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MS | Morgan Stanley rates Banco BTG Pactual stock overweight | SAO PAULO Reuters Grupo BTG Pactual SA s stock is undervalued based on its ability to outperform peer banks in Latin America where investment banking and asset management activities remain underpenetrated analysts at Morgan Stanley Co NYSE MS said on Tuesday In a client note analysts led by Jorge Kuri transferred their coverage to the newly created stock units of Banco BTG Pactual SA SA BPAC11 setting an overweight recommendation on the stock Units are a blend of common and preferred shares in Banco BTG Pactual Kuri and his team set a price target for the Banco BTG Pactual units at 28 reais representing a 57 percent potential for gains based on Friday s close at 17 86 reais According to the analysts units of Banco BTG Pactual are currently priced at 0 9 times book value with estimated return on assets of 2 1 percent and return on equity of 14 percent this year Meanwhile shares of rival Banco Bradesco SA SA BBDC4 trade at twice book value ratios with similar ROE and almost half BTG Pactual s return on assets they said A spokesman at BTG Pactual declined to comment Having gone through significant restructuring in the wake of founder and former Chairman Andr Esteves s arrest in November 2015 related to a corruption scandal in Brazil BTG Pactual is focusing on growth again BTG Pactual SA BBTG11 is Latin America s largest independent investment banking firm with leading positions in sales and trading as well as asset and wealth management across Brazil and the region We like the new narrower focus on the core investment banking activities the company is undertaking Kuri wrote Units of Banco BTG Pactual surged 3 9 percent to 18 30 reais on early Tuesday afternoon trading in S o Paulo Chief Executive Officer Roberto Sallouti has tried to bolster investor confidence after the scandal This sparked a crisis of investor confidence that sent the lender s shares and bonds into a tailspin and forced it to dismantle trading positions and sell assets to cope with massive client fund withdrawals Sallouti is also protecting capital to pave the way for faster growth in core activities like investment banking securities trading and money management Apart from growing in distressed debt and other high return activities BTG Pactual is currently setting up a brokerage in Argentina where it expects to take advantage of growing demand for local equity and bond transactions a person familiar with the plan told Reuters recently |
MS | Mitsubishi UFJ optimistic on Saudi project finance Aramco IPO role | By Tom Arnold and Saeed Azhar
DUBAI Reuters Mitsubishi UFJ Financial Group T 8306 MUFG expects double digit growth in its project finance business in the Middle East in 2017 driven partly by Saudi Arabia s efforts to reduce its dependence on oil the bank s co head in the region Elyas Algaseer said
Saudi Arabia s push to diversify its economy under its National Transformation Plan provides a big opportunity for international banks as well as the privatization of state controlled enterprises such as Saudi Aramco s IPO ARMO SE planned initial public offering
MUFG which is ranked as one of the leading project finance lenders globally and in the region is working with clients in the Middle East including Saudi Aramco Acwa Power and Mubadala Development MUDEV UL Algaseer said
MUFG was expecting around 350 billion in project finance opportunities in Saudi Arabia by 2022 and more across the region in areas such as power alternative energy health and education Algaseer said
In this part of the world they do have good liquidity reserves and good underground energy reserves and a good need to shift from relying on oil so if these come through we should be on a lot of these deals because of our credentials and because of our know how he said in an interview
Algaseer said there were also a lot more openings from privatizations in the country estimating that there would be 300 billion in such opportunities by 2022
Saudi Arabia already has plans to list up to 5 percent of oil company Saudi Aramco that could raise as much as 100 billion via a listing in Riyadh and one or more international markets
Japan s Prime Minister Shinzo Abe this month asked Saudi Arabia s King Salman to support a listing of Aramco s shares in Tokyo Other markets including New York London Hong Kong Singapore and Toronto are also vying for a role
I won t say it s a Tokyo listing a high possibility but it s not impossible Algaseer said He also said that the large size of the sale meant it would be hard for only two centers to manage it
If they do go to Japan they will definitely consider to have MUFG to launch it and if they go somewhere else there s a good possibility to let MUFG and its partner Morgan Stanley N MS to launch it
Morgan Stanley and MUFG have several partnerships stemming from a 9 billion investment MUFG provided the Wall Street bank at the height of the financial crisis MUFG now owns 23 2 percent of Morgan Stanley making it the bank s largest shareholder according to Thomson Reuters data
MUFG s banking subsidiary The Bank of Tokyo Mitsubishi UFJ expects to open its first branch in Saudi Arabia in 2018 after becoming the first Japanese bank to receive a license in the kingdom late last year he said |
MS | Saudi Aramco formally appoints banks to advise on share sale | By Ron Bousso David French and Davide Barbuscia LONDON Reuters Saudi Aramco has formally appointed JPMorgan Chase Co N JPM Morgan Stanley N MS and HSBC L HSBA as international financial advisers for its initial public offering sources familiar with the matter told Reuters The trio join Moelis Co N MC and Evercore N EVR which have been appointed independent financial advisers one source said of what is expected to be the world s biggest share sale The Saudi authorities aim to sell up to 5 percent of Aramco listing the shares in Riyadh and at least one foreign exchange to raise cash for investment in new industries in a bid to diversify away from oil exports in an era of cheap crude Aramco has appointed Saudi Arabia s NCB Capital SE 1180 and Samba Capital SE 1090 as local advisers the sources said Reuters previously reported that JPMorgan Morgan Stanley Moelis and Evercore had been asked to work on the global listing while HSBC was a leading contender to join them Samba Capital was earlier named as one of two local advisers One source said all the banks had now been onboarded a term indicating they had been fully briefed on the IPO process and had been tasked with work that includes helping ensure systems on the Saudi stock exchange the Tadawul can be integrated with a foreign exchange Saudi Aramco has yet to pick a foreign site to list
When asked for comment Saudi Aramco said it did not respond to rumor or speculation Officials at NCB Capital were not immediately available and other banks have previously declined to comment on their role |
MS | Intra Asia M A softens the blow of pullback in first quarter dealmaking | By Sumeet Chatterjee and Jamie Freed HONG KONG SYDNEY Reuters Merger and acquisitions involving Asian companies fell 39 percent in the first quarter of 2017 to 176 billion the lowest level in nearly three years and highlighting a sharp pull back in overseas deals by Chinese firms While dealmaking was weak across the board with big falls in outbound deals targeting U S and European firms intra Asian M As were by comparison relatively strong increasing their tally of the total to 61 percent from 56 percent a year earlier Thomson Reuters data shows The figures reflect deals involving Asian companies excluding Japan The intra Asia deals reflected sector consolidation in major Asian economies and privatization and asset sales in countries such as Singapore and Australia Most of the bidders were either cash rich Asian companies or private funds keen to tap into Asia s increasing consumer demand investment bankers said M A deal activity within the region remains robust said Mervyn Chow Asia co head of investment banking and capital markets at Credit Suisse While the capital controls in China may impact cross border deals in the short term we expect to see China investments that are strategic in nature to continue Nine of the top 10 Asia Pacific deals announced in the first quarter of this year were intra regional The merger of Vodafone s L VOD India unit with rival Idea Cellular NS IDEA topped the chart Bankers said they expected more of the same pointing to the potential sale of Singapore listed Global Logistic Properties SI GLPL which has a market value of over 9 billion and the privatization of power companies in Australia M A advisory fee volume dropped nearly 40 percent to 321 million Morgan Stanley N MS was the top advisor followed by Industrial and Commercial Bank of China HK 1398 and Credit Suisse S CSGN DEAL PIPELINE In 2016 announced M A deals involving Asian companies excluding Japan totalled 1 2 trillion just below a record level in 2015 Tighter regulations in China have made it tougher for Chinese firms to launch takeovers overseas which had a major impact on the region s overall dealmaking in the first quarter Deals between Asian companies totalled 107 4 billion in the first quarter of 2017 down from a year earlier 163 4 billion Asia Pacific outbound deals targeting U S assets fell 78 percent in the first quarter from a year ago while similar deals targeting European firms declined 85 percent Chinese buyers remain interested in Australia but constraints on capital outflows have made it more difficult for deals to get done said Deutsche Bank s Australia and New Zealand co head of corporate finance Bruce MacDiarmid What we are seeing now is those deals that do get done have a strong strategic relationship to state owned enterprises and what they want to achieve he said Other deals will be harder for them to do now |
MS | Brexit effects may reflect in business surveys | By Catherine Evans LONDON Reuters In the week after Britain formally notified the European Union of its intention to quit the bloc business surveys will give more idea of what if any impact Brexit is having on the British economy and how its EU peers compare Last month s purchasing managers index PMI reports suggested unexpectedly strong growth in Britain s economy since June s Brexit vote may be starting to flag as inflation picks up partly as a result of the pound s post referendum plunge Similar surveys have meanwhile suggested activity in the euro zone is picking up pace with flash PMIs for the bloc as a whole and its two biggest economies Germany and France hitting six year highs in March Index provider IHS Markit will release PMI surveys for British manufacturing construction and services on Monday Tuesday and Wednesday respectively with official data for manufacturing and construction output for February due to follow on Friday Economists polled by Reuters expect the PMI for the dominant services sector to tick up to 53 5 in March from February s five month low of 53 3 That reading suggested faltering consumer spending was starting to bite and pointed to first quarter economic growth of around 0 4 percent compared with 0 7 percent in late 2016 UK PMIs for March especially once combined with the February industrial production construction and trade data should leave us with a very good feel for 1Q first quarter GDP by the end of the week Morgan Stanley NYSE MS economists wrote Overall we expect the data to point to some slowing in 1Q Official data on Friday showed the services industry which accounts for about two thirds of Britain s economy contracted in January for the first time since March last year Other recent data has also suggested consumers are becoming more cautious British households declining spending power real disposable income suffered the steepest quarterly drop in three years in October December led them to run down their savings to a record low in late 2016 Sterling s fall since the Brexit vote has kept manufacturing activity near 2 1 2 years highs since the turn of the year but recent surveys have suggested higher input prices are hitting new orders in the construction sector The pound has lost nearly a fifth of its value against the dollar Manufacturing accounts for around 10 percent of the British economy with construction making up another 6 percent Britain s economy last year defied forecasts that it would slow sharply after the referendum decision to leave the EU instead expanding faster than most of its developed world peers PMIs for France and Germany are forecast to hold steady after last month s sparkling performance although economists at Commerzbank DE CBKG saw limited potential for further gains The PMIs are now at a level seldom surpassed since monetary union was established they said in a note They only rose considerably higher in 2006 and in 1999 2000 during the New Economy boom However at that time the euro zone economy also expanded by more than 3 percent which seems highly unlikely to happen now How a quickening economy will play into France s presidential election the first round of which is on April 23 is unclear Far right leader Marine Le Pen champions economic nationalism to counter the forces of globalization while frontrunner Emmanuel Macron a pro EU centrist promises gradual tax cuts and budget discipline Conservative Francois Fillon wants to reduce the role of the state in the French economy Friday s non farm payrolls report is the coming week s standout U S data release with a Reuters poll predicting the U S economy will have added 180 000 jobs in March Thursday will see the release of minutes of the ECB s March policy meeting and speeches by both ECB President Mario Draghi and Bundesbank chief Jens Weidmann who called again on Monday for a less expansive monetary policy When overall inflation hit the ECB s 2 percent target last month conservative countries like Germany piled pressure on Draghi calling for an end to the bank s 2 3 trillion euro asset buying scheme
But a tumble in March to 1 5 percent from February s four year high may have vindicated Draghi s cautious stance which saw the ECB pledge on March 9 to keep the stimulus policy in place but signal a diminishing urgency for more action |
JPM | Foreign Funds Keep Pouring Into China Despite the Yuan s Jitters | Bloomberg The sharpest decline of China s yuan since a turbulent devaluation in 2015 hasn t fazed international bond funds suggesting their diversification flows will be a useful stabilizing force for the nation s policy makers
The falling yuan is a concern but as long as it s not in a severe downtrend it s not the biggest consideration when we re investing in local currency bonds in China said Manu George director of fixed income at Schroder Investment Management Ltd in Singapore in a view echoed by other market participants
June saw the yuan s biggest monthly drop against the dollar since 1994 yet overseas investors poured the most into China s domestic bonds in almost two years The contrast is a testament to foreign demand for exposure to the country s 12 trillion bond market the world s third largest China has steadily opened to international investors in part to provide a balance against domestic pressures to ferret money out
The sustained inflows are also important for China s borrowing costs because overseas investors have replaced domestic banks as the dominant marginal player in the government bond market this year Their purchases have helped lower the yield on China s 10 year notes by the most in Asia and among emerging markets more broadly
While the yuan s slide from mid June stoked speculation China s leadership was turning to depreciation as a weapon against U S President Donald Trump s protectionist trade moves the country s monetary authorities have pledged a stable currency It rose for the third session out of the past five on Monday trading around 6 62 per dollar in Shanghai
Rather than getting spooked as in 2015 when China was battling against fears of an economic hard landing market players this time around see a weaker yuan as part of an supportive monetary stance that should prove good for bonds And with the trade battle threatening to curb growth Chinese policy makers also have cause to go easy on financial deleveraging which has hammered the corporate debt market
Allowing yuan depreciation is part of a directed policy of easing said Pierre Yves Bareau chief investment officer for emerging market debt at JPMorgan Chase Co NYSE JPM s asset management unit in London We don t think this has parallels to the drop in 2015 Policy makers are fully in control and anchoring the situation
Ji Tianhe a China strategist at BNP Paribas PA BNPP SA went so far as to expect that some investors would deem the depreciation a buying opportunity as the slide creates room for future appreciation
Not all has been so rosy for China s assets Foreigners initially jumped into domestic stocks newly available in MSCI Inc s international indexes from the start of last month but inflows have tailed off in the past three weeks as the yuan slid
Net purchases via the stock connect with Hong Kong amounted to 3 2 billion yuan 484 million in the three weeks through July 6 compared with 48 5 billion yuan the prior three weeks according to data compiled by Bloomberg The CSI 300 Index has slumped 7 8 percent since June 15 in yuan terms
In wake of the 2015 16 capital flight scare Chinese authorities have been increasingly encouraging foreign investment inflows to help balance demand for the yuan Inclusion in international bond indexes is another objective officials continue to work on a move that could prompt further diversification inflows
At 1 36 trillion yuan foreign holdings of China s bonds are still relatively limited People s Bank of China data show That amounts to little more than the equivalent of what Hong Kong holds in U S Treasuries alone
Improving market infrastructure and solving technical issues play a larger role when asset managers decide whether to invest in China than the yuan said Johnny Chen a portfolio manager for Asian local currency bonds at NN Investment Partners Ltd in Singapore That includes the capability for block trading delivery versus payment settlement and more clarification on taxes he said
Hedging is also important and increasingly available Turnover of futures tied to the offshore yuan against the dollar at Hong Kong Exchanges Clearing Ltd surged to a record on July 3 driving the notional value to 2 2 billion data from the bourse showed The onshore yuan slid through 6 7 that day spurring officials to offer their reassurance
Among the comments Guo Shuqing who heads the banking regulator and serves as Communist Party chief at the central bank said the yuan should strengthen in time
That s the bet of Andy Seaman chief investment officer at Stratton Street Capital LLP Stratton recently increased its exposure to the yuan anticipating that rising productivity will help keep China s current account surplus in tact for the long haul |
JPM | Europe needs pan European banks JPMorgan s Dimon tells paper | MILAN Reuters Europe needs larger stronger and more diversified banks to better serve the economy JPMorgan NYSE JPM Chief Executive Jamie Dimon told Italian daily Il Sole 24 Ore just days after the U S bank denied it wanted to buy a stake in Deutsche Bank DE DBKGn
It would be very positive for Europe if at a certain point pan European banks would be created Dimon said adding Europe has been too slow so far in adopting common banking rules to favor the development of larger lenders
In the interview he also expressed concerns about the effects of Brexit and trade tariffs
I think that Brexit will ultimately have very heavy consequences for the British people and for growth in Britain and the lower growth in Britain will negatively affect global growth so Brexit will damage almost everyone Dimon said
He said the negative impact of trade tariffs imposed by the Trump administration might even offset the benefits of tax reform in the United States |
JPM | U S earnings hopes and trade war lull keep world shares near three week high | By Sujata Rao LONDON Reuters World shares hovered near three week highs on Tuesday supported by optimism about U S company earnings and expectations that global economic growth can withstand trade tensions although political bickering kept British markets on the backfoot Wall Street was set for a firmer opening after enjoying its best session in a month on Monday its gains filtering across Asia where bourses from Hong Kong to Tokyo ended the day firmer European shares also rose with a pan European equity index up 0 2 percent after touching a two week high on Monday while MSCI s all country equity index touched a three week high before easing back as Chinese shares fell into the red at the close of trading Analysts said markets especially in Asia remain on edge over the possibility of an escalation in trade wars after China and the United States last week slapped tit for tat tariffs on 34 billion worth of each other s goods While that has spurred fears of a global growth slowdown that would hurt equities and commodities there have not been fresh salvos fired since Markets also took heart from U S jobs data that suggest that the U S Federal Reserve might not tighten policy as aggressively as some feared while German export figures and Chinese factory gate prices have offered some reassurance on economic momentum Above all investors are pinning hopes on U S second quarter results which start in earnest this week and are expected to showcase growth of more than 20 percent across all sectors thanks to recent tax cuts high oil prices and robust growth Markets are anticipating a strong U S earnings season led by energy healthcare and tech We are more downbeat on Europe said Peter Garnry head of equity strategy at Saxo Bank in Copenhagen Futures for the S P 500 Dow Jones and Nasdaq pointed to a stronger opening after the previous day s jump that was driven by banks before heavyweight lenders JPMorgan NYSE JPM Wells Fargo NYSE WFC and Citi report earnings on July 13 With banks estimated to have enjoyed a quarterly windfall of as much as 5 billion from the tax cuts S P s banks index posted its sharpest rise since March 26 on Monday Figures late on Monday also showed that U S consumer credit surging in May to 7 6 percent on the year maintaining the strong economic narrative However the season is being clouded by trade tensions and their impact on corporate profits meaning analysts will scrutinize outlook statements to see whether to adjust earnings expectations for the rest of 2018 I doubt the upcoming earning season will carry world markets to new highs The numbers will be strong but equity markets are dominated by the outlook and we know the outlook is clouded by the trade issue Garnry added POUNDED Currency markets are dominated by political turmoil in London where Prime Minister Theresa May s foreign minister and Brexit negotiator both quit on Monday in protest at her plans to keep close trade ties with the European Union after Britain leaves the bloc The fear is that the resignations will lead to all out rebellion in the ruling party s ranks toppling May or even triggering fresh elections While this looks unlikely now the uncertainty saw sterling sink as much as 1 3225 at one stage before recovering to 1 3245 We anticipate elevated headline risks for sterling over the coming weeks analysts at the Commonwealth Bank of Australia told clients though they noted that sterling s cheap real valuation against trade partners currencies and adjusted for inflation could cushion it against further sharp falls A Bank of England rate hike may also support the pound with markets assigning a roughly 60 percent chance of a 25 basis point rate hike in August The pound s pain helped the U S dollar rise off 3 1 2 week lows against a basket of currencies but the index stayed flat on the day Politics dominated markets in Turkey where President Tayyip Erdogan s new cabinet lacked familiar market friendly names and included instead his son in law as finance minister Turkish five year credit default swaps CDS which are used to insure against default or restructuring rose 22 bps since Monday s close to 297 bps although the lira bounced after suffering a 3 percent slump on Tuesday its biggest daily fall in two years Meanwhile Brent crude up almost 20 percent this year rose another 1 per barrel to 79 as a Norwegian oil workers strike added to the picture of supply shortages following output disruptions in Canada and Libya
Money managers have raised bullish bets on crude in the week to July 3 data showed on Monday |
JPM | Summit Twitter s drop is chance to buy | Summit Insights is in line with JPMorgan NYSE JPM on what to do with Twitter NYSE TWTR Monday s drop was a buying opportunity with some misunderstanding flowing around reports of millions of account suspensions Twitter CFO Ned Segal noted that most suspended accounts wouldn t show up in reported monthly metrics and Summit s Jonathan Kees urges investors to focus instead on daily users engagement earnings and cash flow The company s quickly evolving into a content distributor with breaking news sports partnerships and a deal with Disney h t Bloomberg He s maintaining a Buy rating and 52 price target implying 18 upside Previously Twitter 8 4 after report of mass suspensions Jul 09 2018 Previously Post Twitter suspension pace could hit user growth Jul 06 2018 Now read |
JPM | Stock markets roiled as U S ups ante in trade conflict | By Shinichi Saoshiro TOKYO Reuters A sell off in Chinese markets knocked Asian stocks on Wednesday as U S threats of tariffs on an additional 200 billion worth of Chinese goods pushed the world s two biggest economies ever closer to a full scale trade war Washington proposed the extra tariffs after efforts to negotiate a solution to the dispute failed to reach an agreement senior administration officials said on Tuesday The United States had just imposed tariffs on 34 billion worth of Chinese goods on Friday drawing immediate retaliatory duties from Beijing on U S imports in the first shots of a heated trade war U S President Donald Trump had warned then that his country may ultimately impose tariffs on more than 500 billion worth of Chinese imports roughly the total amount of U S imports from China last year With no early end appearing to be in sight for the escalating tit for tat world trade frictions and rising trade protectionism global trade wars have become one of the key downside risks to world growth and trade in the second half of 2018 and for 2019 wrote Rajiv Biswas Asia Pacific chief economist at IHS Markit MSCI s broadest index of Asia Pacific shares outside Japan fell 1 1 percent The index had gained for the past two sessions having enjoyed a lull from the trade war fears that lashed global markets last week Spreadbetters expected the Asian gloom to extend to European stocks with Britain s FTSE tipped to open down 0 45 percent Germany s DAX 0 6 percent and France s CAC 0 5 percent Hong Kong s Hang Seng slid 1 5 percent and the Shanghai Composite Index dropped 1 8 percent S P 500 and Dow futures were down 0 7 percent and 0 75 percent respectively pointing to a lower open for Wall Street later in the day South Korea s KOSPI lost 0 55 percent and Japan s Nikkei fell 1 percent The markets still remain sensitive to the trade related theme which is something investors have to take into account for the long term said Yoshinori Shigemi global market strategist at JPMorgan NYSE JPM Asset Management in Tokyo At the same time the trade dispute can easily be blamed for a variety of ills But it could mask over factors that could also weigh on equities in the longer run such as tighter monetary policies led by the United States Investors worry a full blown Sino U S trade conflict could hurt global exports investment and growth The yen often sought in times of political tensions and market turmoil gained against a number of peers The dollar traded at 111 02 yen pulled back from a near two month peak of 111 355 The euro fell 0 2 percent to 130 175 yen and the Australian dollar lost 0 7 percent to 82 24 yen The Aussie considered a liquid proxy for China related trades fell 0 7 percent against the dollar to 0 7408 China s yuan lost 0 45 percent against the dollar and back toward an 11 month low plumbed last week The 10 year Treasury note yield fell 3 basis points to 2 84 percent pulling back sharply from a one week peak of 2 875 percent scaled the previous day Oil prices declined after the United States said it would consider requests from some countries to be exempted from sanctions it will put into effect in November that prevents Iran from exporting oil O R Brent crude futures lost 0 8 percent to 78 22 a barrel Oil had risen the previous day supported by a larger than expected U S stock draw and supply concerns in Norway and Libya Industrial metals sank with the trade war threatening global growth Copper on the London Metal Exchange LME sank roughly 3 percent to brush 6 092 50 per ton lowest since July 2017 before pulling back a little to 6 165 00
LME zinc fell as much as 4 8 percent to 2 503 per ton its lowest since June 2017 |
MS | Daily Commodities Analysis Oil and Gold | CL1ZOil dropped erasing earlier gains on concern that new leadership in Italy may not contain the European debt crisis and China s demand for crude may weaken West Texas Intermediate fell as much as 1 3 percent after rising earlier to 99 69 a barrel the highest since July 26 Italy s president offered Mario Monti a former European Union competition commissioner the post of prime minister yesterday The International Monetary Fund s Deputy Managing Director Zhu Min said yesterday the world s second largest economy was heading for a soft landing as growth slows With Europe s struggle far from over and signs of a slowdown in China the world s second largest consumer the road ahead could be bumpy for oil prices Glen Ward head of retail derivatives at London Capital Group Ltd said in a note Crude for December delivery was at 98 29 a barrel down 70 cents in electronic trading on the New York Mercantile Exchange at 1 18 p m London time Prices rose 5 percent last week and have increased for six consecutive weeks the longest run of gains since April 2009 GOLDGold futures declined for the third time in four sessions as the dollar s rebound reduced the appeal of the precious metal as an alternative asset The euro dropped as much as 1 1 percent against the greenback as Italy s borrowing costs increased to a euro era record stoking concern that a new government will struggle to contain debt turmoil Last week gold topped 1 800 an ounce on demand for a haven as fiscal woes in Greece escalated The inverse relationship between the dollar and gold is working Lance Roberts the chief executive officer of Houston based Street talk Advisors said in a telephone interview The fear trade may however emerge soon and push gold higher Gold futures for December delivery fell 0 5 percent to settle at 1 778 40 an ounce at 1 49 p m on the Comex in New York Last week the metal gained 1 8 percent the third straight increase The price has jumped 25 percent this year heading for the 11th straight annual gain amid escalating debt in Europe and the U S We believe uncertainty in the ongoing situation in Europe will continue to support the 10 year gold bull market into 2012 and expect the all time high in real terms will be challenged Hussein Allidina the head of commodity research at Morgan Stanley said in a report |
MS | Compass Directions Morning Report For November 17 2011 | The markets had another roller coaster ride overnight as various developments saw investor sentiment swing wildly despite stronger that expected economic data out of the US Industrial production rose 0 7 higher than median expectations of 0 4 while homebuilders confidence rose and the cost of living fell for the first time in four months However the EUR continues to fall as concerns that the ECB may have to step up its purchases of bonds to hold up the market The results of upcoming bond auctions in Spain and France will be crucial as spreads between bunds and peripheral nation yields continue to be remain near euro record highs The EUR opens this morning at 1 3475 after trading as low as 1 3430 overnight The European debt crisis continues to weigh heavily on the markets Sentiment was negatively impacted by comments from BoE Governor King that the UK faces a markedly weaker outlook for its economy amid the continuing European debt crisis Mario Monti was sworn in as Prime Minister and Finance Minister and has officially been given the daunting task of imposing severe austerity measures in an attempt to bring the Italian economy back from the brink of financial disaster The general malaise in the market has seen the Australian dollar ease to open this morning at 1 0080 Stocks have closed the session lower as surging oil prices and the European debt crisis weighed on investor sentiment Equity markets initially rose on talk from the Fed Boston President that the Fed may coordinate to stem the crisis in the credit markets The S P 500 has closed 1 66 lower to 1 237 in late selling triggered by a Fitch report that the European debt crisis poses a significant risk to American banks Citigroup and Morgan Stanley fell more than 4 Abercrombie and Fitch lost more than 10 as profits missed forecast while Dell lost 2 on slowing forecasted growth Earlier in Europe the DAX closed marginally lower by 0 33 at 5 913 while the FTSE was down 0 15 to 5 509 Commodity prices were mixed WTI crude surged more than 3 to above 102 50 as the announcement of the reversal of the direction of a major US pipeline will likely see stockpiles at Cushing Oklahoma fall significantly As Brent crude lost ground the differential between WTI and Brent fell to as low as 8 30 after being as high as 27 88 in mid October Gold fell 0 56 to 1 772 while silver eased 1 48 to 33 95 Soft commodities were broadly lower while copper was higher by 0 2 The CRB index is higher by 1 64 points to 322 51 GOLD moved firmly lower in offshore trade as we saw a roller coaster ride throughout the session as the ECB stepped in to buy sovereign debt and then as this ended the markets fell to session lows and then we saw a sharp rise as US data improved and then finally going into the US close we saw a dramatic sell off as Fitch warned of the effect to US banks out of Europe The USD gained on the night and Gold finished US trade weaker by 1 05 at 1 763 What a night and one of the most volatile nights we have seen in months as a number of events took place that countered one another Precious metals suffered as investors shied away from increased volatility on the night However having said this we still feel that precious metals held up well despite the sharp rise in the USD and the steep sell off in equities late in the session We have seen a breach of short term trend support but remain above key support at 1 750 Only a break here and then through 1 735 opens the door for a test of major support down at 1 695 1 700 Solid offers remain between 1 77785 and a breach through here is needed to set a base in place and retest major resistance at 1 800 02 Equities will suffer in Asia today so we remain a buyer of dips as we may see further weakness in Asia headed into the London session all beared up with most intraday and short term traders sitting on shorts built up over the Asia session with the idea that the fall would continue And they were correct to a point with the price managing to reach the previous 1 0050 support However at the same time the ECB started buying Spanish and Italian Bonds and this caught the market overly short and with the rally in the Euro the AUD jumped quickly as a rush to cover took the price to 1 0180 However the pair couldn t hold the gains into the US morning with the price returning to 1 0100 For the US session the price has been more controlled with a slight bias to the upside on better than expected US data giving hope to global growth RBA Gov Stevens is speaking in Sydney today and his comments about the crisis in Europe and the affect on the Australian economy will be of interest Building stops below 1 0055 will become a target for the interbank market if the price gets within reach |
