oil is down The firm estimates OPEC spare capacity at the end of 2011 and 2012 to be around 4 million barrels per day with a global consumption level estimated at 89 million barrels each day This compares to today s spare capacity of around 2 million barrels each day If OPEC production continues at today s levels stocks would build above normal through 3Q and supply would outstrip demand in 2012 says Morgan Stanley Diversification Is VitalThis is why diversification among natural resources is vital Because there s always an ebb and flow of commodities both seasonal and cyclical it s important to anticipate these global trends to know how to participate The key is to adapt to external elements as oil production adapts to excess supply Usually the easy answer such as staying on the sidelines isn t the best bet though Take a look at today s yield on the 10 year Treasury it s 1 49 Meanwhile inflation is at 1 7 which means that after you factor in what you ve lost from the destructive force of inflation you re left with a negative return Instead of being stuck with this potentially losing proposition we believe there are plenty of opportunities In a previous blog I discussed dividend paying resources stocks of the companies in the S P 500 Index Materials pay an average yield of 2 3 utilities pay an annual rate of 4 1 and energy stocks pay a dividend yield of 2 2 And if you need to park some money for a few years you may have noticed that bank offered three year certificates of deposit are yielding about 1 34 to 1 42 These CDs lock up your cash for three years and generally come with a penalty for early withdrawal There may be better yielding alternatives out there for those that can take on some risk as they seek higher returns For example U S Global Investors Near Term Tax Free Fund NEARX had a higher 30 day SEC yield on a tax equivalent basis based on a 35 tax rate as of June 30 2012 Also the fund invests in bonds that have an average maturity of just over three years which is about the same holding period as a three year CD While the fund is not FDIC insured it does provide the flexibility of daily liquidity that comes with a mutual fund I ve rarely been more excited to talk positively about how investors can take advantage of the anomalies and trends in the market In a few weeks I ll be presenting these ideas at the Agora Financial Investment Symposium in Vancouver Hope to see you there U S Global Investors Inc is an investment management firm specializing in gold natural resources emerging markets and global infrastructure opportunities around the world The company headquartered in San Antonio Texas manages 13 no load mutual funds in the U S Global Investors fund family as well as funds for international clients Please consider carefully a fund s investment objectives risks charges and expenses For this and other important information obtain a fund prospectus by visiting or by calling 1 800 US FUNDS 1 800 873 8637 Read it carefully before investing Distributed by U S Global Brokerage Inc |
MS | Am I A China Bear The Answer May Surprise You | There are two schools of thought on the Chinese economy right now The first says It s always darkest just before the dawn The second says It s always darkest just before it goes pitch black It s clear that China s economy is slowing But what happens next is far from clear and the subject of much debate The conventional wisdom at the moment among officials and economists runs something like this China s economy is slowing alright perhaps a bit too much for comfort but it s mainly a self induced slowdown driven by the government s own cooling measures GDP growth is still above Premier Wen s target of 7 5 and is destined to improve in the 2nd half of the year as the government switches gears to re stimulate the economy The slowing inflation rate gives them plenty of room to ease The real estate market has already bottomed out and the banking system is stable Maybe stimulating more investment isn t the best thing for China s economy in the long run but Chinese leaders have the ability to kick that can down the road for some time They have time No they don t I disagree with virtually every single element of the conventional view I ve just outlined Over the next few days in a series of posts on credit real estate inflation and stimulus I will describe how and why For the last two weeks I ve been on a bit of a hiatus from this blog focusing on my which if you haven t checked out you should Not only has Twitter been a wonderful way to introduce new readers to this blog it has offered me an excellent perch for monitoring the data and news stream coming out of China while trying to make sense of what it all means Several important story lines have emerged and what I m seeing really worries me Indeed I am worried not thrilled not vindicated because contrary to stereotypes I do not consider myself a bear on China In that respect I would like to make a few points Because over the next few days I m going to be saying some very negative critical and even scary things about China s economy these points are quite important 1 I don t hate China I m not rooting for China to crash and burn I realize that at least a few of my Chinese readers when they hear me harshly criticize policy or make dire warnings might conclude that as an American I ve caught an acute case of China envy and would love nothing better than to see China taken down a notch In fact I am so critical not because I want the worst to happen or believe it must happen but because I hope and believe the worst can be avoided if clear sighted courageous choices are made My wife is from Beijing my son was born here and we are all tied by blood and affection to a whole host of relatives in China whose struggles and aspirations we share On a less personal level no matter what you think about China s current form of government or the implications of its rising global influence the complex challenges and opportunities posed by a strong and prosperous China are infinitely preferable to the terrible dangers and uncertainties the world would face if China were to collapse or just lose its way in confusion 2 I m not a Perma Bear In other words I m not the kind of commentator who has been warning of China s imminent crash for so long that eventually I m bound to get it right like the broken clock that tells the right time twice a day I ve been traveling to China for 26 years and living here for over a decade For most of that time I would have described myself as a China bull I ve seen an incredible transformation of an economy an astonishing burst of wealth creation I ve worked for private equity funds that invested in promising Chinese companies and helped them grow In the past the problems bad debt inefficient state industries protected markets were outweighed by even more positive developments the wholesale privatization of small and medium state enterprises China joining WTO and committing to more open markets foreign investors taking an active stake in reforming state run banks But something changed in the past few years when China adopted state managed stimulus and money printing as a model for permanently boosting economic growth I don t see myself as inherently a bull or a bear on China The fact is I see plenty of promising areas where China can achieve huge productivity gains and realize meaningful growth but I don t see that happening as long as China keeps trying to insulate favored market sectors from economic reality 3 I m not talking my own book Earlier this week former Morgan Stanley strategist to ignore skeptical concerns about China s economy Beware of people who say things like this he told the anchor Oftentimes they re just talking their own book In other words they re talking down the Chinese economy because they have taken short positions that will pay off if it tanks or merely if market sentiment turns negative enough I don t know about other people but I can assure you that when I express concern about the Chinese economy I am NOT talking my own book I own one property in Beijing which we bought at a reasonable price My wife s career with a global investment bank rides on the health of the China market Virtually all of our income is in RMB and there are barriers to moving it out of the country Because of my wife s job we are prohibited from taking any short positions in the market at least actively in fact it s very hard for us to move in or out of any China related investment freely In our lives careers savings and income we are exposed long on China and like most people in China can t really do much about it But I m still going to call things as I see them when I see them heading for a cliff In short I have no reason for talking down China and plenty of reasons for wanting China to get things right Keep that in mind as you read my bearish Tweets or consider my negative outlook for China s property market or my skepticism towards China s renewed stimulus efforts I would much prefer to see a very different fact pattern and reach far different conclusions Of course my worries may prove overblown my facts incomplete my vision faulty In which case I ve at least given everyone food for thought As Yogi Berra said which I ve stolen unapologetically from Predicting is tough Especially about the future |
MS | Mega Banks Equities Why I Believe You Should Avoid Them Forever | You will find that the State is the kind of organization which though it does big things badly does small things badly too John Kenneth Galbraith All my life I wanted to be a bank robber Carry a gun and wear a mask Now that it s happened I guess I m just about the best bank robber they ever had And I sure am happy John DillingerToo Big to Fail If That s The Case Who Needs Their Stock From an investment point of view there are several fundamental realities concerning banks which exist in virtually every country These have led me to conclude that on a long term basis large too big too fail mega banks are always going to be an unexciting investment OK maybe someday when everything settles down the dull large banks can be bought as dividend plays Maybe my Avoid Forever title is a little bit of exaggeration But that day is a long way off First large banks will not be allowed to go bankrupt Therefore they should not and will not be allowed to take risks and earn high rates of return Governments won t allow these banks to take risks since the governments will have to pay if as in 2008 the risks turn out badly I cannot argue with this government logic If governments are going to socialize the risks then governments should socialize the profits as well Or to put it another way bank risks should be limited and bank capital should be enhanced to protect the governments from losses Unfortunately on a long term basis this makes for a rather unattractive equity outlook for global commercial banks For a mega bank if it s too big to fail then you don t want to own it The Lehman and J P Morgan FiascosThe failure of Lehman Brothers in 2008 and J P Morgan s recent huge derivatives losses are two signature events Regarding Lehman Brothers the American regulators followed the free market Austrian School prescription and allowed Lehman to go bankrupt It was as if one hundred years of populist thinking and an ever greater government role in the financial sector was suddenly forgotten But not for long The American officials quickly lost their nerve as they realized in horror that the entire global financial sector was lined up to go down next One hundred years of coddling and risk backstopping starting with the creation of the Federal Reserve in 1914 had created a financial industry that wasn t ready to be released in the wild Maybe after the financial sector completely crashed a new and better one like a phoenix would have risen from the wreckage But Hank Paulson the American Treasury Secretary wasn t going to take the chance and find out He knew quite correctly that the American people indeed the entire world did not want him to take that chance We ll never know what might have been The Austrian school economists can write all they want The global public and the economics intelligentsia have a closed mind on this subject Ramsey MacDonald a now forgotten British Labour Prime Minister in the dismal1930s once said that the financial sector is the nervous center of capitalism No modern elected government anywhere can allow its financial sector to have a nervous breakdown Even if it s a good idea But how do regulators draw the line between preventing mega banks from taking undue risk and totally stifling initiative and innovation among these institutions All of this keeping in mind that government s implied guarantee to these banks creates a major case of moral hazard If the government is going to pick up the losses why mega bank managements may ask not take more risks on less capital Of course that is what happened over the years Various approaches have been suggested to curtail big bank risk The so called Volker rule is one Under this rule big publicly guaranteed commercial and investment banks shouldn t be allowed to engage in speculative or non hedged proprietary trading since the government has to pick up their losses if they lose But then we have the spectacle of J P Morgan Chase JPM announcing a multibillion dollar loss on what it considered a hedged trading investment JP Morgan Chase is considered by many to be the best run of all the large American banks Its CEO Jamie Dimon is considered to be the most gifted bank executive perhaps in the world and one fit to fill the shoes of the original J P Morgan himself But here we have JP Morgan Chase stumbling in a most egregious manner And its gifted CEO proclaiming before Congress that he doesn t really know what the Volker rule is In other words how do you draw the line between a normal bank hedging of its books and proprietary trading Jamie Dimon before Congress essentially said he could not Maybe nobody can But unfortunately the government will have to try One would hope the rules would be drawn up by economists and not lawyers The Dodd Frank Bill discussed below includes the Volker rule but the regulations on this have yet to be issued No doubt the army of regulators currently being added by the Obama Administration will happily devote themselves to this task Don t expect regulations on this to be fifty words or less in length Over the years large commercial banks gave the public an illusion that they were safe and protected by their governments The banking crisis in 2008 shattered this illusion The large global banks are now subject to tougher oversight by all bank supervisors Governments and central banks realize that large global banks are no longer their friends These banks took high risks distributed handsome bonuses to their star employees and paid good dividends to their international shareholders However they came back to their governments to ask for support after serious losses Basel Rules a Complete FailureA second approach to mitigating bank risk is the Basel III Bank supervisors realized the risk of commercial banks in the 1980s when they implemented Basel Accord known as Basel I This bank supervisory standard linked capital to asset risk Nice theory the regulators hearts were in the right place Well we know what happened Basel or no so many banks have required bailing out in Western countries Basel can t be blamed for the hapless Lehman or Bear Stearns and Merrill Lynch which were not classified as commercial banks In 2008 2010 Basel III was developed by central banks via the Basel Committee Two simple words can summarize Basel III higher equity Banks must have higher equity requirement to support their high risk activities The equity requirement in Basel III is substantially higher than what is required in Basel II Basel III becomes effective in 2013 2018 In this 5 year period all the banks regardless of large size or small size need to issue new equity to support their operations Another big depressant for bank stocks There will be an enormous supply of new bank equity in the coming years That is if they can get anybody to buy it Still in view of what has happened in Europe and the looming sovereign debt crises in all the advanced countries the entire Basel approach could be viewed as regulatory stand up comedy Government bonds even under Basel III are treated as risk free assets requiring little or no capital As it turns out in Europe today government bonds are frequently the riskiest asset banks can own In Europe we have bankrupt governments bailing out bankrupt banks so they can buy the risk free bonds of the bankrupt governments And From the Solons Who Help Do In Fannie and Freddie There is the Dodd Frank BillAn additional regulatory negative piled on to the banks in the US is the Dodd Frank Bill or to call it by its proper name the Wall Street Reform and Consumer Protection Act Passed in 2010 with the Volker Rule and many of the Basel III rules included its sponsors were none other than Representative Barney Frank and Senator Christopher Dodd the two Congressional leaders who so zealously pressured Fannie and Freddie to lower their standards and who protected these institutions from being forced to have more capital The 2300 plus page Dodd Frank Bill is going to be a nightmare It would seem that the primary purpose of this bill is to tie up all banks with enough regulatory requirements so as to make the fulfilling of these requirements banks primary activity Bankers who spend their time filling out government forms and worrying about being politically correct won t have time for mischief making in the derivatives markets Many of the requirements in Dodd Frank have nothing to do with banking but satisfy America s insatiable need to protect women s consumer and minority groups via government regulation There s an irony with Dodd Frank The larger banks can deal with regulations better than the smaller banks There are economies of scale in hiring lawyers and accountants to deal with the unproductive task of complying with burdensome regulations The too big to fail big banks will benefit on a relative basis as compared to the small enough to die small banks In the future talented young men and women aspiring to a career in banking should major in law and human relations not finance Actually talented men and women may not aspire to a career in banking at all Congratulations to the SEC It is interesting that one of the most disastrous regulatory decisions of the last decade rarely gets mention In 2004 the Securities and Exchange Commission vastly liberalized the limits on leverage for the major American investment banks Goldman Sachs Morgan Stanley Merrill Lynch Bear Stearns and Lehman Brothers were allowed to increase their leverage by a quantum leap And by 2008 they had done just that Just in time to load up their balance sheets with complicated and soon to default mortgage derivative securities What so many observers don t seem to care about was that the government in the form of the SEC had sufficient power to regulate investment banks But in the case of the major banks the government failed to use the powers that it already had What America needed to regulate its financial system was a government with integrity and brains and not corrupt politicians who then went on to pass the giant legislative atrocity called the Dodd Frank bill Big Banks as Utilities Given the governments inability to back away from too big to fail for the large banks it seems to me that the large banks should be forced to become low risk highly capitalized institutions This coincides with the view of many that the big banks are too big It is my view that their many riskier functions should be spun off to non banks including hedge funds which definitely should be allowed to fail In other words the big banks would offer risk free financial services to the general retail and business markets Their riskier functions would be performed by non banks Does this sound like the investment banking commercial banking separation of olden times It is not exactly that but in practice it might look not that different The LIBOR Issue Another Reason to Go to Law SchoolI cannot claim any special expertise on this subject but it looks like the LIBOR scandal will turn into a global sinecure for lawyers It is something the banks don t need and something that makes bank stocks even less attractive The banks apparently gamed the system The London Interbank Offered Rate or LIBOR is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks It turns out weaker banks reported rates to LIBOR that were below that which they were actually paying The idea was to conceal weakness Apparently the professionals and the regulators knew what was going on So from an economic point of view as opposed to a legal the wholesale market adjusted and no big deal But LIBOR has been used for pricing many loans around the world by borrowers that didn t know the system was not what it appeared For example mortgage loans in East Los Angeles or Fresno made to overleveraged minority borrowers who had no business borrowing in the first place That was not a good idea LIBOR wound up being used for purposes it was not intended A Note on Chinese BanksToo big too fail is the operational guideline for the large Chinese banks These are majority government owned and totally government controlled The bulk of their business is in China They are not global like the Western mega banks But the majority has equities trading in Hong Kong I ll keep things simple These banks carry out government policy It is assumed the government will bail them out if required Most of their lending in recent years has gone to State Owned Enterprises SOEs and entities related to local governments The SOEs despite getting subsidized rates have low returns on equity and are destroyers of capital The local government entities have misdirected large amounts of capital to real estate and unneeded infrastructure projects When necessary the accounting for these banks especially dealing with non performers is manicured to create a more favorable picture Does this sound like an attractive investment story Not to me The Chinese mega banks and mega they certainly are are less interesting from an economic and investment standpoint than the too big to fail Western mega banks |
