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JPM | JPMorgan chief held private talks with UK s May Hammond Sky News | Reuters JPMorgan Chase Co N JPM Chief Executive Jamie Dimon held private talks with British Prime Minister Theresa May and finance minister Philip Hammond on Wednesday Sky News reported Dimon warned May and Hammond that the French government is intensifying efforts to lure British banking jobs to France Sky News also reported In the meeting which was also attended by Daniel Pinto who runs JPMorgan s investment bank globally the bankers committed to retaining a large proportion of their existing UK operations after Brexit Sky News also reported
JPMorgan and British Government were not immediately available for comment |
JPM | Asian Shares Gain Led By Surging Nikkei 225 As Trump Tour Continues | Investing com Asian shares gained on Thursday with Tokyo hitting fresh record highs as the region monitored President Donald Trump s extensive tour through Asia now in China after leadership meetings in Japan and South Korea and ahead of an APEC summit
In Japan the Nikkei 225 jumped 1 75 and crossed 23 000 to the highest levels since 1981 Also on Thursday Japan reported core machinery orders slumped 8 1 well below the drop of 1 8 expected for September on month
In Greater China the Shanghai Composite rose 0 03 while the Hang Seng index was up 0 91
China s October consumer prices rose 0 1 on month in October less than the 0 2 gain seen as food prices dropped from a year ago data showed on Thursday
On an annual pace the gain was 1 9 higher than the 1 8 seen Producer prices came in at a gain of 6 9 as expected moving from a low base a year ago
China s Tencent has taken a 12 stake in U S social media company Snap The news came after Snap missed third quarter revenue expectations on Tuesday Tencent shares advanced 1 5
Overnight U S stocks closed higher on Wednesday as a rise in tech offset a slump in financials which followed concerns over possible delays to President Donald Trump s tax plan
The Dow Jones Industrial Average closed higher at 23 563 98 The S P 500 closed 0 14 higher while the Nasdaq Composite closed at 6789 12 up 0 32
With third quarter earnings nearing an end political events dominated trading as media reports suggested that the GOP Senate are proposing to make significant changes to the Republican tax plan and considering a one year delay to corporate tax cuts
That added to uncertainty concerning progress of the GOP tax plan after Republicans lost key elections in New Jersey and Virginia on Tuesday Optimism on tax reform has been on the catalysts supporting the post election rally in stocks
Financials mostly banks continued to add to losses amid fears of a flattening yield curve spreads narrow between short end and long end of the curve yield curve which usually signals a recession
Some analysts at JPMorgan NYSE JPM were quick to downplay the slump in financials as precursor for selloff in equities insisting that it will likely take a material weakening in real growth momentum and or a break of super cap tech to change the trajectory of the S P500 in the near term
In corporate earnings news investors looked ahead to notable companies reporting earnings including Square NYSE SQ and Twenty first Century Fox |
C | Cyber attack on Union Bank of India similar to Bangladesh heist WSJ | MUMBAI Reuters A cyber attack on Union Bank of India last July began after an employee opened an email attachment releasing malware that allowed hackers to steal the state run bank s data the Wall Street Journal reported on Monday The attempt closely resembled the cybertheft last year of more than 81 million from the Bangladesh central bank s account at the New York Federal Reserve the paper reported The opening of the email attachment which looked like it had come from India s central bank initiated the malware that hackers used to steal Union Bank s access codes for the Society for Worldwide Interbank Financial Telecommunication SWIFT a system that lenders use for international transactions The codes were used to send transfer instructions for about 170 million to a Union Bank account at Citigroup Inc NYSE C in New York Union Bank had traced the money trail and blocked the movement of funds SWIFT late last year said that some banks using its system had been attacked after the Bangladesh heist the Journal said but did not specifically name Union Bank of India Union Bank Chairman Arun Tiwari told the newspaper that SWIFT officials had been working with the bank since the day of the cyber attack SWIFT declined to comment |
C | Wall Street ends choppy session up slightly energy helps | By Caroline Valetkevitch NEW YORK Reuters U S stocks ended a choppy session slightly higher on Monday as gains in energy shares offset losses in financials ahead of quarterly corporate earnings later this week Geopolitical tensions added to the choppiness U S Secretary of State Rex Tillerson said on Sunday the military strikes against Syria over its alleged use of chemical weapons were a warning to other nations including North Korea that a response is likely if they pose a danger With trading slow at the beginning of a holiday shortened week volume was the lightest of the year so far The S P energy index SPNY up 0 8 percent was the day s best performing S P 500 sector following gains in oil prices Investors prepared for the start of quarterly profit reports with earnings of S P 500 companies estimated to have risen 10 1 percent in the first three months of the year according to Thomson Reuters data Energy companies hit by a selloff in oil prices last year are expected to show the greatest strength with a 600 percent year over year earnings increase The key will be oil stocks given how volatile oil has been since the election said Jake Dollarhide chief executive officer of Longbow Asset Management in Tulsa Oklahoma which has about 50 million in assets under management The energy index is down 6 percent for the year to date The Dow Jones Industrial Average DJI was up 1 92 points or 0 01 percent to 20 658 02 the S P 500 SPX gained 1 62 points or 0 07 percent to 2 357 16 and the Nasdaq Composite IXIC added 3 11 points or 0 05 percent to 5 880 93 Thursday will be the last trading day of the week on Wall Street ahead of the Good Friday holiday Just 5 5 billion shares changed hands on U S exchanges on Monday The daily average for the past 20 trading days is 6 7 billion according to Thomson Reuters data JPMorgan N JPM Citigroup N C and Wells Fargo N WFC are scheduled to report earnings on Thursday and could throw some light on the U S banking industry s performance amid a rally in financial shares since the election of President Donald Trump Bank stocks have retreated recently as investors question lofty valuations and Trump s ability to swiftly introduce simpler regulations and other policies following the failure of a healthcare reform bill The S P 500 financial sector SPSY was off 0 3 percent Traders attributed a stock dip around noon to unverified rumors stemming from weekend news related to North Korea You ve had a lot of geopolitical news that could have driven this market a lot lower and I think it s a huge relief that the market has held up so well Dollarhide said Whole Foods Market O WFM was the S P 500 s biggest percentage gainer on the day rising 10 percent after activist investor Jana Partners LLC disclosed an 8 3 percent stake in the company as it looks to shake up the company s board Swift Transportation N SWFT jumped 23 7 percent to 24 77 after agreeing to a merger with fellow trucking company Knight Transportation N KNX Knight s shares were up 13 4 percent Advancing issues outnumbered declining ones on the NYSE by a 2 09 to 1 ratio on Nasdaq a 1 06 to 1 ratio favored decliners
The S P 500 posted 8 new 52 week highs and 3 new lows the Nasdaq Composite recorded 68 new highs and 38 new lows |
C | Asia shares mostly weaker with Sydney up Toshiba eyed in Japan | Investing com Asian shares were mostly weaker on Tuesday with Sydney up slightly to buck the trend and investors looking to Tokyo for the latest word on Toshiba
The Shanghai Composite eased 0 46 and the Hang Seng Index fell 0 81 Japan s Nikkei 225 declined 0 55
In corporate news Foxconn has offered a 27 billion bid for Toshiba s memory chip unit the Wall Street Journal reported Toshiba put its NAND flash memory unit up for sale last month in a bid to cover billions in losses from its U S nuclear energy unit Westinghouse
Toshiba was slated to file earnings on Tuesday after delaying to do so twice previously Toshiba shares dropped by 2 05 As well shares in Sharp were also in the red selling off by 10 4 on concerns it may lose the race to develop the next generation OLED screen for smartphones to South Korea s LG
South Korea s Kospi fell by 0 58 Concerns over geopolitical tensions continue to build on the Korean Peninsula after the U S deployed a carrier strike group closer to the region and as joint U S Korea military drills continue till the end of the month
Australia s S P ASX 200 rose however up 0 08 In Australia from a National Australia Bank survey business confidencecame in at plus 6 in March below plus 7 the previous month while the business surveyrose to plus 14 from plus 9
Overnight the Federal Reserve s plans to raise U S interest rates gradually are aimed at sustaining full employment and near 2 percent inflation without letting the economy overheat Fed Chair Janet Yellen said on Monday
I think we have a healthy economy now Yellen said at an event at the University of Michigan s Ford School of Public Policy in Ann Arbor
Yellen repeated earlier comments that the economy is expected to continue to grow at a moderate pace
Whereas before we had our foot pressed down on the gas pedal trying to give the economy all the oomph we possibly could now allowing the economy to kind of coast and remain on an even keel to give it some gas but not so much that we are pressing down hard on the accelerator that s a better stance of monetary policy she said We want to be ahead of the curve and not behind it
The Dow Jones Industrial Average closed 0 01 higher at 20 658 The S P 500 added 0 07 and the Nasdaq Composite closed 0 05 higher at 5880 93
U S stocks closed above breakeven on Monday despite rising political tensions while a sharp rise in oil prices boosted energy stocks
Meanwhile investors look ahead to the start of first quarter earnings season as financials mostly banks report their results on Thursday Citigroup Inc NYSE C JPMorgan NYSE JPM and Wells Fargo NYSE WFC report results on Thursday before the US market opens |
C | U S stock futures tread water amid geopolitical tension | Investing com Wall Street futures pointed to a flat open on Tuesday as a light economic calendar ahead of the unofficial start for first quarter earnings left investors contemplating rising geopolitical tensions
The blue chip Dow futures was unchanged at 6 55AM ET 10 55GMT the S P 500 futures slipped 1 point or 0 03 while the tech heavy Nasdaq 100 futures dropped 1 point or 0 02
Pressure mounted Tuesday as South Korea s acting president warned on Tuesday of greater provocations by North Korea over concern of another military test in coming days while a U S Navy strike group traveled to the region
In response to the deployment North Korea s state run Korean Central News Agency quoted a foreign ministry spokesman as saying that the country would defend itself by a powerful force of arms against what it sees as any potential aggression by the United States
Markets also kept an eye on the rising geopolitical tension as foreign affairs ministers from the Group of Seven G7 major global powers were joined by Middle East allies at their second day of meetings in Italy in the hopes of establishing a united front against Syrian President Bashar al Assad
The G7 is hoping to pressure Russian President Vladimir Putin to break ties with Assad as U S Secretary of State was set to visit Moscow Wednesday in what would be his first diplomatic mission
The Russian Foreign Ministry noted that Russia U S relations were in their most difficult period since the cold war although it was hoping for productive talks over both Syria and North Korea according to reports from Interfax
Back stateside Federal Reserve Fed chair Janet Yellen offered little insight into the U S monetary policy after the market close on Monday as she maintained her previous view that rate hikes should be gradual in order to allow the economy to kind of coast in order to avoid overheating
Whereas before we had our foot pressed down on the gas pedal trying to give the economy all the oomph we possibly could now allowing the economy to kind of coast and remain on an even keel to give it some gas but not so much that we are pressing down hard on the accelerator that s a better stance of monetary policy she said
We want to be ahead of the curve and not behind it Yellen explained
Markets continued to price in the next rate hike for the June meeting with odds standing at around 59 according to Investing com s Fed Rate Monitor Tool
The economic calendar continued to be light on Tuesday with the major data point being the U S Bureau of Labor Statistics Job Openings and Labor Turnover Survey JOLTS at 10 00AM ET 16 00GMT
Minneapolis Fed president Neel Kashkari the lone policymaker at the central bank to vote against the rate hike was also scheduled for an appearance at 1 45PM ET 17 45GMT
Key scheduled market events would have to wait until Thursday s start of the earnings season with major U S banks J P Morgan NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC reporting
Also to keep in mind that trading is light this week due to the Easter holiday with the New York Stock Exchange closed on Friday and many traders celebrating Passover and taking advantage of the holiday season in general
Meanwhile oil prices struggled near a five week high on Tuesday recovering from overnight losses and turning higher in early morning trade ahead of weekly data on U S inventories
Market players looked ahead to the American Petroleum Institute s weekly report on crude inventories at 4 30PM ET 20 30GMT Tuesday
Official government figures will be released on Wednesday amid expectations for a build of 0 316 million barrels
U S crude futures inched up 0 06 to 53 11 by 6 55AM ET 10 55GMT while Brent oil edged forward 0 09 to 56 03 |
C | Bristol Myers Squibb Tests Key Level Here s The Play | Bristol Myers Squibb NYSE BMY is a leader in the discovery development licensing manufacturing marketing distribution and sale of biopharmaceutical products Today the stock is trading lower by 2 05 to 58 12 a share This morning the price target was lowered by Citigroup NYSE C after meetings with Pfizer NYSE PFE showed a lack of interest in a potential merger with Bristol Myers Squibb The stock is now testing the important 58 00 level A failure to hold this key support area would signal further weakness in the chart The next major support level for BMY will be around the 52 00 area this would be a solid long side trade for BMY stock |
C | Citigroup C Beats On Q1 Earnings As Revenues Improve | Have you been eager to see how Citigroup NYSE C performed in Q1 in comparison with the market expectations Let s quickly scan through the key facts from this New York based money center bank s earnings release this morning An Earnings BeatCitigroup came out with earnings per share of 1 68 surpassing the Zacks Consensus Estimate of 1 61 Further the figure compared favorably with earnings of 1 35 in the prior year quarter Improvement in earnings was primarily driven by higher revenues How Was the Estimate Revision Trend You should note that the earnings estimate for Citigroup depicted optimistic stance prior to the earnings release The Zacks Consensus Estimate increased 1 3 over the last seven days Also Citigroup has a decent earnings surprise history Before posting earnings beat in Q1 the company also delivered positive surprises in the prior four quarters Overall the company surpassed the Zacks Consensus Estimate by an average of 7 45 in the trailing four quarters Citigroup Inc Price and EPS Surprise
Revenue Came in LineCitigroup s revenues of 18 87 billion were marginally below the Zacks Consensus Estimate of 18 90 billion Nonetheless revenues increased 3 year over year Key Takeaways Net Income stood at 4 6 billion up 13 from the prior year quarter Costs of credit surged 12 year over year to 1 9 billion Fixed income markets revenues declined 7 year over year to 3 4 billionEquity markets revenues of 1 1 billion surged 38 from the prior year quarter Returned 3 1 billion to shareholders as common stock repurchases and dividends during the quarter What Zacks Rank SaysThe estimate revisions that we discussed earlier have driven a Zacks Rank 3 Hold for Citigroup However since the latest earnings performance is yet to be reflected in the estimate revisions the rank is subject to change While things apparently look favorable it all depends on what sense the just released report makes to the analysts You can see How the Market Reacted So FarFollowing the earnings release Citigroup shares were up nearly 1 in the pre trading session This is in line to what the stock witnessed in the prior day s session Clearly the initial reaction shows that the investors have considered the results in their favor However the full session s price movement may indicate a different picture Check back later for our full write up on this Citigroup earnings report Will You Make a Fortune on the Shift to Electric Cars Here s another stock idea to consider Much like petroleum 150 years ago lithium power may soon shake the world creating millionaires and reshaping geo politics Soon electric vehicles EVs may be cheaper than gas guzzlers Some are already reaching 265 miles on a single charge With battery prices plummeting and charging stations set to multiply one company stands out as the 1 stock to buy according to Zacks research It s not the one you think |
JPM | Commodities And FX Global Macro Currents | Oil and natural gas prices remain under pressure
Other commodities even orange juice are weak
Some commodity trends look deflationary and that s how bond markets see it
Brazilian real at record lows
Palladium up platinum down on Volkswagen XETRA VOWG crisis
The latest data from the US shows crude inventories lower than expected and production continues to fall
While the above is a bullish sign US refinery inputs are falling as seasonal maintenance picks up and is expected to take more refinery capacity offline than usual
Moreover the government report showed higher than expected levels of gasoline in storage
The combination of weaker refinery inputs and higher gasoline inventories sent crude prices lower
Source barchart
Over the intermediate term crude oil prices are projected on average to stay below 60 bbl by sell side analysts
Source georgikantchev WSJ
Weakness in energy prices is not limited to crude oil US natural gas futures are pricing in warmer temperatures this winter and plenty of supply
Source barchart
Now let s look at key developments in a number of other commodity markets First we have the Volkswagen XETRA VOWG p contagion into the commodities markets Platinum is used for diesel engines while palladium for gasoline engines Since the Volkswagen fiasco will diminish diesel auto production which is likely to be replaced by competitors gasoline autos we have the following divergence
Source SoberLook
Orange juice futures fell more than 4 on strong Florida crops and a falling Brazilian real The Dukes are not happy
Source barchart
The Duke brothers Randolph Ralph Bellamy and Mortimer Don Ameche commodity traders in the 1983 American comedy film Trading Places who commit all their holdings to buying frozen concentrated orange juice futures Source Business Insider
Clearly some of the commodity trends look deflationary At least that s how the bond markets interpret the situation US 5 year forward breakeven inflation expectations are at the lowest level since 2010 Will the Fed ignore this in December
Now let s turn to emerging markets EM currencies where in spite of some central bank interventions the selloff continues Mexico s central bank sold dollars to try stabilizing the peso The intervention was not successful as the peso again approaches a record low vs the dollar
Source barchart
The Malaysian ringgit hit another low as US authorities investigate allegations of corruption involving Prime Minister Najib Razak Apparently some shell companies were used to buy US properties to move the prime minister s family money out of Malaysia
Source barchart
Brazil s central bank also intervened in the FX market to prop up the real Once again there was little success as the currency continued to fall to record lows
Source barchart
The overall JPMorgan NYSE JPM EM Currency Index hit fresh lows
Source MetricAdvisors
Related to the above there were more losses for Brazilian government bonds Here is the 10 year yield
Source MxSba
Petrobras 5 year CDS spread hit 1 000 bps as the company s credit trades at distressed levels
Source MktOutperform
China s slowdown is the key cause of the situation in Brazil It also continues to pressure a number of Asian economies
Disclosure Originally published at Saxo Bank TradingFloor com |
JPM | Is Brazil For Real | BRL rises on prospect of USD sales
Brazilian macro environment remains dismal
EM currencies continue to tumble
Let s begin with Brazil where the central bank has threatened to use FX reserves to buy the real Previously Brazil had used sterilised interventions such as FX swaps and dollar repo which thus far have failed to stem the currency declines The possibility of outright real purchases dollar sales did the trick
This Brazilian central bank s action spilled across Latin America as the Mexican peso also strengthened after hitting a record low versus the USD
It remains to be seen if the real stabilization can be sustained as other metrics point to a rapid deterioration in Brazil
1 The unemployment rate jumped with the government implementing its austerity program Up until recently Brazil was experiencing labor shortages
2 The GDP growth forecasts continue to decline as economists increasingly see a much deeper recession than originally thought
3 Consumer confidence is collapsing
4 Market indicators also show pressure building Here is the swap rate and the CDS spread
Other emerging market currencies remain under pressure Here is the South African rand and the Turkish lira hitting fresh lows USD hitting fresh highs against these currencies The Malaysian ringgit continued to get clobbered as well
Here is the JPMorgan NYSE JPM EM Currency Index
Corporate borrowing in dollars and euros has always been cheaper but now EM currencies devaluation is becoming costly for firms whose revenues are mostly in domestic currencies These companies assets have been devalued relative to the liabilities Turning to Food for Thought Volkswagen XETRA VOWG p cars have done some serious polluting in the US How can a firm like this ever return to the US market
Disclosure Originally published at Saxo Bank TradingFloor com |
JPM | USD JPY The Range Persists | The USD JPY range persists notes JPMorgan NYSE JPM
The 119 30 118 65 zone remains the critical test and should continue to hold to maintain the potential for a deeper short term recovery JPM argues
A break above the 121 30 80 area is necessary to allow for an extension into the 123 124 zone C wave JPM projects
A failure to hold the 118 65 support would allow for a closer test of the medium term range lows in the 116 00 50 zone JPM adds |
JPM | Daily Shot Malaise Seeps Into Services Sector | Manufacturing malaise spreads to services sector
Raft of PMIs undershoot consensus expectations
Weakness particularly severe in Brazil
India corporate earnings optimism may be excessive
US diesel and natural gas prices slump
Today let s take a look at the global service sector We ve seen manufacturing weakening across the board but now there are signs of trouble in non manufacturing sectors To be sure services activity continues to expand but the pace of growth has disappointed recently Most major economies printed September service PMIs that were below consensus
1 In the United States the ISM NMI non manufacturing came in at 56 9 vs 57 5 expected New orders were especially soft
2 We ve already seen this China services chart last week
3 Here is the UK service PMI significantly below consensus
And more headlines
Even Spain which has had solid growth recently is experiencing a slowdown in its service sector
This is telling us that the global slowdown is not limited to manufacturing Here is JPMorgan NYSE JPM commenting on the latest Markit Service PMI survey report Speaking of economic slowdowns here is a good description of the situation on Brazil
In India we see corporate earnings growth forecasts far exceeding those in the rest of Asia Are analysts too optimistic on India
China s currency usage in settling international transactions continues to grow That s one of the reasons Beijing is so concerned about the RMB stability A sharp devaluation and the volatility that could generate at this point could slow these gains in usage Colombian inflation jumped to a 6 yr high exceeding economists forecasts Much of this has been driven by the drought pushing food prices higher as well as extreme weakness in the peso
Australia s central bank held rates steady at 2 in spite of recent economic weakness The Australian dollar jumped in response The Reserve Bank of Australia is preparing for the Fed s rate hike which in theory should weaken AUD a form of stimulus In effect the RBA wants the Fed to do the work for them The RBA however may have to wait a while
Now let s take a look at a number of developments in the commodities markets 1 Apparently Russia is losing patience with Opec s policy of expanding production and pressuring crude prices It is costing Russia dearly Russian officials indicated they are ready to meet Opec to discuss oil prices Energy prices jumped on the report Here is the US gasoline futures contract
2 On the other hand US diesel prices continue to fall on global oversupply
3 Natural gas prices have been declining for some time now as production spiked Warmer than expected weather and forecasts have not helped
As a result natural gas positioning by speculative futures accounts show a record net short position A few cold days is all it would take to put a short squeeze here
4 Precious metals are responding to the halt in US dollar rally as the Fed hike expectations get pushed out Here is silver
5 As discussed yesterday other commodities where we ve seen significant speculative shorts building up may see sharp reversals Below is the December coffee futures contract
6 Glencore LONDON GLEN experienced the strongest share price jump in its history on takeover speculation and potential stability in copper prices Or was the copper price driven by Glencore
Disclosure Originally published at Saxo Bank TradingFloor com |
JPM | Hillary Bernie And The Banks | Giant Wall Street banks continue to threaten the wellbeing of millions of Americans but what to do
Bernie Sanders says break them up and resurrect the Glass Steagall Act that once separated investment from commercial banking
Hillary Clinton says charge them a bit more and oversee them more carefully
Most Republicans say don t worry
Clearly there s reason to worry Back in 2000 before they almost ruined the economy and had to be bailed out the five biggest banks on Wall Street held 25 percent of the nation s banking assets Now they hold more than 45 percent
Their huge size fuels further growth because they ll be bailed out if they get into trouble again
This hidden federal guarantee against failure is estimated be worth over 80 billion a year to the big banks In effect it s a subsidy from the rest of us to the bankers
And they ll almost certainly get into trouble again if nothing dramatic is done to stop them Consider their behavior since they were bailed out
In 2012 JPMorgan Chase NYSE JPM the largest bank on Street lost 6 2 billion betting on credit default swaps tied to corporate debt and then publicly lied about the losses It later came out that the bank paid illegal bribes to get the business in the first place
Last May the Justice Department announced a settlement of the biggest criminal price fixing conspiracy in modern history in which the biggest banks manipulated the 5 3 trillion a day currency market in a brazen display of collusion according to Attorney General Loretta Lynch
Wall Street is on the road to another crisis
This would take a huge toll Although the banks have repaid the billions we lent them in 2008 many Americans are still living with the collateral damage from what occurred lost jobs savings and homes
But rather than prevent this by breaking up the big banks and resurrecting Glass Steagall Hillary Clinton is taking a more cautious approach
She wants to impose extra fees on the banks with the amounts turning not on the bank s size but how much it depends on short term funding such as fast moving capital markets which is a way of assessing riskiness
So a giant bank that relies mainly on bank deposits wouldn t be charged
Clinton would also give bank regulators more power than they have under the Dodd Frank Act passed in the wake of the last banking crisis to break up any particular bank that they consider too risky
And she wants more oversight of so called shadow banks pools of money like money market mutual funds hedge funds and insurance funds that act like banks
All this makes sense And in a world where the giant Wall Street banks didn t have huge political power these measures might be enough
But if you hadn t noticed Wall Street s investment bankers key traders top executives and hedge fund and private equity managers wield extraordinary power
They re major sources of campaign contributions to both parties
In addition a lucrative revolving door connects the Street to Washington Treasury secretaries and their staffs move nimbly from and to the Street regardless of who s in the Oval Office
Key members of Congress especially those involved with enacting financial laws or overseeing financial regulators have fat paychecks waiting for them on Wall Street when they retire
Which helps explain why no Wall Street executive has been indicted for the fraudulent behavior that led up to the 2008 crash Or for the criminal price fixing scheme settled in 2012 Or for other excesses since then
And why even the fines imposed on the banks have been only a fraction of the banks potential gains
And also why Dodd Frank has been watered down into vapidity
For example it requires major banks to prepare living wills describing how they d unwind their operations if they get into serious trouble
But no big bank has come up with one that passes muster Federal investigators have found them all unrealistic
That s not surprising because if they were realistic the banks would effectively lose their hidden too big to fail subsidies
Given all this Hillary Clinton s proposals would only invite more dilution and finagle
The only way to contain the Street s excesses is with reforms so big bold and public they can t be watered down busting up the biggest banks and resurrecting Glass Steagall |
MS | Bankrupt gun maker Colt gets revised loan eases rush to sale | By Jim Christie Reuters Bankrupt gun maker Colt Holdings has reached an agreement with its bondholders that will postpone the company s rush into a controversial sale to its current private equity owner while also providing much needed cash Colt will accept a loan of up to 75 million from its bondholders and other lenders to finance its operations while in bankruptcy The company originally planned to borrow up to 20 million from its current lenders including Morgan Stanley NYSE MS U S Bankruptcy Judge Laurie Silverstein in Wilmington Delaware allowed Colt to use some of that 20 million loan last week so the company had the cash to meet payroll Silverstein approved the revised loan deal on Wednesday Bondholders had argued the original loan set in motion an auction of its operations and that Colt s current owner private equity firm Sciens Capital Management would end up winning the auction without bidding anything Sciens has proposed buying Colt along with all of its obligations except for the 250 million in bonds As bondholders see it Sciens has used its control of Colt to drain the company of much needed cash and created the current need for a sale In addition bondholders fear no one else will bid because Colt has not produced audited financial results since 2013 and may not be able to renew its lease on its main West Hartford Connecticut facilities The owner of that property is affiliated with Sciens adding to bondholder fears that the private equity firm is angling to remain in control of the gun maker Sciens declined to oppose the revised agreement between Colt and its bondholders at a hearing on Wednesday but the private equity firm could still challenge it said its lawyer Mark McDermott of Skadden Arps Slate and Meagher Flom We are now in a free fall Chapter 11 McDermott said adding he is concerned Colt s case could rattle the U S government and allied governments that buy the company s firearms