MS | Falling Gold And Silver Prices Being Driven By Market Makers And Traders Not Fundamentals | Every time we get a run up in the price of gold and silver of late we seem to get it pushed right back down again like today when we see falling gold and silver prices Sure news of what s going on in Europe or Japan can have some short term effects on the price of gold and silver or even the movement of the Dollar Index but some of the time the fall in the price of gold and silver has nothing to do with news at all While a fall in the price of gold or silver is a cause for concern for some people it isn t for me Not because I sell gold and silver for a living where some may point out I might be biased or always bullish but because I have been around long enough to know what market makers are capable of when they throw enough money at something Market Makers Do What They Do Best Manipulate PriceWhen I first traded stocks back in the days of scalping a 1 16 1 8 or a 1 4 point for a quick profit and before the digital era we are in today I became painfully aware of oddities when I decided to buy shares of thinly traded stocks All of a sudden the stock would take off in the opposite direction of my trade and squeeze me out of my trade In this case market makers those who put the bid and ask price as live prices for each stock or in particular a market maker known as the ax would see someone buying or shorting the stock they follow and throw money at the stock to move the price in the opposite direction of the individual or institution who dared try to play their stock Market makers get compensated on manipulating the market to try and make a profit for their company These market makers consist of professional traders who sit in front of their desk and watch their multiple computer screens and trade news rumors or they just get bored and make the news by pushing a stock down or up hopefully catching the other players who trade the stock off guard as they re out to lunch or took the day off early Heck even Kevin Spacey s latest move Margin Call had one large company take just one side of the trade to save the company Investors be damned And the little guy thinks they have a chance to profit against these professionals Well the truth is they do But how The Market Makers In ActionEveryone knows who the players are in the field the Ax for example and they can easily be followed on what s called a Level II screen that shows each wholesaler or market participant for each stock or ETF who places their out of market or in market bid or ask price You will see the Level II screen below which shows some of the players of the stock Microsoft MSFT like Goldman Sachs GSCO Morgan Stanley and Company MSCO and UBS Securities LLC UBSS to name a few Sometimes on these thinly traded stocks the losses can amount to the 1 000 s for retail investors the Mom and Pop traders who like to trade their own accounts thinking they can outsmart the professionals You will see their trades come through via a retail broker like Etrade ETRD or via ECN s like ARCX to execute the bid ask buy sell order The market maker tries to get them to cry uncle and sell or cover a short so the market maker can make their profit They get the investor to chicken out and sell cover while they move the stock a few points against you possibly in just a few minutes like with thinly traded stocks I know It s happened to me in the early days A good explanation of the players involved can be found here While one can profit from this type of trading it s not for everyone I am not condoning it but allowing you so see how the markets work and how the big boys make money What Does All This Have To Do With Gold and Silver Prices Most people know that trading in stocks or ETFs is not the same as trading in the actual physical metal at least for the retail investor But the big boys get to play the physical metals in the Over The Counter OTC market From WIKI Internationally gold is traded primarily via over the counter OTC transactions with limited amounts trading on the New York Mercantile Exchange NYMEX and Tokyo Commodity Exchange TOCOM These forward contracts are known as gold futures contracts Spot gold is traded for settlement two business days following the trade date The spot fix price for gold is set by the London Bullion Market Association LBMA There is a brief conference call among the five members of the London Gold Pool Scotia Mocatta Barclays Capital Deutsche Bank HSBC and Soci t G n rale The London spot fix price is the price fixed at the moment when the conference call terminates According to Wiki again Although the physical market for gold and silver is distributed globally most wholesale OTC trades are cleared through London The average daily volume of gold and silver cleared at the London Bullion Market Association LBMA in November 2008 was 18 3 million ounces worth 13 9 billion and 107 6 million ounces worth 1 1 billion respectively This means that an amount equal to the annual gold mine production was cleared at the LBMA every 4 4 days and to the annual silver production every 6 2 days according to IFSL research out of London Please note that this could not be done without the ability to trade the metals via fractional reserve methods Meaning they trade unallocated accounts that are only partially backed by physical gold or silver Is it any wonder that these traders can cause falling gold and silver prices even when the fundamentals point to higher prices What Good Does the CFTC Do Like the rating companies that gave good ratings to bad investment products what good does a regulator do when they don t do their job The Commodity Futures Trading Commission CFTC was set up by the U S Commodity Futures Trading Commission Act of 1974 The primary mission of the CFTC is to guard market participants against price manipulation abusive trade practices and fraud for those who participate in the metals market While the CFTC was set up with good intentions if it were true that they wanted to guard market participants against manipulation abusive trade practices and fraud then why doesn t the CFTC crack down on these traders when they do this Isn t the fact they trade unallocated accounts with no metal backing them considered fraud to begin with According to the Wiki article on this issue Similarly to a bank run this makes LBMA unallocated gold accounts susceptible to loss if a sufficient number of market participants request delivery of physical bullion Gold and Silver Traders Are Not Held AccountableAnd herein lies the key These OTC traders don t take delivery of the metals so no one has to pay up I remember about 30 years ago when I was in college I worked at the Chicago Mercantile Exchange CME There were traders at the CME who at the end of the day would have this down and out look sometimes because they for example as one trader told me lost big today in the grain market This means they were on the wrong side of the trade You see he felt the effect of the bad decision he made for the trade and had to personally account for it He either had to pay for the trade one way or the other either by dollars or by movement of grain Farmers do this all the time when they wait for the price of say corn to rise in the future while they store it at grain elevators They hedge their bet through a put option just in case the price falls If the farmer brought the grain to the elevator and sold that day he might take some of the proceeds and buy a futures contract to capitalize on any potential rise in price But with farmers they can provide the product to cover a trade or take delivery on the other side of the trade You don t see that with gold and silver bullion traders They can go short for as long as they want without having to pay up the metal That s why as the IFSL report referenced above states this means that an amount equal to the annual gold mine production was cleared at the LBMA every 4 4 days and to the annual silver production every 6 2 days The logical conclusion thus is if only a few participants take delivery it exposes the ponzi scheme Banking System SimilaritiesJust look at the banks that lend out multiples of their deposits Once the 2008 financial crisis hit actually well before this the bad loans started to hit the banks The banks don t have enough cash on hand to cover the write down on the assets so they got the Financial Accounting Standards Board FASB to give them permission to mark to fantasy 2006 2007 values the real estate they have on the books instead of marking the properties to market price today s values The FASB is an independent private sector organization that sets accounting and reporting standards for both public entities which issue securities that trade in public markets and nonpublic entities which include private companies and not for profit organizations How can anyone take the FASB seriously when they allow the banks to get away with this This blessing of the FASB bestowed on the nations troubled banks would help improve the banks reserve ratios and keep the FDIC from knocking on their doors Today banks still don t mark to market their assets the FDIC is 8 billion in the hole and the FASB is complicit in the scheme But who will come to the rescue of those who bet wrong on the gold and silver trades Who exactly is trading heavily in this market Look no further than the nations top banks Look no further than the banks that play the derivatives markets Look no further than the banks that are custodians to the gold and silver held by the major gold and silver ETFs I will be writing more on this connection in a forthcoming article Making ConnectionsYou never see me mention anything on the Buy Gold and Silver Safely site about price manipulation until today While there are others who do write about it I haven t seen the correlation to banks not marking to market their assets with the full blessing of the FASB I haven t seen the connection to what market makers do every day with the stocks traded on the NYSE But it is easy for one to draw a conclusion about price manipulation They need look no further than the example above of the thinly traded stock where the Ax gets involved when they see someone messing with their stock buying or shorting it Market Makers don t like to be messed with If a player comes in and tries to take money from their pockets you can bet they will try and punish them by moving the market away from their trade While it is illegal for these firms to conspire and talk to each other about the way they want to move a stock or in the case of big banks manipulate the price of gold or silver they can jump on the same bandwagon in figuring out what the other is up to This isn t rocket science But it is a game that the little guy especially if they are on margin can get creamed That s why the best way to invest in gold and silver is to buy the physical metal and just sit tight and wait for things to implode Dollar cost averaging into a position and practicing a little patience is what I preach This is the tortoise vs the hare and because of this potential for manipulation you don t want to get caught jumping in too soon with all your allocation to gold or silver Patience will be rewarded along with good money management where you actually are ok with the price of gold and silver falling Today with the likes of J P Morgan and Goldman Sachs becoming holding banks and the already well connected banks who play the gold and silver markets there is an opportunity for these traders to try and manipulate the gold and silver markets as well as other markets Whether or not the Fed is actually involved behind the scenes with some of these companies is pure speculation But there is the new Fed mandate of regulating systemic risk and preserving financial stability This gives the Fed even more power thanks to both sides of Congress who gave them this power Heck Congress is complicit even further in this financially rigged game as they even gave money to the IMF to help bailout other countries Don t think for a second the Fed doesn t want to see falling gold and silver prices And since the Fed is never audited except for the one time audit brought about by the Financial Reform Act of 2010 which didn t go far enough in auditing the Fed one will never really know what they re up to Keep one thing in mind Do you really think the same group of intellectuals that got us into this mess can magically keep the cracks in this Humpty Dumpty economy from getting bigger before things get worse Along with the deteriorating fundamentals I constantly mention in my articles it will eventually all come down to the banking system as I mentioned in Chapter 4 of my book Buy Gold and Silver Safely This is the chapter that provides the road map of what s to come What happened recently with MF Global is only a small sample of what occurs when bets go against you The nations top 5 banks are on shaky grounds with similar type games they are playing The Humpty Dumpty BanksThe U S banks sat on a wall The U S banks had a great fall All the Fed s horses And all the Fed s menCouldn t put the U S banks together again Stay tuned for more and just know falling gold and silver prices should be welcomed as more investors are able to buy gold and silver at lower prices Congress the Fed and the decisions made by the banking industry will see to the future appreciation of the precious metals |
MS | Angela s Choice | OK Not only have Spanish and Italian bond yields have blown out against Bunds now French yields are blowing out The contagion has moved from the periphery to the core of the eurozone The whole eurozone is unraveling as disunity is the story of the day as an example consider the Bloomberg report Irish Government Draws Fire as Budget Plans Shown to Lawmakers in Germany In the past we would have seen some market soothing statements from Merkozy by now but the French and Germans are at odds and we therefore have no statement Now what What does Germany really think There is a consensus that the ECB has to act now and buy the sovereign debt of the troubled peripheral countries to stabilize the markets and buy some time for the eurozone governments to work out a solution their long term imbalances Hardliners in Germany led by the likes of Jens Weidmann of the Bundesbank have been adamant against such a move The question is what does Angela Merkel do Merkel has been all over the map on this issue She has shown herself to be staunchly European and does not want the eurozone to break up On the other hand the revelation that Germany and France were conducting informal talks about a two speed eurozone does not make her sound very European at all In addition the current government position that the the ECB cannot be the lender of last resort and the EFSF must not be given a banking license so that it could be supported by the ECB appears to be designed to push the eurozone over the precipice I believe the way to interpret her actions is that she is a skillful politician who has to walk a fine line between the competing imperatives of appeasing German sensibilities and the Realpolitik realities of the eurozone Consider this account of German attitudes towards the euroozone emphasis added
The nature of these meetings is that the hallway chatter is always more interesting that the formal program Part of the reason why is that particularly when talking to journalists the businesspeople or politicians tend to regard those conversations as off the record So I ll abide by that here One of the German execs was a consultant and the other headed what I ll call a quasi official German organization They were slightly irritated by the pessimism I d expressed earlier in the day Don t you realize one of them said that the cost to us Germany of bailing out Greece is far less than it cost us to reintegrate East Germany after the wall came down in 1989
I almost choked on my croissant Yes I replied I am aware of that I lived and worked in Berlin as a journalist in the mid 1990s when that very painful economically speaking process was taking place in Germany But doesn t that I said politely rather beg the question Germany integrating their brethren who d been isolated and impoverished during the cold war was a dream come true whatever the cost Germans on the other hand paying to bail out Greece is to average German rather the opposite of a dream come true is it not
He waved me off No no he said it will be taken care of The Germans he said understood how beneficial to them membership in the euro zone has been Without it the gentleman said the value of the Deutschemark would be 50 or 75 higher than it is under the euro German industry would be wiped off the map
In other words the Germans understood the benefits of the eurozone and loathed to give it up but they wanted the periphery to take the pain of adjustment
Now the consultant perked up speaking what he too believes to be the unvarnished truth They have to he said because to be blunt about it we have them both the Greeks and the Italians by the balls And make no mistake that in essence is where the European crisis stands The Germans and the ECB along with them believe perhaps hope is the better word that two new technocratic prime ministers former EU commissioner Mario Monti in Italy and MIT trained economist Lucas Papademos in Greece will cast politics aside and force angry populations in both countries to take their medicine whether they like it or not Because it s for their own good you understand And besides we have them by the balls They have to do what we say
Germany is at risk of overplaying its handI believe that Merkel is well tapped into this German attitude but she has stared into the abyss and realizes that Germany is at risk of overplaying its hand in pursuit of the goal of greater fiscal integration As Tim Duy correctly points out Merkel Company is playing a very dangerous game of chicken and the whole edifice could come tumbling down should anyone make the wrong move She is therefore trying to soothe German attitudes I am on your side but at the same time steer the German public consciousness toward the view that maybe Germany doesn t quite have Greece Portugal Italy Ireland by the balls To do that Merkel will have to manufacture a crisis The brinkmanship and all the hawkish statements coming out from Germany that we see today may be just for public consumption This is all theatre to show that we are indeed headed for a crisis so they have to take extraordinary measures to save Europe Don t forget Merkel has shown herself to be very European in outlook Consider for example her statements ahead of a CDU party congress which has tabled a proposal for countries to leave the eurozone
For months since the very beginning of the Euro debt crisis Germany has had only one goal that is to bring about a stabilization of the Euro zone in its current form to make it more competitive to consolidate budgets Merkel told a news conference after talks with Romanian President Traian Basescu And we firmly believe that this common Euro area is capable of winning back full credibility including every single country
Moreover this report from the FT shows that the CDU leadership is nudging its membership towards greater flexibility in allowing the ECB to take action
At party conference this week in Leipzig Ms Merkel s Christian Democratic Union left room for manoeuvre however Bond purchases by the ECB were acceptable as a last resort the party agreed in a resolution at its annual conference The ECB may yet get to show what it can do
At the about same time the German Council of Economic Experts or the Five Wise Men has drawn up a plan for a European Redemption Fund at sounds a lot like a eurobond with strings attached The idea of eurobonds has been anathema to the German public and the German government The five wise men is a council of economists nominated by the government to advise on government policy Could such proposals be a way of floating a trial balloon while allowing Merkel s government to distance itself should political opposition become fierce Another clue that that Merkel is preparing the groundwork for a rescue of the periphery countries comes from this story of an interview of J rg Asmussen the incoming chief economist for the ECB While he echoed the official German government line some of his responses were nuanced emphasis added
Mr Asmussen would not be drawn If you speculate about plan B then plan A is kaput Plan A rests on five factors all of which have to be in place he said a plan for debt resolution and growth for Greece the prevention of contagion to Spain and Italy creating a firewall by getting banks to mark down their holdings of government bonds and add more capital building another firewall with the EFSF and finally setting a road map for deeper monetary union
Easy
Nobody really expected Mr Asmussen to discuss plan B Nor was he likely to reveal his innermost thoughts But so cleverly did he speak that there will be no loss of face one day when the government rolls out plan B
Given that the crisis is already here the question of a rescue is one of timing A matter of timing Already there are rumors circulating about a plan for the ECB to lend to the IMF which then lends to the troubled peripheral countries The stars appear to be lining up for such a move The plan makes sense as the IMF has the resources to monitor individual countries for adherence to austerity programs while the ECB does not Such a move also provides a fig leaf for the German government to appease the hardliners as this plan does not appear to violate any treaty terms At the same time that European bond yield spreads are blowing out technicians over on this side of the Atlantic are sounding warnings about the bearish implications of a downside penetration of a triangle on the SPX on Thursday I would warn the bears that this has the markings of a possible fake out The index is now resting at its 50 Fibonacci retracement level and I would suggest even if you are bearish wait for a reflex rally to get short The conundrum for traders is a question of timing Does Merkel have the political capital to put such a plan in place now Or does she have to allow the crisis to continue in order to scare the living daylights out of everybody in order to say we had no choice but to act If she chooses the latter route events could spiral out of control even on this side of the Atlantic As an example Bruce Krasting painted a nightmare scenario stemming from the failure of MF Global because of the inability of anyone to find the missing 600 million in segregated funds emphasis added
Give the MFG story another month and it will be a problem It will undermine markets It will impact confidence in our financial system It will impact liquidity As those things occur it will force both Treasury and the Fed to take actions While those actions may not take the form of any direct bailout of MFG and or its customers there will be a significant cost to the broader economy
In an environment of uncertainty how do you know your money is safe in any account Krasing believes that the MFG failure could lead to a crisis of confidence and liquidity seizing up in the financial system
I have no doubt that money in seg accounts at the likes of Merrill and Morgan Stanley is safe That does not matter The cheapest thing one could do is put cash outside of seg accounts The most expensive thing one could do is leave it there and face a loss of principal It s a very lopsided risk and reward
Weekends seem to be a good time for the authorities to act and there are wheels within wheels with the politics of this eurozone crisis and traders should just react to headlines Don t ever forget why the EU came together in the first place and how committed the elite to this marriage At the very least bearish traders may want to wait until Monday before putting on short positions |
MS | A Bet for Bullard | James Bullard St Louis Fed head was on TV this morning He said a number of things that I thought were off base The biggest was his comment on the collapse of MF Global Bullard was pretty smirky about the ending for MFG He was pleased with the outcome He actually smiled I understand why Bullard thinks this is a story with a happy ending Here we are three weeks since the demise of the firm and as of yet there has been no crisis that has befallen the markets Bullard made clear that there has been no bailout of a financial firm this time around and that the system is working as it should Okay Mr Bullard I ll make you a wager A six pack of your favorite beer Give the MFG story another month and it will be a problem It will undermine markets It will impact confidence in our financial system It will impact liquidity As those things occur it will force both Treasury and the Fed to take actions While those actions may not take the form of any direct bailout of MFG and or its customers there will be a significant cost to the broader economy I would have agreed with Mr B if it were not for the problem of 600mm of missing client money There has been a massive effort by forensic accountants and the FBI to locate the loot As of last night no one has been able to find it Three weeks into this and no one can find it I would call that a crisis in and of itself It is now clear that something has happened that should never have happened Seg Account money has been lost This matter is far from over as Bullard suggests There will be ripple effects I m amazed that there has not been a market consequence to the MFG affair It s possible the larger issue of the ongoing collapse in Europe has so far masked the importance of this event I m amazed that the Treasury Deportment has not spoken out after three weeks Everyone who operates in markets understands risk But in my mind and in many others I went to sleep every night knowing that the money I had had in a trading account was segregated and therefore safe It s not possible to do that any longer That s a very significant change I m amazed that there has not yet been any evidence of money moving out of second tier brokerage accounts Should we get a confirmation that money is moving it s likely that contagion will occur I have no doubt that money in seg accounts at the likes of Merrill and Morgan Stanley is safe That does not matter The cheapest thing one could do is put cash outside of seg accounts The most expensive thing one could do is leave it there and face a loss of principal It s a very lopsided risk and reward Are we on Mr Bullard |
MS | The Great Escape | Last month in a Great Escape update I shared a chart of the Dollar and CRX the Morgan Stanley Commodity Index it s the first chart below What we saw in 2008 was a pattern that led to a rally in the Dollar and a wreck in commodity prices But the pattern appeared to be repeating in 2011 with almost identical contours The second chart is an update that continues to reflect a bullish pattern in the U S Dollar and a continuing series of lower highs in both the CRX and CRB indexes Oil is over weighted in the CRB index and despite an almost 20 per barrel rally in Crude oil the CRB continues to reflect weakness as it broke support last week These repeating patterns should have a significant influence on portfolio construction This pattern back in May suggested lowering exposure to risk assets at this point the message remains unchanged |
MS | Daily Analysis European Debt Fears Hit Equities | EquitiesAsian markets ended lower as investors focused on debt troubles in Europe China s markets led the declines as the Shanghai Composite shed 2 5 and the Hang Seng skidded 2 following a report from the IMF that China s banks face systemic risks The Nikkei fell 9 to 8463 while Olympus shares surged 15 amid growing expectations that the company will not be delisted The Kospi dropped 1 6 and the ASX 200 slid 9 In Europe news that the ECB was buying bonds helped stabilize the markets The major indexes closed mixed with the CAC40 up 7 while the DAX slipped 2 and the FTSE eased 1 Despite the ECB s efforts Italian 10 year notes settled above the 7 Heavy selling hit US stocks in the last hour of the day as investors were spooked by a report from Fitch which discusses US bank exposure to European debt The Dow dropped 191 points to 11906 and the S P 500 and Nasdaq both fell 1 7 Financials tumbled as Citigroup dropped 4 Morgan Stanley tumbled 8 and Goldman Sachs lost 4 2 CurrenciesThe Australian Dollar tumbled 1 1 to 1 0081 as risk aversion hit the market The Euro and Pound both lost 5 to 1 3463 and 1 5730 respectively and the Canadia n Dollar eased 3 to 1 0236 Economic OutlookWednesday s reports were upbeat suggesting the economic recovery is picking up The housing market index jumped to 20 from 17 its highest level in 18 months Industrial production rose 7 more than forecast CPI data showed a drop of 1 in prices but core CPI which excludes food and energy rose 1 |
MS | Daily Analysis European Debt Fears Hit Equities | EquitiesAsian markets ended lower as investors focused on debt troubles in Europe China s markets led the declines as the Shanghai Composite shed 2 5 and the Hang Seng skidded 2 following a report from the IMF that China s banks face systemic risks The Nikkei fell 9 to 8463 while Olympus shares surged 15 amid growing expectations that the company will not be delisted The Kospi dropped 1 6 and the ASX 200 slid 9 In Europe news that the ECB was buying bonds helped stabilize the markets The major indexes closed mixed with the CAC40 up 7 while the DAX slipped 2 and the FTSE eased 1 Despite the ECB s efforts Italian 10 year notes settled above the 7 Heavy selling hit US stocks in the last hour of the day as investors were spooked by a report from Fitch which discusses US bank exposure to European debt The Dow dropped 191 points to 11906 and the S P 500 and Nasdaq both fell 1 7 Financials tumbled as Citigroup dropped 4 Morgan Stanley tumbled 8 and Goldman Sachs lost 4 2 CurrenciesThe Australian Dollar tumbled 1 1 to 1 0081 as risk aversion hit the market The Euro and Pound both lost 5 to 1 3463 and 1 5730 respectively and the Canadia n Dollar eased 3 to 1 0236 Economic OutlookWednesday s reports were upbeat suggesting the economic recovery is picking up The housing market index jumped to 20 from 17 its highest level in 18 months Industrial production rose 7 more than forecast CPI data showed a drop of 1 in prices but core CPI which excludes food and energy rose 1 |
MS | Daily Market Analysis Currency Report | United States Fed Chairman Ben S Bernanke and his fellow policy makers are going to start another program of stimulus next quarter by injecting more money into the economy by purchasing mortgage securities instead of Treasuries The Fed may buy about 545 billion in home loan debt according to estimation While mortgage rates in the U S are already at about record lows The National Association of Realtors said last week price of U S existing homes dropped 4 7 percent in October from a year ago this continues to impinge the U S economy On the other hand Thanksgiving weekend in the U S had registered record sales as the holiday season gets under way and U S consumers spent 52 4 billion during the weekend The National Retail Federation announced yesterday that retail sales climbed 16 percent and shoppers spent 398 62 on average up from 365 34 a year earlier The important macro data coming this week that may impact on the U S markets and Currency are The New Home Sales expected to decrease to 312K Monday ADP Nonfarm Employment Change expected to increase to 130K Wednesday Initial Jobless Claims expected to decrease to 390K and ISM Manufacturing Index expected to increase to 51 5 Thursday Unemployment Rate expected to be unchanged at 9 and Nonfarm Payrolls expected to increase to 120K China Chinese corporate profit growth is decreasing as export demand from Europe keeps declining In a statistics bureau statement showed yesterday Industrial companies net income rose 12 5 percent in October from a year earlier less than half the 27 percent pace from January to September Europe s deepening financial crisis and a faltering recovery in the U S are affecting export companies in China More than 60 of Chinese companies that sold bonds in the past six months invest in the real estate market where sales are weakening Wang Tao a Hong Kong based economist for UBS AG said that the slowdown of the economy will become more prominent in the next two quarters Europe The 17 nation currency bloc may break if the governments and the European central Bank failed to intensify their crisis response according to economists from Morgan Stanley UBS AG Nomura International Plc and other banks The euro recorded its longest losing streak in 18 months on a number of issues such as Spain dropped plans to sell three year bonds Italy paid more to borrow for two years than for 10 Standard Poor s cut Belgium s credit rating and Portugal s was cut by Fitch Ratings below investment grade and Germany is no longer consider a safe haven following the disappointing government bond auction where the country was unable to sell more than a third of the benchmark 10 year bonds The fear keeps growing and concerns about the debt crisis is spreading to other countries as a solution to tackle the debt crisis is yet to be found Important macro data this week in the Euro Zone are French Consumer Spending MoM expected to increase to 0 2 German Unemployment Rate expected to remain at 7 Euro CPI YoY expected to remain flat at 3 all these data will be published on Wednesday German Manufacturing PMI and French Manufacturing PMI expected to remain at 47 9 and 47 6 respectively Thursday EUR USD The Euro plummeted against the U S dollar on last Friday to trade 9 weeks lows level in the range of 1 3205 1 3210 However the pair showed some optimism early today on the Asian market and reached a session high at 1 3334 The pair is currently trading just above the 1 3270 level However we don t see this pair to continue to trade at this level when the European market will opened on the fact that there is a big concern that the banking sector will collapse and lead to Insolvency in Italy and Spain and no concrete measures are being taken to tackle the debt crisis issues in the Euro Zone The pair support level is at 1 3221 and the resistance level is at 1 3334 WTIAUD USD The pair has been trading high between 0 9887 and 0 9789 in Asia after the pair opened at 0 9818 120 pips above past Friday s closing price on a news that the IMF could lend Italy financial support If this news is true then this should give risk appetite a decent boost today However AUD USD has currently pulled back from session highs of 0 9887 on reports saying IMF package for Italy isn t credible as quoted by international financial officials The pair resistance level is at 0 9887 and the current support is at 0 9795 but the pair could broke this level later to trade below 0 9700 as we are yet to receive good news from GBP against USD is trading higher in Asia in the range of 1 5495 1 5505 level However the pair remains very weak as the European debt crisis is seriously affecting all the economies in the Euro Zone The pair resistance level is at session high of 1 5523 and the Support level is at Friday s lows of 1 5422 It looks that the pair will suffer a correction to the early rise in the Asian market to trade in the range of 1 5430 1 5460 level Oil Oil climbed for a second day in New York on speculation that Europe s steps to tame its debt crisis may sustain demand and sanctions against Syria will threaten Middle East stability The Commodity jumped by 3 85 to trade at 98 83 dollar a barrel The trend on the commodity is that the price will continue to rise to towards the 100 a barrel after suffering some slight corrections intra trade S P 500U S stock futures rose signaling the Standard Poor s 500 Index will end a seven day losing streak after Thanksgiving retail sales climbed to a record and speculation grew that European leaders will boost efforts to solve the sovereign debt crisis The index is trading in the range of 1173 00 1174 00 points |