MS | Morgan Stanley Earnings Review Losing Streak Snapped | Any earnings per share reported by the volatile Morgan Stanley MS is an improvement and trend reversal regardless of whether it is a beat or miss The current Q2 2012 earnings per share of 0 29 serves that purpose Morgan Stanley has reported losses per share in 2 of the past 3 quarters in 3 of the past 5 quarters and in 4 of the past 8 quarters Morgan Stanley does this to themselves and apparently to their clients CEO James Gorman noted 2 quarters ago that MS continues addressing a number of outstanding strategic and legacy issues I guess that s one way to say it Another way to say it is we lie cheat and steal The general public is not as familiar with Morgan Stanley as they are Goldman Sachs in the Wall Street Banksters syndicate They are just as criminally inclined Metric QoQ Change YoY ChangeTotal Assets 753 76 billion 3 9 Net Revenues 6 95 billion 0 25 Net Income 591 million 729 50 Earnings per Share 0 29 583 176 At QE 6 30 12 I have upgraded Morgan Stanley to an E from an F at the prior QE 3 31 12 Previously at QE 12 31 11 the rating had been D This is on a scale of A to G The median rating is D and the average rating was C at QE 3 31 12 Financial position strength is weighted more than financial performance The QE 3 31 12 bank ratings review is here James P Gorman Chairman and Chief Executive Officer said Although global economic uncertainty remains a headwind we are proactively positioning the Firm for success Our businesses showed resilience in key areas during the quarter and we made progress against strategic goals Despite muted volumes Investment Banking maintained its industry leading rankings In Global Wealth Management we increased our pre tax margin to 12 percent in an environment marked by investor caution and we integrated substantially all of our technology systems which should bring additional value to our clients We continue to be focused on taking the necessary steps to deliver strong returns for our shareholders |
C | Patel Exit Adds Layer of Risk in India as Modi Gears Up for Vote | Bloomberg Urjit Patel s shock exit as governor of the Reserve Bank of India dealt investors another bout of monetary policy uncertainty when they were already bracing for an electoral test of Prime Minister Narendra Modi
Patel who was nine months from the end of his three year term as governor roiled financial markets and surprised the government by quitting on Monday citing personal reasons
He did so ahead of a board meeting on Friday at which government representatives are expected to push the RBI to do more to ease a cash crunch and hand over more of its excess capital State election results due Tuesday were already adding to investors nervousness before a national election next year
The loss of Patel adds another layer of risk to monetary policy amid economic threats both foreign and domestic The rupee is among the worst performers in Asia this year the economy is weakening and the banking sector is in crisis
Short term political gain but with potentially incalculable long term damage to the commitment to credible economic policy is how Vivek Dehejia an associate professor of economics at Carleton University in Ottawa described on Twitter the consequence of Patel s exit It is a very tragic day for India and for sound economics
Rupee forward contracts and futures on the Nifty 50 stocks index fell on news of Patel s resignation which came after the close of regular trading in Mumbai on Monday Stocks and bonds are likely to extend the declines Tuesday
Patel who succeeded Raghuram Rajan in September 2016 has been at loggerheads with the finance ministry which wants the RBI to ease lending restrictions on some banks and has opposed higher interest rates in the past The differences were thrown into the open when Deputy Governor Viral Acharya used an October speech to defend the central bank s independence and warned of a market backlash should it be undermined
Patel has tried to burnish the RBI s credentials as an inflation fighting central bank After hiking interest rates twice this year the RBI left rates unchanged last week while giving itself room to move again by sticking to its calibrated tightening stance
The exit of Patel may lead to a less hawkish bias at the RBI and could mean a rate cut returning to the agenda as soon as February said Abhishek Gupta at Bloomberg Economics in Mumbai
Investors will hope for a credible successor who ll bring continuity said economists at Citigroup Inc NYSE C They noted that nine of the bank s governors since 1970 have had previous experience in institutions such as the International Monetary Fund and pointed out that it took more than two months to replace Rajan
Oxford trained Patel who has shunned the public spotlight as governor was initially seen as a Modi ally after he appeared to back the prime minister s controversial ban on high value currency notes in November 2016 which hurt the economy and led to thousands of job losses Since then he has battled to get India s struggling banking system in order and punish errant borrowers who have stopped servicing their debt even though they have the ability to pay
Patel tightened rules on weak state run banks earlier this year restricting their ability to lend The government wants the RBI to relax the rules so banks can lend more easily and keep the economic engines firing ahead of a general election next year It also wants the central bank to hand over more of its excess capital
The Indian central bank is not alone in facing political heat with challenges to the independence of monetary policy makers a theme of 2018 The Federal Reserve has weathered criticism from U S President Donald Trump while counterparts in Turkey and the U K have also been pressured by policy makers
Looking back this doesn t surprise me said R Gandhi a former deputy governor of the RBI The differences between the RBI and the government were public and this will be seen as a fallout of that |
C | Deutsche Telekom Alibaba Cloud Citi Join Hyperledger Blockchain Project | Blockchain consortium Hyperledger is continuing its rapid expansion by adding 16 new members
Some 16 new members were announced Wednesday at the Hyperledger Global Forum in Basel Switzerland including cloud computing firm Alibaba NYSE BABA Cloud a subsidiary of the global conglomerate financial services giant Citigroup NYSE C and its Citi Ventures arm trade finance blockchain platform We Trade and Deutsche Telekom DE DTEGn the largest telecommunications provider in Europe
The consortium s newest members also include Guangzhishu Technology Guangzhou Technology Innovation Space Information Technology KEB Hana Bank HealthVerity MediConCen Techrock Xooa and BlockDao Hyperledger said |
JPM | BancorpSouth s BXS Q2 Earnings Beat On Higher Revenues | BancorpSouth Inc s NYSE BXS adjusted operating earnings in second quarter 2017 came in at 42 cents per share beating the Zacks Consensus Estimate by 2 cents Moreover the company compared favorably with the year ago quarter tally of 39 cents Revenues escalated aided by strong loans and deposits balances Further stable non interest expenses were a positive However decreased mortgage lending revenues were a major drag Including mortgage servicing rights MSR valuation adjustment of 1 5 million the company s second quarter net income amounted to 37 9 million or 41 cents per share down from 34 7 million or 37 cents reported in the year ago quarter Revenues Loans and Deposits Escalate Costs StableBancorpSouth s second quarter net revenue increased 2 7 year over year to 185 6 million Revenues however missed the Zacks Consensus Estimate of 187 8 million Net interest revenue amounted to 117 5 million up 4 6 year over year Fully taxable equivalent net interest margin was 3 52 down 4 basis points bps from the prior year quarter figure on high average cost of deposits Non interest revenues dipped slightly year over year to 68 1 million The decline was mainly due to a drop in mortgage banking revenues and deposit service charges These decreases were partially offset by high insurance commissions and other income Excluding the MSR valuation adjustments mortgage banking revenues totaled 7 6 million down 36 7 from 12 0 million in the prior year quarter Non interest expenses remained stable at 127 6 million on a year over year basis As of Jun 30 2017 total deposits were 11 9 billion up 4 4 year over year while net loans and leases rose 3 8 to 11 0 billion Credit Quality A Mixed BagBancorpSouth s credit quality displayed a mixed picture The company recorded 1 0 million of provisions in the reported quarter compared with 2 million in year ago quarter Non performing loans and leases decreased to 71 7 million or 0 65 of net loans and leases as of Jun 30 2017 from 80 2 million or 0 76 as of Jun 30 2016 Additionally allowance for credit losses to net loans and leases edged down to 1 10 from 1 20 recorded in the comparable period last year Also non performing assets were 79 4 million down 16 3 year over year However annualized net charge offs as a percent of average loans and leases were 0 17 compared with annualized 0 06 in the prior year quarter Strong Capital PositionBancorpSouth remained well capitalized during the second quarter As of Jun 30 2017 Tier I capital and tier I leverage capital was 11 90 and 9 93 while it was 12 37 and 10 66 respectively at the end of the prior year quarter The ratio of its total shareholders equity to total assets was 11 40 at the end of the quarter down from 12 12 as of Jun 30 2016 The ratio of tangible shareholders equity to tangible assets contracted 67 bps to 9 44 During the second quarter the company repurchased 1 38 million common shares at an average price of 29 64 per share Our ViewpointWe believe BancorpSouth is well poised to expand through strategic acquisitions backed by a strong capital and liquidity position In addition gradual economic recovery is likely to boost the company s top line performance highlighting its organic prospects However decline in mortgage banking revenues is a matter of concern BancorpSouth Inc Price Consensus and EPS Surprise BancorpSouth currently carries a Zacks Rank 3 Hold You can see Performance of other BanksHigher interest income drove Wells Fargo Company s NYSE WFC second quarter 2017 earnings which recorded a positive surprise of about 4 9 Earnings of 1 07 per share outpaced the Zacks Consensus Estimate of 1 02 Moreover the figure compared favorably with the prior year quarter s earnings of 1 01 per share Citigroup Inc NYSE C delivered a positive earnings surprise of 5 0 in second quarter 2017 riding on higher revenues The company s income from continuing operations per share of 1 27 for the quarter outpaced the Zacks Consensus Estimate of 1 21 Also earnings compared favorably with the year ago figure of 1 25 per share Rising interest rates and loan growth drove JPMorgan Chase Co s NYSE JPM second quarter 2017 earnings of 1 82 per share which easily surpassed the Zacks Consensus Estimate of 1 57 Also the figure reflects a 17 rise from the year ago period Notably the results included a legal benefit of 406 million 3 Top Picks to Ride the Hottest Tech Trend Zacks just released a Special Report to guide you through a space that has already begun to transform our entire economy Last year it was generating 8 billion in global revenues By 2020 it s predicted to blast through the roof to 47 billion Famed investor Mark Cuban says it will produce the world s first trillionaires but that should still leave plenty of money for those who make the right trades early |
MS | Morgan Stanley Emerging Markets Debt Fund declares 0 15 dividend | Morgan Stanley NYSE MS Emerging Markets Debt Fund NYSE MSD declares 0 15 share quarterly dividend in line with previous Forward yield 5 93 Payable July 14 for shareholders of record June 30 ex div June 28 Now read |
MS | Morgan Stanley Emerging Markets Domestic Debt Fund declares 0 16 dividend | Morgan Stanley NYSE MS Emerging Markets Domestic Debt Fund NYSE EDD declares 0 16 share quarterly dividend 5 9 decrease from prior dividend of 0 17 Forward yield 7 91 Payable July 14 for shareholders of record June 30 ex div June 28 Now read |
MS | Australian banks face Pandora s box of taxes after state hike | By Byron Kaye and Jamie Freed SYDNEY Reuters A second Australian state on Friday said it was open to charging its own bank tax raising fears the federal government has opened a Pandora s box by slapping a A 6 2 billion 4 7 billion levy on major lenders in its May budget A day after South Australia state infuriated the banking sector by announcing a A 370 million tax on five big lenders Western Australia said the option was attractive and analysts warned investors to brace for more tax hikes I m not going to pretend for a moment that it is not an attractive option I remain open to it Ben Wyatt treasurer of resources rich Western Australia told the Australian Broadcasting Corp While a state bank tax was not currently being considered Western Australia was watching how it went in South Australia he said The federal and South Australian taxes will apply to the so called big four banks Australia and New Zealand Banking Group Ltd AX ANZ Commonwealth Bank of Australia AX CBA National Australia Bank Ltd AX NAB and Westpac Banking Corp AX WBC plus top investment bank Macquarie Group Ltd AX MQG Shares of ANZ Commonwealth Bank National Australia Bank and Macquarie fell about 1 percent on Friday in a flat overall market while Westpac was also flat Pandora s Box is officially open UBS said in a research note As suspected the recent announcement of the Federal Bank Levy has already led to higher taxes on the banks Morgan Stanley NYSE MS said in a note to clients The threat to bank profitability from governments is emerging faster than expected Mark Nathan a partner at Arnhem Investment Management which owns bank shares told Reuters the federal government under former investment banker Prime Minister Malcolm Turnbull had opened the door But I don t think anybody was expecting anybody else to run through that door he said BANK LASH South Australia s move puts more pressure on Turnbull who raised the ire of the banking sector after he announced the federal government s levy with only brief consultation in May That move had broad popular support with anti bank sentiment running hot following a series of misconduct scandals and years of record profits Still reeling from that blow the Australian Bankers Association ABA this week accused South Australia of declaring war on the country s most profitable businesses ABA Chief Economist Tony Pearson LON PSON urged other states to think carefully about the implications for business confidence and investment Westpac subsidiary BankSA said plans to employ an additional 150 people in South Australia were now on hold because of the tax In response the state s ruling Labor Party said banks were already cutting jobs despite record profits Turnbull s ability to push back against South Australia s levy on pro business grounds was limited by his own support for a far bigger bank tax and his treasurer s calls for lenders to pony up to help rein in the budget deficit When a state imposes higher business taxes within its own jurisdiction is that going to drive investment support jobs within that state or is it in fact going to make it less competitive he told reporters Canberra has said its 0 06 percent tax is low by global standards with Germany charging the same amount for similar sized lenders and Britain charging 0 09 percent The governments of the three biggest states New South Wales Victoria and Queensland said they had no plans for a bank tax |
JPM | JPMorgan looks abroad as it commits 500 million more to urban renewal | By David Henry
NEW YORK Reuters JPMorgan Chase Co N JPM will provide 500 million over five years to promote economic opportunities in selected cities including some outside the United States the bank said Wednesday
The program builds on urban renewal strategies that the bank funded in Detroit with 150 million starting in 2014 It has since taken the approaches to Chicago with 40 million and to Washington D C with 25 million
Half of the 500 million will be in philanthropic grants The other half will provide low cost long term development capital The money will be used to teach job skills finance small businesses of women and minority entrepreneurs rebuild neighborhoods and to help families with their finances
The funding comes as JPMorgan Chief Executive Officer Jamie Dimon 62 has turned more of his attention to public policy and economic issues as chairman of the Business Roundtable
Businesses can and must step up to help change the status quo by creating a better future for all no matter where they live Dimon said in a statement It is in our best interest and the right thing to do
JPMorgan the biggest bank in the U S by assets reported net income in 2017 of 24 4 billion
The new program will make large scale investments in targeted cities where the bank believes conditions are right for success and broader deeper investments are needed to drive inclusive growth the bank said
By the end of the year the bank plans to name a global city for its first targeted urban investment outside of the United States
JPMorgan wants to do more business abroad and already spends some of its corporate social responsibility funds outside of the United States
In the new program the bank is also challenging cities to submit bids for financing that would seed innovative solutions that help drive inclusive growth Previously the bank did not have a formal process to evaluate requests from cities for money
The bank looks for evidence of collaboration between public and private interests on renewal schemes in cities it supports
Based on experience in other cities the bank said it expects its 500 million will be matched by 1 billion of outside capital |
JPM | JPMorgan s Dimon backtracks after saying he could beat Trump | NEW YORK Reuters Jamie Dimon CEO of JPMorgan Chase Co N JPM quickly backtracked on Wednesday morning from having said he could beat President Donald Trump in a campaign but not liberal Democrats I should not have said it I m not running for President Dimon said in a written statement released within an hour of his original comments Dimon said his original remark proves I wouldn t make a good politician I get frustrated because I want all sides to come together to help solve big problems Dimon at an event promoting a 500 million JPMorgan investment in cities first said I think I could beat Trump because I m as tough as he is I m smarter than he is according to CNBC adding I can t beat the liberal side of the Democratic party And by the way this wealthy New Yorker actually earned his money Dimon added It wasn t a gift from Daddy Dimon 62 has said publicly in the past he will not run for president and does not have the temperament for the job He said in January he expects to be chief executive officer of the bank for about five years The White House had no immediate response to a request for comment
