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MS | The London Whale Is Likely Hedging JPMorgan s Own Bonds | The financial media has had a field day with the recent story about the so called London Whale Apparently a trader out of JPMorgan s office of the CIO has been a seller of the Investment Grade IG CDX an index of investment grade corporate CDS WSJ Mr Iksil has taken large positions for the bank in insurance like products called credit default swaps Lately partly in reaction to market movements possibly resulting from Mr Iksil s trades some hedge funds and others have made heavy opposing bets according to people close to the matter According to the story these trades have been so large that they are distorting the market A few comments on this situation 1 The story of large sales of protection are in fact true as evidenced by the recent divergence of the IG CDX and the HY CDX spreads which are generally highly correlated The selling pressure from the Whale or whoever has tightened IG spreads disproportionately to HY CDX Note that the spike in both spreads today is due to the relatively bad employment numbers out of the US as we continue to see more negative economic surprises 2 The story about hedge funds taking the other side is probably true as well simply because hedge funds use IG CDX as a general hedge against negative market events And given the relative divergence here they saw this index as a fairly cheap hedge market short But they clearly have not traded enough to bring the two indices back in line 3 As IG CDX widened today it is premature to conclude that JPMorgan has taken a large loss Let s just put some numbers on it Let s say JPM is short 5bn ofIG CDX protection The index has widened 15bp from the lows 85 to 100 That translates into 37mm of losses barely a blip for JPM s earnings 4 In general JPM would not do an outright trade like this Most likely they have something on the other side of the trade that the market doesn t see It is in fact highly possible that the bank is hedging the volatility in its own bonds Well publicized accounting rules have banks mark their own debt to market In difficult times their debt drops in value and because the bank is effectively short its own debt it records a gain What JPMorgan may be doing is protecting itself from the rise in its debt value which would force them to record a loss If JPMorgan s credit spread tightens the firm takes a loss on its own bonds but would make a gain on the bank s IG CDX position as an offset IG CDX is highly correlated to the CDS of financial companies and is liquid enough for JPMorgan to execute in size It is well known that Goldman for example has been quite active in hedging its bonds and is therefore not unreasonable to assume that JPMorgan is doing the same using IG CDX Morgan Stanley reported 3 6 billion worth of debt valuation gains in the last half of 2011 as its credit default swap prices more than doubled The bank is likely to report a charge of hundreds of millions of dollars in the first quarter if its bond and CDS prices remain stable analysts said Goldman hedges its debt valuation risk so its gains and losses are smaller and harder to predict For those interested in this topic here is a great detailed write up on the IG CDX recent dynamics and a discussion of the infamous London Whale from Lisa Pollack |
MS | Stay Long But Keep Tight Stops | Have US equities seen an intermediate term top It was a rough week for stocks last week but I believe that we are due for an oversold relief rally We will need to watch how the market behaves in the next couple of weeks in order to truly determine whether an intermediate term top is in As the chart below shows the market briefly tested the 50 day moving average and managed to rally above that support level and the longer term uptrend remains intact The market is certainly oversold as shown by my favorite As well sentiment readings have deteriorated rapidly as reported by In addition pointed out that funds flows into equity mutual funds have turned negative again indicating that the public has never really fully embraced the stock market rally Indeed John Kozey of Thomson Reuters writes in an article entitled You would be forgiven for imagining that investors are allergic to owning stocks given the data surrounding equity fund flows For the last 12 months as shown in Chart 4 below investors have demonstrated at best a grudging affection for stocks constructive on employment picture 1 The three month average gain of payroll employment remains solid Payrolls rose 211 700 per month on average during Q1 2012 vs 164 000 during Q4 2011 and 127 700 during Q3 2011 Private sector payrolls rose 210 300 on average during Q1 according to the official tally in line with the 207 000 average gain for the payrolls tracked by ADP 2 The index of aggregate weekly hours worked for total private industries rose at a solid pace during Q1 It was up 3 7 saar following increases of 2 5 during Q4 2011 and 1 1 during Q3 2011 3 The household employment survey is up 414 700 per month on average over the past three months That compares to gains of 227 700 during Q4 2011 and 240 700 during Q3 2011 4 According to the household survey full time employment rose 882 000 during March That s not a typo and that s after it rose 563 000 during February On the other hand part time employment fell 664 000 during March after falling 163 000 during February Full time employment is up 4 8 million since its latest cyclical trough during December 2009 to the highest level since the start of 2009 Also consider the latest batch of other employment indicators 5 During March initial unemployment claims averaged 361 750 falling steadily from September s average of 410 500 That s a clear sign that the pace of firing is continuing to decline 6 A monthly employment index which can be constructed from the available regional surveys conducted by the Fed districts and purchasing managers associations remains strong So far for March data are available for the regions around the following cities Chicago Dallas Kansas City New York Philadelphia and Richmond The average of these regional indexes fell from 14 5 during February to 12 2 last month That s still a relatively high reading 7 On Wednesday Gallup reported a four point jump in the polling firm s Job Creation Index from 14 in February to 18 in March That s the best reading since August 2008 The latest poll also found that the pace of hiring is picking up The March Job Creation Index reflects 35 of U S adult workers saying their employers are hiring and expanding the size of their workforces and 17 saying their employers are letting workers go and reducing the size of the workforces While the percentage letting go matches what Gallup found in January the percentage hiring is at a 42 month high last seen in September 2008 8 The employment component of the national manufacturing purchasing managers index M PMI jumped from 53 2 in February to 56 1 in March the best reading since last June The nonmanufacturing survey s employment index increased from 55 7 in February to 56 7 in March The average of the M PMI and NM PMI employment indexes rose to 56 4 in March the highest since last June 9 Wednesday s ADP report also confirmed that the labor market remained strong during March During Q1 the average gain was 207 000 little changed from Q4 s 211 700 and considerably above the 99 000 average during Q3 of last year As well the latest data shows which all point to continued strength in employment Gallup also reported that indicating that American consumer strength appears to be unrelenting What the bears say Based on the analysis so far one may be inclined to give the bulls the benefit of the doubt but inter market analysis reveals a far more bearish tone There are a number of worrisome negative divergences that shouldn t be ignored For one eurozone concerns are rising and the risk of financial contagion from Europe is rearing its ugly head again European stocks have violated their uptrend and they have rolled over The STOXX 600 Index shown below is now approaching the first technical support at the 61 8 Fibonacci retracement level In addition commodity prices look punk The relative performance of the Morgan Stanley Cyclical Index is also following the pattern of commodity prices If we are truly seeing a recovery in the American economy shouldn t cyclical stocks be outperforming In summary we have trouble in Europe weakening cyclicals and commodities Do these look like the ingredients for a sustainable advance Staying on hold but watching Today what we have right now is an oversold market that is due for a relief rally of at least 1 2 weeks in duration In the meantime Earnings Season is upon us with the possibility of margin compression weighing down the market see my post I am watching earnings reports carefully for whether margin compression is occurring this quarter as I have to allow for the possibility that it may be pushed out to the next quarter s earnings reports In summary I wrote before that investors should maintain a balanced outlook between risk and return see My current stance is to watch how the market behaves and reacts to news in the next few weeks in order to get a better idea of intermediate term direction Specifically I am watching for Earnings and forward guidance Are margins compressing now or next quarter Market leadership How are the cyclicals and commodities behaving European news as we have elections in France and Greece coming up soon and the fear of European contagion could riseStay long but keep tight trailing stops in place |
MS | U S European And Chinese Financials | As can be seen on this the U S Financials sector finished in second place yesterday The Daily chartgrid below shows these sectors along with the S P 500 Index As can be seen price is trading around either the 50 sma red or the 200 sma pink The graph below shows the gains losses in these sectors since December 2011 The Financials have performed the strongest with a gain to date of 20 78 The Daily chartgrid below contains the YM ES NQ TF XLF the major U S banks Visa and Mastercard With the exception of Morgan Stanley they are all trading near their 50 sma although the TF is a bit weaker than the other 3 e mini futures indices This close up shot of the XLF shows that price broke below the uptrend line from the December 2011 low re tested it and pulled back to rest just above its 50 sma of 15 14 an important support level along with its 1000 sma green at 14 86 and its 5 Year Volume Profile POC of 14 79 ones to watch A break and hold below those levels could send the S P 500 Index further below its Daily 50 sma The 15 minute chart below of the SPX shows price struggling to recapture last Wednesday s high of 1374 71 a must if price is going bounce and reverse its recent pullback with conviction also a must is a break and hold above the Daily 50 sma of 1376 60 I d add the following two Daily charts of the European Financials ETF EUFN and the Chinese Financials ETF GXC The EUFN has been much weaker of late than the GXC it s struggling to get back above its 200 sma a break and hold below 16 00 could confirm intense financial weakness in Europe as the ECB s LTRO 2 has not had any positive impact yet in fact quite the opposite one to watch The GXC is trading in between its 50 and 200 smas a break out and hold on either side is necessary to re establish a trend say above 71 00 and below 66 45 In summary the XLF U S banks Visa Mastercard and the SPX are worth watching closely over the next couple of weeks to see if upside leadership can be maintained in order to reverse this recent pullback in the equities market particularly in view of the upcoming meetings of the IMF and World Bank Group April 20 22 the G20 April 20 the Fed April 24 25 and the G7 tentatively April 24 Also the EUFN and GXC may give some clues as to world financial sentiment which may or may not affect the U S markets |
MS | Early Stock Movers AAPL CIE NRG | Among the names that traders may want to keep an eye on in the early going on Tuesday are Apple NASDAQ AAPL Cobalt International Energy NYSE CIE and NRG Energy NYSE NRG Apple shares are running in the early going after a steep pullback in recent sessions The stock has jumped 2 39 to 594 00 after opening the day lower Nevertheless AAPL shares are still down more than 6 over the last 5 trading sessions Cobalt International Energy is moving aggressively higher after getting hit hard on Monday on a Financial Times report that the company could be in violation of the Foreign Corrupt Practices Act in relation to its activity in Angola Analysts at Morgan Stanley however released a note this morning suggesting that even if this were a case the likely result would be a comparably small fine versus yesterday s fears that the company could lose its 40 working interest in Angola Block 21 and 9 The analysts wrote that we believe CIE has no risk of losing its interest in pre salt Angola blocks under US law They said that a fine may equate to 0 15 per share versus a 2 loss in the stock yesterday CIE shares are surging on the updated analyst commentary and were last up a little less than 6 at 27 88 NRG Energy NYSE NRG which has been beaten down in recent months was upgraded to Buy at Deutsche Bank this morning Shares were last trading up 5 37 to 15 11 on the bullish analyst news Given the degree of the sell off in NRG which has persisted despite the market rally in 2012 there could be some continued upside in the name throughout the day By Scott Rubin |
C | Yen Reigns Supreme Over Franc as a Haven When Markets Get Messy | Bloomberg There s only one trade to make in foreign exchange markets when investors are running away from risk buy the yen
That s the view of analysts at Citigroup Inc NYSE C who compared the performance of the Japanese currency with the Swiss franc on days when the S P 500 Index incurred losses of 2 percent or more While Switzerland s currency was clearly the better haven before the global financial crisis of 2008 the yen has emphatically taken the top spot since then according to a note from analysts including Calvin Tse
The yen certainly proved itself to be the stronger of the two last week It surged by almost 1 4 percent against the greenback in a period that saw the American equity benchmark record two consecutive daily declines of more than 2 percent The franc rose just 0 6 percent over the same period
With the outlook for market volatility to stay high going into the end of the year more frequent bouts of risk aversion are likely to emerge the Citigroup analysts wrote There is only one standout safe haven currency to own
Citi s analysis shows that when the epicenter of risk aversion is in Europe the yen tends to outperform the franc debunking conventional wisdom that the Swiss currency should benefit in such situations For Asia focused episodes there is no clear bias between the two
The analysts highlight several potential reasons for the yen assuming the mantle of top shelter from 2008 onward including greater position short covering for the yen changes to Swiss banking regulations and the cheapening of the yen against the franc They also pointed to a larger pool of Japanese assets abroad which allows for greater repatriation than in the case of Switzerland
Differences in central bank FX policy are also key The Bank of Japan has intervened in currency markets on just eight days since the crisis while the Swiss National Bank has gotten involved on a regular basis in a bid to check franc strength the analysts said
With the JPY being cheap the Japanese having the largest private net international investment position in the world and the BoJ taking a non interventionist approach there s only one FX trade in risk off you buy the JPY the analysts wrote |
C | Seven international banks agree to launch digital trade finance network | By Jes s Aguado MADRID Reuters Seven banks including HSBC L HSBA and Banco Santander MC SAN have signed a Memorandum of Understanding MoU to create a global digital network in trade finance aiming at allowing cheaper and easier funding for corporates a Santander manager said on Wednesday The Australia and New Zealand Banking Group ANZ AX ANZ BNP Paribas PA BNPP Citibank N C Standard Chartered LON STAN and Deutsche Bank DE DBKGn also agreed to join the digital trade information network expected to be operational by the third quarter of next year It is the first time that these banks come together to set a standard that will allow cheaper access to finance because the risks are going to be reduced Rogier Schulpen global head of trade and working solutions at Banco Santander said in a phone interview In trade finance banks provide funding and other services to importers and exporters to facilitate commerce but each lender deals separately with clients and employs different standards By linking corporates suppliers and banks through a standardized digital platform the network aims to lower costs as small and midsized companies will be able to submit and verify purchase orders and invoices to request trade financing from the banks of their choice As those banks will have access to trusted trade information the network expects to mitigate the risk of double financing and fraudulent trade information across the industry Schulpen said a further 20 banks were helping to develop the network and were ready to join and 60 big corporates had been approached to participate Schulpen did not set a target for the size of the platform but said he hoped it could finance a significant part of the 1 5 trillion demand per year for trade finance from small and medium sized companies that is currently not met by the industry due to higher costs and risks The network has an open architecture and standardized connectivity based on a governance model similar to SWIFT
SWIFT is a messaging system used by banks over the world to send information and instructions in an encrypted format through a secure channel |
C | Treasury s Currency Report Seen as China s Final Warning as Yuan Falls | Bloomberg While the U S Treasury stopped short of labeling China a currency manipulator in its latest semiannual report the department s sharpened language didn t escape the foreign exchange market s notice
In a break from recent releases Treasury devoted a section Wednesday to outlining concerns with China s bilateral trade surplus and said the U S was deeply disappointed that the Asian nation doesn t disclose its FX interventions The department also cautioned that it will be monitoring whether countries resist depreciation pressure in the same manner as appreciation pressure
The focus on China portends more turbulence ahead for financial markets according to ING Groep AS INGA NV The Chinese yuan slid Thursday in a move that some market participants expect to continue Given the currency s role in determining global risk sentiment emerging market currencies may be poised for more pain said ING currency strategist Viraj Patel
The latest Treasury report came across as basically a final warning over Beijing s currency policy London based wrote Patel in an email The currency pair is fast turning into a bargaining chip in U S China trade talks and that makes us nervous
The offshore yuan fell as much as 0 3 percent to 6 9514 per dollar Thursday reaching the weakest on a closing basis since January 2017 A break above the psychological 7 0 level would likely spell trouble for other Asian currencies Patel said
Regional Laggard
The yuan has declined about 10 percent against the greenback in the past six months trailing many Asian peers The cheapening has drawn the ire of U S President Donald Trump and fueled speculation that China is deliberately weakening its currency as trade relations between the two nations sour
October s report lays the groundwork for giving Treasury the option of naming China next time for failing to intervene to block depreciation pressure with sufficient force according to Brad Setser a former Treasury official My guess is that the White House might say Treasury should name China if the bilateral deficit keeps growing and China doesn t resist depreciation pressures
While formally naming China a manipulator wouldn t have triggered immediate sanctions or other U S penalties it would have further soured an already tense relationship between the world s two largest economies
Glaring Failure
The U S got the main conclusions largely right given that there s no basis to accuse China of manipulation according to ex Treasury official Mark Sobel However Treasury s lack of comment on the strengthening dollar s role in contributing to the U S current account deficit amounts to a glaring failure he said
Rather than admit heavy U S responsibility for these currency developments the Treasury takes aim at renminbi depreciation Sobel wrote in a blog post for the Official Monetary and Financial Institutions Forum where he s U S chairman
The Bloomberg Dollar Spot Index has climbed more than 6 percent since mid April amid Federal Reserve rate increases and strong U S economic growth spurred in part by fiscal stimulus
The stepped up criticism of China s currency practices puts more focus on November s potential meeting between Trump and Chinese President Xi Jinping at the G 20 summit Currencies linked to Chinese growth such as the Australian dollar will remain under pressure amid the tensions according to Citigroup Inc NYSE C
The singling out of China suggests that the U S administration stands ready to do more on China should discussions between Trump and Xi not bear fruit next month Calvin Tse the bank s North American head of G 10 FX strategy wrote in a note |
JPM | I m Shorting A Couple Of Bond Funds | Not feeling terribly inspired right now so I ll just share with you a couple of positions I ve got focused on bond funds The first of these is the high yield bond fund iShares iBoxx High Yield Corporate Bond NYSE HYG which has broken beneath this massive pattern below and has been in the throes of rolling over for some time now
Looking closely you can see the failure of the blue trendline and the going nowhere fast action of the past few weeks A failure of the green horizontal line would really get things kicking
I ve got an especially large short position in iShares JPMorgan NYSE JPM USD Emerging Markets Bond NYSE EMB the emerging markets bond fund below The channel goes back for years and even though we ve already dropped some we re quite high relatively speaking within the confines of this channel
Once more looking closer the drop on this one has been steadier than on HYG note the red arrow my kind of market and I m comfortable suffering through any bounce as long as it doesn t penetrate above the magenta horizontal below where the gap is
I am presently positioned with 48 shorts concentrated in energy retail and the above two funds and I m fairly aggressively using margin |
MS | Synchrony Financial launches 2nd buyback intends to lift dividend | The repurchase program size is 1 64B and lasts through June of 2018 That would be enough to buy back almost 62M shares at the current price or about 7 6 of the float The quarterly dividend is to be lifted to 0 15 from 0 13 via Bloomberg Christmas comes early says Morgan Stanley NYSE MS s Betsy Graseck as that capital return plan tops her estimate by 14 It could have a positive read through for other lenders subject to the CCAR process SYF no trades premarketNow read |
MS | Traders renew bets on U S rate increase in June | NEW YORK Reuters U S interest rates futures fell on Friday suggesting traders revived bets the Federal Reserve would raise interest rates in June as financial markets recovered from their sharp losses earlier this week While this week s data supported the notion the U S modest economic expansion remains intact the dollar and Wall Street stocks tumbled on Wednesday due to concerns that the widening probes into U S President Donald Trump s 2016 presidential campaign s possible ties with Russia would hamper the passage of tax cuts and other federal fiscal stimulus Since Thursday the greenback DXY and equities prices have rebounded rekindling bets the U S central bank remains on track for further rate increases later this year analysts said Encouraging data on jobless claims and business activity in the U S Mid Atlantic region on Thursday helped to bolster investor confidence in the economy In response to the strong data and rebound in stocks Fed pricing partly reversed the move Wednesday to further take out much of anything past June and start to even call June more into question Morgan Stanley NYSE MS economist Ted Wieseman wrote in a research note On Wednesday the Dow and S P 500 suffered their biggest one day percentage drop since Sept 9 while the dollar index touched its lowest level since Nov 9 Traders shrugged off comments on Friday from St Louis Fed President James Bullard who said the Fed s expected rate hike path may be too aggressive in the wake some recent weaker than expected economic data On Tuesday the government said housing starts unexpectedly fell 2 6 percent in April while industrial output recorded a 1 percent increase last month the biggest gain in more than three years Federal funds futures implied traders saw about a 74 percent chance the Federal Reserve would raise interest rates by a quarter point to 1 00 1 25 percent at its June 13 14 policy meeting CME Group s FedWatch program showed This compared with a 65 percent probability on Wednesday which was the lowest since April 21 Fed funds futures suggested traders priced in a 45 percent chance the U S central bank would increase key short term rates to 1 25 1 50 percent by its December policy meeting
This was higher than Wednesday s 38 percent which was the lowest since April 19 |
MS | From suspicion to engagement OPEC hedge funds and the Sistine Chapel | By Dmitry Zhdannikov LONDON Reuters It was an unconventional venue for an unusual encounter In the Vatican s Sistine Chapel in the summer of 2016 OPEC s new secretary general Mohammed Barkindo bumped into Citigroup s global head of commodities research Ed Morse Their chat at an energy industry event held in the Chapel led to a series of meetings that have reshaped the way the Organization of the Petroleum Exporting Countries interacts with the hedge funds and trading houses that influence world oil markets Barkindo elected to OPEC s top job in June 2016 to deal with an oil price slump told Morse that OPEC wanted to better understand the way financial players worked in the oil markets It was a departure for OPEC from its long held suspicion of such players In the past it has routinely accused them of speculation that distorted oil prices pushing them higher or lower than supply demand fundamentals warrant OPEC and non OPEC oil ministers meet in Vienna on Thursday to decide whether to extend beyond June 30 their deal to reduce output and perhaps deepen it in an effort to support prices It was at the Vatican that we first discussed the idea of OPEC reaching out to the financial players in the oil markets Barkindo told Reuters The world of oil has changed including the fundamentals and its dynamics And so must OPEC He said Morse helped organize a meeting for OPEC officials with hedge funds at the end of 2016 We went further to break the Berlin Wall with tight oil producers and met them in Houston in March said Barkindo Morse did not respond for a request for comment In separate meetings organized via different routes and facilitators Saudi Arabia s energy minister Khalid al Falih and his team held discussions with hedge funds They also met top trading houses Vitol and Litasco in Vienna in November ahead of the last OPEC meeting according to market sources Falih s predecessor the veteran Saudi oil minister Ali al Naimi often took advice from oil market consultants but had his own advice for hedge funds leave the market alone As the market got increasingly financialized the Saudis and others at OPEC understood and accepted it is not just driven by fundamentals and decided it was worth engaging with those who move the market short term said Amrita Sen of consultancy Energy Aspects which also often helps facilitate the dialogue between OPEC members and financial markets WHATEVER IT TAKES The engagement with financial markets seems to be changing the tone of OPEC s public style It now sometimes mimics the language of central bankers Over the past two months Falih has twice used the phrase coined by European Central Bank President Mario Draghi five years ago in his successful bid to defend the euro OPEC will do whatever it takes to reduce an oil glut was the message from Falih in April repeated in a joint statement with Russia s energy minister Alexander Novak Hedge funds bought heavily into the oil market late last year as it became apparent OPEC would cut production They have heavily sold those positions in recent weeks stalling a recovery in oil prices near 50 a barrel as they realized bloated world oil inventories would take longer than expected to shrink to normal levels Even after a recent price correction there is 700 million barrels of investors net length in the market said Gary Ross head of global oil at PIRA Energy a unit of S P Global Platts It is exceptionally important for producers to understand the behavior of financial market players and what they think about future price trends Non OPEC Russia having joined forces with OPEC to cut output has also moved closer to the financial players Russian oil minister Novak surprised market watchers this year when his team held conference calls with investors about their oil market outlook organized by banks such as Morgan Stanley NYSE MS or Sberbank something his predecessors never did EXPLAINING THE LOGIC One of the government s obligations is to explain to investors the logic of its decisions said Novak s head analyst Pavel Sorokin who previously worked for Morgan Stanley As far as joint policies with OPEC are concerned the market is always full of rumors Hence we need to be in contact with the market and investors We explain our market vision and are learning about reactions to certain events and decisions But we don t discuss anything confidential he added People who attended the discussions between Saudi officials and market players including hedge funds and traders said they detected no hint of Saudi intentions One was at such a meeting in November ahead of the last OPEC gathering They were listening a lot and said little If you made a bet based on that meeting you probably lost money said the participant who asked not to be named because the meeting was confidential Saudi officials told top independent U S oil firms at a closed door meeting in March they should not assume OPEC would extend output curbs to offset rising production from U S shale fields Prices fell steeply on the comments as investors assumed Saudis would not be willing to extend production cuts A month later Falih promised whatever it takes steps including extending cuts well into 2018
Producers naturally want financial players to be long so the tricky part for producers is not to give financial players any ammunition to go short said Ross Reporting and writing by Dmitry Zhdannikov Editing by Richard Mably and Andrew Roche |
MS | Cloudera 2 2 as analyst launch neutral to strong coverage | Cloudera Pending CLDR is up 2 2 today after a rack of coverage launches brings in four Buy ratings along with another few firms at Hold The highest price target looks to be from Deutsche Bank DE DBKGn which started coverage at Buy with a 25 target implying 17 upside from today s price Raymond James has initiated coverage at Outperform with a 23 price target while Stifel has started at Buy and 24 JPMorgan NYSE JPM is also at Overweight and a 24 target Citi meanwhile is among the firms at Neutral noting that while there s upward bias in the shares from upside to near term estimates the market could go several ways Big data embedded in cloud offerings over time will broaden adoption in an area in which Cloudera s not as strong analyst Walter Pritchard notes He has a 23 price target JMP Securities has started at Market Perform and Morgan Stanley NYSE MS initiates at Equal Weight with a 20 target now indicating downside from yesterday s close Now read |
JPM | Euro wilts as Turkey rout sends investors into yen francs | By Tommy Wilkes LONDON Reuters The euro slid to a fresh 13 month low and emerging market currencies slumped further on Monday while the yen surged to a six week high as the fallout from the Turkish lira s crash pushed more investors into safe haven currencies As investors dumped riskier assets in Asian trading and into the European open the Swiss franc jumped to within a whisker of a one year high against the euro EURCHF Emerging market currencies continued to reel as investors worried about contagion The South African rand was down 3 1 percent after falling more than 10 percent in earlier trading the Russian rouble dropped 0 8 percent RUB and the Mexican peso 1 5 percent After hitting a record low of 7 24 against the dollar early on Monday Turkey s plummeting lira found some support after Finance Minister Berat Albayrak said the government had drafted an economic action plan to ease investor concerns and the banking watchdog said it had limited swap transactions The big fear in the market is that we are headed for a full blown emerging market crisis said Ulrich Leuchtmann an FX strategist at Commerzbank DE CBKG in Frankfurt citing the 1997 Asian financial crisis when even countries with a sound macroeconomic position were sucked into a deep sell off Leuchtmann said he believed that we are fundamentally in a different position because many emerging market central banks retained the confidence of the market after hiking interest rates over the past year But a scramble into currencies deemed safer such as the yen and franc underlined market worries about where this was headed The market has woken up quite late to this the Turkey crisis he said The euro fell to as low as 1 1365 EUR a 13 month low before recovering to trade down 0 2 percent to 1 1382 The single currency was hit hard on Friday after reports that the European Central Bank had concerns about banks in Spain Italy and France and their exposure to Turkey The dollar which has rallied since the Turkish lira crisis exploded last week gained 0 1 percent to 96 463 DXY against a basket of major currencies The yen surged 0 6 percent to 110 265 after earlier hitting a six week high of 110 11 The Swiss franc rose half a percent to 1 1288 EUR The euro slipped about 1 percent against the Japanese yen at 125 27 yen per euro EURJPY close to a 2 1 2 month low of 125 26 Tohru Sasaki head of markets research in Japan for JPMorgan Chase NYSE JPM Bank said the yen s performance against major peers has been bolstered since last week amid the market turmoil The yen is likely to continue to outperform even among the major currencies he said The biggest moves were in emerging markets The Turkish lira found some support after sinking to its record low against the greenback The currency was last trading at 6 8364 against the dollar at 0732 GMT after earlier plummeting below 7 lira Turkey s currency has fallen more than 40 percent against the greenback this year on worries over President Tayyip Erdogan s increasing control over the economy and a deepening diplomatic rift with the United States The South African rand recovered somewhat after sliding in early Asian trading to as low as 15 70 rand per dollar its lowest level since June 2016 and down more than 10 percent from late last week
A trader at a U S bank in Tokyo said he thought selling in the rand by real money investors in Asia may have been a reason behind the rand s sudden fall |
JPM | European bank stocks lose more ground as concerns on Turkey spread | By Inti Landauro and Sudip Kar Gupta PARIS Reuters Shares in Europe s major banks lost further ground on Monday as concerns about Turkey s deepening currency crisis spread to other emerging markets The euro zone banking equity index SX7E was down 1 6 percent hovering near its lowest level this year and falling for the fourth session in a row Turkey s lira pulled back from a record low against the dollar on Monday morning after the central bank pledged to provide liquidity and cut reserve requirements for Turkish banks but the currency s meltdown continued to shake global markets The lira has lost most than 40 percent of its value so far in 2018 The Russian rouble hit its lowest level since early 2016 under pressure from the lira s slide and investors concerns about new U S sanctions against Russia Shares in European banks were hit across the board for the second trading session in a row with those exposed to Turkey and other emerging markets suffering the steepest losses There is a panic move on all emerging market currencies the stress spreads on the South African rand the Indian rupee or the Mexican peso said analyst Alexandre Baradez from brokerage IG Group Shares in Spain s BBVA MC BBVA Dutch bank ING AS ING and Italy s UniCredit MI CRDI which all have units in Turkey shed more than 3 percent extending Friday s losses BNP Paribas PA BNPP fell 1 percent Analysts at JPMorgan NYSE JPM Cazenove and Deutsche bank calculated the impact on the four banks of a potential exit from Turkey including the write down of their assets there and the loss of intergroup funding The JP Morgan report said the hit on the core capital would be a significant but manageable 87 basis points for ING and 53 basis points for BBVA UniCredit s core capital ratio would actually benefit from not having to set aside money for forex losses linked to the lira depreciation BNP would have a limited capital impact of 3 basis points Deutsche Bank DE DBKGn saw worst case scenario equity losses for the four banks at 12 percent of group equity for BBVA 4 percent for UniCredit and ING and under 2 percent for BNP Paribas This is not our base case but even if it were to occur the impact should be manageable for European banks it said A BNP Paribas spokeswoman declined to comment on the analysts figures UniCredit and ING did not immediately comment BBVA did not immediately comment on the analysts data but a spokesman for the bank noted that BBVA s CEO Carlos Torres recently said every 10 pct depreciation of the lira in Turkey leads to an impact of around 2 basis points on the bank s capital ratio European banks with large businesses in emerging markets such as Societe Generale PA SOGN in Russia or Santander MC SAN in Mexico also saw their shares losing ground on Monday Santander fell 2 5 percent and Societe Generale dipped 1 3 percent
This version of the story was refiled to add missing word in headline |
JPM | JPMorgan downgrades Planet Fitness on valuation | Planet Fitness PLNT 3 slumps after JPMorgan NYSE JPM downgrades the fitness center operator to Neutral from Overweight on a valuation call The formidable 48 YTD rally in Planet Fitness doesn t leave much room for share price upside reasons the JP analyst team Planet Fitness cycled up to a 52 week high of 53 41 last week Now read |
JPM | Turkey s Collapse Sinks Emerging Markets on Manic Monday | Bloomberg Turkey s market carnage rippled across emerging markets sending both stocks and currencies toward their lowest levels in a year
The lira led losses among global peers after the nation s first steps to bolster the financial system were seen by some analysts as insufficient to protect markets in times of distress As President Recep Tayyip Erdogan lashed out at the U S took higher rates off the table and said he wouldn t accept an international bailout traders pushed down Turkish assets in a selloff that spilled over to other developing economies The rand s one month implied volatility soared by the most since December 2015 while the yield on Argentine s century bonds rose to 10 percent as the peso sank to 30 per dollar
It s another Manic Monday said Jordan Rochester a currency strategist at Nomura International in London We go through the list of options they have to stop this it involves rate hikes getting the IMF involved and restoring market confidence in the lira Unfortunately all the components are going the other way
Toxic Blend Seen Unique to Turkey Sparing Other Currencies
Fear that the Turkish meltdown will keeping punishing emerging markets resurfaced Monday as traders also grappled with tensions between the U S and other major economies such as Russia and China Still many analysts say there are few fundamental reasons to add the whole space to the same basket as several countries have done their homework That means while the stress in Turkey may continue its correlation to the rest of the asset class may decline soon
EM has already seen a large selloff between April to July and negative developments in Turkey will eventually be seen along with Argentina as isolated given their exceptional external imbalances compared to most EM countries JPMorgan NYSE JPM analysts including Luis Oganes and Jonny Goulden wrote in note to clients
Turkey s market turmoil didn t just erase a July rebound in emerging market stocks it also made them the cheapest since early 2016 before a two year 60 percent rally At 10 8 the MSCI Emerging Markets Index s 12 month blended forward price to estimated earnings ratio is now also below where it was after a sell off in the second quarter The gauge itself fell 2 percent this month extending its yearly decline to about 10 percent
While some analysts say they are happy to nibble at stocks they aren t really diving in Equities in developing markets will likely remain turbulent with little sign of stability to lure bargain hunters despite Monday s selloff according to UBS Asset Management
We see building value but you have no visibility on when that value can be realized said Geoffrey Wong head of global emerging markets and Asia Pacific equities at UBS Asset Investors can be forgiven for feeling wary given that we ve got a 1 2 3 4 5 6 punch not just a 1 2 punch
Here s what other analysts and investors are saying
Nigel Rendell analyst at Medley Global Advisors LLC in London