MS | Weekly Market Analysis | United States Fed Chairman Ben S Bernanke and his fellow policy makers are going to start another program of stimulus next quarter by injecting more money into the economy by purchasing mortgage securities instead of Treasuries The Fed may buy about 545 billion in home loan debt according to estimation While mortgage rates in the U S are already at about record lows The National Association of Realtors said last week price of U S existing homes dropped 4 7 percent in October from a year ago this continues to impinge the U S economy On the other hand Thanksgiving weekend in the U S had registered record sales as the holiday season gets under way and U S consumers spent 52 4 billion during the weekend The National Retail Federation announced yesterday that retail sales climbed 16 percent and shoppers spent 398 62 on average up from 365 34 a year earlier The important macro data coming this week that may impact on the U S markets and Currency are The New Home Sales expected to decrease to 312K Monday ADP Nonfarm Employment Change expected to increase to 130K Wednesday Initial Jobless Claims expected to decrease to 390K and ISM Manufacturing Index expected to increase to 51 5 Thursday Unemployment Rate expected to be unchanged at 9 and Nonfarm Payrolls expected to increase to 120K China Chinese corporate profit growth is decreasing as export demand from Europe keeps declining In a statistics bureau statement showed yesterday Industrial companies net income rose 12 5 percent in October from a year earlier less than half the 27 percent pace from January to September Europe s deepening financial crisis and a faltering recovery in the U S are affecting export companies in China More than 60 of Chinese companies that sold bonds in the past six months invest in the real estate market where sales are weakening Wang Tao a Hong Kong based economist for UBS AG said that the slowdown of the economy will become more prominent in the next two quarters Europe The 17 nation currency bloc may break if the governments and the European central Bank failed to intensify their crisis response according to economists from Morgan Stanley UBS AG Nomura International Plc and other banks The euro recorded its longest losing streak in 18 months on a number of issues such as Spain dropped plans to sell three year bonds Italy paid more to borrow for two years than for 10 Standard Poor s cut Belgium s credit rating and Portugal s was cut by Fitch Ratings below investment grade and Germany is no longer consider a safe haven following the disappointing government bond auction where the country was unable to sell more than a third of the benchmark 10 year bonds The fear keeps growing and concerns about the debt crisis is spreading to other countries as a solution to tackle the debt crisis is yet to be found Important macro data this week in the Euro Zone are French Consumer Spending MoM expected to increase to 0 2 German Unemployment Rate expected to remain at 7 Euro CPI YoY expected to remain flat at 3 all these data will be published on Wednesday German Manufacturing PMI and French Manufacturing PMI expected to remain at 47 9 and 47 6 respectively Thursday EUR USD The Euro plummeted against the U S dollar on last Friday to trade 9 weeks lows level in the range of 1 3205 1 3210 However the pair showed some optimism early today on the Asian market and reached a session high at 1 3334 The pair is currently trading just above the 1 3270 level However we don t see this pair to continue to trade at this level when the European market will opened on the fact that there is a big concern that the banking sector will collapse and lead to Insolvency in Italy and Spain and no concrete measures are being taken to tackle the debt crisis issues in the Euro Zone The pair support level is at 1 3221 and the resistance level is at pair has been trading high between 0 9887 and 0 9789 in Asia after the pair opened at 0 9818 120 pips above past Friday s closing price on a news that the IMF could lend Italy financial support If this news is true then this should give risk appetite a decent boost today However AUD USD has currently pulled back from session highs of 0 9887 on reports saying IMF package for Italy isn t credible as quoted by international financial officials The pair resistance level is at 0 9887 and the current support is at 0 9795 but the pair could broke this level later to trade below 0 9700 as we are yet to receive good news from against USD is trading higher in Asia in the range of 1 5495 1 5505 level However the pair remains very weak as the European debt crisis is seriously affecting all the economies in the Euro Zone The pair resistance level is at session high of 1 5523 and the Support level is at Friday s lows of 1 5422 It looks that the pair will suffer a correction to the early rise in the Asian market to trade in the range of 1 5430 1 5460 level Oil Oil climbed for a second day in New York on speculation that Europe s steps to tame its debt crisis may sustain demand and sanctions against Syria will threaten Middle East stability The Commodity jumped by 3 85 to trade at 98 83 dollar a barrel The trend on the commodity is that the price will continue to rise to towards the 100 a barrel after suffering some slight corrections intra trade S P 500 U S stock futures rose signaling the Standard Poor s 500 Index will end a seven day losing streak after Thanksgiving retail sales climbed to a record and speculation grew that European leaders will boost efforts to solve the sovereign debt crisis The index is trading in the range of 1173 00 1174 00 points |
C | Kilroy Realty starts public offering of 5M shares in connection with forward sale | Kilroy Realty NYSE KRC starts a public offering of 5M shares in connection with a forward sale agreement Barclays LON BARC and Citigroup NYSE C will act as joint book running managers of the offering KRC expects to enter forward sale agreements with affiliates of Barclays and Citigroup with respect to 5M shares or 5 75M shares if the over allotment option is exercised Under the forward sale agreements forward purchasers at Kilroy Realty s request are expected to borrow from third parties and sell to the underwriters a total of 5M shares for resale by the underwriters If any forward purchaser does not deliver and sell all the shares of KRC s stock to the underwriters Kilroy Realty will issue and sell to the underwriters a number of shares to make up the difference The company intends to use the net proceeds if any it receives upon settling forward sale agreements for general corporate purposes which may include funding development projects acquiring land and properties and repaying outstanding indebtedness Source Press ReleasePreviously Kilroy Realty FFO of 0 86 July 25 Now read |
C | Federal Reserve fines Citigroup 8 6 million for faulty mortgage document practices | WASHINGTON Reuters The Federal Reserve said Friday it had fined Citigroup N C 8 6 million over shoddy mortgage documentation practices at a subsidiary The Fed said that in 2015 CitiFinancial a bank subsidiary mishandled customer files as it was preparing to wind down its mortgage servicing business The regulator said the problem occurred in 2015 and was corrected and CitiFinancial exited that line of business in 2017
The Fed also said it was terminating a separate 2011 enforcement action against Citigroup on a separate residential mortgage loan servicing matter citing sustainable improvements by the bank |
JPM | 4 European Mutual Funds To Gain From Macron Presidency | Europe s economy gained momentum after Emmanuel Macron won the French presidential election on Sunday Macron s victory over right wing Nationalist Party candidate Marine Le Pen came as welcome news to investors as fears over a possible Frexit dissipated Instead investors are now focusing on the economic progress of France under the Macron presidency and the positive impact of this result on the Eurozone Banking on such positive trends the addition of mutual funds having significant exposure to European securities could prove to be lucrative Now let us take a look at some of the encouraging factors that contribute to gains in European mutual funds Macron s Win Ends Frexit FearsEmmanuel Macron became the next French President on Sunday putting an end to Frexit woes which had been lingering for months Macron easily defeated his opponent right wing Front National candidate Marine Le Pen by securing 66 of the vote Even then the enthusiasm among market watchers was both palpable and understandable While Macron had made it clear that he wants to keep France in the EU Le Pen was committed to hold a referendum in which people would decide whether to leave or stay in EU raising the specter of a Frexit But this departure did not have as much as an impact as anticipated This is possibly because Britain may not have been as central to the EU project as was believed earlier But a Frexit would certainly have had a major impact especially because France is also a member of the Eurozone With Macron s victory Frexit fears have subdued and came as a big relief for other European allies European Fund Register Steady Inflows in Q1In the first quarter European mutual funds posted best quarterly inflows of 210 billion in the last five years This was more than double the 82 billion inflow recorded in the prior quarter Strong investments in equity alternative and bond funds contributed to gains in the previous quarter According to Thomson Reuters Lipper European mutual funds added around 65 1 billion in March and registered inflows for the third straight month European mutual funds have totaled 210 5 billion so far this year as per Lipper s data Further strong inflows of around 100 billion are expected in European mutual funds following a favorable political backdrop in Europe Moreover the Eurozone experienced quarterly growth of 0 5 Such an expansion amounts to a yearly growth rate of 1 8 for the 19 country economic bloc This is significantly better than the first quarter growth pace of 0 7 recorded in the U S The Eurozone posted relatively better economic growth in the first quarter than the U S which makes mutual funds from this region a strong investment Buy These 4 European Mutual FundsAll the economic reports clearly indicate that Europe s economy is stabilizing Moreover the Vanguard FTSE Europe ETF gained 11 and 7 2 over the last three months and one month respectively Additionally mutual funds related to the European equity market also registered strong returns According to Morningstar the region s equity mutual funds posted three month year to date YTD and one year returns of 11 1 13 9 and 16 respectively This upbeat backdrop calls for investing in four European mutual funds that boast a Zacks Mutual Fund Rank 1 Strong Buy or 2 Buy Moreover these funds have impressive three month and year to date YTD returns They also have minimum initial investment within 5000 and low expense ratios We expect these funds to outperform their peers in the future Remember the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers Unlike most of the fund rating systems the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund JPMorgan NYSE JPM Intrepid European A seeks capital appreciation for the long run VEUAX invests a bulk of its assets in equity securities of European companies with key focus on those which are based in Western Europe The fund may try to manage its cash flows effectively by utilizing exchange traded futures The fund has three month and YTD returns of 10 9 and 15 2 respectively an expense ratio of 1 42 as compared to the category average of 1 44 VEUAX has a Zacks Mutual Fund Rank 1 Invesco European Small Company A seeks appreciation of capital for the long run ESMAX invests the lion s share of its assets in equity securities of small cap European companies Small cap companies are those whose market cap is similar to companies included on the Russell 2000 Index ESMAX mostly invests in depositary receipts and equity securities The fund has three month and YTD returns of 10 2 and 15 6 respectively and an expense ratio of 1 40 as compared to the category average of 1 44 ESMAX has a Zacks Mutual Fund Rank 1 Putnam Europe Equity A seeks growth of capital PEUGX invests heavily in equity securities of large and mid cap European companies PEUGX uses a blend strategy to invest in a company depending on factors including valuation growth prospect and cash flows The fund has three month and YTD returns of 11 2 and 14 respectively and an expense ratio of 1 31 as compared to the category average of 1 44 PEUGX has a Zacks Mutual Fund Rank 2 T Rowe Price European Stock seeks long term capital appreciation PRESX invests a major portion of its assets in companies that are located in Europe or whose operations are related to this region PRESX generally invests in common stocks of companies irrespective of their market capitalizations The fund has three month and YTD returns of 13 5 and 16 8 respectively and an expense ratio of 0 96 as compared to the category average of 1 44 PRESX has a Zacks Mutual Fund Rank 2 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 | My New Favorite MLP ETF | Income investors have always had an affinity for master limited partnerships or MLPs These unique vehicles offer exposure to the energy sector through a high yield equity like security Their business models and tax structures are such that they can pass through a great deal of their profits to shareholders in the form of dividends This makes them coveted for both their unconventional returns vs stocks or bonds in addition to their healthy income streams
Those who have dabbled in owning MLPs through an exchange traded product are probably most familiar with the venerable ALPS Alerian MLP NYSE AMLP or JP Morgan Chase NYSE JPM Alerian Exp 24 May 2024 NYSE AMJ Together these two funds control nearly 15 billion in total assets in a concentrated group of the largest MLPs by market capitalization
I consider these indexes the first generation of MLP fund exposure and they surely get the job done However like any technology or innovative process there is room for improvement in many areas For starters the expenses on these funds are still quite high compared to traditional stock like indexes There is also room for improving the index construction criteria to broaden exposure to this group or hone in on varying characteristics of the MLPs themselves
Fortunately the second generation of MLP funds is now taking note of these shortcomings and improving on them dramatically At the tip of this spear is a relatively new fund that is rapidly becoming one of my favorites in the class
The Tortoise North American Pipeline NYSE TPYP is nearing its second anniversary and has accumulated 72 million in total assets This unique ETF tracks the Tortoise North American Pipeline Index which represents a benchmark of energy pipeline distribution storage and processing companies
The fund is more diversified than a pure MLP index In fact it has 55 of the portfolio in traditional MLPs and the remaining in energy related corporations and LLCs This broadens the exposure to include nearly 90 stocks rather than the conventional 25 40 holdings that most dedicated MLP indexes are beholden to
I tend to like greater diversification because it reduces single sector volatility while still allowing investors to participate in the overall trend and price action Top holdings are in familiar names such as Williams Companies Inc NYSE WMB TransCanada Corporation TO TRP Enbridge Inc NYSE ENB and Kinder Morgan Inc NYSE KMI
Other than the obvious benefits of diversification another advantage of investing in this sector through an ETF is that investors aren t subject to a K 1 tax form Owners of TPYP and similar ETFs are subject to standard 1099 dividend income just like a traditional stock fund
TPYP also offers the lowest expense ratio of its peers at just 0 40 That s less than half the 0 85 management fee of a fund like AMLP It s also significantly lower than the actively managed First Trust North American Energy Infrastructure NYSE EMLP expense ratio of 0 95
EMLP is a closer comparison in terms of the underlying portfolio to the type of index strategy that is achieved in TPYP It s also a fund that and has seen its assets under management grow to over 1 6 billion
It s worth noting that the broader industry coverage of TPYP also works against it in terms of the portfolio yield As of the March 31 2017 ETF fact sheet the listed distribution yield is at 4 40 That s meaningfully lower than many other aggressive yield seeking MLP funds that target smaller companies or Nevertheless those types of funds are going to come with a much higher risk of invested capital as well
The Bottom Line
Both MLP veterans and industry newbies can find things to like about the structure of the TPYP portfolio It brings many positive attributes to the table and is one of my new favorite ETFs for diversified access to this sector
The key of course is finding the right time to add this type of fund to your While I haven t made an allocation yet this will become a staple on my watch list for a small tactical position when the right risk reward setup is presented to us
Disclosure FMD Capital Management its executives and or its clients June hold positions in the ETFs mutual funds or any investment asset mentioned in this article The commentary does not constitute individualized investment advice The opinions offered herein are not personalized recommendations to buy sell or hold securities |
JPM | J P Morgan JPM Up 3 Since Earnings Report Can It Continue | It has been about a month since the last earnings report for J P Morgan Chase Co NYSE JPM Shares have added nearly 3 in that time frame outperforming the market
Will the recent positive trend continue leading up to the stock s next earnings release or is it due for a pullback Before we dive into how investors and analysts have reacted as of late let s take a quick look at its most recent earnings report in order to get a better handle on the important drivers JPMorgan Q1 Earnings Easily Beat with Surprising Loan GrowthImpressive investment banking and trading revenues drove JPMorgan s first quarter 2017 earnings of 1 65 per share which handily outpaced the Zacks Consensus Estimate of 1 51 Also the figure reflects a 22 rise from the year ago period Notably the results included a legal charge of 218 million and a tax benefit of 373 million Improved fixed income and equity trading as well as a solid performance in investment banking drove the results Also strong loan growth and higher interest rates supported the top line Apart from these results were supported by a fall in provision for credit losses mainly driven by reserve releases in the Oil Gas loan portfolio However operating expenses reported a rise during the quarter Also lower mortgage banking income owing to fall in servicing revenues was a headwind The overall performance of JPMorgan s business segments in terms of net income generation was decent All segments except Consumer Community Banking and Asset Wealth Management reported a rise in net income on a year over year basis Net income for Consumer Community Banking fell 20 year over year while Asset Management declined 34 However net income for Corporate Investment Bank and Commercial Banking surged 64 and 61 respectively while the Corporate segment pleasantly surprised with net income Among other positives credit card sales volume improved 15 and merchant processing volume grew 11 Commercial Banking average loan balances increased 12 and Asset Management average loan balances rose 7 Higher Investment Banking Trading Revenues Costs RiseManaged net revenue of 25 6 billion in the quarter was up 6 from the year ago quarter A 37 jump in investment banking fees and 17 rise in fixed income market revenues were the primary reasons for the top line improvement Non interest expenses on managed basis were 15 billion a rise of 9 from the year ago quarter The increase was primarily due to higher compensation and legal expenses auto lease depreciation and FDIC related costs Notably excluding legal charges adjusted operating expenses were 14 8 billion Credit Quality A Mixed BagAs of Mar 31 2017 non performing assets were 6 8 billion down 15 from the year ago period Provision for credit losses fell 28 year over year to 1 3 billion primarily due to reserve releases in Wholesale loan portfolio However net charge offs were up 49 year over year to 1 7 billion Strong Capital PositionTier 1 capital ratio estimated was 14 2 as of Mar 31 2017 compared with 13 5 as of Mar 31 2016 Tier 1 common equity capital ratio estimated was 12 5 as of Mar 31 2017 up from 11 9 as of Mar 31 2016 Total capital ratio came in at 15 6 estimated as of Mar 31 2017 compared with 15 1 as of Mar 31 2016 Book value per share was 64 68 as of Mar 31 2017 compared with 61 28 as of Mar 31 2016 Tangible book value per common share came in at 52 04 as of Mar 31 2017 compared with 48 96 as of Mar 31 2016 OutlookIn the second quarter 2017 management anticipates NII to increase 400 million on a sequential basis driven by continued growth in loans and rate hikes For 2017 the company projects NII to increase about 4 5 billion based on steeper yield curve Mortgage revenues are expected to fall roughly 700 million mainly owing to margin compression in a smaller mortgage market and continued run off of the Servicing portfolio Moreover card services income will decline 600 million largely reflecting amortization of premiums on strong new product originations JPMorgan expects operating expenses excluding legal charges to be around 58 million Looking forward management expects underlying expense in CB segment to be relatively flat Management projects average core loan growth to be around 10 in 2017 that will be funded from strong deposit balance JPMorgan expects net charge off NCOs rate to be relatively flat across all businesses except Cards up but below 3 reflecting continued loan growth and the seasoning of newer vintages and Corporate and Investment Bank CIB down on absence of energy related NCOs Notably NCOs are projected to be around 5 billion excluding NCOs of 467 million related to the student loan portfolio write down in the first quarter driven by loan growth Consumer allowance for credit losses will likely increase 300 million this year owing to growth across businesses partly offset by allowance releases for the residential real estate portfolio Further wholesale allowance for credit losses excluding energy and metals mining portfolios is expected to rise marginally Management expects potential reserve releases in energy portfolio in the upcoming quarters reflecting stabilizing oil prices
How Have Estimates Been Moving Since Then
In the past month investors have witnessed an upward trend in fresh estimates There have been two upward revisions for the current quarter compared to one downward J P Morgan Chase Co Price and Consensus
VGM Scores
At this time J P Morgan s stock has a poor Growth Score of F however its Momentum is doing a lot better with a C However the stock was allocated a grade of F on the value side putting it in the bottom 20 quintile for this investment strategy
Overall the stock has an aggregate VGM Score of F If you aren t focused on one strategy this score is the one you should be interested in
The stock is suitable solely for momentum based on our styles scores
Outlook
Estimates have been broadly trending upward for the stock The magnitude of these revisions also looks promising Interestingly the stock has a Zacks Rank 3 Hold We are expecting an inline return from the stock in the next few months |
JPM | 3 Best Ranked Small Cap Growth Funds For Great Returns | Small cap growth mutual funds seek to provide a greater growth potential than the large and mid cap ones in an improving domestic economy This is because small cap stocks are closely tied to the domestic economy and have less international exposure So small cap growth mutual funds are safer bets than their large and mid cap counterparts following the recent developments in the U S economy Companies with market capitalization below 2 billion and an impressive growth prospect generally constitute the portfolio of these mutual funds Though small cap stocks are believed to provide higher returns they are also considered more volatile than the large and mid cap companies These mutual funds provide excellent choices for investors preferring long term capital appreciation over dividend payouts while seeking to protect their investments from global growth concerns Below we share with you three top ranked small cap growth mutual funds Each has earned a Strong Buy and is expected to outperform its peers in the future Investors can Franklin Small Cap Growth Class A seeks appreciation of capital for the long run FSGRX invests a bulk of its assets in the equity securities of small cap companies whose market cap does not exceed 1 5 billion or that have the largest market capitalization in the Russell 2000 Index whichever is larger Franklin Small Cap Growth Class A has returned 23 over the last one year period FSGRX has an expense ratio of 1 11 compared with the category average of 1 29 Hartford Small Company HLS invests in common stocks of companies that have strong capital growth potential HDMBX s sub adviser Wellington Management Company LLP invests the lion s share of its assets in common stocks of companies that fall within the range of both the Russell 2000 and S P SmallCap 600 Indices The fund seeks appreciation of capital Hartford Small Company HLS has returned 26 over the last one year period As of March 2017 HDMBX held 233 issues with 2 24 of its assets invested inInsulet Corp JPMorgan NYSE JPM Small Cap Growth seeks long term growth of capital PGSGXinvestsheavily in securities issued by small capitalization companies The fund also invests in securities of emerging growth companies The small capitalization companies are those whose market capitalization is similar to that of Russell 2000 Growth Index stocks JPMorgan Small Cap Growth has returned 39 8 over the last one year period Greg Tuorto is one of the fund managers of PGSGX since 2016 To view the Zacks Rank and past performance of all small cap growth mutual funds investors can Want key mutual fund info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing mutual funds each week |
MS | Euro zone economy sparkles lights way for ECB pull back | By Jeremy Gaunt and Jonathan Cable LONDON Reuters If the latest surveys of business intentions are to be believed the euro zone economy is sparkling growing at a pace that easily explains the hints from some European Central Bank policymakers of a pull back from their easy money regime IHS Markit s euro zone Flash Composite Purchasing Managers Index PMI an influential guide to the buying plans of businesses and hence growth hit a near six year high this month It climbed to 56 7 from February s 56 0 its highest reading since April 2011 and better than any predictions in a Reuters poll At the same time flash surveys for the currency bloc s two largest economies Germany and France also stormed past expectations to register near six year highs conditions likely to play into elections in both countries this year This is a really solid rate of expansion It s an economy firing on all cylinders Chris Williamson chief business economist at IHS Markit said of the euro zone He added that it implied first quarter economic growth of 0 6 percent quarter on quarter which would be the joint highest reading since the first quarter of 2011 One immediate impact may be to put pressure on the ECB to begin rolling back its historically easy monetary policy a combination of zero to negative interest rates and a large asset buying program Earlier this month the ECB pledged to extend its bond buying program to at least the end of the year citing weak underlying inflation and lackluster growth in the euro zone It will however reduce its monthly spend from April It also highlighted that it no longer felt a sense of urgency to take further action Since then some ECB policymakers notably Austria s Ewald Nowotny and Italy s Ignazio Visco have spoken of a rate hike within or just after the period of the bond buying program These PMI numbers will likely reinforce the ECB s view that downside risks are diminishing But the central bank will only tighten gradually Morgan Stanley NYSE MS said in a note The key will be inflation control of which is the ECB s primary mandate Markit s euro zone PMI sub index measuring prices charged by businesses rose to a near six year high of 53 3 Inflation in the euro zone was 2 0 percent in February around the ECB s target What we are picking up is an increase in suppliers ability to hike prices due to strong demand If that continues to intensify the ECB should become more worried Markit s Williamson said FRACTURING THE FORECASTS All nine of Friday s PMI reports manufacturing services and composite for the euro zone France and Germany beat even the most optimistic forecasts in Reuters polls of economists France s composite registered 57 6 in March from 55 9 in February a particularly significant rise given the country s economy is generally lagging and this put it above Germany How such data plays into the French presidential election the first round of which is in April remains to be seen National Front candidate Marine Le Pen will be hoping to capture votes from those angry with their economic lot But the two other leading candidates Emmanuel Macron and Francois Fillon are both calling for economic reform A hefty chunk of the electorate has yet to decide who to vote for if the polls are anything to go by Germany s PMI was driven mainly by strong demand for manufactured goods from the United States China Britain and the Middle East The manufacturing index reflecting more than two thirds of the economy rose to 57 0 from 56 1 in February
Such growth may well increase Germany s current account surplus a bone of contention between Berlin and others from Washington to Brussels |
MS | Morgan Stanley ups European earnings forecasts says financials in sweet spot | LONDON Reuters A stronger than anticipated economic recovery the return of inflation and the region s financial sector in a sweet spot has spurred Morgan Stanley NYSE MS to lift its earnings forecasts and targets for European benchmark indexes The U S bank now sees earnings per share growth for 2017 coming in at 16 percent for the MSCI Europe with the index rising as much as 8 percent over the next 12 months For the FTSE 100 FTSE the broker sees EPS growth of 24 percent and sees the index hitting 7 700 in a year Politics and stretched sentiment indicators low volatility and technically overbought levels are risks to watch Morgan Stanley said in a note to clients but added that the improving fundamental backdrop bodes well for stocks European equity markets are enjoying an earnings upgrade cycle unseen in recent years CHART Over the past decade forecasts for European earnings had already come off about 5 percent on average by March This year forecasts are up about 1 percent Morgan Stanley noted A key support to the firm s view on regional markets is optimism about financials which remains an overweight among the bank s recommendations European financials have taken sharp hits to profitability over the past several years on the back of a sluggish economy regulatory pressures and more recently ultra low or even negative interest rates Despite the rally since last summer shares of European financials continue to offer an attractive mix of low valuations and trough profitability Morgan Stanley said We believe they have entered a sweet spot where most if not all relevant factors are positive and or improving analysts at the U S broker said Banks however do remain most vulnerable to any uncertainty over politics
This being Europe political risk invariably seems to play some role in a bear case scenario they said |
JPM | Economic Calendar Top 5 Things To Watch This Week | Investing com Rhetoric rather than economics could be the main driver of sentiment in the week ahead as investors watch further developments amid a brewing trade war between the U S and its major trading partners
Trade war fears have been simmering for months keeping market gains in check with investors jittery over the prospects of further escalation in tensions between the world s two largest economies having an impact on economic growth
The coming week also marks the start of the second quarter earnings season on Wall Street which analysts have been hoping would take market focus away from trade and put it on strong corporate profits
Global financial markets will focus on this week s U S consumer price data which should give clearer signs on the pace of inflation and fresh hints on the frequency of Federal Reserve rate hikes through the end of the year
Elsewhere market participants will also be looking ahead to monthly trade figures out of China to see if the recent trade dispute with the U S had any impact on exports and imports in June
Meanwhile on the central bank front a monetary policy announcement from the Bank of Canada will be in the agenda with most analysts expecting a 25 basis point hike which would be the first increase since January
Ahead of the coming week Investing com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets
1 Trade War Developments In Focus
The United States and China slapped tit for tat duties on 34 billion worth of the other s imports on Friday with Beijing accusing Washington of triggering the largest scale trade war as the world s two biggest economies sharply escalated their conflict
Neither side is showing any signs of backing down fueling worries that world s two largest economies are spiraling towards a trade war that could shake the global economy
U S President Donald Trump said an additional 16 billion of Chinese products will be subject to tariffs in two weeks He also floated the idea that the final tariff total could exceed 500 billion an amount that roughly matches its total imports from China last year
Chinese state media slammed Trump s trade policies and likened his administration to a gang of hoodlums
Washington and Beijing appeared increasingly headed toward open trade conflict after several rounds of negotiations failed to resolve U S complaints over Chinese industrial policies lack of market access in China and a 375 billion U S trade deficit
Meanwhile Trump kicks off his visit to Europe at a summit of leaders of NATO countries in Brussels on Wednesday and Thursday where he is expected to hammer home his calls on other countries to spend more on defense While not on the summit s official agenda European leaders will voice their trade concerns to Trump diplomats said
Trump is then due to visit Britain on Friday where he will meet Prime Minister Theresa May as well as Queen Elizabeth
Trump has vowed to stick to his promises of protection for U S industries against what he says is unfair competition from China the European Union and beyond even if many analysts say his punitive tariffs are likely to backfire on the U S economy
Market players are worried that threats of higher U S tariffs and retaliatory measures by others could derail a rare period of synchronized global growth
2 U S Q2 Earnings Season Kicks Off
Wall Street s second quarter earnings season kicks off this week with major U S banks JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC all reporting Friday
Q2 earnings growth is tipped to be 20 7 according to Thomson Reuters data moderating slightly from a gain of 26 6 the first quarter which was the highest in seven years when results were boosted by tax cut tailwinds
However the season is being clouded by trade tensions and their impact on corporate profits with analysts likely to scrutinize outlook statements to see whether to adjust numbers for the rest of 2018
Wall Street shook off the tariffs on Friday which investors said had been well anticipated and priced in The S P 500 rose to a two week high partly buoyed by strong U S jobs growth However investors said that a significant escalation in tension would cause worries to set in
3 U S Inflation Data
The Commerce Department will publish June inflation figures at 8 30AM ET Thursday
Market analysts expect consumer prices to inch up 0 2 after rising at a similar rate in May while core inflation is forecast to tick higher by 0 2 the same as its rise a month earlier
On a yearly base core CPI is projected to climb 2 3 a tad faster than the 2 2 gain recorded in the preceding month
Core prices are viewed by the Federal Reserve as a better gauge of longer term inflationary pressure because they exclude the volatile food and energy categories
Rising inflation would be a catalyst to push the Fed toward raising interest rates at a faster pace than currently expected