JPMorgan is the biggest bank in the United States by assets |
JPM | In riposte Trump says JPMorgan s Dimon lacks smarts to be president | WASHINGTON Reuters U S President Donald Trump had a sharp rejoinder for Jamie Dimon on Thursday saying the JPMorgan chief executive lacked the smarts to be president but was otherwise wonderful The Republican president known for his acerbic insults on Twitter was hitting back at Dimon for saying on Wednesday that he was smarter than Trump and could beat him in a White House race Dimon quickly walked back those comments in a statement The problem with banker Jamie Dimon running for President is that he doesn t have the aptitude or smarts is a poor public speaker nervous mess otherwise he is wonderful Trump wrote on Twitter Dimon at an event promoting a 500 million JPMorgan investment in cities had earlier said I think I could beat Trump because I m as tough as he is I m smarter than he is according to CNBC I can t beat the liberal side of the Democratic Party And by the way this wealthy New Yorker actually earned his money Dimon added It wasn t a gift from Daddy Trump has often referred to a 1 million loan he received from his father a real estate magnate to start his own business Dimon 62 has said in the past he would not run for president and does not have the temperament for the job He said in January he expects to be chief executive officer of JPMorgan Chase Co N JPM for about five years
JPMorgan is the biggest bank in the United States by assets |
JPM | U S consumer prices rise slowly jobless claims near 49 year low | By Lucia Mutikani WASHINGTON Reuters U S consumer prices rose less than expected in August as increases in gasoline and rents were offset by declines in healthcare and apparel costs and underlying inflation pressures also appeared to be slowing Despite the moderate consumer price increases last month inflation remains underpinned by a tightening labor market and robust economic growth Labor market strength was reinforced by other data on Thursday showing the number of Americans filing for unemployment aid dropped last week to near a 49 year low With labor market conditions tight wage growth accelerating and input prices being pushed up by capacity constraints and recently imposed tariffs there is plenty of upward pressure on prices said Paul Ashworth chief U S economist at Capital Economics in Toronto The Consumer Price Index increased 0 2 percent last month after a similar gain in July In the 12 months through August the CPI rose 2 7 percent slowing from July s 2 9 percent advance Excluding the volatile food and energy components the CPI edged up 0 1 percent The so called core CPI had increased by 0 2 percent for three straight months In the 12 months through August the core CPI gained 2 2 percent after rising 2 4 percent in July Economists polled by Reuters had forecast the CPI climbing 0 3 percent and the core CPI gaining 0 2 percent in August The inflation report came on the heels of data on Wednesday showing producer prices falling in August for the first time in 1 1 2 years The dollar which has gained more than 6 percent this year against the currencies of the United States main trade partners is weighing on the prices of goods such as apparel August s tepid consumer price gains did not change expectations that the Federal Reserve will raise interest rates at its Sept 25 26 policy meeting The U S central bank has lifted rates twice this year The Fed tracks a different inflation measure the personal consumption expenditures PCE price index excluding food and energy for monetary policy The core PCE price index increased 2 0 percent in July hitting the Fed s 2 percent target for the third time this year Of course there is always significant month to month volatility in the subcomponents but looking out longer term we continue to believe that the most likely outcome is a gradual firming in consumer price inflation said Michael Feroli an economist at JPMorgan NYSE JPM in New York At this point in the cycle the Fed s concerns appear to be shifting from undesirably low inflation to undesirably high inflation An escalating trade war between the United States and China is expected to drive up inflation President Donald Trump last week threatened duties on another 267 billion worth of Chinese goods on top of a 200 billion tariff list that is awaiting his decision Washington already has slapped duties on 50 billion worth of Chinese imports provoking retaliation from Beijing Minutes of the U S central bank s July 31 Aug 1 meeting published last month showed several participants commented that increases in the prices of particular goods such as those induced by the tariff increases would likely be one source of short term upward pressure on the inflation rate The dollar fell against a basket of currencies on the inflation data and also as the European Central Bank left interest rates unchanged staying on track to end bond purchases this year and raise rates next autumn U S Treasury yields dipped while stocks on Wall Street were trading higher RENTS RISING Last month gasoline prices rebounded 3 0 percent after dropping 0 6 percent in July Food prices edged up 0 1 percent matching July s rise Food consumed at home was unchanged Owners equivalent rent of primary residence which is what a homeowner would pay to rent or receive from renting a home rose 0 3 percent in August after advancing by the same margin in the prior month The rent index shot up 0 4 percent Healthcare costs decreased 0 2 percent for a second straight month as prices for doctor and hospital services fell Apparel prices tumbled 1 6 percent the biggest drop since 1949 It was the third straight monthly decline in apparel prices New motor vehicle prices were unchanged last month but the cost of used cars and trucks rose for a third consecutive month In another report on Thursday the Labor Department said initial claims for state unemployment benefits slipped 1 000 to a seasonally adjusted 204 000 for the week ended Sept 8 the lowest level since December 1969 Economists had forecast claims rising to 210 000 in the latest week The four week moving average of initial claims considered a better measure of labor market trends as it irons out week to week volatility fell 2 000 last week to 208 000 also the lowest level since December 1969 The labor market continues to strengthen with nonfarm payrolls increasing by 201 000 jobs in August and annual wage growth notching its biggest gain in more than nine years Job openings hit an all time high of 6 9 million in July
The Fed s Beige Book report which was published on Wednesday described the labor market as tight throughout the country with most districts reporting widespread shortages |
MS | Major Banks Cut Their China Outlook | Economic Data SG SINGAPORE MAY INDUSTRIAL PRODUCTION M M 1 8 V 2 6 E Y Y 6 6 V 6 1 E CN China State Administration of Foreign Exchange SAFE China end Mar outstanding foreign debt at 751 3B v 697 2B end Dec CN CHINA MAY CONFERENCE BOARD LEADING ECONOMIC INDEX M M 1 1 V 0 9 PRIOR 4 month high PH PHILIPPINES APR TRADE BALANCE 135M V 1 05B PRIOR JP JAPAN MAY CORPORATE SERVICE PRICE INDEX Y Y 0 1 V 0 3 E KR SOUTH KOREA JUN CONSUMER CONFIDENCE 101 V 105 PRIOR first decline in 5 months Markets Snapshot as of 04 30GMT Nikkei225 1 3 S P ASX 0 5 Kospi 0 2 Taiwan s Taiex 0 5 Singapore Straits Times Index 0 3 Shanghai Composite 0 5 Hang Seng unchangedSept S P Futures 0 1 at 1 308Aug gold 0 3 at 1 584 ozAug Crude oil 0 4 at 78 92 brlOverview Top HeadlinesAsian equity markets started the session modestly lower before heading towards their session lows later on Japan s Nikkei225 was hardest hit Japan s lower house was able to pass the increase in sales tax as expected Moody s announced a 1 4 notch downgrade to Spanish banks EUR USD was slightly higher though remained in a 30 pip range Draft report ahead of EU summit shows that talks will be held about giving the EU the ability to rewrite national budgets for countries that breach their debt deficit rules Both Citi and HSBC cut their China GDP forecasts though Shanghai was only down slightly China State Information Centre think tank said that since Chinese home prices have not fallen to reasonable levels the government should not soften property curbing measures continue to target speculators with taxes Some speculation that China will not make any changes to property measures until the new government is formed in the Fall One of the major developers Cheung Kong Holdings priced 446 units of The Beaumount in Tseung Kwan O at HK 5 617 sq ft 4 3 below the price of secondary units in the area AUD USD rose about 20 pips in the session Australia s largest trading partner China has expressed concerns about Australia s carbon and mining taxes and that future investment may not be as robust into the country due to the impact BHP and Rio Tinto fell 1 4 and 0 9 respectively rare earth producer Lynas was down over 2 Corn futures rose over 1 2 after Morgan Stanley released a report that was bullish for December corn due to one of the driest Junes since the late eighties Speakers Geopolitical In The Press JP Japan Fin Min Azumi Expects sales tax bill to pass lower house today upcoming EU summit will be a key milestone AU RBA s Debelle Mortgage rate reductions will help people pay down debt faster employment is growing despite job cut reports JP Bank of Japan BoJ Official Monma Long term JGB yields may rise if markets think Japan will not improve its fiscal condition need to watch regardless of outcome of sales tax NZ New Zealand Finance Minister English Graeme Wheeler will be the next RBNZ Gov effective Sept 25th when current Governor Bollard retires at the end of his term CN China Ministry of Commerce MOFCOM Spokesperson Shen Trade growth is within expected range growth continues to pick up EquitiesRenesas Electronics 6723 JP Has requested support from major shareholders will make an announcement on funding with Q1 results MQG AU Set up agricultural fund to acquire dairy farms in Australia AFRUnited Rusal 486 HK Cuts 2012 forecast for aluminum prices from 2 2 2 4K to 2 1 2 2k FMG AU An offer for 60M shares 1 9 of shares outstanding at A 4 90 shr was requested in an all or nothing bid suspected to be largest shareholder and Chairman Andrew Forrest currently holds over 31 of shares SMHFXJ AU 3 of the companies editors have announced they are resigning names Sean Aylmer and Darren Goodsir new editor and chief SMHUS EquitiesAPOL Exec One University of Phoenix program failed the gainful employment test full results will be released by Department of Education tomorrow Q4 enrollment expected to be negative expects new degree positive enrollment sometime in 2013 conf call 6 2 after hours |
MS | Asia Session Investors Position Themselves For Tonight s Summit | It was a very jumpy session as investors prepared themselves for a two day EU summit in Brussels that starts tonight Most of the price action was focused on the majors with USD facing a market wide sell off However looking at price action across numerous asset classes we can safely assume that the US dollar weakness was not the result of risk sentiment Instead it appeared to be positioning ahead of the summit with a few big names choosing to dump rocketed through 1 2500 and onwards to a session high of around 1 2525 proven resistance level from 26 June It was a similar story for AUD USD which made short work of 1 0100 before coming to a stop around 1 0125 The kiwi was also sent higher against the dollar but interestingly the pair soon retraced back to around its 200 day SMA However equity indexes failed to capitalise on opening gains In fact most major stock markets spent the majority of the session retracing their respective opening gains with the exception of the Nikkei225 At the time of writing the ASX200 and Nikkei225 are in the green by around 0 05 and 1 34 respectively with financials leading the way in Japan On the other hand it was fairly quiet day for commodities despite Morgan Stanley downgrading their gold forecast for 2013 Early in the session retail sales data out of Japan helped the Nikkei225 hold onto its opening gains but failed to stop investors flocking to the yen Retail sales increased 3 6 from a year earlier significantly better than the 2 9 rise that was predicted Consumption is being bolstered by higher demand in reconstruction areas following last year s devastating tsunami Overall the data is good news but looking ahead it is hard to see much of a light on the horizon for the Japanese economy at least in the short to medium term Elsewhere new home sales and job vacancies data were released out of Australia with the former increasing 0 7 m m prior 6 9 and the latter falling 5 3 during May prior 0 7 In NZ business confidence weakened during June according to data released by the NBNZ with the index dropping to 12 6 from 27 1 The kiwi dropped slightly on the back of the data but the aussie was relatively unaffected by the figures out of Australia All eyes and ears are now focused on Brussels for the EU summit Despite today s price action and the subsequent USD sell off the market doesn t appear to be overly optimistic about the summit which creates the potential for a surprise on the upside In fact was today s USD sell off a sign investors are worried about a surprise on the upside Possibly but either way it appears any risk rally may be short lived Thus we are looking to short risk currencies in the event there is a small surprise on the upside which results in a risk rally Disclaimer The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract All opinions and information contained in this report are subject to change without notice This report has been prepared without regard to the specific investment objectives financial situation and needs of any particular recipient Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future While the information contained herein was obtained from sources believed to be reliable author does not guarantee its accuracy or completeness nor does author assume any liability for any direct indirect or consequential loss that may result from the reliance by any person upon any such information or opinions Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors Increasing leverage increases risk Spot Gold and Silver contracts are not subject to regulation under the U S Commodity Exchange Act Contracts for Difference CFDs are not available for US residents Before deciding to trade forex you should carefully consider your financial objectives level of experience and risk appetite Any opinions news research analyses prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX com is not rendering investment legal or tax advice You should consult with appropriate counsel or other advisors on all investment legal or tax matters FOREX com is regulated by the Commodity Futures Trading Commission CFTC in the US by the Financial Services Authority FSA in the UK the Australian Securities and Investment Commission ASIC in Australia and the Financial Services Agency FSA in Japan |
MS | BRIC Currencies On The Slide | You can have too much of a good thing After spending most of last year introducing policies to weaken their currencies emerging market governments are now working to limit the slide amid capital outflows a Bloomberg article explains Emerging markets particularly Brazil have complained since 2009 of too much currency strength accusing the US EU and indirectly China of driving their currencies down relative to the real ruble and rupee but this year there has been an abrupt turnaround with the BRIC currencies posting their biggest declines since 1998 For the first time in 13 years the real ruble and rupee are weakening the most among developing nation currencies while the China s yuan has depreciated more than in any other period since its 1994 devaluation the article explains after Brazil s consumer default rate rose to the highest level since 2009 prices for Russian oil exports fell to an 18 month low India s budget deficit widened and Chinese home prices slumped Currencies from Brazil Russia and India will probably decline at least 15 percent by year end Stephen Jen the former head of global currency research at Morgan Stanley is quoted as saying Brazil s real has lost 12 percent so far this quarter the biggest drop among the 31 most actively traded currencies tracked by Bloomberg The 11 5 percent depreciation in the ruble and 10 percent drop in the rupee are almost twice the fall seen in the debt stricken euro China s yuan which was kept unchanged relative to the US dollar during the global financial crisis in 2008 and 2009 has fallen 1 2 percent since March Just in the last week the ruble sank a further 1 2 percent the real 0 8 percent and the Rupee 2 9 percent It is no coincidence that money is said to be flowing out of BRIC economies at alarming rates By Stuart Burns |
MS | Moving Averages Month End Update | The S P 500 closed June with a monthly gain of 3 96 a major reversal from May s 6 27 decline As we anticipated in the the 10 month exponential moving average signal has switched back to invested after a one month cash whipsaw See the specifics The Ivy Portfolio The table below shows the current 10 month simple moving average SMA signal for each of the five ETFs featured in I ve also included a table of 12 month SMAs for the same ETFs for this popular alternative strategy Backtesting Moving Averages Over the past few years I ve used Excel to track the performance of various moving average timing strategies But now I use the backtesting tools available on the website Anyone who is interested in market timing with ETFs should have a look at this website Here are the two tools I most frequently use requires a paid subscription Background on Moving AveragesBuying and selling based on a moving average of monthly closes can be an effective strategy for managing the risk of severe loss from major bear markets In essence when the monthly close of the index is above the moving average value you hold the index When the index closes below you move to cash The disadvantage is that it never gets you out at the top or back in at the bottom Also it can produce the occasional whipsaw short term buy or sell signal such as we ve occasionally experienced over the past year Nevertheless a chart of the since 1995 shows that a 10 or 12 month simple moving average SMA strategy would have insured participation in most of the upside price movement while dramatically reducing losses The 10 month EMA is a slight variant on the simple moving average This version mathematically increases the weighting of newer data in the 10 month sequence Since 1995 it has produced fewer whipsaws than the equivalent simple moving average although it was a month slower to signal a sell after these two market tops A look back at the 10 and 12 month moving averages in the Dow during the shows the effectiveness of these strategies during those dangerous times The Psychology of Momentum Signals Timing works because of a basic human trait People imitate successful behavior When they hear of others making money in the market they buy in Eventually the trend reverses It may be merely the normal expansions and contractions of the business cycle Sometimes the cause is more dramatic an asset bubble a major war a pandemic or an unexpected financial shock When the trend reverses successful investors sell early The imitation of success gradually turns the previous buying momentum into selling momentum Implementing the Strategy Our illustrations from the S P 500 are just that illustrations I use the S P because of the extensive historical data that s readily available However followers of a moving average strategy should make buy sell decisions on the signals for the each specific investment not a broad index Even if you re investing in a fund that tracks the S P 500 e g Vanguard s VFINX or the SPY ETF the moving average signals for the funds will occasionally differ from the underlying index because of dividend reinvestment The S P 500 numbers in our illustrations exclude dividends The strategy is most effective in a tax advantaged account with a low cost brokerage service You want the gains for yourself not your broker or your Uncle Sam Note For anyone who would like to see the 10 and 12 month simple moving averages in the S P 500 and the equity versus cash positions since 1950 here s an xls format of the data My source for the monthly closes Column B is Columns D and F shows the positions signaled by the month end close for the two SMA strategies Recommended Reading In the past we ve recommended Mebane Faber s thoughtful article The article has now been updated and expanded as Part Three Active Management his book coauthored with Eric Richardson This is a must read for anyone contemplating the use of a timing signal for investment decisions The book analyzes the application of moving averages the S P 500 and four additional asset classes the Morgan Stanley Capital International EAFE Index MSCI EAFE Goldman Sachs Commodity Index GSCI National Association of Real Estate Investment Trusts Index NAREIT and United States government 10 year Treasury bonds As a regular feature of this website I try to update the signals at the end of each month See my review of The Ivy Portfolio Footnote on calculating monthly moving averages If you re making your own calculations of moving averages for dividend paying stocks or ETFs you will occasionally get different results if you don t adjust for dividends For example VNQ triggered a buy signal in December based on adjusted monthly closes but there was no signal if you ignored dividend adjustments See the comparison If you use data from Yahoo Finance for dividend paying assets you would use the right column of adjusted closes in calculating the monthly moving averages Here is the link for Because the data for earlier months will change when dividends are paid you must update the data for all the months in the calculation if a dividend was paid since the previous monthly close This will be the case for any dividend paying stocks or funds |
