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MS | U S bank investors hope Fed stress test results lead to big payouts | By Pete Schroeder and David Henry
Reuters Investors are hoping the Federal Reserve will allow big U S banks to put an estimated 150 billion in idle capital toward stock buybacks dividends and profit boosting investments in the coming weeks after conducting a regular examination of financial strength
On Thursday the Fed is scheduled to begin releasing results from its two part annual stress test which was adopted in response to the financial crisis to gauge banks ability to weather an economic storm that could threaten the stability of the system The results will be the first since Republican President Donald Trump took office
Trump has not yet made any appointments to the Fed but Republicans have turned up pressure on the central bank to cut red tape and ease regulations Wall Street analysts said they will be parsing language the Fed uses in presenting the results for any signs that its approach is starting to soften
Analysts say they do not expect the Fed to announce any explicit changes to the stress test but they do expect higher payouts According to their estimates the Fed could allow banks to distribute nearly as much capital to shareholders over the next year as they generate in profits a benchmark not hit since before the 2008 crisis
Higher payouts would be significant from a signaling standpoint that regulators are easing up on capital requirements said Steven Chubak a bank analyst at Nomura Instinet That is a key part of the value case for a lot of these stocks
Banks going through the stress tests have roughly 150 billion more capital than they need Morgan Stanley NYSE MS analyst Betsy Graseck estimates She expects the typical big bank to be allowed to increase stock buybacks by 27 percent and dividends by 8 percent for a combined capital payout of 95 percent of annual earnings up from 84 percent last year
The Fed first conducted stress tests in 2009 as a way to boost confidence in the financial system Congress codified the test into law the following year as part of a broader financial reform package and the Fed came to see it as an important tool to ensure that banks not only maintain enough capital to withstand economic storms but also run their businesses in ways that avoid operational calamities
However bankers complain that stress tests have morphed into an overly complex and time consuming process that occurs in the secrecy of a black box They have pleaded for more details about models the Fed uses to conduct the numeric part of the tests and more clarity on a qualitative component that judges factors like risk management
The Fed has been making some changes to enhance transparency but officials say that revealing too much would allow lenders to game the exams
We are concerned that releasing all details on the models would give banks an incentive to adjust their business practices in ways that change the results of the stress test without changing the risks faced by the firms Fed Chair Janet Yellen told Congress in a letter on Friday The result could be less effective stress tests
Thursday s results known as DFAST will show how much capital the biggest banks would have after an imagined crisis Shortly after the Fed posts its numbers big banks tend to disclose results under their own models
Banks can compare the scoring and then scale back and resubmit their capital plans to improve their chances of a passing grade On June 28 the Fed will announce whether it has approved the plans in a further examination known as the Comprehensive Capital Analysis and Review or CCAR
The Fed has been under pressure for some time to simplify the stress tests and changes are widely expected under Trump
A proposed financial regulatory overhaul ordered by Trump and released by the Treasury Department last week included easing stress tests Trump is also expected to name as many as five new officials to the Fed s seven member governing board over the next two years
Although Wall Street is upbeat about the idea of lighter regulations and higher payouts regulatory experts are less sure that the Fed will unleash bank balance sheets overnight It takes time for large institutions like the Fed to shift even after top officials and regulatory mandates change they said
It should change over time said Brian Gardner a policy analyst at Keefe Bruyette Woods Markedly That s tougher to determine |
MS | France banks retail rebound make for bright start for European shares | By Helen Reid PARIS Reuters French stocks outperformed upbeat European indices on Monday following a convincing parliamentary majority for President Emmanuel Macron while banks bounced following upgrades and the retail sector recovered from last week s losses France s blue chips FCHI gained 1 percent after President Emmanuel Macron cemented an overwhelming parliamentary majority further increasing his party s capacity to push through reforms Banks BNP Paribas PA BNPP Societe Generale PA SOGN and Credit Agricole PA CAGR underpinned gains on the index Markets are celebrating the fact the Macron government has been strengthened by this outcome said Vincent Juvyns global market strategist at JP Morgan Asset Management Planned reforms could enhance the growth potential of the country and reduce the structural deficit something which would lift French GDP going forward he added Berenberg chief economist Holger Schmieding said France could become the strongest major economy in Europe in a decade He said this would outclass a Germany that is resting on its laurels and a UK that is impairing its long term growth prospects by losing some of its preferential access to its major market the EU Schmieding said Britain began negotiations on Monday on leaving the European Union Euro zone blue chips STOXX50E rose 1 percent while the pan European STOXX 600 STOXX rose 0 8 percent The retail sector particularly grocers which were sent into a tailspin on Friday after Amazon s surprise 13 7 billion deal to buy Whole Foods bounced back partly on hopes of more deal activity in the sector The regional retail index SXRP which suffered its worst week in 16 months last week rose 0 8 percent Britain s Ocado L OCDO was up more than 6 percent the top performing major stock across the region Exane upgraded Ocado to outperform on hopes that partnerships if not a takeout were more likely Analysts at the French broker said Amazon s progress could be hemmed in short term by the limitations of the store pick model in which employees pick online orders from the store floor rather than in distribution centers We re minded to not overreact therefore but the deal is still bad news for the sector we think unless of course you are a target they added Ocado might not be a target but the probability of a partnership just increased materially Dutch healthcare technology firm Philips AS PHG jumped to a 15 year high after The Times reported activist hedge fund Third Point was building a stake in the company Also in notable broker activity Credit Suisse found favor among analysts at Morgan Stanley NYSE MS Citi and Deutsche Bank DE DBKGn Citi named Credit Suisse S CSGN its preferred Swiss bank while Morgan Stanley reinstated coverage on the stock with an outperform Credit Suisse shares rose more than 3 percent Mediaset Espana MC TL5 meanwhile fell 3 1 percent after Deutsche Bank cut it to a sell saying a recovery in Spanish advertising looks to be over
Formal Brexit negotiations got under way on Monday with Britain s Brexit Secretary David Davis meeting EU chief negotiator Michel Barnier though this did not ruffle market sentiment in the short term |
JPM | Emerging Market Selloff Deepens Amid Fresh Alarms Over Contagion | Bloomberg Emerging markets sold off anew Tuesday as South Africa entered a recession and Indonesia s rupiah joined currencies from Turkey to Argentina in tumbling toward record lows reinforcing concern that contagion risks are too big to ignore
MSCI Inc s index of currencies dropped for a fifth time in six days set for the lowest close in more than a year The rand led global declines as data showed the economy fell into a recession last quarter Turkey s lira slid on worry the central bank will disappoint investors at its rate meeting next week while the Argentine peso slumped to a record and Indonesian rupiah sank to the lowest in two decades even after the central bank intensified its fight to protect it
The dollar extended its advance to a fourth day as Donald Trump threatened to ramp up a trade dispute with China with an announcement of tariffs on as much as 200 billion in additional Chinese products as soon as Thursday As U S rates rise investor fears over idiosyncratic risks in emerging markets have climbed including Argentina s fiscal woes Turkey s twin deficits Brazil s contentious elections and South Africa s land reform bill
Meantime the dollar is winning by default according to Kit Juckes a global strategist at Societe Generale PA SOGN SA
There s not much to make me think the dollar should be going up but there s plenty to make me nervous about other currencies Juckes said The dollar is very strong and lacking rate support but other currencies are worse
READ JPMorgan NYSE JPM Survey Shows How Quickly Emerging Markets Can Unravel
Here s what other analysts are saying about the latest in emerging markets
It s Not Enough
Tsutomu Soma general manager for fixed income trading at SBI Securities Co in Tokyo
The measures announced by Argentina and Turkey are probably not enough to lead to a significant improvement in their fundamentals
Contagion risks to other emerging markets are growing especially as the Fed tightens
Set to Suffer
Michael Every head of Asia financial markets research at Rabobank in Hong Kong
Emerging market FX are set to suffer almost regardless of what they do the only issue is how much
The dollar will remain on the front foot against emerging markets as long as the U S continues to raise rates and boost fiscal spending while keeping the trade war fears on the radar
Further Pain
Lukman Otunuga research analyst at FXTM
Emerging market currencies could be destined for further pain if the turmoil in Turkey and Argentina intensifies
The combination of global trade tensions a stabilizing U S dollar and prospects of higher U S interest rates may ensure EM currencies remain depressed in the short to medium term
A Penny Short
Stephen Innes head of Asia Pacific trading at Oanda Corp in Singapore
Argentina s measures are likely a day late and a penny short
These moves are a step in the right direction but they re unlikely to be convincing enough to remove currency speculators from the driver s seat I guess it s all down the IMF s White Knight to the rescue However we are getting into the realm of unquantifiability which makes the market utterly untradable
Most Vulnerable
Masakatsu Fukaya an emerging market currency trader at Mizuho Bank Ltd
Contagion risks from Argentina and Turkey are growing for other emerging markets and economies with weak fundamentals such as those with current account deficits and high inflation rates
Currencies of countries such as Indonesia India Brazil and South Africa have been among most vulnerable
The Fed s rate increases and trade frictions means the underlying pressure on emerging currencies is for a further downward move
To contact Bloomberg News staff for this story Tomoko Yamazaki in Singapore at tyamazaki bloomberg net Yumi Teso in Bangkok at yteso1 bloomberg net Lilian Karunungan in Singapore at lkarunungan bloomberg net Ben Bartenstein in New York at bbartenstei3 bloomberg net
To contact the editors responsible for this story Justin Carrigan at jcarrigan bloomberg net Alec D B McCabe
2018 Bloomberg L P |
JPM | Dollar rises on fears of new U S trade tariffs | By Tom Finn LONDON Reuters The dollar rose broadly on Wednesday as concerns grew that U S President Donald Trump may soon ramp up a trade war with Beijing by imposing tariffs on more Chinese imports Trump could impose levies on 200 billion more of Chinese imports after a public comment period on the new tariffs ends on Thursday though it is unclear how quickly that will happen Investors wary of the deadline stayed loyal to the safe haven greenback on Wednesday and it rose against major currencies like the euro and the British pound The greenback also drew further support from upbeat U S indicators underlining the case for further interest rate increases by the Federal Reserve The dollar index DXY which measures the U S unit against a basket of six currencies was up 0 1 percent at 95 442 as of 1100 GMT not far off a two week high of 95 737 reached during the previous session This year began with the dollar in retreat and investors convinced of further declines but now there appears to be very little to stop its ascent A crisis in the Turkish lira and the U S China trade war have made the dollar a principal haven for investors seeking shelter and President Trump appears to be revelling in the strong dollar and its ability to bring pressure on his foes Since Tuesday the dollar has gained more than 2 percent against the South African rand and the Argentine peso and more than 1 percent against Mexican and Colombian pesos The greenback is up in 2018 against every major currency except the Mexican peso and Japanese yen But some analysts believe the dollar may yet stumble before the year is out Cyclical forces will start to work against the dollar relative economic momentum relative monetary policy expectations and relative political uncertainty will start to exhibit similar dynamics that weighed on the dollar in the second half of 2017 said Viraj Patel currency strategist at ING Given the bleak global investment environment we prefer to express our lower dollar versus majors view against safe haven reserve currencies like the Japanese yen and the Swiss franc Patel added The Australian dollar which had been languishing at its weakest levels since mid 2016 gained on Wednesday after Australia posted its best economic growth in six years It advanced 0 3 percent to 0 7196 moving off its lowest level since May 2016 reached during the previous session The euro EUR EBS was 0 1 percent lower at 1 1597 and the British pound was down 0 2 percent at 1 2827 Emerging market currencies fell overnight as investors feared export oriented economies would be caught in the crossfire of any escalating trade conflict A JPMorgan NYSE JPM emerging market currency index MIEM00000CUS on Wednesday hovered near a 15 month low reached during the previous session
As long as the United States and China are quarrelling it s easy for commodity prices to fall and commodity and emerging market currencies are easily sold as well said Yukio Ishizuki senior currency strategist at Daiwa Securities |
JPM | Asian Markets Falls Following Sell off in Tech Stocks on Wall Street | Investing com Asian markets were mostly lower on Thursday following a sell off in technology stocks overnight in the U S markets while currencies crisis in emerging markets continued to weigh on market sentiments
Technology stocks fell overnight on the Wall Street as Twitter Inc NYSE TWTR CEO Jack Dorsey and Facebook NASDAQ FB COO Sheryl Sandberg both testified in front of Congress addressing issues surrounding online election meddling and abuse on social platforms
In Asia major tech names such as Samsung Electronics KS 005930 and SK Hynix Inc KS 000660 also traded lower
Meanwhile worries over emerging markets currencies remained in focus as Argentina s currency peso hit a record low earlier this week and Turkey s lira crisis made headlines in late August South Africa s rand also fell at a 2 rate against the dollar marking the lowest level since early 2016 The rand has fallen by 19 this year Half of the decline was partly thanks to the controversies over the country s land expropriation laws
China s Shanghai Composite and the SZSE Component both fell 0 2 by 1 10AM ET 05 10 GMT as Investors wait to see if as expected Trump slaps tariffs on an additional 200 billion worth of imports from China which would ratchet up the trade dispute with Beijing Hong Kong s Hang Seng Index slid 1 2
An escalation of the U S China trade war may be imminent the timing is somewhat unclear and this justifies caution even given the U S dollar pullback JPMorgan NYSE JPM analysts said
Conviction and participation will likely remain light until an announcement
Japan s Nikkei 225 also traded 0 5 lower while South Korea s KOSPI was down 0 4
Down under Australia s S P ASX 200 slid 1 3 Telstra Corporation Ltd AX TLS outperformed as its shares jumped as much as 3 5 following the news that the company lowered its guidance for fiscal 2019 to account for the release of the corporate plan for Australia s National Broadband Network
Looking ahead investors focus will likely switch to a key monthly U S employment report for August due Friday |
MS | Yahoo Summer Portfolio Management Ideas | The U S economy is slowing fears of a debt ceiling debate are rising and Europe is a mess Yes it s beginning to look a lot like summer 2011 Last summer you ll recall major averages fell nearly 20 from late July until bottoming in early October Recent market action has some pundits calling for a repeat if not something worse especially as the Fed s Operation Twist expires on June 30 Things could potentially get worse but for the moment the S P GSPC appears to have held support near 1300 says Lance Roberts CEO of Streettalk Advisors In early trading Thursday the index was testing that level yet again recently down 1 at 1300 64 If the 2011 pattern holds Roberts says May s swoon should be followed by a bounce in June which would give investors an opportunity to raise cash Generally after big sell off you get one good bounce another sell off and that s where you re going to find your buying opportunity most likely sometime between August and September he says If and when the S P breaks 1300 Roberts expects the index to fall into the 1200 1250 range If we get below 1200 it s a totally different conversation They may be self evident but Roberts cites four major headwinds facing the market this summer Greece and the EU crisis The fiscal cliff Debt ceiling debate Weakening economy The first three issues have been discussed at length in recent segments see links above and Thursday brought another round of weaker than expected data including a downward revision to first quarter GDP to 1 9 lackluster ADP employment data and rising jobless claims as well as a disappointing Chicago Purchasing Managers Index Be careful here Roberts says advising investors is to treat your portfolio like a garden by pruning the winners and treating losers like weeds If I don t take my weeds out of my garden they ll eventually take over the garden Investors suffering through big losses on big cap names like JPMorgan JPM Morgan Stanley MS ConocoPhillips COP Research In Motion RIMM and yes Facebook FB would be wise to heed such advice Below You May Find The Video |
MS | Lack Of Profitability In CDS Clearing Poses Risks | It remains unclear just how the large US dealers are expected to generate profits in their role as clearing members for CDS as we get closer to going live with the the Dodd Frank And any business that is not profitable runs the risk of shutting down Since the ICE clearinghouse would not allow anyone but the major banks and the largest asset management firms to become members directly most clients would still need to go through a dealer even for cleared CDS But the largest buy side firms who would qualify to clear directly are walking away leaving a small group of dealers to be the only members Buy side firms are unlikely to join over the counter clearing houses directly because of additional risks and expense particularly the need to contribute to a central counterparty s CCP s default fund according to speakers at the Credit Risk USA conference in New York on Tuesday Typically dealers would charge less than a basis point to clear transactions yet they would still have to use balance sheet by posting their own collateral with ICE as part of the clearing process Obviously dealers will have their clients post margin to them but they will no longer be able to use that collateral for general purposes as they ve done in the past There will also be timing mismatches between dealers posting at the clearinghouse and their clients posting with them trade date vs settlement date Increased balance sheet usage by dealers will be inevitable and the banks are asking themselves whether this business is even worth it What s more dealers will continue running credit risk on gross balances as illustrated below And according to JPMorgan gross exposures are likely to increase when central clearing of standardized OTC derivatives becomes compulsory Increased balance sheet usage and higher credit risks combined with tiny earnings which after all in operational and technology expenses may even be negative is not a recipe for a healthy business There is anecdotal evidence that Goldman has decided not to offer CDS clearing services at all Why bother The return on capital just doesn t make sense for a firm like Goldman which is balance sheet constrained Morgan Stanley will give it a shot with hopes that clearing will allow the firm to ultimately offer an electronic trading platform for cleared derivatives some time in the future Many other dealers like DB will only offer it to their best clients as part of their prime brokerage business JPMorgan and Barclays will basically dominate the clearing market in the US For smaller players in particular this is a dangerous development because their clearing member bank CMA could simply drop them as a client Without a CMA this CDS end user would be shut out of the CDS market And a smaller firm s ability to sign up to another CMA will be limited and expensive even if the firm is credit worthy and willing to post proper amounts of collateral Rather than spreading the risk among a larger universe of players it seems that this clearinghouse setup will work to limit CDS trading to the larger end users and a tiny group of CMAs who have little incentive to stay in this business adding to systemic concentration and liquidity risks that regulators have been trying to address |
MS | The Week Ahead What To Expect | Bloomberg News reported that U S service industries probably grew in May at the same pace as the prior month indicating the economy is failing to gain momentum as employment slows and the European crisis intensifies According to the median forecast of economists surveyed by Bloomberg News the Institute for Supply Management s nonmanufacturing index will remain at 53 5 On the other hand U S 10 year note yields dropped below 1 5 percent for the first time posting the biggest weekly drop in eight months after the Labor Department reported U S employment growth was the least in a year Morgan Stanley said the probability of more central bank policy stimulus reached 80 as Federal Reserve Chairman Ben S Bernanke prepares to testify before Congress on Thursday about the outlook for the U S economy Bank of Japan Governor Masaaki Shirakawa is being steamrolled by investors pushing the yen toward a post World War II high against the dollar negating his attempts to weaken the currency After depreciating 10 4 in the first quarter the most since 1995 the yen is up 13 4 since March the best among 10 developed nation currencies according to data compiled by Bloomberg News Moody s Says Watch Friday Greece had its highest possible credit rating lowered by Moody s Investors Service which said there s an increasing risk the country may exit the euro region on Friday A Greek exit from the euro may exhaust official funding sources and rack up direct costs of 360 billion euros 444 billion or 3 8 of euro area gross domestic product Societe Generale SA said Friday Greek parliamentary elections on June 17 may drive the risk of an exit higher according to Moody s Spanish Prime Minister Mariano Rajoy said European leaders should reinforce efforts to protect euro area banks ratcheting up pressure on German Chancellor Angela Merkel to back new ideas for a resolution of the debt crisis With markets bracing for further deterioration in Spain s finance sector and a possible Greek departure from the 17 member euro area Rajoy on June 2 added his voice to calls for a more robust banking union in Europe lending his support for a centralized system to re capitalize lenders On the same day Merkel toughened her opposition to euro area debt sharing telling members of her party in Berlin that under no circumstances would she agree to German backed euro bonds according to Bloomberg The EUR USD started this week positively trading just above the key level of 1 24000 at the time of writing on weaker than expected economic data in U S led to new expectations for easing measures by the Federal Reserve This week the movements of the pair will be dictated by the latest developments in the euro zone regarding Spain and Greece along with economic data in the euro zone and U S If positive news emerges from the euro zone we might see the pair increase to test the 38 2 Fibonacci level of the last falling wave at 1 26689 On the other hand if no solutions are found to tackle Spain s financial problems and other EU issues we might see the pair drop then hover around the key level of 1 22000 Investors should be very cautious as the pair is sensitive and should monitor all news Some important economic data that might affect the pair this week are Monday a report on investor confidence in the euro zone and the U S will release official data on factory orders Tuesday data on retail sales in the euro zone official data on factory orders in Germany an auction of government bonds in Spain while the U S will release a report on non manufacturing activity Wednesday interest rate in the euro zone a press conference with ECB head Mario Draghi and official data on industrial production in Germany while the U S will release data on nonfarm productivity data on crude oil stockpiles and the Beige Book of the Fed Thursday an auction of 10 year government bonds in France while the U S will release data on initial unemployment claims and Fed Chairman Ben Bernanke will make a speech in Washington Friday government data on trade balance in the U S Moreover today investors should focus on German Chancellor Angela Merkel meeting with fellow coalition leaders after opposing joint debt sharing in the 17 nation euro The USD JPY began the week on positive ground after falling to a low of 77 617 on Friday on unexpectedly weak U S employment data This week the pair is likely to fluctuate within the level of 79 000 77 000 as the market will be driven by speculations in both U S and Japan On one hand there are speculations that the Federal Reserve may implement a fresh round of monetary easing measures to bolster economic growth following weak economic data in the U S and on the other hand there are speculations that BoJ may intervene on the market given that the JPY strength is source of uncertainty for Japanese economy and too strong for companies to cope with Investors should be very prudent on the pair Economic data in Japan that might affect the pair this week are Friday government data on the country s current account Investors should monitor the latest development in the euro zone and U S to get further indication on the movement of the pair Gold Gold increased to 1629 34 an ounce a three week high on Friday as weaker than expected U S monthly employment data fuelled speculation over the possibility of a third round of monetary easing by the Federal Reserve This week the commodity is likely to fluctuate within the resistance level of 1645 05 and the support level of 1529 24 on the weekly chart on the ongoing European debt crisis and on the disappointing jobs numbers from the world s largest economy together with downbeat manufacturing data from China and Europe released Friday underscored lingering worries among investors about slowing global growth Investors should be very cautious as we might have some profit taking following the significant gains registered Friday The latest developments in the euro zone U S and China would surely have an impact on the commodity Dow U S stocks tumbled and erased the gains DOW made in 2012 amid concern the global economy is slowing and Europe s debt crisis is worsening This week the index is likely to fluctuate within the resistance level of 12130 4 and the support level of 11986 2 as speculations over the possibility of a third round of monetary easing by the Federal Reserve will be driving the market Investors should be very prudent and wait for some fundamental news and the latest developments in the both the U S and Europe to get more visibility on the index |
MS | Crude Oil Futures Slipped Lower Monday | CL2NCrude oil futures slipped lower Monday striking an eight month low despite the U S dollar moving lower against its major counterparts as ongoing concerns over weakening global growth prospects continued to pressure oil lower Oil futures found support as the Dollar Index gave up early gains and entered negative territory as concerns over the situation in the eurozone eased slightly and amid growing hopes for policy action from global central banks Traders are closely watching several monetary policy meetings due this week including the European Central Bank on Wednesday and Bank of England on Thursday for clues on their responses to weakening global growth Federal Reserve Chairman Ben Bernanke on Thursday will testify before a congressional committee about the state of the U S economy Energy prices came under heavy selling pressure during the Asian trading session as markets were spooked after the Department of Labor said Friday that the U S economy added just 69 000 jobs in May the smallest increase in a year and far below expectations for a gain of 150 000 Meanwhile downbeat manufacturing data from China and Europe hurt prospects for global oil demand further weighing on prices A deeper slowdown in China the world s second biggest economy would impair a global expansion that is already faltering because of the implementation of harsh austerity measures in Europe GoldGold futures held steady during U S morning hours on Monday consolidating strong gains from the previous session as markets looked forward to several monetary policy meetings later this week before pushing prices higher The weak data added to concerns that the economic recovery in the U S is losing momentum which could lead to a third round of quantitative easing from the U S central bank Gold investors will be closely watching U S data in the second quarter for clues as to the likelihood of a fresh round of monetary easing which could potentially hurt the dollar and support gold Vincent Reinhart Morgan Stanley s chief U S economist and a former Federal Reserve official said Friday that there is an 80 chance that a new quantitative easing program is announced at the June 19 20 Fed meeting |
C | Exclusive China s JD Group eyes sale of HK insurance arm in up to 2 5 billion deal | By Kane Wu and Sumeet Chatterjee HONG KONG Reuters Chinese financial firm JD Group has put its Hong Kong insurance business FTLife Insurance Co Ltd up for sale and a deal could fetch between 2 billion and 2 5 billion three people with knowledge of the matter said JD Group a Beijing based financial holding firm has hired Citigroup N C to run the sale and second round binding bids are expected in coming weeks the people said declining to be named as the process is confidential Earlier this year local media reports had indicated that JD Group could be looking to offload a part of FTLife A sale of the whole business if completed will be one of the top five insurance M A deals ever in Hong Kong a key market for insurers due to rapidly growing wealth and demand for insurance products from Chinese investors Refinitiv data shows Hong Kong is home to a developed life insurance market with a life and health insurance premium to GDP ratio of 17 94 percent in 2017 the second highest in Asia after Taiwan according to insurer Swiss Re JD Group acquired FTLife for HK 10 7 billion 1 4 billion in 2016 from Belgian insurer Ageas NV BR AGES underscoring Chinese companies strong appetite to grow through acquisitions in the Hong Kong financial sector Potential bidders for FTLife are expected to include Hong Kong conglomerate Chow Tai Fook HK 1929 and Asian private equity firm PAG two of the people said JD Group could decide to retain a minority stake in FTLife one of the sources said adding the sale could also attract a bid from a Japanese insurer looking to tap the rapidly growing Hong Kong insurance market JD Group also known by its Chinese name of Jiuding Group FTLife and PAG did not immediately respond to requests for comments Chow Tai Fook and Citigroup declined to comment JD Group which has brokerage trust mutual funds and private equity businesses was once the most valuable company on the Chinese National Equities Exchange and Quotations the country s most active over the counter equity exchange It had invested in more than 200 companies of which about 60 are either listed or in the process of going public according to the company website BUSINESS DIVESTMENT FTLife was the 12th largest individual life insurer in Hong Kong by annualised premium equivalent with a 1 4 percent market share at end 2017 according to a September Fitch ratings report on the company The insurer has more than 2 800 financial consultants and staff as per its website JD Group is looking to exit FTLife at a time when China is cracking down on privately owned financial holding firms whose sprawling business shareholdings and overseas investments have raised some concerns amid a wider deleveraging exercise China s acquisitive conglomerate Anbang Insurance ANBANG UL was this year put into government control The group is undergoing a shareholding restructuring and planning to sell overseas assets including real estate hotels and insurance companies Another financial group Tomorrow Holdings is also in the process of divesting some of its businesses after its chairman Xiao Jianhua a billionaire with links to China s Communist Party elite was put under investigation last year 1 7 8310 Hong Kong dollars |
C | I m going to see this through UK PM May vows to fight for Brexit deal | By Elizabeth Piper Kylie MacLellan and William James LONDON Reuters Prime Minister Theresa May vowed to fight for her draft divorce deal with the European Union on Thursday after the resignation of her Brexit secretary and other ministers put her strategy and her job in peril Just over 12 hours after May announced that her cabinet had agreed to the terms of the deal Brexit minister Dominic Raab and work and pensions minister Esther McVey resigned Eurosceptics in May s Conservative Party said they had submitted letters calling for a vote of no confidence in her leadership May called a news conference at her Downing Street residence to underline her determination to stay the course Asked if she would contest any challenge to her position she replied Am I going to see this through Yes However hostility from government and opposition lawmakers raised the risk that the deal would be rejected in parliament and that Britain could leave the EU on March 29 without a safety net That prospect pushed the pound down as much as 2 percent to 1 2731 although it recovered slightly after May s statement The main stock index in Ireland which is highly dependent on trade with Britain plunged 3 8 percent The German carmaker BMW which produces its Mini model in Britain said that with the political situation so uncertain it would continue to prepare for a no deal Brexit BEST DEAL FOR BRITAIN Two junior ministers two ministerial aides and the Conservatives vice chairman joined Raab and McVey in quitting May said she understood their unhappiness but added I believe with every fiber of my being that the course I have set out is the right one for our country and all our people I am going to do my job of getting the best deal for Britain By seeking to preserve the closest possible ties with the EU May has upset her party s many advocates of a clean break and Northern Ireland s Democratic Unionist Party DUP which props up her minority government Meanwhile proponents of closer relations with the EU in her own party and the Labour opposition say the deal squanders the advantages of membership for little gain Both sides say it effectively cedes power to the EU without securing the promised benefits of greater autonomy It is mathematically impossible to get this deal through the House of Commons The stark reality is that it was dead on arrival said Conservative Brexit supporting lawmaker Mark Francois The deal will need the backing of about 320 of parliament s 650 MPs to pass The ultimate outcome remains uncertain Scenarios include May s deal ultimately winning approval May losing her job Britain leaving the bloc with no agreement or even another referendum WORSE THAN ANTICIPATED Analysts from U S bank Citi N C said Britain was now likely either to stay in the EU or leave without a deal Jacob Rees Mogg the leader of a Conservative eurosceptic group in parliament said the draft was worse than anticipated and he had formally requested a vote of no confidence in May At least 14 Conservative lawmakers openly said they had submitted such letters although others could have done so secretly Forty eight are needed to trigger a challenge But May told parliament The choice is clear We can choose to leave with no deal we can risk no Brexit at all or we can choose to unite and support the best deal that can be negotiated Rees Mogg told journalists the next prime minister should be someone who believed in Brexit But a May ally former interior minister Amber Rudd told Sky News The problem isn t the prime minister The problem is the challenges she s got to deliver in trying to pull together this Brexit She s the best person to do it The Labour Party said the government was falling apart NO ABILITY TO EXIT In parliament lawmakers from all sides spent three hours mostly attacking the draft agreed with the EU on Tuesday after more than a year of difficult negotiations No democratic nation has ever signed up to be bound by such an extensive regime imposed externally without any democratic control over the laws to be applied nor the ability to decide to exit the arrangement Raab said in his resignation letter Others said the so called Irish backstop to be used if no better way can be found to avoid future checks on the border between the British province of Northern Ireland and EU member Ireland would tear Britain apart leaving Northern Ireland all but inside the EU s single market It was this arrangement which sees Britain and the EU establishing a single customs territory but Northern Ireland aligned more closely with the EU that spurred most criticism The DUP has threatened to pull its support from the minority government if the backstop means the province is treated differently from mainland Britain EU leaders are ready to meet on Nov 25 to sign off on the divorce deal or Withdrawal Agreement but French Prime Minister Edouard Philippe summed up the uncertainty when he said events in London raised concerns about whether it would be ratified We need to prepare ourselves for a no deal Brexit he said A group of EU states including France also raised objections to what has been agreed so far on fishing between the EU and UK after Brexit diplomatic sources said Raab 44 was named Brexit secretary in July after the resignation of his predecessor David Davis who also quit in protest at May s strategy At the heart of Raab s criticism was the belief that the pursuit of a temporary customs union with the EU would be the starting point for talks on the future relationship with the bloc severely prejudicing what Britain could achieve
He said he could not support an indefinite backstop arrangement and that May s plan threatened the integrity of the United Kingdom |
C | Pakistan s new rulers grapple with an old problem How to get people to pay taxes | By Asif Shahzad and Drazen Jorgic ISLAMABAD Reuters Muhammad Hammad Azhar one of the youngest ministers in Pakistan s new government is the latest in a long line of officials to face a problem that undermines his country s development getting people to start paying income taxes Ending a culture of rampant tax evasion is expected to be high on the agenda in negotiations this month with the International Monetary Fund IMF as cash strapped Pakistan seeks a second bailout since 2013 As state minister for revenue Azhar 37 says he is planning for long term reforms But first he is banking on improved technology to allow the government to tap existing financial databases to help identify tax dodgers in a nation where less than 1 percent of the population even files income tax returns There is a lot of catching up to do Azhar told Reuters in an interview One of the world s lowest tax collection rates partly help explain the shoddy state of Pakistan s hospitals and schools and why the illiteracy rate hovers above 40 percent in the mainly Muslim nation of 208 million people Prime Minister Imran Khan who took power in August has vowed to double tax collection by reforming the Federal Bureau of Revenue FBR an institution he has called totally corrupt One of Khan s first acts as premier was to replace the FBR chief In recent months the FBR has launched a crackdown on 350 wealthy people targeting landlords and owners of luxury cars as well as individuals who have a trail of large business transactions and business deals but don t file tax returns But Pakistan s history is littered with statements by incoming governments announcing crackdowns and pledging tax reforms that fizzle out because of a lack of political will to force the rich and powerful to pay taxes Reforming the tax system in a country like ours is a gigantic task said Yousuf Nazar a former head of emerging market equity investments at Citigroup NYSE C in London and author of a book on Pakistan s political economy Powerful interests in the establishment big business and large land owners are not serious about tax reform To widen the base of payers Revenue Minister Azhar said the government plans to use a carrot and stick approach intensify targeting of evaders while at the same time making it easier for payers by allowing them to file taxes under a single window where all the relevant information would be stored Azhar says his team is using existing government data on car purchases bank transactions and air travel histories to build a database that will identify and profile wealthy tax dodgers But it would take a few months for most of the disparate data on the government s books to be brought under one platform SALES TAXES Such efforts are likely to go down well with the IMF which in return for bailing out Pakistan is expected to demand it carry out structural reforms including widening the income tax base The previous government increased the tax to GDP ratio to around 13 percent from 10 1 percent but that is still far below the 34 percent average among members of the Organisation for Economic Co operation and Development Much of the increase was due to import duties sales taxes and other indirect taxation which accounts for nearly 63 percent of Pakistan government revenue Critics say this kind of taxation is regressive and disproportionately hurts the poor As of last year only 1 6 million people in the country filed tax returns Out of them 400 000 showed income below the levels that tax cuts in another 200 000 had minimal tax and only 950 000 paid tax of any significance There is political will among the new government to push through changes and go after non filers but it is not unanimous across Khan s party and may not last forever according to Zeeshan Merchant a tax expert We don t need rhetoric We need action he said Key tax reforms kicked off last week when Khan s cabinet separated tax policy from revenue collection This effectively took away policy making powers from the FBR which has a history of imposing indirect taxes to help hit year end targets One of the biggest potential prizes for Azhar is capturing Pakistan s black economy in which property goods and services are sold for cash to avoid taxation and which many people believe is bigger than the formal 310 billion economy
We really have to discourage the cash economy Azhar said All this money is handed in cash under the table and that s something we want to make difficult Writing by Drazen Jorgic Editing by Kay Johnson Martin Howell and Raju Gopalakrishnan |
JPM | High Fuel Inventories Keep Oil Market Bearish Market Update | USD
The dovish comments from the Federal Reserve sent the dollar lower The greenback is now losing ground or flat against all other major currencies
Today we have the US consumer inflation data which will show if the underlying price trends are in line with the Fed s 2 inflation mark
EUR
The euro is up 0 17 as investors feel the eurozone s recovery is robust and that a rate hike is brewing
EURUSD
Possible bearish movements as the RSI curve approaches the 70 mark
JPY
The yen weakened erasing some of the gains made earlier in the week and making it the worst performing major Asian currency on Friday
USDJPY
Possible bearish movements supported by a downward sloping Moving Average
Global Equities
As earnings season kicks off traders will finally know if all the hype has substance The recent rally has been the fruit of optimism over rising corporate earnings thanks to an improving economic environment
Major US banks take centre stage as Wells Fargo NYSE WFC JPMorgan NYSE JPM and Citigroup NYSE C are due to announce earnings for the second quarter of 2017
Commodities
Oil
Crude prices pared gains overnight after a rally late on Thursday Brent and crude oil shed 0 2 after closing 1 4 higher on Thursday
Oil markets dipped thanks to high fuel inventories and improving efficiency in the market
Crude Oil
Possible bullish movements as the RSI moves towards 30
Gold
Gold is up 0 11 as the weaker dollar gives this precious metal a boost |
JPM | Stocks Extend Weekly Advance Despite Disappointing Data | U S stocks added to a solid weekly advance with technology issues leading the ascent amid some eased Fed rate hike expectations following softer than expected reads on retail sales and consumer sentiment and as inflation remains subdued following this week s dovish testimony by Fed Chair Yellen An increase in Treasuries coupled with some negative reactions to mostly upbeat banking earnings reports weighed on financials The U S dollar was lower while gold and crude oil prices were higher
The Dow Jones Industrial Average DJIA gained 85 points 0 4 to 21 638 the S P 500 Index advanced 11 points 0 5 to 2 459 and the NASDAQ Composite increased 38 points 0 6 to 6 312 In light to moderate volume 674 million shares were traded on the NYSE and 1 6 billion shares changed hands on the NASDAQ WTI crude oil gained 0 46 to 46 54 per barrel and wholesale gasoline was 0 03 higher at 1 56 per gallon Elsewhere the Bloomberg gold spot price gained 11 02 to 1 228 60 per ounce and the dollar index a comparison of the U S dollar to six major world currencies was 0 6 lower at 95 14 Markets gained solid ground for the week as the DJIA increased 1 0 S P 500 Index advanced 1 4 and the NASDAQ Composite surged 2 6
Dow member JPMorgan Chase Co NYSE JPM 92 reported Q2 earnings per share EPS of 1 82 above the FactSet estimate of 1 59 as revenues rose 4 5 year over year y y to 25 5 billion compared to the expected 25 0 billion JPM noted a stable to improving global economic backdrop and a U S consumer that remains healthy while saying loans and deposits continue to grow strongly but market trading revenue was down amid lower volatility and client activity The company s net interest margin came in a bit shy of forecasts due to higher funding costs and the company lowered its guidance for net interest income Shares finished lower