Certainly there is some knock on impact through association by being merely EM but Turkey has some very unique problems It s hard to find another EM with such deep rooted issues that policymakers are refusing to counteract with conventional monetary policy
There has been some panic offloading of positions in some of these other markets which could provide cheap re entry points
Paul McNamara a London based fund manager at GAM UK Ltd said in a Bloomberg Television interview
It can be contained to just Turkey because there aren t really any other emerging markets that have exactly the same toxic blend that Turkey has
Only Argentina really has the external deficit and they don t have as much domestic debt
Jan Dehn head of research at Ashmore in London
While the plunge in Turkish assets has led to cries of contagion the ensuing volatility is replete with opportunity
This contagion has not happened in EM for twenty years nor in our opinion will it ever re appear
EM fundamentals much more resilient to external headwinds today
Recommends buying weakness in non Turkey EM assets
Esther Reichelt strategist at Commerzbank DE CBKG in Frankfurt
On potential downside for EM currencies It depends on whether the central banks are likely to show a clear sign that they are going to take stabilizing measures That s very likely for Russia and the rand less likely for the Indian rupee
The dollar is up due to safe haven demand Right now it seems like the main stress has calmed down and it doesn t seem like there is contagion in EM currencies which would also imply that the risk off sentiment is going to fade |
JPM | Citigroup shakes up consumer bank and card chief leaves | By David Henry NEW YORK Reuters Citigroup Inc NYSE C restructured its consumer bank on Monday elevating one executive and triggering the departure of another as the third biggest U S bank moved to improve results The changes will harmonize Citigroup s consumer business with operating models of units in Asia and Mexico that have produced better results Stephen Bird chief executive of Citigroup s global consumer banking business said in a memo seen by Reuters With the new structure Jud Linville who had been head of global cards and consumer services and a member of Citigroup s operating committee will leave and David Chubak will become head of retail banking and consumer lending globally overseeing products strategies and investments Some of those responsibilities in cards had previously been handled by Linville Anand Selva the current head of consumer banking in Asia will become head the regional head for North America Selva has been with Citigroup for 26 years during which time he has overseen consumer business in 17 countries and advanced digital offerings Bird said The moves come as Citigroup is trying to improve performance of its card business and reconnect with U S consumers despite having few branches through a new mobile app and partnerships with ATM providers Citi branded cards in the United States are an area of particular concern to Wall Street Executives had targeted 3 percent annualized revenue growth from branded cards when the company set profit goals for 2020 at an Investor Day conference in July 2017 But early this year Chief Financial Officer John Gerspach reduced that goal to 2 percent U S Cards has consistently missed our expectations so we believe change could be a positive longer term KBW analysts said in a report on Monday Citigroup expects to get a bump in branded card income as promotions that offered customers little or no interest for a fixed time come to an end Nearly half of those accounts have been converting to paying full rates Gerspach has said Linville 60 had been at Citigroup for eight years and received credit for streamlining the company s roster of card offerings But stiff competition for premium card customers from rivals like JPMorgan Chase Co NYSE JPM have weighed on results He declined to comment on his departure
Citigroup shares fell 1 6 percent to close at 69 16 on Monday |
MS | The Week Ahead Time To Worry About China | Goldman Sachs grabbed headlines with a long report proclaiming this to be a generational opportunity to buy stocks Here is a from Joe Weisenthal Several other top strategists are pretty bearish and Market Watch to explain why the markets will soon crash and what you should do about it By the end of the week the discussion had moved to the topic of Chinese economic growth The pundit parade featured people who have recently been employed as experts on why European leaders were failing at their jobs They have now moved seamlessly onto the topic of China talking about hard landings mal investment and what the leaders of the world s largest country should be doing At least they can probably find China on a map Investors should protect themselves with knowledge This includes knowing about sources With so many advising you to go all in or all out it is wise to check the record I offered some suggestions in this The same argument applies to China Investors are consumers of information Being a good consumer involves doing the homework of checking your sources The big concern this week was a declining Chinese PMI Most people discussing this could not write three sentences on the topic but they certainly have opinions I would just love for some interviewer to ask an expert what the difference was between the flash PMI and the official version Or what the components are Or who is surveyed Or how it compares to the US equivalents which most people also do not understand I ll offer some suggestions about the search for good information about China in the conclusion First let s do our regular review of last week s news and economic data Background on Weighing the Week Ahead There are many good sources for a comprehensive weekly review I single out what will be most important in the coming week My theme is an expert guess about what we will be watching on TV and reading in the mainstream media It is a focus on what I think is important for my trading and client portfolios Unlike my other articles I am not trying to develop a focused logical argument with supporting data on a single theme I am sharing conclusions Sometimes these are topics that I have already written about and others are on my agenda I am trying to put the news in context Readers often disagree with my conclusions Do not be bashful Join in and comment about what we should expect in the days ahead This weekly piece emphasizes my opinions about what is really important and how to put the news in context I have had great success with my approach but feel free to disagree That is what makes a market Last Week s Data Each week I break down events into good and bad Often there is ugly and on rare occasion something really good My working definition of good has two components The news is market friendly Our personal policy preferences are not relevant for this test And especially no politics It is better than expectations The Good The news was mostly good last week Economic prospects look better to CEOs in a Instead of government data this is based upon executives with information about their own companies The conclusions are reached in spite of lingering Eurozone concern and higher oil prices Building permits increased by over 5 This is the best leading indicator for housing For a more comprehensive look at all of the housing data at Global Economic Intersection Their year over year analysis removes some of the issues with seasonality and they have many great charts The on the housing data Bank lending is increasing nicely Scott Grannis all hard data that suggest improvement for the economy and the markets Here is a sample chart one of several Congress bans insider trading by members of Congress Better late than never I guess The Senate vote was 96 3 Hmm Initial jobless claims edged lower again to 348K The Conference Board s leading economic indicators beat expectations and continue to look strong for multiple charts and background on how to interpret the data Here is a sample The Bad There was also some bad news last week mostly from abroad The HARPEX index shows a weakening global economy See the of this relatively new index by Prieur du Plessis including a helpful comparison to the Baltic Dry Index Real estate shadow inventory is still high Rail traffic is still weak European sovereign debt rates edged higher The Italian 10 year for example moved back above a 5 yield While much lower than a few months ago that is the highest rate in about three weeks I am also watching Spanish bonds European and Chinese PMI s moved below 50 indicative of economic contraction This was probably the most worrisome event of the week Gasoline prices continued the upward march show the likely results of a conflict with Iran The oil market reacts in a jittery fashion to each rumor The Saudi s are trying to provide more oil but Russia would like to see higher prices There is no easy and imminent solution here The UglyMF Global and customers money It now appears that Jon Corzine did authorize transfers of customer funds There will be close scrutiny of his sworn testimony before Congress This sort of news further reduces investor confidence in financial institutions The Silver BulletThe silver bullet is given only occasionally when someone is willing to act like the Lone Ranger pointing out errors that have been widely embraced Nominations are always welcome This week s award goes to New Deal Democrat at The Bonddad Blog and Invictus writing at The Big Picture The latest employment report error comes via Art Cashin quoting The King Report Cashin is a favorite source of ours mostly because he accurately conveys what people on the NYSE floor are thinking At the moment they are reaching to find economic data that does not support a recovery In this case they looked at job changes not seasonally adjusted for the first two months of the year and cited job losses of 1 8 million The fact that this is below normal for that time period means nothing when you are on a mission Here is how NDD puts it On a YoY basis the last 12 months have seen the 3rd best job growth in the last 12 years There is not a shred of credibility in the claim made by the King Report the original Cashin claim or the revised Cashin claim Rather than repeating the claims at other business sites it s time to throw out the garbage Both articles are worth reading in full to get a real understanding of the data The Indicator SnapshotIt is important to keep the current news in perspective My weekly snapshot includes the most important summary indicators The The key measures from our Felix ETF model An updated analysis of recession probability The SLFSI reports with a one week lag This means that the reported values do not include last week s market action The SLFSI has moved a lot lower and is now out of the trigger range of my pre determined risk alarm This is an excellent tool for managing risk objectively and it has suggested the need for more caution Before implementing this indicator our team did extensive research discovering a warning range that deserves respect We of 1 1 or higher as a place to consider reducing positions The C Score is a weekly interpretation of the best recession indicator I found I ll explain more about the C Score soon I know that I am behind schedule on this The message remains comforting The SuperIndex from PowerStocks research is adjusting what information to make publicly available and in what time frame I am a big fan of Dwaine van Vuuren whose excellent statistical work is giving us better insight into a wide range of recession forecasting methods The data point that I cite each week the four month recession outlook is only one aspect of a comprehensive report The SuperIndex includes nine different methods including the ECRI The analysis has a very strong practical market application which has paid off richly for subscribers over the last few months How Mostly by putting the ECRI recession forecast into better perspective Spend a few minutes at their site and you will see the following of the SuperIndex components and methods A collection of including how to improve the ECRI method using the Conference Board s LEI and deciding how much recession warning you need A This shows the richness of the weekly information including differing time frames for recession warnings as well as an updated GDP forecast This is all driven by the most recent data from all of the indicators We will determine what we can publish and try to maintain something in our summary even if there is a delay Our Felix model is the basis for our official vote in the weekly We have a long public record for these positions This week we are continuing our neutral vote a position started two weeks ago for the first time since December For more on the penalty box see For more on the system ratings you can write to etf at newarc dot com for our free report package or to be added to the free weekly ETF email list For daily ETF commentary from Felix you can sign up for where I still have a few discounted memberships available You can also write personally to me with questions or comments and I ll do my best to answer The Week Ahead There are more housing reports this week including pending home sales and Case Shiller prices on Monday and Tuesday Durable Goods Wed Initial Claims Thurs and Personal Income and Spending Fri are all key reports Conference Board consumer sentiment Tues and Michigan sentiment Fri have continuing importance Fed Chair Bernanke has a number of speeches including more college lectures These are unlikely occasions for any new hints on policy The final GDP revision and various regional Fed surveys are unlikely to be market moving There are many scheduled reports this week but most are minor We are also a little ahead of the new earnings season This absence of information may permit even more attention to economic news from abroad Daily trading continues to show this effect China s economic growth rate is the major concern for many Trading Time Frame Our trading accounts have been 100 invested since December Felix caught the current rally quite well buying in on December 19th There are now only a few sectors in the buy range but the overall ratings have improved a little This program has a three week time horizon for initial purchases but we run the model every day and change positions when indicated Felix has been more confident than I have been on the trading time frame and has stayed invested in the face of a lot of skepticism This illustrates the importance of watching objective indicators instead of headlines Despite the modest overall ratings Felix kept us fully invested for trading accounts last week We have 28 sectors in the universe so we can be fully invested if there are three strong sectors even if the market overall is neutral or negative Investor Time Frame Long term investors should be aware of the rapid decline in the SLFSI Even for those of us who see many attractive stocks it is important to pay attention to risk In early October we reduced position sizes because of the elevated SLFSI The index has now pulled back out of our trigger range and is declining further This sort of decline has been a good time to buy stocks on past occasions Worry is still high but has now declined to a more comfortable level Even though stock prices are higher than in October the risks are much lower I continue to increase position size for risk adjusted accounts I am also looking more aggressively for positions in new accounts The continuing reduction in volatility is helping our existing covered call positions Our Dynamic Asset Allocation model has become much less conservative Gone are positions in bonds and gold DAA responds to the message of the market cashing in on extended moves It is rather like what some call a lazy portfolio but better Final Thoughts on China Getting good information about China can be a challenge that Chinese companies have been forced to falsify data We soon Nor can we assume that we know the direction of any distortions since government motives are not always clear The flash PMI from HSBC the one that caused the stir last week has been running lower than the official result which is published later This chart shows the pattern as well as the current trend To be a good consumer of information about China you need to identify the best sources One of the best is Stephen Roach who was Morgan Stanley s point man in Asia for many years and is now teaching at Yale He as vastly exaggerated I would definitely subscribe to the view that these fears over a hard landing are vastly overblown You ve had a lot of people on your show and other shows talking about a banking crisis that China s a massive property bubble that there s a runaway inflation problem Like most of these stories there s a shed of truth to some aspects of it but it s a shred It s been vastly exaggerated Here is more good background from a This is a story that we will all be watching for a while |
MS | IPO Look Millennial Media | Based in Baltimore Maryland Millennial Media proposed MM scheduled a 102 million IPO with a market capitalization of 750 million at a price range mid point of 10 for Thursday March 29 2012 Managers Morgan Stanley Goldman Sachs Barclays CapitalMM is one of nine new IPOs scheduled for the week of March 26 For a summary SUMMARYMM is the leading independent mobile advertising platform company and competes with Apple AAPL and Google GOOG AAPL and GOOG are probably not running their mobile advertising businesses strictly as profit making units which puts MM at a pricing policy disadvantage In other words AAPL and GOOG may cut mobile advertising rates in order to give their own ad space offerings a competitive advantage Millennial Media has a 16 7 market share according to IDC It s second only to GOOG which has a 23 8 share while AAPL is third with a 15 1 share Gartner estimates that worldwide mobile advertising revenue excluding advertising delivered in connection with search requests and maps will grow from 1 8 billion in 2011 to approximately 13 5 billion in 2015 reflecting a compounded annual growth rate of 65 FINANCIAL SUMMARYRevenue for 2011 was up 110 over 2010 to 104 million Revenue for the December 2011 quarter was 35 million up 37 compared to the September quarterHowever MM has a relatively low gross margin of 39 and is not quite at breakeven in terms of income statement profits EBITDA was only 2 for the year ended December 2011 CONCLUSIONBased on the hotness of the mobile advertising space and based on MM s 37 sales increase in the December over September quarter MM should go up on its IPO However a 750 million valuation price range mid point for a company that is just breaking even and doesn t show much profit leverage on its income statement seems high unless MM can become profitable fairly soon BUSINESSMM is the leading independent mobile advertising platform company MM s technology tools and services help developers maximize their advertising revenue acquire users for their apps and gain insight about their users MM was founded in 2006 To advertisers MM offers significant audience reach sophisticated targeting capabilities and the opportunity to deliver interactive and engaging ad experiences to consumers on their mobile connected devices MM has built relationships with leading advertising agencies and brands including 23 of the top 25 Ad Age advertisers In February 2012 MM s platform reached approximately 140 million unique mobile users in the United States and over 300 million users worldwide According to IDC MM is the second largest mobile display advertising platform in the United States with a 16 7 market share MM is the only one of the three principal mobile advertising platform companies that is not affiliated with a particular mobile operating system or set of devices MM technology and tools have been integrated into many of the most popular apps available through major distribution channels such as the Android Market and the Apple App Store MARKET GROWTHGiven the benefits of mobile advertising as compared to traditional offline advertising and PC based online advertising MM expects that marketers will continue to shift their advertising budgets to mobile Gartner estimates that worldwide mobile advertising revenue excluding advertising delivered in connection with search requests and maps will grow from 1 8 billion in 2011 to approximately 13 5 billion in 2015 reflecting a compounded annual growth rate of 65 MM s PLATFORMMM s proprietary technology and data platform known as MYDAS determines in real time which ad to deliver as well as to whom and when with the goal of optimizing the effectiveness of advertising campaigns regardless of device type or operating system In February 2012 MM s platform reached over 300 million unique users worldwide including approximately 140 million unique users in the United States alone More than 30 000 apps are enabled by their developers to receive ads delivered through MM s platform and MM can deliver ads on over 7 000 different mobile device types and models MM s platform is compatible with all major mobile operating systems including Apple iOS Android Windows Phone Blackberry and Symbian In February 2012 MM processed over 45 billion ad impressions According to a December 2011 report by International Data Corporation a market research firm MM is the second largest mobile display advertising platform in the United States with a 16 7 market share MM is the only one of the three principal mobile advertising platform companies that is not affiliated with a particular mobile operating system or set of devices INTERNATIONALMM established an office in the United Kingdom in the first half of 2010 and recently launched operations in Singapore in the fourth quarter of 2011 MM s first presence in the Asia Pacific region MM plans to expand its presence in Europe the Middle East Africa and the Asia Pacific region TECHNOLOGY AND DEVELOPMENTMM s technology and development efforts are focused on enhancing the architecture of the MYDAS technology platform and creating additional functionality for developer customers MM is also developing additional self service products to be available through its mmDev and mMedia portals As of December 31 2011 MM had a total of 44 employees engaged in technology and development functions For the years ended December 31 2009 2010 and 2011 total technology and development expenses were 1 1 million 2 2 million and 5 2 million respectively INTELLECTUAL PROPERTYMM has two non provisional patent applications pending and three additional provisional patent applications pending in the United States MM expects to apply for additional patents to protect its intellectual property COMPETITIONIn the mobile advertising solutions space primary competitors are the large advertising platforms offered by Google and Apple both of which focus on advertising solutions built for their proprietary mobile operating systems Android and iOS respectively MM also competes with in house solutions used by companies who choose to coordinate mobile advertising across their own properties such as ESPN The Weather Channel and Yahoo as well as new smaller entrants into the mobile advertising market EMPLOYEESMM grew from 66 employees at December 31 2009 to 222 employees at December 31 2011USE OF PROCEEDSMM expects to net 81 million from its IPO at the price range mid point of 10 from the sale of 9 million shares Selling stockholders intend to sell 1 million shares MM is allocating its net IPO proceeds to working capital and for general corporate purposes |
MS | Former Sec Chairman Arthur Levitt Goldman Should | Former SEC Chairman Arthur Levitt who serves as a senior policy advisor for Goldman Sachs spoke to Bloomberg TV s Erik Schatzker this morning on Inside Track Levitt said that Goldman should stop saying the firm puts customers first and that Lloyd Blankfein s future is determined really by what the business is over the course of coming months Highlights of the interview are below The video can be seen here courtesy of Bloomberg Television On whether Greg Smith s Op Ed had any impact on recent changes at Goldman You know enough about the media to know that when a story like this percolates and a Greg Smith comes up and he comes up not just here but in Credit Suisse and Morgan Stanley it raises to a level that s beyond its merits Greg Smith was there for a number of years why did he surface just recently I don t think that determines the fate of the company I personally believe that something that s awfully important we talk about putting customers first I think we probably ought to stop saying that Nobody really puts customers first Business is a tension between sellers and buyers That tension always exists On why Goldman Sachs should stop saying the firm puts customers first I would not emphasize that beyond its merits and I would always point out that there is a logical reasonable fair understandable tension between a seller of a product and a buyer of a product It s not to say that buyers should beware It s to say there should be transparency but on the other hand let s not create a fellowship of buyers and sellers which will march into the sunset On whether Goldman would be tarnished if they said they don t put customers first Goldman Sachs is distinguished because they do it better than everybody else not because of any tagline This is an advertising issue It s become a PR issue because the media has made it such I am saying that Goldman shouldn t play to that They should play to their competence which is considerable Lloyd s coming or going is no different than the comings or goings of any other great corporate executive His time will come undoubtedly Each episode doesn t lead one step further to that event I think we emphasize each episode much too much On why Goldman created the lead director position Not everybody agrees that splitting the roles is a good thing I was part of a panel that was created by the Business Council several years ago on this issue and we decided that for some companies a split role doesn t make sense For others it makes a lot of sense I think the Goldman s board felt that because of Lloyd s talent and because of their own situation for the time being they didn t want to split the roles This union which is the municipal workers union here in New York feels very compellingly that the roles should be split but also that there should be a lead director I think the board and management at Goldman Sachs conceded that point On whether the lead director position for John Bryan is any change at all I think there s clearly a change because we have to take this in the context of everything else that has gone on around Goldman Sachs the business standards group the pressure that s been put on them by the media Creating a lead director and whomever that will be will be a very powerful guy is a concession to a member of the board will have more power I think there will also undoubtedly have their independent members meet and I think that alone will be a new standard On how these changes impact Lloyd Blankfein and Gary Cohn s roles I don t know why people focus on the part of it I don t think Gary Cohn enters into the equation He s a very senior guy at the company and he helped formulate this decision but this has nothing to do with his strength in the corporate galaxy As for Lloyd I think his future is determined really by what the business is over the course of coming months By Scott Rubin |
MS | Guess The Pundit | You are invited to play Guess the Pundit This is inspired by an old game show called Name that Tune While the format changed a bit over the years the idea was that you would hear a few notes and then guess the tune In some variations contestants could say I ll name that tune in X notes the fewer the better The Current PronouncementAs stocks move higher there are more pundits seeing the advance as an opportunity to call the top With this in mind here is a statement taken right from the news My main call is about the multiple you pay for earnings Why should I pay a higher multiple for earnings produced where you have massive fiscal stimulus incredibly accomodative monetary policy by a government whose debt to revenue is worse than Greece Why should I pay more for those earnings I have some thoughts about this observation but first a small quiz Who is the source of this quotation A leading blogger of the bearish persuasion A leading hedge fund manager talking his book A leading sell side firm behind the curve A leading bond fund manager explaining why stocks are still inferior to bonds A leading political leader with any of several motives The answer is below but first a few thoughts Choosing the Right MultipleI am astonished at the wrong headed analysis in the cited quotation When I pick a stock I focus on the current and future business of the company I look at earnings cash flow the balance sheet the dividend stock buybacks and the earnings growth rate I am interested in the business model and future prospects of the company And finally I compare each investment choice to the available alternatives I often find myself in complete disagreement with the top Wall Street pundits something that has worked well for me for many years There are currently many stocks that are very attractive according to this method I accept the reality of government policy and so should you In democratic societies the leaders do not stand back and watch the economy fail without taking any action Fed policy whether stimulating or restricting is just part of the economic landscape So is fiscal policy I change my price targets based upon new information as I The idea that a professional would discount earnings because he disagrees with government policy or thinks it might not work is abdicating his role as objective analyst And the winner is Any reader who guessed the sell side firm The quotation is not from Tyler Durden John Hussman Bill Gross John Mauldin or even Newt Here is the commentary from Adam Parker Chief Equity Strategist from Morgan Stanley Parker and a team of fellow PhD s have taken over the forecasting at Morgan Stanley and have a price target for the S P 500 of 1157 That is their story and they are sticking to it I have no objection to PhD s some have been known to make valuable contributions When it comes to investment analysis I like to see representation from various disciplines The Morgan Stanley team is overloaded with stat guys They need more balance including policy specialists and most importantly experts in research design I see too much focus on being clever with numbers and finding correlations without good theoretical foundations They are not alone One after another those claiming expertise in the objective analysis of data are falling into excuses laced with political rhetoric Watch for the telltale signs from those who used to talk data Do they now complain about printing money About bailouts Are these surprises Things that have never happened before Understanding predicting and explaining government actions is part of making accurate market forecasts Learn this or lose |
JPM | Bears Gain On The Bulls | Another Volatile Week With Little Progress
Approaching A Bond Buying Opportunity
Interesting Tidbits
Sector Market Analysis
401k Plan Manager
More Volatility Still No Movement
Last week I discussed the issue of lot s of volatility with little movement stating
The last couple of weeks have experienced a sharp rise in price volatility While stocks have vacillated in a very tight 1 5 trading range since the beginning of June there has been little forward progress to speak of However notice that support at 2415 50 dma has remained solid as robots continue to execute their program of buying the dips
This lack of progress keeps us stuck with respect to portfolio positioning
I remain very cautious on the overall market currently and the deterioration is leadership remains concerning However the trend remains bullishly biased which keeps portfolios allocated on the long side for now
With that said the recent sideways movement has NOT worked off the previous overbought condition of the market on an intermediate term basis as shown below
As I have stated previously the presence of the primary sell signal signal 1 has suggested price weakness in the market would likely continue However the recent corrective action has now pushed the secondary signal towards initiation Previously the confluence of both intermediate term sell signals have historically been in conjunction with deeper corrections in the market
I am giving the market a bit of room given the week was interrupted by a holiday which tends to let the inmates run the asylum Next week will give us a better picture of the current risk reward setup
Despite the uptick in volatility last week volatility remains suppressed at historically low levels As shown in the chart below the recent back and forth action has reduced the overbought condition of the market short term with stocks testing the bullish uptrend Furthermore while the market is oversold on a daily basis versus weekly as noted above the high level of complacency DOES NOT align with the tradeable set ups noted previously by the vertical red dashed lines
Let me reiterate from last week
I continue to suggest a healthy regimen of in portfolios by following some rather simple guidelines the same ones that we followed to harvest profits recently as noted above
Tighten up stop loss levels to current support levels for each position
Hedge portfolios against major market declines
Take profits in positions that have been big winners
Sell laggards and losers
Raise cash and rebalance portfolios to target weightings
For now as noted above let s wait until next week to see if the bears can continue to gain on the bulls If they do we will then begin to evaluate models to reduce overweight positions raise some additional cash and potentially begin to deploy some hedges
Approaching A Bond Buying Opportunity
Last week I discussed why interest rates can NOT much substantially higher from current levels To wit
As I interest rates are a function of three primary factors economic growth wage growth and inflation The relationship can be clearly seen in the chart below by combining inflation wages and economic growth into a single composite for comparison purposes to the level of the 10 year Treasury rate
As you can see the level of interest rates is directly tied to the strength of economic growth and inflation
This week I want to look at interest rates from a purely technical point Interest rates like stock prices are bound by the laws of physics Prices can move only so far in one direction before eventually returning to the mean When rates plunged from 2 6 to 2 15 recently bond prices had become extremely overbought and some correction action was expected
I have been recommending to readers over the last couple of months to withhold adding bond positions given the level of richness in bond prices That advice has played well and the recent spike in interest rates has pushed bond prices to important levels of support while reducing much of the previous overbought condition
As noted last week
However bonds are not yet oversold Therefore we will hold off on adding to existing bond exposures or adding new positions this week with the expectation rates could rise a bit further
The rise in rates last week has pushed the 10 year yield to some of the highest overbought conditions witnessed in the past 25 years Each time rates have been at these levels previous TWO things have happened
There was an economic or financial market backlash and
It was a great time to buy bonds
Sure Maybe this time IS different and rates will magically decouple from the underlying drivers of economic and inflation and go spiraling higher Such an event would last about 37 seconds until higher borrowing costs choke off what bit of nascent economic growth we currently have
As David Rosenberg noted this past week
In fact when you go back and look at the announcements of QE1 QE2 and QE3 the Treasury market actually did not rally on these but the stock market sure did And you know what in those intermittent periods when the Fed stopped its balance sheet expansion only to then precipitate the next round the ensuing pullback in risk appetite and the correction in the S P 500 actually caused the bond market to rally on the safe haven effect
Furthermore the net positioning of commercial traders also recently reached a peak LONG position in bonds historically the reversal of such a net long to a net short position has denoted the peak in interest rate increases and a prime opportunity to buy bonds That reversal has already begun
However as noted in the chart above when the economy slips into the next recession interest rates will once again join the long term downtrend towards 1 or less
Bonds will be the right place to be Stocks won t be
So as I stated we are looking to BUY bonds and will likely start nibbling at positions next week
Interesting Tidbits
I ran across a couple of interesting tidbits this past week that I thought were worth sharing with you The first point comes with reference to my comments over the last couple of weeks of algorithms kicking in to buy every dip In fact they now appear to be hitting the button faster than ever
For dip buyers in the S P 500 2017 has actually been a tough year because there hasn t been any As JPMorgan NYSE JPM notes 2017 s 3 intra year decline is the smallest since 1980 tied with 1995 which saw a 34 return
This 3 drawdown for now continues a 6 year streak of drawdowns that are dramatically below the longer term average of 14 1 drops intra year
The question is what happens when the Federal Reserves quits injecting capital into the market through reinvestment and begins to allow their balance sheet to reduce As I have noted previously there is a very high correlation between those reinvestments and subsequent market action
Secondly the Fed has suddenly become concerned about valuation pressures This is interesting given the Fed has not given valuations much concern previously suggesting the low interest rates supported higher valuations
However in the most recent release of their for July it was noted
Valuation pressures across a range of assets and several indicators of investor risk appetite have increased further since mid February However these developments in asset markets have not been accompanied by increased leverage in the financial sector according to available metrics or increased borrowing in the nonfinancial sector Household debt as a share of GDP continues to be subdued and debt owed by nonfinancial businesses although elevated has been either flat or falling in the past two years
I am not sure exactly what debt metrics she s looking at but leverage is currently at the highest level on record
Furthermore even looking at the S P 500 400 S P 600 and Russell 2000 indices based on FORWARD OPERATING earnings estimates 2 YEARS into the future I simply could not find a more generous measure of valuation stocks are expensive If EPS estimates fail to meet future expectations which they always do valuations will increase further
Are stocks expensive Yes
Are companies and individuals heavily leveraged You bet
Will the outcome be benign Probably not
Lastly while the jobs report was decent on Friday with the exception of wage growth it is important to remember two things
The employment report along with all economic reports are subject to heavy backward revisions and
The trend is far more important than the actual number
In regards to point 1 the corporate tax receipts through April contracted the most since 2009 This suggests the macro corporate environment is weaker than currently believed and hiring generally does not ramp up outside of temporary factors if the overall environment is weak
As to point 2 it should not come as a surprise the trend of employment has clearly begun to weaken This has historically coincided with the Federal Reserve starting a rate hiking campaign which tightens monetary policy Why everyone believes this time is different is beyond me
As Dr Lacy Hunt recently stated
When the Fed tightens they are saying the economy is doing too well by our standards we want the economy to have less money and credit growth and we want less economic activity They are saying this at a time when the best economic indicators are in a downturn
The Fed has likely got it wrong again
See you next week
Market Sector Analysis
Data Analysis Of The Market Sectors For Traders
S P 500 Tear Sheet
The Tear Sheet below is a reference sheet provide some historical context to markets sectors etc and looking for deviations from historical extremes
If you have any suggestions or additions you would like to see send me an email
Performance Analysis
New Thank you for all the comments on the performance analysis below Due to many of the emails I got I have swapped out the sector weight graph for a year to date performance range analysis Keep the comments coming
ETF Model Relative Performance Analysis
Sector Analysis
As I suggested last week while the major indices remain within striking distance of all time highs The internal damage continued again this week
Technology Discretionary Utilities and Staples continued their recent weakness with all sectors having now BROKEN their respective 50 dma s The correction does set up a potential trading opportunity provided support holds but the break below the 50 dma raising a warning flag If current supports in these sectors give way we will recommend reducing overall portfolio weightings
Financials Health Care Materials and Industrials continue to catch rotation flows from the previous leaders All of these sectors remain overbought so some profit taking and rebalancing is advised
Energy Oil prices rallied last week as I discussed in the previous newsletter but failed at resistance Furthermore despite the rally in oil prices energy stocks continue their downward trajectory The supply of oil remains a problem with rig counts rising and economic weakness prevalent With a major sector sell signal and the cross of the 50 dma below the 200 dma we remain out of the space for the time being Use any rally to reduce exposure accordingly until the technical trends improve
