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MS | Morgan Stanley falls 5 2 in pre market trade after Q3 earnings miss | Investing com Wall Street investment bank Morgan Stanley N MS reported weaker than expected third quarter earnings ahead of Monday s opening bell sending its shares lower in pre market trade
Morgan Stanley said adjusted earnings per share came in at 34 cents in the three months ended September 30 missing expectations for earnings of 63 cents per share and compared to earnings of 83 cents a share in the same period a year earlier
Net income was 1 0 billion compared with net income of 1 7 billion for the same period a year ago
The bank s third quarter adjusted revenue totaled 7 33 billion below forecasts for revenue of 8 54 billion and down 15 7 from revenue of 8 9 billion in the same period last year
Wealth Management reported a pre tax margin of 23 for the quarter on lower revenues of 3 6 billion Fee based asset flows for the quarter were 7 7 billion
Investment Management net revenues were 274 million reflecting losses in the Merchant Banking business specifically in Asia private equity Assets under management or supervision were 404 billion at the end of the quarter
Equity sales and trading net revenues of 1 8 billion were unchanged from a year ago reflecting strength in prime brokerage and derivatives partly offset by lower revenues in cash equities
Fixed Income Commodities sales and trading net revenues of 583 million decreased from 997 million a year ago primarily reflecting difficult market conditions for our credit and securitized products businesses
James P Gorman Chairman and Chief Executive Officer said The volatility in global markets in the third quarter led to a difficult environment impacting in particular our Fixed Income business and our Asia Merchant Banking business
Immediately after the earnings announcement Morgan Stanley shares plunged 1 75 or 5 15 in trading prior to the opening bell to hit 32 20 from a closing price of 33 95 on Friday
Meanwhile U S stock futures pointed to a lower open The Dow futures shed 29 points or 0 17 the S P 500 futures dipped 4 points or 0 19 while the Nasdaq 100 futures declined 7 points or 0 15 |
MS | Citigroup Appoints Elinor Hoover as Co Head of Investment Banking | By Jeff Patterson
Citigroup N C has promoted Elinor Hoover to the role of Co Head of Investment Banking for Consumer Products her latest executive role in her four years with the lender according to a recent Reuters report
In her new role as the Co Head of Investment Banking she will be sharing the position with Jeffrey Schackner Citi s other co head
Ms Hoover joined Citigroup back in 2011 and has been taken roles as its Vice Chairman of Capital Markets and also its Co Head of Financial Strategy and Solutions Prior to landing at Citigroup however she worked for more than a decade at Morgan Stanley N MS in a number of senior level roles
This included most recently as its Vice Chairman of Global Capital Markets at Morgan Stanley as well as its North American Co Head of Fixed Income Capital Markets and Corporate Derivatives
Back in late July Citigroup secured the services of Joe Bond the former executive at foreign exchange FX and contracts for difference CFD provider Abshire Smith Following the move Mr Bond shifted gears to work as Citigroup s Associate Vice President AVP of Treasury Sales In this capacity he has since been based out of Citi s London branch where he has focused on steering the lender s treasury sales for UK clientele |
MS | Morgan Stanley results wipe gains off European stocks | By Patrick Graham LONDON Reuters European stock markets struggled and Wall Street looked set to open lower on Monday after U S bank Morgan Stanley reported a slump in quarterly profit adding to signs of woe among the world s biggest banks The record third quarter loss reported by Germany s Deutsche Bank DE DBKGn earlier this month has refocused investors minds on the big global banks after a decade of financial strife regulation and technology driven change U S banks have gained market share in that time but of the major players to have reported in the third quarter only Wells Fargo Co N WFC the biggest mortgage lender managed a rise in revenue and income from interests on loans Morgan Stanley s profit plunged 42 percent N MS capping a generally downbeat quarter for big U S banks after investors fled the bond currency and commodity markets The Morgan Stanley numbers did not help and the market is just a little disappointed that there were no immediate stimulus measures coming out of China said Berkeley Futures associate director Richard Griffiths European and Asian stocks had climbed earlier after slightly better than expected Chinese growth numbers allayed months of worry over the slowdown in the world s second largest economy While monthly industrial output numbers were poor and the third quarter growth figure was the weakest since the 2008 financial crisis the 6 9 percent reading just beat a forecast for 6 8 percent and suggested official efforts to stimulate the economy were working The market has been beset with worries and actually things are not so bad said Andy Sullivan a portfolio manager with Swiss investment firm GL Financial Group Although the start of the Q3 results have been messy there are enough positive signs on earnings growth to keep markets positive The world is not ending things are more or less on track The FTSE Eurofirst index of leading European shares was roughly flat FTEU3 while Wall Street futures pointed to a 0 3 percent loss on opening The tremors emanating from a market slide in China and a devaluation of the yuan currency in the summer appear to have largely settled While Japan s Nikkei N225 fell almost 1 percent on Monday and Shanghai was marginally in the red at closing MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS is on course for its best month in more than three years Adding to optimism are growing bets that the U S Federal Reserve will delay its first rate hike since 2006 until next year encouraging investors to hunt for bargains in beaten down Asian equities The market is turning optimistic against a backdrop of ample liquidity said Yang Hai strategist at Kaiyuan Securities The dollar inched higher against a basket of other major currencies DXY with all eyes on a European Central Bank meeting later this week expected to offer some hint of more stimulus for the economy that may weaken the euro The euro fell 0 1 percent to 1 1333 down from last Thursday s high of 1 1495
Brent crude prices were down around 2 percent extending a week of declines LCOc1 to dip back under 50 a barrel |
MS | Morgan Stanley Q3 earnings fall more than 42 | Investing com Wall Street bank Morgan Stanley N MS s profit slumped for the second straight quarter as investors fled the bond currency and commodity markets amid uncertainty about the timing of a U S interest rate hike and concerns about China s cooling economy
Morgan Stanley the last of the big U S banks to release third quarter earnings said on Monday its trading revenue fell 17 2 to 2 03 billion in the period contributing to a 42 4 drop in profit attributable to shareholders
The bank s shares were down 5 8 in premarket trade
The results capped a generally downbeat quarter for the six big U S banks Among them only Wells Fargo N WFC managed an increase in revenue while Citigroup N C turned in the biggest rise in net profit 51 largely due to cost cuts |
JPM | U S consumer spending cools in October inflation firming | By Lucia Mutikani WASHINGTON Reuters U S consumer spending slowed in October as the hurricane related boost to motor vehicle purchases faded while a sustained increase in underlying price pressures suggested that a recent disinflationary trend had probably run its course Other data on Thursday showed a second straight weekly drop in first time applications for unemployment benefits pointing to a further tightening in labor market conditions that could soon generate faster wage growth and keep consumer spending supported as well as push inflation higher The reports strengthened expectations that the Federal Reserve will raise interest rates next month The U S central bank has increased borrowing costs twice this year Today s number should support the case of the hawks and centrists heading into the next Fed meeting in two weeks time said Michael Feroli an economist at JPMorgan NYSE JPM in New York The Commerce Department said consumer spending which accounts for more than two thirds of U S economic activity rose 0 3 percent last month after surging 0 9 percent in September Last month s increase in consumer spending was in line with economists expectations The jump in spending in September was the largest since August 2009 and was spurred by some drivers in Texas and Florida replacing automobiles destroyed when Hurricanes Harvey and Irma slammed the states in late August and early September Spending on long lasting goods like autos fell 0 1 percent last month after accelerating 2 9 percent in September Spending on nondurable goods such as prescription drugs and recreational items rose 0 2 percent Outlays on services increased 0 3 percent amid a rise in airline tickets for foreign travel and communication services Though overall inflation subsided as disruptions to the supply chain following the hurricanes eased underlying price pressures increased again at a steady clip in October The Fed s preferred inflation measure the personal consumption expenditures PCE price index excluding food and energy rose 0 2 percent in October after a similar gain in September The so called core PCE increased 1 4 percent in the 12 months through October matching September s rise The core PCE has undershot the Fed s 2 percent target for nearly 5 1 2 years Fed Chair Janet Yellen told lawmakers on Wednesday that she believed the recent weak inflation readings likely reflected transitory factors but also acknowledged the low inflation rates could reflect something more persistent WORST IS OVER It looks like the worst is over for this latest idiosyncratic downdraft in core consumer inflation since the start of the year and that Yellen was right to stick with her guns and maintain that low inflation is a transitory phenomenon said Chris Rupkey chief economist at MUFG in New York The dollar fell against a basket of currencies while prices for U S Treasuries edged down Stocks on Wall Street were trading higher with the blue chip Dow Jones industrial average index racing past the 24 000 mark for the first time With underlying inflation rising last month so called real consumer spending edged up 0 1 percent after increasing 0 5 percent in September The weak real consumer spending prompted economists to lower their fourth quarter gross domestic product growth estimates by as much as two tenths of a percentage point to as low as a 2 2 percent annualized rate Growth estimates for the fourth quarter have been lowered this week from around a 3 percent pace in the wake of data showing a large goods trade deficit in October and declines in wholesale and retail inventories The economy grew at a 3 3 percent rate in the third quarter the fastest in three years Households are dipping into savings to maintain spending amid moderate wage growth Personal income rose 0 4 percent last month after advancing by the same margin in September Wages increased 0 3 percent last month following September s 0 5 percent gain While savings climbed to 457 3 billion last month from a more than nine year low of 429 9 billion in September they remained well below levels seen early this year The saving rate increased to 3 2 percent after falling to 3 0 percent in September which was the lowest since December 2007 The savings dip will limit the upside to consumer spending growth in the fourth quarter said Gregory Daco chief U S economist at Oxford Economics in New York There are however expectations that wage growth will accelerate as the labor market tightens further In a separate report on Thursday the Labor Department said initial claims for state unemployment benefits slipped 2 000 to a seasonally adjusted 238 000 for the week ended Nov 25
Last week marked the 143rd consecutive 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 smaller The labor market is near full employment with the jobless rate at a 17 year low of 4 1 percent |
C | European stocks fall on political worries banks under pressure | Investing com European stock markets traded mostly lower on Tuesday as political issues throughout the euro zone weighed on sentiment and banks were under pressure after an analyst downgrade
Nearing midday trade in Europe the benchmark Euro Stoxx 50 fell 0 22 France s CAC 40 lost 0 49 while Germany s DAX 30 traded flat
As the snap elections in the U K set for June 8 reared their head the two main candidates for British Prime Minister outlined their plans for negotiations with the European Union EU over the Brexit as Britain s exit from the group is known
Current Prime Minister Theresa May repeated her opinion that no deal with the EU was better than a bad deal while opposition leader Jeremy Corbyn promised that a deal would go through if he won the elections
With Germany set to hold elections next September former Italian Prime Minister Matteo Renzi suggested that holding Italy s elections at the same time would be appropriate
Market players are watching to see if German Chancellor Angela Merkel holds her power while also looking towards Italy to gauge the rise of populist movements
Over in Greece a government spokesperson denied reports that Athens would opt out of the next bailout payment if its international creditors failed to reach an agreement on debt relief Greece is hoping that some deal can be reached at a meeting of euro zone finance ministers to be held in June
On the economic front inflation in Spain dropped more than expected in May to 1 9 while investors looked ahead to the reading on prices from the motor of the euro zone economy Germany s inflation is expected to have fallen from 2 0 to 1 6 this month
The data arrives after European Central Bank ECB president Mario Draghi repeated Monday that inflation pressures remained subdued and the ECB still saw the need for extraordinarily accommodative monetary policy
In positive news for the euro area s second largest economy French GDP was unexpectedly revised up to 0 4 in the first quarter
To the downside the euro zone business and consumer survey unexpectedly slipped to 109 2 in May missing expectations for a slight increase to 110 0
In company news European banks were under pressure after Deutsche Bank cut the sector to underweight due to valuations and their forecast that euro area growth was losing momentum
After the U K bank holiday on Monday London listed shares of IAG LON ICAG sank nearly 3 while returning to trading after a computer failure at British Airways BA over the long holiday weekend caused cancellations affecting thousands of passengers
London Stock Exchange Group LON LSE agreed Tuesday to buy The Yield Book Citigroup s NYSE C fixed income analytics and indexing business for 685 million in cash
Meanwhile oil prices fell on Tuesday as concerns about oversupply continued to weigh despite the American summer driving season getting underway
Energy stocks traded mixed as French oil and gas major Total SA PA TOTF dropped 0 07 Italy s ENI MI ENI rose 0 49 while Norwegian rival Statoil OL STL was unchanged
Financial stocks traded mostly lower as French lenders BNP Paribas PA BNPP lost 0 27 though Societe Generale PA SOGN advanced inched up 0 02 while Germany s Commerzbank DE CBKG and rival Deutsche Bank DE DBKGn fell 0 15 and 0 94 respectively
Among peripheral lenders Italy s Intesa Sanpaolo MI ISP was unchanged and Unicredit MI CRDI lost 0 25 while Spanish banks BBVA MC BBVA and Banco Santander MC SAN advanced 0 01 and 0 29 respectively
In London the commodity heavy FTSE 100 returned after a three day weekend with losses of 0 33
Shares in Glencore LON GLEN rose 0 70 Anglo American LON AAL gained 0 43 and BHP Billiton LON BLT advanced 0 12 To the downside Rio Tinto LON RIO gave up 0 19
Energy stocks recorded gains as BP LON BP rose 0 34 and rival Royal Dutch Shell LON RDSa traded up 0 13
Financial stocks were mixed with shares in HSBC Holdings LON HSBA and Royal Bank of Scotland LON RBS up 0 30 and 0 42 respectively while Lloyds Banking LON LLOY fell 0 27 and Barclays LON BARC lost 0 78
In the U S futures pointed to a flat open The Dow Jones Industrial Average futures slipped 0 04 S P 500 futures inched down 0 0 while the Nasdaq 100 futures edged forward 0 01 |
C | Exclusive Taubman Centers shareholders back company s board nominees sources | By Michael Flaherty NEW YORK Reuters Shareholders of mall operator Taubman Centers N TCO have voted in support of the company s three board nominees people familiar with the matter told Reuters on Thursday fending off opposing candidates from activist hedge fund Land and Buildings Land and Buildings had sought two seats on the company s board Spokesmen for Taubman Centers and Land and Buildings did not immediately return calls seeking comment The sources asked not to be identified because the official announcement is not yet public Taubman based in Bloomfield Michigan is a 3 7 billion U S mall operator that also has an Asia subsidiary Land and Buildings a real estate focused activist fund run by former Citigroup NYSE C analyst Jonathan Litt is the company s 19th largest shareholder The hedge fund s campaign for changes at the company started last year with Land and Buildings critical of the company s CEO Bobby Taubman and the company s under performance compared to peers Taubman was one of the directors that Litt was targeting Preliminary results show that shareholders re elected Taubman on Thursday with a final tally due in the next few days Land and Buildings effort to shake up the company s board faced a steep uphill climb given the Taubman family s large chunk of class B shares that grants it 30 2 percent of voting power Proxy advisers recommended that shareholders vote in favor of Land and Building s nominees Litt and Charles Elson a finance professor and corporate governance expert at the University of Delaware On Tuesday the company announced that it would increase the speed of its board refreshment and transition to an annual election of directors During the Land and Building s campaign the company also added a new director and introduced the role of lead independent director to the board |
C | Amid tax storm Australia s Macquarie leaves open option of HQ move | By Jamie Freed SYDNEY Reuters Macquarie Group Ltd AX MQG battling a surprise 4 6 billion tax on Australia s lenders left open the option of moving its headquarters abroad on Friday baffling analysts and lawyers who warned a costly shift may do little to avoid the levy Australia shocked banks and investors last month with a new balance sheet tax that hits all lenders with more than A 100 billion 74 billion of total liabilities It catches Macquarie the country s top investment bank in the same net as the country s four largest commercial lenders Macquarie has two thirds of its business and most of its staff outside Australia but the issue of where its headquarters should be located has not been actively or publicly debated An unsourced report in the Australian Financial Review said on Friday however that Macquarie had told at least one of the major political parties it was now canvassing options for relocating outside Australia as a result of the tax A spokeswoman for the bank said in response to the report As we have said over the years Macquarie consistently looks at the most appropriate locations for its businesses and head office Whilst approximately two thirds of our business is outside Australia it remains a key market and is where over 6 000 of our approximately 13 600 staff are employed she added giving no further details The Big Four banks have been vocal about their opposition to the tax which was announced in the May federal budget and is supported by both major political parties It is expected to cost the sector a combined A 1 5 billion a year or A 6 2 billion 4 6 billion over four years in the planned budget It has no sunset clause But Macquarie has not commented publicly on the tax to date beyond a statement saying it was examining the potential impact Analysts and investors said Macquarie s decision not to deny a potential move was likely political but doubted it would shift its headquarters over a tax that at six basis points on certain liabilities would be minor and which it may not be able to escape in any case I wouldn t have thought this tax alone would be enough to catalyze a move unless they are worried it could go up again in the future said Shaw and Partners analyst David Spotswood who estimates the levy could lower pretax earnings by three percent I just suspect it is signaling to the government and letting them know they are not happy and there are things they can do about it Foreign banks like Citigroup Inc N C and HSBC Holdings PLC L HSBA would still be subject to the Australian tax if their local liabilities reached A 100 billion according to Australia s Treasury Department Moving is also complex for large institutions Rival HSBC L HSBA last year dropped a proposal to shift its headquarters from London to Hong Kong its main profit generating hub after a 10 month review triggered partly by Britain s tax on banks global balance sheets that cost HSBC 1 1 billion in 2014 Analysts had estimated the cost of moving out of London at between 1 5 billion and 2 5 billion Karara Capital investment manager Rohan Walsh said Macquarie s business had been growing strongly internationally particularly in the United States and Europe and it could eventually make sense to move Any consideration to move overseas will not be driven by the bank tax he said It will be driven by the business mix |
JPM | Global Earnings Warnings Worst In 7 Years | Stocks are losing their last line of defence
Amid a selloff that erased more than two years of gains about 14 trillion from global stocks now on the brink of a bear market at least earnings stood as a potential bright spot Those hopes are fading analyst profit downgrades outnumbered upgrades by the most since 2009 last week according to monthly data from a Citigroup N C index that tracks such changes
Declines in oil and and other commodities the withdrawal of Federal Reserve support Europe s fragile recovery and China slowdown fears are combining to jeopardize one of the few remaining stock catalysts after a global rally of as much as 156 percent since 2009 And profit growth estimates are still too high for this year and 2017 says Bankhaus Lampe s Ralf Zimmermann
The momentum in the global economy is slowing down to such an extent that people are seriously talking about recession said Zimmermann a strategist at Bankhaus Lampe in Dusseldorf This is not just China it s far more widespread There are few places to hide Even defensives will feel the pain
Economists projections for worldwide expansion in 2016 have dropped steadily in the past months to just 3 3 percent with estimates for China and the U S falling since the summer The biggest bears are getting more bearish DoubleLine Capital s Jeffrey Gundlach sees global growth slowing to just 1 9 percent in 2016 making it the worst year since the aftermath of the financial crisis in 2009
This earnings season may not provide much reassurance say strategists at JPMorgan Chase Co N JPM Analysts project a 6 7 percent contraction in fourth quarter profits for Standard Poor s 500 Index members For peers in Europe estimates call for growth of just 2 7 percent for all of 2015 about half the pace predicted four months ago Investors are also running for the door they pulled about 12 billion from global stock funds last week
There are some pockets of optimism lower energy prices may encourage consumers to spend more Europe s recovery has been exceeding expectations and the Fed has given itself the flexibility to delay further rate hikes The earnings bar is so low that the scope for positive surprises is great says ETF Securities James Butterfill
Fundamentals in the U S and Europe still look pretty good said Butterfill head of research and investment in London Markets seem to be overly focused on the poor state of global manufacturing and losing their view of the consumer Confidence is rising people have more money in their pockets and company earnings should reflect that Now is a good opportunity to buy because everyone is so bearish
For others the outlook is gloomy Europe s resilient recovery is threatened by companies heavily reliant on American and Asian demand
Even without a recession profit forecasts for the full year are too optimistic said Stewart Richardson chief investment officer at RMG Wealth Management in London It s not just a China problem U S growth is slowing on its own right It looks like Europe is not slowing but give it six or 12 months and maybe it will be |
JPM | Why Are We Still Paying Attention To Chinese Numbers | A few years ago economist Nouriel Roubini was explaining to a reporter why Chinese economic data couldn t be trusted He noted that it takes the US weeks and sometimes months to pull together and process the information necessary to produce a complex stat like GDP and wondered how China with its far bigger less developed and therefore harder to measure population was able to do it in considerably less time He concluded that they re just making up their numbers
Since then a growing number of economists and analysts have come around to this point of view They now largely dismiss China s official reports preferring instead to trust easily verified things like shipping traffic and electricity consumption
Yet China s official releases still get treated by the markets as if they re based on actual measurement rather than political calculation The Q4 GDP report published just minutes ago is a case in point
China s economic growth rate slowed to a 25 year low of 6 9 percent in 2015 reigniting worries about the health of the world s second largest economy
China s economy grew 6 8 percent in the fourth quarter of 2015 from the same period last year official data showed Tuesday
Economic growth for the quarter was expected to come in at 6 8 percent on year down from the third quarter s 6 9 percent according to a Reuters poll which also found economists expected full year growth at 6 9 percent down from 2014 s 7 3 percent
This is a good number Jahangir Aziz head of emerging Asia economic research at JPMorgan N JPM told CNBC s Street Signs We ve known for the last three years that the Chinese authorities are slowing down the economy This economy is going to slow down he said
In August last year there was almost a fear that the economy was in freefall There was no policy support I think all that has changed Aziz said
There are a slew of concerns about the Chinese economy as it transitions from a manufacturing base to services The country is hooked on debt the shadow banking sector has imploded the property market sometimes shows signs of a bubble and major industries are slowing
Those concerns have driven at least in part a sharp drop in China s stock markets recently The Shanghai Composite has entered bear within a bear territory falling more than 20 percent from its December high as well as trading down more than 40 percent from its 52 week high set in June of last year
Now a couple of things First if they more or less fabricate their numbers and this is what they re willing to admit then actual growth must be considerably lower Second as even the above article concedes the stock market is tanking and the industrial side of the economy is shrinking Services whatever they are must be rocking to produce a growing economy under those circumstances
Combine these generally accepted as fake numbers with the Chinese government s recent display of almost random coercion prosecuting short sellers disappearing bookstore owners imposing capital controls intervening in equity markets and a picture emerges of a country that s not ready for prime time China is big yes but it lacks the rule of law and stable institutions of a world power And it seems not to understand markets which should terrify everyone who hopes to avoid a global melt down |
MS | Rising oil price powers broader market rally | By Lionel Laurent LONDON Reuters A recovery in oil prices spread to stock markets and emerging market currencies on Wednesday with the prospect of more support from the world s central banks offsetting more disappointing economic data After a dismal summer quarter in which global equities fell the most since 2011 traders say fund managers were ready to pile back in hoping the recent market reversal was a hiccup rather than the end of a six year bull market Mining and energy shares were the big winners in Europe up 3 to 6 percent with miners on course for their best week since 2009 Emerging market stocks rose 2 4 percent to their highest level since mid August although tourism and airline stocks fell on the prospect of a squeeze on profits from higher input costs Asian shares reached a seven week high South Korea s Samsung Electronics KS 005930 improved sentiment when it issued a better than expected profit guidance All that left global equities set for their sixth straight day of gains and just 5 5 percent below where they were at the end of June before a summer sell off hit markets We think we re setting up for a strong fourth quarter rally even if the next few weeks remain volatile We are starting to see a rollover in momentum strategies and we expect this to continue Morgan Stanley NYSE MS strategists wrote in a note U S equities were also set to join the fray with futures up 0 5 percent The heart of the rally was a jump of more than 1 for U S crude oil to 49 64 per barrel However the gain was largely driven by evidence of tighter supply and dwindling inventories after two years of heavy surplus and a collapse in commodity prices In fact there was little reason for more optimism on the underlying economy on Wednesday Data showed German industrial output fell in August at its fastest pace in a year and growth in Spanish output slowed British industrial output did recover better than expected however pushing up sterling Although the Bank of Japan held off on expanding monetary stimulus on Wednesday expectations of more support rather than less is growing as worries mount over a global economic slowdown This week the International Monetary Fund cut its forecast for growth again The sense is that interest rates are not going to rise in the foreseeable future said Deutsche Bank XETRA DBKGn Managing Director Nick Lawson adding that after a rough September investors were ready to put more firepower into rebound bets The market is proving its addiction to QE quantitative easing Investors have scaled back expectations the Federal Reserve will raise interest rates this year after surprisingly weak U S jobs data on Friday Worries over the American economy grew after the largest expansion of the U S trade deficit in five months Corporate earnings are also expected to bear the scars of summer volatility Yum Brands Adobe Rexel and Kloeckner were the latest companies to cut their profit forecasts While Citi strategists have warned that analyst earnings forecasts are too optimistic they have also backed the view that the bull market has yet to die with a prediction that global equities will still rise 20 percent through to end 2016 The market is already pricing in a gloomier scenario they argue Beaten up emerging markets meanwhile got a lift to their currencies amid the rally The Indonesian rupiah surged 2 3 percent on Wednesday taking its gains so far this week to over 5 percent The Malaysian ringgit MYR also jumped 2 4 percent The New Zealand dollar popped to a seven week high on a solid rise in dairy prices The Australian dollar hit a two week high AUD of 0 7188 while the Canadian dollar firmed to C 1 3026 nearing its September peak of C 1 3013
The euro traded at 1 1267 EUR near this week s high of 1 12895 before falling back to 1 1242 The dollar s index against six major currencies picked up slightly after falling to 95 327 its lowest level this week and near Friday s low of 95 218 |
MS | Jarden to buy school products maker Jostens for 1 5 billion | Reuters Jarden Corp N JAH owner of Sunbeam kitchen appliances and Coleman outdoor gear said it would buy Jostens Inc a maker of class rings and yearbooks in a deal worth 1 5 billion
Jostens is owned by Visant Holding Corp which is managed by investment firm KKR aPriori Capital Partners and others
Visant also owns school awards maker Neff Motivation Inc and Phoenix Color Corp which makes books and plastic covers
Jostens founded by Otto Josten in 1897 also makes championship rings caps and graduation gowns and varsity jackets
The company generates annual revenue of about 740 million
This is Jarden s second large acquisition this year It said in July it would buy disposable tableware maker Waddington Group for 1 35 billion
Martin Franklin Jarden s founder and chairman has built the company through acquisitions making it one of the largest diversified consumer products makers in the United States selling everything from firewood to condoms
Jarden said Jostens will add to adjusted earnings per share in 2016 and will be reported as part of Jarden s outdoor solutions segment
The transaction is expected to close in the fourth quarter
Barclays L BARC and Morgan Stanley Co LLC N MS were financial advisers to Jarden and Kane Kessler P C was legal adviser Jefferies LLC was financial adviser to Visant and Simpson Thacher Bartlett LLP the legal adviser
Jarden s shares were up 2 percent at 51 73 in premarket trading on Wednesday |
JPM | U S consumer confidence near 17 year high goods trade deficit widens | By Lucia Mutikani WASHINGTON Reuters U S consumer confidence surged to a near 17 year high in November driven by a robust labor market while house prices rose sharply in September which should underpin consumer spending and boost economic growth The near term growth outlook was however marred by other data on Tuesday showing a big rise in the goods trade deficit in October and a drop in inventory accumulation The wider goods trade gap and weak inventory investment prompted economists to slash their fourth quarter gross domestic product estimates This economy has really got some legs if this confidence of consumers is to believed said Chris Rupkey chief economist at MUFG in New York The Conference Board said its consumer confidence index increased 3 3 points to a reading of 129 5 this month within striking distance of 132 6 which was touched in November 2000 The strong confidence reading largely reflected households upbeat perceptions of the labor market The survey s so called labor market differential derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful was the best in more than 16 years This measure closely correlates to the unemployment rate in the Labor Department s employment report and is consistent with further absorption of labor market slack The labor market is near full employment with the unemployment rate at a 17 year low of 4 1 percent The share of consumers expecting more jobs in the months ahead increased to 22 6 percent this month from 18 7 percent in October The proportion of those anticipating fewer jobs fell to 11 percent in November from 11 6 percent the prior month More consumers said they planned to buy houses and major appliances over the next six months Confidence is also being buoyed by a resurgent stock market amid expectations that President Donald Trump and his fellow Republicans in Congress will push through hefty corporate tax cuts Congressional Republicans have unveiled a broad package of tax cuts including slashing the corporate income tax rate to 20 percent from 35 percent BULLISH CONSUMERS Economists said bullish consumers together with the tightening labor market were compelling reasons for the Federal Reserve to increase interest rates next month despite worries about persistently low inflation The U S central bank has raised rates twice this year The dollar was trading higher against a basket of currencies while prices for U S Treasuries were little changed Stocks on Wall Street rose with the Standard Poor s 500 index and Dow Jones industrial average hitting record highs A separate report on Tuesday showed the S P CoreLogic Case Shiller composite index of house prices in 20 metropolitan areas jumped 6 2 percent in September on a year over year basis after increasing 5 8 percent in August A dearth of homes for sale and strong demand are pushing up house prices While rising house prices are boosting equity for homeowners the chronic shortage of properties is constraining home sales The combination of rising consumer confidence and house prices bodes well for consumer spending Confidence isn t a perfect gauge for consumer spending but having the strongest confidence level in nearly two decades certainly helps said Jennifer Lee a senior economist at BMO Capital Markets in Toronto In a third report the Commerce Department said the goods trade deficit jumped 6 5 percent to 68 3 billion in October boosted by rising imports of industrial supplies consumer and other goods Exports fell 1 0 percent as shipments of food motor vehicles capital and consumer goods decreased The department also reported that wholesale inventories fell 0 4 percent last month after edging up 0 1 percent in September Retail inventories slipped 0 1 percent in October after declining 0 9 percent the prior month Early in our fourth quarter tracking we think that both trade and inventories could be meaningful drags on growth during the quarter said Daniel Silver an economist at JPMorgan NYSE JPM in New York Forecasting firm Macroeconomic Advisers slashed its fourth quarter GDP growth estimate by four tenths of a percentage point to a 2 5 percent annualized rate Barclays LON BARC cut its GDP forecast to a 2 3 percent pace from a 2 8 percent rate
Trade added four tenths of a percentage point to the economy s 3 0 percent growth rate in the third quarter while inventory investment contributed 0 73 percentage point |
