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C | 4 Trade Ideas For Citigroup | Citigroup NYSE C C made a top in September and then started lower It paused in November and then continued lower in December After finding a bottom it built a V shaped recovery getting back to the November levels quickly But then it paused and consolidate for nearly 3 months before breaking resistance and moving higher It reached a 78 6 retracement of the drop 2 weeks ago and pulled back Friday saw it break the short bull flag to the upside though setting a target to 73
The RSI is strong and holding high in the bullish zone with the MACD flat but positive The Bollinger Bands have flattened but there is a lot of room to the upper Band It also looks ready to print a Golden Cross There is resistance at 70 and 71 50 then 73 50 and 75 25 Support lower comes at 68 40 and 66 50 then 65 Short interest is low under 1 The company is expected to report earnings next on July 15th The stock pays a dividend with a yield of 2 59 and the stock starts trading ex dividend on May 3rd
The May options chain shows the largest open interest at the 65 put But there is larger open interest on the call side found at 70 and then 65 June options see the biggest open interest on the put side at the 60 strike and progressively lower as the strikes rise On the call side it is biggest at 70 September options are the first to cover the next earnings report and they are just starting to build open interest with a focus at the 62 50 put and from 65 to 75 on the call side
Citigroup Ticker C
4 Trade Ideas For Citigroup
Buy the stock on a move over 70 with a stop at 68
Buy the stock on a move over 70 and add a September 67 50 65 Put Spread 1 00 while selling the September 77 50 Call 1 00 credit
Buy the September 60 70 75 Call Spread Risk Reversal 1 05
Buy the June September 75 Call Calendar 1 30 and sell the September 60 Call 1 00 credit
Elsewhere look for GC to possibly reverse high out of a pullback while Crude Oil pauses in its uptrend The US Dollar Index has changed to a short term uptrend while US Treasuries are biased higher The Shanghai Composite and Emerging Markets are both pulling back in their uptrends
Volatility looks to remain very low keeping the bias higher for the equity index ETF s SPY IWM and QQQ Their charts are strong in the weekly timeframe with the QQQ leading the way at all time highs and the SPY right behind with the IWM improving On the daily timeframe the QQQ may be ready for a pause and it might be time for it to pass the baton to the IWM which is back at resistance The SPY meanwhile remains strong and a fraction from new all time highs 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 Disclaimer page for my full disclaimer
Original post |
JPM | Sterling Marches Higher For Now | Wednesday July 20 Five things the markets are talking about
Capital markets are on the move despite the waiting game for monetary policy direction from Tier I central banks over the next few weeks ECB tomorrow
In yesterday s session the Dow ended slightly above its record high close for the sixth consecutive day but the NASDAQ and S P 500 were down as markets pared some of their gains required during last week s risk on trading event Treasuries are rallying as commodities decline and the US Dollar Index straddles its four month high on market expectations for a possible Fed hike this year
The IMF has again entered the fray and cut its global growth forecasts for the next two years citing uncertainty over Brexit The Fed aside its either lower for longer or more stimuli required over the next few weeks from G10 central banks Those decisions are expected to dominate trading direction
1 Dollar gains across the board but
Trading ranges do dominate
The mighty buck continues to find support and has gained broadly this week after recent firmer U S data makes a Fed rate hike more likely
With the market continuing to reprice Fed rate hike probability Fed funds for Sept 18 Dec 39 8 the dollar index has managed to hit its highest level in more than four months
Overnight the EUR briefly probed its three week low just under the 1 10 level Nonetheless the markets focus will now turn to tomorrow s ECB meet where policy makers are expected to follow the BoE s example and take a wait and see stance for now but Draghi s tone will be closely watched in the post Brexit environment
USD JPY 106 50 continues to trade up on rate differentials BoJ expected to provide some stimulus on July 29 while sterling 1 3183 has found some support after U K labor market data this morning showed a smaller than expected rise in the claimant count for June 0 4k vs 4 1k The U K unemployment rate for May also came in at 4 9 below forecasts for 5
2 Bonds prices up or down
In the U S both the bull and bear bond camps have attracted new support The latest weekly JPMorgan NYSE JPM survey shows the share of investors expecting higher bond prices has risen to 26 from 18 a week ago while those expecting declines climbed to 16 from 11
U S 10 Year Treasury yield 1 56 has ticked up from its record low 1 366 and last week recorded the biggest one week rise in more than a year Few expect a big rise in bond yields U S Treasury bonds remain attractive with a record amount of negative yield sovereign debt in Japan and Europe
Providing support for European debt this week Bunds 0 03 was yesterday s disappointing report from Germany on business confidence The headline print from the largest economy in the eurozone fell to the lowest level in four years ZEW 6 8 vs 8 pointing to the impact from the U K s vote to leave the EU last month
Market participants remain cautious ahead of tomorrows ECB meeting especially now that the IMF have cut growth forecasts
3 Global bourses mixed reviews
Global equity markets remain mixed as macro themes of slowing global growth and better than expected U S earnings from top tech and financial names continue to dominate proceedings
Ahead of the U S open Euro equity indices are trading higher paring back losses seen in yesterdays trading in continuation of the general risk on sentiment seen post Brexit However expect the market to remain cautious ahead of the tomorrow s ECBs policy announcement especially after the IMF cuts its global economic growth forecast to 3 1 from 3 2
Commodity and mining stocks are leading the losses in the FTSE 100 while financial and tech names are leading the gains in the Eurostoxx Expect a plethora of U S earning reports to influence market direction
Indices Stoxx50 1 0 at 2 963 FTSE 100 0 5 at 6 729 DAX 1 2 at 10 096 CAC 40 1 2 at 4 382 IBEX 35 1 0 at 8 566 FTSE MIB 0 8 at 16 800 SMI 0 8 at 8 178 S P 500 Futures 0 3
4 Commodities
Crude Oil prices are edging higher this morning supported by expectations that U S crude inventories contracted last week Nevertheless expect these gains to remain constrained by the elevated stock scenario
Brent crude is up 0 4 to 46 86 a barrel while WTI futures are trading up 0 2 at 44 74 a barrel ahead of the U S open
Crude s oversupply is expected to continue its snowball effect as the glut will be processed into a glut of gasoline and other fuels
Again the market is expected to take direction from today s EIA report dealers will assess inventory levels and whether the recent price rally has stoked shale players to ramp up output if so this will delay the much needed rebalancing in the still over supplied market
Investors need to focus more of their attention on how gasoline and distillate stock levels have changed not just crude levels Dealers expect a drawdown of 1 7m barrels last week while gasoline inventories declined by 100k barrels and stocks of distillates rose by 700k
5 Turkey cuts interest rates
It was not too much of a surprise to the market to see Turkey s central bank cut one of its key rates for the fifth consecutive month after last week s coup triggered fears about possible repercussions for the country s economy
The MPC have cut the overnight lending rate to 8 75 from 9 It kept its benchmark one week repo rate steady at 7 5 and its overnight borrowing rate at 7 25
Turkish policy makers have trimmed the ceiling of the interest rate corridor from 10 75 over the past five months capping borrowing costs for Turkish lenders in an attempt to help support economic growth
The central bank stressed that market developments will be closely monitored and that necessary liquidity measures will continue to be taken to support financial stability
The central bank s rate move came after policy makers Sunday announced a series of measures in a bid to calm investors after the failed coup attempt
TRY 3 0271 continues to trade under pressure unable to recover from its initial 5 slide against the dollar on Friday Capital markets are concerned with President Erdogan and how he is rapidly consolidating his power by removing his opponents after the failed coup |
MS | Oil falls further under 50 on Asia demand concern | By Ahmad Ghaddar LONDON Reuters Oil fell on Monday over signs that U S shale drillers have adapted to lower prices and on renewed indications of economic weakness in Asia where refiners are already trimming crude runs Brent crude LCOc1 was trading at 46 43 per barrel at 1205 GMT down 33 cents from its last settlement U S West Texas Intermediate WTI crude CLc1 was down 30 cents at 45 11 a barrel Physical markets were also under pressure Rising Canadian oil flows are having difficulty finding space in pipelines weighing on Canadian prices Iran set the official selling price of its light grade for Asia at 0 45 above the Oman Dubai average for August down 40 cents on the month Traders said the lower prices were a result of Asian refiners beginning to cut crude orders and also due to the region s economic slowdown Economic run cuts are finally starting in a few markets but more may be needed Morgan Stanley NYSE MS said Several Asian refiners are maintaining or reducing crude throughput in July and August after refineries around the region in the first quarter binged on the cheapest crude in over a decade China s economic growth likely cooled to a fresh seven year low of 6 6 percent in the second quarter according to a Reuters poll of 61 economists its weakest in seven years An oil pipeline leak at Iraq s southern port of Basra has been repaired and pumping has resumed without affecting exports the Iraqi oil ministry said on Monday Basra Light crude oil loading had been suspended at two export terminals in Iraq s main oil export port shipping and trade sources said earlier in the day Crude exports in August from Iraq s southern ports are set to fall to 2 79 million barrels per day bpd from 2 99 million bpd planned for July according to a preliminary loading programme U S investment bank Jefferies sees the oil market establishing a solid base for higher prices ahead and forecasts prices at 70 a barrel by late 2017 early 2018 We believe that the oil market is in the early stages of a sustainable but protracted recovery Supply demand balances will transition to balance and then under supply in the back half of 2016 the bank said but warned that prices may not fully react to under supply until inventories draw to more normal levels
Evidence that U S producers can live with crude of 45 or higher came as drillers added rigs for the fifth week in six U S oil bankruptcies became sparse in June and bullish U S oil bets dropped to near four month lows |
MS | Yen gives up post Brexit gains as Japan stimulus hopes boosts risk | By Anirban Nag LONDON Reuters The safe haven yen hit a more than two week low against the dollar on Tuesday and fell 1 percent versus the euro as a weekend election victory by Japan s ruling coalition fanned expectations of more stimulus and bolstered risk sentiment Gains in global stock markets saw investors cut holdings in the yen which had risen on safe haven demand after Britain s vote to leave the European Union added to worries over global growth But Tuesday s drop in the yen saw it erase gains made after the shock Brexit vote on June 23 The dollar rose 0 8 percent to 103 64 yen its strongest since June 24 when the British referendum result sent ripples across global markets The euro also jumped 1 percent to 114 93 yen EURJPY R its highest since June 24 Japanese Prime Minister Shinzo Abe said on Monday that he will instruct Economy Minister Nobuteru Ishihara on Tuesday to start work on compiling a fiscal stimulus package but did not indicate a size Ruling party sources had told Reuters before the election that the government was ready to spend more than 10 trillion yen Another focus is whether the Bank of Japan will expand monetary stimulus at its policy meeting in late July Traders in London said former Federal Reserve chief Ben Bernanke s presence in Tokyo had also boosted expectations that the BOJ was preparing for more easing The BOJ adopted negative rates earlier this year in addition to its asset buying program but is far from achieving its inflation target The market is now priced for more than 10 trillion yen but it will be more about the fiscal monetary coordination that is driving markets said Hans Redeker head of currency strategy at Morgan Stanley NYSE MS The previous Fed Chairman Bernanke who initiated QE3 is visiting the BOJ inflating markets with expectations that the BOJ is accompanying the fiscal stimulus with ultra loose policies taking Japan closer to what is widely known as providing helicopter money Traders said the yen s drop has been exacerbated by position squaring In dollar yen there had been an excessive build up of yen buying positions and such bets are getting squeezed said Shinsuke Sato head of FX trading group for Sumitomo Mitsui Banking Corporation He added the dollar could add to its gains if upcoming U S economic data and comments from Federal Reserve officials appear to favor a Fed rate rise in September a view that has lately lost support
With interior minister Theresa May set to become Britain s prime minister on Wednesday ending weeks of political uncertainty sterling rose 1 1 percent to 1 3145 pulling away from a 31 year low of 1 2798 struck last week Investors nevertheless remain uncertain about May s approach to negotiating Britain s exit from the EU |
MS | Sterling firm with eyes on new prime minister s Brexit view | LONDON Reuters Sterling was firmer on Wednesday trading near a two week high against the euro as Theresa May was set to take over as Britain s prime minister easing some of the political uncertainty that has dogged the currency in the past few weeks Traders will keep an eye on who will be appointed as finance minister with many awaiting for clarity on the new prime minister s detailed thinking on triggering Article 50 the procedure for exiting the European Union May has said Brexit means Brexit but added Britain will not rush to trigger the formal divorce proceedings The uncertainty over whether Britain will be able to retain access to the single market after exiting the EU along with expectations that the Bank of England could cut rates on Thursday are likely to make traders wary of sterling Sterling was up 0 1 percent at 1 3270 having hit a high of 1 3340 in the Asian session its highest since July 4 and well above a 31 year low of 1 2798 struck on July 6 The euro was down 0 3 percent at 83 25 pence having fallen to 83 pence in Asia its lowest since June 30 It remains unclear for the time being as to whether the UK will retain free access to the single market and therefore the potential for setbacks in sterling is high said Thu Lan Nguyen currency strategist at Commerzbank DE CBKG After all the massive current account deficit causes considerable concern against the background of continued uncertainty Britain runs a current account deficit pegged at around 7 percent of gross domestic product amongst the highest in the developed world That makes the pound vulnerable to changes in foreign capital flows needed to plug the gap BoE chief Mark Carney has hinted he may ease policy to cushion the economy from Britain s shock decision to exit the EU with markets pricing in a more than 70 percent of a 25 basis point rate cut on Thursday The BoE has said the economy is likely to suffer a slowdown in coming months We think the pound s rally will run out of steam once investors learn that the economy is likely to slow down from the investment side weakening employment and then finally consumption Morgan Stanley NYSE MS said in a morning note
Officials from the world s largest asset manager BlackRock said on Tuesday Britain would fall into recession over the coming year and growth in each of the next five years would be at least 0 5 percentage points lower as a result of Brexit |
MS | Japan government advisers shun fiscal discipline open door to new debt | TOKYO Reuters Private sector members of the Japanese government s top advisory council said a fiscal discipline target for 2018 should not lead to excessive spending cuts as they opened the door to new debt issuance to fund stimulus The proposal comes after Prime Minister Shinzo Abe laid out plans for bold spending on infrastructure this fiscal year raising concerns the public debt burden would worsen as the government shifts its focus to expansionary fiscal policy Hitting the government s fiscal discipline goals is extremely difficult said Shuji Tonouchi senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities The upcoming supplementary budget and economic stimulus are expected to be quite large It might temporarily push up growth but the economy might run out of breath in fiscal year 2017 The private sector members of the Council on Economic and Fiscal Policy which met earlier on Wednesday are academics and business leaders who are considered close to Abe Their proposals often form the kernel of policy that Abe s government eventually adopts At the meeting the private sector members also called for more spending on childcare care for the elderly and structural reforms to accelerate growth Abe s government has set two important fiscal discipline targets the first is to lower the primary budget deficit to 1 percent of gross domestic product in fiscal 2018 and the second is returning to a primary budget surplus in fiscal 2020 The government should take steps to make sure the fiscal 2018 target does not curb spending excessively private sector members said in their proposal The proposal reaffirmed the government s plan to return to a primary budget surplus in fiscal 2020 but it also said the government should not be bound by past commitments to avoid selling new debt to fund stimulus and should consider using cash reserves Japan s debt GDP ratio is the world s worst standing at more than twice the size of the 5 trillion economy Fitch Ratings has already threatened to downgrade Japan last month after Abe delayed an increase in the nationwide sales tax
More fiscal stimulus spending could fuel further concerns about the country s debt burden and its sovereign rating |
MS | How U S election outcome could affect Fed chair appointment | Investing com In a preliminary report on possible outcomes for the U S elections released on Wednesday Morgan Stanley NYSE MS evaluated the possible impact the results could have on the Federal Reserve Fed chair Janet Yellen and examined possible replacements
These experts used a mix of polling data to point to the four most likely outcomes all of which included the base case that the Republicans would maintain control of the House and concluded that they were in order of likelihood
1 Hillary Clinton wins the presidency along with a Democratic Senate
2 Clinton wins the presidency but with a Republican Senate
3 Donald Trump wins the presidency with a Republican Senate
4 Trump wins the presidency with a Democratic Senate
In the most likely cases Morgan Stanley expects Janet Yellen to be reappointed when her four year term as Fed chair expires on February 3 2018
Historically the President of the United States has opted for continuity regardless of whether political views align these experts pointed out
As examples Republican President Ronald Reagan kept the Democrat appointed Paul Volker while Democratic President Barack Obama opted to hold on to the Republican named Ben Bernanke
However Morgan Stanley did note that Trump remarked back in May that he would most likely nominate someone more aligned with his political stance although he admitted that Yellen was a very capable person
S he s not a Republican When her time is up I would most likely replace her because of the fact that it would be appropriate he said in the interview with CNBC
In any case neither presidential candidate has thrown any names into the ring Morgan Stanley explained in the report
In either case if Yellen is not reappointed and no replacement is named Fed vice chair Stanley Fischer would preside over the U S central bank until a new chief is appointed
On the short list of next Fed chair candidates could be Larry Summers former World Bank chief economist and U S Treasury Secretary or Lael Brainard currently on the Fed Board of Governors if Hillary Clinton is the next President though we think it is most likely that she would stick with Yellen these experts said
In the case of a Trump victory Morgan Stanley suggested that Glenn Hubbard former chairperson of the Council of Economic Advisers for then President George W Bush could be chosen if he was not given the U S Treasury Secretary position John Taylor who created the famous Taylor rule or Douglas Holtz Eakin former director of the Congressional Budget
Office and chief economic policy adviser in John McCain s 2008 presidential campaign
Donald Kohn former Vice Chairman of the Board of Governors and moderate in his policy stance could be considered by either Hillary or Trump they added
We must also consider the fact that at this point the business expansion is now the 4th longest post WWII expansion on record and it is increasingly possible the next chair of the FOMC could preside over a recession which could either raise the chance that the desire for little policy disruption during a time of uncertainty results in a reappointed Yellen or that a new leader comes in but is forced to keep policy accommodation in line with current levels these analysts concluded |
C | Alibaba s Singles Day sales event coming Saturday could top 24B in sales | Alibaba s NYSE BABA Singles Day event happens this Saturday Last year the event brought in 17 8B Citigroup NYSE C estimates 2017 sales of 24B Alibaba originally marketed the event as a way for single people to treat themselves thus the Single s Day name Over 60K global brands will participate including Lululemon Gap Mac and Macy s This year marks the first time the sales event which started in 2009 will include physical retailers with brands promoting the sale inside existing stores or temporary storefronts Alibaba shares are down 0 73 Previously NetEase to buy 11B in overseas goods in e commerce push Nov 6 Now read |
C | Kura moves up ahead of Investor Day shares up 9 | Kura Oncology KURA 9 3 has perked up over 18 since Wednesday albeit on lackluster volume Next Thursday November 16 the company will host an Investor Day during which management will provide a comprehensive overview of lead candidate tipifarnib in head and neck squamous cell carcinoma Yesterday Citigroup NYSE C raised its price target to 19 from 15 BUY Now read |
C | Breakup of Saudi Russian Bromance Would Collapse Crude Prices | Bloomberg The Saudi and Russia led supply limits that have lifted crude to a 2 1 2 year high must be prolonged for an extended period or prices will collapse said Ed Morse global head of commodities research at Citigroup Inc NYSE C
Investors already are assuming OPEC and its allied producers will agree at the end of this month to extend the limits well beyond their March expiration Morse said at a gathering of energy economists in Houston on Monday
Morse characterized the historic 2016 rapprochement between Saudi Arabia and Russia that helped lead to the output limits as a bromance and said anything short of a decisive step moving forward will disappoint traders and trigger a massive unwinding of long positions in the futures market
That includes adopting half measures such as extending the deal by just a few months or delaying a decision until next year according to Morse For traders it s logical to do the extension he said Otherwise it ll trigger a selloff
Morse s remarks came just hours after OPEC Secretary General Mohammad Barkindo gave assurances in Abu Dhabi that the worldwide oil market is re balancing at a quickening pace and production cuts are the only viable option to restore stability
The Organization of Petroleum Exporting Countries should decide at its meeting later this month whether or not to extend the cuts United Arab Emirates Energy Minister Suhail Al Mazrouei said in a speech at a conference in Abu Dhabi Neighboring Oman backs prolonging the output limits beyond March and sees producers extending them until the end of 2018 Oil Minister Mohammed Hamad Al Rumhy told reporters
OPEC raised estimates for the amount of crude it will need to pump to meet demand next year by 400 000 barrels a day to 33 4 million a day according to a monthly report Monday from the group As that s about 670 000 a day more than OPEC produced in the third quarter global inventories would diminish further in 2018 if the group and its allies continue to keep supplies restrained Stockpiles have declined by more than 180 million barrels this year alone Barkindo said
Russia Saudi Arabia and Iraq have already signaled they would be open to extending the curbs
Stability Returning
Brent has gained 11 percent this year and the benchmark grade touched 64 65 a barrel in London on Nov 7 the highest intraday price since June 2015
We are seeing clear indications that the market is re balancing at an accelerating pace and stability is steadily returning Barkindo said I am certain that if we had not mobilized ourselves when we did building consensus and jointly taking action in responding to the crisis the industry would be in worse condition than it is today
The U A E s Mazrouei affirmed that view saying that coordinated cuts by OPEC and suppliers outside the group have helped trim crude inventories from record storage levels The U A E OPEC s fourth largest producer sees no need for the organization to hold an extraordinary meeting in the first quarter of next year he said
I am optimistic about the whole of 2018 which will be a recovery year for oil markets he said in a speech at the Abu Dhabi conference U S shale output a contributor to the global glut has responded more slowly than expected to the recent increase in crude prices he later told reporters
Oman a member of the producer committee monitoring the cuts added its support to prolonging them until the end of 2018 The largest Arab oil producer outside of OPEC expects crude to stay above 60 a barrel and sees stable prices next year Al Rumhy said in an interview |
C | Citi UBS Are Said Among Banks Most Exposed to Saudi Rich | Bloomberg Citigroup Inc NYSE C and UBS Group AG are among international banks managing the largest share of assets for wealthy Saudis some of whom are being investigated as part of a government probe into alleged corruption according to people familiar with the matter
JPMorgan Chase Co NYSE JPM and Credit Suisse SIX CSGN Group AG also manage billions of dollars for some of the kingdom s richest individuals the people said asking not to be identified because of the sensitivity of the matter Citigroup s private bank counts Prince Alwaleed bin Talal the world s 58th richest person and Khalid al Tuwaijri former chief of the Royal Court as clients two of the people said Both are among those who were detained in the probe the people said
Saudi Arabia has long been the target of wealth managers such as UBS Credit Suisse and Deutsche Bank AG DE DBKGn as well as other global banks seeking to advise the country s ultra rich The kingdom was the 16th most populous country for high net worth individuals last year with 176 000 according to Capgemini s 2017 World Wealth Report
It s not immediately clear what implications the investigation will have on banks and their operations in the kingdom the people said UBS Credit Suisse Citigroup and JPMorgan declined to comment
One of the greatest challenges for the banks is to balance their obligation and abide by the legal requirements of their home countries or the countries where the assets are domiciled Ayham Kamel head of Middle East North Africa at Eurasia Group said in a phone interview It s too early to say that their business will be negatively impacted but there certainly will be additional costs incurred by all of the banks as they manage the issues associated with the anti corruption campaign and their obligation to their customers
Swiss Regulator
Switzerland s financial regulator Finma is in touch with some Swiss banks over their business with Saudi Arabian clients two people with knowledge of the matter said
The regulator is following global economic and political developments to assess what they would mean for the supervised banks a spokesman said declining to comment on individual firms
Private banks don t usually disclose the amount of assets they manage for individual clients and most assets for Saudi Arabian high net worth individuals are held in offshore accounts making it difficult to quantify the amount
Crown Prince Mohammed bin Salman s surprising series of arrests has implicated three of the kingdom s richest people with combined assets worth about 31 billion according to the Bloomberg Billionaires Index As well as Alwaleed also being held are billionaires Mohammed Al Amoudi who controls investments across Africa Europe and Saudi Arabia and Saleh Kamel who operates in Islamic banking food and real estate
Saudi authorities estimate that at least 100 billion has been misused through systematic corruption and embezzlement over several decades Attorney General Sheikh Saud Al Mojeb said last week A total of 208 individuals have been called in for questioning so far and seven have been released without charge he said
Navigating the difficulty of the political environment and the difficulty of the campaign in Saudi Arabia will present reputational issues to the banks said Eurasia s Kamel Banks have to navigate the challenges from the legal and business perspective while managing to retain their current relationships across the region
Shifting Assets
Some Saudi billionaires and millionaires are selling investments in neighboring Gulf Cooperation Council countries and turning them into cash or liquid holdings overseas to avoid the assets getting caught up in the probe people with knowledge of the matter said last week In Saudi Arabia some are in talks with banks and fund managers to move money outside the country they said
While many of the biggest Swiss wealth managers handle Middle East client money from offshore centers such as Geneva Zurich and Singapore some have also been building a direct presence in the region Banks without a license aren t allowed to market their products in the kingdom and their clients travel to booking centers
Credit Suisse plans to hire more relationship managers in Saudi Arabia after the Zurich based firm established a platform allowing it to offer private banking services and products in the country it said in July The company declined to comment on the status of these plans for this article
The bank manages about 70 billion Swiss francs 70 billion of private banking assets in the Middle East Iqbal Khan head of the company s international wealth management business said in a Dubai interview in October 2016 The bank counts the Saudi Olayan family as one of its biggest shareholders
To read more about Credit Suisse s Saudi Arabia plans click here
JPMorgan which employs about 80 bankers in Saudi Arabia ranks the kingdom as the 18th country where it has the most exposure according to a third quarter regulatory filing with 3 8 billion in lending and deposits and 800 million in trading and investing
Saudi Arabia is the market where UBS has the biggest single exposure in the Middle East followed by the United Arab Emirates and Kuwait The bank s net exposure to the country is 577 million Swiss francs according to its 2016 annual report The Swiss wealth manager plans to double headcount in the kingdom in the next few years it said last month Saudi Arabia is seen as a priority emerging market for UBS along with Mexico Brazil Turkey Russia and Israel
Updates with analyst comments in the fifth and 11th paragraphs |
C | USD JPY Near 4 Month High With BOJ On Hold | BOJ keeps rates asset purchases unchanged
The Bank of Japan kept its benchmark rate unchanged at 0 1 and the JGB yield target at zero percent as expected It also left asset purchases at annual pace unchanged at 80 trillion yen J REIT purchases at 90 billion yen and ETF purchases at 6 trillion yen In the outlook report the Bank trimmed its FY2019 20 growth outlook to 0 8 from 0 9 and for 2020 21 to 0 9 from 1 0 It set an initial 2021 22 GDP growth target at 1 2
USD JPY dipped below the 112 0 handle to 111 84 after the announcement and is now at 111 99
USD JPY Hourly Chart
Source OANDA fxTrade
Aftermath of Australia s weak CPI print
A day after Australia s Q1 CPI came in below expectations market talk focus has been to adjust predictions of the next RBA move The probability of a cut at the May meeting has risen to more than 50 according to market pricing and a number of research notes from banks including Citigroup NYSE C and Royal Bank of Canada have brought forward predictions from August to May
AUD USD fell to 0 7004 yesterday the lowest since March 8 and had seen a mild bounce to 0 7023 this morning Australia and New Zealand markets are closed today for ANZAC Day
AUD USD daily Chart
Soiurce OANDA fxTrade
Durable goods scheduled
It s a relatively light data calendar today especially in Europe where the highlight will likely be Sweden s Riksbank rate meeting The Bank is still forecast to keep its benchmark interest rate unchanged at 0 25
The US calendar features US durable goods orders for March which are seen rebounding strongly to 0 8 from 1 6 in February It s a notoriously volatile data series and the six month average is 0 5 A speech from ECB s De Guindos rounds off the session
Original post |
C | The Daily Fix The World s Central Banks Continue To Shift In Alignment | The almost universal global central bank push to a more dovish structure has been given further momentum with a cohesive message delivered in a 24 hour period by the PBoC Swedish Riksbank the BoJ and Bank of Canada
Inflation and inflation expectations are at the heart of the thought process now and the result of this further shift has been some punchy moves notably in the SEK which is currently 7 1 lower against the USD YTD and 320 basis points weaker than any of currency in G10 FX The Riksbank pushing back on its tightening plans while announcing an 18 month bond buying program has hit a market already seeing fragility in Swedish economics spurred on by its close relationship with Europe
NOSEK has found good buyers despite the NOK s close relationship with Brent crude which is 0 3 lower in Asia and remains a lower beta play on a central bank divergence We see price working in a bullish channel since January and it feels like this will be higher in the short term SEK JPY see below is a compelling alternative to short EUR JPY and a weekly close through 11 66 should send off signals that this pair goes nicely lower and should we see higher volatility in markets then we have some protection in the form of leverage to the JPY
Add in a weak IFO survey in Germany on Wednesday night arguably the best precursor of economic performance in Germany and it s all sellers in EUR USD The better US durable goods orders overnight and capital spending have enforced a rising view that the US economy is back as an island onto its own but that can t last too much longer in my opinion Either way the set up we see below makes it incredibly hard to be long EUR s especially as we see inflation expectations moving up aggressively in the US relative to Europe I have charted this using EUR USD Inverted pink versus US EU 5y5y forward inflation swaps white and as long as relative US inflation expectations are moving higher then EUR USD will be sold on rallies especially with further dialogue emerging from ECB officials on re starting its QE program
As we can see in the EURUSD weekly and throughout the recent downtrend is that EUR USD has been prone to a number of failed breaks Specifically in the weeks ending 11 November and 3 March and that makes tonight s close important as it would confirm the weekly close through 1 1176 and target a near term move into trend support at 1 1080 EUR USD overnight implied vol sits at 5 2 which gives an expected move of 49 points on the session So unless we see a disastrous US Q1 GDP 22 30aest tonight then the US growth numbers shouldn t cause a strong USD reversal
Turning our attention to the USD and specifically the USD index USDX the break of the multi month ceiling has garnered much attention and rightly so I have been in the camp that the USD had downside potential but would not act and sell USDs until the market compelled and we saw money flow aligning We had eyed a situation where a break out in the USD coincided with higher implied vols and that seems to be playing out with three month EUR USD implied vol finding vol buyers off multi year support
Keep the USD index chart on the radar though as the US data rolls in a big way next week and could re enforce this issue that the US is moving apart with capital continuing to be allocated here On Monday we get US core inflation and this takes on new meaning after Chicago Fed president Charles Evans noted that any moves through 1 5 could be the trigger to cut the fed funds rate We should hear more about trigger to ease the fund s rate in Thursday s FOMC meeting and governor Powell s presser 30 minutes later While we also get ISM manufacturing Employee Cost Index ECI non farm payrolls and services ISM so it s a big week on the data front
With 28bp of cuts priced into US rates markets for 2020 the market is still of the view that an insurance cut becomes a reality and it seems logical that a one way USD is not going to be taken well by EM assets the Trump administration or a Fed concerned about its own inflation trajectory
Tactically gold is back on the focus list but until we see the market lose love for the USD then price should chop around and further consolidate If we can see a weaker USD then gold flies in my opinion as the investment case for gold remains solid That being a hedge against economic fragility and global disinflationary forces
In the top pane we see gold US 5yr real yields green and the total value of outstanding bonds with a negative yield purple The lower pane shows US 5 year forward inflation expectations and this is important as it dispels the notion that gold is a hedge against inflation and while that may have been the case throughout history as we can see there are periods where gold works inversely to inflation expectations