Small and Mid Cap stocks regained their respective 50 dma s which removes their warning signs but remained weak relative to the broader market This keeps concern elevated at the moment however maintain exposure for now but do so cautiously with stops at support
Emerging Markets and International Stocks as noted last week
There is a good bit of risk built into international stocks currently We took profits a few weeks ago but the recent extension suggests another round of rebalancing is likely wise Take profits and rebalance sector weights but continue to hold these sectors but stop levels should be moved up to the 50 dma A pull back to support will provide an opportunity to rebalance holdings in the short term The consolidation in industrialized internal markets is bullish and a potential point to add exposure may be approaching
The profit taking exercise proved prudent and the international exposure has pulled back to support at the 50 dma However the markets are still in a corrective process and not oversold as of yet We are looking to add some additional exposure to the international area in portfolios but will wait and see if supports hold next week
Gold The failure of the precious metal at critical resistance of 1300 oz keeping us out of our long term positions currently The short term trading positions were also stopped out on the drop below 1260 oz for now With Gold back below the 50 AND 200 dma we remain OUT of gold currently
S P Dividend Stocks along with other more interest rate sensitive sectors are being sold on the technical bounce in interest rates this past week We have recommended previously taking profits in these sectors which now provides an opportunity to add exposure at a lower cost as this opportunity develops Continue to hold current positions but maintain stops at the recent lows
Bonds and REIT s were hit with the technical bounce in rates As noted above we have been waiting for a reasonable opportunity to add bond and interest rate sensitive exposure to portfolios opportunistically With these sectors now oversold the opportunity to begin adding exposure is approaching We are looking for yields to rise towards 2 4 to 2 5 ultimately but will likely begin nibbling at exposure next week
The table below shows thoughts on specific actions related to the current market environment
These are not recommendations or solicitations to take any action This is for informational purposes only related to market extremes and contrarian positioning within portfolios Use at your own risk and peril
Portfolio Update
The bullish trend remains positive which keeps us allocated on the long side of the market for now However more and more red flags are rising which suggests a bigger correction may be in the works over the next couple of months
Two weeks ago during the correction we added modestly to our core holdings for the second time this year However we are still maintaining slightly higher levels of cash currently
If the markets fail to hold their 50 dma next week we are going to begin adding further hedges to portfolios and looking to reduce accelerated volatility in the market Stops have been raised to trailing support levels and we continue to look for ways to de risk portfolios at this late stage of a bull market advance
We remain invested We just remain cautious and highly aware of risks to capital
THE REAL 401k PLAN MANAGER
The Real 401k Plan Manager A Conservative Strategy For Long Term Investors
There are 4 steps to allocation changes based on 25 reduction increments As noted in the chart above a 100 allocation level is equal to 60 stocks I never advocate being 100 out of the market as it is far too difficult to reverse course when the market changes from a negative to a positive trend Emotions keep us from taking the correct action
Weaker Markets Push 2nd Sell Signal
As noted in the pie charts above there are 4 signals that drive the portfolio allocation model The first is a warning sign the 2nd 3rd and 4th driving reductions in the equity allocation to reduce risk in 401k plans We run this model much more conservatively than our client models due to investment selection and trading restrictions
After another week of up and down the markets continue to tread in a very tight trading range The lack of forward motion keeps models on hold this week as internal deterioration continues but more importantly has pushed the 2nd sell signal close to triggering Given that models currently remain with a higher level of cash this will not require any further action at this time But given the signal is potentially being triggered at a very high level it is worth paying attention to
As opposed to our portfolio model allocations where we have more flexibility in movement we look for opportunities to adjust risk exposure with a view of a 90 day holding period This is due to 401k trading restrictions If we cannot get comfortable with a 90 day outlook we will remain on hold
Opportunity Arises As I penned last week
After weeks of refraining from adding further fixed income holdings and taking profits the pop in interest rates will provide an entry point potentially in the next week or so Stay tuned
As noted in the main body of the missive above we are looking to start nibbling at adding bond exposure to portfolios Bond allocations can now be rebalanced toward full allocations but do so incrementally as rates rise toward our target range of 2 4 2 5 |
MS | Morgan Stanley cautious on Church Dwight | Shares of Church Dwight NYSE CHD are on watch after Morgan Stanley NYSE MS warns the consumer products stock traded at too high of a premium following the failed Kraft bid for Unilever LON ULVR The investment firm lowers Church Dwight to Underweight from Equalweight and clips the price target to 49 vs yesterday s close of 50 25 Now read |
MS | ValueAct trims stake in Morgan Stanley in first quarter | By Olivia Oran Reuters ValueAct Capital Management trimmed its stake in Morgan Stanley N MS by 9 million shares during the first quarter according to a U S regulatory filing That brings the hedge fund s total number of shares in Morgan Stanley down to 17 8 million according to the filing on Monday with the Securities and Exchange Commission ValueAct owned as many as 41 9 million shares in the Wall Street bank in 2016 It acquired a 2 percent stake in Morgan Stanley last August saying at the time it had no plans to take a seat on the bank s board of directors or demand dramatic shifts in strategy Agitating for meaningful change at large banks is very difficult analysts say because banks are controlled tightly by the U S Federal Reserve which governs how they use capital ValueAct founder Jeff Ubben said in February he got super lucky with President Donald Trump administration s proposed financial deregulation agenda which caused bank shares including Morgan Stanley to soar He said he sold some shares in Morgan Stanley following its price increase
Shares in Morgan Stanley have risen 46 percent since ValueAct took its initial stake |
MS | Time for pause on European cyclicals Morgan Stanley says | LONDON Reuters Morgan Stanley NYSE MS warned that richly valued European stocks closely geared to economic growth were set for a pull back as earnings momentum slows and macro tailwinds fade The broker cut its ratings on British engineering firm Bodycote L BOY and Swedish firm SKF ST SKFb to underweight as part of a broader turn toward a more cautious stance on the region s capital goods sector In a report titled Cyclicals Time to Leave the Party Morgan Stanley strategists led by Graham Secker and Matthew Garman pointed out that valuations of cyclical stocks relative to the broader market were close to a 40 year high the group looks overbought and expensive as we approach a peak in PMIs and EPS momentum the strategists said in a note to clients They recommended clients add to relatively safer consumer staples stocks Some of this shift was already underway in Europe after worries about growing political turmoil in the U S sparked a selloff across global stock markets |
JPM | JLL Q2 EPS missed consensus when stripping out extra income JPMorgan | If you exclude extra after tax income Jones Lang LaSalle JLL 8 8 Q2 EPS missed consensus estimate Bloomberg reports citing a note by JPMorgan NYSE JPM analyst Anthony Paolone Incentive fees and equity earnings account for a big part of the headline beat JPMorgan says Paolone also noted that EMEA results lagged as weak capital market trends led to worse than expected EBITDA KBW analyst Jade Rahmani noted that capital markets fee revenue was lower than expected and that JLL mentioned increased global uncertainty Previously Jones Lang LaSalle dips even as Q2 beats Aug 8 Now read |
JPM | BOJ lays some groundwork but still far from stimulus exit Reuters poll | By Kaori Kaneko TOKYO Reuters A third of economists polled by Reuters said the Bank of Japan s steps to make its policy more flexible suggest it is laying the groundwork for an eventual exit from its massive stimulus but most said it won t actually pull the trigger anytime soon The BOJ last week pledged to keep interest rates extremely low for an extended period while making policy tweaks to buy stocks and bonds more flexibly including allowing the 10 year government bond yield to move in a slightly wider band around zero percent Those steps were aimed at making the BOJ s stimulus more sustainable as it remains far from achieving its 2 percent inflation target even after five years of massive asset buying and ultra low rates under BOJ Governor Haruhiko Kuroda I don t think the BOJ s flexibility brought the bank a full step forward towards policy normalization but perhaps we could say by a third of a step said Hiroaki Mutou chief economist at Tokai Tokyo Research Institute Mutou was among 12 out of 35 economists who said the central bank s steps brought it closer to crafting an exit strategy although implementing one remained far off In fact 73 percent of economists who see stimulus unwinding as the BOJ s next step don t expect that to happen until 2020 or later up from 37 percent last month Since the BOJ s decision did not raise inflation expectations the timing of its exit strategy will not change said Hiroshi Ugai chief economist at JPMorgan NYSE JPM Securities Japan who doesn t see an exit before 2020 He called the overall impact from the BOJ s policy tweaks on the economy and inflation almost neutral But economists were positive towards the BOJ s decision to let 10 year yields move between minus 0 2 percent and 0 2 percent double the previous range as keeping yields in too narrow of a band had been shrinking bond trading Twenty seven of 35 economists said the move on yields would help bond market functioning while eight disagreed the poll taken between Aug 3 and 8 found Functioning in the JGB market will partially improve said Izuru Kato chief economist at Totan Research But as long as the BOJ maintains its yield curve control policy a negative impact from worsening functions in the market will continue Elsewhere economists project the core consumer price index which excludes fresh food will rise 0 9 percent in the fiscal year to March 2019 and the same rate the following year excluding the effects of a planned sales tax increase By contrast the BOJ has forecast CPI to rise 1 1 percent this fiscal year and 1 5 percent next year The economy the world s third largest is seen growing 1 1 percent this fiscal year and 0 8 percent the following year the poll showed Polling by Khushboo Mittal and Vivek Mishra Editing by Chris Gallagher and Sam Holmes |
JPM | AECOM announces 150M accelerated buyback | AECOM ACM 0 1 has entered into an accelerated share repurchase agreement with JPMorgan Chase NYSE JPM Bank to repurchase 15M of its common stock The transaction will enable the company to reduce its outstanding share count and reflects the initial repurchase under its previously announced 1B authorization by the board last September Now read |
MS | And They Think It s All Over | So Greece has been saved is that right Well according to ISDA the International Swaps and Derivatives Association a Restructuring Credit Event has occurred with respect to the Hellenic Republic which in the vernacular means the Greeks are bust tell us something we don t know The importance of this statement is that credit default swaps CDS on Greek debt are now triggered and holders will have their losses made good There were any number of scurrilous rumours that ISDA would not declare a credit event to preclude their illustrious members from paying out but when the net downside of 3 billion needs to be shared out amongst the likes of Barclays Credit Suisse Deutsche Bank Goldman Sachs JPMorgan Chase Morgan Stanley UBS BNP Paribas and Societe Generale then a quick whip round in the bar after close of business and the jobs a good un Their meeting went on for quite a lot longer than it takes to answer the question Has Greece defaulted Yes or no so it is quite likely that some on the list felt they were in for more than their fair share Whilst the net exposure is small the gross tally is 68 9 billion according to Bloomberg so there is a lot of room for error here In fact one Austrian bank a bad bank left holding the baby Greek CDS amongst other toxic waste after an earlier reconstruction has owned up to a 1 3 billion hole in its balance sheet as a result Undoubtedly they will not be the last casualty in this chapter but it won t be any of the big boys this time around or there wouldn t have been a credit event would there Given the shenanigans in this apology for a currency union you really shouldn t be surprised to discover that there is far more Greek debt around than we thought we had given them credit for On top of the sovereign debt it seems there is another 100 billion or so of paper issued by the Athens Urban Transportation Co the Hellenic Railway and assorted Greek banks amongst others guaranteed by the Hellenic republic Guarantees in financial circles tend to come with a pinch of scepticism but when combined with Greek mythology they become truly heroic assumptions And no one thought to mention these obligations before putting the taxpayer on the hook for the 130 billion bailout Heaven forbid that anyone gets to see the full picture And what did the politicos make of this deal of the century The Greek finance minister Evangelos Venizelos said that the deal had helped Greece to avoid a nightmare scenario and given it a new opportunity Blah blah blah Have another box of cream donuts before you waste away along with your country s economy Far more realistically la Merkel admitted to the Bundestag that there were no guarantees there s that word again that the second bailout would work and that the risks of turning away from Greece now are incalculable No one can assess what consequences would arise for the German economy or Italy Spain the eurozone as a whole and finally for the whole world Well Angela one way or another I think we are going to find out just what those consequences are going to be sooner than you might think |
MS | Financial Stocks Start Lower | Yesterday morning all of the leading financial stocks were struggling to catch a bid higher The Financial Select Sector SPDR ETF NYSEARCA XLF was trading lower by 0 05 cents to 14 85 a share Traders should watch for intra day support around the 14 75 and 14 60 levels The daily chart of the XLF remains in an uptrend and above of the important moving averages Some leading financial stocks that are seeing early selling pressure include J P Morgan Chase Co NYSE JPM Morgan Stanley NYSE MS Wells Fargo Co NYSE WFC and Citigroup Inc NYSE C All of these stocks are holding up well on the daily charts at this time Later this week the Federal Reserve will release the results of another round of bank stress tests The round of stress tests is expected to show improved balance sheets for many of the U S banks |
MS | How Easy Is This Fed | As we wait for the announcement from the FOMC the markets have been seeing a number of mixed signals from the Fed lately Josh Brown thinks that I think that Ben Bernanke has been incredibly activist and accommodative because of his and this Bernanke Fed isn t about to stop There are others who subscribe to my view of an easy Bernanke Fed In a article subscription required former Fed insider Vincent Reinhart of Morgan Stanley and husband of Carmen Reinhart believes that Bernanke may not have the political capital to undergo another QE cycle in 2H2012 so any accommodation needs to be brought forward But a long time observer of Fed policy from the inside and the outside thinks another round of quantitative easing or other measures is likely later this year Vincent Reinhart Morgan Stanley s chief U S economist formerly was director of the Fed s Division of Monetary Affairs and served as the FOMC s secretary and economist so he has seen things from both sides In his latest report Reinhart writes there is a 75 probability the Fed will take some unconventional action by June because of the political calendar The central bank is supposed to be above the political fray but this former Fed insider thinks Ben Bernanke Co will want to keep a lower profile in the second half of the election campaign season Secondly the economics also will justify a move he continues I may be na ve but I still find it jarring to list economics after politics in determining Fed decisions but I m not an ex insider Economic slack read unemployment persists and inflation remains below the Fed s medium term projections Reinhart notes Moreover he notes the Fed sees risks the economy could slow Here too at Morgan Stanley we share the view that the fillip to economic growth associated with a restock of inventories is fading and that real gross domestic product growth will slow notably in current quarter Anxiety inducing headlines that the economy is losing steam will be conducive to Fed action If Vincent Reinhart is correct then Bernanke may not have the political capital to undertake another round of QE That s why we had the about the Fed considering sterilized bond buying as a way of appeasing the hawks inside and outside the Fed I have no idea how much Vincent s thinking is influenced by Carmen s and vice versa but this thread of continued central bank accommodation is consistent with emphasis added As they have before in the aftermath of financial crises or wars governments and central banks are increasingly resorting to a form of taxation that helps liquidate the huge overhang of public and private debt and eases the burden of servicing that debt Such policies known as financial repression usually involve a strong connection between the government the central bank and the financial sector In the U S as in Europe at present this means consistent negative real interest rates yielding less than the rate of inflation that are equivalent to a tax on bondholders and more generally savers In the past other measures also included directed lending to the government by captive domestic entities such as pension funds or banks explicit or implicit caps on interest rates regulation of cross border capital movements and generally a tighter coordination between governments and banks either explicitly through public ownership of some institutions or through heavy moral suasion by officials If I am right about this theme about the Fed getting to give the patient another shot of adrenaline then it would be regarded as short term bullish for risky assets though it may not do much longer term That s why my inner trader is carefully scrutinizing the FOMC statement to watch for any change in language |
MS | Italian Bureaucrats Learned Rate Swaps 101 at Harvard | Here we go again Confusion reigns supreme about Italy s so called derivatives bets on which Morgan Stanley collected some 2 6 billion euros Lets look at some media quotes Reuters Education Undersecretary Marco Rossi Doria made the announcement in answer to a parliamentary question after U S investment bank Morgan Stanley said it had received 3 4 billion euros to close derivatives contracts with Italy s Treasury The Italian government has made the same error that Harvard University made some years back See the post called Harvard s big swap unwind from 2009 Italy with its numerous municipal capital projects had always been concerned about rising interest rates If rates were to go up they reasoned their financing costs will go up as well So as the Euribor rates came down some time ago they figured they would lock in what they thought at the time were attractive financing rates The government put on swaps and some swaptions that would rise in value if the long term swap rates were to rise to compensate them for rising funding costs But swap rates kept falling in 2011 as the Eurozone was looking into the abyss Unfortunately for Italy their funding rates completely decoupled from swap rates Swap rates represent the forward expectation of Euribor for the next say 10 years These rates were elevated relative to German bunds but were still declining as German rates kept falling So not only was Italy losing money on the swaps because of lower swap rates but the nation was also having to pay much more for funding because its sovereign credit risk increased This is an example of basis risk when your hedge decouples from what you are hedging and both end up going against you To add insult to injury Italy also got downgraded to a level that triggered the swap swaption unwind Reuters He said the contracts with Morgan Stanley made up of two interest rate swaps and two swap options were closed under an Additional Termination Event clause These co called break clauses are rare in contracts involving sovereigns and the clause was only present in the Treasury s contracts with Morgan Stanley Rossi Doria said Additional Termination Event clauses are common under ISDA agreements Some of these clauses basically state that if one counterparty s credit deteriorates the derivatives contracts in place between the two counterparties terminate So Morgan Stanley terminated the contracts with Italy based on the downgrades and received the unwind value Of course the media hype out there makes it sound as though Morgan Stanley suddenly made 2 6 billion euros It didn t Its swaps were hedged so whatever it made on Italy it lost on the hedge and other offsetting trades except for the initial spread The media confusion gets even more strange when they try to reconcile the numbers between what Morgan Stanley reported on its books and what Italy actually paid them Reuters He did not account for the discrepancy between the 2 567 billion euros he said the Treasury had paid to Morgan Stanley and the 3 4 billion euros referred to by the bank in its report to the U S Securities and Exchange Commission There is nothing to account for Not all the contracts with Italy have been unwound and Morgan Stanley was showing its mark to market unrealized gains So Italy is taking more pain than the 2 567 billion euros they paid out the remaining losses just haven t been realized It s unclear if Morgan Stanley has or can call for margin as was the case with Harvard The more troubling point is the size of Italy s swaps still outstanding Reuters He added that the state still has derivatives contracts worth some 160 billion euros or nearly 10 percent of the 1 624 trillion euros of Italian bonds in circulation Because these are off balance sheet it is unlikely that they are reflected in Italian government s overall liability measure But even if these swaps are under water by say 10 very roughly 100bp move in swap rates times duration of 10 it will add another 1 to Italy s outstanding debt 16 billion extremely painful but not the end of the world for Italy The media confusion continues don t mean to pick on Reuters other outfits like Bloomberg are just as confused Reuters Italy s use of derivatives to guarantee its public debt yielded a loss of 2 billion euros in 2011 in the form of higher interest payments and 4 billion euros in 2007 2010 official figures show Guarantee There is no guarantee here The reporter here must be confusing rate swaps with CDS two slightly different contracts These are just interest rate hedges gone terribly wrong Apparently the Italian bureaucrats responsible for these hedging programs went to Harvard to learn how it s done |
JPM | 4 Strong Buy JP Morgan Mutual Funds For Impressive Returns | JPMorgan NYSE JPM is one of the best financial management companies in the world It has a legacy of investment management since 1865 Also JPMorgan is the eighth largest mutual fund firm in the U S and prides itself as the nation s leader in equity fund flows JPMorgan offers managed accounts and retirement products The company has pioneered the introduction of innovative inflation protected municipal products Its primary principle is to understand the needs of its clients and advice the best investment solutions for surplus returns Below we share with you four top ranked JPMorgan mutual funds Each has earned a Strong Buy and is expected to outperform its peers in the future Investors can JPMorgan Emerging Markets Equity Fund A seeks to offer a high level of return JFAMX primarily invests in equity securities issued by companies based in emerging markets The fund may invest in securities denominated in U S dollars euro yen and pound sterling JPMorgan Emerging Markets Equity Fund A has returned 26 8 over the last one year period JFAMX has an expense ratio of 1 44 compared with the category average of 1 45 JPMorgan Investor Growth Fund A also known as fund of funds invests heavily in diversified mutual funds that invest heavily in equity securities The fund seeks growth of capital over the long run JPMorgan Investor Growth Fund A has returned 20 4 over the last one year period As of April 2017 ONGAX held 32 issues with 14 03 of its assets invested in JPMorgan US Equity R6 JPMorgan Large Cap Value A seeks capital appreciation OLVAX invests a major portion of its assets in securities of large cap companies that include common stocks debt and preferred stocks that can be converted to common stocks Large cap companies are those that have market capitalization equivalent to those listed on the Russell 1000 Value Index at the time of purchase JPMorgan Large Cap Value A has returned 29 5 over the last one year period Scott Blasdell is the fund manager since 2013 JPMorgan Small Cap Growth Fund A invests the lion s share of its assets in securities issued by small capitalization companies Small cap companies are those that have market capitalization equivalent to those listed on the Russell 2000 Growth Index stocks and lower than 4 billion at the time of purchase The fund seeks capital appreciation for the long run JPMorgan Small Cap Growth Fund A has returned 35 7 over the last one year period PGSGX has an expense ratio of 1 25 compared with the category average of 1 28 To view the Zacks Rank and past performance of all JPMorgan mutual funds investors can Want key mutual fund info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing mutual funds each week |
JPM | Here s Why Shares Of Nevro Corp NVRO Jumped Today | Shares of Nevro Corp NYSE NVRO climbed 10 in midday trading Wednesday after the company reported preliminary sales numbers for the second quarter of fiscal year 2017
Nevro a medical device company that serves patients living with chronic pain said it expects to post revenues of 77 5 million to 78 0 million for Q2 of 2017 Of this it expects its unaudited U S revenue to be between 62 7 million and 63 0 million while international revenue is expected in the range of 14 8 to 15 0 million
The company s Q2 earnings would be a 40 increase from the 55 4 million it reported for the same period last year It also expects its full year 2017 revenue to be between 310 and 320 million increasing 36 from its full year 2016 revenue of 228 5 million
Nevro also announced that Michael Enxing Vice President of Sales is no longer with the company He joined Nevro in 2012
This report comes after JP Morgan Chase NYSE JPM Co reaffirmed their overweight rating on Nevro Corp in a research report released on Monday They currently have a 102 target price on the company s stock
NVRO remains a Zacks Rank 5 Strong Sell The stock has jumped to a month and a half high but has a VGM score of F
Today s Stocks from Zacks Hottest Strategies
It s hard to believe even for us at Zacks But while the market gained 18 8 from 2016 Q1 2017 our top stock picking screens have returned 157 0 128 0 97 8 94 7 and 90 2 respectively
And this outperformance has not just been a recent phenomenon Over the years it has been remarkably consistent From 2000 Q1 2017 the composite yearly average gain for these strategies has beaten the market more than 11X over Maybe even more remarkable is the fact that we re willing to share their latest stocks with you without cost or obligation |
JPM | Vantiv Buys Payments Giant Worldpay In 10 Billion Deal | Worldpay the U K s largest payment processing firm confirmed on Wednesday that it will be acquired by Vantiv NYSE VNTV a U S based payments company for 10 billion
Vantiv is buying Worldpay for 3 85 per share Worldpay shareholders are entitled to 55 pence in cash for each Worldpay share and 0 0672 new Vantiv shares These terms represent an 18 9 premium to Worldpay s closing share price in London on July 3rd
After the merger Worldpay shareholders will own about 41 of the share capital of the combined group
The Boards of Worldpay and Vantiv see compelling strategic commercial and financial rationale for combining Worldpay and Vantiv s complementary businesses Worldpay said in a statement issued on Wednesday
The Potential Merger creates a scale world class payments group in a dynamic market with deep payments capabilities product and vertical expertise and strong distribution channels to serve merchants around the world in the global e commerce market and in store and online in the UK and US markets
The two companies will effectively merge as top leadership from Worldpay will remain on board Charles Drucker the current CEO of Vantiv will take on a role as executive chairman and Co CEO while Philip Jansen Worldpay s CEO will become Co CEO The board will consist of four Worldpay and seven Vantiv directors
Acquiring Worldpay will help Vantiv expand its reach to more markets Currently Vantiv mainly serves consumers in the U S while Worldpay serves about 400 000 customers and processes payments in 146 countries and 126 currencies
This news comes a day after Worldpay announced that Vantiv and JP Morgan NYSE JPM had approached the company for potential acquisitions JP Morgan has stated that it does not plan to make a rival offer for Worldpay
The completion of this merger will be based on shareholder approval The companies are now going through a due diligence process based on U K regulatory rules which will be complete by August 1st
Today s Stocks from Zacks Hottest Strategies
It s hard to believe even for us at Zacks But while the market gained 18 8 from 2016 Q1 2017 our top stock picking screens have returned 157 0 128 0 97 8 94 7 and 90 2 respectively
And this outperformance has not just been a recent phenomenon Over the years it has been remarkably consistent From 2000 Q1 2017 the composite yearly average gain for these strategies has beaten the market more than 11X over Maybe even more remarkable is the fact that we re willing to share their latest stocks with you without cost or obligation |
JPM | Worldpay Macron Omics And PMIs | Data that suggests self sustaining economic growth in Europe was offset by unease in markets about North Korea and resulting tensions at the upcoming G20 summit It was typically nervy trading before the release of minutes from the latest Federal Reserve meeting Initial demand for safe havens like gold after North Korea successfully tested an intercontinental missile subsided by the time Wall Street opened for its first full day in the 3rd quarter
The euro rose after the well received PMI data France made an unusually large contribution toward the strength in European economic sentiment in June Relief at the avoidance of a disruptive Le Pen presidency was palpable amongst French purchasing managers The test will be whether Macron can combine his power in the presidency and parliament to sustain the confidence with transformative reform in France A number of protests against his proposed reforms are a reminder that history is not on the side of Macronomics
Comparatively disappointing service sector data a drag from the heavily weighted oil sector and Worldpay LON WPG shares getting dumped after announcing a merger meant stocks in the UK were a little flat Strong first half results from Persimmon LON PSN that indicate the housing market is taking the UK election in its stride made home builders amongst the top risers on the FTSE 100 Supermarket shares rose after Booker Group LON BOK the wholesaler being bought by TESCO NASDAQ TESO reported 4 like for like sales growth
Worldpay shares were dumped after its board agreed a merger with Vantiv NYSE VNTV JPMorgan NYSE JPM pulling out meant shares had to price out any chance of a bidding war The concept of the deal seems straightforward and logical combine the geographic strength of the two companies in payment processing The strategy geographic expansion explains plans for a joint CEO and joint headquarters at the new company From a British perspective it s a shame to see another ground breaking UK tech company selling out to overseas competition perhaps before reaching full potential on its own
The British pound dropped after soft PMI data which included the second lowest level of business optimism since December 2011 Falling confidence in the service sector is compounded by the weakness in manufacturing reported on Monday Rising prices will always slow consumption but it was hoped the advantage of a weaker currency to manufacturing would be a positive offset Sterling managed to wind back some of its early loses because in the bigger picture expectations are building that the Bank of England s next move will be to lift rates
US stocks opened higher but the gains were small before Federal Reserve minutes later today The minutes should point to further rate rises this year and expand upon plans to shrink the balance sheet We suspect it may need a surprise factor from the Fed minutes to send the dollar substantially higher or upset the uptrend in stocks
Oil prices dropped on Wednesday after Russia said it would not support bigger output cuts by OPEC The news came after oil recovered 50 of its drop since May 25 with its best string of daily gains in 2017 The market reaction to OPEC s output cut extension would indicate investors don t think its enough and it seems Russia just snuffed out any chance of it becoming enough in the future Volvo ST VOLVb announcing it will go all electric by 2019 the most aggressive push toward electric cars from a major car maker to date feeds into the idea of lower long term demand for gasoline |
MS | Los Angeles school district is top U S municipal bond sales next week | By Hilary Russ NEW YORK Reuters The Los Angeles Unified School District California s largest school district plans to sell nearly 1 1 billion of general obligation refunding bonds in the biggest U S municipal bond offering next week The debt backed by county property taxes will refund 2007 bonds that have July 1 call dates Through lead underwriter Morgan Stanley NYSE MS the district will hold a one day retail order period on Monday with institutional pricing on Tuesday according to a presentation for prospective bondholders The second biggest school district in the United States Los Angeles had 625 434 students enrolled in kindergarten through 12th grade in fiscal 2017 and 10 billion of general obligation bonds outstanding It is in the midst of a 25 6 billion to upgrade buildings and construct new schools Altogether issuers plan to offer an estimated 9 4 billion of U S municipal bond and note sales next week as investors have maintained a steady interest in the muni market Investors have put money into muni funds for the last five weeks straight Funds had 605 million of inflows for the week that ended May 10 the second biggest week of inflows since January according to Lipper a Thomson Reuters unit Other issuers coming to market next week with big deals include the Dormitory Authority of New York for New York University taxable bonds and the District of Columbia |
MS | Australian banks say to pass on 4 6 billion tax hit to customers shareholders | SYDNEY Reuters Australia s biggest banks will pass on the financial hit from a new A 6 2 billion 4 60 billion tax to their customers and shareholders the companies said on Monday in their first detailed responses to the surprise levy Commonwealth Bank of Australia CBA AX CBA the country s No 1 lender described the tax on liabilities unveiled in last week s federal budget as an unfair penalty in a submission to a government consultation process The realities of running a business whether small or large are that higher costs are either passed on to customers through reduced service levels or higher pricing or to shareholders through lower returns CBA CEO Ian Narev said in the submission There is no middle option to absorb costs The six basis points levy on bank liabilities is designed to raise about A 1 5 billion a year from the five biggest banks CBA Westpac Banking Corp AX WBC Australia and New Zealand Banking Group ANZ AX ANZ National Australia Bank NAB AX NAB and Macquarie Group AX MQG over the next four years Morgan Stanley NYSE MS analysts said last week the levy would reduce the annual earnings of the big five banks by an average of 4 5 percent if it was not passed on to customers ANZ Chief Executive Shayne Elliott said on Monday in a submission that the levy would increase its cost of funding and reduce its competitiveness against large foreign banks operating in Australia that won t be subject to the tax NAB Chief Financial Officer Gary Lennon said the tax was poor policy with the financial consequences to be borne by customers and shareholders He said the bank appreciated the opportunity to provide written feedback but being asked to do so in just two business days was highly unusual and reflected poorly on the public policy making process Westpac Chief Financial Officer Peter King said the tax design appeared to assume banks would be profitable at all times There should be an ability to suspend it if it would place financial stress on an institution he said Macquarie declined to comment |
MS | Cisco gets upgrade to Buy at Morgan Stanley on security driven trends | Cisco Systems NASDAQ CSCO is up 2 6 today amid a Morgan Stanley NYSE MS upgrade to Overweight ahead of earnings The company s set to take advantage of a paradigm shift to security defined networking says analyst James Faucette pointing to channel checks showing security sales pulling through equipment upgrades That improves replacement cycle metrics he writes Cisco continues to drive a mix shift towards software and recurring revenues and in conjunction with strong firewall refresh activity will gain share of IT budgets as customers increasingly favor Cisco s end to end portfolio and architecture to improve cybersecurity He s raised his price target on the stock to 39 from 32 implying 13 6 upside ahead Cisco is set to release earnings after the closing bell on Wednesday Now read |
JPM | China Stocks Are About to Get Cheaper Analysts Say | Bloomberg Chinese stocks haven t been this cheap relative to bonds in more than two years and analysts say they re about to get cheaper
The equity selloff in the world s second largest economy has left the Shanghai Composite Index s earnings yield the inverse of the more commonly used price earnings ratio at 7 6 percent widening the gap with the yield available on five year AAA rated corporate notes by the most since March 2016 Analysts aren t rushing to call a reversal anytime soon as investors continue snapping up bonds as China shifts toward easing while stocks are shunned amid dwindling risk appetite and concern over an economic slowdown
There s a lack of positive factors for stocks in general so the trend is likely to continue said Xiong Yun founding partner at Lingwang Shenzhen Investment Management Co Among bonds corporate debt is likely to outperform sovereign and quasi sovereign notes as the latter have already rallied quite a lot this year
The Shanghai Composite Index has slid 18 percent year to date becoming the worst performer in the world Bonds meanwhile extended a two quarter advance with corporate debt catching up with sovereign over the past month on a slew of stimulus measures The spread between Shanghai Composite s earnings yield and corporate notes stood at 3 43 percentage points on Monday
The shift from stocks to bonds is doing the People s Bank of China a favor as it is weighing down bond yields without the central bank needing to cut policy rates With deleveraging measures and higher U S tariffs on Chinese goods posing challenges to the economy asset managers predict a further shift into bonds
Stimulus Package
The latest stimulus package aimed at boosting demand for corporate bonds and ensuring reasonable financing of local government financing vehicles is also accelerating that move Sovereign bonds have returned 5 1 percent this year while corporate debt returned 3 9 percent according to ICE BofAML indexes
Read more about traders adding leverage on bonds
Even relative to its own history the Shanghai Composite Index looks cheap The measure trades at 13 times reported earnings the lowest in three and a half years according to data compiled by Bloomberg That didn t prevent the gauge from falling for a fourth day on Monday pushing it to the lowest since February 2016
Calling a market bottom based solely on the widely used valuation multiples tends to be hasty said Hao Hong chief strategist at Bocom International Holdings Co in Hong Kong Buy side still has a high level of stock holdings and little cash to deploy for bottom fishing
Clarity Needed
For markets to turn around trade tensions with the U S have to cool down and more clarity is needed on domestic policy JPMorgan NYSE JPM Asset Management wrote in a note last week Listed companies tend to be more susceptible to tariffs than the overall Chinese economy as they re more globally exposed according to the note