MS | Major Currency Pairs Analysis July 02 2012 | EUR USDThe euro gained against the dollar as European Union leaders reached an agreement that alleviated concern banks will fail and spurred optimism they are closer to resolving the region s sovereign debt crisis The dollar fell against all its major counterparts this week after EU officials during a two day summit in Brussels dropped the requirement governments get preferred creditor status on crisis loans to Spanish lenders The themes this week were all around the EU summit and the anticipation that nothing of any substance was going to be resolved then headlines proved that to be incorrect The euro rose 0 8 percent this week to 1 2667 after touching 1 2407 a three week low before the summit EU leaders completed their 19th summit to discuss measures to stem a debt crisis that s spurred five euro members to seek international bailouts Euro bloc finance ministers will enact the deal on loans to Spanish banks at a meeting on 9th of July European Union President Herman Van Rompuy said calling the accord a breakthrough EUR USD title EUR USD width 625 height 334 GBP USD The British pound gained slightly over one cent against US dollar as GBP USD closed just shy of the 1 57 mark at 1 5698 The pound moved up sharply at the end of last week following the surprise announcement at the EU Summit At the Summit the leaders announced measures designed to combat the debt crisis and aid struggling EZ members notably allowing for the direct recapitalization of banks from Euro zone rescue funds GBP USD title GBP USD width 624 height 468 USD JPY Japan s industrial output fell the most since the March 2011 earthquake and consumer prices declined bolstering the case for extra stimulus to sustain the nation s economic recovery Production declined 3 1 percent in May from April the Trade Ministry said in Tokyo A holiday may have played a role and Mitsubishi UFJ Morgan Stanley cited post quake difficulties in seasonal adjustments Consumer prices excluding fresh food fell 0 1 percent in May from a year earlier Weakness in European demand limited automobile output underscoring the risk to Asia from the region s crisis as euro area leader s grapple with limiting the spread of sovereign debt woes Production of transportation equipment including automobiles slumped 11 1 percent in May the biggest drag on output overall The yen was still trading below 80 closing at 79 93 last before the weekend USD JPY title USD JPY width 624 height 468 USD CAD Canada s dollar rose this month against its U S counterpart as optimism Europe is closer to resolving its debt crisis spurred demand for riskier assets The currency had the biggest advance since November yesterday after European leaders agreed to relax conditions for emergency loans to Spanish banks Stocks gained on the month and volatility fell the most since January lifting the Canadian dollar The nation s employers added jobs in June for a fourth straight month economists forecast before the 7th of July report Canada s currency nicknamed the loonie for the image of the aquatic bird on the C 1 coin gained 0 8 percent this week to C 1 0166 per U S dollar in Toronto One Canadian dollar purchases 98 37 U S cents USD CAD title USD CAD width 624 height 468 |
MS | Glencore Xstrata Merger In Doubt As Key Shareholder Withdraws Support | For the first time since the planned 65bn mega merger of Glencore and Xstrata the deal looks like it faces serious headwinds Until now opposition came from shareholders objecting to the eye watering retention payments dreamt up by the board to ensure their own continuation in their executive roles The chief executive Mick Davis alone said to earn gain 173m caused such a row that the Xstrata board sought to defuse it by amending the terms such that he receives shares instead of cash Additionally he would also need to identify 300m of savings That doesn t sound like much of a payback to shareholders Some may say cost cutting looks like the easy part But cutting costs while improving performance can prove more challenging Furthermore the improving performance part didn t seem like part of the deal Opposition arose from investors with David Cumming head of equities at Standard Life in the vanguard furious that some 300m would go toward senior executives for a deal they had dreamt up in the first place Still in itself moves by the board to amend the terms ahead of a shareholders meeting in July looked like it may have defused the opposition However this development has taken second stage to an even bigger bombshell dropped this week by Xstrata s largest investor the sovereign wealth fund Qatar Investment Authority QIA That organization has more or less demanded a higher price for Xstrata shares in return for backing the merger Success requires approval by 75 of Xstrata s shareholders but as Glencore cannot vote its 34 stake in Xstrata doesn t count meaning a no vote from 16 75 of the remaining investors could block the tie up Qatar has built up a 10 4 stake in the miner over the last three years valued today at some 4bn Having kept their own council about the purchase price Glencore had offered 2 8 Glencore shares per Xstrata share the QIA have announced just days before the shareholder meeting saying they require 3 25 Glencore shares in return for each Xstrata share to guarantee their backing According to a Reuters article at a ratio of 3 25 the offer would be worth 30 billion as opposed to 26 billion for a ratio of 2 8 A counter offer from Glencore remains a possibility and some expect they may come back with a 3 for 1 offer but so far Glencore have not made any response Playing A High Risk GameArguably the value of all miners has dropped since the first quarter of this year as commodity prices have slumped Using the Thomson Reuters Jefferies CRB index a barometer for commodities the index has dropped by about 14 since early February coincidentally at the time of the deal announcement Xstrata as a sizable coal miner has seen the value of thermal coal mining companies drop the most particularly in the US where some values have dropped by 90 Glencore could decide to withdraw their bid and wait out the market 12 months from now Xstrata may represent better value Apart from the senior executives hoping for lucrative retention packages a collapse of the deal would also wield a heavy blow to a long list of bankers acting as advisers to one side or the other including Citigroup Morgan Stanley JP Morgan and Deutsche Bank Glencore plays two roles both as miner and trader They look at this deal with a long view Even at a ratio of 3 25 they may decide the value holds in the long term but Glencore largely owned by its management and such a price would result in a 10 dilution of their shareholding It s likely too high a price for a firm that has prided itself on its deal making prowess by Stuart Burns |
MS | Euro Zone Investors Love Danish Bonds | Would you pay Denmark s government 0 6 to hold your money for two years Sounds strange but that s exactly what investors are doing Denmark s government paper yields just hit new lows And it s not only the short term bills with the negative yield short term bills sometimes go negative when investors seek immediate liquidity The two and three year notes are also comfortably in the negative territory as euro zone investors can t get enough Why do the investors love Demark s bonds so much that they re willing to lock in negative yields for two to three years Here are three key reasons 1 Euro zone based investors are not taking much FX risk because Denmark keeps the EUR DKK exchange rate tightly pegged 2 Investors love Denmark s economic fundamentals particularly the relatively low government debt and deficit 3 Keeping funds outside the euro zone may provide a hedge against potential problems associated with the monetary union s stability Bloomberg BW If the euro crisis worsens foreign capital may keep pouring in negative rates or no Says Ian Stannard chief European currency strategist at Morgan Stanley in London For an international investor with euro zone exposure buying Danish assets can be a hedge against the extreme scenario of the euro breaking up |
MS | What FCMs Can Be Trusted By Futures Traders | Now that we know federal regulators CFTC have no ability to protect traders from grand larceny we traders need to do our our own due diligence I am done doing business with any FCM other than the largest ones I will only do business in the future with an FCM that has excess capital far greater than the amount of client funds they handle Of course as we all know by now FCMs can report any number they want whether the report is real is another matter I am done doing business with any FCM that has a history of unusual regulatory problems The following PDF file shows the following data for FCMs with more than 1 billion of segregated futures market customer assets Excess capital above margin commitmentExcess capital as a percent of segregated account fundingRegulatory actions by the NFA CFTC and exchangesCFTC reparation cases The FCMs in bold represent those firms I will consider trading with in the future By the way the age of cheap commissions will soon be a thing of the past if the CFTC and Congress respond to the MF Global and PFG scams the way they should Whereas I have paid an average round turn commission rate of 4 inclusive of all expenses and fees I fully expect to pay something north of 8 in the future The FCMs I will consider include Goldman SachsUBSMerrill LynchMorgan StanleyBarclay CapitalCredit SuisseRBSNot that I will be accepted as a client of all these firms Several of the larger FCMs have an annual minimum commission expectations in excess of 250 000 to 500 000 I cannot hit these minimums But I will not go through another PFG again |
C | Resilient Russian Big Oil Gives Putin Leverage With OPEC | Bloomberg On the eve of oil talks between President Vladimir Putin and Saudi Crown Prince Mohammed Bin Salman Russian crude producers are showing why their leader can afford to drive a hard bargain
The most recent financial data from companies including Rosneft PJSC and Lukoil PJSC show an industry that has little to fear from oil s plunge back into a bear market Thanks to low production costs plus the natural hedge of falling taxes and a weakening ruble if prices drop further they could withstand years of cheap crude according to analysts from Citigroup Inc NYSE C to Renaissance Capital
Russian crude producers will feel comfortable in the 50 to 60 per barrel band said Dmitry Marinchenko oil and gas director at Fitch Ratings The estimates echo comments from Putin who said Wednesday that oil at 60 is absolutely fine for his nation
The resilience could make Russia a tough negotiator as Saudi Arabia the de facto OPEC leader suggests coordinated output cuts to boost prices
In the first nine month of this year Rosneft Lukoil and Gazprom MCX GAZP Neft PJSC Russia s largest producers spent no more than 48 50 to produce and export a barrel of oil according to Bloomberg calculations based on the companies financial reports Even after a 30 percent plunge Brent crude the international benchmark is currently trading near 60 a barrel
Costs at the wellhead reached just 3 to 4 a barrel one of the lowest levels in the world with taxes accounting for the rest Shipments from West Siberia the nation s main oil province to the nation s borders cost an extra 4 to 5 a barrel Citigroup estimates
While these costs would seem to indicate that crude prices below 55 would create difficulties for Russian companies the reality is less grim
Once oil declines so do the extraction tax and the export duty as they are linked to the oil price said Alexander Burgansky energy analyst at Renaissance Capital Your expenses go down automatically
Also if oil prices get hit hard the Russian currency tends to weaken Burgansky said That helps the nation s producers who earn dollars for crude exports and pay most of their costs in rubles
Russian energy companies are entering the bear market in a better financial shape They enjoyed some of their best ever results in the first nine months of the year reaping the benefits of rising oil prices and the relaxation of OPEC production cuts agreed in June The combined revenue of Russia s top three producers jumped almost 40 percent from a year earlier to 13 9 trillion rubles while their combined net income nearly doubled to 1 2 trillion rubles
Rosneft recently the country s most indebted company used its record cash flow to reduce its leverage by 12 billion Debt pressure on other Russian top crude producers Lukoil Gazprom Neft and Novatek PJSC is low enough to keep their investment programs intact unless oil goes below 50 according to Fitch s Marinchenko
With the tax regime and the ruble on their side plus accumulated cash flows under their belt Russian producers can survive extremely low price levels for several years said Andrey Polischuk an oil and gas analyst at Raiffeisen Centrobank
The industry could work effectively at prices as low as 10 per barrel according to Matthew Sagers managing director of Russian and Caspian energy research at IHS Markit Ltd
Even at 15 oil the producers will continue to show positive earning before interest taxes depreciation and amortization Alexander Kornilov energy analyst at Moscow based Aton LLC said
To be sure the Russian government wouldn t be quite so resilient Finance Minister Anton Siluanov says Urals crude needs to sell for about 40 to balance the budget in 2019 If prices were to fall significantly below 50 the state will start talking about more taxes for oil producers Fitch s Marinchenko said
But for now Russian producers are not under great stress said Ronald Smith Citigroup s energy analyst in Moscow In early 2016 Brent denominated in rubles was some 40 percent lower than current levels and the companies survived
We ve been through worse in recent memory Smith said
Updates with analyst s comment in 14th paragraph |
C | Citi CFO forecasts lower markets revenue for fourth quarter | Reuters Citigroup Inc N C chief financial officer John Gerspach said the bank expects market revenue in the current quarter to be slightly lower from last year Gerspach speaking at an investor conference in New York said the fall is driven by a decline in fixed income markets revenue while Citi s equity business is doing well |
JPM | Zacks Industry Outlook Highlights Financial Select Sector SPDR Fund JPMorgan Chase Wells Fargo And Citigroup | For Immediate Release
Chicago IL July19 2017 Today Zacks Equity Research discusses the Industry U S Banks Part 1 includingFinancial Select Sector SPDR fund NYSEARCA JPMorgan Chase NYSE JPM NYSE Wells Fargo NYSE and Citigroup NYSE
Industry U S Banks Part 1
Link
U S bank stocks which ran out of steam in the last few months after a huge rally following Donald Trump s presidential victory might see a solid rebound in the coming months That s because the uncertainty over President Trump delivering on his promised advantageous backdrop for banking business has started reducing with the passage of the Financial CHOICE Act in the House and the Treasury presenting its plans to streamline the nation s banking system
While the proposed wholesale regulatory reform a full scale repeal of Dodd Frank getting clearance in the Senate and being signed into law might be a tall order it appears that the Trump administration would be able to make a number of changes even if the proposals don t get converted to legislation If that happens the fixed costs that banks are struggling with will reduce notably
This coupled with the corporate tax reform which is more likely to become reality and rising interest rates should give solid boost to banks profitability and take their stocks to heights never achieved before
The renewed optimism has helped bank stocks recover recently to narrow the gap with the broader market The Zacks categorized industry has rallied 6 5 since the beginning of the year versus the 8 5 gain of the S P 500 Also the Financial Select Sector SPDR fund NYSEARCA a top bank ETF has gained 6 7 over this period
Banks second quarter 2017 earnings reports which have started coming out recently might not indicate the industry s growth potential as there was no tangible progress related to the reforms during the April June period In fact the quarter doesn t appear to have offered a favorable backdrop for banks as evident from the results of the mega players including JPMorgan Chase NYSE Wells Fargo NYSE and Citigroup NYSE that have reported so far But one of the key factors offsetting the challenges was rising interest rates the banks appear to have evaded shrinking margins the key challenge since the crisis
How Long Might a Turnaround Take
A lot depends on when and to what extent the reforms proposed by the Trump administration come into effect
A rising rate environment at the expected pace itself has the potential to take banks profitability to higher levels through sustained expansion in net interest margins So it might not take long for the industry to thrive However for receiving a bigger boost corporate tax and financial regulatory reforms have to be in play
While chances of all the regulatory changes proposed by the Trump administration getting clearance are dim any permitted change will take years to get fully implemented We don t expect any impact of the likely changes on banks costs and profitability through the end of this year considering the progress made by the administration so far
Interest Rates Hold the Key to Success
Yields on key earning assets securities and loans are expected to rise as interest rates move higher But a material improvement in margins will depend on the extent to which higher rates put pressure on funding costs particularly costs of maintaining deposits Also increasing competition will lead to weakening credit quality in the long run
Considering the industry s current interest rate sensitivity level which isn t impressive as banks have yet to fully return to the rate dependency level that they trimmed in a prolonged low rate environment we don t expect increase in deposit costs and weakening credit quality to significantly mitigate the benefits of higher earning asset yields So margins are expected to expand materially in the next couple of years
Current Business Trends Show Weakness
Lending Loan growth for commercial banks has slowed in the last three quarters According the in the last few quarters commercial banks have seen the weakest loan growth since 2014 The weakness in growth was lesser in the consumer segment than what commercial and industrial witnessed
Perhaps continued uncertainty over Trump s wish list getting clearance and cheaper ways to borrow are among the factors responsible for this weakness Investors wait and see attitude could keep the lending scenario bleak in the coming months However wage growth and higher disposable income as a result of an improving economy should eventually push up demand for retail and small business loans