Besides the inflation data this week s calendar also features reports on producer prices on Wednesday as well as a preliminary reading on Michigan consumer sentiment on Friday
Data released at the end of last week showed that the U S economy created more jobs than expected in June but steady wage gains pointed to moderate inflation pressures that should keep the Fed on a path of gradual interest rate increases this year
4 China Trade Figures
China is to release June trade figures on Friday morning
The report is expected to show that the country s trade surplus rose to 27 2 billion last month from 24 9 billion
Exports are forecast to have climbed 10 2 from a year earlier while imports are expected to rise 22 0
Prior to Friday s trade data the Asian nation will publish a report on foreign exchange reserves on Monday followed by data on consumer and factory inflation figures on Tuesday
China the world s largest exporter has so far escaped any major blow to its foreign trade sector despite rising trade tensions with the U S which last week warned it would continue to pursue tariffs on Chinese imports
5 Bank of Canada Rate Decision
The Bank of Canada s latest interest rate decision is due at 10 00AM ET on Wednesday with most experts expecting the central bank to raise its benchmark rate by 25 basis points to 1 5
If confirmed it would be the fourth rate hike over the past year as recent data has painted a robust picture of the Canadian economy
The central bank s governor Stephen Poloz said last week the next move would be decided by economic data
Canada added 31 800 jobs in June while the unemployment rate rose to 6 0 from 5 8 as more people sought work Statistics Canada said on Friday
The central bank has raised rates three times since July 2017 but took no action at its last three meetings as uncertainty over the North American Free Trade Agreement NAFTA has restrained business investment
Stay up to date on all of this week s economic events by visiting |
JPM | EU rivals gaining on Britain as top spot for investment in finance EY | By Emma Rumney LONDON Reuters Britain s lead as the top European destination for international investment in financial services is starting to narrow as continental rivals vying for its business are boosted by Brexit according to a report published on Monday The report by accounting and consulting firm EY found that the UK hosted just 14 more foreign investment projects in financial services last year than second placed Germany down from a gap of 67 in the previous year The number of projects in the UK fell 26 percent in 2017 compared to an increase of 64 percent in Germany 123 percent in France and 13 percent across Europe as a whole Britain s EU neighbors have looked to capitalize on uncertainty over its future access to European markets to encourage financial firms to set up shop in their own countries in a challenge to its long established reputation as the European capital for the sector Omar Ali EY s UK financial services leader said Britain hung on to the top spot as factors like its talent infrastructure and robust regulatory and legal systems were hard to replicate overseas But we can t ignore the drop in investment and forward looking sentiment investors are sending a clear message that answers are needed on future trading arrangements access to skills and the UK s future approach to the economy UK financial services attracted 78 foreign investment projects last year down from a record 106 in 2016 EY said Germany in second place won 64 while France saw 49 up from 39 and 22 respectively Ireland saw its number increase from 12 to 28 while Luxembourg attracted 17 projects compared to 2 in 2016 For global financial firms that rely on Britain s membership of the EU to run their European operations slow progress in Brexit negotiations has stoked fears that their access to the bloc could be restricted or even shut off altogether after March 2019 when Britain leaves This has prompted many to enact plans for a worst case scenario which usually involve shifting some of their British operations on to the continent to protect them even if Britain crashes out of the bloc with no deal Some banks including Barclays L BARC and JPMorgan N JPM have already started moving some of their staff elsewhere The question is will this be a temporary shift or the start of a more sustained trend Ali said A survey conducted by EY as part of the report found that two thirds of global financial firms hadn t changed their investment plans following the Brexit vote and 75 percent said they had no plans to relocate to the continent
Retaining strong trading arrangements with the EU was cited by 39 percent of investors as key to ensuring the UK remains attractive in future with 33 percent saying the same for trade deals with new countries and 31 percent highlighting incentives for foreign investors |
JPM | JPMorgan Maps Out Currencies to Buy If Recession Is Coming | Bloomberg If a U S or global recession is looming it s time to own the Swiss franc Singapore dollar U S dollar and Japanese yen and ditch emerging market currencies according to analysts from JPMorgan Chase Co NYSE JPM
Recessions are when creditors get to ask for their money back analysts including Paul Meggyesi said in a note dated July 6 Three of the top four currencies to own during a recession are those of countries that boast extremely strong external positions
The yen is the cheapest of the recessionary hedges while the Singapore dollar is the least attractive the team concluded The U S currency benefits because as the world s default funding currency the rest of the world needs to buy back dollars when banks and companies deleverage during recessions the JPMorgan strategists said The greenback has already been outperforming in recent months as trade tensions escalated
For the record the team said talk of a recession at this point is premature though concluded it sensible to review contingency plans amid the likelihood of a further escalation in trade tensions
Emerging market currencies are a clear stand out as particularly susceptible to slowdowns depreciating on average by 17 percent over a two year period straddling the start of a recession JPMorgan said The New Zealand dollar is by far the worst performer among the G10 currencies in a recession losing an average 7 to 8 percent the report said
JPMorgan drew on research of currency performance over the last five recessions While the yen historically had less impressive performance than the other three key hedges this time around its real effective exchange rate a measure that adjusts for relative inflation and trade flows is 23 percent below its 40 year average Ahead of the last three recessions it was 8 percent overvalued the bank calculated
That means Japan s currency should form a central part of any recessionary hedge the strategists wrote JPMorgan forecasts the yen to appreciate to 108 per dollar in September and 106 in December It was at 110 51 as of 6 06 p m in Tokyo
The bank separately said the dollar should extend recent gains against the euro after improved economic data from the 19 nation currency zone
This week we increase our overall long position in European FX through euro dollar as European data surprises have now edged ahead of the U S and could support another 1 to 2 percent rally in the European bloc Meggyesi and his colleagues wrote
Adds yen forecast in third to last paragraph |
JPM | Top 5 Things To Know In The Market On Monday | Investing com Here are the top five things you need to know in financial markets on Monday July 9
1 Optimism Spreads Over Global Markets
Global stock markets kicked off the week on strong footing with shares in Asia and Europe booking solid gains as nervousness seen in the markets recently appeared to subside amid a momentary thaw in trade war rhetoric and a solid U S jobs report
In Asia Chinese stock markets rallied outperforming other regional bourses The Shanghai Composite rose roughly 2 5 while the blue chip CSI 300 index surged 2 8
Elsewhere European shares were higher in mid morning trade on course to post a fifth straight advance with most sectors in the black Basic resources outperformed peers up by more than 2 as trade war news took a breather
Among national indexes Germany s auto heavy DAX index inched up 0 3 while the British blue chip index FTSE 100 gained around 0 5
Markets have been on edge in recent weeks amid worries that a brewing trade war between the U S and its major trade partners could derail a rare period of synchronized global growth
2 Dow Futures Up 100 Points
U S stock futures looked set to kick off the week on an upbeat note as investors took a break from trade focused worries and remained encouraged by last week s upbeat U S jobs report
At 5 40AM ET the blue chip Dow futures were up 110 points or around 0 5 the S P 500 futures tacked on 9 points or roughly 0 3 while the tech heavy Nasdaq 100 futures indicated a gain of 26 points or about 0 4
The S P 500 and the Nasdaq rose to their highest levels in two weeks on Friday as strong U S jobs growth blunted the impact of an escalating U S China trade dispute
Wall Street s second quarter earnings season kicks off this week with major U S banks JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC all reporting Friday
3 Dollar Slips To Lowest In Three Weeks
Away from equities the dollar was trading at three week lows against a currency basket after the latest U S jobs report showed wages grew less than forecast in June even as the economy created more jobs than expected
The sluggish wage growth pointed to moderate inflation pressures that dented expectations for a fourth rate hike by the Federal Reserve this year
The U S dollar index which measures the greenback s strength against a basket of six major currencies was down 0 3 to 93 50 the lowest level since June 14
In the bond market the U S 10 year Treasury yield inched up slightly to around 2 85
On the data front the calendar is thin today with no top tier reports on deck
Global financial markets will focus on this week s U S consumer price data which should give clearer signs on the pace of inflation and fresh hints on the frequency of Federal Reserve rate hikes through the end of the year
4 Oil Prices Mixed With Supply Prospects In Focus
Oil futures were mixed to start the week as market players continued to focus on global production levels
Brent crude oil futures were at 77 80 per barrel up 69 cents or 0 9 from their last close while U S West Texas Intermediate crude futures were down 13 cents or 0 2 at 73 66
Both benchmarks posted weekly declines last week amid indications of rising output from Saudi Arabia and the United States
5 UK Brexit Secretary Unexpectedly Resigns
Brexit Secretary David Davis resigned unexpectedly Sunday night delivering a fresh blow to Prime Minister Theresa May as she struggles to end divisions among her ministers who felt her plan to press for the closest possible trading ties with the European Union had betrayed their desire for a clean break with the bloc
The pound initially fell following the reports before staging an impressive turnaround amid indications that May would not face a major backlash against her Brexit policy and hopes that a softer Brexit may be on the cards moving forward
May appointed Dominic Raab as the new Brexit Secretary a statement from the prime minister s office said this morning Raab was previously a minister for housing
Sterling was 0 5 higher against the dollar at 1 3355 GBP USD having recovered from an overnight low of 1 3284 |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 Financial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
C | Why the Bank of England Will Probably Raise Rates and Why It Might Not | Bloomberg There are still plenty of reasons why Bank of England Governor Mark Carney and his colleagues might hold fire on an interest rate increase this week
Investors are betting there s a 90 percent chance of a quarter point hike to 0 75 percent on Thursday which would be only the second increase since the financial crisis That s despite Brexit weighing on the U K and the economy is already lagging behind its peers
This isn t a done deal said Dean Turner U K economist at UBS Wealth Management
Here are the reasons for and against
The Data Say Go
In May policy makers said that rates will need to go up a few times over the next three years to keep a lid on inflation if the economy performs as expected Since then the data have shown that growth picked up after a first quarter slowdown
Retail sales bounced back after a snow blighted start to the year employment is growing and the jobless rate has dropped to about 4 percent the lowest since the 1970s The bank s growth forecast of 0 4 percent for the second quarter looks achievable
At the same time oil prices are up and the pound is back near a 10 month low both of which will push inflation higher
If Not Now When
Timing is key Consumer price growth is currently running at 2 4 percent above the BOE s 2 percent target but it may not be there for long Economists forecast it will be back at the goal by early next year which could make selling a hike harder
There s also the argument that the BOE needs to get moving to get rates up before the next downturn if it wants to have decent space for cuts when they re next needed
Spending Splurge
Ultra low interest rates since the financial crisis may be encouraging Britons to live beyond their means Spending exceeded incomes in 2017 for the first time in three decades a report last week showed
If there s one thing that tips the balance it should be that said Andrew Sentance a former BOE policy maker and currently an adviser at PwC Keeping interest rates the same isn t the same as having neutral policy If you keep going down that path you ll hit a recession at some point
Brexit
On the other hand the prospect of a disorderly exit from the European Union could be a reason to hold off The U K is set to leave in March and it s not yet clear what the future relationship will be like If things go wrong the BOE could quickly revert to crisis fighting mode
Carney himself said this month that having no deal in place could present a financial stability event for both Britain and the EU and the bank is preparing contingency measures
Going Ballistic
For some the growth background isn t strong enough to withstand tighter policy While the BOE argues that Brexit has reduced the supply capacity of the economy meaning that domestic inflation will ramp up even at weaker rates of expansion Britain is still an underperformer in Europe Along with Italy it will have the slowest growth of any EU country this year
David Blanchflower who sat on the BOE s rate setting committee from 2006 to 2009 said he d go ballistic if rates are raised There s no evidence of any kind no data nothing to support it whatsoever
A marked pick up in headline wage growth remains elusive and an anticipated acceleration in annual price gains failed to materialize in June Stripping away external influences domestic inflation is actually slowing toward its weakest rate since 2009
Trade Wars
The tariff battle that the U S has initiated with both China and the EU has dominated the outlook for much of this year and a full blown trade war has implications for both growth and inflation
For Sentance that prospect shouldn t be a major factor in the MPC s decision because there ll always be something to worry about
Blanchflower who has long been on the more dovish side of debates with Sentance disagrees The risk of escalating tariffs is a major threat to the economy and should be reason enough to wait on a rate move he said
Housing Slump
The U K housing market which has traditionally underpinned consumption is weakening after a three decade boom Asking prices fell for the first time in seven months Rightmove Plc reported this month and London in particular has been hit hard
History
There are plenty of examples of premature rate hikes in central banking history most recently when the European Central Bank raised interest rates in 2011 as the economy slid into recession Economists at BofA Merrill Lynch HSBC Holdings Plc LON HSBA and UBS Group AG have said there s a chance that a BOE move now will look like a mistake in hindsight
The massive uncertainty mostly downside risk of Brexit makes it possible that they raise today and cut in November Willem Buiter special economic adviser at Citigroup NYSE C and former BOE policy maker said in a Bloomberg Television interview That would look a bit silly |
C | Hong Kong home prices hit another record but could face headwinds | By Venus Wu HONG KONG Reuters Hong Kong private home prices hit another record in June and climbed over 10 percent in 2018 s first half government data showed but analysts said potential interest rate hikes and trade disputes could crimp increases over the rest of the year Any cooling in prices would be good news for the government which has repeatedly vowed to make housing more affordable in a city often cited as the least affordable in the world Property prices rose 1 6 percent in June from May to break record levels for the 20th month in a row according to an index compiled by the Rating and Valuation Department released on Tuesday June prices were up 15 9 percent compared with a year earlier A 650 square foot flat on Hong Kong Island would cost nearly HK 11 5 million 1 47 million according to calculations using June data from property agency Midland Realty But after a 27 month long run of rising monthly prices the longest such period in Hong Kong s history analysts expect the red hot market to ease over the rest of the year The asking prices of some new projects are now less aggressive a sign that developers are keen to boost sales Cliff Tse regional director of valuation advisory services at property consultancy JLL said on Friday Combined with worries about a trade war and a potential interest rate hike house price growth in the second half of the year will not be as brisk as the first half
While several property consultancies expect prices to edge up at a reduced pace Citigroup NYSE C Global Markets Asia projected a 7 percent drop in the second half of 2018 |
C | Dollar Steadies After Fed Trade Data Offers Little Help to Aussie Dollar | Investing com The U S dollar steadied on Thursday after the Federal Reserve concluded a two day monetary policy meeting and upgraded its view on the economy Meanwhile the Aussie dollar weakened despite a jump in the country s trade surplus as escalating US China trade war is likely hurting the AUD
The U S dollar index which tracks the greenback against a basket of other currencies gained 0 11 to 94 56 by 12 30AM ET 04 30 GMT after the Fed gave an upbeat assessment on U S economy
The Fed left interest rate unchanged as expected after concluding a two day monetary policy meeting but upgraded its view on the economy
The committee said it expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity strong labor market conditions and inflation near the committee s symmetric 2 percent objective
The Fed delivered rather hawkish comments in the statement emphasizing the strength of the U S economy said Osamu Takashima head of G10 FX strategy at Citigroup NYSE C Global Markets Japan
There was no big surprise in last night s statement but the overall tone was a little bit stronger than last one
The greenback edged 0 14 lower against the yen to 111 57 following the Bank of Japan s pledge to keep rates low for an extended period on Tuesday while making modest tweaks to its policy
Elsewhere the AUD USD pair fell 0 31 to 0 7382 as the country s trade surplus widened in June but offered little help to the local currency
Official data showed on Thursday that Australia s exports fell to 3 in July from the previous month s 4
Imports on the other hand fell to minus 1 from June s positive 3
The USD CNY pair slipped 0 06 to 6 8194 The People s Bank of China PBOC set the yuan reference rate at 6 7942 on Thursday vs the previous day s fix of 6 8293 |
C | Russia s Shield Against Sanctions Draws Praise From Moody s | Bloomberg Russia is ready to absorb the blow from any new sanctions the U S throws its way according to Moody s Investors Service
Measures to cut down holdings of Treasuries and reduce exposure to the dollar have made the economy less vulnerable to the threat of deeper penalties Moody s analyst Kristin Lindow said in an interview The country could even weather the unlikely scenario of sanctions on sovereign debt recently proposed by U S lawmakers she said
The central bank has accelerated efforts to safeguard its financial system since Washington blocked the country s biggest aluminum producer from accessing capital markets in April sending investors fleeing from the country s assets Since then Russia appears to have sold four fifths of its cache of U S government debt an amount totaling 81 billion
When sanctions were imposed in April it became clear that transactions in dollars could be problematic to entities and individuals in Russia so they are planning accordingly Lindow said by phone from New York I think that is something any responsible policy maker would do
Moody s put Russia on a positive outlook in January setting it on course for a possible escape from junk in the next 12 18 months S P Global Ratings lifted the nation to investment grade earlier this year
Yields on 10 year ruble bonds have climbed to a 12 month high since a bipartisan group of senators introduced legislation on Thursday to impose sanctions for Russia s interference in U S elections Measures listed in the bill include sanctions on new Russian sovereign debt and energy projects Lindow said lawmakers are unlikely to target government bonds after the Treasury warned earlier this year of the potential for destabilizing global markets
I think Rusal was quite a lesson for them that they should look very carefully at how far reaching the consequences can be Lindow said I think the impact was bigger than they anticipated
Buying Yuan
In addition to selling Treasuries Russia has boosted the share of the yuan in its international reserves and pushed for payments in local currencies with many of its trade partners The government has also started testing a local alternative to the SWIFT payment system used for international banking transactions
President Vladimir Putin said late last month that Russia won t make any sharp movements or abandon the dollar but will take steps to minimize risks Russia will continue to use dollar as long as the U S authorities don t ban transactions he said
Analysts at Citigroup Inc NYSE C estimated that Russia s borrowing costs could rise by 2 percentage points if the latest bill passes into law Lindow says the country has enough liquidity locally to keep selling new ruble debt but other borrowers in the market may find themselves crowded out After an initial shock markets will adjust to the measures as they did after the U S first began implementing sanctions on Russian companies and individuals in 2014 over the Kremlin s annexation of Crimea she added
The Bank of Russia has been through that crisis already they know things worked out well then Lindow said I m sure the same kind of preparation is being done this time
Adds yield move in sixth paragraph |
MS | Brazil s inflation likely eases to 4 7 percent in mid March | By Silvio Cascione
BRASILIA Reuters Brazil s inflation rate probably approached the center of the official target in mid March as food prices continued to ease and a long recession curbed the increase of services prices according to a Reuters poll of economists on Monday
Consumer prices probably rose by 4 73 percent in the 12 months through mid March slowing from an increase of 5 02 percent in mid February according to the median of 25 forecasts that ranged from 4 68 to 4 82 percent
The government targets inflation at 4 5 percent
Prices are expected to have risen just 0 15 percent in mid March from mid February down from a rise of 0 54 percent in the previous month according to the median of 26 estimates that varied between 0 11 percent and 0 20 percent
The mid March inflation numbers will be released on Wednesday at 9 a m local time 1200 GMT
Falling inflation is expected by economists and investors to prompt the central bank to accelerate the pace of rate cuts at its next meeting in April and drive rates down to 8 50 percent by the end of 2018 from the current 12 25 percent
One of the best harvests in a decade should keep food prices down while a stronger currency should help fuel prices following the new fuel adjustment policy economists with Morgan Stanley NYSE MS wrote in a research note
The economists led by Arthur Carvalho estimated that inflation in services prices considered to be more sensitive to monetary policy and economic activity than industrial goods probably slowed to the lowest rate since 2008
Brazil s sudden inflation slowdown highlights the unprecedented severity of the country s two year recession and is helping President Michel Temer s economic team to restore the credibility of fiscal and monetary policy to curb price rises
Price increases have undershot market expectations for seven straight months according to Reuters polls As a result most economists expect the government to reduce its inflation target later this year for the first time in more than a decade |
MS | Morgan Stanley President Kelleher says trading activity has improved | By Olivia Oran Reuters Morgan Stanley N MS President Colm Kelleher said on Tuesday that trading activity for the first quarter felt slightly better than at the end of 2016 Kelleher said at a European financials conference that bond trading was doing well while client volumes in stock trading were down across Wall Street Bank executives including Citigroup N C Chief Financial Officer John Gerspach and JPMorgan Chase Co N JPM CFO Marianne Lake have also said in recent weeks that trading revenue this quarter would tick up modestly Investment bank Jefferies whose results are seen as a bellwether for big banks said on Tuesday its first quarter trading revenue rose more than six times from the year ago period Trading is the most volatile business on Wall Street and big revenue swings are common During the fourth quarter of 2016 Morgan Stanley s bond trading revenue rose to 1 5 billion from 550 million in the year ago period Banks broadly posted huge gains in bond trading at the end of last year driven largely by President Donald Trump s surprise U S election win But even with a resurgence in fixed income activity Kelleher said it was unlikely Morgan Stanley would drastically expand the business If we add it ll be at the margin he said Any pickup in the business won t be anything like it was in the glory days of leverage he added WTF MOMENT Morgan Stanley in late 2015 cut its fixed income headcount by 25 percent to adapt to a protracted slump in trading activity During the third quarter of 2015 Morgan Stanley reported a 43 percent slide in bond trading one of its worst performances since the financial crisis Kelleher said this caused a WTF moment which resulted in a reshaping of the business with fewer people and capital Separately Kelleher said the bank felt confident it would achieve a 9 to 11 percent return on equity target by the end of 2017 that Morgan Stanley CEO James Gorman had previously laid out The bank edged towards that goal during the fourth quarter with an 8 7 percent ROE |
JPM | Rife With Anxiety Markets Are Churning at the Fastest Rate Since 2008 | Bloomberg Once the hallmark of this bull run complacency has made way for angst
From junk bonds to emerging market stocks market turnover is through the roof reaching multi year highs Within the S P 500 Index investors traded more than 2 9 trillion worth of shares in each of the past two quarters a feat last achieved in early 2008
Burgeoning uncertainty from monetary policy and protectionism to cracks in the synchronized growth story has spurred elevated trading across assets
Market turnover tends to be high when uncertainty is high as institutional investors tend to reshuffle their portfolios JPMorgan Chase Co NYSE JPM strategists including Nikolaos Panigirtzoglou wrote in a note last month Negative growth revisions coupled with political and policy risks including the Italian crisis and trade war risks are creating a lot more uncertainty this year relative to last year
It s a similar story for developing nation assets at the mercy of a strengthening U S dollar and trade tensions Volume on the MSCI Emerging Market index reached 1 9 trillion in the three months through June the most since 1998 when a wave of currency devaluations and defaults ripped through emerging economies from Thailand to Russia
Churn on the most popular exchange traded funds has similarly surged ETF trading typically picks up during major macro events as investors hedge and move positions with broad exposures The iShares high yield credit ETF saw record quarterly turnover this year while the largest stock ETFs had the most tumultuous first half in as much as a decade |
JPM | Exclusive JPMorgan triggers EU talent transfer as dozens prepare for Brexit move | By Sinead Cruise LONDON Reuters JPMorgan N JPM has asked several dozen employees to lead a first wave of relocations from Britain to continental Europe by early 2019 kicking off plans to protect its business post Brexit a memo to staff shows In its first Brexit related mass communication to its 16 000 strong workforce in the UK this year JPMorgan highlights the organizational and strategic challenges facing global banks as they prepare for Britain s European Union exit It comes a day before Prime Minister Theresa May is due to host crunch talks with ministers at her country residence Chequers on how she wants to shape Britain s future trading relationship with the soon to be 27 member club Signed by Daniel Pinto chief executive of JPMorgan s Corporate Investment Bank and Mary Erdoes chief executive of the bank s Asset Wealth Management division Thursday s email also outlined JPMorgan s plans to beef up its presence in other EU cities including Paris Madrid and Milan Until now the Wall Street heavyweight was broadly expected to focus on expanding its Frankfurt Luxembourg and Dublin bases where it already holds banking licenses A spokesman for JPMorgan confirmed the authenticity of the memo which was also sent to its staff in continental Europe Middle East and Africa but declined to comment further The staff who have committed to leave Britain before Brexit Day on March 29 2019 primarily work in client facing or risk management roles in both the investment bank and asset management divisions The memo also said JPMorgan expected to migrate or add a few hundred roles to the EU based headcount by that date and it had already started recruiting for key positions but relocations could happen more gradually if a suitable transition deal was confirmed The total size of its EU workforce however was entirely dependent on whether an agreed transition arrangement is finally confirmed Just as we are working to minimize disruption for our clients we are looking to do the same for our people the memo said We want to avoid affecting the lives of employees and their families with changes that could prove to be unnecessary or premature as long as political negotiations and regulatory outcomes remain unclear UNCERTAINTY Slow progress in post Brexit negotiations with Brussels has raised fears of a so called hard Brexit that would cause major disruption to global banks who run their European businesses from Britain home to a thriving financial services industry and hubs for bond equity and currency trading With an October deadline on the trading relationship between Britain and the EU just weeks away banks have little idea how many EU staff they will need to maintain relationships with EU based governments companies and investors About 5 000 finance jobs will be shifted out of Britain or created overseas in the next few years if it is denied access to Europe s single market half the original forecast a Reuters survey in March found Shortly before the June 2016 referendum JPMorgan chief executive Jamie Dimon suggested the bank could move thousands of jobs out of London if Brexit talks failed to deliver a good outcome for the financial services sector But a letter sent to shareholders in April showed the bank s leadership remains open minded about the impact on its operations with a much larger number of job relocations seen just as possible as staying exactly as we are today
What we do not know and will not know until the negotiations are complete is what the end state will look like Dimon s letter said |
JPM | U S services sector activity picks up jobless claims rise | By Lucia Mutikani WASHINGTON Reuters U S services sector activity picked up in June amid strong growth in new orders but trade tariffs and a shortage of workers were starting to strain the supply chain which could slow momentum in the coming months While other data on Thursday showed private payrolls rising less than expected last month and a surprise increase in new applications for unemployment benefits last week overall labor market conditions continue to tighten The labor market is considered to be near or at full employment with the jobless rate at an 18 year low of 3 8 percent The unemployment rate has dropped by three tenths of a percentage point this year and is near the Federal Reserve s forecast of 3 6 percent by the end of this year The Institute for Supply Management ISM said its non manufacturing activity index rose 0 5 point to 59 1 last month A reading above 50 indicates expansion in the sector which accounts for more than two thirds of U S economic activity The survey s new orders index jumped 2 7 points to 63 2 but a measure of backlog orders fell 4 0 points to 56 5 A gauge of prices paid by services industries for inputs fell 3 6 points last month The ISM said while service industries continued to be optimistic about business conditions and the overall economy there is a continuing concern relating to tariffs capacity constraints and delivery Similar complaints have also been echoed by manufacturers The Trump administration has imposed tariffs on a range of imported goods including steel and aluminum to protect domestic industries from what it says is unfair competition from foreign manufacturers Major trade partners including China Canada Mexico and the European Union have retaliated with their own tariffs raising the specter of a trade war Economists have warned the import tariffs could disrupt the supply chain undermine business investment and raise prices for consumers and wipe out the stimulus from a 1 5 trillion tax cut package that came into effect in January As with the manufacturing report released on Tuesday there was plenty of anecdotal evidence that tariffs were beginning to have an impact but with the prices balance falling in June and new export orders rising there is little sign that this is affecting the economy yet said Michael Pearce senior U S economist at Capital Economics in New York TRUCK DRIVER SHORTAGE Services industries also complained about difficulties finding qualified workers especially truck drivers which some said was getting worse each month There are a record 6 7 million unfilled jobs The ISM survey s measure of service industry employment slipped in June but continued to show growth Some industries said they need to hire more people and others noted that employee retention is getting much more competitive Separately the ADP National Employment Report showed private employers hired 177 000 workers in June less than market expectations for a 190 000 gain Private payrolls increased by 189 000 jobs in May While the ADP report is generally not seen as a good predictor of the government s closely watched employment report which is scheduled for release on Friday it supported expectations of some cooling in job growth in June after May s robust gains According to a Reuters survey of economists nonfarm payrolls likely increased by 195 000 jobs last month adding to the 223 000 positions created in May The dollar fell to a three week low against a basket of currencies while prices for longer dated U S Treasuries rose slightly Stocks on Wall Street were trading higher In a third report on Thursday the Labor Department said initial claims for state unemployment benefits increased 3 000 to a seasonally adjusted 231 000 for the week ended June 30 It was the second straight weekly increase in jobless claims Economists polled by Reuters had forecast claims falling to 225 000 in the latest week Some economists blamed the rise in claims on automobile manufacturers shutting down assembly lines for annual retooling We had been expecting a move up like this because we thought that temporary auto plant shutdowns would lead to more initial claims filings during the week ending June 30 than normal for comparable weeks in recent years said Daniel Silver an economist at JPMorgan NYSE JPM in New York We think that the temporary plant closures which usually are on and off for about a month in the weeks around July 4 are likely generating noise in the claims data now so we do not think that the increase in claims over the past two weeks is an especially negative sign for the labor market