A Politburo meeting on July 31 signaled top policy makers will focus more on supporting growth while continuing deleveraging efforts at measured pace Data released the same day showed China s official factory gauge cooled last month as the impact of trade tensions began to bite
Policy fine tuning especially the initial steps is unlikely to reverse the course of a cyclical downtrend said Hong The confirmation signal of a slowdown from the central bank will initially accelerate asset price changes along their existing trends rather than reversing it
To contact Bloomberg News staff for this story Helen Sun in Shanghai at hsun30 bloomberg net
To contact the editors responsible for this story Richard Frost at rfrost4 bloomberg net Will Davies at wdavies13 bloomberg net Kana Nishizawa Ron Harui
2018 Bloomberg L P |
JPM | Oil rises as renewed U S sanctions on Iran seen tightening supply | By Henning Gloystein SINGAPORE Reuters Oil prices rose on Tuesday with re introduced U S sanctions against major crude exporter Iran expected to tighten global supply Spot Brent crude oil futures were 74 17 per barrel at 0710 GMT up 42 cents or 0 6 percent from their last close U S West Texas Intermediate WTI crude futures were up 30 cents or 0 4 percent at 69 31 barrel U S sanctions against Iran which shipped out almost 3 million barrels per day bpd of crude in July officially came into effect at 12 01 a m U S Eastern time 0401 GMT on Tuesday The re imposition of U S sanctions on Iran remains the key price driver in the near term Supply losses could range from 600 000 to 1 5 million bpd ANZ said on Tuesday in a note to clients As a result the bank said the oil market should remain tight despite OPEC increasing oil production to offset losses elsewhere Many countries including U S allies in Europe as well as China and India oppose the sanctions but the U S government said it wants as many countries as possible to stop buying Iranian oil It is our policy to get as many countries to zero as quickly as possible We are going to work with individual countries on a case by case basis but our goal is to reduce the amount of revenue and hard currency going into Iran a senior U S administration official said on Monday French bank Societe Generale PA SOGN said there was currently a comfortable supply in physical crude markets but noted Iran sanctions will take another 1 million bpd off the markets This would leave markets with little spare capacity to deal with unforeseen disruptions the bank said HEAT IMPACTS OIL The main oil market price drivers of recent months have been output levels by top producers Russia Saudi Arabia and the United States renewed Iran sanctions the U S China trade dispute and unplanned supply disruptions Some analysts warned that a global heat wave could also affect oil demand Much of the northern hemisphere has been gripped by extreme heat this summer pushing up demand for industrial and residential cooling This mostly impacts demand for power fuels such as thermal coal and natural gas But U S bank JPMorgan NYSE JPM said a warmer than usual fourth quarter could stem from a potential El Ni o weather pattern that can cause droughts flooding and other natural disasters across the globe including heatwaves in the U S that affect commodities Past instances of El Ni o have resulted in sharp drops in U S residential and commercial heating oil demand and prices it said |
JPM | U S job openings hover at record highs in June | WASHINGTON Reuters U S job openings held near record highs in June amid a modest decline in hiring pointing to further tightening labor market conditions which economists hope will soon spur faster wage growth The monthly Job Openings and Labor Turnover Survey or JOLTS released by the Labor Department on Tuesday underscored labor market strength which together with robust economic growth likely paves the way for the Federal Reserve to raise interest rates in September The labor market continues to run hot and this guarantees that more rate hikes are on the way said Chris Rupkey chief economist at MUFG in New York Fed officials are increasingly skeptical that this economy requires any monetary policy support whatsoever The U S central bank increased borrowing costs in June for the second time this year The Fed forecast two more rate hikes by December Job openings a measure of labor demand were unchanged at a seasonally adjusted 6 7 million in June Vacancies hit an all time high of 6 8 million in April The job openings rate was unchanged at 4 3 percent in June There were an additional 20 000 jobs in the education sector but vacancies declined by 84 000 jobs in the transportation warehousing and utilities industry There have been reports of a widespread shortage of truck drivers There are concerns that the worker shortage will at some point hinder economic growth The economy grew at a 4 1 percent annualized rate in the second quarter the fastest in nearly four years In June hiring slipped by 96 000 to 5 7 million The hiring rate dipped to 3 8 percent from 3 9 percent in May But hiring in the finance and insurance industry increased by 31 000 in June While the number of Americans voluntarily quitting their jobs fell by 78 000 to 3 4 million in June the quits rate which policymakers and economists view as a measure of job market confidence held at 2 3 percent for a fourth straight month An elevated quit rate has important implications for income growth because workers typically secure new jobs paying about 5 percent to 10 percent more than their previous jobs said Dante DeAntonio an economist at Moody s Analytics in West Chester Pennsylvania And employers will need to attract workers with better offers Wage growth as measured by average hourly earnings has remained moderate increasing 2 7 percent year on year in July The JOLTS report also showed layoffs increasing to 1 7 million in June from 1 6 million in May That lifted the layoffs rate one tenth of a percentage point to 1 2 percent
The June figure was on the high end of the range reported over the past two years but still low by historic standards said Daniel Silver an economist at JPMorgan NYSE JPM in New York |
JPM | JPMorgan Says Trump May Sell Dollars as Weapon in U S Trade War | Bloomberg With the U S waging a trade war on several fronts economists are starting to take seriously the idea that President Donald Trump could act on his preference for a weak dollar
While not our base case scenario we cannot rule out a turn toward a more interventionist currency policy particularly since the current administration has at times hinted at a preference for dollar weakness or objected to perceived Chinese currency manipulation Michael Feroli JPMorgan Chase Co NYSE JPM s chief U S economist said in a research note this week
In a Twitter flurry last month Trump accused China and the euro area of manipulating their currencies and complained that a rising dollar is blunting America s competitive edge In a reference to interest rate hikes by the Federal Reserve the president said tightening now hurts all that we have done
The U S hasn t intervened in markets to sell the dollar since 2000 when it united with fellow members of the Group of Seven in an effort to boost the sliding euro It last bought greenbacks in 2011 as part of an international bid to stop the yen from surging after an earthquake and tsunami in Japan led locals to repatriate cash
But analysts are awakening to the reality that Trump may follow through on his jawboning with potential implications for the independence of the Fed
We believe the Fed would fall in line and play their usual role of following Treasury s lead on dollar policy Feroli said However he noted that currency intervention would likely have no effect on monetary policy since the central bank would likely sterilize the transactions by purchasing an offsetting amount of U S securities at home thus leaving the monetary base unchanged
Any attempt to massage the dollar s value in markets would risk undermining Trump s argument last month that China has been manipulating its currency The U S has long championed a Group of 20 pact that member economies will refrain from competitive devaluations and will not target our exchange rates for competitive purposes
If China takes the lead in a currency war letting the value of the yuan fall it could have a deflationary impact around the world since a stronger dollar would tighten global liquidity Oxford Economics said in a note this week
For now the People s Bank of China is suggesting it won t support a steep drop in the yuan with the central bank intervening last week to support the currency after it slid to its lowest level in more than a year |
MS | Moving Averages Month End Update | The S P 500 closed February with a gain of 4 06 from the January close All three index signals indicated an invested position 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 precise top or back in at the very bottom Also it can produce the occasional whipsaw short term buy or sell signal such as we ve experienced this summer 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 SignalsTiming 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 StrategyOur 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 ReadingIn 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 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 each month you must update the data for all the months in the calculation 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 |
MS | Why I Am Still Bullish Equities | As the stock market consolidates and the Dow flirts with the 13K level there have been some calls for an intermediate term top I remain bullish over the next few months for the following reasons The risk trade bull run remains intactPositive funds flow are buoying the markets Panic levels are still elevated Expert opinion defined as the better market timers are bullish The Bernanke Put and Draghi Put still lives andThe China property bubble lives on for another day The risk on trade is still on If you were to view the stock market through the lens of the risk on risk off trade then the risk on bull move remains intact Consider this chart of the relative performance of SPY against IEF which shows a short term relative uptrend in the context of an intermediate term uptrend Positive funds flows pointed to a article indicating that institutional equity funds flows are positive He went to say that they are likely to continue In my experience these types of raising and lowering equity exposure cycles take place at a glacial pace and they rarely turn or stop on a dime wrote that individual investor equity funds flows are just starting to turn positive and there is a lot of room for them to go further into stocks and out of bonds whose flows are still positive Grannis conclusion was Adding it all up I would say that we are a long way from seeing over priced equities Let s wait to see many months or even a few years of inflows to equity funds before concluding that the guy on the street is too bullish Panic levels are still elevated Also consider the readings of the from the Yale School of Management A low level indicates a high level of fear and a high level indicates a high level of complacency While the ECB s LTRO program has largely taken the risks of a banking meltdown off the table investors confidence remain low and fear levels are still elevated I interpret these conditions as being contrarian bullish Expert opinion is bullish reports that the best market timers are leaning bullish while the worst market timers are leaning bearish As an example I don t know where the Aden sisters are in Hulbert s ratings but I have tremendous respect for them and I have followed them off and on since the late 1970 s during the gold mania that took bullion up to its peak of 850 in 1980 which they correctly called Unlike other gold bugs they turned bearish on gold and turned bullish on equities in the intervening period They correctly called the rebirth of the commodity bull about ten years ago The Bernanke and Draghi Puts still lives Ben Bernanke in his last week said in so many words that QE3 isn t a done deal and they are watching the data carefully In light of the somewhat different signals received recently from the labor market than from indicators of final demand and production however it will be especially important to evaluate incoming information to assess the underlying pace of economic recovery The markets sold off but the flip side of this coin is that they are ready to act should the economy weaken The dual objectives of price stability and maximum employment are generally complementary Indeed at present with the unemployment rate elevated and the inflation outlook subdued the Committee judges that sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives So does that mean that good economic news is good news for the markets but bad news isn t necessarily bad news As for the ECB interbank lending in Europe is still seized up This analysis shows that the European banking system needs another four LTROs to get through to 2013 Don t be surprised if the ECB announces further rounds of LTRO In short the Bernanke and Draghi Puts will put a floor on the stock market for now The Chinese property bubble lives on another day writing at Pragmatic Capitalism noted that the property markets in Beijing and Shanghai are recovering Such a development should forestall any immediate concerns about a crash in the Chinese property bubble as official actions have kicked the can down the road and delayed the day of reckoning yet once more The Shanghai Composite has responded with a rally as a result of these measures As the chart below shows the index has rallied through a downtrend line and it has not even approached the first Fibonacci retracement level which would serve as a resistance level Bearish tripwiresTo be sure not every market forecast is correct Here is some of what I am watching out for to see whether the bears are wresting control of this market away from the bulls These are some important questions that need to be answered in order to determine the next major move in equities First and foremost the big question is can the Dow overcome the 13K mark Looking at foreign markets can the Hang Seng overcome resistance after rallying to fill the gap depicted in the graph below What about Europe The Euro STOXX 50 appears to be undergoing a sideways consolidation Can it rally to overcome resistance The cyclically sensitive Australian Dollar is temporary stuck in a trading range Will it break out to the upside which is bullish or to the downside which is bearish Another important cyclical indicator is the relative performance of the Morgan Stanley Cyclical Index against the market Cyclicals started 2012 on a tear but they have begun to consolidate sideways on a relative basis Can the relative support level hold Lastly technicians have been sounding words of caution because the Dow Transports have been lagging and have not confirmed the advance of the Industrials Average writes that there is some disagreement about prominent Dow Theorists about the significance of this divergence Frustratingly not all Dow Theorists agree on an answer In fact two of the three monitored by the Hulbert Financial Digest Jack Schannep of TheDowtheory com and Richard Moroney of Dow Theory Forecasts think the appropriate point of comparison is not last summer but late October And because near the end of December the Dow averages rose above their late October highs both Schannep and Moroney believe that the Dow Theory is solidly in the bullish camp notwithstanding where the Dow transports might be relative to their July high In contrast Richard Russell editor of Dow Theory Letters says he s worried about the Dow transports weakness and in part for that reason is largely out of the stock market The chart below shows the relative performance of the Dow Jones Transports against the Dow Industrials If relative performance were to fall below the 38 Fibonacci retracement support level it would mean that the bears have taken control of the market In conclusion I believe that equities are consolidating their gains but remain in an intermediate bull phase During this consolidation period doubts will appear about the legitimacy of the bull leg as they are now My view is that the next major move is up but I am watching and open to the possibility that I am wrong and a correction can run deeper than I expect |
MS | Promising Income Alternative Real Estate Private Equity in a Mutual Fund | Because real estate private equity funds typically require minimum investment between 5 and 20 million the option of investing in institutional quality real estate has been unavailable to individual investors However similarly to institutions individual investors are hard pressed to navigate between low yielding bonds and high risk equities As a result retail investors like institutions are seeking greater exposure to non correlating alternative investments that provide consistent income with low volatility High quality income producing real estate has emerged as a favorite among retail investors but the question for many investors is how should I get my exposure to investment real estate Since 2002 individual investors have flocked to non traded REITs to the tune of 81 3 billion source Blue Vault By definition the key benefit of non traded REITs is that they are not yet publicly traded Subsequently they offer the reasonably predictable cash flow without the volatility incumbent in the public markets However as noted by an Investor Alert by FINRA non traded REITs come with issues including high fees up to 15 upfront little or no liquidity conflicts of interest and a lack of transparency Faced with the prospect of low yielding bonds high risk equities and the issues of non traded REITs where does the average investor turn when it comes to real estate A bulk of real estate private equity funds core open end commingled funds such as the Prime Property Fund and AEW Core Property Trust focus on and are built to deliver the traditional benefits of real estate ownership income low correlation to other assets and a hedge against inflation The Next Big Wave for Real Estate InvestorsMany real estate leaders have imagined the next generation of real estate to come from a way for individuals to invest in real estate private equity That time has come One uniquely innovative new product promising to deliver direct real estate ownership to individual investors with the underwriting transparency and fee structure of inherent in institutional structures is VCMRX This differentiated new product takes individuals out of the corner of non traded REITs into the world of institutional real estate private equity funds Versus Capital provides a differentiated platform in which the retail investor can participate in diversified non correlated income producing institutional quality real estate Versus Capital is a multi manager mutual fund that invests with some of the most highly sought after private equity funds Structured as a 40 Act mutual fund Versus seems to be more investor friendly and features no upfront load daily NAV pricing quarterly liquidity and 1099 tax reporting By assembling a diverse group of institutional funds Versus seeks to provide a sound margin of safety by investing in a focused cross section of commercial real estate managed by some of the best real estate fund managers in the world This multi sector and multi disciplined approach combines the best of institutional asset managers with broad based diversification that includes income and value added strategies in multiple asset sectors multi family office retail industrial hotel storage mezz Here is the targeted asset sector model The Versus Capital is also geographically diversified and the risk averse fund was developed with the core strategies designed for investors seeking income diversification inflation protection and attractive risk adjusted returns Ultimately this wave of opening up institutional fund managers to the retail market lies with the success of the Versus fund and the willingness of investors to embrace a new structure Time will tell but it looks like this offering is well aligned with the investors investment objectives of stability income and growth in this order with a liquidity feature that helps investors sleep well at night Versus Capital is targeting a 5 5 dividend and the mutual fund can be viewed on this Disclosure I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours |
MS | March 2012 December 2010 | I wrote back on February 22 2012 to expect a period of consolidation and correction but the intermediate trend remained up Last week we saw the stock markets decline for 1 or more on Tuesday Since then equities have been flat There is no doubt that correction is here Which analog March 2011 or Dec 2010 At the same time a number of bears have suggested the current market is similar to the conditions of March April 2011 when the market began to top out and ultimately fell citing conditions such as I beg to differ While insider activity is a concern the flood of central bank liquidity continues This Bernanke Fed has shown itself to be highly activist Chairman Bernanke has indicated that under the current weak conditions The leak about shows the lengths Bernanke is willing to go in order to appease the hawks and get what he wants i e further stimulus at the same time Moreover I have written before that funds flow remains positive for equities and the risk on trade Institutions are underweight and re allocating funds into equities Once the allocation begins it s hard to stop Individuals were underweight and are now roughly market weight as their fund flows are just getting started Todd Salamone of put it this way A survey by the National Association of Active Investment Managers NAAIM revealed that the average manager was only 57 net long last week down significantly from the 74 the prior week For perspective optimistic extremes during the past five years have been at 85 or higher net long which we last saw in early 2011 In short I believe the best analog for this market is the brief correction we saw in December 2010 which was in the middle of the QE2 rally in equities The periods look the same I have circled the December 2010 period in blue and the March April 2011 in green The stock market had seen a shortly before the December 2010 correction just as we did now The rally was just getting started as a result of the tsunami of central bank liquidity just as we are now The market declined to test the 50 day moving average and rallied By contrast the market corrected harder in March 2011 and fell through the 50 day moving average At the very least these episodes show the value of the 50 day MA trailing stop as a risk control device We can see a similar pattern by looking northward to the more resource heavy and cyclically oriented TSX Composite in Canada The market was in an uptrend and corrected in December 2010 and the uptrend was ultimately broken in March 2011 Today the market remains in an uptrend that began in October 2011 and corrected but the current uptrend remains intact During the QE2 rally the market experienced a golden cross in September 2010 Today the market is about to see a golden cross indicating that the rally is just getting started Similarly the relative performance of the Morgan Stanley Cyclicals Index against the market tells the same story Cyclicals remain in a relative uptrend today During the QE2 rally the December 2010 correction was just a hiccup in the relative uptrend which ended in March 2011 when the uptrend was violated In short the internals are pointing to a brief correction just as we saw in December 2010 Monetary conditions are similar Uptrends are intact as measured by trend lines and 50 200 day trend following models Is this correction over My inner investor is convinced that he should stay long and ride out this short term volatility On the other hand my inner trader wants to know if the current correction is over Not quite The chart below shows the weekly for NYSE stocks a breadth indicator to which I overlaid an overbought oversold stochastic model Here are a few observations First the fact that the Summation Index got to overbought levels suggested that the market was poised for a consolidation and corrective period Now that we have entered that correction which has been albeit mild we need to see the stochastic move to oversold levels before calling the all clear just as we saw during the December 2010 episode In conclusion my inner investor is staying long My inner trader is expecting another week or two of correction and consolidation before the uptrend in stocks and other risky assets continues |
C | Nigeria s central bank head to meet MTN and banks over 8 1 billion repatriation row sources | By Alexis Akwagyiram and Didi Akinyelure LAGOS Reuters Nigeria s central bank governor is to meet representatives of telecommunications company MTN J MTNJ and banks on Tuesday to discuss a dispute over the repatriation of 8 1 billion two sources with direct knowledge of the matter said The dispute is over the transfer of 8 1 billion of funds which Nigeria s central bank said the company had sent abroad in breach of foreign exchange regulations The people with knowledge of the matter who did not want to be named said executives from MTN and the four lenders involved in the case Standard Chartered L STAN Stanbic IBTC Bank LG IBTC Citibank N C and Diamond Bank LG DIAMONB would hold talks with Nigerian Central Bank Governor Godwin Emefiele on Tuesday The move comes days after Emefiele said the bank may reduce the amount to be repatriated
Nigeria which accounts for a third of the South African company s annual core profit is MTN s biggest market |
C | Exclusive Citigroup may face fair lending penalty from regulator sources | By Patrick Rucker and Pete Schroeder WASHINGTON Reuters A U S financial regulator is mulling sanctions against Citigroup Inc N C for denying minority customers the kinds of mortgage discounts that the bank offered to many other borrowers three people familiar with the probe told Reuters While performing a review to ensure it adhered to fair lending standards Citigroup found that some minority borrowers were not getting the discounts they were due under a program that gives a break on mortgage rates to customers who have large deposits or wealth in the hands of the bank said the sources Citigroup flagged the relationship pricing problems last year to its regulator the Comptroller of the Currency OCC said the sources who were granted anonymity to discuss the regulatory probe which is not public The bank told the OCC that discrepancies in relationship pricing were inadvertent and it had taken steps to resolve the issue they said Many lenders use mortgage rate discounts to deepen customer ties but scrutiny of Citibank s relationship pricing offer could prompt questions about how other banks run such programs The OCC is examining whether Citigroup breached fair lending standards which prohibit discrimination on the basis of customers race gender age or religion the people said If the OCC finds wrongdoing it could fine Citigroup or put it under tighter oversight among other options they said An OCC spokesman declined to comment on Wednesday In a statement provided to Reuters on Wednesday Citigroup spokesman Drew Benson acknowledged the problems but said the bank firmly believes it has not engaged in discrimination or violated fair lending laws In 2014 Citi self identified errors implementing its relationship pricing program which affected a small percentage of our mortgage customers Benson wrote in an email We conducted a comprehensive review reimbursed affected customers and have strengthened our processes and controls to help ensure correct implementation going forward The OCC referred Citigroup s findings to the Justice Department which also enforces fair lending laws in July 2018 according to a DOJ official who spoke on condition of anonymity The matter was sent back to the OCC for administrative enforcement in recent weeks the official said The Justice Department may decline referrals from other agencies if officials determine the problem has already been addressed or victims made whole Citigroup s mortgage loan officers have in recent months been trained on the dangers of bias and instructed to explain the benefits of relationship pricing to all prospective borrowers two employees who have been part of the training told Reuters Benson said recent bias workshops were voluntary and popular among employees and the training had nothing to do with relationship pricing Under the program customers with 1 million in deposits or investments can receive a half percentage point off their interest rates Customers with smaller holdings are due smaller savings
Many fair lending rules were written in the 1960s to eliminate mortgage discrimination or red lining |
JPM | Market Survived Rough Few Days New Highs To Come Thank The Fed | by Chaim Siegel of Elazar Associates LLC
After another scare on Tuesday that caused US indices to fall the market did it again It quickly brushed off losses to set up for another up leg today
And today is going to be fun After yesterday s close the US Federal Reserve gave sweeping approvals for US banks to raise dividends and buy back shares Sorry bears new highs here we come
The Federal Reserve Passes Banks In Stress Tests
At 4 30PM yesterday the
The Federal Reserve Board did not object to the capital plans of all 34 bank holding companies participating in the Comprehensive Capital Analysis and Review CCAR
Ah music to a bull s ears
And what happened next
JP Morgan NYSE JPM a 10 6B stock buyback program
Citi NYSE C a combination of stock buyback and dividend increases that will amount to 18 9B in the next four quarters
We expect to hear more We expect the market to soon hit new highs on the news
With or without President Trump s plans for deregulation the Fed feels confident in the economy For the first time in years their approvals to banks frontruns the need for deregulation to be passed
This is a bullish positive surprise for markets that were giving up hope on ever seeing pro business legislation passing
But that s the way the market has been acting Bad news is quickly followed by good
What Did The Market Just Brush Off
The market has faced some pretty big challenges from headline news over the past few days but has quickly been brushing it aside
Tuesday had the market in the proverbial corner based on the news Wednesday though saw the market make another quick comeback true to recent form The more bad you hear about and the more the market holds up the more you have confirming bullish action If you re a bull it s getting exciting
First What Was So Big About Tuesday Wednesday Trading
We had a nice comeback on Wednesday in the S P 500 ETF NYSE SPY along with the NASDAQ and most major indices like the Dow but we re not here to be cheerleaders There is important data in these stock market moves that should get your attention
Let s see what the market rallied back from
San Fransisco Fed President John Williams
What if we were to tell you a Fed official called for a stock market correction Where would you think the market would go Here s what SF Fed President Williams said two days ago
The stock market seems to be running pretty much on fumes It s something that clearly is a risk to the U S economy some correction there it s something we have to be prepared for to respond to if it does happen
An outspoken Fed official came out and said the stock market is at risk for a correction Frankly it s irresponsible for such a highly placed official to outright say something like that not to mention that the market is not running on fumes And with the stress test news after the close yesterday it makes the timing of his comments even more questionable Nonetheless markets took a hit because of it on Tuesday
As for fumes interest rates are at record lows while earnings are moving up Ultimately that s the formula for valuations in the widely used discounted cash flow formula
Discounted cash flows match future earnings to interest rates This is the formula in simplistic terms
Future Earnings Streams rates Present Value Of Stock Prices Future Earnings divided by rates equals PV of Stock Prices
When the denominator is very low as rates are today then the present value is mathematically higher That s not running on fumes that s running on math
As for earnings future earnings expectations are widely influenced by current earnings The first quarter earnings growth was the best in almost six years according to Factset No fumes here either And with the bank announcements of buybacks that s only going to send earnings higher
Obamacare Repeal Gets Pushed Out Again
Tuesday s news also included another Republican disappointment They pushed out the planned vote to replace Obamacare with Trumpcare
For traders failing to pass legislation means that pro business legislation will also face resistance It s a bearish story That also hit markets two days ago
Draghi Turns Hawkish You re Joking right
This one is the toughest story to believe Who would have thought ECB President Mario Draghi would ever back off his inflation at all costs mantra
Tuesday s markets reacted to President Draghi
Any adjustments to our stance have to be made gradually
Reuters on Wednesday cited sources that markets in fact misinterpreted that saying
The market failed to take note of the caveats in Draghi s speech
That means he wasn t so hawkish after all Who could have believed that one anyway
That s The Story Of This Bull Market
One day Trump s under investigation the next day he s not One day it s a good leak the next day it s not
One report says hawk the next day dove
One Fed president says crash One Fed Chair says not in our lifetime and the very next day bam sweeping approvals for banks to raise buybacks and dividends
Whatever bad news you have one day the market finds a way the next day to roar back on counter news
Not once not twice We ve seen it many times It s a pattern
It s a sign of a bull market
Conclusion
As bad as the news gets one day don t get down on the markets Pay attention to the pattern Tomorrow will be brighter
You have the trend action earnings and low rates on your side Enjoy the ride It s OK to be bullish Oh and for today with the Fed stress test news we can all tilt our seats back and enjoy the view of green on our trading screens
Disclosure Portions of this report may have been issued in advance to subscribers or clients All investments have many risks and can lose principal in the short and long term This article is for information purposes only By reading this you agree understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors LLC and their related parties harmless Any trading strategy can lose money and any investor should understand the risks |
JPM | Chart Of The Day Post Stress Test Here s How To Trade Citigroup | by Pinchas Cohen
For the first time since the 2008 financial crisis all the big banks passed the Federal Reserve s annual stress test the measure of their financial health This boost to banks couldn t come at a better time as financial shares take off part of a sector rotation on the prospect of higher interest rates
When economic growth expectations rise the market s financial sector tends to perform well making it a leading indicator for profit seeking investors who want to stay ahead of the curve prior to actual evidence of the fact That s because primary income for financial sector companies comes from interest As well the borrowing capacity of corporations and individuals improves
Financials Flat For Most of 2016
The S P 500 Financial Index was flat for almost all of 2016 At first China s economic slowdown raised concerns on global growth later in June uncertainties surrounding global trade flows brought about by the Brexit vote added to the pessimistic outlook for financials
However after The US election from November 11 till March 1 of this year the index broke out of its congestion and rose by a whopping 25 in less than 4 months leading the stock market rally The first 18 5 percent leg up of the rally till December 9 was fueled by revived animal spirits attributed to Trump s reflation trade specifically regulation rollback and his reflationary trillion dollar spending plans both of which would have profited financials the most
Whether in response to Trump reflation and its agenda or irrespective of it according to some on December 14 the Fed announced a 25 basis point hike to the Fed funds rate to 0 5 0 7 percent In addition they signaled that three more rate hikes were on the agenda in 2017 The Fed s confidence in the growth of the world s largest economy is what was behind the second rally which ended on March 1st
Citi Gets the Gold
Yesterday we discussed the expectation of a stock leadership rotation out of tech shares and into financials at the start of an anticipated reflating economy
Yesterday after the Fed gave all 34 US financial firms tested a clean bill of health and approved their capital return plans Citigroup NYSE C and JPMorgan NYSE JPM announced their biggest share buybacks ever Citi also doubled its dividend to 32 cents
Citigroup in fact aced all the Fed s metrics with flying colors It led the big banks on crucial capital ratios coming out in first place overall Still Citi s stock remains cheap It closed yesterday at 65 18 and is trading below book value at 0 878
Since the beginning of the year Citi has been trading within an Ascending Triangle pattern The dynamics of a pattern with a rising bottom and a flat top demonstrates that buyers are way more eager than sellers
While buyers are committed to buying at escalating prices starting with 55 in early February then 56 in late March followed by 58 in late April to 60 in mid May and early June sellers were only willing to trade at the 61 2 level Buyers willingness to acquire shares at ever rising prices is tantamount to soldiers advancing on the battle field gaining ground with each higher demand until finally buyers overrun sellers at which point there are no longer any sellers left only buyers Then the price breaks out like a released wound up coil spring
Citi s price cleared the 62 area and reached 65 30 almost 6 percent higher in just three trading sessions after churning for half a year
The share price corrected between June 12 and 23 to 63 30 and in the last three trading sessions returned to the resistance of the first leg up out of the consolidation pattern
Price Target And Trading Strategies
By the size of the pattern the target implication is roughly 6 or 10 from its breakout to about 68
Conservative traders bargain hunters would wait for a lower probability second complete return move to test the pattern s support at the 62 price level before going long Depending on their frugality they would wait to at least retest the pull back s support above 63 before going long for the 6 profit implications The real bargain hunters would wait for the lesser probability of a complete return move to retest the pattern s support at the 62 level
Moderate traders would be happy with the more likely retesting of the breakout s pullback to 63 25
Aggressive traders who are raring to go would jump in now on fears of missing the second leg of the breakout after the consolidation since June 12 in which fresh investors are expected to have come in to carry the load for the next rally
However aggressive doesn t have to mean careless Unless these traders are going for the full target and are therefore willing to place a stop loss beneath the 63 pullback at the very least if not beneath the 61 pattern top this trade could go from being aggressive to being outright gambling |
JPM | JP Morgan Insiders Dumping Shares As Bank Ups Buyback | After it was announced that the Fed gave the big banks a pass on their stress test the TBTFs announced huge dividend and share buyback plans
If the banks had properly marked to market their Level 3 assets and some of their riskiest non Level 3 assets would they have still passed the Fed stress test which essentially places a stress test bar on the ground and lets the banks step over it Probably not This would explain why JPM insiders have been dumping shares en masse over the last three months
The buys are deceptive because those buys are the exercising of compensation options The most aggressive sellers have been CEO Chairman Jamie Dimon General Counsel Stacey Friedman hmmm and CFO Marianne Lake hmmm
With JPMorgan s NYSE JPM announced 90 increase in its share buyback program the shares will have an even bigger bid in the market from shareholders into which insiders can dump
The question is rhetorical of course why would these insiders be dumping shares if the outlook for the company s earnings stock price and financial condition was positive |
MS | Vanguard CEO cites inherent conflict in paying brokerages to sell funds | NEW YORK Reuters Vanguard Group Chief Executive Officer Bill McNabb said on Thursday that Morgan Stanley NYSE MS had decided to stop selling its mutual funds because the largest U S brokerage by salesforce wants to be compensated for being on their platform in one way or another and that s something we just won t do McNabb told CNBC that paying fees to brokerages to distribute its funds raises an inherent conflict Morgan Stanley said on Wednesday it would drop funds from the largest U S mutual fund firm in an effort to get rid of under performing and less popular funds |