C | With new sheriff in town South Korea big businesses duck for cover | By Joyce Lee and Se Young Lee SEOUL Reuters A South Korean retail giant has shelved controversial expansion plans while a large bank made hundreds of contract jobs permanent after President Moon Jae in took office vowing to reform the family run conglomerates that dominate the economy The 64 year old liberal leader campaigned on a platform of curbing the power of the conglomerates or chaebol On Wednesday he nominated an economist nicknamed chaebol sniper for his shareholder activist campaigns as head of the antitrust regulator Moon has yet to spell out his reform agenda and the fractured parliament controlled by conservative and moderate politicians would likely only support modest changes given the chaebol s outsized role in the economy But some companies are choosing to stay out of the crosshairs even before they see any legislation Business lobby groups say they will work with Moon in creating jobs the president s No 1 priority according to his advisers South Korea s four biggest chaebol groups Samsung Hyundai Motor SK and LG account for half the country s stock market value They released full page ads after Moon s election featuring his photo and saying they will be with President Moon to make a better country They don t want to be the first to cause some kind of a problem said Chang Sea jin professor of business administration at National University of Singapore It s time to be very careful Big business however has largely stayed silent on Moon s call to create jobs underscoring the challenges in delivering on his signature agenda Moon pledged to create 810 000 public sector jobs and has chastised the chaebol for not hiring Moon has vowed to end the practice of pardoning convicted corporate criminals and to break the nexus of business and politics that was once again exposed in the scandal that led to the ouster of former president Park Geun hye and the arrest of Samsung chief Jay Y Lee who is accused of bribing Park Both are undergoing trial on criminal charges and have denied any wrongdoing The conglomerates helped transform South Korea into Asia s fourth largest economy But critics say they have used their cozy ties with the government to crowd out smaller businesses They also blame the chaebol s complex web of cross shareholdings among group companies and opaque governance for the so called Korea Discount meaning their shares are typically undervalued in comparison to their global peers FALL OUT OF FAVOR Within days of Moon s election Shinsegae Inc KS 004170 South Korea s third largest department store operator indefinitely postponed a land purchasing agreement for a new store it was planning to build in Bucheon southwest of Seoul Small business owners near the site have been protesting the plan During the campaign Moon pledged to place limitations on large shopping complexes including on where they could be built in order to protect smaller firms and self employed shopowners I understand Shinsegae postponed the deal because of concerns that if they sign immediately after the start of the new administration they will fall out of favor and be disadvantaged Kim Man soo mayor of Bucheon City posted on his Facebook NASDAQ FB A Shinsegae official said the company had already scaled back the shopping mall project in late 2016 so as not to hurt traditional markets He declined to elaborate Shinsegae was spun off from Samsung in 1997 and Jay Y Lee s aunt is its chairwoman and single largest shareholder Another shopping mall project in northwest Seoul by Lotte Shopping Co Ltd KS 023530 which had been in the works for four years may be scrapped all together Lotte Shinsegae s bigger rival bought land for the mall in 2013 but the city of Seoul whose mayor is a member of Moon s liberal party has not approved construction Lotte filed an administrative lawsuit against the city in April asking for a resolution With Moon s election Lotte has effectively given up on the project the Chosun Ilbo newspaper said citing a high ranking Lotte official A Lotte spokesman denied the report The South Korean unit of Citibank N C on Tuesday offered to turn all of its roughly 300 long term temporary workers into regular workers in pursuit of a broader benefit JOBS DILEMMA Kim Sang jo Moon s nominee as next chairman of the Korea Fair Trade Commission told reporters on Thursday he was in no hurry to unravel the cross shareholding structures The commission sets policies and decides cases related to fair competition Reform was never about destroying or disbanding chaebols but about inducing them to grow and add jobs Kim said South Korea s 10 largest companies only employ about 1 million of some 19 million actively employed in the country the 54 year old Kim said While there s no change in our belief that cross shareholding is a serious problem we have to weigh benefits and administrative costs of any such reform Kim said We have limited capital to push for policy changes and it is important to set priorities But company officials and experts say structural problems make hiring easier said than done Though tech giants such as Samsung Electronics KS 005930 and SK Hynix Inc KS 000660 are posting big profits and building new plants in South Korea their production lines are largely automated and require less manpower than before
Other top employers such as Hyundai Motor KS 005380 are looking to build more overseas to cut costs while shipbuilders are downsizing amid a painful restructuring |
C | EU antitrust regulators to scrutinize syndicated loans | By Foo Yun Chee
OXFORD England Reuters European Union antitrust regulators are to put major financial services firms under the microscope by examining the impact of syndicated loans on credit markets
The fact that the European Commission commissions a study in a specific market does not in any way imply that there is anti competitive behavior taking place or that the Commission would open an investigation into that market spokesman Ricardo Cardoso said in an email on Monday
In Europe bank loans traditionally accounted for around 70 percent of lending to companies and other borrowers This contrasts with the United States where the credit markets have made up some 70 80 percent of where companies borrow
The European Commission said its interest had been prompted by the growing importance of loan syndication in which institutional investors and banks lend to a borrower for a fee
Companies face penalties up to 10 percent of their global turnover for breaching EU antitrust rules and the bloc has fined banks including Deutsche Bank DE DBKGn JPMorgan N JPM RBS L RBS Citigroup N C and Societe Generale PA SOGN a total of more than 1 billion euros 1 1 billion in recent years
Authorities around the world have taken a similarly tough line against rate rigging and other infringements
The study is expected to take nine months and will focus on six countries according to a tender for the study issued by the EU executive which did not name them
The study will examine the structure and process of loan syndication also in light of recent regulatory reforms which aim to increase supervision and capital requirements Cardoso said
Parties wishing to carry out the study for the commission have until June 6 to submit their offers |
C | U S Justice Dept Citigroup settle probe into Banamex USA | NEW YORK Reuters The U S Department of Justice and Citigroup Inc N C said on Monday that they have settled a criminal investigation into violations of anti money laundering rules and the Bank Secrecy Act at the bank s Banamex USA unit The settlement includes a non prosecution agreement and a forfeiture by Citigroup of 97 million the department and the bank said in separate statements The bank said it had it already reserved for the expense Under the agreement Banamex USA admitted criminally failing to maintain an effective anti money launder program the DOJ said Between 2010 and 2012 Banamex USA conducted fewer than 10 investigations on more than 18 000 alerts generated by its monitoring system for some 142 million in potentially suspicious transactions the department added The agreement follows a 2015 settlement by Citigroup for 140 million with the Federal Deposit Insurance Corp and the California Department of Business Oversight over evidence of Bank Secrecy Act violations by Banamex USA After that settlement Citigroup said it would liquidate what was left of Banamex USA which had some branches in the United States and was affiliated with Citigroup s Mexico City based Banamex subsidiary now known as Citibanamex
Banamex USA is expected to finally cease banking operations as of June 30 Citigroup said in its statement on Monday |
C | Trade Desk follow on will sell 3 33M shares | The Trade Desk TTD 0 9 has set a follow on offering where shareholders will unload nearly 3 33M shares of its Class A common stock The selling shareholders will grant a 30 day greenshoe option to buy up to an additional 498 948 shares in the offering The Trade Desk won t receive any proceeds in that deal Citigroup NYSE C Jefferies and RBC Capital Markets will act as joint book runners Now read |
C | Citi struggles to bring back shine to its Mexican crown jewel | By Dan Freed and David Henry
MEXICO CITY NEW YORK Reuters The newly refurbished Citibanamex branch in Mexico City s affluent Del Valle neighborhood opens into a Scandinavian chic space where salespeople chat with clients at touch screens The next room though is filled with customers queueing up in front of tellers or waiting on benches Outside more line up to use the ATMs
The facelift reflects Citigroup NYSE C Chief Executive Michael Corbat s ambition to turn the group s Mexican operation into a state of the art bank
The lines symbolize the challenge overcoming the legacy of years of underinvestment and a series of scandals that left the 133 year old institution lagging rivals in technology profitability market share and customer satisfaction Graphic
Despite upbeat assurances from Citi s New York headquarters the view from the ground is that the bank has yet a lot of ground to recover and local and regional executives acknowledge they have catching up to do
Jane Fraser who heads Citigroup s Latin America businesses told Reuters a visit to an overcrowded branch shortly after she took on her role in 2015 convinced her the bank s service required a thorough overhaul
The ultimate goal was for people to say Okay they re back to being the best bank again Fraser said
The bank is now reorganizing branches to make service more efficient adding 2 500 ATMs to its network of 7 600 and partnering with startups to improve customer experience she said
To broaden its reach Citibanamex introduced Saldazo a card distributed at the OXXO convenience store chain which allows for deposits and money transfers Saldazo is not yet profitable but it is popular with 8 500 cards issued daily said Pedro Solano director of financial inclusion at Citibanamex
Edgardo del Rincon Citibanamex s general manager for consumer banking said rivals now had an edge in digital services but that should change once his bank adopts new better systems Most banks in Mexico updated their core technology platforms seven eight nine years ago We re doing it now but the technology that s available is much different he said
For Corbat Mexico is a big bet
Even as he disposed of nearly two dozen other foreign units Corbat has resisted calls to sell the Mexican operation and return proceeds to shareholders citing its hearty profit margins strong local brand and growth potential
Last October he pledged to add 1 billion to a 1 5 billion extra outlay dedicated to Mexico and underscored his commitment by adding Citi to the bank s previous name Banamex
While Citi does not break out Citibanamex profits analysts estimate that it delivers nearly one tenth of Citigroup s profits and produces a 15 percent return on equity almost double what the entire bank reported last year
That makes Mexico crucial for the whole company to hit a 10 percent target Corbat initially set for 2015 but now aims to reach by 2019 Because of the missed targets Citigroup s shares have lagged other big U S banks since Corbat took the helm in 2012 Graphic
SLIPPING SHARE
Much of Mexico s appeal is its potential for growth given that only half of its adult population has a bank account and many people visit banks to pay utility bills in cash
In fact its banking sector has been expanding by more than 10 percent a year according to economic research from BBVA MC BBVA
Yet a review of government data and dozens of interviews with current and former executives and competitors show Citi has struggled to capitalize on that growth Citibanamex has lost market share to Spanish owned BBVA Bancomer and Santander MC SAN Mexico as well as locally owned Banorte and fallen behind in return on assets and service ratings Graphic
Competitors are also spending more BBVA for instance started investing 3 5 billion in Bancomer branches in 2013 and recently committed another 1 5 billion
Citibanamex s lineage dates back to late 19th century and its assets include the Palace of Iturbide where Mexico s first emperor lived and one of the largest private collections of Mexican art Previously owned by the federal government and known as Banco Nacional de Mexico it was once the nation s No 1 bank and enjoyed a high degree of autonomy even after Citi acquired it in 2001
That changed three years ago after it was rocked by a 500 million loan fraud a U S criminal investigation into possible money laundering violations losses on loans to Mexican homebuilders and problems with expense reporting and rogue traders
Citigroup responded by installing new local management adopting new risk controls and starting to upgrade the bank s technology and its branches
Francisco Tobias Citibanamex s finance chief said losing market share was an inevitable consequence of the changes but they should pay off in the long run
I m more focused on having a profitable business with the right metrics that will take us where we need to be than obsessing about the market share that we lost Tobias said
Young educated Mexicans are a key target said Citibanamex CEO Ernesto Cantu
Twenty something years later a little over half of them are still going to bank with the bank that gave them their first credit card Cantu told Reuters
To accomplish that Cantu will have to win over people like Claudia Hernandez a 26 year old college student from Mexico City
Hernandez said she switched to Citibanamex two years ago because her employer would only deposit paychecks at that one bank a common practice among Mexican companies and has been frustrated by slow service ever since
They took a whole month just to set up the account she said I d rather be at Santander or Bancomer They don t have as much red tape
At the Del Valle location lines have not disappeared but more customers are using ATMs and waiting less branch manager Maria Isabel Rodriguez Madrid said
Customers used to have to visit three different windows for three different transactions she said Now they can get everything done by waiting in just one line
Lost ground
Citigroup s underperformance
Service ratings
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C | Ballooning Chinese dollar borrowing a dilemma for index trackers | By Sujata Rao and Saikat Chatterjee LONDON HONG KONG Reuters Record breaking dollar bond sales from Chinese companies are steadily increasing China s weight in global indexes raising concerns about overexposure among investors who track them Corporates rapid move onto offshore bond markets partly a response to the crackdown on runaway credit growth at home highlights China s multi faceted indebtedness a growing worry for investors Overall debt is approaching 300 percent of annual economic output GDP and Moody s said it was the reason for cutting China s credit rating for the first time in 30 years Stripping out maturing debt and coupon payments year to date bond sales from companies in emerging markets total 65 billion including 54 billion from China JPMorgan NYSE JPM estimates In gross issuance terms almost half this year s emerging market corporate bond sales are from Chinese firms the bank said Company debt issuance in other emerging markets has been subdued by commodity and growth slumps Some indexes cap the weight they give to each country but most are committed to broadly representing the market This means that the indexes have to increase the weighting they give to China and investors whose portfolios track or benchmark an index must adjust accordingly It poses a challenge for global portfolios You don t want to have too much of a good thing said Greg Saichin head of emerging debt at AllianzGlobal Investments China today comprises around 20 percent of the Markit iBOXX emerging market corporate index versus 0 5 percent in 2007 In JPMorgan s CEMBI Broad index too China is 21 percent up from less than 4 percent in 2010 though in the iBoxx corporate dollar bond index which also includes developed countries and is dominated by U S names China s weight remains around 0 8 percent It has risen however from 0 074 percent five years ago Chinese firms should this year easily surpass the 108 billion debt raised in 2016 and 116 billion in 2014 In 2010 just 14 billion was issued It s just a juggernaut of issuance said Guy Stear co head of fixed income research at Societe Generale PA SOGN in Paris It s so large that it s a game changer in terms of EM corporates it s not just commodity companies its cement materials internet companies there s a broad range The Chinese deals are mostly welcomed by money managers who need to invest the money pouring into their funds Also Chinese state run firms still carry investment grade ratings unlike issuers from many big emerging economies such as Russia Turkey and Brazil Relative to rating Chinese debt pays relatively decent yield against that people are conscious that if you are running an EM credit fund you have very very high exposure to one part of the world Stear said ALLOCATION CONUNDRUM One popular solution for the allocation dilemma is unconstrained debt funds that are less committed to representing the market Morningstar data showed 10 such funds focused on Asian fixed income were launched already this year by asset managers More than 40 launched in 2016 We are already seeing clients and investors wanting a diversified approach rather than just seeking exposure to a broad emerging market bond index said Bryan Collins a portfolio manager at Fidelity International in Hong Kong Such funds can opt for less China exposure Or they can delve down the credit curve and away from state run firms whose close correlation with sovereign yields offers less prospect of outperformance Collins said Other commonly used indexes cap China s weight JPMorgan s CEMBI Broad Diversified limits the weight each country can have while Citigroup NYSE C and Bloomberg have recently launched index variations capping China exposure We stay with the Broad Diversified and we are comfortable with China at 8 10 percent said Steve Cook co head of emerging debt at PineBridge Investments in London Cook noted that the 400 billion plus market was still a fraction of the 5 7 trillion outstanding in U S investment grade credit Corporate dollar bonds also comprise a small proportion of the country s overall debt estimated by some to be as high as 28 trillion COOLING DOWN Chinese authorities were trying to cool the dollar bond boom even before the Moody s rating downgrade Property firms for instance no longer receive new issuance quotas Reuters has reported Their efforts could accelerate after the Moody s downgrade and subsequent rating cuts for state run firms should also raise borrowing costs But bond sales are unlikely to grind to a complete halt For one raising cash overseas can allow companies to sidestep curbs that are in place to combat capital flight Second companies total debt repayments in 2017 are estimated at 5 5 trillion yuan 797 36 billion by ratings agency China Chengxin For investment grade Chinese firms dollar borrowing works out some 90 basis points cheaper than on domestic markets where interest rates have risen The spread between JP Morgan s China index and onshore AA rated corporate debt is at its widest in two years this chart shows If you are laden with debt interest rates are rising and you need to roll over debt you find the money wherever you can Stephen Jen CEO of Eurizon SLJ Capital said This version of the story corrects China s weight in global corporate bond index in paragraph 9 To view a graphic on Chinese corporate dollar debt click |
C | Fed faces a surprise problem on U S inflation | By Dan Burns NEW YORK Reuters Recent data on the performance of the U S economy has been generally on the soft side a sore point discussed at length by Federal Reserve officials at their latest meeting minutes of the gathering released on Wednesday showed In fact measures developed by Citigroup NYSE C economists to track how incoming economic data stacks up against market expectations show the latest numbers from the United States have been falling persistently short of forecasts Meanwhile Citi s comparable economic surprise indexes for other regions show just the opposite upside surprises To view a graphic on Citigroup s Economic Surprise Index click Of particular concern for the Fed are recent undershoots on key gauges of inflation that have been lagging the central bank s stated target of 2 percent annualized consumer price growth Market based measures of long term inflation expectations have also weakened substantially enough so that Fed policymakers agreed at their last meeting that before raising rates again they would need stronger data to confirm recent weakness was not a new trend With doubts rising over U S President Donald Trump s ability to deliver policies to promote faster economic growth many of these gauges have fallen back to near Election Day levels For graphic see Citi s inflation surprise indexes underscore the Fed s anxiety As this chart shows recent U S inflation readings have returned to their long term trend of underperforming against forecasts after a brief run of upside surprises earlier this year Meanwhile inflation reports from Europe have topped expectations by the widest margin on record The rest of the so called Group of 10 largest developed economies are meanwhile beating forecasts by the most since the financial crisis nearly a decade ago even after taking into account the drag from U S numbers Even Japan notorious for its decades long struggles against deflation is posting inflation data notably above forecasts For a graphic on U S Inflation Surprises vs Europe Japan G10 click The upshot is that the inflation surprise gap between the United States and Europe has never been wider Between the United States and the rest of its G 10 peers that gap is the widest in 15 years The next chance for that gap to narrow comes in the week ahead when the personal consumption expenditures price index for April is reported by the Bureau of Economic Analysis In March the core PCE rate excluding food and energy costs and considered the Fed s favored measures of inflation fell further from the Fed s target Tuesday s PCE release will also be the Fed s last piece of key inflation data before policymakers gather in mid June for their next rate setting decision For a graphic on Inflation Surprise Indexes Citi click Reporting and graphics by Dan Burns Editing by Meredith Mazzilli |
C | Citigroup Slides Watch This Trade Level | Citigroup NYSE C is falling lower by 2 42 to 52 82 a share This decline breaks the recent uptrend in CIT stock Very often sharp declines like this will lead to further downside in the near term Traders should note that the stock has support around the 200 day moving average which is currently around 50 Unfortunately CIT trades less than a million shares a day on average which tells me that we have to compensate for overshoot and look lower
Support Watch
The next major support level for Citigroup will be around the 48 area That s where the stock broke out in November 2017 and should be solid support when retested |
JPM | FTSE Shake Off Despite Volatile China | China woke up to another stormy dayin equities Asian stocks opened the week with another wave of dramatic sell offs Shanghai Composite tumbled by 5 33 while the Hang Seng wrote off 2 57 Interbank yuan lending rates in Hong Kong climbed to records across the board after suspected intervention by PBoC last week mopped up supplies of the currency in the offshore market according to Bloomberg News
This shakiness in the Chinese market could hardly be prevented as investors push back on the PBoC s interventions Reticence to return to the Chinese stock market will remain until there is a fairly strong conviction that the bottom is in Traders could also stand ready for another 10 15 depreciation in yuan This does not mean that the 10 trillion dollar worth Chinese economy is collapsing at the speed of the stock sell off There is certainly a decoupling between the economic fundamentals and market behaviour
European equities have to some extent shrugged off losses this morning with no clear driver apparent expect perhaps some bargain hunting in the wake of last week s rout The FTSE held ground at 5885 at the open thanks to several positive updates from brokers BAE Systems L BAES 2 21 the biggest gainer in the FTSE has been overweight by JPMorgan N JPM as European defence companies are expected to outperform the aerospace in 2016 Whitbread L WTB and Sage Group L SGE have been upgraded to buy at BoFA Standard Life L SL has also received a buy recommendation at Deutsche Bank DE DBKGn and Jefferies
Same story but different day for the UK miners
Oil and commodities remain on slippery ground The WTI traded 2 56 lower and is again testing the 32 copper and iron ore are down 2 42 and 4 38 respectively Despite a marginal recovery in early trade amongst UK miners given current fundamentals and any recent rally history the downside pressure will remain pertinent with copper now trading below 2 lb
Gold remains above 1100 oz which helps support the likes of Randgold L RRS and Fresnillo L FRES While above this level and with the choppiness in risk assets still a factor we may see the precious metal strike higher
Pound plunges deeper
The pound tested 1 4500 a fresh 5 year low against the US dollar euro pound surged to 0 7555 for the first time since February 2014
The Bank of England meets on Thursday and is expected to keep the status quo and to deliver a fairly dovish accompanying statement Expectations for the first BoE rate hike are being pushed forward in time as the BoE will certainly not be in a position to raise rates within the six months following the first Fed rate hike The sovereigns price in a 25 probability for a November hike from the BoE
Selling pressures on cable remain due to the divergence in Fed BoE policy outlooks
The surge in euro demand is well underway The risk off atmosphere is supportive of the single currency The key mid term resistance is eyed at 1 1030 45 200dma with intermediate resistance expected at 1 0980 Fib 38 2 On the downside the break of 1 0710 should shift the attention to 1 0650 |
JPM | The Clarion Call On The Market | On Tuesday The Royal Bank of Scotland s L RBS credit chief Andrew Roberts made the clarion call to sell everything He predicts a cataclysmic year faces investors in 2016 A day earlier a JPMorgan N JPM equity strategist advised investors to sell any rally
Investors are grappling with an increase in market volatility at the start of the New Year After celebrating the end of a flat to mostly negative year in 2015 investors least expected the pace of the current January market pullback As I discussed in this past weekend s post A Difficult Beginning For The Market To Start The New Year market swings of greater than 10 have been scarce since 2011 Essentially the market steadily climbed higher for nearly four years until last August when the S P 500 Index declined 12 4 from the May high In other words investors may have been conditioned to expect lower volatility from stock prices
Earlier today Alan Steel Chairman of Alan Steel Asset Management a Scotland based investment firm wrote the below succinct commentary about the current market environment and the accuracy of strategists doomsday market predictions
Under Pressure Pushing down on me Pushing down on you
So just when you thought things couldn t get any worse given the state of world stock markets last week on Monday David Bowie died and on Tuesday some idiot at RBS tells you to sell everything and stick it in Government bonds and cash
Nothing Ever Ch Ch Ch Ch Changes
RBS s credit chief is the latest in an increase of high profile forecasters predicting an oncoming crisis at least as bad as 2008 But before you start reaching for the panic button spare a thought for researcher and author Philip Tetlock who studied the aggregate accuracy of 284 experts making 28 000 forecasts and found you d be better off tossing a coin than tuning in And what of the financial media darlings who claim they predicted the 2008 financial crisis Well if you peddle the same gloom year after year then chances are that one day you re going to be right the same way a stopped watch is right twice a day utterly useless
Granny McKay
You may recall my granny McKay was my fount of all knowledge She always said there s two sides to every story The problem is that all we hear right now is one side The negative China is an economic basket case oil s too cheap rather than too dear there s simultaneously too much debt and too much money pushing shares too high try and work that one out Oh and Planet Earth is blue and there s nothing we can do Oh Really
Now I know somebody who actually did accurately predicted the 2008 crisis His name is Joe Kalish of Ned Davis Research NDR Joe made clear in no uncertain terms what was en route Sadly few listened Instead headline writers at the time were busily obsessed with the joys of leveraged property deals It s Only Natural
So what s he saying to it these days He reminds us stock markets fall by double digits in percentage terms at least once on average every two years So it s natural not unusual
But pull backs have been thin on the ground these last 6 years so this one was overdue And here s something else that s interesting Show Me The Money
In a recent webinar we were reminded that back in 2007 NDR downgraded recommended equity exposure to only 40 whereas right now they still recommend 70 exposure almost their highest level
So What Should You Do
For starters realise that great investments do not go up in a straight line It s natural to have pullbacks But in our fast change investment world today it makes sense to build foundations of caution and value and add carefully chosen funds who seek and hold GARP shares Growth At Reasonable Price And that s more than just a sound long term investment strategy You might say it s downright Hunky Dory Alan Steel Chairman Alan Steel Asset Management
Knowing the economy is not the market or vice versa in our recently released Investor Letter we commented on the fact that we do not believe we are headed for a global recession Are their challenges facing the economy Certainly We do know though the Fed matters and prior instances of monetary tightening have led to brief periods of higher market volatility subsequent to the first rate increase
During this period investors should evaluate their asset allocation to ensure they have adequate investments that will hold up well in volatile equity situations which they can access to fund their lifestyle From a manager perspective we are looking to use this opportunity to purchase attractively valued stocks that we believe have been unjustly caught up in the pullback |
JPM | A Bounce For Asia | A bounce for Asia but can it hold
Asian markets look set for a bounce today but its sustainability is still an open question Gains in US equities overnight supported by moves in commodities and stability in Chinese equity markets yesterday are pointing to a positive session for the S P ASX 200
As usual however all bets will be off when we see 12 30 AEDT roll around with the open of the Chinese cash market The big unknown today is whether we have seen a sustainable bounce in Chinese equities and whether yesterday s gains can be held onto Some sense of stability does seem to have been wrestled into the Chinese yuan this week but the Chinese equity markets have been more immune to muscular shows of state intervention
Some stability has taken hold of the Chinese equity markets A group of 28 companies listed on China s tech and small cap focused N CNXT index calling themselves the C28 vowed to take real action to stabilize the market The ChiNext surged 5 6 on the news the most in two months But given it is the most volatile of all the Chinese equity markets it may struggle to hold this momentum Nonetheless ChiNext gains cheaper valuations and probably some state buying helped the Shanghai Composite see a 2 gain and push back above that key psychological level of 3000 The People s Bank of China PBoC does look to have reined in the onshore and offshore Chinese yuan for the moment so the big unknown today will be whether Chinese equity markets can hold onto their gains
The Chinese equity markets do look to have helped commodities overnight The Qingdao Iron ore price jumped 1 8 back over the US 40 mark while aluminum climbed 1 6 and nickel gained 3 on the London Metal Exchange Oil also saw steady overnight gains with WTI and Brent both gaining over 2 and pushing into the US 31 handle All of this bodes well for the materials and energy sectors on the ASX The materials sector on the FTSE 100 was the best performer overnight with Anglo American L AAL gaining 13 6 BHP Billiton N BHP up 6 and Rio Tinto N RIO up 3 1
Positive news from China and in the commodities complex could well push the Aussie dollar back above the US 0 70 mark today If this bounce proves sustainable the Aussie dollar moving into the US 0 71 0 72 level in the near term With volatility going down the safe haven in the Japanese yen is decreasing The USD JPY gained 0 3 and had moved into the 118 handle if volatility continues to go down globally moves into the 120 121 level also look reasonable
A strong bounce in US stock overnight is also likely to further buoy the Asian markets today The VIX dropped from 25 2 to 23 6 but remained elevated above its 8 year average of 21 6 The S P 500 had reached highly oversold territory dropping to its lowest levels seen since September while the percentage of companies above their 200 day moving average had dropped to 20 the lowest level seen since 25 August Dovish comments from Fed members Bullard overnight and Evans the day before also helped market sentiment JPMorgan Chase Co N JPM saw its stock rally 3 2 after beating earnings estimates and lowering its surcharge as a global systemically important bank But energy healthcare and tech stocks were the main drivers behind the S P 500 s 1 7 gain |
MS | JPMorgan to pay most in 1 86 billion swaps price fixing settlement Bloomberg | Reuters JPMorgan Chase Co NYSE JPM is set to pay almost a third of a 1 86 billion settlement to resolve claims that a dozen big banks conspired to limit competition in the credit default swaps market Bloomberg reported JPMorgan is paying 595 million Bloomberg said citing people who asked not to be identified because the firms haven t disclosed how they re splitting costs Morgan Stanley NYSE MS Barclays Plc and Goldman Sachs Group Inc are paying about 230 million 175 million and 164 million respectively the report said Goldman JPMorgan and Barclays LONDON BARC declined to comment Morgan Stanley was not immediately available to comment on the report
Credit default swaps are contracts that let investors buy protection to hedge against the risk that corporate or sovereign debt issuers will not meet their payment obligations |
JPM | S P downgrades South Africa s local currency debt to junk status | By Olivia Kumwenda Mtambo and Mfuneko Toyana JOHANNESBURG Reuters S P Global Ratings downgraded South African local currency debt to junk territory on Friday citing a further deterioration in the country s economic outlook and public finances sending the rand tumbling But Moody s decision to only place South Africa on review for a downgrade may have prevented a larger sell off in the currency Moody s rates the country s foreign and local currency debt on their lowest investment grade rung of Baa3 The downgrade by S P comes after Finance Minister Malusi Gigaba shocked markets on Oct 25 by flagging sharply weaker growth expectations a wider budget deficit and rising government debt Infighting within the ruling African National Congress ahead of a conference in December to elect a successor to President Jacob Zuma as party chief has also sapped investor confidence in Africa s most industrialised economy where growth has slowed to a near standstill in recent years Weak GDP growth has led to further deterioration of South Africa s public finances beyond our previous expectations S P said in a statement We expect that offsetting fiscal measures will be proposed in the forthcoming 2018 budget in February next year but these may be insufficient to stabilize public finances in the near term contrary to our previous expectations S P lowered the long term local currency sovereign credit rating to BB from BBB and also cut the long term foreign currency rating deeper into sub investment grade territory lowering it to BB from BB S P raised the outlook on both the foreign currency and local currency ratings to stable from negative Standard Chartered LON STAN Bank s Chief Africa Economist Razia Khan said South Africa now has to show concrete signs of reform Granted it s not as bad as a downgrade from both rating agencies might have been but it is not much better either Khan said The ZAR rand will be impacted by the uncertainty The rand weakened 2 percent against the dollar after S P s announcement moving from 13 9000 dollar to a session low of 14 1675 BOND INDICES Local currency borrowing makes up about 90 percent of the South Africa s total 2 2 trillion rand 159 billion of debt A cut to junk on the local currency debt by both S P and Moody s could have seen South African debt lose its place in the Citi s World Government Bond Index WGBI the biggest of the global benchmarks and tracked by about 2 3 trillion of funds That could have forced index tracking and rating constrained funds to sell more than 10 billion in debt analysts have predicted Investors from here will begin to treat South Africa as good as out of the Citi WGBI with commensurate outflows But given insatiable demand for emerging market debt there could be a natural underpin for even South African debt said Lesiba Mothata chief economist at Alexander Forbes S P decision will see South Africa excluded from the Barclays LON BARC Global Aggregate index whose inclusion criteria requires investment grade rating on its local currency debt from any two ratings agencies Fitch already rates South African debt as junk and affirmed the rating on Thursday
South African debt has already been dropped from one the widely used global bond indexes the JPMorgan NYSE JPM Emerging Market Bond Index Global |
JPM | South Africa s Zuma calls for action after S P downgrade rand up on Moody s reprieve | By Olivia Kumwenda Mtambo JOHANNESBURG Reuters South African President Jacob Zuma called for concrete measures to boost growth after S P Global Ratings downgraded the local currency debt to sub investment grade while foreign currency debt was pushed deeper into junk territory The rand recovered on Monday from steep falls suffered late on Friday after the downgrade taking some relief from Moody s decision to only place South Africa on review for downgrade A cut to junk on the local currency debt by both S P and Moody s could have seen South African debt lose its place in Citi s World Government Bond Index WGBI the biggest of the global benchmarks and tracked by about 2 3 trillion of funds Zuma directed Finance Minister Malusi Gigaba on Monday to finalize proposals for expenditure cuts amounting to 25 billion rand 2 billion and revenue boosting measures totaling 15 billion rand including through taxes A proposal by a presidential commission to introduce free higher education should also be implemented in a fiscally sustainable manner the statement from Zuma s office said Gigaba in October unveiled a gloomy outlook for the economy as he flagged weaker growth expectations wider budget deficit estimates and rising government debt Both S P and Moody s cited deterioration in South Africa s economic growth prospects and public finances As of 1032 GMT the rand was trading at 13 7450 per dollar 2 98 percent firmer than its New York close on Friday when it had tumbled 2 percent following S P s announcement The market is finding some relief in the fact that Moody s has chosen to give us basically till February before they change our rating if they do change our rating said Shaun Murison currency strategist at IG Markets In fixed income the yield for the benchmark government bond was down 10 basis points to 9 235 percent also recovering after rising as much as 11 basis points earlier in the session Moody s said the review will allow it to assess the South African authorities willingness and ability to respond to the rising pressures through growth supportive fiscal adjustments that raise revenues and contain expenditures The review period may not conclude until the size and the composition of the 2018 budget is known next February Moody s senior analyst for South Africa Zuzana Brixiova said in a statement Moody s rates South Africa s foreign and local currency debt on their lowest investment grade rung of Baa3 VOLATILITY S P s decision will see South Africa excluded from the Barclays LON BARC Global Aggregate index whose inclusion criteria requires investment grade rating on its local currency debt from any two ratings agencies Fitch already rates South African debt as junk and affirmed the rating on Thursday If nothing changes the country will be downgraded to junk by all ratings agencies and the WGBI dream will be no more at least for many a year said Standard Bank chief trader Warrick Butler in a note What this means in terms of the currency will be increased volatility Falling out of the WGBI could have led to a larger sell off in bonds even though rising yields could present a buying opportunity for some yield hungry investors If you look at some of the metrics the real yields are among the highest in EM the domestic curve is extremely steep the current account is in better place than it was three to four years ago and the rand is quite competitive against likes of Russia s rouble or Brazilian real said London based Paul Greer senior trader at Fidelity International On the local side the real yield and steepness of curve look attractive from tactical perspective Analysts said an exclusion from the Barclays index would lead to outflows of about 2 billion compared with more than 10 billion if South Africa was to fall out of Citi s WGBI South African debt was dropped from one the widely used global bond indexes the JPMorgan NYSE JPM Emerging Market Bond Index Global in April after S P and Fitch downgraded foreign currency debt to sub investment grade