The bondholders group includes Phoenix Investment Adviser Bowery Investment Management Newport Global Advisors and Fidelity National Financial Inc |
MS | Fintech explosion puts banks in digital firing line | By Eric Auchard FRANKFURT Reuters The world s top banks and insurers are seeing their business models challenged by fintech start ups which are reshaping what consumers and businesses expect from financial services industry insiders and experts say A report out Tuesday from the World Economic Forum WEF the Swiss based corporate think tank which runs the Davos summit of world leaders says major disruptions lie ahead for the once highly profitable financial services industry Foreshadowing the end of the friendly local bank manager UK regulators last week granted a banking license to Atom a branch free paper free institution which its customers must on their own mobile phones or tablets The WEF study joins a flood of recent reports including one from Santander InnoVentures the venture arm of Banco Santander MADRID SAN which argues digital technologies are eroding the bulwarks of the financial services industry just as it did in travel and entertainment a decade or more ago Recent market entrants are taking advantage of the plummeting cost of cloud computing capacity to go head to head with banks in terms of raw transaction and data crunching analytical power what Santander s study has dubbed Fintech 2 0 Pre digital business models and processes will be rendered obsolete and billions of dollars of value will shift to new model suppliers the Santander report predicts Rising investments in fintech start ups globally are fuelling the challenge to entrenched players with 12 2 billion plowed into such ventures last year more than threefold the total of 2013 according to data supplied by research firm CB Insights BANKS WITH NO BRICKS The generation born after 1980 have largely abandoned bank branches already Younger people turn instead to virtual fintech brands such as eToro for social media style investing Moven in mobile banking Prosper for loans and a growing number of crowd funding platforms to finance projects Bankers always claim that they are close to their customers because they have all these retail branches Berlin fintech entrepreneur Valentin Stalf said in an interview I think branches are holding banks back from reaching their customers Stalf 29 is co founder and chief executive of Number26 a financial services marketplace for mobile users in the German speaking world that has received backing from top Silicon Valley investor Peter Thiel among other investors I don t see banks at all as my competitors Number26 CEO Stalf says They just can t move fast enough Bankers who once thought financial regulation was a barrier to new entrants are seeing non bank fintech rivals go after their most profitable markets while avoiding regulated pieces of business said Huw van Steenis head of European bank research at Morgan Stanley NYSE MS who contributed to the WEF report While challenges to banking are more imminent insurers may face bigger threats in the long run as troves of online data usher in new types of personalized health life and drivers insurance upending the model of mutualized financial risk that has been at the heart of the industry the WEF report predicts In investment management robo advisors have begun to automate wealth advisory roles calling into question face to face meetings and proprietary distribution channels Meanwhile robo lenders threaten to eat banks lunch Most of new fintech firms selectively partner with technology providers who possess their own banking licenses rather than waiting to procure banking licenses in country after country They partner and outsource much of the underlying technology they use slashing costs while boosting flexibility A complication of the exploding number of lending platforms is that it is becoming harder for banks or credit card firms to get a comprehensive view of creditworthiness Both reports still see life ahead for major financial service brands but not as universal full service banks or insurers Instead they predict an era of growing specialization while relying online partnerships to deliver non core services Incumbents are learning new tricks from challengers adapting existing services to make them convenient for customers and finding ways to collaborate with new fintech players leading industry dividing lines to blur both studies agree A World Economic Forum graphic sums up the fintech scene at |
MS | Banks Enabled Puerto Rico s Debt Addiction | By
After a decade of economic stagnation and high unemployment Puerto Rico is at a precipice of insolvency with no way to pay off its massive 73 billion debt The commonwealth s politicians policymakers and populace all bear some responsibility San Juan s political leaders have spent years dodging unpopular measures such as tax increases and pension cuts to address the island s weak economic growth and deficit spending
But as the government teeters on bankruptcy Wall Street is also to blame
According to the industry s critics banks acted as enablers to Puerto Rico s credit addiction for years while collecting billions in fees imposing often onerous terms and then passing much of the risk off to bond buyers in public debt markets
We ve seen banks do this time and again says Saqib Bhatti director of the ReFund America Project a group whose studies the financial sector s detrimental effect on public finance They take advance of these broader issues facing local governments and offer solutions aimed at driving these governments deeper and deeper into debt
Puerto Rico s problems began to swell after 2006 when a tax incentive that lured U S mainland companies notably pharmaceutical manufacturers expired And just as the island was grappling with a downturn in private sector investments the Great Recession spoiled any hope of increasing tax revenue Meanwhile costs related to infrastructure needs and public pensions continued to swell
In the last nine years the situation forced San Juan to accumulate tens of billions of dollars in debt on a per capita basis more than any U S state Wall Street s biggest banks have been eager to underwrite these loans because of the handsome fees they attract Earlier this year for instance a group of banks including Barclays LONDON BARC Morgan Stanley NYSE MS JP Morgan and Bank of America Merrill Lynch charged Puerto Rico 28 1 million in underwriter fees to issue 3 5 billion in bonds
And because bankers can pass the debt off to investors in the bond market they are able to shed their exposure to the risk that Puerto Rico might default on its loans
The unambiguous winners in the bond game were the underwriters and the bond sellers said Orlando Sotomayor an economist at the University of Puerto Rico The losers will clearly be the bondholders of which about a third are now hedge funds
An analysis by the Wall Street Journal in 2013 estimated that banks and investment houses earned 1 4 billion in fees on 61 billion in lending to Puerto Rico from 2006 to 2012 raising questions from regulators about whether the banks were fully transparent to investors about the risks of buying the securitized debt
Some of Puerto Rico s loans carry punishing terms Bhatti estimates that about 5 billion of Puerto Rico s debt is in the form of so called capital appreciation bonds or CABs CABs prohibit the borrower from paying down the principal or the compounding interest for years allowing the debt to grow The terms are so onerous that in 2013 California lawmakers limited the amount of interest the state could be charged to 4 for every 1 borrowed after some school districts ended up paying as much as 20 times the amount they borrowed
Even that reduced amount is outrageous said Bhatti The fact that this was considered a reform shows you just how much you can wind up paying
Banks have happily underwritten Puerto Rico s borrowing for years because they ve been able to pass the debt on to investors attracted to high yield bonds The bonds are also attractive because investors are exempt from paying state local and federal taxes on their gains
And Puerto Rico s special status with the U S that is a commonwealth which shares a currency and is prohibited from filing for U S bankruptcy protections without congressional approval leads investors to assume the risk of default is lower than it would be for securitized debt from an emerging market economy The U S Federal Reserve s post recession monetary policy has spurred a bond rally too which helped whet appetites for Puerto Rico s debt
In a low interest rate environment investors reach for higher yields and coupled with the tax advantages that Puerto Rico has that higher yield investment becomes attractive Garry Schinasi an independent advisor on global financial stability issues and former member of the IMF s capital markets surveillance unit But there s no question that in the case of Puerto Rico the risk was mispriced to some extent
Meanwhile the willingness banks to lend to Puerto Rico allowed San Juan to delay crucial and unpopular reforms until the debts became insurmountable
Puerto Rico is due to make 5 15 billion in debt payments in the 2016 fiscal year that starts Wednesday according to Washington based investment firm Height Securities That s more than half of the proposed 9 8 billion budget for the next fiscal year
On Wednesday sales taxes and other government levies will go up in order to raise revenue to service Puerto Rico s debt Lenders will be first in line for collection before the money trickles down to public services which will exacerbate the public s frustration and possible cause more political gridlock on austerity measures
People are going to pay higher taxes and wonder why the benefits aren t immediately felt said Height Securities analyst Daniel Hanson |
MS | Oil falls more than 3 percent after Greek No | By Christopher Johnson LONDON Reuters Oil prices fell more than 3 percent on Monday after Greece rejected debt bailout terms and China rolled out emergency measures to support its stock markets adding to concerns about demand at a time of global oversupply The result of Greece s referendum put in doubt its membership in the euro pulling down the single currency against the dollar FRX A strong dollar tends to pressure commodities as it makes fuel more expensive for holders of other currencies Commodities were also sucked into market turmoil that has seen Chinese shares CSI300 fall as much as 30 percent since June due in part to the economy growing at its slowest pace in a generation Uncertainty over Greece is bearish for oil It adds an extra negative factor on top of the turmoil in Chinese financial markets the recent rise in U S drilling rigs and a potential increase in Iranian oil supply said Olivier Jakob senior energy analyst at Petromatrix in Zug Switzerland Benchmark Brent crude oil fell 2 04 a barrel to a low of 58 28 before recovering a little to around 58 85 by 1345 GMT U S light crude fell as low as 53 91 down 3 02 from its close on July 2 July 3 was a U S holiday Both crudes hit their lowest levels since mid April With markets already nervous due to the turmoil in Europe and China fundamentals were also bearish U S drilling increased for the first time after 29 weeks of declines the strongest sign yet that higher crude prices are coaxing producers back to the well pad Production in Russia and the Organization of the Petroleum Exporting Countries is also at or near records Analysts say OPEC is now pumping around 2 5 million barrels per day bpd more than demand for its crude filling inventories worldwide Demand is good but supply is better said Bjarne Schieldrop chief commodities analyst at SEB in Oslo Putting further pressure on oil markets was a possible nuclear deal between global powers and Iran which could add more oil to oversupplied markets if sanctions on Iran are eased Reports increasingly suggest a deal is likely before July 9 Morgan Stanley NYSE MS analysts said in a report
With a deal some supply could creep from floating storage More material exports 500 000 700 000 bpd would likely come in late 2015 or early 2016 which could delay the recovery in oil prices and U S production by 6 12 months |
JPM | JPMorgan expects Fed to raise rates four times in 2018 | NEW YORK Reuters JPMorgan Chase Co NYSE JPM on Friday raised its forecast on the number of U S interest rate increases by the Federal Reserve next year to four from three as the October payrolls data reinforced the view of a tightening domestic labor market
In this environment we believe the Fed will see even more need for a steady regular removal of accommodation JPMorgan economist Michael Feroli wrote in a research note |
JPM | Lebanon tries to reassure markets as bond prices fall after PM resigns | BEIRUT Reuters Lebanese authorities said on Monday the country s financial institutions could cope with the prime minister s surprise resignation at the weekend and the stability of the Lebanese pound was not at risk But two days after Prime Minister Saad al Hariri resigned in a broadcast from Saudi Arabia the cash price of Lebanon s U S dollar denominated bonds fell with longer dated maturities suffering hefty losses as investors took a dim view of the medium to longer term outlook for Lebanon Finance Minister Ali Hassan Khalil said Lebanon and its financial institutions could absorb the impact of Hariri s resignation and the state is able to finance itself We are confident in the stability of the financial and monetary situation in the country There are no very big challenges ahead of us Khalil said in a televised statement after a meeting on the economy chaired by President Michel Aoun Lebanon s central bank has to maintain adequate foreign reserves to keep the currency pegged at 1 507 5 Lebanese pounds to the dollar With revenues and growth low the country relies for those foreign reserves on deposits made in local banks by millions of expatriate Lebanese The banks buy government debt which finances an expanding budget deficit and debt Central Bank Governor Riad Salameh on Monday told local TV channel LBC the pound was not in danger Lebanon s monetary situation was stable and markets were normal Salameh told Reuters on Oct 25 central bank reserves were at a record high of 44 3 billion The Lebanese pound remained stable through more critical turmoils in the past such as the assassination of former Prime Minister Rafiq Hariri in 2005 and the war with Israel in July 2006 Garbis Iradian chief Middle East and North Africa economist for the Institute of International Finance told Reuters Byblos Bank Chief Economist Nassib Ghobril told Reuters he thought the pound would remain stable because of the central bank s policies and foreign currency assets MARKET REACTION On Monday Lebanon s dollar denominated bonds fell across the curve The issue maturing in 2037 chalked up the biggest declines dropping 5 45 cents to trade at 90 55 cents in the dollar Other issues such as the bond maturing in 2027 lost more than 4 cents to trade at their lowest level since June 2013 The Middle East jumped a big step in volatility with Hariri s resignation said Simon Quijano Evans emerging markets strategist at Legal General Investment Management That resignation again exposed Lebanon to the sharp end of the rivalry for Middle East predominance between Sunni Muslim Saudi Arabia and Shi ite Muslim Iran Lebanon is yet again caught in between and given the delicate political situation at home remains very vulnerable to any outside influence Quijano Evans said Finance Minister Khalil told Reuters the fall in bond prices was a natural reaction to events and no cause for concern The cost of insuring exposure to Lebanese debt hit its highest since early January with Lebanon five year credit default swaps 10 basis points to 479 bps from Friday s close according to HIS Markit On the JPMorgan NYSE JPM EMBI Global Diversified index of sovereign dollar bonds from developing countries the premium that investors demand to hold Lebanese debt over U S Treasuries jumped by 62 bps from Friday s close to 530 bps the biggest gap since July 2016 and well above levels for Iraq which stood at 460 bps Trading on the Beirut Stock Exchange where volumes are usually low was muted on Monday with prices down Lebanese property developer Solidere s share price fell 7 6 percent Solidere is one of only 10 companies listed on the exchange and its share price is seen as a bellwether of sentiment and political events in Lebanon GROWTH OUTLOOK Lebanon s economy has been battered by six years of war in neighboring Syria and by simmering political divisions which came to the fore with Hariri s resignation Growth has slowed to just over 1 percent a year from an average of 8 percent before the Syrian conflict began in 2011 Lebanon also has one of the world s highest ratios of debt to gross domestic product around 140 percent Lebanon ended a two and a half year political vacuum at the end of last year with the President Aoun s appointment and the formation of a new government under Hariri It was hoped the new government would boost confidence and enact badly needed reforms to support growth The Institute of International Finance said although the impact of Hariri s resignation on the economy would be limited it would lower its forecast for Lebanon s growth rate for 2017 to 2 2 percent from 2 4 percent and for 2018 to 1 8 percent from 2 9 percent assuming a new consensus government will not be formed in the next six months
The central bank had estimated a growth rate of 2 5 percent for 2017 |
JPM | Zebra Tech 7 after Q3 beats in line guidance investors worry about gross margin | Zebra Technologies NASDAQ ZBRA shares are down 7 12 despite Q3 results that beat EPS and revenue estimates with in line and better guidance Q4 guidance revenue 972M to 1B consensus 963 56M EPS 2 00 to 2 20 consensus 2 08 Analyst comment William Blair analyst Brian Drab tells Bloomberg First Word that investors worried about lower sequential margins and higher inventory with low cash flows Drab acknowledged the inventory issue but called it a strong report overall Analyst action JPMorgan NYSE JPM raises its Zebra price target from 125 to 132 and maintains an Overweight rating Analyst Paul Coster cites the strong results and expects earnings to keep improving as integration costs ease Previously Zebra Technologies beats by 0 14 beats on revenue Nov 7 Now read |
C | U S stock futures cautious after Syria attack with jobs report on tap | Investing com Wall Street futures pointed to a flat to lower open paring initial losses sparked by the first U S military strike of Donald Trump s presidency as investors appeared to take the incident in stride and looked ahead to the outcome of the U S China summit and the employment report
The blue chip Dow futures slipped 6 points or 0 03 by 6 59AM ET 10 59GMT the S P 500 futures dipped 2 points or 0 06 while the tech heavy Nasdaq 100 futures inched down 2 points or 0 04
Trump ordered a cruise missile attack against a Syrian airfield on Thursday night after accusing Bashar al Assad s regime of using chemical weapons to kill scores of civilians an act Trump called an affront to humanity
A spokesperson for Vladmir Putin said the Russian President regards the U S attacks on Syria as an aggression against a sovereign state in violation of the norms of international law that would deal a significant blow to relations between Washington and Moscow raising concern over U S Russia relations
The order of the missile attack on Syria in what was the Trump administration s first military strike initially jolted financial markets when the news broke with global equities taking a downturn and investors piling into safe haven assets such the yen gold and U S 10 year Treasuries though nerves appeared to calm as news developed and global stocks along with U S futures were already off session lows in early morning trade stateside
In other geopolitical news market players were keeping an eye on the meeting of Presidents from the U S and China
After the leaders of the world s two largest economies underwent their first formal dinner a day earlier they will begin wading through discussions of trade and foreign policy on Friday
According to Xinhau News Chinese President Xi Jinping has shown himself willing to work together with Trump to forge new ties and push forward cooperation on investment infrastructure and energy
On Friday s macro calendar all eyes will focus on the U S Labor Department s March employment report at 8 30AM ET 12 30GMT
The consensus forecast is that the data will show jobs growth of 180 000 following an increase of 235 000 in February
The unemployment rate is forecast to hold steady at 4 7 while average hourly earnings are expected to rise 0 2 after gaining the same amount a month earlier
With the U S labor market widely considered to be at or near full employment by analysts and Federal Reserve Fed officials alike the March employment report released on Friday may see a lackluster reaction in markets even if the data ends up weaker than expected
Independently of whether the outcome will impact the Fed s outlook for the future path of monetary policy with officials expecting two further hikes in 2017 and balance sheet normalization to begin later this year markets placed the odds at around 62 for the first rate increase to occur in June according to Investing com s Fed Rate Monitor Tool
However despite that some analysts are calling for a second rate hike in September Fed fund futures put the chances at only 35
On the company front no major firms are reporting earnings Friday with investors looking ahead to the unofficial kickoff of the first quarter season next Thursday when both JJ P Morgan NYSE JPM and Citi NYSE C release their numbers
Meanwhile although news of the U S attack on Syria initially sentoil prices soaring more than 2 on concerns the military intervention could disrupt supply they have since pared gains as investors appeared to take the possibility off the table
U S crude futures gained 0 85 to 52 14 by 6 59AM ET 10 59GMT while Brent oil rose 0 62 to 55 23
In the meantime market participants will turn their attention to Baker Hughes rig count for details on U S drilling activity later on Friday
Last week the oilfield services firm reported its U S rig count rose by 10 to 662 it was the eleventh straight weekly increase |
C | Paraguay president s re election bid unsettles his corporate allies | By Luc Cohen ASUNCION Reuters Paraguayan business groups are urging the country s Congress to abandon a proposal that would allow President Horacio Cartes to seek re election fearing popular outrage could jeopardize his administration s progress in attracting foreign investment While they generally back Cartes center right government they have said he should give up on running in 2018 for a second five year term to preserve economic growth in the world s No 4 soy exporter and keep on track the country s progress toward a coveted investment grade credit rating Last Friday a closed door Senate vote approving a constitutional amendment for presidential re election drove opponents to set fire to Congress Police also stormed the opposition Liberal Party s headquarters and shot dead one protester This harms the country s image It conspires against our narrative and our plan of action said Daniel Elicetche president of the Paraguayan American Chamber of Commerce which includes local units of 3M Co British American Tobacco LON BATS PLC and several major grains processors Fresh in the memory of the business sector is the 63 8 percent decline in net foreign direct investment after the political chaos surrounding former socialist President Fernando Lugo s 2012 impeachment Beltran Macchi head of the Paraguay Association of Banks said the violence was a warning sign to investors Members of the association include Citigroup Inc NYSE C Itau Unibanco Holding SA and BBVA MC BBVA Many businesses prefer the re election amendment not be enacted at least for now The congressional lower house still has to vote on the measure In local newspaper ads the Federation of Production Industry and Commerce urged politicians to not try to change the law in a time of social tension The group includes the local units of grains processors Archer Daniels Midland Co Bunge Ltd and Cargill Inc Elicetche and other business leaders said they would be open to a reform allowing for consecutive re election beginning with the next president and would even support a run by Cartes in five years but were wary of what appeared to be an effort to hold onto power Paraguay s constitution does not allow for consecutive or non consecutive presidential terms UNPREDICTABLE CONSEQUENCES The Senate vote and ensuing mayhem could pose a setback for Paraguay s bid to promote an image of democratic stability following the 35 year dictatorship of military strongman Alfredo Stroessner which ended in 1989 Flourishing local businesses also want to overcome the country s long time reputation as a hotbed of contraband goods They seek to highlight the country s steady economic expansion driven by higher prices for its soy and beef exports and tax breaks attracting manufacturing companies mostly from neighboring industrial powerhouse Brazil Cartes a former soft drink and tobacco businessman who took office in 2013 has raised Paraguay s presence in international bond markets Last month it sold 500 million in debt But the landlocked South American country of 6 8 million people is not immune to political crises and the fallout on investment Net Foreign Direct Investment FDI fell by 445 million in 2013 from the previous year when Lugo was impeached and removed from office by Congress central bank figures showed If the government does not withdraw the proposal the effect of the current crisis could resemble the FDI decline of five years earlier said corporate financial adviser Amilcar Ferreira of the SEI consultancy in Asuncion If the crisis deepens Paraguay will go down a path of substantial destabilization with unpredictable consequences Ferreira said The president of the lower house said he would not call a vote on the re election amendment as long as the government s dialogue with the opposition continued These talks were scheduled to go through at least Friday It s still very early said Samar Maziad a sovereign credit risk analyst with Moody s Investor Service which upgraded Paraguay to a Ba1 credit rating one notch below investment grade in 2015 and reaffirmed that in 2016 The country was making an effort to present Paraguay as a destination for FDI and investors when they see uncertainty they hold back she said Standard and Poor s and Fitch Ratings each peg Paraguay at BB two notches below investment grade
Investment grade ratings can unlock the door to many foreign funds They also tend to decrease the cost of borrowing |
C | Investors look to global growth for earnings power | By Caroline Valetkevitch NEW YORK Reuters America First may be a main policy of the White House and fuel to the stock market rally but U S investors are looking overseas for stronger earnings as S P 500 companies are set to report their first quarter of double digit profit gains since 2014 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 While the U S economy has gotten a lot of attention since the Nov 8 election and President Donald Trump s vows to boost the domestic economy data during the quarter has suggested the global economy is strengthening That is welcome news for S P components since nearly half of their sales come from overseas Shares of the biggest U S companies which tend to have the most overseas exposure have been among the strongest performers over the past several weeks For instance the S P 500 SPX has outperformed its average stock this year since mid February after performing mostly in line at the beginning of the year The fact that we re seeing stabilization in the global community will bode well for multinational companies and help earnings for the first quarter said Terry Sandven senior equity strategist at U S Bank Wealth Management in Minneapolis You ve also seen the dollar not appreciate as much as many had forecast a quarter ago so multinational companies may get some relief on the foreign exchange line he said A weaker dollar boosts offshore revenues when they are translated into the U S currency The U S dollar index DXY was down 1 8 percent in the first quarter but it was still cheaper during last year s first quarter STRONGER DATA AS EARNINGS LOOM A survey this week showed euro zone business activity at a six year high Forecasts from the International Monetary Fund show a pickup in the global economy in 2017 and 2018 especially in developing economies However some investors worry multinationals may have already priced in big gains in earnings As long as nothing changes these firms are going to be fine said Jack Ablin chief investment officer at BMO Private Bank in Chicago speaking of the strength of the largest American companies He warned however that stock prices may have taken in any good news The market has certainly fully discounted all that The U S earnings season gets under way next week with results from banks JPMorgan Chase N JPM Wells Fargo N WFC and Citigroup N C among others The financial sector is projected to post a 15 4 percent profit gain second only to energy among S P sectors Energy companies which carried most of the losses that extended an S P 500 earnings recession until the second quarter of last year are expected to do most of the heavy lifting this earnings season with a whopping 600 percent increase For the entire S P 500 analysts are projecting earnings up 10 1 percent compared with a year ago which would be the first double digit increase since the third quarter of 2014 according to Thomson Reuters data Excluding the energy sector S P 500 earnings are expected to be up 6 1 percent Revenue is expected to have jumped 7 percent the most since 2011 which should help compensate for higher wage and other costs facing companies strategists said We re seeing revenues contribute materially more to that bottom line growth said Patrick Palfrey senior equity strategist at RBC Capital Markets in New York Big profit gains are expected in technology and materials as well the data showed
It comes down to a synchronized global economic acceleration a rebound and stabilization in commodity prices and a higher interest rate environment Palfrey said |
C | The Week Ahead 5 Things to Watch on the Economic Calendar | Investing com In the holiday shortened week ahead market players will focus on comments from Federal Reserve Chair Janet Yellen for further hints on the timing of the next U S rate hike and clues on how the central bank plans to pare back its balance sheet
Investors will also keep an eye out on a few U S economic reports before the long Easter weekend with Friday s inflation and retail sales data in the spotlight
This week also marks the start of the first quarter earnings season in the U S
Meanwhile in the U K market participants will be looking ahead to reports on consumer prices and employment for further indications on the continued effect that the Brexit decision is having on the economy
Elsewhere China is to release what will be closely watched trade and inflation data amid ongoing concerns over the health of the world s second biggest economy
Ahead of the coming week Investing com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets
1 Fed Chair Yellen Speaks
Federal Reserve Chair Janet Yellen is set to speak at the University of Michigan at 4 10PM ET 20 10GMT on Monday Audience questions are expected
Her comments will be monitored closely for any new insight on policy and the timing of when the Fed will next raise interest rates
The Fed chair could be asked about the U S central bank s plan to start shrinking its massive balance sheet which ballooned to 4 5 trillion in wake of the financial crisis
The Fed has not yet offered details on how it would reduce its holdings of Treasurys and mortgages but said it would like to start later this year