MS | Australian banks lick wounds after tax hit investors brace for impact | By Jamie Freed and Jonathan Barrett SYDNEY Reuters Australia s big banks will likely swallow a surprise new A 6 2 billion 4 56 billion federal tax industry and political sources said on Wednesday given a lack of public support for an oligopoly that has reaped years of record profits The tax on liabilities unveiled in Tuesday s federal budget caught banks which had previously enjoyed the support of the ruling center right government unawares and was strongly criticized by bank executives We didn t get a chance to engage it was a snatch and grab and that s that one senior source at a major bank told Reuters The announcement was seen by political analysts as payback for the government s efforts to block opposition calls for a wide ranging inquiry into misconduct in the banking sector Treasurer Scott Morrison justified the tax as necessary to get the budget back into the black and also tapped into popular opinion saying the charge was just a small portion of the banks profits He cautioned the so called Big Five Commonwealth Bank of Australia AX CBA Westpac Banking Corp AX WBC Australia and New Zealand Banking Group Ltd AX ANZ National Australia Bank Ltd AX NAB and Macquarie Group Ltd AX MQG against passing the costs on to consumers The tax resembles a charge imposed on big mining companies in 2010 that was ultimately re designed after an industry advertising campaign which helped unseat the then Labor prime minister Kevin Rudd Banking sources said they had little leverage to mount a similar campaign due to modest support within parliament It is a done deal I don t think you can put a wedge in that said another representative of the Big Five NO MAGIC PUDDING The affected banks all came under immediate share price pressure late on Tuesday and again on Wednesday morning before some of their losses were pared Westpac Chief Executive Brian Hartzer said on Wednesday the government s reforms ran counter to the prudential regulator s objective of making bank balance sheets unquestionably strong Higher taxes reduce the banks ability to generate capital that supports lending and stability in times of stress Hartzer said in a statement There is no magic pudding The cost of any new tax is ultimately borne by shareholders borrowers depositors and employees Bank chiefs received a phone call roughly one hour before Morrison revealed the budget measure on Tuesday evening four sources said catching them unawares The sources from banks and political offices declined to be identified because they were not authorized to speak publicly The tax is designed to prevent the banks from passing the cost on to lending customers targeting liabilities such as corporate bonds commercial paper certificates of deposit and tier 2 capital instruments rather than mortgage books Commonwealth Bank Chief Executive Ian Narev indicated the bulk of the cost could be passed to customers likely through interest rate changes and to shareholders through lower dividends The alternative according to Morgan Stanley NYSE MS analysts is an estimated 4 5 percent cut to the banks annual earnings As every business owner or employee knows every extra cost needs to be borne by customers or shareholders or a combination of both Narev said in a statement NAB Chief Executive Andrew Thorburn said the tax would affect 10 million customers as well as shareholders ANZ and Macquarie said the impact was unclear The tax lifted stock prices of smaller lenders as investors bet it would crimp the big banks competitiveness
Shares in Bendigo and Adelaide Bank Ltd AX BEN rose as much as 4 8 percent their sharpest daily gain in three years while Bank of Queensland Ltd AX BOQ added four percent |
MS | Morgan Stanley pares U S recession view to 25 percent | NEW YORK Reuters Morgan Stanley NYSE MS economists said on Wednesday they reduced their estimate on the probability of a U S recession in the next 12 months to 25 percent from 30 percent due to signs of stronger global growth and a delay in U S tax reform
A stronger global backdrop and the delayed promise of tax reform have lowered this assessment from 30 percent previously Morgan Stanley economists Ellen Zentner and Michel Dilmanian wrote in a research note |
MS | Premarket analyst action healthcare | Ascendis Pharma NASDAQ ASND initiated with Overweight rating and 36 30 upside price target by JPMorgan NYSE JPM American Renal Associates NYSE ARA upgraded to Outperform by Wells Fargo NYSE WFC Albany Molecular Research NASDAQ AMRI downgraded to Equal Weight by Morgan Stanley NYSE MS Mazor Robotics NASDAQ MZOR downgraded to Market Perform by Wells Fargo Omeros NASDAQ OMER downgraded to Neutral with a 15 8 upside price target by Cantor Fitzgerald TransEnterix NYSEMKT TRXC downgraded to Neutral with a 0 70 15 upside price target by B Riley Now read |
JPM | Fed set to hold rates steady remain on track for more hikes | By Lindsay Dunsmuir WASHINGTON Reuters The Federal Reserve is expected to keep interest rates unchanged on Wednesday but solid economic growth combined with rising inflation are likely to keep it on track for another two hikes this year even as President Donald Trump has ramped up criticism of its push to raise rates The U S central bank so far this year has increased borrowing costs in March and June and investors see additional moves in September and December Policymakers have raised rates seven times since December 2015 The Fed will announce its decision at 2 p m EDT 1800 GMT on Wednesday No press conference is scheduled and only minor changes are anticipated compared with the Fed s June policy statement which emphasized accelerating economic growth strong business investment and rising inflation They ve got expectations pretty much where they want them said Michael Feroli an economist with JPMorgan NYSE JPM They may need to finesse how they word the language on inflation but I think the ultimate message is going to be the same The U S economy grew at its fastest pace in nearly four years in the second quarter as consumers boosted spending and farmers rushed shipments of soybeans to China to beat retaliatory trade tariffs Commerce Department data showed on Friday The Fed s preferred measure of inflation the personal consumption expenditures PCE price index excluding food and energy components increased at a 2 0 percent pace in the second quarter the data also showed The latest monthly figures released on Tuesday showed prices in June were 1 9 percent higher than a year earlier The core PCE hit the U S central bank s 2 percent inflation target in March for the first time since December 2011 U S labor costs a key measure of how much slack is left in the market posted their largest annual gain since 2008 in the second quarter the Labor Department said on Tuesday TRUMP CRITICISM Economic growth has been buoyed by the Trump administration s package of tax cuts and government spending and Fed Chairman Jerome Powell has said overall the economy is in a really good place The unemployment rate stands at 4 0 percent lower than the level seen sustainable by Fed policymakers The central bank is expected to continue to raise rates through 2019 but policymakers are keenly debating when the so called neutral rate the sweet spot in which monetary policy is neither expansive nor restrictive will be hit Rate setters are closely watching for signs that inflation is accelerating and they are expecting economic growth to slow as the fiscal stimulus fades They also remain wary of the potential effects of a protracted trade war between the United States and China which could push the cost of goods higher and hurt company investment plans The Fed s policy path will see interest rates peak at much lower levels than in previous economic cycles Even so Trump in a departure from usual practice that presidents do not comment on Fed policy said he was worried growth would be hit by higher rates Administration officials played down the president s comments saying he was not seeking to influence the Fed On the campaign trail Trump criticized Powell s predecessor as Fed chief Janet Yellen for keeping rates too low Trump appointed Powell and Fed Governor Randal Quarles and he has three other nominees to the rate setting committee awaiting U S Senate confirmation Almost all have been seen as mainstream in their attitude to economic policy Economists say Trump has little influence over Fed policy beyond the personnel changes he has already made Trump s tweets are a far cry from the 1970s when then President Richard Nixon told the Fed chairman to kick rate setters in the rump to keep rates low until after an election That stoked inflation and eventually strengthened the Fed s independence something that has become even more entrenched since
Powell is obviously someone who values the Fed s independence said Paul Ashworth an economist with Capital Economics I don t expect them to change tack because of political pressure |
JPM | Trump could more than double his proposed tariffs on 200 billion of Chinese goods and China is preparing to strike back against US blackmail | The Trump administration is said to be ready to raise its proposed tariffs on 200 billion of Chinese goods Trump has threatened 10 tariffs on those goods but Bloomberg says he is expected to increase that to 25 The move is thought to be a negotiating tactic aimed at gaining important concessions from the Chinese government Beijing has reacted angrily to the reports accusing Trump of blackmail and threatening retaliation Tariffs on 34 billion of largely industrial goods have already been imposed on China After a handful of quiet days in President Donald Trump s trade war it looks as if a further escalation may be on its way following reports that another round of tariffs on China could be announced imminently and a statement from the Chinese government saying it is readying a retaliation the Trump administration is considering levying tariffs of 25 on 200 billion worth of Chinese goods shipped to the US a move that would inevitably deepen tensions between the two nations Trump so far has publicly threatened 10 tariffs on this tranche of imports Citing three sources familiar with the plans Bloomberg said the US would raise its threat to 25 tariffs as a means of getting the Chinese government to enter into negotiations to de escalate the conflict which has seen tit for tat tariff impositions largely on industrial goods The increased tariff proposals could be announced in a Federal Register notice as early as Wednesday one of Bloomberg s sources said The US has already placed 25 tariffs on about 34 billion worth of Chinese goods and it has just finished consulting on another set to be imposed on goods worth 16 billion It earlier imposed tariffs on imports of steel and aluminum from China and other countries Goods already affected by Trump s tariffs against China include batteries trains and ball bearings but they could extend to more consumer goods if further tariffs are imposed Before his latest tariff threat or impose tariffs on all 505 billion of goods coming from China to the US I m not doing this for politics I m doing this to do the right thing for our country he told CNBC during the interview in which he made that threat We have been ripped off by China for a long time The latest reports of Trump s willingness to increase tariffs on China were met with anger in Beijing with a government representative accusing the US of attempting to blackmail China The government also made clear that it was willing to hit back at any additional tariffs US pressure and blackmail won t have an effect Geng Shuang a spokesman for the Chinese Foreign Ministry said according to Reuters If the United States takes further escalatory steps China will inevitably take countermeasures and we will resolutely protect our legitimate rights Things look better for Europe As the Trump administration ratchets up its threats to China about rising tariffs the worst of its conflict with the European Union over trade appears to be over after last week During a meeting in Washington DC last Wednesday Trump and the European Commission s president Jean Claude Juncker agreed to the beginnings of a deal meant to lower tensions between the two parties This was a very big day for free and fair trade In the meeting the EU agreed to import more American soybeans and liquefied natural gas The two sides committed to work to lower industrial tariffs and adjust regulations to allow US medical devices to be traded more easily in European markets |
JPM | Wells Fargo finds efficiency target elusive as revenue slips | By Imani Moise Reuters With Wells Fargo Co s N WFC revenue slumping and no clear end in sight for sales scandal related costs analysts have pushed back predictions for when the bank s closely watched efficiency ratio will return to pre scandal levels The fourth largest U S bank booked hundreds of millions of dollars in fresh customer remediation and rebate costs in the second quarter fueling worries about lingering scandal related fallout Wall Street has been pressuring Wells Fargo to deliver more revenue to the bottom line for over two years That ramped up once the bank landed in regulatory and reputational trouble over sales practices and management responded with hard cost cutting goals But Wells Fargo has faced more challenges since with businesses like mortgage lending shrinking and the Federal Reserve imposing an asset cap until the bank proves governance and controls have improved It is also no longer receiving revenue from some products it missold as recently as last year like add on insurance As a result analysts say it may take until 2020 for Wells Fargo to get its efficiency ratio within the 55 percent to 59 percent range Chief Executive Tim Sloan has pledged to hit It has not reported a ratio below 60 percent since September 2016 That metric which measures the cost of one dollar of revenue was 66 7 percent at Wells Fargo during the first half of the year By comparison JPMorgan Chase Co s N JPM efficiency ratio was 57 6 percent Two thirds of the analysts who updated estimates since second quarter results now see the ratio staying at or above 60 percent through 2019 according to Thomson Reuters data Prior to earnings the consensus for the ratio was 59 5 percent It s dragging on longer that what people originally expected said Edward Jones analyst Kyle Sanders referencing costs associated with the bank s past wrongdoings Sanders did not change estimates much after the second quarter report but said his models were more conservative than other research houses Wells Fargo was once the most valuable bank in the world by market value as investors rewarded the company for its perceived profitability and growth potential But revelations about millions of customers getting locked into unnecessary products has forced investors to rethink how they value the stock which has lagged rivals since September 2016 The bank pledged to shut 800 branches by 2020 and has cut 4 600 employees from its payroll since 2016 The efforts are part of Sloan s goal to slash 4 billion from annual expenses by next year While executives reiterated that pledge in recent weeks they have declined to provide a near term efficiency ratio target Management initially expected to approach 59 percent by the end of 2018 but said in April actions to comply with the Fed s consent order would delay progress Analysts say it could take more than a year to get there given the business pressures and scandal costs
It s not an outrageous target said Sanders of Edward Jones They do have lot of levers to pull on in terms of squeezing costs out of the business |
JPM | JPMorgan says it is a subject of SEC probe of ADR abuses | By David Henry NEW YORK Reuters JPMorgan Chase Co N JPM said on Wednesday it is among banks and securities dealers being investigated by the U S Securities and Exchange Commission for their handling of so called pre released American Depositary Receipts ADR between 2011 and 2015 The disclosure made in a regular quarterly filing by JPMorgan comes after the SEC said on July 20 that Deutsche Bank DE DBKGn had agreed to pay nearly 75 million to settle its part of a continuing investigation into mishandling of the securities ADRs are U S securities that represent foreign shares of a foreign company They require a corresponding number of foreign shares to be held in custody at a depositary bank Under certain conditions the SEC allows the pre release of ADRs before the corresponding shares have been deposited In the case of Deutsche the SEC said the bank had improperly provided thousands of pre released ADRs and failed to prevent securities law violations when the instruments were borrowed or lent Failures to properly handle the transactions leave ADRs ripe for potential abuse at the expense of ADR holders the SEC said when it settled with Deutsche
JPMorgan said it has been cooperating with the investigation A spokesman declined to comment further |
JPM | U S equity traders to receive bigger bonuses this year study | Reuters Equities traders on Wall Street are expected to take home bigger bonuses this year compared with their industry peers as a global rally in stocks shows little signs of slowing according to a report by compensation consulting firm Johnson Associates Bonuses may jump by up to 20 percent for employees in the U S equities industry compared with 10 to 15 percent projected by the firm at the end of the first quarter in May the report showed In the most recent quarter the top five Wall Street banks including JPMorgan Chase Co N JPM and Citigroup N C collectively recorded a 10 percent rise in market trading revenue with much of the rebound driven by equities Johnson Associates maintained its target of 5 percent to 10 percent hike in bonuses for employees in fixed income businesses where money is generated from trading bonds commodities and currencies The asset management sector may see up to a 10 percent hike in incentives this year the firm said revising its prior estimate of 5 percent Johnson Associates said financial services firms are expected to broadly increase bonuses this year
Geo political uncertainty and market volatility are key 2018 incentive wildcards it added |
JPM | Jamie Dimon Says JPMorgan Will Use Blockchain for a Whole Lot of Things | JPMorgan Chase s Jamie Dimon was bullish on blockchain tech but shied away from commenting on cryptocurrency saying fiat payment apps are the biggest potential disruption to our business in an interview published in the July August issue of the Harvard Business Review
When asked about his company s chief competitive threat Dimon chairman and CEO of JPMorgan Chase NYSE JPM the largest of America s Big Four banks singled out what he called new forms of payment Specifically naming PayPal Venmo and Alipay Dimon said that these companies are doing a good job of embedding basic banking services in their chats their social their shopping experience |
JPM | Jamie Dimon Warns of 5 Treasury Yields | Bloomberg Not content with a previous warning investors should brace for U S yields of 4 percent Jamie Dimon went one further at the weekend suggesting 5 percent was a distinct possibility
The JPMorgan Chase Co NYSE JPM chief executive officer said Saturday people should be prepared to deal with the benchmark 10 year bond yield at 5 percent or higher
I think rates should be 4 percent today Dimon said Saturday at the Aspen Institute s 25th Annual Summer Celebration Gala You better be prepared to deal with rates 5 percent or higher it s a higher probability than most people think
The 3 percent level is still providing stiff resistance for the 10 year Treasury yield this year It briefly rose through the mark last week before falling back for the fourth time this year That s despite a U S jobless rate below 4 percent economic growth above 4 percent and a rare surge in late cycle government borrowing
The current bull market could actually go for 2 or 3 more years because the economy is still doing quite well and markets usually turn right before the economy Dimon said
Cyber attacks are probably the biggest risk to the U S today though banks are quite well protected Dimon said
We re very very protected he said
The JPMorgan CEO reiterated comments made last year on Bitcoin calling cryptocurrencies a scam and saying he had no interest in the world s largest digital currency He suggested governments may move to shut down the currencies because of an inability to control them
Dimon had urged investors to prepare for higher rates in an interview in May given the possibility growth and inflation could prove fast enough to prompt the Federal Reserve to raise interest rates more than anticipated and the increase in financing by the U S Treasury |
MS | Are We in a Period of Breakout or Consolidation | On Friday the Dow Jones Industrials Average staged an upside breakout to a new recovery high The move was confirmed by the large cap OEX but not by many other averages The S P 500 for example is still struggling with resistance The intermediate term trend however appears bullish as it is in a well defined uptrend and there are signs of global healing from stock indices around the world In my mind there is no question that the bulls are in control of this market in the intermediate term The more relevant question is whether they have exhausted themselves in the short term Can the S P 500 clear resistance or are we due for a period of consolidation More disturbing for the bulls is the narrowing leadership of this rally as it has been led by the large cap stocks Small caps have not been as strong which is a bearish negative divergence As shown below the small cap Russell 2000 is barely approaching its resistance zone though it is in a similar well defined uptrend Cylicals say consolidationTo discern the future direction of equities I turn to the answer from three places I analyzed the chart patterns of the cyclicals as well as the other two sources of macro risk Europe and China Consider the Morgan Stanley Cyclicals Index These stocks staged an upside breakout in mid January but have started to consolidate as they moved sideways through the uptrend line Other cyclically sensitive indices and currencies such as the Australian Dollar the Australian All Ords the Canadian Dollar and the TSX Index all show a pattern of breakout and consolidation Commodity prices on the other hand have lagged this rally They broke out of a downtrend in mid January and they appear to be consolidating I am watching to see if the sideways pattern continues or if they can stage an upside breakout through resistance Are fundamentals improving puts the bull and bear debate into perspective this way I m convinced that the single most important decision facing asset allocators right now is whether or not to join The Big Shift or to ignore it and ride it out Guys like me need to decide if we re going to dance with the sinners in the high beta risk on sectors that have been leading this market or stick with the saints the defensive income heavy non cyclicals that saved our lives when things got dicey last year He goes on to say that equity prices may have gotten ahead of fundamentals emphasis added The trouble with this is that while we may yet be able to avoid another recession scare this year the data simply does not confirm just yet what the homebuilders banks casinos REITs and materials stocks would have us believe Instead I think we re witnessing a major rotation one of the biggest I ve ever seen and that it cannot get much further until the data on housing and jobs improves markedly and materially Have the fundamentals improved Well sort of On the earnings side things are improving as reporting season progresses reports that the beat rate for companies has been steadily getting better Corporate guidance while negative has been improving as well emphasis added Looking ahead to the next earnings season in which companies will give investors a glimpse of how they are faring in the early months of 2012 the number of companies offering downbeat guidance continues to exceed those steering analysts forecasts higher So far 52 companies in the S P 500 have issued negative earning guidance compared to 20 that have issued positive earnings guidance for the first quarter of 2012 the resulting ratio of negative to positive preannouncements is 2 6 While that s still not telling investors that corporate executives are bullish it s a significantly more positive reading than the N P ration of 3 6 observed as recently as last week Watch overseas markets The other important tells of market direction are Europe and China which are the two big sources of macro risk I am watching closely the action of the Euro STOXX 50 which has staged an upside breakout but it isn t clear whether the breakout will hold With the ECB about to unleash LTRO2 which is expected to release to the eurozone banking system does anyone want to bet against a breakout Moving east I pointed out last week that the Shanghai Composite had rallied through a downtrend line That development had alleviated my concerns of China as a source of tail risk and signaled that a hard landing is less likely Indeed as it followed suit on a trend of global monetary easing by the BoJ and BoE Next door in Hong Kong the Hang Seng Index has rallied to fill a downside gap and is encountering overhead resistance I am watching carefully to see if the bulls can stage a rally to overcome resistance Where to next Is this a period of breakout or consolidation My inner investor tells me to stay with the bull trend in equities as they are in a well defined uptrend Moreover a glance at the 30 year Treasury yield shows that it is forming a saucer bottom pattern indicating that the risk off trade is on its last legs My inner trader on the other hand is more agnostic on the question of breakout or consolidation On one hand he is aware that the combination of under invested equity investors and bullish sentiment can lead to a series of good overbought conditions that result in higher prices On the other hand the markets are overbought and they are ripe for a pullback and he is watching market conditions carefully next week for signs which way the markets break |
MS | Afternoon Rally Fizzles Late Snapping Four Day Advance | After Hours Closing Update Afternoon Rally Fizzles Late Snapping Four Day AdvanceStocks climbed off their mid day lows enough to carry the major U S market indices back within close range of positive territory on Wednesday but could not make the final push to extend their rally to a fifth session Stocks tracked by the S P 500 gave back yesterday s small gains and closed down for the first time since Feb 14 The Dow Jones Industrial index also saw its four day advance snapped Equities briefly turned positive this morning after the National Association of Realtors reported that existing home sales climbed 4 3 in January over the prior month topping expectations and rising to an annualized 4 57 million homes the best rate in 20 months but narrowing trailing the pace most experts forecast The inventory of homes available for sale contracted somewhat last month indicating supplies may be starting to tighten and eventually could help lift prices for sellers But the trade group also sharply reduced its December sales figures paring the sales pace to an annualized 4 38 million unit rate rather from a previously reported 4 61 million units The revisions resulted from new seasonal formulas calculated at the start of 2012 and is based on sales data from the past three years Reports overnight found that services and manufacturing output in Europe shrank during February according to Markit Economics while another report indicated Chinese manufacturing activity may have receded for a fourth straight month during February Asian markets ended higher but the European bourses fell helping establish a downward bias for U S stocks today Energy stocks were the only industry sector in S P 500 to consistently post gains today as crude oil maintained its perch above 106 a barrel Healthcare materials and utilities companies also turned positive in afternoon trade while tech stocks also rallied only to retreat in the final hour In company news Citigroup C shares ended down about 3 yesterday pressured by reports the bank is facing a multi million dollar writedown as it begins to unwind its minority stake in Morgan Stanley Smith Barney Citi reportedly may also have violated rules for home loans sold to Fannie Mae and Freddie Mac according to a whistle blower s complaint obtained by Bloomberg News Also HealthStream HSTM was set to finish up nearly 30 yesterday establishing a new 52 week high after reporting better than expected Q4 results in Tuesday s after hours session The company said that Q4 sales were 21 9 million beating the Thomson Reuters mean for 21 28 million EPS were 0 07 a penny above forecasts Looking forward it anticipates 2012 revenues will grow as much as 25 over last year with operating income rising as much as 26 Commodities finished slightly higher Wednesday with crude oil trading on both sides of even during the day and ending with a 3 cent gain to settle at 106 28 a barrel Natural gas rose 1 7 cents settling at 2 643 per 1 million British Thermal Units Gold added 12 90 to end at an even 1 770 an ounce Here s where the markets stood at end of day yesterday Dow Jones Industrial Average down 27 02 0 21 to 12 938 67S P 500 down off 4 55 0 33 to 1 357 66NASDAQ Composite down down 15 40 0 52 to 2 933 17GLOBAL SENTIMENTHang Seng Index up 0 33 China Shanghai Composite up 0 93 FTSE 100 down 0 20 UPSIDE MOVERS TOPS Oil shipper strikes deal reducing management fees it pays by 30 FIRE Q4 results top expectations issues upbeat revenue guidance DOWNSIDE MOVERS NFX Reports adjusted Q4 EPS of 0 95 short of analyst mean 1 02 a share REXX Q4 EPS of 0 03 trailed 0 07 a share forecast in Street view |
C | Bitcoin Gains as Wall Street Backs Crypto Exchange | Investing com Cryptocurrencies made some gains on Thursday while a major U S brokerage firm announced it is backing a new virtual currency exchange
Bitcoin rose 1 16 to 6 599 50 on the Bitfinex exchange as of 9 45 AM ET 13 45 GMT
Cryptocurrencies overall were slightly higher with the coin market cap of total market capitalization at 219 billion at the time of writing compared to 215 billion on Wednesday
Ethereum or Ether increased 2 54 to 224 87 and Litecoin was at 58 79 up 1 90 while XRP surged 2 07 to 0 53687
TD Ameritrade is backing crypto exchange Erisx with the help of other Wall Street companies The platform will be led by trading veteran Thomas Chippas who left his job at Citigroup NYSE C to head the project
While it still needs regulatory approval the company hopes to list bitcoin bitcoin cash ether and litecoin futures It has been backed by DRW and Virtu Financial and has presented itself as a rival to Bakkt a platform from the New York Stock Exchange s parent company
Meanwhile an MP in Ukraine has pushed forward a bill that would allow tax free crypto trading in the country
Yuriy Derevyanko told the Ukrainian parliament that taxing cryptocurrency trading earnings is repressive and could force skilled IT professionals out of the country
This market is still very fragile he said We must protect the enterprising innovators who are bringing technology to our economy
The proposal is in response to another bill that would impose a flat tax rate of 5 for individuals and 18 for corporations
In other news Binance one of the largest cryptocurrency exchanges said in a statement on Wednesday that it invested A 3 5 million 2 5 million in Australian distributed ledger technology DLT payment company TravelByBit The Japan based crypto exchange is aiming to develop a point of sale payment system across airports worldwide according to the statement
In August Brisbane based TravelByBit received A 100 000 from the Queensland government to promote local tourism |
C | Baker Hughes to Pay 550 Million for Stake in Adnoc Drilling | Bloomberg Baker Hughes the Houston based oilfield services business agreed to buy a 5 percent stake in Adnoc Drilling a deal that values the unit of government run Abu Dhabi National Oil Co at about 11 billion
The investment marks the first time that an international partner takes a direct equity stake in an existing Adnoc services business the companies said Monday in a joint statement The valuation of Adnoc Drilling includes about 1 billion of net debt
Baker Hughes a GE company will provide specialized equipment and technologies to Adnoc Drilling which supplies oil rigs to other Adnoc businesses and is the Middle East s largest drilling company they said The agreement may help Adnoc Drilling expand outside the United Arab Emirates an OPEC producer in which the emirate of Abu Dhabi holds most of the oil the companies said
The Organization of Petroleum Exporting Countries is seeking to boost supply to offset a decline in oil exports from Iran due to U S sanctions and plummeting production in Venezuela The increase has yet to significantly reduce prices with Brent crude 25 percent higher this year
Faster Drilling
The partnership with Baker Hughes comes at an important time in the drilling needs of Abu Dhabi as Adnoc grows its conventional and unconventional hydrocarbon resources and as we see future potential for further regional growth Adnoc Chief Executive Officer Sultan Ahmed Al Jaber said
Baker Hughes CEO Lorenzo Simonelli said the deal will help drive predictable revenue streams and long term growth for both companies and lets us invest in a stable reliable and secure market environment
The partnership aims to help Adnoc boost its conventional drilling activity by 40 percent by 2025 increase the number of its unconventional wells and reach its target of reducing drilling time by 30 percent by the end of 2019 according to the statement Having a single company provide all necessary services will prove transformative for Adnoc said Robin Mills chief executive officer of Dubai based consultant Qamar Energy
We needed to get away from operating in different silos from different contractors working the well Abdul Munim Al Kindy director of Adnoc upstream and chairman of Adnoc Drilling said in a Bloomberg TV interview The agreement with Baker Hughes is about removing the interfaces between different services that go to complete a well and integrate it all in one company he said
The deal will close in the fourth quarter upon regulatory approval and Baker Hughes will hold a seat on Adnoc Drilling s board of directors the companies said
Moelis Co is acting as exclusive financial adviser to Adnoc in the transaction while Citigroup Inc NYSE C is advising Baker Hughes
Updates with analyst in seventh paragraph Adnoc Drilling chairman in eighth |
JPM | Implied Volatility Surging For J P Morgan JPM Stock Options | Investors in J P Morgan Chase Co NYSE JPM need to pay close attention to the stock based on moves in the options market lately That is because the June 30th 2017 77 Call had some of the highest implied volatility of all equity options today What is Implied Volatility Implied volatility shows how much movement the market is expecting in the future Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other It could also mean there is an event coming up soon that may cause a big rally or a huge sell off However implied volatility is only one piece of the puzzle when putting together an options trading strategy What do the Analysts Think Clearly options traders are pricing in a big move for J P Morgan shares but what is the fundamental picture for the company Currently J P Morgan is a Zacks Rank 3 Hold in the Banks Major Regional industry that ranks in the Top 41 of our Zacks Industry Rank Over the last 30 days one analyst has increased earnings estimate for the current quarter while three have dropped their estimates The net effect has taken our Zacks Consensus Estimate for the current quarter from 1 64 per share to 1 60 cents in that period Given the way analysts feel about J P Morgan right now this huge implied volatility could mean there s a trade developing Often times options traders look for options with high levels of implied volatility to sell premium This is a strategy many seasoned traders use because it captures decay At expiration the hope for these traders is that the underlying stock does not move as much as originally expected Looking to Trade Options Each week our very own Dave Bartosiak gives his top options trades Check out his recent live analysis and options trade for the TSLA earnings report completely free See it here or check out the embedded video below for more details |
MS | Duke Realty to sell medical office assets to HTA for 2 8 billion | Reuters U S real estate investment trust Duke Realty Corp N DRE said on Monday it would sell its medical office building assets to Healthcare Trust of America Inc N HTA an owner and operator of medical offices for 2 8 billion in cash The deal which also include Duke Realty s medical office operating and development platform will give HTA access to 78 properties Reuters reported in March that Duke Realty was exploring the sale of its medical office buildings as it seeks to focus on its warehouse portfolio As part of the deal Duke Realty will provide seller financing of 330 million to HTA The acquisition is expected to close in stages through the second and third quarters of 2017 Duke Realty said Morgan Stanley NYSE MS was Duke Realty s financial adviser while Wells Fargo s Eastdil Secured unit advised HTA |
MS | Market overreacted to U S Steel s guidance cut Morgan Stanley says | Morgan Stanley NYSE MS is out in defense of U S Steel NYSE X saying last week s 25 plus drop and the roughly 1 6B market cap it shaved from the stock was overdone Last week s shellacking I II III implies X s the hit from the asset revitalization program could persist for a full four years and even grow somewhat after factoring in the present value discount but Stanley analyst Evan Kurtz believes the first year of an asset revitalization program is the worst and things should look up in the subsequent years as an increasing number of refurbished assets will be added to the mix lowering costs and boosting volumes X effectively cut 400M from its 2017 EBITDA guidance on higher costs while the asset revitalization is underway for 3 4 years the firm says Stanley maintains its Overweight rating but cuts its price target to 34 down from a previous 48 Macquarie Deutsche Bank DE DBKGn and BofA Merrill Lynch all downgraded the stock last week and cut their price targets Now read U S Steel Gets Bent |
MS | Morgan Stanley lowers commissions on ETFs stocks in brokerage accounts | NEW YORK Reuters Morgan Stanley s wealth management business said on Monday it is lowering the commissions that brokers earn on stock trades exchange traded funds and annuities amid pressure to lower costs for clients Commissions for brokers are now capped at 2 5 percent of a trade the investment news website AdvisorHub com reported earlier Monday It is unclear if there was previously a limit on commissions Morgan Stanley NYSE MS spokeswoman Christine Jockle said that the change which also affects unit investment trusts is intended to better align client costs with brokerage services Overall these changes will lower client costs in some cases substantially Jockle wrote in an emailed statement The wealth management industry has taken steps to level the fees and commissions that brokers charge on investment products like mutual funds throughout the past year in preparation for a new U S Labor Department retirement regulation The Labor Department s fiduciary rule which is set to take effect on June 9 requires firms to eliminate any conflict of interest such as certain sales incentives for brokers who are advising clients on their retirement savings
In March Morgan Stanley eliminated commissions and finder s fees for advisers who manage 401 k plans and started paying a level fee to advisers handling those accounts according to media reports |
MS | Sterling s election led bounce breaks developing spiral | By Jamie McGeever
LONDON Reuters The lift to sterling given by the prospect of a snap British election next month has at least temporarily broken a vicious circle of rapidly rising inflation that threatened to further undermine the economy and paint the central bank into a corner
The currency s steep fall since June s Brexit referendum has aggravated inflation to 2 3 percent above the Bank of England s 2 percent target risking a drain on consumers real spending power while tying the Bank of England s hands if further monetary easing were needed
The pound has traded in a range of roughly 1 20 to 1 27 to the dollar for the past six months and many analysts said they thought it was heading back towards the bottom of that range or even lower due to fears the two year EU exit negotiating process would bring a sharp break with the bloc
British bond yields had been climbing on the inflation picture and the conundrum that would pose for policymakers driving up the country s borrowing costs
But after the election announcement on April 18 sterling rose sharply breaking out of the top of the range to a seven month high close to 1 30 due to indications from opinion polls that it would result in a bigger majority for Prime Minister Theresa May s ruling Conservatives
Investors took the view that it would also boost the number of Conservatives seeking a softer Brexit in which Britain keep some kind of preferential access to the EU single market rather than cutting all ties as some in the party advocate
Few people think the pound will rise much further but if it levels out it should help tame inflation and ease the strain on consumers whose spending accounts for about two thirds of economic output breaking the stagflationary spiral of higher inflation and lower growth
The turnaround has been accompanied by a reversal in bonds The benchmark 10 year yield recently hit a six month low close to 1 percent having topped 1 50 percent in January
Sterling back to 1 30 and UK yields not moving too high keeping easy financial conditions in place is probably the best combination the Bank of England could have hoped for said Mark Haefele global chief investment officer for UBS Wealth Management who oversees around 2 trillion in assets
Sterling is up slightly against the euro this year and nearly 5 percent higher against the dollar Ten year gilt yields are 13 basis points lower year to date too
CARRY THAT WEIGHT
The British economy is holding up far better than most economists had anticipated but is beginning to feel the pinch from inflation and Brexit uncertainty Growth in the first quarter of this year was 0 3 percent the slowest in a year