What is clear is that gold is working incredibly well as the best alternative So when inflation adjusted or real yields are moving lower gold is moving higher As bizarre as it sounds the theory is if yields are falling and the pool of bonds commanding a negative yield is expanding the fact gold has no yield is yield in itself As I say if the market loses its love for the USD then gold rallies as the best house in a bad neighbourhood and the best alternative
We have seen small buying in AUDUSD and once again the market is defending the 70 handle with real vigour The intra day move in AUDUSD looks to have been strongly influenced by USDCNH yellow and inverted though which we can see here
So put USD CNH on the radar too especially if trading AUD USD as we have seen a failed break in USD CNH through horizontal resistance of 6 7143 and if this pair had pushed through then I am sure we would see AUD USD firmly through the 70c It feels as though USD CNH could have important implications not just for AUD USD but many other USD pairs in general
It s also interesting to note that we have started to see the sell side strategists looks at the effectiveness to generate inflation through further declines in the cash rate Citigroup putting out a note titled Time for the RBA to Deploy the Helicopters Which examines the potential of the RBA to look at unconventional monetary policy measures in Australia This is incredibly interesting as I would have to agree that having a cash rate at 1 is unlikely to spur huge AUD movement to deport its disinflation and we don t want to be talking about negative rates It seems likely a more mainstream conversation will play out in the months ahead on the RBA going down a route that avoids negative rates and either sees a radical shift in the domestic money supply or RBA s balance sheet For those bearish on the AUD this is where you will see returns flashing |
MS | Oil eases as weak demand tempers bullish Saudi energy minister comments | By Ahmad Ghaddar and Catherine Ngai LONDON CALGARY Reuters Global oil prices eased on Monday after comments by Saudi Energy Minister Khaled Al Faleh that the market was heading toward balance were tempered by slowing demand in Asia pockets of gasoline oversupply and signs crude output could rise Brent crude futures LCOc1 settled down 25 cents to 50 10 per barrel U S crude futures CLc1 were trading down 23 cents at 48 76 per barrel U S markets are closed on Monday for the U S Independence Day holiday so trading remained thin on the day The energy minister of Saudi Arabia the world s top crude exporter and the secretary general of producer club OPEC agreed that global oil markets were heading toward balance and that prices reflected this However analysts at Morgan Stanley NYSE MS said there were also signs prices could fall again soon pointing at stalling gasoline demand and more oil from Canada and Nigeria after production problems In the New York Harbor at least two tankers carrying gasoline making components have dropped anchor unable to discharge their cargo Several tanks with gasoline also have been diverted underscoring the latest oversupply issue Meanwhile the Nigerian National Petroleum Corporation said last week that output was rising following repairs after attacks in the Niger Delta that had pushed crude output to 30 year lows A deal to unify Libya s rival national oil corporations could pave the way for the OPEC member to boost output which currently stands at less than a quarter of pre 2011 levels of 1 6 million barrels per day bpd If the deal materializes it will have a real and considerable impact on the oil market balance for 2017 potentially cancelling out any projected deficit SEB Markets chief analyst for commodities Bjarne Schieldrop said Oil demand and as a result prices could come under pressure as weak refining margins prompt run cuts at a time when plants in Asia are already gearing up for seasonal maintenance work Asia refiners have already started to pull back and there are reports of cargoes struggling to sell Morgan Stanley analysts said on Monday Russian oil output in June rose slightly from the previous month to 10 84 million bpd
In Norway oil workers signed a deal on Saturday avoiding a strike in western Europe s top producer |
MS | Twinkies maker Hostess to go public under new owner | By Lauren Hirsch and Siddharth Cavale Reuters Hostess Brands LLC the maker of Twinkies and Ding Dongs said on Tuesday it will be bought in a 725 million deal by an affiliate of private equity company Gores Group which will then take it public The Kansas City Missouri based snack cake company which was founded in 1919 will be acquired by Gores Holdings Inc O GRSH a special purpose acquisition company SPAC Including debt the total value of the deal is about 2 3 billion Hostess said The company s products especially the golden cream filled Twinkies cakes are ingrained in American pop culture and have long been packed in children s lunch boxes SPACs such as Gores Holdings have no assets but use their IPO proceeds together with bank financing to take companies public through acquisitions The Hostess acquisition is expected to close by end of summer and Gores will then change its name to Hostess Brands Inc Hostess sold itself in 2013 to private equity firm Apollo Global Management LLC N APO and consumer industry investor C Dean Metropoulos for 410 million Apollo and C Dean Metropoulos will receive shares in the combined company worth an ownership stake of about 42 percent Gores Holdings will pay Hostess 725 million in cash About 173 million will be used to pay down debt Other investors including Gores Group Chief Executive Alec Gores and Metropoulos have committed 350 million through a private placement Metropoulos will remain executive chairman of Hostess and William Toler will continue as chief executive Under Apollo and Metropoulos Hostess relaunched its brands and regained market share focusing on distribution channels where it had historically lacked a significant presence such as dollar stores and vending machines Reuters reported last July that Hostess was exploring a sale that could value it at more than 1 7 billion including debt The company scrapped plans for a sale in favor of an initial public offering after it failed to attract sufficient buyer interest at the desired price We have evaluated a number of potential acquisitions for Gores Holdings and believe this transaction offers a superior option for our stockholders CEO Alex Gores said in a statement Deutsche Bank DE DBKGn Securities Inc Moelis Co and Morgan Stanley NYSE MS were financial advisers to Gores Holdings while Weil Gotshal Manges LLP was the legal adviser
Rothschild Co Credit Suisse SIX CSGN and Perella Weinberg Partners were M A advisers to Hostess Morgan Lewis Bockius was legal adviser to Apollo |
MS | Siris Capital to buy Polycom thwarting Elliott s Mitel merger | By Michael Flaherty and Narrotam Medhora Reuters Video conferencing equipment maker Polycom Inc said it agreed to be bought by a private equity firm for about 1 7 billion scrapping a three month old deal with Canada s Mitel Networks Corp The private equity firm Siris Capital Group offered 12 50 a share in cash for Polycom representing a premium of 15 percent to Polycom s close on Thursday The Siris Capital deal thwarts a plan by activist hedge fund Elliott Management which bought stakes in both Polycom and Mitel and played a leading role in getting the two to agree to a merger San Jose California based Polycom will pay Mitel a termination fee of 60 million the company said Siris offer will remain in effect until July 15 the private equity firm said in a statement Polycom s shares jumped about 12 9 percent to 12 27 in morning trading on Friday while Mitel shares surged 18 percent New York based Elliott bought stakes in Polycom and Canada s Mitel in October saying at the time that the two companies should merge as part of a broader need for the sector to consolidate In April Mitel agreed to buy Polycom for around 1 98 billion in cash and stock As part of that deal Polycom stockholders would get 3 12 in cash and 1 31 Mitel shares for each of their shares or 13 68 based on the closing price of a Mitel common share on April 13 Shares of both companies dipped in the weeks following the agreement This is a great outcome for all parties involved Jesse Cohn senior portfolio manager at Elliott said in an emailed statement Cohn congratulated Siris and praised top officials at both Polycom and Mitel for their role in the process We continue to see tremendous unrecognized value at Mitel Under terms of the original deal the combined company was set to be based in Ottawa and run by Mitel executives Mitel said on Friday it would not raise its offer for Polycom and waived its right to match Siris offer Siris Capital which had previously made an offer of 12 25 per share for Polycom said it would fund the deal through a combination of equity and debt Morgan Stanley NYSE MS was the financial adviser to Polycom while Moelis Co Evercore Partners and Macquarie Capital were advisers to Siris Capital Group |
MS | Japan Abe orders new stimulus package after election win | By Stanley White and Tetsushi Kajimoto TOKYO Reuters Japanese Prime Minister Shinzo Abe ordered a new round of fiscal stimulus spending after a crushing election victory over the weekend as evidence mounted the corporate sector is floundering due to weak demand Abe did not give details on the size of the package but Japanese stocks jumped nearly 4 percent and the yen weakened over perceptions a landslide victory in upper house elections now gives him a free hand to draft economic policy An unexpected decline in machinery orders shows the economy needs something to overcome consistently weak corporate investment Economists worry however that Abe s focus on public works spending will not tackle the structural issues around a declining population and workforce More public works also increases pressure on the Bank of Japan to keep interest rates low and the yen weak to make sure stimulus spending will gain traction The government was ready to spend more than 10 trillion yen 100 billion ruling party sources told Reuters before the election We are going to make bold investment into seeds of future growth Abe told a news conference on Monday at the headquarters for his ruling Liberal Democratic Party LDP Japan s ruling coalition rang up a stronger than expected victory in Upper House elections as voters chose stability despite concerns about Abe s economic policies and plans to revise the post war pacifists constitution for the first time AGRICULTURE EXPORTS Abe said he wanted to strengthen agriculture exports from rural areas and improve infrastructure such as trains and ports to welcome more tourists and cruise ships from overseas We have promised through this election campaign that we will sell the world the agricultural products and tourism resources each region is proud of he said He reiterated a campaign pledge to improve access to child care and elderly care He will also consider providing grants to students struggling with college debt The prime minister said he wanted to take advantage of the Bank of Japan s zero interest rate policy and issue bonds for public private partnerships The government will also sell construction bonds which are earmarked for public works projects for the first time in four years to fund part of the stimulus package the Nikkei newspaper reported without citing sources The emphasis on the tourism industry in the package is about making a long term investment said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities But the recent success in tourism has been due to the relaxing of visa requirements and a weakening yen Now that the yen is rising the BOJ s Bank of Japan monetary easing needs to accompany this plan for it to work Miyazaki said MACHINERY ORDERS FALL Some economists say public spending on infrastructure is needed to compensate for the private sector s reluctance to invest in plants and equipment Machinery orders fell unexpectedly in May as a strong yen and weak demand eroded corporate profits and spending plans data on Monday showed another sign the economy is struggling to attract the investment it needs to sustain growth The Cabinet Office said machinery orders are stalling a downgrade from April s assessment that said orders were showing signs of pickup Other economists have argued the main reason Abe s policies have disappointed after more than three years in office are a lack of bold steps to liberalize the labor market and reverse a population decline These kinds of structural reforms are known as the third arrow in the prime minister s economic program dubbed Abenomics The other two arrows are fiscal packages such as the one announced on Monday and monetary stimulus from the BOJ The BOJ has kept monetary policy steady since January when it decided to add negative rates to its massive asset buying program in a fresh attempt to accelerate inflation However some economists think the BOJ may take some further action when it updates the Bank s forecasts at a policy meeting ending July 29
The Nikkei N225 share average ended at 15 708 82 points a one week closing high after earlier touching its highest intraday level since June 24 The yen fell to 102 versus the dollar following Abe s resounding election win and announcement of the stimulus package |
JPM | Global stocks stay subdued as dollar edges higher | By Marc Jones LONDON Reuters A stronger dollar and slightly higher global borrowing costs kept world shares subdued on Friday and left gold limping toward its worst week since December Europe s main London Frankfurt and Paris markets 0 INDEXE barely budged in early moves keeping MSCI s 47 country world index just in the black on the day but facing its third red week in the last four Modest gains for the dollar meant the euro was set to post its second biggest weekly loss in nearly four months FRX as caution over the Italian election gave bond markets there their toughest week of 2018 Polls point to a hung parliament in Italy where no one party or coalition has an outright majority to form a government and analysts expect a short term volatility that could weigh on traditionally sensitive euro zone markets Italy s 10 year bond yield was up 1 bps at 2 09 percent It has risen about 10 basis points this week Some long forgotten patterns return to euro bond markets with Bunds rallying while Italy sells off said Commerzbank DE CBKG rates strategist Christoph Rieger He noted comments from European Commission President Jean Claude Juncker this week who was reported to have warned about Italian election risks Broader global cross asset issues remained much the same as they have during a choppy few weeks How far and fast U S interest rates can rise and what would it mean for global borrowing costs risk appetite and business confidence That caution is reverberating in the bond markets with U S yields rising by more than 50 basis points since early December more than the 38 basis points for German government debt Benchmark Treasury 10 year note yields rose to a four year high of 2 957 percent on Wednesday though they were a shade down at 2 904 percent on Friday The backsliding also stalled the dollar s overnight gains in Asia It was virtually treading water against most major currencies by 0930 GMT buying 106 8 yen and at 1 2325 and 1 3965 against the euro and pound It was still up more than 1 percent for the week and headed for its third gain in the last four weeks We think the Fed could well put U S interest rates up four times this year but even then it only takes U S rates to 2 5 by the end of the year said JPMorgan NYSE JPM Asset Management global strategist Mike Bell So the question is would they continue at that pace in 2019 One of the Fed s chief doves St Louis Fed President James Bullard tried to tamp down expectations of four rate hikes on Thursday saying policymakers needed to be careful not to slow the economy NOT SO PRECIOUS Russian markets were readying for a big day with S P Global due to review Moscow s credit rating It is just one step away from returning Russia to the investment grade bracket that it ejected it from after the 2014 2015 slump in oil prices and Ukraine crisis Its restatement would also see Russian foreign currency bonds return to some widely tracked bond indices In Asian trading overnight MSCI s broadest index of Asia Pacific shares outside Japan climbed 0 9 percent on Friday to add to the previous week s 3 9 percent gain It is still down more than 4 percent in February so far however after global equity markets were mauled at the start of the month by worries that inflation was picking up Japan s Nikkei rose 0 7 percent though China s SSE LON SSE Composite index and the blue chip CSI300 both pared their early gains after the government seized control of acquisitive financial conglomerate Anbang Insurance It was seen as a dramatic move that underscores Beijing s intent to crackdown on financial risk The dollar s strength meant it remained a tough environment for commodities which are priced in the U S currency U S West Texas Intermediate WTI crude futures were at 62 74 a barrel down 3 cents from their last settlement while Brent crude futures were down 2 cents at 66 37 a barrel There were concerns about high U S crude export levels which outweighed an unexpected drop in oil inventories in the country which is also the world s biggest fuel consumer Industrial metals such as copper eased as they headed for a small weekly drop and as trading slowly picked up again after Chinese markets had been shut following the Lunar New Year holiday Gold remained the stand out mover though and looking increasingly less precious Its spot market price was down 0 2 percent at 1 328 heading for a fifth session of falls in six It has shed 1 6 percent this week its biggest drop since early December We remain somewhat cautious on gold over the short term given that we think the dollar rally is still not over especially in the light of U S Treasury yields remaining elevated said INTL FCStone analyst Edward Meir |
JPM | Wall Street Optimism Returns As Correction Seems Like Blip | Investing com Just weeks after the stock market correction Wall Street firms are sounding bullish about stocks again JPMorgan Chase NYSE JPM reiterated its 3 000 price target for the S P 500 saying its not the time to sell stocks The firm also said that rising interest rates do not pose a risk to stocks at this point adding that there had been some over reaction to inflation headlines BlackRock recently said it was bullish on stocks because the Trump administration s tax cuts were supercharging corporate earnings growth expectations JPMorgan Chase also said the correction was driven by technical factors not by rising interest rates resulting from an uptick in inflation Wall Street was equally bullish before the correction Bank of America Merrill Lynch s monthly fund mangers survey showed 30 thought the bull market would peak sometime in 2019 not in the second quarter of 2018 as previously thought |
JPM | Time to Sell Cyclical Stocks Not Yet Say JPMorgan Strategists | Bloomberg Equities linked to economic growth are roundly beating those seen as less sensitive and the crowded trade still has a bit to go according to JPMorgan Chase Co NYSE JPM
The strategy of going long cyclicals and short defensives hasn t yet peaked but we are getting close the bank s equity strategists led by Mislav Matejka wrote in a note Monday highlighting a strong relative performance in both Europe and the U S this year Notwithstanding this month s global selloff sectors including information technology materials and consumer discretionary have outperformed peers in real estate consumer staples and utilities in 2018
After beating defensive shares in the last couple of years relative valuations of cyclicals are looking stretched while economic output momentum has probably peaked a sign that stocks more sensitive to growth may start to lag the strategists say On the plus side they note that earnings remain constructive with revisions proving better for cyclicals Rising bond yields closely watched by equity investors this year is another favorable factor
Bond yield direction is a very important consideration for the trade the strategists wrote Cyclicals look much better than defensives in the backdrop of yields continuing to move higher which remains our view
JPMorgan says it will keep its preference for cyclicals over defensives unless bond yields exhaust their upward momentum and activity indicators dip more sharply |
JPM | Fed May Be More Aggressive Than FOMC Minutes Suggest | The Investing com Federal Reserve is now clearly committed to raising interest rates on a regular basis The minutes of its January FOMC policy committee meeting made that abundantly clear Fed members agreed that a stronger outlook for economic growth warrants further gradual increases in its federal funds rate And the Fed left no doubt that it saw inflation hitting its target rate of 2 A key factor in the inflation equation is the Trump administration s massive tax cut package which the Fed said might have a bigger impact in the short term than previously thought That and worrisome signs of inflation that surfaced after the Fed s meeting may have already changed its thinking about how many rate hikes are needed this year Economic reports in showed wage growth and consumer prices running higher than expected while the President signed off on a two year budget with 200 billion in new spending Meanwhile interest rates have been hitting multi year highs in the Treasury market and will continue to do so with a record amount of new debt on its way The market assumption has been three rate hikes in 2018 with the first coming at the Fed s March meeting A growing minority including JPMorgan Chase NYSE JPM now expect the central bank to raise rates four times this year |
C | Future Saudi king tightens grip on power with arrests including Prince Alwaleed | By Stephen Kalin and Katie Paul RIYADH Reuters Saudi Arabia s future king has tightened his grip on power through an anti corruption purge by arresting royals ministers and investors including billionaire Alwaleed bin Talal who is one of the kingdom s most prominent businessmen Prince Alwaleed a nephew of the king and owner of investment firm Kingdom Holding invests in firms such as Citigroup NYSE C and Twitter He was among 11 princes four ministers and tens of former ministers detained three senior officials told Reuters on Sunday The purge against the kingdom s political and business elite also targeted the head of the National Guard Prince Miteb bin Abdullah who was detained and replaced as minister of the powerful National Guard by Prince Khaled bin Ayyaf The allegations against Prince Alwaleed include money laundering bribery and extorting officials one official told Reuters while Prince Miteb is accused of embezzlement hiring ghost employees and awarding contracts to his own companies including a 10 billion deal for walkie talkies and bulletproof military gear worth billions of Saudi riyals The allegations could not be independently verified and members of the families of those detained could not be reached News of the purge came soon after King Salman decreed late on Saturday the creation of an anti corruption committee chaired by Crown Prince Mohammed bin Salman his 32 year old favorite son who has amassed power since rising from obscurity three years ago The new body was given broad powers to investigate cases issue arrest warrants and travel restrictions and seize assets The homeland will not exist unless corruption is uprooted and the corrupt are held accountable the royal decree said Analysts said the arrests were another pre emptive measure by the crown prince to remove powerful figures as he exerts control over the world s leading oil exporter The roundup recalls the palace coup in June through which he ousted his elder cousin Mohammed bin Nayef as heir to the throne and interior minister MbS as he is known was expected to follow at least by removing Prince Miteb from leadership of the National Guard a pivotal power base rooted in the kingdom s tribes Over the past year MbS has become the ultimate decision maker for the kingdom s military foreign economic and social policies causing resentment among parts of the Al Saud dynasty frustrated by his meteoric rise Saudi Arabia s stock index was dragged down briefly but recovered to close higher as some investors bet the crackdown could bolster reforms in the long run The royal decree said the arrests were in response to exploitation by some of the weak souls who have put their own interests above the public interest in order to illicitly accrue money REFORM AGENDA The line between public funds and royal money is not always clear in Saudi Arabia an absolute monarchy ruled by an Islamic system in which most law is not systematically codified and no elected parliament exists WikiLeaks cables have detailed the huge monthly stipends that every Saudi royal receives as well as various money making schemes some have used to finance lavish lifestyles Analysts said the purge aimed to go beyond corruption and aimed to remove potential opposition to Prince Mohammed s ambitious reform agenda which is widely popular with Saudi Arabia s burgeoning youth population but faces resistance from some of the old guard more comfortable with the kingdom s traditions of incremental change and rule by consensus In September the king announced that a ban on women driving would be lifted while Prince Mohammed is trying to break decades of conservative tradition by promoting public entertainment and visits by foreign tourists The crown prince has also slashed state spending in some areas and plans a big sale of state assets including floating part of state oil giant Saudi Aramco IPO ARMO SE on international markets Prince Mohammed has also led Saudi Arabia into a two year old war in Yemen where the government says it is fighting Iran aligned militants and a row with neighboring Qatar which it accuses of backing terrorists a charge Doha denies Detractors of the crown prince say both moves are dangerous adventurism The most recent crackdown breaks with the tradition of consensus within the ruling family wrote James Dorsey a senior fellow at Singapore s S Rajaratnam School of International Studies Prince Mohammed rather than forging alliances is extending his iron grip to the ruling family the military and the National Guard to counter what appears to be more widespread opposition within the family as well as the military to his reforms and the Yemen war he said Scholar Joseph Kechichian said the interests of the Al Saud dynasty however would remain protected Both King Salman and heir apparent Mohammed bin Salman are fully committed to them What they wish to instill and seem determined to execute is to modernize the ruling establishment not just for the 2030 horizon but beyond it too he said Many ordinary Saudis praised the crackdown as long awaited OPULENT HOTEL A Saudi official said former Riyadh Governor Prince Turki bin Abdullah was detained on accusations of corruption in the Riyadh Metro project and taking advantage of his influence to award contracts to his own companies Former Finance Minister Ibrahim al Assaf a board member of national oil giant Saudi Aramco was also detained accused of embezzlement related to the expansion of Mecca s Grand Mosque and taking advantage of his position and inside information to purchase lands the official added Other detainees include ousted Economy Minister Adel Fakieh who once played a major role in drafting MbS reforms and Khalid al Tuwaijiri who headed the Royal Court under the late King Abdullah People on Twitter applauded the arrests of certain ministers with some comparing them to the night of the long knives a violent purge of political leaders in Nazi Germany in 1934 Bakr bin Laden chairman of the big Saudi Binladin construction group and Alwaleed al Ibrahim owner of the MBC television network were also detained At least some of the detainees were held at the opulent Ritz Carlton hotel in the diplomatic quarter of Riyadh said sources in contact with the government and guests whose plans had been disrupted The hotel s exterior gate was shuttered on Sunday morning and guards turned away a Reuters reporter saying it had been closed for security reasons although private cars and ambulances were seen entering through a rear entrance The hotel and an adjacent facility were the site of an international conference promoting Saudi Arabia as an investment destination just 10 days ago attended by at least one of those now being held for questioning The detentions follow a crackdown in September on political opponents of Saudi Arabia s rulers that saw some 30 clerics intellectuals and activists detained Prince Alwaleed a flamboyant character has sometimes used his prominence as an investor to aim barbs at the kingdom s rulers In December 2015 he called then U S presidential candidate Donald Trump a disgrace to all America and demanded on Twitter that he withdraw from the election Trump responded by tweeting Dopey Prince Alwaleed Talal wants to control our U S politicians with daddy s money Can t do it when I get elected
His father Prince Talal is considered one of the most vocal supporters of reform in the Al Saud family having pressed for a constitutional monarchy decades ago |
C | Oil advances following Saudi purge | Brent crude futures jumped to their highest since July 2015 while WTI futures touched 56 a barrel following a new wave of arrests of royals and ministers in a Saudi corruption probe
It was orchestrated by Crown Prince Mohammed bin Salman who s backed OPEC led output cuts
Game of thrones The purge also led to the arrest of business billionaire Prince Alwaleed whose investment firm Kingdom Holding has big stakes in Citigroup NYSE C and Twitter NYSE TWTR
ETFs USO OIL UWT UCO DWT SCO BNO DBO DTO USL DNO OLO SZO KSA OLEM OILK WTIU OILX WTID USOI
Now read |
C | Oil hits two year high on Saudi purge world shares retreat | By Ritvik Carvalho LONDON Reuters Oil jumped to its highest in over two years on Monday as Saudi Arabia s crown prince cemented his power through a crackdown on corruption while world shares eased a notch and major currencies traded in tight ranges Oil prices reached their highest since July 2015 as Mohammed bin Salman s purge led to arrests of royals ministers and investors including prominent billionaire investor Alwaleed bin Talal O R The news stirred concerns of Middle Eastern money pulling out of global financial markets A weekend call by China s central bank governor for tougher financial regulation also hit investor sentiment Brent futures LCOc1 were up 32 cents at 62 39 a barrel the highest since July 2015 U S crude CLc1 added 20 cents to 55 91 both up half a percent The MSCI world equity index which tracks shares in 47 countries was 0 1 percent lower MIWO00000PUS European shares fell in early deals following weaker trading in Asia and earnings disappointments weighed The pan European STOXX 600 STOXX was 0 1 percent lower by 0843 GMT For Reuters Live Markets blog on European and UK stock markets see reuters realtime verb Open url Shares in French hotel group Accor PA ACCP fell 1 7 percent at the open the biggest of the CAC 40 fallers after its third biggest shareholder Prince Alwaleed bin Talal was arrested in the Saudi Arabian crackdown Prince Alwaleed a nephew of the king and owner of investment firm Kingdom Holding SE 4280 invests in firms such as Citigroup N C and Twitter N TWTR He was among 11 princes four ministers and tens of former ministers detained three senior officials told Reuters on Sunday RBC Capital Markets said in a note that although the purge represents a stunning political development in Saudi Arabia it expected no immediate changes in the oil policy of Saudi Arabia which is the world s biggest exporter of crude oil Mohammed bin Salman seems strongly committed to anchoring the OPEC agreement deep into 2018 and moving ahead with the Aramco sale RBC said Prince Mohammed s reforms include a plan to list parts of giant state owned oil company Saudi Aramco next year and a higher oil prices is seen as beneficial for the market capitalization of the future listed company Earlier in Asia MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS slipped 0 2 percent to drift away from Friday s top of 557 9 the highest since November 2007 South Korea s KOSPI KS11 which hit a record high last week skidded 0 6 percent early on before paring losses to 0 3 percent Hong Kong s Hang Seng Index HSI fell 0 2 percent The Hong Kong China Enterprises Index HSCE lost 0 9 percent Japan s Nikkei N225 eked out a small gain to hover around a 21 year peak CURRENCIES TIGHT The dollar was little changed after investors took profits on its best weekly performance this year with wariness about the status of the U S economy and tax reform plans setting the tone It briefly popped to a eight month high against the Japanese yen in Asian trades but with last week s U S jobs data having been relatively underwhelming London based traders were a bit more cautious The index that measures the greenback against a basket of currencies was less than 0 1 percent lower in morning European trading DXY Sentiment towards the greenback was still positive with leveraged funds paring bearish bets to be net long for the first time since late July IMM FX The only reason why investors are not selling the dollar aggressively is because of uncertainty around the tax plan progress even though the bond market is flashing a warning sign said Viraj Patel an FX strategist at ING in London The euro was flat at 1 16100 The spread between two year and ten year U S yields at their narrowest in more than a decade
Spot gold was steady at 1 271 50 an ounce |
C | JPMorgan sees more Saudi firms looking at overseas listings after Aramco | By Saeed Azhar and Tom Arnold
ABU DHABI Reuters JPMorgan N JPM is in early talks with Saudi Arabian companies about overseas listings its investment bank chief said raising the possibility that more firms could join oil giant Saudi Aramco in seeking an international flotation
JPMorgan is among the banks advising Aramco on an international public offering IPO sources have told Reuters
Aramco s listing is part of economic reforms being pushed by Crown Prince Mohammed bin Salman who wants to make the kingdom less reliant on oil and has been consolidating his power with sweeping arrests that officials say aim to end corruption
If you want these companies to grow they must have access to international capital markets Daniel Pinto chief executive of JPMorgan s investment bank told Reuters about the possibility of other Saudi international listings
Local companies have expressed interest to us They are at a preliminary stage he said in an interview in Abu Dhabi
This was the first time an influential banker has said Saudi firms other than Aramco could seek IPOs overseas
The Saudi government plans to sell about 5 percent of Aramco next year a move that Saudi officials say could raise about 100 billion making it the world s largest IPO
Pinto declined to comment on the bank s role in the Aramco deal or to name other firms considering international listings
JPMorgan has deep ties with the government and firms Saudi Arabia having worked in the kingdom for more than 80 years
MOMENTUM
Pinto said the bank was also in talks with other Gulf companies to list their assets overseas
He said listings in New York London Hong Kong or Singapore might help increase the liquidity of these companies and make them attractive for international investors he said
When you have this type of momentum people will see the benefit of having a stock that is very liquid Other companies in the region will probably follow Pinto said
Oman said earlier this year it planned to offer shares in some state owned downstream energy companies to the public Analysts and bankers have said Qatar and Kuwait may also consider plans to list energy assets
JPMorgan was considering raising its headcount by 30 percent in Saudi Arabia over the next two to three years from 70 now as business opportunities expand Pinto said
Saudi Arabia unveiled its Vision 2030 economic plan last year to diversify the economy away from oil with proposals to float the Aramco stake and sell other state assets
Saudi Arabia is going through a massive transformation as they diversify their economy Pinto said Over the past year investors have reacted positively to this news
The bank s revenue from Saudi Arabia and the rest of the region is expected to be boosted by another record year of bond sales as lower oil prices curbed the ability of banks to finance investments and fund state budget deficits
Dollar denominated bond issuance from the Gulf has totaled about 80 billion so far this year higher than the record 63 5 billion in the whole of 2016 Thomson Reuters data shows
The need to issue will still exist but be smaller next year because of higher oil prices and lower deficits and simply because so much refinancing was done this year Pinto said
As part of its reform drive the Saudi government has launched an campaign of arrests of royals ministers and businessmen saying it is seeking to stamp out corruption Those detained include leading Saudi investor Prince Alwaleed bin Talal whose investment vehicle has a stake in Citigroup N C
Commenting on the anti corruption drive Pinto said If it is done in the right way and for the right reasons it is good to do for the future of the kingdom
Brazil went through a similar process In the long run tackling these issues is very important he said
Two former presidents and business officials are among those ensnared in Brazil s sprawling corruption purge |
C | 4 ETF Strategies To Follow Amid Global Growth Slowdown | In early April The International Monetary Fund IMF slashed its global growth forecast to the lowest level since the financial crisis and cautioned about considerable downside risks to the global economy including trade tensions This is the third time in six months that the fund has downgraded its outlook
The organization now has forecast global growth of 3 3 for this year The forecast fell by 0 2 percentage points from the January report The IMF has estimated a decline in growth this year for 70 of the global economy However the update released in April kept the growth rate for 2020 unchanged at 3 6 The IMF warned that growth in China and risks from Brexit may remain heightened read
Having said this the IMF expects the global economy to pick up in the second half of this year thanks to dovish policies from central banks which can stimulate growth
Against this backdrop below we highlight a few ETF strategies that can be beneficial in the coming days
Bet on Treasury ETFs
Citing global growth worries many central banks from developed economies including the Fed and the ECB have been acting dovish This should keep long term rates on the lower side According to Citigroup NYSE C the U S economy has slowed down with only the labor market appearing steady Under such circumstances 10 per Citi