Citigroup Inc NYSE C 67 posted Q2 EPS of 1 28 topping the projected 1 21 as revenues increased 2 0 y y to 17 9 billion above the forecasted 17 4 billion The company said it saw continued momentum in its businesses with loan and revenue growth across both sides of the house Trading revenues topped forecasts and net interest income was roughly in line with forecasts However shares were lower amid analyst caution regarding the outlook for net interest income for the industry
Wells Fargo NYSE WFC 55 achieved Q2 profits of 1 07 per share exceeding the projected 1 01 as revenues were roughly flat y y to 22 2 billion versus the estimated 22 5 billion The company noted continued modest economic growth increased net interest income and continued improvement in credit results However loans were down quarter over quarter and its core fees missed expectations WFC traded lower
Retail sales and consumer price inflation miss along with consumer sentiment
Advance retail sales for June declined 0 2 month over month m m compared to the Bloomberg forecast of a 0 1 gain and compared to May s favorably revised 0 1 decline Last month s sales ex autos declined by 0 2 m m versus expectations of a 0 2 gain and following the unrevised 0 3 decrease seen in the previous month Sales ex autos and gas were down 0 1 m m compared to estimates of a 0 4 rise and versus May s unrevised flat reading
The retail sales control group a figure used to help calculate GDP dipped 0 1 compared to the projected 0 3 rise and the prior month s figure was unrevised at a flat reading Sales declined at restaurants gasoline stations as well as at grocery and department stores while online and building materials sales were bright spots
The Consumer Price Index CPI was flat m m in June versus estimates calling for a 0 1 gain while May s 0 1 dip was unrevised The core rate which strips out food and energy ticked 0 1 higher m m compared to expectations of a 0 2 increase and versus May s unrevised 0 1 rise Y Y prices were 1 6 higher for the headline rate below forecasts of a 1 7 rise while the core rate was up 1 7 matching projections May y y figures showed an unrevised 1 9 rise and an unadjusted 1 7 increase for the headline and core rates respectively
Industrial production was up 0 4 m m in June above estimates calling for a 0 3 gain and compared to May s upwardly revised 0 1 increase This was the fifth straight monthly advance as manufacturing production ticked higher and mining output rose solidly while growth in utilities was flat Capacity utilization increased to 76 6 compared to May s downwardly revised 76 4 and below forecasts of 76 8 Capacity utilization is 3 3 percentage points below its long run average
The preliminary University of Michigan Consumer Sentiment Index fell to the lowest level since October 2016 dropping to 93 1 in July from the prior month s 95 1 level and compared to expectations for it to dip to 95 0 The current economic conditions component improved modestly m m while the expectations measure fell The 1 year inflation forecast rose to 2 7 from 2 6 while the 5 10 year inflation outlook also ticked higher to 2 6 from 2 5
Business inventories increased 0 3 m m in May in line with forecasts and versus April s unrevised 0 2 decrease
Treasuries gained ground on the data notably the softer than expected inflation and retail sales data which added to this week s dovish monetary policy testimony from Fed Chairwoman Janet Yellen to temper expectations of the pace of rate hikes this year and beyond A mixed economic picture combined with the recent retreat in some inflation measures has raised the level of uncertainty regarding future Federal Reserve actions The environment for U S and global stocks continues to be in decent shape but some risks are elevated and the possibility of a pullback exists A notable potential driver of bouts of volatility could be U S and global central bank policy as they sail toward monetary policy normalization
The yield on the 2 Year note dipped 1 basis point bp to 1 35 the yield on the 10 Year note dropped 2 bps to 2 32 and the 30 Year bond rate was nearly unchanged at 2 91
Europe turns mixed on data and global central bank volatility Asia mostly higher
European equities finished mixed with strength in oil gas issues and basic materials being offset by gains in the euro and British pound versus the U S dollar which found pressure following some disappointing U S retail sales and inflation data The currencies gained ground on eased Fed rate hike expectations that followed the U S data and this week s dovish testimony from Fed Chair Yellen Also reports fostered speculation that the European Central Bank may be moving closer to scaling back its stimulus measures later this year
Financials saw some pressure as global bond yields moved lower and banking sector earnings reports in the U S were scrutinized In economic news in the region growth in EU new car registrations slowed while the eurozone trade surplus came in below forecasts
Stocks in Asia finished mostly higher extending global market gains that have been fostered by the recent increase in crude oil prices and dovish monetary policy testimony from U S Fed Chair Janet Yellen while appearing cautious ahead of key earnings reports out of the U S banking sector Japanese equities ticked higher with the yen giving back recent gains while mainland Chinese shares also nudged to the upside
Stocks trading in Hong Kong and South Korea advanced while Indian equities dipped and all three of these constituents have indexes that are at or near record highs and for a look at emerging markets
Stocks climb as Fed Chief strikes dovish tone
U S stocks participated in a global rally that was fueled by eased concerns about the pace of Fed rate hikes as the Central Bank moves toward the start of reducing its bloated balance sheet Economic data continued to paint a mixed picture with U S industrial production extending a winning streak while retail sales and consumer sentiment missed However the bulk of the shift in Fed sentiment came as wholesale and consumer price inflation remained subdued and as Fed Chair Janet Yellen struck a dovish tone in her semi annual Congressional monetary policy testimony
Yellen said the fed funds rate remains somewhat below its neutral level and because the neutral rate is currently quite low by historical standards the federal funds rate would not have to rise all that much further to get to a neutral policy stance Technology stocks returned to rally mode after their brief hiccup Energy and materials issues also helped lead the way as commodity prices added to a recent rebound on another dose of upbeat Chinese economic data and as the U S dollar drifted lower
Crude oil prices also rallied bolstered by some bullish oil inventory data However financials were noticeably lower as Treasury yields especially on the short to mid end of the curve fell and some key banking sector quarterly results to unofficially kick off earnings season garnered a mixed reaction
Next week as earnings take center stage the U S economic calendar will bring updates on areas of the economy that have been bright spots Housing will dominate the docket courtesy of the releases of the NAHB Housing Market Index as well as housing starts and building permits Moreover we will get the first look at manufacturing activity which has suggested growth has accelerated recently for July in the form of regional reports the Empire Manufacturing Index and Philly Fed Manufacturing Index The week will culminate with the Index of Leading Economic Indicators which is projected to continue to indicate further economic expansion
We are likely in a more mature phase which could be marked by bouts of volatility and or pullbacks possible driven by Fed policy But liquidity remains ample financial conditions loose and earnings growth healthy which have underpinned this bull for much of its history Those are the key things on which to keep an eye as we head into the year s second half
Next week s international economic front will likely garner heightened attention with key release including Australia employment change China retail sales industrial production property prices and Q2 GDP India trade balance Japan trade balance and the Bank of Japan s monetary policy decision Eurozone consumer price inflation and the European Central Bank monetary policy decision U K inflation statistics and retail sales |
JPM | Record Highs For The Dow S P 500 And Russell 2000 | DOW 84 21 637 record SPX 11 2459 record NAS 38 6312RUT 3 1428 record 10 Y 03 2 32 Oil 52 46 60Gold 11 10 1229 40Bitcoin 3 39 2156 96 USDEthereum 5 51 187 69
Washington is in gridlock and the White House faces scrutiny Valuations are at the highest levels since the financial crisis There s been straight months of outflows from the biggest exchange traded fund tracking the S P 500
So what happened today Record highs for the Dow S P 500 and Russell 2000 The NASDAQ is within 10 points of a record The CBOE Volatility Index ended at 9 51 a 24 year low falling 15 percent
We start with economic data The Commerce Department said retail sales fell 0 2 percent in June as Americans curtailed spending at restaurants department stores and gasoline stations That followed a 0 1 percent drop in May Most retail segments posted weaker results in June
Sales at gas stations posted the biggest drop down 1 3 reflecting lower prices at the pump Sales also fell at grocers restaurants book stores sporting goods stores and department stores Auto dealers reported a small increase in sales but they are not moving new cars off the lots as quickly as they were a year ago
Meanwhile the Labor Department said consumer prices were flat in June the latest evidence that inflation remains muted All told inflation has climbed just 1 6 percent from a year ago In June energy prices sank 1 6 Americans paid less for gasoline natural gas and electricity The cost of food leveled off in June after five straight increases
The core rate of inflation that excludes the volatile food and energy categories rose 0 1 in June Grocery prices have declined in the past year but the cost of takeout and eating out has risen sharply Over the past 12 months the core CPI is up 1 7 unchanged from the prior month
The University of Michigan s sentiment index slipped to 93 1 in July from 95 1 in June The index has fallen from a 13 year high of 98 5 in January Americans feel plenty confident in the economy right now but seem convinced we re all headed for hell in a handbasket
An index that measures current conditions rose to 113 2 to set a 10 year high but a gauge that looks out six months fell to 80 2 from 83 9 The outlook of consumers is now back to where it was before the November election
Industrial production rose 0 4 in June a touch ahead of expectations and the fifth straight month of increases as mining output surged 1 6 mining includes the oil and gas sector utilities output as flat and manufacturing output edged up 0 2
Economic forecasts are revising estimates for second quarter GDP lower to the range of 1 9 to 2 5 At the start of the second quarter estimates topped 3 growth The economic data confirms a lack of inflation and a sluggish economy that fits with dovish statements from the Federal Reserve policymakers this week
At this rate we may have seen the last rate hike from the Fed for this year The Fed still wants to trim its balance sheet but 1 6 inflation and weak retail sales is hardly justification to hike rates
The dollar dropped lower and treasuries rallied Oil gained 1 today and 5 for the week
Earnings season kicked off in earnest with JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC all posting better than expected profits Even though the bottom line was solid they still faced challenges
reported a better than expected quarterly profit on Friday due to strong loan growth and higher interest rates but said net interest income for the year would be lower than expected sending its shares down about 2 percent
JPMorgan earned 26 5 billion in profit over the past 12 months the most ever by any major U S bank
While trading results were worse than analysts estimated second quarter earnings set a record The bank said that net interest income will probably climb 4 billion this year less than the 4 5 billion it previously projected
One area of weakness is mortgages where the market may shrink and competition is stiff JPMorgan said its markets revenue fell 14 percent in the second quarter At Citigroup trading revenue was down 7 2 percent
On a conference call JPMorgan CEO Jamie Dimon had a few choice words about Washington politics choice as in four letter words we can t repeat in print Dimon also had trepidation about to unwind its balance sheet saying
We ve never had QE like this before and we ve never had unwinding like this before Obviously that should say something to you about the risk that might mean because we ve never lived with it before
The Fed will likely announce the kick off this year possibly at its September meeting The Fed s plan calls for a phase in period It will unload 10 billion the first month and raise that to 50 billion over the next 12 months Then it will continue at that pace to achieve its balance sheet normalization
Just like the Fed created this money during QE to buy these assets it will destroy this money at a rate of 50 billion a month or 600 billion a year It s the reverse of QE with reverse effects QE had the intended effect inflating asset prices Unwinding QE once it starts in earnest is likely to pull asset prices in the opposite direction
But given of how leveraged assets are and to the enormous extent they have been used as collateral Dimon the banker who is concerned about collateral values hit the nail on the head It ll be a very different world
Citigroup posted earnings per share of 1 28 on revenue of 17 9 billion topping analyst expectations on the top and bottom lines That s compared to earnings of 1 24 per share on 17 5 billion in revenue in the year ago period
Wells Fargo NYSE WFC beat earnings expectations as it benefited from higher interest rates though revenue was lower than expected at 22 1 billion At Wells Fargo new car loans dropped by almost half in the second quarter while its automotive portfolio fell to the lowest level in two years after the bank tightened underwriting standards
Another cause for celebration earlier this week court approval of a 142 million settlement of a class action lawsuit between the bank and victims of its fake account scandal of 2016 The fiasco you might remember included claims that Wells Fargo employees opened up to 2 million bank and credit card accounts without customers permission to boost sales numbers Multiple class action suits followed and the bank expects them to all fold into this settlement
However the bank s first response was to veto the class action and send it to mandatory arbitration which is an alternate form of resolving a dispute using an appointed independent party instead of the court system It s an option banks and financial institutions have written into contracts with consumers and they use it to prevent consumers from joining together to pursue relief Only after public pressure did the San Francisco bank agree to face the suit
The big 3 banks all beat on the bottom line There was a bit of disappointment on the guidance but overall it s been a good start to the earnings season
Look for S P 500 earnings in the range of 7 Analysts have high hopes for earnings Companies in the S P 500 will earn 130 per share at year end compared with current trailing 12 month comparable earnings of about 120 according to data compiled by Bloomberg That 10 spread is the widest between past and future earnings since 2001
Expectations for tech profits have steadily climbed throughout the year with analysts now calling for a 15 percent jump in the group s bottom line
Senate majority Leader Mitch McConnell has planned for a vote next week on revised healthcare legislation unveiled yesterday and he has his work cut out for him in the coming days to get the 50 yes votes needed for passage
Republicans control the Senate by a 52 48 margin and cannot afford to lose more than two from within their ranks because of united Democratic opposition but two Republican senators already have declared opposition A dozen more Republican senators have expressed concern or remain noncommittal
A major test for McConnell s legislation expected early next week is an analysis by the nonpartisan Congressional Budget Office which last month forecast that the prior version of the bill would have resulted in 22 million Americans losing insurance over the next decade |
MS | Citi Trading revenue down sizably in Q2 | Echoing comments made by other bank execs including Citi at other conferences this month Citigroup C 0 3 CFO John Gerspach tells attendees at the Morgan Stanley NYSE MS Financials Conference that trading revenue will be down about 12 13 Y Y in Q2 At issue is low volatility particularly compared to Q2 one year ago Now read |
MS | Citigroup examining ways to return more capital to shareholders CFO | By Dan Freed NEW YORK Reuters Citigroup Inc N C is looking at more efficient ways to meet regulatory requirements so it can return more capital to shareholders Chief Financial Officer John Gerspach said at a conference on Tuesday Citi the fourth largest U S bank by assets has 45 billion in excess capital that could be returned to shareholders eventually Gerspach said Roughly 29 billion of that is in deferred tax assets that cannot be distributed immediately while another 15 billion to 16 billion is sitting idle not earning profits he said We absolutely have to begin to address that excess capital on which we re earning nothing Gerspach said at an investor event hosted by Morgan Stanley NYSE MS However like other big U S banks Citigroup cannot return capital to shareholders through stock repurchases or dividends without permission from regulators The Federal Reserve oversees an annual stress test whose outcome determines how they can use capital Those results are scheduled to be released in the coming weeks Another process known as living wills which requires banks to submit plans for dismantling themselves without taxpayer support in case of a crisis also affects how they manage their businesses Citigroup is also focused on improving its resolution plan Gerspach said In the past it has failed the stress test and its resolution plan has been rejected Last year however it was the only one of eight large U S banks whose hypothetical wind down plans were approved by both the U S Federal Reserve and Federal Deposit Insurance Corp To arrive at its capital return goals Citigroup must improve in particular the performance of its consumer business which is behind on its return targets but should start to see the benefit of prior investments in its credit card unit in the second half of 2017 Similar to its Wall Street peers revenue from Citigroup s trading business is tracking down 12 percent to 13 percent in the second quarter relative to the comparable period a year earlier due to low volatility Gerspach said His comments come a day after the Trump administration released a plan that would ease regulations on big banks
Citigroup is waiting for more details before drawing conclusions said Gerspach who gave a brief read through of the report An NBA basketball game between the Cleveland Cavaliers and Golden State Warriors featuring star athlete LeBron James was more compelling he said |
JPM | ICBC Profit Rises Most Since 14 Before Challenging Period | Bloomberg Industrial Commercial Bank of China Ltd posted its fastest profit growth since September 2014 as margins and asset quality improved but flagged challenging times ahead as the trade war with the U S intensifies
Net income at the world s largest lender by assets rose 5 8 percent to 81 6 billion yuan 11 9 billion in the quarter ended June from a year earlier according to an exchange filing Thursday broadly in line with estimates China s five biggest banks have all reported profit growth of at least 5 percent for the latest quarter and escaped the surge in bad loans that swamped smaller lenders
While the big five benefited from President Xi Jinping s crackdown on riskier shadow financing in the first half analysts are cutting profit forecasts for the rest of this year as the trade war threatens to slow China s growth Lenders pricing power and capital strength may also be weakened by a renewed push for credit expansion and loosening of monetary policy as authorities look to sustain the economy
The second half of this year and 2019 will be challenging for ICBC amid economic uncertainties and the bank is stress testing companies exposed to the trade war Chairman Yi Huiman said at a briefing in Beijing Still ICBC aims to maintain stable margins and asset quality he said
Net profit of state owned banks would grow 5 6 percent in the second quarter analysts led by Shujin Chen at Hua Tai Securities Ltd wrote in a note dated Aug 14
Analysts surveyed by Bloomberg now predict combined profits at the big five will increase about 5 percent in 2018 less than the 8 percent forecast in March ICBC and rivals China Construction Bank Corp Agricultural Bank of China Ltd Bank of China Ltd and Bank of Communications Co together control more than a third of China s 40 trillion in banking assets and posted 4 percent profit growth in 2017
Investors are pricing in this risk ICBC declined 1 6 percent to HK 5 71 as of 9 39 a m in Hong Kong Friday while the benchmark Hang Seng Index lost 1 5 percent Shares of the big banks are trading at an average 0 7 times their estimated book value for 2018 compared with 1 1 times for HSBC Holdings Plc LON HSBA and 1 7 times for JPMorgan Chase Co NYSE JPM
Given valuations have dropped from a higher level it s more difficult for banks to tap the market for funding said Grace Wu Hong Kong based senior director at Fitch Ratings One of the key constraints holding back the banks from extending another round of stimulus is always the fact that there isn t enough capital
ICBC plans to raise up to 100 billion yuan by selling preferred shares domestically to replenish capital the lender said in a separate statement late Thursday adding it may also sell more such stock overseas ICBC in 2015 completed its first preferred share issuance raising a total of 80 billion yuan at home and abroad
Profit Growth
ICBC 5 8 to 81 6 billion yuan
CCB 7 2 to 73 2 billion yuan
AgBank 7 9 to 57 1 billion yuan
BoC 5 3 to 60 billion yuan
Bocom 5 2 to 20 7 billion yuan
Moreover directing banks to extend loans to specific sectors hampers their prudential management Wu said China s regulators have taken several steps to free up credit in the past month and recently ordered lenders to boost support for infrastructure projects small businesses agriculture and exporters
The order to step up lending comes against a backdrop of rising corporate defaults and a surge in bad debt in the second quarter though most of the increase came from rural lenders
ICBC plans to dispose of 220 billion yuan of soured loans this year Yi said Demand for loans is strong and the lender has moderately raised its growth target for 2018 President Gu Shu said at the briefing
Updates with preference share sale plan in ninth paragraph
To contact Bloomberg News staff for this story Jun Luo in Shanghai at jluo6 bloomberg net Alfred Liu in Hong Kong at aliu226 bloomberg net Lucille Liu in Hong Kong at xliu621 bloomberg net Heng Xie in Beijing at hxie34 bloomberg net
To contact the editors responsible for this story Sam Mamudi at smamudi bloomberg net Jeanette Rodrigues Russell Ward
2018 Bloomberg L P |
JPM | Turkey s Albayrak says central bank independent sees no crisis in banking sector | By Orhan Coskun and Dominic Evans ISTANBUL Reuters Turkey s central bank is independent of government and will take all necessary steps to combat inflation Finance Minister Berat Albayrak told Reuters defending an institution that has not raised its benchmark rate in nearly three months despite a currency crisis Albayrak also said he did not expect any problems in the banking sector in stark contrast to recent warnings from ratings agencies that the lira sell off could weaken lenders assets In the event of a problem at banks Ankara would be willing to step in with support he said The lira has fallen some 40 percent against the dollar so far this year hit by concerns about President Tayyip Erdogan s control over monetary policy and a worsening diplomatic rift with the United States Economists say the central bank needs to hike rates decisively to rein in double digit inflation and support the currency Erdogan a self described enemy of interest rates wants low rates to keep a credit fueled growth boom going The central bank in Turkey has been maybe more independent than those in other countries Albayrak Erdogan s son in law said in an interview at a 19th century mansion overlooking the Bosphorus in Istanbul The bank will take steps to continue this independence he said Turkey has reached a point where it requires a full fledged fight against inflation Albayrak said The central bank which holds its next meeting on Sept 13 said on Monday it will adjust its monetary stance given significant risks to price stability a rare move to calm markets after inflation surged to its highest in nearly fifteen years At its last meeting in July the central bank left rates on hold confounding market expectations and sending the lira sharply weaker It plunged as low as 7 24 to the dollar in mid August On Monday it traded at 6 62 at 1109 GMT around 1 pct weaker on the day Albayrak s appointment two months ago as treasury and finance minister has cemented the perception that the economy and monetary policy are now fully under Erdogan s control CHRISTIAN PASTOR Albayrak was visiting London on Monday for talks with Britain s finance minister Philip Hammond part of Turkey s efforts to strengthen relations with Europe s main economic powers as a dispute with Washington shows no sign of easing He was in Paris last week and will go to Germany next week Relations with the United States a NATO ally and major trading partner have soured over a series of issues including Turkey s detention of an American Christian pastor on terrorism charges and the U S sentencing of an executive from Turkish state bank Halkbank IS HALKB for busting sanctions on Iran Adding to the friction the U S Treasury is investigating Halkbank for violating Iran sanctions The bank has said all of its transactions were legal Turkey hired a U S law firm to look into Halkbank s dealings with Iran and found that it did not violate U S sanctions Albayrak said adding Ankara does not expect the bank to face any fine As a result of a months long independent examination it has been established that the bank had not violated primary and secondary U S sanctions against Iran he said Referring to Turkey s wider dispute with the United States Albayrak said Washington had taken it to a point that did not benefit the U S state or people BAD DEBT For years Turkish firms have borrowed in dollars and euros drawn by lower interest rates The currency slump has driven up the cost of servicing that debt and investors fear that banks could now be hit by a wave of bad loans Around 179 billion of Turkey s external debt matures in the year to July 2019 according to JPMorgan NYSE JPM estimates Most of that around 146 billion is owed by the private sector Ratings agencies Moody s and Fitch both sounded alarm about the outlook for banks last week with Fitch estimating that banks foreign currency lending now stood at around 43 percent of all loans I have no reason to be worried at this stage But we are aware how important the banking sector is We are in a close coordination and cooperation with our banks and the banking watchdog BDDK Albayrak said We are not expecting any problems in the banking sector but in case of a problem we will support them in every way
He also dismissed concerns about debt including in the private sector He said the current account deficit will be considerably below forecasts by year end and much stronger in 2019 |
JPM | Dollar set for biggest rise in two weeks on trade war fears | By Saikat Chatterjee LONDON Reuters The dollar extended gains on Tuesday as concerns about a possible escalation in trade conflict between the United States and China prompted investors to dump emerging market currencies Against a basket of currencies DXY the dollar rose half a percent and was set for its biggest daily rise since Aug 23 to 95 55 It hit its highest level in more than a year at 96 98 in mid August The public comment period on a U S proposal for new tariffs on Chinese goods is set to end on Thursday after which U S President Donald Trump can follow through on plans to impose tariffs on 200 billion more of Chinese imports though it is unclear how quickly that will happen The dollar seems to be the main defensive currency of choice as trade war concerns have picked up this week and that is causing problems for emerging markets said Richard Falkenhall a senior currency strategist at SEB in Stockholm Emerging market currencies came in for special punishment as investors feared these export oriented economies would be caught in the middle of any escalating trade conflict A JPMorgan NYSE JPM emerging market currency index MIEM00000CUS edged toward a more than one year low hit in mid August while the Indian rupee plummeted to a record low The Turkish lira and the Mexican peso fell by more than a percent each The general sentiment is that the dollar has not done too badly out of the trade war concerns with concerns the U S might signal a fresh escalation in the trade conflict said Kenneth Broux an FX strategist at Societe Generale PA SOGN in London The U S dollar s status as the chief reserve currency makes it the primary beneficiary of concern over trade conflicts It has gained nearly 7 percent since mid April when trade tensions first spilled into the limelight and is set for its biggest daily rise in nearly two weeks On a positioning basis markets are firmly in the stronger dollar camp with net outstanding positions holding just off the highest levels since January 2017 calculations by Reuters and Commodity Futures Trading Commission data show Though main Chinese stock benchmarks ended up more than 1 percent underlying investor sentiment remained wary with Chinese state run banks seen intervening to support the local currency Major currencies were also caught in the widening sell off in emerging markets with the euro EUR EBS falling nearly half a percent at 1 1562 and the New Zealand dollar dropping nearly one percent to a 2 1 2 year low Data this week also might lend further fuel to the dollar rally as U S investors return after a long weekend U S August manufacturing ISM data is due later in the day and monthly payrolls data is scheduled for Friday The yen rose 0 04 percent to 111 07 yen giving up some gains after touching as high as 110 90 It was also higher against the euro gaining about one fifth of a percent to 128 84 yen EURJPY EBS |
JPM | Honda s Rough Accord Results Highlight America s Shift to SUVs | Bloomberg Honda Motor Co T 7267 extended a bleak stretch for a car model widely regarded as one of the best on the U S market showing just how swift consumer demand has shifted to SUVs and away from sedans
Total deliveries for Honda rose 1 3 percent last month trailing analysts average estimate While sport utility vehicles including the Honda Pilot and Acura RDX are setting sales records the Accord s 11 percent drop lengthened a dismal run of declines to 10 straight months Sedans also slumped for Toyota Motor Corp and Ford Motor NYSE F Co as consumers snubbed models like the Camry and Fusion
The Accord s spell has spoiled Honda taking home the hardware for the North American Car of the Year award in January While the family sedan won plaudits for sleeker styling roomier interior and a standard safety system that recognizes traffic signs Honda decided to dial back production so that it could boost the number of CR V crossovers it builds for what s been the hottest segment of the market
SUVs including car based crossovers like the CR V continue with their sharp improvement trajectories Ryan Brinkman a JPMorgan Chase Co NYSE JPM analyst wrote in a report last week As a result he predicted the industry probably increased average vehicle selling prices again in August
U S auto demand has been a little better than analysts anticipated entering the year as surging demand for relatively spacious and fuel efficient SUVs has offset collapsing demand for traditional car models The annualized rate of sales in August adjusted for seasonal trends probably accelerated to 16 8 million from 16 6 million a year ago when Hurricane Harvey hampered deliveries to Texas s gulf coast |
JPM | Erdogan has limited options to save Turkey from financial crisis | By Samia Nakhoul and Dominic Evans ISTANBUL Reuters After 15 years in power as prime minister and president Tayyip Erdogan faced down a weak opposition in June elections that swept away any checks and balances to the unchallenged rule he wanted In Turkey he appears lord of all he surveys But his victory could become a poisoned chalice if he cannot resolve an angry feud with President Donald Trump that is pushing his country towards financial crisis Erdogan has limited options Most involve a loss of face or a loss of sovereignty for which he alone would be blamed having successfully marginalized not just a divided opposition but his own Justice and Development Party AKP His victories in June were decisive Re elected as president under a new order modeled more on Vladimir Putin s Russia than France or the United States he also secured a parliamentary majority by allying with far right nationalists The role of prime minister was abolished leaving Erdogan to dominate not just the executive appointing ministers chairing the cabinet and replacing top civil servants with political appointees but also holding sway over the judiciary and the legislature Having chosen to rule alone from his vast neo Ottoman palace in Ankara he confronts the spiraling crisis alone The lira has collapsed by 40 percent this year Turkish banks that borrowed heavily abroad now face the near impossible task of refinancing short term debt in expensive dollars and euros RATTLED INVESTORS Investors rattled by soaring inflation and a widening current account deficit were suddenly confronted by a row between Erdogan and Trump who doubled tariffs on U S imports of Turkish steel and aluminum in an attempt to force Ankara to release Andrew Brunson an evangelical Protestant pastor jailed after an attempted coup in 2016 As the lira lost a quarter of its value last month alone Erdogan accused the United States of waging economic war against Turkey Speaking last month at the anniversary of an 11th century Turkish victory over the Christian Byzantine empire Erdogan told Turks not to believe the dispute with the United States was about him No their issue is Turkey The issue is Islam he thundered This plays well with his base and since Trump has used tariffs as a political reprisal means most of the opposition will line up behind the Turkish president But the issue Erdogan most urgently has to confront is cash According to JPMorgan NYSE JPM 179 billion in Turkish foreign debt matures in the year to July 2019 146 billion of which is owed by the private sector especially Turkey s banks which borrowed abroad but often earns mostly in lira saddling it with a severe debt mismatch given the plummeting currency OPTIONS The question is now whether Erdogan will make up with Trump as recently as July s NATO summit they were seen fist bumping perhaps at this month s U N general assembly One source close to the AKP speaking not for attribution thinks he will Brunson is a tool cosmetic but important the source said refusing to be drawn on whether Turkey would first have to deliver him back in a signal to Trump s evangelical Protestant supporters ahead of November s mid term elections The source believes Turkey will tilt back towards the European Union where its bid for membership has all but expired Ankara has high hopes that Germany which Erdogan visits this month may lead European efforts to shore up Turkey financially But any EU aid is unlikely to be enough A pledge by Qatar Turkey s closest Arab ally to invest 15 billion has had little impact The economy is a big concern because people are getting poorer the source close to the AKP said In all these years we didn t invest except in construction and we cannot eat that We missed trains like investing in technology and industry As inflation spikes the central bank is signaling a rise in interest rates next week to brake the lira s free fall But given Erdogan s belief that interest rates which he calls the mother and father of all evil are a cause of inflation any hike may be too little and too late That increases the likelihood that Turkey may have to go to the IMF for the size of bail out it needs The government rules this out as an unacceptable surrender of sovereignty I have no need of the IMF Finance Minister Berat Albayrak told Reuters on Sunday The minister is Erdogan s son in law Going to the IMF would be a very big challenge said the source since we used to bash it frequently in our campaign slogans and we were very proud of ridding ourselves of the IMF burden after the 2000 01 financial crisis shortly before the AKP came to power However the source said Erdogan is good at explaining things to the nation and has near total control of the media US WAR ON TURKEY Mustafa Sentop deputy speaker of parliament and the AKP s former election campaigns chief says the Turkish economy is in reasonable shape when benchmarked against comparable emerging markets We don t believe Turkey will have a problem in funding this debt he said He says the real problem is a U S effort to control the region and isolate Turkey s neighbor Iran Erdogan is an obstacle in Washington s path and Brunson is just a symptom of this This is not a conflict between Turkey and the U S it is a war by the U S on Turkey and other parts of the world targeting Russia China and even the EU They are trying to use the economy and especially currencies he said Either the world unites against the cowboy behavior and tyranny of Trump and fights back or we kneel Sentop said But Turkey will never kneel Washington has turned the Brunson affair one of several disputes it has with Turkey into the central issue to be resolved as a condition of any armistice Last year Erdogan linked the cleric s release to the U S extraditing Fethullah Gulen a Pennsylvania based imam and former AKP ally who Turkey says was behind the abortive but violent putsch of July 2016 Trump last month demanded the unconditional release of Brunson calling him a great patriot hostage after the collapse of a deal that might have freed him In exchange analysts say Turkey would have got three things the repatriation of an executive from the state owned Halkbank who was convicted of breaking sanctions on Iran the reduction of a fine still to be imposed by the U S Treasury on Halkbank and Trump s intercession with Israel to free a Turkish woman held as a courier for Hamas Israel deported the Turkish detainee Ebru Ozkan on July 15 and later confirmed that Trump had requested her release Ankara has denied agreeing to free Brunson in return The government may muddle through for a while one academic says but mass unemployment and unrest may result if Erdogan does not take action This country is too big to sink with him said one liberal critic who requested anonymity But his power base will shrink with this depreciation Erdogan s emphasis on foreign plots translates into votes for the ultra nationalist MHP not the AKP I think it is impossible for him to maintain this level of support in the face of economic collapse said a former AKP activist |
JPM | Citigroup CFO Gerspach to retire be replaced by Mason memo | By Brenna Hughes Neghaiwi and David Henry ZURICH NEW YORK Reuters Citigroup Inc s N C longtime Chief Financial Officer John Gerspach will retire in March to be replaced by Mark Mason CFO of the institutional clients group the third largest U S bank told employees on Tuesday Gerspach an accountant joined Citigroup in 1990 and became CFO in July 2009 He became known for fielding analyst questions about the company s irregular progress in divesting businesses satisfying new capital rules imposed by regulators and failing to meet financial targets He also had to answer for problems that cropped up at far flung operations around the world including losing 500 million on fraudulent loans in its Mexican bank He has represented our company exceptionally well not just in good times but in tough ones as well Chief Executive Officer Mike Corbat said in the memo seen by Reuters Corbat also announced that North America CEO Bill Mills and Europe Middle East and Africa CEO Jim Cowles would be leaving the bank at year end and named Kristine Braden who is country officer for Switzerland as his new chief of staff The changes follow an executive shuffle a few weeks ago at Citigroup s consumer bank which has had trouble keeping up with performance expectations on Wall Street Mason takes over the CFO role at a time of investor frustration with Citigroup s lagging stock price Its shares trade for about 1 2 times tangible book value compared with 2 1 times for shares of JPMorgan Chase Co N JPM the largest U S bank by assets The institutional clients group where Mason is now finance chief provides trading lending treasury and investment banking services to large companies He is also responsible for submitting Citigroup s capital plans to the U S Federal Reserve as part of its annual stress test a process that determines how much money the bank can return to shareholders through dividends or stock buybacks In prior roles Mason worked closely with Corbat to unload Citigroup s troubled assets following the 2007 2009 financial crisis and later ran the private bank that caters to ultra wealthy individuals Mason grew up in Queens New York and lived in a house overlooking an expressway to John F Kennedy International Airport he said in a 2017 podcast interview with the president of Howard University his alma mater He and his younger brother were raised by a single mother with help from family members who lived nearby He went to public schools until attending Howard for his undergraduate degree then getting an MBA from Harvard Business School
We didn t have much but we had a lot of family Mason said So it was a good childhood but it was one that was short of money in ways so I learned very early on the importance of hard work and the correlation between that and achievement and money |
MS | Disappointment Ensues After A Week Of Great Expectations | Over the past week investors attention was once again divided between two key events of one there were great expectations and of the other very little though a surprise would have been quite welcome In the end there was disappointment all around In the United States the Facebook IPO launch of last Friday had been hyped to the nth degree by the media and Facebook itself Suffice to say that events conspired against the social networking giant several of which are now under investigation by the appropriate authorities and regulatory agencies In a nutshell Facebook s revenue projections and outlook had been significantly lowered just days ahead of the IPO launch by none other than Morgan Stanley aka Facebook s lead underwriter analysts Those analysts allegedly disclosed that information to only a few chosen key investors primarily institutional ones which may have sat out the offering as a result At Friday s Wall Street close Facebook shares closed only 0 23 higher than the initial offering price The issue of selective communication is one being investigated but one can only wonder how much worse Facebook s first day as a public entity could have gone if all of Morgan Stanley s investors had been made privy to the analysis In the eurozone investors had low expectations that the G8 summit and or the informal get together of E U policymakers would yield any sort of outcome which could provide at least some lift for the financial markets In that those low expectations were met there was nothing positively definitive from either Short of a miracle that it is appears only the Greek government can conjure up Greece will exit the eurozone The determining factor will surely be the outcome of the Greek elections to be held in mid June between now and then markets will be subjected to increasing volatility and uncertainty Already there is some talk that E U officials are quietly telling the finance ministers of other member states to gird themselves for that eventuality Worsening matters is a lack of consensus among the eurozone s superpowers as to the way forward Germany s Angela Merkel still insists it is with austerity while France under the leadership of socialist Francois Hollande is pushing for a growth agenda and the issuance of joint euro bonds another matter with which Germany disagrees Financial markets have been in a tailspin with equities moving lower in nearly every global market it is only profit taking which has helped to provide some buoyancy today The EUR USD has also been hit hard dropping near to a 2 year low at 1 2572 with today s decline being attributed to decaying business sentiment in Germany OpenBook guru Noe017 from Italy has been successfully navigating the markets turmoil even as other gurus have been caught flatfooted Over the past six months the trader has allocated 88 1 of her portfolio to currency trading with the remainder earmarked for commodities In fact it is her 10 3 allocation in gold which has provided the highest profit in her portfolio with a 7 1 gain while a 0 4 allocation in silver has returned 3 Among the currency pairs the highest allocation is given to the EUR USD pair with a 65 2 allocation returning a gain of 3 9 Smaller allocations in the USD JPY GBP USD EUR JPY and USD CAD have also all been profitable with gains of 6 4 4 6 3 6 and 1 respectively Over the same period the guru s P L was 33 6 but at 12 months it is a handsome 279 5 The guru who can be found on the 6 month leader board with a 48 profitable days ratio has as of this writing 233 copiers and 2 549 followers many of whom expressed their gratitude for her trading strategy which helped guide them through the turbulent trading week According to her she has a consistent strategy I keep informed and pay attention to the movements of the graphs Her copiers would surely agree that it s a strategy that works Trader lohanmonika from Bangladesh only came to OpenBook earlier this year but over the past quarter has earned a profit of more than 300 which surely accounts for the reason why the trader has 22 copiers and 273 followers already Priding himself as a medium risk strategist the trader is another who has successfully navigated the muddy waters of the EUR USD just over the past few hours the trader closed out a handful of short positions with profits that ranged from 3 to 10 The trader s 94 9 allocation to the EUR USD pair has provided a gain of 14 4 within the past six months the highest in the portfolio and though the gain has diminished over the shorter term it still remains in the green A small allocation to the EUR JPY pair has provided the portfolio s second highest gain of 8 9 while a 0 3 allocation in gold with a corresponding return of 4 5 rounds out the top three gainers |