Economists at Barclays LON BARC say the Brexit slowdown has begun and that interest rates will remain on hold until at least 2019 The BoE will give its prognosis on the economy on May 11 when it releases its latest Quarterly Inflation Report
The Bank halved interest rates to a new record low of 0 25 percent and expanded its quantitative easing bond buying program shortly after the referendum last year
Only one of the Bank s nine policymakers Kristin Forbes voted for a rate hike at the last MPC meeting But Michael Saunders has hinted that he may join her predicting that the powerful effects of sterling s fall since the Brexit referendum could push growth and inflation beyond forecasts
Burkhard Varnholt deputy global chief investment officer at Credit Suisse SIX CSGN which oversees 1 3 trillion francs of assets under management notes that sterling has been underowned and underloved by international investors
Positioning data from the International Monetary Market on the Chicago Mercantile Exchange at the end of March reflected that Speculators such as hedge funds had amassed the biggest bet against sterling on record a net short position of over 107 000 contracts
That s been cut to 91 182 contracts still large by historical standards but the smallest since early March
As investors are buying sterling again yields are coming down because there s money flowing into gilts Markets are doing the heavy lifting for the BoE the BoE must be pleased with what s going on here Varnholt said
The FX market s outlook for the pound is brighter too Sterling bears Deutsche and BAML both raised their forecasts on the election news while Morgan Stanley NYSE MS expects it to reach 1 45 next year
However medians in the poll of over 60 strategists taken by Reuters in the past week showed sterling would be worth 1 27 in a month just before the general election but then weaken to 1 24 in six months before settling at 1 25 a year from now
Even 1 45 would be well below the pound s long term average value Over the past 10 years it is 1 63 over 20 and 30 years it is 1 64 and over 40 years it is 1 67 according to former MPC member Andrew Sentance
Growth is much more influential for the MPC than currency and bond yield movements If GDP softens enough any support on the MPC for rate rises could fade away quite quickly he said |
JPM | U S business spending on equipment strong trade deficit widens | By Lucia Mutikani WASHINGTON Reuters New orders for key U S made capital goods increased more than expected in June and shipments surged pointing to solid growth in business spending on equipment in the second quarter Expectations of robust economic growth in the April June period were however tempered somewhat by other data on Thursday showing a widening in the goods trade deficit last month and no change in retail and wholesale inventories The U S economy surely strengthened in the second quarter but likely ended the quarter on a softer touch suggesting some slowing in the third quarter said Sal Guatieri a senior economist at BMO Capital Markets in Toronto The Commerce Department said orders for non defense capital goods excluding aircraft a closely watched proxy for business spending plans rose 0 6 percent last month after an upwardly revised 0 7 percent increase in May Orders increased broadly last month Economists polled by Reuters had forecast the so called core capital goods orders rising 0 4 percent in June after a previously reported 0 3 percent gain in May Core capital goods orders increased 6 8 percent on a year on year basis Shipments of core capital goods jumped 1 0 percent last month after an unrevised 0 2 percent gain in May Core capital goods shipments are used to calculate equipment spending in the government s gross domestic product measurement Business spending on equipment has risen since the fourth quarter of 2016 It is expected to have combined with robust consumer spending to boost second quarter GDP growth According to a Reuters survey of economists GDP likely increased at a 4 1 percent annualized rate in the April June period which would be double the 2 0 percent pace notched in the first quarter The government will publish its advance estimate of second quarter GDP growth on Friday But second quarter GDP growth could miss expectations as the Commerce Department reported in another report on Thursday that the goods trade deficit shot up 5 5 percent in June to 68 3 billion The goods trade deficit narrowed in April and May amid a surge in soybean exports as farmers rushed deliveries before China s retaliatory tariffs came into effect in early July The United States slapped duties on 34 billion worth of Chinese goods eliciting a similar response from Beijing Goods exports dropped 1 5 percent to 141 9 billion last month weighed down by declines in shipments of food motor vehicles and capital consumer and other goods Imports of goods rose by 1 3 billion to 210 3 billion driven by motor vehicles industrial supplies and consumer and other goods INVENTORIES FLAT The department also said both wholesale and retail inventories were unchanged in June The Atlanta Federal Reserve slashed its second quarter GDP growth estimate to a 3 8 percent rate from a 4 5 percent pace The dollar was trading higher against a basket of currencies after the European Central Bank kept its policy rate unchanged Prices for U S Treasuries rose while stocks on Wall Street were mixed Business spending on equipment is being supported by the Trump administration s 1 5 trillion income tax cut package which came into effect in January But there are worries that trade tensions between the United States and its major trade partners including China Canada Mexico and the European Union could offset the fiscal stimulus The momentum at the end of the second quarter signals that equipment spending likely will increase in the third quarter said Daniel Silver an economist at JPMorgan NYSE JPM in New York Overall orders for durable goods items ranging from toasters to aircraft that are meant to last three years or more increased 1 0 percent in June as demand for transportation equipment rebounded 2 2 percent That followed a 0 3 percent drop in durable goods orders in May While a third report from the Labor Department on Thursday showed initial claims for state unemployment benefits increased 9 000 to a seasonally adjusted 217 000 for the week ended July 21 the data continued to point to a tightening job market Claims dropped to 208 000 during the week ended July 14 which was the lowest reading since December 1969 The labor market is viewed as being near or at full employment The economy created an average of 215 000 positions per month in the first half of this year
By our calculations the current break even level of initial claims is 265 000 the lowest this cycle said Ryan Sweet a senior economist at Moody s Analytics in West Chester Pennsylvania Initial claims would have to make a sustained break above this level to signal that either the labor market or the economy is in trouble |
JPM | JPMorgan to liquidate BANK ONE Capital III | JPMorgan NYSE JPM says BANK ONE Capital III will be liquidated on Sept 10 2018 Bank One Capital III 8 750 preferred securities and 8 750 common securities will be cancelled The 8 750 junior subordinated deferrable interest debentures due Sept 1 2030 will be distributed pro rata to holders of the trust preferred securities and the trust common securities Source Press ReleaseNow read |
JPM | Indian billionaire Anil Agarwal s moves on Anglo | By Barbara Lewis LONDON Reuters Billionaire Anil Agarwal in July said he planned to offer around 1 billion to take London listed Vedanta Resources Plc L VED private a move that has rekindled speculation his ultimate aim is a deal with miner Anglo American L AAL Agarwal s Volcan family trust has until July 30 to make a firm offer or walk away from the deal which would leave Vedanta listed only in India NS VDAN WHY THE SPECULATION In March 2017 Agarwal began amassing a stake in Anglo American through a three year JPMorgan NYSE JPM mandatory convertible bond named POEMS He announced he was buying a second tranche in September 2017 In total Agarwal has 19 35 percent making him Anglo American s largest shareholder although only for three years unless he acts to buy the shares or seek to roll over the arrangement which is effectively a loan Agarwal has always said the stake was an investment based on his belief in Anglo as a company for his family trust He said it was unrelated to Vedanta and he was not planning a takeover However he has made no secret of wanting to grow Vedanta into a major diversified player or of his commitment to South Africa Anglo America s heartland Vedanta s international operations are copper mines in Zambia and Vedanta Zinc with operations in South Africa and Namibia Agarwal has said he wants to buy the Indian government s 30 percent stake in Hindustan Zinc of which he has majority control Anglo has declined to comment on reports it rebuffed previous approaches for a tie up with Hindustan Zinc WHY THE DELISTING AND WHAT DOES IT CHANGE Vedanta was the first Indian company to list in London in 2003 It raised around 500 million pounds 657 million giving it a market capitalization just over 1 billion pounds Since then the market capitalization has roughly doubled to 2 billion pounds But the bigger part of the company is Indian listed Vedanta with a market capitalization of 803 84 billion rupees 11 66 billion It also has significant levels of debt and is dwarfed by Anglo with market capitalization around 24 billion pounds The London delisting simplifies Vedanta s structure potentially making it more attractive as a company but the loss of the listing would reduce Agarwal s deal making capacity as potential buyers would prefer London shares to Indian ones analysts say A spokesman for Agarwal said he was not giving interviews In his announcement of the planned delisting Agarwal cited the maturity of the Indian capital markets saying a London listing was no longer necessary Mark Cutifani CEO of Anglo American said Agarwal has been a very supportive shareholder Our conversation is consistent with the conversation with all of our other shareholders he said when asked about Agarwal at the company s interim results on Thursday WHAT DO THE SHAREHOLDERS THINK At least one significant investor has said it is unhappy with the price Agarwal has offered to buy out other shareholders Anglo shareholders have benefited from Agarwal s interest which has helped to drive up the stock but some investors for whom ESG Environmental Social and Governance issues are a concern say Vedanta s track record would be worrying The most significant shareholder is South Africa s state run Public Investment Corporation which was the biggest shareholder in Anglo American until Agarwal s purchase Deon Botha PIC s head of corporate affairs said it could not comment as public statements to this effect will constitute market sensitive information Analysts and fund managers say PIC has a commitment to ESG issues that could set it at odds with Vedanta Others say PIC s quest for a national champion based on separating out Anglo s South African assets might persuade it to work with him IS VEDANTA S ESG RECORD WORSE THAN OTHERS While most miners including Anglo have had issues with leaks and fatalities Vedanta s troubles have attracted particular criticism In India the Tamil Nadu government has ordered the permanent closure of a Vedanta copper smelter and disconnected its power supply in May following protests that turned violent as police opened fire on protesters killing 13 Vedanta is seeking to overturn the decision It is also fighting a London high court judgment linked to alleged pollution from copper operations in Zambia IMPLICATIONS OF THE NEW CEO At the end of August Srinivasan Venkatakrishnan known as Venkat will take up the Vedanta helm after stepping down as CEO of AngloGold Ashanti J ANGJ Before becoming chief executive in 2013 he was AngloGold s chief financial officer while Mark Cutifani CEO of Anglo American since 2017 was AngloGold s CEO Analysts say the two have worked well together At the same time the chairman of Anglo American Stuart Chambers has a strong record of securing buyers for the companies he leads |
JPM | U S pending home sales rise supply constraints remain | By Lucia Mutikani WASHINGTON Reuters Contracts to buy previously owned homes unexpectedly rose in June after two straight monthly declines but the housing market remains hobbled by a dearth of properties available for sale The National Association of Realtors said on Monday its Pending Home Sales Index based on contracts signed last month increased 0 9 percent to a reading of 106 9 Economists polled by Reuters had forecast pending home sales unchanged in June Pending home contracts become sales after a month or two and last month s surprise rise suggested a rebound in existing home sales which have declined for three straight months But any bounce back in home sales is likely to limited by a chronic shortage of homes which is keeping house prices elevated Pending home sales fell 2 5 percent in June from a year ago Housing data has softened in recent months Housing starts and building permits dropped to a nine month low in June amid more expensive building materials and shortages of land and labor New home sales tumbled to an eight month low in June The trends in many housing indicators have weakened lately and we think that the recent increase in rates is putting some downward pressure on activity in the housing market said Daniel Silver an economist at JPMorgan NYSE JPM in New York House price increases are above 5 percent on an annual basis far outpacing wage growth which has been stuck below 3 percent despite a robust labor market The 30 year mortgage rate is around 4 54 percent but still low by historical standards Though the weakness in housing has been mostly driven by supply constraints there are worries that it could spill over to the broader economy through a reduction in purchases of household items like appliances and furniture Investment in homebuilding contracted in the second quarter It was the second straight quarterly decline The economy grew at a 4 1 percent annualized rate in the April June period the strongest performance in nearly four years In June home purchase contracts increased 1 1 percent in the populous South They gained 0 7 percent in the West which has seen faster house price inflation and jumped 1 4 percent in the Northeast Contracts rose 0 5 percent in the Midwest Even with slightly more homeowners putting their home on the market inventory is still subpar and not meeting demand said Lawrence Yun the NAR s chief economist As a result affordability constraints are pricing out some would be buyers and keeping overall sales activity below last year s pace
The Realtors group expects existing home sales to decrease 1 0 percent this year reversing 2017 s 1 1 percent increase |
MS | Greece is Not Lehman 2 0 It s Far Far Worse | Investors simply do not understand the significance of Greece Comparisons are being made to Lehman but these comparisons are moot for the following reason Greece is a country not a private institution This is not a subtle difference True Lehman s derivatives were spread throughout the global financial system just as Greek sovereign debt is However investors are missing the true scope of the fall out a Greek default would create First let s think about Lehman When Lehman went under half of the other institutions that were in trouble had already been merged with larger entities Bear Stearns Merrill Lynch or had been nationalized Fannie and Freddie Those that were still standing after Lehman went under changed to bank holding companies Morgan Stanley Goldman Sachs in order to receive special access to Fed lending or were nationalized AIG None of these options exist regarding the sovereign crisis in Europe today If Greece defaults Portugal can t merge with Spain And Italy can t be nationalized by Germany or suddenly change itself to a new type of country that gets special treatment from the ECB it s already getting special treatment from the ECB by the way This cuts to the core issues for sovereign defaults in the EU Here are the facts regarding those EU countries on the verge of collapse 1 You cannot solve a debt problem with more debt2 Austerity measures slow economic growth which in turn makes it harder to meet debt paymentsThis is simple basic common sense But these are the policies being promoted by EU leaders we ll give you more money if you implement more austerity measures to get your finances in order The fact of the matter is that there is simply no way on earth that Greece can get its finances in order short of a massive default Greece has terrible age demographics a lack of economic growth and cultural issues e g paying taxes is for suckers that make it impossible for the country to solve its financial problems In plain terms Greece racked up too big of a tab and simply doesn t have the means of paying it End of story The world needs to realize this Because Greece will default and it will default in a big way The impact of this will be tremendous For one thing pretty much everyone is lying about their exposure to Greece Consider Germany for instance According to the Bank of International Settlements German bank exposure to Greece is only 3 9 billion though they state this is only on an immediate borrower basis This is a bit odd as according to The Guardian German banks have nearly 8 billion Euros worth of exposure to Greek debt And they only include 11 German banks in their analysis However of those 11 banks THREE of them have Greek exposure equal to more than 10 of their total outstanding equity So when Greece defaults the fall out will be much much larger than people expect simply by virtue of the fact that everyone is lying about their exposure to Greece |
MS | U S Stocks Surge Over Bullish Economic Data Reduced Expectations of Greek Default | After Hours U S Stocks Surge Over Bullish Economic Data Reduced Expectations of Greek Default4 09 PM Feb 16 2012 After a dismal outlook in the pre market session U S stocks surged Thursday with the Dow closing up more than 100 points boosted by improving sentiment over Greece s debt crisis and a four year low for U S jobless claims Stocks started to move off their lows shortly after 8 30 am Eastern Time when the Labor Department said new applications for jobless benefits dropped to a four year low Claims for unemployment insurance unexpectedly fell to 348 000 during the week ended Feb 11 13 000 fewer people than last week and well below the 365 000 gain that experts in a Bloomberg News survey on average were expecting Equities also got some bullish news after a new report on housing starts said builders broke ground on more new homes in January aided by a surge in new rental housing and warmer than usual weather in much of the county last month Starts rose 1 5 to an annualized 699 000 homes exceeding the 675 000 median rate anticipated in a Reuters survey A monthly assessment of manufacturing found rising orders and increased sales activity along the mid Atlantic coast including eastern Pennsylvania southern New Jersey and Delaware The regional general economic index rose to a 10 2 reading in January the Federal Reserve Bank of Philadelphia said up from 7 3 last month and beating the median 9 0 reading economists polled by Bloomberg had forecast Readings higher than zero indicate expansion Sparking some optimism over the debt situation in Europe was a preview article in the German newspaper Die Welt that claimed the European Central Bank would swap its Greek bonds for newly issued ones that are likely further out in maturity to give Greece some breathing room In company news Shares of LEAP Wireless International Inc LEAP climbed following a Wall Street Journal report that the company is currently in talks with AT T over a possible sale Shares of CVR Energy CVI rallied after billionaire Carl Icahn announces a 30 per share tender offer for the company according to Bloomberg Gold ended higher after staging a last minute comeback Gold for April delivery climbed 30 cents to settle at 1 728 40 an ounce on the Comex division of the New York Mercantile Exchange Oil ended at a six week high of 102 31 a barrel Here s where markets stood at end of day Dow Jones Industrial Average up 123 13 0 96 to 12 904 08S P 500 up 14 81 1 10 to 1 358 04NASDAQ Composite up 44 02 1 51 to 2 959 85GLOBAL SENTIMENTNikkei down 0 24 Hang Seng down 0 41 Shanghai Composite down 0 42 FTSE 100 down 0 12 UPSIDE MOVERS BDSI Receives first 15 million milestone payment from Endo Pharmaceuticals STFC 2 49 a share Q4 profit salvages tough 2011 for insurer MSFT Announces msnNOWDOWNSIDE MOVERS AMZN Morgan Stanley downgrade to Equalweight from Overweight HDY New well off the coast of Guinea comes up empty STRA Reports Declining Revenues Income |
C | Citigroup plans to grow offshore booking center in UAE executive | By Tom Arnold and Davide Barbuscia DUBAI Reuters Citigroup N C plans to boost the United Arab Emirates role as an offshore booking center and is working towards a full banking license in Saudi Arabia helping to propel its regional growth a senior executive told Reuters Growth in the Middle East and Africa region is expected to be above the market average of around four percent in 2018 and 2019 driven by both countries Atiq Rehman Citi s Chief Executive of Middle East and Africa said in an interview We are focused on what we can do within the UAE and very focused on what we can do from the UAE he said We want to grow our business here and make it into a regional offshore booking center for a lot of our loans More of the bank s multinational corporate clients were using the United Arab Emirates as a center for their business in Middle East and Africa he said He said since the bank began booking loans from the UAE a year or two ago the growth had been exponential Instead of London and New York we are booking them here as there s a lot of benefit from doing so because of costs time zone management and there s a good set of regulations here he said My vision is to turn the UAE into a proper booking center for all sorts of transactions not just for loans but derivatives trade and all Brexit will lead to some opportunities to grow Citi s offshore booking business in the UAE but there were also the openings from the number of transactions in the region he said Growth for Citi in the Middle East and Africa would also be led by Saudi Arabia where the bank was working towards applying for a full banking license he said More than a dozen foreign banks have license to operate branches in Saudi Arabia battling for business resulting from the kingdom s efforts to ease its reliance on oil revenue Citi ended a five decade presence in Saudi Arabia in 2004 but in 2015 won permission to invest directly in the local stock market and in January this year gained approval to begin investment banking operations Since then it has picked up more advisory deals and other business there he said adding Citi would like to add custody and brokerage services in the future but not retail banking
Citi operates in 25 markets in the Middle East and Africa The region contributes around 7 percent of the bank s global net income he said |
JPM | Oil To keep Falling | The oil price is treading water today failing to find a direction with some analysts believing that the recent down trend will continue on the back of bigger output from the US
Oil is now down 20 percent since the start of the year and not even extended production cuts agreed to by Opec and Non Opec members such as Russia to remove excess inventories from the market has been enough to stop the slide
An even bigger problem now is the amount of oil being produced in the US which is growing by the day and according to some has not been fully priced into the market and poses a real danger to the oil price The other factor underestimated by OPEC has been the rebound in U S production from both the Gulf of Mexico and the shale producers We have only just begun to see the shale output hit the market from the attendant rise in the U S rig count U S production could hit 10 million barrels per day by year end from 9 3 million
Analysts at JPMorgan NYSE JPM also believe the price is going lower as history shows that even though Opec agreed to production cuts not all members will be willing to comply and will simply release more oil to the market
By early 2018 the combination of record U S production and deteriorating OPEC compliance probably returns average prices to the mid to low 40s they said
Also with new technology coming on board the amount of money to produce a barrel of oil becomes lower which will also prove attractive to US drillers
Rising U S output continues to stress markets with increasing evidence that improved efficiency and technology makes many of the shale plays profitable below 40 a barrel said analysts at Cenkos Securities |
JPM | 6 New Hot ETFs Of First Half 2017 | Thanks to the rise in thematic investing and craze for smart beta the ETF industry is seeing explosive growth in terms of both AUM and launches After 246 launches last year the industry has seen 101 launches so far in the first half of 2017 taking the total number of ETFs to 2 041 and total assets to nearly 3 billion in the U S market read This rapid growth is due to unique strategies creativity transparency diversification benefits enhanced tax competences low turnover and low cost Additionally both existing and new issuers remain active in binging innovative products to the market carving a highly specialized theme or niche investment focusing on a narrow corner Below we highlight six ETFs that have been able to pull in over 100 million in AUM and have a huge potential to dominate the market in the coming months Principal Active Global Dividend Income ETF GDVD is the most popular new ETF of the first half having amassed more than 429 million in AUM since its debut on May 9 It seeks current income and long term growth of income and capital through active management The fund invests in 59 high quality dividend paying securities from around the world with spread out exposure across various asset capitalization and style Each of these securities holds less than 2 9 of assets with 66 exposure in large caps 20 in mid caps and the rest in small caps read From a sector look financials and information technology take the largest share at 18 1 and 15 6 respectively while consumer discretionary and healthcare round off the top four with a double digit exposure each American firms account for 45 of the portfolio followed by 40 in Europe and 10 in Asia Pacific Asia Latin America and Africa receive minor allocations The fund charges a modest 58 bps in annual fees but volume seems too low with under 2 000 shares exchanging hands per day on average The illiquidity will raise the cost of trading in the form of a wide bid ask spread PowerShares Treasury Collateral Portfolio CLTL has amassed 371 6 million in AUM since its debut on January 12 It provides investors with an alternative to money markets and other low yielding cash instruments by tracking the ICE U S Treasury Short Bond Index The benchmark measures the performance of US Treasury Obligations with a maximum remaining term to maturity of 12 months Holding 75 securities in its basket the ETF has an effective duration of 0 40 years and years to maturity of 0 40 It has the lowest cost in the fixed income space charging investors 0 08 in expense ratio Unlike its counterparts the ETF offers enhanced liquidity with two NAV strikes and an alternative collateral vehicle in the changing money market regulatory environment Volume does not seem to be an issue for the ETF as it exchanges 185 000 shares a day on average Franklin LibertyQ US Equity ETF This ETF offers exposure to 249 stocks that have favorable exposure to four investment style factors quality value momentum and low volatility by tracking the LibertyQ U S Large Cap Equity Index Each holding accounts for less than 1 3 share while information technology consumer discretionary consumer staples industrials and healthcare are the top five sectors The fund has gathered more than 115 million in its asset base since its debut on April 26 and trades in good average daily volume of about 163 000 shares Expense ratio is also low at 0 25 IQ Chaikin U S Small Cap ETF This fund has gathered 109 5 million in AUM since its inception on May 15 It offers exposure to small cap securities through a multi factor model The Chaikin Power Gauge which combines fundamentals earnings technical and sentiment components to select stocks with the potential to provide enhanced returns over time The product follows the NASDAQ Chaikin Power US Small Cap Index and holds a well diversified portfolio of 235 stocks with none accounting for more than 0 64 of assets read However more than one fourth of the portfolio is allotted to financials while industrials consumer discretionary and technology round off the next three spots with a double digit exposure each CSML comes with a low expense ratio of 0 35 and good trading volume of more than 168 000 shares JPMorgan NYSE JPM Global Bond Opportunities ETF This ETF debuted on April 3 and has accumulated around 101 million in its asset base It is an actively traded fund that seeks to deliver total returns by providing flexible high conviction exposure across more than 15 fixed income sectors and 50 countries Holding 562 securities in its basket the fund employs a flexible best ideas strategy with no bias toward a particular region or sector aiming to generate attractive returns Currently it is well spread out across individual securities with none holding more than 2 81 share U S takes the top spot at 84 in terms of country exposure while Europe Asia Pacific Asia and Latin America take the remainder However the fund trades in a lower average daily volume of 45 000 shares which increases the cost of trading beyond the expense ratio of 0 55 read Cambria Core Equity ETF Launched on May 23 this ETF has accumulated over 100 million in its asset base in just one month with a good trading average volume of 205 000 shares This is also an actively managed ETF utilizing the combination of several strategies to produce capital appreciation while reducing risk exposure across market conditions It invests primarily in U S stocks specifically focusing on high quality companies that have prospects for long term returns due to their ability to grow earnings and increase dividends over time At the same time the fund also seeks to sell exchange traded index put and call options in an effort to reduce volatility and maximize returns or buy index put options to protect the portfolio from significant market decline that may occur over a short period of time read This approach results in a well diversified basket of 52 securities with each holding less than 3 6 share Industrials consumer discretionary technology financials and healthcare are the top five sectors accounting for a double digit exposure each However CCOR is expensive charging 1 05 in expense ratio Average daily volume is good at 205 000 shares Want key ETF info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing ETFs each week |
JPM | The Zacks Analyst Blog Highlights Principal Active Global Dividend Income ETF PowerShares Treasury Collateral Portfolio Franklin LibertyQ US Equity ETF IQ Chaikin U S Small Cap ETF And JPMorgan Global Bond Opportunities ETF | For Immediate Release
Chicago IL June 27 2017 Zacks com announces the list of stocks featured in the Analyst Blog Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets Stocks recently featured in the blog include Principal Active Global Dividend Income ETF BATS PowerShares Treasury Collateral Portfolio NYSEARCA Franklin LibertyQ US Equity ETF BATS IQ Chaikin U S Small Cap ETF NASDAQ and JPMorgan NYSE JPM Global Bond Opportunities ETF BATS
Today Zacks is promoting its Buy stock recommendations
Here are highlights from Tuesday s Analyst Blog
6 New Hot ETFs of First Half 2017
Thanks to the rise in thematic investing and craze for smart beta the ETF industry is seeing explosive growth in terms of both AUM and launches After 246 launches last year the industry has seen 101 launches so far in the first half of 2017 taking the total number of ETFs to 2 041 and total assets to nearly 3 billion in the U S market read
This rapid growth is due to unique strategies creativity transparency diversification benefits enhanced tax competences low turnover and low cost Additionally both existing and new issuers remain active in binging innovative products to the market carving a highly specialized theme or niche investment focusing on a narrow corner
Below we highlight six ETFs that have been able to pull in over 100 million in AUM and have a huge potential to dominate the market in the coming months Principal Active Global Dividend Income ETF BATS
GDVD is the most popular new ETF of the first half having amassed more than 429 million in AUM since its debut on May 9 It seeks current income and long term growth of income and capital through active management The fund invests in 59 high quality dividend paying securities from around the world with spread out exposure across various asset capitalization and style Each of these securities holds less than 2 9 of assets with 66 exposure in large caps 20 in mid caps and the rest in small caps read
From a sector look financials and information technology take the largest share at 18 1 and 15 6 respectively while consumer discretionary and healthcare round off the top four with a double digit exposure each American firms account for 45 of the portfolio followed by 40 in Europe and 10 in Asia Pacific Asia Latin America and Africa receive minor allocations The fund charges a modest 58 bps in annual fees but volume seems too low with under 2 000 shares exchanging hands per day on average The illiquidity will raise the cost of trading in the form of a wide bid ask spread PowerShares Treasury Collateral Portfolio NYSEARCA
CLTL has amassed 371 6 million in AUM since its debut on January 12 It provides investors with an alternative to money markets and other low yielding cash instruments by tracking the ICE U S Treasury Short Bond Index The benchmark measures the performance of US Treasury Obligations with a maximum remaining term to maturity of 12 months
Holding 75 securities in its basket the ETF has an effective duration of 0 40 years and years to maturity of 0 40 It has the lowest cost in the fixed income space charging investors 0 08 in expense ratio Unlike its counterparts the ETF offers enhanced liquidity with two NAV strikes and an alternative collateral vehicle in the changing money market regulatory environment Volume does not seem to be an issue for the ETF as it exchanges 185 000 shares a day on average Franklin LibertyQ US Equity ETF BATS
This ETF offers exposure to 249 stocks that have favorable exposure to four investment style factors quality value momentum and low volatility by tracking the LibertyQ U S Large Cap Equity Index Each holding accounts for less than 1 3 share while information technology consumer discretionary consumer staples industrials and healthcare are the top five sectors
The fund has gathered more than 115 million in its asset base since its debut on April 26 and trades in good average daily volume of about 163 000 shares Expense ratio is also low at 0 25 IQ Chaikin U S Small Cap ETF NASDAQ
This fund has gathered 109 5 million in AUM since its inception on May 15 It offers exposure to small cap securities through a multi factor model The Chaikin Power Gauge which combines fundamentals earnings technical and sentiment components to select stocks with the potential to provide enhanced returns over time The product follows the NASDAQ Chaikin Power US Small Cap Index and holds a well diversified portfolio of 235 stocks with none accounting for more than 0 64 of assets read
However more than one fourth of the portfolio is allotted to financials while industrials consumer discretionary and technology round off the next three spots with a double digit exposure each CSML comes with a low expense ratio of 0 35 and good trading volume of more than 168 000 shares JPMorgan Global Bond Opportunities ETF BATS
This ETF debuted on April 3 and has accumulated around 101 million in its asset base It is an actively traded fund that seeks to deliver total returns by providing flexible high conviction exposure across more than 15 fixed income sectors and 50 countries Holding 562 securities in its basket the fund employs a flexible best ideas strategy with no bias toward a particular region or sector aiming to generate attractive returns Currently it is well spread out across individual securities with none holding more than 2 81 share U S takes the top spot at 84 in terms of country exposure while Europe Asia Pacific Asia and Latin America take the remainder
However the fund trades in a lower average daily volume of 45 000 shares which increases the cost of trading beyond the expense ratio of 0 55 read Cambria Core Equity ETF
Launched on May 23 this ETF has accumulated over 100 million in its asset base in just one month with a good trading average volume of 205 000 shares This is also an actively managed ETF utilizing the combination of several strategies to produce capital appreciation while reducing risk exposure across market conditions It invests primarily in U S stocks specifically focusing on high quality companies that have prospects for long term returns due to their ability to grow earnings and increase dividends over time At the same time the fund also seeks to sell exchange traded index put and call options in an effort to reduce volatility and maximize returns or buy index put options to protect the portfolio from significant market decline that may occur over a short period of time read
This approach results in a well diversified basket of 52 securities with each holding less than 3 6 share Industrials consumer discretionary technology financials and healthcare are the top five sectors accounting for a double digit exposure each However CCOR is expensive charging 1 05 in expense ratio Average daily volume is good at 205 000 shares Want key ETF info delivered straight to your inbox
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MS | GameStop hopes to ride Nintendo Switch wave | GameStop GME 1 1 announces that it received a limited supply of Nintendo Switch systems available immediately for customers The units are only available at the company s stores It s perfect timing to have additional Nintendo Switch units arrive just days before the launch of Mario Kart 8 Deluxe one of the biggest and most loved games from Nintendo notes GameStop merchandising exec Eric Bright The flash sale isn t expect to last through the weekend Sales of the Nintendo OTCPK NTDOY have dazzled so far leading in part to Morgan Stanley NYSE MS resuming coverage on the stock with an Overweight rating The Switch is proving to be very competitive and we anticipate strong sales for core game titles boosting our conviction in OP growth through F3 20 writes analyst Masahiro Ono Near term we think the stock will rise as sales trends for likely hit titles are factored in he adds The impact of red hot Nintendo Switch sales on GameStop s results will be a little clearer in about a month when the retailer reports earnings and updates guidance Previously For a switch videogame sales jump thanks to Nintendo April 20 Source Press Release Now read Has Mario Lost His Marbles Here s How The Switch Killed The NES Classic |
MS | BOJ most upbeat on economy in nine years but warns stimulus exit distant | By Leika Kihara
TOKYO Reuters The Bank of Japan offered its most optimistic assessment of the economy in nine years at its policy meeting on Thursday and described recent weakness in inflation as temporary signaling confidence a sustained recovery will help achieve its ambitious price target
The BOJ kept its policy unchanged as expected but Governor Haruhiko Kuroda conceded that public perceptions of future price rises remained subdued suggesting the central bank will significantly lag its U S and European peers in exiting its massive stimulus program
The optimism about the economy and caution over the inflation outlook show the BOJ prefers to maintain the status quo on monetary policy for the time being analysts say
The inflation and growth projections as well as the upgrade of its economic assessment were all in line with market forecasts so there was no surprise at this meeting said Yasunari Ueno chief market economist at Mizuho Securities
As long as the economy maintains its momentum the BOJ will likely stand pat at least until next spring when Kuroda serves out his term
The BOJ maintained its short term interest rate target at minus 0 1 percent and a pledge to guide 10 year government bond yields around zero percent
It also kept intact a loose pledge to buy government bonds so its holdings increase at an annual pace of 80 trillion yen 719 billion defying market speculation the guidance could be removed to pave the way for an eventual withdrawal of stimulus
Japan s economy has been turning toward a moderate expansion the BOJ said a quarterly review of its long term economic and price projections compared with the previous month s view that it was improving moderately as a trend
It was the first time since March 2008 the BOJ used the word expansion to describe the state of the economy signaling its conviction that the recovery was gaining momentum and that it saw no need for additional stimulus
Despite the rosy economic view Kuroda reminded markets the central bank is nowhere near an exit from its massive stimulus
We expect inflation to accelerate toward 2 percent but currently inflation is around zero percent Kuroda told reporters after the policy meeting
Talking about a specific exit strategy now would cause undue confusion in markets he said The prerequisite for such debate to happen is for inflation to achieve 2 percent
Kuroda added that the BOJ had no automatic trigger for starting debate on exiting its ultra loose monetary policy