If that holds good investors can profit out from iShares 20 Year Treasury Bond NASDAQ TLT ETF NZ TLT and SPDR Barclays LON BARC International Treasury Bond AX BWX TLT and BWZ yield respectively about 2 65 and 1 22 annually Investors should also note that treasuries are considered as safe haven and are likely to perform well in turbulent times read
Dividend ETFs Are Real Saviors
Dividends or regular current income could save investors even if there is capital loss So one can bank on these high momentum dividend ETFs like Reality Divcon Leaders Dividend ETF JK LEAD Victory Dividend Accelerator ETF and Invesco International Dividend Achievers ETF PA PID read
Bank on Quality
Quality ETFs are relatively safe and can help investors fight the looming economic slowdown In this regard funds like VanEck Vectors Morningstar International Moat ETF FlexShares Quality Dividend Index Fund O Shares FTSE Europe Quality Dividend ETF and Invesco S P SmallCap Quality ETF could be at investors disposal read
Time to Bet on Emerging Markets
Investors should notice in the table that emerging Europe and emerging Asia did not experience any growth rate cut for this year in fact Europe has seen an upgrade in forecast for 2020 With Brexit delayed for six more months and Fed and ECB being dovish investors can bet on emerging Europe ETFs like VanEck Vectors Russia ETF and iShares MSCI Poland ETF An oil price boom is especially great for the oil importing nation Russia read
As far as emerging Asia is concerned KraneShares Emerging Markets Healthcare Index ETF is a good pick
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Zacks free Fund Newsletter will brief you on top news and analysis as well as top performing ETFs each week |
JPM | The Week Ahead What Might Derail The Stock Market Rally | This week s calendar includes a light schedule for data with an emphasis on housing Earnings season is in full swing with important reports every day The early reception has been surprisingly good creating plenty of mystified pundits The financial media will be asking What Can Derail the Rally in Stocks
Last Week
The economic news was excellent and the market reaction was strong The continuing market rebound has caught many off base This week s review is mostly positive on economic data
Theme Recap
In my last WTWA I predicted that the post Brexit rally now depended on earnings especially management discussions of outlook I noted that there were a record number of appearances by Fed participants as well as the release of the Beige Book but felt that would be much less important This proved to be a very accurate guess In particular the reception to some key earnings reports was quite strong CNBC had a couple of short pieces on the FedSpeak basically proving the expected lack of fresh news
I hope readers have stayed with the rally during the post Brexit move It is important to know what to watch
The Story in One Chart
I always start my personal review of the week by looking at this of the S P 500 from Doug Short You can clearly see the two big rally days and the quiet Friday Doug has a special knack for pulling together all of the relevant information His charts save more than a thousand words Read his entire post where he adds analysis and several other charts providing long term perspective
The News
Each week I break down events into good and bad Often there is an ugly and on rare occasion something really good My working definition of good has two components The news must be market friendly and better than expectations I avoid using my personal preferences in evaluating news and you should too
The Good
Rail traffic is showing continuing improvement helpfully covers the weekly data and various comparisons Part of the improvement relates to comparisons to weaker 2015 data so it is not all good news
High frequency indicators have turned better nearly all of them New Deal Democrat s is very helpful for those wanting a comprehensive survey
The Labor Market Conditions Index recently weak has improved Fred has the data
Wholesale sales improved so I am scoring it as a positive goes beyond the seasonally adjusted data noting that sales are still at levels associated with recessions and there is degradation in the 3 month averages
Industrial production rose 0 6 beating expectations of a 0 2 gain This is a nice rebound in an important sector
Initial unemployment claims handily beat expectations at 254K The extremely low level of new jobless claims continues
Retail sales soundly beat expectations with a gain of 0 6 versus 0 2 expected Ex auto the results were even better This was reassuring to those worried about the consumer
The Bad
JOLTs showed a decline in job openings but the important Many observes mistakenly try to use this report to coax out stories about net job growth That is not the point of this research It is both slower and less accurate than the regular payroll report It is much more important for labor market tightness and structure
Congress is leaving on recess Normally I list this under good news but this time there are quite a few issues that were not addressed After the political conventions the return will be brief Our legislators naturally need to get back to the campaign trail Maybe it is time to consider a more efficient way of changing leadership has the story about work left undone
Michigan sentiment declined and missed expectations The experts at Michigan noted concern about Brexit among the high income respondents at MarketWatch This will be interesting to watch As usual summarizing the series
The Ugly
This week our hearts go out to the French I am really hoping for a week without ugliness
The Silver Bullet
I occasionally give the Silver Bullet award to someone who takes up an unpopular or thankless cause doing the real work to demonstrate the facts No award this week Nominations are always welcome There is plenty of misinformation to refute
The Week Ahead
We would all like to know the direction of the market in advance Good luck with that Second best is planning what to look for and how to react That is the purpose of considering possible themes for the week ahead You can make your own predictions in the comments
The Calendar
We have a rather light week for economic data with an emphasis on housing news While I watch everything I highlight only the most important items in WTWA It is important to focus
The A List
Housing starts and building permits T An important sector but a modest decline is expected in starts I am more interested in permits
Leading indicators Th A rebound expected in a series widely followed as a recession signal
Initial claims Th The best concurrent indicator for employment trends
The B List
Existing home sales Th Less important for the economy than new construction but a good read on the overall market
Philly Fed Th Attracting more information as the earliest data with a label from the prior month
Crude inventories W Often has a significant impact on oil markets a focal point for traders of everything
The big story will still be corporate earnings as reporting season moves into full swing The Republican Convention will grab plenty of news FedSpeak will die down after last week s thirteen appearances
And of course we can expect more updates on international crises
Next Week s Theme
Markets seem to have digested the Brexit story and surprisingly shrugged off the terrorist violence The economic data have quieted recession worries The post holiday FedSpeak was not threatening Early earnings reports were OK but not great
So why is the stock market reaction so positive The punditry is already hard at work on this question I expect the discussion to continue The market reaction is clearly at odds with what many call the fundamentals If markets keep going higher the questions will increase If stocks pull back we can expect a parade of pundits explaining why
Either way everyone will be asking
What can derail the rally in stocks
Feel free to join the discussion in the comments but I see several worry themes
Terrorism The world is a nasty place and seems to be getting worse
Economic concerns
Deflation signaled by falling commodity prices especially cheap oil Or alternatively
Inflation signaled by rising commodity prices especially higher oil prices
Politics
Trump would be a disaster for the U S and world economies
Clinton would be a disaster for the U S and world economies
Uncertainty Not knowing who will be elected is a disaster for the U S and world economies
Central banks They painted themselves into a curve merely delaying the inevitable economic disaster I actually heard one of the Fast Money guys use one of mixed metaphors about the Fed Maybe it was an accident but he certainly didn t cite the OldProf
Market valuation Markets are too expensive All of them Investors cannot expect any reasonable return over the next twelve years except gold of course
Technical indicators
Stocks were declining lacking leadership
Stocks are now overbought and frothy
Stocks are stuck in a trading range
There was a Hindenburg omen when was that
Weak and mistaken leadership worldwide
Delayed Brexit effects
Global hot spots South China Sea Korea
Quant Corner
We follow some regular great sources and also the best insights from each week
Risk Analysis
Whether you are a trader or an investor you need to understand risk Risk first rewards second I monitor many quantitative reports and highlight the best methods in this weekly update
The Indicator Snapshot
The Featured Sources
Brian Gilmartin Analysis of expected earnings for the overall market as well as coverage of many individual companies This week he expresses more confidence about growth in earnings
Bob Dieli The C Score which is a weekly estimate of his Enhanced Aggregate Spread the most accurate real time recession forecasting method over the last few decades His subscribers get including both an economic overview of the economy and employment
The recession odds in nine months have nudged closer to 10 This does not completely reflect Brexit effects so we may get a further revision
Holmes Our cautious and clever watchdog who sniffs out opportunity like a great detective but emphasizes guarding assets
Doug Short The Big Four Update the World Markets Weekend Update and much more
The ECRI has been dropped from our weekly update It was not so much because of the bad call in 2011 but the stubborn adherence to this position despite plenty of evidence to the contrary Those interested can still via Doug Short and Jill Mislinski The ECRI commentary remains relentlessly bearish despite the upturn in their own index
RecessionAlert Many for both economic and market analysis While we feature his recession analysis Dwaine also has a number of interesting approaches to asset allocation
Georg Vrba The and much more for an array of interesting methods His describes the elements of the indicator we cite every week
How to Use WTWA
In this series I share my preparation for the coming week I write each post as if I were speaking directly to one of my clients For most readers they can just listen in If you are unhappy with your current investment approach we will be happy to talk with you I start with a specific assessment of your personal situation There is no rush Each client is different so I have six different programs ranging from very conservative bond ladders to very aggressive trading programs A key question
Are you preserving wealth or like most of us do you need to create more wealth
My objective is to help all readers so I provide a number of free resources Just write to info at newarc dot com We will send whatever you request We never share your email address with others and send only what you seek Like you we hate spam Free reports include the following
Understanding Risk what we all should know
Income investing better yield than the standard dividend portfolio and also less risk
Holmes the top artificial intelligence techniques in action
Why 2016 could be the Year for Value Stocks finding cheap stocks based on long term earnings
You can also check out my website for and a discussion of the I welcome questions or suggestions for new topics
Best Advice for the Week Ahead
The right move often depends on your time horizon Are you a trader or an investor
Insight for Traders
We consider both our models and also the best advice from sources we follow
Felix and Holmes
We continue our neutral market forecast Felix is once again fully invested including some more aggressive sectors That continues to work well during the rally The more cautious Holmes is still fully invested in a diverse group of 16 stocks from a universe of nearly 1000 selected mostly by liquidity Sometimes we have had only 14 or 15 stocks That is revealing Even when the overall market is neutral there will often be some strong candidates That is what we see now It is not a resounding endorsement of the overall market but a vote for opportunistic trading I am curious about what it will take for Holmes to turn mildly bullish
Top Trading Advice
Who is participating in the current market How and at what levels Know the background before trading
When you have met your goal for a session or a time period do you stop trading There is a great discussion at I have a strong opinion on this one but I am interested in your comments
Do you use Twitter in your trading Finding other opinions Breaking news Here are
Why a systematic daily approach is important to your trading Holmes was barking appreciatively at the especially the unemotional focus on setups and execution Easy for him to say
Insight for Investors
Investors have a longer time horizon The best moves frequently involve taking advantage of trading volatility
Best of the Week
If I had to pick a single most important source for investors to read this week it would be Aaron Task s Here is a key quotation
The World Isn t Ending While there s plenty to worry about including global terrorism uncertainty over what Brexit really means anxiety over how U S election plays out and much more the global economy is expanding albeit slowly and relative to other developed economies Insert best looking horse in the glue factory joke here And despite legitimate concerns about anti globalization forces being on the rise here and abroad is expected to rise 2 6 this year after climbing 2 8 in 2015
An old Wall Street saying also helps explain why stocks have fared well despite all the negative headlines The market climbs a wall of worry
You should be more worried about the stock market when everyone is bullish and the conventional wisdom says buying stocks or real estate or any other asset is a no brainer That is certainly not the case today UBS says wealthy investors are holding on to record levels of cash and 84 believe the election will have a significant impact on their financial health
The entire article acknowledges some current concerns but brings the story back to data
Stock Ideas
Chuck Carnevale remains cautious even including top dividend candidates Anyone seriously interested in finding great stocks should be following his series closely It provides suggestions but also the underlying reasoning and data
Barron s has a on Royal Dutch Shell NYSE RDSa The analysis covers dividends cost cutting and oil prices Even if you do not agree with the conclusion this is an interesting approach
Barron s also Madison Square Garden NYSE MSG as almost 60 undervalued on a sum of the parts analysis of trophy properties Once again this combines an interesting pick with a useful method of analysis
Market Overview and Outlook
Traders see a conspiracy to keep the market higher I believe that Art is accurately conveying a widespread sentiment
The has a nice overall market summary providing a refreshing balance to the normal daily news It is a comprehensive summary and well worth reading in its entirety but here is a key quotation
The new highs are being dismissed for one reason or another Maybe those that are saying that are on to something I prefer that investors do some research draw a conclusion and exhort all to run far away from the rhetoric that has been wrong now for months and years
I don t know where the S P can trade to now with any certainty as momentum is hard to quantify What I do know is that the entire market dynamic has now changed given this breakout
Eddy Elfenbein is which he thinks might happen this year
I agree that this is a good time to buy or own stocks even for those who have missed out so far Please check out my own recent update on the market potential and how to find the best stocks and sectors
Personal Finance
Professional investors and traders have been making Abnormal Returns a daily stop for over ten years The average investor should make time even if not able to read AR every day as I do for a weekly trip on Wednesday Tadas always has first rate links for investors in his There are several great choices worth reading but my favorite is the simple and accurate message
When I first start working with clients there s a period of time I refer to as the financial pornography detox It s when you ll get calls from clients wanting to know what they should do based on what some talking head said or some headline they read Your job as a real financial advisor is to help them detox from this nonsense and understand they don t need to do pay any attention to this so called investment news
Check the full post for the helpful illustration and the full podcast
Brexit News
There is continuing interest about implications beyond the immediate effects I follow these developments in three different ways
Fundamental economics has an excellent update on expectations for the UK as well as implications for other countries
Earnings data We know the outlook is important What sort of factors are coming up in the conference calls offers this distribution
Extra color from the earnings calls with this I found the JP Morgan NYSE JPM comments on loan demand and spending to be especially interesting
Value Stocks
Value strategies have lagged for the last few years This year the trend seems to be shifting The Capital Spectator
Watch out for
Any story mentioning the aging bull This popular theme has been taken up by some of the best sources probably because it resonates with the instincts of the average reader It is now competing with self taught in Austrian economics as the most dangerous phrase in the investment lexicon I will omit citing the multiple references last week but do not be convinced There is no relationship between the length of a bull market and the expected number of years remaining
Even bond king about the current risk in bonds with the setup in the 10 year Treasury the worst in his career
Final Thoughts
The simple reason for the market rally Many stocks were priced as if we were already in a recession As the economic data refuted this notion prices partially normalized There is plenty of remaining room especially in economically sensitive sectors
Of course there is plenty to worry about Everyone should be aware of national and world problems and try to act constructively Compassion toward those suffering is in the nature of most people regardless of their values or religious background
When you think about investments the problem is sharply different It is expected and even desirable that the world is filled with problems The challenge is to understand which problems are actually meaningful for your investments
One way to keep your eye on the ball since it is baseball season is to evaluate the impact of any events on corporate earnings Look at overall earnings sectors and stocks Be specific Do not use any lightweight arguments like the first domino or if you see one cockroach Brian Gilmartin s work is a great source for regular updates on earnings trends combined with his insights His latest post notes the reversal in both earnings and revenue a turning point that he accurately predicted
If your disciplined investigation cannot determine a link to profits the news may still be very bad but not for your investments Embrace times when everyone else seems to have emotional worries
Afterword Worries Circa 2010
From one of my Please look at the reasons why so many were depressed about the market six years ago You probably do not even remember some of them but they were prominent at the time
Here is a list of worries that I have noted in no particular order
ETF liquidation doomsday scenario
Flash crash and overall worries about market manipulation
Bush era tax cut expiration
Collapse of the euro and or European Union
The Hindenburg Omen
Increase in US budget deficits
Ominous head and shoulders pattern in market averages
Dow 5000
Dow 2000
Dow 1000
The collapse of the US consumer
The double dip recession
Sell in May
Sell in October
Sell Mortimer Sell OK I sneaked that one in for those who know
The BP oil spill
Fear of Obama
Obamacare
Weakness in the dollar
Strength in the dollar
Weakness in China s economy
Strength in China leading to higher rates
Korea
Iran
Initial claims spiking to over 500K
Initial claims falling but results skewed by seasonality
Shadow housing inventory
Foreclosure robo signing
Overstated and exaggerated corporate earnings
Fed blunders QE II
High frequency trading
Worldwide collapse and deflation
Worldwide hyperinflation
The single most important thing for the investor to understand right now is the value of worries If you are looking for good investment returns you need a time when others are worried
The concept of the wall of worry is difficult for the average investor They seem to think it is bad when there are many worries In fact the lack of worry is a sign of a market top Let me simplify |
JPM | Tight supply rising prices undercut on U S home sales | By Lucia Mutikani WASHINGTON Reuters U S home sales unexpectedly fell in January leading to the biggest year on year decline in more than three years as a chronic shortage of houses lifted prices and kept first time buyers out of the market The supply squeeze and rising mortgage interest rates are stoking fears of a lackluster spring selling season The second straight monthly drop in home sales reported by National Association of Realtors on Wednesday added to weak retail sales and industrial production in January in suggesting slower economic growth in the first quarter There may be some headwinds ahead for home resales with rising mortgage costs affecting how much the buyer can afford and this could put a damper on existing home sales and take some of the wind out of the economy s sails said Chris Rupkey chief economist at MUFG in New York Existing home sales dropped 3 2 percent to a seasonally adjusted annual rate of 5 38 million units last month with purchases declining in all four regions Economists polled by Reuters had forecast home sales rising 0 9 percent to a rate of 5 60 million units in January Existing home sales which account for about 90 percent of U S home sales declined 4 8 percent on a year on year basis in January That was the biggest year on year drop since August 2014 The weakness in home sales is largely a function of supply constraints rather than a lack of demand which is being driven by a robust labor market The shortage of properties is concentrated at the lower end of the market While the number of previously owned homes on the market rose 4 1 percent to 1 52 million units in January housing inventory was down 9 5 percent from a year ago That was also the lowest inventory for January on record Supply has declined for 32 straight months on a year on year basis At January s sales pace it would take 3 4 months to exhaust the current inventory up from 3 2 months in December A six to seven month supply is viewed as a healthy balance between supply and demand The median house price increased 5 8 percent from a year ago to 240 500 in January marking the 71st consecutive month of year on year price gains The PHLX housing index HGX was trading higher tracking a broadly firmer U S stock market The dollar DXY strengthened against a basket of currencies as yields on shorter dated U S Treasuries rose ECONOMIC GROWTH RISK It looks likely that real residential investment will decline in the first quarter and we see downside risk to our forecast for 2 5 percent real GDP growth during the quarter said Daniel Silver an economist at JPMorgan NYSE JPM in New York The economy grew at a 2 6 percent annualized rate in the fourth quarter Making housing expensive for some first time home buyers the 30 year fixed mortgage rate rose to an average of 4 38 percent last week the highest level since April 2014 according to data from mortgage finance agency Freddie Mac It was up from 4 32 percent in the prior week Mortgage rates are increasing in tandem with U S government bond yields on worries about rising inflation In contrast wage growth remains stuck below 3 percent on an annual basis despite the unemployment rate being at a 17 year low of 4 1 percent We have hoped that the rise in rates motivates home buyers to act soon but the move in rates may have been so drastic that they are now waiting to see if rates start to make a move down said Brian Surgener a senior vice president at BBMC Mortgage in Lombard Illinois Americans are not saving more and as home prices rise more of a down payment will be needed So with more savings needed and payments increasing many home shoppers may be back on the fence until we see one of these trends turn around A separate report from the Mortgage Bankers Association on Wednesday showed applications for loans to buy a home decreased 6 percent last week from a week earlier There are also worries that caps on the deduction for mortgage interest following a recent overhaul of the tax code could hurt demand for houses First time buyers accounted for 29 percent of transactions in January down from 32 percent in December and 33 percent a year ago Economists and realtors say a 40 percent share of first time buyers is needed for a robust housing market Economists expect supply to remain tight this year which together with pricey home loans could result in modest home sales growth in 2018 But housing supply could improve in the coming months as government data last week showed the number of homes under construction surged to near a 10 1 2 year high in January Single family home completions were the highest since June 2008
In January houses typically stayed on the market for 42 days up from 40 days in December and down from 50 days a year ago Forty three percent of homes sold in January were on the market for less than a month |
JPM | JPMorgan plans new Manhattan headquarters in boost to Midtown | NEW YORK Reuters JPMorgan Chase Co N JPM plans to build a new headquarters at its existing Manhattan site in the first major project under a rezoning law passed last year that aims to revitalize the Midtown area the bank and officials said on Wednesday The new 2 5 million square foot tower at the bank s current headquarters at 270 Park Avenue is subject to various approvals New York City Mayor Bill de Blasio and Jamie Dimon JPMorgan s chairman and chief executive said in a joint statement Demolition of the existing 52 floor building will begin in 2019 and construction of the new tower which is expected to rise about 70 stories likely will take four to five years a JPMorgan spokesman said During the work JPMorgan employees will move to four buildings the bank already owns or leases in the Park Avenue vicinity a spokesman said About 15 000 employees would occupy the new building The rezoning of a large swath of Midtown around the Grand Central train station will allow JPMorgan to buy development rights from nearby landmarks and build a larger building Proceeds from the sale of those rights will help the city fund upgrades to local subway stations and improvements to the neighborhood s streets and public areas The project is not expected to have a material impact on the company s financial results the statement said
The project s cost was not announced The nearby 58 story One Vanderbilt which is rising next to Grand Central and will anchor the area s rejuvenation was estimated to cost 3 14 billion in June 2016 by its developer SL Green Realty Corp N SLG |
JPM | U S jobless claims near 45 year low as economic outlook brightens | By Lucia Mutikani WASHINGTON Reuters The number of Americans filing for unemployment benefits fell to a near 45 year low last week pointing to strong job growth in February and solid momentum in the economy The economy s brightening prospects were also underscored by other data on Thursday showing a gauge of future economic activity increasing for a fourth straight month in January Labor market strength should continue to underpin consumer spending despite a drop in retail sales in January Firms are extraordinarily unwilling to part company with workers reflecting in all likelihood the difficulty of replacing them said John Ryding chief economist at RDQ Economics in New York Initial claims for state unemployment benefits dropped 7 000 to a seasonally adjusted 222 000 for the week ended Feb 17 the Labor Department said on Thursday Claims fell to 216 000 in mid January which was the lowest level since January 1973 Claims for six states including California were estimated because of Monday s Presidents Day holiday While that probably distorted last week s data the underlying trend in claims was consistent with a robust labor market Economists polled by Reuters had forecast claims unchanged at 230 000 in the latest week It was the 155th straight week that claims remained below the 300 000 threshold which is associated with a strong labor market That is the longest such stretch since 1970 when the labor market was much smaller The labor market is near full employment with the jobless rate at a 17 year low of 4 1 percent Tightening labor market conditions are starting to push up wage growth which could help to lift inflation toward the Federal Reserve 2 percent target Minutes of the U S central bank s Jan 30 31 policy meeting published on Wednesday showed policymakers upbeat in their assessment of the economy and a number judged that the continued tightening in labor markets was likely to translate into faster wage increases at some point The minutes also noted that several others suggested that the upside risks to the near term outlook for economic activity may have increased The dollar was trading lower against a basket of currencies Prices for U S Treasuries rose with the yield on the benchmark 10 year note retreating from a more than four year high Stocks on Wall Street rose after two days of losses STRONG JOB GROWTH The Labor Department said claims for California Hawaii Maine Virginia West Virginia and Wyoming were estimated It also said claims taking procedures in Puerto Rico and the Virgin Islands had still not returned to normal months after the territories were slammed by Hurricanes Irma and Maria The four week moving average of initial claims considered a better measure of labor market trends as it irons out week to week volatility fell 2 250 to 226 000 last week The claims data covered the survey period for the nonfarm payrolls component of February s employment report The four week average of claims dropped 17 500 between the January and February survey weeks suggesting solid job growth this month With upbeat readings coming out of the initial claims data we think job growth will likely be strong again in February said Daniel Silver an economist at JPMorgan NYSE JPM in New York Payrolls increased by 200 000 jobs in January Strong employment gains in February would seal the case for an interest rate increase next month The Fed has forecast three rate increases this year Most economists however expect four rate hikes in the wake of strong inflation readings in January The claims report also showed the number of people receiving benefits after an initial week of aid declined 73 000 to 1 88 million in the week ended Feb 10 The four week moving average of the so called continuing claims fell 16 250 to 1 93 million In a separate report on Thursday the Conference Board said its Leading Economic Index jumped 1 0 percent in January after increasing 0 6 percent in December The surge in the LEI reflected strong financial conditions manufacturing home building and labor markets
The U S LEI accelerated further in January and continues to point to robust economic growth in the first half of 2018 said Ataman Ozyildirim director of business cycles and growth research at the Conference Board |
C | Citigroup names Lo as Asia head of private banking business | HONG KONG Reuters Citigroup Inc NYSE C has appointed veteran Steven Lo as Asia head of its private banking business unit replacing Bassam Salem who is retiring from that role in February according to an internal memo seen by Reuters Lo joined Citi s private banking business more than 26 years ago as an ultra high networth banker in Vancouver and moved to Asia in 2001 and has worked in different roles in the region since then the staff memo sent on Friday showed
A Citi spokesman in Hong Kong confirmed the content of the memo |
C | Pound Bears Smell Opportunity in One And Done BOE Rate Hike | Bloomberg Bears are closing in on the pound ahead of the Bank of England s meeting this week
While the central bank is widely expected to raise borrowing costs on Thursday most economists say Governor Mark Carney won t be in any hurry to raise interest rates subsequently That means the pound is vulnerable to a drop of more than 1 percent from current levels strategists say
The currency could slide to 1 30 from about 1 32 on Tuesday on indications of a one and done interest rate increase from the BOE according to the median forecast of eight analysts in a Bloomberg survey In contrast if the central bank indicates that a November move is the first step in a hiking cycle either through its language or through the number voting for an increase on Thursday the pound could rise about 1 percent to 1 33
A shift in the BOE s rhetoric in recent months has sent expectations surging for the first rate hike in a decade with traders now pricing in an 88 percent chance of an increase However market positioning also signals a split in what that means for the currency with asset managers short on the pound and hedge funds long according to CFTC data as of Oct 24
We do not expect the BOE to embrace a sustained pace of tightening said Banco Bilbao Vizcaya Argentaria SA s head of Group of 10 strategy Roberto Cobo Garcia As a result any knee jerk strengthening in the pound could turn out to be very much short lived as uncertainties still loom too large to be dismissed by the pound yet
If the bank doesn t hike at all the market reaction would be dramatic The pound could tumble more than 2 percent to 1 29 according to the median in the survey while the yield on 10 year U K government bonds may also drop It would take a hawkish hike to drive up yields Scotiabank s Alan Clarke said
Here is a summary of some of the market moves analysts are predicting in each scenario
Hawkish Hike
This scenario is based on the nine member Monetary Policy Committee voting dramatically in favor of a hike and a communication from Carney that this is the start of a tightening cycle
If the bank keeps the market awaiting more hikes that will be a 0 75 percent move higher in sterling as many economists still expect this to be a one and done says Nomura s Jordan Rochester
Citigroup NYSE C is bearish gilts into the meeting as the MPC is likely to opt to keep up the hawkish bias says strategist Jamie Searle in a research note
MUFG s Lee Hardman sees the bank giving a hawkish signal as a one and done hike would go against all communication in recent months
A hawkish hike will provoke a further gilt sell off with the 10 year yield rising to 1 5 percent according to Scotiabank s Clarke
Dovish Hike
This would come from a far closer vote among the MPC and language in the minutes and press conference that emphasizes a gradual path higher for rates It may even push back against the market s current pricing of another hike by November next year
This is the most likely scenario says Mizuho s head of hedge fund sales Neil Jones
Euro sterling should see a modest rebound and gilts should rally provided that the market remains confident that inflation expectations remain contained according to CIBC analyst Jeremy Stretch
For MUFG s Hardman the scope for a dovish BOE hike is limited as the market is only pricing in one more hike by September 2018
Scotiabank s Clarke on the other hand sees it as unlikely that having delivered the first rate hike for a decade that the MPC is going to apologize or feel sheepish about hiking they will explain all the good reasons why now is the time to take the foot off the accelerator pedal
Adds that the market is braced for some dovishness A dovish hike would have a lesser impact on the shorter end of the bond curve with two year benchmark gilts likely to remain unchanged
No Hike
BOE shocks the market by keeping rates on hold
If the BOE doesn t move it could push cable and euro sterling back toward pre September levels meaning 1 28 and 92 pence per euro said BBVA s Garcia
It would be a major surprise if the BOE did not hike this week given their recent signals and it would have pretty dire consequences for the pound said ING s Viraj Patel who sees sterling dropping as low as 1 2750 under this scenario
The BOE s guidance that it will raise rates in the coming months is open to interpretation according to CIBC s Stretch
With a rate hike already priced in the BOE will be more of a market mover if it fails to follow through again and cable could drop to 1 29 said MUFG s Hardman
Updates pricing adds additional forecasts from third paragraph |
C | U S banks borrowing from U S mortgage agency jumps report | NEW YORK Reuters Large U S banks more than doubled their borrowing from the Federal Home Loan Bank System in the past decade in the aftermath of stricter regulations to avert a global credit crisis a report from the Office of Financial Research released on Tuesday showed The FHLB System which are made up of 11 regional FHLB banks funds the mortgage market by making loans called advances to its members that include banks credit unions and insurers At the end of June its advances totaled 706 billion or 65 percent of its assets U S banks with more than 250 billion in assets accounted for about 30 percent of FHLB advances in June up from 14 percent from a decade ago Three of the five biggest U S bank holding companies JPMorgan Chase Co N JPM Wells Fargo Co N WFC and Citigroup N C represented roughly 24 percent of the total par value of FHLB advances outstanding at mid 2017 JPMorgan had 68 billion advances or 10 percent of total advances Wells Fargo 63 billion or 9 percent and Citigroup 36 billion or 5 percent the report showed Over the past few years JPMorgan Wells Fargo and Citigroup have increased their aggregate FHLBank funding The funding comes from multiple FHLBanks because the three have subsidiaries that are members of multiple FHLBanks wrote Kenechukwu Anadu a financial markets specialist at the Boston Federal Reserve and Viktoria Baklanova senior financial analyst at the Office of Financial Research Under current liquidity coverage ratio requirements FHLB advances receive easier regulatory treatment than those in private markets stoking demand from banks for them they said Anadu and Banklanova s report centered on their findings on FHLB s role in the U S money market due to tighter bank regulations and money market fund reform in response to the 2007 2009 financial crisis The implementation of money market reform had boosted FHLB s issuance of short term debt to fund its advances which tend to have longer maturities This funding model could be vulnerable to runs and impact financial markets and financial institutions in ways that are difficult to predict Anadu and Baklanova wrote At this time a funding run on FHLB is low they said The Federal Housing Finance Agency which regulates FHLB together with Fannie Mae and Freddie Mac is taking steps to reduce the FHLB s reliance on short term funding they noted |