On the stock market the Top 40 JTOPI index was 0 25 percent lower at 53 863 while the broader all share was down 0 24 percent at 60 180 |
JPM | Bitcoin shoots over 9 900 | s impressive tear continues Tuesday morning with the digital currency reaching a new high above 9 900 The scorching hot digital coin was trading up 2 14 at 9 942 per coin according to data from Markets Insider pushed closer to the much anticipated 10 000 threshold Tuesday morning The scorching hot digital currency which has been gunning for 10 000 since the US Thanksgiving holiday was trading up 2 14 at 9 942 a coin as of 7 03 a m ET The digital currency has gained nearly 2 000 since Friday s low of 7 958 according to data from cryptocurrency watcher CoinDesk Traders according to John Spallanzani chief macro strategist at GFI Group are eagerly awaiting 10 000 The BitcoinBulls really want the 10 000 print he told Business Insider over email Already the coin is trading above 10 000 on some exchanges including the CEX digital currency exchange As for how high bitcoin will go billionaire businessman the coin will continue to push higher as retail investors pour into the space and folks with large bitcoin holdings continue to treat it more as a collectible than a currency The number of people opening up new accounts and buying bitcoin even fractionally is skyrocketing he said Yet the people who have it as a true store of value have no reason to sell it as long as demand continues Since the list of merchants that accept bitcoin is still relatively small so called holders or hodlers as they are referred to in bitcoin circles don t have many places where they can spend their coins either They can t spend it so they keep it Cuban said If big holders don t sell and the number of Coinbase users keeps going up the sky is the limit Famed hedge funder turned crypto investor Michael Novogratz The former Fortress manager told CNBC Monday that bitcoin could potentially hit 40 000 by the end of 2018 Novogratz who is planning to launch his own cryptocurrency hedge fund said a spike in interest from both retail and institutional investors could push bitcoin to his bullish price target There s a big wave of money coming not just here but all around the world he said To be sure Novogratz thinks there will be bumps on the road to 40 000 with 50 corrections along the way Also not everyone is bullish on bitcoin A number of Wall Street s most respected heavy hitters including JPMorgan NYSE JPM CEO Jamie Dimon and BlackRock CEO Larry Fink have come out against the coin Bitcoin is up 875 year to date the technology powering bitcoin |
C | China opening up its bond markets but currency seen as major barrier | By Saikat Chatterjee and Umesh Desai HONG KONG Reuters China s policymakers plan to open the doors wider than ever to foreign investment in the country s 3 trillion bond market in part to help shore up the struggling yuan But the currency is also proving to be a major barrier to the success of their plan Foreigners own less than 2 percent of China s 3 3 trillion in outstanding bonds and say getting their cash out of China and recent weakness of the closely controlled currency are obstacles to investment Foreign investors are also skeptical they can assess risk accurately when most of the 2 1 trillion in corporate bonds are rated investment grade by domestic rating agencies Chinese bonds offer their highest yields in two years and on the basis of 10 year sovereign debt the biggest interest rate gap with equivalent U S Treasuries in eight months highlighting the dilemma of a market that is appealing on the one hand but on the other considered to carry too many risks If investors wanted to have more exposure to Chinese bonds we can do it tomorrow said Andy Seaman a partner and chief investment officer of London based fund manager Stratton Street But unfortunately they don t It s very difficult to persuade people because of the currency They don t want renminbi he said While China s measures to clamp down on capital outflows to reduce pressure on the yuan have captured the headlines since late last year the country has also been opening up its bond market and liberalizing its financial derivatives aiming to draw money into the country Premier Li Keqiang said in March that China was considering setting up a trading link with Hong Kong this year similar to one already used to trade stocks which would give foreign investors much easier access to the world s third biggest bond market INDEX PROVIDERS Chinese bonds have been included in some more narrowly focused indexes run by Citigroup NYSE C and Bloomberg and before opening up its bond market China had allowed quota based foreign investment China Central Bank Governor Zhou Xiaochuan has said officials would work to open the market further We don t intentionally seek the inclusion of yuan bonds into any particular bond index but will push forward in this direction on a steady basis he said in March A senior Hong Kong central bank official familiar with mainland thinking said the trading link plan and other reforms are aimed at addressing concerns by bond index providers about investors ability to access Chinese bond markets China knows that quota based allocations to foreign investors are not very attractive to bond investors and these steps will allow foreign institutions to buy onshore debt sitting comfortably from their offices in Hong Kong or Singapore the official said He declined to be identified because he was not authorized to talk to the media While these measures might provide easier access for foreign investors to China s bond market the yuan is no longer a one way appreciation bet It fell almost 7 percent in 2016 its biggest decline since a revaluation against the dollar in 2005 Introducing more currency volatility has helped Chinese authorities shake off speculators but it has also pushed other investors away too Stratton Street s Renminbi Bond Fund which enables clients to profit from potential yuan appreciation and Asian bond yields has shrunk by around 80 percent to 70 million since its peak of 380 million in 2012 An analysis of offshore yuan denominated bond funds compiled by Morningstar shows total assets under management shrank by nearly half in the last year to about 11 6 billion The yuan s outlook against the dollar remains a hurdle for significant inflows into China s bond markets said Rohit Arora a UBS strategist in Singapore A Reuters poll conducted in the past week found the yuan is forecast to weaken to 7 07 against the dollar in a year It was changing hands at 6 91 per dollar on Tuesday Analysts and China state media hailed the inclusion of Chinese bonds in three Citigroup government bond indexes as a milestone But the investment bank stopped short of including them in its widely followed World Government Bond Index WGBI which tracks assets of between 2 trillion and 4 trillion Inclusion could draw capital inflows into China of hundreds of billions of dollars HSBC analysts say But that may be some time in coming said Lewis Emmons principal at Mercer Investment Solutions in Singapore The recent creation of new halfway house indices potentially prolongs the horizon for full inclusion of China bonds in the most common indices he said
Investors still need assurances about their ability to move cash in and out of China |
C | Kornit announces pricing of secondary public offering of ordinary shares | Kornit Digital KRNT 9 3 announced the pricing of an underwritten secondary public offering of 4 25M ordinary shares by the company s largest shareholder Fortissimo Capital Fund II at a price to the public of 20 60 per share Fortissimo has also granted the underwriters a 30 day option to purchase up to an additional 637 500 ordinary shares The company will not receive any of the proceeds from the sale of the ordinary shares Barclays LON BARC and Citigroup NYSE C are acting as joint bookrunners for this offering The offering is expected to close on May 19 Press Release |
C | Exclusive Brazil central bank eyes new fintech rules this year | By Marcela Ayres BRASILIA Reuters Brazil s central bank is looking to implement regulations this year to oversee financial technology companies that are expanding rapidly in Latin America s biggest economy director Otavio Damaso told Reuters Increased innovation and a growing number of fintechs as technology startups in the financial sector are known are very positive for the efficiency of Brazil s financial system Damaso said on Monday Damaso said the bank also wanted to facilitate the entry of foreign banks in the local market by eliminating the need of a presidential decree to continue the approval process Brazilian consumers who are reeling from a record recession that has left millions unemployed pay some of the highest interest rates among major economies In the last few years hundreds of fintechs have sprouted in Brazil to provide cheaper loans and more accessible services challenging cautious banks that have tightened their purses during the two year recession While fintechs still have only a small share of Brazilian banking they are expanding rapidly in segments such as credit cards and consumer lending I believe there is room for further expansion of credit fintechs Damaso said and new regulations would pave the way for that development within a secure judicial framework The new rules would cover fintechs teaming up with banks to offer loans those providing securitized credit from institutional investors and peer to peer lenders connecting borrowers directly with individual investors Damaso said To further diversify Brazil s financial system which is dominated by four local banks the central bank is also trying to simplify the entry of foreign banks The central bank is in charge of approving licenses for foreign banks interested in operating in Brazil but the process still hinges on a presidential decree recognizing the request as being in the national interest The idea is for that recognition to be transferred to the central bank so that way you eliminate one step of the process Damaso said Media representatives for the president did not immediately respond to a request for comment Last year Banco do Brasil SA SA BBAS3 Ita Unibanco Holding SA SA ITUB4 Banco Bradesco SA SA BBDC4 and Caixa Econ mica Federal held 72 7 percent of the assets of the country s commercial financial institutions
That concentration has grown as two major foreign banks announced their departure last year HSBC Holdings Plc L HSBA sold its local unit to Bradesco and the central bank is evaluating Ita s purchase of Citigroup Inc s N C retail banking assets in Brazil |
C | Mexico Or France Which Country ETF Wins Cinco De Mayo 2018 | Cinco de Mayo meaning the fifth of May in Spanish is a day of gratification for all Mexicans The day honors the Mexican army s incredible victory over the French militia in the Battle of Puebla in 1862 Though the victory was short lived as the French finally took over the day became commemorative of Mexican ethnicity and is widely celebrated even in the United States
So let s play a mock war between Mexico and France This mock fight will give investors a fair idea of the present stock market scenario of the two countries
iShares MSCI Mexico Capped ETF Up 4 5 YTD as of May 3 2018 The Mexican economy can be represented by the pure play ETF EWW Mexican economic activity increased in the first quarter marking the thanks to a pickup in industrial production and services
The economy expanded sequentially in the first three months of 2018 higher than 0 8 recorded in the previous period The recent recovery in oil prices probably brought relief for the economy However the year over year growth was 1 2 below 1 5 logged in Q4 of 2017
However there are concerns related to NAFTA The United States and its NAFTA partners are striving to reach a in the coming days U S Trade Representative Robert Lighthizer said this week that if a deal to review NAFTA cannot be reached in about three weeks its could be at risk
On the other hand Citigroup NYSE C warned that Mexico s as its deficit swells under Andres Manuel Lopez Obrador the presidential candidate who took the lead in polls ahead of the country s presidential election on July 1
Citigroup also projected that the economic platform of the front runner in the July 1 elections would cut 0 7 percentage points from projected economic growth and raise inflation estimates by 23 The fund EWW currently has a Zacks Rank 4 Sell
iShares MSCI France ETF Up 0 6 YTD as of May 3 2018
On the other hand the French economy grew 0 3 sequentially in Q1 of 2018 slowing from a 0 7 growth in Q4 and missing market expectations of 0 4 The latest growth reflected the since the third quarter of 2016
Subdued household consumption and slower fixed investment weighed on the growth There was a sluggishness in corporate investment Exports dropped 0 1 in Q1 easing from a 2 5 rise in the previous quarter The economy expanded by 2 1 year over year versus a 2 6 growth rate recorded in the previous period
Still the lure of French investments is not absolutely dull The European Central Bank ECB has been accommodative The bank s net asset purchases are likely to run at a monthly pace of 30 billion until the end of September or beyond should the need be read
Economists at Capital Economics expect the Euro zone growth to rebound in the range of 0 5 0 6 in Q2 on strong consumer confidence EWQ has a Zacks ETF Rank 2 Hold
The Winner
Like the actual war the Mexico economy has emerged winner in Q1 of 2018 Its ETF also performed better than the France ETF so far this year However over the long term the battle might present us a different victor given uncertainties related to the election and NAFTA deal in Mexico read
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C | Company News For May 9 2018 | Dean Foods Company s NYSE DF shares surged 16 9 after reporting first quarter adjusted earnings of 0 14 per share surpassing the Zacks Consensus Estimate of 0 12 per shareShares of Gartner Inc NYSE IT rose 5 4 after reporting first quarter adjusted earnings of 0 72 per share surpassing the Zacks Consensus Estimate of 0 58 per shareSeaWorld Entertainment Inc NYSE SEAS shares jumped 7 2 after reporting first quarter revenues of 217 2 million surpassing the Zacks Consensus Estimate of 197 7 millionShares of Citigroup Inc NYSE C increased 3 7 on news that ValueAct has acquired a stake of 1 2 billion in Citigroup |
JPM | The Fed Awakens A New Hike | That s when the Federal Reserve last raised interest rates just a year after the last Star Wars flick hit theaters The biggest movie at the time was Adam Sandler s Click the hottest song Shakira s Hips Don t Lie The best performing S P 500 Index stock for the month was C H Robinson Worldwide And as for Janet Yellen she was president of the Federal Reserve Bank of San Francisco
If June 2006 doesn t seem that long ago consider this Up to a third of asset managers working today have never experienced a rate hike professionally
On Wednesday Chair Yellen announced that for the first time in seven years easy money will become slightly less easy The target rate will be set at between 0 25 and 0 50 percent which doesn t sound like much but it s important that the Fed ease into this cycle cautiously and gradually Plus this comes at a time when fellow industrialized nations and economic areas around the globe are considering further monetary easing measures
Effects and Possible Ramifications Keep Calm and Invest On
Up to a third of money managers working today are more likely to have attended a midnight screening of the last Star Wars movie than experienced rising interest rates Rising rates of course have a noticeable effect on mortgages car loans and other forms of credit Savers will finally start earning interest again
The question on investors minds though is what effect they might have on their investments After all the last couple of days have been challenging for stocks with the S P 500 dropping 1 5 percent on Friday alone Is the Fed decision to blame
To answer this CLSA analyzed what happened to the U S dollar and stocks in the S P 500 Index 60 trading days before and after the initial rate hike in past cycles and then calculated the averages It s important to keep in mind that aside from rising interest rates a multitude of unique factors from geopolitics to economic conditions to the weather played roles in influencing the outcomes Nevertheless CLSA s research is instructive
The group finds that on average the U S dollar peaked 10 trading days before the rate hike and then afterward slid lower for four to five weeks This created an agreeable climate for gold and other precious metals and commodities as their prices typically share an inverse relationship with the dollar
As for equities they traded up for 60 trading days following the initial rate hike 70 percent of the time
But CLSA s analysis looks only at possible near term scenarios What about the long term
In the past the results were just as reassuring most of the time Barron s records S P 500 returns 250 and 500 days following the initial rate hike in six monetary tightening cycles going back to 1983 The findings suggest that the market went through an adjustment period with average returns falling from 14 percent before the rate hike to 2 6 percent 250 days afterward But by 500 days returns returned to their pre hike average of around 14 percent
Again many other factors besides interest rates contributed to market behavior in each instance And this time is especially different as the market was given an unusually long runway allowing it to price in the full effects of the liftoff before it finally happened
I can t say whether the same trajectory will be taken this time as before but what CLSA Barron s and others have found should be encouraging news for commodities and stocks
I should also point out that according to the presidential election cycle theory developed by market historian Yale Hirsh markets do well in a presidential election year
The consumer price index came out this week and with an inflation rate of 2 percent the 5 Year Treasury yield is now negative The real interest rate is what you get after subtracting inflation from the 5 year government bond This bodes well for gold Also the 10 Year bond yield is lower than it was six months ago
Investors Flee Junk Bonds and Defaulting Energy Companies Find Comfort in Tax Free Muni Bonds
In 2008 the Fed trimmed rates to historically low levels in response to the worst financial crisis since the 1930s Most people would agree that this helped put the brakes on the U S slipping further into recession
But low rates were also partially responsible for driving many investors into riskier investments over the last few years corporate junk bonds among them as they sought higher yields
Junk bonds or high yield bonds are known as such because they have some of the lowest ratings from agencies such as Moody s and Standard Poor s Because they carry a higher default risk than investment grade bonds they offer higher yields
But with corporate default rates nearing 3 percent for the year and at least one large high yield bond fund cutting off all redemptions investors are facing liquidity problems and learning the hard way why these equities are commonly called junk
The week before last it was announced that a high yield bond fund whose assets under management were worth 2 5 billion as recently as 2013 would be closing after suffering nearly 1 billion in outflows this year This sent the junk bond market into panic mode with several similar funds experiencing near record outflows Fears intensified when legendary investor Carl Icahn tweeted Unfortunately I believe the meltdown in High Yield is just beginning
To make matters worse high yield bonds have fallen into negative territory giving investors little reward for the risk
Energy companies highly leveraged since oil began to spill value in the summer of 2014 top the default list for the year JPMorgan N JPM estimates that the industry s overall default rate might hit 10 percent next year
Junk bonds will likely be dead money for at least several years says Tony Daltorio writing for Wyatt Investment Research Put your money elsewhere
But where exactly is elsewhere
With rates now on the rise many investors have turned to investment grade short term municipal bonds which have seen inflows at the fastest pace since January
Savvy investors know that bond prices move in the opposite direction of interest rates but shorter term munis are less sensitive to rate fluctuations than longer term bonds Put another way bonds that are more sensitive to changes in the interest rate environment will have greater price fluctuations than those with less sensitivity
As municipal bonds head toward the strongest returns in the U S fixed income markets this year investors say the end of near zero interest rates will do little to knock state and local government debt off its stride Bloomberg writes
Over the past seven years low rates certainly contributed to one of the strongest bull markets in U S history Now that easy money is coming to an end we can expect to see more volatility But as the CLSA and Barron s data show there s still plenty of room for growth
It s important therefore to stay diversified Focus on high quality dividend paying stocks investment grade short term municipal bonds and as always gold five percent in gold stocks the other five percent in bullion
Some links above may be directed to third party websites U S Global Investors does not endorse all information supplied by these websites and is not responsible for their content All opinions expressed and data provided are subject to change without notice Some of these opinions may not be appropriate to every investor
The S P 500 Stock Index is a widely recognized capitalization weighted index of 500 common stock prices in U S companies The U S Corporate High Yield Index covers the USD denominated non investment grade fixed rate taxable corporate bond market Securities are classified as high yield if the middle rating of Moody s Fitch and S P is Ba1 BB BB or below The index excludes emerging markets debt The Barclays L BARC 3 Year Municipal Bond Index is a total return benchmark designed for short term municipal assets The index includes bonds with a minimum credit rating BAA3 are issued as part of a deal of at least 50 million have an amount outstanding of at least 5 million and have a maturity of 2 to 4 years
The Consumer Price Index CPI is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals The weights of components are based on consumer spending patterns
There is no guarantee that the issuers of any securities will declare dividends in the future or that if declared will remain at current levels or increase over time
None of U S Global Investors Funds held any of the securities mentioned in this article as of 9 30 2015
By Frank Holmes |
JPM | The U S Dollar Should Remain On Center Stage Despite Market Tentativene | The U S dollar index ended 2015 on a strong note but it has yet to develop any post Fed momentum Of the ten trading days following the rate hike from the U S Federal Reserve the index has closed below that day s intraday high five days Notably the intraday LOW of that day is still holding strong and coincides with still uptrending support from the 50 day moving average DMA
The U S dollar index is struggling to sustain post Fed post rate hike momentum
The lack of post Fed momentum can be seen even more clearly against the euro N FXE EUR USD closed decidedly lower the day of the rate hike but the currency pair has yet to trade any lower The euro strength induced by the remains intact
The euro is still holding up against the U S dollar after the Draghi Drubbing
The virtual stasis for EUR USD since the Draghi Drubbing is very interesting because policy divergence is most compelling between the U S and the eurozone Meanwhile the United Kingdom is getting a pass from currency markets The surprising weakness in December against all major currencies gives the appearance that the market expects the Bank of England to capitulate on hiking rates altogether Against the U S dollar the British pound FXB is approaching an 8 9 month low
The British pound is roundtripping back to its low for 2015
And then there is the Japanese yen N FXY USD JPY practically ended the year where it began The middle contained some large swings Overall the market has yet to make up its mind on which currency is the dominant one I am looking to 2016 to break the logjam One extreme analyst expects USD JPY to hurtle back to 100 see If USD JPY cracks below the floor show in the chart below I will assume 100 as a definite even if a slow burning downside risk for USD JPY
How much longer can USD JPY churn around 2014 s closing trading level
The market s tentativeness on the U S dollar comes even as the market expects more rate hikes ahead The market expects the next hike to come as soon as March
Another rate hike looms right around the corner The odds jump from 10 in January to 60 in March
Until or unless these odds move further out into the year sticking to bullish dollar bets generally still makes sense to me The Japanese yen looks most ready to benefit from any renewed dollar weakness However I still think the market s hesitation presents a slow motion buying opportunity on the U S dollar
The market s indecision can be seen even clearer in yields on U S Treasury bonds Short term rates have gone up mainly becuse they have to The Fed wields most influence over short term rates Going out to 10 20 and 30 year yields the market simply does not yet believe inflation is on the way Yields are barely budging the longer term yields have not even crossed the 2015 highs set back in June
Short term yields have clearly responded to the Fed catalyst Long term rates have not
The stasis in long term rates has made me interested in range bound trading in the iShares 20 Year Treasury Bond N TLT At least TLT IS starting to develop SOME post Fed momentum lower prices mean higher rates
Two attempted breakouts on TLT failed spectacularly in August and October as the 50 and 200DMAs guide the top of the current range
A piece in the Economist titled helped me understand this divergence in yields Essentially longer term yields are barely responding because of worries over on going global deflationary pressures
global inflation is a tug of war between bottlenecks in parts of the rich world and imported deflation from emerging markets and the enduring fall or stagnation of prices looks set to dominate for a while yet
The Economist describes three stark examples of lowflation Saudi Arabia has helped drive oil prices well below levels required to maintain its massive public spending programs Like oil exporting Kazakhstan and Azerbaijan Saudi Arabia may soon be forced to drop its peg to the now strong dollar As China struggles to maintain the high growth rates it needs its pacing with the U S dollar could become increasingly problematic An unanchored Chinese currency could touch off significant devaluations around Asia Finally lowflation could create an increasingly lopsided economy in the U S with services motoring along and manufacturing increasingly suffering The Economist concludes
All this would make for a strangely configured economy by the end of the year An unemployment rate of 4 a Fed Funds rate below 1 an overvalued dollar a strong housing market and inflation below the Fed s target of 2 is a plausible if very odd mix which could portend either a sudden burst of inflation or enduringly feeble demand
Most importantly for trading the U S dollar is that the export of deflation from struggling global economies should put further upward pressure on the U S dollar even if the Fed decides to stop hiking rates Perhaps the Japanese yen might absorb those pressures but the Bank of Japan BoJ is likely to act panic against such pressures
In other words the U S dollar will continue to occupy center stage in 2016 Buckle up
Be careful out there
Full disclosure net long the U S dollar long FXE call options long TLT put options long TLT call spread |
JPM | Comex Registered Silver Inventories Plunge | In a stunning development the Comex Registered Silver inventories experienced a large one day decline yesterday Nearly 10 of total Comex Registered Silver inventories were removed from the exchange on the last day of the year and reported on Jan 4
According to the CME Group s Metal Depository Statistics 3 5 million ounces Moz of Registered Silver Inventories were withdrawn and transferred to the Eligible category
As we can see there was 1 5 Moz transferred out of Brinks 1 6 Moz from the CNT Depository and nearly 300 000 oz removed from JPMorgan N JPM for a total of 3 517 348 oz At the end of 2015 Dec 31st there were 40 3 Moz held in Registered Silver inventories at the Comex After this large one day transfer only 36 7 Moz remains
This is an interesting development for two reasons
This is the lowest level the Comex Registered Silver inventories have been for the past three years and
The motivation for depositories to transfer that much silver out of its deliverable category
First the last time the Comex Registered Silver inventories were this low was in Feb 8th 2013 at 36 2 Moz The lowest the Registered Silver inventories fell to was 26 6 Moz in July 2011 However the overall trend of the Registered Silver inventories was up until April 2015 where they peaked at 70 5 Moz
In just the past eight months Registered Silver inventories at the Comex have fallen be nearly 50 Again Registered Silver inventories are those that are ready to be delivered into the market
Second something has motivated the holders of this silver to remove it so it is no longer able to be delivered into the market If we assume that industrial silver demand has fallen due to a weaker U S and global economic activity and there is no longer a retail shortage of silver as there was from June Sept 2015 why are we continuing to see silver removed from the Registered Category
You would think we would be seeing the opposite as the Registered Silver inventories started to build in August 2011 after the peak and decline of the silver price and investment demand And interestingly the opposite is taking place at the Shanghai Future Exchange
Shanghai Future Exchange Silver Inventories Surge End Of Year
Silver inventories at the Shanghai Futures Exchange SHFE grew from a low of 176 metric tons mt in January 2015 to 394 mt in June They bottomed in August at 233 mt and then continued to build steadily until spiking at the end of the year
What is really interesting about the build of SHFE silver inventories is the rapid increase since Dec 28 On Dec 28 there were 535 mt of silver at the SHFE only 23 mt higher than the beginning of the month Then over the next week and including the first few days in 2016 total inventories at the Shanghai Futures Exchange jumped 80 mt to 615
Precious metal investors need to realize the Chinese view gold more as an investment than silver Furthermore the Chinese also have to pay a 17 vat tax on silver investment According to the 2015 World Silver Survey Chinese silver bar investment demand was only 6 2 Moz in 2014 while Official Coins sales were 5 9 Moz The notion that the Chinese are buying a lot of physical silver investment is not true however they are buying one hell of a lot of gold
So this spike of SHFE silver inventories must be motivated more by the decline of industrial silver demand in China than investment demand China is the largest silver fabricator in the world as they consumed 5 788 mt 186 million oz of silver in 2014 via industrial applications 2015 World Silver Survey
Again something very strange is happening here The Comex continues to see a drain of its Registered Silver inventories for delivery while the SHFE inventories are showing a rapid increase
It will be interesting to see what happens to the silver inventories at these two exchanges over the next 6 months If Comex Registered Silver inventories continue to fall just like the Gold Registered inventories this could spell more trouble for the highly leveraged paper based precious metal markets going forward |
MS | Morgan Stanley unveils new digital sign at Times Square headquarters | By Olivia Oran Reuters Morgan Stanley N MS unveiled a new digital sign for its Times Square headquarters in New York on Wednesday morning completing a five month construction project and hoping to message hundreds of thousands of people a day The digital billboard at 1585 Broadway features six million LED pixels and 281 trillion colors the bank said The sign includes content from the firm s recently launched socially minded ad campaign called Capital Creates Change as well as insights from Morgan Stanley research papers and philanthropic programs at the firm The bank worked with Bloomberg s internal creative agency to develop content for the sign over the course of nine months Morgan Stanley s global head of corporate affairs Michele Davis saw Bloomberg s sign at its 731 Lexington Avenue headquarters as a model for what the bank s sign might look like More than 167 900 000 people are expected to see the billboard each year as they walk through Times Square Bloomberg said
Morgan Stanley launched a rebranding effort earlier this year under Chief Marketing Officer Mandell Crawley which included a refreshed website and a new branding campaign touting positive change the bank and its clients have made |
MS | Even as Fed mulls hike markets see chance of another ECB cut | By Marius Zaharia LONDON Reuters A year after Mario Draghi said European Central Bank interest rates had reached bottom euro zone money markets are discounting a fair chance they could be lowered again regardless of rising interest rates across the Atlantic The low bank to bank lending rates further highlight the divergence of monetary policies in Europe and the United States where markets see a one in four chance the Federal Reserve may hike rates for the first time in a decade on Thursday Analysts calculate the probability that markets attach to another ECB rate cut at about 20 percent But even the bias in direction shows unusual defiance of Draghi s policy guidance The new market leaning comes on the back of a weakening in the inflation outlook despite the ECB launching a trillion euro bond buying program in March to pump new money into the economy Also at the last ECB meeting Draghi showed openness toward an expansion of the quantitative easing QE program Vice President Vitor Constancio told Reuters in an interview that the ECB has scope to buy more assets But no policymaker has signaled any new interest rate move Market rationale is a deposit rate cut from the current level of minus 20 basis points could be more effective than increasing QE in depreciating the euro which has strengthened again in recent months keeping inflation near zero A deposit cut is a possibility said Antonio Garcia Pascual chief European economist at Barclays LONDON BARC adding though that it was more likely that the ECB would just expand its bond buying program The context for a potential deposit rate cut would be against the background of an appreciating euro which would be unwelcomed by the ECB because it would be unhelpful for inflation and for exports and the euro area recovery Factors behind moves in the euro are complex and go beyond the ECB s monetary toolkit Still a quick look at the charts shows that after the ECB moved the rate it offers on overnight deposits into negative territory in June 2014 effectively turning it into a penalty for not putting money to work the euro weakened by 5 percent against the dollar in the subsequent three months Another cut in September last year after which Draghi said of interest rates that we are at the lower bound where technical adjustments are not going to be possible any longer led to a further 5 percent three month weakening in the euro By contrast the euro is 8 percent stronger than when QE started six months ago although a Fed hike might hurt it again PROBABILITY CHECK Analysts say expectations of a deposit rate cut are reflected in forward Eonia bank to bank lending rates One month Eonia rates projected six months to one year into the future are below 18 basis points compared to the ECB deposit rate at 20 bps The gap between spot Eonia rates and the deposit rate has never been so low On average it has been 8 bps in the past two years and occasionally it has narrowed to 4 5 bps Alexander Wojt European rates strategist at Morgan Stanley NYSE MS takes a 5 bp spread as a starting point implying expectations that the ECB deposit rate would be about 22 basis points in six month s time This translates into a 20 percent chance of another 10 bps cut You could argue two things one that we are pricing in Eonia to trade closer to the deposit rate Wojt said The reason why we don t like that interpretation is that that s not the way Eonia has been behaving An alternative interpretation which we find more likely is that markets have started to price some probability for a deposit rate cut Wojt said however that he considers the pricing too aggressive and recommends investors to bet against it In fact the consensus remains firmly on the side of rates staying on hold
The wording by Draghi was clear when they did the last rate cut said Commerzbank XETRA CBKG rate strategist Benjamin Schroeder |
MS | Wall Street ends down after Fed stokes global economic fears | By Sinead Carew Reuters Wall Street stocks closed lower on Friday in heavy trading as the Federal Reserve s decision to keep interest rates near zero fueled concerns about the potential impact of continuing weak global growth on U S corporate earnings Apart from the state of the world economy the Fed cited financial market volatility and sluggish inflation at home in its decision on Thursday while leaving the door open for a modest policy tightening later this year Friday s volatility was also likely exacerbated by so called quadruple witching when options on stocks and indexes and futures on indexes and single stocks all expire prompting investors to buy or sell shares to cover expiring contracts The three major stock indexes each fell more than 1 percent with all 30 Dow components in the red People are taking this to be another data point of a potentially deflationary environment Deflation is bad for corporate profits and that leads to lower share prices said Stephen Massocca Chief Investment Officer at Wedbush Equity Management LLC in San Francisco The Fed s decision suggested a global economic environment that is unlikely to foster the kind of earnings growth needed to support stocks at their current above average valuations Despite recent declines the benchmark S P 500 is still trading around 15 6 times forward 12 month earnings above the 10 year median of 14 7 times according to Thomson Reuters StarMine data What they introduced yesterday was that they re worried about the effects on U S growth based on foreign economies said Scott Colyer chief executive officer of Advisors Asset Management in Monument Colorado More than 10 9 billion shares changed hands on U S exchanges compared with 8 1 billion average for the previous 20 sessions according to Thomson Reuters data It was the most active trading day since August 24 when 14 2 billion shares changed hands as markets sold off on concerns about China s economic growth The Dow Jones industrial average DJI closed down 289 95 points or 1 74 percent to 16 384 79 the S P 500 SPX lost 32 12 points or 1 61 percent to 1 958 08 and the Nasdaq Composite IXIC dropped 66 72 points or 1 36 percent to 4 827 23 All 10 major S P sectors ended lower with the energy index s 2 6 percent fall leading the decline on falling oil prices Industrials and materials also dropped more than 2 percent Financials SPSY fell 1 9 percent as banks would have benefited from an interest rate increase For the week the Dow shed 0 3 percent the S P fell 0 1 percent and the Nasdaq rose 0 1 percent Investors are now focusing on the next Fed meeting on Oct 27 28 though a growing number of economists including those at Morgan Stanley NYSE MS and Barclays LONDON BARC now wonder whether the Fed will raise rates at all this year The CBOE volatility index VIX known as the fear gauge jumped 5 4 percent to 22 28 above its long term average of 20 NYSE declining issues outnumbered advancers 2 139 to 929 for a 2 30 to 1 ratio on the Nasdaq 1 856 issues fell and 1 026 advanced for a 1 81 to 1 ratio