DOUBTS ABOUT INFLATION
In the quarterly review the BOJ cut its core consumer inflation forecast for the year ending in March 2018 blaming weak services prices and cellphone bill discounts by carriers facing fierce price competition
But it maintained its projection that inflation will reach 2 percent during the fiscal year ending in March 2019 on the view that a tightening job market would gradually push up wages
Many analysts doubt inflation will accelerate as quickly as the BOJ projects with slow wage growth keeping households from boosting spending
The BOJ upgraded its economic assessment but this is due more to overseas demand Japan s labor market is tight but retailers still want to cut prices said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities
Kuroda voiced confidence that continued improvements in the economy will eventually boost wages and inflation but conceded that progress has been slow
Overall inflation expectations haven t shown clear signs of a pick up They have bottomed out but haven t rebounded yet so we need to look at developments carefully he said
Japan s economy has shown signs of life as exports rose the most in over two years in March and manufacturers confidence hit the highest since the global financial crisis a decade ago
But core consumer prices for February rose just 0 2 percent from a year earlier as weak private consumption has discouraged companies from raising prices
While a pioneer in deploying unorthodox stimulus the BOJ is likely to lag behind its peers in withdrawing monetary support
The U S Federal Reserve is already embarking on interest rate hikes while the European Central Bank may send a small signal in June towards reducing stimulus
Most analysts polled by Reuters expect the BOJ s next move to be a tightening of monetary policy though many do not expect it to happen until next year at the earliest
After more than three years of huge asset purchases failed to accelerate inflation the BOJ revamped its policy framework last September to one aimed at capping long term interest rates |
MS | Buying overseas Chinese conglomerates leverage offshore assets for financing | By Julie Zhu HONG KONG Reuters Chinese conglomerates still eager to snap up assets abroad are rushing to raise money offshore in order to get around capital outflow curbs that have made it much tougher for Chinese bidders to complete outbound mergers and acquisitions Acquisitive Chinese conglomerates including Fosun International HK 0656 WH Group HK 0288 and China Everbright that can use offshore assets to raise capital outside China say the curbs are working to their advantage by deterring potential rival bids from more domestically focused Chinese companies that have fewer options for raising funds overseas Some Chinese companies have missed out on overseas opportunities due to lengthy regulatory processes at home but if you can raise U S dollars and invest in dollars too you would not be shackled by regulatory and forex issues said Chen Shuang CEO of China Everbright Limited HK 0165 the Hong Kong investment arm of state owned China Everbright Group Chinese bidders spent a record 105 billion on assets ranging from movie studios to football clubs in 2016 but over the past six months Beijing in a bid to prop up the flagging yuan has cracked down on companies taking money offshore to buy non core assets This hasn t stopped China s conglomerates who remain hungry for overseas purchases They have been leveraging a range of overseas assets including listed subsidiaries privately held affiliates and insurance cash to raise capital from equity and bond issuance as well as loans offshore bankers and executives at these groups said Chinese companies issued 93 offshore bonds worth about 60 billion from December 1st to March 2017 three times the amount raised over the same year ago period according to Thomson Reuters data largely to fund deals say bankers Fosun has been among the most active companies raising 1 4 billion in offshore bonds since March via its British Virgin Islands entity Fortune Star Ltd The conglomerate has said Beijing s capital controls are a challenge but it continues to have several means of financing overseas transactions We definitely have to make good use of our Hong Kong listed platforms which could offer us a number of means for fundraising including bonds and syndicated loans Chen Qiyu co president of Fosun said in an interview referring to the fact the group has several Hong Kong listed subsidiaries LATE TO THE PARTY Likewise Chinese tech behemoth Tencent last month inked a 4 65 billion offshore loan in order to finance more deals while other Chinese companies such as WH Group can draw on dollar revenues generated by overseas subsidiaries Wan Long chairman of WH Group said capital restrictions were not a concern for him as nearly 60 percent of the group s revenues are derived from the United States following its 4 7 billion takeover of Smithfield Food Inc SFII UL in 2013 As a global company we are not worried We have revenues in foreign currencies which can flow freely But for Chinese firms which have just started to go global it will be difficult for them Bankers said they had grown reluctant to deal with Chinese purchasers that do not have overseas capital When Tencent formed a consortium to snap up European game developer Supercell for 8 6 billion last October it chose several Chinese investors with ample cash overseas They included China CITIC Bank Corp SS 601998 and bad debt manager China Cinda Asset Management HK 1359 One person involved in the consortium said Tencent did not even consider bringing onboard Chinese investors that did not have offshore funds to hand because the deal had to move fast Tencent didn t respond to a Reuters request for comment According to Sam Sun greater China head of AGIC Capital an Asian European private equity firm capital curbs could also benefit Chinese buyers with offshore money by lowering prices for assets due to less competition from domestic rivals Last year we saw a lot of Chinese funds and buyers going overseas and there was a concern in the market because it would inflate the price artificially he said Capital controls have made people think more rationally what they really want to acquire That did reduce competition in a good way But some bankers privately warned of rising risks for increasingly leveraged Chinese conglomerates that continue to use new assets to raise yet more finance in order to carry on their overseas shopping spree It s a big risk said one banker of such types of deals If any of its the buyers leveraged overseas units become shaky due to whatever reasons then it would set off a chain reaction The financial strength of the underlying overseas assets is very critical Aviation to property group HNA Group HNAIRC UL which has been aggressively snapping up global assets for example has pledged newly acquired entities as collateral to help fund the next purchase according to people who have advised on its overseas deals Late last year its Irish subsidiary Avolon which it acquired in 2015 raised a 8 5 billion loan mainly from Morgan Stanley NYSE MS and UBS to help back its 10 billion takeover of the aircraft leasing business of New York based CIT Group Thomson Reuters publication IFR reported
A spokeswoman for HNA declined to comment |
MS | Deutsche Bank to name von Moltke as new CFO source | FRANKFURT Reuters Deutsche Bank DE DBKGn is expected to name James von Moltke as new finance chief replacing Marcus Schenck who is taking on a role as co head of the investment bank a source close to the matter said on Friday Deutsche Bank declined to comment Von Moltke will join Germany s flagship lender from Citi where he worked as treasurer from 2015 after earlier looking after the bank s financial planning and analysis Citi had hired von Moltke in 2009 from Morgan Stanley NYSE MS where he had covered brokerages exchanges and financial technology companies to head its corporate mergers and acquisitions unit He previously worked at JP Morgan Von Moltke is related to Helmuth von Moltke the Elder the Prussian general widely seen as the architect of Otto von Bismarck s military victories in conflicts such as the Franco Prussian war as well as Helmuth James Graf von Moltke a German who led a resistance group against Adolf Hitler Von Moltke joins Deutsche after it has managed to put 15 billion euros 16 3 billion worth of legal headaches behind it and bolstered its capital with an 8 billion euro rights issue He will be tasked with helping it return to profitable growth which has been hampered by low interest rates and tougher bank rules but also by the lender s overly complex structure and reputational issues On Thursday Deutsche Bank had said it more than doubled its profit in the first quarter but its shares slid as it posted a decline in revenues and its securities trading business continued to lag U S rivals Last month Deutsche Bank promoted Schenck and retail head Christian Sewing to co deputy chief executives alongside bank chief John Cryan and said it would name a new CFO at a later stage Von Moltke s imminent appointment was first reported by Bloomberg |
JPM | Ecuador economy on right track but reform follow through is key | By Rodrigo Campos
NEW YORK Reuters Ecuador s recent turn toward a more market friendly economic policies has lifted investor sentiment toward the Andean country but follow through beyond fiscal discipline will be key in order for the positive market reaction to continue investors and analysts said
Ecuador s stock market with a near 10 percent gain BVQA has outperformed most of its larger South American neighbors so far in 2018 Its benchmark 2026 sovereign bond yield recently above 11 5 percent has fallen by more than 160 basis points over the last month to 9 8 percent
Part of the upbeat market sentiment can be traced to May when social democrat President Lenin Moreno named an economy minister from within the business community
Richard Martinez arrived with a plan to reduce external debt and the fiscal deficit He has reached out to multilateral financing organizations and has driven negotiations over legislation that would allow 8 to 12 years of income tax exemption for new private investment over the next two years
This incentive would allow to accelerate both local and foreign private investment and foster growth said the Ecuadorian economy and finance ministry in an emailed reply to Reuters
With Ecuador s currency pegged to the U S dollar the country has effectively sacrificed an independent monetary policy putting an even sharper focus on fiscal policy
The fiscal consolidation plan has pleased investors according to Giulia Pellegrini deputy head of emerging markets economic research for BlackRock in London
Preliminary data for the first six months of 2018 show a significant fiscal tightening both from a reduction in new spending and from lower costs in recurring spending she said
The government has shown that it means business in the first half of the year Pellegrini said We have good signs but we really want to see them complete this process
A reform of the mining code would also be important analysts said if the government expects the private sector investment to fill the void left by the government s belt tightening
It s a two fold issue It s not only trying to correct the fiscal imbalance that they have but also trying to incentivize investment so that the economy becomes less reliant on government spending for growth which had been the case over the past decade said Renzo Merino an analyst of sovereign risk at Moody s Investors Service in New York
Ecuador s U S dollar denominated sovereign bond yield spread stands at 637 basis points over benchmark U S Treasuries as measured by the JPMorgan NYSE JPM Emerging Markets Bond Index Global That is down from a 1 1 2 year high of 806 basis points hit a month ago but still roughly 300 basis points wider than the benchmark index
When markets realize that Ecuador is reducing fiscal expenditure and that the macroeconomic environment is better than 2017 we anticipate that the pricing of Ecuadorian bonds will recover the economy ministry said
When conditions guarantee a sizable amount of debt issuance at single digits yield Ecuador would consider tapping the world markets
CHALLENGES AND GREEN SHOOTS
Ecuador pays a confidence premium after recent defaults on its debt Traders in credit default swaps are pricing in a probability that Ecuador will default in the next year at 6 4 percent compared to between 1 0 percent and 1 4 percent for Colombia Mexico and Brazil Argentina s probability stands just above 3 0 percent while Venezuela with a crumbling economy is near 73 percent
I don t think an Ecuadorian default is a realistic discussion right now They are cutting back spending and they have piecemeal sources of financing said Siobhan Morden head of Latin America fixed income strategy at Nomura Securities International in New York
But there s a distrust given their track record of defaults she said When a country is running a huge deficit and has no access to external capital markets investors start to debate how it is going to pay
The OPEC member is particularly vulnerable to globally tightening financial conditions as its shallow market makes it heavily dependent on external financing according to Richard Francis a director at ratings agency Fitch
Ecuador is still adjusting to external shocks that have exposed underlying structural imbalances in the country s economy wrote International Monetary Fund staffers after a recent visit The shocks have been felt across emerging market economies as the U S dollar strengthened in recent months and combined with rising interest rates served to drive financing costs higher
But the IMF also highlighted increased transparency as well as steps to strengthen fiscal institutions and re establish a competitive private sector driven economy
The government said it is in very close and active dialogue with the IMF the World Bank and other multilateral financing institutions mainly in the context of technical assistance missions
Latin America stocks performance YTD static
Latin America stocks performance YTD
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JPM | Oil Demand Outlook Clouded by Emerging Economies Currency Pain | Bloomberg Being an emerging market economy can be tough when oil prices surge and your currency crumbles
While Brent crude the global benchmark has advanced 11 percent this year in dollar terms it s gone up by multiples of that in Russian rubles Brazilian reais and Turkish lira to name just a few That leaves those governments with a tricky choice subsidize the purchase of increasingly expensive fuel or allow consumption to be eroded and accept the accompanying economic and political risk
So far several of the larger emerging market countries that previously had subsidies appear to be returning to them albeit less aggressively than they did when crude soared to a record a decade ago While such interventions may place a strain on their budgets they also mean the threat to oil demand should be cushioned for now
It will be very interesting to see how governments react in emerging markets said Michael Tran a commodities strategist at RBC Capital Markets LLC Over the course of this year we ve seen several countries put subsidies back on The currency component is a huge part of it
As the Organization of Petroleum Exporting Countries and its allies succumb to pleas from major consumers from the U S to India to help ease the impact here s a run through ten large emerging market oil consumers how they re responding to higher fuel prices and what might happen next Consumption data and growth estimates both for 2018 are from the International Energy Agency Currency moves this decade and economic expansion forecasts for this year are compiled by Bloomberg The 2018 growth rate for India is from the International Monetary Fund
Russia
Consumption in 2018 3 63 million barrels a day
2018 demand growth 80 000 b d
Currency this decade 52 percent
GDP forecast for 2018 1 8 percent
Prices have risen albeit not too dramatically in domestic currency terms and have now been frozen That freeze is expected to stop at the end of the year just as a tweak to export duties should also encourage Russia s refineries to send more product overseas While that could in theory be negative for demand in practice the government is unlikely to allow consumers to take a big hit You can expect the government will step in and do whatever it takes to keep the prices down said Kostantsa Rangelova energy analyst at JBC Energy
Brazil
Consumption 3 07 million
Demand growth 20 000
Currency 54 percent
GDP 1 8 percent
Increased government intervention in the diesel market will support domestic fuels demand this year said Mara Roberts senior oil and gas analyst at BMI Research However a weaker economic recovery will offset these benefits resulting in a more modest uptick for the year It s also important to note that Brazil s car fleet can switch to using more ethanol something that can also erode the country s demand for refined fuels when prices rally according to Warren Patterson a commodities strategist at ING
Mexico
Consumption 1 97 million
Demand growth 10 000
Currency 31 percent
GDP 2 3 percent
New president Andres Manuel Lopez Obrador promised to freeze fuel prices something that would place a burden on government finances according to Roberts at BMI In the short term we expect the government will increase its focus on maximizing utilization rates at existing refineries which remain constrained Those things could help buoy consumption which has been in decline for several years at least in the short term according to Roberts
Turkey
Consumption 1 02 million
Demand growth 27 000
Currency 69 percent
GDP 4 2 percent
In May this year before a general election the government decreed a reduction of a special consumption tax on fuel products to minimize the effect of fluctuations in crude oil prices and exchange rates on the end consumers said Toygun Onaran managing director at Oyak Securities in Istanbul Even if crude oil prices rise the pump prices don t change and the increase doesn t affect the demand he said
Egypt
Consumption 779 000
Demand growth 75 000
Currency 69 percent
GDP 4 8 percent
Egypt has cut energy subsidies several times since 2014 and in June further reductions were announced In the short term the decision to slash subsidies will be bearish for fuels demand with lower income marginal fuel consumers priced out particularly with higher inflation ensuring consumers prioritize essential goods said Richard Taylor an oil and gas analyst at BMI
China
Consumption 12 87 million
Demand growth 470 000
Currency 0 8 percent
GDP 6 5 percent
In recent years the Chinese government s oil market interventions primarily revolved around avoiding price volatility rather than trying to shield consumers from high prices China s currency largely tracks the dollar and economic growth remains well above that of other large economies Against that a trade war with the U S could hurt the economy and the IEA s 2018 demand growth forecast is about a fifth lower than it estimates the country had in 2017
India
Consumption 4 97 million
Demand growth 280 000
Currency 32 percent
GDP 7 3 percent
After deregulating gasoline prices in 2010 and diesel four years later the Indian government made the most of the plunge in crude prices by adding more excise duty on oil But with federal elections next year it s now under pressure to respond to record high pump prices It could slash fuel taxes or reinstate price controls In the past India s oil demand has readjusted itself in response to an increase or decrease in oil prices within two to four quarters As oil prices have increased in the last six to seven months India s oil demand growth may weaken in the coming months said Abhishek Deshpande head of oil market research at JPMorgan NYSE JPM
Indonesia
Consumption 1 63 million
Demand growth 33 000
Currency 35 percent
GDP 5 3 percent
Gasoline subsidies were abolished in January 2015 and the diesel subsidy was capped In 2017 the government launched a one price policy to provide fuel access to remote and underdeveloped areas at a similar price to those in more developed regions However the government is seen as adopting a structural price management strategy to cap inflation ahead of the elections next year That would maintain purchasing power and prop up demand
Malaysia
Consumption 749 000
Demand growth 22 000
Currency 16 percent
GDP 5 5 percent
In December 2014 the government abolished subsidies on the prices of diesel and gasoline and put a system in place where prices would adjust according to the market rate as long as crude stayed below 80 a barrel However after a surprise leadership change in the 2018 elections the pro subsidy government has re introduced fuel subsidies reversing a trend of fuel price reforms
Thailand
Consumption 1 44 million
Demand growth 19 000
Currency 0 1 percent
GDP 4 2 percent
Since December 2010 the government capped diesel prices at around 30 Baht 0 90 a liter to alleviate the impact of the rising prices Though the government subsidy spend is declining the state has allotted about 30 billion Baht to absorb 50 percent of any increase in retail prices this year
To contact the authors of this story Irene Garcia Perez in London at igarciaperez bloomberg netPrejula Prem in London at pprem1 bloomberg netAlex Longley in London at alongley bloomberg net
To contact the editor responsible for this story Alaric Nightingale at anightingal1 bloomberg net Helen Robertson
2018 Bloomberg L P |
JPM | No Dodging The Oil Bullet as Emerging Economies Risk Demand Hit | Bloomberg Being an emerging market economy can be tough when oil prices surge and your currency crumbles
While Brent crude the global benchmark has advanced 11 percent this year in dollar terms it s gone up by multiples of that in Russian rubles Brazilian reais and Turkish lira to name just a few That leaves those governments with a tricky choice subsidize the purchase of increasingly expensive fuel or allow consumption to be eroded and accept the accompanying economic and political risk
So far several of the larger emerging market countries that previously had subsidies appear to be returning to them albeit less aggressively than they did when crude soared to a record a decade ago While such interventions may place a strain on their budgets they also mean the threat to oil demand should be cushioned for now
It will be very interesting to see how governments react in emerging markets said Michael Tran a commodities strategist at RBC Capital Markets LLC Over the course of this year we ve seen several countries put subsidies back on The currency component is a huge part of it
As the Organization of Petroleum Exporting Countries and its allies succumb to pleas from major consumers from the U S to India to help ease the impact here s a run through ten large emerging market oil consumers how they re responding to higher fuel prices and what might happen next Consumption data and growth estimates both for 2018 are from the International Energy Agency Currency moves this decade and economic expansion forecasts for this year are compiled by Bloomberg The 2018 growth rate for India is from the International Monetary Fund
Russia
Consumption in 2018 3 63 million barrels a day
2018 demand growth 80 000 b d
Currency this decade 52 percent
GDP forecast for 2018 1 8 percent
Prices have risen albeit not too dramatically in domestic currency terms and have now been frozen That freeze is expected to stop at the end of the year just as a tweak to export duties should also encourage Russia s refineries to send more product overseas While that could in theory be negative for demand in practice the government is unlikely to allow consumers to take a big hit You can expect the government will step in and do whatever it takes to keep the prices down said Kostantsa Rangelova energy analyst at JBC Energy
Brazil
Consumption 3 07 million
Demand growth 20 000
Currency 54 percent
GDP 1 8 percent
Increased government intervention in the diesel market will support domestic fuels demand this year said Mara Roberts senior oil and gas analyst at BMI Research However a weaker economic recovery will offset these benefits resulting in a more modest uptick for the year It s also important to note that Brazil s car fleet can switch to using more ethanol something that can also erode the country s demand for refined fuels when prices rally according to Warren Patterson a commodities strategist at ING
Mexico
Consumption 1 97 million
Demand growth 10 000
Currency 31 percent
GDP 2 3 percent
New president Andres Manuel Lopez Obrador promised to freeze fuel prices something that would place a burden on government finances according to Roberts at BMI In the short term we expect the government will increase its focus on maximizing utilization rates at existing refineries which remain constrained Those things could help buoy consumption which has been in decline for several years at least in the short term according to Roberts
Turkey
Consumption 1 02 million
Demand growth 27 000
Currency 69 percent
GDP 4 2 percent
In May this year before a general election the government decreed a reduction of a special consumption tax on fuel products to minimize the effect of fluctuations in crude oil prices and exchange rates on the end consumers said Toygun Onaran managing director at Oyak Securities in Istanbul Even if crude oil prices rise the pump prices don t change and the increase doesn t affect the demand he said
Egypt
Consumption 779 000
Demand growth 75 000
Currency 69 percent
GDP 4 8 percent
Egypt has cut energy subsidies several times since 2014 and in June further reductions were announced In the short term the decision to slash subsidies will be bearish for fuels demand with lower income marginal fuel consumers priced out particularly with higher inflation ensuring consumers prioritize essential goods said Richard Taylor an oil and gas analyst at BMI
China
Consumption 12 87 million
Demand growth 470 000
Currency 0 8 percent
GDP 6 5 percent
In recent years the Chinese government s oil market interventions primarily revolved around avoiding price volatility rather than trying to shield consumers from high prices China s currency largely tracks the dollar and economic growth remains well above that of other large economies Against that a trade war with the U S could hurt the economy and the IEA s 2018 demand growth forecast is about a fifth lower than it estimates the country had in 2017
India
Consumption 4 97 million
Demand growth 280 000
Currency 32 percent
GDP 7 3 percent
After deregulating gasoline prices in 2010 and diesel four years later the Indian government made the most of the plunge in crude prices by adding more excise duty on oil But with federal elections next year it s now under pressure to respond to record high pump prices It could slash fuel taxes or reinstate price controls In the past India s oil demand has readjusted itself in response to an increase or decrease in oil prices within two to four quarters As oil prices have increased in the last six to seven months India s oil demand growth may weaken in the coming months said Abhishek Deshpande head of oil market research at JPMorgan NYSE JPM
Indonesia
Consumption 1 63 million
Demand growth 33 000
Currency 35 percent
GDP 5 3 percent
Gasoline subsidies were abolished in January 2015 and the diesel subsidy was capped In 2017 the government launched a one price policy to provide fuel access to remote and underdeveloped areas at a similar price to those in more developed regions However the government is seen as adopting a structural price management strategy to cap inflation ahead of the elections next year That would maintain purchasing power and prop up demand
Malaysia
Consumption 749 000
Demand growth 22 000
Currency 16 percent
GDP 5 5 percent
In December 2014 the government abolished subsidies on the prices of diesel and gasoline and put a system in place where prices would adjust according to the market rate as long as crude stayed below 80 a barrel However after a surprise leadership change in the 2018 elections the pro subsidy government has re introduced fuel subsidies reversing a trend of fuel price reforms
Thailand
Consumption 1 44 million
Demand growth 19 000
Currency 0 1 percent
GDP 4 2 percent
Since December 2010 the government capped diesel prices at around 30 Baht 0 90 a liter to alleviate the impact of the rising prices Though the government subsidy spend is declining the state has allotted about 30 billion Baht to absorb 50 percent of any increase in retail prices this year
To contact the authors of this story Irene Garcia Perez in London at igarciaperez bloomberg netPrejula Prem in London at pprem1 bloomberg netAlex Longley in London at alongley bloomberg net
To contact the editor responsible for this story Alaric Nightingale at anightingal1 bloomberg net Helen Robertson
2018 Bloomberg L P |
JPM | Israeli rate outlook clouded by uncertainty over next central bank chief | By Steven Scheer JERUSALEM Reuters Israeli central bank governor Karnit Flug s decision to step down in November has added to doubts in local financial markets over whether the bank s heavily dovish policy committee will raise interest rates by the end of 2018 Even before Flug said she would not serve a second term after numerous public battles with Finance Minister Moshe Kahlon markets had been unsure about the bank s forecast for a 15 basis point rate rise in the fourth quarter given low inflation Her departure makes the picture murkier still as markets have no idea who will replace her and they have already expressed a preference against a couple of mooted candidates There is uncertainty and worry in the market We don t know who the next governor will be and whether there will be a carryover of Flug s stable and dovish approach or will there be someone with different ideas Bank Leumi Chief Economist Gil Bufman said The closer we get to the date and there is no name out there and no clarity we will see market jitters Flug took the reins in November 2013 after Stanley Fischer stepped down and she largely stuck to his policies The MPC has left the benchmark interest rate at 0 1 percent since early 2015 opting not to venture into negative rates with economic growth moderate and the annual inflation rate below the government s 1 3 percent target for much of that period The 6 member MPC meets again on Aug 29 Oct 8 and Nov 26 its last gathering of the year The early October meeting will likely be Flug s last INFLATION CONUNDRUM While the Bank of Israel s own staff this month reiterated a projection for a small hike by year end and another quarter point move in 2019 market players are less certain since the bank says it wants to see inflation entrenched in the target range Although the annual inflation rate reached 1 3 percent in June that was the first time it has topped 1 percent since 2014 Minutes of the July 9 meeting showed the MPC remained cautious over the pace of inflation gains saying a premature hike could delay the entrenchment and slow the path of hikes Underscoring the market s doubts the one year bond yield stands at 0 2 percent while the two year is at 0 4 percent Some in the market believe inflation is on the rise and the bank will raise its main rate to 1 percent by the end of 2019 Others expect a slower rate process that will not start until next year partly to give the shekel time to weaken A rate hike soon they believe would boost the currency and harm exports Some are also wondering whether Flug would opt to start the rate hike process at her last meeting or leave it to her successor or to deputy governor Nadine Baudot Trajtenberg if she becomes interim chief Will Nadine be willing to raise rates said Jonathan Katz chief economist at Leader Capital Markets NEW GOVERNOR Flug said on July 6 she would not seek a second term although the writing had been on the wall since March when finance minister Kahlon unhappy with central bank criticism over his housing and tax policies said he planned to start looking for a new governor While it is the prime minister Benjamin Netanyahu who appoints the central bank chief Kahlon s spokesman said They are pretty coordinated on this but they still have not decided on a name One market wish is that the position goes to a professional economist and not to Accountant General Rony Hizkiyahu or his predecessor Michal Abadi Boiangiu who are also said to be candidates I hope it won t be a public officer or a political nomination said Rami Dror chief executive of investment house Halman Aldubui He said the right person must be an independent thinker who is able to confront politicians
Other names have been rumored although two of them Eugene Kandel and Zvi Eckstein have said they are not interested while former governor Jacob Frenkel a Netanyahu favorite who was forced out of the running in 2013 said he likes his current job as chairman of JP Morgan Chase NYSE JPM International |
MS | Market and Charts Review | Time to review some charts as the last momos try squeezing out the last percentage gain in this prolonged Santa rally Full chartology below Eurostoxx 50 Trapped in a big wedge Eurostoxx 50 with the VIX at the bottom red Dow and daily volume bars The trend is unfortunately lower volumes We are currently trading at about 20 lower volumes compared to the same period last year We had a great start to the year last year as well Not much noise on those oil prices as they keep rising Geopolitical risks is something people hardly wanna talk about at the moment but it is there And some fundamentals to the charts above Chart Morgan Stanley European Earnings Net of companies reporting positive earnings surprise |
MS | Successful Debt Auctions in Spain and Italy Lift Euro | EquitiesAsian markets traded mostly lower despite a report from China which showed inflation fell to 4 1 its lowest level in 15 months The Shanghai Composite eased fractionally settling at 2275 Hong Kong s Hang Send slid 3 rhe Nikkei lost 7 and the ASX 200 edged down 2 Bucking the downtrend South Korea s Kospi rallied 1 In Europe the ECB held rates steady and ECB chairman Mario Draghi said there are signs the region is stabilizing The FTSE and CAC40 declined 2 while the DAX rose 4 Auctions in short term debt in Spain and Italy were wildly successful but their ability to sell longer term debt may prove more challenging US stocks posted modest gains despite weak economic data The Dow inched up 22 points to 12471 the Nasdaq advanced 5 and the S P 500 rose 2 CurrenciesThe Euro rallied 9 to 1 2826 and the Swiss Franc gained 1 1 to 1 0595 as the successful bond auctions in Europe relieved some anxiety The Pound and Candian Dollar both rose 1 and the Australian Dollar settled up 3 at title EUR USD width 804 height 373 Economic OutlookWeekly unemployment claims jumped by 24K to 399K hitting their highest level in 6 weeks S P Due to Downgrade Several European CountriesEquitiesThe week closed on an up note in Asia as the region s markets traded mostly higher The Nikkei rallied 1 4 to 8500 the Kospi gained 6 and the ASX 200 rose 4 In greater China the Hang Seng edged up 6 while the Shanghai Composite fell 1 3 following the release of a report which revealed a drop in China s foreign exchange reserves News that S P was due to downgrade the credit rating of several European countries pressured the region s markets The FTSE lost 5 the DAX dropped 6 while the CAC40 edged down 1 It is expected that France and Austria will be downgraded by one notch while Spain and Portugal will drop 2 notches Adding to the debt pain a breakdown in negotiations between Greece and holders of its debt could spell major troubles for the Euro zone US stocks fell moderately as well The Dow lost 49 points to 12422 while the Nasdaq and S P 500 shed 5 Dow Mostly Recovers from Steep Morning SlideJPMorgan reported earnings that fell short on revenue sending the shares down 2 5 The negative news weighed on banking shares sending Citigroup down 2 7 and Morgan Stanley down 3 1 CurrenciesThe heavy dose of negative European news hit the single currency hard The Euro fell as low as 1 2626 before recovering slightly closing down 1 1 to 1 2680 The Yen Pound and Australian Dollar all declined a mere 1 which the Canadian Dollar dropped 4 to 1 0230 The Swiss Franc eased 2 to 1 0506 Economic OutlookConsumer sentiment data from the University of Michigan rose to 74 from 69 9 beating estimates for 71 2 The trade deficit grew to 47 8 billion a significant increase from last month s 43 3 billion deficit hitting its highest level in 5 months European Markets Shrug Off S P DowngradesEquitiesOver the weekend S P downgraded the debt ratings of 9 out of 17 euro zone countries sending Asian markets lower on Monday The Nikkei sank 1 4 to 8378 as the Euro Yen EURJPY fell to 97 22 its lowest level in more than a decade hurting exporters In Korea the Kospi shed 9 and Australia s ASX 200 dropped 1 2 The Hang Seng slid 1 to 19012 while the Shanghai Composite tumbled 1 7 largely erasing last week s gains Shanghai Composite Slides 1 7 In contrast European markets climbed despite the wave of credit downgrades The DAX rallied 1 3 the CAC40 climbed 9 and the FTSE rose 4 Late Monday S P downgraded the European Stability Fund s credit rating by one notch which may make it harder for the fund to obtain cheap funding CurrenciesGlobal currencies traded in relatively narrow ranges thanks to the US holiday The Canadian Dollar gained 5 to 1 1081 ahead of the Bank of Canada s rate decision on Tuesday The Swiss Franc slipped 3 to 1 0478 the Australian Dollar eased 2 to 1 0306 and the Euro edged down 1 to 1 2664 The Yen rose 2 to 76 78 Economic OutlookTuesday s sole economic report is the Empire State manufacturing survey Analysts are expecting the index to rise to 10 8 from last month s 9 5 reading Chinese GDP Better than Expected Lifting MarketsEquitiesGDP data from China showed the economy grew at 8 9 in the last quarter better than forecast The news sent the Shanghai Composite soaring 4 2 despite the fact that the figure was lower than last quarter s 9 1 growth Across the region stocks rallied particularly in neighboring Hong Kong where the Hang Seng jumped 3 2 to 19638 The Nikkei advanced 1 1 to 8466 the Kospi climbed 1 8 and the ASX rose by 1 7 The upbeat sentiment continued in Europe as the DAX rallied 1 8 the CAC40 gained 1 4 and the FTSE rose 7 Automakers posted a 2 8 gain as fear of a Chinese hard landing abated US stocks posted smaller gains The Dow tacked on 60 points to 12482 the Nasdaq advanced 6 and the S P 500 gained 4 CurrenciesA successful bond auction in Spain helped boost European currencies The Swiss Franc rallied 8 to 1 0533 the Euro gained 6 to 1 2734 and the Pound inched up 1 to 1 5332 The Canadian Dollar edged up 3 after the Bank of Canada kept rates steady at 1 In the Pacific region the Australian Dollar climbed 7 to 1 0379 and the Yen closed down fractionally at 76 82 Economic OutlookThe Empire State manufacturing index blew past expectations rising to 13 5 from last month s 9 5 reading its highest level since April Housing Market Sentiment Soars to 4 5 Year HighEquitiesAsian markets traded mixed on Wednesday as doubts over Greece s debt burden clashed with Tuesday s cheer The Nikkei climbed 1 to 8551 lifted by a sharp 6 6 rally in Elpida Memory on news the company is seeking a deal with Micron Technology The Hang Seng rose 3 to 19687 while the Kospi and ASX 200 settled little changed The Shanghai Composite fell 1 4 to 2264 following Tuesday s powerful 4 2 rally the largest single day gain in more than 2 years European shares traded mixed as well The FTSE rose 2 the DAX gained 3 while the CAC40 eased 2 Societe Generale shares surged 6 as Greece resumed debt negotiations on hopes the bank s losses due to exposure to Greek debt will be less than feared Upbeat data and rumors of a possible Greek debt deal later in the week sent US stocks higher The Nasdaq led the advance climbing 1 5 The Dow rose 97 points to 12576 and the S P 500 gained 1 1 to 1308 Goldman Sachs surged 6 8 after beating earnings estimates while Bank of NY Mellon sank 4 6 after reporting weak earnings CurrenciesThe Euro surged 1 6 as hopes for a solution to Greek s debt woes lifted the single currency The Australian Dollar rallied 1 2 to 1 0430 the Swiss Franc advance 1 to 1 0654 and the Pound climbed 8 to 1 5441 The Canadian Dollar posted a smaller 4 gain to 1 0112 and the Yen inched up fractionally to 76 99 Economic OutlookThe NAHB housing market index jumped to 25 from last month s reading of 21 blowing past analyst estimates of a rise to 22 Industrial production rose by 4 slightly less than forecast and PPI slipped 1 following last month s 3 gain |