MS | Coulda Woulda Shoulda Lessons Learned From Facebook s IPO | What coulda ignited a desperately needed thriving IPO market Facebook s IPO is going down in the history books as a cluster of mishaps complete with a series of investigations and lawsuits looming in the distance In case there was even a shred of doubt left the Facebook IPO validates just how dysfunctional the public markets have become Not to mention greed infested and corrupt Was it really necessary for Morgan Stanley to inform its institutional clients during Facebook s road show that it was cutting its estimates while simultaneously raising the price and size of the offering Does anyone sympathize with the who lost 100M by trying to flip FB on the open This same hedge fund woulda quintupled its money had its manager read on SecondShares in March 2010 that placed a 100B price target on Facebook when it was valued at a mere 19B There were plenty of investors who profited handsomely off Facebook They just weren t able to do it trading in the treacherous public markets The fact is the appreciation was realized by investing in the PRIVATE markets I guess I really need to show the following chart yet again Instead of flipping what was touted to be a hot IPO private market investors made money the old fashion way by buying and holding Oh the torture of having to actually keep a stock for more than 30 seconds Here s the truth trading stocks does not create jobs fuel innovation or foster economic expansion To the detriment of America s economy its public markets have become one giant breeding ground of traders Weeks after the JP Morgan derivative fiasco the last thing Wall Street needed was another black eye But POW It saddens me to say so but it was well deserved Here s a suggestion stop creating cataclysmic derivative products misleading public investors and risking other people s money Remember once upon a time when as a principal underwriter you took chances bringing young emerging growth companies public some of which went on to create enormous wealth and even change the world Perhaps rather than place new issues in the hands of your biggest institutional clients you can allocate them across an issuer s greatest supporters its clients its customers its users and its partners I am not one to say I told you so but back in December I pleaded with Facebook to buck the Wall Street establishment and self underwrite Read It shoulda listened especially after Goldman Sachs completely bungled its private placement in 2011 Facebook shoulda utilized a Dutch Auction model and employed a method called Direct Registration where it would have been able to sell its shares directly to its loyal user base in a much more equitable manner Facebook s IPO shoulda gone down in history as the catalyst that transformed the capital markets into a level playing field and led us into a new era of the social stock market comprised of long term investors deeply committed to an issuer s brand Twitter I hope you are paying attention In all sincerity I removed Coulda Woulda and Shoulda from my vocabulary years ago Rather than harp on what might have been I prefer to use the mistakes of the past to create a better tomorrow As such Facebook s IPO should not be viewed as a monumental regret but rather as a wake up call for the nation This is undoubtedly a market structure problem not a regulatory one We simply cannot allow high frequency traders and those who are too big to fail to run amok with our capital markets While there are some who will inevitably use Facebook s IPO debacle to undermine key components of the JOB Act they will be doing this country a grave disservice We need to inspire entrepreneurship not deter it If they are so inclined to tighten regulation then appropriate it towards those who are destroying the capital markets with useless derivative products and excessive greed Whatever you do please do not strangle the emerging businesses who are merely trying to restore economic prosperity through innovation and job creation 222 days 5 hours 54 minutes 32 seconds until the democratization of the U S capital markets |
MS | China Gives Green Light to Car Buyers | China just made it a little more affordable to buy a car Last week the government announced a one year RMB 26 5 billion subsidy program devoted to energy efficient products About RMB 6 billion will be set aside for fuel efficient cars and the remaining incentives focus on LED lighting high efficiency motors and air conditioners refrigerators washing machines and water heaters that comply with energy saving standards The last time China offered subsidies on autos and appliances in 2009 2010 there was a tremendous increase in year over year production At the peak auto output jumped 120 percent while the production of appliances rose about 90 percent While the total budget for this program is only half of what the government offered in 2009 Morgan Stanley views this move as having a positive influence on car demand China also lowered gasoline prices lately providing a double benefit for Chinese car buyers The subsidies should be welcome in a country that has become quite the car culture Over the past decade the auto industry has grown substantially accelerating from only 2 million vehicles sold in 2000 to an estimated 20 million in 2012 Over the next three years ISI estimates that another 22 million to 30 million cars will be sold each year Deutsche Bank says this government action strikes a balance between immediate growth needs and long term goals of moving from an export investment driven economy to a more self sustaining consumer based economy |
MS | Week in Review Part II Street Bytes | Stocks rallied after three awful weeks despite ongoing investor anger over the Facebook offering The Dow Jones rose 0 7 to 12454 while the S P 500 gained 1 7 and Nasdaq 2 1 On the tech front the earnings picture was mixed with Dell missing estimates badly and Hewlett Packard exceeding expectations U S Treasury Yields6 mo 0 13 2 yr 0 29 10 yr 1 74 30 yr 2 84 The U S continues to benefit from the safe haven play the best little whorehouse in a dirty neighborhood The more we learn about the Facebook IPO debacle the more it s clear the little guy took it up the butt For starters the offering was way overpriced given the company s fundamentals but then we ve learned there was extensive selective disclosure of information between the underwriters in particular Morgan Stanley which was cutting its revenue estimates and institutional clients during the roadshow leading up to the IPO It technically isn t illegal to do so during this pre offering period but any other time selective disclosure is Wall Street firms must publicly disseminate information that could move the share price in theory giving the retail investor the same information at the same time as the big institutions Morgan Stanley issued a statement saying it followed the same procedures for the Facebook offering that it follows for all IPOs But it s too late All manner of state and securities industry regulators are on the case and investor suits are being filed As for Nasdaq its trading glitches only added to the headaches faced by both brokerages and investors Executives there knew there could be software issues especially if huge volume materialized but went ahead with the offering anyway Meanwhile Facebook had released a regulatory document three days into the roadshow discussing the fact that the more people use mobile phones rather than computers the less likely they were to click on ads let alone the fact advertising on mobile is difficult to begin with Lastly founder and CEO Mark Zuckerberg married his longtime college sweetheart Priscilla Chan on Saturday No word on the terms of any pre nup if indeed there is one though it seems anything he earned before the marriage is solely his property afterward In California anything either partner earns or acquires after marriage is considered communal property There is much talk of China s slowing economy HSBC s flash estimate of May PMI was 48 7 down from 49 3 The April leading economic indicators figure however was up a decent 0 8 in April vs March Nonetheless everyone is lowering their growth forecasts for 2012 though not significantly yet The OECD for example pegs it at 8 2 for 2012 and 9 3 for 2013 Like whoopty damn do if that proves to be accurate What s the concern then The World Bank lowered their forecast from 8 4 to the same 8 2 Morgan Stanley is projecting 8 5 for the year down from an earlier forecast of 9 0 But Premier Wen Jiabao is urging renewed efforts at growth calling the current situation complex Consumer spending is not picking up the slack as many thought it would One Goldman Sachs analyst in Hong Kong told clients Chinese economic activity is exceedingly weak Forget what your personal feelings are about the place and mine are decidedly mixed these days but given the global structure of the economy today we need China to do well Geopolitics the issue of stealing secrets etc are totally different matters As negative as you may get at times remember that America s farmers for one are fans of the place and for good reason Fitch Ratings cut the sovereign debt of Japan to A plus surprising the political leadership Japan s rating is now below that of rivals China and Korea Fitch blasted the government for its leisurely approach to dealing with its massive deficits 200 of annual GDP the highest among industrialized nations even as investors pour more money into Japanese government bonds because they are perceived as more of a safe haven than Europe for example Now many have said for years not to worry about Japan because over 90 of its government bonds are held domestically as opposed to the situation in Europe with the southern periphery But it s been one weak government after another in Japan and the politicians must take action soon Thailand reported a surprise decline in exports for April because of falling demand in the U S and Europe down 3 7 from a year earlier Analysts had forecast an increase of 3 Not good Earlier though Thailand reported GDP rebounded 11 in the first three months compared to the previous three months though just 0 3 on an annual basis The worst flooding in decades hit the country late last year making for an easy quarter to quarter comp Analysts say Macau s gambling revenue for the month of May could increase only about 11 year over year vs April s 22 growth and far headier rates in 2010 and 2011 Should the 11 rate pan out it would be the lowest number recorded since July 2009 But revenues would still be a record for a single month Of particular interest is how much Chinese VIP spenders are being crippled by bad debt Eventually growth in Macau could be hit by new casinos going up in the Philippines and Vietnam There s already an impact from Singapore s casinos Discount airline king Ryanair reported record annual profits for the first quarter 503 billion euros as revenues increased by 19 The FDIC said the banking industry earned 35 3 billion in the first quarter up from 28 7 billion in Q1 of 2011 and the highest level since the second quarter of 2007 About 67 of U S banks reported improved earnings But bank loans to consumers like for credit cards and home mortgages fell In the continuing fallout from its trading debacle JPMorgan Chase suspended its share buyback program out of prudence as CEO Jamie Dimon put it Estimates on the ultimate loss from the bad trade in its Chief Investment Office unit now range up to 6 billion The global wheat crop has gone through some major ups and downs the past three years We had a historic drought in Russia and Australia in 2010 and then bumper crops in 2011 as rainfall returned to normal and now we re back in drought conditions in Russia and Ukraine as well as a very dry May in Kansas so the U S Dept of Agriculture is expected to cut its global crop estimate significantly next month according to analysts surveyed by Bloomberg Ergo the price of wheat has been surging in recent weeks But rain is coming for the key Russia Ukraine growing regions Hewlett Packard has settled on 27 000 job cuts by end of 2014 about 8 of its workforce which the company claims will reduce costs by up to 3 5 billion a year HP did release earnings and revenues for its first quarter that were better than expected though profits fell 31 over year ago levels CEO Meg Whitman who joined HP in September after heading up eBay said the strategy to turnaround the company is on track Meanwhile Dell missed Street forecasts badly for both earnings and revenues for its second quarter Dell is the world s third largest personal computer maker by shipments but is suffering with the shift among both consumers and businesses away from desktops and laptops to mobile alternatives such as Apple s iPad and other tablet computers Dell s notebook business contracted 10 in the quarter Overall U S sales fell 7 Congratulations to Ford Motor for regaining its investment grade rating from Moody s A spokesman for Moody s said The key factor was whether or not the company would be able to sustain its strong performance We concluded that the improvements Ford has made are likely to be lasting As of March it helps that Ford s cash and liquid assets were about 32 billion Tiffany reported worse than expected results for the quarter and reduced its outlook for 2012 The luxury retailer is often a good barometer of the overall economy and the company reported a drop in crowds at its flagship Fifth Avenue store as the number of tourists from Europe and Asia declined From Jack Farchy Financial Times U S manufacturers have attacked plans by JPMorgan Chase to launch an exchange traded fund backed by physical copper arguing that the product would grossly and artificially inflate prices and wreak havoc on the U S and global economy Copper s use in electrical wiring makes it essential to the manufacturing industry In a letter to the Securities and Exchange Commission lawyers representing the copper consumers say the impact of the ETF on the copper market would be comparable to the Sumitomo trading scandal of 1995 96 which sent prices sharply higher JPMorgan is among several groups trying to capitalize on investors interest in industrial metals by launching a fund that allows them to access physical copper directly No way this should be allowed This is different than some of the existing offerings in precious metals such as gold and silver because of the prevalence of copper in so many products The Times Picayune of New Orleans announced it will scale back the printed edition to just three days a week making the Big Easy the most prominent U S city without a daily newspaper Since Hurricane Katrina in 2005 the paper s daily circulation has declined from 261 000 to 132 000 According to the Audit Bureau of Circulations nationwide papers with a circulation of 25 000 or more had a 21 drop in circulation between 2007 and 2012 The Times Picayune owned by the Newhouse family will offer print editions on Wednesday Friday and Sunday The move was followed by similar reductions at three other Newhouse papers all in Alabama Inflation Alert A one day ticket at Disneyland is rising 9 this summer A premium annual pass that includes parking is going up 30 I m having an It s A Small World flashback from my only trip there as a kid not a good memory Dogs occupy the No 1 slot on your editor s proprietary All Species List Man is No 203 but dogs shouldn t get too cocky According to the Insurance Information Institute dog bites accounted for more than one third of homeowners insurance liability claims paid in 2011 State Farm the largest writer of homeowners insurance in the U S paid more than 109 million on nearly 3 800 dog bite claims Granted more people own dogs these days they live closer to one another and many folks deserve to get bit Sports betting could be coming to New Jersey s racetracks and casinos by the fall Yippee Gov Chris Christie said my state will act on its own to implement it defying a federal ban on such wagering in all but four states claiming he s confident the state will prevail when the Feds try to stop it About freakin time Take the Jets and the points at New England on Oct 21 Kudos to United Airlines for telling families with small children they can wait their turn like every other schlep And if the kids misbehave United said it would force them to take a stagecoach instead 80 of all visitors to the London Olympic Games will pass through Heathrow Airport Talk about a nightmare They ve been running baggage drills and say hundreds of extra border staff will be brought in to ease the lines at passport control but no way will it be an efficient operation In the OECD s annual Better Life Index which looks into criteria such as jobs income and health Australia comes out on top as the happiest industrialized nation in the world ahead of Norway and the U S Of course if you re not careful you could get devoured by a crocodile or killed by a poisonous snake or spider in the land Down Under but you have superb premium beer at a reasonable price as opposed to Norway where you have to take out a second mortgage just to buy a case and the U S where unless it s Yuengling or Shiner Bock you re talkin domestic The city of Los Angeles is adopting a ban on plastic bags at supermarket checkout lines I m all for this one We never should have changed from paper anyway The Trumbore Family treats paper bags from Trader Joe s like gold because of the handles It s the perfect Christmas gift too |
MS | Spain Struggles To Rescue Troubled Banks Euro Falls To 2 Year Low | EUR USDThe euro fell to the lowest level in almost two years against the dollar as Spain struggled to rescue its troubled banks adding to signs the European debt crisis is spreading to the region s larger economies The 17 nation currency slid for a seventh day versus the yen the longest losing streak in four months after Italy sold less than its maximum target at a debt auction The yen and dollar strengthened as investors sought safer assets after a European report showed economic confidence dropped more than economists estimated in May The euro declined 1 1 percent to 1 2367 in New York The single currency fell 1 6 percent to 97 79 yen It dropped to 97 76 yen the lowest level since January 18 The yen gained 0 5 percent to 79 08 per dollar after touching 78 87 the strongest since February 17 The shared currency fell to 1 2362 its weakest since July 2010 It reached 1 1877 in June that year which was the lowest level in four years after escalating concern about Greece led to the bloc s first bailout Since its inception in 1999 the euro has traded as low as 82 30 U S cents in 2000 and as high as 1 6038 in July 2008 EUR USD title EUR USD width 676 height 411 GBP USDThe pound weakened to a four month low against the dollar amid speculation the fallout from Europe s debt crisis is spreading and will harm the outlook for the U K economy Sterling dropped for a third day against the yen as Nobel laureate Paul Krugman said the U K government should drop its commitment to fiscal cutbacks and boost spending to avert an extended downturn Gilts jumped with five and 10 year yields dropping to records after Bank of England Markets Director Paul Fisher said U K companies need to protect against the risk of a euro breakup The cost of insuring Spanish government bonds against default rose to an all time high Sterling is going to increasingly feel the negative effects coming from the euro region and the news about the Spanish banking system Sterling has a lot of linkages to the euro region through the banking system and via trade so it will come under pressure as the situation in the euro region intensifies The pound fell 0 7 percent to 1 5538 after dropping to 1 5523 the weakest since Jan 23 The U K currency slid 1 3 percent to 122 70 yen and was little changed at 79 83 pence per euro Morgan Stanley forecasts the pound will depreciate to 1 53 by year end GBP USD title GBP USD width 676 height 411 USD JPYThe U S dollar edged lower against the yen as safe haven demand was boosted by sustained concerns over Spain s ailing banking sector while comments by the Bank of Japan lent support to the yen USD JPY hit 79 40 during early European trade the daily low the pair subsequently consolidated at 79 36 falling 0 18 Market sentiment weakened as the yield on Spanish 10 year bonds climbed to their highest level so far this year on Tuesday approaching the critical 7 threshold after a Spanish official said the government is preparing to recapitalize Bankia one of the country s largest commercial lenders Adding to concerns Bank of Spain Governor Miguel Angel Fernandez Ordonez resigned a month early handing to his successor the task of convincing investors that Spanish banks will not need an international bailout Meanwhile BoJ policymakers signaled that Japan will likely achieve the 1 inflation target without further monetary easing saying the bank s February and April stimulus measures have heightened chances of economic title USD JPY width 676 height 411 USD CADCanada s dollar depreciated the most in a week as turmoil in the Spanish banking sector added to signs Europe s debt crisis is spreading to the region s larger economies boosting demand for safety The Canadian currency was headed for a 4 2 percent decline in May the biggest monthly loss since September on speculation softening global growth will reduce chances of a Bank of Canada interest rate increase The nation s 10 year government bond yield dropped to the lowest level since at least 1989 1 770 percent and yields on 30 year securities fell to a record low 2 320 percent Canada s currency nicknamed the loonie declined 0 8 percent to CAD 1 0301 per U S dollar in Toronto It slid as much as 0 9 percent the biggest intraday drop since May 23 to CAD 1 0311 almost the weakest since title USD CAD width 676 height 411 |
MS | Moving Averages Month End Update | Valid until the market close on June 29 2012 The S P 500 closed May with a whopping loss of 6 27 from the April close The 10 month exponential moving average signal has switched to cash 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 Averages Buying 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 For a visual representation of the VNQ signal at the December 30 close here is chart from Stockcharts com |
JPM | Stock Exchange Trading The Earnings Season | The Stock Exchange is all about trading Each week we do the following
Discuss an important issue for traders
Highlight several technical trading methods including current ideas
Feature advice from top traders and writers and
Provide a few minority reactions from fundamental analysts
We also have some fun We welcome comments links and ideas to help us improve this resource for traders If you have some earnings season ideas please join in
Review
Our last Stock Exchange discussed the challenges of trading geopolitical risks If you missed it a glance at your news will show that the key points remain relevant
Preview
Next week AKA Mark Hines returns as our guest expert He consistently generates interesting and successful ideas I cite his work regularly and he was first rate when we had him last Readers will enjoy his unique contributions
This Week Can You Profit from Trading the Earnings Season
Four times a year there is a confluence of corporate earnings reports It can create turbulence for the overall market as well as the individual stocks Is there anything we can do to take advantage of this avalanche of breaking news We have advice from several experts and some special resources
Trading Tips for Earnings Season
Fidelity Investments offers a beginning with your own earnings forecast
Investopedia also has an
Goldman Sachs shares ideas for playing the current low volatility While the examples are from last quarter the concept is easily updated We looked today at the weekly options in JPMorgan NYSE JPM JPM Earnings are out tomorrow morning and the options expire in the afternoon Today you could have bought an ATM straddle If you do not know what that means you should not be trying it It would have cost about 1 80 Based upon the last three earnings reports you might have made money on a play like this but you would need to be agile and accurate in trading the announcement
Investor s Business Daily swing trading based upon technical analysis
Zacks making a directional play based upon your expectations and their research
These are all helpful but overlapping tips Organizing by strategy we get the following
Directional stock or options
Volatility option plays
Follow the initial reaction hoping the dumb money is slower
As always I ll share my own observations in the conclusion along with the top resources I use
Expert Picks from the Models
This week s choices include several market sectors
Holmes This week I picked up Anheuser Busch NYSE BUD the Belgium based brewing company Leading into last October the stock was inching up just above the 132 level Then within a one month period from October into November it had three huge declines down to around 102 For the next six to seven month period the stock has been making very small and steady attempts to pick itself up again
In May on its recovery phase the stock prices touched decent levels up and around 117 50 In June and July the stock saw some declines in combination with short upsides I figure that the stock has still more to gain on its recovery and as always I buy on the dip The 50 day average cutting above the 200 day average in a Golden Cross also shows more upward support for the stock price
Jeff I am still struggling with the Belgium based Isn t this the company of Clydesdales and Christmas Cards
H Those emotional factors are not part of my analysis Look at the chart
J Do you know when the earnings will be released
H I don t know and I don t care
J For those who do care reports
Anheuser Busch Inbev SA is expected to report earnings on 07 27 2017 before market open The report will be for the fiscal Quarter ending Jun 2017 According to Zacks Investment Research based on 1 analysts forecasts the consensus EPS forecast for the quarter is 1 14 The reported EPS for the same quarter last year was 1 06
H I hope that humans are happy with the announcement I see limited downside and plenty of potential
Athena My featured stock this week is RH NYSE RH in the home furnishings market Talking of the Golden Cross well my stock saw it too in mid March and followed with an upward spike Looking at the chart history The start of the year was weak with a fall from just around 40 to the 30 s mark in late December The further decline from Jan March included a touch 25 The stock s late March recovery saw it gain around 50 to come close to the 60 s mark in mid May Then the stock had a correction in May followed again by its upward march in June July I expect the rally to continue
J Didn t we try this stock a couple of months ago a Road Runner pick
A I pay no attention to that noisy bird
J I think we caught the decline and sold too soon The earnings report was on 6 1
A Whatever happened before it is attractive right now I suppose you are about to invoke the guru of the fundamentals
J An excellent guess I believe I warned the Road Runner about this as well
Oscar This week s pick feels appropriate for these hot hot summer days I m getting into the solar energy sector shown here as the Guggenheim Solar NYSE TAN I have to say stocks in this sector are climbing like the late afternoon heat Let s take a closer look
The last twelve months were not especially kind Beginning in mid October the solar stocks took a big nosedive They seem to have bottomed out at the end of 2016 and they ve been on the road to recovery for this calendar year This ETF is trading above its 200 and 50 day moving averages which suggests to me the gains are real As usual I m looking to hold onto stocks in this area for a 2 4 weeks
J This is an interesting choice Are you monitoring President Trump s energy policy decisions
O My focus on DC is mostly on the Nationals
J That is what I thought With the liberalization of pipelines there might be a threat to alternative energy
O It is all about the numbers Take a look at today s Racing Form and I will explain
J Forget that Let s talk about your readers Do you have updated rankings for them
O Yes Here they are If they send more ideas I will rank them
Felix DDR Corporation DDR may seem riskier than my usual pick but I have my reasons I admit the trailing 12 month decline is not pretty At the same time I think this one bottomed out midway through May Focus on the last couple months of this chart
A little variation around that price range is attractive to me for a couple reasons First things first the flattening curve on the 50 day moving average suggests to me that we re past the point of another big drop
Second I m in it for the long haul I don t mind a few weeks middling around the 9 share range if the 3 4 month upside is as much as 25
J Do you understand that this is a REIT The value depends upon many factors including cash flow payout ratio interest rates and the market for the underlying real estate I am just getting started
F Those factors might be interesting for income investors I just consider the chart which looks very appealing I expect this to be a long term hold
J How about your individual stock ratings
F I have reported those I need my fans to keep the requests coming
Conclusion
Trading the earnings season has special risks but also special rewards There are many important factors to consider Here are some special resources
Expectations and the whisper numberAnalyst summary
Whisper number the unstated expectations that differ from the official analyst calls
Detailed preview only available from top sources Check out on MSFT
Revenue In the current environment companies are expected to show revenue growth beating expectations
Outlook A good number this quarter is not enough if the outlook is poor
Quality of earnings Even when everything seems fine many will complain that earnings growth is somehow contrived It is more than just numbers What is the organic growth Or the sales in a key product line
Conference call Usually this is scripted but stocks can react dramatically during the call
Stocks can make big moves on any of these things There may be a pattern like this
Trading algorithms Human traders Individual investors
This is a sequence where algos and traders do not need to be right on the fundamentals They are profitable just by getting the initial reaction right After hours trading is often wildly deviant from what we see the next day Analysts participate in the conference call and file their reports This is especially significant for large institutional investors
How can an individual have an edge
I have traded earnings for decades It is tougher now than ever before You cannot outrace the algos nor can you digest all relevant factors that quickly The option volatility is normally a good reflection of potential moves If you have an edge it must come from better information how much the stock can move a good sense of a positive or negative surprise or excellent fundamental background
Prepare well and make sure that the size of your play reflects your actual edge
Here is a summary of the cast of our characters Find your own favorite
Stock Exchange Character Guide
Background on the Stock Exchange
Each week Felix and Oscar host a poker game for some of their friends Since they are all traders they love to discuss their best current ideas before the game starts They like to call this their Stock Exchange for more background Their methods are excellent as you know if you have been following the series Since the time frames and risk profiles differ so do the stock ideas You get to be a fly on the wall from my report I am usually the only human present and the only one using any fundamental analysis
The result Several expert ideas each week from traders and a brief comment on the fundamentals from the human investor The models are named to make it easy to remember their trading personalities |
JPM | The Rise Of WeWork An IPO On The Horizon | Founded in 2010 by Adam Neumann Rebekah Paltrow Neumann and Miguel McKelvey WeWork operates workspace that can be rented out to members for a monthly fee The company provides entrepreneurs freelancers and remote workers meetings rooms privacy booths free coffee and networking events
Earlier this week WeWork new funds and brought the company s valuation to 21 billion And last month CEO Adam Neumann said the startup is now generating 1 billion a year in revenue
Now operating 156 locations in 15 countries that host 120 000 members WeWork has exploded over the last seven years But how has this start up used the sharing economy to become the success it is today
The Sharing Economy
The sharing economy can include a lot The concept is based around people sharing resources using technology to connect owners and renters For example using Uber or Lyft allows one to obtain a ride without actually owning a car Airbnb lets people find lodging from those who want to rent their apartment houses or other free spaces
Social media is about sharing online We ve extended that behavior into the offline world In the wake of the recession there s a slightly different mentality beginning to emerge which is that access is more powerful that ownership said Airbnb co founder Joe Gebbia
Sharing resources provides incentives for both the owner and the renter The owner of an item such as a car makes money from an underused asset The renter in return pays a small fee in comparison to what they would need to pay to own and maintain the item itself
WeWork has grown within the sharing economy By renting a floor from a landlord and renovating it the company can rent out space to individuals or companies for a monthly fee
For 220 per month a user can access a Hot Desk or any available desk in the common area of a location For 350 a month it offers a dedicated desk For 450 per month WeWork offers a furnished office space for up to 100 people As the needs of a company expands so does WeWork s membership price
Renting from WeWork offers incentives besides simply having a desk to use WeWork handles overhead costs such as the cost of internet mail and package handling printing cleaning and more The company also throws in free coffee and other beverages
WeWork as an Office Culture
WeWork does more than provide an office space however it provides a community WeWorkers provide weekly networking events like bagel and mimosa parties that allow members to connect to one another
WeWork operates workspaces that can help other start ups grow and find what they need to flourish Need a software designer for your new start up There s probably someone you can hire in your WeWork community that the company can connect you to
Institutions have space that young entrepreneurs could use but they want to start their own business and cut their own trail WeWork gives them a home and says We want you here we will help you and build you says James B Lee the JPMorgan Chase NYSE JPM vice chairman
But beyond business connections WeWork offices provide a space for freelancers or remote workers to be around other people Other offices are just depressing compared to here says Nicole Halmi of Neon an image selection platform in the WeWork Tenderloin location in San Francisco
An IPO in the Near Future
WeWork has been doing some restructuring of itself lately in possible preparation of an IPO The company recently revamped its structure to give the start up a more corporate shape partitioning itself into four divisions co working co living services and an enterprise business that caters to big corporations
Along with these changes WeWork has hired more experienced members onto their team James Woods former president of Brooklyn Bowl joined the company as the new head of its co living line WeLive Richard Gomel a former executive at Starwood Capital Group and Starwood Hotels Resorts now heads WeWork s co working business
Both Woods and Gomel began working at WeWork in January this year Each brings to the young company their previous experience working with larger corporations helping establish a newer corporate shape
One thing we re not afraid of is going public Neumann has said And yet while WeWork has talked about having an IPO for at least a year now Neumann has not given a time frame for a public offering
While the CEO may say he is unafraid of an IPO one question that remains is what category will WeWork want to be viewed as a tech company a real estate company or a services company According to Paltrow Neumann none of those WeWork is a community company she said a category that fits no other company
Regardless of what category WeWork will ultimately choose if the company does decide to go public this sharing economy based start up has expanded rapidly since its beginning in 2010 Some believe that the company remains at risk because their long term leases could put them in jeopardy if demand were to sharply decrease
But investors should also know that the company has been operating with positive cash flow since day one of operation And while just two years ago less than 1 of WeWork s business was from Fortune 500 companies that figure is now at 30 and growing The company s rising revenues should help the company when it decides to make its public debut
Zacks 2017 IPO Watch List
Before looking into the stocks mentioned above you may want to get a head start on potential tech IPOs that are popping up on Zacks radar Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential This Special Report gives you the current scoop on 5 that may go public at any time
One has driven from 0 to a 68 billion valuation in 8 years Four others are a little less obvious but already show jaw dropping growth |
JPM | U S Inflation And Bank Results In Focus | The weakness in the US dollar throws a red herring in the pound s path The Bank of England BoE hawks have been discouraged this week after the BoE Deputy Governor Ben Broadbent said that he is not ready to support a rate hike for the moment The slowdown in the British wages growth also tempered the worries regarding the UK s rising inflation until next week However a directional move in the pound is risky before next week s inflation data and the BoE s inflation report hearings No matter what has been said so far a June inflation exceeding the 3 level will be a game changer for the BoE watchers
The majority of FTSE 100 sectors opened upbeat in London except the healthcare stocks 0 68 The daily MACD turned positive suggesting that the momentum turns in favour of the bulls Yet firmer pound and softer energy prices could limit the upside potential before the weekly closing bell Traders may consider reasonable upside targets Offers are eyed at 7438 7450p 50 day moving average end of June resistance
Eurozone yields provide support to euro pre ECB
The sell off in the Eurozone EZ sovereign market deepened throughout the week The higher EZ yields continue providing a decent support to the single currency
Inflows into the European stock markets remain limited
The EUR USD is rangebound between 1 1367 1 1500 major 38 2 retracement on June July rise psychological resistance The bias remains positive on speculations that the European Central Bank ECB could announce a form of tapering of its Quantitative Easing QE program which is due to end in September at next week s meeting
US inflation retail sales and bank results on the agenda
The U S 10 Year yield improved to 2 35 as the US producer price inflation slowed to 2 0 year on year in June down from 2 4 printed a month earlier but less than 1 9 expected by analysts The US consumer inflation and retail sales data are due today Better than expected figures could give a minor boost to the US dollar yet should not damage any important technical levels as the USD bulls are left halfhearted based on the Federal Reserve Fed Chair Janet Yellen s worries regarding the Trump administration s ability to reach 3 growth
The stagnation in the US fiscal policy and an eventual growth target miss would prevent the Fed from moving too fast with its monetary policy normalisation Janet Yellen also said that she will take the steepening of the yield curve into account for the rate normalisation policy Steeper yield curve would entail less frequent rate hikes The probability of a December rate hike stands at 50 in the aftermath of Janet Yellen s semiannual testimony
The US banks are under the spotlight JPMorgan Chase Co NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC will report their second quarter numbers today The five big US banks revenues may have dipped by 11 due to de reflation on yields given the Trump administration s inefficiency to bring fiscal projects to life Soft financial results could dent the appetite and pull the US stocks down from their all time high levels
Carry traders are long the Antipodeans short the yen
Carry traders are shorting the yen against the better yielding antipodeans AUD NZD This trend is giving support to the USDJ PY regardless of a confused US dollar Trend and momentum indicators remain comfortably positive The USD JPY is still in a position to challenge the 114 00 114 50 offers Decent call options trail from 114 00 to 115 00 at today s expiry The 200 day moving average 112 84 should continue providing support
The AUD USD cleared offers at the mid term resistance of 0 7750 as carry traders continued taking advantage of the widening rate differential The rise in AUD JPY is supportive of the positive trend as well Solid resistance is eyed at 0 7780 0 7800 |
MS | Zynga 2 5 as Morgan Stanley bumps to Overweight | Zynga NASDAQ ZNGA is moving up after hours 2 5 as Morgan Stanley NYSE MS has boosted its rating to Overweight The company s seeing increased engagement and monetization from in game sales says analyst Brian Nowak first in poker but the success should spread through its other genres including slots and Farmville That signals the beginning of a stronger business model and a multi year turnaround he writes Nowak has a price target of 4 50 up from a previous 3 and implying 25 6 upside from today s close h t Bloomberg Now read |
MS | Teekay complex liquidity a concern Morgan Stanley says in downgrades | Teekay Corp NYSE TK 14 3 and Teekay Offshore NYSE TOO 17 4 premarket after Morgan Stanley NYSE MS downgrades both to Underweight from Equal Weight citing liquidity concerns Stanley says the weak financial position generates uncertainty over spillover effects across the entire Teekay complex with TOO the main area of concern The firm believes TOO may have to issue large amounts of new equity to meet is obligations which otherwise could threaten the solvency of the parent entity that guarantees 323M of its offshore subsidiary Now read |
JPM | UBS Janus Capital See Rally as Mexico Eludes Economic Suicide | Bloomberg Mexico s trade pact with the U S helps remove one of the biggest unknowns for Latin America s second largest economy And while it had been anticipated for weeks the news could spur a near term rally in the nation s assets according to some of the world s largest money managers
Investors from UBS Wealth Management to Janus Capital see buying opportunities in local sovereign debt shares of the country s big exporters and the broader stock market The peso rallied for a second day Monday as the benchmark equity gauge reached a two month high and bond yields fell
We think the rally can continue near term said Alejo Czerwonko an emerging market strategist at UBS Global Wealth Management s Chief Investment Office in New York who s neutral on Mexico Still some good news had already been priced in he said
After rallying more than 1 6 percent on Monday the Mexican peso added 0 8 percent to 18 77 per dollar at 3 34 p m in New York
Canadian Foreign Minister Chrystia Freeland is leaving early from a trip to Europe to travel to Washington for Nafta talks on Tuesday spurring optimism that the country could soon be incorporated into a new agreement
Here s what other money managers and analysts had to say
Chris Diaz a money manager at Janus Capital Management in Denver
Trade deal reduces some uncertainty although it s still lacking in details
We generally liked the fundamentals of Mexico They will benefit from strong U S growth and the AMLO fear seems a little overblown
Diaz said real rates look attractive and he also favors long duration in the peso
Chase Muller who oversees about 700 million at One River Asset Management in Greenwich Connecticut
We ve always expected the U S and Mexico and Canada to eventually arrive at some sort of deal Economic suicide not to
There s too much uncertainty with President elect Andres Manuel Lopez Obrador s administration to be overly optimistic on Mexico he said
It s unlikely that Canada sours things although Justin Trudeau s government may play more hardball
Sonja Gibbs a senior director at the Institute of International Finance in Washington
Relief for investors in Mexico will still be tempered by concerns related to broader emerging market vulnerabilities she said
An effective resolution on Nafta combined with Chinese support for the yuan should be broadly supportive across the asset class
Shamaila Khan director of emerging market debt at AllianceBernstein in New York
Eventually Nafta will probably get fully renegotiated she said
The risks to Mexico are on the energy front and fiscal Khan said appointments in the energy sector and negative rhetoric from the government concern her and lead to a cautious stance on Mexican assets at current levels
Carlos Gribel the head of fixed income at Andbanc Brokerage in Miami
Deal shows commitment from Lopez Obrador to keep Nafta and that Trump keeps barking more than acting and is willing to reach a deal with anyone
The deal is positive for Mexican markets especially exporters he said
Humberto Garcia head of asset allocation at Leumi Investment Services in New York
We are cautiously positive on Mexican equities
He favors banks given their exposure to economic stability and growth
Companies in the mid risk ratings categories may offer value particularly issuers that don t rely on dollar or euro debt and generate revenues in local currency he said
Michael Shaoul chief executive officer at Marketfield Asset Management in New York
You would hope that some further progress can be made particularly if the peso can be strong enough to allow the policy rate to be trimmed in the months ahead
He said Canada shouldn t have a major impact on the bilateral deal
The buying opportunity was a couple of months ago he said Still the peso looks cheap at 18 7 per dollar if the economy settles down and emerging market currency volatility subsides
Mexican stock market could see more rallies like today as it nears all time high
Gabriela Santos global markets strategist at JPMorgan NYSE JPM Asset Management in New York
Trade tensions have had powerful negative effect on sentiment and this step is very very important
Emerging market equities should benefit the most from positive trade news while debt will be more dependent on the Fed she said
Uncertainty around Lopez Obrador remains big risk for Mexico assets
She expects further progress in trade talks between the U S and China
Tania Escobedo Jacob a currency strategist at RBC Capital Markets in New York
If the U S wants the current congress to sign the agreement Canada has to say yes to everything this week
She said the peso may turn lower this week despite Monday s gains
Canada has not been part of the negotiations and it is difficult to picture a scenario where they automatically agree to everything
Ray Zucaro the chief investment officer at Miami based RVX Asset Management
Trade deal removes a big uncertainty and will support Mexican assets
Mexico looks good compared with other emerging markets from Turkey to Russia Brazil and Argentina he said