The S P 500 posted 4 new 52 week highs and 18 lows the Nasdaq recorded 51 new highs and 65 lows |
MS | Ex Morgan Stanley adviser pleads guilty in connection with data breach | By Nate Raymond and Joseph Ax NEW YORK Reuters A former Morgan Stanley NYSE MS financial adviser who was fired in connection with a major breach of client information pleaded guilty on Monday to taking confidential data for hundreds of thousands of customer accounts from a bank computer without permission Galen Marsh who worked in Morgan Stanley s private wealth management division entered the plea in federal court in Manhattan according to court records The hearing came nine months after the bank announced it had fired him in connection with a data breach that resulted in account information for hundreds of clients getting published online Marsh copied names addresses account numbers investment information and other data for approximately 730 000 accounts prosecutors said in court papers While improperly accessing the client information Marsh was in talks about landing a new job with two Morgan Stanley competitors the documents said In January Morgan Stanley said up to 10 percent of its approximately 3 5 million wealth management clients were affected The bank said in January that information from around 900 client accounts linked to the breach was briefly posted online But Marsh s attorney Robert Gottlieb said on Monday his client never posted sold or disclosed any of the data he took The truth is that the Internet disclosures were the result of outside hackers and he had absolutely nothing to do with it Gottlieb said adding that he is hopeful Marsh will not be sentenced to any prison time According to charging documents Marsh who began working at Morgan Stanley as a sales assistant in 2008 uploaded the account information to his home computer in New Jersey between 2011 and 2014 No clients lost money as a result of the breach Morgan Stanley said on Monday This action which follows Morgan Stanley s initial investigation and reporting of his misconduct makes clear that misuse of client account information will not be tolerated the bank said in a statement His sentencing is scheduled for Dec 7 As part of the plea deal Marsh has agreed not to appeal any prison sentence of 37 months or shorter
The case is U S v Marsh U S District Court for the Southern District of New York No 15 641 |
JPM | U S core capital goods orders drop business spending strong | By Lucia Mutikani WASHINGTON Reuters New orders for key U S made capital goods unexpectedly fell in October after three straight months of hefty gains but a sustained increase in shipments pointed to robust business investment and economic momentum as the year winds down The economy s prospects were bolstered by other data on Wednesday showing a decline in the number of Americans filing claims for unemployment benefits Strong business investment and tightening labor market conditions will likely keep the Federal Reserve on track to raise interest rates next month Fed policymakers will likely be impressed with the positive overall trend of business investment in equipment this year said Chris Rupkey chief economist at MUFG in New York Interest rates do not need to be left at such low levels if the goal is to further business investment The Commerce Department on Wednesday said orders for non defense capital goods excluding aircraft a closely watched proxy for business spending plans declined 0 5 percent last month That was the biggest drop since September 2016 and followed an upwardly revised 2 1 percent increase in September Orders of these so called core capital goods increased at a 14 5 percent annualized pace in the three months prior to October the strongest since June 2013 Economists had forecast orders of core capital goods increasing 0 5 percent last month after a previously reported 1 7 percent jump in September Core capital goods orders rose 4 4 percent on a year on year basis Shipments of core capital goods advanced 0 4 percent last month after accelerating by 1 2 percent in September pushing the annualized three month pace to 13 1 percent Core capital goods shipments are used to calculate equipment spending in the government s gross domestic product measurement The solid trend for the shipments data through October suggests that the fourth quarter will be another strong quarter for equipment spending said Daniel Silver an economist at JPMorgan NYSE JPM in New York We see some upside risk to our real GDP growth forecast for the fourth quarter Prices for U S Treasuries rose marginally in thin trading ahead of Thursday s Thanksgiving holiday The dollar DXY fell against a basket of currencies Stocks on Wall Street were little changed near record highs as a retreat in technology stocks was offset by a jump in crude prices Core capital goods shipments have been increasing since February in part fueled by expectations that President Donald Trump and his fellow Republicans in Congress will push through hefty corporate tax cuts Republicans in the House of Representatives last week approved a broad package of tax cuts including an immediate reduction in the corporate income tax rate to 20 percent from 35 percent Their colleagues in the Senate are advancing their own tax bill which would also lower corporate taxes by the same rate but delay the reduction by one year TIGHTENING LABOR MARKET Business spending on equipment has buoyed economic growth for the past four quarters and is expected to make a solid contribution to GDP in the October December period The economy grew at a 3 0 percent annualized rate in the third quarter Growth estimates for the fourth quarter range from as low as a 2 5 percent pace to as high as a 3 4 percent rate With the passage of a corporate tax cut becoming more possible the likelihood is that future business capital spending should be strong said Joel Naroff chief economist at Naroff Economic Advisors in Holland Pennsylvania Strong business spending on equipment is helping to boost manufacturing which accounts for about 12 percent of the U S economy Last month there were increases in orders for machinery electrical equipment appliances and components primary metals and computers and electronic products Overall orders for durable goods items ranging from toasters to aircraft meant to last three years or more fell 1 2 percent last month as demand for transportation equipment tumbled 4 3 percent Durable goods orders increased 2 2 percent in September In a separate report on Wednesday the Labor Department said initial claims for state unemployment benefits declined 13 000 to a seasonally adjusted 239 000 for the week ended Nov 18 reversing the prior week s increase Claims had risen in recent weeks as a backlog of applications from Puerto Rico was processed following repairs to infrastructure damaged by Hurricanes Irma and Maria Last week marked the 142nd 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 smaller The labor market is near full employment with the jobless rate at a 17 year low of 4 1 percent The four week moving average of initial claims considered a better measure of labor market trends as it irons out week to week volatility rose 1 250 to 239 750 last week The claims data covered the survey period for the non farm payrolls component of November s employment report The four week average of claims fell 8 750 between the October and November survey weeks suggesting steady job growth this month
The economy created 261 000 jobs in October a large chunk of which reflected a recovery after workers in Texas and Florida were temporarily displaced by hurricanes Non farm payrolls increased by only 18 000 in September |
JPM | Dimon Says He d Raise His Own Taxes to Get Corporate Rates Cut | Bloomberg The U S needs to cut corporate tax rates to keep businesses from moving abroad even if that means raising rates for wealthy individuals and removing the carried interest tax break for investment managers said JPMorgan Chase Co NYSE JPM Chief Executive Officer Jamie Dimon
Dimon who is chairman of the Business Roundtable in addition to running the largest U S bank said he s in favor of limiting the state and local tax deduction since it mostly favors the wealthy in high spending states such as New York where JPMorgan is based Dimon who spoke at an Economic Club of Chicago event also said he wants to see negative tax rates for lower income individuals
I don t think the private equity guys should argue for carried interest I don t think the hedge fund guys should be arguing for deferrals I don t think I should argue for reducing my rate he said If you want to raise my rate so be it
Dimon 61 said he d bet on a new president being elected in 2020 provided Democrats pick a candidate who s moderate The CEO said Donald Trump is right to take a tough stance on China and that the previous administration held back U S banks ability to compete with Chinese lenders
Dimon who spoke for almost an hour also brought up several gripes he s previously aired He said he regrets buying Bear Stearns Cos because his firm was later fined for that bank s actions and the experience made him vow to never trust anyone from the government again He said he ll write a book about the lessons from the financial crisis and name people that treated the bank unfairly
Other topics he addressed
JPMorgan which has announced investments in Detroit and Chicago is considering New Orleans and Washington as the next targets of its growth initiative
Dimon said that Chinese banks have an unfair advantage because they can more easily acquire U S businesses than the other way around
European regulators should allow for the formation of a pan European bank to make them competitive with other global lenders |
JPM | JPMorgan s Dimon says Trump likely to be a one term president | By Richa Naidu and David Henry CHICAGO NEW YORK Reuters Jamie Dimon chief executive officer of JPMorgan Chase Co NYSE JPM on Wednesday said he expects to see a new U S president in 2021 and advised the Democratic party to come up with a pro free enterprise agenda for jobs and economic growth instead Asked at a luncheon hosted by The Economic Club of Chicago how many years Republican President Donald Trump will be in office Dimon said If I had to bet I d bet three and half But the Democrats have to come up with a reasonable candidate or Trump will win again Dimon who in the past has described himself as barely a Democrat has been going to Washington more often since the 2016 elections to lobby lawmakers on issues including changes in corporate taxes immigration policies and mortgage finance In December Dimon became chairman of the Business Roundtable an association of CEOs who take their views to government policymakers Dimon 61 touched on wide range of topics from America s political climate to racial discrimination to the effects of the U K leaving the European Union He also commented on foreign affairs saying for example We should never be rude to a neighbor like Mexico and cautioning that the political weakness of German Chancellor Angela Merkel is bad for all of us Talks on forming a governing coalition including Merkel s Christian Democratic Union collapsed earlier this week casting doubt on her future after 12 years in power Dimon spoke for several minutes about discrimination over gender and race which he said is not acknowledged enough in the United States If you re white paint yourself black and walk down the street one day and you ll probably have a little more empathy for how some of these folks get treated Dimon said We need to make a special effort because this is a special problem Dimon gave his own bank a mixed review on diversity His direct reports include people who identify as lesbian gay bisexual or transgender LGBT and half are women as are 30 percent of the top 200 JPMorgan executives he said Now in his 12th year as JPMorgan s CEO Dimon also reflected a bit on his own role
I basically love my job Dimon said I mean it s tiring it s exhausting I have to go down to Washington all the time and it s a big pain in the ass but I basically love my job |
C | DBS to seek bids for non life insurance distribution deal sources | By Anshuman Daga and Sumeet Chatterjee SINGAPORE HONG KONG Reuters DBS Group SI DBSM plans to invite bids from insurers keen to sell general insurance products across the key markets of Southeast Asia s biggest lender in a deal potentially worth up to 350 million sources familiar with the matter said The move underscores the under penetrated region s growing attraction to insurers who see a big opportunity to boost business as rising incomes generate demand for property motor and travel insurance products In the last few years banks such as Standard Chartered L STAN and CIMB Group KL CIMB have formed partnerships with insurers as they were willing to pay hefty fees for access to lenders branch networks and digital platforms DBS which has partnerships with subsidiaries of Japanese group MS AD Insurance Group Holdings Inc T 8725 since 2005 plans to seek bids from insurers as soon as next month three sources told Reuters They declined to be identified as the news is not public Two of the sources said the 15 year deal is estimated to be valued at up to 350 million but it could change depending on the deal s structure and sales assumptions made by the bidders DBS is expected to pick one or two insurance partners for the deal which could cover all of its key markets of Singapore Hong Kong Indonesia India China and Taiwan MS AD s units are expected to participate in the bidding process which is also likely to draw interest from France s AXA PA AXAF Italy s Generali MI GASI and Australia s QBE Insurance Group Ltd AX QBE the sources said DBS AXA Generali and QBE declined to comment There was no immediate comment from MSIG Asia a subsidiary of Mitsui Sumitomo Insurance Company Ltd to Reuters queries GOING DIGITAL DBS has more than 7 million customers across its consumer banking and wealth management businesses spread in 18 markets but the majority of these are from its key markets The bank has spent billions of dollars in the last few years to digitize its businesses One source said DBS was likely to leverage general insurance distribution partnership as a value add offering for its wealth management clients The sales volume for general insurance products tend to be lower than the mass market life business The sources said DBS was likely to complete talks and seal the deal by the end of the year DBS plan to seek partners follows the bank s move last year to allow Canada s Manulife insurer TO MFC to sell life insurance through its Asia network in a 15 year deal Reuters reported in March that Citigroup N C will seek bids from global insurers keen to sell general insurance products across the U S bank s Asia Pacific markets in a deal that could be worth at least 500 million
In January StanChart and Allianz DE ALVG announced a 15 year deal that enabled the German insurer to sell its general insurance products to StanChart s customers in five Asian markets |
C | Some Chase branches in Seattle closed by protests over pipeline loans | By Tom James SEATTLE Reuters Native American leaders and climate activists protested at several Chase branches in Seattle on Monday forcing them to close temporarily as demonstrators demanded the bank not lend to projects like the Keystone XL oil pipeline Police said 26 people were arrested by late afternoon Activists said they disrupted operations at 11 Chase branches and two other branches closed as well Darcy Donahoe Wilmot a spokeswoman for Chase which is a unit of JP Morgan Chase Co N JPM declined to comment At a branch in downtown Seattle about 50 protesters occupied the main lobby where they made speeches sang songs held signs and banners and even ordered a tall stack of pizzas before police blocked the doors At another Seattle branch a handful of protesters went inside while two others locked themselves by their necks to the front doors with bicycle locks I have a personal responsibility to make sure we have a livable climate said a protester who locked herself to the door and would only identify herself as 21 year old Andrea from Olympia Washington Organizers of the protests aimed to dissuade Chase from lending to the companies behind two major oil infrastructure projects the Keystone XL pipeline and Trans Mountain Pipeline expansion and tar sands oil production in general Protesters said they were fighting global warming Keystone XL is a project of TransCanada Corp TO TRP and Trans Mountain Pipeline is a project of Kinder Morgan Inc N KMI These efforts echo similar efforts with other banks as activists have shifted to targeting the financial backers of the pipelines rather than sites like the Dakota Access Pipeline in North Dakota where thousands protested last year Bank are more sensitive to bad publicity than the pipeline companies said Seattle city council member Mike O Brien who participated in one of the protests on Monday It s a relatively small percentage of their overall portfolio protest organizer Ahmed Gaya said of the banks stakes in various oil and gas pipelines If you can make that very small part have a vastly disproportionate effect on their public image that s very persuasive
In April Citigroup N C executives conceded they had approved investments in the Dakota pipeline too quickly after a noisy protest at its annual shareholder meeting while Greenpeace activists protested Credit Suisse s S CSGN dealings with companies behind the same pipeline The previous month Dutch bank ING Groep AS INGA agreed to sell its 120 million share of a loan for the Dakota pipeline |
C | Middlefield Banc declares 0 27 dividend | Middlefield Banc NASDAQ MBCN declares 0 27 share quarterly dividend in line with previous Forward yield 2 32 Payable June 15 for shareholders of record June 2 ex div May 31 Now read |
JPM | Trouble Brewing In The Paper Markets For Gold And Silver | Precious metals bulls question why metals prices keep falling in the face of what appears to be strong demand and great fundamental reasons for prices to move higher instead
The bears have some answers of course You can t eat gold it s basically a pet rock and modern financial systems are doing just fine without anything as antiquated as bullion gumming up the works
The bears are declaring victory and saying the market has spoken They ought to look a bit deeper into recent developments
Outside of the price action there is very little to support claims that gold and silver are relics of the past
Lately the real answer to the bulls question about why prices are headed lower isn t the stuff of a lengthy philosophical debate These days the answer seems to be a lot simpler huge demand for physical metal hidden behind an enormous glut in paper supply And the actual physical metals are shifting into new hands
Without looking you would never know that exchange inventories are falling a combination of demand for physical bars and a dearth of sellers willing to furnish actual metals at the current price
The natural dynamic is for prices to move higher but the market has been completely overwhelmed by a huge increase in leverage Unfortunately there is no end to the supply of paper gold and silver contracts the trading exchanges will stack atop a shrinking layer of physical bars in their vaults
The amount of paper gold has tripled relative to registered stocks available for actual delivery This has happened in just the past few months Just one ounce of registered gold now backs nearly 300 ounces in COMEX contracts as depicted in a chart we re published last week from Zerohedge com
Stated another way that s razor thin coverage of just 0 0033 Trouble is brewing About 1 of contract holders have been standing for delivery in recent years So we could see requests to deliver 3 times more gold than is currently in the registered category in Exchange vaults
To avoid default the exchanges are going to need more registered gold Luckily there is another category of physical inventory available to draw against
The vaults also hold eligible gold which can easily be converted to registered provided the owners are willing Bullion banks often move bars from the eligible category to registered In fact that is what they have been doing recently
The problem is stocks of eligible gold are collapsing as well TFMetalsReport com reports that combined eligible and registered gold in the COMEX have fallen nearly 50 during the past 5 years
It s a lot worse for JPMorgan Chase N JPM and Scotia Mocatta two of the largest bullion banks Since March the amount of eligible and registered gold in their vaults has fallen from 3 732 915 ounces to 1 515 825 ounces That s a 59 drop in just the past few months And December is historically the biggest month of the year when it comes to requests for physical delivery
The drop in physical inventory isn t limited to COMEX vaults Trouble is brewing in London s LBMA market the world s largest exchange as well Ronan Manly authored a report estimating that LBMA stocks outside the Bank of England vaults have fallen by 67 since 2011
However the report estimates that ETFs hold 1 116 of the 1 122 tonnes remaining leaving only 6 tonnes roughly 200 000 ounces really in play for delivery
Consider that LBMA banks often trade 1 000 times that amount 200 000 000 ounces in paper gold per day and you find the same completely untenable scenario
The price is falling because exchanges around the world are happy to let traders and banks sell more and more metal they don t have and almost certainly can t get On the other side are folks busily buying the paper gold and ignoring the metastasizing counterparty risk And behind the scenes inventories are vanishing as players with greater concern take delivery of bars and head for the exit
There is no telling how this scenario will end It could end if spot prices rise to the point that sellers with actual bars show up to sell Or we may see exchanges engulfed and destroyed by a massive wave of delivery defaults Who knows
However given the explosion in leverage over the past few months the question of when it will end may be easier to answer The reckoning for metals markets may not be far ahead |
JPM | 2016 Outlook Time To Get Bearish After The Santa Rally | exceTrend Model signal summary Trend Model signal Neutral Trading model Bullish
The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price In essence it seeks to answer the question Is the trend in the global economy expansion bullish or contraction bearish
My inner trader uses the trading model component of the Trend Model seeks to answer the question Is the trend getting better bullish or worse bearish The history of actual out of sample not backtested signals of the trading model are shown by the arrows in the S P 500 chart below
Update schedule I generally update Trend Model readings on weekends and tweet any changes during the week at humblestudent
My worries for 2016
As the above chart shows I have been pretty bullish on equities since the market bottomed in September As I peer into 2016 however ominous signs are starting to appear For my inner investor the key question is whether to go full and turn bearish on the outlook for 2016 Here is my list of worries
The credit markets are behaving badly which is a warning of falling risk appetite
As the Fed starts its tightening cycle the fallout could be considerable
The banking system is tightening credit and the combination of rising rates and credit rationing would be a double whammy for economic growth
Housing which has been a key driver of employment growth is starting to stall
Excessive equity valuation is showing up in the form of shrinking takeover premiums
Stock buybacks which had long been a driver of stock returns and EPS growth are losing their power
Let me go through these points one by one and give my reaction afterwards
For the uninitiated Zero Hedge is a website that is dedicated to the bear case and features end to end Apocalyptic forecasts
Mis behaving credit
The credit market is one of the key barometers of global risk appetite and it is flashing ominous signals recently asked rhetorically if something is blowing up the junk bond market
Similar problems are showing up in leveraged loans as well which is also a vulnerability identified by Jesse Felder
The problems in the credit market are not just confined to the energy sector reports that EBITDA growth fell in the quarter ex energy even as energy EBIDTA growth rates improved or got less bad in the same period
reports that the upheavals in the junk bond market are warning signs for markets
Investors are shunning the lowest rated junk bonds That is underscored by the extra yield that investors are demanding to hold CCC rated credits relative to those rated BB This has jumped to the most in six years
With confidence slipping in the strength of the global economy there are fewer investors to take the opposite side of a trade in the riskiest parts of the market according to Oleg Melentyev the head of U S credit strategy at Deutsche Bank
These are all small dominoes in one corner of the market Melentyev said In the early stage all of this looks random when there is no underlying news to support the big moves But eventually a narrative emerges maybe we have turned the corner on the credit cycle
Is the Fed tightening into a recession
Remember that this is all happening even before the Fed has begun its tightening cycle which is worrisome The recently reported that banks are tightening small business lending standards which is pushing this class of borrowers into more expensive sources of credit such as credit cards
The biggest banks in the U S are making far fewer loans to small businesses than they did a decade ago ceding market share to alternative lenders that charge significantly higher rates
Together 10 of the largest banks issuing small loans to business lent 44 7 billion in 2014 down 38 from a peak of 72 5 billion in 2006 according to an analysis of the banks federal regulatory filings
Through August banks this year originated 43 of business loans of up to 1 million down from 58 for all of 2009 according to PayNet Inc a tracker of small business credit
The change has opened the door to higher cost alternatives Nonbank lenders increased their market share to 26 from 10 with corporations that lend to their business customers or suppliers making up the balance
At least 60 of our borrowers would fall into classic bank lending criteria said Rob Frohwein chief executive of online lender Kabbage Inc which charges rates that average about 39 versus the typical 5 to 6 or so that banks charge small firms with good credit
At some big banks the credit card has become the default loan source for small businesses Rates on cards issued to small businesses average 12 85 according to Creditcards com
In the past two economic cycles the trough in bank lending criteria has occurred after the Fed started raising interest rates and the growth outlook was robust enough to deal with tougher standards This time tougher lending standards have appeared well before the start of the tightening cycle In effect the Fed is raising rates even as the economy is becoming more fragile
The lumber market warning
The lumber market which is a key barometer of the housing market is also flashing red recently wrote about the warning signs from lumber
There are a lot of leading economic indicators in use these days but the one I like the best is lumber futures prices Perhaps this is because almost no one else seems to pay attention to them as an economic gauge Lumber prices tell us pretty reliably and ahead of time about what is going to happen to real estate prices and activity plus interest rates They can even tell us about what unemployment is going to do
He concluded
Here we are facing a likely start to Fed rate hikes at the Dec 15 16 just as lumber is saying that a downturn in economic activity is coming We know from watching the 2 year T Note yield that the Fed should have started this process a long time ago So now they appear to be finally getting around to doing the right thing at the wrong time
Valuation headwinds
So far we have seen signs that the US economy is fragile and the Fed is about to start raising rates Does that mean that stock prices would necessarily have to go down In this case downside risk may be exacerbated by a signal of high valuation from the
We can argue until we are blue in the face about whether stock prices are under over or fairly valued One of the more important clues comes from informed corporate buyers As reports takeover premiums are shrinking even as M A activity is rising
The biggest wave of takeovers ever to sweep the U S is failing to ease investors anxieties about rising stock valuations
While a booming market for mergers and acquisitions is often viewed as good for equities the impact may be diminishing Caution can be seen in how much the stocks of takeover targets rise the day after deals are announced In 2015 the average increase is 16 percent the smallest gain for any year since 2007 according to data compiled by Bloomberg on deals of at least 200 million Share price reactions are closely tied with the premium companies are willing to offer which is also at its lowest since 2007
Buybacks Mining lower grade ore
One of the reasons for the lower takeover premiums could be explained by the buyback financial engineering effect which is not relevant to a corporate buyer Analysis from Deutsche Bank via shows that Q3 EPS growth would be flat without buybacks
Another source of concern is that companies have been relying on external financing for buybacks In other words they have been borrowing to buy back their own shares via
The chart below shows that as more and more companies have turned to buybacks to boost EPS and share prices this financial engineering trick is becoming stale The bottom panel shows the relative performance of a high buyback ETF PowerShares Dynamic Buyback Achievers Portfolio N PKW against the market SPDR S P 500 N SPY The relative performance of buyback stocks have been rolling over indicating this corporate strategy is mining lower and lower grade ore
No need to panic yet
What should we make of these bearish factors as we peer into 2016 Is it time to hunker down and get more defensive after the seasonal Santa Claus rally
I have said it before and I will say it again I love Zero Hedge in the same way that I love scanning the tabloid headlines at the supermarket checkout ZH has built a considerable franchise in trumpeting the doomster bear case but we need to put these bearish factors into context
First of all there is no question that the tanking US high yield market is worrisome However the chart below shows the relative price performance of US high yield iShares iBoxx High Yield Corporate Bond ETF N HYG vs iShares 3 7 Year Treasury Bond Fund N IEI blue line and Emerging Market bonds iShares JPMorgan N JPM USD Emerging Markets Bond Fund N EMB vs iShares 7 10 Year Treasury Bond N IEF green line
The fact that EM paper is performing much better than US junk is an important sign that not everything in the credit markets is falling apart
Morgan Stanley surveyed the state of the credit markets through the lens of a variety of indicators As the chart below shows the indicators are split roughly evenly between red danger yellow caution and green benign These readings suggest to me that while credit conditions are deteriorating they are not at levels where it is time to panic and turn bearish on the stock market
BoAML analyzed the equity markets in a similar way by comparing current conditions to previous market tops The biggest outliers are
Non existent inflation which is a trigger for an aggressive Fed
An upward sloping yield curve which is also an indication of an aggressive Fed but could be excused because of the unusual zero interest rate policy today
Falling commodity prices whereas past peaks have featured rising commodity prices which is a sign of rising inflationary expectations see above comment about non existent inflation and see Chris Ciovacco s comment about how falling commodity prices are not stock market killers and
The BoAML Sell Side Indicator which is a measure of Street strategist sentiment remains cautious which is contrarian bullish
Late cycle not bear phase
My interpretation is current economic and market environment represent a late cycle expansion where market excesses and cracks start to appear The negative factors cited are just some of cracks and excesses that are typical of a topping process that will likely take 6 12 months to complete recently reviewed some of the signs of deterioration in the economy and he concluded
This also suggests that we are getting later in the cycle but interestngly durable goods are holding up much better than nondurable goods
At the same time none of these have turned negative just less positive There is no imminent threat of a downturn
It is premature to get overly bearish right now as there is plenty of money to be made in late cycle markets which is characterized by rising commodity prices market excesses and a blow off in inflationary expectations see my previous post How to energize returns even as momentum fades The stock markets of the 1968 1969 and 1980 can serve as approximate road maps for 2016
We can see an example of an inflationary blow off market in the price of gold in 1980 when it reached its previous all time high of 850 As history doesn t repeat but rhymes the 1979 1981 era was very different from today and featured runaway inflation and a Volcker Fed that stomped on the monetary brakes
The price of gold had been fixed until 1971 and therefore we cannot gauge past inflationary expectations using gold We can however go further back into history by using other indicators such as the 10 Year Treasury yield which does respond to inflationary pressures The chart below shows that we can see evidence of an inflationary blow off in the 1968 1970 market as evidenced by rising yields on the 10 year note As well the 1979 1981 episode also saw a spike in yields
Here is the clincher for anyone who wants to turn bearish and go Zero Hedge now This chart of the NYSE Composite shows that US stock prices saw substantial gains in 1968 and 1980 during the inflationary blow off episode Though I wasn t a market participant in the late 1960s I did learn from some of mentors who were in the market then that while gold prices were fixed in 1968 gold stocks soared in that period as inflation took off
For the last word on this topic I turn to in point 7 of his Thanksgiving post
2016 is finally shaping up as a year of divergence macro imbalances and dare we hope a return of the thinking man s investment style
One of the key risks of a late cycle market is overstaying its welcome as the economy keels over into recession I am therefore keenly aware that recessions are bull market killers and signal the start of bear markets I will be relying on a broad set of used by New Deal democrat and Greg Vrba neither of which are flashing warnings of an imminent recession on the horizon
My inner investor therefore remains long equities with a tilt towards resource oriented issues My inner trader took some profits in his long SPX positions but he is still long his energy and gold positions He is opportunistically seeking to buy US small cap exposure in anticipation of a seasonal rally into year end
Disclosure Long ERX NUGT |
JPM | Weekly Energy | Energy prices failed to bounce back following their worst period of the year WTI Brent and diesel fell 2 2 3 2 and 2 5 respectively over the last five days
According to JPMorgan N JPM production of shale oil in the U S will decline from 7 million bpd to 3 5 million bpd by the end of 2016 if the price of oil stays below US 40 barrel The same analysis found that if oil is at US 60 barrel production will still drop by 1 million bpd It should be noted that a decrease in U S production is necessary to reduce the world s overabundant supply of crude This is because OPEC has reconfirmed that it intends to maintain its shares of the global market
On Friday the U S Senate passed a new budget with a measure that repeals the ban on exports of U S crude oil Once the budget is signed by President Obama it will be the first time in 40 years that U S oil companies will be able to sell their product in international markets Even if this news is an important development for the energy sector the current low prices for oil will not encourage much exporting in the short term Lifting the export ban will not have much impact on markets over the next few weeks and its effects will not be seen until oil prices rise
The U S Federal Reserve raised its rates by 25pbs by increasing the range for its federal funds rate to between 0 25 and 0 50 This is the first time the U S central bank has raised its rate in close to 10 years An increase in rates in the U S suggests that the greenback will appreciate against other major currencies and furthermore that the cost of goods will rise in Canada Happy holidays Our next edition will be released at the beginning of January 2016
To read the entire report Please click on the pdf File Below |
MS | Gun maker Colt says near deal to exit bankruptcy | By Tom Hals WILMINGTON Del Reuters Gun maker Colt Defense and its creditors are close to a deal on a plan to bring the company out of bankruptcy but if it fails the business will go on the auction block next month a company lawyer told a judge on Thursday Colt filed for bankruptcy earlier this year due to falling sales of its sport rifles and the loss of military contracts The company s private equity owner has been battling its bondholders for control of the West Hartford Connecticut based business and the parties are pressured by Colt s dwindling cash It s fair to say the parties are very close to a deal Colt lawyer John Rapisardi told the U S Bankruptcy Court in Wilmington Delaware The parties are working to finalize a term sheet and an agreement can be reached in a couple days Colt wanted more time for talks but was forced to court by Morgan Stanley NYSE MS which is using its bankruptcy loan to demand the start of a court supervised auction process Judge Laurie Silverstein paused the hearing and sent the parties into a conference room to work out an agreement The parties agreed to auction procedures but postponed by three weeks the deadline for bids and a sale An auction would be held on Oct 20 Colt filed for bankruptcy in June with a plan to sell the company to its private equity owner Sciens Capital Management in return for some of Colt s debt Under that plan which was abandoned holders of the company s 250 million in bonds would have received nothing Bondholders have proposed their own plan which includes eliminating a large portion of their debt in return for control of the company A Sciens affiliate has an interest in the Colt lease which expires in November and creditors have alleged the private equity firm is using that lease to discourage possible bidders and unfairly increase its leverage in the case If Colt does go to auction it may have brewing labor problems A lawyer for United Auto Workers union warned that the company plans to market its business to potential buyers without its collective bargaining agreement which would prompt the union to take Colt to arbitration The union lawyer said the workers supported efforts to reach a consensual plan to bring Colt out of bankruptcy
The case is Colt Holding Co LLC U S Bankruptcy Court District of Delaware No 15 11296 |