Another topic of interest will be the Fed s concern that the stock market may be overvalued as revealed in last week s minutes from the central bank s March policy meeting
The Fed s next meeting is scheduled for May 2 3 while investors currently expect another rate hike in June according to Investing com s Fed Rate Monitor Tool
2 U S March Inflation Retail Sales
The Commerce Department will publish March inflation figures at 8 30AM ET 12 30GMT Friday Market analysts expect consumer prices to ease up 0 1 while core inflation is forecast to increase 0 2
On a yearly base core CPI is projected to climb 2 3 Core prices are viewed by the Federal Reserve as a better gauge of longer term inflationary pressure because they exclude the volatile food and energy categories The central bank usually tries to aim for 2 core inflation or less
Rising inflation would be a catalyst to push the Fed toward raising interest rates
At the same time Friday the Commerce Department will publish data on March retail sales The consensus forecast is that the report will show retail sales fell 0 1 last month after gaining 0 1 in February Core sales are forecast to inch up 0 2 after rising 0 2 a month earlier
Rising retail sales over time correlate with stronger economic growth while weaker sales signal a declining economy Consumer spending accounts for as much as 70 of U S economic growth
Besides the inflation and retail sales reports this week s calendar also features U S data on producer prices initial jobless claims as well as Michigan consumer sentiment
Headlines from Washington will also be in focus as traders await further details on U S President Donald Trump s promises of health care and tax reform
3 U S Q1 Earnings Season Kicks Off
Wall Street s first quarter earnings season kicks off this week with major U S banks JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC all reporting 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 Reuters 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 K CPI Employment for March
The U K Office for National Statistics will release data on consumer price inflation for March at 08 30GMT 4 30AM ET on Tuesday Analysts expect consumer prices to rise 2 3 unchanged from a month earlier
At 08 30GMT 4 30AM ET Wednesday the ONS will publish the monthly jobs report The claimant count change is expected to fall by 3 000 in March with the jobless rate holding steady at 4 7 Wage growth including bonuses is forecast to rise 2 2
Recent data has pointed to signs that rising inflation caused in part by the pound s post Brexit vote tumble is crimping spending by consumers the main drivers of the economy just as Prime Minister Theresa May begins Britain s EU divorce talks
5 China March Trade Data
China is to release March trade figures at around 03 00GMT on Thursday 11 00PM ET Wednesday
The report is expected to show that the country s trade surplus widened to 10 0 billion last month from a surprise deficit of 9 15 billion in February Exports are forecast to have climbed 3 2 in March from a year earlier following a decline of 1 3 a month ago while imports are expected to rise 18 0 after increasing 38 1 in February
Additionally on Wednesday the Asian nation will publish data on March consumer and producer price inflation The reports are expected to show that consumer prices rose 1 0 last month while producer prices are forecast to increase by 7 6
China s economy grew 6 8 in the fourth quarter boosted by higher government spending and record bank lending But the economy still faces headwinds from a cooling housing market and possible protectionist measures from the U S
Stay up to date on all of this week s economic events by visiting |
C | Investors flock to macro hedge funds but not only the old guard | By Maiya Keidan Svea Herbst Bayliss and Lawrence Delevingne LONDON BOSTON Reuters Macro hedge funds are back in favor with investors seeking to take a view on U S President Donald Trump s economic policies European elections or interest rates but it is start up funds rather than established players which are attracting cash Some of the main beneficiaries of the macro revival are managers who cut their teeth at the big macro firms such as Moore Capital Management Brevan Howard and Tudor Investment Corp which made their names for outperformance in 2007 2009 Eric Siegel head of hedge funds at Citi Private Bank N C said in general that macro strategies are likely to thrive With volatility coming back and monetary supply tightening we believe it could be a great environment for macro managers Siegel said Macro funds bet on macroeconomic trends using currencies bonds rates and stock futures They outperformed the broader industry during the financial crisis and amassed tens of billions of dollars between 2010 and 2012 But they lost most of those assets between 2013 and 2014 and also in 2016 for a variety of reasons including performance But macro is back in vogue and was the most popular hedge fund strategy among investors in the fourth quarter of 2016 and the first two months of this year according to industry data providers Preqin and eVestment Moore Capital s Louis Moore Bacon Alan Howard who co founded Brevan Howard and Paul Tudor Jones of Tudor Investment were among the macro stars after years of delivering double digit returns But during the lean years when macro was less in favor they had to cut fees and in some cases staff Now newcomers such as Moore Capital spin out Stone Milliner are pulling in cash and producing some strong returns Stone Milliner s discretionary global macro closed to new money last year after taking in over 4 billion in the previous two years Moore Capital s assets have fallen slightly from 15 billion in 2012 to 13 3 billion as of Dec 31 2016 filings with the U S Securities and Exchange Commission SEC showed Anglo Swiss firm Stone Milliner set up in 2012 by former Moore Capital portfolio managers Jens Peter Stein and Kornelius Klobucar averaged returns of 8 3 percent between 2014 and 2016 a source told Reuters while Moore Capital Management averaged 3 4 percent a second source said London based Gemsstock set up in January 2014 by Moore Capital trader Darren Read and his co founder Al Breach made 12 8 percent on average over the same period documents seen by Reuters showed Chris Rokos a Brevan Howard alumnus raised another 2 billion in February after returns of 20 percent in 2016 EDL Capital made gains of 18 4 percent last year after ex Moore Capital trader Edouard De Langlade launched the firm in September 2015 according to a source close to EDL Capital It has amassed assets of 450 million to date he said Ben Melkman who also formerly worked at Brevan Howard until May 2016 raised over 400 million for his launch in March SEC filings showed Brevan Howard s firm wide assets fell to 14 6 billion in 2017 from 37 billion in 2012 RUSH FOR MACRO But the old guard are fighting back Some have been cutting fees and offering alternatives Howard Brevan Howard s co founder last month launched a new fund managed solely by him which sources said has already amassed more than 3 billion Tudor Investment lowered its management fees to 1 75 percent and performance fees to 20 percent in February after a reduction last year and Moore Capital cut the management fee on its Moore Macro Managers fund to 2 5 percent from 3 percent Tudor Jones laid off 15 percent of staff in August The firm s main Tudor BVI Global Fund started 2017 down 0 6 percent to March 3 after gaining 0 9 percent in 2016 Brevan cut its management fees to zero for some current investors in its Master Fund and its Multi Strategy fund last September after a similar move from Caxton Associates But for both the old and new macro funds it is still to be determined what 2017 will hold Even though macro funds are flat on average for the first two months of 2017 making gains of just 0 38 percent according to Hedge Fund Research the popularity of macro strategies is not in doubt A Credit Suisse survey in March of more than 320 institutional investors with 1 3 trillion in hedge funds showed macro was set to be the favorite strategy of 2017 Preqin data showed that after pulling assets out of macro for three back to back quarters investors added 6 4 billion to the strategy in the fourth quarter of 2016 after Trump s win eVestment data showed that macro funds have pulled in 4 4 billion in the first two months of 2017 demonstrating a turnaround from 2016 when investors took 9 8 billion out of macro after withdrawing 10 billion in 2013 and 19 1 billion in 2014 I don t think macro is dead Managers who can be nimble and are able to look outside the large liquid asset classes can still find great opportunities Erin Browne head of Global Macro Investments at UBS O Connor said
Representatives at Tudor did not immediately respond to a request to comment Moore Capital had no comment A spokesman at Brevan declined to comment |
C | Citigroup sees Macron winning French vote changing its earlier Fillon forecast | PARIS Reuters U S investment bank Citigroup NYSE C said on Monday it had changed its baseline or most probable scenario for the French presidential election to a win for centrist Emmanuel Macron compared to its earlier forecast of a victory for conservative Francois Fillon We change our baseline to a Macron win 35 percent probability Fillon is our alternative scenario 30 percent Citigroup wrote in a research note It added it had increased the probability of a victory for far right National Front leader Marine Le Pen to 25 percent but said it still saw a Le Pen win as quite unlikely while a recent surge in polls for far left leader Jean Luc Melenchon meant Citigroup put a wild card scenario result at 10 percent Opinion polls have consistently rated Macron as most likely to win the decisive second round run off vote in May although Citigroup cautioned that Macron s En Marche Onwards party remained unlikely to get an outright majority in the French parliament in June legislative elections
Even if Macron wins we think it is unlikely that En Marche will have an outright majority in the 577 seat lower house Our baseline is a governing coalition with a center right prime minister and with the support of some of the reformist part of the Socialist Party wrote the U S bank |
C | U S stock futures on pause with Fed chair Yellen on tap | Investing com Wall Street futures pointed to a flat open on Monday as investors keep an eye on geopolitical developments and looked ahead to an appearance from Federal Reserve chair Janet Yellen
The blue chip Dow futures and the S P 500 futures were both unchanged by 6 58AM ET 10 58GMT while the tech heavy Nasdaq 100 futures inched down less than a point or 0 01
On the geopolitical front tensions over Syria mount as Russia and Iran say American air strikes crossed the line while the U S ambassador to the UN says removing Bashar al Assad is a top priority for the White House
As developments over Syria evolve G7 foreign ministers are gathering in Lucca and the Italian host Angelino Alfano suggested that the U S airstrikes offered a window of opportunity to search for a political solution to the country s civil war
With regard to U S trade policy U S President Donald Trump and his Chinese counterpart Xi Jinping made apparent progress on future trade agreements
China is to offer concessions to the U S including better market access for financial sector investments and ending a ban on U S beef imports to help avert a trade war the Financial Times reported on Sunday
Top U S officials said that the two leaders agreed to enter a 100 day plan for trade talks in order to hammer out the details
With no major economic reports due on Monday the focus will turn to an appearance from Yellen The Fed chair was scheduled for a discussion with the dean of the University of Michigan s school of public policy at 4 10PM ET 20 10GMT
Her comments will be monitored closely for any new insight on policy and the timing of when the Fed will next raise interest rates particularly as an audience question and answer period is scheduled along with another Q A via Twitter
Although the Fed s next policy decision is set to be announced on May 3 markets aren t pricing in a rate hike until the June 14 decision with odds at around 62 according to Investing com s Fed Rate Monitor Tool
Yellen may well be asked about the U S central bank s plan to start shrinking its massive balance sheet which ballooned to 4 5 trillion in wake of the financial crisis
The Fed has not yet offered details on how it would reduce its holdings of Treasuries and mortgages but said it would like to start later this year
In a slow start to the week U S stock futures wobbled back and forth across the unchanged mark in overnight trade as traders seemed to be on standby ahead of key factors later in the week with many gearing up for the Easter holiday
U S stock markets will remained closed this coming Friday when the latest data on retail sales and the consumer price index CPI will be released
Furthermore Wall Street s first quarter earnings season kicks off this week with major U S banks JPMorgan Chase NYSE JPM Citigroup NYSE C and Wells Fargo NYSE WFC all reporting 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 Reuters data
Meanwhile oil rose further above 55 a barrel on Monday supported by another shutdown at Libya s largest oilfield and heightened tension over Syria following the U S missile strike
Still increased U S drilling activity limited gains Late Friday data from oil services provider Baker Hughes showed that the number of active rigs drilling for oil in the U S rose by 10 to 672 That was the 12th straight weekly increase to the highest number since August 2015
U S crude futures gained 0 71 to 52 61 by 6 59AM ET 10 59GMT while Brent oil rose 0 85 to 55 71 |
C | Chart Of The Day Citigroup Headed Lower Markets Just Don t Know It Yet | Citigroup NYSE C is schedule to report Q1 18 earnings this coming Friday April 13 before market open The consensus is for an EPS of 1 62 versus 1 36 for the same quarter last year
It s possible that along with any top and bottom line issues Citigroup may also be about to experience some The recent decision by the fourth largest bank in the US to require its retail clients to limit firearm sales in the wake of the Parkland FL high school shootings has rubbed Republican lawmakers the wrong way In particular some GOP members of the Senate Banking Committee whose constituents are extremely protective of gun rights believe the financial institution should have been more mindful of both the recent Republican backed bank deregulation and the fact that it was the government that bailed them out during the 2008 market meltdown As such these politicians believe Citi should not be dictating policy in this arena
Republicans are now scrutinizing Citigroup s government contracts and threatening not to be there the next time the bank needs Congressional assistance
Citigroup s technical picture isn t promising either The price action formed a complex H S It was completed with a downside breakout on March 22nd The breakout s validity was confirmed with a 7 percent penetration filtering out a bear trap At the same time the price fell 4 5 percent below the uptrend line since the February bottom as well as the 200 dma red which made a lot of noise in trader circles when the S P 500 fell below its own 200 dma
Unlike the benchmark index though it did not climb immediately above it In fact even after a 6 percent rebound it is still 2 additional percent below the 200 dma
As well unlike the S P 500 which never breached its February lows and is still maintaining an uptrend the latest Citi selloff registered new lows completing the required descending peak and trough series for a downtrend
Currently everything is in place for a reversal from an uptrend into a downtrend
Broken uptrend line
H S top
Descending series of peaks and troughs
Additionally the 50 dma green crossed below the 100 dma blue another more recent sign of price data weakening compared to longer term positions Also yesterday s price remained below the resistance of the shooting star from the preceding session
Finally the 6 percent rebound is considered a return move a correction with a downtrend which provides the exceptional opportunity to come in at a better position
Trading Strategies Short Position
Conservative traders would wait for a further return move to the neckline for an entry closer to the resistance above where the stop loss would be placed
Moderate traders may wait for the price which crawled above the uptrend line since the February bottom which closed below it
Aggressive traders are likely to short immediately
Equity Management
Stop Losses Above provided parameters
70 51 yesterday s high
72 10 200 MA and the uptrend line since the February bottom
Targets above provided levels
66 25 the March low and June September 2017 support
63 implied pattern s target by measuring H S
There are many trading strategies available for the same instrument at the same time A trader must establish a plan which would take into account his resources and temperament This is crucial and determines success or failure
Pair entries and exits should provide a minimum 1 3 risk reward ratio They should suit your time frame with the understanding that the further the prices the longer it will take to achieve them Finally understand that these guidelines are probability based which means by definition they include losses on individual trades with the aim of profits on overall trades |
C | Should You Buy Citigroup C Stock Ahead Of Earnings | Shares of Citigroup NYSE C surged as much as 2 in early morning trading Thursday just one day ahead of the highly anticipated release of the company s latest quarterly earnings report
With interest rate uncertainty looming above the entire finance sector investors will want to pay close attention to the latest results from a banking titan like Citigroup Here s what to expect from the firm s first quarter 2018 report tomorrow
Industry Trends
The Zacks defined Banks Major Regional industry has returned nearly 19 over the past year outpacing the S P 500 s 14 3 gain However the group has slumped about 8 3 over the past month as new headwinds challenge its strong run
Specifically yields on the benchmark 10 year Treasury bond have moved sideways recently marking a change to the uptrend in treasury yields that had been in place since September The Fed is still poised to tighten its monetary policy but there is now a question about whether the central bank will announce four rate hikes or more this year
Investors in this space should continue to monitor this interest rate uncertainty as they clamor for the earnings growth catalyst that is a higher interest rate
Latest Outlook and Valuation
Based on our latest Zacks Consensus Estimates we expect Citigroup to report earnings of 1 61 per share and total revenue of 18 90 billion These results would represent year over year growth rates of 18 4 and 4 3 respectively
Heading into its report date Citigroup is trading with a Forward P E of 10 5 which represents a discount to its industry s average of 11 8 Within the past year the stock has traded as high as 14 3x forward 12 month earnings and as low as 10 2x Its median earnings multiple over that time is 11 9x Investors might conclude that Citigroup shares are slightly undervalued right now
Earnings ESP Whispers
Investors will also want to anticipate the likelihood that Citigroup surprises investors with better than anticipated earnings results For this we turn to our Earnings ESP figure
Zacks Earnings ESP Expected Surprise Prediction looks to find earnings surprises by focusing on the most recent analyst estimates This is done because generally speaking when an analyst posts an estimate right before an earnings release it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago
A positive Earnings ESP paired with a Zacks Rank 3 Hold or better ranking helps us feel confident about the potential for an earnings beat In fact our 10 year backtest has revealed that this methodology has accurately produced a positive surprise 70 of the time
Citigroup is currently holding a Zacks Rank 3 Hold and an Earnings ESP of 0 5 This is because the company s Most Accurate Estimate for earnings sits at 1 62 per share meaning that the most recent analyst estimates have been higher than the consensus Based on this we can conclude that our model is suggesting a beat is likely
Surprise History
Investors also want to consider Citigroup s history of earnings surprises and the effect that these beats have had on share prices The company has met or surpassed earnings estimates in each of the trailing 12 quarters but a positive bottom live surprise has not always translated into upward momentum for its stock
We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report Over the span of Citigroup s recent streak the stock has moved higher in just six quarters during these periods
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JPM | Stock Market Confessions Chaos Complexity And The Illusion Of Control | In the old days of the Chinese Cultural Revolution those who said or did something perceived by the Chinese authorities to be counter revolutionary were forced into public confessions and then humiliated imprisoned or even put to death
It seems that old ways die hard Last week the new China the one that had thrown off the yoke of the Cultural Revolution televised forced confessions by people who dared to say that the Chinese stock market may not be a great place to put your money these days
In addition Chinese government officials are cracking down on short sellers those who borrow stock to sell hoping to buy it back at a lower price Officials are prohibiting large holders of stock from selling for six months and they are flooding brokerages with easy credit to encourage those brokerages and their clients to buy stocks with borrowed money Who would have guessed that still nominally communist China would go to such great lengths to protect the most prominent symbol of out of control capitalism a stock market bubble
It seems that the government has forgotten the essence of a marketplace of stocks namely that for every buyer there must a seller When those wishing to sell shares are denied the opportunity they are likely to become increasingly doubtful that the denial is for their own good The whole point of a stock market is to lessen the risk of investing in a company by making it possible to sell one s shares at a moment s notice when the need for cash or the opportunity for a better investment arises
Marketplaces for investments are inherently unstable The participants react to constantly changing conditions and perceptions If markets were entirely predictable and transparent there would be very little money to be made since everyone s perception of the risks they were taking and the rewards they might reap would be identical
But it is precisely the differences in perceptions and personal or institutional needs that create the desire to buy and sell Unsophisticated individual investors who make up the bulk of investors in China were propagandized by the Chinese government to put their savings into the stock market The government hoped the market would provide a cheap form of finance for Chinese industry
Elsewhere in the world we have the brokerage industry to propagandize individual investors with a message designed to convince them that despite its dips and troughs stock market investing is a one way street to prosperity Those who keep buying the story and the stocks forget that those who are selling think that the stocks they are selling will go down
With another swoon in stock prices mercifully interrupted in the United States by the Labor Day weekend it is a supreme irony that many Americans will be spending their idle time worrying about the kind of wealth that does not come from their own labor I have no doubt that many of them will be on their computers checking to see how the Shanghai Stock Exchange trades while they are forced to sit helplessly on Monday a market holiday in the United States and merely watch
My father s been asking me why what is happening in the Chinese stock market is of any importance to those outside the country When the Chinese market started to plummet earlier in the summer the move seemed to have little effect on markets in the United States and Europe though attentive investors noticed that emerging stock market shares were also plunging
But we learned in the last stock market crash and in recent weeks that to paraphrase the Coca Cola jingle the world s financial system sings in perfect harmony It is a complex tightly networked system through which signals both benign and malign travel literally at the speed of light through wires and satellites Those signals come from a world economy more closely connected into one great global system than ever before
No one can really comprehend this system and so no one can truly fix it when things go wrong What is telling is that in the post Communist age we are supposed to be celebrating the triumph of the free market as an efficient self correcting mechanism that requires minimal oversight But when that system corrects in ways that we don t like governments and regulators rush to prevent the correction without really knowing what they are doing
The complex system of financial markets we ve created and then tied all together electronically has become subject to increasingly frequent bouts of chaos that our financial models tell us cannot happen It now ought to be clear that the mathematical models by which major banks and other financial institutions manage their risks are badly flawed We get this declaration from none other than the world s most prominent banker Jamie Dimon CEO of the banking colossus JPMorgan Chase Co NYSE JPM who told the world that his models showed that an unusual move in U S Treasury bond rates last fall should only occur once every 3 billion years
Dimon thought he was warning the U S government that its new banking regulations were setting the bond market up for a crisis in the future Maybe so But he was also unwittingly admitting that those managing our financial system don t have a clue about the risks they are taking usually with other people s money
If those who run the financial system don t understand the risks they are taking why should we listen to their advice concerning our own financial affairs
As the worldwide stock market bubble deflates people will increasingly take matters into their own hands Buy and hold strategies will crumble in the face of stinging losses Investors will come to realize that there is no inherent value in the paper claims on businesses that we call stocks only the price that other people are willing to pay It turns out that investing in the stock market is really a financial game of chicken
Financial analysts and advisors will defend themselves by saying No one could have seen it coming And according to their models financial crashes of the type we experienced in 2008 are so rare that they are unlikely to occur anytime during the life of the planet
The illusion that we can control the world financial system is just one more illusion we share in an increasingly unstable world Once that illusion is shattered we will have to rethink carefully our assumptions about our lives financial and otherwise |
JPM | Biggest One Day Gain Since 2008 | Stock market surged worldwide on Tuesday and early Wednesday as Chinese shares post their strongest one day gains since 2008s height of the financial crisis The Japanese Nikkei rallied 7 7 in its biggest one day climb in seven years on the heels of new corporate tax laws that see a 3 3 decrease in the corporate tax rate over the next two years The Nikkei fell 2 4 in the previous session as it erased its yearly gain MSCI s broadest index of Asia Pacific shares outside Japan rose 3 with gains across all the major benchmarks The Shanghai Composite index added 2 3 and Hong Kong s Hang Seng index rose 3 5 as the market continues to stabilize However trading in mainland China shares remained at a low volume indicating that traders remain cautious Tuesday s data releases revealed a bigger than expected retreat in import activity creating fears that China s slowdown may be further along than previously thought However this in turn led to the assumption that Beijing would offer more easing measures in the near future
U S stocks also rallied as traders returned from Monday s Labor Day holiday posting their biggest one day gain in two weeks as the current bout of volatility caused by uncertainty over China and U S interest rates continues The Dow Jones Industrial Average rose 390 30 points or 2 4 to trade at 16492 68 marking the largest percentage and point based gain since late last month when shares rebounded from a large scale selloff The Standard Poor s 500 index added 48 19 points or 2 5 to trade at 1969 41 The Nasdaq Composite Index gained 128 01 points or 2 7 to trade at 4811 93 Financial markets have been swinging since China s surprise currency devaluation in early August that led to intensified concerns over the second largest economy s growth projections U S investors have since followed cues from the Chinese stock market as it dictated investor sentiment
European stocks also posted strong gains on Tuesday as German imports and exports rose to record highs in the month of July The German DAX 30 added 2 4 to reach a weekly 3 gain Most notably Daimler OTC DDAIY and MILAN BMW added around 4 each while Commerzbank XETRA CBKG rose 7 2 after being upgraded at JPMorgan NYSE JPM The French CAC 40 added 2 in its second day of gains The notable performers were carmakers Peugeot OTC PUGOY and Renault PARIS RENA BNP Paribas PARIS BNPP and Societe Generale PARIS SOGN rising between 2 3 and 3 5 The UK s FTSE 100 added 1 7 to post a weekly gain of 2 2
UK industrial production data will be released today followed by an interest rate decision by the Bank of Canada The Bank of England will make its interest rate decision tomorrow followed by Eurozone inflation data on Friday |
JPM | Gold s True Fundamentals Are Mixed | To paraphrase Jim Grant gold s perceived value in USD terms is the reciprocal of confidence in the Fed and or the US economy That s why the things I refer to as gold s true fundamentals are measures of confidence in the Fed and or the US economy I ve been covering these fundamental drivers of the gold price in TSI commentaries for about 15 years
Note that I use the word true to distinguish the actual fundamental drivers of the gold price from the drivers that are regularly cited by the majority of gold market analysts and commentators According to many pontificators gold s fundamentals include the volume of gold being imported by China the volume of gold being transferred out of the Shanghai Futures Exchange inventory the amount of registered gold at the COMEX India s monsoon and wedding seasons the amount of gold being bought sold by various central banks changes in mine production and scrap supply and wild guesses regarding JP Morgan s NYSE JPM exposure to gold These aren t true fundamental price drivers At best they are distractions
In no particular order the gold market s five most important fundamental drivers are the real interest rate the yield curve credit spreads the relative strength of the banking sector and the US dollar s exchange rate
Over the past 2 years gold s true fundamentals have usually been mixed meaning neither clearly bullish nor clearly bearish What has tended to happen during this period is that when one of the fundamentals has moved decisively in one direction it has been counteracted by a move in the opposite direction by one of the others For example when credit spreads began to widen gold bullish in mid 2014 the flattening of the yield curve gold bearish accelerated For another example when the yield curve reversed direction and began to steepen gold bullish in January of this year the real interest rate turned upward gold bearish and the banking sector began to strengthen relative to the broad stock market gold bearish
Charts illustrating the performances over the past 5 years of the first four of the above mentioned fundamental drivers of the gold market are displayed below The first chart shows that the 10 year TIPS yield a proxy for the real US interest rate made a 2 year low in April of this year but has since moved to a 1 year high and into the top third of its 2 year range This is bearish for gold The second chart shows that a proxy for US credit spreads has been working its way upward since mid 2014 and recently broke to a new 2 year high This is bullish for gold The third chart shows that the US yield curve began to steepen in January which is bullish for gold but its performance over the past two months casts doubt as to this driver s current message And the fourth chart shows that after being relatively weak from July 2013 through to January 2015 the bank sector suddenly became relatively strong early this year This driver has therefore shifted from gold bullish to gold bearish