C | Saudi purge worries investors but may speed reforms | By Andrew Torchia DUBAI Reuters A purge of Saudi Arabia s political and business elites briefly dragged down the kingdom s stock market on Sunday but prices recovered to close higher as some investors bet the crackdown could bolster reforms in the long run The size of the purge 11 princes four ministers and tens of former ministers were detained by a newly created anti corruption committee headed by Crown Prince Mohammed bin Salman raised questions about the stability and predictability of the Saudi government For foreigners a major shock was the detention of flamboyant billionaire Prince Alwaleed bin Talal who as a big investor in top Western companies such as Citigroup N C is known as the international face of Saudi business Local investors meanwhile worried about whether a sustained investigation into corruption could turn up scandals in the kingdom s opaque business world forcing people implicated to sell off their equity holdings But many bankers and analysts saw the purge which replaced the head of the National Guard as a power grab by Prince Mohammed designed to remove any remaining obstacles to his authority and assure his eventual succession to the throne This they said could help the economy by making it easier for Prince Mohammed to pursue radical reforms that include slashing the state budget deficit putting more women into employment lifting a ban on women driving and selling 300 billion of state assets This is the latest act of concentration of power in Saudi said Hasnain Malik global head of equity research at emerging markets investment bank Exotix As unprecedented and controversial as it may be this centralization might also be a necessary condition for pushing the austerity and transformation agenda the benefits of which very few investors are pricing in After initially tumbling as much as 2 2 percent on Sunday the Saudi stock index TASI rebounded to close slightly higher Shares related to some of the detained people such as Prince Alwaleed s Kingdom Holding SE 4280 sank but most banks rose a sign of economic optimism INSTABILITY The purge may increase Prince Mohammed s grassroots support by tackling corruption a problem that has long plagued the economy It s a populist move that makes sense because a lot of the princes businessmen and bureaucrats are corrupt taking kickbacks and being involved in all kinds of shady deals said Bernard Haykel professor of Near East studies at Princeton University A danger for financial markets however is that Prince Mohammed is shaking up business practices and ties that have lasted for decades a move which could backfire if it triggers an exodus of money and wealthy individuals from the country The fact that some of the country s leading business people were arrested will scare the private sector and there might be even more capital flight than before And most bureaucrats will now be terrified perhaps justifiably Haykel said Many corporate executives expect Prince Mohammed to persuade or pressure rich Saudis to repatriate some of the billions of dollars which they are believed to have transferred overseas for safe keeping and which could now help to kick start the development projects that he plans The corruption crackdown may be an initial step in this effort the decree creating the committee gave it the right pending the result of investigations to seize assets at home or abroad and transfer them to the state Treasury James Dorsey senior fellow at Singapore s S Rajaratnam School of International Studies wrote that Prince Mohammed appeared to be reacting to growing opposition within the royal family and the military to his reforms and Riyadh s military intervention in Yemen It raises questions about the reform process that increasingly is based on a unilateral rather than a consensual rewriting of the kingdom s social contract For many people however a unilateral approach is seen as the best chance to push through the reforms A chief economist at a big regional bank said Prince Mohammed s main motive for acting was frustration that reforms were not moving fast enough The privatization program for example including the planned sale of 5 percent of national oil giant Saudi Aramco has been discussed for many months with little action Now the program may pick up The message this should send to foreign investors is it s unwise to bet against MbS said Sam Blatteis chief executive of regional advisory firm The MENA Catalysts using a common abbreviation of Prince Mohammed s name
When he wants to get things done he has proven that he can This is not a consolidation of power it s an acceleration The wheels of policy making are moving faster |
JPM | What Does Chase s Strong Quarter Mean For Wells Fargo | Wells Fargo Company NYSE WFC Financials Commercial Banks Reports July 15 Before Market Opens
Key Takeaways
The Estimize consensus is looking for earnings per share of 1 03 on 22 27 billion in revenue 1 cent higher than Wall Street on the bottom line and 40 million on the top
Wells Fargo is relatively insulated from economic events like Brexit due to its staunch focus on U S operations
Mortgages are the backbone of its loan portfolio and should continue to grow in this low rate environment
What are you expecting for
Big banks are in the spotlight this week with JPMorgan Chase NYSE JPM Wells Fargo Company NYSE WFC and Citigroup NYSE C all set to report quarterly earnings in the next 5 days
Wells Fargo along with Citi cap off the week with second quarter results Friday before the market opens Wells Fargo has been one of the more stable banks in recent years maintaining relatively flat earnings and mid single digit revenue growth Expectations are relatively muted this quarter as rates remain low and currency headwinds persist
The Estimize consensus is looking for earnings per share of 1 03 on 22 27 billion in revenue 1 cent higher than Wall Street on the bottom line and 40 million on the top Compared to a year earlier this reflects a 7 decline in earnings and 3 in sales Shares of Wells Fargo are down 5 year to date and typically fall 1 through earnings
This year has been rough for the financial sector Banks began 2016 expecting multiple rounds of interest rate hikes and a nice boost to net interest income However a delay in Fed hikes coupled with Brexit uncertainty and falling oil prices in the early part of 2016 put earnings under extreme pressure The stronger dollar resulting from certain macroeconomic events has also hampered profits
Wells Fargo s earnings have been relatively resilient given it has little exposure to risky trading and investment banking businesses Furthermore the bank s operations and investments are largely isolated compared to its large cap peers
Still the current economic landscape has caused the bank to reduce its profitability targets for the remainder of the year Wells Fargo recently lowered its full year target return on assets to the range of 1 1 to 1 4 The bank sees continued stress in its oil and gas portfolio this year with the potential for additional reserve increases or more credit losses
On the plus side loan growth is expected to be a key driver this quarter as mortgages sit at all time lows Wells Fargo has the largest loan portfolio in the financial sector primarily supported by its mortgage portfolio
An increase in loan and deposit growth from this could offset low rates and in fact boost overall net interest income The bank s U S focused operations gives them the highest probability of walking out of Brexit and future macro events unscathed
Do you think WFC can beat estimates |
JPM | iFOREX Daily Analysis July 15 2016 | The dollar was trading at three week highs against the yen on Thursday as stimulus expectations continued to pressure the Japanese currency while the pound was trading above 1 33 after the Bank of England left interest rates on hold in a surprise decision
In the U S data on Thursday showed that the number of people claiming unemployment benefits held at lower levels last week while producer prices posted the largest gain in a year in June The Labor Department reported that initial jobless claims were unchanged at a 254 000 for the week ended July 9 not far from the 43 year low of 248 000 touched in mid April while the producer price index rose 0 5 last month the largest increase since May 2015
But the greenback remained broadly lower against the commodity linked currencies as a rebound in oil prices and a rally in global stocks underpinned risk appetite
Elsewhere the yen has weakened across that board since Japanese Prime Minister Shinzo Abe s ruling coalition increased its majority in weekend parliamentary elections feeding hopes for a fresh package of stimulus measures called helicopter money to spur economic growth and to combat deflation
Today the euro zone is to publish revised inflation data BoE Governor Mark Carney is to speak at an event in Toronto Canada is to publish a report on manufacturing sales and the U S is to round up the week with a string of data including reports on consumer inflation retail sales manufacturing activity in the New York region industrial production and consumer sentiment
GBP USD
On Thursday the pound jumped to the highest level since late June against the dollar after the BoE kept monetary policy unchanged with rates on hold at 0 5 and quantitative easing program stable at 375 billion dashing expectations for a rate cut but gave a clear indication that will ease monetary policy at its next meeting in August
Sterling had risen also ahead of the policy announcement after British Prime Minister Theresa May appointed Philip Hammond as the new Chancellor of the Exchequer replacing George Osborne Speaking Thursday Chancellor Hammond said the U K economy has taken a shock as businesses and consumers were unprepared for the Brexit vote but added that he would do whatever is necessary to steady the economy and restore confidence
Pivot 1 3275Support 1 3275 1 32 1 31Resistance 1 348 1 3535 1 36Scenario 1 long positions above 1 3275 with targets 1 3480 1 3535 in extension Scenario 2 below 1 3275 look for further downside with 1 3200 1 3100 as targets Comment technically the RSI is above its neutrality area at 50
Gold
On Thursday gold fell sharply in broad risk on trade as a JPMorgan driven rally sent equities on Wall Street soaring to fresh record highs while investors departed from a bevy of safe haven assets following an unexpected decision from the Bank of England to hold its key interest rate steady
The precious metal traded between 1 320 00 and 1 347 85 before settling down 0 84 on the session Since hitting 28 month highs last week gold has closed lower in five of the last six sessions while losing approximately 2 in value
Today metal traders will focus on China reports on second quarter economic growth and industrial production plus on a string of data from U S for further information on the strength of the two biggest economies in the World
Pivot 1342Support 1320 1312 1305Resistance 1342 1350 1357 5Scenario 1 short positions below 1342 00 with targets 1320 00 1312 00 in extension Scenario 2 above 1342 00 look for further upside with 1350 00 1357 50 as targets Comment the RSI is mixed with a bearish bias
WTI Oil
Crude futures bounced off near two month lows amid heavy short covering on Thursday even as investors expressed significant concerns on a global oil and gasoline supply glut in the wake of a bearish U S stockpile report from the previous session
While crude inventories in the U S fell by 2 5 million barrels over the first week of July market players focused more intently on a considerable 4 1 million build in distillate fuel inventories the largest weekly amount in six months Even as travel throughout the U S remains high during the key summer driving season demand in gasoline has not been strong enough to offset vast supply builds
Today energy traders will focus on Baker Hughes weekly data on the U S oil rig count
Pivot 44 4Support 44 4 43 85 43 3Resistance 46 46 9 48 25Scenario 1 long positions above 44 40 with targets 46 00 46 90 in extension Scenario 2 below 44 40 look for further downside with 43 85 43 30 as targets Comment the RSI is mixed to bullish
US 500
U S stocks rose sharply on Thursday remaining in record territory for the fourth consecutive session on the back of stellar quarterly results from JPMorgan Chase Co NYSE JPM which kicked off the second quarter earnings season for major banks by topping analysts earnings and revenues forecasts
The Dow Jones Industrial Average and the S P 500 Composite surged to fresh all time highs JP Morgan the world s largest bank reported adjusted earnings per share of 1 55 and revenue of 25 2 billion up more than 0 5 on both a quarterly and annual basis It came amid soaring revenues from the company s Fixed Income division which ended the quarter with 3 96 billion in revenues up 35 from the same period last year As a result the Dow added 0 73 while the S P 500 Composite index gained 0 53 each falling back slightly after hitting fresh all time record highs
Today investors will focus on a string of data from U S to gain more information on the strength of the American economy
Pivot 1870 Support 1870 1710 1575 Resistance 2250 2350 2500 Scenario 1 long positions above 1870 00 with targets 2250 00 2350 00 in extension Scenario 2 below 1870 00 look for further downside with 1710 00 1575 00 as targets Comment the RSI has just broken above a declining trend line |
JPM | Pound Made Of Sterling Stuff | The dominant theme for this week is risk on and this despite today s session so far trading in a subdued range after another terrorist attack on French soil last night
With investors willing to apply more risk funds have flow out of fixed income and into stocks pushing global indices to record new record high prints sovereign yields to back up aggressively from their record low prints US 10 s 1 54 Bunds 0 26 and risk aversion currency pairs to come under renewed pressure
The yen in particular has managed to keep capital markets on its toes The funding and risk aversion currency of choice by many continues to slide on speculation of Bank of Japan stimulus In the overnight session USD JPY has rallied another 1 5 to penetrate its psychological 106 handle its strongest level since just before the U K s EU referendum
Expectations are building that on July 29 the Bank of Japan BoJ will finally introduce a new wave of monetary stimulus The danger is that BoJ policy makers disappoint the market just as Governor Carney did at the Bank of England BoE yesterday The yen is heading for a weekly fall of over 5 its biggest in 17 years
With BoJ adviser Kawai stating that a weaker yen currency and recent U S data made it hard to argue for helicopter money later this month he does not see any reason for more easing in July Will this affect the yen bear s thinking
1 Global stocks flat as sentiment takes a hit in Europe
It s not a surprise to see some selling pressure after yesterday s horrid events in France After Asian bourses being supported by stronger than expected China data European equity indices are trading lower ahead of the open stateside with the Nice attacks taking center stage on the news front contributing to some subdued selling pressure in the French CAC 40
Naturally the travel industry is bearing the brunt of this mornings selling pressure
With JPMorgan NYSE JPM posting a stronger than expected results on a trading surge is lending a helping hand for financial stocks in the Eurostoxx and in the FTSE 100 The one black spot in the U K both commodity and mining stocks are leaning on the index as commodity prices again come under pressure
Indices Stoxx50 0 7 at 2 949 FTSE 0 5 at 6 624 DAX 0 3 at 10 036 CAC 40 0 6 at 4 357 IBEX 35 0 4 at 8 516 FTSE MIB 0 5 at 16 721 SMI 0 5 at 8 134 S P 500 Futures 0 2
2 Pound made of sterling stuff for now
The pound 1 3419 is attempting to close out its best week in seven years as new PM Theresa May and Bank of England s BoE aid its rebound
A quick and rather efficient turnaround in appointing a new Prime Minister after Cameron decided to step aside on the EU referendum vote loss has returned a sense of political stability to the U K
The pound has strengthened against all its 31 major peers this week amid speculation that the BoE may take a less aggressive approach than was initially expected in its measures to contain the fallout from Britain s decision to exit the E U
The BoE flatfooted the market yesterday by leaving monetary policy unchanged 0 5 vs 0 25 expected at its July meeting Despite the surprise the MPC have given a clear signal that action will follow on Aug 4 as evidence becomes available of the likely impact from the Brexit vote
For sterling dealers it s back to the drawing board With expectations of monetary easing in August combined with the uncertainties in the aftermath of the U K vote to leave the EU suggest that this support for the pound maybe short lived
3 Commodities
Despite crude oil prices paring some of their last week s losses they continue to hover around its two month low as a pick up in U S oil drilling activities and supply growth elsewhere supports the market view that a market rebalance will take much longer than expected
August WTI futures currently trade at 45 23 a barrel down 0 43 while September s Brent crude has fallen 1 00 to 46 90 a barrel
Both grades are down more than 5 from a week ago
Gold too is under pressure down 0 2 in overnight trade and heading to close out the week with a loss of 2 5
On the plus side Zinc has advanced 0 9 to trade near its highest level in 13 months while copper is heading for its biggest weekly increase since March after China data bolstered the outlook for demand
4 Low sovereign yield records on hold
U S 10 year treasury s 1 54 U K gilts 0 84 and German bunds 0 02 trade lower this morning following the removal of uncertainty regarding the U K s conservative leadership
This week we saw Tier 1 sovereign bonds snapping for now a record setting rally as the early resolution of Britain s leadership vacuum eased the flight to safety that was sparked by the Brexit decision
The Brexit result has convinced the market to slash their global growth forecasts and predict more central bank stimulus resulting in lower global yields
This time last week U S 10 s closed out Friday trading at new record low yield 1 366 and this despite a stellar non farm payroll NFP print 287
Another factor putting pressure on U S Treasuries has been a full slate of new bond sales this week U S dealers needed to make room to take down 10 year and 30 year bond product
Britain s vote to leave the EU last month has been the latest catalyst to the downward spiral of sovereign yields to record lows
5 China data supports risk rally
Despite China s Q2 GDP print of 6 7 being a seven year low it still managed to beat market expectations Other releases saw industrial output hitting a three month high 6 2 with the closely monitored power generation component rising over 2 after a flat print last month Even June retail sales topped expectations 0 9 vs 0 8 m m
Crude steel output was down over 1 after a near 2 rise last month as the Chinese government continues to tackle overcapacity in the sector Growth in fixed asset investment slowed further to a fresh multi year low as growth in property investment and construction all slowed However the closely monitored Yuan loans 1 3T and Money supply 11 8 all beat expectations with the former printing a five month high
Speaking after the data release Stats Bureau spokesperson Sheng said the structural adjustment in China economy has accelerated with growing dependence on domestic demand
It seems that a record stimulus is doing what it s suppose to be doing and lending some stability to the world s second largest economy |
MS | Sterling hits 30 year low yen and franc surge as Brexit shakes markets | By Anirban Nag LONDON Reuters Sterling sank 10 percent in value to its weakest since before the 1985 Plaza Accord on Friday after Britain voted to leave the European Union triggering a global rush of capital into the traditional security of the yen and the Swiss franc Alongside the biggest moves in the pound in living memory the euro which is expected to struggle given worries about the impact of a Brexit on the euro zone economy also dropped sharply against the dollar The franc surged to its strongest in almost a year against the euro and the yen to its highest in more than two years The Swiss National Bank became the first major central bank to step in to drive down the value of the franc while speculation that the Bank of Japan could also act limited the yen s advance Japan said it would respond to extremely nervous exchange rate moves signaling a readiness to intervene The pound fell more than 10 percent to 1 3228 its lowest since before the world s major economies signed a deal to weaken the dollar in September 1985 By 0830 GMT it had recovered from those lows to trade at 1 3770 with traders citing Bank of England chief Mark Carney s comments that the central bank stood ready to provide extra support as a reason for the bounce Earlier British Prime Minister David Cameron who campaigned to stay in the EU said he will step down by October Analysts expect months of economic and political turmoil which will dwarf the pressure on UK markets following sterling s Black Wednesday in 1992 when Britain was forced out of the pre euro Exchange Rate Mechanism The UK has voted to leave the EU and this decision hits the British economy at a difficult time said Hans Redeker head of currency strategy at Morgan Stanley NYSE MS adding investors attention will shift to Britain s large current account of deficit of 7 percent and economic growth is likely to weaken Morgan Stanley expects the pound to fall to between 1 25 and 1 30 Leading UK bank HSBC also cut its quarter end and year end forecasts for sterling It expects sterling to fall to 1 25 by the end of third quarter and then to 1 20 by the end of 2016 It also cut its forecast for the euro for the end of the year to 1 10 from 1 20 previously L8N19G0RR EURO LOWER Sterling also fell to its lowest in two years against the euro with some expecting it to edge towards parity in coming months The euro rose more than 8 percent to 83 15 pence EURGBP R hitting its highest level in more than two years Yet the euro was under pressure against most other currencies as investors worried Brexit could fuel anti establishment movements in other European countries A new election is planned in Spain on Sunday after an inconclusive vote last December The euro fell to 1 0912 a low last seen in March before recovering to 1 1140 still down 2 percent on the day It fell nearly 2 percent against the franc before recovering to trade just 0 7 percent lower at 1 0830 francs EURCHF Demand for the safe haven yen has grown steadily with Brexit anxiety over the past month The greenback dropped to as low as 99 00 yen a fall of 6 7 percent before gaining a semblance of stability to trade at 103 yen That was the first time it had fallen below the 100 mark since late 2013 The rise in the yen kept alive the risk of intervention by the Japanese and perhaps even coordinated intervention by the Group of Seven countries Deputy finance ministers of G7 nations will hold a conference call at 1130 GMT on Friday to discuss Britain s decision a source familiar with the matter said
We will have to see how serious they are about any possible coordinated intervention by the G7 said Yujiro Goto currency strategist at Nomura While there is a risk of Japanese intervention as long as dollar yen remains above 100 yen chances are less Additional reporting Ian Chua and Hideyuki Sano Editing by Toby Chopra and Keith Weir |
MS | Morgan Stanley denies has begun moving 2 000 staff out of London | LONDON Reuters Morgan Stanley NYSE MS denied it had begun moving 2 000 investment banking staff out of London rejecting earlier media reports following Britain s historic vote to leave the European Union The BBC had reported that the U S investment bank had begun the process of moving the key investment banking jobs from the British financial hub to either Dublin or Frankfurt
A spokesman for Morgan Stanley said the BBC story was not true but declined to elaborate |
MS | Japan PM Abe tells finance minister to take needed FX steps post Brexit vote | By Minami Funakoshi and Tetsushi Kajimoto TOKYO Reuters Japanese Prime Minister Shinzo Abe on Monday instructed Finance Minister Taro Aso to watch currency markets ever more closely and take steps if necessary in the wake of Britain s historic vote to leave the European Union Abe made the comments at an emergency meeting with Aso and Bank of Japan Deputy Governor Hiroshi Nakaso as some analysts speculate the central bank may ease if it calls an unscheduled policy review before its planned July 28 29 gathering While Abe ordered the BOJ to ensure ample liquidity in markets his government is ready to provide the economy fiscal support with an eye on expanding planned stimulus steps to total more than 10 trillion yen 98 03 billion sources told Reuters Risks and uncertainty remain in financial markets Abe said We need to continue to work toward market stability The yen briefly soared above the key threshold of 100 to the dollar on Friday as investors hoarded the safe haven currency after the Brexit vote unnerving Japanese policymakers worried about the effect a strong yen could have on exports Japanese authorities have threatened to intervene if they see yen rises as excessive though market players doubt Tokyo will step in given strong opposition from Washington I was instructed by the prime minister to take various aggressive responses to ensure stability in financial and currency markets Aso told reporters after the meeting FX INTERVENTION EMERGENCY MEETING Nakaso speaking to reporters after the meeting declined to comment on whether the BOJ would hold an emergency rate review to expand monetary stimulus A former BOJ executive Kazuo Momma told Reuters on Monday that Japan has the right to intervene in markets to stem sharp yen rises although he saw no need for the central bank to offer fresh stimulus if post Brexit vote market turmoil is short lived Some analysts say the BOJ could hold an emergency meeting to expand stimulus further if its tankan business survey on July 1 confirms worsening of the domestic economy and prices There s 30 percent chance of BOJ holding an extra policy meeting said Naomi Muguruma senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities But analysts say it will be difficult for Tokyo to intervene in currency markets to stem the yen s strength Japanese authorities argue that any action to stem excessive yen strength would be in line with G7 G20 agreements on currency stability However U S Treasury Secretary Jack Lew warned against currency intervention earlier this month describing market moves as orderly at a time when Tokyo raised concerns about excess volatility in exchange rates Unlike Switzerland Japan as the G7 chair finds it hard to intervene as that would prompt other countries to label Tokyo a currency manipulator Muguruma said Even if it intervened it would not have a lasting impact on markets |
JPM | World shares set for best week since 2011 dollar hits lowest since 2014 | By Ritvik Carvalho LONDON Reuters World shares were set to post their best week of gains in six years on Friday after two consecutive weeks spent in the red shrugging off a rise in global borrowing costs while the dollar hit its lowest level since 2014 The MSCI world index of stocks which tracks shares in 47 countries was up 0 4 percent after European bourses opened MIWD00000PUS After suffering its biggest weekly drop since August 2015 last week this week s recovery puts the index on track for its best weekly showing since early December 2011 The index has now reclaimed more than half of the 10 7 percent plunge from a record intraday high on Jan 29 to a four month intraday low a week ago Investors have been puzzled at this week s quick rebound in stock markets which has also coincided with a rise in bond yields on evidence that inflation is starting to creep up globally The argument most commonly offered by economists has been that historically it s not unusual for stocks and bond market borrowing costs to rise in tandem with a rapidly expanding economy For me it s really a question of maybe Markets are taking a look at the inflationary outlook and saying OK maybe rates are going up and maybe the economy will compensate for that said Michael Hewson chief markets analyst at CMC Markets That might change if we move to 3 percent on the 10 year Treasury The global rise in borrowing costs has been led by the U S 10 year Treasury which hit a four year high of 2 944 percent this week It last stood at 2 8932 percent US10YT RR Yields across the euro area were mostly steady although Germany s benchmark bund yield was within sight of 2 1 2 year highs and set for its biggest weekly rise in eight weeks DE10YT RR Investors were also watching for a sovereign debt rating on Greece from Fitch Ratings set for release later in the day European shares were set to chalk up healthy weekly gains snapping a three week losing streak as earnings updates continued to impress and volatility and jitters over rising inflation eased Among country benchmarks the UK s FTSE FTSE was up 0 6 percent and Germany s DAX GDAXI added 0 8 percent while Italy s FTSE MIB FTMIB outperformed up 1 2 percent MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS rose 0 4 percent though many Asian markets were closed on Friday for the Lunar New year Japan s Nikkei N225 rose 1 2 percent with investors relieved to see the government appoint Bank of Japan Governor Haruhiko Kuroda for another term suggesting the central bank will be in no rush to dial back its massive stimulus program The pan European benchmark STOXX is up 3 percent so far this week set for its best week since December 2016 but still down around 6 percent from the 2 1 2 year peak it hit in January Some put the rebound in equities down to investors being reassured by a fall in the VIX VIX index a measure of implied volatility on the S P 500 index also known as Wall Street s fear gauge The index dropped below 20 for the first time since its spike to a 2 1 2 year high of 50 3 last week a jump that caused massive losses among investors who bet equity markets would be stable on a combination of solid economic growth and moderate inflation DOLLAR IN THE DUMPS Extending the previous day s losses the dollar s index against a group of six major currencies fell to 88 253 DXY the lowest since December 2014 The index was on track to lose around 2 percent on the week in its largest decline since February 2016 There is no strong consensus yet on what is driving the dollar s persistent weakness especially in light of rising yields Some say it simply reflects a return of risk appetite and a shift to higher yielding currencies including many emerging market ones But others cite concerns that Washington might pursue a weak dollar strategy as well as talk that foreign central banks may be reallocating their reserves out of the dollar There are also worries President Donald Trump s tax cuts and fiscal spending could stoke inflation and erode the value of the dollar His protectionist policies could also fan inflation Markets appear to have calmed down for now but fundamentally it is different from last year said Yoshinori Shigemi global market strategist at JPMorgan NYSE JPM Asset Management You could say that right now rather than stocks rising around the world it is the dollar falling against almost everything he added Oil prices maintained this week s gains with U S crude futures trading at CLc1 61 74 per barrel up 4 1 percent so far this week Brent crude traded at 64 77
Elsewhere virtual currency bitcoin recovered the 10 000 mark for the first time in two weeks BTC BTSP gaining more than 70 percent from its near three month low of 5 920 7 |
JPM | IMAX rallies after JPMorgan confidence | Shares of IMAX NYSE IMAX shoot up in early trading after JPMorgan NYSE JPM resumes coverage on the stock with an Overweight rating The investment firm thinks IMAX s new revenue boosting strategies are set to pay off JP assigns a price target of 28 to IMAX to rep 20 upside potential IMAX 4 43 premarket to 23 60 A huge box office weekend for Black Panther may also be providing a boost this morning Now read |
C | Citigroup plans hiring drive as it re enters Saudi Arabia | By Saeed Azhar Hadeel Al Sayegh and Katie Paul RIYADH Reuters Citigroup N C wants to hire up to 20 bankers in Saudi Arabia where it plans to formally begin operations in the first quarter after obtaining an investment banking license in the kingdom a senior executive said Saudi Arabia s economic reform program would create investment banking opportunities through privatizations and by encouraging more savings by the population Carmen Haddad chief executive officer of Citi Saudi Arabia told Reuters The bank obtained a license in April to conduct capital markets business in Saudi Arabia a move enabling Citigroup to return to the kingdom to offer banking services after an absence of almost 13 years More than a dozen foreign banks have licenses to operate branches in Saudi Arabia Several international lenders want to build a presence as opportunities emerge from the kingdom s reforms to wean the economy off a reliance on oil revenues The opportunities include an array of privatizations such as the government s plan to list up to 5 percent of Saudi Aramco IPO ARMO SE in an initial public share offering They also include steps such as raising the proportion of Saudis who own homes and encouraging more consumers to save
Citi exited Saudi Arabia in 2004 when it sold a 20 percent stake in Samba Financial Group SE 1090 In 2015 it obtained permission from the Saudi regulator to invest directly in the country s stock market |
C | Citigroup C Surpasses Q1 Earnings Estimates | Citigroup C came out with quarterly earnings of 1 87 per share beating the Zacks Consensus Estimate of 1 78 per share This compares to earnings of 1 68 per share a year ago These figures are adjusted for non recurring items
This quarterly report represents an earnings surprise of 5 06 A quarter ago it was expected that this U S bank would post earnings of 1 55 per share when it actually produced earnings of 1 61 delivering a surprise of 3 87
Over the last four quarters the company has surpassed consensus EPS estimates four times
Citigroup which belongs to the Zacks Banks Major Regional industry posted revenues of 18 58 billion for the quarter ended March 2019 missing the Zacks Consensus Estimate by 0 99 This compares to year ago revenues of 18 87 billion The company has topped consensus revenue estimates just once over the last four quarters
The sustainability of the stock s immediate price movement based on the recently released numbers and future earnings expectations will mostly depend on management s commentary on the earnings call
Citigroup shares have added about 29 5 since the beginning of the year versus the S P 500 s gain of 16
What s Next for Citigroup
While Citigroup has outperformed the market so far this year the question that comes to investors minds is what s next for the stock
There are no easy answers to this key question but one reliable measure that can help investors address this is the company s earnings outlook Not only does this include current consensus earnings expectations for the coming quarter s but also how these expectations have changed lately
Empirical research shows a strong correlation between near term stock movements and trends in earnings estimate revisions Investors can track such revisions by themselves or rely on a tried and tested rating tool like the Zacks Rank which has an impressive track record of harnessing the power of earnings estimate revisions
Ahead of this earnings release the estimate revisions trend for Citigroup was unfavorable While the magnitude and direction of estimate revisions could change following the company s just released earnings report the current status translates into a Zacks Rank 4 Sell for the stock So the shares are expected to underperform the market in the near future You can see the complete list of today s Zacks 1 Rank Strong Buy stocks here
It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead The current consensus EPS estimate is 1 81 on 18 67 billion in revenues for the coming quarter and 7 42 on 73 91 billion in revenues for the current fiscal year
Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well In terms of the Zacks Industry Rank Banks Major Regional is currently in the bottom 40 of the 250 plus Zacks industries Our research shows that the top 50 of the Zacks ranked industries outperform the bottom 50 by a factor of more than 2 to 1 |
JPM | This Bank Will Set The Tone For The Entire Financial Sector In Q2 | JPMorgan Chase Co NYSE JPM
Financials Diversified Financial Services Reports July 14 Before Market Opens
Key Takeaways
The Estimize consensus on is looking for earnings per share of 1 44 on revenue of 23 95 billion 1 cent higher than Wall Street on the bottom line and 110 million lower on the top
Between low interest rates currency headwinds and macroeconomic events like Brexit the rest of fiscal 2016 appears volatile
The rebound in the oil market should alleviate some pressure on energy loans which had been a prior concern for the bank
JPMorgan kicks things off for banks when its reports Q2 earnings Thursday before the market opens Reports from all banks will be heavily scrutinized for indications on how they plan on coping with the various macroeconomic events Across the board the banking sector will be impacted by the Brexit vote low interest rates and currency headwinds Fortunately the rebound in the oil market and gas prices will alleviate pressure on energy loss reserves
The Estimize consensus is looking for earnings per share of 1 44 on revenue of 23 95 billion 1 cent higher than Wall Street on the bottom line and 110 million lower on the top Compared to a year earlier this represents a 7 decline in earnings and 3 in sales Shares of JPMorgan are down 5 year to date and typically don t react to quarterly results