Deposits Relatively less levered consumers and businesses along with economic growth and improvement in labor and housing markets have spurred growth in deposits However the liquidity coverage ratio requirements that force banks to pay premium on stable funding will increase costs for the deposits
Expenses Expense reduction which has long been the key method to remain profitable may not be a major support going forward as banks have already cut the majority of unnecessary expenses However the results for the last few quarters show some respite from high legal costs with the sharp sting of fines and penalties being cured by settlements
Scrutiny on the business model of banks and their targeted M A deals could lead to some compliance costs Also technology costs will keep on increasing
Performance of Key Business Segments Could Be Lackluster Mortgage Business Expectations of a higher rate environment and likely relaxation of regulatory restrictions might keep encouraging refinancing activities in the quarters to come helping banks to generate some mortgage revenues However with the refinance boom nearing its end no major support is expected from this segment The latest weekly mortgage applications surveys by the Mortgage Bankers Association MBA show continued decline in the refinance share of mortgage activity
Moreover last month a 3 year over year decline in commercial and multifamily mortgage originations volume in 2017 However the association expects commercial multifamily mortgage debt outstanding to increase 2 in 2017
Trading Activity For the major part of second quarter 2017 trading activities remained sluggish in the absence of any tangible progress on the reforms proposed by the Trump administration lesser geopolitical tensions and an unchanged monetary policy standpoint of the Fed However the market witnessed some volatility at the very end of the quarter induced by renewed reform talks and steps
The key factor driving market volatility could be the headway that the Trump administration has made with the proposed reforms So any significant improvement in trading activities is not expected in the quarters ahead
Zacks Industry Rank
Within the Zacks Industry classification health insurers are broadly grouped in the Medical sector one of the 16 Zacks sectors
We rank 265 industries into 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry We put our X industries into two groups the top half industries with the best average Zacks Rank and the bottom half the industries with the worst average Zacks Rank
Over the last 10 years using a one week rebalance the top half beat the bottom half by more than twice as much The Zacks Industry Rank is 177 bottom 34 The ranking is available on the
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar They re virtually unknown to the general public Yet today s 220 Zacks Rank 1 Strong Buys were generated by the stock picking system that has nearly tripled the market from 1988 through 2015 Its average gain has been a stellar 26 per year
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Past performance is no guarantee of future results Inherent in any investment is the potential for loss This material is being provided for informational purposes only and nothing herein constitutes investment legal accounting or tax advice or a recommendation to buy sell or hold a security No recommendation or advice is being given as to whether any investment is suitable for a particular investor It should not be assumed that any investments in securities companies sectors or markets identified and described were or will be profitable All information is current as of the date of herein and is subject to change without notice Any views or opinions expressed may not reflect those of the firm as a whole Zacks Investment Research does not engage in investment banking market making or asset management activities of any securities These returns are from hypothetical portfolios consisting of stocks with Zacks Rank 1 that were rebalanced monthly with zero transaction costs These are not the returns of actual portfolios of stocks The S P 500 is an unmanaged index Visit for information about the performance numbers displayed in this press release |
JPM | JPM Elliott Wave Bullish Structure | The Elliott Wave view for JPMorgan Chase NYSE NYSE JPM suggests the rally from February 2016 low 52 5 to 03 01 2017 peak 93 98 have ended wave 3 The pullback from there unfolded as which ended wave 4 at 06 01 2017 low 81 79 Up from there the stock rallied in another zigzag structure before ending that short term cycle after reaching extreme on 07 06 2017 peak 94 51
Therefore JPM made new all time highs and it s now showing 5 waves from 2016 low and still looking to reach the minimum target at 100 5 The stock can either rally from current levels as it already did 3 waves pullback and reached short term equal legs area 90 9 89 39 or the correction can still extend further toward the 50 76 4 Fibonacci retracement before finding buyers again to rally to new highs or bounce in 3 waves at least However if JPM fails to make new highs and the pivot at June low gives up then the stock could be still in wave 4 doing an which can take it toward 82 97 area before being able to resume the rally
JPM 4H Chart 07 20 2017
The market conditions have changed over time so instruments can now be trending higher or lower in series of 3 wave sequences rather than impulsive sequence and this can be frequently seen in the forex market No one is perfect and we don t claim to have 100 accuracy but a system with high accuracy acts as a great trading tool because forecasting is a process of continuous adjustments A waver trader needs to accept when an idea doesn t work out and adjust to new data |
JPM | Texas Capital TCBI Q2 Earnings Beat Expenses Escalate | Driven by rise in revenues Texas Capital Bancshares Inc NYSE C reported a positive earnings surprise of 3 2 in second quarter 2017 Earnings per share of 97 cents outpaced the Zacks Consensus Estimate by 3 cents Moreover the bottom line came in 24 higher than the prior year quarter figure of 78 cents Better than expected results were driven by rise in revenues and lower provisions Organic growth was reflected with strong growth in loans and deposit balances However elevated expenses were the undermining factors Net income available to common shareholders was 48 7 million up 33 8 year over year Revenue Growth Recorded Loans Deposits Go Up Costs EscalateTotal revenue net of interest expense jumped 18 year over year to 201 8 million in the quarter driven by higher net interest income and non interest income in the quarter Moreover revenues surpassed the Zacks Consensus Estimate of 197 1 million Texas Capital s net interest income was 182 9 million up 16 5 year over year In addition net interest margin expanded 39 basis points bps year over year to 3 57 This resulted from improvement in earning asset composition and the favorable impact of increased interest rates on loan yields Texas Capital s non interest income surged 35 3 year over year to 18 8 million The rise was primarily due to an increase in service charges servicing income wealth management and trust fee income along with other income However non interest expenses increased 18 6 year over year to 111 8 million This was mainly stemmed by rise in almost all components of expenses As of Jun 30 2017 total loans rose 13 year over year to 20 3 billion while deposits climbed 3 6 year over year to 17 3 billion Credit Quality A Mixed BagNon performing assets totaled 0 73 of the loan portfolio plus other real estate owned assets reflecting a year over year contraction of 31 basis points Total non performing assets came in at 142 4 million down 22 7 year over year Provisions for credit losses summed 13 million down 18 8 year over year Non accrual loans were 123 7 million or 0 64 of total loans against 165 4 million or 0 93 in the year ago quarter However the company s net charge offs increased 3 3 on a year over year basis to 12 4 million Steady Capital and Profitability RatiosThe company s capital ratios demonstrated a steady position As of Jun 30 2017 return on average equity was 10 08 and return on average assets was 0 96 compared with 9 65 and 0 77 respectively recorded in the year ago quarter Tangible common equity to total tangible assets came in at 8 4 compared with 7 2 in the prior year quarter Stockholders equity was up 23 5 year over year to 2 1 billion as of Jun 30 2017 The uptrend was chiefly allied with retention of net income and proceeds from common stock offering during fourth quarter 2016 Our ViewpointTexas Capital s improved top line and a better balance sheet were impressive during the quarter However bleak economic situation may continue to hurt the company s performance in the future Though its inability to control expenses may hamper profitability going ahead improvement in margin remains a favorable factor Texas Capital Bancshares Inc Price Consensus and EPS Surprise Currently Texas Capital carries a Zacks Rank 3 Hold You can see Performance of Other BanksHigher interest income drove Wells Fargo Company s NYSE WFC second quarter 2017 earnings which recorded a positive surprise of about 4 9 Earnings of 1 07 per share outpaced the Zacks Consensus Estimate of 1 02 Moreover the figure compared favorably with the prior year quarter s earnings of 1 01 per share Citigroup Inc NYSE C delivered a positive earnings surprise of 5 0 in second quarter 2017 riding on higher revenues The company s income from continuing operations per share of 1 27 for the quarter outpaced the Zacks Consensus Estimate of 1 21 Also earnings compared favorably with the year ago figure of 1 25 per share Rising interest rates and loan growth drove JPMorgan Chase Co s NYSE JPM second quarter 2017 earnings of 1 82 per share which easily surpassed the Zacks Consensus Estimate of 1 57 Also the figure reflects a 17 rise from the year ago period Notably the results included a legal benefit of 406 million 3 Top Picks to Ride the Hottest Tech Trend Zacks just released a Special Report to guide you through a space that has already begun to transform our entire economy Last year it was generating 8 billion in global revenues By 2020 it s predicted to blast through the roof to 47 billion Famed investor Mark Cuban says it will produce the world s first trillionaires but that should still leave plenty of money for those who make the right trades early |
MS | A stock guy is behind Morgan Stanley s bond trading comeback | This just in Morgan Stanley NYSE MS has had four consecutive quarters of fixed income revenue north of 1B the longest streak since 2010 Since the promotion of Ted Pick in 2015 he now oversees both stock and debt trading the bank s market share in fixed income among the five big U S firms has doubled Source Liz Hoffman in the WSJQ2 s near an end and word from shops like Citigroup NYSE C and JPMorgan NYSE JPM suggests a sizable industry slowdown Pick has been telling associates the trading operation has omentum i e momentum with an m so small it s invisible In any case Pick s success the 48 year old has been at Morgan Stanley for his entire career has likely put him on the short list of those possibly succeeding CEO James Gorman who has hinted he wants to stay on for a few more years Now read |
MS | Oil prices hold near seven month lows glut keeps dragging | By Aaron Sheldrick TOKYO Reuters Oil markets held around seven month lows on Tuesday as investors focused on persistent signs of rising supply that are undermining attempts by OPEC and other producers to support prices Brent futures were up 4 cents at 46 95 at 0214 GMT On Monday they fell 46 cents or 1 percent to settle at 46 91 a barrel That was their lowest since Nov 29 the day before the Organization of the Petroleum Exporting Countries OPEC and other producers agreed to cut output for six months from January U S West Texas Intermediate crude futures were down 1 cent at 44 19 a barrel They declined 54 cents or 1 2 percent in the previous session to settle at 44 20 per barrel the lowest close since Nov 14 The July contract will expire on Tuesday and August will become the front month Both benchmarks are down around 15 percent since late May when OPEC Russia and other producers extended by nine months the cut in output by 1 8 million barrels per day bpd Recent data points are not encouraging Morgan Stanley NYSE MS said in a research note Identifiable oil inventories both crude and product in the OECD China and selected other non OECD countries increased at a rate of about 1 million bpd in 1Q OPEC supplies jumped in May as output recovered in Libya and Nigeria two countries exempt from the production cut agreement Libya s oil production has risen more than 50 000 bpd after the state oil company settled a dispute with Germany s Wintershall a Libyan source told Reuters Analysts said rising U S crude production has fed the global glut Data on Friday showed a record 22nd consecutive week of increases in U S oil rig numbers Still Saudi Energy Minister Khalid al Falih remained confident OPEC s cuts were working The oil market is heading in the right direction but still needs time to rebalance al Falih told the London based newspaper Asharq al Awsat
In my opinion market fundamentals are going in the right direction but in light of the large surplus in stockpiles over the past years the cut needs time to take effect |
MS | Foreign investors bet billions on China blue chips joining MSCI index | By Samuel Shen and John Ruwitch SHANGHAI Reuters Foreign investors are betting U S index publisher MSCI will finally agree to include China listed shares in its emerging markets benchmark this week stepping up their buying of Chinese blue chips that could gain from inclusion in the index In May overseas investors bought a net 19 8 billion yuan 2 90 billion of mainland shares via the Connect schemes that link the Hong Kong and China markets pushing up volumes by 56 percent from the previous month We believe this was due to foreign investors expectation that MSCI will announce the inclusion of A shares this week said UBS strategist Gao Ting noting that northbound investors have mostly chosen shares in the consumer and pharmaceutical sectors over the past month Net inflows so far this month have reached nearly 15 billion yuan The flows into Chinese firms such as Midea Group SZ 000333 and Gree Electric Appliances SZ 000651 came ahead of MSCI s decision on whether to open up its Emerging Markets Index EMI MSCIEF to mainland listed China shares The announcement is due shortly after 4 30 pm New York time on Tuesday June 20 4 30am Wednesday in Hong Kong If China A shares were to be included consumer and real estate stocks in particular would see their weighting increase at the expense of financials under MSCI s new methodology unveiled in March which will cut the number of constituents to 169 from 448 MSCI has previously declined to include China in the EMI three times amid investor complaints about curbs on repatriating capital from China and concerns over the country s large number of suspended stocks The newly adopted methodology is designed to address these issues and make inclusion more likely analysts said China s securities regulator said on Friday that it hopes MSCI can open its index to China shares but if not Chinese capital market reform will not be derailed All the Chinese stocks set to be included are big caps and can be easily accessed by foreigners through the Connect trading link between mainland and Hong Kong markets Morgan Stanley sees a more than 50 percent chance of a Yes decision expecting a 0 5 1 percent rise in the Shanghai Composite Index on a positive result although it noted that actual implementation would not take place until June 2018 Eligible Chinese stocks would represent a weighting of only 0 5 percent in the MSCI EM index In the case of a No decision The A share market might first react with a minor decline of 1 0 percent Morgan Stanley NYSE MS said in a recent report Asset managers have noted that inclusion in the index after the three previous rejections is likely this time with the weight of money flowing into Chinese A shares evidence of that conviction Over the past two weeks an average of 1 2 billion yuan has flowed into Chinese shares via the Connect each day nearly 30 percent more than the average during the Jan May period Shenzhen listed Chinese home appliance maker Midea Group Co SZ 000333 potentially a heavyweight in the EMI has witnessed a surge in foreign interest since MSCI in March unveiled its new methodology for China inclusion Overseas holdings in Midea via the Shenzhen Hong Kong Stock Connect doubled to 4 16 percent from 1 94 percent three months ago with about 230 million shares acquired by foreign investors during the period Founder Securities SS 601901 another potential EMI constituent has seen foreign holdings in the brokerage under the Shanghai Hong Kong Stock Connect surge to 17 2 percent from just 10 percent three months ago In another sign of rising foreign interest in Chinese big caps ahead of the MSCI decision qualified foreign institutional investors have visited a total of 29 Chinese listed companies so far this month 23 of which have stocks in the Connect schemes the Shanghai Securities News reported on Tuesday However some investors appear retreating just ahead of the MSCI announcement exchange traded fund ETF data suggests ETFs tracking China stock indices saw 14 5 million euro 16 17 million of outflows on Friday reversing a trend of steady inflows seen since the beginning of this month according to independent ETF selection platform TrackInsight That suggests some investors are thinking again about the likelihood of inclusion in the index TrackInsight said 1 6 8338 Chinese yuan 1 0 8967 euros
The story corrects unit of ETF outflows from yuan to euro in 2nd to last paragraph |
MS | Morgan Stanley sees valuation peak for Boyd Gaming | Boyd Gaming NYSE BYD is on watch after Morgan Stanley NYSE MS downgrades shares to Equalweight from Overweight on a call tied to valuation Shares of Boyd Gaming are up 27 3 YTD and reached a high of 26 20 Boyd is down 1 17 premarket to 25 38 Now read |
MS | KKR s leveraged loan business is booming | via Eric Platt at the FTTaking advantage of post crisis regulations crimping bank activity KKR this year has jumped all the way to 13th in a ranking of U S underwriters of leveraged loans wasn t even in the top 200 globally in 2016 according to Bloomberg The private equity giant sold more of the paper in the first five weeks of 2017 than it did for all of 2016 In addition to what s happening with bank regulation KKR s private equity expertise and ability to tap into its own balance sheet and internal funds make it a natural for this sort of work What they are is a combination sponsor broker and if you can get both of those things right it is really powerful says one P E investor What about other P E players squeezing into the business It hasn t happened so far None of its peers has something as deep as this says JMP s Devin Ryan Now read |
JPM | Dell Technologies beats raises guidance | posted earnings that beat both Wall Street estimates on both the top and bottom lines The company lifted its full year revenue guidance reported second quarter earnings that beat Wall Street expectations and raised its full year revenue guidance Shares are little changed ahead of Wednesday s opening bell The information technology company posted earnings of 1 58 a share for the second quarter 0 09 better than what analysts surveyed by Bloomberg were expecting Dell said adjusted revenue was 23 1 billion up 16 from the prior period and head of the 21 5 billion Wall Street consensus We are in the early stages of a global technology led investment cycle in which every company is becoming a technology company said CEO Michael Dell As our results indicate Dell Technologies is perfectly positioned to grow gain share drive innovation and be our customers best most trusted partner on the journey to their digital future Looking ahead the company lifted its full year guidance saying it sees adjusted revenue of be between 90 5 billion and 92 0 billion Analysts were expecting 88 1 billion Dell Technologies shares were up 16 this year through Wednesday Now read |