Zucaro expects Mexican maquiladoras factories run by foreign companies that export products to perform well amid greater clarity on bilateral trade |
JPM | World stocks hit six month high as NAFTA deal eases trade war fears | By Sujata Rao LONDON Reuters World stocks rose to a six month high on Tuesday lifted by investor optimism that a U S Mexico deal to overhaul the North American Free Trade Agreement will go some way to averting a global trade war Investors expect Canada too will agree to the new terms to preserve a three nation pact while U S President Donald Trump and German Chancellor Angela Merkel spoke by telephone and the two leaders strongly supported ongoing discussions on trade according to the White House European and Asian shares followed Wall Street s lead inching to multi month highs after the S P 500 and Nasdaq indexes surged to fresh records on Monday led by gains in technology stocks The dollar slipped to a four week low and implied volatility across currencies and equity markets also eased as investors took on greater risk appetite Emerging market stocks hit their highest since Aug 9 Global trade tensions have undoubtedly been the most significant source of risk in 2018 said Hussein Sayed chief market strategist at FXTM The U S Mexico deal seemed to boost confidence that the trade war is moving closer to an end and the next question is who s next to close a deal with Trump he said MSCI s benchmark world share index followed on from Monday s best performance in over four months rising 0 15 percent while MSCI s index of Asia Pacific shares outside Japan climbed 0 5 percent A pan European share index rose 0 3 percent for a third straight day of gains Auto stocks continued to rally adding 1 3 percent after enjoying their best day in a month on Monday German carmakers rely on smooth trade between Mexico and the United States to sell Mexican assembled vehicles into U S markets However some analysts were cautious about the rally Paul Donovan chief economist at UBS Global Wealth Management noted markets were assuming already that Canada would join the new U S Mexico deal but said it is not a zero risk process If Canada does not join then getting the agreement of U S Congress will be trickier as fast track authorization probably will not hold he said Disputes between the United States and its trading partners have been a drag on investor sentiment for much of the year despite solid economic fundamentals and two robust quarters of corporate earnings And the toughest battle in the trade war with China still looms The United States and China held two days of talks last week without a major breakthrough as another round of tariffs came into effect The U S Commerce Department also said on Monday that Chinese steel wheels exports were heavily subsidized and that it could impose duties on the product Chinese stocks were steady to weaker though Hong Kong s Hang Seng index gained 0 6 percent JPMorgan NYSE JPM analysts said the trade deal was not necessarily positive for the outcome of talks with China though they said risks of a generalized global trade war had abated somewhat Despite this Asia Pacific equities including HK China should benefit from the weaker U S dollar and risk on moves they added The dollar paused near one month lows against a basket of currencies and the euro was near a one month top at 1 1680 The greenback s index has retreated from near 14 month highs and its losses accelerated last week after U S Federal Reserve chair Jerome Powell disappointed dollar bulls by signaling only a gradual pace of rate rises U S economic data with consumer confidence figures due later in the day and the latest estimate for second quarter gross domestic product expected on Wednesday could determine the dollar s further moves But its pullback has offered some respite to battered emerging and commodity reliant currencies South Africa s rand has pulled off two year lows hit earlier this month There are exceptions however The Turkish lira fell another 1 5 percent against the dollar adding to Monday s 2 percent fall as concerns have not abated about Turkey s rift with Washington and its monetary policies Italian borrowing costs too rose to three month highs after Deputy Prime Minister Luigi Di Maio said the country s public deficit could exceed the European Union s ceiling of 3 percent of gross domestic product next year To read Reuters Markets and Finance news click on |
JPM | Lira Extends Slide as Investors See Policy Concerns Unaddressed | Bloomberg The lira slid for a second day in the absence of signals from policy makers of reforms to address Turkey s economic woes
The currency dropped in choppy trading after relative calm during last week s public holidays The return of local traders has added to a selloff driven by a worrying economic outlook according to Cristian Maggio the head of emerging markets strategy at TD Securities in London
The surge in the dollar against the lira on Monday amid increased local market activity shows lots of the upside pressure on the currency pair is domestic said Maggio I would argue that foreigners are negative on Turkey but look for tactical opportunities to take a position be it long or short Locals however seem to have a much stronger and long term negative bias on their own currency
Investors say the concerns that sent the lira to successive record lows earlier this month remain in place including double digit inflation a deepening current account deficit and the reluctance of policy makers to raise interest rates U S sanctions announced earlier in August over the detention of an American pastor have further hit sentiment and exacerbated worries over Turkey s vulnerabilities
The lira was 1 8 percent down at 6 2295 per dollar by 11 15 a m in Istanbul taking losses so far this week to more than 3 percent Short term volatility in the currency is by far the highest among emerging markets having climbed above 40 percent this week
President Recep Tayyip Erdogan has called the market turmoil an economic war waged by foreign powers French Finance Minister Bruno Le Maire urged Turkey to pursue economic reforms at a joint news conference following a meeting with Turkish counterpart Berat Albayrak in Paris on Monday
All the troubles are now coming to the fore because the external environment has become a lot more challenging than it used to be Maggio said From an economic point of view Turkey will have to enter a long phase of low growth with very high chances of stagnation or even recession
It s too early to buy the dips in Turkey as turmoil is driven by unresolved economic mismanagement said Gabriela Santos global markets strategist at JPMorgan NYSE JPM Asset Management as she voiced optimism for emerging markets following the U S trade deal with Mexico |
JPM | Turkey faces 179 billion external debt repayments until July 2019 JPMorgan says | LONDON Reuters Around 179 billion in Turkish external debt matures in the year to July 2019 equivalent to almost a quarter of its annual economic output JPMorgan NYSE JPM estimates flagging the risk of a sharp contraction for the crisis hit economy Most of the maturing debt around 146 billion is owed by the private sector especially banks The government needs to repay or roll over just 4 3 billion and public sector entities account for the rest JPM said in a note received on Wednesday The issue has shot into focus as the lira plunged 40 percent this year amid concern over political meddling in monetary policy and a rift with the United States over Turkey s detaining of an American pastor The currency s collapse has raised fears companies may face difficulties repaying hard currency debt and also weighed on shares of European banks exposed to Turkey JPM said that last year Turkey s stock of external debt as a percentage of gross domestic product was approaching the record highs seen just before its 2001 2002 financial crisis Financing needs over the next 12 months are large and access to markets has become problematic the note said Some 32 billion is due in the remainder of 2018 according to JPM calculations based on central bank data Large repayments will fall due in September October and December it said As international banks are likely to at least partially reduce their exposure to Turkey roll over of principal could be challenging for some entities the note said However it said companies did seem to have enough external assets to cover hard currency liabilities and around 47 billion of maturing debt consisted of trade credits which are relatively easy to roll over In all it reckons roughly 108 billion of debt maturing through July 2019 had high roll over risk In a sudden stop of capital flows roll over risks will mount and financing of the current account deficit will be difficult JPM added |
JPM | Turkey s Albayrak sees no big risk to economy but Moody s sounds alarm | By Ali Kucukgocmen and David Dolan ISTANBUL Reuters Turkey does not expect a big risk to its economy or financial system Finance Minister Berat Albayrak was quoted on Wednesday as saying in comments that illustrate a deep divide between Ankara and global investors over a worsening currency crisis Albayrak who is President Tayyip Erdogan s son in law spoke as ratings agency Moody s sounded more alarm about the outlook for Turkey s banking sector and as data showed economic confidence at its lowest in nearly a decade The lira has lost around 40 percent of its value this year driving up the cost of fuel and food and heightening concern about the risk to banks and the broader economy Initially sparked by worries about Erdogan s influence on the central bank the crisis has worsened over a rift with Washington We do not see a big risk about Turkey s economy or financial system Albayrak told reporters on his flight back from Paris earlier this week according to the newspaper Hurriyet He cited low levels of net public and household debt and the strength of the financial system as reasons for his confidence it said Investors are less sanguine Albayrak s comments could bolster a perception that there is denial within the Turkish government said Sebastien Barbe of Credit Agricole PA CAGR It is the same when Erdogan said the central bank should lower interest rates This is the same kind of spirit and fuels the idea among the investor community that there is a difficulty in terms of macro management for Turkey he said Moody s downgraded its ratings on 20 financial institutions on Tuesday citing the increased risk of a deterioration in funding The operating environment is now worse than previously expected it said It cut the ratings for some of Turkey s top banks including Isbank IS ISCTR the biggest listed lender by assets The lira weakened as far as 6 49 its weakest since Aug 15 It was at 6 43 to the dollar at 1523 Banking stocks XBANK fell 1 percent while Turkish dollar bonds fell and the cost of insuring its debt rose DEEP DOWNTURN The latest signs show that higher inflation coupled with a severe tightening of financial conditions is filtering through into an abrupt slowdown in economic growth said Jason Tuvey of Capital Economics in a note to clients There s no getting away from the fact that the Turkish economy is experiencing a deep downturn Around 179 billion of Turkey s external debt matures in the year to July 2019 equivalent to almost a quarter of its annual economic output JPMorgan NYSE JPM estimates Most of that around 146 billion is owed by the private sector especially banks it said For years Turkish companies have borrowed in dollars and euros drawn by the lower interest rates But the decline in the lira has driven up the cost of servicing those loans and raised the possibility of ballooning bad debt for banks Official data on Wednesday showed economic confidence fell this month to its lowest since 2009 In separate comments on Wednesday Albayrak said the government would take more responsibility in the fight against inflation and would support monetary policies with fiscal measures He said next year would be a strong year in the battle with inflation Such optimism has failed to excite investors who have been more preoccupied with Erdogan s sway over the central bank The president a self described enemy of interest rates wants to see borrowing costs lowered to keep credit flowing to the construction industry MENDING TIES Albayrak has signaled that Turkey wants to mend its ties with the European Union in the face of U S moves that he said threaten the global economy His trip to Paris this week where he met France s finance minister appeared to be part of that effort Albayrak said he would probably visit Britain next week and Germany the week after However Ankara has so far found little help from overseas partners apart from Qatar which has pledged 15 billion in support A German official on Tuesday denied a report that Berlin was considering providing a financial lifeline to help Turkey weather its crisis The Hurriyet daily also quoted Albayrak as saying that steps would be taken to prevent foreign currencies from being used for real estate and shopping mall store rents and sales Retailers in Turkey s malls which often pay their rent in dollars have also said their businesses were suffering due to the ailing lira
Separately the central bank said it would re impose limits on overnight transactions but at twice the limit that applied until Aug 13 when it said it would provide all the liquidity needed |
JPM | JPMorgan to liquidate Roumani led 1 billion hedge fund Bloomberg | Reuters JPMorgan Chase NYSE JPM Co s asset management arm is liquidating a 1 billion credit hedge fund led by Fahad Roumani after abandoning a plan to spin it off Bloomberg reported on Thursday citing a letter to investors The Palm Lane Credit Opportunities Fund which started with initial capital from JPMorgan Chase earlier this year reversed a decision to transfer the management contract to a separate company the report said citing the letter dated June 13 The JPMorgan fund employed about 23 people and has returned more than 50 percent since it opened with no down year the report said JPMorgan Chase was not immediately available for comment |
MS | Flight To Safety Falling Financials | In this week s video I cover the Head and Shoulders pattern that has triggered on the S P 500 SPY but not the Russel 2000 IWM yet There are slight differences in the neckline which will affect the expected price moves The main market mover this past week was the continued rally in the US dollar DX UUP Further fears are coming our of Europe mainly France and Greece which is forcing investors to flock to the safety of the dollar This is also very obvious by looking at the Gold ETF GLD chart and how it has dropped the past couple of weeks The other major news event was from Thursday about JP Morgan JPM and how they lost 2 Billion dollars over the last 6 weeks shining a negative light on financials again sending JPM down over 9 Friday as well as and Goldman Sachs GS and Morgan Stanley MS down about 3 4 The video covers how we re playing both the flight to safety and the fall in financials with two options swing trades Below You May Find The Video |
MS | Week in Review Part I Europe Washington and Wall Street | Crisis in Europe continued What a week beginning with the votes in France and Greece last Sunday and the continued unraveling in Spain We ll take the easy one first France Socialist Francois Hollande will be sworn in on May 15 as his nation s next president having defeated incumbent Nicolas Sarkozy 52 48 a little tighter than expected Clearly Sarkozy was hurt by the non endorsement of National Front leader Marine Le Pen and he was unable to pick up enough support from the right to counter Hollande s leftist coalition plus many in France were simply tired of Sarkozy s act Hollande will be meeting soon with German Chancellor Angela Merkel for what promises to be an interesting chat On May 15 Hollande not only is inaugurated but France s first quarter GDP figure is released and it s expected to be flat at best further pointing out the problems he faces with his socialist agenda Make no mistake though Despite some of his tax proposals which are already driving out France s wealthy and entrepreneurs he will prove to be not so radical when it comes to actual enactment And while he has little high level experience he understands that France still has to cut spending and rein in its debt But he ll also be attempting to promote growth and there s just no way France s debt doesn t continue to explode Nonetheless Hollande will insist the eurozone s fiskalpakt be renegotiated which was the central plank in his platform As for Merkel she has ruled out any renegotiation of the compact that would enforce budgetary discipline that all but two of 27 EU nations agreed to Growth through structural reforms is sensible important and necessary Growth on credit would just push us right back to the beginning of the crisis and that is why we should not and will not do it Turning to Spain I ve been writing for years that it continues to underestimate the severity of their banking crisis owing to the real estate crash that is still unfolding For example the government is now asking lenders to increase provisions for bad debt by 50 billion euro or enough to cover losses of 50 on loans to developers and construction firms but there are also more than 1 4 trillion euros of home loans and corporate debt according to Yalman Onaran of Bloomberg The Center for European Policy Studies out of Brussels estimates banks really need to increase bad loan provisions by as much as five times what the government is recommending Ergo as Dick Vitale would say again Its bailout city Baby This week the Spanish government essentially nationalized the nation s third largest bank Bankia taking a 45 controlling stake while supplying strictly necessary capital Bankia has 38 billion euro in real estate assets more than any other bank The other banks with capital restrictions such as the above now in play or needed further are hoarding all the cash they can get their hands on just to survive So to beat a dead horse of the past few years in this column how the heck do you grow when the banks are in no position or at least are too paralyzed to lend Well the European Commission which reiterated this week that Spain s economy will shrink 1 8 in 2012 is prepared to cut Spain some slack on its budget deficit targets but only if Madrid agrees to all sorts of demands including the hiring of outside auditors to verify bank stress tests This coming week Spain will be receiving mandated budgets from its 17 autonomous regions which have been set strict deficit reduction targets Of course it s the regions where all the massive corruption has taken place and where there is zero transparency when it comes to the books Which brings me to Greece More than 70 of Greeks want to stay in the euro according to the polls but then when they actually vote as they did last Sunday they give more than 60 to all manner of parties that want to bail on the austerity demanded in the very bailout that would ensure they remain in the union The centrist parties that have been running Greece for decades received 149 of 300 seats in parliament including a crazy 50 seat bonus awarded to the first place finisher but they still couldn t muster two more seats for a 151 seat majority The second place finisher the Radical Left Coalition Syriza led by Alexis Tsipras a former Communist who is just 37 also wasn t able to form a new government Tsipras said from the start that the 130 billion euro rescue plan had been rejected by the Greek people With their vote Greek people gave their mandate for a new day in our country without the cruel bailout measures They want solidarity and justice Syriza s economic coordinator told the London Times Our position is that we want to stay in the eurozone because we believe we can fulfill our targets much better when we are members of the eurozone It would be very destructive if we returned to the drachma However we are in favor of a radical break with the structure of the eurozone Syriza would like to see the European Central Bank pump money into the economy and to guarantee the issue of Eurobonds which is a major no go with the Germans Guido Westerwelle the German foreign minister warned Greece that unless the country implements new austerity measures of about 15 billion in June the flow of aid under the bailout will stop which would cause a collapse of public services and send the state spiraling into bankruptcy and depressing chaos Germany would like to keep Greece in the eurozone but Greece s fate is now in its own hands Klaus Peter Willsch the chairman of the German parliament s budget committee which has a veto over EU bailouts said We should offer Greece a controlled exit from the eurozone without withdrawing from the EU Philip Stephens Financial Times You can see why so many backed Mr Tsipras New Democracy and Pasok Ed the two centrist parties commanded the corrupt and clientelist system that has ruined the economy and disfigured Greek society For all the jibes in Berlin and beyond about Greeks retiring at 50 or refusing to pay taxes austerity has already taken a heavy toll Public spending has been slashed and wages and pensions have fallen by 25 Greece has lost a fifth of its economic output Featherbedding has been replaced by sackcloth Public rage however does not provide answers Greece can say no to Brussels and Berlin It can thumb its nose at the apparatchiks of the IMF If it so chooses it can unshackle itself from the euro What it cannot do is escape a reckoning Inside or outside the euro Greece cannot avoid the brutal adjustments needed to repair its public finances and restore international competitiveness Simply writing off its debts and reclaiming the drachma would trigger economic collapse Greek politicians may be betting that the country s creditors are bluffing that however much they insist otherwise the EU and IMF could not afford an uncontrolled default in Greece The latest cracks in the Spanish banking system have provided a timely reminder of the dangers of contagion to the eurozone periphery The single currency s firewall is still only half built Would Germany s Angela Merkel really take the risk of a Greek exit that could herald the break up of the eurozone Yet my sense from many conversations with dispassionate European officials and politicians is that Greece would delude itself were it to imagine that the new rhetoric of growth will allow it to put aside its commitments to fiscal rectitude and structural reform The rest of the EU has run out of patience Its dealings with policy makers in Athens are marked by a complete absence of trust and a deep pessimism about the capacity of the Greek state to reform itself All roads lead to austerity For Greece though there is more at stake than economics The tragedy of its membership of the EU has been its failure to defy geography and redefine itself as a modern European state Now it is hard to imagine how Greece can remain in the single currency But does it want to return to the Balkans Noted economist Kenneth Rogoff said this week A Greek exit would underscore that there s no realistic long term plan for Europe and it would lead to a chaotic endgame for the rest of the eurozone So we re headed for another election it would seem probably on June 17 and Alexis Tsipras Syriza party could do even better At the same time Greece is due to receive 39 4 billion in bailout funding before the end of June but only if it has committed to the mandated austerity cuts Economist Nouriel Roubini called the situation in Europe a slow motion train wreck He s wrong Europe is like two trains about to hit head on at 200 mph As for the neo Nazi Golden Dawn movement it picked up 438 910 votes in Sunday s election 7 despite Greece s traditional hatred for Nazi occupation during World War II Golden Dawn thus won 21 seats in parliament No doubt it is one of the most extreme of Europe s far Right groups These parties use violence to fulfill their political aims or at least they don t exclude the use of political violence in their actions said Vassiliki Georgiadou a professor of politics at Athens Panteion University They are not only against but also aggressive to immigrants they support racist ideas with cultural or with biological connotations too and they are irredentist denying the geographical borders of the postwar nation states London Times It seems a lot of Greeks really didn t know what Golden Dawn was all about until now Like one newly elected MP is facing trial for allegedly lending his car for an assault on a left wing university lecturer Now the guy will benefit from parliamentary immunity And just who is Golden Dawn s leader It s Nikolaos Michaloliakos who the night of the election told reporters Greece is only the beginning Michaloliakos 55 is a mathematician with a prison record Citing Julius Caesar he declared Veni Vidi Vici The Time for fear has come for those who betrayed this homeland We are coming He was flanked at the podium by musclebound supporters one picture of which was rather scary Golden Dawn with its swastika like Ancient Greek symbol believes in throwing out all illegal immigrants and putting landmines on the border to stop any from coming back in The party is also sometimes compared to Hamas and Hizbullah because of its social outreach It is taking over Athens slum areas for example and becoming the source for food And what did Mr Michaloliakos serve prison time for as a young man Possession of explosives Editorial Wall Street Journal As for the rise of the extremist fringes this should serve as a warning of what happens in countries where mainstream parties fail It s too soon to start making comparisons to the interwar years of the last century when Fascism Communism and Nazism all found their political footholds But that s the scenario Europe may someday risk again if its centrist parties continue to fail EU BitsNot for nothing but Ireland is still slated to hold a referendum on the EU fiscal compact May 31 Friday June 1 could thus be another hairy day in the global markets should the Irish vote it down and they are highly unpredictable on such matters Germany s exports rose 0 9 in March over February when a decline had been forecast Factory orders and industrial production also rose in the month Retail sales for the month of April in the U K were down 3 3 from a year earlier owing to the wettest April on record Portugal is taking austerity to a new level in scrapping four of 14 public holidays Angela Merkel s Christian Democrats scored only 31 in the northern state of Schleswig Holstein its lowest tally in the state in 50 years Sunday Merkel faces another test in Germany s most populous state North Rhine Westphalia British Prime Minister David Cameron said with regards to his austerity program There can be no going back on our carefully judged strategy for restoring the public finances I don t hide from the scale of that challenge But Cameron is under increasing scrutiny for his friendship with former News International chief executive Rebekah Brooks who on Friday detailed her close relationship with Cameron former Prime Minister Tony Blair and their families in testimony to the country s inquiry into media ethics Brooks acknowledged that she used her access to lobby the British government over News Corp s planned takeover of British Sky Broadcasting Rather messy for No 10 Downing Street And in Serbia the Serbian Progressive Party headed by Tomislav Nikolic a former ultranationalist ally of Slobodan Milosevic will go against pro Western President Boris Tadic in a presidential run off May 20 Nikolic outpolling Tadic in the first round of voting 25 to 22 In the run off however Tadic is expected to prevail At stake is whether Serbia will continue on a path to EU membership or fall back into Russia s orbit As for Washington and Wall Street there was little economic news on the week with a non inflationary report on producer prices the highlight down 0 2 for April and up 1 9 year over year up 2 7 ex food and energy the past 12 months as well as a solid consumer confidence number Oil hit its lowest levels since the first week in February and the price of gasoline is edging down though Iran could quickly be back on the table at a moment s notice see below But the news from the major retailers has been weak lately and on the tech front Cisco Systems issued a gloomy forecast guiding revenue lower vs analysts expectations as CEO John Chambers cited the ongoing uncertainty in Europe and a lack of leadership in Washington that is adding to Corporate America s cautious outlook as in customers are delaying purchases until the fog lifts As Chambers put it Clearly they re keeping their powder dry Meanwhile PIMCO s Bill Gross and Goldman Sachs economist Jan Hatzius are among those predicting the Federal Reserve will launch QE3 or more bond buying to spur what is definitely a slowing economy The Fed s meeting in June would seem to be the right time to make such an announcement unless global markets mandate action earlier like bank runs in Greece and Spain On the federal budget deficit front the Treasury Department said Thursday that the government in April recorded its first surplus in 43 months 59 1 billion which in itself isn t unusual with tax returns rolling in plus the Congressional Budget Office said the figure was inflated by timing shifts of certain payments so adjusted for those the surplus in April would have been more like 27 billion Bottom line the U S deficit for the first seven months of the fiscal year ending Sept 30 is 719 billion on track to exceed 1 trillion for the fourth straight year As for the going over the fiscal cliff talk I ll give it a rest for a week But it s coming Another debt ceiling debate is also coming sooner than later to a theatre near you Lastly we have the King of Wall Street JPMorgan Chase Co CEO Jamie Dimon who suffered a major black eye at the worst possible time with the revelation JPM had suffered at least 2 billion in trading losses stemming from bad bets in the bank s Chief Investment Office that manages risk for the company Dimon called the hedging mistake egregious self inflicted and said We will admit it we will fix it and move on The actual loss however could be far more or less after its wound down Dimon added JPM s strategy was flawed complex poorly reviewed poorly executed and poorly monitored The timing of the JPM announcement could not have been worse as Congress and the banks fight over new regulations designed to rein in such trading i e the Volcker rule to which Dimon said This doesn t violate the Volcker rule but it violates the Dimon principle It was the Wall Street Journal a month ago that first called into question the activities of a London based JPM trader dubbed the whale French born Bruno Michel Iksil who was roiling the debt market with oversized trades back then When queried in April Dimon said the whale s trading was a complete tempest in a teapot Only after he made this comment on an earnings call April 13 did he learn otherwise Whether or not this kind of trading falls under the purview of the Volcker rule Democratic Sen Carl Levin was ready to pounce calling JPM s announcement just the latest evidence that what banks call hedges are often risky bets that so called too big to fail banks have no business making But as the Wall Street Journal editorial board points out not only is there no precise definition of the Volcker rule no one knows when it takes effect whatever it is Back to Dimon asked if he thought that other banks engaged in such risky derivative trades he responded Just because we re stupid doesn t mean everybody else is The Financial Times editorialized If JPMorgan was a pure investment bank such as Goldman Sachs or Morgan Stanley this mess would be no business of Paul Volcker It is crazy that even these two banks have to get rid of desks that had nothing to do with the financial crisis But the Volcker rule is on firmer ground for the JPMorgans and Barclays of the world which mix being subsidized instruments of government savings policy on one side and risk taking investment banks on the other Cue the wailing The SEC opened a preliminary investigation into JPMorgan s accounting practices and public disclosures about the trades Fitch Ratings lowered its credit grade one notch and S P threatened to do the same |
MS | Facebook Flops Market Still Fearful Of Eurozone Events | So the Facebook IPO came and went on Friday and the stock closed 25 cents higher than what it opened at 42 00 Buying IPOs means you are taking ownership of a piece of a business which is being sold to you by the original founders early investors and investment banks whose job it is to sell the shares Some of the sellers of Facebook FB include Goldman Sachs GS Morgan Stanley MS early Paypal and eBay investor Peter Thiel and the earliest founders of Facebook In the market there is a buyer for each seller whenever a transaction occurs So a thinking person asks why am I buying this company at this price and what am I getting for my dollars Also who is selling the stock and what might they know about the business that I don t On the day there were over 570 millions shares of Facebook stock traded Usually it is very interesting to see where IPO s trade 3 6 9 and 12 months after it goes public Google GOOG had a very successful IPO one which I thought was vastly overpriced Of course Google acquired a bunch of businesses like Youtube which were very smart Not saying Mr Zuckerberg s creation won t be as successful just that time will tell on how things play out The stock market continues to sell off because of fears about Europe The sell off reminds me of 2008 in that it is a slow motion train wreck which builds during each day and passing week Ultimately there is a climactic event like Lehman crashing In this case it may be Greece or other countries leaving the European Union and then the bank runs which follow If you are an owner of stocks it is a time when your holdings lose market value However in looking back on 2008 it also is a time when you get presented with opportunities to buy companies at prices which you would have never thought possible Are we there yet Depends on how you see things and what companies you are looking at Saw an article in the NY Times about how selection of companies does not matter Maybe not but Warren Buffett might not agree with that premise and he has done pretty well Interesting viewpoint on Treasury bonds which I think are the worst investment anyone could ever make today Time will tell but right now seems like I have been wrong for three years Finally a very good article summarizing how serious the Greek situation is Disclaimer and Disclosure Y H C Investments Yale Bock and the family of Yale Bock own positions in securities mentioned in the blog post Investing in stocks can lead to the complete loss of your capital As always on any company mentioned here past performance is not a guarantee of future returns Investing involves risk of losses on invested capital One should research any investment and make sure it is suitable with your objectives risk tolerance risk profile liquidity considerations tax situation and anything else pertinent to your financial situation Also the CFA credential in no way implies investment returns will be superior for any charterholder |
MS | A Quick Look at Facebook Zynga and Morgan Stanley | As the Facebook Inc NASDAQ FB sell off continued yesterday pushing the social media stock as low as 33 per share Zynga stock had a better reaction than on Friday during the Facebook IPO In the meantime the major IPO s underwriter Morgan Stanley took a hit at their reputation as they were accused by many traders hedge fund managers and investors of the offering but the banking stock managed to absorb the tension and hold its price right at the weekly support level of 13 per share Things didn t go as planned for NASDAQ either since the IPO began with a 30 minute delay on Friday I guess it was more of a Ready Set ehm Wait Wait a bit longer Go than my post s title about the Facebook IPO the other day The Facebook chart in the article s beginning proves the enormous volume of shares traded in the first 5 minutes of Friday s IPO The underwriters expanded the number of shares by 25 just before the offering overloading the stock market with too many shares leading the demand for Facebook shares to be quickly dampened With no sufficient demand it was inevitable that the FB stock price would go south and allegedly Morgan Stanley stepped up and held the support level at 38 Monday opened with a gap down at 36 80 and Facebook stock lost 4 more in the first 20 minutes of trading Not the best of times for Facebook shareholders Thankfully for Morgan Stanley NYSE MS their shares didn t follow up Instead MS stock managed to trade at around 13 which is a crucial support level at the weekly stock chart In fact I would recommend buying Morgan Stanley stock at this moment since a stop loss at 12 and a profit target at 20 would increase the reward risk ratio of this trade to 7 1 Surely I would buy MS shares during negative news but the greatest rewards come when you go against the market Not something I usually do in stock trading by the way If you have kept up with the latest stock news about the Facebook IPO you must have read a couple of mentions about Zynga stock Zynga IPO took place several months ago and given their product is greatly attached to Facebook it s no surprise either that Zynga gets mentioned at these times or that ZNGA shares plunged on Friday from 8 50 all the way down to 6 50 On the contrary buyers appeared yesterday and Zynga stock closed at 7 09 in one of the biggest volume days this year 39M At the moment I wouldn t invest in either tech stock if you ask me |
MS | Stocks End Wild Session Little Changed Late Rally Erase | After Hours Closing Update Stocks End Wild Session Little Changed Late Rally Erases 200 Point Loss for Dow4 11 PM May 23 2012 U S stocks pared their losses late in Wednesday s trade closing little changed after earlier trading sharply lower Equities began their rebound after Greek officials denied prior reports the debt laden country was actively preparing for an exit from the euro zone A report showing that demand for new U S homes increased more than forecast in April also lift stocks Energy and material stocks were sharply lower as commodity prices sunk as the U S dollar surged today A weak outlook and earnings miss by Dell also weighed on the tech sector A Reuters report this morning that Euro zone officials have told members of the currency area to prepare contingency plans in case Greece quits the bloc sent stocks slumping early only to turn around when the Greek finance minister labelled those reports as false The Ministry of Finance categorically denies the reports stating that during the teleconference of the Euro Working Group on May 21st 2012 it was agreed that each euro zone country should prepare contingency plans for the potential consequences of a departure of Greece from the single currency area the ministry said in an emailed statement Such reports not only are false but actually hinder the efforts of Greece to address its challenges at this critical juncture the ministry said Earlier French President Francois Hollande and Spanish Prime Minister Mariano Rajoy met in Paris ahead of the Brussels summit of European leaders The new French president supports creation of eurobonds in a bid to bring down borrowing costs for the region s most debt strapped economies Rajoy told reporters that the high premium demanded by investors to hold Spanish bonds makes it difficult to implement needed economic reforms But German Chancellor Angela Merkel has not soften her opposition An upbeat report on U S home sales did initially little to slow today s selloff The Commerce Department said new single family home sales increased 3 3 to a seasonally adjusted 343 000 unit annual rate after a 332 000 unit pace in March Compared to April last year new home sales rose 9 9 Signs of life in the housing market were also bolstered by a 4 9 rise in the median price of a new home last month to 235 700 Coupled with a bullish report yesterday on existing home sales today s report was largely seen as another sign the housing market recovery is gaining traction In company news Dell DELL plumbed new 52 week lows after its after hours earnings report last night The computer vendor posted Q1 EPS of 0 43 below the mean analyst estimate of 0 46 per share on Thomson Reuters Revenue was 14 4 billion or 500 million below the analyst consensus of 14 9 billion Rival Hewlett Packard HPQ shares fell more than 5 today Also today at least two shareholder lawsuits announced on Wednesday against Facebook FB its officers and directors and the main underwriters on the IPO which included Morgan Stanley MS Goldman Sachs GS and J P Morgan JPM One suit filed in federal district court in New York accused Facebook and its underwriters of false and misleading representations and omissions during the run up to the IPO last week Facebook spokesman Andrew Noyes said we believe the lawsuit is without merit and will defend ourselves vigorously FB shares are up nearly 2 today Commodities are lower as the U S dollar strengthened July crude oil closed 2 05 lower at 89 80 a barrel while June natural gas rose 4 cents to 2 74 per 1 million BTU June gold fell 28 40 to finish at 1548 20 an ounce while July silver fell 66 cents to 27 49 an ounce July copper fell 8 cents to 3 41 Here s where the markets stood at end of day Dow Jones Industrial Average down 6 66 0 05 to 12 496 15S P 500 up 2 23 0 17 to 1 318 86NASDAQ Composite up 11 04 0 39 to 2 850 12GLOBAL SENTIMENTHang Seng Index 1 33 Shanghai China Composite Index down 0 42 FTSE 100 down 2 53 UPSIDE MOVERS RCON Signs major contract with China National Petroleum Corp STAG Prices share offering DOWNSIDE MOVERS BLK Prices secondary offering at a discount STX Offers 186 million for LaCie SA |
MS | Zuckerberg Swings And Misses Could He Still Hit Home Run | By now there is no question that the Facebook FB IPO was totally screwed up Not only was just about every aspect of the deal FUBARed but the overall size of the deal 18 billion magnified the mess Yes Nasdaq and Morgan Stanley both did a horrible job But ultimately the blame for the disaster is solely on Facebook s 27 year old CEO Mark Zuckerberg All final decisions regarding each aspect of the IPO had to be made by Zuckerberg That is what CEOs do I should know Over the last 40 years in my career I personally have met or talked with over a hundred public company CEOs What I have learned from that experience is that every company is only as good as the CEO So going forward ultimately Facebook will only be as good as is Mark Zuckerberg Before the IPO was priced I was planning to buy a small amount after the offering and expected to hold it over time I thought then and still do that Facebook has the potential of becoming a huge financial success The key word being potential Even though I gave Mark Zuckerberg strike one for how he handled the IPO I did buy a few FB shares Monday and Tuesday If there is a strike two I will sell my shares On the other hand if Zuckerberg becomes a hitting machine I will buy more There is no question that Marc Zuckerberg did a brilliant unique job in bringing Facebook to life Facebook has almost a billion members and supposedly five percent are online each and every day That is a huge already existing franchise Wall Street is pricing the value of that franchise at 80 90 billion That is where we are right now Is Facebook the most glamorous or most exciting new web idea today Of course not But there is that huge and still growing franchise Remember Facebook is the largest congregation of humans in any one arena ever The most important question to me in determining if Facebook will be a strikeout or a home run Was the IPO the end of the game for Zuckerberg or was it the beginning Was the real end game cashing out billions by 27 and then getting married Or is the real end game for Zuckerberg creating the most valuable company ever in terms of market cap Time will tell how Zuckerberg answers Below You May Find The Video |
C | Rich Asians crazy about securing wealth spark family office boom in HK Singapore | This November 4th story corrects job title in paragraph 15 By Sumeet Chatterjee HONG KONG Reuters Rich Chinese and other Asians are increasingly seeking more control of their wealth driving a rapid rise in the number of so called family offices or private investment vehicles being set up in Hong Kong and Singapore As the wealthy target greater investment diversification and as business owners hand over the reins to successors family offices are sprouting in the Asian financial hubs taking advantage of incentives such as tax breaks and residency being offered The family office is a relatively new concept in Asia with less than 500 such entities compared to thousands in the West There is no precise number available given the private ownership structure and secrecy around these businesses They offer a one stop solution to managing the wealth of the rich including investments charitable giving taxation and wealth transfer Staffed by bankers fund managers lawyers and tax practitioners some even provide overseas private schooling and travel arrangements as add on services The rich are favoring family offices as they get personalized attention and are able to have a bigger say in their wealth management This year the activity for setting up family offices is definitely more said Lee Wong Swiss private bank Lombard Odier Asia s head of family services The growth of family offices in Asia should continue on its current trajectory Asia Pacific had 814 billionaires at end 2017 accounting for 38 percent of the global billionaire population with China minting two new billionaires every week a report by UBS and PwC said last month That momentum was aided by the boom in Hong Kong for initial public offerings which saw a record 27 7 billion raised in the first nine months of 2017 mostly by Chinese tech firms turning many founders into millionaires and billionaires Six private bankers on average estimated the number of new family offices in Asia had risen 15 percent in the first three quarters of this year over the year ago period This could pick up pace with a worldwide wealth transition of 3 4 trillion expected over the next two decades as per the UBS PwC report BULKING UP Asian family offices are evolving from being just investment focused to offering a platform for dispute resolution and succession planning as the new generation in the family owned businesses expand into newer areas bankers said Buoyed by the growth prospects private bank units of global firms including Citigroup NYSE C Credit Suisse SIX CSGN HSBC and UBS are looking to expand family office services headhunters and bankers said Stephen Campbell chairman of the global family office group at Citi Private Bank which serves over 1 500 family offices globally said the bank had seen dramatic growth in the number of its clients including in Asia Citi plans to make a new Hong Kong based hire in its Asia Pacific family offices team he said Credit Suisse s Asia Pacific head of wealth planning Bernard Fung said due to the surging demand from North Asia for family offices the bank would set up a team for this service in Hong Kong by the first quarter of 2019 adding to its Singapore hub Offshore Chinese wealth will continue to grow so family offices business is going to be a multi year trend said Ivan Wong co head for North Asia at HSBC Private Banking HSBC Asia private bank will add 700 people by 2022 and some of those new hires will focus on family office clients he said UBS declined to comment Some of the regional financial firms are also looking to grab a bigger share of the business Bank of Singapore plans to hire six more bankers for a team set up in May to provide support to independent asset managers including family offices in Hong Kong said Derrick Tan its global market head of Greater China and North Asia INCENTIVES The increased activity is also being helped by tax exemptions and other incentives offered by Hong Kong and Singapore The number of family offices in Singapore quadrupled between 2015 and 2017 the Monetary Authority of Singapore said in response to a Reuters query adding those funds can avail of fund tax exemption schemes if they satisfy the conditions The city state was depicted as a playground for the super rich in the Hollywood hit film Crazy Rich Asians Singapore Economic Development Board s assistant managing director Kelvin Wong said European families were also keen to access growth opportunities in Asia by establishing satellite family offices in the region Hong Kong plans to introduce a new structure that will offer more flexibility and choices in setting up funds including those managed by family offices said a spokesman for the Financial Services and the Treasury Bureau