The four week moving average of initial claims considered a better measure of labor market trends as it irons out week to week volatility rose 2 250 to 224 500 last week |
JPM | Credit Suisse pays U S 77 million to settle Asia hiring corruption probes | By Jonathan Stempel Reuters Credit Suisse Group AG S CSGN agreed to pay about 77 million to settle U S bribery probes into its awarding of jobs to family and friends of Chinese and other government officials in the Asia Pacific region to win lucrative investment banking business The U S Department of Justice on Thursday said Credit Suisse s Hong Kong unit will pay a 47 03 million criminal fine and enter a non prosecution agreement in which the Swiss bank admitted and accepted responsibility for wrongdoing Credit Suisse will also pay 29 82 million to settle related U S Securities and Exchange Commission civil claims JPMorgan Chase Co N JPM agreed to pay about 264 million in Nov 2016 to settle similar probes into its hiring practices Credit Suisse was accused of violating the Foreign Corrupt Practices Act by hiring and promoting dozens of people connected with Asian government officials from 2007 to 2013 as a quid pro quo to win banking business The SEC said Credit Suisse offered jobs to more than 100 people with such ties during the period including over 60 recommended by officials from Chinese state owned companies Authorities said many of these relationship hires or referral hires were less qualified than other job candidates who lacked the desired ties They said one referral hire was the daughter of a top official for a state owned Chinese energy company Authorities said a senior Credit Suisse investment banker in Hong Kong called the daughter a princess who was not used to too many rounds of interview and that employees crafted a resume for her that had to be a bit creative in the details Trading employment opportunities for less than qualified individuals in exchange for lucrative business deals is an example of nepotism at its finest William Sweeney assistant director in charge of the Federal Bureau of Investigation s New York office said in a statement Credit Suisse said it has made numerous upgrades to its internal compliance procedures and controls and there were no allegations that clients or counterparties were harmed The bank had disclosed the expected Justice Department settlement last month
Credit Suisse under Chief Executive Tidjane Thiam is in the final stage of a three year restructuring following three straight annual losses tied in part to legal settlements and a scaling back of its investment banking business |
JPM | Where Investors Can Stash Their Cash as Tariffs Kick In | Bloomberg The U S might be the trigger for escalating trade tensions with China but it turns out that its currency could still be the best place for global investors to find safety as the dispute comes to a fresh crossroads Friday with tariff increases set to take effect
That s because the conflict is unfolding alongside what could be an even more powerful dynamic U S monetary policy normalization An appreciating dollar propelled by expectations for stepped up Federal Reserve tightening has hammered a wealth of markets since April when benchmark 10 year Treasury yields first pricked through 3 percent That s left some traditional havens like gold less of a buy while offering pockets of value such as Australian equities in areas investors might not typically have considered
The ultimate refuge investors and strategists say is the greenback Dollar based money market funds are now offering rates of about 2 percent a level above the yield on seven year Treasuries as recently as last September
The U S dollar is now the most popular safe haven asset said Cheuk Wan Fan head of investment strategy for Asia at HSBC Private Bank For a premium the bank is recommending dollar denominated emerging market debt where yields have climbed in response to Fed tightening
President Donald Trump s trade actions started unsettling investors in March when he warned about imposing new tariffs on aluminum and steel imports and investors have had several rounds of escalating tensions with China to gauge how assets respond One of the stand out observations is that a trio of typical havens haven t been doing so well
Gold a haven for millennia in times of turmoil hasn t been so hot the past three months falling more than 5 percent
Japan s yen often a safe harbor thanks to the country s status as the world s biggest net creditor has dropped almost 3 percent in that period
Switzerland s franc another favorite for the cautious is also down 3 percent
Behind the declines of all three has been the appreciation of the dollar up more than 4 percent as measured by the Bloomberg Dollar Spot index
The acceleration in Fed normalization also played a role in the declines with the U S central bank rolling off 40 billion of its bond holdings a month at the current pace and anticipating another half point in rate hikes this year While the monetary policy outlook has implications for Treasuries they are still seen by some as a buffer if global equities get roiled by fears that a trade war will damage global growth
Equities Drop
They are a safe haven even when shocks come from the United States Patrick Artus chief economist at Natixis Securities wrote of U S government securities in a note this week
Equities were on the back foot in Asian trading Thursday ahead of the scheduled U S tariff hike on 34 billion worth of Chinese products The MSCI Asia Pacific Index dropped for a fourth straight day to the lowest level since last October U S stocks rose 0 7 percent in light trading Thursday as of midday New York time
China has pledged to retaliate against the American move a response which Trump has indicated would then trigger an escalation in tensions Trump has suggested higher tariffs could be imposed on as much as an additional 400 billion of Chinese imports
More Volatility
Investors should expect volatility to continue said Mark Haefele chief investment officer at UBS Global Wealth Management We recommend investors stay invested but consider five actions looking to alternatives hedging equity exposure improving credit quality diversifying sector and country risks and taking a longer term view
The other main combatant in the trade dispute has seen its own government bonds rally this year in part thanks to moves by the People s Bank of China to support liquidity in an effort to prevent a deeper hit to economic growth Shaniel Ramjee a senior investment manager at Pictet Asset Management in London recommending yuan denominated Chinese government bonds
The dollar s strength in recent months has had the knock on effect of boosting Australian shares which have repeatedly offered a touch of green amid a picture of red for Asia Pacific equities in recent weeks James Audiss a senior wealth manager with Shaw and Partners Ltd in Sydney says the Australian currency s drop has bolstered the appeal of the country s companies even if a trade war could damage its exports
Aussie Stocks
I ve been talking to my guys on the desk saying we ve got to really watch the fact that we ve seen the Aussie dollar come off which is actually benefiting the Australian equities market Audiss said
Some investors including Alex Treves an investment specialist at JPMorgan NYSE JPM Asset Management in Hong Kong advise looking through the trade headlines and keeping focused on fundamental analysis
Treves likes emerging markets with solid growth prospects such as India where the S P BSE Sensex Index is up about 2 percent since the end of the first quarter in dollar terms compared with a 9 percent tumble for the MSCI Emerging Markets Index
For others riskier assets can hold for later once the storm blows over
Liquidity management instruments such as money market funds are good for investors to park cash in dollars said Fan at HSBC When more attractive levels emerge they can put cash back to work she said
And some still like the old stand bys
We re not giving up on a view that the yen is a good hedge for further turmoil and a further rise in FX volatility Kit Juckes a Societe Generale PA SOGN SA strategist in London wrote in a note to clients earlier this week It s taking an age driving us to distraction but the cycle is rolling over in the yen s favour Short Aussie yen has growing appeal given the trade dispute
Updates U S stock prices in ninth paragraph |
JPM | JPMorgan denies report of interest in Deutsche Bank | FRANKFURT Reuters U S investment bank JPMorgan N JPM denied a report on Friday in Germany s WirtschaftsWoche business weekly that it was interested in acquiring a stake in Deutsche Bank DE DBKGn We are denying the story it is not true a spokesperson for JPMorgan said Deutsche Bank pared earlier gains to trade 3 5 percent higher following the JPMorgan denial |
JPM | U S job growth underscores economy s strength tariffs a threat | By Lucia Mutikani WASHINGTON Reuters The U S economy created more jobs than expected in June but steady wage gains pointed to moderate inflation pressures that should keep the Federal Reserve on a path of gradual interest rate increases this year Nonfarm payrolls rose by 213 000 jobs last month as manufacturers stepped up hiring the Labor Department said on Friday The economy added 37 000 more jobs in April and May than previously reported It needs to create about 120 000 jobs per month to keep up with growth in the working age population Overall the report is good news insofar as it suggests the economy still has some capacity to grow at an above trend pace without generating much inflationary pressure said Michael Feroli an economist at JPMorgan NYSE JPM in New York Similarly it should ease the concerns of the hawks at the Fed who worry that the Fed s rate hike campaign is behind the curve The report showed strength in the economy before a trade war started between the United States and China which analysts warned could slow hiring especially in the manufacturing sector The U S and China slapped tit for tat duties on 34 billion worth of the other s imports on Friday Washington is also engaged in fights with other major trade partners including Canada Mexico and the European Union after President Donald Trump imposed tariffs on steel and aluminum imports Trump argues that the duties are necessary to protect domestic industries from what he says is unfair competition from foreign manufacturers Economists have warned the tit for tat tariffs could disrupt the supply chain undermine business investment and raise prices for consumers and wipe out the stimulus from a 1 5 trillion tax cut package that came into effect in January The unemployment rate rose to 4 0 percent in June from an 18 year low of 3 8 percent in May as 601 000 job seekers entered the labor force in a sign of confidence in the labor market That was the first increase in the jobless rate in 10 months The labor force participation rate or the proportion of working age Americans who have a job or are looking for one rose to 62 9 percent last month from 62 7 percent in May It had declined for three straight months Average hourly earnings gained five cents or 0 2 percent in June after increasing 0 3 percent in May That kept the annual increase in average hourly earnings at 2 7 percent But with a record 6 7 million unfilled jobs in April economists are confident that wage growth will accelerate later this year June s moderate wage growth should for now allay fears of the economy overheating The Fed s preferred inflation measure hit the central bank s 2 percent target in May for the first time in six years Economists expect inflation will hover around its target because of labor market tightness Wages could rise at a faster pace in the future as the economy is humming and the labor market is tight said Sung Won Sohn chief economist at SS Economics in Los Angeles However the ongoing trade war with China and our allies could hurt investment spending and hold back job and wage gains The dollar fell to a three week low against a basket of currencies on the employment report Prices for longer dated U S Treasuries rose Stocks on Wall Street were trading higher with the S P 500 and the Nasdaq indexes touching two week highs ROBUST ECONOMY Economists polled by Reuters had forecast nonfarm payrolls increasing by 195 000 jobs last month and the unemployment rate steady at 3 8 percent Minutes of the Fed s June 12 13 policy meeting published on Thursday were upbeat on the labor market The U S central bank raised interest rates last month for the second time this year and has projected two more rate hikes by year end A broader measure of unemployment which includes people who want to work but have given up searching and those working part time because they cannot find full time employment rose to 7 8 percent last month from a 17 year low of 7 6 percent in May The employment report together with data from the Commerce Department showing the trade deficit narrowed 6 6 percent to a 1 1 2 year low of 43 1 billion in May reinforced expectations of robust economic growth in the second quarter Gross domestic product growth estimates for the April June period are as high as a 5 percent annualized rate more than double the 2 0 percent pace logged in the first quarter But the Trump administration s America First trade policy is casting a pall over the outlook for the rest of the year and into 2019 Manufacturing construction and other sectors heavily reliant on trade are seen taking a big hit from the tariff wars Fortunately the economy has a good head of steam going into a period of significant uncertainty in terms of the impact of higher tariffs across a broad range of imports and exports said Brian Bethune chief economist at Alpha Economic Foresights in Boston Unequivocally this is a nightmare situation Manufacturers hired 36 000 workers in June the most in six months adding to the 19 000 jobs created in May The factory jobs were concentrated in the automobile industry which had seen a decline in employment in May after a fire at a major parts supplier disrupted production Construction payrolls rose by 13 000 last month after increasing by 29 000 jobs in May There were gains in professional and business services employment as well as leisure and hospitality But retailers cut 21 600 jobs last month after boosting payrolls by 25 100 in May
Government payrolls increased by 11 000 jobs in June buoyed by local government hiring |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
MS | S P 500 Closed the Month of October With Gain of 10 77 | The S P 500 closed the month of October with an impressive gain of 10 77 above the previous monthly close This was enough gain for the 10 month exponential moving average which is slightly skewed toward more recent performance to trigger a buy signal See the specifics here The Ivy PortfolioThe table below shows the current 10 month simple moving average SMA signal for each of the five ETFs featured in The Ivy Portfolio I ve also included a table of 12 month SMAs for the same ETFs for this popular alternative strategy Backtesting Moving AveragesMonthly Close Signals 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 ETFReplay com 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 Backtest an Individual ETFBacktest an ETF Portfolio requires a paid subscription Background on Moving AveragesBuying and selling based on a moving average of monthly closes can be an effective strategy for managing the risk of severe loss from major bear markets In essence when the monthly close of the index is above the moving average value you hold the index When the index closes below you move to cash The disadvantage is that it never gets you out at the 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 S P 500 monthly closes 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 exponential moving average 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 Crash of 1929 and Great Depression 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 Excel file xls format of the data My source for the monthly closes Column B is Yahoo Finance Columns D and F shows the positions signaled by the month end close for the two SMA strategies Recommended ReadingThe Ivy Portfolio In the past we ve recommended Mebane Faber s thoughtful article A Quantitative Approach to Tactical Asset Allocation The article has now been updated and expanded as Part Three Active Management his book The Ivy Portfolio 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 this month based on adjusted monthly closes but there was no signal if you ignored dividend adjustments See the comparison here 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 VNQ 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 |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
MS | Technical Analysis EUR USD GBP USD USD JPY and USD CAD | EUR USDThe surge in the euro after policy makers agreed to a plan to boost the region s rescue fund may prove short lived as economic fundamentals don t support an appreciation of the common currency according to Citigroup The 17 nation euro rallied the most in more than a year against the dollar yesterday after European leaders agreed to expand a rescue fund for indebted nations to 1 trillion euros 1 4 trillion and reached an accord with lenders for a 50 percent Greek debt writedown A strengthening euro is not corroborated by the fairly muted correction in fundamental drivers like sovereign debt risk Valentin Marinov and Steven Englander currency strategists at Citigroup in New York wrote in a note distributed today Measures of relative rate expectations like the two year German U S bond yield spreads actually tightened in the last few days The euro appreciated as much as 2 5 percent to 1 4247 the highest since Sept 6 The common currency fell 0 2 percent to 1 4162 at 12 02 p m New York A Citigroup model for accessing fair value indicates that the euro should trade at 1 385 The post summit euro rally is driven by a continuing squeeze in short risk positions and unwinding of worst fears of financial contagion wrote Marinov and Englander who didn t comment beyond the report when contacted today A short is a bet that a asset or security will decline in price GBP USDThe Bank of England should remain independent and free from interference by politicians in carrying out its task of tackling inflation U K Prime Minister David Cameron said Consumer prices rose 5 2 percent from a year earlier in September and Britain s central bankers are not happy at missing their 2 percent inflation target Cameron said in an interview with BBC TV s Andrew Marr Show broadcast today The Bank of England believe that what we are seeing is the temporary rise in the price level Cameron said according to a transcript of the interview That is their judgment and I think it is right to have an independent central bank making that judgment rather than leaving it to politicians as we did in the past They have got to do their mandate their job and I think it s very important they feel that they can do that Cameron said The Bank of England raised its bond purchase program by 75 billion pounds 120 billion to 275 billion pounds this month and kept the key interest rate at a record low 0 5 USD JPYAiding Europe may be Japan s best bet for weakening the yen after an expansion of central bank stimulus yesterday failed to stop the currency from advancing to another postwar high The Bank of Japan added 5 trillion yen 66 billion to an asset purchase program after Europe announced an enlarged rescue fund to counter the region s debt crisis JPMorgan Chase Co and Morgan Stanley MUFG Securities Co said the central bank s measure was too little The yen traded at 75 84 per dollar as of 12 35 p m local time today after rising to 75 66 yesterday A report today showed Japan s industrial production slid more than analysts forecast in September underscoring the threat that yen gains pose to exporters like Nintendo Co An easing of Europe s sovereign debt woes may diminish the currency s appeal as a haven Japan plans to support the increase in the fund and is awaiting details a person familiar with the matter said yesterday It s in Japan s interest to support this initiative said Takuji Okubo chief Japan economist at Societe Generale in Tokyo Europeans are desperate right now If Japan puts money in the fund and the euro strengthens and the yen weakens European leaders will accept that USD CADCanada s dollar registered a fourth weekly advance in the longest streak of gains since March as a plan by Europe s leaders to address the region s debt crisis sparked demand for growth sensitive assets The loonie as the currency is nicknamed strengthened beyond parity with the greenback and was set for the biggest monthly gain versus its U S counterpart since July 2009 It fell versus the majority of its most traded counterparts after Bank of Canada policy makers cut the nation s economic growth forecast Jobs growth may have slowed during October according to a Bloomberg News survey before the Nov 4 report It s very much overextended said Dean Popplewell head analyst in Toronto at the online currency trading firm Oanda Corp in a telephone interview meaning the loonie has appreciated too much too quickly If you were a betting individual you would prefer owning U S dollars down here We still have too many variables on the table Canada s currency touched 98 92 cents per U S dollar yesterday in Toronto the strongest level since Sept 20 It ended the week at 99 17 cents up 1 5 percent One Canadian dollar buys 1 0084 |
MS | Asian Market Update | SA South Africa Sept Trade Balance ZAR 2 5BB v 1 0Be CA Canada Aug Gross Domestic Product M M 0 3 v 0 2 e Y Y 2 4 v 2 2 e CA Canada Sept Industrial Product Price M M 0 4 v 0 2 e Raw Materials Price Index M M 1 4 v 1 9 e BR Brazil Sept Nominal Budget Balance BRL 9 2B v 17 1B prior Primary Budget Balance 8 1B v 8 1Be Net Debt to GDP Ratio 37 2 v 39 2 prior PD Poland Oct NBP Inflation Expectations 4 2 v 3 8 prior US Oct Chicago Purchasing Manager 58 4 v 59 0e US Oct Dallas Fed Manufacturing Activity 2 3 v 5 0e EU ECB drained 173 5B vs 173 5B targeted in 8 day Term Deposit tenderA confluence of global economic events is shaking up US markets this morning Another BoJ s solo currency intervention has faced some stiff headwinds in the form of a highly risk averse trading environment to begin the week In Europe equity indices fell sharply as yields on Spanish and Italian debt spiked higher as investors expressed worries about the details of the EFSF deal In the US MF Global declared bankruptcy after negotiations for the sale of assets with various partners broke down following a terrible Q2 earnings last week driven by big write downs on holdings of European debt much like Dexia in early October Share of Citigroup and Morgan Stanley fell as much as 6 in the first hour of trading while financials are broadly lower MF is a major derivatives market player and its traders have been barred from clearing trades on the ICE NYMEX and CME potentially restricting liquidity on the exchanges The US benchmark 10 year is up a full point depressing its yield to 2 2 In earnings news heath insurance giant Humana followed in the footsteps of its major competitors and reported very strong profits and hiked its FY11 outlook Home improvement retailer Lowes missed earnings targets by a wide margin as revenue contracted from year ago levels Note that Catastrophe losses at CNA in which Loews has a 90 percent stake were 32 million after tax compared with 8 million a year ago Shares of Lowes are down 2 in the early going Industrial name Shaw Group s results also widely missed expectations although the firm said that it was evaluating alternatives for its energy and chemicals business and has received multiple indications of interest helping shares SHAW is up 6 USD JPY consolidated around the 78 00 level throughout the NY morning as dealers waited to seek if the BOJ would continues with its intervention effort The pair did test 78 35 for a brief time as various accounts tried to spoof intervention price action The 78 00 was the prior resistance over the last two months and viewed as a pivotal level for the NY close EUR USD hovered around the 1 40 handle in the session as risk aversion flows were driven by the widening peripheral yields in Europe |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
C | Yuan s Fallout for Markets Means No Summer Lull for Traders | Bloomberg The market turmoil spurred by the Chinese yuan s tumble to a one year low is putting traders on alert during the normally sleepy Northern hemisphere summer
As the onshore yuan plunged 0 9 percent Thursday its biggest drop since 2015 on a closing basis it took most Asian currencies along for the ride amid broad dollar strength Copper slid below 6 000 a metric ton for the first time in a year slumping along with other industrial metals and shares of mining companies A gauge of emerging market currencies extended its rout since an April peak to 6 7 percent
Investors were caught off guard by the central bank s seeming indifference to the yuan s slide The People s Bank of China weakened its fixing beyond 6 7 per dollar Thursday for the first time since August 2017 With trade tensions between the Washington and Beijing simmering and possibly providing motivation for the Asian nation to let the yuan drop further the volatility may continue
The line in the sand may have shifted higher causing the market to pay up said Neil Jones the head of hedge fund sales at Mizuho Bank Ltd in London who added that a drop to 7 per dollar would be a major concern It s not shaping up to be a summer lull
The yuan s weakness appears to already be drawing the ire of U S President Donald Trump who said to CNBC that the currency is dropping like a rock putting America at a disadvantage Losses continued on Friday after the PBOC weakened the daily reference rate by the most in two years The yuan was down 0 2 percent at 6 7901 per dollar
Thursday s slide had multiple drivers including Federal Reserve Chairman Jerome Powell s upbeat assessment of the U S economy a view that s likely to keep the central bank on a gradual policy tightening path It s also been punished by growing pessimism about the outlook for Chinese economic expansion amid the nation s deleveraging drive as well as concern about the fallout from a possible trade war between the world s two largest economies
Investors are also trying to gauge the impact of China s efforts to bolster growth by loosening monetary policy Banks are being offered cash and given instructions to boost lending according to the banking and insurance regulator adding to evidence of a shift toward greater official support for the economy
It certainly does have traders sitting up even if not fully engaging yet said Oliver Jackson the global head of sales trading at Saxo Bank A S The slump in the yuan did catch most by surprise but it seems the market is now buying the lack of intervention as a positive note towards a shift in fiscal policy
Along with Mizuho strategists at Nomura International Plc also raised the possibility of the yuan falling to 7 per dollar a level it hasn t seen since 2008 TD Securities analysts see commodity linked currencies from Australia New Zealand and Canada as collateral damage Societe Generale PA SOGN said the yuan will be a factor that drives the dollar
Options markets haven t priced in significant fluctuations in the months to come One year implied volatility for the offshore yuan has climbed above 6 percent after the recent spot selloff Still that s far lower than this year s high of more than 7 percent reached in February not to mention spikes in 2015 and 2016 that pushed double digits
Strategists however are showing considerably more pessimism citing policy makers hands off approach to the slide The central bank may see the yuan s drop as beneficial to exporters the companies in the cross hairs of the U S s increasingly aggressive trade stance
Don t underestimate the geopolitics said Viraj Patel a strategist at ING Groep AS INGA NV in London The PBOC letting market forces work and not intervening is a signal Washington can t have it s cake and eat it can t call out China for manipulating currency markets and then have a go at them for letting market forces prevail
But it doesn t mean the PBOC can turn a blind eye if the weakness in the yuan accelerates Authorities will keep in mind what happened a few years back when a rapid depreciation drove capital outflow and policy makers were compelled to tighten financial conditions
Authorities have deep scars from the 2015 2016 experience said Calvin Tse the North American head of G 10 FX strategy at Citigroup Inc NYSE C Still so far all the signs we ve seen from China have shown a favoring of fine tuning measures |
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MS | U S producer prices rise broadly point to firming inflation | By Lucia Mutikani WASHINGTON Reuters U S producer prices increased more than expected in February as the cost of services such as hotel accommodation pushed higher and the year on year gain was the largest in nearly five years pointing to steadily rising inflation pressures Firming inflation together with a tightening labor market which is expected to generate strong wage growth could allow the Federal Reserve to raise interest rates on Wednesday Steadily rising inflation gives the Fed more reason to lift rates tomorrow said Jennifer Lee a senior economist at BMO Capital Markets in Toronto The Labor Department said on Tuesday that its producer price index for final demand increased 0 3 percent last month after rising 0 6 percent in January Economists polled by Reuters had forecast a 0 1 percent uptick In the 12 months through February the PPI jumped 2 2 percent the biggest advance since March 2012 and ahead of the 2 0 percent gain forecast in the Reuters poll It followed a 1 6 percent increase in January The fairly strong producer inflation readings came as Fed officials gathered on Tuesday for a two day policy meeting The dollar was trading higher against a basket of currencies while U S stocks were lower ahead of the Fed meeting Prices for U S Treasuries rose Producer prices are rising as the prior weak readings induced by cheap oil drop out of the calculation Crude oil prices have risen above 50 per barrel Also boosting price pressures are the dollar s 1 5 percent drop against the currencies of the United States main trading partners since January and overall commodity price gains in tandem with a firming global economy CORE PPI RISING A key gauge of underlying producer price pressures that excludes food energy and trade services increased 0 3 percent in February the biggest gain since April 2016 The so called core PPI rose 0 2 percent in January Core PPI increased 1 8 percent in the 12 months through February after advancing 1 6 percent in January The Fed has a 2 percent inflation target and tracks a measure that is currently at 1 7 percent The U S central bank is expected to raise its overnight benchmark interest rate by 25 basis points to a range of 0 75 percent and 1 00 percent on Wednesday It increased borrowing costs last December and has projected three rate hikes in 2017 In February prices for final demand services increased 0 4 percent accounting for more than 80 percent of the rise in the PPI That was the biggest increase since June 2016 and followed a 0 3 percent gain in January The increase in the cost of services was driven by a 4 3 percent surge in hotel accommodation There were also increases in the prices of chemicals legal services wholesale apparel and architectural and engineering services Healthcare costs rose 0 2 percent after a similar gain in January Inpatient healthcare services increased 0 3 percent last month while the cost of outpatient care rose 0 2 percent Those costs feed into the Fed s preferred inflation measure the core personal consumption expenditures index As a result of last month s increase Morgan Stanley NYSE MS economist Ted Wieseman said he expected a 0 16 percent gain in PCE medical services in February after an unchanged reading in January Medical services accounts for 19 percent of core PCE The cost of energy products increased 0 6 percent last month slowing from January s 4 7 percent surge Wholesale food prices increased 0 3 percent after being unchanged in January
Inflation pressures are continuing to build in the U S economy said Rob Martin an economist at Barclays LON BARC in New York With labor markets continuing to tighten and the dollar and commodity prices broadly stable we see inflation firming this year and next |
MS | BOJ chief Kuroda sets high hurdles for tapering rate hike in wake of Fed move | By Leika Kihara and Minami Funakoshi TOKYO Reuters Bank of Japan Governor Haruhiko Kuroda said an uptick in inflation toward 1 percent won t immediately trigger an interest rate hike signaling that Japan will stick to its ultra easy policy even as other major economies eye withdrawing stimulus Kuroda who heads to Germany for a Group of 20 finance leaders meeting this weekend also echoed calls from European policymakers to protect free trade in an apparent push back to the protectionist streak of U S President Donald Trump Not only the G20 but the IMF and OECD have said protectionism damages global trade and global economic growth and that it is necessary to maintain free trade and investment Kuroda told a news conference on Thursday Japan s stance on this will not change As widely expected the BOJ maintained its pledge to cap long term interest rates around zero at a policy meeting earlier in the day The move was in stark contrast to the U S Federal Reserve s decision hours earlier to hike interest rates for the second time in three months in an effort to return policy to a more normal footing But Kuroda made clear the BOJ would not follow the Fed s footsteps any time soon saying that Japan still needed massive monetary support with inflation distant from the bank s 2 percent target and risks to growth skewed to the downside He shrugged off market speculation the BOJ may raise its target on bond yields later this year when consumer inflation is expected to approach 1 percent due mostly to a rebound in fuel costs and rising import prices from a weak yen Some market participants believe core consumer inflation will approach 1 percent in the latter half of this year That might very well happen But we won t automatically raise our yield target just because this happens Kuroda said Instead of looking at a single price data point the BOJ will take into account various factors like the health of the economy and long term inflation expectations he said The momentum for inflation to accelerate to 2 percent remains in place but lacks strength Kuroda said The BOJ will continue to promote powerful monetary easing to achieve its price target at the earliest date possible The BOJ on Thursday maintained its short term interest rate target of minus 0 1 and a pledge to guide the 10 year government bond yield at around zero percent It also kept intact a loose pledge to maintain the pace of its annual increase in Japanese government bond JGBs holdings which is 80 trillion yen 706 billion PROTECTIONISM A RISK Japan s long stagnant economy has shown signs of life in recent months with exports and factory output benefiting from a recovery in global demand Core consumer prices rose for the first time in over a year in January and analysts expect them to continue to pick up slowly but steadily That has led to a dramatic shift in market expectations with a majority of analysts polled by Reuters predicting the BOJ s next move would be to start scaling back its ultra easy policy Some analysts say the BOJ may be forced to raise its yield target to avoid ramping up bond purchases if Japanese long term interest rates track global bond yield rises which are being driven by expectations of higher U S interest rates Kuroda rebuffed such a view saying that he does not see the need to raise the yield target just because the Fed is doing so His latest comments may scale back market expectations of a near term rate hike and embolden analysts who doubt the economy will gather enough steam for inflation to rise sustainably Very few people expect inflation to reach 2 percent In addition I see no change to inflation expectations said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities In these circumstances raising the 10 year yield target cannot be considered Even if the BOJ wanted to move I don t think it could A rising global tide of protectionism is adding to concerns for Japanese policymakers given the economy s heavy reliance on exports and free trade Trump has accused Japan for using money supply to weaken the yen and give its exports an unfair trade advantage Kuroda stressed the BOJ s easing was aimed at beating deflation and that interest rate differentials between Japan and the United States alone would not determine currency moves |