JPM | World shares driven toward worst week since March by trade tensions | By Marc Jones LONDON Reuters World shares limped toward their worst week in almost six months on Friday with Asia carving out a 14 month trough as investors braced for a new salvo of Sino U S tariffs A slump in U S chip stocks and reports that President Donald Trump had also weighed a trade scrap with Japan dragged on tech heavy Asia overnight while Europe s main bourses faded after an initial attempt push higher A flat pan European STOXX 600 was set to end the week with a 2 3 percent loss its worst weekly performance since the end of March Emerging market stocks have lost even more some 3 percent Nerves were set to be frayed further after the public comment period for proposed tariffs on an additional 200 billion worth of Chinese imports passed at 0400 GMT The tariffs could now go into effect at any moment although there was no clear timetable China has warned of retaliation if Washington launches any new measures Australia s dollar often used in as play on China s fortunes due to its huge metals exports there hit a 2 1 2 year low early on it Europe It is all linked to the trade comment period expiring and now we are wondering what the implementation plan is going to be and how China is going to respond Saxo Bank s head of FX strategy John Hardy said The Aussie dollar of course is a proxy within G10 for that he added also pointing to shares in mining giants such as BHP trading down near key technical levels There were some crumbs of comfort however for traders Battered emerging market shares were on course to snap a 7 day losing streak China had closed higher overnight despite the tariff feud and Turkey s lira and South Africa s rand and Argentina s peso all looked relatively calm early on Chinese blue chips had managed their 0 5 percent bounce as beaten down health care stocks found buyers after taking a savaging in recent months amid vaccine scandals MSCI s broadest index of Asia Pacific shares outside Japan had still lost 0 3 percent though having earlier reached its lowest since mid July last year The Nikkei shed 0 8 percent undermined by a rising yen and reports U S President Donald Trump could be contemplating taking on Japan over trade Stocks woes ON THE JOBS Other emerging markets were trying to steady after a punishing week with Indonesia and the Philippines still badly scarred by fears of capital flight following crises in Argentina and Turkey and the rumbling U S China trade strains It seems unlikely the tariffs are not implemented as the U S administration believes that they are winning the trade war and will be in a stronger position to negotiate if they put more pressure on China JPMorgan NYSE JPM analysts wrote in a note The tech sector was also very weak overnight with a slide in Micron of almost 10 percent and further weakness in the Chinese Internet ADRs Eyes were also turning to the U S payrolls report for August which is expected to show a robust rise of 191 000 in part as July was temporarily depressed by the closure of the Toys R Us chain that month Still analysts at NatWest Markets cautioned that Despite employment indicators pointing to another strong report it is worth noting that there is a tendency for August payrolls to initially disappoint and then be revised up noticeably later Just as important will be figures on U S wages where a rise above the 0 2 percent forecasted would likely boost the dollar and pressure Treasury prices The dollar could do with the lift having lost out to the safe haven yen and Swiss franc It was changing hands at 110 70 yen after falling 0 7 percent on Thursday the sharpest one day loss in seven weeks Part of the decline came after a Wall Street Journal columnist reported Trump had mused about starting a trade fight with Japan The dollar also hit a four month low on the franc around 0 9645 Against a basket of currencies the dollar index nudged lower to 94 939 and was heading for a fourth weekly drop The euro was a shade higher at 1 1645 while sterling idled at 1 2939 amid ongoing uncertainty over Brexit negotiations In commodity markets the dip in the dollar left gold a sliver higher at 1 200 67 an ounce Crude oil was slightly up too after falling more than 1 percent on Thursday when U S data showed gasoline inventories rose unexpectedly last week
Brent was 20 cents higher at 76 69 a barrel while U S crude edged up 23 cents to 67 99 |
JPM | U S services data suggests upward revision to second quarter GDP | WASHINGTON Reuters U S economic growth for the second quarter is likely to be revised higher after data on Friday suggested a bit more consumer spending than previously estimated The findings of the Commerce Department s quarterly services survey or QSS come on the heels of data this week showing a less steep decline in construction spending in June than previously reported Before the QSS data economists had expected that GDP growth for the April June quarter would be raised to an annualized rate of 4 3 percent from the 4 2 percent pace that the government reported last week in its second GDP estimate Based on the QSS data JPMorgan NYSE JPM and Macroeconomic Advisers estimated another one tenth of a percentage point would be added to the GDP estimate That means second quarter GDP growth could be lifted to a 4 4 percent rate when the government publishes its second revision later this month We think that the QSS data imply a small upward revision to 2Q consumption and a very small downward revision to intellectual property products investment said Daniel Silver an economist at JPMorgan in New York In its second GDP estimate last week the government lowered second quarter consumer spending growth to a 3 8 percent pace from the 4 0 percent rate when then government published its advance GDP growth estimate back in July
Economists said Friday s QSS data showed more spending at nonprofit hospitals and other sectors |
JPM | Russian extradited to U S to face charges over JPMorgan hack | By Brendan Pierson NEW YORK Reuters A Russian man has been extradited to the United States from Georgia on charges that he took part in a massive computer hack which targeted JPMorgan Chase Co NYSE JPM and other U S companies U S prosecutors announced on Friday Andrei Tyurin 35 was arrested in Georgia at the request of U S authorities according to the office of U S Attorney Geoffrey Berman in Manhattan His lawyer Florian Miedel declined to comment on the charges Tyurin is the latest person charged in connection with one of the largest data breaches ever JPMorgan disclosed the breach in 2014 and said it had exposed information associated with about 83 million customer accounts Other victims included E Trade Financial Corp Scottrade Inc and News Corp s Dow Jones Co the publisher of the Wall Street Journal Prosecutors said a total of more than 100 million customers of the hacked companies were affected Prosecutors said the scheme was led by Gery Shalon an Israeli who is already facing charges over the hack in Manhattan federal court along with two other Israelis Joshua Samuel Aaron and Ziv Orenstein According to prosecutors the members of the scheme used hacked information to further other crimes Prosecutors said Tyurin Shalon and the other conspirators made hundreds of millions of dollars through criminal schemes Tyurin is charged with computer hacking wire fraud and conspiracy The most serious charges carry a maximum sentence of 30 years in prison |
JPM | Asian Equities Down as U S Threats to Escalate Trade War with China | Investing com Asian equities were mixed in morning trade on Monday as investors digested fresh threats from U S President Donald Trump last Friday that he might slap further tariffs on virtually all Chinese imports
Trump told journalists that Washington might impose tariffs on an additional 267 billion in Chinese goods on top of the 200 billion imports already in consideration
I hate to do this but behind that there is another 267 million ready to go on short notice if I want Trump said
China released new data on Saturday that showed its trade surplus with the U S climbed to a record high of 31 1 billion in August Bank of China s Institute of International Finance Analyst Gai Xinzhe said that importers in the U S are front loading orders before the next batch of tariffs are imposed
If the newly threatened tariffs are imposed they would add up to more than the total value of Chinese imports to the U S which amounted to 505 billion in 2017 according to Census Bureau figures
Rajiv Biswas Asia Pacific chief economist at HIS Markit said With further large scale U S tariff measures imminent Chinese exporters will be hit hard and China s GDP growth rate in 2019 is likely to be dented
The threats put pressure on Asian equities
The Shanghai Composite was down 0 75 to 2 683 by 9 47PM ET 01 47 GMT while the Shenzhen Component and the Hang Seng Index fell 0 16 and 1 18 respectively
The Dow Jones Industrial Average dropped 0 31 on Friday while the S P 500 fell 0 22 and the Nasdaq Composite settled lower by 0 25 after Trump s trade threats last Friday
Apart from digesting the latest news on the ongoing China U S trade dispute Asian equities investors are also monitoring interest rate decisions by central banks in Turkey and Russia even as volatility among emerging market currencies hit the highest level since February 2016 according to JPMorgan Chase Co NYSE JPM
Elsewhere Japan s Nikkei 225 was down 0 05 while South Korea s KOSPI was also down 0 05
Down under Australia s S P ASX 200 was basically flat up by just 0 01 The Australian dollar is affected by the burgeoning U S China trade war because of the country s close ties with China and dependence on offshore funding |
JPM | Gold Prices Edge Down in Asia Even as Demand Rises | Investing com Gold prices were flat on Monday morning trade in Asia after a week of gains
Demand for gold a safe haven asset has increased over the past few weeks driven by threats of a sharply escalated trade war between the U S and China and ongoing currency crises in various emerging markets from Turkey to Argentina
Gold Futures for December delivery were trading down 0 04 at 1 199 90 per ounce at 10 42PM ET 02 42 GMT on the Comex division of the New York Mercantile Exchange
Gold futures have been moving over and under the 1 200 mark since falling below that point in mid August and hitting an 18 month low on August 18 as investors looked to continued bull runs in US equity markets and a strong dollar
Prices dropped slightly on Friday after a positive jobs report in the U S
But gold has gained some ground over the past couple of weeks and the continued volatility in emerging market currencies is helping drive demand Emerging market currencies showed the highest volatility since February 2016 according to research by JP Morgan Chase NYSE JPM Co
Purchases of physical gold picked up speed across Asia last week particularly in India where gold is a popular gift during the upcoming festive season China and India are the first and second largest consumers of gold In India gold futures hit a two month peak on Friday
Demand in India was also partly driven by the ongoing fall in the rupee which is trading at all time lows against the US dollar |
JPM | JPMorgan to create wealth management unit in Luxembourg | Reuters JPMorgan Chase Co N JPM said on Tuesday it will establish a wealth management business in Luxembourg and boost offerings at its investment banking and custody and fund businesses
As part of the restructuring the bank will also merge its Luxembourg unit with its London based international bank unit |
JPM | Asian Stock Markets Muted As Trade War Shadow Extends To Jobs | Investing com Asian equity markets opened mixed on Wednesday morning as investors digested a new estimate of a potential 700 000 job losses in China at 700 000 due to the trade dispute between Washington and Beijing
JPMorgan NYSE JPM estimated that the trade battle with the U S will likely cost China 700 000 jobs and even more if the trade war escalates further JP Morgan s Haibin Zhu told Bloomberg that the job losses might take place if the U S decides to impose 25 tariffs on 200 billion of Chinese exports and Beijing retaliates by devaluing RMB by 5 and adding to levies on U S goods He also said if China doesn t retaliate 3 million people could become unemployed
If Washington follows through on Trump s threat last Friday to slap 25 tariffs on another 267 billion of Chinese products which would mean virtually all Chinese goods would be subject to levies the job losses could be as high as 5 5 million and GDP growth could take a 1 3 hit drop in GDP growth
China is also seeking World Trade Organization s permission to sanction certain U S goods up to 7 billion as the latter allegedly failed to comply with a dispute ruling that indicated some of its anti dumping rules to be illegal according to a Tuesday statement
Chinese stock markets closed mixed on Tuesday The Shanghai Composite ended down by 0 05 while the SZSE Component edged up 0 12 and the Hang Seng Index dropped by 0 27
The three markets extended their losses and gain on Wednesday morning The Shanghai Composite went up 0 07 at 10 28PM ET 01 25 GMT and the Shenzhen Component rose 0 62 while Hong Kong is still in a bearish market with a 0 27 drop
The boost in U S tech and energy stocks is expected to bring optimism in Asian stock market The S P 500 rose 0 37 and Nasdaq Composite jumped 0 6 on Tuesday while the Dow Jones Industrial Average also went up by 0 44
Elsewhere South Korea s KOSPI slid 0 11 and Japan s Nikkei 225 lowered by 0 39 Down under Australia s S P ASX 200 fell 0 16
Investors are also expecting the Federal Reserve to lift interest rates this month |
MS | Don t Lose Sight Of The Medium Term | Rather than focus on Greece after this weekend I thought that I would write about the medium term path for equities and the global economy I came upon this BIS paper entitled The BIS researchers break economic cycles into two components a shorter business cycle and a longer financial cycle Here is the abstract We characterise empirically the financial cycle using two approaches analysis of turning points and frequency based filters We identify the financial cycle with the medium term component in the joint fluctuations of credit and property prices equity prices do not fit this picture well We show that financial cycle peaks are very closely associated with financial crises and that the length and amplitude of the financial cycle have increased markedly since the mid 1980s We argue that this reflects in particular financial liberalisation and changes in monetary policy frameworks So defined the financial cycle is much longer than the traditional business cycle Business cycle recessions are much deeper when they coincide with the contraction phase of the financial cycle We also draw attention to the unfinished recession phenomenon policy responses that fail to take into account the length of the financial cycle may help contain recessions in the short run but at the expense of larger recessions down the road The financial cycle is turning down Ray Dalio of Bridgewater explained the financial cycle using the Monopoly game as an analogy in this If you understand the game of Monopoly you can pretty well understand credit and economic cycles Early in the game of Monopoly people have a lot of cash and few hotels and it pays to convert cash into hotels Those who have more hotels make more money Seeing this people tend to convert as much cash as possible into property in order to profit from making other players give them cash So as the game progresses more hotels are acquired which creates more need for cash to pay the bills of landing on someone else s property with lots of hotels on it at the same time as many folks have run down their cash to buy hotels When they are caught needing cash they are forced to sell their hotels at discounted prices So early in the game property is king and later in the game cash is king Those who are best at playing the game understand how to hold the right mix of property and cash as this right mix changes Now imagine Monopoly with financial leverage and you understand what is happening with the financial cycle Now let s imagine how this Monopoly game would work if we changed the role of the bank so that it could make loans and take deposits Players would then be able to borrow money to buy hotels and rather than holding their cash idly they would deposit it at the bank to earn interest which would provide the bank with more money to lend Let s also imagine that players in this game could buy and sell properties from each other giving each other credit i e promises to give money and at a later date If Monopoly were played this way it would provide an almost perfect model for the way our economy operates There would be more spending on hotels that would be financed with promises to deliver money at a later date The amount owed would quickly grow to multiples of the amount of money in existence hotel prices would be higher and the cash shortage for the debtors who hold hotels would become greater down the road So the cycles would become more pronounced The bank and those who saved by depositing their money in it would also get into trouble when the inability to come up with needed cash What happened with Lehman in 2008 and in Greece Spain and the other eurozone peripheral countries currently are symptoms of the downturn in the financial cycle The business cycle turns down There is no doubt that the financial cycle has been turning down since 2008 What about the business cycle It s turning down as well Regular readers know that I use commodity prices as the canaries in the coalmine of global growth and inflationary expectations Consider this chart of the negative divergence between US equities and commodities prices The market is also telling a similar story of an economic slowdown Here is the relative performance of the Morgan Stanley Cyclicals Index against the market It s in a relative downtrend indicating cyclical weakness Globally air cargo traffic represents an important real time indicator of the strength of the global economy h t This chart from Nomura shows the correlation of air cargo growth with global industrial production growth Air cargo growth is headed south as well I have written about the Axis of Growth namely the US Europe and China and at least two of the three are slowing Hale Stewart at went around the world and explained why the global economy is slowing T here are no areas of the world economy that are demonstrating a pure growth environment everybody is dealing with a fairly serious negative environment Let s break the world down into geographic blocks 1 China is located at the center of Asian economic activity Recently they lowered their lending rate largely as result of weakening internal numbers While these numbers still appear strong to a western observer growth just over 8 remember that China is trying to help over a billion people become middle class To accomplish that goal the economy needs to have a strong growth rate Also consider that the news out of India has become darker over the last few months as well A recent set of articles in the Economist highlighted the issues a political system that is more or less unable to lead thereby preventing the action on structural roadblocks to growth The fact that two of the Asian tigers are slowing is rippling into other regions of the world which leads to point number 2 2 The countries that supply the raw materials to these regions are now slowing Australia recently lowered its interest rate by 25 BP in response to the slowing in Asia A contributing factor to Brazil s slowdown is the decrease in exports to China Other Asian economies that have a trade relationship with China are all experiencing a degree of slowdown but not recession Some of these countries such as Brazil were also experiencing strong price increases The price increases are are starting to slow but they are still above comfort levels 3 Russia has dropped off the news map of late However it emerged from the recession in far worse shape it s annual growth rate for the duration of the recovery has been between 3 8 and 5 which is a full 3 below its growth rate preceding the recession This slower rate of growth makes Russia a far less impressive member of the BRIC list 4 The entire European continent is caught up in the debt story underneath which we re seeing some terrible economic numbers emerge PMIs are now in recession territory unemployment is increasing and interest rates for less than credit worthy borrowers are rising And the overall credit situation is casting a pall over the continent freezing expansion plans 5 The