The overall picture painted by these charts is that gold s fundamentals are still mixed although there is perhaps a slight bearish skew due to the new 12 month high in the real interest rate I m anticipating a shift towards a more gold bullish fundamental backdrop but it hasn t happened yet |
JPM | JPM To Stop Open Outcry Ring Trading On LME | JPMorgan Chase NYSE JPM is quitting open outcry trading on the London Metal Exchange after reducing its commodity business
The move will reduce the number of financial institutions trading in the LME ring to 9 including Societe Generale PARIS SOGN Sucden Financial Ltd and INTL FCStone Inc
It is the latest move announced by the LME on Monday to raise questions about the future of open outcry trading on the LME after most other markets have shifted to all electronic formats
The LME is the only exchange in Europe continuing the open outcry practice During the rings on the LME trading floor a circle of padded red leather seats traders use hand signals during bursts of intense trading in copper aluminum lead nickel and zinc
The LME is the world s oldest and largest market for industrial metals trading and it reaffirmed its commitment to open outcry rings in June saying it would invest 1 million pounds in technology At the time it hoped to attract more ring dealing members
But on Monday the LME said in a members notice that JP Morgan Securities would change as of Tuesday from Category 1 to Category 2 membership which allows electronic and telephone trading but not ring dealing
The decline in LME members poses a risk to liquidity on the exchange Stephen Briggs an analyst at BNP Paribas PARIS BNPP in London told Bloomberg News Historically the ring has previously had 10 to 12 members
by Jeff Yoders |
JPM | JP Morgan Loses 45 Of Registered Gold Stock In 1 Day | While the drain of COMEX gold and silver Registered inventories continues as demand for physical precious metals increases JPMorgan Chase Co NYSE JPM experienced a 45 decline of its Registered Gold Inventories in one day JP Morgan now only has a lousy 10 777 oz of gold remaining in its Registered gold inventories
Basically JP Morgan holds 1 3 metric ton of gold in its Registered inventories This is the reason we are seeing the paper gold ratio on the COMEX above the 250 1 ratio If we look at the COMEX warehouse table below we can see just how little Registered Gold remains on the exchange
Not only did JP Morgan suffer a 45 reduction 8 941 oz of its Registered Gold inventories it also experienced a 122 124 oz withdrawal from its Eligible stocks We must remember its JP Morgan s Registered Inventories that are available for delivery into the market not its Eligible
Currently the COMEX holds a total of 163 334 oz 5 metric tons of gold in its Registered inventories for ALL BANKS LOL
COMEX Silver Registered Inventories Plunged Again Today
If you read my article Stunning Development in the U S Silver Market you would have seen this chart below
As of yesterday there were 50 4 million oz Moz of silver stored as Registered inventories at the COMEX warehouses What is interesting about the current drain of COMEX Registered silver inventories is that its average monthly decline rate of 4 Moz per month is more than double the previous decline from March 2010 to July 2011 of 1 8 Moz per month
For whatever reason the Registered silver inventories are declining at a much faster pace than they were during the huge price spike in 2011 even though the price of silver is trading at 14 15 while industrial silver demand is falling
Today s COMEX silver warehouse update was another whopper
While the exchange experienced a net 450 657 oz deposit of silver the important figures to focus on are the decline in Registered inventories Brinks transferred 568 092 Registered silver to its Eligible category and the CNT Depository withdrew 601 231 oz for a total of 1 169 324 oz
The total Registered silver inventories at the COMEX are now at 48 6 Moz compared to a high of 70 5 Moz in April As I stated above the average monthly decline rate of silver out of the COMEX Registered was 4 Moz However in one day it fell nearly 1 2 Moz
With India importing record amounts of silver as well as the huge surge of physical silver investment demand it is putting stress on the 1 000 oz wholesale market It will be interesting to see the Fed rate hike decision on Thursday and its impact on the precious metals
If the Fed raises or keeps rates the same I believe we will continue to see more stress on the wholesale precious metals market We live in interesting times |
JPM | Down But Not Out Emerging Market Bonds | Lately the headlines have been dominated by stories about how badly emerging markets EMs are doing
Indeed EM stock markets are down by as much as a third or more in dollar terms The iShares MSCI Emerging Markets ETF NYSE EEM for instance is trading at May 2009 prices Compare that to the U S market which stands at double that level
All told it may be time for some bottom fishing However for income investors stock markets might not be the best place to cast a line Instead emerging market bonds look like the better option
Now it s true that EM bonds have one major disadvantage to EM stocks That is their tendency to come from countries in which you wouldn t want to invest Whereas EM stocks arise primarily from the growth economies of Asia EM bonds have a tendency to come from countries such as Russia and Brazil
In the iShares JPMorgan Emerging Markets Bond ETF NYSE EMB the largest country weighting is for the Philippines but the rest of the top 10 are Russia Turkey Indonesia Mexico Brazil South Africa Hungary Colombia and Poland Of those I wouldn t want Russia Turkey Brazil or South Africa Call me fussy why don t you
Another problem is that truly solid emerging market bonds trade at foolishly small premiums to Treasuries
The Philippines for example is an excellent credit risk because it runs balance of payments surpluses almost every year and is currently running budget surpluses as well Yet its bonds are rated only BBB and 10 Year Philippines bonds yield 3 26 That s a premium of just 1 06 over U S 10 Year Treasuries I really can t get excited about that kind of yield
Luckily you can improve the risk return equation in emerging market bonds if you buy bonds denominated in local currencies
As often happens currency risk is really currency opportunity Because of the panic this summer emerging markets currencies have been knocked down by 20 30 or even 40 against the dollar even though most emerging markets don t currently have significant inflation That makes local currency EM bonds a better deal than dollar bonds
On top of that emerging markets control the supply of their own currencies and therefore almost never default on local currency bonds On the other hand they quite often run out of dollars and are forced to default on dollar bonds Also in a crisis local currencies tends to slide against the dollar making dollar bonds a much larger burden at the worst possible time
Three Choices for Income Seekers
When it comes down to it income investors may choose their emerging market bonds country by country and if you do the Philippines looks like an especially solid bet However since most of us likely aren t running a large bond portfolio investing in an ETF is a good alternative Three in particular stand out to me
The iShares JPMorgan NYSE JPM Emerging Markets Bond ETF is the largest emerging market bond fund and is linked to the J P Morgan EMBI Core Index It s a 4 2 billion fund with expenses of 0 59 of assets and a yield of 4 5
Most important the fund is currently 6 above its price on the first day of trading in February 2008 before the financial crisis Thus it s a reliable recession proof home for your money Its price will get zapped in a downturn at the bottom in 2009 it traded 29 below its February 2008 price much better than stocks but it ll recover once the global economy stabilizes
The Market Vectors Emerging Markets Local Currency ETF NYSE EMLC invests in local currency debt of emerging market governments attempting to replicate the J P Morgan Government Bond Index Emerging Markets Global Core Index
EMLC is the largest local currency emerging market bond index but because emerging market currencies have fallen this year its performance is worse than EMB year to date Still it s a 1 2 billion fund with a competitive expense ratio of 0 47 and a nice 6 4 yield It has only been running since 2010 and has fallen 30 since then but for reasons outlined above I like its chances going forward
Finally if you want actively managed emerging market bonds the WisdomTree Emerging Markets Local Debt ETF NYSE ELD is for you This 480 million fund invests in local debt denominated in emerging markets currencies It has an expense ratio of 0 56 and a running yield of 5 8 Like EMLC it was formed in 2010 and has lost about 30 of its principal value since then But it should do better going forward
by Martin Hutchinson |
MS | China May investment up 11 4 percent year on year | BEIJING Reuters China s fixed asset investment grew at its slowest rate in nearly 15 years in May missing expectations even as growth in retail sales and factory output steadied arguing for Beijing to increase policy support to avert a deeper downturn Fixed asset investment a crucial driver of the world s second largest economy rose 11 4 percent in the first five months of this year from the year earlier period missing a Reuters poll forecast for a 12 percent gain the same as in April Some analysts said China s housing cooldown had crimped new investment as falling home prices dampened the mood of consumers leading them to tighten their belts The data showed the economic situation remains grim said Li Huiyong economist at Shenyin Wanguo Securities in Shanghai Investment is vital for stabilizing growth in the short term and the poor performance of investment is putting pressure on the economy We previously expected second quarter economic growth to be 7 percent we now expect growth to slow to 6 8 percent Factory output grew 6 1 percent last month compared with the year ago period the National Bureau of Statistics said on Thursday slightly higher than analyst forecasts for a 6 percent rise and 5 9 percent in April Retail sales grew 10 1 percent in May from the same time last year in line with forecasts for 10 1 percent growth and compared with 10 0 percent in April The disappointing investment data followed figures earlier this week that showed China s import growth had slumped more than expected last month Persistent weakness in the economy will strengthen calls that policymakers must do more sooner rather than later to revive growth Mindful that China s economy remains vulnerable to a further slowdown Beijing tried to harness as much fiscal support as possible this week by threatening to cut the budgets of local governments if they don t spend most of their allocated cash China s economy is widely expected to grow around 7 percent this year the slowest pace in a quarter of a century That would mark a loss of momentum from last year s 7 4 percent but would be in line with the government s 7 percent growth target Analysts are divided over whether the worst is over for this year Economists at the central bank said this week they expect growth to pick up modestly in the next six months as previous policy easing measures start to take effect and the housing market stabilizes But other analysts have disputed the view as being unduly optimistic pointing to huge inventories of unsold homes excess capacity in many heavy industries such as steel and high levels of local government debt which is curbing their ability to spend Stung by weak demand and China s nationwide reform efforts to move manufacturers up the value chain China s factory output have grown at an average monthly rate of about 6 percent this year almost a third of the pace seen in 2007 Cooling inflation and falling producer prices have further compounded their pain by elevating their real borrowing costs Morgan Stanley NYSE MS estimates that China s real interest rates are close to 3 percent well above real U S rates which are around negative 2 percent which implies that banks are paying borrowers to take out loans Sputtering factories have in turn weighed on banks especially in industrial areas Sources told Reuters on Wednesday that Bank of China SS 601988 HK 3988 the country s fourth largest lender is missing its profit target in Zhejiang a manufacturing stronghold where thousands of factories have shut in the past three years |
JPM | U S third quarter productivity fastest in three years jobless claims fall | By Lucia Mutikani WASHINGTON Reuters U S worker productivity increased at its fastest pace in three years in the third quarter but the trend remained moderate suggesting that a recent acceleration in economic growth was unlikely to be sustained Other data on Thursday showed the number of people filing for unemployment benefits fell to a near 44 1 2 year low last week offering further evidence that the labor market was tightening despite hurricane related disruptions in September The surge in productivity last quarter held down growth in labor costs indicating that inflation pressures could stay benign for a while Still jobs market strength bolsters the case for the Federal Reserve raising interest rates in December The U S central bank kept rates unchanged on Wednesday While the data point to a solid economy they also reinforce the view that growth is not likely to remain strong for an extended period without improved wage gains said Joel Naroff chief economist at Naroff Economic Advisors in Holland Pennsylvania Productivity is still growing too slowly The Labor Department said nonfarm productivity which measures hourly output per worker rose at a 3 0 percent annualized rate That was the quickest pace since the third quarter of 2014 and followed an unrevised 1 5 percent rate in the April June period The rise outpaced economists expectations for a 2 4 percent pace and was flagged in last week s third quarter gross domestic product report which showed the economy growing at a 3 0 percent rate during that period Productivity increased at a 1 5 percent rate compared to the third quarter of 2016 Manufacturing productivity fell at a 5 0 percent rate last quarter the steepest rate of decline since the first quarter of 2009 Overall worker productivity has increased at an average annual rate of 1 2 percent from 2007 to 2016 below its long term rate of 2 1 percent from 1947 to 2016 This together with slowing population growth indicate the economy s potential growth rate has declined As such analysts say the economy could struggle to achieve the 3 percent annual growth which has been pledged by President Donald Trump The Trump administration is pushing for big tax cuts and deregulation to achieve this goal Congressional Republicans on Thursday called for a range of changes to the U S tax code including slashing the corporate tax rate and reducing the number of tax brackets for individuals The dollar fell against a basket of currencies on the Republican tax reform proposal while prices for U S Treasuries rose U S stocks were little changed PRODUCTIVITY RISE UNSUSTAINABLE Eight years into the recovery annual GDP growth has not exceeded 3 percent and economists do not expect the acceleration in productivity to be sustained Given how long the expansion has lasted we are not especially hopeful for much firming in productivity during the coming years said Daniel Silver an economist at JPMorgan NYSE JPM in New York With productivity rising in the last quarter unit labor costs the price of labor per single unit of output increased at only a 0 5 percent pace after rising at a 0 3 percent pace in the April June quarter Compared to the third quarter of 2016 unit labor costs fell at a 0 1 percent rate remaining negative for a second straight quarter The weak growth in unit labor costs came despite hourly compensation rising at a 3 5 percent rate in the third quarter This is a silver lining for corporations bottom lines that continue to benefit from contained labor costs despite the tightening in the labor market said Gregory Daco chief U S economist at Oxford Economics in New York In a second report on Thursday the Labor Department said initial claims for state unemployment benefits decreased 5 000 to a seasonally adjusted 229 000 for the week ended Oct 28 the Labor Department said That was not too far from 223 000 a 44 1 2 year low touched in mid October Last week marked the 139th 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 more than 16 1 2 year low of 4 2 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 dropped 7 250 to 232 500 last week That was the lowest reading since April 1973 The low level claims suggest a surge in job growth in October after nonfarm payrolls dropped by 33 000 jobs in September as Harvey and Irma left some workers temporarily unemployed According to a Reuters survey of economists the government s closely watched employment report due on Friday will probably show that payrolls increased by 310 000 jobs in October
The claims report showed the number of people still receiving benefits after an initial week of aid fell 15 000 to 1 88 million in the week ended Oct 21 the lowest level since December 1973 underscoring the diminishing jobs market slack |
JPM | Wells Fargo unveils app aimed at millennials | Reuters Wells Fargo NYSE WFC Co on Thursday unveiled a new digital bank account app intended to help people who may be new to banking keep track of their finances more easily The new Greenhouse account is set to launch in the first half of 2018 said Avid Modjtabai Wells senior executive vice president and head of payments virtual solutions and innovation during a presentation at an industry conference in Boston Greenhouse can be opened without walking into a branch used within minutes and does not allow for overdrafts While many of the features are already available to Wells Fargo customers its cash management offerings such as keeping track of spending are a marked improvement according to Steve Ellis head of innovation at Wells Fargo We ve been working on this pretty aggressively for the past nine months said Ellis who said it is one of a handful of his pet projects
JPMorgan Chase Co NYSE JPM launched a similar digital banking product called Finn last month as banks face pressure to court millennials and cut back on branch related costs |
JPM | Next Fed Chief Can All But Ignore Emerging Market Currencies | Bloomberg Of all the global challenges that may confront the next chairman of the Federal Reserve here s one major asset class where he can rest easy emerging market currencies
History shows that developing nation rates have been less volatile when the Fed is raising rates according to data compiled by Bloomberg During nine U S central bank policy cycles since 2000 turbulence was at its lowest during three periods of rising rates and at its highest when they were being slashed according to the JP Morgan Emerging Market Volatility Index
That s good news for Fed Governor Jerome Powell whom President Donald Trump said today he would nominate to lead the Fed In an Oct 12 speech Powell said that the biggest concern now is that any policy decisions it makes could cause volatility in emerging markets
Market tantrums pose complex economic and financial challenges and such episodes carry a significant risk of snowballing into something bigger that more substantially threatens the economic expansion he said citing the so called taper tantrum of 2013
During periods identified as hiking cycles average volatility was 9 5 percent That s a full two points lower than the average during dovish periods and a point lower than when the federal funds rate is idling
This makes sense Higher interest rates in the developed world will bring back capital that fled to emerging markets in search of yield but rate hikes don t happen in isolation They happen in Powell s words in the context of a solid U S economic recovery which should benefit all economies around the world
It s no coincidence then that the highest volatility periods in developing nation currencies occurred around major market routs in the U S
So far theJPMorgan Volatility Index is down 28 5 percent this year Powell did note that low levels of volatility could exacerbate the probability and harshness of any adjustment But if history is our guide volatility in emerging market currencies is likely to remain subdued
The MSCI Emerging Markets Currency Index rose 0 2 percent at 3 21 p m in New York extending a four day rally
Adds announcement in third paragraph updates price in final paragraph |
JPM | New York regulator to quiz senior Barclays staff over whistleblowing scandal source | NEW YORK LONDON Reuters New York state s banking regulator will be interviewing senior Barclays LON BARC executives from New York and London over a whistleblowing scandal in the coming weeks a source familiar with the situation said The New York Department of Financial Services NYDFS has been investigating Barclays Chief Executive Jes Staley and the bank for months over his attempt to identify an anonymous whistleblower last year said the source who declined to be named because of the sensitivity of the inquiry It was unclear which senior executives would be interviewed Barclays said in April that regulators on both sides of the Atlantic were investigating Staley and the bank for alleged breaches of strict whistleblowing rules He has already been questioned by British regulators A spokeswoman for the NYDFS which oversees certain foreign banks that operate in the state and a spokesman for Barclays declined to comment Barclays has said Staley asked the bank s internal security team to contact U S enforcement officers to help identify the author of an anonymous letter that made allegations about a senior banker The identity of the person was not discovered by the regulators according to a legal investigation commissioned by the bank Staley a career investment banker who spent 34 years at JPMorgan NYSE JPM has apologized for his actions telling Barclays staff in a memo this year that he had been attempting to protect a colleague from an unfair personal attack but became too personally involved Barclays has reprimanded him but said he honestly but mistakenly believed it was permissible to identify the author of the letter It said it would cut his bonus and also look into the position of other employees involved in the incident The whistleblowing scandal at a bank that has promised to reform after a legacy of financial crisis era misconduct could result in Barclays facing another fine and regulators could force Staley out if he is deemed unfit by regulators It is a test case for Britain s fledgling Senior Managers Regime introduced by the Bank of England and the Financial Conduct Authority in March 2016 in part to protect those who risk their jobs bringing wrongdoing to light The regime makes managers personally accountable for their actions to set what regulators have described as the right tone at the top Among other things bosses are required to respect rules to protect whistleblowing The penalty can be a ban from the industry or a fine Since the scandal erupted Barclays global head of whistleblowing Jonathan Cox has departed chief compliance officer Michael Roemer left to join rival Wells Fargo NYSE WFC and Troels Oerting the head of cyber and information security has taken a leave of absence Oerting s absence was not related to the whistleblowing investigation a separate source has said Oerting did not respond to requests for comment on LinkedIn NYSE LNKD Cox has declined to comment and Roemer said last month his time at Barclays had been rewarding |
JPM | JPMorgan expands Greater China equities research with new hires | HONG KONG Reuters JPMorgan N JPM has expanded Greater China equities research coverage with about half a dozen new hires this year with plans to add more next year as global investors look to boost their allocations to China stocks a senior banker said on Friday China listed shares inclusion in the U S index publisher MSCI s emerging markets benchmark this year a milestone for global investing has led to a jump in demand said JPMorgan s head of Asia excluding Japan equity research James Sullivan We ve increased our Greater China coverage by 20 percent headcount We do have a fairly aggressive investment plan in place for 2018 and 2019 Sullivan told Reuters What we are seeing now in particular is that some of the largest investors in the world are taking a very different stance on the A share market he said referring to the shares listed in the onshore China market As part of this year s expansion JPMorgan has added four new analysts to its technology and one each for infrastructure and energy teams that cover Greater China including Hong Kong equities |
JPM | Venezuela calls creditors to debt restructuring talks | By Andrew Cawthorne and Brian Ellsworth
CARACAS Reuters President Nicolas Maduro s cash strapped socialist government invited Venezuelan bondholders to a Nov 13 meeting in Caracas as a shock decision to restructure the OPEC nation s foreign debt sent prices plunging on Friday
Vice President Tareck El Aissami who is on a U S blacklist for alleged drug trafficking said the country remained committed to paying all its debt but wanted to reformulate terms with creditors
A sovereign process of debt renegotiation is beginning said El Aissami who is heading Venezuela s debt committee despite having no known prior experience on the matter
El Aissami gave an email address for bondholders to write to and added that Economy Minister Simon Zerpa also under U S sanctions on graft charges would be on his committee too
Venezuelan bond prices took a beating in trading on Friday after Maduro s surprise announcements the previous evening
The 753 million 2018 bond plunged 31 points while the 3 billion 2026 bond and 4 2 billion 2031 papers both slumped about 10 points with yields surging to record levels
State oil company PDVSA s 2021 bond was down 20 points while the 2022 paper dropped nearly 18 points Reuters data showed
Maduro the 54 year old successor to Hugo Chavez said late on Thursday that PDVSA PDVSA UL would make this week s 1 1 billion payment on a maturing bond which had been the immediate point of anxiety for investors
But he then announced a new commission to study the refinancing and restructuring of all future payments on foreign debt which include about 50 billion in bonds
Refinancing usually involves a voluntary operation in which investors agree to exchange one set of securities for another whereas a restructuring implies a forced negotiation
Venezuela has few avenues to take either because of President Donald Trump s sanctions and skepticism that Maduro is serious about overhauling a moribund economy
ARGENTINA PRECEDENT
Aimed at squeezing the ruling Socialist Party whom Washington accuses of installing a dictatorship Trump s measures bar U S banks from participating in or even negotiating new debt deals
Venezuela s move could create a sovereign debt crisis of a scale not seen in Latin America since the massive 2001 default in Argentina that shut it out of markets for years
Maduro said a U S led global persecution of his government was to blame for Venezuela s debt predicament
But opposition leaders who have long blamed Maduro and his predecessor Chavez for destroying the economy was scathing about his plans saying the government had no credibility
Maduro won t be able to restructure the debt because nobody in the world trusts his government said Julio Borges head of the opposition led congress who has been campaigning hard to increase global pressure on Maduro
The president said Borges should be tried for treason
The government and PDVSA owe some 1 6 billion in debt service and delayed interest payments by the end of the year plus another 9 billion in bond servicing throughout 2018
The next hard payment deadline for PDVSA is an 81 million bond payment that was due on Oct 12 but on which the company delayed payment under a 30 day grace period Failing to pay that on time would trigger a default investors say
That would expose Venezuela and PDVSA to lawsuits by creditors seeking to seize assets such as refineries in the United States
Default would also likely make companies less willing to do business with Venezuela potentially aggravating shortages of food and medicine and creating further problems for its vital oil industry already hobbled by under investment
There was no immediate impact however on oil exports and production from Maduro s announcement
NO ONE FLUENT IN MADURO SPEAK
The president surprised many by maintaining debt service after the 2014 crash in oil prices diverting hard currency away from imports of food and medicine toward Wall St investors
That has added to a crushing four year recession with millions skipping meals and basics from milk to car parts scarce or impossible to buy due to soaring prices
Traders were left scratching their heads over Maduro s statements which neither clearly declared default nor laid out a path to easing payment burden
No one is fluent in Maduro speak with everyone scrambling for what this all means said Siobhan Morden Latin America analyst for Nomura bank
Venezuela s debt is the highest yielding of emerging market bonds measured by JPMorgan NYSE JPM s EMBI Global Diversified Index paying investors an average of 31 percentage points more than comparable U S Treasury notes
That is nearly double the spread on bonds issued by Mozambique which is already in default and more than six times the spread on bonds from war torn Ukraine
Jim Barrineau co head of emerging market debt at Schroders LON SDR said he understood a committee of Venezuelan bondholders might be forming
But a restructuring has a very close to zero possibility given U S sanctions time constraints given the payment schedule and the fact that Venezuela obviously does not have the technical capacity to negotiate even if those other issues were not there he added
Maduro narrowly won election in 2013 after Chavez died and Venezuela faces another presidential vote next year
Though there is widespread public disquiet at economic hardship the opposition coalition is cracking after a disastrous showing at last month s gubernatorial elections and there is speculation Maduro may bring forward the presidential vote which had been expected for the end of 2018 |
JPM | Gold s War Between Physical And Paper | Gold and silver traded in a tight range this week on low futures volumes
Last Friday the gold price rallied from 1 080 to 1 101 last night it closed at 1 089 Silver also traded in a narrow range though both are slightly firmer in early European trade this morning
The market background is extraordinary Last week gold s open interest fell sharply suggesting that some of the oversold conditions were being unwound not a bit of it it was only spread positions being closed and for the second week in a row the Managed Money category s net short position increased to an extreme condition previously unrecorded This is shown in the next chart
Isolating the short side is even more remarkable
Since the date of the last data input 28 July open interest has fallen by only 4 000 contracts suggesting the speculative money is still very short It would be remarkable if these market conditions are not followed by a massive bear squeeze
Investors in gold ETFs such as ARCA GLD are liquidating dismayed by the negative trend Some of the gold released is simply migrating east but this is small in comparison to the increase in demand from value buyers around the world In the week ending 24 July the Shanghai Gold Exchange delivered 73 3 tonnes into public hands and India has also reported a substantial increase in gold imports in recent months as well And that s only the public in two countries Recent reports suggest a global revival in physical demand from South Korea to Europe British gold sovereigns are in short supply at some dealers suggesting demand has picked up in the UK Coin dealers in the US are also reporting high demand