The regulators have been very welcoming to family offices setting up here because that creates spinoffs for the economy as well said Dawn Quek a tax principal at Baker McKenzie Wong Leow in Singapore |
C | Citigroup appoints Philip Drury head of EMEA investment banking memo | Reuters Citigroup Inc N C named Philip Drury to run its London based banking capital markets and advisory business across Europe the Middle East and Africa according to a memo seen by Reuters Citi in September overhauled its investment bank structure to combine its capital markets and corporate and investment banking divisions into a new banking capital markets and advisory BCMA division Drury 45 will take on many of the regional responsibilities of Manolo Falco who was named global head of the new division in September along with Tyler Dickson the memo said Drury who previously worked with Citi s European equity capital markets business will start in his new role immediately pending final regulatory approval
Luigi de Vecchi has also been named the Paris based EMEA chairman of the unit Both Drury and Vecchi will report to the global co heads Falco and Dickson the memo added |
C | ADIA Citi analysts see ample oil supply to withstand Iran sanctions | ABU DHABI Reuters U S sanctions on Iran are unlikely to impact the oil market due to a glut in supplies globally but Iran s production capacity could be hit due to a possible squeeze in investments the head of research at Abu Dhabi Investment Authority ADIA said
Big producers such as Saudi Arabia Russia the United States and others have enough capacity to ensure global supply analysts at ADIA and Citigroup NYSE C said
You can t exclude spikes but basically there s too much oil in the world and that will prevail in the long term Christof Ruhl head of global research at ADIA said on the sidelines of a financial conference in Abu Dhabi
The system has already shown that there s ample surplus capacity in the world to more than meet the amount of oil taken out of Iran for the time being said Ed Morse managing director global head of commodities research at Citi
There is significant production coming out of the United States Canada Brazil and Middle Eastern countries he said
Citi s outlook for prices is strong prices of 80 a barrel through the winter and then with coming production Brent will end 2019 at 64 65
The United States on Monday restored sanctions targeting Iran s oil banking and transport sectors and threatened more action to stop what Washington called its outlaw policies steps Tehran called economic warfare and vowed to defy
Washington however gave 180 day exemptions to eight importers China India South Korea Japan Italy Greece Taiwan and Turkey
This group takes as much as three quarters of Iran s seaborne oil exports trade data shows meaning Iran will still be allowed to export some oil for now
Iran s crude exports could fall to little more than 1 million barrels per day bpd in November roughly a third of their mid 2018 peak But traders and analysts say that figure could rise from December as importers use their waivers
When production declines it damages fields and capacity and that is more important in the medium to long term said Ruhl
It is not going to help the sector it means pulling out investments it means financial isolation declining exports and revenues and potentially declining production he said adding that it depends on how stringently the sanctions are executed
Iran s ability to store crude oil is crucial to keep production up rather than its ability to sell in the short term said Ruhl |
C | Oil s Slump Spurs Talk of Another OPEC U Turn | Bloomberg OPEC is enduring one of the most head spinning years in its history swerving from cutting oil production to boosting it as quickly as possible It may need to reverse course again
Saudi Arabia and other producers gathering in Abu Dhabi this weekend face a worrying prospect Even though U S sanctions on Iran are removing significant amounts of crude from world markets a fresh surge of American shale oil threatens to unleash a new surplus in 2019
Crude prices already reflect these concerns Brent for January delivery has retreated about 17 percent from a four year high reached in early October The Organization of Petroleum Exporting Countries and its allies are showing they re worried signaling last month that they might need to dial back near record output levels
The message from OPEC looks like fasten the seat belts said Bob McNally president of Rapidan Energy Advisors LLC a consultant in Washington The cartel looks sets to put pedal to the metal to boost production and then immediately slam the breaks pretty hard and talk about cutting supply
If group leader Saudi Arabia does ultimately decide fresh cutbacks are necessary it will confront a number of challenges It will need to once again secure the support of rival turned partner Russia which has less need for high oil prices There s also the risk of antagonizing the kingdom s key geopolitical ally U S President Donald Trump
Powerful Forces
All this is a far cry from the usual OPEC mantra of preserving stability and careful market stewardship Yet it does reflect the level of uncertainty in a market experiencing huge shifts in supply and demand
Earlier in the summer Brent surged above 86 a barrel as the risk of production shortfalls from sanctions on Iran and Venezuela s economic collapse rattled the market Losses from those two OPEC members threatened the biggest supply disruption since the start of the decade
Yet big things are happening on the other side of the supply equation too meaning the risk of scarcity may not last OPEC has been in produce as much as you can mode to reassure consumers Saudi Energy Minister Khalid Al Falih said in Riyadh last month The kingdom has lifted output close to record levels while Libya is pumping the most in five years
Then there s the small matter of U S production growing at the fastest rate in a century just as fuel demand is at risk from the slowdown in emerging economies and the U S China trade war
Well Supplied
Right now global markets are now well supplied in the assessment of the International Energy Agency which advises consuming nations OPEC s own projections show that next year the world will need about 1 million barrels a day less than the 31 8 million its 15 members pumped in September
They will absolutely want to at some point next year try to arrange a reduction in production said Ed Morse head of commodities at Citigroup Inc NYSE C Everything points to a fairly weak balance the world economy is decelerating the China trade tensions are having a visible impact on demand
The meeting this weekend of the Joint Ministerial Monitoring Committee a six nation body representing the broader 25 country coalition is intended as just an interim review before all ministers discuss policy next month in Vienna Still it could give a significant indication of what s to come
When OPEC looks at the challenge with the shale story in 2019 what does it need to do does it have to start signaling now said Helima Croft chief commodities strategist at RBC Capital Markets LLC At this JMMC do we get any clues that OPEC needs to get back into active market management
Big Decision
There s a lot to consider before the December meeting U S sanctions could end up squeezing Iranian output so much that other producers won t need to cut Although Washington granted some of Iran s customers temporary waivers that let them keep buying the Trump administration has said repeatedly it intends to entirely choke off the country s energy revenues
Shale has plenty of potential to surprise The U S is already poised to satisfy most of the increase in global oil demand next year the IEA forecasts In August a surprise surge in output meant the country briefly overtook Russia as the world s biggest crude producer with output of 11 3 million barrels a day The Energy Information Administration just increased its 2019 production forecast by 300 000 barrels a day to 12 06 million
Then there are political considerations The Saudis may struggle to persuade the rest of OPEC to return to cutting production Some members like Iraq are pressing on with new projects Others may have grown weary of having their production policy steered by the kingdom
Russia the most important non OPEC partner in the coalition has ramped up output to a post Soviet record and President Vladimir Putin has said he s comfortable with prices in a 65 to 75 a range giving some downside from the current level of 71 in London
If another cuts agreement can be secured it could prompt renewed attacks from President Trump or encourage U S lawmakers to advance anti cartel legislation known as NOPEC
There s a lot at stake for them if they antagonize the wrong sets of people in consuming countries said Citigroup s Morse
Here s a rundown of how these competing forces could shape the decision next month |
C | SEC fines Citibank more than 38 million for mishandling ADRs | By Katanga Johnson WASHINGTON Reuters Citibank N C will pay more than 38 million to the U S Securities and Exchange Commission SEC for abuse in handling American Depositary Receipts ADRS the regulator said in a statement on Wednesday The SEC found that Citibank falsely provided U S securities that represent foreign shares or ADRs to brokers in thousands of premature transactions Those brokers and customers did not have the actual number of foreign shares to support those ADRs the SEC statement said The bank did not admit or deny the SEC s findings on its practices but agreed to pay the fine and additional fees related to the abuses
We are pleased to have this matter resolved a Citigroup spokeswoman said |
JPM | Final Data Points Pre Q2 Earnings Deluge | Thursday July 13th 2017Today represents the final day of non earnings data before the deluge of Q2 earnings reports begins with Wall Street bank majors like JPMorgan NYSE JPM and Citigroup NYSE C We look forward to a second and final day of testimony on Capitol Hill from Fed Chair Janet Yellen today which follows new reports from the Producer Price Index PPI and Initial Jobless Claims Let s start with claims 247K in the past week is 3000 fewer claims than the upwardly revised previous week which moved up from 248K to 250K since its first read Call it a melt of 1000 jobless claims in other words a drop in the bucket We ve been at or near the top of that 225 250K range for the past few weeks now It s still representative of a strong U S labor market especially in light of layoffs in the auto industry which either got absorbed by job additions elsewhere or have yet to show up in the data June PPI rose a placid 0 1 which is the headline number as well as ex food energy Trade month over month was up 0 2 and final demand year over year was 1 9 In the larger scope these figures mark a slight cooling off from previous trajectories though it s hard to make much of numbers this slight overall The markets clearly favored Janet Yellen s perceived return to a dovish position on raising interest rates even though she definitely inferred several times yesterday that the Fed s course of tightening remains intact overall What market bulls read was that there would be no rate hike in September and maybe not one in December and this set the mood for a new round of stock buying In fact Yellen said monetary policy is not a pre set course common rhetoric from a Fed Chair of course but still something worth considering here should we see inflation and employment metrics heating up above current trends another quarter point bump in September two BLS payroll reports and several inflation reads from now by the way might not be verboten So the market felt a rally was in order following no further turning of the interest rate screws at least currently Cue Q2 earnings reports It will be these which determine whether markets can rally to even higher highs in the days and weeks to come Mark VickerySenior Editor |
JPM | Q2 Earnings Reports In Focus | Today represents the final day of non earnings data before the deluge of Q2 earnings reports begins with Wall Street bank majors like JPMorgan NYSE JPM and Citigroup NYSE C We look forward to a second and final day of testimony on Capitol Hill from Fed Chair Janet Yellen today which follows new reports from the Producer Price Index PPI and Initial Jobless Claims Let s start with claims 247K in the past week is 3000 fewer claims than the upwardly revised previous week which moved up from 248K to 250K since its first read Call it a melt of 1000 jobless claims in other words a drop in the bucket We ve been at or near the top of that 225 250K range for the past few weeks now It s still representative of a strong U S labor market especially in light of layoffs in the auto industry which either got absorbed by job additions elsewhere or have yet to show up in the data June PPI rose a placid 0 1 which is the headline number as well as ex food energy Trade month over month was up 0 2 and final demand year over year was 1 9 In the larger scope these figures mark a slight cooling off from previous trajectories though it s hard to make much of numbers this slight overall The markets clearly favored Janet Yellen s perceived return to a dovish position on raising interest rates even though she definitely inferred several times yesterday that the Fed s course of tightening remains intact overall What market bulls read was that there would be no rate hike in September and maybe not one in December and this set the mood for a new round of stock buying In fact Yellen said monetary policy is not a pre set course common rhetoric from a Fed Chair of course but still something worth considering here should we see inflation and employment metrics heating up above current trends another quarter point bump in September two BLS payroll reports and several inflation reads from now by the way might not be verboten So the market felt a rally was in order following no further turning of the interest rate screws at least currently Cue Q2 earnings reports It will be these which determine whether markets can rally to even higher highs in the days and weeks to come |
JPM | Opening Bell Equities Hit Record High After Yellen USD Falls | by Pinchas Cohen
Key Events
Yellen confident about US economy but not rushing tightening cycle
Dow Jones Industrial Average climbs to record
KOSPI hits record Hang Seng reaches 2 year high
Yellen s slower pace turns back the tech to financials rotation proving bonds right
Dollar falls on weakened rate outlook gold climbs
Loonie gains most against dollar on first BoC rate hike in 7 years
Oil climbs back over 45 key level on surprise drop in US stockpiles
Global Affairs
Asian equities advanced with US futures and government bonds resuming yesterday s US rally after Fed Chair Janet Yellen tempered the Fed s tightening outlook Naturally the dollar weakened on a slower interest rate hike path The greenback reached its last support before a 10 month low The biggest beneficiary was the loonie after the BoC hiked interest rates for the first time in 7 years
The Dow Jones Industrial Average opened on a 0 28 percent rising gap yesterday registering a fresh all time high at 21580 79 and beat its pre Independence Day all time high by 18 04 points or 0 08 percent It also recorded a new record close of 21532 14 beating its earlier record set on June 19 by 3 15 points or 0 01 percent
Asian markets followed the US lead Sourth Korea s KOSPI made an even more impressive record than the Dow s The index opened with a gap of 0 58 percent higher than yesterday s close and 0 47 percent higher than yesterday s high extending its gains to a total of 1 07 percent The Bank of Korea provided investors with three reasons for optimism 1 as expected it kept its record low 1 25 interest rate but went further by saying that the BOK doesn t have to respond to other central banks thus delaying a hike 2 it raised its growth forecast to 2 8 percent and 3 the country s growth is likely to be higher after President Moon Jae in s 9 8 billion fiscal stimulus package focused on job creation is implemented However the bill has made little progress in parliament
Hong Kong s Hang Seng opened with a second consecutive gap after rising on mainland blue chips opening 1 25 percent and closing 0 85 percent above yesterday s high However unlike the KOSPI it hadn t extended gains after the gap but pared 0 2 percent of its rising divide Still the index reached its 2 year high since June 29 2015 up 6 65 percent from its April 20 2015 record close and 8 65 percent above its April 27 2015 record high Chinese exports beat forecasts making the case for resilient global demand
Yellen s Congressional testimony provided equity traders with two gifts First a slower pace of rate increases allows for cheaper liquidity which will continue propping up high valuations Second it kept focus away from the latest installment of the Trump Russia saga while inserting yet another nail into the coffin of Trump s proposed tax reforms and spending
The biggest question on investors minds should be how would slower tightening affect the leadership rotation out of tech and into financials This switch was apt to occur before any economic kickstart could take place Indeed on June 9 Goldman Sachs warned that big tech stocks were overvalued spurring a 2 43 percent selloff with an intraday low of 3 85 percent in the sector
On June 14 the Fed raised rates a move whose biggest beneficiary were financials On June 26 the second tech selloff started which advanced after all the big banks passed the Fed stress test with flying colors the first time all were declared healthy since the Great Recession helping secure Fed approvals for generous buybacks
Yesterday s hike path slowdown may have turned the wheel back on the leadership rotation The NASDAQ 100 Technology Index gapped up 0 89 percent and kept going up to a total gain of 1 41 percent crossing above the downtrend line from the June 29 and June 26 selloffs opening the door to an upward reversal The S P 500 Financials Index on the other hand declined 0 66 percent raising the possibility of a double top reversal
It turns out that as things stand bond traders were right to doubt Fedflation all along
Australian sovereign debt followed gains in Treasuries on Yellen s more tepid tightening outlook making current yields proportionately more attractive
The dollar weakened on the slower rise of the interest rates outlook today reaching 5 pips above its June 30 low the last support before the USD s lowest point since September 30 2016
The biggest winner was the loonie extending yesterday s 1 27 percent gain to 1 43 percent today The surge occurred after the Bank of Canada raised the interest rate for the first time in 7 years to 0 75 percent and suggested it will begin shrinking its balance sheet saying Canada no longer need strong stimulus
The last Canadian rate change was down to 0 5 percent to support the country s economy after the collapse of oil prices Therefore this rate hike is a clear signal that its economy has recovered On Monday we forecast the likely loonie correction downward will be followed by a rally Even after the rate hike there is still a long opportunity for trading strategies
Oil jumped yesterday to a high of 46 68 after a bigger than expected drop in US crude stockpiles falling 7 6 million barrels in the last week more than double the 2 9 million barrel estimate However oil couldn t hold on to those gains and settled near its low of the day at 45 40 but still above the 45 key level
Today crude is flat but still above the key 45 20 level
Goldman Sachs head of commodities research Jeff Currie said yesterday on CNBC the problem isn t too much oil but too much money After the 2014 crash US producers learned to be more efficient and cost effective On top of that Wall Street financiers helped them become even more capable enabling them to be profitable at ever lower prices It seems to us that Currie s statement is saying that there is an excess of oil because too much money is invested and focused on keeping production high
Up Ahead
US PPI for the month of June released at 8 30 EDT is expected to decline from 2 4 to 1 9 YoY and from 0 0 to a negative 0 1 MoM
Yellen s second day Congressional testimony at 10 00 EDT What more can she say The Q A session may give dollar bulls something to chew on
Core US CPI for the month of June released at 8 30 EDT is expected to remain steady at 1 7 YoY and rise from 0 1 to 0 2 MoM Compare this to China whose CPI was unable to follow its PPI which may have helped a selloff in Chinese equities on Monday Here was our report
Brainard s speech will follow Yellen s testimony at 10 00 Brainard stated on Tuesday she was wary of hiking rates ahead of Yellen s testimony yesterday
JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC are all scheduled to release earnings on Friday Yesterday we discussed trading strategies for Citigroup
The UK publishes its Brexit repeal bill which Labor threatens to block
Market Moves
Stocks
The Dow Jones Industrial Average rose 123 points to a record 21 532
The Euro Stoxx 50 rose 0 1 percent as of 8 16 a m in London building on Wednesday s 1 5 percent gain
The FTSE 100 was down 0 1 percent after rising 1 2 percent the previous day its most since April 24
S P 500 futures were up 0 2 The underlying index advanced Wednesday to just 0 4 percent shy of its closing record
The MSCI ACWI Index which includes emerging and developed world markets rose 0 2 percent to a record high
Hong Kong s Hang Seng climbed 1 1 percent its highest since July 2015 A gauge of Chinese companies listed in Hong Kong jumped 1 5 percent while China s Shanghai Composite gained 0 6 percent
Japan s TOPIX was steady after fluctuating
Australia s S P ASX 200 Index strengthened 1 1 percent
The KOSPI in Seoul rose 0 7 percent South Korea s central bank held its benchmark rate as expected
Currencies
The Canadian dollar rose 0 1 percent after jumping 1 3 percent Wednesday
The yen was up less than 0 1 percent at 113 12 per dollar after climbing 0 7 percent Wednesday in its biggest gain for more than a month
The South Korean won rose 0 8 percent its most since May 25 to 1 136 35 per dollar
The US dollar was down against all G 10 peers
The Dollar Spot Index is flat at 95 75 It fell 0 30 percent to its June 30 low of 95 47 and the last support before its lowest since September 2016
The pound and euro both climbed 0 4 percent
The Brazilian real jumped 1 4 percent Wednesday after former President Luiz Inacio Lula da Silva was convicted of graft and money laundering
Commodities
Wheat for September on the Chicago Board of Trade dropped 1 5 percent to 5 29 a bushel down a second day The U S Department of Agriculture said domestic production will be greater than analysts expected
West Texas Intermediate crude was down 0 5 percent at 45 29 a barrel It climbed 1 percent the previous session after data showed crude inventories fell 7 56 million barrels last week
Gold added 0 2 percent to 1 222 99 an ounce a fourth day of gains
Rates
The 10 year U S Treasury yield was down less than one basis point at 2 32 percent
The yield on Australian government notes with a similar maturity dropped three basis points to 2 69 percent |
JPM | The 4 Things You Need To Know About Markets Today | US Stocks Reach All Time High
Stocks rallied on Wednesday and the Dow Jones hit an all time high after Federal Reserve chair Janet Yellen said the US economy was strong enough to withstand a gradual increase in interest rates over the next few years The Dow rose 0 6 to 21 532
The Bank of Canada raised interest rates for the first in seven years
There could be one more rate hike on the way this year according to overnight index swaps there is an 80 chance of an increase in rates by December
Investors Are Taking More Risk
Traders are remaining calmer than normal According to the Vix a measurement of volatility in the S P 500 anxieties are at historical lows The lack of fear has caused equities to soar to new heights this year as investors ignore geopolitical risks in favour of the sentiment that an increase in corporate earnings will boost stock prices higher
Earnings Season Has Kicked Off
Citigroup NYSE C JPMorgan Chase NYSE JPM and Wells Fargo NYSE WFC Co announce second quarter results before market open Friday July 14 Over the last few months financial stocks have rallied since Donald Trump announced that the Dodd Frank Act would be rolled back |
MS | Stress test relief tops bank wish list ahead of Trump s rule review | By Pete Schroeder and David Henry Reuters As Wall Street awaits President Donald Trump s vision for financial regulation big U S banks are pushing for a lucrative change his appointees can execute without a legislative fight easing annual stress tests First conducted by the Federal Reserve in 2009 to increase confidence in the system bankers say the tests have morphed into a mysterious laborious and time consuming process from what was once a straightforward exam of financial strength The outcome determines how much capital banks must hold and how they can use what is left But getting a passing grade can be tough JPMorgan Chase Co N JPM the biggest U S bank calls on hundreds of employees to work on stress test submissions each year Morgan Stanley N MS the sixth largest submits a file of over 25 000 pages Reducing the tests complexity and frequency could not only save man hours but help the U S economy by stimulating more lending bankers and lobbyists said in recent interviews While we believe that stress testing is the best way to gauge capital adequacy we also believe that a fresh look at how stress testing is conducted could produce significant benefits for economic growth said Greg Baer president of industry trade group The Clearing House Association Bankers have been making their case in meetings with legislators in reports sent to Treasury Secretary Steven Mnuchin who is stewarding the financial overhaul by the Republican administration and in public comments to investors and securities analysts Easing up on stress tests could significantly boost returns For example Nomura Instinet analyst Steven Chubak estimates JPMorgan could increase annual profits by about 2 5 billion or 10 percent under a more relaxed framework There are more than a few skeptics pushing back on the industry s pleas Hawkish regulators and former regulators oppose the idea of lightening stress tests too much As proposals for regulatory change swirl about it is crucial that the strong capital regime be maintained especially as it applies to the most systemically important banks former Fed Governor Daniel Tarullo who led regulatory matters said in April Neither regulators nor legislators should agree to changes that would effectively weaken that regime Consumer advocates anti Wall Street groups and influential lawmakers such as Senator Elizabeth Warren a Democrat have also fought any loosening of bank regulations arguing the industry would embrace reckless practices again While bond investors and ratings agencies are happy to see robust capital levels stock investors are clamoring for banks to boost share buybacks and dividends Wall Street analysts have been asking what banks would do with unleashed capital and the picture is mixed JPMorgan has said it would like to extend more credit to small businesses and home buyers if the government eases up on lending restrictions Citigroup Inc N C in contrast has emphasized buying back stock because its shares are trading for less than the company is worth The industry s stress test offensive is happening as Washington re examines financial reforms in what will likely be a lengthy and heated debate The Treasury Department is expected to release its first in a series of reports on overhauling regulations early next week while House Republicans are scheduled to vote on their own financial regulatory reform bill Despite assurances by Trump that rules will be rewritten there appears to be insufficient support in Congress At least eight Senate Democrats would be needed to pass any broad law rewrite which is unlikely However the Fed has broad discretion to make changes to the stress tests POOR EXECUTION When it comes to the stress tests bankers argue that the goal is noble but the execution is poor For instance the Fed scores loan portfolios for losses under hypothetical economic catastrophes but does not explain its methodology which changes year to year Even if banks pass numerically they can fail for qualitative problems like risk management And in their own calculations lenders cannot consider steps they would take to conserve capital something bankers describe as irrational The world will end three times over but you need to factor in the fact that you probably paid dividends in that time and you wouldn t shrink your balance sheet and you would continue to pursue mergers and acquisitions one executive said Bankers say they sweat through every year s process worried they will miss unseen hurdles The uncertainty causes them to lend less than they otherwise would they argue The Fed has resisted any wholesale reimagining of stress tests and major revisions are unlikely until new Fed governors are confirmed Three board seats including the supervisory post are open But there are signs the Fed could become more accommodative For instance banks will receive more guidance on qualitative matters when stress test results are announced on June 22 Fed Governor Jerome Powell said on Thursday
Bankers are hoping bigger changes will happen before the Fed issues instructions for the 2018 stress tests early next year |
MS | Morgan Stanley slashes sterling forecast no longer sees 1 45 next year | LONDON Reuters Morgan Stanley NYSE MS has slashed its long term sterling forecast ditching its out of consensus call made in March that the UK currency would reach 1 45 by the end of next year The pound s rise to around 1 30 after Prime Minister Theresa May in April called a general election has reduced its undervaluation and the scale of market bets on further weakness currency analysts at the U S investment bank said in their mid year outlook The bull case for sterling has become less convincing with the economy now showing signs of weakness For sterling to do better we need to see Brexit negotiations turning constructive allowing markets to assume the British economy avoiding a cliff edge Brexit they said in the report published late on Sunday They now expect the pound s peak next year to be 1 26 in the first quarter slipping to 1 23 by the end of the year In March when sterling was in the low 1 20s they predicted that sterling would rise as high as 1 45 by the end of 2018 They also turned much more bullish on the euro ditching their call for a break below parity with the dollar later this year and now predicting a rise as high as 1 19 early next year
The euro was last trading at 1 1245 while sterling was last at 1 2900 |
MS | Morgan Stanley throws in the towel on bullish pound outlook | The bank earlier this year had put out a pretty far out of consensus forecast of 1 45 for the pound by the end of 2018 That bull case has become less convincing says Morgan Stanley NYSE MS noting signs of weakness in the economy To become bullish again the team would want to see signs that cliff edge Brexit will be avoided They now see sterling peaking at 1 26 in 2018 and slipping to 1 23 by year end The pound is marginally higher this morning at 1 2912 ETFs FXB GBBNow read |
MS | Australians curb spending as household debt balloons | By Swati Pandey SYDNEY Reuters Australia s economy may have achieved a remarkable winning streak avoiding a recession for 25 years but there are now clear signs that the consumers who have driven much of the growth are running out of puff With cash interest rates at a record low and house prices near record highs the nation s household debt to income ratio has climbed to an all time peak of 189 percent according to the Reserve Bank of Australia RBA That means there are an increasing number of people who have little cash for discretionary spending on everything from cars to electrical appliances and new clothes as their pay packets get consumed by large mortgages and high rental payments in the country s red hot property market And it s not as if a sudden plunge in home prices would help it might well expose and exacerbate the problem at least in the short run squeezing many who have bought into the frothy market with high mortgage repayments and little equity in their homes We are seeing a considerable spike in stress even in more affluent households Large mortgages big commitments but no income growth said Digital Finance Analytics DFA Principal Martin North Stressed households are less likely to spend at the shops which acts as a drag anchor on future growth North estimates a record 52 000 households risk default in the next 12 months and that 23 4 percent of Australian families are under mortgage stress meaning their income does not cover ongoing costs That compares with about 19 percent a year ago To view a graphic on Red hot property market down click under People are up to their ears in mortgages said Brad Smith a car sales consultant at MotorPoint Sydney which has seen a stark slowdown in sales in the past six months They are all on a budget Everyone s got all their money in houses that s how it is Australians are also facing a cash crunch because price inflation in essential items such as food electricity and insurance is accelerating at a 3 4 percent annual rate at a time when Australian wages are rising at their slowest pace on record just 1 9 percent in the year to March Meanwhile growth in retail sales personal loans and luxury car sales are all at multi year lows suggesting the household sector nearly 60 percent of Australia s A 1 7 trillion 1 3 trillion economy is under severe strain A CONSUMPTION PROBLEM Australia s love affair with property is worrying the RBA which has repeatedly warned against the danger of excessive real estate borrowing and the impact on spending elsewhere in the economy The central bank is reluctant to raise interest rates to cool the property market as it is concerned that would hit domestic demand at a time when real wages growth has turned negative Besides borrowing by businesses is growing at the slowest rate in three years To view a graphic on Australia s slow economic growth click Still signs of a spending pullback is prompting economists to rethink Australia s strong growth projections Only last month the RBA upgraded its gross domestic product GDP forecast by 25 basis points to an annual 2 75 3 75 percent by the middle of next year from 2 50 3 50 percent it projected in February RBA s confidence emanates from a levelling off in mining investment after years of steep falls a rebound in the price of iron ore and coal prices Australia is a major exporter of both from 2015 lows and the home building boom However many believe the central bank s forecast might prove too optimistic Both Morgan Stanley NYSE MS and National Australia Bank AX NAB believe the economy might have slammed into reverse in the March quarter after rising 1 1 percent in the December quarter First quarter GDP data is due on June 7 As the housing market slows we see consumption growth as a major risk amid record low wages growth and ongoing headwinds to discretionary cash flows Morgan Stanley economist Daniel Blake said RETAILING PAIN Weak consumer spending is proving a huge drag on retailers performance with shares in furniture and appliance chain Harvey Norman AX HVN and electronics shop JB Hi Fi AX JBH both trading near one year lows Retail sales have hardly grown in the past few months Even online sales have slowed with all major categories including homeware games and toys daily deals and takeaway food shrinking in April according to the NAB Online Retail Sales Index Car sales have flattened this year after solid growth in 2016 while sales of luxury cars and sports utility vehicles are at a four year low For consumers such as Sydney resident Marie Aimee Guillermin there s little play money left after stepping into Sydney s housing market with a A 1 4 million 3 bedroom house last month We thought once we had the house we could take our foot off the brake a little bit but now that we have it I feel even less certain in terms of stability and financial security she told Reuters
So whether we ll end up spending a bit more on clothes and restaurants and going out and what have you I don t see that happening 1 1 3377 Australian dollars |
MS | Japan April real wages flat bad sign for consumption | By Minami Funakoshi
TOKYO Reuters Japan s real wages were flat in April from the same period a year earlier with rising prices offsetting gains in nominal pay and possibly hurting households purchasing power
Real wages which are adjusted for moves in consumer prices were flat in April from a year earlier labor ministry data showed on Tuesday It followed a revised 0 3 percent annual fall in March
Wage earners nominal cash earnings rose an annual 0 5 percent in April the biggest rise in four months Revised data showed that nominal wages were flat from a year earlier in March
Real wage growth has been flat or even negative in the past seven months suggesting the benefits of the recent economic recovery have yet to fully reach Japanese households This is a headache for the government and central bank which want sustained pay hikes to spur higher consumption and prices
Wages didn t grow that much in April so of course household spending won t rise that much said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities
Prices will rise a bit on higher energy costs but will probably run out of breath Tonouchi said
The world s third largest economy has shown signs of life in recent months as a rebound in overseas demand helped boost its exports and output It grew in the first quarter to mark the longest period of expansion in a decade
But household consumption fell more than expected in April due to lower spending on cars and education separate data showed signaling consumer spending continues to lag behind improvement in other areas of the economy
Regular pay which accounts for the bulk of total pay and determines base salaries has been generally rising in recent months and in April grew an annual 0 4 percent the biggest increase in three months
Special payments such as bonuses in April grew 5 6 percent from a year earlier following a revised 1 7 percent annual rise the previous month data also showed
Special payments are generally small so even a slight change in the amount can cause big percentage changes
Overtime pay a barometer of strength in corporate activity dipped 0 2 percent in April from a year earlier following a revised 0 6 percent annual decline in March
Desperate to stimulate growth and end decades of deflation the Bank of Japan has embraced negative interest rates and bought up mammoth volumes of bonds
The massive extent of the BOJ s money printing however has barely moved it nearer to its ultimate policy goal of lifting inflation to 2 percent highlighting the difficulty facing the central bank as the scale of its bond buying appears unsustainable |
MS | European stocks subdued as investors flee risk healthcare stocks weigh | By Helen Reid LONDON Reuters European shares extended their fall on Tuesday with healthcare stocks particularly weak as a diplomatic spat in the Middle East dented appetite for risky assets across the board The pan European STOXX 600 benchmark STOXX dropped 0 4 percent falling for a second session while euro zone stocks STOXXE and blue chips STOXX50E followed suit The greatest downward pull came from healthcare stocks Swiss drugmaker Roche S ROG fell 4 5 percent after investors were disappointed by findings in its Aphinity study for a key breast cancer treatment Analysts at Liberum said they believed the study which showed a lower than expected measure of improvement in disease free survival with Roche s treatment could make clinical acceptance more difficult Medical products company Convatec L CTEC also fell 4 8 percent after shareholders Nordic Capital and Avista sold 250 million shares raising 805 million pounds 1 billion A rift in the Middle East between Qatar and neighbours Saudi Arabia United Arab Emirates Egypt and Bahrain caused oil to fall further below 50 a barrel weighing on commodities heavy European markets In an early sign of Qatar s isolation impacting companies operating there Norsk Hydro OL NHY fell 1 8 percent after saying exports from the Qatalum aluminum plant in Qatar a joint venture with Qatar Petroleum were blocked due to the dispute The company said it was seeking other routes Basic resource stocks SXPP fell 0 8 percent while energy stocks SXEP reversed earlier losses to trade 0 4 percent higher Utilities SX6P were the best performers as investors fled to safety Sell side enthusiasm on European equities seemed to moderate as Morgan Stanley NYSE MS said positive catalysts for the region were beginning to fade Europe has had a very strong run and tactically it makes sense to look for a more moderate period for a while said Morgan Stanley equity strategist Matt Garman A stronger euro which weighs on foreign earning European companies diminishes the case for European equities he said Rarely have the currency and positive equity market performance been correlated and when they have it has been politics related Garman added saying relief after the French elections had been felt across asset classes The euro has gained 5 6 percent against the dollar over the past two months and Morgan Stanley strategists expect it to rise further Among the handful of gainers Vestas Wind CO VWS rose 2 9 percent after MHI Vestas a joint venture with Mitsubishi Heavy Industries T 7011 said it was launching a new wind turbine Also among top gainers was Lufthansa DE LHAG rising 2 6 percent after the German carrier s CEO said he was optimistic on demand and improving traffic from the United States and Asia Spain s troubled Banco Popular MC POP hit another record low in choppy trading after Barclays LON BARC cut its price target on the stock The bank s shares have lost more than half their value over fears it could be wound down by regulators if it fails to find a buyer
1 0 7732 pounds |
JPM | JPMorgan extends Sapphire card brand to checking accounts | By David Henry NEW YORK Reuters JPMorgan Chase Co N JPM is extending its Sapphire credit card brand into checking accounts at the largest U S bank to attract increasingly wealthy millennials as lifetime customers it said on Wednesday The bank is changing its Chase Premier Platinum accounts which require a minimum of 75 000 in deposits and certain investments into Sapphire Banking accounts spokeswoman Elizabeth Seymour said by phone The new accounts will offer special access to sports and entertainment events as do its Sapphire Reserve credit cards The Reserve card became a big hit with millennials eager to travel when it was introduced in 2016 with generous sign up and spending bonuses and access to travel lounges The new bank accounts will also eliminate some of the fees that can annoy consumers including those for wire transfers and foreign exchange at overseas ATMs Later this year the bank will offer its Ultimate Rewards points which it pays for credit card spending as a sign up incentive to new customers to Sapphire Banking accounts Seymour said The new account is another example of JPMorgan cutting prices and offering additional services to attract customers and take market share from competitors On Tuesday the bank rattled the discount brokerage industry by offering free stock trades for self managed accounts through its Chase mobile banking app The launch of the Sapphire Reserve card disrupted the high end credit card business and resulted in higher than expected start up expenses for JPMorgan JPMorgan has also taken market share in securities lending with aggressive pricing It has won commercial banking business by opening new offices in cities outside its established markets JPMorgan has previously used tie ins with Sapphire Reserve to promote its mortgage loans
The bank aims to grow its consumer deposits more quickly than the industry Low cost deposits become more valuable to banks as interest rates rise on loans |
JPM | Fed Debate on Risks Intensifies Around Post September Rate Hikes | Bloomberg As U S central bankers prepare to raise borrowing costs next month their discussion about how high to lift their target interest rate is intensifying
Their forecasts call for strong labor markets and robust growth at a time when inflation is already slightly above their goal At the same time there are potential headwinds from trade disputes waning fiscal stimulus and the lurking danger of financial instabilities that tend to build up over long periods of low policy rates during lengthy expansions
The minutes released Wednesday from the Federal Open Market Committee s July 31 Aug 1 meeting left little doubt that Chairman Jerome Powell plans to raise the benchmark lending rate next month saying it would likely soon be appropriate to take another step in removing policy accommodation
They are clearly having a debate about how much they hike said Seth Carpenter chief U S economist for UBS Securities Inc and a former senior adviser at the Fed Board They did talk a lot about risks and downside risks from trade in three or four areas
The signals came despite scrutiny from President Donald Trump the man who appointed Powell and who told Reuters in a recent interview that he was not thrilled with the Fed s tightening
Finding Neutral
A September hike would put the benchmark lending rate in a range of 2 percent to 2 25 percent just under the bottom of officials 2 3 percent to 3 5 percent range of estimates for the so called neutral rate economics lingo for the level that neither stimulates nor holds back the economy
While the minutes made no mention of political heat they were full of downside risks stemming from Trump policies All Fed officials viewed trade disputes as an important source of uncertainty and risks Still a number of officials noted that most businesses concerned about trade disputes had not yet cut back their capital expenditures or hiring but might do so if trade tensions were not resolved soon
For all the sound and fury they have in the minutes on trade you don t come away with tangible growth effects that are actually occurring said Michael Feroli JPMorgan NYSE JPM Chase s chief U S economist
He added there was little indication that Fed officials are setting up a pause in their cycle of rate hikes Indeed the minutes used the plural form noting that further gradual increases in their target rate would be consistent with their policy goals