MS | Opinion polls score much needed Dutch election win | By John Geddie and Philip Blenkinsop LONDON AMSTERDAM Reuters Dutch election results eased investor concerns on Thursday that opinion polls were systematically underestimating the strength of populist feeling especially in France after an outcome broadly in line with surveys of voter intentions Pollsters had been chastised for not capturing an anti establishment upsurge before 2016 s Brexit vote and Donald Trump s U S election even though both results were within a reasonable margin of error Dutch Prime Minister Mark Rutte s victory after fending off a challenge from far right rival Geert Wilders appears to have silenced some of those critics in what could be an important factor for maintaining financial stability ahead of French German and possibly Italian elections later this year The biggest of those political tests is seen as the French presidential run off in May which is likely to pit eurosceptic Marine Le Pen against centrist Emmanuel Macron Polls suggest she has little chance of winning trailing by around 20 points For the first time in a long time we have had polls that have actually worked said Ryan Myerberg a portfolio manager in Janus Capital adding that the push back against populism meant markets could breathe a bit easier about the French outcome Polls conducted ahead of election day accurately reflected trends and the order of the parties although they did not forecast the full extent of the lead of Rutte s VVD party All in all we did pretty well said an employee at research group Ipsos declared by newspaper De Volkskrant as the most accurate pollster Dutch polling agencies pride themselves on their near exclusive use of anonymous online questioning more reflective of a society with some 95 percent of the population active on the web and weighting of responses according to likelihood to vote They argue it limits under reporting of the anti establishment vote In France pollsters used to inflate the score attributed to Le Pen s National Front to compensate for what they saw as a reluctance by some voters to acknowledge voting for it In recent years they have removed that weighting saying that voters are no longer reluctant to say who they vote for In notes to clients on Thursday banks Barclays LON BARC and JPMorgan NYSE JPM said one of the main conclusions from the election was that populist parties are not systematically underestimated by pollsters and that polls remain important bellwethers Relief spread across European markets after the Dutch result with shares climbing to a 15 month high and the euro marking its biggest one day gain against the dollar in nine months Leaders across Europe also applauded the outcome PREDICTIVE PERFORMANCE Even if the opinion polls in France seem emphatic investors may not want to bank on that outcome just yet Polls swung behind Rutte in the Netherlands in the final weeks but had previously shown Wilders out in front The impact of late gamechangers such as Rutte s firm stance against Turkey in a dispute which dominated the last few days ahead of the vote could have implications for the French and German votes later this year Many Dutch voters were still undecided just days before the election We had some 14 percent of voters deciding on election day itself some even only making up their minds in the voting booth said Marianne Bank research director at Ipsos Pollster Maurice de Hond said that showed the need to intensify polling efforts in the final week Voters making up their minds at the end has such a big effect he said With nearly two months to go until the final vote in France there could be similar shifts in voter intention in a campaign that has already seen scandals swirl around all three main candidates The decent predictive performance of opinion polls in the Dutch vote is likely to restore confidence in French surveys which have consistently ascribed a low probability to Marine Le Pen winning said Adrian Hilton portfolio manager at Columbia Threadneedle Investments It s probably a little too soon to sound the all clear however UNDERESTIMATED The Dutch result could also help further undermine a body of investor opinion that believes betting markets are a clearer gauge of sentiment than polls a theory that prevailed ahead of the Brexit and U S votes On both occasions bookmakers were further off the mark than largely equivocal opinion polls It gives you some firmer belief in polls but I think disappointment from last year around Brexit and Trump was overdone said Kaspar Hense a portfolio manager at BlueBay Asset Management
Analysts at Morgan Stanley NYSE MS said a perceived large polling error for both Brexit and the U S election was actually only around 2 4 percent Even assuming a bigger margin of error in France the bank sees around a 15 percent chance of a Le Pen win versus some bookmakers odds showing around 30 percent |
MS | Investment banks ditch the diet and look to expand study | By Anjuli Davies LONDON Reuters After several years of restructuring and regulatory pressure investment banks have reached a turning point after Donald Trump became American president and can look to grow again according to a study published on Friday The world has turned upside down post the U S elections said the joint annual study by Morgan Stanley NYSE MS and management consultants Oliver Wyman This is the first year since we ve been producing this paper that we re looking to see a significant shift to the positive in terms of revenue growth operational leverage and return on equity said Magdalena Stoklosa head of European financials research at Morgan Stanley Globally investment banks have been on an intensive diet since 2011 and have shrunk their balance sheets on aggregate by a third according to the analysis produced in the 7th edition of the Blue Paper With the global economy appearing to be on a stable footing the Federal Reserve raising interest rates and political rhetoric pointing to a pause on new banking regulation growth beckons for an industry reshaped by the global financial crisis In three years time return on equity could reach 13 to 14 percent across the industry from 10 to 11 percent currently the study said Regulatory costs are expected to peak in 2017 and decline by as much as 40 percent by the end of 2020 However European banks lagging in their restructuring programs are expected to continue to underperform their rivals on the other side of the Atlantic U S banks could see return on equity rising to 15 percent from 11 percent currently from a combination of revenue growth and removing costs over the next three years European banks are forecast to improve their return on equity to 11 5 percent from 7 5 percent currently with 75 percent of that uptick driven by cost cutting and only 25 percent by revenue growth U S banks are sitting on 83 billion of excess capital which could be used to invest in profitable business lines or paid out in share buybacks or dividends whilst European banks have a mere 1 billion of excess capital to play with Fixed income currencies and commodities revenues which faced the brunt of regulation are forecast to grow 2 percent over the next five years to 119 billion after shrinking to 109 billion from 140 billion over the previous five Unlocking excess capital and collateral turns secular headwinds to tailwinds powering a sustainable inflection in the global FICC pool for the first time in a decade the study said
Our bull case Dares to Dream If the US administration s tax reform fiscal stimulus and deregulation agenda is achieved we would expect much stronger revenue growth and more capital release the study said |
MS | U S factory consumer sentiment data boost economic outlook | By Lucia Mutikani WASHINGTON Reuters U S factory output increased for a sixth straight month in February while consumer sentiment rebounded in early March underscoring the economy s resilience even as growth appears to have slowed significantly in the first quarter That was supported by other data on Friday showing a gauge of future economic activity rose in February to its highest level in more than a decade The improving outlook backs the Federal Reserve s decision this week to raise interest rates First quarter growth is likely to disappoint but that is not the full economic story said Joel Naroff chief economist at Naroff Economic Advisors in Holland Pennsylvania There are other segments that are starting to pick up the slack The Fed said manufacturing production increased 0 5 percent last month after a similar gain in January That was the biggest back to back increase in three years Rising commodity prices are boosting demand for machinery and other equipment Manufacturing which accounts for about 12 percent of the U S economy is regaining ground as the prolonged drag from lower oil prices a strong dollar and an inventory overhang fades It is also benefiting from a surge in business confidence amid promises by the Trump administration to pursue business friendly policies including tax cuts and deregulation Manufacturing is set to do well for a change after several years of lagging far behind said Michael Montgomery a U S economist at IHS Markit in Lexington Massachusetts The sector is racking up solid growth that is a very welcome change at beleaguered factories The dollar fell to a five week low against a basket currencies remaining under pressure for a third straight session after the Fed raised interest rates on Wednesday for the third time since the 2008 financial crisis but stuck to its gradual pace of monetary policy tightening Stocks on Wall Street were little changed while prices for U S government debt were trading higher SENTIMENT RISES President Donald Trump s pledges to boost economic growth and employment have also been embraced by Americans leading to a jump in consumer sentiment In a separate report on Friday the University of Michigan said its consumer sentiment index rose 1 3 percentage points to a reading of 97 6 in early March The survey s measure of current conditions was the highest since 2000 as households grew optimistic about their finances That reflects two straight months of job gains above 200 000 While Trump s election has buoyed confidence among households and businesses that has not translated into a surge in either business or consumer spending as details of the administration s economic policy remain vague Despite the favorable news on sentiment real consumer spending has been looking pretty soft in recent months said Daniel Silver an economist at JPMorgan NYSE JPM in New York In a third report on Friday the Conference Board said its leading economic index increased 0 6 percent in February to its highest level in over a decade The Atlanta Fed is forecasting GDP rising at a 0 9 percent annualized rate in the first quarter braking after the fourth quarter s 1 9 percent pace February s solid increase in manufacturing output was insufficient to lift industrial production which was unchanged because of a 5 7 percent weather driven plunge in utilities generation Industrial production fell 0 1 percent in January Mining output increased 2 7 percent last month lifted by a 7 1 percent surge in oil and gas well drilling Last month manufacturing output was boosted by a 0 8 percent rebound in the production of motor vehicle and parts Machinery output increased 1 1 percent There were also increases in the production of primary metals fabricated metal products and nonmetallic mineral products Computers and electronic products output rose 0 7 percent last month With manufacturing output accelerating capacity utilization a measure of how fully factories are deploying their resources rose 0 3 percentage point to 75 6 percent last month the highest since October 2015 Still it remains 2 8 percentage points below its long run average
Business surveys have shown an encouraging pickup in investment plans since the election but for now low capacity utilization rates are providing limited urgency to ramp up capex immediately said Ted Wieseman an economist at Morgan Stanley NYSE MS in New York |
JPM | China drags on Asia shares politics on euro and peso | By Wayne Cole SYDNEY Reuters A renewed slide in Chinese shares and a sobering set of factory surveys sucked Asian markets lower on Monday while the euro and the Mexican peso were both jolted by political developments at home E Mini futures for the S P 500 ESc1 followed with a loss of 0 5 percent and European bourses were seen opening down Shanghai blue chips CSI300 resumed their slide with a fall of 2 3 percent that soured sentiment across the region MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS fell 0 6 percent adding to a 2 percent drop last week Japan s Nikkei N225 shed 2 2 percent to an 11 week low with a survey of manufacturers showing sentiment had darkened a shade in the face of trade war threats The purchasing managers index PMI still edged higher for June but exports orders softened Tension is growing ahead of a July 6 deadline when the U S is due to impose US 34 billion of tariffs on Chinese exports The key risk for the market isn t that Trump actually implements his trade threats but rather that a protracted period of trade uncertainty begins to weigh on economic activity said analysts at JPMorgan NYSE JPM in a note The evidence suggesting this is happening is far from conclusive but ominous data points are accumulating Two surveys of Chinese manufacturing out in the last few days showed a softening in activity partly due to softness in exports A slew of factory readings from across the globe are due on Monday while the U S ISM report is out on Tuesday Minutes of the last Federal Reserve policy meeting come on Thursday and the week closes with U S payrolls for June A DEAL OR NOT In currency markets the euro took an early knock on reports German Interior Minister Horst Seehofer had rejected a migration deal German Chancellor Angela Merkel negotiated at a European Union summit on Friday The currency then partly bounced on news Seehofer had offered to step down as minister and as chair of his Christian Social Union CSU party The move makes the future of Merkel s government even more uncertain as her Christian Democrats party CDU relies on the CSU to maintain power through a coalition formed three months ago to end a political vacuum After all that the euro was 0 33 percent easier at 0 1642 EUR having skidded as far as 1 1632 at one stage The U S dollar gained 0 18 percent on a basket of currencies to 94 808 DXY but was still below Friday s top of 95 324 It was flat on the yen at 110 68 having been as high as 111 06 at one stage The Mexican peso see sawed after leftist Andres Manuel Lopez Obrador won a decisive victory for president Dealers said the clear win might settle one source of political uncertainty but Obrador was also expected to sharpen Mexican divisions with U S President Donald Trump After an initial retreat the dollar soon rebounded to be flat at 19 9050 pesos up from last week s trough around 19 5580 Trump also loomed large in oil markets with crude taking a spill after he tweeted that Saudi Arabia had agreed to lift oil production by maybe up to 2 000 000 barrels The missive was later downplayed by the White House and Saudi Press Agency
Brent crude LCOc1 lost 97 cents to 78 26 a barrel while U S crude fell 73 cents to 73 42 The pullback was still modest given U S crude rallied more than 8 percent last week while Brent gained more than 5 percent |
JPM | Oil falls as Saudi Russian output rises | By Christopher Johnson LONDON Reuters Oil prices fell on Monday as supplies from Saudi Arabia and Russia rose while economic growth stumbled in Asia amid an escalating trade dispute with the United States Benchmark Brent crude oil LCOc1 fell 1 24 a barrel to a low of 77 99 before recovering to 78 40 down 83 cents by 0735 GMT U S light crude CLc1 was 50 cents lower at 73 65 Oil prices rose strongly last week with the U S crude contract hitting its highest in 3 1 2 years at 74 46 But a flurry of U S announcements over the weekend unsettled oil markets U S President Donald Trump tweeted on Saturday that Saudi Arabia s King Salman bin Abdulaziz Al Saud had agreed to pump more oil maybe up to 2 000 000 barrels The White House later walked back on the comments Saudi Arabia s output is up by 700 000 barrels per day bpd from May a Reuters survey showed and close to its 10 72 million bpd record from November 2016 Russian output rose to 11 06 million bpd in June from 10 97 million bpd in May the Energy Ministry said on Monday U S production has soared 30 percent in the past two years to 10 9 million bpd meaning the world s three biggest oil producers now churn out almost 11 million bpd each meeting a third of global oil demand Also weighing on oil demand are trade disputes between the United States and other major economies including China the European Union India and Canada Asia s main economic hubs of China Japan and South Korea reported a slowdown in export orders in June amid escalating trade disputes with the United States Recurring salvos in the trade war and falling asset prices raise the question of how much tariffs could damage the global economy U S bank JPMorgan NYSE JPM said The bank said a medium intensity trade conflict would likely reduce global economic growth by at least 0 5 percent before accounting for tighter financial conditions and sentiment shocks Despite the relief from Saudi Arabia and Russia oil markets remain tense because of unplanned outages from Canada to Venezuela and Libya Looming U S sanctions against Iran further contribute to expected tightness Trump threatened in an interview that aired on Sunday to put sanctions on European companies that do business with Iran The Trump administration s plan for Iran sanctions is now abundantly clear They seek to push Iranian exports of crude condensate and oil products to zero energy consultancy FGE said in a note |
JPM | China Set for Record Defaults and Downgrades Tip More Pain | Bloomberg China is zooming to a record year of corporate bond defaults with the 2018 total already more than three quarters of the previous high even before an expected economic slowdown bites
Chinese companies have reneged on about 16 5 billion yuan 2 5 billion of public bond payments so far this year compared with the high of 20 7 billion yuan seen in all of 2016 according to data compiled by Bloomberg Strains are set to get worse if the trends of credit rating companies are anything to go by agencies including Dagong Global Rating Co have been downgrading firms by an unprecedented margin
Corporate profits have worsened this year and are unlikely to improve against the backdrop of an economic slowdown Li Shi general manager of the rating and bond research department at China Chengxin International Credit Rating Co Refinancing will continue to be tough as long as the crackdown on shadow banking continues
While the People s Bank of China has made steps to support the flow of lending to companies many private businesses lack the access to the state dominated banking system that national behemoths enjoy and rely on credit from securities tied to wealth management products and other nontraditional vehicles Rising yields are set to make refinancing maturing debt all the tougher
Borrowers have missed payments on at least 20 domestic bonds so far this year according to data compiled by Bloomberg There was about 66 3 billion yuan of defaulted notes outstanding at the end of May or 0 39 percent of corporate bonds outstanding PBOC data show While still small that share may be poised to rise
Dagong has reported 13 credit rating downgrades compared with 10 upgrades so far this year the highest such ratio on record according to Bloomberg compiled data Results from Dagong peers such as China Chengxin International Credit Rating Co and China Lianhe Credit Rating Co show similar trends
The silver lining is that the defaults show Chinese regulators are increasingly comfortable with allowing struggling companies to fend for themselves without official rescues Ultimately failures may help provide discipline to providers of credit and force less productive enterprises out of business
Necessary Defaults
They are necessary for better credit risk pricing and will create a healthier bond market in the long term Christopher Lee managing director of corporate ratings at S P Global ratings in Hong Kong said of defaults It is unlikely there will be a wave of large scale defaults or concentration of defaults any such developments will be quickly contained to prevent systemic risks from emerging
With rising trade tensions with the U S threatening to hurt corporate cash flows the temptation to shore up credit provision may rise Data over the weekend showed that a gauge of export orders tumbled into contraction in June
An escalation of the trade conflict could add to defaults in China s financial system said Jing Ulrich JPMorgan Chase Co NYSE JPM s vice chairman for Asia Pacific Consumer demand and the wider economy are likely to weaken and that may translate into worse credit quality down the road she said in a Friday interview in Hong Kong
The volume of bond defaults will most likely surpass 2016 and hit a record this year said Lv Pin an analyst in Beijing at CITIC Securities While most failures in 2016 were from state owned firms in industries with excess capacity the majority of defaulters this year have been private sector firms With a variety of industries represented the data show the breadth of the deterioration he said
Updates with JPMorgan comment in penultimate graph |
MS | Daily Analysis US Payroll Data Stronger than Forecast | EquitiesOn Friday Asian markets closed higher ahead of US payroll data boosted by a boost in liquidity by the ECB The Nikkei advanced 1 to 8606 the Kospi rallied 2 9 and the ASX 200 climbed 2 3 Hong Kong s Hang Seng jumped 3 1 to 17707 while China s Shanghai Composite remained closed for a holiday but will reopen on Monday US payroll data was stronger than forecast as the economy gained 103K jobs sending European stocks higher in the afternoon European indexes rose modestly closing at a 5 week high The CAC40 rose 7 the DAX gained 5 and the FTSE edged up 2 Mining and resource stocks led the gains as the sector advanced 1 4 Despite the upbeat payroll news US markets closed down in a volatile session The Nasdaq slid 1 1 the S P lost 8 while the Dow fared better closing down just 20 points at 11103 S P Closes Down After Volatile SessionFinancial firms fell sharply as Goldman Sachs Citigroup and Morgan Stanley all fell more than 5 Sprint shares tumbled nearly 20 after announcing it would stop supporting devices which use the Clearwire networks Clearwire s shares plunged 32 CurrenciesCurrencies closed mixed after a volatile session The Euro slipped 4 to 1 3378 while the Pound rose 8 to 1 5562 The Swiss Franc eased 7 to 1 0785 and the Yen closed flat at 76 69 Economic OutlookWholesale inventories rose 4 less than expected Moody s downgraded 12 UK financial firms and Fitch cut ratings on Italy and Spain Monday is Columbus Day Banks will be closed but the markets are open No major economic reports are scheduled for Monday |
C | Bitmain and Three Billionaires Invest in EOS Launcher Block one | EOS launcher Block one revealed on Monday a new investment round led by Bitmain and three billionaires Peter Thiel Alan Howard and Louis Bacon Block one did not disclose the sum raised but noted that it would be used for the new company s business expansion
Currently Block one is developing the EOSIO blockchain an open sourced distributed ledger technology DLT for creating decentralized applications
Its EOSIO blockchain performance and scalability can meet the needs of demanding consumer applications and will pave the way for mainstream blockchain adoption Jihan Wu co founder of Bitmain in a statement
Bitmain is the world s biggest producer of application specific integrated circuit ASIC chips and was valued at 12 billion in its latest funding round
The other Block one investors have experience in backing innovative projects in their early phases Billionaire Peter Thiel is the co founder and former CEO of PayPal and led the company s move to becoming a publicly traded firm He also backed Facebook NASDAQ FB SpaceX and Airbnb when the projects started Thiel s venture firm Founders Fund recently invested in crypto startup Tagomi Systems which aims to ease virtual trading orders for high value clients
Alan Howard and Louis Bacon are hedge fund managers with net worths of more than 1 billion according to Forbes Bacon is Moore Capital s CEO while Howard is co founder of the Brevan Howard fund
Block one s latest funding round comes several days after major changes in its management team Last week the company the former HR managing director at Citigroup NYSE C James Mendes as chief people officer while several days earlier the former CEO of Jefferies Group Michael Alexander also the company
Block one founded by Brendan Blumer and Daniel Larimer in 2016 is the issuer of the EOS protocol and sells EOS tokens Michael Novogratz and his Galaxy Digital fund led the previous Block one investment round
EOS EOS is the fifth largest cryptocurrency with a market capitalization of more than 7 billion as of the time of publishing |
C | Traders Exit Gold ETFs as Dollar Leaves Metal by the Wayside | Bloomberg Gold buyers are moving to greener pastures
Investors dumped exchange traded funds backed by the metal for the eighth straight week the longest stretch of outflows since January 2014 The exodus comes as appetite for the metal wanes amid a strengthening dollar and solid demand for equities
Gold is on track for a fourth straight monthly loss as solid U S economic data and expectations of higher interest rates from the Federal Reserve drive investors into higher yielding assets Traders picked the dollar over the non interest bearing metal as the haven of choice as geopolitical turmoil and a trade dispute between the U S and China roiled markets
Expect gold to remain out of favor until the Fed shifts John Caruso a senior market strategist at RJO Futures in Chicago said by telephone As long as the Fed remains hawkish in its monetary policy stance the dollar is the place to be Gold has fallen by the wayside
Gold futures for August delivery fell 0 1 percent to settle at 1 239 70 an ounce as of 1 30 p m on the Comex in New York That s the lowest close this year The metal has declined for four of the last five weeks
Waning demand for the metal is affecting gold equities AngloGold Ashanti Ltd and Newcrest Mining Ltd were among the biggest losers Monday in an index of gold miners which extended losses after posting the worst week since May
USD Strength
While the momentum is against gold some see a glimmer of hope Citigroup Inc NYSE C analysts including Ed Morse and Aakash Doshi expect that the metal may turn around soon
While the USD strength is likely to remain a headwind for gold in the short term investors may favor gold again especially if the trade friction rises further and becomes a more sizable threat to economic growth and to the decade long equity market bull run the analysts said in a commodities outlook report emailed Sunday
Total known ETF holdings dropped to 69 44 million ounces Friday the lowest since March according to data compiled by Bloomberg
In other precious metals
Silver slid on the Comex
Platinum and palladium futures fell on the New York Mercantile Exchange |
C | Copper Prices Are About to Go on Steroids Citi Says | Bloomberg Copper s slump amid a deepening global trade conflict offers a long term buying opportunity according to Citigroup Inc NYSE C which shrugged off fears for world growth to boost its long term forecasts
Prepare for a decade of Dr Copper on steroids analysts including Max Layton and Tracy Liao wrote in a July 17 note The bank sees average annual prices at 8 000 a metric ton in 2022 passing 9 000 a ton by 2028 under its baseline scenario The metal often viewed as a barometer of world economic health closed Tuesday at 6 152 a ton in London
Copper has spiraled lower in the past six weeks as President Donald Trump upends global trade with disputes involving multiple nations most critically with No 2 economy China But in the longer term Citigroup said prices have to rise because the metal is getting much more difficult and more expensive to mine
We look beyond the potential trade war to longer term copper market fundamentals and we find that current prices of 6 200 a ton are nowhere near high enough to enable the market to clear the analysts said Copper is set to outperform most other commodities under our coverage over the coming decade on a lack of mine supply growth
Citigroup s forecasts from 2023 are based on a new long term forecast of 7 500 a ton assuming 2 percent annual inflation up from an earlier outlook of 7 000 a ton the bank said The metal slumped to its lowest in a year earlier this month after touching its highest since 2014 in June
The bullish outlook chimes with other analysts and miners who see a supply shortage looming as urbanization and the rise of renewable energy and electric vehicles fuels the world s need for the metal Demand can keep growing at an average of 2 7 percent a year through 2030 with new energy sectors and EVs contributing most of the increase according to Bloomberg Intelligence The market is entering a long period of deficits starting this year Citigroup said
The overall lull we re seeing in project development will start to weigh on the market and we ll start to see supply fall well behind what are relatively conservative demand forecasts Daniel Hynes senior commodity strategist at Australia New Zealand Banking Group Ltd said in a Bloomberg TV interview I m still quite positive on copper in the longer term but even in the shorter term we re starting to see some value and concerns around the trade war are overdone
Citigroup added a note of caution for the near term in its report noting that if a full blown trade war materializes copper will fall materially lower before it goes higher again Still that s not the bank s base case and copper should find a floor near current prices as high cost mines come under pressure in the low 6 000 range it said
Adds chart and commentary from ANZ in seventh paragraph |
JPM | Weekend Update Gold Overshoots Targets May Be Ready To Decline | VIX appears to have completed the right shoulder of an inverted Head Shoulders neckline at 16 28 It is on abuy signal above Long term support at 13 01 Abreakout above the neckline suggests that the Ending Diagonal formation may also be at risk of a breach An actual change in long term trend may occur above the top trendline of the 15 month long Ending Diagonal formation at 18 00
Last week we noted that the CBOE Volatility Index VIX was sitting on its second largest for this point in the year going back 10 years As of yesterday s five month high of 16 28 however the VIX had topped its 2014 high water mark racking up its largest January to mid April gain in at least a decade up nearly 16 according to Schaeffer s Quantitative Analyst Chris Prybal For comparison the S P 500 Index SPX sports a relatively mediocre year to date lead of roughly 5
SPX consolidates between support and resistance
SPX bounced from its weekly Intermediate term support at 2327 20 but was repelled by its Cycle Top resistance at 2354 64 and beneath the trendline of the Orthodox Broadening Top near 2365 00 The SPX is on an aggressive weekly sell signal A break of Intermediate term supportmay send the SPX to its cycle Bottom at 1876 38 or possibly lower The MACD crossover below indicates a probable bearish start to the negative seasonality beginning in April
U S stocks were little changed as investors assessed the French vote this weekend and after the benchmark gained as U S Treasury Secretary Steven Mnuchin said plans to reform taxes have progressed
The S P 500 lost less than 0 1 percent at 10 a m in New York The benchmark rose 0 8 percent on Thursday as financial and industrial shares climbed The Dow Jones Industrial Average added 22 points to 20 601
NDX bounces off its trendline
NDX bounced from Short term Support at 5391 74 and the trendline of the Orthodox Broadening Topat 5365 00 A loss of that support may create a sell signal in the NDX with a subsequent decline testing lower supports A decline beneath mid Cycle support at 4630 78 may bring a potential change of trend with it
WolfStreet No one knows the full magnitude but it s huge
How big is margin debt really and how much of a threat is it to the stock market and to financial stability as central banks like to call their concerns about crashes Turns out no one really knows
What we do know Margin debt as reported monthly by the New York Stock Exchange spiked to another record high of 528 billion But it s only part of the total outstanding margin debt which is when investors borrow money from their broker pledging their portfolio as collateral
An example of unreported margin debt Robo advisory Wealthfront a so called fintech startup overseeing nearly 6 billion announced that it would offer its clients loans against their portfolios
High Yield Bond Index declines beneath Intermediate term support
The High Yield Bond Index declined beneath Intermediate term supportat 165 77 further confirming a sell signal The Cycles Model suggests weakness ahead that may last the entire month of April
MarketRealist Bill Gross on high yield bonds
In the previous part of this series we saw that Bill Gross believes the equity market is priced for too much hope He also believes that all asset classes are elevated to artificial levels For the high yield bond market he believes it s priced for too much growth
The high yield bond market is generally considered risky because those bonds have lower credit ratings than other investment bonds such as Treasury bonds and corporate bonds High yield bonds generally pay higher and thus have higher default risks Startups and capital intensive companies issue high yield bonds Gross believes equity and other riskier assets are priced too high with expectations of growth
TO USB breaks out
The Long Bond broke out above its prior 2017 highs andappears to be due for a Trading Cycle low next week It may pull back to Intermediate term support at 150 65 before resuming its rally The Cycles Model now suggests an extended period of strength may extend through mid May The mid Cycle resistance and long term resistance at 158 36 still appears to be the target but it may go higher
Reuters U S Treasury debt pricesgained on Friday ahead of Sunday s presidential election in France with no major U S economic releases due to set market direction
Benchmark 10 year note yields have held in a tight rangesince falling to five month lows on Tuesday as investors awaita catalyst to determine if bonds will continue their rally
Opinion polls suggest that France s election will likely come down to a second round duel between independent centrist Emmanuel Macron and Marine Le Pen head of the anti European Union and anti immigrant National Front
The euro bounces at the trendline