How much all this amounts to one can only guess but a figure of between two and three times mining output seems likely The balance must be coming out of vault storage as has been the case since April 2013 At these prices scrappage must have declined
There is evidence that shortages of deliverable gold are also developing on Comex where registered gold in other words gold in Comex vaults available for delivery fell to a very low 362 000 ounces This is at the same time holders of the August contract have been standing for delivery creating potential difficulties The short term problem appears to have been partially resolved with a transfer in JPMorgan s NYSE JPM vault of 276 000 ounces on Tuesday from the eligible category or gold held in safe custody Whether or not this is JPM acting out of charitable feelings towards the market or on behalf of a government agency to create deliverable liquidity we can only guess Either way it should be observed that if the establishment is prepared to bail out the market Comex could become an easy source of physical gold for large buyers given shortages and delays in delivery are common elsewhere
It is hard to see that being permitted for long Considering all these factors the odds favour a price recovery from current levels if only to call a halt to the underlying redistribution of bullion |
JPM | Gold s Artificial Lows Price Surge Coming | Please Note Future editions of our Daily Market Update will focus on breaking news and important market commentary of the day Our Weekly Market Update published on Fridays will now deliver to you value added content and more detailed and comprehensive market analysis
With gold languishing near deep secular lows its technicals look hopelessly broken
Sentiment is off the charts bearish with traders universally convinced gold is doomed to spiral lower indefinitely
But gold s weakness this year is very deceiving as it wasn t the product of global fundamental supply and demand forces
Extreme record shorting by American futures speculators spawned these artificial lows
Gold s imminent short covering rally should be the largest ever coming from record extremes
Market Update
Today s AM LBMA gold prices were USD 1 094 80 EUR 998 50 and GBP 707 74 per ounce Friday s AM LBMA gold prices were USD 1 091 35 EUR 998 99 and GBP 703 01 per ounce
Last week gold and silver were mixed with gold marginally lower for the week down 0 28 to 1 092 10 and silver up 0 4 to 14 77 per ounce
This morning gold is 0 1 higher to 1 096 per ounce Silver is up 0 74 to 15 02 per ounce Platinum and palladium are 0 74 and 0 5 higher to 973 and 607 per ounce respectively
Important News
GoldCore in Marketwatch Market WatchGold stalls as US jobs data keeps door open to Sept Fed hike ReutersGold Bulls Catch a Break as Dollar and Equity Drops Eclipse Jobs BloombergGold turns higher in wake of jobs report MarketWatchGrim China data keeps stimulus hopes alive Reuters
Important Analysis
Marc Faber Gold To Be Revalued From 1 000 oz to 10 000 oz Zero HedgeChina is hiding gold lots of it Mining comChina is hiding 9 500 tonnes of gold Business Insider UKJPMorgan NYSE JPM Gold Vault Hubbub TF Metals ReportGreece inches closer to 3rd bail out deal but Finns insist rescue package won t work Telegraph |
JPM | Still Waiting For That Oversold Rally | Trend 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 chart below In addition I have a trading account which uses the signals of the Trend Model The last report card of that account can be found here
Trend Model signal history
Update schedule I generally update Trend Model readings on weekends and tweet any changes during the week at humblestudent
Waiting for the rally
I feel like I ve been caught in the movie Groundhog Day where a weatherman played by Bill Murray had to repeat the same day over and over again Last week I wrote that while I remained intermediate term cautious I was short term bullish and I was waiting for an oversold rally see You can t hurry tops
The US equity market did rally last Monday and I looked like a genius for all of a single day Tuesday saw the PBoC devalue the RMB 1 9 and global markets sold off in response On Wednesday the PBoC devalued again and the SPX successfully tested the 200 day moving average dma and reversed itself on the day However we saw little upside follow through on Thursday and Friday
At the beginning of the new week here we are waiting for the oversold rally again
Still intermediate term cautious
Last week I wrote about the technical reasons for intermediate term caution over the next few months so I am not going to repeat myself Instead I will focus on the fundamental and macro reasons why I am worried and not worried about the stock market for the next few months
John Butters of Factset took the week off so there is no earnings update With most of earning season over there is little to report on in any case However I would point out that Ed Yardeni maintains a Fundamental Stock Market Indicator FSMI which is a coincidental indicator of the fundamental strength of stock prices As the chart below shows FSMI has gone nowhere for most of 2015 while stock prices have rallied a negative divergence annotations in black are mine
Looking across the Pacific I do have some concerns about China though none of them are of immediate importance There were two key tells that indicated to me that the market freak out over the RMB devaluation was unwarranted First I noticed that as the news broke about the RMB getting devalued against the USD the USD was weak against major currencies like EUR
In addition EM paper wasn t getting sold like it might have been if the market had truly panicked The chart below shows the relative performance of US HY and EM bonds against equivalent duration Treasuries via iShares iBoxx High Yield Corporate Bond Fund ARCA HYG iShares 3 7 Year Treasury Bond Fund NYSE IEI and iShares JPMorgan NYSE JPM USD Emerging Markets Bond Fund NYSE EMB
Note that even as the markets went risk off EM bonds outperformed HY bonds That was a signal from the credit markets that they were not overly concerned about the immediate effects of a Chinese currency war
Longer term however the poor relative performance of HY and EM credits remains a concern as they are signals of rising risk aversion from the fixed income markets
The soft boiled egg landing
Here is what I learned from the PBoC devaluation affair First there is no need to panic over minor currency fluctuations Here is a chart of how much other currencies have depreciated against the USD in the last year via
1 year currency depreciation against US Dollar
Did the market freak out when the Brazilian real against the dollar last month What about the news that the Turkish lira hit all time lows OK Brazil and Turkey aren t major economies What about Japan How did the market react when one of the stated aims of Abenomics was to weaken the Japanese yen What about the euro The euro peaked in 2009 and it has been steadily weakening against the USD Did the markets tank Um not really Instead American investors poured money into currency hedged European stock funds and ETFs
Longer term however I am concerned that the scenario of Chinese weakness outlined by Ray Dalio of Bridgewater Associates is in play see Remember the quaint old days when we were just concerned about the bubble in Chinese real estate Now we have added the Chinese stock market and their currency to the list of worries This latest move by the PBoC to weaken its currency is therefore confirmation that Chinese economic growth is weakening Indeed from Citi indicated that five Chinese provinces are in recession Economies growing at 7 do not behave this way
A research note from Citi published earlier this week forecast further stimulus measures from Chinese authorities with five provinces believed to have shrinking economies
There is a widespread acknowledgement of the economy s weakness and three resource oriented provinces in north east China Liaoning Jilin and Helongjiang are thought to be in recession already along with north China s Hebei and Shanxi provinces the analysts wrote
I had postulated one fallout of the Ray Dalio scenario of a China slowdown would be a soft boiled egg landing for China and Asia The landing would be soft on the inside China but hard on the outside for anyone doing business with China An article in the quoted analysts from Lombard Street Research and ANZ expressing precisely these concerns Shweta Singh of LSR brought up the spectre of another Asian Crisis
Lombard Street Research senior economist Shweta Singh said the sharp yuan devaluation in 1994 was now recognised as leading to the emerging financial market crisis in 1997 and described the current situation as the perfect storm
The start of the Fed s rate rise cycle during the same year was the straw that broke the camel s back No wonder that the repercussions for emerging markets of a similar change in the direction of Fed policy have been an issue of lively debate among investors Mr Singh said
While emerging markets could benefit from greater US private consumption and greater competitiveness Mr Singh said the worst hit economics would be those that are fairly uncompetitive with similar export programs and structures to China such as South Korea Malaysia Vietnam Thailand and Taiwan
The concerns expressed by ANZ were less alarmist but nevertheless worrisome for regional trade
ANZ chief economist of Asia Glenn Maguire has revised Asian forecasts down until 2018 due to a trade recession that is likely to endure
The surprise renminbi devaluation announced by China yesterday and the Vietnamese dong band widening announced by Vietnam this morning speaks of the economic stresses that are arising from this unusually depressed period of global trade and a global economic backdrop that remains tepid and uneven rather than synchronised and ascending Mr Maguire said
Describing the de correlated and weak Asian market response to a strengthening US economy as a relay baton drop Mr Maguire said it was a remarkable every Asian nation is experiencing negative year on year export growth given the regions trade history
It is suggestive of further breaks in the traditional determinants of the Asian trade multiplier Structurally lower potential growth rates among major economies unfavourable demographic trends and under investment in capacity are not sufficient explanations for this breakdown
The ratio of Asian trade export growth to global GDP growth prior to the global financial crisis averaged around 2 9 per cent but has dropped to 1 5 per cent since then Mr Maguire said it may have actually fallen even lower towards 1 1 since the commodity prices crunch in June
Now add into the mix the expectation that the Federal Reserve will raise interest rates sometime this year probably at its September meeting and you have the makings of a financial Molotov cocktail Will fragile EM economies be able to withstand the shock of rising US rates when there are USD 9 trillion in offshore loans see The key tail risk that the FOMC missed and you should pay attention to
Independent of those risks Tim Duy penned a Bloomberg View stating that he believed that the Fed may be tightening prematurely The disagreement between market expectations which believes that the US economy remains anemic and the FOMC s expectations which are more hawkish is leading to trouble emphasis added
The Fed doesn t believe it has engineered the soft landing just yet It expects that interest rates will need to rise farther to tame inflationary pressures In fact the Fed believes that the economy will evolve in such a way that it can raise short term rates back to levels comparable to the old normal
Financial markets participants however are not on the same page They see the Fed staying persistently lower than Federal Open Market Committee meeting participants anticipate
I would argue that financial markets are signaling that a soft landing has already been achieved and that much additional tightening will risk tipping the economy back into recession The Fed staff is stuck in between at least that is the story told by the The staff envisions a near term policy path that better resembles what is expected by financial markets although the staff like FOMC participants can t shake its faith that eventually rates will return to something more like the historical norm
He thinks that the Fed is on thin ice because the economy remains too fragile for a rate hike
My concern now is that the FOMC is on thinner ice than members realize because they don t believe they have already tightened policy The soft landing may already be upon us They just don t know it or won t admit it
That s a recipe for recession
You don t necessarily have to buy Duy s argument that Fed tightening will lead to a recession The combination of the fragility of China dependent EM economies the possibility raised by a respected Fed watcher like Tim Duy of a US recession and a somewhat unexpected September rate hike which is only priced at roughly 50 right now could be the catalyst that spooks the markets
The bears need a wash out
Despite these concerns I am not overly worried about a nasty sell off in stocks right now That s because bearish sentiment is still overdone The remains in fear territory In order for the market to meaningfully decline we need the bears to capitulate and get washed out In order for a meaningful correction to begin the Fear and Greed Index needs get to at least neutral and preferably into the greed zone That implies a market rally to test and make new highs
As well the shows that RIAs registering a level of bearishness that is consistent with past short term market bottoms Bear markets or major corrections simply do not start with sentiment readings at these levels
In fact sentiment readings got so bad that on Thursday the which is a measure of client only opening transaction option orders reached an all time low
The next lowest reading that I found in the ISE history was on March 20 2008 As a reminder of what was happening then the SPX had peaked in October 2007 and was already in decline March 20 2008 represented a sentiment extreme and the market proceeded to rally by 10 8 in the next two months and the rally was halted at the downtrend line The market then fell into its Lehman Crisis low later that year
While this is not a forecast an equivalent gain today would take SPX up to 2307 Even if it were to fall short of 2300 and reach say 2200 such a rally would likely flip market sentiment from excessively bearish to wildly bullish which would set up the conditions for the intermediate term top that I had been postulating
In addition to the crowded short sentiment readings a number of breadth indicators are flashing oversold readings The chart below shows the NYSE common stock only Summation Index middle panel and the more familiar NYSE Summation Index bottom panel I have overlaid a slow stochastic overbought oversold indicator on the common stock only indicator These indices are oversold and appear to be poised for an advance over the next few weeks of unknown magnitude
So far I have mainly focused on the contrarian crowded trade The flip side of the coin is the smart money namely insiders Barron s reported that insider transactions are back flashing a buy signal after ticking back into neutral for one week last week
To summarize we have multiple cases of dumb money sentiment showing a crowded short and in one cases readings are at a historical extreme On the other hand the smart money insiders have been buying for the last several weeks How can you not be bullish for the next few weeks
The week ahead
I began last week with the expectation that an oversold rally would begin I m starting this week the same way in a replay of Groundhog Day Let s recap last week s market action
The market rallied on Monday but as the market opened on Tuesday morning My inner trader that he was moving cash on the RMB devaluation reaction Near the bottom on Wednesday I that we were nearing a bottom and my inner trader began to edge back into the market on the long side
As of the close on Friday I believe that the stock market has further room to rise Stock prices had become severely oversold Wednesday and undergone a successful test of their 200 dma None of the RSI momentum indicators are overbought and the VIX Index was slightly above the mid Bollinger Band or 20 dma
These charts from confirm my views This chart of stocks above their 50 dma show that the indicator has been experiencing an uptrend of higher lows and higher highs just like the SPX The lows seen in late June and early July may have represented an oversold condition where breadth could be seen as a bounce with potential to rise to the target zone shown
This chart of net 52 week highs vs lows tell a similar story Breadth is improving and readings re not overbought They could advance at the very least to the first target with the potential to rise further to the higher target zone which would likely represent SPX new all time highs
My inner investor remains roughly at investment policy target weight on his asset allocation My inner trader is long equities in anticipation of an oversold rally that is likely to test the old highs and possibly make new highs in the weeks to come Undoubtedly the ride will be bumpy but hopefully we won t get a Groundhog Day repeat this coming week where the market declines to test the lows again
Disclosure Long SPXL
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 |
JPM | S P 500 Futures Finally Pulled Back To Moving Average | Monthly S P 500 Emini futures candlestick chart Finally pulled back to the moving average
The monthly S P500 Emini futures candlestick chart pulled back to the moving average and found 20 gap bar bulls Will this be more like October 2000 or October 2014
The monthly S P 500 Emini futures candlestick chart found 20 gap bar bulls at the moving average Even though the 38 months above the moving average was climactic there are always buyers on a pullback to the moving average if the market is strong enough to stay above the moving average for 20 or more bars This means that there was a gap between the moving average and the low of each of the past 20 bars actually 38 bars The bulls waiting to buy a pullback to the moving average are 20 gap bar bulls
The Emini was above its monthly moving average for 38 months The cash index has only been above its moving average for longer that this once in the past 50 years In 1997 it held above for 38 months and then corrected 22 at 44 months The one other time that it held above for 38 months was 1987 and it then crashed down 38
I have repeatedly written that the odds were 80 that there was going to be limited upside this year until after a pullback below the monthly moving average which finally happened this week Staying above the moving average for many bars is unsustainable and therefore climactic behavior
What typically follows a buy climax A trading range is most likely Although there is a natural temptation to compare this selloff to the one in October 2014 there are differences The most important one is that the current pullback is in an extremely overbought market Will one bar down be enough to correct the overbought condition Probably not However 2 10 bars will be enough
Why not compare this month to October 2000 That was also a big selloff and the bear breakout bar closed above its midpoint However unlike October 2014 a huge selloff followed
So which October will this current selloff resemble Probably neither The rally is strong enough so that the risk of a big selloff without first entering a trading range is small The buy climax was extreme enough so that the chance of an immediate resumption of the bull trend is small The bulls will probably be hesitant to hold long term positions for at least several bars on the monthly chart which means that they will take quick profits for at least a couple of months That lack of conviction will probably limit the upside for the next couple of months
The bar on the monthly chart was huge and Monday is the final day of the month August will probably close in the middle third Given how big August was there is probably a 60 70 chance that September will be an inside bar This means that it will not trade above the August high or below the August low An inside bar is a trading range bar and that will extend the trading range to a 2nd month
Weekly S P 500 Emini futures candlestick chart Bears disappointed by no follow through selling
The weekly S P500 Emini futures candlestick chart broke strongly below its 7 month trading range and 2 year bull channel but reversed up sharply this week and is testing the breakout points
The weekly S P500 Emini futures candlestick chart disappointed bears by having a big bull reversal this week instead of a follow through bear bar Disappointment is a hallmark of a trading range Even though the reversal up from above the October low is bullish it leaves bulls and bears confused Confusion is the other hallmark of a trading range When traders are disappointed and confused they tend to buy low sell high and scalp and this behavior creates a trading range
While it is possible that this reversal up leads to a strong breakout to a new all time high it is more likely that the bears will sell once it gets near the bottom of the 7 month trading range Bulls who failed to exit as the selloff began will look to sell out on a rally to reduce their losses With both bulls and bears selling the odd are that the reversal up will fail If it does it could create a major trend reversal like a head and shoulders top
Daily S P500 Emini futures candlestick chart Learn how to trade trading range price action
The daily S P500 Emini futures candlestick chart reversed up sharply from above the October low and has retraced more than 50 of the bear trend
The daily S P500 Emini futures candlestick chart is in a bear trend but it is also rallying strongly up from a double bottom with the October low and a 3 day island bottom As strong as the current rally has been unless the bulls are able to move the Emini above the current bear leg at 2100 this rally is at best a bull leg in a developing trading range
The bears took windfall profits this week Most of the bulls who bought will also probably take windfall profits over the coming week and the bears will come back to sell again when the Emini gets to around the bottom of the 7 month trading range which is around 2050
V bottoms are extremely rare and are almost always something else The one from October was a parabolic wedge sell climax The current one had no pause on the way down and that lack of buying pressure during the bear phase will make most bulls hesitant to hold onto their positions They will want to see a test down to around the lowest close of the selloff which occurred on August 24 and it was at 1871 25
The current rally could last for weeks but the odds are that bears are scaling in because they have a strong belief that the Emini will test that lowest close before it goes above the top of the bear leg and they are probably right Once it tests that close traders will pay attention to what happens there Will it collapse below the close If so the Emini will probably fall below the October low and the correction will probably be around 20 This happened in 1997 after the last time the S P was above its moving average for this long If instead it hesitates at the lowest close it might form a double bottom there which could be a major trend reversal and the end of the bear market on the daily chart
Because the monthly chart is so strongly bullish this bear market on the daily chart will probably be just a bull flag on the monthly chart even if the selloff is 20 However if it does reach 20 the correction and recovery will probably last many more months before the bull trend resumes
Can this be the start of a bear trend That is unlikely However traders will watch the current rally on the daily and weekly charts to see if it begins to form a right shoulder of a head and shoulders top Although the chance of a trend down from a top is usually only 40 traders will be ready to sell for a swing trade if there is strong downside momentum Most tops fail to reverse the market and instead become bull flags It will take at least a couple of months before the bears know if they will have their top
The daily chart of JPMorgan Chase Co NYSE JPM and many other stocks have probably seen the low of the selloff even though this is less certain for the S P cash index and most stocks
Even though it is unclear whether the Emini has seen the low of this bear trend many stocks almost certainly have seen the low JPM is an example The selloff was exceptional but so was the reversal When the bulls are that eager to buy such a severe selloff the odds are high that they will buy any further selloff and that they will buy well above this week s low The best the bears can realistically hope to see over the next many months is a test down |
JPM | Energy Is On The Rebound | After two bleak months energy prices have finally changed course WTI diesel and Brent crude varied by 15 14 and 17 respectively in U S dollars in the final two trading days of last week alone
In a recent analysis U S bank JPMorgan Chase Co NYSE JPM examined the credit risk of companies in the energy sector Interestingly they project that if crude oil remains at 45 a barrel in 2016 and 2017 30 of these companies will default For reference purposes since 1995 default rates only exceeded 10 in 1999 and 2009
On Friday we learned that Venezuela and other OPEC member nations apparently asked for an emergency meeting of all members of the cartel and Russia in order to better control oil prices Russia is not an OPEC member and since November 2014 crude oil prices have fallen by half due to the refusal by Saudi Arabia the leading OPEC nation to cut its production quotas Since then Saudi Arabia and other members of the cartel continue to pump oil at a record pace Moreover most producer nations currently have major budget deficits
With the recent rebound in fuel prices it is recommended that you hedge a portion of your consumption for the coming months Clients who already have hedging in place can take advantage of price volatility by placing orders on the market
Have a great week
Philippe Shebib |
MS | Dollar has quick pitstop then motors to new highs | By Jamie McGeever LONDON Reuters Financial market trading revolved around the U S dollar on Wednesday with European shares rallying on the back of a weak euro and U S shares and commodities struggling The dollar soared to a fresh eight year high against the yen after having fallen back earlier on Wednesday following its biggest rally in two years the day before But its renewed strength against the Japanese currency sent ripples across other asset classes At midsession in Europe the dollar was up 0 5 percent against the yen at 123 68 yen its highest since June 2007 This pushed the euro back well below 1 09 meaning the single currency was unchanged on the day having been up as much as 0 4 percent earlier On Tuesday the dollar index a measure of the greenback s value against a basket of six currencies rose 1 3 percent its biggest rise since July 2013 Dollar yen is the cleanest way to track dollar bullishness and this is currently proving to be the case The fact that bets against the yen have been so much less crowded than bets against the euro recently also helps Morgan Stanley NYSE MS currency analysts said in a note on Wednesday There were no major U S or European economic data due on Wednesday leaving traders to ruminate on the timing of the first U S interest rate hike and the latest twists in the Greek debt talks saga Greece and its European creditors have played down fears that Athens would default on a payment to the International Monetary Fund next week Greece could avoid the June 5 payment without defaulting if it lumps together all IMF repayments due in June and pays them at the end of the month But U S Treasury Secretary Jack Lew warned that a miscalculation could lead to a new crisis and that it would be a mistake to think this would have no consequence for the wider world The FTSEuroFirst 300 leading index of 300 top European shares was up half of one percent at 1610 points FTEU3 and Britain s FTSE FTSE rose 0 6 percent to 6 988 points France s CAC FCHI was up 0 5 percent at 5 108 points and Germany s DAX GDAXI was up 0 1 percent at 11 639 points Asian shares took their cue from Wall Street s weakness on Tuesday and the MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS retreated by 0 8 percent But Tokyo s Nikkei N225 supported by the yen s fall bucked the trend and rose 0 2 percent U S futures pointed to a broadly flat open on Wall Street after Tuesday s 1 percent slide its biggest fall in three weeks U S NORMALISATION In bond markets the 10 year German Bund yield fell two basis points to 0 53 percent while the comparable Spanish yield was also down two basis points at 1 83 percent ES10YT RR having shot up the previous day on political concerns Voters in Spain punished the ruling Popular Party in local elections over the weekend after years of austerity policies The 10 year U S Treasury yield was up two basis points at 2 15 percent US10YT RR and the two year yield up four basis points at 0 65 percent US2YT RR Indicators on Tuesday showed that U S business spending plans increased consumer confidence improved and house prices extended gains The data supported the stance taken by Federal Reserve Chair Janet Yellen who said on Friday the central bank could hike rates this year if the economy keeps improving Conditions have normalised considerably in recent years As Yellen noted if this process of normalisation continues then monetary policy is likely to normalise correspondingly said Goldman economist David Mericle Commodities took heart from the dollar s weakness on Wednesday After tumbling nearly 3 percent on Tuesday U S crude recovered some ground but gains were limited by the dollar s renewed upswing in European trading It was last up two thirds of one percent at 58 40 a barrel while Brent gained a third of one percent to 63 97 a barrel
Gold gave up earlier gains and was last down at a two week low of 1 184 an ounce |
MS | China factories scrabble for growth in May export demand shrinks | By Koh Gui Qing
BEIJING Reuters Growth in China s giant factory sector edged up to a six month high in May but export demand shrank again prompting companies to shed jobs and keeping alive worries about a protracted economic slowdown a government survey showed on Monday
In a sign that China s worst downturn in at least six years is hurting its services companies too a similar survey showed growth in that sector slipped to a low not seen in more than five years
Services have been one of the lone bright spots in the Chinese economy in the last year
The muted reports reinforced the view that authorities would have to roll out more stimulus in coming months despite having cut interest rates three times in six months
China s economy still faces strong headwinds economists at ANZ Bank said in a note to clients
If capital outflow continues at the pace of the first quarter we expect the People s Bank of China to cut the reserve requirement ratio by another 100 basis points in addition to a further interest rate cut of at least 25 basis points
The official manufacturing Purchasing Managers Index PMI edged up to 50 2 from April s 50 1 the National Bureau of Statistics NBS said on its website in line with analysts forecast for a 50 2 reading
A reading above 50 points indicates growth on a monthly basis while one below that points to contraction
The non manufacturing PMI on the other hand slipped to 53 2 a trough not seen since December 2008 and compared with April s 53 4 the NBS said
However Zhang Liqun an analyst at the China Federation of Logistics and Purchasing which helps to compile the government PMI polls argued that a rise in overall new orders in factories pointed to some steadying in market demand
This shows stabilization in economic growth Zhang said
BETS ON MORE AGGRESSIVE EASING
China s economy has sputtered this year as a cooling housing market and slowing growth in exports domestic investment and consumption knocked growth to a six year low of 7 percent in the first three months of the year
In addition a frothy Chinese stock market that has nearly doubled CSI300 in the last 18 months is feeding concerns that easier credit policies are driving up share prices and fuelling speculation drawing money away from real economic activity and further complicating policy making
While official surveys tend to center on larger state owned firms a private survey that focuses on small and mid sized factories showed growth shrank for the third straight month as export orders fell at the sharpest rate in nearly two years