JPMorgan is the biggest of the retail banks in terms of assets under management Its large assets base and robust balance sheet have left the company vulnerable in the event of another crisis The company came under intense scrutiny in April after failing to pass the living will standards which are set so that the government will never have to bail out banks again JPMorgan was one of 5 big banks that would not have access to enough capital in the event of a new crisis Fortunately JPMorgan was amongst the 31 banks that passed the stress tests conducted last month putting some of its previous concerns to rest If the Brexit materializes into anything more severe as many experts suspect it will then the big banks will be in trouble Already we have seen fall out from the world s largest financial institutions which could very well continue to suffer given low interest rates and increasing currency headwinds
Regardless JPM has exceeded earnings expectations in 4 of the last 5 quarters and is typically viewed as one of the better performing financial institutions Last quarter the company reported increases in consumer banking and asset management sectors Net interest income increased as well despite rates staying close to zero during the period However significant declines were seen in commercial and investment banking sectors Overall net income and revenue were down on a yearly basis with a high likelihood of continuing through the remainder of fiscal 2016
Second quarter results are shaping up to feature some similar factors from past results An early surge in trading activity this quarter appears as if it will be offset by Brexit and other macro concerns Moreover investment banking is likely to remain weak dampened by a persistent decline in M A activity and weakened IPO market Fortunately the mortgage business should see a big boom from lower mortgage rates Energy loans and expense management should also not be a big thorn in Chase s side |
MS | Buy everything U S if Britain leaves EU Prudential s Peters | By Jennifer Ablan NEW YORK Reuters Gregory Peters a senior investment officer at Prudential LON PRU Fixed Income with more than 621 billion of assets said on Tuesday he thinks U S stocks and bonds are a great buying opportunity if Britain votes to exit the European Union I think it is a bullish U S asset story period if this thing does happen Peters said I think it will be a great buying opportunity for U S assets from Treasuries to high yield junk bonds It may not be an immediate response of a U S rally but I do believe it will be a buying opportunity which will unfold in the medium long term Britain will hold a referendum on June 23 on whether the country will leave the European Union a process often referred to as Brexit Peters the former Morgan Stanley NYSE MS chief global asset strategist who sounded an early alarm about the financial crisis said his thesis is that if Brexit happens it still will be multi years of uncertainty that will create capital flight to the U S marketplace So if Brexit occurs it will be out of United Kingdom and the European Union and into the United States Peters warned in November 2007 that there was a greater than 50 percent chance that mortgage losses would cause a systemic shock that would bring the financial system to a grinding halt In 2014 Peters warned investors that the Federal Reserve would raise benchmark interest rates more gradually than many believed and accurately described the interest rate cycle as later lower and longer Peters remarked on Tuesday s appearance by Federal Reserve Janet Yellen whose Fed delivered its starkest warning yet on its assessment that U S stocks are pricey In the Fed s twice annual Monetary Policy Report the U S central bank concluded Forward price to earnings ratios for equities have increased to a level well above their median of the past three decades
Peters said I am shocked as that was the whole intention of QE Quantitative Easing to push investors out the risk curve so what did Janet Yellen expect |
MS | Nervy global investors revisit 1930s playbook | By Mike Dolan LONDON Reuters Global investors are once again dusting off studies of the 1930s as fears of protectionism nationalism and a retreat of globalization sharpened by this week s Brexit referendum escalate anew With markets on tenterhooks over Thursday s too close to call vote on Britain s future in the European Union the damage an exit vote would deal business activity and world commerce is amplified by the precarious state of the global economy and its inability to absorb any left field political shocks As such the Brexit vote will not be an open and shut case regardless of the outcome Broader worries about global trade frail growth and dwindling investment returns have festered since the banking shock of 2007 08 and have mounted this year Stalling trade growth has already led the world economy to the brink of recession for the second time in a decade with growth now hovering just above the 2 0 2 5 percent level most economists say is needed to keep per capita world output stable Three month averages for growth of world trade volumes through March this year have turned negative compared with the prior three months according to the Dutch government statistics body widely cited as the arbiter of global trade data And it s not a seasonal blip Last year saw the biggest drop in imports and exports since 2009 and their average annual growth of 3 percent over the intervening seven years was itself half that of the 25 years before according to Swiss asset manager Pictet 2016 is set to be the fifth sub par year in row A study published by the Centre For Economic Policy Research shows this paltry pace of trade growth is also below the 4 2 percent average for the past 200 years Foreign direct investment growth of 2 percent of world output is also at its lowest since the 1990s while the hangover from the credit crunch has seen annual growth rates in cross border bank lending grind to a halt from some 10 pct in the decade to 2008 Parsing the big investment themes of the next five years Pictet this month highlighted globalization at a crossroads offering both benign and malignant reasoning and implications One of these was that trade deceleration was due in part to the inwards reorientation of the world s two mega economies the United States and China the former due to the shale energy boom and the latter s planned shift to consumption from exports Another factor cited was a shift in the world economy towards services and digital activity that is not captured by statistics on merchandise trade But Pictet had little doubt about what brewing developments could swamp all that rising nationalism on the far right and left of the political spectrum in Europe and the United States Britain threatens to drive a fault line through one of the world s biggest free trade blocs it said and both presumptive candidates for November s U S presidential election have talked of renegotiating the still unratified Trans Pacific Partnership binding economies making up 40 percent of world trade If the rising tide of nationalism results in greater protectionism then the decline in international trade the world has experienced so far could well morph into something more pernicious the Swiss firm said adding that multinationals particularly banks and tech companies were most vulnerable 1937 38 REDUX Against that backdrop this year s market wobbles make total sense especially as near zero interest rates limit central banks ability to insulate against further shocks But echoes of the last major hiatus in trade globalization during and between the World Wars has economists looking again to the 1930s for lessons and policy prescriptions In a paper entitled 1937 38 redux Morgan Stanley NYSE MS economists detail the mistakes that saw monetary and fiscal policy tightened too quickly once a recovery from the 1929 stock market crash and subsequent Depression started in 1936 Over eagerness to reset policy before private sector confidence in future growth and inflation had picked up saw a relapse into recession and deflation by 1938 The devastation of World War Two followed and with it huge government spending on military capacity war relief and eventually reconstruction Morgan Stanley goes on to draw a parallel with the global response to 2008 s crash and subsequent world recession Waves of monetary and fiscal easing by 2009 underpinned economic activity but government budgets have again tightened quickly and before inflation expectations or private investment spending and capital expenditure have been restored The second world recession in a decade is now seen as a threat but with a heavier starting debt burden historically low inflation and interest rates stalled trade and a worsening demographic profile That could mean another global government spending stimulus is needed to re energize private firms The effective solution to prevent relapse into recession would be to reactivate policy stimulus Morgan Stanley said
Success in preventing a new recession without the cataclysm of a world war would be a profound lesson learned Political extremism isolation and protectionism make the task far harder |
MS | U S jobless claims factory data point to firming economy | By Lucia Mutikani WASHINGTON Reuters The number of Americans filing for unemployment benefits fell last week to near a 43 year low suggesting labor market resilience even though hiring slowed sharply in May Other data on Thursday also gave a fairly upbeat assessment of the economy after it stumbled in the first quarter Manufacturing activity rose to a three month high in early June Although new single family home sales dropped last month from a more than eight year high in April the trend remained consistent with a firming housing market Today s data suggest that growth has bounced back in the second quarter said Ryan Sweet senior economist at Moody s Analytics in West Chester Pennsylvania Initial claims for state unemployment benefits declined 18 000 to a seasonally adjusted 259 000 for the week ended June 18 the Labor Department said The drop was the largest since February and left claims not too far from 253 000 a 43 year low touched in March Claims have now been below 300 000 a threshold associated with a strong job market for 68 straight weeks the longest streak since 1973 The four week moving average of claims considered a better measure of labor market trends as it irons out week to week volatility fell 2 250 to 267 000 last week The drop in jobless claims could give Federal Reserve officials more confidence that job growth will pick up Fed Chair Janet Yellen told lawmakers on Tuesday that the U S central bank believed the slowdown in non farm payroll gains was transitory noting that several other timely indicators of labor market conditions still look favorable Overall labor market conditions are not as bad as one might assume based on May s non farm payroll print alone said Jim Baird chief investment officer at Plante Moran Financial Advisors in Kalamazoo Michigan U S financial markets were little moved by the data ahead of the results of Britain s referendum on European Union membership late on Thursday The dollar was trading lower against a basket of currencies while U S stocks rose Prices for U S government debt fell PAYROLLS REBOUND EXPECTED The claims report covered the survey period for June non farm payrolls The four week average of claims declined 8 750 between the May and June survey periods suggesting an improvement in job growth after payrolls increased only 38 000 in May the smallest increase since September 2010 The May to June improvement points to a lower pace of firings in June Our June payrolls forecast is 180 000 said Ted Wieseman an economist at Morgan Stanley NYSE MS in New York Labor market optimism which is also being spurred by near record high job openings was bolstered further by a second report on Thursday showing a jump in manufacturing activity and factory employment early this month Data firm Markit said its flash U S manufacturing PMI increased to 51 4 from a reading of 50 7 in May The rise was driven by a surge in production which encouraged manufacturers to hire more workers The gain in the Markit PMI suggests that the worst of the manufacturing rout is probably over While a third report from the Commerce Department showed single family home sales fell 6 0 percent to a seasonally adjusted annual rate of 551 000 units last month the drop followed a 12 3 percent surge in April which had propelled sales to their highest level since February 2008 New home sales were up 8 7 percent from a year ago and the three month moving average was the highest since April 2008 Consumers have not retrenched The spring selling season was solid builders indicate they are supply constrained not demand constrained said Michelle Girard chief economist at RBS LON RBS in Stamford Connecticut This suggests the strength seen in new home sales this spring may well be sustained throughout the summer
The housing market is being underpinned by the tightening labor market which is starting to lift wages a well as very low mortgage rates |
JPM | U S hiring probe casts shadow on Credit Suisse | By John O Donnell and Jennifer Hughes FRANKFURT HONG KONG Reuters A U S investigation into whether Credit Suisse SIX CSGN hired referrals from government agencies in Asia in exchange for business poses another reputational hurdle for CEO Tidjane Thiam as the Swiss bank enters the final stretch of a three year turnaround plan Credit Suisse said on Wednesday that it was in contact with the U S Department of Justice and the U S Securities and Exchange Commission SEC about its hiring in Asia because of potential violation of U S foreign corruption law The revelation comes just a week after Credit Suisse terminated a publicly traded product betting on future stock index swings after its value plunged during a market rout On Wednesday as the bank announced its third consecutive annual loss its chief executive played down the fallout from that product s collapse L8N1Q411O It worked well for a long time until it didn t Which is generally what happens in markets Thiam said noting the prospectus made clear the product was not for amateurs and warned about the risk of substantial losses He conceded however that he could not predict whether law suits would result It is not in my gift to predict whether there ll be a litigation against us or not the prospectus is extremely clear I have had to read it myself he told analysts on a conference call We believe that the disclosures made and the kind of role we played which is really to be manufacturers we mostly interacted with market makers and were not involved in the distribution of the product leaves us in a reasonable position he said The events of the past week combined with activist investor pressure have put the bank s image in focus This is the year when they have to prove that it is working said Andreas Venditti an analyst at Vontonbel commenting on Thiam s efforts to make the bank profitable Credit Suisse did not identify which country or countries the Asia hiring probe is focused on Asia became a focal point for Thiam shortly after he joined in the middle of 2015 Several of Credit Suisse s rivals have in recent years faced scrutiny over their hiring in particular of the children of important Chinese officials known as princelings It was a practice that became common over the past two decades as banks scrambled to build guanxi connections or mutual obligations with important Chinese officials Helman Sitohang Credit Suisse s CEO for Asia Pacific said We have decided to put up the disclosure but the only thing I can say is that we are cooperating with the authorities on that In 2016 JPMorgan NYSE JPM paid 264 million to U S authorities to resolve allegations it hired the relatives of Chinese officials to win banking deals While personal connections have long been a way of doing business in much of Asia the scrutiny from U S regulators ensured the issue became increasingly sensitive in recent years |
JPM | Gold Prices Fall In Asia As Chinese New Year Holidays Start | Investing com Gold dipped in Asia on Thursday as top buyer China started a market break through Feb 21 to mark the Lunar New Year and physical trade dipped further with Hong Kong also shut and Singapore on holidays Friday and Monday
Gold futures for April delivery on the Comex division of the New York Mercantile Exchange fell 0 11 to 1 356 50 a troy ounce
Overnight gold prices rose sharply amid dollar weakness as data showing rising inflation and falling retail sales stoked stagflation fears as market participants questioned the underlying strength of inflation
The Labor Department said Wednesday its Consumer Price index rose 0 5 last month after rising 0 2 in December while year on year CPI grew to 1 8 from 1 8 in July
The Commerce Department meanwhile said on Wednesday that retail sales fell 0 3 last month confounding expectations for a 0 3 rise
Rising inflation and falling retail sales pointing to possible sluggishness in consumer spending leading some market participants to slash their bullish expectations for first quarter economic growth as JPMorgan NYSE JPM revised down its first quarter US GDP forecast to 2 5 from 3
Others meanwhile noted that the upbeat inflation report was mainly driven by an increase in apparel and medical services prices and questioned whether these two components would continue to post strong gains in the months ahead
The duo of reports saw spreads between long dated and short dated bond yields narrow and an almost immediate slump in the dollar from the highs TD securities said this could have been a factor of the market looking at firmer inflation alongside a weak retail sales report deducing stagflation
Dollar denominated assets such as gold are sensitive to moves in the dollar A fall in the dollar makes gold cheaper for holders of foreign currency and thus increases demand for the precious metal |
JPM | FX Volatility Boosts Trading Amid Signs More to Come | Bloomberg The past week s financial market turbulence is keeping foreign exchange traders busy boosting volumes along with volatility
Price swings in the 5 1 trillion a day currency market have jumped at the start of 2018 to the highest since November 2016 on a monthly basis according to a JPMorgan Chase Co NYSE JPM gauge The turmoil coincides with surging trading activity say JPMorgan and CLS Group Holdings AG which settles global foreign exchange transactions
As heads of currency trading from the world s biggest asset managers and banks gather at the TradeTech FX conference in Miami this week they re fixated on whether the turmoil will persist If it does it could be a boon for speculators while complicating the tasks of hedgers who prefer more placid waters
Volatility is natural to markets low volatility is not natural said Isaac Lieberman chief executive officer of Aston Capital Management LLC in New York
Managers of 1 7 Trillion Say Currency Volatility Here to Stay
Market gyrations have returned to FX after a subdued 2017 which was the calmest year since 2012 according to the JPMorgan gauge As other central banks look to follow the Federal Reserve in withdrawing monetary accommodation against a backdrop of strengthening global growth there are plenty of catalysts that could whipsaw markets
Market activity is really taking off said David Puth chief executive officer of CLS Group
Traded volumes submitted to CLS averaged almost 2 1 trillion of currency trades a day from Monday to Thursday last week up 14 percent from January s average the company said in a statement
As markets became more volatile over the last two months JPMorgan s clients boosted their use of the bank s currency algorithms according to Richard James co head of macro markets execution in London The number of users trading on the bank s electronic platform also grew with every day last week exceeding the highest level seen in 2017
Here are some other views on volatility expressed at the event
FX market participants worry that any further round of equity volatility will spill much more heavily into FX than last week s episode did said Steven Englander head of research and strategy at Rafiki Capital The strong consensus is that the VIX will fall back sharply but stabilize closer close to historical norms around 15 or just under VIX futures build in a relatively quick downward move
What we re seeing right now is the start of the volatility I think that continues said Lee Ferridge head of macro strategy for North America at State Street Global Markets If the turbulence persists it could prompt the Fed to back off its tightening cycle he said |
JPM | Play Global Market Rally With These ETFs | The global markets have hit a purple patch to start Q3 with the key U S gauge S P 500 hitting a 52 week on July 8 at the close an all time record close of on July 11 and yet another fresh high of 2152 14 on July 12 With this the index has seen an ascent of 17 7 from this year s low of 1 829 08 on February 11 read
In fact the Dow Jones industrial average followed suit scaling to a fresh high on Jul 12 Across the pond European equities rebounded strongly with the U K s FTSE 100 Index entering a Japanese markets also staged a stupendous rally on hopes of stimulus following prime minister Shinzo Abe s recent landslide victory in the upper house election over the weekend
What s Driving the Broader Market
Several factors triggered this unexpected but long awaited rally Return of risk appetite came after the solid June U S job report and the ripple effects of the incredible run in Japanese shares
An oil price rally also lent a hand to Wall Street gains Sentiments around oil shored up after a report from the Organization of the Petroleum Exporting Countries shows an expected rise in demand and a fall in
Moreover relatively cheaper valuation after the Brexit induced sell off made this near impossible possible After all who thought that the S P 500 would breakout to such highs when it was below 2 000 just a couple of weeks ago courtesy Brexit
If this was not enough hopes for stimulus across the developed world and a dovish Fed spurred the stock rally Investors should note that U S treasury yields plummeted to record lows in early July Though it has bounced back over the last two days as of July 12 2016 yields on the benchmark U S 10 year Treasury notes are still below 1 55 as on July 12
The Fed is expected to remain accommodative in the coming months contrary to its stance in 2015 The Brexit fallout will play a major role in the forward Fed policies All in all a few more months of cheap dollar inflows along with signs of economic recovery mean sunnier days for U S stocks while threats about global economic prospects receded a bit in the foreign lands
How to Cash In
No matter how the market behaves risks loom large from every aspect be it the U S earnings recession slowdown the presidential election in November growth issues in developed economies or a concrete known impact of Brexit on the global economy Still as far as the global market momentum is solid investors can play the trend with the following ETFs
PowerShares S P 500 High Beta Portfolio Up 3 5 on July 12
This fund tracks the performance of 100 stocks from the S P 500 index with the highest sensitivity to market movements or beta over the past 12 months
SPDR S P 500 NYSE SPY High Dividend ETF Up 1 1 on July 12
The fund looks to track the performance of the top 80 dividend paying securities listed on the S P 500 index based on dividend yield This fund will give investors opportunities to play the S P 500 s rally along with a focus on current income The fund yields 2 76 annually as of Jul 12 2016 read
SPDR Russell 1000 Momentum ETF Up 0 8 on Jul 12
The fund looks to track the performance of a segment of large capitalization U S equity securities exhibiting a set of factors with a focus on high momentum characteristics read
JPMorgan NYSE JPM Diversified Return Europe Equity ETF Up 3 8 on July 12
The fund comprises stocks from developed Europe which offers a diversified set of factor characteristics
Deutsche X trackers FTSE Emerging Comprehensive Factor LON DEMG Up 1 8 on July 12
The underlying index of the fund gives exposure to emerging market equities based on quality value momentum low volatility and size |
JPM | JPMorgan JPM Beats Q2 Earnings As Trading Income Rises | Driven by improved trading revenues JPMorgan Chase Co s NYSE JPM second quarter 2016 earnings of 1 55 per share handily outpaced the Zacks Consensus Estimate of 1 43 Also the figure reflects a 1 rise from the year ago period Notably the results included a legal benefit of 430 million
Improved fixed income and equity trading revenues and rise in mortgage banking fees drove the results Further higher net interest income perhaps attributable to the rise in loan demand and favorable impact from the Fed s Dec rate hike supported top line
Additionally a decent decrease in operating expenses and a legal benefit aided the bottom line growth However a fall in investment banking income depicting lower equity underwriting fees and higher provisions pertaining largely to energy sector lending marginally hurt the results
Notably shares of JPMorgan gained more than 2 5 in the pre market trading Perhaps the earnings beat led to positive investor sentiments However the actual picture will emerge after the full day s trading session once investors and analysts go through the core results
The overall performance of JPMorgan s business segments in terms of net income generation was impressive All segments except Corporate reported a rise in net income on a year over year basis
Consumer Community Banking increased 5 year over year Asset Management earned 16 higher than the prior year quarter Additionally net income for Corporate Investment Bank and Commercial Banking grew 6 and 33 respectively while the Corporate segment incurred net loss
Among the other positives credit card sales volume improved 8 and merchant processing volume grew 13 Commercial Banking average loan balances increased 13 and Asset Management average loan balances rose 4 Higher Fixed Income Trading Revenues Lower Costs
Managed net revenue of 25 2 billion in the quarter was up 3 from the year ago quarter Also it compared favorably with the Zacks Consensus Estimate of 24 06 billion A 35 surge in fixed income markets revenue and 5 rise in mortgage banking income led to the improvement in top line
Non interest expense was 13 6 billion 6 lower than the year ago quarter The decline was primarily due to lower legal expense and continued cost reduction initiatives Credit Quality A Cause of Concern
JPMorgan s credit quality deteriorated during the quarter As of Jun 30 2016 nonperforming assets were 7 8 billion up 2 from the year ago period
Net charge offs increased 17 year over year to 1 2 billion Further provision for credit losses increased 50 year over year to 1 4 billion primarily due to increases in wholesale reserves versus reserve releases in the year ago quarter Strong Capital Position
Tier 1 capital ratio estimated was 13 6 as of Jun 30 2016 compared with 12 8 as of Jun 30 2015 Tier 1 common equity capital ratio estimated was 12 0 as of Jun 30 2016 up from 11 2 as of Jun 30 2015 Total capital ratio came in at 15 2 estimated as of Jun 30 2016 compared with 14 4 as of Jun 30 2015
Book value per share was 62 67 as of Jun 30 2016 compared with 58 49 as of Jun 30 2015 Tangible book value per common share came in at 50 21 as of Jun 30 2016 compared with 46 13 as of Jun 30 2015 Bottom Line
As expected by management bond and equity trading revenues rebounded during the quarter driven by the continued investments by JPMorgan to technologically upgrade its systems Further Brexit also helped the company in improving trading results Hence while other banks are moving away from fixed income business JPMorgan has gained further market share
Further improvement in loans and deposits reflect improving economy However the energy sector debacle continued to adversely impact JPMorgan s asset quality
JPMORGAN CHASE Price Consensus and EPS Surprise
Currently JPMorgan carries a Zacks Rank 3 Hold
Among the other major banks Wells Fargo Company NYSE WFC and Citigroup Inc NYSE C are scheduled to release their results on Jul 15 and Bank of America Corp NYSE C will report on Jul 18 |
MS | Morgan Stanley s Gorman says bank eyeing 1 billion in FICC trading per quarter | By Olivia Oran Reuters Morgan Stanley N MS is eyeing quarterly revenue of around 1 billion for its fixed income currencies and commodities trading unit Chief Executive James Gorman said on Tuesday The Wall Street bank is seeing revenues grow in its bond trading business or FICC even with reduced headcount Gorman said speaking at the bank s U S Financials Conference in New York Morgan Stanley is targeting 4 billion or more in FICC revenue annually he added It s not great I m not celebrating that but that s the kind of threshold we want to get the business to and obviously move it up from that point forward Gorman said Gorman had not previously given investors revenue guidance around the FICC business in the last several quarters Morgan Stanley has been focused on rebuilding morale in its bond trading unit and retaining existing employees he added after the bank cut 25 percent of its fixed income trading jobs last year The firm is trying to move away from volatile businesses like trading to more stable areas such as wealth management Gorman said Morgan Stanley is finished with major headcount reductions in FICC for the next 12 months We aren t in the business of every quarter chopping and changing he said Wall Street firms broadly are struggling with weakness in their fixed income units as regulations have made trading less profitable Morgan Stanley executives have previously said they believe the pool for fixed income trading has shrunk substantially over the last three years to 100 billion industry wide from 150 billion to 160 billion in the past In the first quarter Morgan Stanley generated FICC revenue of 873 million down 56 percent from 1 9 billion a year ago In January the bank named Sam Kellie Smith who previously ran equities trading as a new head for its fixed income trading business Ted Pick who previously ran the bank s equities trading unit was tasked by Gorman last year to oversee its entire trading business Gorman said the trading environment in the second quarter has improved somewhat from the beginning of the year though he remained cautious in light of upcoming macro events like Brexit that could swing markets
The environment was not as bad as everybody predicted and that has carried through to the second quarter but I would just be a little cautious because we have a lot of stuff coming up in the next couple of weeks he said |
MS | Morgan Stanley global commodities co head Peter Sherk to leave firm memo | By Olivia Oran Reuters Morgan Stanley NYSE MS global commodities group co head Peter Sherk is leaving the firm the bank said Thursday in a memo Nancy King who co heads the business will become sole head A Morgan Stanley spokesman confirmed the contents in the memo Sherk s departure comes as Morgan Stanley is moving away from riskier parts of the commodities business like owning and storing oil Post crisis regulations and a desire to take less risk have shifted the bank s commodities operation into a more traditional trading business in which the bank stands between buyers and sellers It is also lending to energy companies and issuing derivatives that allow clients to hedge market risk Morgan Stanley is in the process of moving the commodities group which had been housed in Purchase New York for more than a decade to its Times Square NYSE SQ headquarters where it can be more connected with the rest of the firm s fixed income unit Sherk and King were named co heads of commodities in January 2015 after former co head Simon Greenshields left the firm and his counterpart Colin Bryce moved to a senior advisory role Sherk joined Morgan Stanley in 1999 as a natural gas trader He helped build the bank s North American power and gas practice rising to become head of natural gas trading in 2006 and head of North American power and gas trading and origination two years later King who joined Morgan Stanley in 1986 as an oil and natural gas trader will become part of the fixed income operating committee in her new role Separately commodities chief operating officer Martin Mitchell is also leaving Morgan Stanley according to a person familiar with the matter Last November Morgan Stanley completed the sale of its physical oil business to commodity trading firm Castleton Commodities after the U S Federal Reserve pressured Wall Street banks to get out of that type of business The transaction ended Morgan Stanley s three decade history as a major player in physical oil markets Morgan Stanley also sold its controlling stake in oil storage business TransMontaigne to NGL Energy Partners LP in 2014 |
MS | Brazil annual inflation rate seen easing in mid June | BRASILIA Reuters Brazil s annual inflation rate is seen softening in mid June but will still be strong enough to diminish the prospects of the central bank hitting its inflation target range this year a Reuters poll showed on Monday Consumer prices as measured by the IPCA 15 index probably rose 9 10 percent in the 12 months through mid June easing from 9 62 percent in mid May according to the median of 19 forecasts in the survey On a monthly comparison prices probably rose 0 52 percent down from an increase of 0 86 percent in mid May according to the median of 22 estimates for the indicator due out on Tuesday A smaller increase in food prices falling airfares and the recent strengthening of the Brazilian currency probably helped inflation slow down in the second half of May and first half of June economists in the poll said The official inflation target is Brazil is 4 5 percent a goal last achieved in August 2010 The central bank has pledged to slow price increases at least to the top end of the tolerance range at 6 5 percent but polls of economists have shown inflation expectations on the rise in recent weeks following an increase in medicine prices and utility rates The longer inflation takes to fall closer to the target the more investors will probably have to wait for interest rate cuts by the central bank economists said Brazil s benchmark interest rate is currently at its highest in nearly 10 years at 14 25 percent despite a severe recession The central bank should have room to cut rates in the last quarter of 2016 later than the market is now pricing in July Morgan Stanley NYSE MS analysts wrote based on their own inflation forecasts
Brazil s 2015 annual inflation stood at 10 67 percent the highest in 12 years compounding an economic and political crisis President Dilma Rousseff was suspended from office in May to await a Senate trial on charges she broke budgetary laws |
JPM | Record outflows from S P 500 SPDR last week | Investors reacted to last week s volatility by yanking a record 23 6B from the SPDR S P 500 ETF NYSEARCA SPY according to Bloomberg That s a full 8 of where assets stood at the start of the week Not since August 2010 has that percentage of AUM been pulled from the SPY It s bullish says the team at JPMorgan NYSE JPM After such a stampede out who s left to sell Interestingly the iShares Core S P 500 ETF NYSEARCA IVV saw inflows of 634 5M last week while the Vanguard S P 500 ETF NYSEARCA VOO experienced just a minor outflow Now read |
JPM | China names JPMorgan Chase as yuan clearing bank in U S | BEIJING Reuters China s central bank on Tuesday named JPMorgan Chase Co N JPM as yuan clearing bank in the United States as Chinese authorities seek to boost global use of the yuan The pick of the largest U S bank by assets was made according to an agreement with the U S Federal Reserve the People s Bank of China said in a short statement on its website Senior Chinese and U S officials agreed to facilitate yuan trading and clearing in the U S during a bilateral Strategic and Economic Dialogue in 2016 China and the U S would each pick a yuan clearing bank in the United States Chinese officials have said In September 2016 the central bank named Bank of China s New York branch to be a yuan clearing bank in the United States There are some signs of a revival in the international use of the yuan after several years in the doldrums as the yuan rebounds
China s non financial outbound direct investment rose nearly 40 percent in January from a year earlier data showed on Tuesday in the latest sign that Beijing may be slowly relaxing tough foreign exchange controls as the government grows less worried about capital flight |
JPM | Powell Suggests Fed to Go Ahead With Rate Hikes After Share Rout | Bloomberg Federal Reserve Chairman Jerome Powell suggested that the U S central bank would push ahead with gradual interest rate increases even as it remains on the lookout for threats to the financial system in the wake of the recent stock market rout
We are in the process of gradually normalizing both interest rate policy and our balance sheet he said Tuesday in the text of his ceremonial swearing in speech in Washington adding We will remain alert to any developing risks to financial stability
They were Powell s first public comments since financial markets last week suffered their most severe bout of volatility in years partly on concern that rising wages might spur inflation and prod the Fed into faster rate hikes
While the new Fed chairman didn t specifically mention the steep fall in share prices other central bank officials have played down its impact on the economy and the financial system
Federal Reserve Bank of New York President William Dudley last week called the share shakeout small potatoes while Cleveland Fed President Loretta Mester said on Tuesday that the turmoil hadn t affected her economic outlook or her support for further interest rate hikes
If economic conditions evolve as expected we ll need to make some further increases in interest rates this year and next year at a pace similar to last year s when the Fed raised rates three times she said in a speech in Dayton Ohio
In their last quarterly projection in December Fed officials penciled in three rate hikes for this year according to the median forecast in their so called dot plot They tacitly reiterated that view at their Jan 30 31 meeting when they said they expected further gradual increases in the federal funds rate
Powell s comments on Tuesday were consistent with the message in January said Michael Feroli chief U S economist at JPMorgan Chase Co NYSE JPM in New York They re in a process of raising rates and not close to the finish line
Investors see a quarter percentage point hike at the central bank s next policy making meeting on March 20 21 as a virtual certainty according to pricing in federal funds futures
Powell said the Fed had made great progress in moving much closer to its goals of full employment and stable prices since he joined the central bank as a governor in 2012
Unemployment is down to 4 1 percent from 8 2 percent back then Inflation though remains below the Fed s 2 percent target standing at 1 7 percent in December