MS | Glencore reins in debt as commodity price slump persists | By Olivia Kumwenda Mtambo Reuters Mining and trading company Glencore LONDON GLEN acknowledged on Monday the severity of the global commodity market slump as it suspended dividends and said it would sell assets and new shares to cut heavy debts built up through years of rapid expansion The London listed company came under pressure to cut its net debt of 30 billion one of the largest in the industry as prices for its key products copper and coal sank to more than six year lows Despite the rout in commodity prices Glencore had said only last month that its cashflow was comfortable to service the debt return cash to shareholders and support growth The market did not share this view especially after Swiss based Glencore lowered its earnings forecast for its trading division an unusual step given the company s track record for winning bets on trends in raw material prices Glencore s shares tumbled last week leaving them down 59 percent this year and adding to pressure on the team around Chief Executive Ivan Glasenberg architect of its transformation from low profile trading house to global commodities giant Glencore said on Monday it would cut net debt by a third by the end of 2016 It will sell assets and raise 2 5 billion in a share sale with its billionaire directors diverting part of their wealth back into the business Shares in the company were up nearly 7 percent at 131 4 pence by 1254 GMT having fallen almost 60 percent this year to a record low a worse performance than rival miners like BHP Billiton LONDON BLT and Rio Tinto LONDON RIO In a sign of how pessimistic the market has become over the commodities outlook most analysts praised Glencore s decision to secure its balance sheet Glasenberg said it followed recent stakeholder engagement suggesting the share sale and other measures had been called for by shareholders The move is entirely about preserving the group s credit rating said an analyst at an institution holding Glencore stock Without a solid investment grade rating the group s marketing business could not participate effectively in its markets Last week credit rating agency Standard Poor s affirmed its long and short term ratings on Glencore at BBB and A 2 but revised its outlook to negative from stable It warned that it would lower its rating if Glencore were perceived as having a weaker commitment to defend the rating or if commodity prices fell further UNDER PRESSURE Glencore labors under a higher debt load than its mining peers in part because its trading unit uses borrowed money to take large positions that generate tight margins Its net debt to EBITDA ratio of 4 5 times compares to a ratio of 1 4 times at BHP Billiton and 0 9 times at Rio Tinto according to Thomson Reuters data Formerly just a commodities trader Glencore surfed a boom in raw materials prices since the start of the 2000s driven by accelerating emerging economies to become a global mining giant A 2011 flotation made multi billionaires of several Glencore directors In 2013 Glencore bought peer Xstrata for 41 billion Its biggest mining industry rivals have little trading presence and Glencore s strength was seen to lie in a more diversified earnings stream So it surprised investors last month when it said first half profit had slumped and tough market conditions were hurting its trading business The company had previously said trading would meet earnings targets whatever happened to commodity prices Charles Stanley analyst Tom Gidley Kitchin said Glencore s reputation has taken a hit because they spent too much on expansion He said it made some wrong trading calls and some poor investments such as Optimum Coal and Caracal Energy But Glencore did not have the monopoly on bad decisions They may not be good at running or developing production businesses but look at BHP s investment in shale Rio Tinto s investment in aluminum Anglo s investment in Minas Rio for much worse mistakes said Gidley Kitchin TRADING TRANSPARENCY As it grappled with the downturn cash generated by Glencore operations before working capital changes fell to 4 billion in the first half of 2015 from 5 6 billion a year earlier Glencore has already disposed of some non core mining assets it inherited through its Xstrata takeover and has trimmed capital spending plans for this year and 2016 But analysts had expected more cost savings Glencore said 78 percent of its proposed share issue was underwritten by Citi and Morgan Stanley NYSE MS while its senior management have committed to take up the remaining 22 percent It could be a rights issue a placement or other forms of potential equity raising Post discussion with our shareholders we will have a structure that makes sense and it will be priced accordingly Chief Financial Officer Steve Kalmin told Reuters Glencore also said it had suspended dividends until further notice It would not pay a final dividend for 2015 which would save about 1 6 billion while around 800 million would be saved from the suspension of the 2016 interim dividend The company said it expected to raise about 2 billion from the sale of assets including minority stakes in its agriculture business and to save some 500 million to 1 billion from further cuts in capital spending by the end of 2016 It expects to reduce working capital by an additional 1 5 billion by the end of next June Glencore will also suspend some African copper production operations at its Katanga Mining unit in Democratic Republic of Congo and Mopani Copper Mines in Zambia for 18 months removing 400 000 tonnes of cathode product from the market Glasenberg said this move should have an effect on copper prices The company stuck to its forecast for the trading division to make an operating profit EBIT this year of 2 5 billion to 2 6 billion adding we remain confident of our long term guidance range of 2 7 billion to 3 7 billion But there were calls for Glencore to reveal more of the workings of its powerful trading arm It does not say how much trading profit comes from arbitrage supply chain activities or directional bets and only discloses volumes marketed and overall profits said Morningstar analyst David Wang
As such we can t distinguish what portion of the profits of the division are correlated with prices or the activities that should be less correlated with commodity prices he added |
JPM | Swiss regulator finds JPMorgan broke money laundering rules | ZURICH Reuters Swiss financial markets authority FINMA has found that the Swiss subsidiary of U S investment bank JPMorgan N JPM broke anti money laundering rules a Swiss court document showed FINMA ruled on June 30 that JPMorgan Switzerland had seriously infringed regulatory oversight provisions according to a ruling issued by the Federal Administrative Court on Nov 8 and published on Thursday The case involved a violation of obligations of diligence on questions of money laundering the court document said The court had been examining whether FINMA s previously undisclosed decision on JPMorgan could be made public in a case first reported by the Handelszeitung paper Both FINMA and JPMorgan declined to comment on FINMA s ruling and it was unclear what action if any the regulator had taken against JPMorgan FINMA is not authorized to levy fines but may confiscate unlawfully realized gains impose professional limitations on bankers or require an organization to make changes to prevent similar breaches recurring In severe cases it may revoke an institution s banking license There is nothing more important to us than the safety and soundness of the global monetary system a JPMorgan spokeswoman said in a statement
In support of that we have made and continue to make significant enhancements to the firm s AML anti money laundering program to ensure we are meeting regulatory expectations Because this FINMA resolution from June 2017 is not public we cannot provide further details |
JPM | J P Morgan cited for money laundering by Swiss regulator | Switzerland s financial markets regulator finds that JPMorgan Chase s JPM 0 3 Swiss subsidiary broke money laundering rules according to court documents JPM seriously infringed regulatory oversight provisions according to a ruling issued by the Federal Administrative Court on Nov 8 and published yesterday but it unclear if Switzerland s FINMA regulator had taken any action against the bank FINMA is not authorized to levy fines but may confiscate unlawfully realized gains impose professional limitations on bankers or require changes to prevent similar breaches recurring in severe cases it may revoke an institution s banking license Now read |
JPM | Face time with May UK listens to bankers Brexit worries | By Andrew MacAskill and Anjuli Davies LONDON Reuters A few hours before Theresa May lost her second cabinet member in a week the British prime minister found time amidst the crisis to meet one of the world s most powerful bankers With May renowned for keeping finance chiefs at arm s length some commercial rivals suspected special treatment in her willingness to sit down with Jamie Dimon chief executive of U S investment bank JPMorgan NYSE JPM Others however sense a subtle but significant change in the political climate with May listening more to the worries of an industry struggling to fathom out Britain s departure from the European Union Her talks with Dimon on Nov 8 raised eyebrows and some hackles around the City of London financial center It s a bit outrageous said a senior executive at one of Britain s top banks What other bank CEO is getting as much one on one face time with the prime minister We certainly aren t From Margaret Thatcher in the 1980s to David Cameron last year British prime ministers have traditionally held the door open for leaders of a finance industry that pays more than 70 billion pounds 92 billion in UK tax every year and employs more than a million Britons Not so May who has appeared reluctant to meet bank executives Still Dimon secured the face to face talks between the abrupt departures of her defense and international development ministers which rocked the minority government Shortly before last year s Brexit referendum Dimon warned that 4 000 out of JPMorgan s 16 000 British jobs might have to move abroad to ensure the bank could continue selling services across the remaining nations of the EU Dimon has since softened his tone but the British bank executive asked whether the original estimate had won JPMorgan the access I don t know if it s because they ve threatened to move the most jobs maybe we should say we re moving 4 000 too he said But something is afoot Reuters has spoken to more than a dozen executives at large banks and government officials with many saying May is showing greater willingness to press the City s cause in Brexit negotiations In return the bankers are scaling back their plans to move jobs to rival financial centers such as Frankfurt Paris and Dublin at least during any transitional period after Britain leaves the EU in March 2019 BETTER CLARITY Britain and the EU have yet to begin discussing financial services at the Brexit talks worrying bankers who fear the government has left it too late to negotiate a transition period or secure a good deal Our view is that the government frankly is in chaos said another senior executive at a U S bank We are really nervous However May outlined to Dimon her vision for a transition period after Brexit day March 29 2019 and a future trade deal with the EU easing concerns that Britain may crash out of the world s biggest trading bloc without any agreement A JPMorgan spokeswoman expressed cautious optimism after the Downing Street talks While some uncertainty remains we feel that the government understands the concerns of international firms such as ours and the economy more broadly she said We were grateful for better clarity on the government s objectives in the Brexit negotiations A spokesman for the prime minister did not respond to requests for comment However sources with knowledge of the meeting noted that she can make promises on her intentions for the Brexit talks but not on their outcome We got clarity on what they re looking for not on how it will unfold said the source The bankers pressed their case for a period of adjustment to the post Brexit financial services regime rather than an abrupt change as soon as Britain leaves We re all looking for transition and a good future deal said the source In return the JPMorgan team indicated there would be no major staff upheaval at least on Brexit day They told her we will try to move as few people as possible on Day One It will be a few hundred people and we will keep as many people as possible in the UK said another source For the banks moving top London employees to the continent is expensive and unpopular with staff reluctant to uproot their families But longer term a significant number of jobs may still shift if a final deal is not to their liking CITY CHARM OFFENSIVE As in a number of countries banks have been deeply unpopular in Britain since the global financial crisis But their leaders felt particularly unloved after May came to power last year and cooled what critics regarded as an overly cozy relationship between the government and big business May confined her contacts with bankers largely to round table gatherings such as at Davos in January a meeting Dimon also attended Some Wall Street bosses were left expressing frustration with a lack of detail on the Brexit process and questioning May s commitment to protecting the finance industry The relationship remains measured May was scheduled to make only a five minute courtesy appearance at the talks with Dimon hosted by finance minister Philip Hammond In the event she stayed a quarter of an hour Still those who connect government and business have noticed a change Iain Anderson executive chairman of public affairs company Cicero said a thaw began after the May lost her parliamentary majority in a June election and the government started asking companies for more input on the Brexit talks The mood has improved from last year when I don t think I have ever seen businesses as emotional and angry said Anderson whose firm represents many FTSE 100 companies Government officials confirmed May s change of tack She is far more skeptical about engaging with business than her predecessors said one official who declined to be named This created bitterness because people are getting less face time said the official but added The situation has improved since the election Brexit minister David Davis whose talks with chief EU negotiator Michel Barnier appear deadlocked has led his own charm offensive in the past week or so Davis said on Tuesday the financial industry would be exempt from any curbs on immigration from the remaining EU countries That is likely to contrast with tough new rules planned for arrivals of lower skilled workers In another speech he emphasized the importance of an industry which accounts for about 12 percent of Britain s economic output When I sit round the negotiating table with Michel Barnier or round the cabinet table with my colleagues it s always with the importance of the City very much in my mind Davis said Only a year ago he was accusing bankers of leading a blame Brexit festival and lying about the number of UK employees they would have to fire Davis had surprised executives in his initial meetings by telling them they would not get any special favors in the negotiations according to people who attended The head of one of Britain s largest finance companies who has met Davis several times in the last year said the minister has accepted the damage to the wider economy if firms go overseas Davis has got the message the executive said According to government officials the atmosphere has improved since the banks scaled back their estimates of how many jobs will move to more realistic levels There has been an effort on both sides to improve the relationship he said |
JPM | Canceling Out Euro Political Risk Noise Led Winning 2017 Trades | Bloomberg The best performing company in the Stoxx Europe 600 this year Austria based electronic supplier AMS AG makes headphones that cancel background noise at market beating prices Therein lies a canny lesson for investors in Europe this year
Money managers who tuned out the chorus of bearish voices warning political turmoil across France the Netherlands and Italy would plunge the euro area in crisis once more have netted outsized gains True to form the DAX Index and the single currency are shrugging off the collapse of German Chancellor Angela Merkel s attempts to form a governing coalition
Political risk has largely proved to be all bark and no bite this year populist anti euro candidates failed to usurp establishment parties the 19 nation trading bloc is enjoying the strongest growth in a decade and stocks are riding a profit wave
A custom Euro Zone Bull portfolio of regionally focused stocks European banks peripheral debt and a basket of euro currency bets would have easily beaten a regional 60 40 stocks and bonds portfolio according to data compiled by Bloomberg
Stocks with the highest sales exposure to the euro zone compiled by HSBC Holdings Plc LON HSBA from real estate telecommunications and transport returned about 13 percent year to date while the region s financial shares gained almost 12 percent as sovereign debt fears receded and measures of consumer confidence rebounded The broader Stoxx 600 added a more modest 7 percent
That same dynamic has boosted government debt obligations issued by Portugal Italy Ireland and Spain market darlings that resisted this month s selloff in risk assets
Berlin Imbroglio
Last but not least the euro remains the best performing currency against the dollar among the Group of 10 Nations and on a trade weighted basis is up over 8 percent
Still all this outperformance isn t stopping investors warning of clouds ahead especially with the latest developments in Berlin
The sudden collapse of the coalition talks in Germany on Sunday night brought back the topic of political uncertainty to financial markets wrote Tilmann Galler global market strategist at JPMorgan NYSE JPM Asset Management in e mailed comments
With the Catalonia crisis in Spain and the polls pointing to strong gains of Eurosceptic parties in the coming Italian election the German political deadlock adds another layer of political uncertainty for the currency union |
JPM | U S appeals court revives claims in 1 7 billion Iran terrorism lawsuit | By Jonathan Stempel NEW YORK Reuters A federal appeals court in New York on Tuesday revived part of a 1 68 billion lawsuit against Iran s central bank Bank Markazi by families of soldiers killed in the 1983 bombing of the U S Marine Corps barracks in Lebanon By a 3 0 vote the 2nd U S Circuit Court of Appeals said a lower court judge erred in dismissing claims against Markazi Banca UBAE SpA an Italian bank accused of engaging in transactions for Iran and Clearstream Banking SA a Luxembourg bank accused of opening accounts for Markazi and UBAE It upheld the dismissal of claims against JPMorgan Chase Co NYSE JPM The plaintiffs sought to recoup bond proceeds allegedly owned by Markazi and held by Clearstream to partially satisfy 3 8 billion of judgments they had won against Iran after a federal court deemed them victims of state sponsored terrorism They accused the banks of fraudulently processing billions of dollars of bond proceeds owed to Markazi and targeted cash held in a Clearstream account at JPMorgan in New York Iran is one of several countries and organizations ordered by U S courts to pay damages to terrorism victims Such orders are often difficult to enforce Lawyers for the plaintiffs and banks did not immediately respond to requests for comment U S District Judge Katherine Forrest had dismissed the case in February 2015 She said she lacked jurisdiction over Markazi assets located abroad the plaintiffs had released claims against Clearstream and UBAE and nothing was left in the Clearstream account for JPMorgan to turn over In Tuesday s 72 page decision Circuit Judge Robert Sack said Forrest reasonably assumed she lacked jurisdiction because the main assets in dispute had been recorded on Clearstream s books in Luxembourg But he said recent court rulings interpreting the federal Foreign Sovereign Immunities Act permitted courts in New York to exercise jurisdiction to recall to New York extraterritorial assets owned by a foreign sovereign Sack ordered Forrest to decide whether she has personal jurisdiction over Clearstream and whether state or federal law prevents the plaintiffs from recovering bond proceeds In April 2016 the U S Supreme Court said in a separate case that Markazi must pay nearly 2 billion which had been frozen to terrorism victims and Congress had not exceeded its authority by passing a law making it easier to recover damages The 1983 attack in Beirut killed 241 U S service members
The case is Peterson et al v Islamic Republic of Iran et al 2nd U S Circuit Court of Appeals No 15 0690 |
JPM | FINRA fines JPMorgan 1 25 million for failures in employee background checks | NEW YORK Reuters The Financial Industry Regulatory Authority said on Tuesday it fined JPMorgan Chase Co s N JPM securities division 1 25 million for failing to conduct adequate background checks on 8 600 employees including four people whose criminal convictions automatically disqualified them from working there Of the four individuals that FINRA found who were subject to statutory disqualification because of some criminal history it said that one worked at JPMorgan for 10 years and another for eight years Securities rules require banks to seek regulatory approval to employ anyone convicted of certain criminal offenses The regulator did not disclose the crimes to which the convictions were related None of the 8 600 were brokers but all were employees such as sales associates subject to monitoring by FINRA a non governmental body that regulates the securities industry FINRA found that the 8 600 people were not screened thoroughly enough or not screened before or shortly after joining the bank The regulator also found that of that number around 2 000 were not as required fingerprinted within a reasonable time frame JPMorgan Securities has around 35 000 associated employees total The inadequate background checks happened between January 2009 and May 2017 FINRA said We self reported this matter and are pleased it s now behind us JPMorgan spokeswoman Jessica Francisco wrote by email As part of the settlement agreement JPMorgan did not admit or deny the charges |
C | Wells Fargo overhauls lawmaking and policy arm | By Dan Freed Reuters Wells Fargo Co N WFC is making several changes to its government relations and public policy unit in what its new leader said was a response to its steady growth since the financial crisis The bank has had a difficult seven months since a sales scandal that severely damaged its reputation and led to the departure of then Chairman and CEO John Stumpf in October Stumpf s sudden retirement came after he was slammed by U S lawmakers Still David Moskowitz the newly promoted head of the lobbying and policy unit said the overhaul was not a response to the scandal nor to the bank s failure of a living will test administered by federal regulators that led to the bank s decision to temporarily halt the growth of its balance sheet This is not a reaction to all the events of the last year he told Reuters in a telephone interview Instead he said the bank s decision was about having a more coordinated public policy approach rather than each business unit operating somewhat independently While that siloed structure was one of the criticisms mentioned in an investigative report released by the Board of Directors Moskowitz said the new structure was not a response to the report I don t think there had been duplication of effort he said I need to integrate these things better into the business priorities of the company to the needs of its customers to help us rebuild trust and build the better bank that we re going to work for The new unit will bring together several responsibilities that had been in different areas of the bank including federal regulatory state and local government relations political programs external relations and public policy Moskowitz said he would hire more people for the unit though he would not yet say how many When Wells Fargo acquired Wachovia at the start of 2009 it more than doubled its size and became the fourth largest U S bank It eventually passed Citigroup NYSE C and became the third largest Following the Wachovia acquisition its government relations team had two people That number has since grown to six Moskowitz executive vice president and general counsel most recently led the consumer lending and corporate regulatory division of the Wells Fargo law department He will report to Hope Hardison the bank s chief administrative officer
The outgoing head of government and community relations Jon Campbell will stay at the bank in a modified role |
C | AllianceBernstein mostly mum on sacking of chairman and CEO shares 3 4 | In an industry that is confronting significant shifts we need to continue transforming the business to improve the quality of our investment solutions while delivering our services more effectively says AXA s OTCQX AXAHY Denis Duverne Paris based AXA owns 63 8 of AllianceBernstein AB 3 4 Citigroup NYSE C s William Katz isn t buying the spin suggesting a personal conflict drove the sudden change I don t think it s relevant to make a comment about I just don t comment about the past said Duverne when another analyst pressed him on the firing Previously Management and board shakeup at AllianceBernstein May 1 Now read Buy Allianz DE ALVG For Its 4 5 Yield |
C | A Cocoa Surprise Prices Spring Back To Life | In commodities the time to get bullish is usually when prices are pressuring the industry and sentiment is persistently and deeply negative The time to get bearish is usually when prices are skyrocketing industry participants are celebrating wondrous fortunes and sentiment is as euphoric as can be Since I am long term bullish on cocoa I am prone to identify the buying opportunities and find reasons to hold through the bearish moments
Just last week I gave my reasons for getting cautious enough to lock in profits on my holdings in iPath Bloomberg Cocoa Subindex Total Return Exp 24 June 2038 NYSE NIB Turns out cocoa still has some surprises NIB broke out to a fresh 18 month high on the heels of a surge in the price of cocoa
The iPath Bloomberg Cocoa SubTR ETN NIB gained a whopping 5 4 on a very bullish breakout
This kind of strong price action is usually driven by some abrupt weather event and or strong pronouncements from analysts Cocoa received both
In the Ivory Coast the world s largest producer of cocoa
Heavy rainfall could damage Ivory Coast s April September cocoa mid crop farmers said on Monday as soil moisture content is high and trees are loaded with fragile flowers and cherelles
The primary concern for farmers in recent months has been a lack of rainfall but after a couple of weeks of downpours farmers in the world s top cocoa producer are now hoping for less rain to protect yields as the harvest begins
Since weather is by nature unpredictable I tend not to extrapolate too much from these kinds of projections I prefer to wait for the actual weather and the actual impact Granted that strategy will make me lag a market that is buzzing from weather expectations but I prefer that risk rather than hoping I am rolling my dice with the lucky
Bloomberg reported on the extremely bullish conclusions from Citigroup NYSE C and Hackett Financial Advisors using a title that cannot get more loudly bullish Apparently a Citigroup report talked about another supply deficit following this year s projected deficit Low prices in the previous cycle starved farms of proper maintenance and will lead to lower yields see how the commodity cycle works Moreover Indonesia the world s third largest producer but far behind Ivory Coast and Ghana is suffering agricultural issues from aging trees diseases extreme weather and better returns for other commodities
Ironically contrary to the fears Reuters reported about the damage from heavy rainfall Bloomberg cited fears of more dry weather from an El Nino weather pattern Yet the odds for an El Nino pattern by the Fall season is just 37 These are measurable odds but the odds are not likely until they get over 50 In other words traders are betting AGAINST the LIKELY 63 chance El Nino will never arrive this year
Nonetheless the bulls are indeed raging Hackett is projecting a retest of the 32 year highs set in 2011 Bloomberg shows that hedge funds are still piling into long cocoa futures last week produced a new high for the run up
From my vantage point it seems misplaced to bet on yet higher and higher prices here in the short term A sharp sell off will likely result from any disappointment or disruption in the current price catalysts Aggressive traders can of course go long and put in a stop loss configured for individual risk tolerance like below Monday s low below Monday s gap or below the triple low from March to April
Ultimately I am now rooting first and foremost for the cocoa farmers to receive the best price they can get for their precious crops although I am afraid a lot of this year s crop was sold forward at much lower prices But I am also ready to buy into the next pullback
Be careful out there
Full disclosure no positions |
JPM | JPM Falls With The Market Time To Buy | Here is your Bonus Idea with links to the full Top Ten
JP Morgan N JPM stock had a good run higher to start the year Moving from 54 to 70 by August it was up almost 30 But then the market fell off and JP Morgan fell with it You can attribute the fall to the Fed not raising rates or Chinese worries or US Economic worries Whatever the case it does not matter The stock fell
Since then it has moved in a consolidation channel between 59 25 and 64 50 Last week saw the stock rise to the top of the channel and over the flat 200 day SMA Interestingly the stock printed a Death Cross last week with the 50 day SMA crossing down through the 200 day SMA This is after the pullback and the consolidation Death Crosses are a signal of more downside but from my experience often are printed after the fall is over
And with the stock price rising and momentum supporting more this may be the case this time The RSI is moving into the bullish zone and the MACD is rising The Bollinger Bands are also opening to the upside A break of the channel higher would look for a move of 5 25 to the upside or to about 69 75 just below the prior top
There is resistance higher at 64 50 and 65 75 followed by 67 35 and 68 30 before 69 and 70 Support lower stands at 62 and 59 25 Short interest is low at 1 1 and the company reported earnings just 2 weeks ago
The options chains show open interest from 60 to 63 on the Put side this week and 62 to 65 on the Call side favoring a bit of a downside move November monthly options show extremely large volume at the 67 5 Call and then the 65 Call with some lower at the 60 Put as well But upward favor longer term
JP Morgan
Trade Idea 1 Buy the stock on a move over 64 50 with a stop at 63 A straight stock trade
Trade Idea 2 Buy the stock on a move over 64 50 and add a October 30 Expiry 64 Put 76 cents Married Puts gives downside protection for just over 1 of cost
Trade Idea 3 Buy the November 64 Bullish Risk Reversal 8 cent credit A leveraged long position with risk of owning the stock on a close under 64 at Expiry
Trade Idea 4 Buy a November 62 64 65 Call Spread Risk Reversal free Also leveraged long but with capped upside to give a lower risk point at 62
After reviewing over 1 000 charts I have found some good setups for the week These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which heading into the last week of October sees the equity markets looking strong Elsewhere look for gold to continue lower in its longer term downtrend while crude oil heads lower in the short term The US dollar index is breaking to the upside while US Treasuries are marking time sideways The Shanghai Composite and Emerging Markets are biased to the upside with Emerging Markets at a major resistance level Volatility looks to remain subdued keeping the bias higher for the equity index ETFs N SPY N IWM and O QQQ The SPY and QQQ had major moves and look set up to continue higher into next week with the IWM lagging and at resistance Use this information as you prepare for the coming week and trad em well
Disclaimer 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 |
JPM | Markets Are Digesting Latest Jobs Report And Contemplating Next Moves | Financial markets are catching their collective breaths during this holiday week following last week s quizzical jobs report At first read analysts jumped on the euphoric train that was headed for a Fed hike in December but after further analysis the shadier side of the data has begun to see the light of day Yes 5 unemployment is a good figure but suddenly the recession drums are beating in the distance again Yes net job additions exceeded expectations but they were concentrated in low paying jobs for citizens over the age of 54 The euphoria on Friday has dissolved and been replaced by confusion
When confusion presents itself markets tend to wobble in very tight ranging patterns across the board When in doubt stand still like a squirrel does when it is in the road and spots an oncoming car It freezes but when the car gets near it gyrates in a frantic dance hoping to make the right move for survival This metaphor may be a bit of a stretch but you can almost sense the stillness that uncertainty brings and the potential for rampant chaos to come
Like it or not the Fed has primed the pump but has yet to hit the ignition switch Experts are now predicting December or January for a rate hike which will remove the overhanging cloud of uncertainty The degree of chaos however is up for debate In the meantime analysts must look to the heavens to history or to their tea leaves to fathom what might happen in the near term The race to find the magic chart or most revealing picture of arcane data is on once again Is there really a needle in this haystack
What can copper and oil price trends tell us about what might happen
Economists have always looked to copper as the bellwether of global economic activity It is one of our better and more reliable leading indicators that signals when commerce is about to pick up The metal is part of everything from electrical wiring and electronics to machinery of all types If demand is up in the copper sector it is because manufacturing and construction are making upswings Add oil prices and the previous chart emerges
Oil prices are on the left axis while copper prices are on the right The correlation of their pricing behavior over time is quite remarkable The horizontal tan dotted line represents the average price point of each commodity over a four decade span Over such an extended period however inflation and the growing prosperity of developing countries have had an effect although supplies have grown as well For these reasons the blue dotted line has been added to reflect gradually increasing support levels that hover slightly below current prices in the market
Much has been written about the deflation spiral that has been affecting global commodity prices for the last four years The peak that is evident in 2011 was followed by gradual declines Momentum accelerated in the past eighteen months in search of a bottom level of support for both resources Have we hit bottom Whether you accept the tan or the blue line correlations analysts are now forecasting that at least one of the two levels must be tested by the whims of market traders Global demographics easy credit reckless speculation and quantitative easing may have been behind the severe price run ups in the past but going forward basic supply and demand forces must take over
Why did the jobs report euphoria dissipate
Although the situation in the commodity sector puts a pall over the global economy the monthly jobs report is presumed to be the bellwether for subsequent actions by the Fed The headlines were screaming on Friday 271 000 net new jobs and unemployment rate down to 5 Consensus expectations were low at 184 000 a follow on to September s low figure and so it is not that difficult to see why champagne corks were popping
The change of heart occurred over the weekend after a more sober review
Two major concerns arose upon further inspection First the new job additions were concentrated in the Over 54 population demographic a disconcerting fact since the need for jobs at the low end of the spectrum is paramount Secondly the nature of these job additions is that they were both part time and low paying not exactly focused upon the breadwinners of our economy Our economy is service driven to the tune of 70 If per capita household income is stagnant as it has been since 2000 then retail spending for products and services also stagnates both now and in the near term future
The chart above comes courtesy of David Stockman the economist and budget director of Reagan fame He has been severely critical of Fed policy directions for some time and minces no words in describing what bothers him No it wasn t a blow out jobs report Inside the artificially bloated trend cycle adjusted headline number was the same old BLS con job and an economically devastating shortfall where it really counts Last month s purportedly awesome jobs report contained 1 4 million fewer breadwinner jobs than existed way back in the very first month of this century
The unemployment rate of 5 is also disconcerting since it disguises the true picture of what is transpiring in our society As one analyst opines It excludes discouraged workers which is anyone that does not currently have a job but has not looked for work in the past four weeks A more accurate measure of the true employment situation is the labor force participation rate which tells us what portion of the working age population is either working or is looking for work
The Participation Rate also peaked at the millennium at just above 67 It too has been in a steady decline down to October s 62 4 level This level represents a record 94 5 million working age Americans considered to be outside of the labor force Many economists attribute this drop to the general retirement of the Baby Boomer generation leaving the workforce but this presumption although logical does not explain everything that is happening The Participation Rate for 25 to 54 year olds has also declined over the same period from 84 7 down to 80 7 not a good sign for future prosperity
All in all the October jobs report was not a cause for celebration Yes the headline figures looked impressive but in this case the devil was in the detail The U S economy may be muddling along better than most other developed countries but it is not generating the necessary demand to fuel a dynamic global recovery As for the report it was only a positive one for those workers that are in the twilight for their careers For younger workers who are attempting to build their careers and raise families it was quite disappointing
What are the pundits now saying about future Fed directions
We have now come full circle to re visit the fundamental theme that is driving global financial markets central bank policy divergence The roadmap appears unchanged The U S will take the lead in interest rate policy normalization as it has been termed The U K will follow perhaps one or two months later while the balance of the world is caught up in various quantitative easing programs of some sort These man made artificial constraints on market forces have to be unwound or normalized at some point but many fear the consequences of such moves
The Fed s constant message has been that it will be a gradual long drawn out process Fed Chair Janet Yellen displayed a concerned level of caution in these recent words Policymakers should be mindful of new channels for monetary policy transmission that may have emerged from the intricate economic and financial linkages in our global economy that were revealed by the crisis It is crucial to understand the effect of regulations and possible changes in financial intermediation on monetary policy implementation and transmission
Did that make sense to anyone It is Fed Speak for I am worried that we do not know what we are doing and we had better be careful She may be paving the way for pointing blame at unknown unknowns the famous excuse concocted by Donald Rumsfeld for his failings some years back in the Defense Department s abysmal handling of the Iraq War It is amazing that anyone in Washington understands a thing after being cloistered in our nation s capitol far from the front lines of action
The debate has now returned to one of timing December and January are the latest forecasts that garner the most votes among guess timators Analysts are however growing weary of the process Once again eyes will be glued to monitors television sets and even radios Players will parse the Fed s statement with a fine toothed comb hoping to come away with a nugget that will tell them when the long awaited in some cases dreaded hike in interest rates will arrive If and when they find such a nugget the markets will undoubtedly conclude that the days of wine and roses are over Will this be the moment when money managers traders and investors change strategies