The final HSBC Markit PMI stood at 49 2 in May little changed from a preliminary reading of 49 1 and up a touch from April s 48 9
Five months into 2015 the economy sees little sign of a pickup HSBC said in a note on Monday adding that an index created by the bank suggests that monetary conditions in China have tightened
We forecast more aggressive policy easing including a 50 basis point reserve ratio cut in the coming weeks HSBC said
As the economy cools the country has fought persistent deflationary pressure which has in turn kept real interest rates stubbornly high
Morgan Stanley NYSE MS said in a report this month that real interest rates in China are over 3 percent well above real rates in Japan Europe and the United States where borrowing costs are negative
Given that China s flurry of policy easing has yet to arrest its economic downturn an economist at a state think tank warned over the weekend that the world s second biggest economy is unlikely to rebound soon
Instead he said growth would stabilize at a lower level and at best track a L shaped trajectory
China s economic growth is expected to slow to a quarter century low of around 7 percent this year from 7 4 percent in 2014
As the first major indicator that is released each month China s official manufacturing PMI is closely watched by investors for clues about the health of the Chinese economy |
MS | Oil up ahead of OPEC meeting as dollar slips | By Christopher Johnson LONDON Reuters Oil prices rose on Tuesday in response to a weaker dollar and expectations that OPEC producers would maintain their group production target at its current level and resist pressure for an increase The dollar fell more than 1 percent against a basket of currencies making oil cheaper for holders of other currencies and particularly in Europe which saw a surge in the value of the euro FRX Brent crude oil for July was up 15 cents at 65 03 a barrel by 1330 GMT U S crude was up 40 cents at 60 60 a barrel Ministers from the Organization of the Petroleum Exporting Countries OPEC responsible for more than a third of the world s oil output meet in Vienna on Friday to decide on production policy for the next six months The group has been producing up to 2 million barrels per day bpd more than needed this year but analysts expect demand to pick up helping to drain stocks and balance the market Saudi Arabia s oil minister Ali al Naimi has said he expects oil demand to increase in the second half of this year while supply decreases in a sign that the kingdom s strategy of defending market share was working Demand is picking up Good Supply is slowing right That is a fact Naimi told reporters You can see that I m not stressed I m happy Carsten Fritsch senior oil analyst at Commerzbank XETRA CBKG in Frankfurt noted that the Saudi oil minister had said it would take time for the oversupply to be reduced and for balance to be restored on the oil market A weaker U S dollar is lending prices buoyancy as are comments made by the Saudi Arabian Oil Minister Fritsch said Several banks and analysts including Morgan Stanley NYSE MS have suggested that OPEC could raise its production target acknowledging that it has been producing more than planned over the last few months But most investors expect no change in OPEC s official target OPEC meets on Friday and is in no mood to cut output said Amrita Sen chief oil analyst at consultancy Energy Aspects The gulf between the member countries remains extremely wide and without a contribution from everyone Saudi Arabia will not reduce production
The contrasting views between OPEC members are partly the result of differing extraction costs Saudi Arabia wants to keep output high in defence of market share while Venezuela and Iran favour cuts to boost prices |
MS | OPEC to pump flat out for months more | By Reem Shamseddine and Alex Lawler VIENNA Reuters OPEC is set to carry on pumping oil nearly flat out for months more content that last year s shock market therapy has revived demand and knocked back growing competition With oil prices having stabilized at around 65 a barrel some 20 above their January lows there s little appetite within the Organization of the Petroleum Exporting Countries to modify production limits There is consensus among Gulf OPEC countries and others to keep the ceiling unchanged a senior Gulf OPEC delegate told Reuters late on Tuesday after an informal meeting of the four core Gulf Arab OPEC members earlier in the day Iraqi oil minister Adel Abdel Mahdi said there was optimism and general acceptance with the current situation The group meets on Friday following a two day seminar featuring the chief executives of the world s biggest energy groups including BP L BP and Exxon N XOM companies whose fortunes have been abruptly altered by OPEC s decision to abandon efforts aimed at sustaining oil prices at more than 100 a barrel in favor of defending market share Nobody wants to rock the boat the Gulf source said The meeting is expected to be smooth sailing OPEC Secretary General Abdullah al Badri said on Wednesday that it would likely be a brief meeting Everything is very clear That marks a change in tone from OPEC s last meeting in November 2014 when Venezuela and others mounted an unsuccessful bid to convince Saudi Arabia and its Gulf allies to tighten the taps on supply Instead the kingdom laid out its new laissez faire approach saying it will no longer consider cutting output without the cooperation of non OPEC producers such as Russia This time calls for collaboration have been muted The Gulf source said the outlook for the oil market is positive especially in the second half of this year which Qatar s oil minister Mohammed al Sada said should be more balanced You can see that I m not stressed I m happy Saudi oil minister Ali al Naimi said on Monday IRAN S RETURN There may still be some choppy moments Iran is seeking to clear space for its gradual return to the oil market after years in which sanctions halved its oil exports to as little as 1 million barrels per day bpd an official said on Monday However even if Iran and world powers meet a June 30 deadline for finalizing a pact on gradually winding back nuclear related sanctions most analysts expect it will be months if not a year or more before Iran s production begins to recover leaving OPEC little reason to sort it out now Due to heightened uncertainty with an Iran nuclear deal we think OPEC is likely to take a wait and see approach to the prospect of additional oil analysts at Barclays LONDON BARC wrote
Some analysts including those at Morgan Stanley NYSE MS have raised the remote possibility that OPEC might surprise the market by increasing the output ceiling now set at 30 million bpd Some of OPEC s 12 members have dismissed that option |
MS | U S trade jobs data encouraging services sector disappoints | By Richard Leong
NEW YORK Reuters The U S trade deficit narrowed in April on a drop in imports which surged in March following the end of a West Coast ports labor dispute while companies picked up their hiring in May after a pullback the previous month
The data supported the notion the U S economy has recovered somewhat from a first quarter contraction and bolstered expectations the Federal Reserve may consider raising interest rates later this year
Not all the news on Wednesday was as encouraging
Two private reports signaled slower growth in the U S services sector which has propped up the economy as it faced drags from a strong dollar a recent rise in oil costs and sluggish demand abroad
This is consistent with modest growth It s enough for the Fed to consider tightening September is very much on the table said Christopher Low chief economist at FTN Financial in New York
U S central bank which will hold a policy meeting June 16 17 concurred with that view in its latest Beige Book released on Wednesday
This collection of anecdotes on the economy from early April to late May showed U S growth will continue at a modest to moderate pace despite weakness in metal and energy industries and a strong dollar crimping exports
U S stock indexes gained 0 4 0 5 percent after the data The dollar and prices of U S Treasuries fell which traders said was due more to the selling of German Bunds and gains in the euro after the European Central Bank upgraded its inflation outlook
The U S Commerce Department on Wednesday said the trade gap narrowed to 40 9 billion from March s revised deficit of 50 6 billion The 19 2 percent drop in the April trade deficit was the largest decrease since early 2009 and the deficit was about 3 billion less than forecast
Imports fell 3 3 percent to 230 8 billion as West Coast
ports a key gateway for goods to and from Asia cleared a
backlog created by a labor dispute that was settled earlier this year
Exports increased 1 0 percent to 189 9 billion in April with foreign sales of U S services edging up to a record high of 60 9 billion In recent months the strength of the dollar has made U S goods and services more expensive abroad
The April petroleum deficit stood at 6 8 billion the
lowest since March 2002
The latest trade data led Morgan Stanley NYSE MS to raise its forecast of U S economic growth in the second quarter to 2 7 percent from 2 2 percent
EYES ON PAYROLLS
Meanwhile private employers added 201 000 jobs in May the most since January payrolls processor ADP said on Wednesday
That was in line with analyst forecasts and higher than a revised 165 000 jobs in April which were the fewest since January 2014
The ADP data came ahead of the U S Labor Department s more comprehensive non farm payrolls report on Friday which includes both public and private sector employment
Economists polled by Reuters are looking for total U S employment to have grown by 225 000 jobs in May similar to April s 223 000 increase The unemployment rate is seen holding at a near seven year low of 5 4 percent
Flying in the face of the better trade and jobs outlook other data showed services industries booked fewer new orders last month
Financial firm Markit said its final May reading of its Purchasing Managers Index for the services industry slipped to 56 2 its lowest since January
The Institute for Supply Management s own services sector gauge fell to 55 7 last month its weakest since April 2014 |
MS | Alibaba unit says to raise 1 6 billion in share sale for media acquisitions | HONG KONG Reuters Alibaba Pictures Group Ltd HK 1060 the film and entertainment unit of China s largest ecommerce company said on Thursday it plans to raise 1 6 billion in a share offering to select investors to finance media related acquisitions The deal comes after a rally that nearly doubled the shares of the company majority owned by Alibaba Group Holding Ltd N BABA over the past year Alibaba Pictures plans to sell 4 2 billion shares at HK 2 90 each putting the total deal at HK 12 18 billion 1 57 billion according to a Hong Kong stock exchange filing The price represents a discount of 13 percent from Monday s close and the stock tumbled as much as 11 percent after trading resumed in Hong Kong on Thursday It had been halted on Tuesday pending an announcement Alibaba Pictures previously known as ChinaVision Media Group is flush with cash after raising nearly 5 billion yuan 807 million in 2014 from a massive share offering that put Alibaba in control of the company The company has only used 123 million yuan from the proceeds most of it on films and television series Alibaba Pictures said it had not yet identified any acquisition targets Credit Suisse VX CSGN and Morgan Stanley N MS were hired as placing agents for the offering and stand to earn HK 63 million from managing the deal according to the filing |
JPM | Bondholders yet to receive payment on PDVSA 2020 bond sources | By Corina Pons and Brian Ellsworth CARACAS Reuters Bondholders have not yet received an 842 million payment that Venezuelan state oil company PDVSA said on Friday it had made on its 2020 bond six market sources said on Monday further fueling doubts about the cash strapped company s finances PDVSA PDVSA UL has not in recent memory delayed a principal payment on any of its bonds despite triple digit inflation and a collapsing socialist economic system Concerns over possible default have made Venezuela and PDVSA bonds among the highest yielding of any emerging market securities PDVSA on Friday said it had sent the funds to accounts at JPMorgan NYSE JPM to cover an amortization on the bond without saying if it had paid a 143 million coupon due on the same date The announcement that the bond would be paid eased worries of default after sources close to the government said it had considered not paying But it would leave the cash strapped administration with less cash to attend to economic woes One market source said he had been told that the funds were at JPMorgan and that payment would likely be credited by Wednesday but added that the delay was concerning because PDVSA has never delayed a principal payment The source said the transfers have never previously taken more than one day to complete JPMorgan declined to comment PDVSA did not immediately respond to an email seeking comment The PDVSA 2020 prospectus lists the paying agent the financial institution which receives funds from the company paying the bond as Law Debenture Trust Company of New York An official for Law Debenture contacted by Reuters last week said the paying agent role had passed to Delaware Trust which acquired Law Debenture last year A public relations manager for digital branding firm CSC the parent company for Delaware Trust did not immediately respond to an email asking if Delaware Trust had received the funds and seeking to confirm that it is indeed the paying agent Market reaction to the delay was relatively muted compared with wild swings in bond prices last week PDVSA bonds were down slightly in afternoon trading with PDVSA s 2020 bond 716558AH4 falling 1 375 percentage points to a bid price of 83 750 Venezuela s sovereign bonds were mixed Venezuela and PDVSA together are now behind on nearly 750 million in coupon payments according to two of the sources including the missing coupon for the 2020 bond from Friday That is the result of repeatedly using the 30 day grace periods for bond interest payments during the month of October President Nicolas Maduro says the country is victim of an economic war led by political adversaries and insists default rumors are a campaign against his socialist administration
His critics say failed socialist policies including price controls state takeovers of private companies and heavy borrowing during the oil boom are to blame for the OPEC nation s predicament |
C | Citigroup aims to double South Korea wealth assets by 2020 | HONG KONG Reuters Citigroup Inc N C plans to double its wealth management assets in South Korea to around 6 billion by 2020 setting up new offices and investing in digital technology to attract new customers Asia has emerged as a key battleground for global wealth managers with higher economic growth rapidly rising wages and a thriving entrepreneurial ecosystem producing rich clients at a pace faster than in the west U S based Citi which is marking its 50th anniversary in South Korea said it plans to grow its target customer base in wealth management by 50 percent by 2020 with new offices in Seoul Dogok and Bundang The bank which has close to 3 million consumer banking clients in South Korea also aims to boost consumer banking deposits by 30 percent up from 10 billion currently and will boost investments in technology The number of clients visiting branches has fallen dramatically Brendan Carney consumer banking head of Citi in South Korea said in a statement We are responding to the changing preferences of our clients by investing further in digitization that allows us to serve customers wherever they want to bank with us Citi said it aimed to acquire 80 percent of new credit card customers via digital platforms by 2020 A focus on rich young Asians and new products has helped Citi accelerate net new money growth at its Asia Pacific consumer wealth business in 2016 to about 10 percent and similar annual growth is expected over the next few years Anand Selvakesari its Asia Pacific consumer banking head said in January that growth in net new money a key measure of profitability of the wealth business improved in 2016 from around mid single digit levels in the last four to five years
In 2015 the number of high net worth individuals those with 1 million or more in investable assets grew by 2 2 percent in South Korea while Singapore saw a decline of 3 5 percent and India rose by 1 1 percent according to the latest available Capgemini Financial Services Analysis report |
C | Chinese tech giant Tencent signs 4 65 billion loan deal | By Carol Zhong and Sijia Jiang HONG KONG Reuters Chinese tech giant Tencent Holdings has signed a 4 65 billion loan deal Basis Point reported amid a flurry of fund raising by China s internet giants Tencent which had an original target of about 2 billion for the loan inked the deal on March 24 following commitments from a dozen banks Thomson Reuters publication Basis Point reported citing sources The loans for general corporate purposes comprise a 2 79 billion term loan and a 1 86 billion revolving credit Citigroup NYSE C was the coordinator mandated lead arranger and bookrunner of the facility Tencent best known for its WeChat mobile app has been on an investment drive in a wide array of sectors such as gaming entertainment cloud computing and online financing It reported net profit of 41 1 billion yuan 5 97 billion last year on Wednesday up 43 percent on revenue that rose 48 percent to 151 94 billion yuan Tencent raised 7 94 billion in two syndicated loans in the past nine months including 3 5 billion in October to back a deal for a majority stake in Finnish mobile game developer Supercell Oy
Tencent did not immediately respond to requests for comment when contacted by Reuters |
C | Abu Dhabi fund loses crisis related arbitration against Citigroup | By Nate Raymond Reuters Citigroup Inc N C has prevailed in the latest arbitration pursued by Abu Dhabi Investment Authority over the sovereign wealth fund s 7 5 billion investment in 2007 to shore up the then struggling bank during the subprime mortgage meltdown Abu Dhabi Investment Authority said on Wednesday it was disappointed by the outcome of the arbitration Documents in the case were unsealed on March 20 in Manhattan federal court where Citigroup filed a petition earlier in the month to have a federal judge confirm a decision an arbitration panel issued in December In their December ruling arbitrators ruled that a contractual clause the investment authority said the bank had breached does not impose continuing obligations on Citigroup regarding the commercial reasonableness of its decision making The panel also awarded Citigroup nearly 9 5 million in legal fees and expenses the documents said Citigroup said in a statement on Tuesday that Abu Dhabi Investment Authority s investment was a testament to the strength of that relationship and we regret that the investment led to this outcome The investment authority headquartered in the United Arab Emirates capital said in a statement on Wednesday that although we are disappointed with the outcome of the arbitration we are pleased that at least one of the arbitrators had a dissenting view and would have found in ADIA s favor In court papers it said it disagreed with the ruling but would not challenge it The arbitration arose from Citigroup s efforts to shore up its capital base after announcing in November 2007 that it had 55 million in exposure to subprime mortgages Anticipating 8 billion to 11 billion in losses due to write downs Citigroup reached a deal in which the Abu Dhabi fund invested 7 5 billion in exchange for a 4 9 percent stake in the bank The investment authority also received securities that could be converted to common stock at 31 83 to 37 24 from March 2010 to September 2011 As the U S financial crisis deepened Citigroup had to take two government bailouts The investment authority filed for arbitration in 2009 accusing Citigroup of fraudulently inducing its investment in part by issuing preferred shares to other investors that diluted its stake A panel of the International Centre for Dispute Resolution of the American Arbitration Association rejected the claims in 2011 and federal courts in New York upheld that ruling But in 2013 the investment authority sought a second arbitration raising two claims including breach of contract Citigroup sued to block the case which the bank said sought more than 2 billion or to rescind the investment But in 2015 a federal appeals court declined to block the case
The case is Citigroup Inc v Abu Dhabi Investment Authority U S District Court Southern District of New York No 17 01528 |
C | CFTC fines ex Citi traders for spoofing in Treasury futures | WASHINGTON Reuters The U S Commodity Futures Trading Commission CFTC said on Thursday it had settled charges against two former traders for Citigroup Global Markets Inc a unit of Citigroup Inc N C for spoofing in U S Treasury futures markets Under separate orders Stephen Gola agreed to pay a 350 000 civil penalty and Jonathan Brims a 200 000 penalty and both were banned from trading for six months for spoofing bidding or offering with the intent to cancel the bid or offer before execution the CFTC said in a statement |
C | X Marks the Spot But Not Until May | US Steel X traded 5 higher on Tuesday morning after Citigroup NYSE C upgraded the stock to Buy from Neutral Citi made two points The first is that steel prices have recently fallen 25 and the second is their forecast for higher steel prices As such Citi increased their price target on X from 43 to 46
Our analysis of market cycles on US Steel s weekly chart below indicates that Citi s call may be off the mark at least until next month X is midway through its current market cycle which is due to conclude in May 2018 Until then we see additional downside price action with a target around 31 Assuming the patterns continue to follow what has been very regular cycle rhythms at that time buyers can consider picking up some shares |
JPM | Commodity Prices Remain Under Pressure | It has been a long week with some sharp moves followed by sideways trade action There has been little in the way of fundamental developments as the markets seems to be trading more on technical levels with just a smattering of data and news to either continue momentum or slow it considerably
For example in the S and P the technicians were looking to press it lower using the hangover from Greece and China as an excuse to press the price discovery lower It seemed to be effective trading below 2100 several times before some earnings data or some other positive economic development yesterday s initial claims report would emerge to bolster the market
In some cases like natural gas we are seeing the technical developments outweigh what should be strong fundamentals as the market has inexplicably made a move lower yesterday and in the overnight session We have been looking for some indication of supplies dwindling so that the price discovery could make its move higher with demand remaining strong Yesterday the inventory report showed only 61 BCF build versus the expected 70 to 75 BCF The market traded higher initially hitting 2 95 before failing and trading as low as 2 81 during the day session That slide has continued with the market trading in the high 2 70 s now despite the less than expected build
Crude seems to have found its support level in the high 40 s though there has been little bounce off of the lows yesterday with crude still trading below 49 dollars Wednesday did feature a surprise build in inventories the first in five weeks though it was not egregiously off expectations The herd mentality that sometimes inundates the crude price discovery seems to be adding to the recent sell offs as well as the general commodity weakness see gold natural gas copper that would appear to have to do mostly with the slowing in China
With some major market players Bridgewater JP Morgan NYSE JPM etc turning bearish on China recently it is reasonable to see some pressure on the commodity sector However as we have touched on many times over the past several years the easy money era of the central banks seems to always make these stories like we are seeing with China slowing things of the past rather quickly Either the data turns more solid China s better than expected GDP last week or the central banks inject money supply to encourage bullish activity Obviously it is hard to imagine this methodology continuing into perpetuity but for the time being this is what we have to consider on most dips in markets that should rally based on higher demand positive economic data
Disclaimer Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors |
JPM | Dow Plummets More Than 530 Points | Was last week a preview of things to come There are quite a few people out there who believe that the stock market would begin to decline in July and that appears to be precisely what is happening Last week the Dow Jones Industrial Average fell by more than 530 points It was the biggest one week decline that we have seen so far in 2015 and some are suggesting that this could only be just the beginning By just about any measurement that you might want to use the stock market is overvalued But we have been in this bubble for so long that many people have come to believe that this is the new normal In fact earlier today someone I know dropped me a line and suggested that our financial overlords may be able to use the tools at their disposal to get this current bubble to persist indefinitely Unfortunately the truth is that no financial bubble ever lasts forever and right now some very alarming things are starting to happen behind the scenes Over the past couple of weeks the smart money has been dumping stocks like crazy and the lack of liquidity in the bond markets is beginning to become acute Could it be possible that another great financial crisis is just around the corner
Last week took a lot of investors by surprise The following is how summarized the carnage
Russell 2000 3 1 worst week since Oct 2014 Bullard Dow 2 8 worst week since Dec 2014 S P 2 1 worst week since Jan 2015 Transports 2 8 worst week since Mar 2015 Nasdaq 2 2 worst week since Mar 2015
The talking heads on television were not quite sure what to make of this sudden downturn On analysts mainly blamed the usual suspects
I think the market s very much concerned about the commodity decline said John Lonski chief economist at Moody s The contraction in China manufacturing activity is gaining momentum and the credit market has yet to signal that rates are not about to go higher
He also noted a surprising decline in new home sales and continued lack of revenue growth in earnings Nearly all the commodities are in a bear market and gold and crude settled at lows Friday
You ve got some major growth concerns and that is what s weighing on investors minds said Peter Boockvar chief market strategist at The Lindsey Group
And without a doubt there are some new numbers that are deeply troubling for Wall Street For example it is being projected that S P 500 companies will collectively report a 2 2 percent decline in earnings for the second quarter of 2015 If this comes to pass it will be the first drop that we have seen since the third quarter of 2012
The biggest reason for this decline in earnings is the implosion of U S energy companies due to the crash in oil prices The following comes from
Thanks to a collapse in the price of oil the energy sector is slated to report a monster 54 percent drop in earnings and 28 percent swoon in revenue compared to the second quarter in the year prior
Hmm unlike what so many others were saying initially it turns out that the oil crash is bad for the U S economy after all
But just like at this time of the year in 2008 most people fully expect that everything is going to be just fine So many of the exact same patterns that we witnessed the last time around are playing out once again and yet most of the experts refuse to see what is happening right in front of their eyes
When things crash this time it won t just be stocks that collapse As I have been writing about so frequently we are also headed for an implosion of the bond markets as well The following comes from
In the U S Treasury securities market financial services giant JPMorgan Chase NYSE JPM estimates that five years ago you could move about 280 million worth of Treasury securities before your trades moved the market s price Now that s down to 80 million a decline of more than 70
When a panic sets in reduced liquidity can cause big swings in market prices
There is that word liquidity again This is something that I have repeatedly been taking about A bond is only worth what someone else is willing to pay for it and if the market runs out of buyers that can cause seismic shifts in price very rapidly Here is
In a run of the mill bear market you just have a downward trend When enough investors are selling bonds it drives down prices Falling prices lead more investors to start selling We see that all the time
A liquidity crisis goes even further It s like a classic run on a bank Without sufficient liquidity the sellers don t just see lower prices they see no prices Since no one wants to buy bonds at this particular time the price for them effectively becomes zero
There has been a lot of speculation about what will happen in the second half of 2015
We only have a little over five months to go in the year so it won t be too long before we see who was right and who was wrong
Our perceptions of the future are very much shaped by our worldviews All the time I get Obamabots that come to my website and leave comments on my articles telling me how Barack Obama has turned the economy around and has set the stage for a new era of prosperity in America
Despite all the evidence to the contrary they choose to believe that things are in great shape because that is what they want to believe Just check out the results
While 55 percent of Democrats reported feeling positive about the economy for example just 25 percent of Republicans felt the same from March 25 to May 27
When asked if they thought the economy would improve over the next 12 months 53 percent of Democrats said yes Only 23 percent of the Republicans in the survey agreed
The same perception gap extends to the far future with 41 percent of Democrats believing that the next generation will be better off than their parents and just 24 percent of Republicans saying the same
To me those numbers are quite striking
Many Democrats very much want to believe that things are getting better because Barack Obama is in the White House
Many Republicans very much want to believe that things are totally falling apart because Barack Obama is in the White House
So who is right and who is wrong |
JPM | Bonus Idea August 3rd 2015 Wells Fargo | Here is your Bonus Idea with links to the full Top Ten
Wells Fargo NYSE WFC has been around forever gobbling up smaller banks along the way But with each successive rebranding the the stagecoach continues to be the main symbol of the company Now Wells Fargo is the 6th largest bank in the world by assets and second in the US behind only JP Morgan NYSE JPM
The stock price has moved higher over time as well It was one of the quickest banks to recover from the drop during the financial crisis and has been making new all time highs almost monthly since July 2013 The latest was July 23rd This is one great trend and you should own this as part of your portfolio long term
Over the short term we look for possible places to enter the stock at a great relative price and possible ways to trade in and around your position This week presents a few from the chart The price pulled back after making that July 23rd high but bounced at the 20 day SMA Friday found it falling back after making a lower high at the late June high level
The momentum indicators are in bullish territory but are pulling back suggesting there may be short term weakness The RSI is moving down and the MACD has crossed down There is room for a pullback here without jeopardizing the uptrend Outside of that there remains a target from the break of an ascending triangle to 65
There is support lower at 57 35 and 56 followed by 55 25 Under that it makes a lower low and pulls the uptrend into question but still has support at 54 and 53 Resistance higher is only at 58 10 and then the all time high at 58 77 Short interest is less than 1