In its presentation to the FOMC s most recent meeting the staff forecast continued to project that the economy would grow at an above trend pace and also signaled there is more slack in the job market as they expected labor force participation to move up
What the minutes told us is that they are soon moving into the range of estimates for a neutral policy rate and it isn t clear when they are going to stop said Laura Rosner senior economist at MacroPolicy Perspectives LLC in New York But I think they are more concerned about overdoing it than underdoing it in terms of tightening
Underscoring that point the minutes said many officials noted that it would likely be appropriate to remove fairly soon their description of policy as accommodative |
JPM | Australia s Accidental Treasurer Inherits Economy of Discontent | Bloomberg For Australia s new Treasurer managing the economy is likely a welcome relief from the months of poisonous infighting that laid the ground for his unexpected promotion
The 47 year old son of a Holocaust survivor seized the top economic job after one of the most tumultuous weeks in recent Australian politics that saw Prime Minister Malcolm Turnbull ousted by his own party the nation s sixth change of leader in 11 years But the right wing lawmakers leading the insurgency failed to get their candidate installed with former Treasurer Scott Morrison instead chosen as prime minister and Frydenberg replacing him
The main thing that political instability does is just stifle investment and so weaken the economy said Mark Crosby a professor of economics at Monash University also Frydenberg s alma mater There s a hell of a lot to do on policy in Australia But what Frydenberg can do in the next few months is pretty limited
Frydenberg inherits an economy on auto pilot as high immigration and commodity exports underpin growth But he must also grapple with weak wage growth that s cribbing the spending power of heavily indebted households The political result is electoral discontent among increasingly fickle voters that in part is encouraging the major parties to keep switching leaders in search of an elusive electorally potent combination
For now the rest of the economy is motoring along growth is 3 1 percent well above the 2 5 percent annual average of the past five years the budget is on track for its first surplus since 2008 solid hiring has pushed the jobless rate down to 5 3 percent not far off from the estimated full employment level of 5 percent inflation is low at 2 1 percent
Frydenberg who has postgraduate degrees from Oxford and Harvard universities was formerly Australia s energy minister a notoriously difficult portfolio that partly sparked last week s upheaval following months of infighting over energy policy He was also appointed deputy leader of the Liberal Party last week and along with Morrison has little time to lose in healing a deeply divided party ahead of elections due within nine months
Clearly I wouldn t have liked to come to this role in the circumstances in which it occurred Frydenberg said in a radio interview Monday That being said you need to draw a line under the events of last week and move on
Australia s new treasurer said he takes inspiration from his efforts to forge a professional tennis career earlier in life Frydenberg had wanted to quit school to focus on tennis but his parents talked him out of it He took a year off before starting university to pursue his sporting goal before deciding instead on an academic path
The best thing I learnt about tennis was persistence he said Frydenberg went on to earn honors degrees in both law and economics at Monash University and then worked at a large law firm He attended the University College Oxford to study a Master of International Relations degree in 1998 and later a Master of Public Administration from Harvard University
Frydenberg worked as a political adviser to various ministers and then for Liberal Prime Minister John Howard in 2004 he spent a month on a remote sheep station in South Australia working as a stockman In 2005 he went to work at Deutsche Bank AG DE DBKGn
He comes from a close knit Jewish family his mother coming to Australia like tens of thousands of refugees from post war Europe from Hungary having lost family in the Holocaust Frydenberg is married with two children
While his background is compelling the challenges ahead are vast even if the government manages to win another term Australia has had little economic reform since the turn of the century and the government recently abandoned corporate tax cuts for large businesses
Sally Auld senior strategist for interest rates at JPMorgan Chase Co NYSE JPM in Sydney said the Morrison Frydenberg team was the most stable outcome of last week s crisis
For markets and the economy that was the best outcome to the extent it represents continuity from the previous leadership she said The broad strategy around bringing the budget to surplus won t change |
MS | What Gold Lacks Is Short Covering Panics | With the world in the throes of an unprecedented credit blowout gold s failure to crack 2000 barrier can sometimes seem mystifying the moreso as the correction begun in 2011 stretches on now into an eighth month Gold has acted more like wheat or corn than like money Shouldn t it reflect the fact that dollars euros and yen are available to an insatiable group of borrowers mainly large banks at no cost and in practically unlimited quantities Indeed And yet lately gold has been unable to muster the ire even of crude oil which appears to be gathering thrust for its first foray above 120 since 2008 Meanwhile Comex Gold has been lazily backing and filling since last September If gold is not oblivious to the steady and relentless destruction of currencies it seems unpersuaded that this is what the central banks are accomplishing by design From a purely technical standpoint gold s reluctance to get in gear with crude and to start acting like it knows what the central banks are up to is not so mysterious Let me explain I have written here many times that it is not bullish buying that drives stocks relentlessly higher in bull markets but short covering by bears This was a dynamic I got to observe first hand in the dozen or so years I spent on the trading floor of the Pacific Exchange While bulls often rationalize their buying strategies by citing fundamentals they probably understand at a gut level that PE ratios are no more useful a predictor of where a stock will be trading in six months than tea leaves Small wonder then that bullish sentiment alone cannot summon the kind of torpedoes be damned buying it takes to drive shares through massive levels of supply But short covering can since the buying is rooted in the primal fear of losing money as a stock or commodity that one has bet against surges maniacally higher Who Is Short Unfortunately for gold bulls this fear is nowhere to be found in bullion markets Think about it Who are the shorts Mainly bullion bankers with friends in the very highest places Shorting paper gold amounts to free money for them because in a pinch to cover short term obligations they can borrow as much of the real stuff as they need from their good friends at the Fed which holds a reported 7000 tonnes of the stuff for its friends They are all aggressively united behind a monetary agenda of their own one that is not particularly friendly toward 2000 gold Even so and despite the ability of the bullion bankers to gin up a hundred times as much paper gold as their exists physical quotes have muscled their way higher nontheless Had officialdom s suppression of the gold price been more successful prices would currently be languishing below 500 an ounce Instead gold has traded as high as 1928 its ascent managed so as to avoid a day of reckoning for bullion bankers The easy money is still on the short side and so it shall remain as long as Morgan Stanley J P Morgan and their ilk can collude behind the scences with government to hold prices down This alliance has proven remarkably effective so much so that gold and silver have gotten cold cocked at exactly those times when we might have expected paper shorts to get blown out of the water One of these days in response to a financial cataclysm whose dimensions cannot be precisely foreseen those on the other side of the trade will press their claims for physical gold We shouldn t kid ourselves that The Powers That Be do not have a plan in place to turn back the mob Although that might briefly appear to save the day for J P Morgan et al it is not likely to save the financial system nor perhaps even the Republic |
MS | These Widely Overlooked Securities Yield Up To 16 | Exchange traded products ETPs are wildly popular Their assets grew more than 30 a year during the past decade compared to just 5 to 6 for mutual funds according to McKinsey Co The management consultancy projects ETP assets will more than double over the next five years to 3 1 4 7 trillion from a little over 1 5 trillion today Most of the growth is in exchange traded funds ETFs a subclass of the exchange traded product family But a handful of exchange traded notes ETNs are also a small part of this market And while there are ETFs for everything from copper to cocoa ETNs offer a unique type of exposure to mainly two high yield groups master limited partnerships MLPs and business development companies BDCs Readers of my newsletter know that I m a big fan of MLPs and BDCs These unique businesses allow investors to capture higher yields than many blue chip stocks and bonds MLPs are in the pipeline business transporting oil and natural gas from the drilling site to the downstream facilities such as refineries and storage facilities They earn a fee based on the volume transported and in turn are not as sensitive to energy prices as drilling companies for example This provides a reliable stream of income much of which is passed right on to investors in the form of sizeable dividends BDCs on the other hand provide financing to smaller companies seeking to grow their business In return many BDCs not only get interest payments on the money they loan which is why BDCs pay hefty dividends but also secure an equity stake in the business as well So if like me you re a fan of these dividend juggernauts then ETNs are definitely worth a look In some cases I ve found these overlooked securities yielding as high as 16 ETNs are an entirely different beast from ETFs Both track the performance of an index and offer a simple way to move in and out of a sector Both may pay dividends thrown off by the securities in the index they track But that s where their similarities end Unlike ETFs ETNs do not represent a claim on shares of stock bonds or commodities The ETN issuer may invest in the index companies to collect returns but ETN holders like you and me don t have a claim on those assets Instead ETNs are promissory notes They are senior unsecured debt that promises to match the return of a specific benchmark Interest payments on the note are generally made quarterly and reflect the quarterly payments made by the MLPs in the index Like bonds ETNs have a maturity date At maturity generally 15 to 30 years from the issue date the ETN is redeemed Unlike bonds however you don t receive the face value in cash Instead the amount you receive is based on the performance of the index Note There s a little more to how ETNs work but this is just to get you going If you re interested in learning more details about these securities I encourage you to read the latest issue of High Yield Investing Of the 10 high yield ETNs listed below seven track the performance of MLPs two follow BDCs while one tracks a diverse portfolio of stocks and bonds How to choose the best ETNs To help you make an informed decision I ve given you key data points on each ETN in the list above The specific index it tracks is given in the name but I ve also noted daily trading volumes initial and recent index VWAP levels the principal value and the maturity date Besides index size and liquidity the biggest question that needs to be asked when picking an ETN is how well the index is performing You can follow the indices and even the VWAP level of some of them on free financial websites like Marketwatch or Bloomberg But to estimate your potential capital gains you also want to know the principal amount and the starting level of the index and for these I ve gone directly to the prospectus You also want to note the maturity date If the index is doing well right now the sooner the ETN matures the better These are long term bonds however and the earliest maturity date of the listed ETNs is the Alerian MLP Index NYSE AMJ at 2024 You can of course buy and sell ETNs during the day just like stock You can also redeem them at your option but generally you must proffer a minimum required amount of around 50 000 notes to do so Risks to Consider Besides fees much has been made of the credit risk of ETNs That was particularly a problem when the first ETNs came out during the financial crisis of 2008 But most of the popular ETNs issued by investment banks such as Morgan Stanley or JP Morgan Chase don t carry the same credit risk today It s also worth noting that as debt ETNs distribute interest income that s taxable at your marginal income tax rate Also you can hold these ETNs in a tax sheltered IRA or 401 k account without fear of throwing off more than 1 000 in unrelated business taxable income UBTI Of the 10 high yield ETNs on the list only those tracking MLP indices are showing positive returns from their initial index level And of the seven MLP ETNs on this list AMJ shows the best returns has the largest daily trading volume and the soonest maturity date While all of them bear a closer look at first blush I view AMJ as my top pick although you should certainly do more research before purchasing these securities by Carla Pasternak |
MS | MS Get Out Of Banks While You Can | This chart is so bearish that unless it proves to be a one off bank it is time to rotate out of the financials It is now trading in a perfect new Bear Pennant to help fulfill its old Bear Pennant with the new pattern confirming at 16 58 for a target of 14 67 but the real pattern to pay attention to in the daily chart of Morgan Stanley MS is that nasty and confirmed Double Top The Double Top in MS remains confirmed below 17 19 for a target of 13 25 and a nearly 25 decline from current levels and this very bearish pattern remains valid below 21 13 All in all then the charts of MS seem to be saying get out of banks while you can |
MS | Stay Long USD Assets | Sometimes it s useful to sit back and examine the technical leadership of the market to see where the strength is coming from and to understand the message of the market Instead of the usual analysis of technical leadership from a sectors or market cap perspective I thought that I would do something slightly different and look at the global picture of international stock leadership The bottom line The current macro outlook is highly uncertain suggesting that the near term path for equities will be choppy and volatile The charts are showing continued leadership by US equities and the US dollar All other global regions are underperforming Under these circumstances I would stay with the strength and concentrate the bulk of any equity exposure in the US and overweight USD assets in a global portfolio Where is the leadership The chart below shows the relative performance of US equities as represented by SPY against ACWI or the ETF for the Morgan Stanley All Country World Index Since all prices are quoted in US dollars the currency effects have all been filtered out of the analysis As you can see US equities have been in a relative uptrend against ACWI for about a year What about Europe The market is telling us that it is indeed concerned about the eurozone as its equities have been underperforming for over a year The other large developed country in EAFE is Japan The performance of Japanese stocks is nothing to write home about They are either flat to weak against ACWI depending on how you interpret this chart Emerging market equities have not been a pretty picture The relative performance of these stocks show that they appear to be rolling over on a relative basis Until the BRIC countries and China in particular begin to show some sustained strength I would underweight these stocks in a global portfolio There is a glimmer of hope as Bloomberg reported that Finally a look at the US Dollar Index shows that it remains in an uptrend that began last summer Currently it appears to be testing the bottom trendline of the uptrend but I would give the USD bulls the benefit of the doubt for now What about the fiscal cliff Recently Fed Chair Ben Bernanke warned Congress about taking sufficient action so that the US doesn t go over the fiscal cliff reported that he said If no action were to be taken by the fiscal authorities the size of the fiscal cliff is such that there s no chance that the Federal Reserve could or would have any ability whatsoever to offset that effect on the economy Other analysts like Nouriel Roubini David Rosenberg and Citi s have warned about the impending fiscal cliff that the US faces No doubt the risks are gargantuan and my inner investor is highly concerned about an overly high concentration in USD assets under these circumstances My inner trader tells me that for the markets these things don t matter until they matter Stay with the relative performance trend and then pull back when you see the trend break Disclosure and Disclaimer 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 | Why Doing Your Due Diligence Pays Off | Everyone wants diligence Few will ever turn it down especially if it is good The problem is that diligence can be very expensive New Constructs makes diligence cost effective What do I mean by diligence I mean reading and analyzing the entire 10 Ks for over 3000 companies over their entire reporting history 10 Ks contain the most important financial information that companies provide all year Unlike press releases and 10 Qs only the 10 Ks contain a complete set of the And only in these footnotes can one find the full set of data required to assess the of stocks From this mountain of data we will derive proprietary research that delivers some of the best stock picks of any research firm Just as we did last year For example after reviewing Eastman Kodak s EKDKQ PK 2010 10 K in March of 2011 I was able to predict it would go bankrupt For similar reasons we told clients that the same would happen to American Airlines AAMRQ PK I was proven right about 10 months later on both companies Why did it take 10 months Probably because that is how long the companies were able to massage their quarterly accounting results to cover the truth Other examples of how analyzing the complete 10 K for companies enabled me to make strong stock predictions Note the articles below are just a sample We provided clients with more Short recommendations Principal Financial Group PFG playing with reserves to overstate earnings Down 20 since I posted the on my blog Zumiez ZUMZ monkeyed with depreciation assumption to overstate earnings Dropped 40 a few months after I posted the on my blog VirnetX Holdings VHC dropped about 40 a few months after I posted the on my blog Morgan Stanley MS is down 30 since my Citigroup C is down about 25 since my Buy recommendationsIntel INTC is up about 27 since my Lorillard LO is up over 10 since my Wal Mart WMT is up 20 since my Eli Lily LLY us up 14 since my Lam Research LRCX is up over 10 since my Maybe it is time more people started paying attention to 10 Ks or at least to research that focuses on analyzing the financial footnotes in 10 Ks It is not an easy task My firm New Constructs has developed proprietary technology and around doing it efficiently Our fund research leverages our in our on 7400 ETFs and mutual funds We also offer a and reports on all 7400 funds we cover 10 Ks are the official version of the annual report filed with the Securities and Exchange Commission SEC These documents are anywhere from 100 to 1000 pages and contain the most important financial data available on publicly traded companies No other reports come close to rivaling the amount of relevant information in 10 Ks Disclosure I am long LO LLY and LRCX |
MS | Want To Outperform The Market Hint Go For Needs Not Wants | Last week U S Global s and I spent some time with financial advisors from Florida providing an update on natural resources investments Many asked why global resources were significantly lagging the overall S P 500 Index Over the past year there s been an extreme disparity between the sector and the overall market As of March 31 2012 the Morgan Stanley Commodity Related Equity Index had a one year return of 15 percent while the S P 500 Index gained more than 8 percent over the same period Here s a different way of showing how energy stocks have lagged The chart below shows the 12 month rolling return percentage change of the S P 500 Energy Index Over the past 12 months energy stocks have declined so dramatically that it now registers a one sigma event in standard deviation terms Historically this has occurred only 18 5 percent of the time in the past 10 years There were only two episodes when performance was worse on a one year rolling basis during the 2002 2003 period and during the global financial crisis in 2008 2009 when the U S was in a recession I continue to be amazed at the underperformance in natural resources stocks when you look at certain equities in the S P 500 The most dramatic example is Apple AAPL Over the past decade its stock price has climbed substantially I recently discussed a Financial Times article that showed a potential investment of 399 in Apple shares in November 2001 in March 2012 Today Apple s market capitalization has grown to around 550 billion which is higher than the market cap of all of the utilities companies in the S P 500 and higher than all of the S P 500 materials companies There s no doubt Apple has quality products and is a great company our funds have benefited from holding shares Apple s products are quickly becoming as common as a toaster with a survey by CNBC finding that half of all U S households own at least one Apple device If a household has children that number jumps to 60 percent However investors seem to be overlooking the fact that Apple s products are wants not needs Millions of consumers want an iPad and many want a computer yet every single person in the world needs global resources We need companies to grow our food we need oil natural gas and coal to fuel our cities We need to drive to work and school each day and we need to keep our house warm in the winter and cool in the summer And so do the other 7 billion people on the planet To outperform the S P 500 over the long term we believe investors should overweight their portfolio to the global products and services that people need not want Currently energy and materials make up only about 15 percent of the S P 500 which seems insignificant compared to the tremendous needs from not only the developed markets but the growing emerging countries With the S P 500 Energy Index in oversold territory today offers a great buying opportunity to add a natural resources investment like the PSPFX to your portfolio 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 Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure as well as economic and political risk Because the Global Resources Fund concentrates its investments in a specific industry the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries The S P 500 Stock Index is a widely recognized capitalization weighted index of 500 common stock prices in U S companies The S P 500 Energy Index is a capitalization weighted index that tracks the companies in the energy sector as a subset of the S P 500 The Morgan Stanley Commodity Related Index CRX is an equal dollar weighted index of 20 stocks involved in commodity related industries such as energy non ferrous metals agriculture and forest products Standard deviation is a measure of the dispersion of a set of data from its mean The more spread apart the data the higher the deviation Standard deviation is also known as historical volatility All opinions expressed and data provided are subject to change without notice Some of these opinions may not be appropriate to every investor Holdings in the Global Resources Fund as a percentage of net assets as of 3 31 12 Apple 0 00 |
MS | Draghi s Growth Pact Internal Devaluation | As we await the results of the French and Greek elections there has been a considerable change of focus in the eurozone from the paradigm of all austerity all the time to growth strategies The villians according to those who push back at the fiscal compact is Angela Merkel and to a lesser extent Mario Draghi What I don t get is that many analysts have failed to understand see the by Yves Smith as one example out of many is that Draghi has said repeatedly said that the long term plan has two components Good austerity in the form of lower taxes and lower government spending But the Grand Plan isn t all austerity all the time The second component addresses the problem of the competitiveness gap between northern and southern Europe which means Structural reform which is the European version of the step China took to smash the iron rice bowl in order to create labor flexibility for all not just the young but all of the current employees in their cushy jobs and gold plated pension plans Draghi went on to characterize structural reform as the old days of the European social model being all gone He talked about this in late February when he revealed the for the eurozone He positioned structural reform as a growth compact when in late April Last week he went further when the Telegraph reported that The president of the European Central Bank ECB said it was of utmost importance for leaders to impose fiscal discipline but also to generate growth by facilitating entrepreneurial activities the start up of new firms and job creation He echoed demands for a growth pact from leaders including the French presidential hopeful Francois Hollande But rather than protectionist policies advocated by some Mr Draghi said his ideal growth pact would be based on free labour markets and structural reforms that would be agreed collectively not unlike the fiscal pact He said political commitment would be the most important part Collectively we have to specify the future of the euro where do we want to be in 10 years time The growth compact in micro and macroeconomic terms I feel that the market still doesn t really get Draghi s growth compact Let me try to explain it in micro and macroeconomic terms In microeconomic terms it addresses the barriers to business formation in many Club Med countries Simply put it s hard to fire people The growth compact is an Anglo Saxon or Thatherite solution to make it easier to terminate employees This is what Draghi meant when he stated in the that the European social model has already gone His reasoning is illustrated by his response that the current arrangement is inherently unfair to the youth of Europe emphasis added WSJ Which do you think are the most important structural reforms Draghi In Europe first is the product and services markets reform And the second is the labour market reform which takes different shapes in different countries In some of them one has to make labour markets more flexible and also fairer than they are today In these countries there is a dual labour market highly flexible for the young part of the population where labour contracts are three month six month contracts that may be renewed for years The same labour market is highly inflexible for the protected part of the population where salaries follow seniority rather than productivity In a sense labour markets at the present time are unfair in such a setting because they put all the weight of flexibility on the young part of the population The Anglo Saxon reasoning goes if it is easier to fire people and make them work harder or take away their gold plated pensions it creates more opportunity for growth and business formation In microeconomic terms the growth compact is structural reform pure and simple In macroeconomic terms the growth compact means an internal devaluation by the peripheral countries in the eurozone which is a fixed exchange rate regime The Greeks Italians Spaniards etc just have to work harder and get paid less Projecting the gains under a growth pact What are the possible gains under such an internal devalution reports that Morgan Stanley s Joachim Fels and Elga Bartsch took a stab at the problem Morgan Stanley projects that the Club Med countries which include France could gain about 15 of GDP growth over 10 years if they adopted these structural reforms This amounts to an average of 1 5 of GDP a year which is considerable when you consider that the long run real growth rate in Europe has been hovering around 2 per annum Martin Wolf of the FT showed some analysis in a presentation on May 3 2012 to the National Economists Club and Petersen Institute for International Economics My conclusion in the context of the growth compact is that the Club Med countries should try to become more like Ireland Note how unit labor costs in the troubled peripheral countries have been rising relative to Germany all except for Ireland These structural reforms that make it easier to hire and fire people or internal devaluation could get unit labor costs down below German costs and make Greece Spain etc look more like Ireland Also note from the first chart how low Morgan Stanley has projected Ireland s gains from structural reforms are indicating that Dublin has already made the hard choices This also means that Ireland will be the poster child for the growth pact and structural reform The preliminary indications appear to be positive This report discussing the upcoming Irish referendum on the fiscal compact shows that business are re locating to Ireland attracted by its relatively low corporation tax and increasingly cheap workforce Some of the forward looking indicators for the Irish economy have been more positive Tax revenues for March are 370 million euros 486 million ahead of target in the year to April 2012 driven by healthier corporation tax revenues as companies move to Ireland attracted by its relatively low corporation tax and increasingly cheap workforce Nevertheless I would expect that the trajectory of Irish growth will be scrutinized intensely to see if the harsh medicine is working A more realistic scenario If all eurozone countries were to adopt the structural reforms that Draghi advocates and the Morgan Stanley analysis is correct Germany would also gain 12 5 in GDP growth per annum The spread between Spain and Germany is only 2 5 over 10 years or 0 25 a year hardly worthwhile Let us assume a more realistic scenario Supposing that the peripheral countries were to adopt some form of structural reform but only get two thirds of the gains projected by Morgan Stanley i e about 10 instead of 15 over 10 years Assume at the same time that the Germans rest on their laurels Indeed former IMF chief economist Simon Johnson wrote in Bloomberg that emphasis added The solution involves a move straight out of the gold standard playbook with a modern twist Since monetary union began Germany has had substantial productivity gains and only moderate wage increases making it highly competitive Eurostat reports that German wages rose 2 percent a year from 2000 to 2009 while Spanish wages increased by 4 7 percent a year in the same period more than twice as fast Because the currencies are the same Germany s competitiveness has made it tough for Spain and the other weaker states to sell their products in the euro area But the cavalry may show up in the unlikely form of German trade unions which are seeking big wage increases this year Recent demands by German workers range from 3 percent to 6 percent As Bloomberg News reported IG Metall Europe s biggest labor union with about 3 6 million workers is demanding 6 5 percent more pay at a time when inflation is about 2 percent This isn t crazy German unemployment is at its lowest level in two decades German exports have been doing well around the world To some monetary purists talk of higher wages suggests that the European Central Bank s policy is too loose for current German conditions But this is really taking an idealized version of the gold standard too far The point is to have relative wages and prices adjust higher for Germany and lower for its European trading partners If German incomes rose German consumers would have more disposable income with which to buy imported goods And lower labor costs in other European countries would make their goods and services less costly giving them a leg up against Germany s export machine If the people in charge mostly Germans at this point insist that the adjustment must come entirely through a fall in the absolute level of wages and prices in countries with current account deficits and large amounts of debt then Europe is in for a difficult and perhaps lost decade But if part of the adjustment can come through higher German wages recognizing productivity gains and consistent with continued prosperity the path forward will be easier In other words German wages go up while Club Med wages go down Both Germany and the peripheral countries take actions to bear the cost of this internal devaluation The big question Here is the big question Assuming that the peripheral countries enact these structural reforms that make them more Anglo Saxon Would that create sufficient incentives for big employers like Alstom EADS BMW Siemens to locate plants in Valencia Thessaloniki or Lisbon instead of looking at Poland or Slovakia as they do now I don t know What I do now is that the ECB has always had an agenda or wish list as outlined by this The ECB s overarching goal is for the euro area s politicians to establish credible European institutions working alongside the bank It seeks for example bulletproof fiscal constraints on euro area members something more credible than the Stability Growth Pact which was widely ignored It also wants a common euro area crisis fund to relieve the bank of the primary bailout responsibility In addition the ECB wants individual member states to accelerate structural reforms in their national economies To the extent that member states are willing to go along with the ECB it has shown an inclination offer the carrot of supporting the harsh adjustments necessary with easy monetary policy and unconventional policies such as LTRO On the other hand it has the stick that if a member state were to falter the ECB has the option of leaving that government to the mercy of the bond market wolves Draghi realizes that these prescriptions are harsh and that s why he used the analogy of crossing the river in this Structural reforms are essential to restoring competitiveness but will also cause pain in the short term the ECB president said Structural reforms hit vested interests he said adding that they change profoundly the society These changes are themselves a source of pain he added We are just in the middle of the river that we are crossing The only answer to this is to persevere and for the ECB to create an environment that is as favourable for this as possible Draghi said Notwithstanding the news flow over the pending elections the fight over austerity and structural adjustments is by no means over regardless of the electoral outcome My bet in the long run is still on Draghi and Merkel In the short run however anything can happen |
MS | What We REALLY Think About Gold | Paying subscribers get to see quite a bit more of Rick s Picks than lurkers might infer from reading the free commentaries that go out each day to many thousands of readers A headline that will have caught the eye of the latter was this one from the May 2 edition Gold s Nastiness Hints of a Major Bottom Comex June Gold subsequently fell 76 and we were therefore unsurprised to receive e mails from lurkers who evidently had been caught flat footed by this supposedly unforeseen by us anyway bout of weakness In fact the daily trading touts that lie behind the Rick s Picks subscriber wall have been far more cautious than outsiders would likely know Just yesterday in fact we offered a projection for GDXJ a proxy for junior mining stocks that may have caused some subscribers scalps to crawl for a free trial subscription if you want to see just how low we think this favorite of gold bulls could conceivably go So which is it Are we bullish on gold as our headlines would seem to imply Or do we privately shrink from the risk of owning bullion The answer is that although we are bullish on gold and silver for the long term and have been socking away bullion coins for years we are not so certain that it will achieve the stratospheric heights that some gurus have predicted However what we are most confident in saying is that come hell or high water gold s purchasing power will more than hold its own relative to all other classes of investable assets We would concede however that the fantastic price targets of some bullion superbulls have a few things going for them For one the U S dollar is already intrinsically worthless and that implies that real money i e gold will someday soar on the epiphany And for two in a true global financial crisis if commodity regulators were to allow individual holders of paper gold to press their claims for delivery against the likes of Goldman J P Morgan Morgan Stanley at al the resulting short squeeze could in theory spike gold to unimaginable heights However we did not emerge a while back from an ugly brawl with the hyperinflationists without learning from it In that regard speaking as charter members of the hardcore deflationist camp footnote we were writing articles about the coming deflation for Barron s and the San Francisco Examiner nearly 20 years ago when it was looney bin talk we do not share the certitude of some that hyperinflation is inevitable That is not withstanding the fact that Peter Schiff and blogger have laid out quite plausible scenarios for hyperinflation When Dollars Are Golden But here s a scenario of our own in which the global economy collapses and goes straight to deflation with no hyperinflationary phase You wake up one morning and for reasons of something awful that has occurred in Europe the financial markets are in chaos By 10 a m there are lines outside most U S banks Unfortunately all depositors will go home empty handed since as we have noted here many times before banks keep very little cash in their vaults By then it seems entirely likely that credit cards and ATMs will have ceased to function and that credit limits will have been temporarily capped So how will you pay for your groceries or gas or anything Will vendors take your Krugerrands Maple Leafs and silver rounds Will they value your Morgan silver dollars at 35 as dealers do Or will they give you just a dollar s worth of merchandise in exchange for your silver dollar Put yourself in the vendor s place and you can probably see that he ll be most comfortable taking the traditional ones fives and twenties But how many of them do you have lying around A couple of hundred dollar s worth right Scarce but infinitely fungible in the aftermath of a global collapse cash money would not likely cede much ground to gold as money And that is how a fundamentally worthless debt encumbered dollar could become as precious as gold At least for a while that is Sooner or later the 150 trillion that we owe ourselves now and in the future a conservative estimate as far as we re concerned will have to be discharged either through hyperinflation or by deflation i e universal bankruptcy Which is more likely If politics or history apply the hyperinflationists will hold the edge at that point But anyone who professes certitude about how the collapse of the global financial system will play out is just blowing smoke As for gold superbulls even if they are right which they quite possibly will be we doubt it will be easy in a severe crisis or even its aftermath for hoarders to exchange Krugerrands ostensibly worth 10 000 apiece for say Canadian farm land our favorite investable asset by the way |
C | How the U S midterm elections could ripple through markets | By Lewis Krauskopf NEW YORK Reuters Gridlock Blue Sweep or Red Repeat Wall Street is closely watching the U S midterm Congressional elections next week as policy decisions that could sway the economy corporate decision making and consumer spending hinge on the results Should his fellow Republicans maintain or extend their grip on Congress President Donald Trump may be emboldened to pursue more of his political agenda including further tax reforms By contrast Democratic gains that allow the party to control the House of Representatives and possibly the Senate could stifle Trump s policy aims and perhaps lead to attempts to impeach him Investors are bracing for a split Congress in which Democrats win the House but Republicans hold the Senate a reflection of current polling data and online betting markets Sentiment could change though in the last week before the Nov 6 elections and investors are quick to recall that Trump was losing in polls ahead of his surprise victory in the presidential election of 2016 Midterm congressional elections typically are not a major U S market event let alone a global market event but this time may be different Citigroup NYSE C analysts wrote in a recent note Here is a look at how the election results could affect different asset classes STOCKS A Democratic takeover of the House might spook the stock market because of concerns about political instability including hearings involving the Trump administration But the fall in U S stock prices this month may be increasingly pricing in such a split Congress so that scenario may not significantly shake the market Even if Democrats win the House legislative gridlock may reduce the chances of major policy changes if Republicans retain control of the Senate However an infrastructure spending package is one area where Trump and Democrats could find compromise that boosts equities A Democratic sweep of the House and Senate would likely surprise the market and prompt a sell off in stocks The potential for Democrats to alter Trump s tax cut package or to start impeachment proceedings could jar investor and business confidence A Republican win that allows them to retain total control of Congress could lift stocks as it would increase the chances of more tax reform and further de regulation The market would keep one eye on the Federal Reserve though if Congress were to stimulate economic growth further with more tax cuts or spending which may push inflation higher and lead to higher interest rates A Republican victory could also embolden Trump to pursue his protectionist international trade policies with even more import tariffs The initial reaction might be positive but there are some negative potential consequences to it if there is no real check on administration policies said Rick Meckler partner at Cherry Lane Investments in New Vernon New Jersey Those policies both in trade and in taxes have been pretty inflationary U S DOLLAR If the Republicans retain both the House and Senate the U S dollar may benefit analysts said Given the disruption to international product supply lines and rising input costs resulting from Trump s tariffs the dollar is perceived as a safe haven and it strengthened after levies were imposed on Chinese European and Canadian imports this year A divided Congress however is perceived as negative for the dollar analysts said because it is unlikely that any new fiscal stimulus could be launched to counterbalance forecasts of slowing U S economic growth next year A Democratic sweep of Congress could also undermine the dollar if it leads to complete gridlock in Washington D C as it raises the risk of government shutdowns and suggests a more volatile political environment ahead of the 2020 U S presidential election A Democratic Congress could roll back some of the Trump administration s trade policy measures and help other currencies such as those in emerging markets analysts said EMERGING MARKETS The outlook for emerging markets is linked to U S dollar strength and trade policy tensions Emerging market assets will likely respond inversely to movements in the U S dollar after the elections A Democratic takeover of one or both chambers of Congress would reduce the tension in trade talks with China according to Bertrand Delgado director of emerging markets at Societe Generale PA SOGN in New York A Republican sweep could translate into a selloff in emerging market assets as international trade spats would be expected to continue China has weighed the most on emerging market equities following a slowdown in economic growth due to the trade war with the United States BONDS Should Democrats take one or both chambers of Congress further efforts to change the tax code would likely stall but Democrats may be unable to roll back the Republican tax cuts enacted last December or to increase spending on social programs As a result the federal deficit will be unlikely to grow at a faster rate or require additional borrowing than is currently forecast and this could be mildly positive for bond prices We are looking for a split government which means nothing will get done said Gennadiy Goldberg interest rate strategist at TD Securities in New York One caveat If a split government leads to a government shutdown as a negotiation tool it could spur safe haven bids for U S Treasuries If Republicans retain their edge in Congress the fiscal outlook is complicated by how they will tackle the budget deficit
They might attempt more tax changes which can increase the deficit Any changes may be offset by efforts to cut entitlement programs or to end the Affordable Care Act though the net impact on federal borrowing is unclear |
C | Citigroup to move 63 jobs out of London over Brexit | Reuters Citigroup N C said on Wednesday it was planning to move 63 jobs out of London as it prepares for the possibility of a hard Brexit The Wall Street bank was looking to relocate 45 employees from its trading unit and 18 from its private bank to other countries within the European Union where it already has a presence Citigroup said in an internal memo The bank said it would try to retain as many staff members as possible through permanent relocations to countries within the EU Alongside a number of its peers Citi has already opted to bolster its operations in Frankfurt where its EU trading business will be based after Brexit It has also applied for a markets license and hired senior staff in France while setting up a unit in Luxembourg to support its private bank |