Concluding Remarks
Is the economy both domestic and global combined strong enough to withstand an increase in Fed interest rates Economists have been claiming that it has been for some time despite recent perturbations in China and the commodity markets As for timing David Lebovitz global market strategist JPMorgan N JPM Asset Management makes a good case for December It takes about six to nine months for monetary policy to hit the economy so I think the Fed by going in December isn t necessarily too late but further kicking of the can may put them a little bit behind the curve
The Fed skipped a beat in September passing on a rate hike presumably at the behest of Wall Street and the IMF I doubt if Ms Yellen and her banking buddies will gulp hard a second time around Even though the impact of such a change has been downplayed in the press financial markets will still gyrate accordingly a perfect storm of sorts for yearend forex trading Yes markets may have baked in some assumption for when a rate hike might take place but there is no prevailing consensus in the futures markets at present As December approaches new surveys will appear The haze will dissolve but only to a small degree Uncertainty will remain which means opportunity for traders
It s time to get your strategies ready The engines are about to start
Risk Statement Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors The possibility exists that you could lose more than your initial deposit The high degree of leverage can work against you as well as for you |
MS | Alibaba s Suning deal a riposte to growing might of rival JD com | By Paul Carsten BEIJING Reuters Tragedy that was Alibaba Group Holding Ltd N BABA founder Jack Ma s prediction for the fate of rival JD com Inc O JD in comments published earlier this year On Monday Alibaba signaled it is no longer writing off its smaller competitor making a 4 6 billion investment to give it more traction in two areas JD com does well in logistics and electronics Ma s online shopping titan bought into bricks and mortar electronics retailer Suning Commerce Group Co Ltd surprising investors given it has traditionally stayed away from physical offline assets Analysts say the main draw for Alibaba is likely to be Suning s logistics network which it says covers nine tenths of China s counties helping it compete with JD com s sophisticated in house warehousing and delivery system Instead of building the network itself it saves more time through this kind of deal said Walter Woo an analyst with Oriental Patron Finance Group in Hong Kong But even for cash rich Alibaba the investment is a bold one coming when its heady growth of the past few years is losing momentum The company reports its April June results on Wednesday with revenues predicted to hit 3 39 billion the slowest rate of annual growth in at least three years according to a Thomson Reuters SmartEstimate poll of 27 analysts For a company long praised for its fat margins fast revenue growth and lack of physical assets buying a stake in Suning which had margins last year of less than one percent raised industry eyebrows Suning is now valued at 149 times earnings for the last 12 months according to Thomson Reuters data GROWING THREAT In January Ma apologized for his barbs about JD com and its business model saying he had spoken too openly JD com s recent growth in the total value of goods sold on its platforms is likely to have given Ma more reasons for reflection JD com s gross merchandise volume went from 21 percent of Tmall s the main Alibaba site with which it competes in the 12 months to December 2013 to 42 percent in the year ending June according to Morgan Stanley NYSE MS Research This likely might have triggered Alibaba and Suning to form a closer alliance to fight back said Alicia Yap a Hong Kong based Barclays LONDON BARC Internet analyst in a Monday research note With China s increasingly discerning consumers drawn to JD com s ability to use its in house delivery system to avoid the more fragmented chaotic one in China that its rivals depend on Alibaba will be hoping Suning can give it a quick leg up This prospect has already made JD com investors nervous with its shares down 12 6 percent since Monday the biggest two day drop since it went public in May last year though the company is playing down the threat When we began investing in same day delivery people wrote us off as dead said a company spokesman in Beijing More than five years later e commerce companies in the U S and China see our superior service and realize investing is the only way they can survive Alibaba also wants to hook up its other Internet services with Suning including its affiliate online payment system Alipay Such moves linking online to offline assets are not always welcomed by investors as they pose the risk of slimmer margins than online only businesses Earlier this month Baidu said it would spend aggressively in this area triggering the shares worst two day drop since late 2008 Some analysts say though that if e commerce giants want to dominate all of the retail industry then more tie ups like Alibaba and Suning are on the cards The price they paid is indeed very high said Orient Patron Financial s Woo
But given how complementary the deal could be this may be the reason to justify this high price |
C | Back to basics global investment banks beef up transaction business in Asia | By Sumeet Chatterjee HONG KONG Reuters With dealmaking in Asia sluggish and Chinese investment banks taking market share from global rivals some foreign banks are ploughing resources into transaction banking the workaday business of financing trade managing cash and facilitating payments At a time of growing intra regional trade in Asia the largest trading region in the world and expansion of supply chain networks beyond China transaction banking promises to offset slowing revenues elsewhere While existing transaction banking powerhouses including Citigroup NYSE C and HSBC are expanding sales and reach firms who have traditionally focused more on investment banking such as JPMorgan NYSE JPM and Deutsche Bank DE DBKGn are also bulking up In its inaugural transaction banking league table industry analytics firm Coalition this week ranked HSBC and JPMorgan as the two strongest performers in 2016 in Asia based on revenue versus a year earlier Across the board we do see most of the traditional investment banks are investing in transaction banking Eric Li London based research and analytics director at Coalition told Reuters They realize the investment banking pool is more volatile and secondly there is very limited room to further improve he said adding the top 12 foreign banks revenue concentration in investment banking was already above 60 percent In contrast these banks account for just 15 percent of the market for cash management in the region Li said As a result the banks are gearing up to tap a likely pick up in trade and using their investment banking platforms as a lever to pick up more transaction business which consumes less capital and delivers more stable returns We contribute in terms of relationship we contribute in terms of funding and we contribute in terms of a steady source of business said Lisa Robins Asia Pacific head of global transaction banking at Deutsche Bank I won t say it doesn t use capital because we do use capital but it s a relatively efficient business Robins declined to give a business forecast but the bank said in May last year that within transaction banking the share of revenue coming from Asia could rise to a quarter in the coming years from 18 percent BOOSTING HEADCOUNT While 2016 saw many foreign banks cutting investment banking headcount in Asia to cope with sluggish deals activity staff additions for the transaction banking business was strong headhunters and some bankers said This year global banks headcount for transaction banking in Asia could rise 5 percent while investment banking is likely to be flat or fall 5 percent said John Mullally director of financial services at headhunter Robert Walters JPMorgan for instance has added more people both on the sales side and the product side in transaction banking in Asia helping it expand its share said Muhammad Aurangzeb head of its Asia Pacific corporate banking Banks such as Deutsche and JPMorgan are also increasingly using their investment banking clout to win more bread and butter trade finance and cash management services to develop their client relationships We are saying to investment banking clients we want to go wider and deeper with you said Aurangzeb We don t want to just do an M A trade or your IPO or your block trade and forget about it till we meet again in a year and a half s time They will nevertheless face stiff competition to win market share from global rivals such as Citigroup and HSBC that have much bigger balance sheets and banking networks in the region HSBC for example is looking to add around 500 new staff in commercial banking which includes transaction banking in Asia Pacific this year to capitalize on initiatives such as China s One Belt One Road project which aims to develop trade and connectivity with the rest of Eurasia Economic weight is shifting to Asian and Middle Eastern economies which are expected to grow their GDP threefold between now and 2050 said Ajay Sharma HSBC s regional head of global trade and receivables finance in Asia Pacific
That s the sweet spot for our customers and our global footprint |
C | Stanley Fischer defends the revolving door between Wall Street and the Fed without mentioning he s part of it | Federal Reserve Vice Chair Stanley Fischer s academic and policy credentials are hard to match During his days at MIT s economics department he was a teacher of teacher lecturing to Ben Bernanke the ex Fed chairman and Mario Draghi the current European Central Bank president
Still like Draghi and Bernanke both of whom have had stints in finance Fischer is hardly a pure academic He spent three years working on Wall Street where he amassed a small fortune
When he made financial disclosures required of his nomination to the Fed s board in 2014 Fischer revealed he had as much as 56 3 million in assets making him one of the richest officials at the central bank
This led to an awkward moment during a CNBC interview when after delivering a strong condemnation of efforts to roll back financial reform Fischer was asked Do you think it s appropriate that it s being drafted by ex bankers and current bankers advising them As a regulator
Well look he sputtered The people who know about the banking system tend to be bankers and some academics You need experts I know there s a fashion that experts are out of style but you need them And that s where you re going to find them So that s alright
Fischer did not mention his three years at Citi He played no small role and during a time when the bank was engaged in the dubious mortgage practices that would help fuel the financial crisis and require in Citi s case multiple taxpayer bailouts From February 2002 to April 2005 he was vice chairman of Citigroup NYSE C He was also Head of the Public Sector Group from February 2004 to April 2005 Chairman of the Country Risk Committee and President of Citigroup International Not bad for a three year run
Fischer s proximity to bankers may explain why he did not feel he was crossing an ethical line by giving a private speech to financial industry executives at the Brookings Institution earlier this month when neither the existence of the speech or its contents were divulged to the press or the public At that event Fischer also took questions on interest rates even though even the smallest comments by top Fed officials on monetary policy can be highly market moving |
C | Luxury shoe brands Jimmy Choo and Bally put up for sale | By James Davey
LONDON Reuters British luxury retailer Jimmy Choo has put itself up for sale to try to maximize shareholder value as majority investor JAB increases its focus on consumer goods
JAB Luxury also said on Monday it was reviewing its ownership of Bally International the Swiss luxury footwear and accessories company clearing the way for a possible sale of that business too
Jimmy Choo famous for its stiletto shoes and accessories has discussed its plans with 68 percent shareholder JAB which supports the process as part of a move away from a luxury sector it now considers non core
Jimmy Choo shares hit a record high valuing the business at around 720 million pounds 921 million
JAB Holdings the investment vehicle of Germany s billionaire Reimann family has been building up its coffee and food chains and agreed this month to buy bakery group Panera Bread NASDAQ PNRA for 7 2 billion
Shares in Jimmy Choo which floated on the London Stock Exchange at 140 pence in 2014 had increased 35 percent over the last year prior to Monday s announcement They rose as much as 11 3 percent and by 1227 GMT were up 9 5 percent at 185 pence
What remains to be seen is whether growing interest from Asia and the Middle East for luxury UK brands will see Jimmy Choo receiving offers from foreign buyers searching for well known British brands said Jonathan Buxton partner and head of consumer at Cavendish Corporate Finance
Last month Jimmy Choo reported a 15 7 percent rise in annual core earnings to 59 million pounds on revenue up 14 5 percent
JAB s luxury portfolio also includes British jacket brand Belstaff which could now be surplus to requirements It indicated that it intended to retain its investment in beauty products maker Coty
JAB has therefore made the strategic decision to focus on its successful core businesses of consumer goods including Coty Inc it said adding that it expects the review to complete in the second half of 2017
Jimmy Choo said Britain s Takeover Panel has agreed that any talks with third parties can be conducted within the context of a formal sale process That enables talks with interested parties to take place on a confidential basis
The firm said it is currently not in receipt of any approaches The sale process will be run by BofA Merrill Lynch and Citigroup NYSE C |
C | Citi meeting protest prompts apology on pipeline finance steps | By David Henry NEW YORK Reuters A brief noisy protest by drum beating young adults at Citigroup s annual shareholder meeting on Tuesday evolved into an orderly exchange between an older tribal woman and the bank s two top executives who conceded it had approved investments in a North Dakota pipeline too quickly We wish we could have a do over on this Chairman Mike O Neill said after hearing from Casey Camp Horinek a council woman for the Ponca Nation She asked the executives to pardon the disruption from younger protesters who were concerned about environmental damage from the pipeline and shale oil Citigroup NYSE C is one of four lead banks in a group of 17 which have provided project financing for the Dakota Access Pipeline The pipeline crosses land of the Standing Rock Sioux whose members are concerned about possible ground water contamination if the pipeline breaks In January U S President Donald Trump signed orders smoothing the path for the pipeline in a move to expand energy infrastructure and roll back key Obama administration environmental actions Chief Executive Mike Corbat said Citigroup had not given enough early consideration to the concerns of the indigenous people But now he said Citigroup could do more to protect the environment by keeping its investments We made the decision that we are a better force for good at the table than away from the table Corbat said We don t think it is the right thing to simply sell these and walk away Camp Horinek thanked the men for listening and spoke with them and Corbat s wife Donna after the meeting O Neill and Corbat had waited quietly during the drumbeating and resumed the meeting after the protesters walked out peacefully after an interruption of less than 10 minutes Wells Fargo Co s N WFC shareholder meeting which was held at the same time in Florida resulted in repeated interruptions That meeting went into a brief recess after a shareholder made what Chairman Stephen Sanger called a physical approach toward a board member and was removed At the Citigroup meeting in New York shareholders overwhelmingly voted in favor of the company s annual compensation of executives and sided with directors in rejecting a call for a special study of breaking up the big bank In the so called say on pay referendum more than 95 percent of votes were cast to approve 2016 compensation awards according to a preliminary count announced by the company Only about 2 5 percent of votes favored a breakup study of the bank which is the fourth biggest in the United States by assets The compensation endorsement was far stronger than the 63 6 percent approval at the 2016 annual meeting Directors disappointed that support was so weak last year reviewed compensation practices and made changes after meeting with institutional investors and proxy voting advisory firms |
C | Atlantia taps pool of banks to finance Abertis takeover bid sources | By Pamela Barbaglia LONDON Reuters Italian toll road operator Atlantia MI ATL has tapped banks to finance an upcoming cash and share bid for Spanish rival Abertis MC ABE sources told Reuters as it seeks to create an industry giant with a market value of more than 35 billion euros 38 billion Atlantia said last week it was interested in reaching an agreement to acquire Abertis but the Spanish infrastructure group s Chief Financial Officer Jose Aljaro said on Wednesday that it had not yet received any concrete bids Atlantia s advisers Credit Suisse S CSGN and Mediobanca MI MDBI and Abertis adviser Citi N C have committed to provide financing for the transaction with a formal bid expected to be announced as soon as next week the sources said The pool of financing banks will also include Italian lenders UniCredit MI CRDI and Intesa Sanpaolo MI ISP MI and France s BNP Paribas PA BNPP the sources said The overall financing package is estimated to be worth more than 10 billion euros two of the sources said with one adding it could involve a consortium of about ten banks Spain s Santander MC SAN and France s Credit Agricole PA CAGR are also expected to take part in the financing the sources said Atlantia which operates Rome s two airports and around 5 000 kms of toll motorways is set to hold a board meeting on Thursday and may give the green light to a formal bid for Abertis another source said cautioning no deal was certain Spokesmen at Abertis Mediobanca UniCredit Intesa BNP Paribas Credit Suisse and Santander declined to comment while Atlantia Citi and Credit Agricole were not immediately available EUROPEAN CHAMPION A tie up between Abertis and Atlantia which is 30 percent controlled by the Benetton family would create one of the biggest infrastructure groups in Europe generating around 60 percent of its core profits outside Italy Atlantia has long been trying to lure its Spanish rival to the negotiating table the sources said in a bid to diversify away from Italy But Barcelona based Abertis a crown jewel of Catalonia has only recently started contemplating the possibility of a sale to enable the business to cope with domestic challenges including a series of concessions that will soon expire the sources said By 2021 Abertis will lose up to 1 000 kilometers of its toll roads in Spain which run along the Mediterranean coast and around Seville representing around 10 percent of the group s business The Spanish government has promised that these highways will be toll free when the concessions end between 2019 and 2021 As a consequence Abertis has increased its portfolio of foreign concessions over the past 12 months and reduced the weight of the Spanish business to around 20 per cent of its revenues and core earnings Atlantia s boss Giovanni Castellucci recently told a shareholder meeting in Rome that the deal would unlock substantial growth for the two companies adding he was only interested in a friendly deal Rome based Atlantia will also use the proceeds from a planned 15 percent stake sale in its Italian motorway business Autostrade per l Italia ASPI AUTSA UL to finance the Abertis deal the sources said
Analysts said it could pocket around 2 billion euros from the ASPI stake sale |
C | Bitcoin s Path To 250k | The France and the United Kingdom have carried out a series of airstrikes on the war torn country of Syria They have specifically targeted facilities that enable the Asaad Regime to carry out chem warfare attacks
In a place where things seemed like they couldn t get any worse this latest escalation is rather significant as it brings in new players who were previously on the sidelines
Some of the more active players like Russia and Iran are not very happy to have the additional company
The markets for their part seem to be largely unphased by all of this Stocks have come down slightly but there hasn t been a massive rush to safe haven assets as one might expect
Today s Highlights
Earnings Underway
Ruble Divergence
BTC s Path to 250K
Please note All data figures graphs are valid as of April 16th All trading carries risk Only risk capital you re prepared to lose
Traditional Markets
Earnings season has kicked off on and this should be a great one Thanks to Donald Trump s tax cuts and additional stimulus corporate earnings should be through the roof
who reported on Friday have smashed expectations with JP Morgan s profits rising 35 in the first quarter Citigroup Inc NYSE C raising their earnings per share by 24 and Wells Fargo NYSE WFC seeing profits rise despite a new scandal
As we can see from the charts above the great earnings may have propped up the prices a bit but they certainly didn t send them flying
It will be interesting to see how the season progresses and to what extent the reports are overshadowed by geopolitics and already high valuations in the market
Russian Divergence
Traditionally the Russian Ruble is most correlated with Crude Oil because it is the number one export from the country
So we ve seen before how a sharp rise in thecan affect a similar movement from the Russian Ruble However over the last week we ve seen them moving in opposite directions as the Ruble is under pressure by international forces and the supply of crude oil is under question
When trading the USD RUB remember that you re trading the strength of the USD So if the chart is going up it means the Ruble is getting weaker
Here we can see an overlay of the USDRUB blue and crude oil purple See how they tend to move in opposite directions but just at the far right of the chart they both spiked up
Bitcoin s Graph
Now that we ve seen a massive spike from the bottom many in the community are thinking that we may have seen the end of the dip
The bullish price calls are now back in full force with many speculating that we may see another few notable rises in the next few years The most famous one to come out in the last few days is from Tim Draper who calling for 250 000 in the next four years
It may sound like a rather aggressive call but if you think about it we ve already seen this type of percentage growth several times since Bitcoin s creation
The move from 3 30 to 126 in a single week in May of 2013 represents a percentage growth of 3 718 But we don t have to go back that far In the last two months of 2017 alone Bitcoin s price more than doubled
We can see these moves better on a logarithmic scale chart which is becoming a rather popular tool in the crypto community
The Twitter user parabolictrav has mapped the path to 250k on a similar logarithmic graph
Of course these types of aggressive calls should probably be taken with a pinch of salt They basically assume that Bitcoin s adoption rate will continue to accelerate at a similar pace as it has until now and that we see some sort of tipping point which in my mind is probably a bit less than likely but certainly within the realm of possibility
Let s have an amazing day ahead
eToro Senior Market Analyst
Disclosure This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation Past performance is not an indication of future results All trading carries risk Only risk capital you re prepared to lose |
C | Earnings Season Begins With Adverse Fri Reaction | If investor trader reaction last Friday to financials 1Q18 results is any indication we are in for some interesting weeks ahead
First quarter earnings season began in earnest last week For 1Q18 the sell side expects 35 63 in operating earnings from S P 500 companies Estimates have slightly trended lower since hitting 35 81 on March 8 but have risen post tax cuts The Tax Cuts and Jobs Act of 2017 was signed into law on December 22 Estimates were 33 87 on December 21
The upward revision trend over the past four months is evident in Chart 1 On December 21 consensus estimates for 2018 were 145 31 before gradually rising to 156 45 by mid March As of April 11 estimates slightly edged down to 155 88 Over the past few weeks the trend is flattish to slightly down Ditto with 2019 which peaked at 173 11 at the end of February and stood at 172 07 on April 11
Last Friday some of the leading US financials reported their numbers JPM JP Morgan C Citigroup NYSE C PNC PNC and Wells Fargo NYSE WFC all beat estimates but ended down 2 7 percent 1 6 percent 4 6 percent and 3 4 percent in that order Financial Select Sector SPDR NYSE XLF SPDR financial sector ETF lost 1 5 percent with the session producing a bearish engulfing candle Chart 2
The ETF reached a 10 year high of 30 33 on January 29 before reversing lower The subsequent drop bottomed at 26 76 on February 9 It then proceeded to trade within a symmetrical triangle which it fell out of on March 19 The underside of that broken triangle already repelled rally attempts
Last Friday s reaction further worsens the technical picture Ideally the bulls would have liked to go test the upper bound of the triangle but they fell way short Friday s high also fell 0 12 short of the 50 day moving average
This also applies to major US equity indices
In fact guess where sellers showed up on the Dow Industrials last Friday At the 50 day which also approximates the upper bound of a descending triangle Chart 3 The Industrials suffered an 11 session peak to trough 11 2 percent decline during late January early February It has since consistently made lower highs The bulls cannot afford to lose support at 23550 which is where the 200 day rests
From their perspective the good thing is that throughout this correction the 200 day was never lost on a closing basis However the index has not been able to lift off of it either The longer it lingers the higher the odds that the average gives way
This also holds true with the S P 500 large cap index
After pretty much hugging the 200 day for a couple of weeks the index rallied two percent last week Friday s high came within nine points of the 50 day before reversing lower
Technically it too is broken In other words there is a lot of work ahead to repair the damage it suffered in February and March Chart 4 Since peaking at 2872 87 on January 26 the S P 500 has made lower highs fell out of a symmetrical triangle and unsuccessfully tested last Friday the underside of the broken trend line from February 2016
Major support lies just south of 2600 The 200 day lies around there
The Nasdaq 100 is no exception to this
Early this month it fell to within 50 points of the 200 day The last time it lost that average was in July 2016
That said after the February decline it was the only major equity index to have rallied to a new high which it achieved on March 13 with 7186 09 That it turns out was a false breakout in the process developing an island reversal Chart 5 Last Friday s high came within 27 points of testing the 50 day way ahead of short term resistance at 6800
All these three indices the Dow S P 500 and Nasdaq 100 are literally sitting on short term rising trend line A break raises the odds of a test of the recent lows
There is a similar trend line on the Russell 2000 small cap index but it is yet to approach it Chart 6 The index is also the first to have retaken the 50 day which it achieved last Tuesday
Arguably of major indices the Russell 2000 acts the best In the best of circumstances it has a shot at just north of 1600 which is where a slightly falling trend line from the all time high of 1615 52 on January 24 lies Chart 6 For this scenario to pan out the bulls need to defend support at 1550 which is where it is at currently and or the 50 day which is 11 points lower
Longer term on the monthly chart January s reversal candle on the Russell 2000 was followed by a hanging man in February and a candle with a very long wick in March Several monthly momentum indicators have turned lower This is also true with the other indices mentioned here In the right circumstances for the bears there is room for these indicators to continue lower
Investor sentiment has taken a hit in the wake of the recent selloff but it is nowhere near final washout
Last week Investors Intelligence bulls fell 5 4 percentage points week over week to 42 2 percent even as bears inched up 0 5 percentage points to 18 6 percent Post presidential election in November 2016 blue arrow in Chart 7 bears peaked at 25 7 percent but bulls were still 42 9 percent In February 2016 black arrow bulls dropped to 24 7 percent while bears jumped to 39 8 percent
In the past three weeks the ratio of bulls to bears dipped below three This follows persistently elevated readings north of three or four In late 2015 early 2016 the ratio remained in one s and zero s for weeks In the week ended February 10 it bottomed at 0 6 stocks bottomed on the 11th
In a scenario in which the monthly charts continue to unwind support levels on these indices are likely to break sooner or later This is medium to long term risk Even near term shorting opportunities may be around the corner The daily charts are beginning to get overbought Wait and watch for now
Thanks for reading |
JPM | 3 Themes To Watch This Week Growth Earnings And Global Rates | Rates growth and earnings
For those central bank watchers a very interesting week is ahead with three main themes to note growth earnings and the pressure these have on global rates
What s catching my attention
You can t look past China s GDP today ANZ are forecasting a bit of carnage with a year on year figure of 6 4 this would send the market into a bit of a fuss The consensus estimate is 6 8 this would be considered near enough to the targeted around 7 however it would still be lowest growth rate since 2009
Three hours later China will release its urban investment retail sales and industrial production numbers all expected to slide from the previous month Industrial production is expected to decline to 6 in September after bouncing back in the previous five months from a 25 year low of 5 6 in March
PBoC rate cut expectations are creeping up but still no signs that it will actually act Chinese President Xi Jinping was interviewed over the weekend and pointed to the sluggish world economy that is weighing on China s growth as the cause for its marked slowdown No suggestions yet that he will interview either
US earnings season remains mixed 57 companies have reported so far and 71 have beaten expectations on the earnings per share EPS line However the revenue line has fallen below half with 48 beating expectations
Top line growth in the US has been ripped to pieces in the past year The USD is effectively applying a tightening bias on the US economy and the headwinds its creating see the current growth in corporate revenues contracting 6 8 in this quarter from the small sample so far
JP Morgan N JPM released a report over the weekend estimating that the US is losing 50 000 export facing jobs a month in 2015 because of global growth and the USD That compares to the 9000 jobs added in export facing jobs in 2014
The pressure on the Fed s first mandate is growing employment is beginning to feel the pressure of global factors The Fed funds futures is currently pricing the December rise at 32 6 The only month that has a noteworthy probability is July 2016 at 74 6
Expectations of a cut from the RBA jumped on Friday Westpac s rather bearish report coupled with several economic reports showing further signs of weakness saw the interbank spiking
Expectations of a cut on Melbourne Cup moved from 26 to 38 5 The expectation for a December cut has hit 80 from sub 50
House clearance rates in Sydney continue to tumble Melbourne rates remain steady however the rest of the country is sliding faster with Queensland and Western Australia seeing marked pressures
Westpac s decisions to test the pricing power of the Big Four remains an interesting dichotomy It would be watching CBA with renewed vigour this week NAB and ANZ are unlikely to move rates until reporting their full year numbers next Thursday and Friday respectively Expectations would be for Australia s largest bank to join it in raising rates However the longer CBA holds out customer churn issues will create an uneasy pressure on the bank
If CBA does raise rates the interbank market s rate cut expectations will rapidly ascend towards 100 probability
AUD slid over the weekend It remains in the 72 cent handle however with China the Big Four and the minutes from the RBA all likely to add downside pressure the 70 handle is the most likely end for the AUD come Friday
Ahead of the open and based on the close of the futures on Saturday we are calling the ASX up 27 points to 5295 |
JPM | The Debt Cash Wealth Connection | My daughter is taking a high school personal finance course and it comes up in conversation almost every day
Overall it s pretty conventional stuff avoid debt invest for the long term etc
While it s sound advice for most people I have a nagging feeling that it s also a prescription for a small narrow life rather than an abundant one
Yes you can build a conservative portfolio augmented by savings hold on to it for 40 years and with some luck it may become a very nice nest egg But where s the adventure in that
Once you realize the powerful and positive connection between debt cash and wealth something I wish I realized three decades ago your options expand significantly
Money Is NOT the Root of All Evil
Let s start with debt
In many circles it s considered evil a source of many grievances in the world
But think about it for a moment Has anything great ever been accomplished without debt After all debt is the foundation of capitalism and the source of great wealth
Consider the following
Donald Trump would be a Brooklyn clerk without debt
The railroads never would ve been built nor the Erie Canal or the Hoover Dam
America wouldn t have won World War II
America s great corporations would ve stayed small businesses if they survived at all
And very few Baby Boomers would ve ever owned a home
America would be but a shadow of itself
Of course I m not advocating being reckless or betting the farm on a risky venture One needs to be reasonable and intelligent and we should always remain mindful that debt is a tool
But as a rule if you have access to debt preferably corporate debt at reasonable rates then you should load up for property a great value investment or a solid business plan It s this debt that ultimately leads to cash
Cashing In
Speaking of cash it s the second part of our equation You can of course earn cash through work or income by selling an asset or by borrowing It doesn t really matter as long as you have it
Cash is very useful especially if you want to buy something or you want to invest Cash gives you options flexibility mobility and perhaps most importantly peace of mind and patience
It s not a coincidence that these are the very characteristics of the world s greatest investors and businessmen
Now what separates the tycoons from the grey flannel suits is how the great investors and businessmen use their available cash
For example most investors think they can handle market volatility but the data shows that they tend to be panic sellers In essence most people end up selling their positions and exiting the market raising cash when they should be investing instead
If these investors had the foresight to have ample cash on hand they wouldn t have panicked Instead they would ve calmly scooped up blue chip bargains such as JPMorgan Chase Co N JPM when it opened 20 down from its previous close
Which brings me to the last part of the equation wealth
Words of Wisdom From the Greats
It s important to keep in mind that all great investors have been value investors This is why cash is king having cash on hand ensures that you re ready to pounce when opportunity knocks
As Howard Marks of Oaktree put it Investors face not one but two major risks the risk of losing money and the risk of missing opportunities
Warren Buffett puts it differently When great stocks are on sale you need to back up the truck of cash rather than use a thimble
We ve all experienced the frustration of finding a great investment opportunity without having the capital to take advantage Capitalism is about connecting capital with opportunity Those who have access to cash and more importantly the willingness to borrow cash after careful analysis capture the opportunity and seize the day
Learning how to use this connection to your advantage means the difference between living a comfortable life and living a profitable one
Good investing |
MS | Daimler says hacking concerns drive Nokia maps bid | FRANKFURT Reuters Daimler DE DAIGn Chief Executive Dieter Zetsche said a desire to have better control over data security was one of the reasons Mercedes was bidding for Nokia s HE NOK1V high definition mapping business In a call to discuss second quarter results Zetsche was asked whether he was concerned about hacker attacks on Mercedes Benz cars You can see from reading the papers that we are trying to acquire a platform together with our German competitors to gain control over the platform which enables autonomous driving for exactly these reasons Zetsche said We have the goal of designing security into the software Zetsche said the carmakers would seek to make the software platform available to third party competitors A bidding consortium consisiting of BMW DE BMWG Volkswagen s Audi and Mercedes is close to a deal to buy Nokia s HERE for between 2 5 billion and 3 billion euros 2 74 billion to 3 29 billion sources have told Reuters But a final agreement hinges on the question of who owns the patents for the technology that helps self driving cars talk to mobile networks two sources familiar with the deal told Reuters on Tuesday Earlier this week a pair of veteran cybersecurity researchers showed they could use the Internet to turn off a car s engine as it drives escalating the stakes in the debate about the safety of connected cars and trucks High definition digital maps help connected and self driving cars can perform intelligent functions such as recalculating a route if data about a traffic jam or an accident is transmitted to update the car s intelligent mapping system Self driving cars use data gathered from vehicle radar and laser sensors and cross reference this with information embedded in digital high definition maps such as the location of traffic lights lane markings or traffic jams up ahead As vehicles become more connected more autonomous and less reliant on human operated mechanical functions the question of security will become more important and more frequent Morgan Stanley NYSE MS analysts wrote in a note on Thursday
We see the value of software and software content in the average car rising to around 60 percent over the next 15 years from less than 10 percent today |