Looking at the options chains the August 7 Expiry shows large open interest between the 57 and 58 strikes relative to other strikes This could lead to the stock holding in that range this week The regular August monthly Expiry shows the open interest at 57 5 about double that of the next largest strikes which are the 55 Put strike and the 60 Call strike Further out in the September monthly Expiry the largest open interest is at the 60 strike with the 57 5 strike a close second
Wells Fargo
Trade Idea 1 Buy the stock with a stop at 57 A straight stock trade Use 54 for the stop for a long term horizon
Trade Idea 2 Buy the stock with a August 57 55 Put Spread offered at 35 cents late Friday and selling a September 11 Expiry 59 Covered Call 36 cents to pay for it The Put Spread Collar gives protection to 55 through August Expiry
Trade Idea 3 Buy the August 7 Expiry 58 57 5 Put Spread and sell the August 14 Expiry 57 Put free A 1 2 Put Spread this is a net bullish trade It will give you an entry to the stock at 56 5 next week should the price drift down and close under 57
Trade Idea 4 Buy the September 57 5 bull Risk Reversal 9 cents A levered bullish trade buying the September 57 5 Call and selling the 57 5 Put that at worst has you long the stock at the current level
Trade Idea 5 Buy the August September 57 5 Call Calendar 51 cents Avoids the possible short term pullback and has longer dated exposure via the September cCalls while looking for the large open interest at 57 5 in August to stall the stock at August Expiry
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 dog days of August sees the Equity markets having weathered another storm but not showing strength to push higher yet
Elsewhere look for gold to consolidate or continue lower while crude oil moves to the downside The US dollar index looks to move sideways with an upward bias while US Treasuries are biased to continue higher The Shanghai Composite and Emerging Markets both are biased to the downside but trying to consolidate
Volatility looks to remain subdued keeping the bias higher for the equity index ETF s ARCA SPY ARCA IWM and NASDAQ QQQ Their charts suggest that there is potential for some weakness in the current move short term though On the longer timeframe the QQQ looks strong and may be ready for new all time highs while the SPY is on consolidation and the IWM a retrenching consolidation 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 | Taper Tantrum Coming | Investors have been expecting another Taper Tantrum when the Fed starts hiking
The term Taper Tantrum refers to the surge in US treasury yields global government bond yields as well in summer of 2013 when then Fed Chairman Ben Bernanke put a spotlight on the wind down of Fed asset purchases tapering off QE
In February of 2014 the Wall Street Journal stated Last Year s Taper Tantrum May Have Been Taste of the Future
The Journal cited a research paper on
Stimulus No Free Lunch
When investors infer that monetary policy will tighten the instability seen in summer of 2013 is likely to reappear warns the report
Stimulus now is not a free lunch and it comes with a potential for macroeconomic disruptions when the policy is lifted the paper said
The paper s authors are JPMorgan Chase NYSE JPM economist Michael Feroli University of Chicago professor Anil Kashyap New York University s Kermit Schoenholtz and Hyun Song Shin of Princeton University
Hell of a Payback But When
I certainly agree that stimulus is no free lunch and there is going to be one hell of a payback for all this stimulus but when and where
2015 Repeat
On May 14 2015 MarketWatch asked Is This a Repeat of the 2013 Taper Tantrum
Let s take a look at a couple charts from the article
Pace in Rate Rise
That may appear ominous but who s to say 2015 follows 2013
Here is a chart of 10 year treasuries yields as of today
US Treasury 10 Year Yield
The latest rise looks hugely unconvincing to me Indeed there was a far steeper rise in 2012 than the MarketWatch article fails to show
Let s take a look at the second MarketWatch chart
Taper Talk 2013
That s interesting but once again we need to hone in on current action
Here s an up to date chart I just produced with data from Fred Federal Reserve Economic Data
US 10 Year Yield and Breakeven Inflation Rate
There is absolutely no hint of a taper tantrum recently Instead yields have been falling smack in the face of fed hikes now purportedly coming in September
Note the breakeven inflation rate is heading South even as the Fed is prepared to hike I can spell what that means in one word recession
Fed Yap vs Futures Bloomberg vs CME Eighth Point Baby Hikes
Friday s nonf may skew the odds but this is how I see things
Fed s Mother May I Tool
Is the Fed s next tool the eighth point baby hike possibly within ranges but only if the Fed has Mother Market s approval worked out in advance via Fed Yap
That s my Mother May I take a baby step prediction
Market May I
The only change I would make regardless of the jobs report would be to call it Market May I take a baby step
A Real Tantrum
People forget what a real tantrum looks like I happen to have a chart that depicts one
Junk Bond Tantrum 2007 Present
Now that s one heck of a tantrum The tantrum was not in US treasuries but rather in junk bonds
The above chart shows yield on junk bonds as well as the spread between yields on junk bonds vs similar duration US treasuries
I did not mark the peak on purpose Instead I marked a secondary high
Look at the date closely
The S P 500 bottomed at 666 on March 9 2009 precisely the date of the final surge in junk bond yields
Fancy that What else was in play
Mark to Market Accounting
October 10 2008 The Financial Accounting Standards Board FASB issued further guidance to provide an example of how to estimate fair value in cases where the market for that asset is not active at a reporting date
December 30 2008 The SEC issued its report under Sec 133 and decided not to suspend mark to market accounting
March 16 2009 FASB proposed allowing companies to use more leeway in valuing their assets under mark to market accounting
April 2 2009 After a 15 day public comment period and a contentious testimony before the U S House Financial Services subcommittee FASB eased the mark to market rules through the release of three FASB Staff Positions FSPs
Mark to Fantasy Dateline vs S P 500
The final stock market plunge from January March 2009 occurred when the FASB decided not to suspend mark to market accounting
The recovery began just before mark to fantasy resumed
I believe the two are related Viable corporations could not get funding They were priced as if they might go bankrupt
The problem was not and still is not mark to market accounting Leverage is the problem
Let s hone in on subsequent details
Junk Bond and Spreads 2011 Present
Interestingly the current focus is on the relatively minor taper tantrum in 2013 not the enormous junk bond revolt in 2008 or the followup revolt in October of 2011
Note the orderly so far rise in junk bond yields
Enormous Corporate Bond Bubble
Banks were and still are leveraged to the hilt And that remains a problem In addition the corporate bond bubble is enormous
Bernanke and the FASB revived the junk bond market in 2009 with mark to fantasy a flood of QE and zero percent interest rates
In the ensuing years corporations borrowed heavily not to invest but rather to buy back their own shares at absurd prices
And people expect no payback
The Next Tantrum
Problems will resurface as interest rates rise and especially when the junk bond market starts worrying about ability of corporations to pay back speculative loans not at falling interest rates but at rising rates even if only baby step hikes
Investors eying treasuries for signs of a tantrum are likely looking in the wrong place Junk is where the action is
Finally treasuries may easily be the beneficiary of the next tantrum just as they were in 2007 in stark contrast to what most tantrum watchers expect |
MS | Canadian software maker Shopify valued at 1 27 billion at IPO price | By Neha Dimri Reuters Canadian e commerce software maker Shopify Inc N SHOP TO SH said its U S initial public offering was priced at 17 per share valuing the company at about 1 27 billion The company s IPO of 7 7 million class A subordinate shares raised about 131 million after it was priced above the top end of the expected range of 14 16 The offering was earlier expected to be priced at 12 14 The company sold all the shares in the offering Pricing reflects big enthusiasm for these type of deals It s a unique company in a hot area with lots of growth said Josef Schuster founder of IPO investment firm IPOX Schuster LLC There s going to be a big pop coming tomorrow Ottawa based Shopify which is also expected to debut on the Toronto Stock Exchange on Thursday makes software that helps small and medium sized retailers to set up online storefronts Shopify charges a monthly subscription fees of 29 179 The company has also created online stores for a variety of retailers ranging from tattoo companies to fashion boutiques and vintage book sellers Shopify said 162 261 merchants had subscribed to its platform from about 150 countries as of March 31 Shopify s biggest investors are venture capital firms Bessemer Venture Partners with a 30 percent stake and FirstMark Capital LP which has a nearly 12 percent stake Shopify is the only Canadian company to be listed on a U S exchange this year while there were four U S IPOs by Canadian companies in 2014 that raised about 517 million according to Thomson Reuters data Other Canadian tech names expected to go public this year include property information provider Real Matters online lender Mogo and PointClickCare whose software supports the senior care market Shopify is expected to debut on the New York Stock Exchange under the symbol SHOP and on the Toronto Stock Exchange under the symbol SH Morgan Stanley NYSE MS Credit Suisse SIX CSGN Raymond James and RBC Dominion Securities were among the underwriters of the IPO |
MS | Canadian software maker Shopify valued at 2 billion in U S debut | By Neha Dimri Reuters Canadian e commerce software maker Shopify Inc s N SHOP TO SH shares rose as much as 69 percent in their U S debut valuing the company at about 2 14 billion Shopify which also debuted on the Toronto Stock Exchange on Thursday is the first Canadian company to be listed on a U S exchange this year Several Canadian technology companies are planning to go public as optimism about tech startups boosts valuations and spurs early investors to cash out Four Canadian companies listed in the United States last year with their IPOs raising about 517 million according to Thomson Reuters data Ottawa based Shopify helps small and medium sized retailers set up their online stores for a monthly subscription fee of 29 179 My only concern is where the stock will be in 12 24 months and can we take a great company we have and turn it into something which is long lasting Chief Executive Tobias Lutke said Shopify raised about 131 million from its initial public offering of 7 7 million class A subordinate shares after it was priced at 17 per share above the top end of the expected range of 14 16 The company sold all the shares in the offering The offering was massively oversubscribed with demand exceeding 1 billion a source familiar with the deal told Reuters Shopify s software has a lot of growth potential as it becomes popular among businesses said Jay Ritter IPO expert and professor at the University of Florida We are growing much faster than everyone else It is not a very competitive field right now Lutke said Shopify founded by Lutke in 2006 more than quadrupled its workforce to 632 employees in the past three years Bessemer Venture Partners is the company s biggest shareholder with a 30 percent stake while FirstMark Capital LP holds nearly 12 percent Shopify s net loss narrowed to 4 53 million in the quarter ended March 31 from 6 37 million a year earlier while revenue nearly doubled to 37 35 million The company s shares were up 51 2 percent at 25 72 in afternoon trading on the New York Stock Exchange The stock which was the top percentage gainer on the exchange opened at 28 and hit a high of 28 70 The company s Canada listed shares rose to a high of C 35 03 28 73
Morgan Stanley NYSE MS Credit Suisse SIX CSGN Raymond James and RBC Dominion Securities are among the underwriters for the IPO |
MS | Firmer underlying inflation keeps Fed on rate hike path | By Lucia Mutikani
WASHINGTON Reuters Rising shelter and medical care costs boosted underlying U S inflation pressures in April a welcome sign for the Federal Reserve as it contemplates raising interest rates this year
The Labor Department said on Friday its Consumer Price Index excluding food and energy increased 0 3 percent last month It was the largest rise in the so called core CPI since January 2013 and followed a 0 2 percent gain in March
Economists who had expected core inflation to increase 0 2 percent last month said the increase which also reflected gains in the prices of household furnishings and new and used motor vehicles should keep the U S central bank on track to hike rates before the end of 2015
It will give the Fed greater confidence that inflation will indeed make it to its target in the next couple of years it increases the odds of faster Fed action said Chris Rupkey chief financial economist at MUFG Union Bank in New York
In a speech in Providence Rhode Island Fed Chair Janet Yellen said she expected rates to rise this year adding that the lift off hinged on a firmer jobs market and signs that inflation was moving toward the Fed s target
I will need to see continued improvement in labor market conditions and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term Yellen said
The dollar was trading higher against a basket of currencies on the inflation data and Yellen s comments Prices for U S government bonds fell while U S stocks were little changed
Although slower economic growth in the first half of the year has diminished the chances of a mid year rate hike a tightening labor market and rising demand for housing suggest core inflation could continue to push higher this year even if medical costs subside
Minutes of the Fed s April meeting released on Wednesday said many policymakers did not believe that the data by June would provide sufficient confirmation that the conditions for raising the key short term interest rate had been meet
A recent batch of weak data including April industrial production and retail sales has left many economists even doubting the Fed will raise rates in September
The central bank has kept overnight interest rates near zero since December 2008 It tracks a price measure that is running below core CPI
In the 12 months through April core CPI advanced 1 8 percent after a similar gain in March
September is still the most likely lift off date but July is not out of the question particularly not if we get another couple of robust rises in core consumer prices in May and June said Paul Ashworth chief economist at Capital Economics in Toronto
FADING DOLLAR RALLY
A fading dollar rally also was seen keeping core inflation on an upward trend The dollar surged about 15 percent against the currencies of the United States main trading partners between June last year and mid March It has handed back some of those gains and is now up only 10 percent
If sustained that should help weakness in core goods prices continue to moderate said Ted Wieseman an economist at Morgan Stanley NYSE MS in New York
The overall CPI edged up 0 1 percent last month after increasing 0 2 percent in March It was held back by a 1 7 percent drop in gasoline prices and no change in food prices Gasoline prices however have since risen
In the 12 months through April the CPI fell 0 2 percent the largest decline since October 2009 after dipping 0 1 percent in March
Core inflation was lifted by a 0 3 percent increase in shelter costs which followed a similar gain in March Shelter inflation is being driven by rising household formation which is boosting demand for rental accommodation
The medical care index rose 0 7 percent the largest rise since January 2007 Household furnishings posted their largest gain since September 2008
Prices for new and used cars and trucks rose for a third straight month Airline fares however fell as did apparel prices which recorded their first drop since December |
JPM | Brazil signals record low rates with slower cuts ahead | By Silvio Cascione and Bruno Federowski
BRASILIA Reuters Brazil s central bank slowed the pace of monetary easing on Wednesday but signaled it remained likely to cut interest rates to a record low next month as policymakers seek to boost an incipient economic recovery with inflation under control
The bank s nine member monetary policy committee known as Copom cut the benchmark Selic rate by 75 basis points to 7 50 percent after four consecutive cuts of 100 basis points The decision was widely expected by economists polled by Reuters
The bank repeated language from its previous meeting recommending a moderate reduction in the pace of easing going forward leading analysts to predict a 50 point cut in December That would take the Selic rate to a record low of 7 0 percent
Guidance for early 2018 nevertheless remained up in the air Economists diverged about the potential meaning of the bank s decision to remove a reference to a gradual end to rate cuts from the post meeting statement
The doors appear open for an additional cut by the following meeting in February JPMorgan NYSE JPM economists wrote in a report forecasting the Selic rate would fall to 6 5 percent in early 2018 Others such as UBS economist Fabio Ramos said the statement backs up the view that the December cut will be the last in the current cycle
The Selic rate has fallen from 14 25 percent just a year ago Since then Brazil s economy has resumed growth after two years of deep recession in 2015 and 2016 that shed nearly 3 million jobs and left huge idle industrial capacity
Inflation has plunged from double digits to less than 3 percent far below the official target of 4 5 percent and is forecast by the central bank to stay around the goal through the end of 2019
Whether the bank cuts the Selic below 7 percent will depend on the short term outlook which seems relatively benign from our standpoint said Luciano Sobral an economist with Santander MC SAN Brasil |
JPM | Top China Macro Fund Shorts Commodities Debt on Inflation Risk | Bloomberg Accelerating Chinese inflation will derail a global rally in commodities and deepen a rout in the nation s bonds according to a top performing macro fund manager
Lu Jun who manages about 1 6 billion at Shanghai Congrong Investment Management Co is shorting raw materials such as ferrous and chemical products in a bet that mounting price pressures will cut short government efforts to reduce capacity in mills He s also bearish on Chinese sovereign debt he said in an interview in his Shanghai office
Prices of commodities from steel to aluminum have surged as China closed plants and boosted environmental controls curbing output While the nation s consumer price index has remained subdued core inflation which strips out food and energy prices is the highest in six years at 2 3 percent Concern about higher prices and rising borrowing costs have hammered bonds this month with the 10 year yield surging to the highest level since 2014
We haven t felt much inflationary pressure at the moment so that s why China s able to continue with the supply side reforms Lu said If inflation picks up it won t be able to carry forward the reforms and then commodity prices will start to drop
Lu s 700 million yuan 105 million Congrong Allweather Fund has returned 37 percent this year beating 96 percent of its peers according to Shenzhen PaiPaiWang Investment Management Co His bearish stance toward raw materials is a shift from last year when he had a large chunk of his fund s assets in commodities while equity exposure was kept low and fully hedged enabling him to return 37 percent
Inflation Risk
China s economic recovery rekindled enthusiasm among global commodity bulls as they bet the economy would drive prices higher said Lu formerly chief investment officer of JPMorgan Chase Co NYSE JPM s local asset management venture I m afraid they ll be disappointed this time
Lu said he was shorting bonds because he expects interest rates to rise in the short term while robust demand for consumer products will boost inflationary pressures
The 10 year yield has jumped 17 basis points this month to 3 79 percent the highest since December 2014 with some analysts now predicting yields will climb to 4 percent and beyond
The government is working on debt reduction so liquidity conditions and broad supply of base money wouldn t be too loose Lu said Consumption has been strong along with the economic recovery on the other hand so people are expecting a pick up in inflation
Lu is now selectively long on stocks and has bought shares along the supply chain of the consumer industry A notable increase in China s consumer loans led him to bet on more domestic spending which would boost corporate profits and wage growth thereby fueling more spending
We are long term bullish on consumption said Lu Though consumption loans may slow down in the near term as authorities will want to keep overall leverage in check
Lu who started Shanghai Congrong Investment Management in 2007 said he aims to replicate the success of Bridgewater Associates LP in China where he sees huge potential in hedge funds
We want to copy them he said Congrong has more than 30 employees and is planning to recruit more analysts to grow its business Talent hunting could be difficult though as there aren t many experienced practitioners in this relatively new industry |
JPM | Mario Draghi s QE Infinity Is Reviving Europe Stock Bulls 2 | Bloomberg It took a little help from Mario Draghi to stir European equities from their slumber
The European Central Bank s slow approach to reducing monetary stimulus spurred the Euro Stoxx 50 Index s biggest rally since Sept 11 Before Thursday the gauge went virtually nowhere in October and correlation between its shares at the lowest in at least six years suggested that individual company earnings spurred traders more than broader factors such as political risk or economic data
The benchmark s 1 3 percent advance the biggest on an ECB decision day in 2017 showed President Draghi still holds sway over the region s stocks While the institution said it will reduce the size of its monthly bond purchases Draghi s emphasis on the need to tread carefully provided a fresh impetus to bulls that have already sent 39 billion to European stock funds this year
Markets have been doing nothing all month and then Draghi comes up with what is essentially QE infinity said Teis Knuthsen chief investment officer at Saxo Bank A S s private banking unit in Hellerup Denmark We will have very accommodative policy beyond 2018 at a time where the cyclical environment is bullish It s a really dovish signal
Bond buying will continue through September 2018 albeit at 30 billion euros 35 billion a month starting January half the current pace The cut was in keeping with economists estimates and policy makers pledged to step up or prolong buying if needed The ECB also stressed that it will reinvest proceeds from maturing debt for an extended period after its asset purchase program ends
The statement managed to subdue the euro the one hiccup in 2017 for the equity market European firms get roughly half their sales from outside the region according to JPMorgan Chase Co NYSE JPM This year s strength in the currency which climbed above 1 20 during Draghi s last press conference has threatened to erode profitability but consensus is building among investors that exporters can handle the euro at current levels
Dovish Draghi
Draghi managed to be as dovish as he could have been within the context of policy that is becoming less loose and he got the natural response of a weaker euro and higher European equities Daniel Murray global head of research at EFG Asset Management said by phone The wind is certainly in the sails now for the region s stocks
Recent data have underscored the strengthening recovery in the euro area economy while JPMorgan says European companies are showing profit growth that s twice the pace of their U S counterparts in the third quarter The Euro Stoxx 50 rose another 0 4 percent on Friday extending its best annual performance since 2013
The positive story for European equities continues today was not a game changer rather just a confirmation Vincent Juvyns a Brussels based global market strategist at JPMorgan Asset Management said by phone on Thursday Euro area equities remain the sweet spot for investors |
JPM | Biggest Wealth Fund Selling Stocks as Rally Sends Prices Soaring | Bloomberg The stock market is rallying too fast for the world s biggest wealth fund
Even though it raised its maximum allocation for stocks to 70 percent this year Norges Bank ended up paring its equity holdings in the third quarter as the surge in prices sent its stockpile of shares toward the self imposed limit The move by the 970 billion fund mirrored those of other pension and sovereign wealth funds that form the backbone of world markets according to research from JPMorgan Chase Co NYSE JPM
Institutional investors with strict allocation targets such as balanced mutual funds and SWFs such as the Norges Bank were likely sellers of equities as the strong equity market performance forced them to rebalance to prevent their equity weighting from rising too much above the target strategists led by Nikolaos Panigirtzoglou wrote in a report Monday
Read more World s Biggest Wealth Fund in Stock Splurge
Norges Bank is now a net seller this year with total equity selling of 9 4 billion according to the report by JPMorgan The fund sold double the amount of equities in the third quarter it bought in the first half according to the report
The fund reported third quarter results Oct 27 showing its equity holdings at 65 9 percent of assets up slightly from 65 1 percent at the end of the second quarter |
JPM | Oil Near Two Year High as Investors Eye OPEC Deal Extension | Bloomberg Brent crude traded near a two year high as OPEC and Russia signaled they ll extend supply cuts while instability in Iraq s Kurdish region persists
The global benchmark rose to as high as 61 a barrel and West Texas Intermediate held above 54 though both crudes pulled back from Monday s highs as they moved closer to levels that signal they might be overbought Supporting the rally is Saudi Arabian Crown Prince Mohammed bin Salman last week backing an extension of production cuts by OPEC beyond March following similar signals from Russian President Vladimir Putin
When you re in a range bound market without a lot of really clear and definitive fundamental information people tend to start trading off of technicals Bill O Grady chief market strategist at Confluence Investment Management in St Louis said by telephone Momentum in oil has been pretty strong so unless you ve got something out there that tells you we are on a clear path to 60 you re going to want to see how the data plays out
Oil has rallied this month as investors wait to see whether OPEC will formally agree to an extension of its cuts at a meeting in November Both Brent and WTI s 14 day relative strength index moved toward 70 indicating the commodity may be overbought On Monday JPMorgan Chase Co NYSE JPM raised both its Brent and WTI 2018 forecasts
Brent for December settlement which expires Tuesday rose 19 cents to 60 63 a barrel at 1 15 p m on the London based ICE Futures Europe exchange after touching 61 the highest intraday level since July 2015 The global benchmark crude traded at a premium of 6 53 to WTI
See also Oil Investors Roll the Dice on OPEC as Saudi Prince Ups the Ante
WTI for December delivery rose 16 cents to 54 06 a barrel on the New York Mercantile Exchange Total volume traded was about 14 percent below the 100 day average
Oil exports resumed from Iraq s Kurdish region after halting earlier Monday a port agent said highlighting uncertainty about pipeline shipments from OPEC s second biggest producer
The halt came days after Iraqi troops captured oil fields from Kurdish fighters in northern Iraq s disputed Kirkuk province Shipments by pipeline averaged 264 000 barrels a day before the stoppage less than half their normal daily level of 600 000 barrels Exports from Kirkuk which had been flowing through the same pipeline network to Ceyhan remained halted as of Monday the port agent said
OPEC is doing a good job of talking up their position That put a bid in the market coming into today Bob Yawger director of the futures division at Mizuho Securities USA Inc in New York said by telephone The issues in Kurdistan have not ended yet There s still some potential bid from that
Oil market news
Cushing Oklahoma crude stockpiles declined 150 000 barrels last week according to a forecast compiled by Bloomberg
Iraq added a fifth offshore crude exporting facility with a capacity of 900 000 barrels a day to boost shipments by sea the nation s oil ministry said in an emailed statement citing Minister Jabbar al Luaibi
The U A E is disclosing oil allocations to customers every month and other countries should follow suit Energy Minister Suhail Al Mazrouei told reporters in Abu Dhabi |
C | Lloyds two others dismissed from yen Libor litigation in U S | NEW YORK Reuters A U S judge on Friday dismissed Lloyds Banking Group Plc L LLOY ICAP LON NXGN Europe Ltd and Tullett Prebon Plc as defendants from litigation alleging a conspiracy among many financial services companies to manipulate the yen Libor and Euroyen Tibor benchmark interest rates U S District Judge George Daniels in Manhattan said he lacked personal jurisdiction over the three British companies Daniels cited a lack of evidence from the plaintiff investors that the defendants alleged wrongful conduct had a substantial connection to or was expressly aimed at the United States Banks use the London interbank offered rate Libor and Tokyo interbank offered rate Tibor to set costs of borrowing from each other Libor is often used to set rates on products such as credit cards and mortgages Investors including the California State Teachers Retirement System and J Kyle Bass hedge fund Hayman Capital Management LP accused banks of conspiring to rig yen Libor Euroyen Tibor and Euroyen Tibor futures contracts to benefit their own trading positions from January 2006 to June 2011
Citigroup Inc N C and HSBC Holdings Plc L HSBA have settled for a respective 23 million and 35 million Several Japanese banks are among the defendants |
C | Exclusive Venezuela taps small banks to handle dollar deals | By Corina Pons and Ana Isabel Martinez
CARACAS MEXICO CITY Reuters Venezuela s government is using little known banks including a small Puerto Rican lender as intermediaries for some international trade operations after Citigroup N C last year stopped providing such services according to the owner of one of the banks and government officials
The government has turned to relatively unknown institutions to provide a service known as correspondent banking as international banks are increasingly concerned about the risks of doing business with socialist ruled Venezuela amid investigations into corruption and drug trafficking
It also coincides with complaints by President Nicolas Maduro that Venezuela is struggling to obtain financial services amid a severe economic crisis characterized by triple digit inflation and chronic shortages
Government officials call the drug allegations a campaign against their administration by ideological adversaries in the United States and insist Venezuela s problems are being caused by an economic war
The situation does not affect payment of state oil company PDVSA s high yielding bonds which continue to be serviced by Citi due to contractual obligation according to a 2016 letter from Citi to PDVSA bondholders seen by Reuters
The country s relationship with global banks is also complicated by a 14 year old currency control system that requires businesses to acquire dollars through the government rather than private banks
Correspondent banks provide an essential service that allows countries to import goods and maintain links to the global financial system Italbank the Puerto Rican lender owned by Venezuelan entrepreneur Carlos Dorado has served as one for Venezuela since 2016