C | Bumper China Evergrande bond deal set to heap pain on rival developers | By Clare Jim and Julia Fioretti HONG KONG Reuters China Evergrande Group s 1 8 billion bond sale this week has sent a chill through Asia s dollar bond markets with the dizzying coupons offered by the property developer casting doubts on fundraising plans of rivals Chinese developers a perennial feature of the region s junk bond markets and formerly an investor favorite are already facing a cooling property market rising interest rates and market volatility driven by economic jitters Evergrande s bumper deal is expected to raise borrowing costs and potentially price some out of the market altogether just as the industry faces a heavy refinancing load raising the risk of default for the weakest players Developers have a combined 33 4 billion of bonds maturing in the first quarter of 2019 according to Refintiv data Of that 5 billion is offshore the rest in mainland yuan denominated bonds Debt laden Evergrande this week complicated the situation for its rivals after it sold a combined 1 8 billion in two four and five year debt Its chairman and founder Hui Ka Yan bought 1 billion of the longer dated debt helping the sale size The coupons Evergrande paid 11 per cent for the two year notes 13 per cent for the four year bonds and 13 75 per cent on the five year debt were also among the highest in the market The coupons on the four and five year bonds were the highest offered by any issuer of similar dated paper this year according to Refinitiv data Asia s junk bond market saw two days of selling following the news of Evergrande s deal Traders said Evergrande s new two year bonds traded as much as 1 5 points lower in the afternoon of its debut while other developers bonds slipped by up to 0 5 points Issuances will be priced at wider spreads so how can secondary ones perform said Manjesh Verma head of Asia credit sector specialists at Citigroup NYSE C referring to the way investors would compare older deals against the newer higher yielding ones AVERSE TO DURATION Only five companies have paid more for two year bonds according to Refinitiv data and four of them were unrated bonds which typically have higher coupons than those with a credit rating Evergrande s high borrowing costs could further pressure rivals who are scrambling to satisfy their own refinancing needs It means weaker and smaller players to Evergrande might have to revise their pricing expectations or they might even be priced out of the market because of this repricing said Christopher Yip S P senior director of corporate ratings Last month Shimao Property which had approval to issue up to 820 million of bonds scrapped the sale of a five year bond entirely and trimmed its three year sale to 250 million The coupon on Shimao s three year bond which has a rating by Moody s two notches higher than Evergrande was 6 375 percent The Shimao deal is very telling it is one of the best private sector China property credits out there them failing to do a five year deal really shows that the market is really averse to duration at the moment said a debt capital markets banker who declined to be named as he was not authorised to speak to the media Shimao declined to comment A banker involved in Evergrande s bond sale said chairman Hui s involvement showed his confidence in the company Some investors said it showed limited appetite for the debt despite the sky high rates on offer Those stats are pretty awful there were no real buyers for the four and five year deal said one fund manager who has previously bought Evergrande notes but passed on this deal Credit analysts say it is increasingly hard to issue five year or longer dated bonds given the weak markets which makes the Evergrande deal stand out even more
Those days have gone for now said Steve Wang senior credit analyst at CITIC CLSA |
C | Forex Dollar Backtracks as Sterling Shines on Brexit Deal Hopes | Investing com The dollar slumped against its rivals Thursday after data showed U S manufacturing activity fell to a six month low while a surge in sterling also weighed
The U S dollar index which measures the greenback against a trade weighted basket of six major currencies fell by 0 89 to 96 04
ISM manufacturing data for October showed a decline to a reading of 57 7 down from 58 8 last month and below expectations for a reading of 59 A reading above 50 in the ISM index indicates an expansion in manufacturing which accounts for about 12 of the U S economy
The dollar was also weighed down by a surge in sterling on reports that London is close to securing a financial services deal with the EU The pound was further boosted by the Bank of England s hawkish tilt on Thursday as the central bank hinted at a faster pace of rate hikes should the UK and European reach a consensus on a withdrawal agreement
GBP USD 1 84 to 1 3001
Citigroup NYSE C brought forward its forecast for the next Bank of England bank rate interest predicting a 25 basis point rate raise to 1 in May 2019 rather than August 2019 The revision was triggered by changes in the bank of England s forecasts coupled with fiscal loosening that remained yet to be reflected in the projections said Citi economist Christian Schulz
EUR USD 0 88 to 1 1412 but analysts said the room for prolonged rally in the single currency would be limited by signs of flagging economic growth momentum in the eurozone and concerns about the euroskeptic political movement
USD CAD meanwhile fell 0 49 to C 1 3092 as slump in oil prices drew a muted reaction in the oil price sensitive loonie
The safe haven yen continued to tack on gains against the dollar even as risk appetite in global stock markets improved
USD JPY fell 0 24 to Y112 67 |
C | Mortgage Bond Carnage Shows What the Future Holds Without Fed Help | Bloomberg The bloodbath last month in the mortgage bond market points to what the future may be like without Federal Reserve hand holding Now investors are wondering if anyone will step in to stop the bleeding
Returns on mortgage backed securities in October lagged Treasuries by the most since November 2016 when rates surged in the aftermath of President Donald Trump s surprise election Last month s weakness coincided with the Fed ending its mortgage purchases as it winds down the 1 7 trillion MBS portfolio it amassed since the financial crisis to support the market
When the Fed announced they were going to buy mortgages we tightened a lot and rolls performed really well now the reverse is happening said Kevin Jackson a managing director on Wells Fargo s mortgage trading desk One should expect widening
In a situation rarely seen over the last four decades there isn t going to be a government entity which before the financial crisis included Fannie Mae and Freddie Mac at hand to provide liquidity for mortgage backed securities This combined with the Fed increasing rates is likely to continue to push spreads wider and rates for home buyers higher
Some investors hope that banks or money managers will fill that role but both face challenges that may prevent them from taking on that task according to Ankur Mehta the head of MBS research at Citigroup Inc NYSE C
It is not obvious to us where that incremental demand for mortgages comes from Mehta said noting domestic banks already earn an attractive return on reserves while money managers are facing headwinds due to outflows and their existing MBS overweights
The carnage in October also came about due to the fact mortgages were still looking rich compared to pre crisis spreads when the Fed didn t own any MBS according to Mehta
A popular method of valuing the mortgage market the Fannie Mae 30 year current coupon spread over a blend of 5 year and 10 year Treasuries ended October at its widest since June 2017
While it s uncertain where spreads and therefore mortgage rates will find their footing it s certain that someone will need to fill the demand gap |
JPM | iFOREX Daily Analysis July 12 2017 | The dollar moved lower against most major currencies on Tuesday after a top Fed official suggested a caution approach to further interest rate increases may be needed to revive inflation
Federal Reserve Governor Lael Brainard said Tuesday that it is necessary to monitor inflation developments and to move cautiously on further rate hikes in order to reach their inflation target
Investors are expected to closely monitor events later in the week including a testimony from Fed chair Janet Yellen on the state of the U S economy and the Fed s monetary policy outlook
Yellen is scheduled to testify on the economy before the Senate Banking Committee at 14 00GMT Wednesday On Thursday she will appear in front the House Financial Services Committee also at 14 00GMT
Investors are also looking towards several U S economic reports with Friday s inflation data in the spotlight for further clues on the timing of the next Fed rate hike
Today investors will be focusing on the UK monthly employment report and on the Bank of Canada interest rate statement The bank will also hold a press conference
GBP USD
Sterling fell on Tuesday after Broadbent in a speech warned that Britain will suffer if its existing trade links with the European Union are weakened by Brexit
Some investors had expected Broadbent to give an indication of his position on whether interest rates should rise but his speech did not discuss monetary policy at all
This week in the U K market participants will be looking ahead to today s monthly jobs report for further hints on the strength of the economy and the likelihood of the Bank of England raising interest rates this year
Pivot 1 287Support 1 2825 1 2805 1 277Resistance 1 287 1 2895 1 292
Scenario 1 short positions below 1 2870 with targets at 1 2825 1 2805 in extension Scenario 2 above 1 2870 look for further upside with 1 2895 1 2920 as targets Comment the index currently faces a challenging resistance area at 1 2870
Gold
Gold recovered part of its losses on Tuesday after reaching its lowest level since mid March closing the day at 1217 per ounce
Gold prices were supported by comments from Fed officials that the Fed needs to move cautiously on further rate hikes
The main concern is the weak inflation outlook which raises doubts over whether officials will be able to stick to their plan for tightening monetary policy
In the week ahead investors will be focusing on Fed Chair Janet Yellen s testimony on monetary policy as well as U S data on inflation and retail sales due on Friday
Pivot 1213Support 1213 1208 1205Resistance 1226 1229 1233
Scenario 1 long positions above 1213 00 with targets at 1226 00 1229 00 in extension Scenario 2 below 1213 00 look for further downside with 1208 00 1205 00 as targets Comment the RSI is mixed with a bullish bias
WTI Oil
Oil prices posted a sharp recovery on Tuesday after the API said that weekly inventories of crude in the U S dropped 8 13 million barrels adding to a drop of 5 76 million barrels the week prior The actual drop was more than three times higher the expected 2 5 million barrel draw the market was expecting
In addition U S Energy Information Administration said late on Tuesday that it expected 2018 crude oil output to rise to 9 9 million barrels per day bpd from 9 3 million bpd this year a 570 000 bpd increase This was down from last month s forecast 680 000 bpd year over year increase
Oil ministers from five countries monitoring the deal plus Saudi Arabia will meet on July 24 in Russia
Today the Energy Information Administration is expected to release its own inventory report
Pivot 44 85Support 43 7 43 32 42 7Resistance 44 85 45 4 45 85
Scenario 1 short positions below 44 85 with targets at 43 70 43 32 in extension Scenario 2 above 44 85 look for further upside with 45 40 45 85 as targets Comment the RSI lacks upward momentum
US 500
The main US indices ended little changed on Tuesday in a session marked by weak reactions and events in Washington that drove investors to worry for the Trump administration s economic agenda
Stocks fell sharply in late morning trading after emails disclosed by President Donald Trump s eldest son cited Russian support for his father s 2016 election campaign
The emails referred to a top Russian government prosecutor offering the Republican Trump campaign damaging information about Democratic rival Hillary Clinton
Investors will now be focusing on the start of the earnings season with big U S banks including JPMorgan Chase NYSE JPM Wells Fargo NYSE WFC and Citigroup NYSE C reporting on Friday
Pivot 2416Support 2416 2411 5 2408Resistance 2429 2432 2436 5
Scenario 1 long positions above 2416 00 with targets at 2429 00 2432 00 in extension Scenario 2 below 2416 00 look for further downside with 2411 50 2408 00 as targets Comment the RSI calls for a bounce |
JPM | Bank Earnings In The Spotlight | Note The following is an excerpt from this week s report You can access the full report that contains detailed historical actual and estimates for the current and following periods
Here are the key points Bank earnings were very strong in the last earnings season but Q2 estimates came down to reflect the unfavorable interest rate and capital markets backdrop While Q2 earnings growth for the banking industry is expected to be below the year earlier level quarterly earnings for the Finance sector as a whole are expected to be up 4 6 from the same period last year on 1 7 higher revenues This would follow 10 5 earnings growth on 5 2 higher revenues in Q1 For the S P 500 Index as a whole total Q2 earnings are expected to be up 5 6 from the same period last year on 4 5 higher revenues Sectors with the strongest growth in Q2 include Energy Technology Aerospace Construction and Industrial Products Q2 earnings growth for the index would fall to 3 0 on an ex Energy basis Q2 Estimates came down since the quarter got underway but the magnitude of negative revisions has been below other recent periods Estimates came down for 10 of the 16 Zacks sectors since the start of the quarter while estimates went up for 6 sectors in that time period including Industrial Products Transportation Construction Aerospace Technology and Business Services Beyond Q2 total earnings for the S P 500 index are currently expected to grow by 6 1 on 4 5 higher revenues in the September quarter and 9 7 on 5 2 higher revenues in Q4 For full year 2017 total earnings for the index are expected to be up 7 4 on 4 1 higher revenues which would follow 1 earnings growth on 2 higher revenues in 2016 Index earnings are expected to be up 11 4 in 2018 and 9 3 in 2019 The Energy Technology and Finance sectors are the biggest earnings contributors in 2017 2017 earnings growth would be 4 7 on an ex Energy basis
Earnings growth for the Zacks Major Banks industry which includes the money center operators like JPMorgan NYSE JPM Citigroup and Wells Fargo that are reporting results Friday morning is expected to be down 6 from the same period last year on 3 higher revenues This would follow the group s strong showing in Q1 when total earnings for the industry increased 19 4 on 5 9 higher revenues The industry s actual growth will most likely be better than these expectations but they are unlikely to be as strong as what we saw in Q1 The factors expected to weigh on the group s Q2 profitability include lower treasury yields since partly reversed continued deceleration in loan growth and an overall trough backdrop for the capital market and advisory businesses Estimates for a number of these banks have come down lately to reflect these developments but I suspect that they haven t fallen enough to fully reflect the relatively softer ground realities With the Major Banks industry accounting for roughly 45 of all Finance sector s earnings this relatively soft earnings backdrop is weighing on expectations for the broader sector as a whole Total Finance sector earnings for Q2 are expected to be up 4 6 from the same period last year on 1 7 higher revenues The chart below contrasts the sector s Q2 expectations with what was actually achieved in the preceding two quarters and what is expected in the following four quarters
The table below shows the same data for the sector at the medium industry level
Q2 Expectations As a WholeTotal Q2 earnings for the S P 500 index are expected to be up 5 6 from the same period last year on 4 5 higher revenues with double digit earnings growth from 5 sectors Energy Technology Aerospace Construction Industrial Products Energy has the biggest contribution to growth this quarter the Q2 growth pace falling to 3 from 5 6 on an ex Energy basis Estimates for Q2 came down since the start of the period as the chart below shows
This trend of negative revisions ahead of the start of each reporting cycles is not new we have been seeing this play out quarter after quarter for more than 3 years That said the revisions trend has been moving in a favorable direction over the last two quarters and that same trend is even more at play in Q2 estimates What this means is that while estimates for Q2 have come down they haven t come down as much as would typically be the case by this time in other recent periods The chart below shows quarterly earnings growth expectations beyond Q2
Unlike the year over year growth pace the dollar amount of total earnings are expected to be in record territory in the coming quarters particularly in the second half of the year as the chart below shows
The expected earnings total for Q2 at present is 2 1 below the all time quarterly record level achieved in 2016 Q4 With actual results typically coming in better than pre season expectations we will likely see the final 2017 Q2 tally to exceed the 2016 Q4 record
Note Sheraz Mian manages the Zacks equity research department He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks com and in the print and electronic media His weekly earnings related articles include Earnings Trends and He manages the and portfolios and writes the article for subscribers
Looking for Stocks with Skyrocketing Upside Zacks has just released a Special Report on the booming investment opportunities of legal marijuana Ignited by new referendums and legislation this industry is expected to blast from an already robust 6 7 billion to 20 2 billion in 2021 Early investors stand to make a killing but you have to be ready to act and know just where to look |
JPM | Opening Bell Dollar Bonds Fall As Yen Gold Rise On Trump Jr | by Pinchas Cohen
Key Events
Dollar weaker S P flat on Trump
Asian markets affected by currency and business
European markets rise
Risk off and Risk on operate in tandem
Oil jumps on falling inventories a correction within a decline
Bank of Canada expected to raise rates
The dollar extended yesterday s declines versus its G 10 peers on news revealing that the President s son Donald Trump Jr had received an email prior to the election offering Russian government assistance to help his father s presidential campaign
The yen rose for a second day despite concerns of BoJ intervention in a clear sign of rising investor risk aversion because of Trump Jr s possible collusion From a technical perspective it is only a correction in a return move to the reversal line of a H S reversal pattern
Global Affairs
With risk off now being embraced by investors US 10 year Treasury yields declined 1 27 percent within the first two hours after the release of the latest developments in the Trump Jr Russia affair They ve continued to fall to a total to1 60 percent as of 2 00 EDT Similarly the price of gold jumped 0 64 percent within the first hour and rose as much as 0 97 as of 1 00 EDT
After the the release of the news the S P 500 sharply declined by 0 63 percent but bounced right back ending the day down just a negligible 0 1 percent lower This is a case of everyone fearing what others will do So they re the first to sell off but upon realizing the news isn t that big a deal they rush back in
This morning European equities advanced the Euro Stoxx 50 was up 0 55 percent at time of writing the DAX was up 0 44 percent and the CAC 40 advanced 0 7 percent on energy shares The French benchmark index bounced off its April low following oil s corrective rally
While safe haven assets rise a clear risk off indicator equities investors continue to embrace risk on sentiment This aberration began with the November US elections when both risk and safe haven assets started rising in tandem de calibrating market components and leaving investors with disparate economic outlooks on how markets will play out
Yesterday Bloomberg reported that Stocks had been inured to Washington tensions since Comey when they drop ped In fact since the Brexit vote equity investors have become more daring in their disregard for political risk while currency and commodity traders seem to have kept their political savvy It took equity markets three days to digest the shock of the June 24 2016 Brexit vote three hours to come to terms with the shock of the November 8 US presidential vote and three minutes to skip back the significance of the December 4 Italian referendum Does this suggest that equity investors are wrong Try telling that to investors who ve seen their equity portfolios rise 15 percent in eight months since the US elections and 19 percent since the Brexit vote
The Tokyo Price Index opened 0 28 percent lower declined as much as 0 64 percent and settled at 0 47 percent However let s remember that the yen had strengthened as much as 0 35 percent at the same time which is proportionate to the decline in Japanese stocks while investors are nervous ahead of Yellen s testimony before Congress
In Hong Kong traders were not fazed by political risks as the Hang Seng was up 0 8 percent crossing over the 26 000 round psychological price level and resuming a rally of 2 8 percent this week The index seems to be heading for its best weekly performance since mid March as investors focus on the rise of mainland Chinese blue chips up 1 5 percent The index is on course for its best performance in nine weeks
Oil recovered 3 13 percent yesterday and reversed 4 6 percent from the low of the day on reports of a decline in stockpiles Inventories declined by 8 13 million barrels last week according to an API report the biggest drop since September when compared with the US Energy Information Administration data The API report followed the EIA cut in its 2018 oil output forecast to 9 9 million barrels a day down from its 10 01 million estimated in June
Today oil extended yesterday s gains by 1 7 percent as of 3 34 EDT However oil is still within a bear market and from a technical perspective this rally is a correction within a decline providing a better opportunity for short traders
The pound declined after it was reported that the Bank of England Deputy Governor Ben Broadbent isn t ready to vote for a rate hike The decline opens up the potential for a double top reversal pattern
Yesterday Federal Reserve Governor Lael Brainard handed investors bittersweet news as she supported shrinking the balance sheet soon while holding off on rate hikes until it s warranted by inflation
The Bank of Canada is widely expected to hike interest rates See our trading strategies for the Canadian dollar here
In the aftermath of yesterday s latest development in the ongoing Trump political drama investors are awaiting Yellen s testimony before Congress today and a refresh via more familiar territory the start of corporate earnings season
Up Ahead
Yellen testifies before Congress today and tomorrow
JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC will release earnings reports on Friday before the market opens
The UK will publish its Repeat Bill on EU membership this week
Market Moves
Currencies
The pound was down 0 2 percent at 8 06 a m in London following the news that BOE s Deputy Governor Broadbent isn t ready to support a hike
The yen was up 0 4 percent at 113 53 per dollar
The dollar barely regained losses against its G 10 peers
The Dollar Spot Index is fluctuating having been down 0 14 percent up 0 15 percent and settling up 0 9 percent at 95 71 as of 4 38 EDT
The Canadian dollar rose 0 1 percent ahead of a widely expected rate hike
The euro was down 0 1 percent
Stocks
The S P 500 closed 0 1 lower
The Euro Stoxx 50 gained 0 4 percent
The FTSE 100 rose 0 6 percent
S P 500 futures are flat
Japan s TOPIX lost 0 5 percent
Australia s S P ASX 200 Index declined 1 percent
Hong Kong s Hang Seng climbed 0 7 percent crossing over the key 26 000 mark led by banks
Pakistan s Karachi 100 dropped 1 percent after it fell its most in eight years on Tuesday when investigators recommended that Prime Minister Sharif and his two sons be brought to trial on corruption charges
Bonds
The US 10 year Treasury yield dropped one basis point to 2 36 percent
Australian 10 year bonds fell three basis points to 2 72 percent halting five days of gains
The Bank of Japan raised outright purchases of 3 to 5 year government notes to contain a recent increase in medium term yields
Commodities
WTI crude climbed 0 35 percent crossing the dollar mark to 46 01 The commodity was unable to hold on to those levels and retreated below the whole number to 45 95 a barrel as of 4 43 EDT
Gold was little changed at 1 217 97 an ounce
Silver rose 0 4 percent to 15 80 |
JPM | Chart Of The Day Sell Citi On Earnings But Buy On Technicals | by Pinchas Cohen
Value vs Expectation
Sometimes stocks rise on value which is the subject of fundamental analysis other times they rise on expectation the subject of technical analysis While fundamental analysis seeks to determine the innate value of the real asset then wait for its financials to catch up the technical analyst seeks to determine the value investors anticipate for financial asset itself
One plays the cards one plays the man So which is better
That s like trying to gauge which martial art is better while different fighters attain different levels of mastery Sometimes fundamental and technical analyses agree and sometimes they don t as each focuses on a different aspect of market dynamics
Will Earnings Disappointment and Higher Interest Rates Cause a Selloff
Fundamental analysts for the big four US banks see potential for earnings disappointing in the second half of the year after a relatively strong first half for financials some such as those at Citi also consider rising interest rates a potential catalyst for a stock market sell off
Fundamental analysts everywhere are expecting disappointing results from all banks which has become the new normal since the crisis as a result of weaker trading revenue and low long term rates They also expect mortgage originations to be sluggish The Mortgage Bankers Association has revised down its forecast to 1 56 trillion which is down 8 2 from 1 9 trillion in 2016
While Citigroup NYSE C competitors JPMorgan Chase NYSE JPM and Wells Fargo NYSE WFC are seeing declines in mortgage income Citigroup continues to move further away from mortgages altogether
Market Rotation Out of Tech Into Financials
Though Citi may consider rising rates a threat to the stock market any hikes will be good for bank sector earnings This brings us to the recent stock market leadership rotation out of the technology sector and into financials which completed a top on the NASDAQ while a top was still forming on the S P 500 which still needed to prove itself by advancing past its former March Peak below
So let s assume that earnings will disappoint when Citi reports on Friday Is that the whole story As Citigroup itself says higher rates can be the catalyst for a major correction in a market that hasn t seen one since the 10 percent selloff on December 2015 Additionally this is the second longest running bull market in the history of the US market thanks to extended QE and extremely low interest rates Which means the odds increase proportionately that this bull could be coming to its end especially with the Fed shrinking the balance sheet and hiking rates
Irrespective of past earnings aka fundamentals if investors truly anticipate that the increasingly intense rotation into financials that began on June 9 will follow through bank shares could rise solely on that the technicals
Wells Best Earnings Expectation Citi Best Stock Demand Expectation
Therefore though Wells Fargo is expected to provide the best earnings and revenue numbers when the banks report on Friday Citigroup s technicals provide the best picture of investor anticipation So let s analyze Citigroup
Citigroup s trading pattern broke out of its moderate rising channel which suggests a steeper climb going forward This may be preceded by a minor correction That would jibe with fundamental analyst expectations of all around disappointing earnings for banks
The price of Citigroup has been trading within a mildly rising channel this year in which it gained 16 in value from the February s 55 23 low to 64 in late June After that it broke out of the channel crossing through the resistance of its top now expected to turn to support as it continues to climb more steeply It climbed 7 5 percent in just four trading days which included a 3 75 percent gap on June 29
Fundamentally the rising gap occurred on the bank s overwhelmingly successful stress test which the Fed released on June 28 This was followed by Citigroup s commitment to repurchase up to 15 6 billion of common stock over the next year and double its quarterly dividend to 32 cents per share bringing total payouts to 18 9 billion Technically the gap followed a breakout of a bullish falling flag a continuation pattern
Breakout Gap s Red Flag
The flag s upside breakout gap raises a red flag After the gap prices extended gains over the following 3 days all of which were lost in the following 4 days In fact yesterday s closing price of 66 82 is lower than the closing price on June 29 after the gap at 66 98
While the decline in itself doesn t negate the bullish implication of the channel breakout the breakaway gap could turn out to be an exhaustion gap a prelude to an Island Reversal to be completed with a second falling gap And what better catalyst for that than a disappointing earnings report The price hovering right at the top of the gap suggests that investors are waiting for earnings in order to figure out where to go from there
First the preceding trading doesn t support the case of an exhaustion gap which follows earlier gaps when none occurred It s called an exhaustion gap because it s the last gasp for demand which comes at the top of a frenzied buying spree
That doesn t seem to be the case here as the gap actually followed the flag a consolidation by definition as well as congested trading since April We also know the fundamental reason for the gap and it s justified
Second even if it does turn out to be an exhaustion gap after a falling gap would complete an island reversal its downside implication is no more than the rising gap That would put it right on top of the support of the channel top from which it would be expected to resume its uptrend
Trading Strategies
Conservative traders would probably wait on a long for a potential island reversal and a return to the support of the channel top which would be around 65
Moderate traders are likely to wait on a long for a potential dip toward the June 29 low of 66 26 before earnings
Aggressive traders would go long now in case of an earnings surprise which would be a catalyst for a price jump while placing a stop loss as far below as possible toward the 65 36 bottom of the gap a support or even to the channel top on 64 50 per the current angle Traders it s bad enough to lose money when you re wrong but it s horrible to lose money when you re right That s what would happen if you don t protect your trade with the appropriate stop loss
Very Aggressive traders would short the stock on the impending fundamental disappointment compounded by the falling gap potential of an island reversal before going long Also the RSI provided sell signals when it fell after reaching its most oversold read since the Trump election |
JPM | Big Bank Friday 3 Stocks To Watch | JPMorgan Chase Co NYSE JPM
Historically JPM has tended to outperform both Estimize and the Street on earnings 65 and 77 of the time respectively This quarter Estimize predicts EPS to be 1 63 and the Street predicts EPS at 1 60 Regarding revenue the stock tends to outperform both Estimize and the Street 61 and 75 of the time respectively For FQ2 17 Estimize is predicting 25 479B and the Street comes in at 25 017B It should be interesting to see if these trends continue this quarter
JPMorgan has been in the media recently due to its expressed interest to acquire British Payments Company Worldpay LON WPG Because JPM is predicted to be in a bidding war against Vantiv NYSE VNTV a credit card processor there has been much buzz about what will happen with WorldPay if JPMorgan beats out Vantiv Likewise recent job reports and the rate increase by the Fed shows a good outlook for JPM in the future Stay tuned
Wells Fargo Company NYSE WFC
For FQ2 17 Wall Street and Estimize are coming in very close with EPS estimates at 1 06 and 1 04 respectively Given the fact that analysts have been pretty accurate on both ends it should be interesting to see what happens this quarter WFC has surpassed Wall Street and Estimize expectations a majority of the time Wall Street 71 of the time and Estimize 52 of the time
Wells Fargo recent move to withhold 90 million from bond holders could potentially shake up the mortgage bond market and give investors a whole new perspective on the bank It claims that as a trustee it can exercise the right to hold back funds if need be In this scenario it claims to be doing so in order to cover legal costs While they may have the legal right to do something like this its effects are widespread long lasting and may make some investors rethink their course of action
Citigroup Inc NYSE C
In December I named Citigroup the best stock to buy in 2017 now I see no reason to move in any other direction claimed Ken Trester editor at Maximum Options If we look at the Estimize data it is easy to see why this is so Examining EPS it is fairly consistent with Estimize and Wall Street Citigroup tends to outperform Estimize and Wall Street 59 and 66 of the time This quarter we are predicting 1 26 EPS and the Street is coming in at 1 23 EPS Revenue is the same story with Estimize coming in slightly higher at 17 5B vs Wall Street s 17 3B
Despite Citigroup being one of the largest banks its stock is the most undervalued of them all with a current P E under 13x The stock is not only showing promise right now passing the Federal Reserve s Stress Test and with a dividend yield of 0 95 it also shows great potential in the future |
JPM | Zacks Earnings Trends Highlights JPMorgan Citigroup And Wells Fargo | For Immediate Release
Chicago IL July 13 2017 Zacks Director of Research Sheraz Mian says Quarterly earnings for the Finance sector as a whole are expected to be up 4 6 from the same period last year on 1 7 higher revenues
Bank Stocks in the Spotlight
Note The following is an excerpt from this week s report You can access the full report that contains detailed historical actual and estimates for the current and following periods
Here are the key points
Bank earnings were very strong in the last earnings season but Q2 estimates came down to reflect the unfavorable interest rate and capital markets backdrop
While Q2 earnings growth for the banking industry is expected to be below the year earlier level quarterly earnings for the Finance sector as a whole are expected to be up 4 6 from the same period last year on 1 7 higher revenues This would follow 10 5 earnings growth on 5 2 higher revenues in Q1
For the S P 500 Index as a whole total Q2 earnings are expected to be up 5 6 from the same period last year on 4 5 higher revenues Sectors with the strongest growth in Q2 include Energy Technology Aerospace Construction and Industrial Products Q2 earnings growth for the index would fall to 3 0 on an ex Energy basis
Q2 Estimates came down since the quarter got underway but the magnitude of negative revisions has been below other recent periods Estimates came down for 10 of the 16 Zacks sectors since the start of the quarter while estimates went up for 6 sectors in that time period including Industrial Products Transportation Construction Aerospace Technology and Business Services
Beyond Q2 total earnings for the S P 500 index are currently expected to grow by 6 1 on 4 5 higher revenues in the September quarter and 9 7 on 5 2 higher revenues in Q4
For full year 2017 total earnings for the index are expected to be up 7 4 on 4 1 higher revenues which would follow 1 earnings growth on 2 higher revenues in 2016 Index earnings are expected to be up 11 4 in 2018 and 9 3 in 2019
The Energy Technology and Finance sectors are the biggest earnings contributors in 2017 2017 earnings growth would be 4 7 on an ex Energy basis
Earnings growth for the Zacks Major Banks industry which includes the money center operators like JPMorgan NYSE JPM NYSE Citigroup NYSE and Wells Fargo NYSE that are reporting results Friday morning is expected to be down 6 from the same period last year on 3 higher revenues This would follow the group s strong showing in Q1 when total earnings for the industry increased 19 4 on 5 9 higher revenues
The industry s actual growth will most likely be better than these expectations but they are unlikely to be as strong as what we saw in Q1 The factors expected to weigh on the group s Q2 profitability include lower treasury yields since partly reversed continued deceleration in loan growth and an overall trough backdrop for the capital market and advisory businesses Estimates for a number of these banks have come down lately to reflect these developments but I suspect that they haven t fallen enough to fully reflect the relatively softer ground realities
With the Major Banks industry accounting for roughly 45 of all Finance sector s earnings this relatively soft earnings backdrop is weighing on expectations for the broader sector as a whole Total Finance sector earnings for Q2 are expected to be up 4 6 from the same period last year on 1 7 higher revenues
Q2 Expectations As a Whole
Total Q2 earnings for the S P 500 index are expected to be up 5 6 from the same period last year on 4 5 higher revenues with double digit earnings growth from 5 sectors Energy Technology Aerospace Construction Industrial Products Energy has the biggest contribution to growth this quarter the Q2 growth pace falling to 3 from 5 6 on an ex Energy basis
This trend of negative revisions ahead of the start of each reporting cycles is not new we have been seeing this play out quarter after quarter for more than 3 years That said the revisions trend has been moving in a favorable direction over the last two quarters and that same trend is even more at play in Q2 estimates What this means is that while estimates for Q2 have come down they haven t come down as much as would typically be the case by this time in other recent periods
Unlike the year over year growth pace the dollar amount of total earnings are expected to be in record territory in the coming quarters particularly in the second half of the year
The expected earnings total for Q2 at present is 2 1 below the all time quarterly record level achieved in 2016 Q4 With actual results typically coming in better than pre season expectations we will likely see the final 2017 Q2 tally to exceed the 2016 Q4 record
Note Sheraz Mian manages the Zacks equity research department He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks com and in the print and electronic media His weekly earnings related articles include Earnings Trends and He manages the and portfolios and writes the article for subscribers
If you want an email notification each time Sheraz Mian publishes a new article please
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MS | Morgan Stanley puts brokers alongside bankers in effort to boost business | By Olivia Oran Reuters Morgan Stanley NYSE MS is putting some of its financial advisers into its Times Square NYSE SQ headquarters in New York City for the first time as the Wall Street firm tries a novel approach aimed at generating more business between its investment bank and wealth management units The sixth largest U S bank has relocated 90 advisers from its private wealth management business who deal with its wealthiest clients They were previously in other New York locations including Morgan Stanley s Fifth Avenue office people familiar with the matter said on Thursday A Morgan Stanley spokeswoman declined to comment The move which creates a new flagship for its private wealth management operation at the bank s headquarters is part of a long running effort at Morgan Stanley to encourage more interaction between the separate banking and wealth units which senior executives want to share more customers An investment banker for example might introduce an executive whose company is about to go public to an adviser to manage his wealth or an adviser might introduce a corporate client to a mergers and acquisitions banker to get advice on a transaction Bonuses would reflect those referrals according to the people familiar with the plans The plan is being led by Morgan Stanley s strategic client management unit which the bank set up several years ago to stimulate new business across the firm s units It is now run by Vince Lumia also the head of the bank s private wealth management group Morgan Stanley s wealth unit last year gained 12 billion to 15 billion in assets due to referrals from investment banking and trading businesses said Andy Saperstein Morgan Stanley s co head of wealth management at a financial conference in New York on Wednesday The wealth unit also drove 100 million worth of business for the institutional group through referrals he said This is just the tip of the iceberg Saperstein said We think we can grow this substantially Until now Morgan Stanley s Times Square headquarters has housed its institutional business which includes banking trading and research
Top wealth executives including Lumia have also moved to the building Some financial advisers will remain in other offices around New York including Morgan Stanley s 522 Fifth Avenue location and its wealth management headquarters in Purchase New York |
MS | Nikkei tops 20 000 but autos banks and yen make investors doubt sustainability | By Ayai Tomisawa and Nichola Saminather TOKYO SINGAPORE Reuters A 10 percent surge over six weeks swept Japan s Nikkei stock index above the 20 000 point barrier for the first time since late 2015 on Friday without dispelling doubts about the rally s shelf life given the outlook for automakers banks and the yen Data shows foreign investors who make up 70 percent of trading activity in the Tokyo market rushed to cover short positions as a rally from the year s low on April 17 gathered momentum But the data also shows foreigners avoided making heavy bullish bets probably because analysts expect Japan Inc s earnings growth to falter The number of companies on the MSCI Japan index MIJP00000PUS with earnings estimates down from the previous month has climbed steadily since mid April and is now at its highest since December according to Thomson Reuters DataStream After 16 percent profit growth in the year ended in March Japanese firms are expected to show slower growth in the year ending March 2018 According to Nomura consensus forecasts for full year profit growth came down to 11 4 percent in May from 13 3 percent in April The conservative earnings guidance has tempered sentiment toward Japanese stocks in the near term said Jeremy Osborne investment director at FIL Investments in Tokyo Notching a third straight week of exits U S based Japanese stock funds posted 194 million of withdrawals during the week ended Wednesday according to Lipper data REASONS TO BE CAREFUL Investors biggest concerns are the potential for the yen to strengthen undermining Japan s export driven corporates and the murky outlook for the two biggest sectors in the benchmark index automakers and financials The problem is a big chunks of the market are exporters and the biggest export sector is autos and the outlook for the auto sector globally has turned down said John Doyle chief investment officer for equities and multi asset at UOB Asset Management in Singapore And the low interest rates that are persistent in Japan are not good for financials Doyle added explaining why he is neutral on Japanese stocks in the group s global portfolio New vehicle sales in the United States Japan s top export destination fell in April following disappointing numbers in March signaling a long boom cycle may be losing steam Carmakers Toyota T 7203 and Nissan T 7201 for instance have both underperformed the Nikkei s 5 6 percent gain this year posting losses of 11 percent and 6 6 percent respectively So have the biggest banks including Mitsubishi UFJ T 8306 which has only gained 0 2 percent and Sumitomo Mitsui T 8316 which has fallen 6 6 percent respectively The yen s attraction as a safe haven currency it has risen 4 5 percent against the dollar this year is another big cloud hanging over Japanese exporters U S political turmoil elections in Europe and regional tensions arising from North Korea s missile tests have all given an unwanted boost to the yen Christian Nolting global chief investment officer at Deutsche Bank DE DBKGn Wealth Management cited the currency factor as the main reason behind his neutral weighting on Japanese equities P E RATIOS TURNING For all their reservations investors still clearly have an appetite for cherry picking Tokyo Electron Ltd T 8035 has jumped nearly 50 percent this year after bright results on the back of strong chip manufacturing equipment demand while factory automation sensor maker Keyence Corp T 6861 has soared 26 percent The Nikkei however is trading at about 15 7 times earnings compared with 18 7 in 2015 when it lingered above 20 000 points for a few months DataStream shows While that makes the index significantly cheaper than the S P 500 s at 22 5 times earnings investors remain hesitant The weaker sentiment is evident in Toyota and Nissan shares which are trading around 10 times and 6 4 times their earnings respectively In just three weeks between the last week of April and the second week of May Japanese shares saw 1 5 trillion yen of inflows from foreign investors in futures on the back of a strong earnings season and receding political fears after the French election But they had sold 1 6 trillion yen in futures in the previous seven weeks so short covering seems to have run its course analysts said Investors have also returned to selling futures in the past two weeks Investors are cherry picking individual stocks But they just finished short covering in futures and they probably won t buy soon unless the yen weakens said Norihiro Fujito a senior investment strategist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities
And when foreign investors don t buy futures the Nikkei won t rise much |
JPM | Confidence on Lululemon into earnings | JPMorgan NYSE JPM raises its price target on Lululemon NASDAQ LULU to 146 from 133 to rep 10 upside potential from Friday s closing price Buckingham Research takes its PT on Lululemon to 130 from 110 It s a nice bit of Wall Street confidence ahead of Lululemon s earnings report on August 30 LULU 1 00 premarket to 131 49 Now read |
JPM | Lululemon shoots to new all time high | Lululemon LULU 4 7 broke to a new all time high of 137 20 as sentiment stays favorable on athletic apparel disrupter JPMorgan NYSE JPM s Matthew Brinkman helped the cause today with a note highlighting the strength of the Lululemon brand in North America and Asia JP expects Lululemon to raise annual guidance when the company reports earnings on August 30 LULU is rated at Outperform by the firm and assigned an upped price target of 146 Shares of LULU are up 73 YTD Now read |