MS | S P Due to Downgrade Several European Countries | EquitiesThe week closed on an up note in Asia as the region s markets traded mostly higher The Nikkei rallied 1 4 to 8500 the Kospi gained 6 and the ASX 200 rose 4 In greater China the Hang Seng edged up 6 while the Shanghai Composite fell 1 3 following the release of a report which revealed a drop in China s foreign exchange reserves News that S P was due to downgrade the credit rating of several European countries pressured the region s markets The FTSE lost 5 the DAX dropped 6 while the CAC40 edged down 1 It is expected that France and Austria will be downgraded by one notch while Spain and Portugal will drop 2 notches Adding to the debt pain a breakdown in negotiations between Greece and holders of its debt could spell major troubles for the Euro zone US stocks fell moderately as well The Dow lost 49 points to 12422 while the Nasdaq and S P 500 shed 5 Dow Mostly Recovers from Steep Morning SlideJPMorgan reported earnings that fell short on revenue sending the shares down 2 5 The negative news weighed on banking shares sending Citigroup down 2 7 and Morgan Stanley down 3 1 CurrenciesThe heavy dose of negative European news hit the single currency hard The Euro fell as low as 1 2626 before recovering slightly closing down 1 1 to 1 2680 The Yen Pound and Australian Dollar all declined a mere 1 which the Canadian Dollar dropped 4 to 1 0230 The Swiss Franc eased 2 to 1 0506 Economic OutlookConsumer sentiment data from the University of Michigan rose to 74 from 69 9 beating estimates for 71 2 The trade deficit grew to 47 8 billion a significant increase from last month s 43 3 billion deficit hitting its highest level in 5 months European Markets Shrug Off S P DowngradesEquitiesOver the weekend S P downgraded the debt ratings of 9 out of 17 euro zone countries sending Asian markets lower on Monday The Nikkei sank 1 4 to 8378 as the Euro Yen EURJPY fell to 97 22 its lowest level in more than a decade hurting exporters In Korea the Kospi shed 9 and Australia s ASX 200 dropped 1 2 The Hang Seng slid 1 to 19012 while the Shanghai Composite tumbled 1 7 largely erasing last week s gains Shanghai Composite Slides 1 7 In contrast European markets climbed despite the wave of credit downgrades The DAX rallied 1 3 the CAC40 climbed 9 and the FTSE rose 4 Late Monday S P downgraded the European Stability Fund s credit rating by one notch which may make it harder for the fund to obtain cheap funding CurrenciesGlobal currencies traded in relatively narrow ranges thanks to the US holiday The Canadian Dollar gained 5 to 1 1081 ahead of the Bank of Canada s rate decision on Tuesday The Swiss Franc slipped 3 to 1 0478 the Australian Dollar eased 2 to 1 0306 and the Euro edged down 1 to 1 2664 The Yen rose 2 to 76 78 Economic OutlookTuesday s sole economic report is the Empire State manufacturing survey Analysts are expecting the index to rise to 10 8 from last month s 9 5 reading Chinese GDP Better than Expected Lifting MarketsEquitiesGDP data from China showed the economy grew at 8 9 in the last quarter better than forecast The news sent the Shanghai Composite soaring 4 2 despite the fact that the figure was lower than last quarter s 9 1 growth Across the region stocks rallied particularly in neighboring Hong Kong where the Hang Seng jumped 3 2 to 19638 The Nikkei advanced 1 1 to 8466 the Kospi climbed 1 8 and the ASX rose by 1 7 The upbeat sentiment continued in Europe as the DAX rallied 1 8 the CAC40 gained 1 4 and the FTSE rose 7 Automakers posted a 2 8 gain as fear of a Chinese hard landing abated US stocks posted smaller gains The Dow tacked on 60 points to 12482 the Nasdaq advanced 6 and the S P 500 gained 4 CurrenciesA successful bond auction in Spain helped boost European currencies The Swiss Franc rallied 8 to 1 0533 the Euro gained 6 to 1 2734 and the Pound inched up 1 to 1 5332 The Canadian Dollar edged up 3 after the Bank of Canada kept rates steady at 1 In the Pacific region the Australian Dollar climbed 7 to 1 0379 and the Yen closed down fractionally at 76 82 Economic OutlookThe Empire State manufacturing index blew past expectations rising to 13 5 from last month s 9 5 reading its highest level since April Housing Market Sentiment Soars to 4 5 Year HighEquitiesAsian markets traded mixed on Wednesday as doubts over Greece s debt burden clashed with Tuesday s cheer The Nikkei climbed 1 to 8551 lifted by a sharp 6 6 rally in Elpida Memory on news the company is seeking a deal with Micron Technology The Hang Seng rose 3 to 19687 while the Kospi and ASX 200 settled little changed The Shanghai Composite fell 1 4 to 2264 following Tuesday s powerful 4 2 rally the largest single day gain in more than 2 years European shares traded mixed as well The FTSE rose 2 the DAX gained 3 while the CAC40 eased 2 Societe Generale shares surged 6 as Greece resumed debt negotiations on hopes the bank s losses due to exposure to Greek debt will be less than feared Upbeat data and rumors of a possible Greek debt deal later in the week sent US stocks higher The Nasdaq led the advance climbing 1 5 The Dow rose 97 points to 12576 and the S P 500 gained 1 1 to 1308 Nasdaq Rallies 1 5 Goldman Sachs surged 6 8 after beating earnings estimates while Bank of NY Mellon sank 4 6 after reporting weak earnings CurrenciesThe Euro surged 1 6 as hopes for a solution to Greek s debt woes lifted the single currency The Australian Dollar rallied 1 2 to 1 0430 the Swiss Franc advance 1 to 1 0654 and the Pound climbed 8 to 1 5441 The Canadian Dollar posted a smaller 4 gain to 1 0112 and the Yen inched up fractionally to 76 99 Economic OutlookThe NAHB housing market index jumped to 25 from last month s reading of 21 blowing past analyst estimates of a rise to 22 Industrial production rose by 4 slightly less than forecast and PPI slipped 1 following last month s 3 gain Stocks Gain on IMF Hopes Kodak Files for BankruptcyEquitiesAsian markets rallied to their highest level in more than a month following news the IMF is hoping to raise 600 billion in funding to help tackle the euro debt crisis The Nikkei gained 1 to 8640 the Kospi jumped 1 2 and the Hang Seng rallied 1 3 China s Shanghai Composite climbed 1 3 nearly erasing Wednesday s 1 4 drop Australia s ASX 200 lagged the region easing 1 as employment data showed an unexpected drop of 30K jobs in December France s CAC40 soared 2 to 3329 as European indexes traded higher following strong bond auctions in Spain and France The DAX gained 1 and the FTSE rose 7 as European banks rocketed up 7 4 on hopes the IMF will help address the ongoing debt crisis US stocks posted moderate gains thanks to positive economic and earnings news The Dow rose 45 points to 12624 the Nasdaq rallied 7 and the S P 500 gained 5 to 1314 50 CurrenciesEuropean currencies advanced as renewed hopes for a debt solution lifted the region The Euro and Swiss Franc gained 8 and the Pound rose 4 to 1 5484 The Yen fell 4 to 77 12 while the Australian Dollar closed down 1 to 1 0412 Economic OutlookWeekly unemployment claims dropped to 352K vastly exceeding analyst expectations of 387K CPI was flat while core CPI rose 1 in line with forecasts On a weaker note housing starts fell to 660K 30K short of forecasts |
MS | European Markets Shrug Off S P Downgrades | EquitiesOver the weekend S P downgraded the debt ratings of 9 out of 17 euro zone countries sending Asian markets lower on Monday The Nikkei sank 1 4 to 8378 as the Euro Yen EURJPY fell to 97 22 its lowest level in more than a decade hurting exporters In Korea the Kospi shed 9 and Australia s ASX 200 dropped 1 2 The Hang Seng slid 1 to 19012 while the Shanghai Composite tumbled 1 7 largely erasing last week s gains Shanghai Composite Slides 1 7 In contrast European markets climbed despite the wave of credit downgrades The DAX rallied 1 3 the CAC40 climbed 9 and the FTSE rose 4 Late Monday S P downgraded the European Stability Fund s credit rating by one notch which may make it harder for the fund to obtain cheap funding US markets were closed for Martin Luther King DayCurrenciesGlobal currencies traded in relatively narrow ranges thanks to the US holiday The Canadian Dollar gained 5 to 1 1081 ahead of the Bank of Canada s rate decision on Tuesday The Swiss Franc slipped 3 to 1 0478 the Australian Dollar eased 2 to 1 0306 and the Euro edged down 1 to 1 2664 The Yen rose 2 to 76 78 Economic OutlookTuesday s sole economic report is the Empire State manufacturing survey Analysts are expecting the index to rise to 10 8 from last month s 9 5 reading S P Due to Downgrade Several European CountriesEquitiesThe week closed on an up note in Asia as the region s markets traded mostly higher The Nikkei rallied 1 4 to 8500 the Kospi gained 6 and the ASX 200 rose 4 In greater China the Hang Seng edged up 6 while the Shanghai Composite fell 1 3 following the release of a report which revealed a drop in China s foreign exchange reserves News that S P was due to downgrade the credit rating of several European countries pressured the region s markets The FTSE lost 5 the DAX dropped 6 while the CAC40 edged down 1 It is expected that France and Austria will be downgraded by one notch while Spain and Portugal will drop 2 notches Adding to the debt pain a breakdown in negotiations between Greece and holders of its debt could spell major troubles for the Euro zone US stocks fell moderately as well The Dow lost 49 points to 12422 while the Nasdaq and S P 500 shed 5 Dow Mostly Recovers from Steep Morning SlideJPMorgan reported earnings that fell short on revenue sending the shares down 2 5 The negative news weighed on banking shares sending Citigroup down 2 7 and Morgan Stanley down 3 1 CurrenciesThe heavy dose of negative European news hit the single currency hard The Euro fell as low as 1 2626 before recovering slightly closing down 1 1 to 1 2680 The Yen Pound and Australian Dollar all declined a mere 1 which the Canadian Dollar dropped 4 to 1 0230 The Swiss Franc eased 2 to 1 0506 Economic OutlookConsumer sentiment data from the University of Michigan rose to 74 from 69 9 beating estimates for 71 2 The trade deficit grew to 47 8 billion a significant increase from last month s 43 3 billion deficit hitting its highest level in 5 months Chinese GDP Better than Expected Lifting MarketsEquitiesGDP data from China showed the economy grew at 8 9 in the last quarter better than forecast The news sent the Shanghai Composite soaring 4 2 despite the fact that the figure was lower than last quarter s 9 1 growth Across the region stocks rallied particularly in neighboring Hong Kong where the Hang Seng jumped 3 2 to 19638 The Nikkei advanced 1 1 to 8466 the Kospi climbed 1 8 and the ASX rose by 1 7 The upbeat sentiment continued in Europe as the DAX rallied 1 8 the CAC40 gained 1 4 and the FTSE rose 7 Automakers posted a 2 8 gain as fear of a Chinese hard landing abated US stocks posted smaller gains The Dow tacked on 60 points to 12482 the Nasdaq advanced 6 and the S P 500 gained 4 Citigroup shares tumbled 8 2 after reporting weaker than expected earnings while Wells Fargo inched up 7 after beating estimates Financials traded mostly lower as the weight of Citigroup s disappointment hit the sector CurrenciesA successful bond auction in Spain helped boost European currencies The Swiss Franc rallied 8 to 1 0533 the Euro gained 6 to 1 2734 and the Pound inched up 1 to 1 5332 The Canadian Dollar edged up 3 after the Bank of Canada kept rates steady at 1 In the Pacific region the Australian Dollar climbed 7 to 1 0379 and the Yen closed down fractionally at 76 82 Economic OutlookThe Empire State manufacturing index blew past expectations rising to 13 5 from last month s 9 5 reading its highest level since April Housing Market Sentiment Soars to 4 5 Year HighEquitiesAsian markets traded mixed on Wednesday as doubts over Greece s debt burden clashed with Tuesday s cheer The Nikkei climbed 1 to 8551 lifted by a sharp 6 6 rally in Elpida Memory on news the company is seeking a deal with Micron Technology The Hang Seng rose 3 to 19687 while the Kospi and ASX 200 settled little changed The Shanghai Composite fell 1 4 to 2264 following Tuesday s powerful 4 2 rally the largest single day gain in more than 2 years European shares traded mixed as well The FTSE rose 2 the DAX gained 3 while the CAC40 eased 2 Societe Generale shares surged 6 as Greece resumed debt negotiations on hopes the bank s losses due to exposure to Greek debt will be less than feared Upbeat data and rumors of a possible Greek debt deal later in the week sent US stocks higher The Nasdaq led the advance climbing 1 5 The Dow rose 97 points to 12576 and the S P 500 gained 1 1 to 1308 Nasdaq Rallies 1 5 Goldman Sachs surged 6 8 after beating earnings estimates while Bank of NY Mellon sank 4 6 after reporting weak earnings Home builders soared thanks to upbeat home builder sentiment index data The index rose to its highest level since June 2007 Hovnanian closed up 12 2 and Pulte Homes posted a 5 9 gain CurrenciesThe Euro surged 1 6 as hopes for a solution to Greek s debt woes lifted the single currency The Australian Dollar rallied 1 2 to 1 0430 the Swiss Franc advance 1 to 1 0654 and the Pound climbed 8 to 1 5441 The Canadian Dollar posted a smaller 4 gain to 1 0112 and the Yen inched up fractionally to 76 99 Economic OutlookThe NAHB housing market index jumped to 25 from last month s reading of 21 blowing past analyst estimates of a rise to 22 Industrial production rose by 4 slightly less than forecast and PPI slipped 1 following last month s 3 gain Stocks Gain on IMF Hopes Kodak Files for BankruptcyEquitiesAsian markets rallied to their highest level in more than a month following news the IMF is hoping to raise 600 billion in funding to help tackle the euro debt crisis The Nikkei gained 1 to 8640 the Kospi jumped 1 2 and the Hang Seng rallied 1 3 China s Shanghai Composite climbed 1 3 nearly erasing Wednesday s 1 4 drop Australia s ASX 200 lagged the region easing 1 as employment data showed an unexpected drop of 30K jobs in December France s CAC40 soared 2 to 3329 as European indexes traded higher following strong bond auctions in Spain and France The DAX gained 1 and the FTSE rose 7 as European banks rocketed up 7 4 on hopes the IMF will help address the ongoing debt crisis US stocks posted moderate gains thanks to positive economic and earnings news The Dow rose 45 points to 12624 the Nasdaq rallied 7 and the S P 500 gained 5 to 1314 50 CurrenciesEuropean currencies advanced as renewed hopes for a debt solution lifted the region The Euro and Swiss Franc gained 8 and the Pound rose 4 to 1 5484 The Yen fell 4 to 77 12 while the Australian Dollar closed down 1 to 1 0412 Economic OutlookWeekly unemployment claims dropped to 352K vastly exceeding analyst expectations of 387K CPI was flat while core CPI rose 1 in line with forecasts On a weaker note housing starts fell to 660K 30K short of forecasts |
MS | There s Value in Russia s Future and Russian Companies | As Americans ponder the merits of Obama vs Gingrich Paul Romney or Santorum Russia will be electing its own president on March 4 Perhaps we should say re electing since it s almost certain former president and current prime minster Vladimir Putin will be elected While protests and vocal opposition likely won t prevent Putin s presidential return they have forced some interesting changes to the political climate and we ve observed some positive changes in Russia s investment landscape The story begins last December when Putin s political party United Russia performed poorly in Russia s parliamentary elections According to official election results United Russia retained only 238 seats down from 315 seats in the 450 member State Duma the lower house of the Federal Assembly of Russia While these results struck a blow to United Russia s parliamentary power it was an uppercut to democracy in Russia as suspicions of fraud emerged following exit polls that predicted an even wider defeat Another one two punch combination for Russian democracy came when Putin said he had planned all along to swap seats with President Dmitry Medvedev in 2012 This did not sit well with many young Russians who were raised with the hope of a democratic Russia compelling them to take to the streets to voice their opposition In an effort to gain popularity among these protesters Putin announced that he would introduce a one time tax on oligarch companies that acquired state assets during the privatization of Russia in the 1990s following the fall of the Soviet Union Privatization helped Russia shift toward a market economy but it is widely believed that only a few well connected people business oligarchs benefited and caused the wealth gap to increase substantially An overwhelming majority of Russians think with some justification that the loans for shares assets were sold at substantially below their market value In other words there is unlikely to be much domestic opposition to this proposal says Morgan Stanley Putin s one time windfall tax appears to be based on the U K approach says Morgan Stanley In 1997 the U K imposed a one time payment on the owners of assets acquired during privatizations in the 1980s The tax was 23 percent of the difference between the purchase price and the average net profit during the first four years following privatization multiplied by the factor of 9 3 This resulted in an extra 8 billion for the British crown according to Morgan Stanley The tax is a political risk in Russia especially for the oligarch owned businesses However our team has always preferred self made businesses as the owners generally have their own skin in the game To understand the complex political situation in Russia it helps to hear many sides of a story so last week we sent Tim Steinle co portfolio manager of the Eastern European Fund EUROX to Moscow in advance of the historic presidential election While in Russia Tim had the opportunity to hear Alexey Navalny a leader of Russia s opposition movement give his side of the story Navalny coined the name the party of crooks and thieves that became popular for United Russia According to a profile by The New Yorker when United Russia threatened to file a suit against Navalny for slander he posted a poll on his blog asking readers whether they thought United Russia was a party of crooks and thieves Ninety six percent of his readers agreed with him Trained as a lawyer Navalny has positioned himself as a defender of minority shareholder rights against state owned companies He alleges a theft of 4 billion from pipeline operator Transneft that the government refuses to prosecute In addition Navalny points out that few management boards have independent directors and even though by law just 2 percent of shareholder votes are sufficient to nominate a director all nominations are done by the state Even relatively investor friendly Sberbank has only one independent director out of 17 Tim says there is a yearning for positive change among the reform minded intelligentsia the name given to Russia s intellectual social class The intelligentsia also pushes for a fair playing field and registration for political parties and a free media Navalny compares gains by communists and socialists in the recent election to political dynamics in Eastern Europe in the 1990s when the pendulum swung to liberals and back In his view this is a healthy development as the economic platform of Communist and Just Russia parties are not that different from United Russia Navalny wages a battle of a thousand cuts to increase the stress on the regime he says is on manual control Historically speaking reformers such as Kruschev Gorbachev Yeltsin and Putin came from within the system Navalny is clearly on the outside looking in Tim also sat in on a discussion with former finance minister Alexei Kudrin who served as Russia s minister of finance from 2000 until September 2011 He was the longest serving finance minister in post Soviet Russia credited with prudent fiscal management and a champion of the free market He helped Russia weather the global financial crisis in 2008 by creating finance reserves which held a portion of the revenue from oil exports in a stabilization fund despite strong opposition from others who wanted to spend the money Those savings were crucial to Russia s economy when the crisis hit and oil prices dropped Over the past 10 years Russia s GDP grew at a robust pace of 7 percent annually and Russian companies greatly benefited from profits reinvested in their businesses Russia s growth story now turns to value as Kudrin expects Russia to grow at a much slower pace averaging around 4 percent We have seen this transformation in some Russian companies lately Domestically we have looked for growing profitable and well run companies that demonstrate significant growth in three key areas revenue earnings and return on equity Russian companies have not usually met the criteria but when we run this screen today we see that many large cap businesses are showing significant revenue growth earnings per share growth and return on investment Additionally many of these companies can be purchased at the lowest valuations they have been at in three years Whereas the price to earnings ratio for the Russian MICEX Index has averaged near 10 times since 2003 it is currently at 5 times Increasingly Russian companies have begun paying dividends too with some companies paying as much as a 10 percent annual dividend As interest rates around the world will remain low or even negative for years to come dividends offer investors the opportunity to earn income with the potential of appreciation Although political risks remain we believe the country continues to be a hotbed of opportunity for emerging market investors For the Eastern European Fund EUROX we ll continue to seek self made businesses that pay dividends These companies generally are run by owners who have invested their own capital and have a track record of growth Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure as well as economic and political risk By investing in a specific geographic region a regional fund s returns and share price may be more volatile than those of a less concentrated portfolio The Eastern European Fund invests more than 25 of its investments in companies principally engaged in the oil gas or banking industries The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund s performance more volatile The MICEX Index is the real time cap weighted Russian composite index It comprises 30 most liquid stocks of Russian largest and most developed companies from 10 main economy sectors The MICEX Index was launched on September 22 1997 base value 100 The MICEX Index is calculated and disseminated by the MICEX Stock Exchange the main Russian stock exchange Holdings in the Eastern European Fund as a percentage of net assets as of 12 31 11 Transneft 0 0 Sberbank of Russia 5 69 Disclosure and Disclaimer Please consider carefully a fund s investment objectives risks charges and expenses All opinions expressed and data provided are subject to change without notice Some of these opinions may not be appropriate to every investor |
MS | What Linsanity Means for MSG s Stock Price | The Overview It s not every day that the athletic prowess of a single person propels an entire company s shares to record highs Then again its not every day that a Jeremy Lin comes by Jeremy Lin now the starting point guard for the New York Knicks has reinvigorated the New York Knicks franchise He was an instrumental playmaker in the Knick s five consecutive wins the longest of the season a fact made even more astounding considering Knicks heavyweights Carmelo Anthony and Amare Stoudemire were absent for most of the run As Marley Seamen AP Business Writer notes the combination of Lin s role as the first NBA Asian American player a devout Christian and a Harvard graduate has resulted in Linsanity gripping the entire league Investors have taken notice shares of The Madison Square Garden Co NASDAQ MSG have gradually trended upward until they soared 3 69 to 32 30 an all time high on Monday MSG is now up around 10 percent since Feb 3 the day before Jeremy Lin s breakthrough game The Catalyst Madison Square Garden a services company that operates sports entertainment and media businesses primarily in the United States is poised to directly benefit from Linsanity which has provided a much needed catalyst for this company s share prices Here are some interesting facts Ticket prices for Knicks games at Madison Square Garden are up 27 percent since Jeremy Lin broke into the NBA spotlight through leading the Knicks to a win over their regional rivals the New Jersey Nets Knicks merchandise sales are No 1 overall in the NBA since Lin s breakthrough game Jeremy Lin s No 17 jersey is the NBA s top online seller since February 4 The Knicks average household television rating is up 70 percent since Lin moved into the starting lineup Five of the NBA s 10 most popular items are Knicks related since Linsanity began The rejuvenation of the New York Knicks franchise and the ensuing demand of fans clamoring to watch Jeremy Lin in action can be best expressed by the price differential in stadium seats the cheapest seat in the Knick s upcoming game against the Toronto Raptors is 44 while the same seat in the Raptor s subsequent game against the San Antonio Spurs who have a better season record than the Knicks is 12 50 Moreover MSG s NHL team the New York Rangers are also experiencing success winning three games in a row and leading the Eastern Conference The combined value of the Knicks and Rangers is more than half of MSG s total enterprise value So with the success of MSG s sports franchises and the wave of Linsanity sweeping across the nation should you invest in The Madison Square Garden Co Li Ouyang a Manhattan resident sums up the general investor sentiment We even talked about buying MSG stock because of him Lin Not So Fast Despite the huge impact on merchandise and ticket sales Linsanity s direct financial impact on Madison Square Garden as a company will most likely be insubstantial As Miller Tabak analyst David Joyce notes increased Knick s merchandise sales would be worth only single digit millions constituting the impact of a rounding error compared to not having the ad revenue or affiliate fees However Linsanity could benefit MSG in other ways As Mr Tabak also notes Rangers and Knicks fans do tend to buy the stock when the teams are doing well and the Lin fervor could quicken resolution of an ongoing dispute between MSG and Time Warner Inc NYSE TWX This dispute over rate increases has resulted in Knicks games on the MSG Network not being broadcast on Time Warner Cable affecting more than 2 million Time Warner subscribers The huge ratings Lin has garnered could provide increased leverage for MSG and lead Time Warner Inc back to the table If the dispute is resolved it could generate substantial revenue for MSG The potential of Linsanity and the prospect of constructive progress in talks between Madison Square Garden Co and Time Warner Inc paint a somewhat positive short term picture of MSG Moreover the worst bite of the NBA lockout is now behind MSG with its immediate effects in the rear view mirror of its dismal second quarter results However investors should tread carefully if they re considering significantly investing in MSG in the long term The Average EPS Growth of MSG s last 3 quarters is 16 and the 3 Year Sales Growth Rate is a paltry 5 For the current year MSG s EPS figures are expected to decrease 8 73 Moreover the Annual ROE of MSG is extremely low at 6 7 In order for MSG to prosper in the long term it needs more than a dose of Jeremy Lin The Verdict Madison Square Garden is a company that is riding high on the waves of Linsanity as well as increased fortunes and investor optimism Recently analysts at Needham initiated coverage of MSG with a Buy rating while analysts at Morgan Stanley NYSE MS improved their rating of MSG to Overweight from Underweight Madison Square Garden Co could prove to be a sound short term play but there are still significant challenges for it in the long term |
C | Hong Kong Banks Cast Pall Over Property by Raising Rates | Bloomberg Hong Kong banks began closing the chapter on a decade of ultra low borrowing costs casting a pall over a property rally that made the city one of the world s most expensive places to buy a home
HSBC Holdings Plc LON HSBA Standard Chartered LON STAN Plc and Hang Seng Bank Ltd boosted their best lending rates by 12 5 basis points on Thursday hours after the Hong Kong Monetary Authority raised its benchmark interest rate by 25 basis points in line with the U S Federal Reserve The increases in the prime rates effective Friday are the first since March 2006
Hong Kong is bracing for higher rates as the U S central bank normalizes policy Because the city s currency is pegged to the dollar the Asian financial hub effectively imports U S monetary policy and adjusts rates in step with the Fed Higher rates threaten gains in a property market that has been on a bull run for most of the past 15 years
The ultra low interest rate environment in Hong Kong will be over as rates are now on an uptrend Hong Kong Financial Secretary Paul Chan told reporters on Thursday Higher interest rates will add to the burden of homeowners with mortgages
The HKMA on Thursday raised its base rate to 2 5 percent from 2 25 percent following a 25 basis point move in Washington
Existing home prices have climbed 13 percent this year according to Centaline Property Agency and almost 487 percent from their 2003 trough Citigroup Inc NYSE C and CLSA Ltd are among those warning of a reversal on expectations that mortgage servicing costs will increase
The city s one month interbank rate jumped the most since 2008 on Monday and Hong Kong s dollar a currency on one of the world s tightest leashes surged the most against the U S dollar in 15 years on Friday The Hong Kong dollar was little changed at 7 8129 against the greenback as of 12 28 p m local time
While the Fed has been raising rates since late 2015 Hong Kong lenders resisted following because of ample liquidity and fierce competition for mortgages However banks cash stockpiles have been shrinking since the HKMA started buying the local dollar in April to defend its currency
Updates with financial secretary comment and context throughout the story |
C | U S factory activity slows construction spending edges up | By Lucia Mutikani WASHINGTON Reuters A measure of U S factory activity retreated from a more than 14 year high in September as growth in new orders slowed but supply bottlenecks appeared to be easing suggesting a steady pace of expansion in manufacturing Other data on Monday showed a small increase in construction spending in August amid weakness in investment in private residential and nonresidential projects The report did little to change views of strong economic growth in the third quarter The Institute for Supply Management ISM said its index of national factory activity dropped 1 5 points to a reading of 59 8 last month from 61 3 in August which was the highest since May 2004 A reading above 50 indicates growth in manufacturing which accounts for about 12 percent of the U S economy It may not be the best of times for manufacturers but it is pretty close to that said Joel Naroff chief economist at Naroff Economic Advisors in Holland Pennsylvania The ISM continued to describe demand as remaining robust The ISM also noted that the nation s employment resource and supply chains continued to struggle but to a lesser degree It said factories remained overwhelmingly concerned about tariff related activity including how reciprocal tariffs will impact company revenue and current manufacturing locations President Donald Trump s America First trade policy have left the United States embroiled in a bitter trade war with China and tit for tat import tariffs with other trading partners including the European Union Canada and Mexico Washington last week slapped tariffs on 200 billion worth of Chinese goods with Beijing retaliating with duties on 60 billion worth of U S products The United States and China had already imposed tariffs on 50 billion worth of each other s goods The United States salvaged a trilateral free trade accord with Canada and Mexico on Sunday which underpins 1 2 trillion in trade between the three countries While data have suggested little impact on the economy so far from the tariffs analysts warn that the import duties could disrupt supply chains undercut business investment and slow the economy s momentum According to the ISM survey some managers in the computer and electronic products industry said the market is in a state of chaos with the latest round of tariffs Their counterparts in the chemical products sector complained that tariffs are starting to take a bite out of profitability FACTORY EMPLOYMENT RISES The ISM s new orders sub index fell to a reading of 61 8 last month from 65 1 in August The survey s factory employment measure rose to 58 8 the highest reading since February from 58 5 in August This suggests manufacturing payrolls probably rebounded in September after falling in August for the first time in 13 months The government will publish September s employment report on Friday The ISM s supplier deliveries index fell to a reading of 61 1 last month pointing to some easing in bottlenecks in the supply chain from 64 5 in August It hit a 14 year high of 68 2 in June The ISM s prices paid measure fell to a 10 month low in September U S stocks were trading higher as investors breathed a sigh of relief following the trade pact between the United States Canada and Mexico The dollar firmed marginally against a basket of currencies and U S Treasury yield rose A second report from the Commerce Department showed construction spending edged up 0 1 percent in August after rising 0 2 percent in July Spending on public construction projects jumped 2 0 percent in August to the highest level since July 2009 That followed a 1 7 percent increase in July Spending on federal government construction projects soared 5 9 percent to a 10 month high after increasing 2 3 percent in July State and local government construction outlays accelerated 1 7 percent in August to the highest level since March 2009 That followed a 1 6 percent rise in July But spending on private construction projects fell 0 5 percent in August after decreasing 0 2 percent in July Private construction outlays have now declined for three straight months Investment in private residential projects fell 0 7 percent in August after gaining 0 2 percent in July Homebuilding has been constrained by rising material costs as well as persistent land and labor shortages Residential investment contracted in the first half of the year and is expected to have declined further in the third quarter Spending on private nonresidential structures which includes manufacturing and power plants slipped 0 2 percent in August after declining 0 8 percent in July We expect that residential investment will again weigh on real GDP growth in the third quarter said Veronica Clark an economist at Citigroup NYSE C in New York However the continued decline in nonresidential construction spending implies downside to nonresidential structures investment in third quarter GDP
Growth estimates for the third quarter are above a 3 0 percent annualized rate The economy grew at a 4 2 percent pace in the second quarter |
JPM | Oil Spill Sends Stocks And Yields Lower Dollar Steady | Wednesday June 21 Five things the markets are talking about
With the lack of fundamentals on offer this week and central banks confiding FX moves to technical range trading investors continue to feed off scraps looking for price vindication
Global stocks remain on the back foot pressured mostly by crude oil tumbling into a bear market on concern a global supply glut will persist
The yen has strengthened on haven demand while the pound weakens for a third day trading atop of its April lows outright when PM Theresa May called a snap election
The weakness in crude and other commodities is denting the Fed s argument that weak inflation rates will be transitory despite the domestic economy showing any signs of distress Fixed income dealers are facing a bull flattening treasury yield curve
Note Still to come on the Fed speaker list this week Eric Rosengren Robert Kaplan Jerome Powell James Bullard and Loretta Mester
1 Stocks under pressure from commodities
A break lower in oil prices yesterday continues to weigh on global equity sentiment Both brent and WTI prices are testing 2016 September lows as technical pressure and continued skepticism regarding oil producers collective efforts to buoy the market
In Japan the Nikkei share average fell 0 5 overnight as a stronger yen 111 20 sapped risk appetite while mining stocks underperformed as oil prices tumbled The broader TOPIX fell 0 4 after climbing for three days to the highest level since August 2015
In China Shanghai equities advanced after MSCI Inc NYSE MSCI added China s domestic stocks to its emerging markets index the Shanghai Composite rose 0 5
In Hong Kong the Hang Seng and the Hang Seng China Enterprise CEI each fell about 0 6 on fears that MSCI s decision to include more mainland China stocks to its EM index will threaten the financial centre s role as a key global investor gateway to China
Down under Australia s S P ASX 200 Index slumped 1 6 to the lowest in four months with resource names sliding at least 3
In Europe regional indices trade lower across the board following on from weakness in the U S yesterday with falling oil prices said to attribute to the negative sentiment
U S stocks are set to open in the red 0 4
Indices Stoxx 600 0 6 at 379 FTSE 0 2 at 7459 DAX 0 6 at 12738 CAC 40 1 0 at 5243 IBEX 35 0 8 at 10666 FTSE MIB 0 3 at 20745 SMI 0 8 at 8956 S P 500 Futures 0 4
2 Oil falls as bulls discount OPEC cuts gold shines
Oil prices have entered bear market territory pressured mostly by a market concern that nonstop production from U S shale fields is overwhelming OPEC s efforts to ease a global supply glut
Libya exempt from the OPEC led output cuts is pumping the most in four years while oil stored on tankers has reached a 2017 high this month
August brent crude futures are down 12c at 45 85 a barrel yesterday it fell nearly 2 yesterday to their lowest settlement since November U S crude futures WTI for August are down 7c at 43 44 having hit its lowest price since September on Tuesday
Note So far this year oil has lost 20 in value its worst performance for the first six months of the year in 20 years
API data American Petroleum Institute yesterday showed U S crude stockpiles last week had dropped more than forecast Gasoline and distillate inventories rose
The market will take its cue from today s U S government report EIA on inventories at 10 30 a m EDT
Note OPEC and non OPEC oil producers compliance with the output deal reached 106 percent in May However a number of producers notably Iraq Saudi Arabia and Russia aggressively ramped up output in the run up to the deal
Ahead of the U S open gold prices 0 2 at 1 245 82 per ounce remain better bid after hitting its lowest price in five weeks yesterday buoyed as global equities fall and the mighty dollar eases from its one month highs following crude s tumble However the possibility of another interest rate hike by the Fed this year is underpinning the bearish outlook for the yellow metal
3 Energy slide supporting bull flatteners
Lower oil prices have sent market based inflation expectation readings to the lowest in eight months The 10 year breakeven rate the yield premium to hold US 10 year product relative to the 10 year TIPS Treasury Inflation Protected Securities is at 165 6 bps down 2 bps this week
Note The breakeven rate rose above 200 bps in January but now it is drifting below the Fed s 2 target
According to the latest JPMorgan weekly client survey last week investors are the most bullish on Treasury prices in more than two months The share of investors expecting lower yields or longs has risen to 18 for the week that ended this Monday that doubles the share a week earlier
The share of those expecting higher yields or shorts falls to 25 from 27 and those that are neutral holds a 57 share vs 64 a week earlier
Treasuries are generally in favor as the stock markets sells off The U S 10 year yield has shed 3 bps overnight to reach 2 155 the curve continues to flatten as the 10 30 year spread falls further to below 58 bps
4 Pound remains under pressure
The flight from oil and into long dated government bonds is benefitting the safe have yen 111 20 while the USD is holding its own elsewhere despite lower yields
The EUR stands at 1 1147 after hitting a three week low while sterling remains in the firing line sliding back under 1 2600 It took a spill after BoE Governor Carney hosed down speculation yesterday that he might soon back higher interest rates saying he first wanted to see how the economy coped with Brexit talks
Note The last time the pound visited these levels was back on April 18 the day when PM Theresa May called a snap election
Elsewhere commodity currencies are feeling the pressure from lower oil price CAD C 1 3287 NOK 8 5505 and MXN 18 2582
5 Bank of Japan BoJ monetary policy minutes
Bank of Japan BoJ Apr 27 Policy Meeting Minutes noted that most members saw momentum towards price goal was not firm enough Policymakers agreed that the amount of government debt purchases will fluctuate under its QE program but don t expect such changes to pose problems for its guidance on market operations They expressed more optimism about exports and industrial production but remained cautious on inflation expectations
In his press conference BoJ Governor Kuroda reiterated that the BoJ still had long way to go before achieving the 2 price target price momentum warranted close attention
He also reiterated the view that it was appropriate to continue with strong easing The JGB s yield curve has been moving in line with BoJ s market operation |
JPM | Strong Outperformance From Focused Global Fund | JPMorgan NYSE JPM Global Growth Income JPGI is a 50 90 stock portfolio of global equities chosen by manager Jeroen Huysinga from the output of a rigorous valuation based investment process developed by J P Morgan Asset Management JPMAM After a long period where investors were focused on defensive growth stocks a recovery in the appetite for cyclical companies since mid 2016 has favoured JPGI s approach
The resulting resurgence in performance has seen the trust s NAV total return outperform both its MSCI AC World benchmark and all of its peers in the AIC Global Equity Income sector over one three and five years and since 1 October 2008 when it adopted its current strategy Recent share price performance has been even stronger arguably boosted by greater investor appetite for the trust since announcing a 4 annual distribution policy in July 2016
Investment strategy Valuation focused global process
JPGI is managed using JPMAM s global focus investment process and is the only UK retail investment product to offer access to this strategy The process is based on JPMAM s dividend discount model which assesses global stock valuations and allows them to be ranked into quintiles by sector By focusing only on the cheapest two quintiles and applying tests for significant profit potential and the presence and timing of catalysts for a market reappraisal the manager is able to build a portfolio of growth companies at attractive valuations
To read the entire report please click on the pdf file below |
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