JPM | Fund managers clash over Snap shares | By Trevor Hunnicutt NEW YORK Reuters Fund managers expressed sharply contradicting views on Snap Inc NYSE SNAP during the social media company s challenged third quarter regulatory filings showed on Tuesday The Venice California based maker of messaging app Snapchat debuted on the stock market in a March public offering that was the hottest of any tech stock in years But its earnings reports have underwhelmed Wall Street including results earlier this month that showed revenue and user growth for the third quarter well below expectations as it struggles to compete with Facebook NASDAQ FB Inc s Instagram The company responsible for T Rowe Price Group Inc s funds reported a more than 90 percent decline in the number of Snap shares it held at the end of September T Rowe is Snap s fifth largest shareholder according to Thomson Reuters data Soros Fund Management LLC named for its legendary chairman George Soros cut entirely its stake in Snap during the third quarter a filing showed By contrast companies controlled by Fidelity Investments held 11 million more Snap shares than during the prior quarter and technology focused hedge fund Coatue Management LLC increased its stake by 1 7 million shares Fidelity is Snap s sixth largest shareholder while Coatue is the seventh largest the Thomson Reuters data shows T Rowe and Soros did not immediately respond to a request for comment Fidelity Coatue and Snap declined to comment Snap shares sank 18 percent in the third quarter and another 14 percent since the end of September The stock closed up 1 4 percent at 12 57 on Tuesday Other significant shareholders include OppenheimerFunds Inc JPMorgan Chase Co NYSE JPM and Och Ziff Capital Management Group LLC according to Thomson Reuters data based on filings with the U S Securities and Exchange Commission U S based fund managers disclose their stock holdings quarterly to the regulatory agency in what is known as a 13F filing Other investors pore over those filings for clues about what savvy traders are doing
But relying on the filings to develop an investment strategy comes with some risk because the disclosures are incomplete backward looking and come out 45 days after the end of each quarter |
JPM | JPMorgan calls Dick s Sporting Goods a survivor | JPMorgan NYSE JPM predicts Dick s Sporting Goods NYSE DKS will be a long term survivor in the retail sector as inventory and pricing trends improve The firm thinks Dick s is taking a page out of Best Buy s playbook by focusing on a customer service and technology Shares of the sporting goods seller are upgraded to Overweight from Neutral and assigned a price target of 32 DKS 2 38 premarket to 26 20 after a 2 77 post earnings drop yesterday Now read |
JPM | U S core inflation pushes higher retail sales rise | By Lucia Mutikani WASHINGTON Reuters Underlying U S consumer prices increased in October on the back of a pickup in rents and healthcare costs bolstering the view that a recent disinflationary trend worrying the Federal Reserve probably had ended The rise in the consumer price index excluding the volatile food and energy categories reported by the Labor Department on Wednesday likely clears the way for the U S central bank to raise interest rates next month October s gain in the so called core CPI which measures underlying inflation pressures could comfort Fed officials concerned that stubbornly low inflation may reflect not only temporary factors but also more persistent developments The Fed has struggled this year in determining if the slowdown in core inflation has been due to a confluence of one offs or more persistent disinflationary forces said Sarah House an economist at Wells Fargo NYSE WFC Securities in Charlotte North Carolina The pickup clears the way for a December rate hike and supports the case for continued tightening in the year ahead The core CPI rose 0 2 percent in October also lifted by increases in the cost of used cars and trucks tobacco wireless phone services airline fares education and motor vehicle insurance It edged up 0 1 percent in September October s gain lifted the year on year increase in the core CPI to 1 8 percent The year on year core CPI had increased by 1 7 percent for five straight months Last month owners equivalent rent of primary residence climbed 0 3 percent quickening after September s 0 2 percent increase The cost of hospital services were up 0 5 percent and prices for doctor visits rose 0 2 percent Economists said the increase in healthcare costs suggested the Fed s preferred inflation measure the personal consumption expenditures PCE price index excluding food and energy probably rose 0 2 percent in October which would snap five straight monthly 0 1 percent gains That would raise the year on year increase in the core PCE price index to 1 4 percent from 1 3 percent in September It appears the inflation rut that took hold in the spring may finally be behind us said Michael Feroli an economist at JPMorgan NYSE JPM in New York The core PCE price index has consistently undershot the Fed s 2 percent target for more than five years The central bank has lifted borrowing costs twice this year and has projected three rate increases in 2018 The government will publish core PCE price index data later this month The dollar DXY was little changed against a basket of currencies after an earlier slide while prices for Treasuries were trading mostly higher Stocks on Wall Street fell amid declining oil prices and concerns over the fate of a proposed U S tax overhaul in Congress HEALTHY CONSUMER SPENDING Overall consumer prices however rose marginally in October as the boost to gasoline prices from hurricane related disruptions to Gulf Coast oil refineries was unwound The CPI nudged up 0 1 percent last month after jumping 0 5 percent in September That lowered the year on year increase in the CPI to 2 0 percent from 2 2 percent in September Low inflation is however helping to underpin consumer spending In a separate report on Wednesday the Commerce Department said retail sales increased 0 2 percent last month as heavy price discounting by automobile manufacturers buoyed purchases of motor vehicles Data for September was revised to show sales jumping 1 9 percent which was the largest gain since March 2015 rather than the previously reported 1 6 percent advance Retail sales increased 4 6 percent on an annual basis The slowdown in retail sales from September s robust pace largely reflected an unwinding of the boost to building materials and gasoline prices after recent hurricanes Receipts at auto dealerships increased 0 7 percent after soaring 4 6 percent in September supported by the deep price discounting by manufacturers Sales at gardening and building material stores fell 1 2 percent last month after surging 3 0 percent in September Receipts at service stations decreased 1 2 percent in October That followed a 6 4 percent gain in September Excluding automobiles gasoline building materials and food services retail sales increased 0 3 percent last month after climbing 0 5 percent in September These so called core retail sales correspond most closely with the consumer spending component of gross domestic product Last month s increase in core retail sales indicated a healthy pace of consumer spending at the start of the fourth quarter Consumer spending which accounts for more than two thirds of U S economic activity increased at a 2 4 percent annualized rate in the third quarter
We expect strong fundamentals for consumer spending including continued job gains firming real wage growth and the recent strength in household net worth to support solid gains in retail sales over the coming months said Kathleen Navin an economist at Macroeconomic Advisers |
C | Dollar rebounds Treasury yields off lows after Trump comments | By Sinead Carew NEW YORK Reuters The U S dollar rebounded on Thursday after sliding a day earlier following remarks by President Donald Trump on the currency and interest rates while a consumer sentiment survey helped lift U S Treasury yields off five month lows The benchmark S P 500 stock index was modestly higher as strength in U S technology and financial stocks offset declines in sectors like energy and consumer staples N The U S dollar had tumbled Wednesday after Trump told the Wall Street Journal the greenback getting too strong and would eventually hurt the U S economy Treasury yields fell after Trump said he would like to see interest rates stay low Clearly I think the dollar was oversold yesterday said Peter Ng senior currency trader at Silicon Valley Bank in Santa Clara California The market was very sensitive to headlines given how nervous it has become due to geopolitical risk Trading was thinner than usual during an abbreviated week with the impending holiday for Good Friday in the United States and Europe Ng said The dollar index which tracks the greenback against a basket of six trade weighted peers was up 0 4 percent after a 0 6 percent decline on Wednesday marked its biggest one day fall in three weeks The dollar was up 0 2 percent at 109 22 against the Japanese yen having hit a five month low of 108 73 yen in early Asian trading YIELDS OFF LOWS U S Treasury yields hit session highs pulling away from five month lows earlier in the day after a University of Michigan survey showed U S consumer sentiment unexpectedly improved in early April Before the data Trump s favorable view of low interest rates had intensified this week s bond market rally that was underpinned by geopolitical worries The yield on benchmark 10 year Treasury notes was 2 264 percent down 3 basis points from late on Wednesday It touched 2 218 percent earlier in the day the lowest since Nov 17 The MSCI all world stock index was little changed with a 0 01 percent increase U S stocks were little changed as investors assessed the first rush of bank earnings and Trump s remarks on the dollar s strength and interest rates The Dow Jones Industrial Average rose 9 12 points or 0 04 percent to 20 600 98 the S P 500 gained 2 26 points or 0 10 percent to 2 347 19 and the Nasdaq Composite added 17 86 points or 0 31 percent to 5 854 02 The S P 500 bank subsector was boosted by stronger than expected earnings at JPMorgan Chase NYSE JPM and Citigroup NYSE C However Wells Fargo NYSE WFC Co was a drag with a 1 5 percent decline after it reported a big drop in mortgage banking revenue The FTSEurofirst 300 index of large companies was down 0 4 percent putting it on track for a loss for the holiday shortened week In commodities oil prices were mixed after the International Energy Agency IEA said the market was nearing balance but U S data showed higher production U S crude was down 0 2 percent to 53 04 a barrel while global benchmark Brent was up 0 3 percent at 56 02
Gold fell 0 09 percent to 1 284 90 an ounce after hitting a five month high earlier in the session |
C | Wall Street slides as investors weigh bank results global risks | By Lewis Krauskopf Reuters Major U S stock indexes fell on Thursday for a third straight day as investors weighed earnings reports from big U S banks and geopolitical tensions while the tech sector fell for a tenth consecutive session Wells Fargo N WFC shares fell 3 3 percent pulling down the S P 500 after the bank reported a drop in mortgage banking revenue Berkshire Hathaway N BRKa also disclosed late on Wednesday that it had cut its stake in the bank JPMorgan N JPM fell 1 2 percent and Citigroup N C slipped 0 8 percent even as those companies reported better than expected quarterly profits Banks revealed more evidence of a slowdown in loan growth in their reports The S P 500 banks index closed at its lowest point since early December Investors have sought safe haven assets throughout the week due to geopolitical tensions in Syria and North Korea News of a massive bomb being dropped by the United States in eastern Afghanistan on Thursday added to uncertainty Kate Warne principal investment strategist at Edward Jones in St Louis said a dip in bond yields put pressure on stocks ahead of a holiday weekend in the United States What we ve seen is investors from the rest of the world putting more money in U S Treasuries due to geopolitical concerns Warne said The Dow Jones Industrial Average DJI fell 138 61 points or 0 67 percent to 20 453 25 the S P 500 SPX lost 15 98 points or 0 68 percent to 2 328 95 and the Nasdaq Composite IXIC dropped 31 01 points or 0 53 percent to 5 805 15 The benchmark S P 500 has climbed 8 9 percent since President Donald Trump s Nov 8 election supported by his planned economic agenda of tax cuts and economic stimulus But the rally has stalled the past six weeks as some investors question Trump s ability to enact his proposals There is some concern among investors that there is now a shift going on in Washington to international and away from a domestic policy said Paul Nolte portfolio manager at Kingsview Asset Management in Chicago The S P 500 financial index SPSY dropped 1 3 percent its fifth straight day of losses Energy shares SPNY were the worst performing group falling 1 8 percent The technology sector SPLRCT fell 0 4 percent marking its longest losing streak since May 2012 The results from banks kicked off what is expected to be a strong first quarter U S reporting season S P 500 companies are expected to post a 10 4 percent rise in earnings for the period according to Thomson Reuters I B E S We could have double digit earnings growth we haven t seen that in some time said Karyn Cavanaugh senior market strategist at Voya Investment Management in New York Investors are going to be impressed with that A report from the University of Michigan showed that U S consumer sentiment unexpectedly strengthened in April as consumer optimism on current economic conditions climbed to its highest level since November 2000 About 6 2 billion shares changed hands on U S exchanges below the 6 6 billion daily average over the last 20 sessions Declining issues outnumbered advancing ones on the NYSE by a 2 56 to 1 ratio on Nasdaq a 2 24 to 1 ratio favored decliners
The S P 500 posted seven new 52 week highs and 1 new low the Nasdaq Composite recorded 29 new highs and 51 new lows |
C | Mexico oil boss at center of Citi loan fraud exits jail source | MEXICO CITY Reuters The former chief executive of a Mexican oil services company arrested over a loan scandal that inflicted hefty losses on Citigroup NYSE C Inc s local Banamex unit was released from prison on Thursday an official in the city government said Speaking on condition of anonymity the official confirmed media reports that Amado Yanez who was CEO of the Oceanografia firm when the scandal over bogus loans broke in 2014 left the prison in Mexico City early on Thursday Mexican media said that a Mexico City judge had ordered Yanez s release after payment of bail of 7 5 million pesos 404 000 and that the investigation against him would continue The city official could not confirm this detail A federal judicial source said media reports about the release of Yanez which occurred at the start of a four day holiday weekend appeared correct but that no notification had been submitted by the court An official at the court reached by telephone said she was not authorized to comment on the matter Citigroup said that due to the alleged fraud it discovered at its Mexican subsidiary it had to write down about 400 million of loans backed by bogus invoices The then chief executive officer of Banamex stood down in October 2014 Yanez was also majority owner of Oceanografia for years a top service provider to state run Mexican oil firm Pemex The government seized the company s assets after the loan scandal surfaced |
C | Loan growth stalls despite profit trading gains at some U S banks | By David Henry NEW YORK Reuters Big U S banks revealed more evidence of a slowdown in loan growth in their earnings reports on Thursday though executives assured there is still healthy demand from borrowers and no reason to worry about the state of the economy JPMorgan Chase Co N JPM and Citigroup Inc N C posted higher first quarter earnings that beat analysts expectations on large gains in trading revenue Wells Fargo Co N WFC which relies more on traditional lending and less on markets related businesses reported a slight dip in profit due to a slowdown in mortgage banking The results underscored concerns expressed recently by analysts and investors that higher interest rates combined with uncertainty about geopolitical events could hurt economic growth and therefore crimp lenders bottom lines But on conference calls to discuss results top bank executives dismissed those concerns citing strong demand from borrowers with impressive credit quality I wouldn t overreact to the short term in our loan growth with so many things that affect it said JPMorgan Chief Executive Jamie Dimon The bank s core loan portfolio averaged 812 billion during the first quarter up 9 percent on an annualized basis But that growth rate has ticked down from 12 percent in the previous quarter and 17 percent a year ago Wells Fargo s annual loan growth rate of 4 percent has also been slowing over the past year Citigroup s loan book has been skewed by divestitures and its acquisition of a credit card portfolio Adjusting for those matters Citi s core loan book grew 5 percent in the first quarter executives said But management s outlook for loan growth has nonetheless been tempered There was probably just some modest reduction in our expectation for loan growth compared to the earlier guidance certainly following the first quarter performance Chief Financial Officer John Gerspach said Across the banking industry loans fell slightly during the first three months of the year according to Federal Reserve data John Conlon chief equity strategist at People s United Wealth Management who invests in bank stocks said he is still concerned about loan growth after seeing the reports and listening to the executives comments There s a great deal of optimism Conlon said but there s still uncertainty Wells Fargo s shares were down 2 6 percent at 51 75 while Citigroup s stock was down 0 7 percent at 58 12 and JPMorgan fell 0 6 percent to 84 88 The KBW Nasdaq Bank Index BKX fell 0 8 percent The mortgage business is putting particular pressure on loan growth The recent uptick in interest rates has crushed a wave of mortgage refinancing that kicked off in 2010 leading to big declines in mortgage banking revenue Other areas of lending have also slowed For instance some big corporate borrowers have been opting to issue bonds rather than take out traditional loans JPMorgan Chief Financial Officer Marianne Lake said And in areas where banks are finding growth like credit card lending they are doling out fat rewards and cutting interest rates to lure customers from one another Even so bank executives sounded optimistic on Thursday about the outlook for lending Higher rates allow banks to earn more money from the loans they make as well as the idle cash they have invested in low risk securities like Treasury bonds JPMorgan expects to add another 400 million to its net interest income in the second quarter That metric is important because it shows the difference between what banks pay for funds and what they earn from using them Additionally they said signals that lawmakers and the White House want to spur the economy bode well for loan growth Citigroup Chief Financial Officer John Gerspach said first quarter lending reflects some waiting by borrowers for Washington to act
We haven t seen concrete changes yet in policies Gerspach said When we get tax reform and when the administration is successful in implementing some of what they have been talking about hopefully that will spur the economy on |
C | Indonesian Muslim candidate takes decisive lead in Jakarta election | By Agustinus Beo Da Costa and Fergus Jensen JAKARTA Reuters A former Indonesian education minister took a commanding lead on Wednesday in the race for Jakarta governor after a polarizing campaign that cast a shadow over Indonesia s reputation for practicing a tolerant form of Islam Anies Baswedan was ahead with 58 percent of the votes versus 42 percent for Basuki Tjahaja Purnama known as Ahok based on a quick sample count of over half the vote by Indikator Politik Other pollsters showed similar results The national elections commission will announce official results in early May Baswedan s huge lead was surprising since opinion polls in the run up to the election had pointed to a dead heat Purnama won the first round of voting for governor in February in a three way race Indonesian social media users likened the election outcome to the shock results of the U S presidential vote and the Brexit vote of last year One Twitter user fuadhn said Indonesians can feel what US and British citizens feel now Welcome populism The election came on the eve of a visit by U S Vice President Mike Pence as the Trump administration seeks to engage the world s fourth largest nation and largest Muslim majority country as an emerging regional power Pence is scheduled on Thursday to visit the biggest mosque in Southeast Asia Jakarta s Istiqlal Mosque TEST OF TOLERANCE The Jakarta election will be seen as a barometer for the 2019 presidential election given the city s outsized importance as both the nation s capital and commercial center Purnama is backed by President Joko Widodo s ruling party Baswedan is supported by a retired general Prabowo Subianto who narrowly lost to Widodo in a 2014 presidential vote and is expected to challenge him again But the election is also viewed as a test for Indonesia s young democracy and record of religious tolerance The campaign featured mass rallies led by a hardline Islamist movement which has strengthened in recent years in a country long dominated by a moderate form of Islam More than 80 percent of Indonesia s population professes Islam Going forward the politics of religion is going to be a potent force said Keith Loveard an analyst at Jakarta based Concord Consulting and an author of books about Indonesian politics Some voters may have been reluctant to vote for Purnama because of worries about five more years of protests on the streets by Muslim hardliners Loveard said in a telephone interview Police said 15 people were detained following reports of disturbances at several polling stations in the city of 10 million people after what the Jakarta Post this week dubbed the dirtiest most polarizing and most divisive election campaign the nation had ever seen RECONCILIATORY TONE Security appeared light at several polling stations though police said 66 000 personnel were deployed across the city Religious tensions have been an undercurrent in the campaign with Purnama on trial for blasphemy over comments he made last year that many took to be insulting to Islam Hundreds of thousands of Muslims took to the streets late last year to call for his sacking and to urge voters not to elect a non Muslim leader One person died and more than 100 were injured after one protest turned violent Baswedan a respected scholar who many viewed as moderate drew widespread criticism during the campaign when he aggressively courted the conservative Islamic vote appearing publicly with hardline Islamic leaders during anti Purnama rallies Baswedan surrounded by his political patrons including Prabowo struck a reconciliatory tone at a news conference after unofficial results came in pledging to safeguard diversity and unity Purnama faces up to five years in jail if convicted of blasphemy His trial will resume on Thursday when prosecutors will submit a sentence request Citigroup NYSE C said in an investor note that despite the potential for renewed protests if Purnama won it was maintaining a Jakarta stock index target of 6 150 by the end of 2017 representing an 8 percent upside As long as there are no security issues the election outcome should not significantly stall the reform program of the national government in our view it said The Indonesian rupiah weakened slightly after unofficial results were announced The 7 day rupiah non deliverable forward traded 0 37 percent weaker against the dollar by 0457 GMT The 3 month NDF traded 0 24 percent lower in Asian markets
For a graphic on Jakarta governor election click |
C | Week Ahead Will Rising Risks Weigh On Equities Oil Headed Higher | On Friday US stocks fell on threats of war on Saturday one threat materialized
Since Brexit vote equity investors have continuously shrugged off geopolitical risk
On Sunday Middle East equity markets were bullish
Oil risk to the upside as tension mounts among largest producers
RBA warns investors are not pricing in inflationary risk
After a rocky week in which the S P 500 nevertheless gained 1 99 percent Friday was a total bust The most widely referenced US benchmark retreated 0 29 percent for the day dragged down by Financials which lost 1 51 percent in value If not for the fact that Energy shares outperformed increasing 1 10 percent in value the index would have suffered even greater losses If William Shakespeare were an analyst today his forecast for US markets all major indices fell on Friday including the Dow 0 50 NASDAQ 0 47 and Russell 2000 0 50 would hardly be all s well that ends well Indeed last week s final day of market action did not end well
That may seem counter intuitive After all the SPX gained a shade under 2 00 percent over the preceding five trading days thus a bullish week However traders were not willing to stay exposed over a weekend signaling a lack of confidence With multiple domestic and geopolitical risks hovering on the horizon who can blame them
What clues can we glean from the supply demand balance expressed in the S P 500 price action The small H S bottom on the four hour chart here on the daily chart has failed to break out
It penetrated the neckline 0 42 percent but ultimately closed lower and below the neckline The 50 dma green crossed below the 100 dma blue showing recent price data is weakening compared to older data and both are right above the price providing resistance for good measure
The much talked about 200 dma red gave traders a scare almost two weeks ago when the price closed below it for the first time since the initial shock brought on by the aftermath of the Brexit vote in mid June 2016 That s at the lower boundary of the 3 week range
On the other hand both the MACD and the RSI suggest the price will continue to rise completing the bottom Should that in fact follow through the 2 800 level comes into play should that price penetrate we re looking at a march larger double bottom that would render the price action since early February a base to take on the late January record and beyond
Rising Domestic and Geopolitical Risks
The list of headline risks keeps growing Right now they include the myriad legal issues both political and personal swirling around President Donald Trump s administration including unpresidential attacks on former FBI director James Comey in response to Comey s references to Trump as a mob boss in his new book ongoing trade tensions between the US and China and military activity in Syria current and potentially future action
While Friday s risk off mood permeated investor sentiment on threats alone since the news of the attack didn t hit the wires till Saturday the US and allies Britain and France carried out Trump s threat and executed an air strike on what was the heart of Syria s chemical weapons program And it may not be over The US president warned Syria that the US is locked and loaded to strike again if Assad s regime carries out any further chemical attacks
As if that weren t enough investor uncertainty extended yet further Wells Fargo NYSE WFC JPMorgan Chase JPM and Citigroup NYSE C all reported earnings on Friday and each beat expectations but their uncertain forward guidance was enough to lead to a broader market selloff
How much worse might things get if US military involvement in the Middle East expands That depends on your time frame While stocks have historically sold off immediately after a military strike or terrorist attack they generally bounce back relatively quickly
Moreover we have often pointed out that since the Brexit vote in mid 2016 equity investors have been shrugging off geopolitical risk Markets sold off after the Brexit vote for all of three days before the rebound began The initial shock of Trump s victory in November 2016 lasted all of 3 hours before investor optimism came back with a vengence By the time of the December 2016 Italian Referendum EU markets unraveled for all of 3 minutes
Mid East Markets Signaling No Fear
Given these recent precedents it s impossible to tell how far stocks will sell off on what s perceived as negative news before they rebound As such for long term investors doing nothing is a no brainer
For short term traders it s trickier Most vexing the strike occurred on the weekend when investors are stuck and can t do anything about it Or was that the point
Of course it s difficult to predict how markets will handle all this come Monday However there s an interesting tell available today that could possibly presage tomorrow s open
Since Friday is a Muslim prayer day markets in Middle Eastern countries are open Sunday to Thursday According to a Bloomberg article the tension is already priced in The airstrike in Syria hasn t been a cause for panic in Mid East markets analysts say perhaps because geopolitical risk has always been a given Instead investors there are corporate result oriented
Indeed Middle Eastern stocks are particularly bullish Dubai s main equity index the DFM General climbed the most since July 98 percent of companies listed on Saudi Arabia s Tadawul also rose Stocks in Abu Dhabi climbed as much as 1 3 percent sending the ADX General to the highest level on a closing basis since August 2015
Considering these markets are in the same region where the conflict is located and they continue to surge global markets located on other continents should be at ease Having said that investors are famously fickle so anything could happen tomorrow
Bitcoin received a back handed endorsement of sorts from Economics Nobel Laureate Robert Shiller who told CNBC that the bubble for the most popular cryptocurrency could keep inflating The Yale professor considers virtual coins another example of faddish human behavior akin to the 17th century tulip mania that gripped Dutch markets when the value of individual bulbs inflated to proportions that had nothing to do with the value of the asset before collapsing in February 1637
The interview came after Bitcoin had one of its best days in 2018 blowing out a bearish pennant but still within a downtrend However like with the S P 500 the pennant blowout might become a base and the second element of a double bottom A decisive penetration of the 12 000 level would complete the pattern
Key Economic Events
All times listed are EDT
Monday
8 30 US Retail Sales March forecast to rise 0 4 MoM from a 0 1 drop
21 30 Australia RBA Minutes
The RBA warned in its Financial Stability Review released Friday morning that a sharp rise in interest rates provoked by rising inflation may catch risk seeking investors who have not priced in any risk leading to a disruptive and lasting correction
The AUDUSD pair has been trading within a descending channel demonstrating that demand has been weakening On Friday bulls attempted to break out of this falling trend but were knocked back into the channel forming a very bearish shooting star with an extremely long upper shadow
The fact that this happened at the upper range of the falling channel doubles the shooting star s bearishness The fact that it happened both upon attempting the breach the 100 dma blue and 200 dma red triples that ominous forecast The fact that that 50 dma green just formed a Death Cross falling below both the 100 dma and 200 dma quadruples the negative outlook
22 00 China GDP Q1 Retail Sales March expected to be 1 5 QoQ and 6 8 YoY from 1 6 and 6 8 Retail sales forecast to remain flat at 9 7 MoM
22 00 China Industrial Production YoY Mar forecast to drop to 6 4 percent from 7 2 percent
Tuesday
4 30 UK Employment data Claimant count for March forecast to surge to 13 3K from a rise of 9 2K Unemployment rate forecast to remain at 4 3 while February average earnings including bonus is expected to rise 2 8 from 2 6
5 00 Germany ZEW Index April economic sentiment forecast to drop to 0 8 from 5 1
8 30 US Housing Starts and Building Permits March housing starts expected to rise 1 9 MoM from a 7 drop and permits to rise 1 330M from 1 321M
19 50 Japan Trade Balance March expected to see to jump to 498B from 3B
Wednesday
4 30 UK CPI March forecast to remain at 2 7 YoY and to fall to 0 3 MoM from 0 4 Core CPI to rise 2 5 from 2 4
10 00 Canada Bank of Canada Rate Decision no change in policy expected
10 30 US EIA Crude Stockpiles w e 13 April stockpiles expected to fall by 30 000 barrels
Tension in the Middle East is very bullish for the oil market Unlike equity investors oil contract traders are extremely sensitive to geopolitical risk and this one is on the upside If the threat of an attack alone boosted the price of the commodity to its biggest weekly gain in more than eight months how would investors react to an actual attack
It s noteworthy that Russia protector of the Syria s Assad regime is the world s third biggest oil producer increasing the potential for production disruption in a drawn out conflict On top of that Saudi Arabia the world s second largest producer of oil is locking horns with Iran the world s fifth largest producer contributing to a a real complex mess for upside risk
The price of WTI crude has completed an ascending triangle signaling that oil is headed higher
21 30 Australia Employment Data March 20K jobs forecast to have been created from 17 5K in February while the unemployment rate is expected to fall to 5 5 from 5 6
Thursday
4 30 UK Retail Sales March forecast to rise 0 4 MoM and 1 2 YoY from 0 6 and 1 1 respectively excluding fuel
8 30 US Philadelphia Fed Manufacturing Index April expected to be 20 9 from 22 3
19 30 Japan CPI March forecast to be 1 5 YoY from 1 5 Core CPI to be 1 in line with last month
Friday
8 30 Canada CPI March expected to be 0 5 MoM and 2 YoY from 0 6 and 2 2 respectively Core CPI to be 1 4 from 1 5 YoY
10 00 Eurozone Consumer Confidence April flash expected to be 0 6 from 0 1 |
MS | Morgan Stanley rises 3 8 in pre market trade after Q2 earnings beat | Investing com Wall Street investment bank Morgan Stanley NYSE MS reported stronger than expected second quarter earnings ahead of Monday s opening bell sending its shares higher in pre market trade
Morgan Stanley said adjusted earnings per share came in at 79 cents in the three months ended June 30 beating expectations for earnings of 73 cents per share and compared to earnings of 60 cents a share in the same period a year earlier
The earnings for the prior year second quarter included a net discrete tax benefit of 609 million or 0 31 per diluted share principally related to the re measurement of reserves and related interest
The bank s second quarter adjusted revenue totaled 9 56 billion above forecasts for revenue of 9 10 billion and up 12 2 from revenue of 8 6 billion in the same period last year
Wealth Management net revenues were 3 9 billion Fee based asset flows for the quarter were 13 9 billion with total client assets of 2 0 trillion at quarter end
Investment Management reported net revenues of 751 million with assets under management or supervision of 403 billion
Equity sales and trading net revenues of 2 3 billion increased from 1 8 billion a year ago while Fixed Income Commodities sales and trading net revenues of 1 3 billion increased from 1 0 billion a year ago
Advisory revenues of 423 million equity underwriting revenues of 489 million and fixed income underwriting revenues of 528 million were essentially unchanged from the prior year quarter
James P Gorman Chairman and Chief Executive Officer said We delivered a strong quarter across each of our businesses through client focused execution expense discipline and prudent risk management
Immediately after the earnings announcement Morgan Stanley shares rose 3 77 in trading prior to the opening bell to hit 41 75 from a closing price of 40 24 on Friday
Meanwhile the outlook for U S equity markets was upbeat The Dow futures pointed to a gain of 0 15 at the open the S P 500 futures indicated a rise of 0 1 while the Nasdaq 100 futures signaled an increase of 0 15 |
MS | Schneider Electric takes control of UK software firm Aveva | By Paul Sandle LONDON Reuters France s Schneider Electric PARIS SCHN is combining its software operations with Britain s Aveva to create a business active in sectors ranging from nuclear power to pharmaceuticals and less reliant on oil and gas markets Schneider will pay 550 million pounds 858 million towards the issue of new shares in Aveva a company that designs shipping industrial plants and nuclear power stations It will take a 53 5 percent stake in the enlarged company The deal will see Aveva shareholders receive about 10 pounds a share in cash in return for the French company taking control according to brokers Investec who upgraded Aveva to Buy calculated the payment plus a 15 percent profit boost from cost savings resulted in a value of about 2 600 pence a share That would represent a 47 percent premium on Friday s close The tie up reduces Aveva s exposure to oil and gas markets the source of about 45 percent of its revenue and where lower oil prices have cut demand for rigs designed using its software This deal has a clear and compelling industrial logic said Aveva s chief executive Richard Longdon who will remain in charge of a group he has led since 1999 It will diversify Aveva s end markets significantly enhancing its position in oil and gas power and marine but also adding a big presence in other verticals including chemicals food and beverage mining water and pharmaceuticals Shares in Aveva which was founded in 1967 as a spin off from Cambridge University jumped to a four year high of 2 344 pence on Monday morning and they were trading up 29 percent at 2 282 pence at 1225 GMT Shares in Schneider Electric a much bigger group with annual revenues of 25 billion euros 27 billion last year were trading up 0 9 percent at 64 48 euros The deal will more than double the size of Aveva giving it annual revenue of about 534 million pounds and adjusted earnings of about 130 million pounds It will also see former assets of Britain s Invensys bought by Schneider two years ago united with Aveva Longdon said Schneider had decided to structure the deal as a reverse takeover rather than the straight acquisition that had been mooted in media reports to retain more flexibility to make further acquisitions There was not an offer on the table to buy the business outright he said The merged business will retain its listing on the London Stock Exchange and Schneider Electric will need approval from Aveva s independent directors if it wanted to increase its shareholding further or to delist the group
Lazard advised Aveva while Morgan Stanley NYSE MS and Ondra Partners advised Schneider |
JPM | U S begins 4 05 billion Madoff fund payout thousands to recoup losses | By Jonathan Stempel NEW YORK Reuters The U S government said it has begun distributing 772 5 million from a 4 05 billion fund to compensate victims of Bernard Madoff s Ponzi scheme ending a nearly nine year wait for thousands of people to start recouping their losses A total of 24 631 checks from the Madoff Victim Fund are being mailed to individuals government entities schools charities and pension and retirement plans in 49 U S states Washington D C and 119 other countries More than two thirds of the recipients or 16 557 had received no prior compensation for their losses They will receive about 545 million from the payout which is structured to cover 25 percent of recipients losses Rod Rosenstein the deputy U S attorney general in a statement on Thursday called the payout from the Department of Justice s victim compensation program the largest restoration of forfeited property in history Richard Breeden a former U S Securities and Exchange Commission chairman oversees the 4 05 billion fund which was set up in November 2013 He declined to comment Madoff 79 is serving a 150 year prison term for running what prosecutors called a 65 billion Ponzi scheme which was uncovered in December 2008 Payouts from the Madoff Victim Fund are eventually expected to go to 37 214 claimants from 124 countries and whose losses exceeded 7 5 billion Nearly all had invested indirectly with Madoff such as through feeder funds In a separate recovery effort Irving Picard a trustee liquidating Bernard L Madoff Investment Securities LLC has recouped 12 74 billion for the swindler s victims Picard however is making payouts to people who invested directly with Madoff not indirectly and has approved just 2 625 claims He has said customers with approved claims lost about 17 5 billion The Justice Department and Breeden had drawn criticism over the lack of payouts from the government fund in part fueled by reports over bills by Breeden s firm for its services Most money in the fund came from settlements with the estate of Jeffry Picower a Madoff investor from Florida and JPMorgan Chase Co N JPM once Madoff s main bank