Today the global economy is recovering strongly for the first time in a decade Powell said
He said the Fed was moving to normalize monetary policy with a view to extending the recovery and sustaining the pursuit of our objectives
The 8 1 2 year plus upswing is already the third longest on record although it has also been the slowest in more than 65 years averaging annual growth of just 2 2 percent
Powell pledged to preserve the essential improvements made in financial regulation since the 2007 09 crisis while seeking to make sure the Fed s approach is as efficient as possible
The financial system is incomparably stronger and safer with much higher capital and liquidity better risk management and other improvements he said
He also promised to continue to pursue ways to improve transparency both in monetary policy and in regulation
Once revered for its policy making prowess the central bank has come in for increasing congressional criticism since the financial crisis with some Republican lawmakers calling for stepped up oversight of its monetary policy actions
We listen to feedback and give serious consideration to the possibility that we might be getting something wrong Powell said There is great value in having thoughtful well informed critics |
JPM | Next Big Equity Pain Threshold Looms as Treasury Yield Nears 3 | Bloomberg Bond yields are inching ever closer to the point at which strategists and fund managers say equities will really hurt
According to strategists at firms including Amundi and Societe Generale PA SOGN SA the U S 10 year Treasury yield climbing up into the 3 percent to 3 5 percent range would reach the pain threshold for equities turning them less attractive than fixed income assets The yield surged on Wednesday spurring fresh declines in equity markets after data showed January consumer prices rose more than forecast in the U S SocGen says a level of 3 percent could send the S P 500 Index below 2 500 which implies a 6 1 percent slide from Tuesday s close
Stock markets around the world tumbled in the past two weeks with the initial selloff prompted by bond moves after data showed signs of wage growth in the U S Since September s low of 2 percent the Treasury yield has jumped to a four year high of nearly 2 9 percent this week The equity recovery this week has been shaky as investors remain wary of buying the dip
Many market participants see a further yield rise above 3 percent as a potential game changer putting pressure on equity valuations while also making it more expensive for companies to borrow money Here are some views from strategists and fund managers on the theme that has gripped markets this month
Raphael Sobotka global head of Amundi s flexible risk premia retirement solutions by phone
U S stock valuations have fallen back but the market isn t cheap yet and given that rates will continue to rise the pressure on equity valuation ratios can continue to increase from here
So far it s mostly the speed at which bond yields have risen that has spooked investors a 3 percent yield on U S 10 year Treasuries is a level to watch
The rise from 2 5 percent to 3 percent would translate into a 10 percent hit on price to earnings ratios It s fine if U S earnings growth continues to be double digit but below that the pressure would be mounting
Also at 3 percent bond yields will become attractive again relative to stocks not likely to spark a big rotation into bonds but will mean investors will have an alternative to equities to generate returns
Roland Kaloyan Societe Generale equity strategist by phone
Equity investors have had an amazing time over the past four to five years but now the rally in bond yields is reaching the pain threshold for a number of reasons including the pressure on valuation levels fixed income becomes relatively attractive again when compared with equity dividend yields
The recent improvement in the earnings growth outlook has helped equities absorb bond yields but with the equity risk premium approaching levels last seen during the dotcom era 0 any further rise in the 10 year yield to 3 percent would put pressure on the equity market to adjust lower
SocGen s analysis suggests that a U S 10 year yield of 3 percent can take the S P 500 below 2 500
Emmanuel Cau JPMorgan NYSE JPM equity strategist in emailed comments
The reason for the move in bond yields matters more for equities than its magnitude so far JPMorgan sees the rebound in yields as being fairly consistent with the pick up in nominal growth expectations
The gap between equity dividend yields and bond yields remains significant in all the key regions bond yields would need to go up about 70bp for the yield gap to move back to its long term average in the U S and by 200bp in euro zone we are not there yet
Ritu Vohora investment director at M G Investments by phone
From an equity risk point of view the risk premium in the U S is about 5 percent it means that investors are still being paid even in the U S market to take equity risk today
It would need to get to a level where bond yields are rising because inflation has picked up and central banks are tightening while current market situation is unnerving and rising yields can have an impact on equities Vohora says the level hasn t been reached at this point
Rising bond yields are not reflecting worrying economic conditions
Sylvain Goyon Natixis head of equity strategy in emailed comments
The impact on U S earnings is not significant at this point it s also getting more complicated to price it in given the changes in the way financing costs will be taxed with the new U S reform bottom line is we re far from reaching a point where bond yields start to eat away corporate profits
Inflation not out of control it may rise in the U S while inflation expectations are toppish in the euro zone The disconnect should lead to a de correlation between U S and European markets Goyon said which supports Natixis overweight stance on euro zone equities
In terms of sectors the market s growing aversion for leverage is almost inevitable in a context of rising rates careful on utilities telecom
Mark Haefele global chief investment officer at UBS Wealth Management in Feb 12 note
No specific level of yields will cause problems for equities Haefele said he would be more concerned if stocks start to look less attractively valued than bonds if rising real yields start to boost borrowing costs enough to cut into profits or consumer spending or if the market starts to fear Fed is behind the curve none of these conditions are currently in place
Global equity risk premium at 4 8 is well above the average since 1990 real rates have been steady Fed remains committed to gradualism Haefele does not believe yields will rise to levels that will prevent equities moving higher in the next six months
Credit Suisse SIX CSGN strategists including Andrew Garthwaite and Marina Pronina in Feb 12 note
The problem for equities is when wage growth rises to a range of 3 2 percent to 3 5 percent as at that stage the labor share of GDP rises hitting profits and forcing the Fed to turn to a tight policy
Historically de ratings have occurred when inflation rises above 3 percent Credit Suisse strategists say equities can withstand U S 10 year yields rising to 3 5 percent based on their valuation models 1 percent on bond yields if accompanied by a rise in wages takes about 10 percent off profits
Matthew Luzzetti senior economist at Deutsche Bank DE DBKGn in Jan 29 note
There is considerable further scope for bond yields to rise before they weigh on growth and equities currently the neutral 10 year yield in nominal terms is nearly 3 5 percent its highest level since 3Q 2016 suggesting that bond yields could rise about 80 basis points from current levels before Luzzetti would begin to worry about them slowing growth momentum
It s also a threshold where higher yields begin to weigh on equity prices in the current context the relationship implies that 10 year Treasury yields would have to rise about 80 basis points from current levels to induce a switch in the bond yield equity correlation from positive to negative
Updates with U S inflation data and market moves in second paragraph |
C | SoFi withdraws U S banking application citing leadership change | By Anna Irrera
NEW YORK Reuters Student online lender Social Finance Inc said on Friday that it is withdrawing its application for a bank license in the wake of the departure of a number of senior executives including co founder and former Chief Executive Mike Cagney
The San Francisco based company had applied with state regulators in Utah and the U S Federal Deposit Insurance Corp in June for a bank charter so that it could offer deposit accounts
With SoFi s leadership in transition we re withdrawing our application with the FDIC for now SoFi spokesman Jim Prosser said in a statement
A bank charter remains an attractive option when the time is right This decision does not change our plans to make deposit accounts available through partner banks in the near future
In addition to Cagney SoFi has to replace other senior executives that have left over the past few months including former Chief Financial Officer Nino Fanlo ex Chief Revenue Officer Michael Tannenbaum and former Chief Technology Officer June Ou The CEO search is the company s first priority Prosser said earlier this month
The banking license was part of Cagney s push to grow SoFi into a financial institution that could compete with established players such as JPMorgan Chase Co N JPM and Citigroup Inc N C
Cagney s departure in September had complicated SoFi s banking application a source familiar with the matter told Reuters earlier this month because regulators assess whether a company has a capable CEO before allowing it to accept deposits
SoFi is one of the most valuable private financial technology startups in the United States and valued at over 4 billion at its last funding round
Cagney resigned amid two former SoFi employees filing lawsuits alleging sexual harassment at the company and SoFi beginning an internal investigation
In a blog post to SoFi employees before he resigned Cagney said that kind of behavior has no place at SoFi and we re not going to tolerate it
The former bank trader had been the driving force behind SoFi s big time ambitions pushing it into mortgages personal loans up to 100 000 wealth management services and life insurance
SoFi started off in 2011 offering student loan refinancing to graduates of top tier schools such as Stanford University but has since expanded into offering mortgages personal loans and wealth management |
C | Palladium Tops 1 000 for First Time Since 2001 on Auto Demand | Bloomberg Palladium climbed above 1 000 an ounce for the first time since 2001 as global demand grows for the metal in pollution control devices used by gasoline powered vehicles
Prices jumped as much as 1 6 percent to 1 007 42 on Monday before trading at 1 005 55 by 8 14 a m in London The metal is one of this year s best performing commodities advancing 48 percent more than three times the increase in gold and about 10 times the gain in its sister metal platinum
Palladium became more expensive than platinum last month for the first time in 16 years The latter is used to cut pollutants from diesel vehicles which are now less popular particularly in western Europe after some automakers admitted to cheating in emissions tests
Things could get worse for platinum The European diesel engine market share could halve by 2025 potentially removing 300 000 to 600 000 ounces of platinum demand over the next 10 years according to Citigroup Inc Palladium on the other hand is expected to remain in deficit although it will begin to ease over the long term the bank says
Citigroup NYSE C sees global surpluses in platinum stretching out to 2020 while the shortfall in palladium is set to widen to more than a million ounces next year before narrowing to 750 000 ounces by 2020 the bank said
Despite the PGM spread inversion since the end of September we remain favorable to palladium over the short term Citigroup analysts including Nell Agate wrote in a note dated Oct 13 However ever looming substitution risks prevent an outright bullish view on palladium over the long term
United Overseas Bank Ltd said last week that it expects growing demand for gasoline emission control devices to support palladium and continue to fuel outperformance over platinum
European car sales growth accelerated in August as an expanding economy encouraged purchases and French manufacturers PSA Group and Renault SA PA RENA won buyers with new SUVs and hatchbacks Car sales are set to rise further this year as manufacturers offer incentives to trade in older diesel cars for models meeting tighter pollution standards amid German government pressure stemming from Volkswagen DE VOWG p AG s emissions cheating scandal |
MS | Japan first quarter GDP revised up boosted by leap year gain | By Stanley White
TOKYO Reuters Japan s economy grew faster than initially estimated in the first quarter as capital spending fell less than was first reported but worries remain over slow consumer spending and weak exports
The upward revision is very slight and when you exclude the impact of leap year growth is not that strong said Shuji Tonouchi senior fixed income strategist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities
We expect growth to slow in the current quarter The government should focus on steps to help low income earners but consumption may not rise much if consumer sentiment worsens
Further gains in the yen could lower export profits and discourage companies from increasing investment and wages
Prime Minister Shinzo Abe said he will announce additional economic measures this autumn but economists worry his piecemeal approach to policy means that not enough money will be allocated to reversing population decline and speeding up growth
Japan s economy expanded at an annualized 1 9 percent rate in the first quarter of this year revised up from a preliminary reading of 1 7 percent growth the Cabinet Office data showed
The revised January March GDP matched the median estimate in a Reuters poll of economists
Compared to the previous quarter GDP rose 0 5 percent which was more than the preliminary reading of 0 4 percent growth and the same as the median estimate
Excluding the impact of leap year which added an extra day to February GDP probably expanded around 0 2 percent Tonouchi said
Capital expenditure a major component of GDP fell 0 7 percent less than a preliminary decline of 1 4 percent That compared with the median estimate for a 0 3 percent decline
Private consumption rose 0 6 percent slightly above the preliminary 0 5 percent increase recorded
Abe announced last week a widely expected two and a half year delay in hiking sales tax because of weak consumer spending although economists worry that postponement signals the government is losing control of fiscal discipline |
MS | Morgan Stanley pays 1 million SEC fine over stolen customer data | By Jonathan Stempel Reuters Morgan Stanley N MS has agreed to pay a 1 million fine to settle U S Securities and Exchange Commission civil charges that security lapses at the Wall Street bank enabled a former financial adviser to tap into its computers and take client data home the regulator said on Wednesday The settlement resolves allegations related to Galen Marsh s unauthorized transfers from 2011 to 2014 of data from about 730 000 accounts to his home computer in New Jersey some of which was hacked by third parties and offered for sale online Marsh was sentenced in December to three years probation and ordered to pay 600 000 in restitution after pleading guilty to one felony count of unauthorized access to a computer Prosecutors had sought prison time According to the SEC Morgan Stanley violated a federal regulation known as the Safeguards Rule by failing to properly protect customer data allowing Marsh to access names addresses phone numbers and account holdings and balances Given the dangers and impact of cyber breaches data security is a critically important aspect of investor protection Andrew Ceresney director of the SEC enforcement division said in a statement Morgan Stanley did not admit or deny wrongdoing In a statement the New York based company said it has changed account numbers and offered credit monitoring and identity theft protection services for affected clients The theft did not result in fraud against any client account it added Marsh accepted a related five year securities industry ban from the SEC the regulator said He has said he did not offer to sell customer information to anyone
We appreciate the SEC taking a look at the full weight of the evidence and making an appropriate decision his lawyer Derrelle Janey said in an interview He said Marsh and his wife are now raising their 6 month old daughter |
MS | Worse than expected drop in Japan machinery orders flags weak capex ahead | By Stanley White
TOKYO Reuters Japan s core machinery orders tumbled in April by the most in two years partly due to earthquakes in a southern manufacturing hub but raising the risk that business investment will remain weak for most of the year
The 11 0 percent month on month fall in core orders was much deeper than the median estimate for a 2 3 percent decline in a Reuters poll of analysts
It also marked the biggest decline since May 2014 In March core orders rose 5 5 percent
Any further delays in capital expenditure raise pressure on Prime Minister Shinzo Abe s government which will announce more economic stimulus measures this autumn in an attempt to recharge a largely disappointing economic campaign
This is a result of the Kumamoto earthquakes but China s economic slowdown is also having a negative impact said Daiju Aoki economist at UBS Securities
Capex fell in the first quarter The second quarter looks weak and this could extend into the third quarter This will affect the size of government stimulus and monetary easing
On April 14 the first of several strong earthquakes struck Kumamoto Prefecture in southern Japan damaging houses causing landslides and halting production at electronics and car parts factories
Many companies were able to quickly resume production but the April machinery orders data suggests the damage to business investment was deeper than expected Aoki at UBS said
Compared to the previous month orders from manufacturers fell 13 3 percent while orders from the services sector fell 3 9 percent the data showed
Compared with a year earlier core orders a highly volatile data series regarded as a leading indicator of capital spending fell 8 2 percent in April more than a median estimate for a 2 3 percent annual fall Policymakers were counting on an increase in capital expenditure to fuel gains in productivity create new jobs and increase wages but hopes have gradually faded as data has shown that corporate profit growth has peaked
Earnings have been falling from last year which is leading companies to but the breaks on their investment plans said Hiroshi Miyazaki senior economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities
If the government s stimulus policies contribute to improving the economic outlook this could get companies investing again
Since taking office in late 2012 Abe s government has offered tax breaks to encourage capital expenditure and lobbied Japanese companies directly to boost spending
Japanese companies investment needs are high because the country s capital stock is ageing Funding costs are also low due to ultra easy monetary policy
Still it has been difficult to maintain capital expenditure gains due to worries about a rising yen and a shrinking domestic market economists say |
MS | Abenomics doubts drive foreigners off Japanese stocks volatility spikes | By Ayai Tomisawa
TOKYO Reuters Foreign investors are bailing out of Japanese stocks as a wobbly economy feeds disillusionment about Abenomics sparking bouts of volatility in a market increasingly shaken up by policy decisions of the Bank of Japan
The trouble is that long term focused foreign funds have turned bearish on doubts that Tokyo can pull Japan out of two decades of economic stagnation despite more than three years of massive monetary and fiscal stimulus
There are many long term investors who have given up on Japanese stocks as there are no structural reforms being delivered Meanwhile monetary policy decisions only have short term effects said Michiro Naito executive director at equity derivatives at JPMorgan NYSE JPM who recently visited Asian investors
Net selling by foreign investors from January through May was roughly 4 5 trillion yen 42 07 billion in Japanese cash equities according to exchange data a stark turn from net purchases of about 2 83 trillion yen in the same period last year
Not surprisingly the benchmark Nikkei share average N225 has fallen 13 percent this year underperforming its global peers The S P 500 index SPX is nearly flat while the pan European FTSEurofirst 300 FTEU3 has fallen 6 8 percent
All of this has occurred amid a bleak backdrop for Japanese equities as confidence has been sapped by worries over a sputtering economy anemic inflation weak external trade and sluggish consumption
Moreover a rebound in the yen has fed concerns about a hit to exporters earnings while anxiety over a possible credit rating downgrade after the government delayed a planned second sales tax hike has led investors to reassess Japanese risk nL4N18U1TV nL4N18T35N
It s a far cry from the optimism stirred by Prime Minister Shinzo Abe s ascension to power in December 2012 as the Nikkei catapulted to 18 1 2 year highs in June 2015 driven by his Abenomics prescription of monetary stimulus fiscal expansion and structural reforms The yen is also much stronger now with the dollar fetching 106 81 yen versus 125 85 at its peak in June last year
VOLATILITY SPIKES
Volatility has also periodically spiked more or less coinciding with the foreign selling and especially in the wake of recent BOJ policy decisions first on Jan 29 when the central bank unexpectedly announced it was adopting negative rates in its quest to beat back deflation and then in late April when it stood pat even as many in the market expected more stimulus
A level below 25 in the Nikkei Volatility Index JNIV also referred to as a fear gauge is generally indicative of relative calm
So a jump to near 50 in February and to 32 in May fed fears of more bouts of volatility not helped by uncertainty over BOJ policy
If you look at when the market goes up is it going up because the fundamentals are improving No It s going up because there was negative economic data and people are hoping that the BOJ will inject more money said Olivier d Assier managing director of Asia Pacific at risk management firm Axioma Inc
Investors are caught in a binary situation now either BOJ is going to intervene or not d Assier said
At this week s BOJ meeting analysts expect no change although a Reuters poll predicted another dose of stimulus will be delivered at its July review nL4N19203B
The Fed meeting this week and risks of Brexit Britain potentially exiting the European Union were also expected to stoke volatility in the near term
Meanwhile more brokerages views have turned bearish
In the latest fund manager survey by Bank Of America Merrill Lynch allocations in Japanese equities in April hit the lowest since the start of Abenomics
And Morgan Stanley NYSE MS Securities cut its Topix target by 12 1 percent to 1 230 from 1 400 at the end of this fiscal year The new target is 8 percent below the current Topix level
Many investors don t think Japanese stocks as a good long term investment said Yoshinori Shigemi global market strategist at JPMorgan Asset Management |
MS | Japan corporate sentiment worsens capex plans revised up | By Stanley White
TOKYO Reuters Sentiment at large Japanese manufacturers worsened for the second consecutive quarter over April June due to a rising yen although companies did revise up their capital expenditure plans
Large manufacturers said they expect sentiment to rebound in July September offering encouragement to policymakers navigating weak exports and lingering concerns about the global economy
The survey results could offer some relief to the Bank of Japan which holds a monetary policy meeting later this weak The upgrade of capital expenditure plans should bolster the central bank s argument that its negative interest rate policy would spur lending
Right now the economy is in a holding pattern but I don t expect things to worsen from here on said Shuji Tonouchi senior fixed income strategist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities
The benefits of negative rates have been elusive so far but we could finally be seeing the capital expenditure boost
The business survey index BSI of sentiment at large manufacturers was minus 11 1 in April June compared with minus 7 9 in January March The BSI is compiled by the Ministry of Finance and the Economic and Social Research Institute an arm of the Cabinet Office
The index measuring big manufacturers sentiment three months ahead was at plus 7 0 versus plus 7 1 previously
Companies forecast their capital expenditure to rise 3 8 percent in the business year that started in April versus a 6 6 percent decline forecast in the previous survey
Japan s economy grew faster than initially estimated in the first quarter as capital spending fell less than was first reported but worries remain over slow consumer spending and weak exports
The yen has gained more than 12 percent versus the dollar since the start of the year on uncertainty over the pace of pending U S Federal Reserve interest rate increases
A rising yen tends to worry Japanese companies because it reduces overseas earnings but the sentiment survey found manufacturers believe the negative impact will be temporary
The BSI measures the percentage of firms that expect the business environment to improve from the previous quarter minus the percentage that expect it to worsen |
JPM | JPMORGAN Investors stressing over inflation should pay close attention to one peculiar trend | US inflation has undershot the Federal Reserve s 2 target for much of the recovery but a stronger economy and the tax cut package have sparked fears of a sudden pick up
Inflation fears have driven bond yields higher and stock prices lower reintroducing volatility into a market that hasn t seen much of it
JP Morgan s head of cross asset strategy John Normand crunches the numbers to show inflation has historically surprised investors but consistently to the downside
Inflation fears have been central to the shaken market confidence of the past few trading sessions yet one strategist at JPMorgan NYSE JPM is totally sanguine about the inflation risks facing the US economy
John Normand head of cross asset strategy at JPMorgan uses a large sample of historical comparisons in inflation core consumer prices which exclude food and energy and are a favorite of central bankers as well as wage growth as measured by average hourly earnings
Normand s message There s a pattern
Over the past two decades inflation has surprised more to the downside than to the upside on all indicators he writes in a research note
Core CPI has met consensus forecasts about 40 of the time since the late 1990s exceeded expectations 26 of the time and undershot expectations 33 of the time
Average hourly earnings met estimates 25 of the time overshot 29 and undershot 45
The market s vertiginous plunge which has since stabilized first started last Friday after the market latched onto data the biggest gain since the recession
Normand uses the following chart to show the combined trajectory of these key indicators for Federal Reserve policy and to show inflation leery investors are likely jumping the gun and not for the first time
This underapreciation of disinflationary forces probably explains why the consensus has incorrectly forecast the direction of Treasury yields most years since the global financial crisis he says
US inflation has undershot the Fed s 2 target for much of the economic recovery despite an extended period of low interest rates and solid economic growth in part because of |
JPM | China revives QDLP outbound investment scheme in boost for foreign funds sources | SHANGHAI Reuters China has resumed an outbound investment scheme after a two year hiatus granting licenses to about a dozen global money managers sources said signaling that Beijing is less worried about capital outflows amid a surge in the Chinese currency Foreign fund managers with newly awarded quotas will be able to raise money in China for investment overseas under the Qualified Domestic Limited Partnership QDLP plan for the first time since late 2015 The quota based Shanghai scheme was unofficially suspended when China tightened capital controls amid turmoil in its stock and currency markets The industry had expected that each newly qualified firm would be allowed to invest up to 50 million under QDLP but the sources said the quotas were not distributed evenly Among the firms awarded fresh licenses this year the investment arms of JPMorgan Chase Co NYSE JPM Standard Life LON SLA Aberdeen Manulife Financial and Allianz DE ALVG have over the past month set up outbound investment subsidiaries in Shanghai to conduct QDLP businesses according to sources and registration information on government websites Other asset managers preparing for QDLP businesses include the asset management arms of BNP Paribas PA BNPP and AXA as well as Robeco and Mirae Asset Upon receiving a license asset managers are required to complete fundraising within six months The Shanghai Municipal Financial Service Office which is in charge of the QDLP business didn t return calls seeking comment The asset managers declined to comment China s foreign exchange regulator which said in December that Shanghai had started vetting new QDLP licenses didn t immediately respond to a fax seeking comment on the matter From 2013 2015 Shanghai awarded QDLP quotas worth a combined 1 23 billion to 15 asset managers including UBS Asset Management BlackRock Oaktree Capital Citadel OZ Management and Man Group Another offshore investment scheme the Qualified Domestic Institutional Investor QDII program apparently remains suspended No new QDII quotas have been granted since 2015 Although Chinese investors can buy Hong Kong stocks via the Connect scheme suspension of the QDII and QDLP schemes have greatly limited their ability to allocate assets globally YUAN ON STRONGER FOOTING China burned through nearly 1 trillion in foreign exchange reserves from mid 2014 to early 2017 as authorities sought to shore up the falling yuan and reduce potentially destabilizing capital flight But the Chinese currency has staged a remarkable turnaround since thanks largely to a floundering U S dollar and stronger than expected economic growth in China The yuan rose around 6 8 percent against the greenback in 2017 and is up another 4 percent so far this year Forex reserves have climbed for 12 straight months In the current environment yuan s strong appreciation has greatly eased the fears of capital outflows said Stephen Zhu Shanghai based representative of Ashland Partners which provides compliance consultation and verification services to the asset management industry Resumption of QDLP also fits with China s broader policy shift toward greater financial deregulation he said referring to Beijing s recent pledge to widen foreign access to its giant financial sector Revival of the QDLP business would also help support Shanghai s longer term ambition to challenge other Asian cities such as Singapore and Hong Kong in attracting global asset managers Shanghai which aims to become a global financial center by 2020 is already ramping up efforts to woo global asset managers to settle in Lujiazui China s answer to Manhattan So far 34 global asset managers have set up wholly owned units in Shanghai the prerequisite for launching QDLP and onshore private fund businesses while 27 others are setting up or plan to set up subsidiaries in the city We hope that Shanghai can become an Asia Pacific center for global asset managers and the city of choice to launch their China businesses said Neo Yuan a director at the Shanghai Lujiazui Financial City Authority |
JPM | China conglomerates aim for reset in tighter credit environment | By Matthew Miller BEIJING Reuters More than a year ago China abruptly shifted from a policy of providing its private conglomerates with cheap cash to push them to become global champions and tightened capital controls and bank credit That seismic shift is still being felt today as the non state companies dump property and company stakes and grapple with developing coherent strategies On Monday Dalian Wanda Group announced it would sell a 1 24 billion stake in Wanda Film Holdings Co SZ 002739 to Alibaba Group Holding Ltd N BABA and Cultural Investment Holdings Ltd SS 600715 a Beijing government backed company That followed Wanda s announcement last week that it was shifting a 5 4 billion stake in its property unit to outside investors led by Tencent Holdings HK 0700 For HNA Group the aviation company that has extended its reach into logistics tourism and financial services after splashing out 50 billion on dealmaking the process of deleveraging has just started In recent weeks the company has announced moves to raise billions in funding including offloading property in Australia and hiring bankers to sell its leading stake in the Spanish hotels company NH Hotel Group SA MC NHH Last month at an extraordinary meeting with its major bank creditors HNA said the company faced a potential cash shortfall of at least 2 4 billion in the first quarter of the year Its liquidity problems have extended from overdue aircraft lease payments to a missed early repayment of a 1 7 billion yuan 268 55 million trust product Other private conglomerates like Fosun International HK 0656 and Anbang Insurance Group are either reshaping their businesses and reducing debt or halting fresh buyouts and searching for new shareholders under strict supervision of regulators Some Chinese companies have gone on overseas acquisition binges and now they have too much debt said Willy Shih a Harvard Business School professor who has written about Dalian Wanda He added that it was unclear whether the companies were looking for re invention or just trying to put together a business logic that makes sense HNA Wanda and Anbang declined to comment Fosun did not immediately respond to a request for comment CONTROLLING RISK The Chinese government is trying to control financial sector risk and has made clear that its crackdown on companies using excessive leverage and short term funding to buy offshore assets especially in non strategic sectors like property and sports is set to continue The country s banking regulator last month said the reduction of corporate debt was a top priority The China Banking Regulatory Commission CBRC also said it would move to clean up financial holding companies and dispose of high risk institutions A reset is a good way of describing what is going on said Hernan Cristerna global co head of M A at JP Morgan Chase NYSE JPM Co The behavior of some not all of the companies was not entirely aligned with the industrial dependable and cooperative approach that China wants to establish in the global arena The CBRC had already targeted Wanda HNA Fosun and Anbang last June when it ordered top banks to assess their exposure to offshore acquisitions by those groups halting some deals and prompting the current round of asset sales Other non state conglomerates have also been under pressure to sell stakes including Tomorrow Group with interests in more than 30 domestic financial institutions The CBRC did not immediately respond to a request for comment KEY TRANSFORMATION Dalian Wanda s 14 percent equity stake sale in its commercial real estate unit to an investor group that included Tencent Sunac China Holdings HK 1918 and JD com Inc O JD is part of a move by the group s property arm into an operation with fewer assets It follows a year of painful sales that included landmark real estate projects in London and Sydney along with Wanda s 9 billion divestment of much of its domestic hotels and theme parks business The key to Wanda s transformation is the transformation of Wanda Commercial Properties from a heavy asset enterprise to an enterprise that focuses on light assets Wang Jianlin said last month That means more partnerships fewer self owned properties and a significant reduction in corporate debt Wang said Last week s deal also is expected to pave the way for the re listing of Wanda s commercial properties unit analysts say and may help Wanda develop an online offline strategy Fosun International which paid 1 1 billion to buy Club Med and holds stakes in an assortment of lifestyle companies including AHAVA an Israeli skincare brand also has undergone strategic rebranding Fosun has also moved to strengthen its balance sheet reduce net debt and balance its acquisitions with asset sales It is also looking to diversify risk through more public market listings including the share sales of its tourism business In January Moody s Investors Service upgraded Fosun s corporate family rating to Ba2 still speculative citing the firm s improved business profile and expectations that the company would maintain current leverage ratios The strategic shift by many of the non state conglomerates has been accidental but necessary said one senior Asia banker who has worked with some of the companies All these guys thought of themselves as private equity the banker said That mentality is now changing into what are the two or three businesses we truly care about and have scale and logic in |
JPM | T Mobile profit surges on 2 2 billion tax gain | Reuters T Mobile US Inc s O TMUS quarterly profit jumped nearly sevenfold as the No 3 U S wireless carrier added subscribers and recorded a 2 2 billion gain from recent changes in U S tax laws The company said it added 891 000 phone subscribers in the fourth quarter compared with 933 000 a year earlier T Mobile has been using lower prices and added perks to take market share from larger rivals Verizon Communications Inc N VZ and AT T Inc N T in a saturated market for wireless services In 2018 T Mobile said it expects to add between 2 million and 3 million subscribers who pay a monthly bill Analysts at JPMorgan NYSE JPM said in a note the numbers were in line with their estimates Shares were down 0 2 percent at 61 95 in premarket trading T Mobile s net income was 2 71 billion or 3 11 per share in the quarter ended Dec 31 up from 390 million or 45 cents a share a year earlier Excluding items the company earned 48 cents per share Revenue rose 5 1 percent to 10 76 billion Analysts on average were expecting revenue of 10 83 billion according to Thomson Reuters I B E S
Last month the wireless carrier said it had closed on its acquisition of Layer3 TV a startup that has marketed itself as a next generation cable service for an undisclosed amount It has plans to launch a new streaming service this year |
JPM | Yields Speak Louder Than Ratings for Emerging Market Traders | Bloomberg What if a credit rating gets cut and nobody cares