The euro bounced off the Lip of the Cup with Handle formation but may have reversed beneath Long term resistance at 108 41 The Cycles Model suggests that the decline may resume beneath the trendline near 105 50
CNBC The euro could take a swan dive if the two extremist candidates advance to the second round of the French election currency expert Boris Schlossberg told CNBC on Friday
And right now the race is a complete wild card with about 40 percent of voters undecided he pointed out The first round of the election is set for Sunday
Four candidates are making a bid for the presidency Former Economy Minister Emmanuel Macron and mainstream conservative Francois Fillon are the two centrist candidates Far right Marine Le Pen and far left Jean Luc Melenchon have both indicated they are willing to take France out of the European Union
Euro Stoxx tests weekly short term support
The EuroStoxx 50 Index tested weekly Short term support at 3421 04 after achieving Wave equality three weeks ago A breach of Short term support puts Stoxx on an aggressive sell signal The signal may be confirmed as EuroStoxx declines beneath Intermediate term support at 3370 18
ZeroHedge Ahead of the first round of the French elections on Sunday Deutsche Bank DE DBKGn s equity strategist Sebastian Raedler again reminds his bank s clients and the seemingly unperturbed markets that despite the tightening of the poll numbers among the four front runners European equities show little sign of pricing in a meaningful political risk premium In fact as he notes below European equities appear to not have priced in even a modest political risk discount
This may be a mistake As a reminder if we look at the last 3 polls run by those pollsters then the spread between the four candidates is at an average of 4 5 Macron s average is 23 3 Le Pen 22 3 Fillon 19 7 and Melenchon 18 8 So it s quite possible that these 4 candidates will be clustered together given that the spread is within the margin of error from previous elections
The yen challenges Long term resistance
The yen challenged Long term resistance at 92 37 while making an inverted Trading Cycle high this week It may be due for a pullback to Short term support at 89 53 next week However the Cyclical strength may persist beyond any short term consolidations
Forbes It seems market investors are possessed by the idea of buying Japanese yen in times of crisis Amidst the heightened tensions surrounding North Korea the Japanese yen has been appreciating Before April 11 the yen traded at 110 per U S dollar Now it s trading at around 108
One interpretation is that the movement is unsurprising
Seiji Adachi director of research at Marusan Securities Co argues that the equilibrium exchange rate is around 105 per dollar based on purchasing power parity and 115 per dollar based on the relative Japanese American monetary base and one should expect movements in both directions within 15 of the equilibrium rate
The Nikkei bounces off mid Cycle support
The Nikkei bounced off mid cycle support at 19237 21 on Monday to begin a corrective phase that may last another week The retracement target may be as high as Intermediate term resistance at 19162 11 but may also stop at round number resistance at 19000 00 Likewise should the yen continue to show strength the Nikkei may test Long term support at 17934 02 before completing its consolidation
BusinessTimes Japanese stocks rose to 1 1 2 week highs on Friday as global investors bet that US tax reforms are gaining traction but Fujifilm Holdings tumbled after delaying the release of its earnings because of an accounting probe
The Nikkei 225 share average gained one per cent to 18 620 75 its highest closing level since April 11
For the week it gained 1 6 per cent posting its first weekly gain in six weeks 12121211
U S dollar bounces a second time off Long term support
USD bounced a second time within a month off Long term support at 99 07 The bounce showed little strength and may be doomed to failure as a Master Cycle low may be due in the next two weeks USD is on a sell signal that may imply broken supports ahead
Nasdaq The US dollar fell for a second consecutive week as the Fed rate hike outlook continued to deteriorate Geopolitical jitters are almost certainly a big part of that story even if the narrative has somewhat shifted from US tensions with Russia and North Korea to EU politics Homegrown factors have also emerged however amid growing worries about slowing economic growth
An ominous picture is painted by the closely watched GDPNow model from the Atlanta Fed It updates quarterly GDP growth projections with each incoming bit of relevant economic data That forecast now predicts that output will add just 0 5 percent in the three months to March That is far weaker than the 1 2 percent range expected by the markets
Gold overshoots targets may be ready to decline
Gold overshot its Orthodox Broadening Top retracement target in a Trading Cycle inversion but now may be ready to decline The overshoot took the form of a Broadening Wedge with a probable downside target of 1000 00 Both the Cycles Model and Orthodox Broadening Top pattern anticipate the decline to resume with only short term bounces until it reaches its next Master Cycle low due in mid May
MarketWatch Gold prices climbed on Friday erasing a weekly loss to post a modest gain of less than 0 1 for the week Prices got a boost from uncertainty ahead of France s presidential election as well as from weakness in the U S stock market June gold GCM7 0 17 rose 5 30 or 0 4 to settle at 1 289 10 an ounce It settled at 1 288 50 at the end of last week s trading
Crude declines to Long term support
Crude declined to Long term support at 49 12 to make a probable Master Cycle low this week If so it may retest Intermediate term resistance at 52 16 again However corrections may also extend in the direction of the immediate trend suggesting that the Head Shoulders neckline near 48 00 may also be probed before a pullback
Reuters Oil prices tumbled more than 2 percent on Friday notching the biggest weekly decline in more than a month on mounting evidence that U S production and inventory growth were offsetting OPEC s attempts to reduce the global crude glut
Brent futures LCOc1 settled at 51 96 a barrel down 1 03 or 2 percent at the market s close U S crude futures CLc1 ended at 49 62 a barrel down 2 2 percent or 1 09
Volumes were heavy with more than 665 000 WTI futures changing hands surpassing the daily average of 525 000 contracts
Shanghai Index crosses the trendline
The Shanghai Index finally crossed its 15 month old trendline at 3240 00 It also violated Intermediate term support at 3196 57 confirming a sell signal The decline may persist through mid May when a Trading Cycle low is possible
ZeroHedge The pressure point in Asian stock markets this week has been the decline in Chinese equities the biggest weekly drop in 4 months
Despite a stellar performance of the economy the outlook for the Shanghai Composite Index isn t promising as the government is taking advantage of better growth to spur deleveraging
For a market relying more on liquidity than fundamentals China s worsening monetary conditions index suggests tough times ahead
As a reminder the Shanghai Composite Index notorious for its wild swings over the past two years has gone 86 trading days without a loss of more than 1 on a closing basis the longest stretch since the market s infancy in 1992
The Banking Index forming the right shoulder
BKX appears to be finishing the right shoulder of a Head Shoulders formation The sell signal remains in place with a probable new target near mid Cycle support at 75 38 Serious investors may be well served to sell any rally rather than buy the dip as the decline may resume next week
NYTimes Two top bankers can t agree on whether lenders are too big to fail
The boss of JPMorgan Chase NYSE JPM Jamie Dimon reckons the problem is solved The Fed banker Neel Kashkari disagrees because using debt to absorb losses is flawed Markets suggest Mr Dimon is closer to the mark
OilPrice Last week U S banks boosted the borrowing bases for several independent energy companies lifting spirits in the industry The move was taken as a sign that lenders are beginning to share in the optimism that oil and gas producers have been enjoying since the beginning of the year with prices staying above 50
While some banks seem to be sharing some of the optimism others are more cautious A recent analysis from Bloomberg Gadfly s Lisa Abramowicz reveals that a lot of energy companies with revolving credit lines are tapping deep into these resources Abramowicz cites data from Bloomberg Intelligence that shows at least 11 companies have used up more than two thirds of their credit lines
ZeroHedge Another day another fine for the bank that no matter what just can t play by the rules
On Thursday the Federal Reserve fined Deutsche Bank 156 6 million for violating foreign exchange rules and running afoul of the Volcker Rule suggesting it was likely trading FX out of its own account in violation of Dodd Frank
In levying the FX fine on Deutsche Bank the Fed said it found deficiencies in the firm s oversight of and internal controls over FX traders who buy and sell U S dollars and foreign currencies for the organization s own accounts and for customers
Additionally and stunningly years after it became clear that FX chat rooms are about the worst possible idea for currency traders the Fed said Deutsche Bank failed to detect and address that its traders were still using electronic chatrooms to communicate with competitors about their trading positions The order requires Deutsche Bank to improve its senior management oversight and controls relating to the firm s FX trading
ZeroHedge Literally no one knows the true value of research not even the investment banks that are selling it Up until now equity research has been treated as a freebie given away to institutional clients in return for trading commissions but that is all about to change thanks to the European Union s MiFID II regulations which require asset managers to separate trading commissions from investment research payments
Unfortunately at least for the Investment Banks of the world while the cost of generating equity research may be substantial it turns out that the true value as defined by institutional clients maximum willingness to pay for reports may be much less Which is shocking given the creativity required to constantly generate new variations of daily reports politely suggesting that you Buy The F ing Dip |
JPM | The Ghost Of JP Morgan | Here is your Bonus Idea with links to the full Top Ten
JP Morgan NYSE JPM was a daunting figure at the beginning of the 20th century It would not have been fun to have that guy yelling at you It almost looks like he dressed intentionally to intimidate So is it even scarier when his ghost is telling you to buy his stock I d say so And it seems he has a good point
The stock started higher in November after the election and paused after a quick 17 move higher After a short consolidation it made a second leg higher to consolidation in mid December The in February it made a third leg up ending with a gap up to start March Since then it has been pulling back Last week saw the price sit at the bottom of the prior consolidation range finding a bottom
The RSI is testing the 40 level but the MACD is about to cross up a buy signal There is resistance at 86 and then 87 followed by 89 and 91 before 92 50 and 94 Support lower comes at 84 25 and 83 10 Short interest is low at 1 0 The company is expected to report earnings next on July 14
Options activity shows very large open interest this week at the 80 Put and then spread from 85 to 88 5 on the Call side May monthly options open interest is biggest at 82 50 and 85 on the Put side and at 85 then equal at 87 5 and 90 on the Call side June open interest is biggest by far at the 90 Calls Finally in the July chain the first after the next earnings report are biggest above the current price on both the Put and Call side at 85 and 90
JP Morgan
Trade Idea 1 Buy the stock on a move over 86 with a stop at 84 25
Trade Idea 2 Buy the stock on a move over 86 and add a May 12 Expiry 84 5 82 5 Put Spread 90 cents then sell a July 92 5 Covered Call 57 cent credit
Trade Idea 3 Buy the May June 87 5 Call Calendar 67 cents and sell the May 80 Puts 55 cent credit
Trade Idea 4 Buy the June 85 90 92 5 Broken wing Call Butterfly 1 50
Elsewhere look for gold NYSE GLD to pause in its uptrend while crude oil NYSE USO continues to pull back lower The US dollar Index remains moving sideways in broad consolidation while US Treasuries NASDAQ TLT continue to look better to the upside in the short term The Shanghai Composite has morphed into a consolidation with a downward bias short term and Emerging Markets NYSE EEM are pulling back in their uptrend
Volatility has moved up slightly from abnormally low levels to a more normal range but still low which continues to keep an upward push on the equity index ETF s SPY NYSE SPY IWM NYSE IWM and QQQ NASDAQ QQQ Their charts look stronger in the short term with the QQQ and IWM stronger than the SPY but with all three consolidating near their highs and strong in the intermediate term Use this information as you prepare for the coming week and trad em well
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment I or my affiliates may hold positions or other interests in securities mentioned in the Blog please see my page for my full disclaimer |
JPM | 5 Best Performing Mutual Funds Of Q1 | Just over 93 of all the funds tracked by Morningstar had given positive returns in the first quarter U S stock funds did well while the largest among them posted the best quarterly performance in years Investors also favored bond funds in the first three months of the year even though gains were lower than those for stock funds Funds that own stocks from Latin America Asia and other foreign markets were some of the best performers with growth funds beating value funds in the quarter Overall it was a strong start to the year for funds US Stock Funds Rose 4 8 in Q1It was quite a different story at the end of 2016 when money flowed into stock funds and out of bonds on bets that the Trump administration will boost the economy The job market improved optimism surged for shoppers and businessmen while a rebound in corporate earnings helped push stock prices higher In fact the Dow Jones hit 21 000 in the first quarter which resulted in the average diversified U S stock fund registering a healthy return of 4 8 The largest U S stock fund Vanguard Total Stock Market Index Investor returned 5 6 in the quarter its second best performance in the last three years However the euphoria fizzled out after the healthcare setback in the first quarter Investors are now treading cautiously placing their bets on tried and true bond funds An estimated 112 billion flowed into funds that invest in bonds in the quarter in contrast to 34 5 billion that went to U S stock funds according to Investment Company Institute ICI data Among the bond funds those that focus on intermediate maturity investment grade debt and the most common type of fixed income funds inched up 1 in the quarter Foreign Funds Lead the WayFor years foreign stock funds have been generating upsetting returns for investors The largest foreign stock fund on an annualized basis returned less than 1 for the decade through 2016 What made it even more disappointing is the fact that U S stock funds almost doubled over the same time period including dividends Largely foreign stock funds were drubbed by U S stock funds last year by 10 8 to 0 7 The wait was finally over in the first quarter with the Vanguard Total International Stock Index Fund returning 9 2 marking the best quarter in nearly four years Returns were even higher for funds focused on emerging markets According to ICI estimated net inflow to foreign stock funds were 47 9 billion in the quarter The drop in the dollar s value in the first quarter helped foreign funds as well Latin American funds were up 13 1 as investors expected a major shift in trade policy post election India funds gained 20 05 the highest for any Lipper fund category during the quarter China region funds were up almost 12 Growth Funds Top Value FundsIt was also a good year for growth oriented funds Such funds topped their value counterparts regardless of market valuations More exposure to tech and biotech holdings did help growth funds And why not Healthcare funds gained 10 94 in the quarter while technology funds did even better at 12 12 Apart from healthcare and tech sectors including utilities and consumer goods were up 6 4 and 7 24 respectively Among U S diversified equity funds growth funds returned 7 94 in the quarter compared with 2 69 for value Also large cap funds excelled raking in a return of 6 32 compared with 5 28 for mid cap funds and 2 81 for small cap funds Among small caps growth funds led the way with 5 81 On the other hand small cap value funds eked out a meager 0 09 Top 5 Mutual Funds of Q1We have thus selected five mutual funds from the aforesaid categories that boast a Zacks Mutual Fund Rank 1 Strong Buy and have offered the best returns in the first quarter They also offer a minimum initial investment within 5 000 and carry a low expense ratio Investors can their Zacks Rank and past performance Investors mostly rely on mutual funds as the backbone of their investment strategy And why not Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking money in mutual funds read more Fidelity Select Technology invests in common stocks It normally invests a large portion of its assets in securities of companies principally engaged in offering using or developing products processes or services that will provide or will benefit significantly from technological advances and improvements FSPTX s first quarter return for this year is 17 4 Annual expense ratio of 0 76 is lower than the category average of 1 45 FSPTX s performance when compared to funds in its category as of the last filing was in the top 11 in the past one year Franklin Biotechnology Discovery A invests the majority of its net assets in securities of biotechnology companies and discovery research firms The fund predominantly invests in equity securities primarily common stock FBDIX s first quarter return for this year is 12 8 Annual expense ratio of 0 98 is lower than the category average of 1 33 FBDIX s performance when compared to funds in its category as of the last filing was in the top 7 in the past one year JPMorgan NYSE JPM Small Cap Growth A invests a large portion of its assets in the securities of small capitalization companies PGSGXseeks long term capital growth primarily from a portfolio of equity securities of small capitalization and emerging growth companies PGSGX s first quarter return for this year is 11 7 Annual expense ratio of 1 25 is lower than the category average of 1 3 PGSGX s performance when compared to funds in its category as of the last filing was in the top 2 in the past one year DFA International Sustainability Core 1 invests a major portion of its net assets in equity securities It may gain exposure to companies associated with approved markets by purchasing equity securities in the form of depositary receipts which may be listed or traded outside the issuer s domicile country DFSPX s first quarter return for this year is 7 8 Annual expense ratio of 0 44 is lower than the category average of 1 09 DFSPX s performance when compared to funds in its category as of the last filing was in the top 10 on a year to date basis MFS Emerging Markets Equity R4 invests a lion s share of its net assets in equity securities of issuers that are tied economically to emerging market countries Emerging market countries are countries whose financial and capital markets are in the development phase and are located in Latin America Asia Africa the Middle East and primarily Eastern Europe MEMHX s first quarter return for this year is 11 4 Annual expense ratio of 1 46 is lower than the category average of 1 47 MEMHX s performance when compared to funds in its category as of the last filing was in the top 13 in the past one year Want key mutual fund info delivered straight to your inbox Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing mutual funds each week |
MS | Banks weak German data keep European stocks in the red | By Jamie McGeever LONDON Reuters European stocks fell for a third consecutive day dragged lower by financials as shares in Deutsche Bank slid further after its 8 5 billion cash call while expectations of higher U S interest rates supported the dollar Wall Street was expected to open lower according to stock index futures cooling from last week s record highs as investors prepare for an all but certain Federal Reserve rate rise next week In Europe a batch of weak corporate earnings and the biggest fall in German industrial orders since the depths of the global financial crisis added to the downbeat mood Europe s leading index of the top 300 shares fell as much as 0 2 percent FTEU3 having earlier fallen as much as half a percent The region s banking index SX7P fell 1 percent Shares in Deutsche Bank DE DBKGn which has been hit by hefty legal penalties including for the sale of toxic U S mortgage debt fell almost 3 percent to a fresh 2017 low and were down 2 percent by 1240 GMT Weak German industrial orders suggests it s not a one way ticket in Europe there s been a lot of bullishness around European equities lately but maybe this is a sign it s not all positive Deutsche Bank is not helping either Neil Wilson senior market analyst at ETX Capital said British temporary power provider Aggreko L AGGK fell nearly 14 percent and French retailer Casino Guichard PA CASP fell 5 percent after their results German industrial orders slumped 7 4 percent in January the biggest fall since January 2009 and nearly three times as steep as the 2 5 percent fall expected by economists MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS rose 0 5 percent and Japan s Nikkei N225 closed down 0 2 percent DOLLAR UP The dollar rose 0 2 percent against a basket of peers DXY A Fed rate hike is almost fully priced into financial markets so the dollar and U S bond yields might be vulnerable to a correction But investors saw enough room to push the greenback and yields higher on Tuesday lifting the 10 year yield for the fifth day in a row back above 2 50 percent US10YT RR and the two year yield up a basis point to 1 32 percent US2YT RR Sterling fell a third of a percent to a seven week low of 1 2183 Britain s House of Lords will try on Tuesday to force the government to give lawmakers a greater say over the terms of Britain s exit from the European Union and final approval of an eventual deal with the bloc Analysts at Morgan Stanley NYSE MS said they expect the pound to snap back as high as 1 45 by the end of next year Sterling looks increasingly cheap in a historical context and our FX strategists have recently turned more bullish on the currency targeting 1 28 for year end and 1 45 by the end of 2018 they wrote in a note The euro dipped 0 1 percent to 1 0570 and the dollar was marginally stronger against the yen at 113 97 yen If you had told me two weeks ago expectations for a March hike would reach almost 100 percent I would have said we would have been well below 1 05 Niels Christensen a strategist with Nordea in Copenhagen said Comments overnight by Trump administration trade adviser Peter Navarro pulled attention back to concerns over the White House s attitude to trade and the dollar as officials prepare for Group of 20 meetings later this month Navarro said on Monday that the 65 billion U S trade deficit with Germany was one of the most difficult trade issues and that bilateral discussions were needed to reduce it outside of European Union restrictions Full Story The U S publishes trade balance figures on Tuesday In commodities U S oil CLc1 rose 0 5 percent to 53 46 a barrel following Monday s 0 2 percent drop and Brent crude rose 0 3 percent to 56 27 LCOc1
Gold slipped 0 2 percent to 1 223 an ounce |
MS | Brookfield to take control of SunEdison units for 2 5 billion | Reuters Brookfield Asset Management Inc N BAM TO BAMa said on Tuesday it would buy one of the two yieldcos of bankrupt U S solar company SunEdison Inc PK SUNEQ and take a 51 percent stake in the other for a total of about 2 5 billion Canada s largest alternative asset manager is increasing its holding in TerraForm Power after first reporting a stake in June when it called the SunEdison unit an attractive investment opportunity Yieldcos are publicly traded units that hold renewable energy assets such as solar power plants and wind farms including those bought from the sponsor or the parent company They have long term agreements to sell power giving them stable cash flows but they are dependent on the transfer of assets from their parents to increase dividends Brookfield will acquire TerraForm Global Inc O GLBL for about 787 million and buy 51 percent of TerraForm Power Inc O TERP for 1 7 billion Brookfield will also assume about 455 million of TerraForm Global s debt and pay 5 10 per TerraForm Global class A share which represents a 20 percent premium to the stock s Monday closing price TerraForm Global owns or has contracts to acquire 952 megawatts of wind and solar power in Brazil India China South Africa Thailand Malaysia and Uruguay TerraForm Power class A shareholders will get 11 46 per share in cash below the stock s Monday close of 11 59 TerraForm Power owns about 2 967 megawatts of solar and wind assets in the United States Canada the United Kingdom and Chile Brookfield which owns over 17 000 megawatts of renewable energy assets will replace SunEdison as TerraForm Power s sponsor once the deal closes It had a 12 16 percent stake in TerraForm Power as of Feb 17 according to Thomson Reuters data As part of the deal TerraForm Power will issue about 6 6 million shares to SunEdison which will leave SunEdison with a higher stake in the unit of 36 9 percent SunEdison will exchange its class B shares in TerraForm Global for 25 percent of TerraForm Global s class A shares SunEdison once the fastest growing U S renewable energy company filed for Chapter 11 bankruptcy protection last year after a short lived but aggressive binge of debt fueled acquisitions proved unsustainable Morgan Stanley NYSE MS Centerview Partners and AlixPartners were financial advisers to TerraForm Power while Greentech Capital Advisors Centerview Partners and AlixPartners advised TerraForm Global
Rothschild and Ankura Consulting acted as financial advisers to SunEdison |
MS | Dollar trickles lower euro off lows | Investing com The dollar inched higher against a basket of major currencies on Tuesday as markets digested the possibility of a March rate hike ahead of the Federal Reserve s monetary policy meeting next week
The U S dollar index which measures the greenback s strength against a trade weighted basket of six major currencies climbed 0 05 to 101 71 after hitting a session high of 101 91
The U S central bank is poised to increase interest rates at its March 14 15 meeting after Fed Chair Janet Yellen hinted last week that should U S economic data come in as expected then further monetary tightening would likely be appropriate this month
According to Investing com s Fed rate monitor tool nearly 90 of traders expect a rate hike in March compared to just 81 9 of traders on Monday
Some analysts are also looking to the Fed policy meeting for clues on the number of rate hikes in 2017 In a research note to clients Morgan Stanley said it thinks this March will be the first of three hikes in 2017 and four hikes in 2018
Meanwhile U S trade data had little impact on the greenback after the U S trade deficit climbed to an almost five year high
The trade gap widened by 9 6 to 48 5 billion in January the highest level since March 2012 and in line with economists forecasts
Elsewhere the euro shrugged off uncertainty concerning the outcome of the French presidential election after outgoing president Francois Hollande vowed to do everything in his power to stop the anti European Union candidate Marine Le Pen from winning the election
EUR USD gained 0 03 to trade at 1 0586 while EUR GBP gained 0 27 to 0 8671
Elsewhere GBP USD fell to a seven week low of 1 2170 after weaker than expected consumer spending data added to concerns that the UK economy is slowing as it prepares to trigger Article 50 the formal step required to begin the process of exiting the EU
The USD CAD added 0 04 to 1 3414 while the USD JPY recovered from losses sustained in the previous session to trade at 113 93 |
MS | Japan fourth quarter GDP revised up as capex rises at fastest in almost three years | By Stanley White
TOKYO Reuters Japan s economy grew more than earlier estimated in the fourth quarter as capital expenditure grew at its fastest in almost three years welcome news for policymakers as they begin to discuss how to wind down years of massive stimulus
The economy grew an annualized 1 2 percent in October December less than the median estimate for 1 6 percent annualized growth but more than the preliminary reading of a 1 0 percent annualized expansion
The figure translates into quarter on quarter growth of 0 3 percent versus a preliminary reading of 0 2 percent growth and the median estimate for 0 4 percent growth
A stronger pace of growth will be a boon to the government as policymakers have been counting on an increase in business investment to drive future expansion and increase low productivity
However growth is still not robust enough to generate sustained inflation that the Bank of Japan wants and the risk of rising protectionism could discourage Japanese exporters from raising wages seen as key to boosting consumption and economic activity at home
The economy will remain in recovery mode because we are seeing the benefits of capital expenditure from manufacturers and the construction sector said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities
I am a little worried about the strength of consumer spending I am still not sure how protectionism will materialize but this is also a potential risk
Private consumption registered no growth in October December the same as preliminary data Sluggish household spending has kept the country in prolonged deflation and been a key challenge for the BOJ in meeting its 2 percent price goal via its massive bond buying program
Households cut spending for the 11th straight month in January even as the job market tightened further separate data showed earlier this month Private consumption accounts for around 60 percent of GDP
STRONGER CAPEX
The capital expenditure component of GDP rose 2 0 percent from the previous quarter which was more than the forecast for 1 7 percent growth and faster than the preliminary 0 9 percent
The revised data showed capital expenditure grew at the fastest since a 2 3 percent quarterly rise in January March 2014
Increased investment from the real estate sector construction companies food processing companies and electronics makers drove gains in capex a Cabinet Office official told Reuters
Some economists expect capital expenditure to increase further as companies will soon have to start investing in more efficient equipment to deal with a shrinking pool of workers as the population ages
However U S economic policy poses a risk because companies could suddenly turn cautious on capex if U S President Donald Trump adopts protectionist trade policies
There are also concerns that protectionism could hurt Japan s exports
After capital expenditure net exports were the second biggest driver of growth in the fourth quarter revised data showed
However the plus 0 2 percentage point contribution from net exports was unchanged from preliminary figures which raises questions about the strength of external demand |
MS | Forex Yen gains after China warns NKorea on missiles nukes | Investing com The yen gained on Wednesday as China warned North Korea to refrain from further missile tests as tensions grow on the Korean peninsula over Pyongyang s provocative actions in the past month
The U S dollar index which measures the greenback s strength against a trade weighted basket of six major currencies eased 0 05 to 101 76 USD JPY changed hands at 113 79 down 0 17 while AUD USD rose 0 18 to 0 7602
Chinese Foreign Minister Wang Yi said on Wednesday North Korea must stop nuclear and missile tests and that the United States and South Korea must also stop joint military drills Wang made the comments at his annual news conference on the sidelines of the annual meeting of China s parliament in Beijing
Ahead in Asia China reports its February trade balance with oil imports figures expected to draw close attention on the world s second largest economy
Overnight the dollar inched higher against a basket of major currencies on Tuesday as markets digested the possibility of a March rate hike ahead of the Federal Reserve s monetary policy meeting next week
The U S central bank is poised to increase interest rates at its March 14 15 meeting after Fed Chair Janet Yellen hinted last week that should U S economic data come in as expected then further monetary tightening would likely be appropriate this month
According to Investing com s Fed rate monitor tool nearly 90 of traders expect a rate hike in March compared to just 81 9 of traders on Monday
Some analysts are also looking to the Fed policy meeting for clues on the number of rate hikes in 2017 In a research note to clients Morgan Stanley NYSE MS said it thinks this March will be the first of three hikes in 2017 and four hikes in 2018
Meanwhile U S trade data had little impact on the greenback after the U S trade deficit climbed to an almost five year high
The trade gap widened by 9 6 to 48 5 billion in January the highest level since March 2012 and in line with economists forecasts
Elsewhere the euro shrugged off uncertainty concerning the outcome of the French presidential election after outgoing president Francois Hollande vowed to do everything in his power to stop the anti European Union candidate Marine Le Pen from winning the election |
MS | UK PM May meets Wall Street at private Morgan Stanley museum gathering | By Anjuli Davies and Kylie MacLellan
LONDON Reuters British Prime Minister Theresa May sought to reassure City executives at a private gathering hosted by Wall Street bank Morgan Stanley N MS that she would seek the right deal for the financial services industry in upcoming Brexit negotiations
London s future as Europe s financial center is one of the biggest issues in Brexit talks because it is Britain s largest export sector and biggest source of corporate tax revenue
At an event on Wednesday evening at the British Museum to celebrate Morgan Stanley s 40 year anniversary in Britain May addressed some of the country s top CEOs and senior executives who are concerned about the loss of access to the single market once Britain leaves the European Union
The prime minister was attending a reception at the British museum marking 40 years of Morgan Stanley in the UK and she delivered a few brief remarks a spokesman for May s office said
The prime minister has made clear along that the UK is seeking the right deal for financial services as Britain leaves the EU and she made that point to the audience
May attended the cocktail and canape reception for about 45 minutes mingling with guests after giving her brief remarks according to once source who was present
Businesses have been calling for clarity on what Britain s relationship with Europe will be before deciding how to reshape their operations but most major firms are now set to relocate some business to ensure they can still trade with Europe after May said in January that the country will quit the EU single market
May faces an uphill struggle to persuade financial institutions not to shift some operations given Britain s exit from the single market almost certainly means banks will lose passporting rights which enable them to sell products across the EU from their European hubs in London
Some European countries also see Brexit as an opportunity to challenge British dominance of finance after decades and to lure financial firms and their staff to the continent