I m pleased the government is finally beginning to compensate the victims Vern Buchanan a Florida congressman who had complained about delays said in an email These people were cheated out of their life savings and have been waiting years to get some of their money back It s long overdue |
JPM | China lifts foreign ownership limits on financial firms | BEIJING Reuters The Chinese government on Friday said it will raise foreign ownership limits in domestic financial firms a long anticipated step that grants greater access to overseas investors into the Asian giant s financial services market The move announced by vice finance minister Zhu Guangyao comes a day after U S President Donald Trump reiterated calls for better access to Chinese markets in meetings with Chinese President Xi Jinping The changes include raising the limit on foreign ownership in joint venture firms involved in the futures securities and funds markets to 51 percent from the current 49 percent They will take effect immediately following the drafting of specific related rules Zhu told a news conference The foreign business community welcomed the news but urged caution until it was clear how rules would be implemented Financial services further opening definitely has been high on our list said Ken Jarrett President of American Chamber of Commerce in Shanghai It s a step in the right direction We ll have to see the detailed rules In China you always have to pay attention to the fine print to see how quickly it moves but to finally ease up on the cap is something that is welcome A JPMorgan NYSE JPM spokesperson said the firm welcomes any decision made by the Chinese government that looks to liberalize its financial sector further The plan to ease ownership restrictions comes as Beijing faces mounting pressure from Western governments and business lobbies to remove investment barriers and onerous regulations that restrict overseas companies operations in its markets During his trip to Beijing this week Trump said that trade between the two nations was unfair and called for greater market access for U S companies We really have to look at access forced technology transfer and the theft of intellectual property which just by and of itself is costing the United States and its companies at least 300 billion a year Trump said Both the United States and China will have a more prosperous future if we can achieve a level economic playing field Right now unfortunately it is a very one sided and unfair one China has been sluggish to give foreign players more access to its financial sector but has promised to quicken the pace as foreign investment into the world s second biggest economy slows China has implemented strict capital controls to contain capital outflows while opening up new channels for foreign money to come into the domestic markets though foreign financial firms are still small players in the financial sector Reuters reported on Tuesday that China planned to allow global banks to take a stake of up to 51 percent in their onshore securities ventures for the first time and tie up with local non financial firms TOO LITTLE TOO LATE Some industry watchers said the changes are too little too late This looks good but in reality it is pretty small and it is too late said Keith Pogson head of the Asia financial services team at EY If you are an international investment bank you will be there for the sake of your global franchise and having it as part of your network not because you think you will make much money in China Markets reacted positively to the news with insurers and futures related firms rallying strongly New China Life Insurance SS 601336 jumped nearly 6 percent after the announcement while Ping An Insurance HK 2318 SS 601318 advanced more than 4 percent and China Pacific Insurance Group SS 601601 rose over 3 percent China will drop foreign ownership restrictions on local banks and asset management companies Zhu said adding that the time is right for the nation to step up the liberalization of its financial sector Full foreign ownership of local firms involved in the futures securities and funds markets will not be permitted until after three years while full overseas ownership of insurance firms will be allowed only after five years Zhu said |
C | Top 5 Things to Know In the Market on Thursday | Investing com Here are the top five things you need to know in financial markets on Thursday April 13
1 Trump remarks trounce dollar
The dollar steadied on Thursday after weakening broadly in the previous session when U S President Donald Trump said the currency is getting too strong and he would prefer the Federal Reserve keep interest rates low
USD JPY was at 108 97 after falling to a five month trough of 108 71 overnight Sterling rose with GBP USD up 0 18 at 1 2561 the most since March 28
The U S dollar index which measures the greenback s strength against a trade weighted basket of six major currencies was at 100 13 after touching a two week low of 99 94 overnight
The benchmark 10 year U S Treasury yield slid to a five month low of 2 22
2 Global stocks broadly lower
The weaker dollar contributed to a fall in global equities on Thursday In Asia Japan s Nikkei 225 ended down 0 68 pressured lower by the stronger yen
In Europe the benchmark Euro Stoxx 50 was down 0 48 Germany s DAX fell 0 29 France s CAC 40 shed 0 45 and London s FTSE 100 lost 0 45
U S stock futures pointed to lower open on Wall Street with the blue chip Dow futures down 0 19 S P 500 futures losing 0 26 and the Nasdaq 100 futures off by 0 18
3 U S Q1 earnings in focus
Wall Street s first quarter earnings season gets underway in earnest with major U S banks JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC all reporting later Thursday
The financial sector is projected to post a 15 4 profit gain second only to energy among S P sectors with revenue rising 7 5
For the broader market earnings are forecast to grow 10 1 from a year ago the best since 2014 while sales growth is expected to jump by 7 5 the best since 2011 according to Thomson Reuter s data
A strong earnings season would help justify pricey stock valuations with the S P 500 rallying this month to its most expensive since 2004 on a forward price to earnings basis
4 U S data on tap
The Labor Department will publish initial jobless claims figures at 8 30AM ET 12 30GMT and the consensus forecast is that the report will show jobless claims rose to 245 000 last week from 234 000 in the prior week
At the same time the Commerce Department will publish data on March producer prices which is expected to show that the PPI was flat last month but rose by 2 4 from a year earlier
The University of Michigan is to release the preliminary reading of its consumer sentiment index for April at 10 00 ET Market analysts are expecting the index to have ticked down to 96 5 from 96 9 in March
5 China trade data shows brighter export outlook
Official data on Thursday showed that China s exports rose at the quickest rate in slightly more than two years in March increasing 16 4 from a year earlier pointing to improving global demand
Imports remained strong at 20 3 reinforcing a picture of robust domestic demand
China posted a trade surplus of 23 93 billion last month the customs office reported after logging its first deficit in three years in February |
C | U S stock index futures lower after Trump comments | Investing com U S stock index futures lower Thursday after Trump said he wanted a weaker dollar and low interest rates The Dow futures off 0 19 at 07 15 ET The DJI closed off 0 29 overnight The S P 500 futures shed 0 31 The tech heavy Nasdaq 100 futures lost 0 26 The dollar index steadied at lower levels after Trump s comments Oil edged higher as the IEA said the market is very close to balance Initial jobless claims and PPI are due out before the market opens NYSE JPMorgan shares were higher pre market as Q1 earnings beat estimates NYSE Citi NYSE Wells Fargo also due to report Q1 earnings |
C | Citi Q1 earnings higher than forecast | Investing com NYSE Citigroup report first quarter earnings that beat analysts forecasts Citi said Thursday said its Q1 EPS rose 23 yoy to 1 35 against a consensus forecast of 1 24 Revenues were up 3 at 18 1 bn against a forecast of 17 8 bn Citi shares were up 0 56 at 58 84 in pre market trade |
C | JPMorgan profit tops analyst expectations on trading surge | By Sweta Singh and David Henry Reuters JPMorgan Chase Co N JPM reported a 17 percent jump in quarterly profit on Thursday topping analyst expectations as higher interest rates fueled trading activity and helped the largest U S bank earn more from lending The Federal Reserve s decision to hike rates in March for the second time in three months led investors to reposition portfolios as did elections in Europe and news about Britain s progress in leaving the European Union That increased activity boosted first quarter revenue in JPMorgan s markets related businesses particularly fixed income trading The bank also reported growth in loans and deposits and was able to earn more from lending as interest rates ticked higher However its pace of loan growth much like in the broader U S banking industry has slackened recently Wells Fargo Co N WFC and Citigroup Inc N C also reported results on Thursday with Citi showing similar gains in trading and Wells Fargo hurt by a slowdown in mortgage lending nL3N1HL4BF Overall JPMorgan earned 6 4 billion in the first quarter or 1 65 per share up from 5 5 billion or 1 35 per share a year earlier The bank s total net revenue rose 6 percent to 24 7 billion from 23 2 billion in the year ago quarter Analysts had expected earnings of 1 52 a share according to Thomson Reuters I B E S JPMorgan shares rose 0 5 percent to 85 79 in premarket trading JPMorgan s corporate and investment banking division which includes the trading business reported a 17 percent rise in revenue to 9 5 billion the biggest gain among its four major business lines Weaker advisory fees were more than offset by gains in revenue from underwriting securitized products interest rate related products prime brokerage and corporate derivatives On a conference call with journalists Chief Financial Officer Marianne Lake said some customers decided to borrow by issuing bonds rather than taking out loans Mortgage borrowing was a dark spot in the bank s results with mortgage fees and loan servicing revenue tumbling 39 percent to 406 million from 667 million Higher interest rates have dissuaded borrowers from refinancing and JPMorgan executives had said in February they expected non interest mortgage revenue to fall throughout the year Even so the bank managed to grow its core book of loans by 9 percent on an annual basis and nearly 1 percent from the prior quarter Its net interest income an important measure of profitability that shows the difference between a bank s cost of money and how much it receives for the funds rose 6 percent
In a statement Chief Executive Jamie Dimon said U S consumers and businesses are healthy overall and that the economy could further improve if the government pursues pro growth initiatives |
C | Citi profit beats estimates as fixed income trading jumps | Reuters Citigroup Inc N C reported a higher than expected quarterly profit as the bank s fixed income trading was boosted by clients adjusting their positions following rate hikes by the Federal Reserve and changes in the forex and credit markets U S banks have been benefiting from a jump in markets related revenue following the rate hikes as well as elections in Europe and Britain s progress in leaving the European Union A surge in trading activity also helped JPMorgan Chase Co N JPM the biggest U S bank by assets report a nearly 17 percent rise in quarterly profit earlier in the day The momentum we saw across many of our businesses towards the end of last year carried into the first quarter resulting in significantly better overall performance than a year ago Citigroup s Chief Executive Michael Corbat said in a statement The company reported a 17 percent jump in quarterly profit to 4 09 billion or 1 35 per share beating analysts average estimate of 1 24 per share according to Thomson Reuters I B E S Total revenue rose about 3 percent to 18 12 billion topping the average estimate of 17 76 billion Revenue from fixed income trading rose 19 percent to 3 62 billion while the bank s much smaller equities trading saw revenue increase 10 percent to 769 million Gains in fixed income trading came with additional volume in interest rate and credit products as well as foreign exchange Combined trading revenue jumped about 17 percent higher than the low double digit rise that Chief Financial Officer John Gerspach projected five weeks ago Bond market conditions can have a big impact on Citigroup s bottom line because of its business mix In 2016 fixed income trading and debt underwriting together produced nearly 16 billion of Citigroup s 70 billion of total revenue The ratio of expenses to revenue was about 58 percent in line with the company s goal for this year Citigroup said return on tangible equity a key measure of profitability was 8 5 percent up from 7 3 percent a year earlier In late 2019 the company might reach 10 percent Gerspach said in January Citigroup s return on tangible equity is dragged down by accounting for some of its deferred tax assets or DTAs leftover from the financial crisis The company s shares were up little changed at 58 40 in premarket trading Through Wednesday s close the stock had risen about 17 percent since the U S presidential elections but is down 1 6 percent so far this year
The elections sparked a rally in U S bank stocks as investors bet on lower taxes and easing regulations But the rally is losing momentum as investors scale back expectations for any quick changes |
C | Bond traders are crushing it | Bond traders are enjoying a strong start to 2017
JPMorgan NYSE JPM and Citigroup NYSE C both announced first quarter earnings on April 13 posting better than expected trading revenues
At JPMorgan markets and investor services revenue at 6 5 billion were up 13 year on year with the fixed income currencies and commodities business enjoying a strong start to the year Revenues in that business were up 17 with the bank citing strength in securitized products rates and credit
In February the bank had said it expected only a modest bump in trading revenues On a call with the media CFO Marianne Lake said that while January had been strong February was quiet with very low levels of volatility That changed to a degree in March she said
At Citigroup fixed income revenue totaled 3 62 billion up 19 year over year ahead of the expectation for 3 52 billion That s the highest level of fixed income revenues in three years Citigroup cited strength in both rates and currencies and spread products
The results set the scene for a strong year for fixed income currencies and commodities That business has struggled through the past few years in a period of increased regulation and reduced volatility
However 2016 saw a rebound in industry revenues It looks like 2017 may continue that trend |
C | Wall St flat ahead of Easter break | Investing com U S stocks were narrowly mixed Thursday as investors closed positions ahead of the long Easter weekend The DJI was off 0 04 at 10 00 ET The S P 500 fell 0 02 The tech heavy Nasdaq composite added 0 10 Trump said he feels the dollar is getting too strong and called for low interest rates That initially pushed the dollar lower and depressed U S Treasury yields The dollar later recovered helped by an unexpected fall in U S initial jobless claims Oil was higher after the IEA said the market is close to balance NYSE Wells Fargo was down 1 84 at 52 15 after reporting first quarter earnings NYSE Citi and NYSE JPMorgan were higher after earnings beat estimates |
C | Waiting On War | Whatever happened to fundamentals War trade and whatever else Trump tweets are drowning out everything else in markets The pound was the top performer Thursday while the Swiss franc lagged Chinese trade balance is due up next The EUR GBP trade opened over 6 months ago was stopped out leaving 5 trades in the green and 2 in the red Do not forget about Trends and cycles in DAX and US dollar
Markets turned Thursday after Trump tweeted that an attack against Syria could happen very soon or not so soon at all Leaks from the White House suggested he hadn t made up his mind and other suggested officials were considering 8 targets including air bases
For now the market has reverted to a wait and see mode by giving back the gains in gold and Treasuries The stock market climbed as well but earnings begin Friday and that will be a driver going forward
As for FX fundamentals briefly grabbed the spotlight after the FOMC minutes but there remains a major disconnect between what the Fed says it will do and what the market thinks is coming At some point there will be a reckoning
ECB policymakers may also have to recognize the recent disappointment in data Eurozone industrial production fell 0 8 in February far worse than the 0 1 reading expected It s part of a pattern that has pushed Citigroup Inc NYSE C s economic surprise index for the eurozone to 89 which is the lowest since 2011
The ECB is in a tough spot because there is a heavily entrenched bloc that will demand an end to QE and shift to something closer to neutral but it s possible that the stronger euro is hitting the economy harder than expected and that structural headwinds will continue to undermine growth The euro dipped down to 1 2300 from 1 2360 after the data but rebounded to 1 2330
Looking ahead Chinese trade data threatens to highlight imbalances once again Imports are expected up 7 5 y y with exports forecast to rise 8 0 and a surplus of CNY181B |
JPM | Could High Yield Distress Be An Equity Market Red Herring | I received a lot of skeptical feedback to my last post probably because of the provocative title see A What s the credit limit on my VISA card buy signal The pushback can be categorized two ways A number of chartists were still bearish As well there were worrisome signs from the credit market I want to address the latter issue as cross asset or inter market analysis signals are something that I pay special attention to
HY spreads are blowing out
A number of readers point to articles like this one from in which UBS and Morgan Stanley highlighted recession risk because of widening credit spreads
Market watchers have pointed to the recent spike in high yield bond spreads and noted that this is the kind of move that happens as an economy goes into recession
The high yield bond market is particularly sensitive to economic cycles Commonly referred to as junk bonds these debt securities are issued by companies with low credit quality Because of the higher risks that come with lending to such companies they have to offer higher yields than those of their investment grade peers When spreads increase it s costing more for these junk corporates to borrow
US high yield credit has faced one headwind after the next from significant distress in Energy to risks of weakening global growth to significant uncertainty around Fed rate hikes Morgan Stanley s Adam Richmond said on Friday As a result HY just posted the weakest four month stretch Jun Sep since the end of 2008 7 03 in total return This selloff has driven very negative sentiment as nothing brings the bears out of hiding more so than low prices feeding into panicky price action in markets
The simple point it doesn t happen often only shortly before recessions or during major growth scares Richmond said
All the talk about recession risk got my attention as recessions are bull market killers In addition widening credit spreads are also bad news for stock market bulls as they are indicative of falling risk appetite Here is a FRED chart of HY spreads blue inverted scale on left and the SPX red scale on right
How worried should we be about credit spreads Here is the same chart at around the time of the Lehman Crisis in 2008 2009 We can see a positive divergence at the March 2009 low as HY spreads were tighter than they were at the time of the first spike But then that effect was somewhat predictable as the fiscal and monetary authorities were taking steps to ride to the rescue so you would expect credit spreads to begin to narrow
Here is the same chart in 2011 where we saw HY spreads blowing out to new highs or lows as the chart is inverted at the stock market s final low In other words HY was showing a negative divergence at the equity market bottom
Are HY spreads a leading lagging or coincidental indicator of stock prices The evidence is inconclusive It seems that credit move approximately in line with stock prices The credit market represents a useful indicator of cross asset risk appetite and it can warn or confirm bull and bear trends Both positive and negative divergences need to be confirmed by other indicators By itself rising credit spreads is a red herring and tell us nothing about where stock prices are going
Why is EM outperforming US HY
Still not convinced Consider this chart of the relative price performance of US HY via the iShares iBoxx USD High Yield Corporate Bond Fund N HYG vs their equivalent duration US Treasury proxies iShares 3 7 Year Treasury Bond Fund N IEI and EM bonds via iShares JPMorgan N JPM USD Emerging Markets Bond Fund N EMB vs their equivalent duration US Treasury proxies You will recall that much of the angst surrounding the current downdraft stemmed from a slowing Chinese economy and worries about emerging market economies
If that s the case why are EM bonds outperforming US high yield
The moral of this story is to beware of uni variate or single variable analysis whose results are not confirmed by other models
Disclosure Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd Qwest This article is prepared by Mr Hui as an outside business activity As such Qwest does not review or approve materials presented herein The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives financial situation or particular needs of any specific recipient Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions Past performance is not indicative of future results Either Qwest or Mr Hui may hold or control long or short positions in the securities or instruments mentioned |
MS | Oil rises to 57 as Iran talks drag on | By Alex Lawler LONDON Reuters Brent oil bounced back from a three month low to around 57 a barrel on Wednesday after an industry report showed a larger than forecast drop in U S crude stocks and Iran nuclear talks failed to produce a deal Oil had come under downward pressure as a plunge in China s stock market accelerated and the Greek debt crisis raised concern about fuel demand Talks in Vienna between Iran and six world powers dragged on beyond a self imposed deadline as officials on both sides talked of important differences preventing a deal to lift sanctions and so allow more Iranian oil onto world markets Those market participants who have been betting on a rapid Iranian return to the oil market are now likely to square their positions which should lend short term support to prices said Carsten Fritsch senior oil analyst at Commerzbank XETRA CBKG Brent crude was up 50 cents at 57 35 a barrel by 1010 GMT 6 10 a m EDT having earlier dipped as low as 55 87 On Tuesday Brent fell to 55 10 its weakest since April 6 U S crude was up 40 cents at 52 73 Negotiators in Vienna have given themselves at least until Friday to come up with a final deal on the Iranian nuclear program A senior Iranian diplomat said on Wednesday Tehran would not show flexibility regarding its red lines suggesting financial markets may have been over optimistic on the prospects of a deal Prices gained support from expectations that the latest weekly U S inventory data would show a drop in U S crude inventories The American Petroleum Institute s supply report on Tuesday showed a 958 000 barrel decline ahead of Wednesday s official data But Chinese stocks plunged on Wednesday after the country s securities regulator warned investors were in the grip of panic sentiment and the market showed signs of freezing up as firms had their shares suspended China is the world s second largest oil consumer In the Greek debt crisis euro zone members have given Athens until the end of the week to come up with a proposal for sweeping reforms in return for loans that will keep the country from crashing out of the single currency Turmoil in China and Greece may put recent robust demand growth at risk Morgan Stanley NYSE MS analysts said in a report
Investors have justifiable concerns about the outlook for both supply and demand going forward given current events |
MS | U S funds not bailing on China yet amid free fall in stocks | By David Randall and Timothy Mclaughlin NEW YORK Reuters After almost a month of watching Chinese stocks in free fall some U S fund managers are buying shares at what they consider distressed prices though they predict continuing volatility and perhaps more declines ahead The Shanghai Composite Index s sell off took a break on Thursday as government efforts to prop up the market pushed shares up 5 8 percent the biggest one day gain in six years The Shanghai Composite has tumbled by about a third since mid June wiping out about 3 trillion in market value and ending a rally that had previously seen the market double from its June 2014 low In response Beijing has cut interest rates and stopped the trading of thousands of stocks preventing some shareholders from selling their positions in hopes of ending the downturn The measures have instead helped spread the rout to the Hong Kong based Hang Seng index whose listings of so called H share companies are largely owned by foreign investors and trade at lower valuations fund managers said You ve had some misguided efforts to cushion the selloff and that s ultimately led to the unintended consequence of making the situation worse said Charles Wilson co portfolio manager of the 2 billion Thornburg Developing World fund who has been adding to his positions in Chinese consumer internet and utility stocks over the last few days of the selloff The Hang Seng index fell 5 8 percent Wednesday its biggest decline so far this year before rebounding by 3 7 percent on Thursday The index is still up 3 3 percent for the year to date while the Shanghai index is up 14 7 percent over the same time Reuters contacted several prominent mutual fund managers including the 8 7 billion T Rowe Price Emerging Markets Stock fund the 1 billion Columbia Global Equity Value fund and the 76 million Morgan Stanley NYSE MS Global Opportunity fund who all declined to comment It s the widest selloff in China home of the world s second biggest economy since the global financial crisis of 2008 While it is unclear what will happen when Chinese markets resume full trading most fund managers and analysts expect there to be further losses as sell orders move through the market Beijing has moved to curb new listings and extracted promises from fund managers and brokerages to buy at least 19 billion in stocks to provide support for blue chip shares In addition the China Securities Finance Corp the country s official margin lender for brokerages has raised its capital base to 100 billion yuan 16 1 billion from 24 billion yuan in order to stabilize markets On Wednesday night in China the securities regulator ordered shareholders with stakes of more than 5 percent from selling shares for the next six months in a bid to halt the plunge in stock prices This largely does not affect U S investors as there are no institutional funds that own more than 5 percent of any Shenzen or Shanghai traded issue OUTLOOK DEPENDS ON BEIJING While U S investors say that they remain largely bullish that consumer spending will expand and the fallout from the stock market crisis will be limited to the relatively small upper class of speculators that own A shares every portfolio manager interviewed by Reuters noted that additional policy changes by Beijing could alter their outlook At the same time fund managers like Wilson say the volatility and selloff is making the Chinese market more attractive for long term investors even if the market has not hit bottom yet Emily Alejos portfolio manager of the 20 8 million Nuveen Tradewinds Emerging Markets fund noted that companies that focus on domestic consumption in the country are trading at enticing prices For a long term investor some of these valuations in H shares are quite compelling she said adding that the steep declines are not affecting her outlook for the Chinese economy because the losses in wealth among the relatively small percentage of Chinese who own stocks are not likely to dent the country s expected GDP growth of 7 percent Frederick Jiang co manager of the 724 million Ivy Emerging Markets Equity fund echoed that sentiment If you look at the Chinese market it s a bipolar market with the high growth A shares trading at very expensive valuations and the H shares trading below 10 It s probably the cheapest major market in the world he said Jiang whose fund has large positions in the H shares of Chinese companies including Fosun International and Bank of China Ltd said that he did not see any evidence that the booming stock market affected personal consumption levels in China apart from housing prices in major cities and thus expects the effect of the market decline on spending to be muted High levels of margin trading coupled with a frenzy among Chinese investors for A shares those small and mid cap companies whose ownership is largely restricted to domestic owners sent valuations above 50 times earnings this year H shares by comparison trade at approximately 10 times earnings To be sure finding true price to earnings ratios and other valuation metrics for Chinese companies can be difficult given the scant accounting laws and other forms of investor protection Stretched margin levels are one reason why Robert Bao portfolio manager of the 2 billion Fidelity China Region Fund is most worried about China s brokerage sector What does this mean to their earnings and balance sheets Bao said And they re very levered to the stock market Yu Zhang lead manager of the 5 9 billion Matthew Asia Dividend fund said that the market decline could lead to more monetary easing in China which in turn would boost the appeal of high dividend paying stocks such as insurance companies We re not sure how long this volatile period will last but to me the medium to long term outlook for China is still trending up he said POPULAR BET The market plunge comes at a time when China had become an increasingly popular option for both retail and professional investors in the US Retail investors have sent 3 4 billion to China focused mutual funds and ETFs for the year to date the largest amount since 2009 according to Lipper data International funds meanwhile now have an average of 3 2 percent of assets invested in China up from 2 2 percent in 2012 while U S large cap funds that own Chinese stocks have an average of 2 percent of assets in Hong Kong listed companies up from 1 3 percent in 2012 Even as he expects those fund inflows to reverse course Jiang the Ivy fund manager said that Beijing still has further policy moves to make in order to stabilize the market When your house is on fire you find a way to put it out he said Then you can talk about the market finding a natural bottom |
MS | Barclays may not pick new CEO until spring 2016 | By Steve Slater and Olivia Oran LONDON NEW YORK Reuters British bank Barclays L BARC may not pick its next chief executive until early next year potentially leaving new Chairman John McFarlane in charge for at least eight months McFarlane fired CEO Antony Jenkins on Wednesday and said he was in no rush to name a successor and will conduct a global search of internal and external candidates He told staff the appointment may not take place until the spring according to comments made at an employee meeting people familiar with the matter told Reuters The new chief executive could be named at the tail end of this year but it was more likely to be in February or March another person familiar with the matter said Barclays is the fourth major European bank to change CEO this year following Deutsche Bank DE DBKGn Credit Suisse VX CSGN and Standard Chartered L STAN as investors grow impatient with low share prices and stubbornly high costs McFarlane said this week that the market for bank bosses had been well trawled as a consequence We re not going to move quickly on this he told reporters on a conference call after the ousting of Jenkins These things take time It gives time for the internal people to show what they can do and it gives time to identify thoroughly the external people that haven t been identified in other searches he added Barclays Finance Director Tushar Morzaria is the favorite to succeed Jenkins If he is chosen McFarlane may want to work alongside Morzaria as executive chairman for a substantial period to speed up the bank s turnaround plan Other candidates could include Morgan Stanley N MS executive Colm Kelleher or Australia and New Zealand Bank AX ANZ CEO Mike Smith industry sources said If Barclays opts for an external candidate it could take up to a year for the new recruit to take the reins depending on the conditions of their current contract McFarlane who became Barclays chairman in April is assuming executive duties until a permanent successor is in place similar to what he did at UK insurer Aviva L AV in 2012 On that occasion he was executive chairman for eight months One of the key tasks will be to accelerate changes to Barclays investment bank expected to be further slimmed down to cut costs and improve profitability The bank played down a report in Britain s Times newspaper that investment bank head boss Tom King would leave the bank by next March Tom King is fully committed to leading the investment bank and on the implementation of the operational plan agreed with the board just two weeks ago There are no plans in regards to Mr King s departure from Barclays a spokeswoman said on Friday
King had considered retiring early after a row last month with Jenkins over the scale of cuts in the investment bank but was persuaded to stay by McFarlane a source said previously |
MS | China s Markets Rise Again Amid Signs Of Manipulation | By
SHANGHAI China s stock markets continued their rebound Monday after falling dramatically over the past month And in a sign that some of last week s irrational panic as China s regulator had called it may have faded over 300 listed Chinese companies resumed trading
Shanghai s main index was up a further 2 4 percent following a combined rise of more than 10 percent on Thursday and Friday The secondary and high tech boards in Shenzhen which had fallen further early last week rebounded even more strongly ending the day up more than 4 percent and almost 6 percent respectively Hong Kong s Hang Seng index which last week saw its biggest one day fall since the 2008 financial crisis also continued to climb closing 1 percent higher
Many Chinese companies had asked for trading in their stocks to be suspended during last week s chaos though about a thousand or about a third of the market still remained suspended on Monday The Shanghai Composite Index briefly broke through the 4 000 mark seen as a psychologically important symbol of a healthy market However it fell back slightly in late trading as some investors sought to lock in gains as soon as possible a reminder that anxiety remains with some concerns that the further resumption of trading by more companies would deflate share prices
The recent rebound follows massive intervention in the markets by the government last week with billions of dollars in government funds spent on buying shares and banks brokerages state firms and large investors ordered to buy or retain stocks and also a further tightening of rules over the weekend The government ordered brokerages to enforce regulations requiring investors to register with their real names and identity details and also said it would crack down on companies offering illegal loans to those borrowing money to buy stocks which is seen as having fuelled a boom in borrowing to buy shares leaving many investors exposed when prices began to fall
State media said the real name move was designed to stop individuals using accounts registered in different names to push the price of company s shares up or down And Chinese media on Monday headlined official reports that police had found evidence of illegal manipulation of the market by brokerages including malicious short selling insider trading and collusion designed to induce panic selling though some observers said these allegations did not seem convincing and may have been designed to distract public attention away from flaws in the market and in official regulation A commentator in the official Global Times meanwhile said manipulation of the market did occur and there should be more regular investigations into such practices but added that we should not use conspiracy theories to explain stock market slumps
Chinese authorities have come in for some criticism for not dampening market sentiment which saw tens of millions of investors surge into the market over the past few months many buying shares for the first time and apparently with little awareness of the potential risk Even though China s stock market is now some 25 percent below its peak of a month ago it remains at double its level of a year ago despite a recent slowdown in the domestic economy and several experts have said it remains overvalued with the price to earnings ratio of many companies on the Chinese markets far higher than the average for listed companies in Western markets
China did however see an unexpected rise in exports in June according to figures just released up by 2 8 percent on the previous year and a slower than expected fall in imports And Chinese officials have said over the past week that the economy is over the worst Full economic figures for the first half of the year are expected later this week
China s economy grew by 7 percent in the first quarter of 2015 its slowest rate in six years and some economists have said it may struggle to maintain that level in the second quarter The government has taken a series of steps including cutting interest rates to help boost lending and economic growth But concerns have been expressed that the stock market volatility could hit other economic sectors including real estate and consumer spending
Stephen Roach former chairman of Morgan Stanley NYSE MS Asia wrote on Monday that China s consumer sector was still relatively embryonic and that this therefore reduced the potential knock on impact on a stock market crash on the real economy And he said the authorities still had plenty of ammunition to deal with the carnage in the equity market But in an article published in the Global Times he also warned that it was not yet clear whether the measures the government had taken so far would be enough to halt the decline and said the authorities needed to carefully examine what had happened on the markets over the past year adding that China can ill afford to make the same mistake twice |
JPM | Snap slides 17 9 as analysts stack up post earnings cautions | Snap NYSE SNAP is off 17 9 after yesterday s earnings letdown shedding a few billions in market cap and prompting analysts to rush to slash price targets and update their theses following word that Tencent OTCPK TCEHY bought 10 more of the company Shares are at 12 40 today their lowest point in three months UBS and JPMorgan NYSE JPM cut their ratings to a Sell equivalent and set price targets of 7 and 10 respectively Stifel and RBC have set more modest downgrades to Hold and 13 and 15 targets respectively Canaccord Genuity trimmed its price target to 12 from 15 arguing that the platform remains inherently valuable but For now with no timeline apparent for the redesigned app rollout we remain on the sidelines And Wells Fargo NYSE WFC Market Perform cut its target to 13 from 15 Though we believe SNAP continues to steadily onboard advertisers eager to test the platform we believe fundamental app design issues could prevent SNAP from seeing the type of steady monetization gains posted by key rivals Facebook NASDAQ FB and Instagram Pivotal which reiterated a Sell rating says it s highly unlikely that Tencent would ever buy Snap with headwinds including issues around foreign influence in social media and China s restrictions on foreign investment along with current dependence on CEO Evan Spiegel who has an 11 stake Now read |
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