US economy has experienced 2 3 months of declining numbers While we re not in recession territory yet we are clearly in a slowdown with growth probably hovering around the 0 mark In addition I have documented warning signs of rising tail risk in China see Focus on China Not Europe Ominous Signs From China and The ultimate contrarian sell signal for China In last week s analysis said that the US is in recession now and blamed it on the financial cycle By our analysis the U S economy is presently entering a recession Not next year not later this year but now We expect this to become increasingly evident in the coming months but through a constant process of denial in which every deterioration is dismissed as transitory and every positive outlier is celebrated as a resumption of growth To a large extent this downturn is a boomerang from the credit crisis we experienced several years ago Regardless of the outcome of the Greek election my inner investor tells me that the fundamentals of the economic outlook is negative When the financial cycle and the business cycle both turning down in unison that s bad news As for how much of the negative news has been discounted by the markets I don t know What can change the trajectory of the outlook in the next few months is intervention either by the central banks which was late last week an announcement of more QE by the FOMC or the news of some deal cooked up by the European governments IMF etc My inner trader tells me that fundamentals don t matter and the markets will react to short term headline news 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 | Markets Shrug Off Sharply Weaker German ZEW Survey | Spain Bill Auction Results Viewed As Decent Despite Higher YieldsEconomic Data EU ECB 4 4B borrowed in overnight loan facility vs 3 0B prior 763 6B parked in deposit facility vs 741 2B prior FR France Jun Business Confidence Indicator 92 v 92e Production Outlook Indicator 30 v 28 prior Own Company Production Outlook 4 v 4 prior HU Hungary Apr Avg Gross Wages Y Y v 4 0 e ES Spain Apr Service Sector Employment Y Y 2 9 v 2 3 prior ES Spain Apr Industrial Orders Y Y 4 5 v 6 5 prior SE Sweden May Unemployment Rate 8 1 v 7 8 e IS Israel Jun Inflation Forecast 2 0 v 2 4 prior IS Israel May Money Supply Y Y 3 0 v 4 5 prior UK May CPI M M 0 1 v 0 1 e Y Y 2 8 v 3 0 e CPI Core Y Y 2 2 v 2 3 e UK May RPI M M 0 0 v 0 2 e Y Y 3 1 v 3 3 e RPI Ex Mortgage Payments Y Y 3 1 v 3 3 e Retail Price Index 242 4 v 243 0e UK Apr ONS House Price Y Y 1 4 v 0 4 prior DE Germany Jun ZEW Economic Sentiment 16 9 v 2 3e Current Situation 33 2 v 39 0e EU Eurozone Jun ZEW Economic Sentiment 20 1 v 2 4 prior EU Eurozone Apr Construction Output M M 2 7 v 11 4 prior Y Y 5 0 v 2 6 prior ZA South Africa Q1 Nonfarm Payrolls Q Q 0 1 v 0 3 prior Y Y 1 1 v 1 6 prior PO Portugal May Producer Prices M M 0 5 v 0 6 prior Y Y 3 2 v 3 6 priorFixed Income DK Denmark sold total DKK4 625B in 2014 and 2021 in BondsSold DKK1 550B in 2 2014 Bonds avg yields 0 08 v 0 31 priorSold DKK3 075B in 3 2021 Bonds avg yields 1 22 v 1 04 prior ES Spain Debt Agency Tesoro sold total 3 04Bvs 2 0 3 0B indicated range in 12 Month and 18 Month BillsSold 2 4B in 12 month Bills Avg Yield 5 074 v 2 985 prior Bid to cover 2 16x v 1 84x prior Max Yield 5 200 v 3 099 priorSold 639M in 18 month Bills Avg Yield 5 107 v 3 302 prior Bid to cover 4 42x v 3 23x prior Max Yield 5 350 v 3 404 prior GR Greece Debt Agency PDMA sold 1 3B vs 1 0B indiacted in 13 week Treasury Bills Avg Yield 4 31 v 4 34 prior Bid to cover 2 19x v 2 32x prior ZA South Africa sold total ZAR2 1B vs ZAR2 1B indicated in 2017 2021 and 2023 bonds EU ECB allotted 167 3B in 7 Day Main Refinancing Tender vs 125Be HU Hungary Debt Agency AKK sold total HUF50B vs HUF45B indicated in 3 Month Bills Avg Yield 7 14 v 7 17 prior Bid to cover 1 89x v 2 06x priorNotes ObservationsBRICS and Emerging markets announced IMF pledges for IMF global firewall IMF now has 456B in funding pledges from 37 countries RBA minutes Rates need to be a little more supportive Inflation expected at the lower end of 2 3 range over the next year Denmark sells 2 year Notes at a negative yield for the first time ever Germany Constitutional Court ruling on ESM and Fiscal Pact Lawmakers win bid over gov t information on ESM ruling does NOT prevent ESM from taking effect EU aide Maintains July 9th target for ESM startup Bank of Spain BOS Confirmed delay of full bank audit reports until September UK inflation comes in lower than expected German ZEW registers strongest decline since Oct 1998 UK inflation continues to move lower Spain sells indiacted amount in Bills at sharply higher rates and solid bid cover ratios Second day of G20 Summit in Mexico EquitiesIndices FTSE 100 0 80 at 5534 DAX 0 40 at 6272 CAC 40 flat at 3067 IBEX 35 1 3 at 6602 FTSE MIB 0 70 at 13 100 SMI 0 50 at 5966 S P 500 Futures 1342 0 10 European equity indices opened the session broadly higher despite mixed trading in the banking sector and disappointing German ZEW data as markets have rebounded from the losses seen in the prior session The IBEX 35 has outperformed as Spain s 10 yr bond yield has moved off of the record highs above 7 25 as the country s government auctioned short term bills Dealers appear to be move focused on Thursday s auction in which Spain is expected to sell 2014 2015 and 2017 bonds Additionally there continues to be hopes that global central banks could announce additional easing measures amid Wed s US Fed decision The German ZEW Economists noted that in their most recent survey more participants expect the ECB to cut rates than before but a majority still sees rates being left unchanged In terms of upcoming equity market events US shipping name Fedex is due to report its quarterly results and outlook later during the US morning French name Danone BN FR has declined by more than 6 after cutting its forecast for FY12 operating margins French banks are trading mixed amid cautious commentary out of Morgan Stanley Additionally a French press report said that the government is considering a 3 tax on dividends which could be implemented during the summer Shares of Home Retail HOME UK have moved higher by over 14 as the company reported better than expected Q1 results In other UK movers Whitbread WTB UK is higher by approx 7 issued Q1 sales figures Chemring CHG UK has lost over 6 reported H1 sales and Weir Group has gained over 5 reaffirmed FY guidance and issued long term targets In Italy Banca Monte Paschi BMPS IT is lower by over 3 underperforming other Italian as the company is said to have reached an agreement with certain creditor banks Additionally following yesterday s close S P placed the company s BBB rating on watch negative Telecom Italia TIT IT has risen by over 4 on press speculation that the firm could seek to spin off its fixed line unit Spanish banks are mixed as the Bank of Spain confirmed that it asked for the full audit of the country s banks to be delayed as there is a need to gather additional information The purpose of the audit is for Spain to determine how much of the 100B in funds will be needed for its banks In Germany Fraport FRA DE is higher by over 1 broker upgrade while SAP SAP DE has gained over 1 after competitor Oracle preannounced its quarterly results |
MS | Negative Sentiment Intesifies As US Equities And Commodities Tumble | Key NewsMoody s publishes its review of 15 global banks Independent audits say that Spanish banks need up to EUR62bn in extra capital IMF s Lagarde challenges Berlin by calling for ECB bond buying and direct injection of capital into troubled banks Markets OvernightThe negative financial sentiment intensified in the US session and the three US major equity indices closed between 2 0 and 2 4 lower Commodities continued to tumble with Brent crude oil prices falling below USD 90 a barrel for the first time since 2010 The market dropped on the ongoing debt crisis and rising concerns that global slowdown has deepened after very weak European and Chinese PMIs were released during the European and Asian sessions After the US close Moody s published its rating changes for 15 global banks Note that Moody s had warned the market about the announcement earlier in the day Moody s lowered credit ratings by one to three notches to reflect the risk that global banks face from volatile capital market activities Morgan Stanley one of the most closely watched firms in the review had its long term debt rating lowered by just two notches one level less than feared sending its stock higher in US after hours trading Credit Suisse as the only global bank suffered a three notch downgrade which was more than expected but note that its new A1 deposit and senior debt ratings still rank higher than many of its competitors Yesterday the independent audits from Roland Berger and Oliver Wyman on the need for extra capital in the Spanish banking sector were published The audits say that Spanish banks would need between EUR 51 62bn in extra capital to withstand a serious downturn in the economy and new losses According to the audits Spain s three biggest banks would not need capital even in the stress scenario Hence as Bank of Spain already underlined the EUR 100bn offered to Spain two weeks ago would give a wide margin of error Today the preparations for the 28 29 June EU summit will continue In an interesting FT article IMF s Christine Lagarde challenges Merkel s approach to the problems in the eurozone She says that eurozone leaders need to consider the resumption of bond buying by the ECB and should consider pumping bailout money directly into teetering banks She adds that the IMF is concerned about additional tension and acute stress Lagarde also calls for a eurozone fiscal and banking union in the longer term and a gradual but limited mutualisation of eurozone sovereign debt The spike in risk aversion has pushed US yields lower and EUR USD has fallen to 1 2550 after trading close to 1 27 yesterday afternoon Euro debt crisis and global growth concerns are in general supporting the US dollar at the moment Global DailyFocus today Political events will continue to dominate the calendar today Merkel Hollande Monti and Rajoy will meet in Rome to prepare for the EU summit on 28 29 June Today s only important data release is the German IFO index We look for a drop from 106 9 to 105 0 which is slightly below consensus expectations Fixed income markets With a light calendar and no issuance today interest rates will most likely take direction from the general risk sentiment today There have only been minor fluctuations over the past 24 hours and it seems like today could be a day with mainly sideways trading Data Thursday showed that Germany is also feeling the pain from the slowdown in Europe which did not affect Bunds much while Gilts seem supported by speculation that the BoE might restart the QE programme next month Accordingly the 10Y Gilt Bund spread can decline further FX markets Despite the drop in global equities and commodities both the Norwegian and the Swedish krone have been well supported the past 24 hours EUR NOK and EUR SEK have fallen to 8 80 and 7 47 respectively underlining our long held view that the Scandies will trade on quality rather than risk and cyclicality this year We see no reason why the performance should not continue the next couple of weeks Currently we have a very negative cocktail for the euro The debt crisis continues to unfold but contrary to a few months ago it takes place in a much weaker global macroeconomic environment As always when global slowdown fears intensify the US dollar is the preferred currency for scared investors We doubt the political events today will do little to change the outlook for EUR USD and see further downside for the cross today Our below consensus forecast for the German IFO could also add to euro woes Note that the oil price is at the lowest level since 2010 adding pressure to commodity currencies The short term outlook for oil is very bearish and new price setbacks cannot be ruled out If oil prices continue to slide it might eventually weigh on NOK but for now we expect quality to dominate Scandi DailyNo major data releases in Scandinavia today DisclosureThis research report has been prepared by 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MS | Spain The New Battleground | The day was stolen yesterday by the ratings agency Moody s after rumours in the afternoon that a raft of bank downgrades were on their way was confirmed after the close of trading in New York Morgan Stanley and Credit Suisse were the main victims although there were downgrades for RBS Barclays and HSBC here in the UK Stock markets clattered lower on the rumours but the confirmatory announcement has not seen too much fresh selling These banks had been on watch since February so to a certain extent some of this was priced in The moves lower in risk helped the dollar into a stronger position with Euro lagging the pound through the session Strong Bond DemandNews from Spain yesterday which is the new battleground for the bulls and bears was good for once Yesterday s bond auction saw strong demand although we expect 99 9 of that demand was from local banks for collateral purposes so we can t read too much into that Yields were higher obviously but we have to remember that funding is not closed off to Spain they can get what they want but they re going to have to pay for it It was interesting to see that the falls in the 10 yr yield was not reflected in gains for the euro Spain is large enough to influence Germany a luxury Greece never had and this relationship will define the upcoming 6 months in the Eurozone Merkel Hollande Rajoy and Monti the leaders of Germany France Spain and Italy respectively meet in Rome today to flesh out plans for next week s summit during which we expect to see some chatter about a banking union alongside further calls for Eurozone bonds RecapitalizationThe other news from Spain yesterday concerned their banks and the amount of recapitalisation cash they would need The IMF had put the figure at around EUR40bn while the recent bank bailout made up to EUR100bn available It was the view of two independent auditors that somewhere around EUR60bn would be needed based on a house price fall of a further 25 The figure matched market expectations but moving forward does not answer a fair few interesting questions We still do not know if the new debt is senior to other Spanish bonds nor do we strictly know where the money is coming from The New PitchWe re sick of the phrase kicking the can and given we are midway through the European Football Championships we should maybe change it to passing the ball It is our view that the ball should now be passed to Italy and then France and we should start looking at all banks and try and secure them while the political impetus is there If we don t we ll just have the same arguments in 6 months time Today is all about German IFO and following the dips in the ZEW number and the manufacturing PMI earlier in the week it would be a surprise if we do not see a fall in both the current climate reading and the expectations for the future It s a bit of a toss up whether we see the open sold further as Europe opens up but the IFO reading could be a catalyst for further losses Exchange Rates |
MS | Gold Drops On Worsening Global Outlook | Precious Gold fell for a fourth consecutive session on Friday heading for the biggest weekly drop since December as global concerns damped demand on shares and commodities Sell OffWorries in markets intensified causing a sell off in commodities and shares as data released yesterday referred to a coming slowdown as manufacturing plunged in China euro area and United States where other data from the U S also showed a drop in existing home sales Later in the day German business confidence is predicted to drop to 105 9 in June from 106 9 in May Bank DowngradesOn the other hand Moody s Investors Service cut credit ratings on 15 global banks including Morgan Stanley and Credit Suisse In addition to the weak fundamentals concerns from the euro area debt crisis continued as euro area Finance Chiefs showed disagreement regarding installments of Greek aid and plan to rescue Spanish banks ahead of June 28 29 European summit An independent report on Spain s ailing banks showed that recapitalization would cost as mush as 62 billion euros The shiny metal was affected by the aforesaid factors which pushed it down tremendously on Thursday s session Gold fell today to trade around 1561 40 an ounce where the breach of support of 1580 paved the way for the expected sharp weekly loss which was triggered by the Fed s disappointing monetary decision which did not include a third round of stimulus but only a continuation to Operation Twist program by 267 billion through the end of the year which lowered the metal s appeal as an inflation hedge So far the shiny metal has lost 4 1 on the weekly basis heading for the strongest weekly fall since December 2011 CrudeCrude oil for August s delivery is currently trading near the day s opening around 78 13 a barrel after incurring sharp losses this week The U S dollar on the flip side is currently on hold against a basket of major currencies after yesterday s strong rally as investors resorted to the greenback as a refuge thereby reducing the allure of gold and other dollar denominated commodities The dollar index is currently hovering around 82 40 after advancing more than 1 on Thursday |
MS | Rating Agencies Will Become Less Relevant For Bank Risk | The bank downgrades last night were met with enthusiasm by the markets Morgan Stanley stock jumped after hours when the downgrade was less severe than expected If anything the market is reacting with relief said Strickland who helps oversee 14 billion of fixed income assets as a managing director at Santa Fe New Mexico based Thornburg Morgan Stanley bonds likely will rally said Strickland whose firm owns the bank s debt The market is shrugging it off None of the financial firms were cut more than Moody s had forecast Morgan Stanley s long term senior unsecured debt rating was reduced two grades to BAA1 and nine other firms received two level cuts Moody s said yesterday in a statement Credit Suisse s rating was cut three levels to A2 and Zurich based UBS AG the other firm singled out for a potential three level cut was lowered two instead Now that the well telegraphed downgrades are over bank CDS are tightening this morning MS and JPM CDS shown below At this point Moody s might as well downgrade major banks to below investment grade level and be done with it Over time rating agencies will become less relevant for large bank credits as all major banks involved in capital markets will converge to roughly the same rating To downgrade a BofA or Citigroup or companies that are sitting on hundreds of billions of dollars of cash in government backed securities makes no sense Richard Bove an analyst at Rochdale Securities LLC said in an interview on Bloomberg Radio and Television s Bloomberg Surveillance You can forget Moody s Bove said You should have forgotten them a long time ago Credit ratings may not even matter when government policy will dictate the outcomes Bail in provisions may drive the payout on unsecured bank bonds particularly in Europe Spain just announced that it plans to haircut some unsecured bank bonds discussed here setting precedent for this approach going forward Bloomberg June 22 Spanish policy makers are considering forcing investors who hold equity and junior debt in banks to absorb losses in a restructuring according to a person with knowledge of the plan Such burden sharing is among conditions being negotiated with the European Union in a 100 billion euro 126 billion rescue for Spain s financial industry said the person who asked not to be named as the conversations are private Depositors who bought subordinated instruments such as preferred stock may be partially shielded from losses through a compensation plan being considered the person said There is very little that a rating agency can do to assess the risks of such policy decisions and whether or not a bank bondholder will receive par |