Morgan Stanley whose CEO James Gorman attended the British Museum event bases the bulk of its European staff in Britain and may have to move up to 1 000 jobs in sales and trading risk management legal and compliance as well as slimming the back office in favor of locations overseas a source involved in the process told Reuters in January |
JPM | Analysts Still Bullish on China Banks Despite Stocks Battering | Bloomberg Top market analysts are clinging to their bullish forecasts for China s largest banks despite the share price battering from mounting trade tensions with the U S and worries about corporate defaults
Following a record 14 day losing streak the spread between the market price of Industrial Commercial Bank of China Ltd and the analysts average 12 month target stands at the widest level in almost three years according to data compiled by Bloomberg
Citigroup Inc NYSE C Macquarie Group Ltd and China International Capital Corp are among the banks sticking to their optimistic outlook for the four largest Chinese lenders arguing that the 13 percent share price plunge in the past three weeks is overdone
Now is a good buy window for big China banks said Dexter Hsu a Taipei based analyst at Macquarie Capital When the dust is all settled investors will find that big banks won t be hurt as much
Investors who followed those bullish calls must be hopeful the forecasters will be proved right CICC analysts have a 12 month prediction of HK 11 61 for ICBC shares they closed Thursday in Hong Kong at HK 5 74
Large bank shares have been hit by a double whammy of growing trade tensions and fears that China s deleveraging campaign will lead to more corporate defaults They are also seen as bellwethers for the wider Chinese economy at a time when wider market indicators such as the currency and the benchmark Shanghai stock index are falling sharply
The fears are exaggerated according to the bulls At current valuations Chinese bank shares are pricing in a hard landing scenario presenting a good buying opportunity Citigroup analysts Judy Zhang and Lu Sun said in a note on Wednesday
Bullish Case
Bond defaults while on the rise remain contained Financial stress has yet to affect loan repayments according to the CICC analysts And the larger banks lend mostly to China s lumbering state enterprises which are less export oriented than smaller firms and so not as badly exposed to a trade war
The banks good fundamentals remain unchanged argues Chen Shujin chief financial analyst at Huatai Securities Co in Hong Kong
In terms of return on equity China s banking giants still outpace their U S peers though the gap has been narrowing as the Federal Reserve hikes rates and as Chinese lenders bolster their capital Chinese banks have traditionally enjoyed better ROE due to the slow pace of interest rate deregulation and relatively low capital buffers
In another measure of the battering received by Chinese banks shares in ICBC are trading at a discount of more than 40 percent to JPMorgan Chase Co NYSE JPM despite the higher ROE according to data compiled by Bloomberg
Chinese banks are a good buy now because the valuations are low and the country s economy isn t deteriorating said Richard Cao a Shenzhen based analyst at Guotai Junan Securities Co How long this slump will last largely depends on the overall market sentiment which is dragged by concerns over the trade war and depreciating yuan |
C | Citigroup Falls 3 23 As Investors Eye Earnings | Investing com Citigroup NYSE C fell by 3 23 to trade at 66 30 by 09 56 13 56 GMT on Friday on the NYSE exchange down 3 23 on the day The volume of Citigroup shares traded since the start of the session was 5 46M
Citigroup has traded in a range of 66 27 to 68 29 on the day The stock has traded at 69 35 at its highest and 65 90 at its lowest during the past seven days |
C | Citi Says Trump Brutal on Trade But Sees Deals by Midterms | Bloomberg After U S moves on global trade policy that have shredded decades of trust watch out for deals to be struck before the midterm elections in November Citigroup Inc NYSE C said flagging a potential rebound in commodity prices toward the year end that s aided by still robust fundamentals
U S trade actions have been brutal and unilateral and have punctured the trust built up over decades of good faith agreements the bank said in a commodities outlook Our base case is for negotiations to continue and for trade deals to be done ahead of the November U S midterm elections
Among Citigroup s forecasts should the U S and China pull back from the brink soybeans may rally to 9 75 to 10 a bushel in the final quarter it said up from this week s 8 35 And copper which last traded at 6 215 a ton could hit 6 800 in the base case or even 8 000 under a more optimistic scenario
Commodity prices especially metals and farm goods have been pummeled after President Donald Trump imposed tariffs on billions of dollars of Chinese goods spurring a tit for tat response The U S administration is also embroiled in standoffs with the European Union Mexico and Canada A resolution of some or all of these conflicts may provide a political boost for Trump and the Republican Party heading into the November contests when seats in the House of Representatives and Senate are up for grabs
The next one to two months may indicate whether a full blown trade war happens or occasional overtures would indeed lead to a resolution analysts including Ed Morse said in the report They added The next half year should see continued robust global growth spurring higher commodity demand
In addition to the tariffs already imposed on Chinese products Trump s administration has threatened a follow up wave on a further 200 billion in goods Last month China and the E U vowed to oppose protectionism saying unilateral actions risked pushing the world into a recession
With the midterms pending it is logical to assume a lessening of trade intransigence at least temporarily by end of the third quarter Citi said Tit for tat responses by trade partners are targeting exports from Republican held states and Republican Congressional and Senatorial districts also pointing to a partial pullback by the president in coming months
In the November contests Republicans are trying to buck a historical trend in which the party that holds the White House almost always loses congressional seats The Democratic Party is counting on a voting base energized by anger at President Trump to win the seats it would need to gain a majority in the House
Updates LME copper price in third paragraph |
JPM | Forget Active Passive EM Bond ETF Hits 10 Billion In Assets | Gone are the days when emerging bond ETFs required the fund manager s active technique These markets were believed to highly volatile and crammed with political upheavals But the latest trading pattern and investors outlook say a different story
An article published on revealed that iShares JPMorgan NYSE JPM USD Emerging Market Bond ETF AX EMB beat its active counterparts by an average 74 basis points over the last five years according to Morningstar
As a result investors gathered happily around the fund and allowed EMB the largest emerging market debt fund to double its asset base to in the last one year read
Bloomberg compares the success of EMB with the largest actively managed fund in the category the far more expensive Pictet Global Emerging Debt fund Notably the Pictet fund is a Societe D investissement A Capital Variable or SICAV which is an open ended investment product that s prevalent in Western Europe and similar to a mutual fund
Let s take a look what led EMB to outperform all
Low Expense ratio
BlackRock charges 40 basis points net for EMB compared with 143 basis points for Pictet s active fund Bloomberg went on to point out that the average fee for U S mutual funds that track emerging markets is about 90 bps or double BlackRock s pricing as per data from the Investment Company Institute and Lipper
In any case BlackRock has been pretty proactive lately in slashing expense ratios It reduced fees for core ETFs six multifactor ETFs and a short term bond ETF in recent times read
On the other hand active funds are always known for high costs These involve research expenses associated with the manager s due diligence and additional cost in the form of a wide bid ask spread beyond the expense ratio
Wind is in Favor of Emerging Market Bonds
EM economies are a lot more protected from Fed tightening shocks this time than they were in 2013 which is remembered for the taper tantrum As a result strong fundamentals have lately called for EM investing And since fixed income securities are less risky than equities and offer solid yield investors are all the more keen on these products read
Since volatility in the EM space has ebbed lately currency issues have somewhat stabilized and fundamentals have strengthened the need for active investing paying a high cost is likely to diminish Moreover the clip of credit rating downgrades in EMs as per the source in the second half of 2016 though worries remain
Notably emerging market companies and governments sold 178 5 billion of dollar denominated debt in Q1 marking the highest quarterly amount ever EMB has gathered about 2 14 billion in assets so far this year as of April 17 2017 EMB which gives exposure to U S dollar denominated government bonds issued by emerging market countries yields about 4 70 annually
Yields Are U S Treasury Beating
The Fed is on the policy tightening mode thanks to which U S Treasury bond yield should rise ahead But investors should note that EM bond ETFs yields are generally pretty higher than U S Treasury yields in a rising rate environment Going beyond the U S several developed economies are practicing an ultra low monetary policy which pushed investors to flock to EM debt ETFs read
ETFs in Focus
Given below are some other EM bond ETFs that could be on investors radar in the coming days thanks to their low cost and high yields see here
VanEck Vectors Emerging Markets Aggregate Bond ETF
Net expense ratio 0 49 Yield 4 35
Vanguard Emerging Markets Government Bond ETF
Net expense ratio 0 32 Yield 5 02
PowerShares Emerging Markets Sovereign Debt Portfolio ETF TO PCY
Net expense ratio 0 50 Yield 5 47
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MS | Morgan Stanley sees Fed hiking rates in March | NEW YORK Reuters Morgan Stanley NYSE MS economists said on Thursday they expected the Federal Reserve will raise U S interest rates by a quarter point to a range of 0 75 1 00 percent at its upcoming policy meeting in less than two weeks
The U S central bank would increase its interest rate target range two more times later in 2017 after a possible hike later this month they said in a research note |
MS | Trump confidence bounce may finally allow Fed to leave zero rates far behind | By Howard Schneider CHICAGO Reuters A surge in business and consumer confidence during President Donald Trump s first weeks in office has helped push the Federal Reserve toward its first sustained series of interest rate hikes in more than a decade despite a dearth of firm policies from the administration An address by Fed Chair Janet Yellen here on Friday will cap a week in which Fed policy makers lined up behind the mantra that rates can rise soon with a quarter point increase in March now firmly in play The case for a rate increase for March has come together Fed Governor Jerome Powell said in a CNBC interview on Thursday A more than 10 percent jump in equity markets since the November election is adding to household wealth a good omen for continued household spending Consumer confidence is at a 15 year high and officials at the 12 regional Federal Reserve banks report businesses are ready to invest addressing one of the remaining gaps in the recovery from the 2008 financial crisis Expectations play an important role in how monetary policymakers view the world and the surge in optimism may explain why so many Fed officials this week piled on to the idea of raising interest rates in March Investors now see a March hike as an 80 percent probability Significantly investors are also pricing in two more rate increases this year a rare case in the Yellen era of markets concurring with the Fed s own view of its likely actions Yellen s three year tenure at the Fed has been dogged by the economy s painfully slow recovery from recession and just two rate rises a year apart A March increase followed by two more hikes in 2017 would enable the Fed to finally break free of the abnormally low interest rates that defined the financial crisis and that still hamper the central bank s ability to manage the economy FEWER HEADWINDS STEADIER DATA It isn t all about Trump Unemployment under President Barack Obama fell to a level that many policymakers consider full employment and the economy has continued adding jobs at a strong clip momentum Trump inherits Household income jumped by record levels in 2015 after a long stagnation and manufacturing is expanding Other headwinds that Yellen and her colleagues insisted would eventually dissipate have indeed begun to clear including the drag on inflation from a 2014 skid in energy prices Fed officials across the spectrum have acknowledged that November s election appears to have repaired some of the damage to business confidence suffered since 2008 with businesses and investors rallying around the possibility of looser touch government and lower taxes In remarks on Wednesday night in which she agreed rates could rise soon Fed Governor Lael Brainard a veteran Democratic official who has been among the most concerned about the possibility of renewed economic weakness said that increased optimism could lead to faster growth in consumption and business investment THE POLICY UNKNOWNS It could all sour The central bank does not have much from Trump in terms of 3conomic policy to put into its models There is no guarantee given the influence of deficit hawks in Congress that Trump will get to roll out increased infrastructure spending on the trillion dollar scale he has proposed Some of the grander ideas may have little influence in the short run A tax cut for business offset by a tax hike in imports St Louis Fed President James Bullard said this week could change investment patterns over time but might not raise growth today But that medium term uncertainty is not enough to paralyze the FOMC and keep it from acting now as data on the labor market financial conditions and inflation come together investment bank Morgan Stanley NYSE MS said in a research report published on Wednesday
The economy appears to be at a transition Brainard said on Wednesday Risks to the outlook are as close to balanced as they have been in some time |
MS | Federal Reserve says no objections to Morgan Stanley capital plan | WASHINGTON Reuters The Federal Reserve on Thursday said that it will not object to a fresh capital plan Morgan Stanley NYSE MS submitted to the central bank In June the Fed faulted the investment bank for not having a satisfactory capital plan and asked for a new proposal
The Federal Reserve Board on Thursday announced that it will not object to a resubmitted capital plan from Morgan Stanley as a result of progress made by the firm in addressing deficiencies the central bank said in a statement |
MS | Japan fourth quarter GDP seen revised up on capital expenditure boost | By Stanley White TOKYO Reuters Japan s economy likely grew faster in the fourth quarter than initially reported as companies ramped up investment in plant and manufacturing equipment a Reuters poll showed Separate data is also expected to show the country s current account surplus for January likely narrowed from the previous month due to a temporary slowdown in exports before the Lunar New Year holidays the poll of economists showed Any upward revision to gross domestic product is likely a welcome sign to the government because policymakers have been counting on an increase in business investment to drive future growth and increase low productivity Corporate sentiment among manufacturers has been improving and we are finally starting to see this reflected in capital expenditure said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities I expect more capital expenditure to come through and I think the economy is headed in the right direction GDP growth for the October December quarter is expected to be upwardly revised to an annualized 1 6 percent from a preliminary 1 0 percent according to the median estimate of 20 economists The Cabinet Office will release the data at 8 50 a m Tokyo time on March 8 which is 2350 GMT on March 7 The capital expenditure component of GDP is forecast to be revised up to 1 7 percent growth from the previous quarter which is almost twice as fast as the 0 9 percent quarterly expansion in the preliminary data Some economists expect capital expenditure to increase further as companies will soon have to start investing in more efficient equipment to deal with a shrinking pool of workers as the population ages However U S economic policy poses a risk because companies could suddenly turn cautious on capex if U S President Donald Trump adopts protectionist trade policies Separate data from the finance ministry is expected to show Japan s current account surplus in January narrowed to 239 0 billion yen 2 09 billion from 1 1 trillion yen in the previous month due to a slowdown in exports Japan s exports tend to slow in January as factories in China curb output before the Lunar New Year holidays but this is likely to be temporary as global demand has shown positive signs so far this year |
MS | Exclusive Zhong An plans to sell 5 10 percent stake ahead of IPO sources | By Julie Zhu and Elzio Barreto HONG KONG Reuters Zhong An Online Property and Casualty Insurance plans to sell 5 10 percent of the company to a couple of strategic investors to raise up to 10 billion yuan 1 45 billion ahead of a planned initial public offering in mainland China according to four people with direct knowledge of the matter China s first internet only insurer whose current major shareholders include two of China s largest Internet companies Alibaba Group s N BABA Ant Financial affiliate with 16 percent and Tencent Holdings Ltd HK 0700 with 12 percent is in early talks with potential investors according to the sources who declined to be named The investors would be expected to commit at least 1 billion yuan each and the new funds would be used by Zhong An to expand its business and buy time before securing a green light from regulators for the IPO one of the people said The company s proposed valuation for the offering has yet to be decided the sources said Reuters could not immediately learn the identity of the prospective investors A spokeswoman for Zhong An in Shanghai declined to comment on the company s fundraising plan Ant Financial declined to comment and Tencent didn t reply to Reuters requests for comment The company says it offers more than 300 insurance products and has written more than 7 56 billion policies for more than 535 million customers FLIGHT DELAYS China s securities regulator is considering offering a shortcut for some of the country s largest technology companies including Zhong An to list at home allowing them to jump a long line of applicants seeking approval for IPOs Zhong An was founded in November 2013 by Alibaba s Executive Chairman Jack Ma Tencent s Chairman Pony Ma and Ping An Insurance Group Co of China Ltd HK 2318 Chairman Ma Mingzhe Ping An retains a 12 percent stake When consumers buy products online on Alibaba or other companies platforms they can choose to buy insurance that will cover the shipping costs in case they want to return the goods later That type of shipping return insurance was Zhong An s main product last year accounting for 50 percent of its business Zhong An s Chief Operating Officer Wayne Xu said at a presentation in Hong Kong in November That was followed by insurance against flight delays that people can buy when they purchase tickets at online travel agencies to deal with a common headache for travelers in China he added In 2015 Zhong An raised 5 78 billion yuan from a group of investors that included Morgan Stanley N MS domestic investment bank China International Capital Corp Ltd CICC HK 3908 and private equity firms CDH Investments and SAIF Partners The fundraising valued it at about 8 billion at the time Zhong An is among several Chinese financial technology companies tapping investors for pre IPO financing to fund expansion as consumers move more of their banking payments investing and insurance online Ant Financial the world s most valuable fintech company last year raised 4 5 billion in a financing round one of the biggest for a private internet company In January 2016 Lufax China s biggest peer to peer lending and wealth management platform raised 1 2 billion while JD Finance the finance subsidiary of online direct sales firm JD com O JD raised 1 billion |
MS | Muted response to Deutsche Bank s 8 5 billion cash call strategic u turn | By Gernot Heller and Georgina Prodhan BERLIN FRANKFURT Reuters Deutsche Bank s DE DBKGn request for shareholders to sign an 8 billion euro 8 5 billion check to back its new strategy got a lukewarm reception on Monday from investors who want more detail on its plans Germany s biggest bank had previously said it would wait until global bank capital rules were finalised before setting out how it intends to turn its business around and chief executive John Cryan had said a cash call was a last resort But with regulators delaying the Basel III rules and stock indices at record highs Deutsche opted on Sunday to push ahead with a capital hike while market conditions are favorable as well announcing plans to float part of its asset management unit and reorganize its divisions While the German government welcomed the move the fourth such call from the lender for more cash since 2010 it left some investors wondering whether this was the last It puts Deutsche Bank on course to have raised more than its entire 26 billion euro market value in the past seven years according to Reuters calculations Deutsche Bank shares which had fallen by more than 1 percent on Friday on reports it was considering raising fresh capital fell a further 6 percent on Monday The bank presented the move as an attempt to put it on a stronger footing after billions of euros of legal penalties had prompted speculation that it would need a German state bailout A finance ministry spokesman said that while it generally did not comment on specific banks stable lenders underpinned by strong capital were in Germany s best interests This company won t be profitable overnight The revenue must go up and costs down And the markets have to play along or else the bank again won t be able to hit its goals said one of the bank top shareholders asking not to be named Deutsche Bank is planning to IPO a minority stake in its asset management business including its DWS retail asset management which analysts have said is worth 8 billion euros In an about face to its retail banking strategy the bank scrapped plans to sell Postbank after failing to sell it at an acceptable price Instead it now wants to reintegrate it into its other German retail banking business Deutsche Bank s investment banking activities will also revert to a structure it threw out less than two years ago by reuniting its securities trading activities and its corporate finance business It is also promoting retail head Christian Sewing and finance head Markus Schenck to deputy chief executives who will oversee the revamp alongside Cryan THE LAST CALL The combined moves should take Deutsche Bank s core capital ratio a key measure for regulators above 13 percent from 11 9 percent at end 2016 but some questioned if this was it The question is whether the bank will need more yet again in a few years Until now none of the restructuring measures have borne fruit Stefan de Schutter a trader at Frankfurt based Alpha said Germany s biggest lender weighed down by litigation costs and writedowns has fallen behind Wall Street rivals It has spent the last 18 months trimming its portfolio jettisoning unwanted clients and trying to get its technology in shape The proposed issue of up to 688 million new shares represents a hike of about 50 percent to Deutsche Bank s current shares in issue JP Morgan analyst Kian Abouhossein who rates the lender neutral estimated the overall earnings dilution for existing shareholders would be around 11 percent in 2018 taking into account an expected earnings benefit from lower costs A credible integration of Postbank further clarity of progress on investment banking restructuring stabilization of outflows and restoring confidence in wealth and asset management businesses are all issues management would need to address wrote Morgan Stanley NYSE MS analyst Magdalena Stoklosa Morgan Stanley does not have a recommendation on the share because it is an underwriter of Deutsche Bank s rights issue
1 0 9440 euros |
JPM | How to Make Money Off Brazilian Stocks When They Are Sinking | Bloomberg There s at least one way to make money and bet on Brazilian equities at the same time even if the Ibovespa is down more than 7 percent this year
Just ask investors in the ProShares UltraShort MSCI Brazil or BZQ The fund is up 40 percent year to date and is nearing a 12 month high It gives investors twice the inverse performance of underlying Brazilian equities that means the more shares sink the better the payout for buyers
Brazilian assets are struggling with political uncertainty surrounding the presidential election in October a more bearish outlook for the country s economy and the prospect of tighter monetary policy in the U S
Recently lower than expected economic growth and a weaker Brazilian real added a cautious note for earnings JPMorgan NYSE JPM UBS and Santander MC SAN all mentioned downside risks to Brazilian company results The country s benchmark Ibovespa index fell almost 11 percent in May the biggest monthly drop since September 2014 In June the equity index has already slumped 8 percent
Mark Mobius co founder of Mobius Capital Partners said that he s concerned about the potential slackening of reform movement in Brazil and that the nation s stocks are not trading at bargain levels suggesting they may have further to fall
On June 8 investors traded over 11 million worth of BZQ the most since May 2017 and more than 10 times the average daily turnover for the past year Leveraged strategies are usually used by traders and reset their leverage daily to give new buyers the performance they anticipate meaning the longer they re held the less accurately they track their benchmarks |
JPM | JPMorgan says to ramp up China investment banking headcount by 40 50 percent | HONG KONG Reuters JPMorgan Chase Co N JPM said it plans to expand its China investment banking team headcount by 40 percent to 50 percent over the next two to three years as it looks to grab a bigger share of the country s fast growing technology related deals The new headcount additions would also be part of its move to set up an onshore securities joint venture in China which is subject to approval from the Chinese regulatory authorities the Wall Street bank said in a statement It did not disclose the current headcount at its China investment banking team JPMorgan s China hiring plan comes as it seeks to sharpen focus on investment banking coverage of technology companies ranging from digital healthcare and ride hailing service providers to mobile banking and biotechnology firms China is the country that just has leapfrogged surpassing many things that happened in the West for the last decade said Murli Maiya co head of investment banking for Asia Pacific at JPMorgan The new economy in China is newer than and very different from many economies anywhere in the West he said adding JPMorgan is making all its China investment banking coverage sectors including financials and automotive technology focused
JPMorgan s plan for China investment banking expansion comes as a slew of Chinese technology companies or so called unicorns have raised or are planning to raise billions of dollars through public and private markets |
JPM | Asia shares sideswiped by China skid oil extends gains | By Wayne Cole SYDNEY Reuters Asian share markets were under stress on Wednesday as further falls in Chinese stocks and the yuan sent ripples across the region while oil climbed as the United States leaned on allies to stop buying Iranian crude Chinese blue chips CSI300 sank 2 2 percent to be a whisker above 13 month lows as a resolution of Sino U S tensions remained a distant prospect MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS lost another 0 6 percent after touching a two year trough on Tuesday Japan s Nikkei N225 had been faring better but soon succumbed to risk aversion and fell 0 3 percent European shares were expected to open flat while E mini futures for the S P 500 ESc1 were off 0 18 percent The fragile mood in Asia overshadowed gains in energy stocks made after news broke that Washington was pushing allies to halt imports of Iranian crude U S crude CLc1 added 17 cents to 70 70 having surged 3 6 percent overnight while Brent LCOc1 climbed 18 cents to 76 49 a barrel The jump in oil boosted the Wall Street energy sector 1 4 percent SPNY making it the biggest gainer on the S P 500 But the S P SPX still only managed to add 0 22 percent overall while the Dow DJI rose 0 12 percent and the Nasdaq IXIC was up 0 39 percent Confusion remained the watchword with U S trade policy The U S House of Representatives overwhelmingly passed a bill on Tuesday to tighten foreign investment rules spurred by bipartisan concerns about Chinese bids to acquire sophisticated U S technology Yet President Donald Trump also endorsed a measured approach to restricting Chinese investments in U S technology companies saying a strengthened merger security review committee could protect sensitive technologies We remain of the view that a large scale trade war remains a low probability though the odds of it happening appear to have increased said JPMorgan NYSE JPM economist David Hensley He noted that the latest tariff threats from the White House would cover more than 30 percent of U S imports equal to almost 5 percent of annual economic output GDP If all this were to happen and U S trading partners were to retaliate it would deliver a significant supply shock to the world economy raising inflation and lowering growth BACK TO YUAN WATCHING In currency markets trade sensitive currencies including the Australian and New Zealand dollars lost ground while the safe haven yen found demand The kiwi dollar hit its lowest in seven months at 0 6812 The U S dollar was broadly steady against a basket of currencies at 94 661 after bouncing from 94 171 on Tuesday The euro EUR was back at 1 1650 having run into profit taking at a top of 1 1720 overnight Yet the dollar could not sustain gains on the yen and eased back to 109 85 from an early 110 12 The dollar has been aided in part by recent gains on the Chinese yuan which has stirred speculation Beijing was allowing its currency to weaken to bolster exports The People s Bank of China PBOC fixed the yuan midpoint at a six month low of 6 5569 per dollar on Wednesday That was down 0 6 percent from the previous fix but actually a little firmer than market expectations However the spot rate continued to slip with the yuan breaking past 6 6600 per dollar for the first time since December The PBOC s preference might be to allow moderate weakening pulling back if depreciation pressures started intensifying But that s a difficult balance to strike The chances of a sizeable depreciation have risen economists at Capital Economics said in a note In commodity markets gold was seemingly no longer considered a safe haven by investors and hit its lowest in more than six months
Spot gold was last at 1 255 93 having hit its weakest since mid December at 1 253 00 |
C | Hong Kong fines Citi Asia unit 509 710 for dark pool breaches | HONG KONG Reuters Hong Kong s securities commission has fined a unit of Citigroup N C HK 4 million 509 710 for breaching dark pool regulations the regulator said on Tuesday
Dark pools known officially in Hong Kong as alternative liquidity pools ALPs are anonymous trading platforms offered by banks to help large investors trade big blocks of shares without having news of their orders move the price
The pools have attracted attention from regulators around the world and led some banks to close pools
Hong Kong s Securities and Futures Commission SFC said it carried out a review of ALPs between 2016 and 2017 and became concerned about Citi Match the dark pool operated by Citigroup Global Markets Asia Ltd
Citi Match failed to comply with the relevant requirements from December 2015 to August 2016 the regulator said
It said an incorrect system setting for client profiles had allowed more than 130 clients to access the ALP without being assessed as to whether they were qualified investors
The U S bank said that it cooperated with the commission and had already taken remedial actions
Citi would like to confirm that there was no financial impact on affected clients who were all qualified investors and no client opted out of Citi Match after being specifically provided with the ALP guidelines which were available at all relevant times on Citi s website the bank said in a statement
This story has been refiled to add dropped letter in Citi Match name in paragraph five |
C | Citi readies for Asia investment surge with new China desk as trade war intensifies | By Sumeet Chatterjee HONG KONG Reuters Citigroup Inc N C will set up a China business desk in India within the year betting on a pickup in investment flows within the Asian region its Asia Pacific corporate banking head said as concerns grow about the impact of a Sino U S trade war Citi plans to establish the desk in Mumbai adding to a South Korea business desk in the capital New Delhi Gerald Keefe told Reuters The desks provide services such as trade finance corporate loans cash management and investment banking Chinese firms mainly from tech and pharmaceutical sectors have been looking to deepen their push into growth markets such as India with its rising middle class income and increased spending on big ticket goods bankers have said The drive comes as the United States imposes tariffs on Chinese imports with China responding in kind In the latest battle the United States on Tuesday added 10 percent duty to 200 billion worth of Chinese goods Investors fear a protracted trade war will be detrimental to global growth but Keefe said investment and trade is growing elsewhere across Asia and that Citi intends to capitalize through its banking network The Wall Street bank s revenue from institutional business in intra Asia trade corridors has risen 33 percent so far this year versus the same period a year prior and compared with 18 percent for all of 2017 Keefe said There s an increasing and absolute amount of investment flow around Asia right from companies that are headed out of China from companies that are headquartered elsewhere in Asia who are of scale Keefe said in a recent interview Citi has about 20 business desks supporting investments by companies from China South Korea and India into places including Beijing Shanghai Hong Kong Singapore and Hanoi as well as New York London and Johannesburg Plans for additional China desks in Europe and Africa are being finalised Keefe said Obviously it s not helpful to have terms such as global trade war in the news every day he said But as clients evaluate what all this means in the context of these trade relations being reset we are finding that they are concluding that additional time effort energy and investment in Asia is good for them Keefe said there was growing investment from China in India where global automakers are raising production capacity as well as in Southeast Asia in sectors such as technology real estate and healthcare There is also growing investment from South Korea in India where Samsung Electronics Co Ltd KS 005930 on Monday opened what it called the world s biggest mobile phone manufacturing plant Citi s institutional banking revenue from the South Korea India business corridor has risen 78 percent this year
The macro setup for Asia has been as good as it possibly could have been for the last couple of years and that has encouraged a lot of outbound investments and a lot of incremental trade has come through those corridors Keefe said |
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