JPM | New sanctions leave Russia debt holders less sure of Trump s help | By Claire Milhench LONDON Reuters Loading up on Russian sovereign bonds was a consensus trade for emerging market investors once Donald Trump won the White House but the U S President s failure to defuse the threat of ever tighter sanctions has unnerved even the most bullish funds Earlier this month Washington outlined another round of sanctions over Moscow s alleged use of a nerve agent against a former Russian spy in Britain They kick in on Wednesday and if Russia does not permit United Nations inspections within 90 days a second set of draconian measures will follow according to the U S State Department Two U S senators have also proposed the sanctions bill from hell in reprisal for alleged Russian meddling in U S elections This includes limits on trading new Russian government bonds and additional sanctions on the seven largest Russian banks Although Trump campaigned on improving relations with Moscow he has not provided the protection investors hoped for Already undermined by a rising dollar a plummeting Turkish lira and wobbling emerging markets the rouble RUB has plunged to its lowest in nearly two years Some investors now fear a repeat of April s jolt when U S sanctions on Russian aluminum producer Rusal HK 0486 triggered waves of selling across all Russian assets We still don t know what s going to happen but clearly people are selling and asking questions later said Ed Al Hussainy senior interest rate and currency analyst at Columbia Threadneedle Investments which has been reducing Russian rouble treasury bonds known as OFZs People have been caught a little bit long in Russia because the fundamental story is very good but people with any kind of memory of 2014 are hitting the sell button he said Russia annexed Crimea in 2014 triggering sanctions from the United States the European Union Canada and Japan Attractive fundamentals such as falling inflation central bank interest rate cuts and a recovery in the oil price had all encouraged asset managers to go overweight Russian local currency debt And until recently OFZs have outperformed Between Nov 8 2016 when Trump was elected and Aug 14 2018 Russian local currency bonds returned 10 4 percent The JPMorgan NYSE JPM GBI EM Global Diversified index lost 1 3 percent over the same period But by Aug 17 yields on 10 year local government bonds RU10YT RR had climbed to 8 7 percent the highest since December 2016 It is instructive to remember the political risk associated with OFZ investments said Abhishek Kumar at State Street Global Advisors citing a fall of 65 percent from June December 2014 during the Ukraine crisis FOREIGN SLICE Foreign investors held 27 5 percent of Russian treasury bonds at end July down from 28 2 percent a month earlier Russian rating agency ACRA said overall demand would fall as much as 10 percent from early 2018 levels if new sanctions were imposed For a graphic on share of non residents in the Russian bond market png click The top five foreign holders of OFZs according to Bloomberg data cited by State Street are BlackRock GAM Stone Harbor Investment Partners Nikko Asset Management and Legg Mason The biggest of those BlackRock has 1 53 percent of the total by U S dollar market value with U S fund managers accounting for 9 6 percent Paul McNamara investment director at GAM said he was still long OFZs with gritted teeth If sanctions are applied to new sovereign debt he said It will make the market significantly less liquid but the probability of something which causes massive forced selling is low Raphael Marechal head portfolio manager emerging markets at Nikko Asset Management Europe said sanctions on new Russian sovereign debt would be very extreme seeing a higher risk of measures on energy companies and state owned banks BlackRock and Stone Harbor Investment Partners declined to comment Poor summer liquidity aggravated by a broad based emerging markets sell off in early August means cutting big overweights is tricky Because the whole EM complex is so much weaker liquidity is exceptionally bad so offloading EM positions right now is painful said Al Hussainy suggesting some managers might wait until September If you sell now you crystallize your losses immediately Viktor Szabo senior investment manager fixed income at Aberdeen Standard Investments said Aberdeen remained overweight Russian local debt and the currency Obviously that is hurting us but this is still one of the best stories out there and it should outperform Russian five year credit default swaps are still trading at around 160 basis points compared with over 600 bps in 2014 perhaps signaling some complacency Al Hussainy said there would almost certainly be more selling if the U S imposed more sanctions
My experience of emerging markets is that it can always get worse he said pointing out that the Kremlin had drawn a red line over any measures targeting state owned banks We are not priced for additional rounds of retaliation by both sides |
MS | Spain Not Enough Panic To Buy Yet | Now that we are nearly at support on the Spanish IBEX 35 Index my inner trader tells me it s too early to be buying We need to wait for more pain and panic to materialize My inner investor says that signs of value are starting to show up in a number of natural resource sectors and it s time to start accumulating positions in resource cyclicals Spain a contrarian buy but not yet Soon after I wrote my last post see Why I am buying the pain in Spain and I seemed to be on the same page when he wrote that Spain is unlikely to crash To TMM ed TMM Team Macro Man it would appear that the only scenario that supports selling right now is one where Spain crashes doesn t receive assistance defaults and the euro and then Europe break up Now call us picky but though that indeed is one potential outcome there are a lot of other scenarios and most of them involve some internal resolve even if it does involve printing your amount of money Elections may change the leaders of some countries but as the UK Con Lib coalition is finding out they are but the tip of the iceberg of the machine that is government There is enough mass below the waterline that knows where its true interests lie to stymie any threats to them Yes Minister indeed In fact they were piling into the Spanish trade Having piled back into equities last week the current mood should be considered as red flags to us and we really ought to run with the pack chop the longs swing short and whip up the doom Instead though TMM have decided to do the reverse and have broken the glass on the cabinet containing their Kevlar Gloves and bought some Spanish stocks of international appearance braced for comments Hold on tight Recall that my original premise for buying Spain is to wait for a period of maximum pain and panic see How much more pain in Spain The defining moment was the 2009 lows which would be a level of technical support for Spain s IBEX 35 Index Now that we are nearly there I don t think we ve seen sufficient pain and panic in the markets for Spanish equities to be a contrarian buy yet My inner trader thinks that TMM should be following his initial instincts to run with the pack chop the longs swing short and whip up the doom Consider this chart of European stocks which exhibited a break of an uptrend but the index is not showing any signs of panic yet What about the euro The EUR USD exchange rate is holding in nicely thank you very much So are 10 year Treasury yields No signs of panic there either Is the market about to hit an air pocket I am starting to see the signs of a change in leadership While my remains in at a weak neutral reading and I am not in the business of anticipating model reading changes my best wild eyed guess for the stock market is a gut wrenching correction followed by an explosive rally as the Bernanke Put and Draghi Put kicks in Consider the relative return charts below The top chart shows the relative return of the Morgan Stanley Cyclical Index compared to the market Cyclicals are underperforming and they have been in a relative downtrend after topping out in early February By contrast defensive sectors such as Consumer Staples and Utilities have been bottoming out relative to the market this year and recently started to outperform These are the signs of a change in leadership pointing to a deeper correction in stocks Value in resource sector Despite the negative near term prospect for cyclicals I am seeing signs of value showing up in the deep cyclical sector particular in the resource sector Canada s featured an article detailing that while energy companies were going like gangbusters Alberta s oil patch is roaring Oil prices are flying pipelines are pumping millions of barrels a day and companies are engaged in a rollicking spending spree Every 2 weeks companies shovel another billion dollars into oil sands projects Drilling rigs across the province are tapping big new pools of oil And firms desperate for skilled workers are scouring the globe to help them get on with ambitious growth plans Western Canadian oil output is expected to surge by more than a third to 3 6 million barrels a day by 2018 Their stockholders were missing out on the party Alberta s energy frenzy has all the makings of a hollering rodeo party But there s one group conspicuously missing out on the action investors In the midst of a boot stomping boom oil and gas has been among the country s worst performing sectors of the stock market Since the global economic crisis benchmark oil prices have soared from below 40 U S a barrel to above 100 Many Canadian energy stocks however have been left in the dust Indeed this chart of the XOI or Amex Oil Index against the price of WTI shows that energy stocks are historically cheap against oil Arguably the graph doesn t show the true picture as XOI is shown against WTI which has been trading at a discount to Brent which is becoming the de facto benchmark for the world price of oil We see a similar picture with gold mining stocks The Amex Gold Bugs Index or HUI is trading at a huge relative discount to gold bullion and the relative relationship is approaching the post Lehman Crisis panic liquidation and capitulation lows The slope of the recent price action of the energy stock oil and gold stock gold ratio however tell the story of controlled selling rather than the panic selling that characterize a capitulation low That s the same picture that I see in the IBEX 35 the Euro STOXX 50 Treasury bond yields and the EUR USD exchange rate A market crash is unlikelyLonger term however I expect that asset prices to be well supported by the Bernanke Put and Draghi Put Consider the Italian MIB Index as a bellwether of market fortunes While there is downside risk tail risk is likely to be mitigated by the Draghi Put and the near by presence of major technical support that stretch back to the mid 1990 s As the table below shows this week is a big week for Spanish equity markets as most of the Spanish banks are expected to report earnings Bad news could provide a catalyst for another downleg which would be a set up for the good contrarian to start buying In summary my inner trader tells me that there isn t enough panic here for him to step up to buy but my inner investor who has a longer time horizon tells me that it s time to start nibbling away at long positions in distressed sectors such as Spain and resource stocks at current levels |
MS | China s Buying Interest in EUR USD | It seems when the euro approaches the 1 30 area as it did late last week there is underlying support and the euro then rallies Since the forex market in total lacks visibility we simply do not know what orders are lying in the weeds undetected by the many market participants Recently there have been rumors of Chinese buying around the 1 30 area and is given as a reason why the market is skittish when approaching that level There are several suggested reasons for the Chinese buying interest One theory is Europeans as the largest buyers of Chinese goods may be bigger buyers if the euro is strong Another theory for the Chinese support of the euro is the Chinese wish to divest a portion of their reserves away from the USD Personally neither of these theories makes much sense to me but if you are sitting at a poker table with the largest pile of chips this may not foster rational behavior There was an excellent article today The entire article is a good read but I wish to touch some of the major points Mr Xie who was the former Chief Economist for Morgan Stanley in the Asia Pacific from 1997 to 2006 said Europe s problems are its own making and no amount of Chinese assistance will end the crisis China Shouldn t Get Involved European political leaders have been going to China frequently Prime Minister Mario Monti of Italy is the latest The objective is to get China to inject money into the euro zone either through funding the International Monetary Fund participating in the region s bailout schemes or buying assets It is a bad idea for China to get involved Greek bondholders have suffered a 70 percent haircut Such restructuring has occurred frequently in European history Italy could restructure its debt also Chances are that the euro zone won t change its leisure work balance Fiscal austerity could only slow the increase in the region s debt And the region s economies won t grow much for the foreseeable future To meet the debt service on the existing stock the real interest rate needs to be negative The ECB has to expand money supply to stabilize the region s debt market which causes inflation and a negative real interest rate Investors in the region s government debts will lose money in real terms Giving money to the IMF is the worst idea possible It is under European control China won t have any say in how the IMF channels the money into the region Participating in the region s bailout schemes is similar to giving money to the IMF China won t have a say in how the money would be spent As the region is still not embracing reforms to enhance productivity any bailout is just throwing good money after bad It doesn t make sense for China to join such follies Buying assets especially in countries like Italy is a bad idea The regulation regime and union rules make ownership not meaningful Local businesses can keep control through political influence over various power blocks in the country A foreign buyer could easily be robbed blind as the rules shift money from asset owners to workers Unfortunately the few cases of Chinese buying European assets fit this picture Chinese buyers of European assets have done poorly Until the region reforms to give ownership the same meanings as elsewhere outsiders shouldn t buy European assets China cannot save Europe No one can Only Europeans can through increasing work relative to leisure If Europe doesn t change financial assistance merely postpones the day of reckoning These are pretty strong words from an economist not ever to be confused with the words of a politician We do not know if he has the attention of the Chinese leadership Some perhaps but when you have 1 3 billion people there can be a lot of opinions Is the world becoming wary that there is insufficient financing for the European socialist states and it is becoming even more acute when the growth rate falls far short of the interest rate Compound this for a few years and finance your long term obligations with short term debt and it may be time to start exploring the credit default insurance obligations market European stocks declined as a report showed Chinese manufacturing contracted and Dutch Prime Minister Mark Rutte failed to reach an agreement with one of the parties in his coalition over austerity measures Asian stocks and U S futures also slid Will the French elections influence the markets On Sunday we got the first round of the French elections Merkel s buddy Sarkozy is headed for a run off against the socialist Hollande It would seem obvious that the last thing that Europe needs is the agenda being proposed by the Socialists No longer will the Germans and the French be preaching the austerity theme together In fact Hollande has a number of proposals to shorten the work week increase the pay lower the retirement age increase taxes and hasten the day when France will become the next ward of the world How will the markets receive these potential changes |
MS | These Overlooked Securities Yield Up To 16 | They ve become wildly popular Their assets grew more than 30 a year during the past decade For comparison mutual funds saw their assets rise just 5 6 per year according to McKinsey Co And there are no signs of that growth slowing down McKinsey Co projects assets in these securities will more than double in the next five years to at least 3 1 trillion from a little more than 1 5 trillion today I m talking about exchange traded products Most of that growth is in exchange traded funds ETFs but a handful of overlooked exchange traded notes ETNs yielding up to 16 also are included in this market And while there are ETFs for everything from copper to cocoa ETNs offer a unique type of exposure to mainly two high yield groups master limited partnerships MLPs and business development companies BDCs For example there is the JPMorgan Alerian MLP Index ETN NYSE AMJ which yields 5 and tracks the performance of a basket of 50 master limited partnerships And the UBS ETRACS 2x Wells Fargo BDC NYSE BDCL pays a yield of 16 and tracks 26 BDCs ETNs are an entirely different beast from ETFs Both track the performance of an index and offer a simple way to move in and out of a sector Both may pay dividends thrown off by the securities in the index they track And both can be bought or sold during the day just like a stock But that s where their similarities end Unlike ETFs ETNs do not represent a claim on shares of stock bonds or commodities The ETN issuer usually an investment bank such as Morgan Stanley NYSE MS or JPMorgan Chase NYSE JPM may invest in the index companies to collect returns but ETN holders like you and me don t have a claim on those assets Instead ETNs are promissory notes They are senior unsecured debt that promises to match the return of a specific benchmark Like bonds ETNs have a maturity date At maturity generally 15 to 30 years from the issue date the ETN is redeemed Unlike bonds however you don t receive the face value in cash Instead the amount you receive is based on the performance of the index What you get at maturity depends on how well the index has performed But one of the features that may be attractive to many investors is that ETNs can help you avoid some potentially hairy tax issues As debt ETNs distribute interest income that s taxable at your marginal income tax rate Although the income doesn t qualify for the reduced dividend tax rate you do receive a simple 1099 DIV form for the income you receive That s especially helpful when investing in an ETN tracking master limited partnerships where investors are subject to the more complex K 1s when investing in individual MLPs Also you can hold these ETNs in a tax sheltered IRA or 401 k account without fear of throwing off more than 1 000 in unrelated business taxable income UBTI that can come from investing directly in master limited partnerships Combine that with their high yields and you can see why exchange traded notes have become a favorite of income investors But are these the perfect income securities They definitely provide a good option to look into in your search for income but you should be aware that most ETNs trade very few shares a day For example the Morgan Stanley Cushing MLP High Income ETN NYSE MLPY trades fewer than 3 000 shares a day meaning it can be difficult to buy or sell large lots without moving the price Despite that any income investor looking for a class of securities overlooked by most investors would do well to spend some time researching more about exchange traded notes by Carla Pasternak |
C | Brazil Assets Jump After Bolsonaro Renews Pledge to Fix Economy | Bloomberg Jair Bolsonaro said the words investors wanted to hear
Brazil s next president pledged to trim the deficit pay down debt and reduce the size of government after results showed him cruising to victory over Fernando Haddad of the left wing Workers Party An American depository receipt of Petroleo Brasileiro SA trading in pre market hours jumped 8 percent while the biggest overseas exchange traded fund the iShares MSCI Brazil ETF added 5 6 percent Sovereign bonds trading on European exchanges gained
Brazilian assets are the world s best performers since polls in mid September showed the conservative lawmaker and former army captain ascending in polls The comments from Bolsonaro should tamp down on any skepticism that he wasn t fully committed to pension and tax overhauls which lingered since the candidate himself often professed an ignorance when it came to economics pleasing investors who had abandoned Latin America s largest economy over the past several years as fiscal accounts deteriorated
Bolsonaro landed a landslide victory promising Brazil a better future after years of economic downturn and corruption scandals said Bernd Berg a macro and foreign exchange strategist at Woodman Asset Management in Zug Switzerland I am confident Bolsonaro is going to deliver much needed reforms
He sees the Ibovespa stock index soaring more than 50 percent to 130 000 by the middle of next year and predicts the real will climb 21 percent in the same span to 3 per dollar
He s not alone in the optimism UBS Group AG after months of skepticism on Brazil s stocks is now telling investors that under the right circumstances the Ibovespa could rally almost 40 percent over just the next two months Banco Bradesco SA and Citigroup Inc NYSE C have both predicted surges and investors from Schroders LON SDR Plc to NCH Capital are adding to their Brazilian holdings
The Ibovespa has surged 29 percent in dollar terms over the past six weeks with the real jumping 15 percent both posting the best performances globally
We will break the vicious cycle of growing debt Bolsonaro said in his victory speech Substitute it with the virtuous cycle of smaller deficits falling debt and lower interest rates
Part of investors giddiness is simply that the Workers Party known as the PT for its initials in Portuguese won t be returning to power Much of the business community blames Brazil s leftest politicians for corruption and years of economic mismanagement culminating in the country s worse recession in a century and the loss of its investment grade credit rating
All of us feel an immense amount of relief that we don t have to deal with the PT for the next four years so it s natural that markets will continue to buy Brazilian assets said James Gulbrandsen the chief investment officer at NCH Capital in Rio de Janeiro which has 3 billion of assets under management We are now focused on the progress of reforms
The top priority for most investors is an overhaul of the pension system which is broadly seen as too expensive to sustain Changes such as setting a minimum retirement age could go a long way to shoring up fiscal accounts though they re likely to meet some resistance among Brazilians who don t want to give up benefits they believe they re entitled to
It was an expressive win said Christopher Garman the director for the Americas as the political consulting organization Eurasia Group But Bolsonaro will have a big challenge ahead His honeymoon won t last long and he ll have to push through difficult reforms
Bolsonaro got 55 percent of the vote to Haddad s 45 percent with almost all votes counted
Read more Brazil Swings Right With Jair Bolsonaro s Commanding Victory
Bolsonaro focused much of his campaign on a tough on crime pledge that some observers saw as having racial overtones and his disparaging comments about women and homosexuals have contributed to a high rejection rate among Brazilians about 45 percent Adding to his potential difficulties when he takes office Jan 1 in a fractious congress with more than a dozen political parties also seeking to prioritize their pet projects
In his victory speech Bolsonaro pledged to heal divisions and govern for all Brazilians
We are all a single nation a democratic nation he said I will guide a government that defends and protects the rights of the citizens that fulfills its duties and respects its citizens
For now investors are giving him the benefit of the doubt and cheering on his pledges to fortify the economy
The local scenario should be extremely positive for earnings growth and for the Brazilian equity market generally Frederico Sampaio the chief investment officer at Franklin Templeton Emerging Markets Equity Brazil wrote in a note There should be a more positive climate where consumer and business confidence can pick up again |
JPM | Safe Havens Fall As Equities Rise Market Update | Markets are pondering over higher interest rates before Federal Reserve chair Janet Yellen gives her testimony to Congress later in the week
Forex
USD
The dollar is up 0 2 as investors bet that Yellen s testimony may be hawkish The dollar reached a ten month low in June it has climbed 0 7 since then
EUR
The euro ditched 0 1 of its gains as investors favour the dollar in today s trading session
EURUSD
Support level should be at 1 1382 while resistance is at 1 1408 There could be bearish tendencies for the pair as we head into Wednesday s trading session supported by a downward sloping Moving Average curve
JPY
The Japanese yen is trading downwards for the third day in a row The currency has lost 0 4 per dollar as investors favour risker assets and ignore geopolitical risks
USDJPY
Bullish movements are probable for the next few days
NZD
The New Zealand dollar dropped the mist among all major currencies declining 0 6 against its US counterpart after consumer spending data came in worst than expected
NZDUSD
Global Equities
European stocks inched higher as investors awaited the US earnings season kick off a potential stimulate of higher equity prices With global stocks tantalisingly close to all time highs attention is diverted to corporate earnings results JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC are up this week
The bull equity market is now eight years old and isn t showing any signs of slowing down High returns usually go hand in hand with high volatility however 2017 has been marked by record low bearish tones in equity markets For example the S P 500 only closed down 1 on four occasions meanwhile it made 24 new highs Returns were two times historical levels 8 2
Commodities
Oil
Crude Oil is veering downwards after a strong start to the European trading session Crude oil is down 0 8 after a boost from OPEC s plan to meet in Russia on the 24th of July to discuss Libya and Nigeria s production output Previously these African nations were exempt from production cuts amid internal strife
Crude oil is heading into oversold territory if you were to look at the Momentum and RSI curves Perhaps tomorrow s crude oil inventory data will help crude oil find support |
MS | China stocks steady small caps offset Moody s downgrade | SHANGHAI Reuters China s main stock indexes recouped earlier losses to end roughly flat on Wednesday as strong gains in small caps partially offset Moody s downgrading of China s debt ratings The blue chip CSI300 index CSI300 was unchanged at 3 424 17 points while the Shanghai Composite Index SSEC added 0 1 percent to 3 064 08 points Moody s Investors Service downgraded China s long term local and foreign currency issuer ratings on Wednesday citing expectations that the country s financial strength would erode in coming years as economic growth slows and debt continues to mount The benchmark stock indexes fell more than 1 percent shortly after the market opened but recouped most of the losses to close roughly flat The downgrade has had a negative psychological impact on the market said Tian Weidong strategist at Kaiyuan Securities adding Beijing s campaign to clean up the financial system was already driving up market rates and sowing panic among retail investors The market has already been hobbled in recent weeks amid signs that Beijing s regulatory crackdown on shadow banking and risky investment is pushing up short term borrowing costs and threatening to slow the economy In a rare sign of tightening liquidity in the interbank market the one year Shanghai Interbank Offered Rate SHIBOR was at 4 322 percent exceeding the one year Loan Prime Rate at 4 3 percent Morgan Stanley NYSE MS said in a report on Wednesday that China s interbank interest rates can rise by another 40 50 basis points from current levels in the coming months to keep pace with the U S Federal Reserve s tightening moves Most sectors lost ground led by defensive consumer and healthcare stocks
Small caps rallied strongly with the tech heavy start up board ChiNext rising 1 0 percent |
MS | Japan s tight labor market offers hope for consumer spending | By Stanley White TOKYO Reuters Labor demand in Japan rose to its strongest in more than 40 years while the unemployment rate held steady at a two decade low in April offering hope that a tight labor market will eventually spark a turnaround in weak consumer spending Separate data showed household spending fell more than expected in April due to lower spending on cars and education fees as consumer spending continues to lag behind improvement in other areas of the economy such as exports and factory output Such a tight labor market could temper pessimism about consumer spending and bolster the Bank of Japan s argument that rising demand for workers will eventually spur inflation Consumer spending looks weak now but the labor market continues to improve said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities As more people get work this should support consumer spending in the future The jobs to applicants ratio rose to 1 48 in April from 1 45 in the previous month meaning 1 48 vacancies are available for each person seeking a job Labor demand has been rising steadily due to a shortage of workers and increased activity in services and construction The last time labour demand was this strong was in February 1974 when the ratio was 1 53 The jobless rate held steady at 2 8 percent in April matching the lowest since June 1994 The BOJ last month maintained its projection that price growth will reach its 2 percent target in fiscal 2018 on the assumption that a tight labour market will push up wages but not all economists are convinced Economists say some companies are opting to cut business hours which makes it difficult for wages to rise Some companies are scaling back the level of services they offer instead of going out and getting the workers they need said Hiroaki Muto economist at Tokai Tokyo Research Center Co This is not likely to lead to higher take home pay Japanese household spending fell 1 4 percent in April from a year earlier in price adjusted real terms more than the median estimate for a 0 7 percent annual decline Excluding spending on autos and housing household spending rose a seasonally adjusted 3 5 percent in April from the previous month versus a 2 9 percent decline March showing consumer spending is stronger than the headline figures Miyazaki said Separate data showed retail sales rose 3 2 percent in April from a year earlier more than the median estimate for a 2 3 percent increase but some economists say a small sample size may exaggerate the percentage change in this data Under a new policy framework adopted last year the BOJ has pledged to guide short term interest rates to minus 0 1 percent and cap the 10 year government bond yield around zero percent Consumer prices rose on 0 3 percent in April from a year ago well below the BOJ s 2 percent inflation target
However growing signs of strength in exports and factory output have presented the BOJ with a new communications challenge pushing it to be clearer with markets on how it might dial back its stimulus even though such action remains a long way off |
MS | Consumer spending inflation data support Fed rate hike case | By Lucia Mutikani WASHINGTON Reuters U S consumer spending recorded its biggest increase in four months in April and monthly inflation rebounded pointing to firming domestic demand that could allow the Federal Reserve to raise interest rates next month Consumer spending which accounts for more than two thirds of U S economic activity is likely to remain on solid ground in the wake of other reports on Tuesday that showed confidence among households still at lofty levels despite some slippage this month and strong gains in house prices in March Fed officials can continue with their gradual pace of rate hikes in June as the economy remains on course for stronger growth this quarter and throughout the rest of the year said Chris Rupkey chief economist at MUFG Union Bank in New York The Commerce Department reported that consumer spending increased 0 4 percent last month after an upwardly revised 0 3 percent gain in March as households spent more on both goods and services April s increase was the biggest since December and eased concerns about second quarter economic growth after weak reports on core capital goods orders the goods trade deficit and inventory investment in April Consumer spending was previously reported to have been unchanged in March Consumer spending grew at its slowest pace in more than seven years in the first quarter helping to restrict the increase in gross domestic product to an annual rate of 1 2 percent in the first three months of the year Following April s report and upward revisions to March s data economists said consumer spending was running at around a 3 percent rate a sharp acceleration from the first quarter s 0 6 percent pace GDP growth estimates for the second quarter range between a rate of 2 percent and 3 8 percent This takes out the downside risk to our projection for 3 percent real GDP growth this quarter and we now see more balanced risks around that call said Michael Feroli an economist at JPMorgan NYSE JPM in New York U S stocks were trading slightly lower amid a drop in oil prices The dollar DXY dipped against a basket of currencies while U S government bond prices rose TIGHTENING JOB MARKET Minutes of the Fed s May 2 3 policy meeting which were published last week showed that while policymakers agreed they should hold off hiking rates until there was evidence the growth slowdown was transitory most participants believed it would soon be appropriate to raise borrowing costs The U S central bank hiked rates by 25 basis points in March Consumer spending is being boosted by a tightening labor market which is gradually pushing up wages Rising house prices are also supporting consumption In a separate report on Tuesday the Conference Board said its consumer confidence index slipped to a reading of 117 9 in May from 119 4 in April The index which hit a 16 year high of 124 9 in March remains underpinned by labor market strength The survey s so called labor market differential derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful recorded its second strongest reading since 2001 Fed Chair Janet Yellen has in the past used the labor market differential as a check on the unemployment rate and the reading for May should provide confirmation to Yellen and her colleagues that the economy has reached the Fed s assessment of full employment said John Ryding chief economist at RDQ Economics in New York Expectations of further policy tightening next month are also supported by steadily rising inflation The personal consumption expenditures PCE price index excluding food and energy rebounded 0 2 percent after dipping 0 1 percent in March But the so called core PCE price index increased 1 5 percent in the 12 months through April the smallest gain since December 2015 The core PCE which is the Fed s preferred inflation measure rose 1 6 percent year on year in March That was below the central bank s 2 percent target We anticipate 1 5 percent will mark the low on core PCE inflation and continue to see a move up to 2 percent next year said Ted Wieseman an economist at Morgan Stanley NYSE MS in New York Personal income rose 0 4 percent last month as wages jumped 0 7 percent Savings were little changed at 759 1 billion last month
A third report on Tuesday showed house prices increased 5 9 percent year on year in March |
MS | Apollo Commercial raising capital shares down 1 75 | The company is selling 12M shares with underwriter greenshoe of 1 8M shares Underwriters are JPMorgan NYSE JPM BofA and Morgan Stanley NYSE MS The most recently reported book value per share Dec 31 was 16 12 Today s close was 18 98 ARI 1 75 after hours to 18 65 Now read |
JPM | Australian Dollar Suffers Collateral Damage in Trade War | Bloomberg Investors have brushed aside Australia s world beating economic growth to make its currency the whipping boy of the trade war
Down 9 percent in the past six months the Aussie dollar s correlation with the tumbling offshore yuan reached the strongest on record in August as investors entwine the two nations fortunes It s a clear sign of Australia s vulnerability to a slowdown in China that s being exacerbated by U S tariffs And if that wasn t enough the Aussie s set to remain under pressure as the crisis engulfing Turkey drives a flight to safety and the U S dollar
We re No 1 on the list of collateral damage in who really has a lot to lose if the China story goes south said Sally Auld JPMorgan Chase Co NYSE JPM s head of fixed income and currency strategy for Australia We re a small open economy that s highly leveraged to trade and to China so anything that creates difficulty with global trade is bad for us by definition It s pretty fundamental to our economic well being
Australia s currency is under fire as the economy caps a 27th recession free year amid accelerating growth robust exports and the government eyeing its first budget surplus in a decade Fear has become the main driver China buys more than a third of Australia s exports equivalent to about 8 percent of gross domestic product That combined with Australia s liquid foreign exchange market makes the currency an ideal target
How bad could it get
Rodrigo Catril a currency strategist at National Australia Bank Ltd in Sydney says it s not unreasonable to see a level below 69 U S cents if there s a spike in volatility and commodity prices drop Nick Twidale chief operating officer at Rakuten Securities Australia Pty a unit of the major Japanese trading house reckons the Aussie will trade below 70 U S cents by year s end and potentially as low as 60 cents in the longer term
The currency bought around 72 cents in Sydney on Wednesday
The Aussie has been regarded as the major currency risk proxy for the APAC region and specifically China for a while now and for good reason said Twidale As global trade tensions persist and indeed increase and more specifically tensions between China and the U S then investors will continue to look to sell the Aussie dollar
Tipping Point
A weaker currency is welcomed in some quarters The Reserve Bank of Australia has kept interest rates at a record low 1 5 percent for two years with some economists seeing it staying there for another two A leg down in the Aussie opens up the possibility of faster growth and inflation that could spur policy makers into action but the context will be important
If the currency should sink into the 60s against a backdrop of a trade war that s hurting global growth it s unikely to encourage Governor Philip Lowe and his board to consider tightening policy But should such a move happen in a strong global environment and healthy domestic backdrop that could change the equation
While there have been murmurings about China and the U S restarting trade talks the tariff deadlines are looming another round is set for next week and a third is potentially coming in September The rhetoric remains severe the Trump administration has portrayed President Xi Jinping s government as a protectionist regime that needs to be reined in while China has warned the U S that it s willing to fight to the end
The Australian dollar is a risk sensitive currency said NAB s Catril It remains vulnerable to the increasing probability that we will see an escalation in U S China trade tensions
Australia and its currency have often been seen as a barometer for the global economy Former Federal Reserve Chairman Alan Greenspan said he often looked Down Under for an indicator on the U S economy Yet in recent times the Australian story has decoupled from the global picture lately characterized by tighter monetary policy as nations approach full employment that s still to be achieved in Australia
Even as the world lumps Australia with China direct hits from a trade war aren t being felt in Sydney China dominates Australian shipments of iron ore to produce steel for infrastructure and housing and it also fuels growth in its education exports but these industries are of almost no relevance to the U S China dispute
It s hard to argue that we re in the direct firing line if you look at what the U S is proposing or has put tariffs on said JPMorgan s Auld We re just being caught up in the dollar strength at the moment There s no reason why we should get pounded just because the Turkish lira is belted |
JPM | Forex Dollar Falls as Turkish Lira Recovers | Investing com The U S dollar retreated on Thursday as the lira recovered after slumping to a record low of 7 24 earlier this week
The U S Dollar Index which tracks the greenback against a basket of currencies slipped 0 21 to 96 4 by 11 20AM ET 03 20 GMT
The dollar jumped to near a 13 month peak this week as the Turkish lira crisis and concerns on China s economy provided supported to safe haven assets
Recent dollar gains reflect weakness in emerging market currencies and the euro with risk off driving flows into the U S currency said Junichi Ishikawa senior FX strategist at IG Securities in Tokyo
Meanwhile the USD TRY pair was trading 0 3 lower as Qatar promised to invest 15 billion in Turkey The lira surged as much as 8 against the dollar in the previous session following the news
The Trump administration said Wednesday that Turkey s imposition of retaliatory tariffs against the U S were a step in the wrong direction while White House spokeswoman Sarah Sanders said U S tariffs announced last week will stay in place
Elsewhere the AUD USD pair gained 0 4 to 0 7267 after China announced plans to resume trade talks with the U S later in August The Aussie dollar was under pressure and has fallen 8 in the past six months amid the China U S trade war and the recent Turkey crisis which drove a flight to the U S dollar and other safe haven assets
We re No 1 on the list of collateral damage in who really has a lot to lose if the China story goes south said Sally Auld JPMorgan Chase Co NYSE JPM s head of fixed income and currency strategy for Australia We re a small open economy that s highly leveraged to trade and to China so anything that creates difficulty with global trade is bad for us by definition It s pretty fundamental to our economic well being
The USD CNY pair lost 0 51 to 6 9001 while the USD JPY pair was unchanged at 110 75 |
MS | Bernanke I m Slowing Down The Ship | A full trading day after the release of the Fed minutes has brought us some reasonably significant changes in market levels S P 1 5 Gold 3 5 Crude 1 5 Apparently the confirmation that it is on hold surprised the market I m not surprised Bernanke understands thatupping the anti with more QE would send the price of crude through the roof The deflationary effect on the consumer economy of another dollar increase for gas would far outweigh any positive consequences that another LSAP would have produced Some random thoughts Warning I stray from side to side on this I see that the Fed has been put in check by the global price of crude While this is not checkmate it forces the Fed to move to the defense The language from the Fed meeting confirms it For the past four years the Fed has been on the offense It has had no opposition from the markets The subtle change in the Fed s position is a major change in its strategic advantage To me this represents a significant change of events While this represents an important strategic change the reality is that the short term monetary consequences are negligible ZIRP will linger on for at least another year As as a monetary stimulus ZIRP has much greater consequences to the global economy than do QEs TWISTS etc It s as if the Fed has shifted from fifth gear down to fourth It s still speeding ahead The shift to fourth is more about gaining some additional traction over a rough spot not about a change in velocity Bernanke has said that if there were to be a new TWIST the operation would be sterilized by reducing very short term cash liquidity 2 14 days The Fed would have to do that because they have no more medium term paper to swap against long dated paper It is faced with an operational constraint to extending TWIST The result is the necessity to drain short term liquidity to complete the swap I think the sterilized swap is a stupid terrible idea Yes there is a lot of cash around But if Ben thinks he can suck up 800b of cash and not have a consequence he is mistaken The financial markets have been running on dirt cheap money 0 1 the past few years I wonder if some folks with white spats haven t whispered to Bernanke If you quit on QE we will be okay But whatever you do don t give up on the high octane liquidity IMHO if the US economy is buying up 15m cars annually it is not in crisis and does not need emergency monetary measures I m not ignoring high unemployment I m saying the problem is structural Hot money can t fix this problem and hot money is causing other problems The question is Is the Fed thinking like this too The Fed has a dual mandate Price Stability PS and Maximum Employment ME If Bernanke had been asked the question at any time over the past three years Between the two mandates how are you allocating your efforts Bernanke would have answered 99 to ME and 1 to PS What would Bernanke s answer to this question be today Would he say 95 to ME and 5 to PS Or would he say We re back to 60 40 Answer It isn t 99 1 any longer and we re still a long way from 50 50 But the needle has moved on this measure This too is very subtle but not insignificant As Bernanke withdrew one card from the deck he has inserted two jokers These jokers can be played by Ben anytime he likes it He just needs an excuse I wholeheartedly agree with the sentiment that all it would take was a 20 correction in the S P and we would have QE3 in a NY minute Think about that It s insane but it s also true The economy can t expand unless the S P steadily rises What was once cause and effect is now effect and cause Bernanke has a bad sense of timing He iniated QE2 in response to an invisible wall He launched Operation Twist in response to a slowdown he and others thought was coming last summer Neither of those slowdowns actually happened It was just the New Normal ebb and flow of the economy Bernanke missed the signs I wonder if Ben is suffering another bout of bad timing He is sailing a big ship and it is on fast forward He is sending out signals that he going to slow the ship down Definitive evidence that the ship is slowing will come when if the Fed announces that it will not extend Operation Twist The White Spats folks are insisting it s coming in June If the Fed does not renew TWIST then the history books will say that this was the turning point of a move away from monetary accommodation Those books may compare the timing of the Fed s transition to the fateful tightening steps the Fed made in 1936 that precipitated the second leg of the Great Depression Funny thing about those history books Absent a blow up in the stock market I don t think that Operation Twist will be renewed That will be a big surprise to the folks with the spats The likes of Morgan Stanley and PIMCO are loaded up for a new MBS TWIST I believe that the deep thinkers on Wall Street are missing the political angle on this Bernanke s hands are tied by the election If he comes forward in May with a New Twist program that will last through November 15th the Republicans will rightly call foul Bernanke does not want to take the resulting flack It would tarnish his and the Fed s image There will be no more QEing or TWISTING until after Christmas By then the fiscal time bombs that are set to go off on Jan 1 will make any steps the Fed takes irrelevant |
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