Emerging market investors aren t worrying much about the opinion of ratings companies these days as the hunt for yield outweighs what they consider rear view assessments Most of the developing nations that were downgraded in the past six months including Brazil Colombia and South Africa saw their risk premium rise just briefly following the decision before quickly resuming their downward march amid a strong risk on mood
Part of the explanation is simple Investors have been chasing high payouts in an environment of stubbornly low interest rates and willing to take on more risk to juice returns at least until this week s market turmoil Meanwhile growth is forecast to pick up in developing nations with some of the biggest like Brazil and India engaging in market friendly economic overhauls But underpinning all of that is a simple fact Markets are ahead of rating firms which tend to take much longer term views
Two words backwards looking Edwin Gutierrez the London based head of emerging market sovereign debt at Aberdeen Standard Investments said about rating actions
Given the strong economic tailwinds Jennifer Gorgoll an Atlanta based money manager at Neuberger Berman Group who helps oversees 16 7 billion in emerging market debt says the impact of rating actions on developing countries assets is going to continue to be mild
I m not saying rating agencies don t matter but it s a different environment now and negative rating changes can have less of an impact on spreads she said
Measures of risk like credit default swaps and spreads on sovereign bonds fell in Colombia and South Africa after their latest downgrades and also in Brazil which even managed to sell debt a week after being cut further into junk by S P Global Ratings In fact investor demand for debt from Latin America s largest economy was so strong that the government was able to close the deal at a lower yield than it initially sought
In 90 percent of the cases market prices are more efficient than the ratings agencies said Sean Newman a money manager in Atlanta at Invesco Advisers Inc which oversees 5 billion in emerging market debt
Newman adds that in the case of lesser known names or first time issuers like Tajikistan or Suriname rating actions can still trigger market moves because investors don t have enough data to easily price them Ratings firms have more importance for those countries he said
It s also true that once a nation tumbles out of investment grade cuts deeper into junk territory are less important Three years ago Brazil s sovereign bonds plunged to a record low after the nation lost its investment grade rating Many funds have restrictions on holding lower rated securities forcing them to sell when ratings cross the junk threshold
It s when you switch indexes or become ineligible for certain big grade accounts that it causes more market movement said Shamaila Khan a money manager at AllianceBernstein LP in New York The big reactions on the rating front are when you go from investment grade to below investment grade
Lisa Schineller a sovereign ratings analyst at S P says that investors often react to news much faster than the ratings firms but that s largely because companies like hers take a longer term view and intentionally avoid moving the grades with every new development
Markets might perceive we re not as timely Schineller said But we re looking for an accumulation of evidence because our goal is a smoother more medium term focus
The risk premium on emerging market sovereign bonds jumped to 274 basis points on Thursday according to JPMorgan Chase Co NYSE JPM data
Updates risk premium in last paragraph |
JPM | JPM s Kolanovic Says Some Systematic Strategies May Sell at Lows | Bloomberg Sell low and buy high wait is that the way it s supposed to go
Once bumpiness had flooded into the market various forms of volatility targeting strategies were set in motion and added to outflows that will keep investors on edge for several days JPMorgan NYSE JPM strategists Marko Kolanovic and Bram Kaplan wrote in a note Thursday Some systematic strategies may end up selling at the lows and later buying back at the highs they said
Strategies that are selling are those that use realized volatility correlations VIX and price momentum as signals to adjust exposure the report said noting that assets under management in those areas have increased greatly in the past decade to what they estimate is now about 300 billion On the other side electronic market making depth becomes severely diminished at the same time these signals are triggered
READ FURTHER Buzzwords to Navigate a Volatility Led Market Panic
The report said that in terms of systemic flow and electronic liquidity the current market moves are playing out the same way as in August 2015
It started with the de risking of trend followers short volatility positions and strategies sensitive to bond equity correlation Similar to Aug 24th by far the largest and quickest punch came from hedging flows for the trillion dollar S P 500 index put option complex gamma hedging on Monday and was compounded this time with liquidations in the VIX complex As this was unfolding electronic liquidity in the once most liquid product S P 500 e mini futures evaporated
Still JPMorgan sees a big difference with August 2015 as well
While for equities this looks like a 2015 type of crisis other asset classes disagree This is because there is a big macro fundamental difference between now and the August 2015 market crisis they said In 2015 we dealt with an EM crisis e g China crisis of credit spreads collapse in commodity prices and weak global growth There were legitimate fears of a global recession Now the situation is exactly the opposite global growth is very strong U S corporate earnings are at record highs and continue to be revised higher commodities have stabilized and the USD is weak
All of these factors make a big difference and should give confidence to fundamental investors to step in and short circuit the feedback loop of programmatic selling and depleted equity liquidity the strategists said |
JPM | JPMorgan lifts U S GDP growth outlook after budget deal | NEW YORK Reuters J P Morgan on Friday raised its outlook on U S economic growth in 2018 and 2019 in the wake of a wide ranging deal that will increase federal government spending and its budget deficit to the area of 1 trillion a year
Michael Feroli an economist at the largest U S bank by assets N JPM said in a research note that gross domestic product would grow by 2 6 percent in 2018 up from a prior estimate of 2 2 percent while U S GDP in 2019 would expand by 1 9 percent versus a previous projection of 1 6 percent |
C | U S domestic stock funds win cash for first time in six weeks Lipper | By Trevor Hunnicutt
NEW YORK Reuters U S fund investors stopped resisting the festive mood in equity markets and joined the party pouring cash into domestic stocks for the first time in six weeks according to Lipper data on Thursday
Stock mutual and exchange traded funds in the United States pulled in 2 9 billion in the week ended Oct 11 the most since August according to the research service Of that 425 million went to domestic stocks
High yield bond funds another category of investment seen as speculative pulled in 967 million in its largest week of inflows since July Lipper said
The results are a tepid endorsement but one nonetheless of a rally that fund investors have treated cautiously
Domestic equity funds tracked by Lipper posted 46 billion in withdrawals from July through September the second straight quarter of outflows even as the S P 500 booked a 4 5 percent total return
The market is ahead of the economy said Milton Ezrati chief economist at Vested a financial communications company saying gains have come in anticipation of earnings growth and U S tax reform that have not yet been secured
We have not gotten good policy so unless the economy confirms where the market has been we will have a correction
Quarterly earnings results are starting to trickle in including reports on Thursday from Citigroup Inc NYSE C and JPMorgan Chase Co NYSE JPM Shares of both banks fell on the day
The appeal of domestic stocks did not diminish demand for bonds and international stocks Taxable bond funds attracted another 3 5 billion while non domestic equities pulled in 2 4 billion the data showed
Japanese stock funds broke their streak of outflows winning 237 million in new cash the first week of net inflows since July according to Lipper |
C | Nikkei 225 Jumps In Asian Trade Investors Focus On Samsung Outlook | Investing com Asian shares mostly gained on Friday with the investors noting a management change at South Korea s Samsung Electronics KS 005930
The Nikkei 225 jumped 1 15 while the S P ASX 200 rose 0 45 In Greater China the Shanghai Compiste gained 0 15 and the Hang Seng index inched up 0 03
China reported trade figures for September with the trade balance came in at a surplus of 28 08 billion compared with a surplus of 39 05 billion seen and imports up 18 7 compared to a 13 5 gain seen and exports posting an 8 1 rise below the 8 8 increase expected
The Kospi eased 0 01 Samsung Electronics said its vice chairman and chief executive officer Oh Hyun Kwon had decided to step down from management The announcement came after the company said third quarter operating profit was likely to increase 179 compared to one year ago Shares of the company were off 0 51 having rallied early this week on profit expectations
Overnight U S stocks retreated from record highs weighed by a slump in financials as better than expected earnings from JP Morgan and Citigroup did little to lift sentiment on equities
The Dow Jones Industrial Average closed lower at 22 841 01 The S P 500 closed 0 17 lower while the Nasdaq Composite closed at 6591 81 down 0 18
U S stocks started the session on the back foot as investors mulled over earnings reports from JP Morgan and Citigroup that beat on both the top on bottom lines
Shares of both JPMorgan Chase Co NYSE JPM NYSE JPM and Citigroup Inc NYSE C NYSE C fell more than 1 dragging the broader market into negative territory
On the economic data front labor market and wholesale inflation data topped expectations pointing to underlying strength in the U S economy
The U S Department of Labor reported Thursday that initial jobless claims fell 15 000 to a seasonally adjusted 258 000 for the week ended Oct 7 beating forecasts of a 7 000 decline
In a separate report the U S Department of Labor said its producer price index for final demand increased 0 4 in September In the 12 months through September the PPI rose 2 2 after rising 2 in August
Analysts have been quick to downplay the slump in U S stocks insisting the recent upward trend in markets is not at risk of reversing as earnings will reflect strong fundamentals |
C | Citi Eyes Expansion In Asia To Add Wealth Management Clients | The escalating wealth profile in Asia has attracted a number of global banks to expand their businesses in the region in recent times Sensing huge opportunities Citigroup Inc NYSE C intends to increase the number of wealth management clients in Asia Pacific this year by 10 per Reuters Supported by higher number of client advisers and rising digitization the projected growth is higher than the 8 recorded in 2018 We are confident the investments we have made and continue to make will support double digit client growth rates in 2019 Gonzalo Luchetti Citi s head of consumer banking for the Asia Pacific and Europe the Middle East and Africa EMEA unit noted in a statement The New York based banking giant intends to expand its wealth management business targeting clients with assets for investments in the range of 100 000 and 10 million in 17 markets Notably this business is part of the bank s Asia Pacific and EMEA consumer banking unit The potential markets include Singapore Hong Kong Taiwan India China and South Korea Further Citigroup plans to recruit more relationship managers along with increased usage of digital offerings to support the expansion Like several banks this banking giant has also embraced new technology in a bid to attract and retain clients providing enhanced and improved online services Other multinational banks that are focusing on expanding the Asian wealth management operations include Standard Chartered PLC NYSE C HSBC Holdings plc NYSE C and Credit Suisse SIX CSGN Group AG NYSE C We remain encouraged by Citigroup s potential efforts in fortifying its wealth management business in Asia Undoubtedly it reflects that the company remains focused on tapping opportunities in growing regions as well as continues to retreat from unprofitable markets at the same time Citigroup currently carries a Zacks Rank 3 Hold Shares of the company have gained around 18 3 over the last three months compared with 8 2 growth recorded by the
You can see Today s Best Stocks from Zacks Would you like to see the updated picks from our best market beating strategies From 2017 through 2018 while the S P 500 gained 15 8 five of our screens returned 38 0 61 3 61 6 68 1 and 98 3 This outperformance has not just been a recent phenomenon From 2000 2018 while the S P averaged 4 8 per year our top strategies averaged up to 56 2 per year |
JPM | Gold ETF Rally Unstoppable After 2 Beaming Quarters | Amid global growth slowdown geopolitical turmoil and high broad based volatility in the markets ever since the start of the year gold has emerged as a winner among other asset classes The yellow metal has recorded its biggest two quarter percentage increase since 2007 read In fact gold touched a new two year high of 1 373 per ounce on July 6 2016 As per US ETF Flash Flows report from State Street Global Advisors gold ETFs attracted over 14 billion in the first half of 2016 marking the highest inflows in the first six months ever Helping gold s cause further was the Brexit vote held late last month which drove investors to safe haven assets Gold ETFs recorded inflows of almost 800 million on the day U K took the world by surprise by voting in favor of leaving the EU read Gold bullion ETF SPDR Gold Shares NYSE GLD LAGOS GLD is up almost 28 so far this year as of July 7 2016 The path ahead is likely to be smooth as the jump in gold prices this year was also supported by plunging interest rates on a global scale Earlier this month 10 year note yields dropped to its lowest level in the last three years Meanwhile the 10 year UK gilt also touched a record low after Bank of England s signaled a challenging outlook and service sector data turned out to be lackluster In fact due to the flight to safety yields are at record low levels across the globe Germany France Switzerland and Australia have all seen new lows in yields for their 10 year benchmarks this month Japan remains in the negative zone read With the Fed not expected to raise interest rates in the near term and volatility most likely to rule the markets in the coming days gold s rally will in all likelihood continue read How to Play Given the flight to safety and intense buying pressure on gold investors have a long list of options in the ETF world to tap the metal s rally SPDR Gold Trust ETF This is the largest and most popular ETF in the gold space with AUM of 42 8 billion and average daily volume of around 11 8 million shares The fund tracks the price of gold bullion measured in U S dollars and kept in London under the custody of HSBC Bank Expense ratio comes in at 0 40 read iShares Gold Trust AX IAU This ETF offers exposure to the day to day movement of the price of gold bullion and is backed by physical gold under the custody of JP Morgan Chase NYSE JPM Bank in London It has AUM of 9 4 billion and trades in solid volume of more than 8 5 million shares a day on average The ETF charges 25 bps in annual fees ETFS Physical Swiss Gold Shares This product also tracks the price of gold bullion and is backed by physical bullion under the custody of JPMorgan Chase Bank It has amassed 1 1 billion in its asset base and trades in lower volume of 43 000 shares per day The product has an expense ratio of 0 39 Some Leveraged ETFsLet s look at certain leveraged ETFs to create a leveraged long short position in the underlying index through the use of swaps options futures contracts and other financial instruments Due to their compounding effect investors can enjoy higher returns in a very short span of time provided the trend continues However these funds run the risk of huge losses compared to traditional funds in fluctuating or erratic markets Further their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period such as weeks or months Despite this drawback investors are seen to jump into these products for quick returns see ProShares Ultra Gold ETF AX UGL This fund seeks to deliver twice 2x or 200 the return of the daily performance of gold bullion in U S dollars It charges 95 bps in fees a year and has amassed 110 1 million in its asset base Volume is light at about 51 000 shares per day VelocityShares 3x Long Gold ETN LAGOS GLD This product provides three times 3x or 300 exposure to the daily performance of the S P GSCI Gold Index Excess Return plus returns from U S T bills net of fees and expenses The ETN has been able to manage an asset base of 104 1 million while charging a higher fee of 1 35 annually The note trades in a volume of over 725 000 shares a day Daily Gold Miners Bull 3x shares NUGT seeks to deliver thrice the daily performance of the NYSE Arca Gold Miners Index which consists of firms that operate globally in both developed and emerging markets and are involved primarily in the exploration and production of gold It is rich in AUM of 1 8 billion and sees solid average trading volume of 8 5 million shares Expense ratio comes in at 0 94 read Want the latest recommendations from Zacks Investment Research Today you can download 7 Best Stocks for the Next 30 Days |
JPM | How To Trade JP Morgan Chase JPM Ahead Of Earnings | On Thursday July 14th JP Morgan Chase NYSE JPM will release its Q2 earnings results The company is currently a Zacks Rank 3 Hold and shares are down about 8 3 year to date
David Bartosiak will look into JP Morgan Chase s past earnings look at what is currently going on with the company and gives us his thoughts on their upcoming earnings announcement at 2pm EST on
Furthermore Dave will look into some potential options trades for investors looking to make a play on JP Morgan Chase ahead of earnings
JP Morgan Chase in Focus
JP Morgan Chase is a financial services firm engaged in investment banking financial services for consumers and small businesses commercial banking financial asset management and private equity
JP Morgan Chase is coming off of an earnings beat of 7 1 in its previous earnings report posting an EPS that was 0 09 higher than the Zacks Consensus Estimate
JPM has an average EPS surprise of 4 22 for the last four quarters In Q2 2015 JPM beat estimates by 6 94 before missing estimates in Q3 2015 by 4 4 However in the last two quarters JPM had the same Consensus Estimate which it beat both times by the same value of 0 09
JPMORGAN CHASE Price and Consensus
Heading into this earnings report our Most Accurate Estimate for JP Morgan Chase is 1 42 0 01 lower than the Zacks Consensus Estimate of 1 43
The financial services sector has experienced pains due to the low interest rates that have characterized the post Great Recession global economy This coupled with Brexit as well as the uncertainty that has followed has put companies like JPM in a difficult spot Because of Brexit many financial services companies are strongly considering moving thousands of jobs out of London and into new locations such as Paris Frankfurt and Dublin
According to NASDAQ insiders have sold 778 429 shares of JPM in the last three months However JPM increased their buyback by 1 88B in March
Although the recent macroeconomic climate is some cause for uncertainty there is currently 86 agreement in upward earnings estimate revisions for JPM this quarter The current Consensus Estimate reflects an upward shift of 0 02 from the estimates of 60 days ago
Outlook for the financial services sector is generally more negative with remaining uncertainty as to whether or not Feds will increase the interest rate However the Fed announced that of the 33 banks that were subject to stress tests 31 passed the final round with JPM being one of then JPM stock has remained largely stable in the past year a feat that their peers have not been able to accomplish
Subscribe to our channel to be notified of future live streams and make sure to check out our other videos for more stock information
Dave Bartosiak is the editor of the Momentum Trader and Home Run Investor service He has over a decade of experience in the financial services industry He has traded forex futures stocks and options Mr Bartosiak is a frequent guest on popular business news TV channels such as Bloomberg TV He s also the host of a light hearted Millennial minded series of videos called
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long term |
MS | Japan s SoftBank plans to sell 7 9 billion in Alibaba stock to cut debt | By Makiko Yamazaki and Narottam Medhora Reuters SoftBank Group Corp said it will sell at least 7 9 billion of shares in Alibaba NYSE BABA Group Holding Ltd a move that will cut the Japanese firm s debt amid worries about losses at its U S telecoms unit Sprint Corp The transaction marks the first sale of shares in the Chinese e commerce giant by its largest shareholder since SoftBank began investing in the company in 2000 and will reduce its stake to around 28 percent from 32 2 percent The two companies said they would maintain a strategic partnership Investors have been worried about finances at the Japanese internet and telecoms company since its 2013 acquisition of a majority stake in No 4 U S wireless carrier Sprint Corp which has been burning cash amid fierce competition for subscribers Hideaki Tanaka an analyst at Mitsubishi UFJ Morgan Stanley NYSE MS said the move would be positive for SoftBank s shares Although Softbank is stepping up investment in Internet firms it is also making serious efforts to improve its financial standing he wrote in a note to clients Shares in SoftBank finished flat on Wednesday and are down 15 percent from a year ago due to concerns about its heavy debt burden Shares in Alibaba fell 2 8 percent in extended trading a day earlier The planned share sale will include 5 billion to 6 billion of stock that will be sold by private placement to institutional investors by a SoftBank controlled trust Morgan Stanley and Deutsche Bank DE DBKGn will manage that portion of the sale Another 2 billion worth of stock will be bought by Alibaba using cash on hand and 400 million will be bought by the Alibaba Partnership a 34 person group made up of Ma and other Alibaba founders and executives An additional 500 million worth of stock is set to be sold to an unidentified sovereign wealth fund SoftBank Chief Executive Masayoshi Son will remain a director at Alibaba while Alibaba Executive Chairman Jack Ma will remain on the board of SoftBank SoftBank had also entered into a lockup agreement with Alibaba under which it will not transfer any Alibaba shares held by the company for six months KEEN TO CUT DEBT SoftBank had interest bearing debt of 11 9 trillion yen 107 billion as of end March including 4 trillion yen at Sprint Its debt equity ratio stands at 4 56 much higher than the industry median of 0 32 according to Thomson Reuters data In addition to the Alibaba stock sales media reports have also said SoftBank is weighing a sale of its stake in Finnish smartphone game maker Supercell to lower its debt SoftBank is known as a canny investor in raft of internet firms ranging from Yahoo NASDAQ YHOO Japan to Indian ride sharing firm Ola Its initial investment in Alibaba was just 20 million Some analysts said the timing of SoftBank stock sale was not auspicious given that Alibaba unnerved investors last week when it reported that the U S Securities and Exchange Commission was investigating its accounting practices But Stifel analyst Scott Devitt maintained a buy rating on Alibaba after the Softbank sale We do not view this as a shift in confidence from a major investor In fact it could remove an overhang of expectation of such an event he said in a note The news also comes amid speculation that U S web company Yahoo Inc may be looking at a disposal of its 15 percent stake in Alibaba along with a possible sale of its core business An Alibaba spokeswoman declined to comment on the Yahoo owned stake and Yahoo did not respond to a request for comment |
MS | Oil falls as OPEC expected to shun any output curbs | By Simon Falush LONDON Reuters Oil prices fell on Wednesday on expectations of OPEC inaction on output as its focus stays firmly on market share while concerns about China s economy weighed on the demand outlook Brent crude LCOc1 was at 49 05 per barrel at 0944 GMT 5 44 a m ET down 84 cents U S crude futures CLc1 were down 74 cents at 48 36 a barrel Traders said prices eased on concern that Middle East members of the Organization of the Petroleum Exporting Countries which meets on Thursday to discuss policy could continue to raise output Analysts said OPEC would continue to focus on defending market share instead of propping up prices by curbing output The OPEC meeting in Vienna on Thursday is unlikely to see a change in the policy of maintaining market share said Oxford Economics lead economist Patrick Dennis Saudi Arabia can claim its policy has been successful with oil prices recovering at the same time as non OPEC oil production has fallen back leading to a more rapid global market rebalancing than expected Iran s representative to the OPEC said Tehran would not commit to any oil output freeze and that any discussion of rationing output would have to wait until the oil market had been stabilized Many Middle East oil producers have ramped up deliveries to Asia in an aggressive fight for market share But on the demand side Morgan Stanley NYSE MS said it was worried about China Our economists worry that April data showed China may be slowing The oil demand data from China should reinforce those concerns the bank said China s official factory activity gauge expanded only marginally in May data showed on Wednesday while a private survey showed conditions deteriorated for a fifteenth straight month Chinese port congestion and the impending refinery maintenance season will also weigh on crude imports over the next few months analysts at BMI Research said A Reuters poll on Tuesday showed that most traders expect only limited potential for further price gains this year as global oversupply persists
A rise of more than 20 percent or almost 10 per barrel since early April has been powered largely by supply disruptions especially in Africa and Canada and as overall demand remains strong despite China s slowing economy |
MS | Infoblox hires Morgan Stanley for activist defense Bloomberg | Reuters Network management services provider Infoblox Inc which was targeted by investor Starboard Value LP has hired Morgan Stanley NYSE MS for activist defense Bloomberg reported on Wednesday Starboard Value disclosed a 7 1 pct stake in the company and called its shares undervalued in April The hiring of Morgan Stanley may delay a sale of the company as advisers meet with management to chart a path forward Bloomberg reported citing people familiar with the matter Bloomberg had reported in May that Infoblox was approached by Thoma Bravo a tech focused private equity firm to take the company private Infoblox declined to comment Morgan Stanley Starboard and Thoma Bravo were not immediately available for comment |
JPM | Oil eases but wards off stocks style turbulence | By Amanda Cooper LONDON Reuters Oil fell for a third day on Tuesday as a rout in global equities triggered losses across bonds cryptocurrencies and commodities although the crude price is in positive territory so far this year Even with Wall Street stocks posting their largest one day fall since late 2011 on Monday and measures of volatility spiking to multi year highs reflecting heightened investor nervousness oil has not suffered to the same extent Brent crude futures were down 35 cents on the day at 67 27 a barrel by 0921 GMT still up 1 percent so far in 2018 U S West Texas Intermediate crude futures eased by 25 cents to 63 90 Since the S P 500 hit a record high on Jan 26 the index has lost 8 percent Oil in contrast has lost 4 5 percent while cryptocurrency bitcoin has lost half its value A factor that could insulate oil to some extent against a bigger rout is the structure of the forward curve where the prompt futures contract is trading well above those for delivery further in the future We know that speculative positions both in terms of contracts and in allocated dollars are at an all time high Thus a real pain trade has not yet hit the oil market SEB head of commodity strategy Bjarne Schieldrop said Longs have not yet started to flock to the exit door If that happens it will make the buying opportunity even better for the oil consumers who buy oil on the forward curve Financial markets went into a tailspin on Monday after a sharp rise in U S bond yields raised concern over a possible increase in inflation and potentially higher interest rates U S S P 500 futures tumbled 3 percent in Asian trade on Tuesday extending Monday s sell off Suddenly inflation has become one of the most talked about issues in markets U S bank JPMorgan NYSE JPM said in a note Market based inflation expectations as measured by the U S five year breakeven inflation rate reached a 10 month high above 2 10 percent late last week but have since pulled back Oil has been caught between the opposing forces of a 1 8 million barrels per day bpd cut in supply by the Organization of the Petroleum Exporting Countries and Russia and a surge in U S crude output above 10 million bpd its highest since the 1970s There is also a seasonal downturn in demand as many refineries shut for maintenance at the end of the peak consumption winter season in the northern hemisphere |
JPM | JPMorgan downgrades Logitech | JPMorgan NYSE JPM downgrades Logitech NASDAQ LOGI from Neutral to Underweight and drops the price target 3 to 40 Latest analyst recommendations 2 Buy 1 Outperform 2 Hold and 1 Sell Median price target 47 Logitech shares are down 0 66 premarket Now read |
JPM | Americans voluntarily quitting jobs as labor market tightens | By Lucia Mutikani WASHINGTON Reuters The number of American workers voluntarily quitting their jobs jumped in December to the highest level in nearly 17 years in a strong show of confidence in the labor market which further bolsters expectations of faster wage growth this year The Labor Department s monthly Job Openings and Labor Turnover Survey JOLTS report published on Tuesday came on the heels of news last week that annual wage growth in January was the strongest in more than 8 1 2 years The labor market is almost at full employment The number of workers willingly leaving their jobs increased by 98 000 to 3 259 million the highest level since January 2001 That lifted the quits rate to a 2 2 percent from 2 1 percent in November This rate which the Federal Reserve looks at as a measure of job market confidence has rebounded from a low of 1 3 percent in late 2009 I had thought that by now the fear of moving to another company would have faded said Joel Naroff chief economist at Naroff Economic Advisors in Holland Pennsylvania It really hadn t very much though maybe it is finally happening Rising job turnover boosts economists optimism that wage growth will accelerate this year and in turn help to push inflation toward the Fed s 2 percent target While economists remain confident that the U S central bank will increase interest rates at least three times this year much would depend on the fortunes of the U S stock market Stocks on Wall on Monday recorded their biggest drop since August 2011 as concerns over rising U S interest rates and government bond yields hit record high valuations of stocks The data today are likely to keep the Fed on the path of gradual rate hikes this year as long as the stock market stabilizes from its death plunge the last two weeks said Chris Rupkey chief economist at MUFG in New York Labor market conditions are picture perfect today but that can change in a hurry if worsening financial conditions and plunging markets take a toll on business confidence The JOLTS report also showed that job openings a measure of labor demand decreased 167 000 to a seasonally adjusted 5 8 million Still job openings are not too far from a record high of 6 2 million touched in September The decline in job openings in December was led by the professional and business services sector which saw a decrease of 119 000 Job openings in the retail trade sector fell 85 000 while vacancies in construction dropped 52 000 But job openings in the information sector increased 33 000 and the federal government had an additional 13 000 vacancies in December The jobs openings rate slipped one tenth of a percentage point to 3 8 percent in December Hiring was little changed at 5 49 million
The recent moderation across much of the JOLTS data is not alarming to us given that levels still remain favorable across much of the data and that we have been expecting the pace of job growth to cool relative to the recent strong gains said Daniel Silver an economist at JPMorgan NYSE JPM in New York |
JPM | Mnuchin Says 1 Trillion U S Debt Plan Isn t Affecting Markets | Bloomberg Treasury Secretary Steven Mnuchin said the U S government s plan to borrow what analysts expect to be more than 1 trillion this year isn t contributing to volatility in markets
I don t think that s had an impact on the market at the moment Mnuchin told reporters at the Capitol on Tuesday The debt markets are one of the most liquid markets in the world and are reacting very well
The Treasury Department said last week that the U S would boost note and bond sales for the first time since 2009 this year to finance rising budget deficits fueled in part by the tax overhaul President Donald Trump signed into law at the end of last year
JPMorgan Chase Co NYSE JPM strategists last month lifted their forecast for net new Treasury issuance in 2018 by about 100 billion to around 1 42 trillion after the passage of the tax bill Net sales in 2017 totaled about 550 billion
Ward McCarthy chief financial economist at Jefferies LLC said that the government s borrowing plan could be contributing to a selloff in the U S stock market
It s a massive increase in a relatively short period of time and that has some people nervous he said in an interview He has followed debt markets for more than three decades |
JPM | Silver Or Gold ETFs Which Is The Best Bet For July | After three years of losses the first half of 2016 brought unparalleled gains for gold ETFs The metal was on a tear on safe haven demand and dovish central banks across the developed economies to ward off growth issues A rush to safety for the most part of 1H16 were triggered by the Chinese market upheaval a 12 year low oil price in the first quarter and a major event like Brexit at the end of the second quarter read
Almost the entire world speculated the deepening of global growth worries as a fallout of Brexit As a result risky assets fell out of investors favor and safe haven assets like gold gleamed Plus the Fed s dovish stance throughout 1H16 stalled the strength in the greenback spreading joy across broad based commodity investing
Gold bullion ETF SPDR Gold Shares NYSE GLD LAGOS GLD is up over 26 so far this year as of July 1 2016 as the metal has experienced the quarters in nine years The road ahead is likely to be smooth as the Fed is expected to stay put in the near term thanks to the likely contagion of global issues like Brexit read
Sliver ETF to Outshine Gold in July
This white metal has seen extremely solid trading in recent times and is on its way to a high The drivers behind the silver surge were more or less similar to gold The metal crossed the 20 dollar level lately for the first time in nearly two years The jump was so acute that silver has actually breezed past the yellow metal in recent trading
The silver bullion ETF iShares Silver Trust NYSE SLV is up over 42 in the year to date frame as of July 1 2016 So will July be a better month for silver than gold
Industrial Demand to Pick Up Silver has high usage in industrial activities with about 50 of total demand coming from industrial applications With China the biggest industrial fabricator after the U S still struggling on the industrial sector silver has definitely lost some shine But a pickup in industrial activities in other corners of globe is expected ahead thanks to a host of stimulus measures
Particularly the U S index jumped to the high in June giving room for rally to silver Probably such sound manufacturing data pushed up SLV by 4 9 on July 1 the day manufacturing data released The fund added over 0 2 after hours Notably index measured by Markit also speaks of solid trends
More Price Gains in Store for Silver Investors should note that silver was a bit in joining the precious metal party this year Probably this is why when GLD added just about 1 7 last week as of July 1 2016 SLV surged over 11 Investors should also note that silver represented its best weekly gain since August 2013 last week
So due to its late entry into the rally a leg up in silver is likely to be higher than gold according to some After such a stupendous surge in gold many investors would like to bet on its low priced cousin Also many investors view silver as a of gold as per ETF Securities
Decent Industry Rank for Silver Investors should also note that the at least in terms of its Zacks Industry Rank is in a decent position being ranked in the top 5 overall against the top 38 rank possessed by the gold mining industry Many silver mining companies are presently top rated as per the Zacks methodology at the time of writing
Favorable Demand Supply Dynamics As per silver mining production is likely to decline for the first time since 2011 while demand from industrial usage and jewelry is on its way to log the fourth successive increase in 2016 All these point to a brighter July for silver ETFs
Play Silver Rally with These ETFs
Needless to say silver ETFs are clearly outperforming gold from both a five day and a one month look So investors can play this bullish trend with the below mentioned silver ETFs read
iShares Silver Trust The fund tracks the price of silver bullion measured in U S dollars and kept in London under the custody of JPMorgan Chase NYSE JPM Bank It is the ultra popular silver ETF with AUM of over 6 1 billion and heavy volume of nearly 10 6 million shares a day It charges 50 bps in fees per year from investors ETFS Physical Silver Shares This fund has amassed 339 8 million in its asset base while trades in moderate volume of more than 100 000 shares per day on average It tracks the performance of the price of silver bullion less the Trust expenses Expense ratio comes in at 0 30 see PowerShares DB Silver ETF This product provides exposure to the silver futures market rather than spot market and tracks the DBIQ Optimum Yield Silver Index Excess Return index It is unpopular and illiquid with AUM of 23 5 million and average daily volume of more than 2 000 shares increasing the total cost for the fund in the form of a wide bid ask spread DBS charges 79 bps in fees per year from investors