MS | S P 500 Drops 2 23 Biggest Drop In Nearly A Month | The S P 500 lost 30 18 points or 2 23 percent to close at 1325 51 It was the index s biggest drop in nearly a month Asian markets sank Friday tracking sharp falls on Wall Street as signs of a deepening global economic slowdown wiped away investor appetite for risk Resource sector stocks tumbled after weak manufacturing reports from around the world hit commodities hard overnight sending crude oil prices below 78 a barrel and gold futures under 1550 Most indexes are on track to post a weekly loss although a weaker yen helped Japanese shares gain 3 so far this week Key LevelsS P 500 Resistance is now 1329 52 followed by 1332 59 1341 28 1345 15 and 1350 Support is now 1324 followed by 1320 1318 15 1315 40 and 1310 12 Nasdaq 100 Resistance is now 2560 followed by 2566 2672 32 2580 and 2591 48 Support is now 2554 65 yesterday s low followed by 2550 2545 50 and 2533 Russell 2000Resistance is now 767 50 followed by 770 772 5 775 and 777 50 Support is now 74631 yesterday s low followed by 762 50 760 and 758 Credit RatingMoody s Investors Service downgraded the ratings late Thursday of 15 financial firms with global capital markets operations from one to three notches Bank stocks went up on the news as the cuts weren t as severe as previously expected Credit Suisse Group AG s credit rating was cut three levels by Moody s Investors Service Morgan Stanley was reduced two levels and 13 other banks were downgraded in moves that may shake up competition among Wall Street s biggest firms The downgrades may force banks to post additional collateral to trading partners in derivatives deals while boosting the companies borrowing costs Crude Sell Off Becoming Worse Crude Oil The price of oil fell nearly 3 on Thursday to dip below 80 for the first time since October The price has fallen as the world economy slows America isn t creating as many jobs as hoped earlier this year Europe faces another recession and manufacturing activity in China appears to have slowed Pivot 80 15 Our Preference SHORT positions below 80 15 with 77 7 76 2 in sight Alternative scenario The upside penetration of 80 15 will call for 81 82 6 Comment the RSI is mixed with a bearish bias Trend ST Ltd downside MT Ltd downside Key levels Comment82 6 Intra day resistance81 Intra day resistance80 15 Intra day pivot point78 51 Last77 7 Fibonacci projection76 2 Fibonacci projection75 5 Fibonacci projectionDISCLOSURE AND DISCLAIMER THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY AND NOT TO BE CONSTRUED AS SPECIFIC TRADING ADVICE RESPONSIBILITY FOR TRADE DECISIONS IS SOLELY WITH THE READER |
C | Kuroda s Price Forecasts Are Headed for Another Crash With Oil | Bloomberg The sharp slide in oil prices threatens to halve Japan s inflation rate over the next six months while cheaper mobile phone bills and free nursery education could even push it below zero
This view from private sector economists is very much at odds with the Bank of Japan s forecast for its core inflation gauge to average 1 4 percent in the fiscal year starting in April It also points to BOJ sticking with its monetary stimulus program for longer
Citigroup Inc NYSE C economists Kiichi Murashima and Katsuhiko Aiba forecast that falling oil alone will push down core inflation which excludes fresh food to 0 5 percent by June next year from about 1 percent now
Oil has been the dominant factor for inflation recently because other items show little momentum according to Taro Saito director of economic research at the NLI Research Institute in Tokyo It s often been the case historically too with Japan s last experience of 2 percent inflation coinciding with a sharp rise in oil prices in the buildup to the global financial crisis
The BOJ s estimates and those of the private economists strip out the one off impact from a sales tax hike planned for October next year
Saito at NLI Research Institute sees a chance of the gauge diving below zero as lower phone charges and free nursery schooling compound the deflationary momentum of oil
Prime Minister Shinzo Abe s administration has been badgering phone companies to lower their mobile phone charges with the government s top spokesman arguing that there is still scope for the charges to be 40 percent lower
The government has pledged to provide free schooling for children ages three to five to help generate more public support for its tax increase Many of the details of the free schooling have yet to be hammered out making its impact less clear
BOJ Governor Haruhiko Kuroda has been here before when it comes to oil He aggressively expanded the central bank s stimulus in October 2014 amid a plunge in oil prices
This time around though increasing stimulus is a very difficult option because Kuroda s policy is already squashing the bond market and crimping the profitability of commercial banks Yet it will make it difficult to speed up tapering the program
The BOJ has learned that just doing more and more won t get it closer to its target said Hiroshi Hanada head of economic research at Sumitomo Mitsui Trust Bank Kuroda just needs to be very patient and he is good at that |
C | Oil Legend Andy Hall Sees Scope for OPEC Fueled Crude Recovery | Bloomberg Oil may be poised for a recovery and OPEC will probably reimpose supply cuts in the next month or two as inventories in the producer group have swelled according to legendary trader Andy Hall
Stockpiles have increased sharply in the Organization of Petroleum Exporting Countries developed nations in Europe and in the U S over the last several months Hall said citing data from Orbital Insight Inc which uses satellite imagery to track global supply levels and on whose advisory board he sits
The balance of risk at this point favors some sort of recovery the trader once known as God in the industry due to his lucrative trades said in a phone interview Friday It s quite likely OPEC will come through with some sort of cut in the next month or two
Hall shot to fame during the financial crisis when it was revealed Citigroup Inc NYSE C owed him a 100 million payday His career stretches back to the 1970s and includes stints at BP LON BP Plc and legendary trading house Phibro LLC He closed his flagship Astenbeck Master Commodities Fund II after it lost almost 30 percent through June of 2017 Bloomberg News reported last year
Demand has taken a downturn probably because of a stronger dollar against emerging market currencies or on concern the trade war between the U S and China is beginning to curb economic growth according to Hall West Texas Intermediate crude is in a bear market after plunging from a four year high in October and is trading near 53 50 a barrel following the biggest gain in U S stockpiles in 21 months
When you know you ve got prices in 2020 and beyond for WTI down below 60 a barrel almost down to the mid 50s further along the curve I think that is essentially at the bottom said Hall
Global crude inventories are up by about 43 million barrels or 1 4 percent at 3 04 billion barrels from a year ago according to Orbital data which includes some refined products Firms like Orbital estimate inventory volumes by using artificial intelligence to scan and analyze satellite images of the shadows cast by floating roof storage tanks which indicates how full they are
A year ago I was somewhat skeptical of all this but now a lot of noise that was in the data has been expunged and I would say the signal to noise content here has risen dramatically and absolutely to a point where it is producing usable actionable information said Hall of the Orbital data It s given a much bigger window on the oil market
Palo Alto California based Orbital has received past funding from Bloomberg Beta a venture capital unit of Bloomberg LP
Updates with oil price in fifth paragraph An earlier version of this story corrected location of Orbital s headquarters |
C | Mexican Stocks Hit Lowest Since 2015 as AMLO Fears Resurface | Bloomberg Mexican stocks tumbled to a three year low led by financial companies as concern resurfaced that the incoming administration plans to scrap some bank commissions
Mexico s Antitrust Issues Recommendations on Bank Fees Proposal
Banco del Bajio s 11 percent skid led losses after Mexico s antitrust agency Cofece recommended the Senate ask the central bank to conduct a case by case analysis of proposed modifications Grupo Financiero Banorte and Banco Santander MC SAN Mexico slumped at least 7 7 percent The benchmark Mexbol dropped to the lowest since August 2015
It s been a rocky month for Mexican financial stocks President elect Andres Manuel Lopez Obrador s political party Morena rattled investors on Nov 8 when it introduced the bank plan just two weeks after the new leader canceled a 13 billion airport While Lopez Obrador tried to walk back the bank fee plan a day later Morena has kept it alive The losses today came with the release of Cofece s Nov 21 letter to the Senate asking for further study on the issue
Banks have certainly been a concern for investors because of concerns about the potential for increased government regulation that could crimp profits said Morgan Harting a senior portfolio manager at AllianceBernstein in New York More broadly I think the Mexican market remains under pressure amid political uncertainty and a sluggish economic setting
Citigroup Inc NYSE C strategists said in a note that they remained concerned about the quality of policy making in Mexico Still the bank maintained its Mexico rating unchanged at market weight with analysts saying that the valuation doesn t justify a more negative stance |
C | DBS to almost double staff triple revenue of Mideast private banking | By Tom Arnold and Saeed Azhar DUBAI Reuters DBS SI DBSM Southeast Asia s largest bank said it would almost double its Dubai private banking staff in its bid to triple revenue for those operations in the Middle East by 2023 capitalizing on a shift of investments towards Asia The Singapore bank is joining Citibank N C and other global lenders expanding wealth management operations in the region The prospective client base includes wealthy Middle East business people family offices and non resident Indians DBS said it planned to double headcount for its private bank in Dubai by 2023 from about 11 now to about 20 This region is not yet a big part of our wealth management revenues today as we are an Asian bank but its the fastest growing part said Tan Su Shan group head of wealth management and consumer banking It s been growing at double digits Wealth management contributes about 2 6 billion Singapore dollars 1 89 billion to DBS revenues she said In the past clients in the region would focus investments towards Switzerland United States and Britain Rudiger von Wedel managing director and head of international at DBS Private Bank told a news conference The whole focus of the region is shifting towards the East he said What I have seen since 2012 2013 is more and more shift towards Asia Other banks are also expanding in the region Citibank N C aims to lift its wealth management customer base by 18 percent in the United Arab Emirates in 2018 and 24 percent in 2019 Citi s wealth management business would see a 21 percent growth in revenue in 2018 in the UAE said Venkat Mahadevan retail bank head for the Middle East at Citibank The number of people in the Middle East with individual assets of more than 500 million is projected to grow by 28 percent to 500 in 2022 according to the Knight Frank 2018 Wealth report |
JPM | Avoid Being Stupid Here s 4 Ways To Trade Our Stock | Jamie Dimon let us know he was fed up with Washington last week Nothing happening and no focus on getting anything done You really cannot blame him But what is even better is that he is making an example for our elected officials by offering 4 ways to trade his JPMorgan NYSE JPM stock Listen in to his analysis
The stock started higher after the election along with other financials completing a 3 Drives pattern with a top in February It retraced nearly 50 of the move higher over the next 3 months finding support just over the 200 day SMA at the start of June It moved back higher from there to resistance at 89 and then continued to the prior top at 94 It pulled back slightly ahead of earnings last week and then gapped down to the 20 day SMA at the open Friday morning following the report The stock was bought all day Friday and closed the gap to finish own less than 1 on the day
The Hollow Red candle shows that intraday strength and supports a short term bottom The RSI pulled back from an overbought condition and remains strong in the bullish zone while the MACD is close to a cross down These need to hold for a reversal in price There is support at 90 75 and 89 then 86 Resistance higher sits at 94 and then there is free air above A Measured Move would give a target to 98 75 on continuation higher Short interest is low at 1 and the company is expected to report earnings next October 12th
The July options chain shows large open interest this week at the 90 strike on both sides and then at 95 on the call side and 87 5 on the put side August options show a very large slug of open interest at the 92 5 call strike and the next biggest at 90 on the call side The September options show open interest building from 90 to a peak at 97 5 on the call side And October options the first after the next report have biggest open interest at 95 and 100
JP Morgan Ticker JPM
Trade Idea 1 Buy the stock on a move over 92 25 continuation with a stop at 90
Trade Idea 2 Buy the stock on a move over 92 25 and add an August 90 85 Put Spread 70 cents for protection selling a September 97 5 Call 71 cents to fund it
Trade Idea 3 Buy the August October 95 Call Calendar 1 54
Trade Idea 4 Buy the October 85 95 bull Risk Reversal 1 06
After reviewing over 1 000 charts I have found some good setups for the week These were selected and should be viewed in the context of the broad picture reviewed Friday which heading into July options expiration and the height of summer earnings sees the equity markets looking very strong
Elsewhere look for Gold to continue its recent move higher while crude oil bounces in a channel The US Dollar Index continues to look weak while US Treasuries continue their consolidation in a channel The Shanghai Composite remains in a slowly rising uptrend as Emerging Markets NYSE EEM continue their break out to the upside
Volatility looks to remain at extremely low levels keeping the bias higher for the equity index ETF s SPY NYSE SPY IWM and QQQ Their charts support this view as well on both the daily and weekly timeframes Use this information as you prepare for the coming week and trad em well
It is possible that Jamie Dimon said none of this
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MS | BOJ holds policy steady upgrades view on consumption global growth | By Leika Kihara and Stanley White TOKYO Reuters The Bank of Japan kept monetary policy steady on Friday and upgraded its assessment of private consumption and overseas growth signaling its confidence that an export driven economic recovery was broadening and gaining momentum But Governor Haruhiko Kuroda reassured markets the BOJ will still lag well behind the Federal Reserve in dialing back its massive stimulus program with inflation far from reaching the BOJ s 2 percent target say sources familiar with its thinking There s some distance to achieving 2 percent inflation so it s inappropriate to say now specifically how we will exit our ultra loose monetary policy and how that could affect the BOJ s financial health Kuroda told a news conference Laying out specific simulations now would only create confusion We will debate an exit strategy only after 2 percent inflation is achieved and price growth stays there stably As widely expected the BOJ maintained its pledge to guide short term interest rates at minus 0 1 percent and the 10 year government bond yield around zero under its yield curve control YCC policy It also left unchanged a loose pledge to keep increasing its bond holdings at an annual pace of 80 trillion yen 729 33 billion Private consumption has shown increased resilience against a background of steady improvement in the employment and income situation the BOJ said in a statement announcing the policy decision Friday s statement took a more upbeat view than that of the previous meeting in April when the BOJ said consumption was resilient The BOJ meeting followed in the wake of the U S Federal Reserve s rate review on Wednesday when it raised interest rates for the second time in three months and outlined a plan to reduce its massive balance sheet Private consumption has been a soft spot in Japan s otherwise strengthening economy with its weakness blamed for keeping inflation subdued by discouraging companies from raising prices Wages and the labor market are most closely linked to consumer prices The labor market has tightened even further so I think the BOJ wanted to highlight that point by upgrading its assessment on consumer spending said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities STEALTH TAPERING Nodding to growing signs of recovery in emerging economies the BOJ said overseas economies were continuing to grow at a moderate pace as a whole That was a more optimistic view than in April when it pointed to some weaknesses in emerging economies The BOJ maintained its overall assessment of Japan s economy to say it was turning toward a moderate expansion But those very signs of life in Japan s economy have presented a fresh communication challenge for the BOJ pushing it to be clearer with markets on how it might withdraw its stimulus without sounding as if such an action is imminent Inflation remains disappointingly low making BOJ officials wary of releasing too much detail on how the bank may exit its ultra loose policy in the future Core consumer prices rose just 0 3 percent in April from a year earlier as companies remain cautious of raising prices for fear of scaring away price sensitive households Unless inflation accelerates unexpectedly the BOJ will likely stand pat on policy at least until next April when Kuroda serves out his current term said Izuru Kato chief economist at Totan Research While the BOJ argues it still has plenty of bonds to buy many analysts expect its bond buying program to reach a limit with the bank already owning more than 42 percent of the market Indeed recent data showed the BOJ s bond buying has slowed considerably in recent months Analysts expect the BOJ to slow the pace further to around 60 trillion yen by year end and to omit the 80 trillion yen pledge from its policy statement |
MS | Japan s May exports rise at fastest in two years set to sustain growth | By Stanley White TOKYO Reuters Japan s exports surged in May by the fastest in more than two years on bigger shipments of cars and steel an encouraging sign that robust overseas demand will support economic growth The 14 9 percent annual increase in exports in May was below the median estimate for a 16 1 percent annual increase but was nonetheless the biggest rise since January 2015 Exports are likely to continue rising at a steady clip as overseas economies show increasing signs of strength which should help Japan s economy extend its recent run of solid expansion The main scenario is Japan s exports will continue to recover said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities However the pace of growth could slow somewhat as inventories of certain goods like electronics start to build up overseas Exports of cars and car parts rose partly because an earthquake in Kumamoto last year in May temporarily shut down production of these goods Tonouchi noted Japan s exports to the United States rose 11 6 percent in May from a year ago the fastest increase since July 2015 due to an increase of shipments of autos and auto parts Exports to China increased 23 9 percent year on year in May following a 14 8 percent annual increase in April Larger shipments of flat panels and semiconductor manufacturing equipment drove the gains in China bound exports Exports to Asia which includes China rose 16 8 percent in May from a year ago the fastest increase in three months due to increased shipments of electronics to Hong Kong and steel to Indonesia the data showed In terms of volume Japan s exports rose 7 5 percent in May from a year ago the fastest gain in three months another indication that overseas demand is firm Japan s imports rose 17 8 percent in the year to May versus the median estimate for a 14 8 percent annual increase as a rise in the price of oil from a year ago pushed up the value of imports The trade balance came to a deficit of 203 4 billion yen 1 83 billion versus the median estimate for a 76 0 billion yen surplus
Policymakers and economists have become more optimistic about Japan s prospects this year as an increase in factory output and a tightening labor market show the economy is poised to extend its recent growth |
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