Bottom LineIt is clear that buying pressure has been intense for silver recently compared to gold and that the most recent trend is extremely favorable for the commodity given the decline in dollar global economic woes and political uncertainty Additional buying could be in the cards for the silver space should global manufacturing sector continue to escalate |
JPM | Weekly Energy Report | Energy prices in U S dollars were volatile last week as the markets reacted to the Brexit vote on June 24 Prices for WTI Brent and diesel were up 2 83 4 01 and 3 86 respectively
Figures released on Wednesday by the U S Department of Energy DOE revealed a drop in crude oil inventories Stocks fell 4 1 million barrels on the week while the market had expected a drop of 2 2 million barrels
In a recent report JPMorgan Chase Co NYSE JPM suggested that China s demand for oil may ease in the near term According to the bank China has been taking advantage of low prices since 2015 to build its strategic petroleum reserves More specifically Chinese oil imports rose 16 in the last year
In the Niger Delta the ceasefire between rebels and government forces negotiated on June 20 appears to be holding The Government of Niger has announced that production has increased by 300 kb day While in the past the country has been able to produce 2 2 million barrels day at full capacity recent hostilities have reduced output to 1 4 million barrels day In the absence of a lasting agreement it would be difficult to estimate the country s future output Certain analysts suggest that production may fall by 350 kb day in the second half of 2016
Some negative news in the market such as the issues discussed above could provide opportunities to budget some of your spending on diesel in Canadian dollars |
JPM | The Zacks Analyst Blog Highlights SPDR Gold Shares IShares Silver Trust ETFS Physical Silver Shares And PowerShares DB Silver ETF | For Immediate Release
Chicago IL July 06 2016 Zacks com announces the list of stocks featured in the Analyst Blog Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets Stocks recently featured in the blog include SPDR Gold Shares NYSE GLD iShares Silver Trust NYSE SLV ETFS Physical Silver Shares andPowerShares DB Silver ETF
Today Zacks is promoting its Buy stock recommendations
Here are highlights from Tuesday s Analyst Blog
Silver or Gold ETFs Which Is the Better Bet
After three years of losses the first half of 2016 brought unparalleled gains for gold ETFs The metal was on a tear on safe haven demand and dovish central banks across the developed economies to ward off growth issues A rush to safety for the most part of 1H16 were triggered by the Chinese market upheaval a 12 year low oil price in the first quarter and a major event like Brexit at the end of the second quarter read
Almost the entire world speculated the deepening of global growth worries as a fallout of Brexit As a result risky assets fell out of investors favor and safe haven assets like gold gleamed Plus the Fed s dovish stance throughout 1H16 stalled the strength in the greenback spreading joy across broad based commodity investing
Gold bullion ETF SPDR Gold Shares is up over 26 so far this year as of July 1 2016 as the metal has experienced the quarters in nine years The road ahead is likely to be smooth as the Fed is expected to stay put in the near term thanks to the likely contagion of global issues like Brexit read
Sliver ETF to Outshine Gold in July
This white metal has seen extremely solid trading in recent times and is on its way to a high The drivers behind the silver surge were more or less similar to gold The metal crossed the 20 dollar level lately for the first time in nearly two years The jump was so acute that silver has actually breezed past the yellow metal in recent trading
The silver bullion ETF iShares Silver Trust is up over 42 in the year to date frame as of July 1 2016 So will July be a better month for silver than gold
Industrial Demand to Pick Up Silver has high usage in industrial activities with about 50 of total demand coming from industrial applications With China the biggest industrial fabricator after the U S still struggling on the industrial sector silver has definitely lost some shine But a pickup in industrial activities in other corners of globe is expected ahead thanks to a host of stimulus measures
Particularly the U S index jumped to the high in June giving room for rally to silver Probably such sound manufacturing data pushed up SLV by 4 9 on July 1 the day manufacturing data released The fund added over 0 2 after hours Notably index measured by Markit also speaks of solid trends
More Price Gains in Store for Silver Investors should note that silver was a bit in joining the precious metal party this year Probably this is why when GLD added just about 1 7 last week as of July 1 2016 SLV surged over 11 Investors should also note that silver represented its best weekly gain since August 2013 last week
So due to its late entry into the rally a leg up in silver is likely to be higher than gold according to some After such a stupendous surge in gold many investors would like to bet on its low priced cousin Also many investors view silver as a of gold as per ETF Securities
Decent Industry Rank for Silver Investors should also note that the at least in terms of its Zacks Industry Rank is in a decent position being ranked in the top 5 overall against the top 38 rank possessed by the gold mining industry Many silver mining companies are presently top rated as per the Zacks methodology at the time of writing
Favorable Demand Supply Dynamics As per silver mining production is likely to decline for the first time since 2011 while demand from industrial usage and jewelry is on its way to log the fourth successive increase in 2016 All these point to a brighter July for silver ETFs
Play Silver Rally with These ETFs
Needless to say silver ETFs are clearly outperforming gold from both a five day and a one month look So investors can play this bullish trend with the below mentioned silver ETFs read
iShares Silver Trust
The fund tracks the price of silver bullion measured in U S dollars and kept in London under the custody of JPMorgan Chase NYSE JPM Bank It is the ultra popular silver ETF with AUM of over 6 1 billion and heavy volume of nearly 10 6 million shares a day It charges 50 bps in fees per year from investors ETFS Physical Silver Shares
This fund has amassed 339 8 million in its asset base while trades in moderate volume of more than 100 000 shares per day on average It tracks the performance of the price of silver bullion less the Trust expenses Expense ratio comes in at 0 30 see PowerShares DB Silver ET F
This product provides exposure to the silver futures market rather than spot market and tracks the DBIQ Optimum Yield Silver Index Excess Return index It is unpopular and illiquid with AUM of 23 5 million and average daily volume of more than 2 000 shares increasing the total cost for the fund in the form of a wide bid ask spread DBS charges 79 bps in fees per year from investors
Bottom Line
It is clear that buying pressure has been intense for silver recently compared to gold and that the most recent trend is extremely favorable for the commodity given the decline in dollar global economic woes and political uncertainty Additional buying could be in the cards for the silver space should global manufacturing sector continue to escalate
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JPM | Positive US data pushed stock market indices up | Last week US stock market indices showed the record growth since last November US dollar index slightly retraced against other currencies after strong growth Markets were playing off the UK referendum where the majority of Britons supported Brexit The referendum was held on Thursday June 23 Investors decided the event raises the global economic risks The British pound slumped to the 31 year low The US stock market indices showed on Friday and Monday the record two day fall in 10 months The trading volume was about one third above the monthly average US stocks started advancing on Tuesday on positive economic data US GDP growth for Q1 2016 was revised up from 0 8 to 1 1 The Atlanta Fed expects the Q2 GDP to rise by 2 6 which supported investors optimism Another good factor is improved US consumer confidence in June to the 8 month high The stocks advanced on Wednesday as consumer spending rose in May for second straight month No significant economic data came out on Thursday in US The Bank of England outlined measures which may be applied to stimulate British economy Market participants considered this as positive Strong US manufacturing data for June came out on Friday ISM Manufacturing rose in June to the record high since last February This week will be short due to the Independence holiday in US on Monday July 4 The core event this week may be the June Fed meeting minutes expected on Wednesday and US labour market data expected on Friday The tentative outlook is rather negative This week the quarterly earnings season begins in US The most expected earnings data are from Wells Fargo NYSE WFC Citigroup NYSE C and JPMorgan Chase NYSE JPM |
JPM | Banking On A Rebound | For a long time big global bank stocks used to be at the core of conservative portfolios but not anymore
Two such banking giants with great brands are now facing market turbulence and it s time to take note
Crunch Time at Credit Suisse SIX CSGN
About a year ago Credit Suisse brought in a new CEO Tidjane Thiam to launch and manage a turnaround in the bank s fortunes
Based in Zurich with large operations in New York and London Credit Suisse was at the time in the midst of a revenue and profit downturn with shareholders demanding a restructuring and less dependence on do or die investment banking deal making
Part of the plan that was announced last October included reducing high cost back office operations in London expanding private banking and wealth management services around the world but especially in Asia and emerging markets strengthening the balance sheet by raising some capital and selling off some assets and making some smart acquisitions in areas where it wants to grow
Now having worked in big international banks I know how difficult it is to turn these battleships around It takes some time persistence and talent to put these banks on a new trajectory
Apparently however markets aren t very patient
Over the last year Credit Suisse Group AG CS has plummeted 61 and is down 49 8 so far in 2016 It now trades at just 45 of book break up value
So what s the problem
The bank incurred some sizable trading losses in March and some suspect that its 6 6 current dividend is at risk even short sellers are circling and the bank is facing some difficulty in selling off some of its higher risk assets
Still Credit Suisse insists that it is on track to achieve more balance between investment banking and private banking which produces more of a steady flow of fee based income and requires less capital
Interestingly CS is not the only high profile international bank facing some headwinds
Decades Down at Deutsche Bank DE DBKGn
Deutsche Bank DB shares now trade at their lowest level in three decades Right before the global financial crisis shares were trading at over 146 per share and they are now at 13 91
DB is in fact facing some of the same challenges faced by Credit Suisse by restoring profitability by selling off some underperforming assets and cutting costs
The bank is also dealing with the negative interest rate environment Brexit fall out and an avalanche of negative articles on stress tests for its U S banking operations
The result is that its shares have lost 54 of their value over the last year and 42 4 so far in 2016 Deutsche Bank shares now trade at an incredible 26 of its book break up value
Sidle Up to Oversold Shares
To me these shares seem dramatically oversold
First to put things in perspective Deutsche Bank which is one of Europe s largest banks now has a market value of 17 billion compared to about 200 billion for JPMorgan Chase Co NYSE JPM
Further Deutsche Bank has a cash position of over 1 trillion or 775 per share versus its share price of 10 87 And the bank actually made money in the last quarter
Additionally because DB is based on the continent it has an advantage in the wake of Brexit as it seems logical to expect that London based banks will lose some market share going forward
Finally it should be pointed out that Deutsche Bank s U S operations account for only 3 of the bank s total assets
Now I m not recommending that you go out and load up on DB shares but for long term value investors this could be a great time to initiate a position and move ahead on an incremental basis
And if you really want to hedge your bets you might want to put Credit Suisse in your other saddlebag even as you lean in the direction of the Deutsche Bank based on its deep value price |
MS | Corporate Japan much more downbeat about escape from deflation Reuters poll | By Stanley White TOKYO Reuters Japan Inc has become increasingly pessimistic about the country s ability to beat deflation with the vast majority of firms now expecting no escape for the foreseeable future a Reuters poll showed Most Japanese companies also said they did not think Prime Minister Shinzo Abe s latest growth strategy that centers on lifting the mininum wage and investment in technology would help bring significant improvement to a faltering economy Abe swept into office three years ago with bold plans to end decades of deflation and bring about sustainable growth But while unprecedented monetary policy in tandem with fiscal stimulus met with some initial success any gains in ridding the country of a deflationary mindset look like they could be slipping away The Reuters Corporate Survey conducted May 9 23 found 70 percent of companies see no decisive escape from deflation for the foreseeable future up from 48 percent in January when the same question was asked Demand is not on an upward trend and household spending is not rising because base pay is not rising wrote a manager at a chemicals company It has become difficult for companies to lift prices Japan has only managed very mild inflation since Abe took office and the pace of price gains has been slowing since 2014 Core consumer prices in March fell 0 3 percent from a year earlier the fastest decline in three years due to lower oil prices The survey also found that 79 percent of companies were worried that consumer prices could return to deflation either this year or next In addition to wage concerns firms also cited Japan s shrinking population and plans for a sales tax hike next year as factors likely to undermine consumer spending The survey conducted monthly for Reuters by Nikkei Research polled 510 big and medium sized firms with managers responding on condition of anonymity Around 240 answered questions on deflation Annual wage negotiations were disappointing and gains in the yen have soured the corporate mood said Shuji Tonouchi senior fixed income strategist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities who reviewed the results of the survey Oil prices have been rising recently so deflation expectations could recede once this starts to push up consumer prices but the economy remains stuck in a soft patch Seeking to jump start an economy that narrowly escaped a recession in the last quarter the government has said this year s growth strategy will raise the minimum wage improve pay for day care workers and encourage investment in cutting edge technology like artificial intelligence But 66 percent of respondents said they thought it would be difficult to expect an improvement in the economy on the back of the plans which are set to finalised soon In written comments corporate managers criticized the policies as too piecemeal to have much of an impact on a shrinking labor force and weak consumer sentiment They also said they were concerned about a stronger yen pushing up import prices and the fallout if the national sales tax hike went ahead as planned An increase in the tax to 10 percent from 8 percent already delayed once is scheduled for next April but speculation is rife that Abe will postpone it again given the fragile state of the economy and as the last increase in 2014 caused a recession The survey also showed about two thirds of respondents would be happy if the dollar stabilized around 110 yen This month the dollar slumped to an 18 month low of 106 14 yen causing concern as a strong yen reduces earnings repatriated from overseas The dollar has since regained some of that ground to trade at around 110 yen |
MS | India Inc shows growth spreading by end of Modi s sophomore year | By Rafael Nam and Rajesh Kumar Singh
MUMBAI NEW DELHI Reuters Indian companies are posting their best earnings results since Prime Minister Narendra Modi swept to power two years ago giving the clearest sign yet that India s fast but patchy economic growth is becoming more broad based
Though headline growth figures make India one of the world s fastest growing economies weak private investment and low capacity utilization rates have painted a less rosy picture
Going by India Inc s surge in profit growth in the first three months of the year however the outlook really does seem to be brightening as benefits feed through from lower interest rates and government spending in infrastructure and defense
On Tuesday India will release gross domestic product data for the January March quarter Year on year growth of 7 5 percent is forecast by a Reuters survey economists slightly faster than the previous quarter s 7 3 percent
Macro indicators are suggesting that at the ground level the economy is gaining momentum said Dhiraj Sachdev a fund manager at HSBC Asset Management in Mumbai
That has also been validated in terms of better corporate earnings in many of the sectors
Operating profits for 289 companies that have reported results so far leapt 25 5 percent year on year in the March quarter compared with 1 7 percent growth in the previous quarter according to Thomson Reuters data
It is Indian firms best showing since the April June quarter in 2014
Put alongside the 6 8 percent decline in earnings that data provider Factset reckons companies in the S P 500 suffered during the same quarter India s corporates have some things going in their favor
India s broader National Stock Exchange share index NSEI has surged around 17 percent from a near 2 year low on Feb 29 outperforming a 7 percent gain by the Asia Pacific MSCI index excluding Japan MIAPJ0000PUS
This week Morgan Stanley NYSE MS upgraded Indian equities to overweight from equalweight citing rising dividends and prospects of a simpler country wide sales tax lower interest rates and benign monsoon among its reasons
BUMPY RIDE
Sadly corporate balance sheets remain stretched making it hard to revive private investment which has lagged for the past four years
Yet sectors tied to capital goods and infrastructure such as steel and cement are recovering After five quarters of double digit declines operating profit in the materials sector rose 22 percent in the March quarter
Following droughts in the past two years monsoon rains due in coming weeks are forecast to be better than average which should underpin demand particularly from the rural sector
And while factories are running nearly 30 percent below capacity sales are increasing
Consumption of long steel products used mainly in construction has averaged 10 percent annual growth on a rolling three month basis over the past six months The cement and power sectors have also seen demand improve
Commercial vehicle sales are growing at a double digit pace on the back of a strong replacement demand industry data shows
Projects worth nearly 31 billion were completed in the March quarter according to think tank CMIE up from 13 billion in the previous quarter New investments in the same period more than doubled
There are still plenty of less encouraging indicators
A weak global economy hardly bodes well for exports which have fallen for the last 17 months Businesses are also finding it hard to borrow as a spike in stressed loans has made banks wary and Thomson Reuters data shows Indian firms are taking longer than usual to pay or get paid
The economy is undergoing a slow and bumpy recovery after three years of tepid growth said Shilan Shah an economist with Capital Economics But we have seen false dawns before |
MS | Morgan Stanley asks if the Fed is gunning for June or gunning for soon | Investing com As markets geared up for the first appearance of Federal Reserve Fed chair Janet Yellen on Friday Morgan Stanley NYSE MS insisted in a report that an imminent rate hike would be a mistake
The investment bank analyzed the tug of war between the Fed and financial markets that resulted in the current monetary policy requiring pauses between rate hikes
In general the Fed tightens and markets reactive negatively requiring an adjustment period before the tightening cycle can continue
These experts noted in the report that this negative feedback loop was generally overcome thanks to strong underlying growth
However they pointed out that the growth factor was missing this time around and likely to deep hikes spaced far apart
Morgan Stanley recognized the recent hawkish message from both the April meeting minutes as well as Fed officials as an attempt to force markets to price in a more reasonable level of risk around a near term rate hike and admitted that their call for there to still be only one rate hike this year in December was under pressure
However they suggested that the Fed is more vulnerable today to the negative feedback loop than in prior cycles
Slow growth makes it more difficult in this cycle to fight against the negative feedback loop and ultimately leads to a stop and go policy with long pauses between hikes they explained
Morgan Stanley further warned that an imminent hike would be a mistake as first half growth is averaging well below the Fed s estimate of economic potential and there are abundant downside risks to the economy
Regardless the firm repeated its forecast for only one hike in December but reiterated the risk that it could come sooner than expected
At this stage it s unclear if the Fed is gunning for June or simply gunning for a rate hike soon they concluded |
MS | Gold falls mildly as solid data boosts dollar ahead of Yellen speech | Investing com Gold inched down on Friday remaining near three month lows as moderate upward revisions to first quarter U S GDP helped boost the dollar ahead of a closely watched speech by Federal Reserve chair Janet Yellen at Harvard University
On the Comex division of the New York Mercantile Exchange gold for June delivery traded between 1 210 00 and 1 223 20 an ounce before settling at 1 212 95 down 7 45 or 0 61 on the session For the week gold tumbled more than 2 5 extending losses from a week earlier when the Fed triggered a sell off with strong suggestions that it could raise interest rates when it meets again next month Since hitting 15 month highs around 1 300 an ounce at the start of May gold has plunged more than 5 and 75 an ounce Nevertheless the precious metal is still holding onto massive gains from the first quarter is on pace for one of its strongest first halves of a year in more than a decade
Gold likely gained support at 1 125 00 the low from February 3 and was met with resistance at 1 304 40 the high from May 2
On Friday morning the U S Commerce Department revised prior estimates of first quarter GDP higher by 0 3 to 0 8 on an annual basis slightly below consensus forecasts of 0 9 Though residential investment and exports helped drive growth non residential investment and government purchases continued to lag In addition soft personal consumption data could compel the Fed to adjust the timing of its next rate hike In its latest estimates the Commerce Department lowered the GDP price index for the first quarter by 0 1 to 0 6 on a year over year basis Analysts expected to see a flat reading of 0 7
Also on Friday the University of Michigan s Consumer Survey Center said consumer sentiment fell 1 1 points in May from the flash reading when it surged nearly 7 points to 95 8 the strongest monthly improvement in a decade Despite the slight pullback consumer sentiment is still at its highest level in more than a year
Yellen will make her first public appearance in nearly two months at a ceremony when she receives the Radcliffe Medal from Harvard University s Radcliffe Institute for Advanced Study on Friday afternoon The Fed chair could provide further hints on the pace of the U S central bank s long term rate path in a Question And Answer session with Harvard economics professor Gregory Mankiw after the presentation Over the last two months Yellen has reiterated that the Fed will raise rates gradually in the current cycle amid widespread volatility in global financial markets and persistently low inflation
Analysts from Morgan Stanley NYSE MS warned in a report that an imminent rate hike from the Fed would be a mistake due primarily to lower than expected first half growth and abundant downside risks to the economy Earlier this week strategists at the Wall Street firm said they expect the Federal Open Market Committee FOMC to raise short term interest rates next at their monetary policy meeting in December the last time the FOMC will meet this year A gradual rate path is bullish for gold which struggles to compete with high yield bearing assets when rates increase rapidly
Gold s recent downturn can also be attributed to a rally among global equities which has dampened enthusiasm for gold as a safe haven asset The Euro Stoxx 600 Index inched up on Friday to close at 3 078 48 ending the session up approximately 3 for the week On Wall Street the three major indices were all on pace to close with their strongest week in more than two months
The U S Dollar Index which measures the strength of the greenback versus a basket of six other major currencies gained more than 0 4 to an intraday high of 95 60 The index is still down by more than 4 since early December Dollar denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates
Silver for July delivery fell 0 083 or 0 51 to 16 260 an ounce
Copper for July delivery inched up 0 010 or 0 45 to 2 112 a pound |
MS | Tax hike delay signals Japan giving up on fiscal reform | By Leika Kihara TOKYO Reuters Prime Minister Shinzo Abe is essentially giving up on fiscal reform by postponing a sales tax hike for two and a half years putting Japan s credibility on the line and heightening the risk of a credit downgrade that could lift corporate borrowing costs With the central bank s massive bond buying hammering yields near zero few in the market expect the tax delay to trigger an immediate bond sell off and a dangerous spike in the cost of financing Japan s massive public debt But a second delay in less than two years expected to be announced by Abe at a Wednesday news briefing is a major setback for Japan s drive to get its fiscal house in order and makes it nearly impossible to achieve a target of turning its budget deficit into a surplus by the 2020 fiscal year analysts say The world s third biggest economy barely averted recession in the first quarter and analysts expect only feeble growth if any this quarter as weak emerging market demand and slow wage growth weigh on exports and consumption It s become clear Abe is not so serious about fiscal discipline said Masamichi Adachi senior economist at JPMorgan NYSE JPM Securities Japan The budget balance target was considered ambitious to begin with and now looks to be given up or pushed back until a few years later Some analysts say Abe is effectively abandoning the tax hike by delaying it to October 2019 as he s unlikely to still be in office then His term as head of the ruling party and thus premier expires in September of that year It s essentially a freezing of the tax hike plan said Katsutoshi Inadome fixed income strategist at Mitsubishi UFJ Morgan Stanley NYSE MS It might be interpreted as a message that Abe won t implement fiscal reform during his tenure CREDIT RISK Standard Poor s which cut Japan s sovereign rating to A last year said it made some sense for Abe to delay the tax hike given anemic economic growth But it warned that Japan needs to speed up structural reforms given the limited space to deploy fiscal or monetary stimulus If Japan keeps dragging its feet on fiscal reform it may face a sovereign rating cut that pushes up the cost of overseas funding for some companies according to SMBC Nikko Securities A two notch cut to A would mean the ceiling for corporate bond ratings would be set at that level Corporate funding conditions may worsen as a result it said in a research note Japan s government debt at nearly 250 percent of GDP is the biggest among major industrialized nations as tax revenues fall short of meeting ballooning social welfare costs for a rapidly ageing society Raising the sales tax is considered crucial to reining in debt but has been a taboo for politicians After an increase to 8 percent from 5 percent in April 2014 tipped Japan into recession Abe postponed a further hike to 10 percent planned for October 2015 for 18 months Mindful of the need to reassure markets that Japan is serious about fixing its finances its leaders including Abe have maintained a pledge to turn the primary balance the budget balance net of interest payments into surplus by 2020 But achieving the target has been a challenge even without the tax hike delay A government estimate shows the budget balance would be 6 5 trillion yen 58 6 billion in the red in fiscal 2020 even if the economy expands a nominal 3 percent Analysts say that s an unrealistic assumption for an economy that posted nominal growth of just 1 6 percent in 2014 and 2 5 percent in 2015 MORE GROWTH SPENDING Finance Minister Taro Aso said on Tuesday Japan will stick to the budget target even if the tax hike is delayed a move that could shave roughly 5 trillion yen off annual tax revenues But the government is unclear on how to do this Lawmakers are opposed to slashing spending on childcare and subsidies to low income pensioners which were to be paid for by revenues from the tax hike The government is even considering deploying fresh spending of up to 10 trillion yen to spur growth Abe s solution seems to be to keep reflating growth in the hope that rising corporate profits would lead to higher tax revenues enough to plug the gap left by delaying the sales tax hike Without growth it s impossible to achieve fiscal consolidation said Etsuro Honda an economic adviser to Abe The budget target could still be achieved as long as GDP expands to the full and consumer sentiment stabilizes which would offset the blow from the 2019 sales tax hike With global headwinds intensifying and the yen s rebound clouding the outlook for corporate profits however even advocates of Abe s reflationist policies have their doubts Delaying the tax hike runs counter to the basic principle of the three arrows of Abenomics bold monetary easing flexible fiscal policy and a growth strategy said Takatoshi Ito a Columbia University professor who is among the most prominent Japanese economists supportive of Abe s policies The second arrow is flexible fiscal policy not aggressive fiscal spending That means Japan needs to focus on restoring fiscal health he said When you need short term fiscal stimulus you deliver it But I wonder whether that s really necessary now
1 110 9800 yen |
JPM | JPMorgan Says This Isn t Start of Major Downturn Amid Bond Risk | Bloomberg Equities still feel like the right place to be relative to bonds for multi asset investors according to JPMorgan NYSE JPM Asset Management
The pullback in risk assets among overbought conditions and stretched sentiment doesn t look like the start of a major downturn the money manager said
With economic and earnings growth remaining solid amid a real macro deterioration stretched valuations just aren t enough to cause a big market sell off said Patrik Schowitz global multi asset strategist at JPMorgan Asset in a note The firm oversees 1 7 trillion in assets
Asian equities fell and U S stock futures headed lower Monday extending the biggest selloff for global stocks in two years as investors adjusted to a surge in global bond yields Investors are questioning whether the Federal Reserve will keep to a gradual pace of monetary tightening and whether it may need to boost interest rates by more than previously expected in coming years
To be sure the biggest endogenous risk the firm has been pointing to is rising bond yields The level of yields in absolute terms is not the issue rather the velocity of the yield moves is what matters Investors should continue to watch this closely said Schowitz
He said the firm has for some time flagged rising risks of a correction in risk assets on the back of increasingly more stretched positive sentiment in markets
This move may yet turn out to be the start of something more significant but so far it is pretty limited and it is likely that buyers will step in before we get near real correction levels he said |
JPM | Don t Panic It s No Taper Tantrum JPMorgan Tells EM Investors | Bloomberg Emerging market investors shouldn t expect a repeat of the 2013 taper tantrum as Treasury yields climb JPMorgan NYSE JPM Asset Management said
Local currency and dollar bond indexes for developing nations fell the most since May on Friday as the highest 10 year Treasury yields in four years sparked a selloff in stock markets While the Fed is poised to push on with rate hikes the difference this time round is that it s not just the U S that s enjoying an economic revival
Synchronized global growth is always very good for emerging markets said Diana Amoa who oversees a 2 9 billion emerging markets local currency bond fund at JPMorgan We have been expecting this and positioned our portfolios according to this For us it is a healthy repricing of yields in the U S
Here are some trade ideas from Amoa whose fund beat 94 percent of peers over the past year according to data compiled by Bloomberg
Rates Out of Sync
Fundamentally when you look at US growth core rates were particularly too low for what the U S economy was doing This move is for the most part because of growth And when you have growth in the U S it tends to benefit the rest of the world particularly emerging markets
It s not a taper tantrum style event when rates are moving simply because of technicals
Czech Hedge
We look for markets at a similar cycle as the U S Central and eastern Europe is a good example
When you look at what growth has been doing there for the last three years very strong growth you see inflationary pressures building up and shortages in the labor market They re very similar to where the U S is The Czech Republic is a good market to use as a hedge within EM
Real Rates Lure
We continue to play high real rates with no inflationary pressure South Africa and Russia remain our preferred markets
Inflation globally tends to go up but within EM you still have markets where you don t see inflationary pressures and actually inflation is expected to fall South Africa is a good example where a stronger currency is going to support inflation despite higher oil prices
Inflation Exposure
Higher oil prices mean we re building up our portfolios with inflation linked bonds in select stories
One market that comes to mind is Turkey we like linkers there We also are also buying inflation linked bonds in some of the very low yielding Asian markets such as Thailand |
JPM | JPMorgan positive on Norwegian Cruise Line Holdings | JPMorgan NYSE JPM lifts Norwegian Cruise Line Holdings NASDAQ NCLH to an Overweight rating after having the cruise line stock set at Neutral The analyst team sees strong macro trends supporting demand and pricing for Norwegian in 2018 JP s price target of 70 reps 18 upside potential for shares NCLH 0 90 premarket to 59 53 vs a 52 week trading range of 46 96 to 61 48 Sources Nasdaq com Bloomberg Now read |
C | Citigroup considering onshore cash equities business in China | By Sumeet Chatterjee HONG KONG Reuters Citigroup Inc N C is considering setting up an onshore cash equities business in China and expanding research coverage of Chinese stocks to boost its share of the business in Asia said the head of its regional equities unit The U S headquartered bank is also looking to add at least 10 people to the unit including bankers and technology staff mainly at its Hong Kong and Singapore hubs Richard Heyes told Reuters Citi s sharpened focus on its Asia equities business which includes stock trading and research is part of its global effort to bolster trading technology hire senior bankers and boost financing to hedge funds It s an interesting opportunity one we are looking very closely at Heyes said referring to setting up an onshore cash equities business in China which he said was in its early stages He declined to give details At the moment we don t feel we have a competitive disadvantage doing it from Hong Kong in the way the majority of people do But over time do I think we should strongly think about on ground presence Yes Analysts said China listed shares inclusion in the U S index publisher MSCI s emerging markets benchmark this year a milestone for global investing would lead to a jump in demand for brokerage and research services That came on top of the introduction of programs allowing two way trading between stock markets in Hong Kong and Shanghai and Shenzhen as part of Beijing s efforts to open up capital markets China s brokerage revenue pool touched 41 billion in 2015 showed a report last year by Quinlan Associates Assuming institutional broking revenue is 10 to 15 percent of the total a 1 percent market share would bring 40 million to 60 million in annual revenue to an equities house in the world s second largest economy the consultancy said To tap into an expected demand surge Citi which provides research on 175 China listed firms plans to increase coverage to 200 by year end and 250 in the longer term Heyes said We have seen very clearly as one of the biggest players in the Hong Kong stock connect a very significant ramp up in the opening of accounts It s very clear that many people are getting prepared for future activity in the China market Citi is also looking to bolster financing support for hedge funds to help win more trading business and boost its Asia equities market share
We have had very meaningful success with some very important large global hedge funds in the U S We are now expecting or have commitments from many of them to on board us in Asia either by end of this year or early next year |
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