Dorado told Reuters that Italbank offers correspondent services to state owned Banco de Venezuela which is the country s largest bank and handles part of the government s offshore business transactions
Our clients include private sector banks and state run banks One of those clients is Banco de Venezuela said Dorado who also owns Venezuelan currency exchange house Italcambio and a fashion business that distributes high end clothing
He said about 10 or 15 percent of the dollar transfers from Banco de Venezuela go through Italbank
He added that another bank being used for correspondent services include southern Florida based Eastern National Bank partly owned by Venezuelan bank regulator Sudeban
A government official with knowledge of the transactions who asked not to be identified confirmed Eastern National was providing such services
Eastern National did not respond to emails and phone calls seeking comment Nor did Sudeban Venezuela s central bank or its Information Ministry which handles queries on behalf of the Finance Ministry
It was not immediately evident how much of the transactions Eastern National was responsible for or which banks were carrying out the remainder of the transactions
THANKS TO DORADO
Italbank s involvement has been crucial to ensuring basic imports following Citi s exit the sources said
Thanks to Dorado we have been able to pay for food imports said a person close to the Venezuelan government who asked not to be identified adding that the bank has processed hundreds of millions of dollars in payments
Citi said last year it had halted correspondent services following a periodic risk management review Citi declined to comment for this story
Italbank opened in 2008 and says on its website it is focused on the Latin American market It has a single office in San Juan and largely carries out operations online or by telephone It operates under an offshore banking license in Puerto Rico a U S territory
That gives it access to U S Federal Reserve payment services allowing it to channel Venezuelan payments to foreign providers
Dorado said Italbank has an account with the Fed but has to conduct transactions manually rather than electronically which limits the volume of operations it can handle He says the bank s procedures comply with U S financial regulations
The Fed declined to comment
PDVSA did not use Citi as a paying agent for a new bond issue last year relying instead on Law Debenture Trust Company of New York a provider of fiduciary services according to the bond s prospectus
Wall Street banks worry that providing services to Venezuela could leave them with indirect financial links to the nation s commercial and political allies such as Cuba and Iran which face various international sanctions according to finance industry experts consulted by Reuters
They added that scandals including U S authorities designating Venezuelan Vice President Tareck El Aissami as a drug kingpin and the drug related arrests of two nephews of the first lady have boosted the perceived risk of doing business with Venezuela |
JPM | Silver Pretty Silver Ugly | The big picture in simple terms
US national debt is huge ugly unpayable and accelerating higher
Silver Eagles are pretty and are priced low
Silver prices will increase erratically driven higher by a devalued dollar along with increasing debt
Silver is currently at the low end of the silver to national debt ratio
Silver is currently at an 81 month cycle low
Examine the next two graphs
The above log scale chart of silver prices shows important lows in 1995 2001 2008 and 2015 all about 81 months apart
It also shows that silver prices exponentially increased to higher highs from 2001 to 2011 and corrected thereafter
But national debt has increased exponentially since 1971 about 9 per year and about 10 per year since October 2008 Silver prices have erratically increased from 1 39 in 1971 to nearly 50 in April 2011 and have fallen to about 16 00 today The increase in national debt parallels price increases in crude oil postage food cigarettes many consumer goods and silver
Since the US government can only pay for entitlements and a few other government functions with current revenues the interest on the national debt plus excess expenditures must be borrowed every year Expect borrow and spend politicians to increase debt until they can t
That increased debt will drive silver prices higher along with most other consumer prices
But the ugly truth as I see it is
Silver prices must be constrained or gold prices will accelerate higher
Gold prices must be constrained or investors hedge funds and other governments will realize the dollar is structurally weak and could accelerate lower
The dollar must be supported or the 100 trillion bond market will accelerate lower The 30 year bull market in bonds could reverse at any moment and a weak dollar among several others could be the pin that pops the bond bubble
The bond bubble must be supported or 500 trillion in interest rate derivatives might accelerate lower crash major banks and freeze the global financial system making the 2008 crash look like a 4th of July picnic
Given that silver mining is tiny less than 20 billion annually and silver prices are largely set on the paper COMEX market constraining silver prices is both possible and relatively easy for the High Frequency Traders major banks such as NYSE JPM and central banks As long as the financial and political elite are able to constrain silver prices and it remains in their best interest to do so silver prices will languish at unrealistically low prices
But the day will come when silver prices can be constrained no longer or the silver shorts cannot deliver their promised silver or a major bank will force the silver market far higher When that day comes the silver market like the national debt will exponentially increase again
WHEN
The silver chart shows an 81 month cycle bottoming about now Perhaps silver is poised to rally
Greece and the Euro are under stress A sovereign debt or derivative crisis looks more probable every day The consequences could be ugly for the global bond market and beneficial to silver prices
Puerto Rico owes 73 Billion in unpayable debt but the related derivative contracts are far higher This will produce more ugly consequences
The world will eventually realize that Greece Puerto Rico Italy Spain and the United States are not dissimilar in terms of their excessive debt and inability to repay that debt The global bond market is vulnerable because sovereign debts will never be paid merely rolled over
In the words of the IMF describing Greek debt and potential repayment these new financing needs render the debt dynamics unsustainable Unsustainable suggests the sovereign debt market and borrow and spend countries are about to hit the wall and burst into flames
Silver and gold could begin a massive rally at any time but the High Frequency Traders and central banks will attempt to restrain prices
When central bankers face collapse of the currency and bond bubbles a silver price rally will seem unimportant compared to the consequences of a dollar and bond market collapse
CONCLUSIONS
National debt will increase Silver prices will also increase probably soon
Silver prices are currently low as shown by historical ratios with gold the S P and national debt
Expect silver prices to rally based on fundamentals systemic stress and investor demand Expect silver prices to be constrained by the financial and political elite as long as they are able
Expect higher prices for silver in the year and decade ahead
Stack silver It is healthy for your retirement and financial well being
Additional Reading
Turd Ferguson
Phoenix Capital
Zerohedge |
JPM | IForex Daily July 15 2014 | The dollar fell against most major currencies on Tuesday after data showing that U S retail sales unexpectedly fell last month raising speculation that the long awaited interest rate hike might be delayed further Retail sales fell 0 3 in June compared to expectations for a 0 2 increase adding pressure to the dollar The euro also remained under pressure as investors wait to see if the Greek parliament would support harsh austerity measures demanded by the country s creditors in exchange for a deal to avoid financial collapse Four pieces of legislation must be passed by the end of the day on Wednesday including pension and sales tax reforms for the country to be able to release financial aid from its creditors Meanwhile The International Monetary Fund has attacked the bailout deal offered by Eurozone leaders to Greece The creditor said Greece s public debt had become highly unsustainable and it needed relief from its debts For today the U K is to publish its monthly employment report Canada is to release data on manufacturing sales and the U S is to publish figures on industrial production and manufacturing activity in the New York region The BoC is to announce its benchmark interest rate and publish its rate statement
EUR USD
The EUR USD hit highs of 1 1082 following the weak retail sales data from the U S and then fell back to end the day just above the 1 10 level The Commerce Department said retail sales fell 0 3 in June compared to expectations for a 0 2 increase The dollar had edged lower earlier in the session amid concerns that testimony by Federal Reserve Chair Janet Yellen to Congress on Wednesday could push back expectations on the timing of an initial rate hike The euro remains under pressure amid ongoing concerns on Greece where legislation must be passed by the end of the day on Wednesday including pension and sales tax reforms for the country to release financial aid that will prevent a collapse in the country s financial system For today the U S is to publish figures on industrial production and manufacturing activity in the New York region
Pivot 1 0965
Support 1 0965 1 091 1 0865
Resistance 1 1055 1 11 1 116
Scenario 1 Long positions above 1 0965 with targets 1 1055 1 11 in extension Scenario 2 Below 1 0965 look for further downside with 1 091 1 0865 as targets Comment Even though a continuation of the consolidation cannot be ruled out its extent should be limited
OIL
Iran and six world powers reached a long awaited nuclear deal that would end sanctions on Tehran in exchange for restrictions on the country s nuclear program after more than two weeks of negotiating in Vienna early on Tuesday The deal will allow Iran to resume oil exports adding pressure on oil prices A deal with Iran is expected to increase supply by 30 million barrels of crude that the country keeps in its reserves ready for export With oversupply ongoing and abundant economic risk the International Energy Agency and several banks said they had lowered their oil price forecasts Prices gained in afternoon trading supported by data from the API which showed that crude oil stocks fell by 7 3 million barrels last week and received another boost today by China reporting better than expected GDP data Later on Wednesday the U S Department of Energy will release more closely watched figures on U S stocks
Pivot 52 1
Support 52 1 51 43 50 9
Resistance 53 85 54 45 55
Scenario 1 Long positions above 52 1 with targets 53 85 54 45 in extension Scenario 2 Below 52 1 look for further downside with 51 43 50 9 as targets Comment The RSI is mixed to bullish
S P 500
Stocks in the U S posted a fourth straight session of gains on Tuesday as Iran and six world powers reached a long awaited nuclear deal that would end sanctions on Tehran in exchange for restrictions on the country s nuclear program Despite fears that a deal could flood the global crude market at a time when prices are already at historic lows crude oil prices recovered ending the day above 53 a barrel The S P 500 meanwhile rose 0 45 to 2 108 95 as stocks in nine of 10 sectors closed in the green Stocks in the Health Care and Energy industries led each gaining more than 0 9 on the session Stocks in the Utilities sectors lagged ending the session as the only sector in the red For today the U S is to publish figures on industrial production and manufacturing activity in the New York region
Pivot 2135
Support 2038 2006 1972
Resistance 2135 2180 2215
Scenario 1 Short positions below 2135 with targets 2038 2006 in extension Scenario 2 Above 2135 look for further upside with 2180 2215 as targets Comment The RSI is capped by a bearish trend line
JP MORGAN CHASE
Shares in JPMorgan Chase Co NYSE JPM gained more than 1 35 to 69 04 after the largest bank in the U S reported higher profits than expected supported by declines in legal and non interest expenses as well as lower effective tax rates As a result the company s net income rose to 5 78 billion or 1 54 per share up from 5 57 billion or 1 46 during the same period last year |
MS | Oil falls below 65 on signs of U S shale oil revival | By Ron Bousso LONDON Reuters Oil slipped below 65 a barrel on Monday as signs that U S shale oil production was recovering after a recent price rally renewed concerns of a growing global supply glut China s latest move to bolster its economy offset some of the losses as it raised hopes that the world s top energy consumer would help absorb supplies Brent crude for June was down 44 cents at 64 95 a barrel by 0915 GMT 4 15 a m EDT after dropping 1 6 percent last week June U S light crude was down 35 cents to 59 04 a barrel after rising for eight straight weeks the longest winning stretch since early 2013 Analysts talk of a growing disconnect between the futures market which has gained more than 40 percent since its January low and a growing physical supply glut The market is pretty much ahead of itself as the overall outlook is still bearish said Commerzbank XETRA CBKG analyst Eugen Weinberg In a sign that the market is responding to the recent price gains U S drillers added rigs to the Permian basin for the first time this year after weeks of idling rigs Overall the number of active oil rigs declined for the 22nd week in a row but the rate of decline has slowed in recent weeks Analysts at Morgan Stanley NYSE MS said growing supplies in the physical market signs of increasing activity in U S shale oil production and potential for higher OPEC output are weighing on the outlook We have growing concerns about crude fundamentals in the second half of 2015 and 2016 the bank said in a note to clients Brent s four week advance to hit 2015 highs halted late last week as excess European and African crude supply dragged prices down with a rally technically exhausted Investors will be looking at Wednesday s monthly report from the International Energy Agency to see if falling oil prices have boosted global demand for oil Weinberg said China cut interest rates for the third time in six months on Sunday to stoke its sputtering economy which is headed for its worst year in a quarter of century Data on Friday showed China ahead of the United States as the world s top oil importer in April as the Asian economy seized on lower crude prices to stock up
In Libya oil production remained volatile after a protest closed the Nafoura oilfield cutting output at Libya s Arabian Gulf Oil Co AGOCO by some 35 000 barrels per day |
MS | Fitness software firm Mindbody files for IPO | Reuters Mindbody Inc a maker of software to help run fitness and yoga studios filed with U S regulators on Monday for an initial public offering of common stock Morgan Stanley NYSE MS Credit Suisse SIX CSGN and UBS Investment Bank are among the underwriters to IPO Mindbody said Founded in 1998 Mindbody makes business management software for wellness and fitness boutiques and has since expanded to spas and beauty salons Customers pay a monthly fee to use the software which serves more than 42 000 local business subscribers in 124 countries and territories Mindbody said Reuters reported in January that Mindbody was working with banks for an initial public offering that could value it at more than 700 million The company has raised more than 100 million in funding with backers such as W Capital Partners Bessemer Venture Partners Catalyst Investors and Institutional Venture Partners The market for business management software solutions aimed at wellness businesses is expected to grow by 17 percent to 15 3 billion in 2018 according to research firm Frost and Sullivan Mindbody s revenue rose about 44 percent to 70 million for the year ended Dec 31 2014 compared with a year earlier The company said it intended to list its class A common stock under the symbol MB but did not reveal the exchange it plans to list on Mindbody s filing included a nominal fundraising target of about 100 million The amount of money a company says it plans to raise in its first IPO filing is used to calculate the registration fees The final size of the IPO could be different |
MS | UK Sells More Shares In Lloyds Banking Group | By
Britain s finance ministry said it had now raised more than 10 billion pounds 15 6 billion through the sale of more than half its shares in Lloyds Banking Group LONDON LLOY which was bailed out during the 2007 9 financial crisis
The Treasury said on Tuesday that it had reduced its stake by a further 1 percentage point to 19 93 percent days after a surprise election triumph for the Conservative party sent the bank s shares soaring to multi year highs
Lloyds was rescued at a cost of 20 billion pounds to taxpayers leaving the government holding a 41 percent stake It began selling the shares to institutional investors such as pension funds and insurers in September 2013
Finance Minister George Osborne has said the government plans to sell at least 9 billion pounds worth of the shares in the next year including a sale at a discount to private retail investors
These sales have only been made possible by our long term economic plan and we are determined to build on this success and to continue to return Lloyds to the private sector and reduce our national debt he said
The latest sale was through a pre arranged trading plan which UK Financial Investments UKFI the body that manages the government s stakes in bailed out banks had appointed U S investment bank Morgan Stanley NYSE MS to undertake |
MS | Castleton joins oil trade titans with Morgan Stanley deal | By Jonathan Leff NEW YORK Reuters Castleton Commodities International will buy Morgan Stanley NYSE MS s physical oil business the largest and oldest on Wall Street vaulting the Connecticut based merchant into the big leagues of global crude and fuel traders In a long awaited deal that appears to mark the end of the Wall Street bank s more than three decade history as a major player in physical oil markets Castleton will gain several dozen oil tank storage leases physical oil supply and purchase contracts and a team of about a hundred traders Neither Morgan Stanley nor Castleton released terms of the transaction but analysts estimated the deal to be valued at slightly more than 1 billion This principally represents the value of oil inventories in storage or transit The deal will not be material for Morgan Stanley the bank said Castleton a Connecticut based trading group now owned by a private equity group of hedge fund and trading veterans will have more scale and scope to compete in the massive global oil market The deal aligns well with our goal of becoming a top tier global multi commodity merchant said CCI s Chief Executive and President William C Reed II a former Enron and hedge fund trader who has been running the firm since 2008 Morgan s Global Oil Merchanting unit has traded around 2 million barrels per day bpd of crude and oil products over the past five years and has 45 oil storage leases for some 30 million barrels mainly in the United States and Europe CCI said About a hundred front office staff including traders and shippers are expected to move to CCI with the transaction according to a person familiar with the deal In total as many as 200 employees may transfer to CCI a second person said The bank s Tom Simpson and Fabrizio Zichichi will lead CCI s global oil trading business the firm said While Morgan Stanley will maintain its client facing oil trading business including both physical and paper transactions the sale concludes the bank s years long effort to divest a physical trading division that had come under intense regulatory scrutiny and suffered waning profitability The bank still plans to sell its stake in oil tanker group Heidmar which was not part of the deal a source said GOING BIG ON OIL For Castleton oil has been a weaker spot relative to the group s large books in power natural gas and gas liquids markets Its predecessor firm sold a portfolio of midstream gas liquid assets for 2 billion Castleton which was originally founded nearly two decades ago as the energy trading division of French commodities merchant Louis Dreyfus has already doubled in size to more than 650 staff since it was bought in 2012 by a private equity group including famed hedge fund managers Glenn Dubin and Paul Tudor Jones as well as Paul Fribourg the head of Continental Grain With the Morgan Stanley team the group s global headcount is expected to top 900 according to a person familiar with the company While still small compared to rivals like Vitol and Trafigura which employ thousands of people to run large infrastructure subsidiaries or projects it is a sizeable sum for a relatively asset light company rivals say END OF AN ERA Assuming the deal clears regulatory approval which is expected in the second half of the year it will be the third time lucky for Morgan Stanley which has been trying to sell the division for years as the Federal Reserve stepped up pressure on Wall Street to get out of the physical commodities business Early talks with Qatar failed to clinch a deal while a preliminary agreement in late 2013 to sell to Russian oil giant Rosneft fell apart as Washington stepped up sanctions on Moscow
Wall Street s largest and most enduring oil trading desk rose to fame in the early 1990s as a trader named Olav Refvik secured a host of leases on storage tanks at a key import hub earning him the moniker King of New York Harbor Refvik and several other senior founding executives left several years ago A Senate investigations report published last year revealed that while Morgan Stanley used to charter about 100 oil tankers a month by 2014 the number had declined to 10 15 a month Net revenues from its oil desk had declined from a peak of around 1 3 billion in 2008 to 676 million in 2012 it showed Still the bank has not completely turned its back on commodities It said commodities revenues rose 2 percent in the first quarter even after its strong performance a year earlier when cold weather spurred massive volatility |
MS | No class action vs Morgan Stanley alleging Detroit predatory lending | By Jonathan Stempel and Nate Raymond NEW YORK Reuters A federal judge in Manhattan on Thursday refused to let thousands of Detroit homeowners sue Morgan Stanley NYSE MS as a group for allegedly pushing a subprime lender into making risky loans they could not afford U S District Judge Valerie Caproni said her decision was likely a death knell for the lawsuit and that an appeal may be appropriate but that the plaintiffs claims were too varied to be addressed in a single class action The complaint was originally filed in October 2012 by the American Civil Liberties Union in what that group called the first U S lawsuit accusing an investment bank of discrimination for having packaged subprime mortgage loans into securities Homeowners accused Morgan Stanley of violating the federal Fair Housing Act by pushing now defunct New Century Financial Corp into issuing shoddy mortgages so that the Wall Street bank could make more money by packaging them into securities The subprime mortgage crisis undoubtedly damaged our economy and may have as plaintiffs contend exacerbated preexisting racial disparities in socioeconomic status Caproni wrote in a 50 page decision While the court is not unsympathetic to plaintiffs claims the harmfulness of the terms that plaintiffs claim that Morgan Stanley caused New Century to include in loans and the role that Morgan Stanley played in causing the terms of specific plaintiffs loans differ considerably she added Accordingly plaintiffs proposed class is unworkable Morgan Stanley did not immediately respond to a request for comment Lawyers for the plaintiffs did not immediately respond to a similar request Many other U S lawsuits have targeted mortgage lenders themselves for allegedly steering minority borrowers into onerous home loans leading to more foreclosures The Detroit plaintiffs had sought class action status for all blacks who lived in that area from 2004 and 2007 and received New Century loans that carried an increased risk of default Caproni said the variations among prospective class members would require mini trials as to many maybe hundreds of groups of borrowers making certification of one class inappropriate
The case is Adkins et al v Morgan Stanley et al U S District Court Southern District of New York No 12 07667 |
MS | Exclusive UK may extend trading plan to sell more Lloyds shares | By Matt Scuffham LONDON Reuters Britain is considering selling more shares in Lloyds Banking Group L LLOY by extending a trading facility beyond the current deadline at the end of June people with knowledge of the matter said Morgan Stanley N MS has sold a 5 percent stake in Lloyds since December through a pre arranged trading plan that it was asked to undertake by UK Financial Investments UKFI the government agency which manages Britain s stakes in bailed out banks The government s stake has been cut to 19 9 percent from 24 9 percent through the plan which has so far raised over 2 5 billion pounds 3 95 billion for taxpayers An extension could help the government to return Lloyds fully to private ownership in the next year The trading plan is due to end on June 30 but may be prolonged to accelerate the government s exit The process known as a dribble out allowed Morgan Stanley to undertake regular sales of the shares provided they were sold above the government s 73 6 pence buy in price and the sales didn t exceed 15 percent of overall trading volumes It effectively allowed the government to continue selling shares in Lloyds in the run up to this month s election without facing accusations that the sales were politically motivated Finance Minister George Osborne said in March that he wanted to sell at least 9 billion pounds worth of stock in Lloyds over the next year In addition to the trading plan the government plans to sell a chunk of shares to private retail investors potentially raising around 4 billion pounds Since the March announcement the value of shares in the bank have risen by 12 percent enabling the government to sell them at a significant profit Lloyds Chairman Norman Blackwell said on Thursday it was possible and desirable for Lloyds to return to full private ownership in the next year Prior to using the plan UKFI had raised 7 4 billion pounds through two separate sales in which shares were sold overnight to financial institutions through a process known as an accelerated bookbuild That method limited UKFI s options for selling as there were only a few windows during the year when this was possible It could only sell during periods immediately after trading updates and when institutions were willing to buy large chunks of shares Those limitations may persuade UKFI to extend the trading plan as it offers more flexibility the sources said
Shares in Lloyds were little changed at 88 74 pence at 1430 GMT 10 30 a m ET |
MS | Property management software maker AppFolio files for IPO | Reuters AppFolio Inc a maker of online property management software filed with U S regulators on Monday for an initial public offering of common stock Morgan Stanley NYSE MS Credit Suisse SIX CSGN Pacific Crest Securities and William Blair are underwriters to the IPO The California based company whose investors include BV Capital and IGSB provides software to small and medium sized property managers and also offers legal software for small law firms under the brand MyCase AppFolio s revenue rose 61 percent to 15 8 million for the quarter ended March 31 Net loss widened to 3 6 million from 1 2 million a year earlier The company was founded in 2006 by Klaus Schauser a former professor of computer science at the University of California and Jon Walker The software market for small and medium sized businesses is expected to double to 125 billion between 2013 and 2016 according to research firm Parallels The regulatory filing had a nominal fundraising target of 100 million but did not state how many shares the company or its shareholders planned to sell or their expected price AppFolio intends to list its class A common stock on the Nasdaq under the symbol APPF Fitness business software firm Mindbody also filed for an IPO last week The amount of money a company says it plans to raise in its initial IPO filings is used to calculate registration fees The final size of the IPO could be different |
JPM | Play Nafta with puts on EWW JPMorgan | It s not exactly the most original idea but nevertheless JPMorgan NYSE JPM s Shawn Quigg suggests taking advantage of a multi year low in volatility by buying volatility specifically the Jan 2018 put struck at 51 on the iShares MSCI Mexico Capped ETF NYSEARCA EWW Priced in already The EWW is down more than 10 over the last three months current price is 51 55 The window for Nafta negotiation is somewhat hemmed in he says thanks to the 2018 Mexican presidential election Source Bloomberg s Aline OyamadaNow read |
JPM | BOJ sees less to fret about low inflation policy on hold | By Leika Kihara TOKYO Reuters Japan s central bank is set to roughly maintain its price forecasts at its policy meeting next week and blame stagnant inflation on factors like corporate efforts to boost productivity signaling that it will hold off on expanding stimulus for the time being Bank of Japan Governor Haruhiko Kuroda is also likely to stress that the bank is nowhere near dialing back its massive stimulus program with inflation distant from its 2 percent target The rate review comes in the wake of premier Shinzo Abe s victory in a weekend election which heightened expectations the BOJ s ultra loose policy a key pillar of his Abenomics stimulus policies will be sustained regardless of who succeeds Kuroda when his term ends next April There s a strong chance Kuroda will be reappointed which means the BOJ s policy framework won t change much said Hiroshi Ugai chief Japan economist at JPMorgan NYSE JPM The BOJ s next move could be to raise its long term yield target but that won t happen at least until late next year At the two day meeting ending on Tuesday the BOJ is set to keep intact a pledge to guide short term interest rates at minus 0 1 percent and the 10 year bond yield around zero percent The market s focus would be on whether Goushi Kataoka a board newcomer who voted against keeping policy steady last month will propose expanding stimulus While any such proposal is likely to be voted down by others who see no need to ramp up monetary support amid a strengthening economy it may expose a fresh rift in the board on the future direction of monetary policy STRUCTURAL FACTORS In a quarterly review of its projections due on Tuesday the BOJ is seen slightly trimming its inflation forecast for the current year ending in March 2018 from an estimate of 1 1 percent made in July said sources familiar with its thinking The bank is seen roughly maintaining its price forecasts for fiscal 2018 and 2019 as well as its view that inflation will hit its target by March 2020 they said The BOJ currently projects inflation to hit 1 5 percent in fiscal 2018 well above a Reuters poll of 0 8 percent and 1 8 percent the following year With the economy in good shape BOJ officials have recently explained slow inflation as being the result of companies efforts to avert wage hikes by automating and streamlining operations While such efforts may weigh on prices in the short term they would eventually boost inflation and Japan s long term growth potential by enhancing productivity they say We shouldn t be too negative about the fact wage and inflation growth remains subdued BOJ board member Makoto Sakurai said last week a view Kuroda is likely to echo in his post meeting news conference Japan s economy expanded at an annualized 2 5 percent in the second quarter as consumer and corporate spending picked up with steady growth likely to be sustained in coming quarters
But core consumer prices rose just 0 7 percent in August from a year earlier well below the BOJ s target keeping the bank under pressure to maintain ultra easy policy even as its U S and European peers begin to dial back stimulus |
C | DBS CEO sees wealth management business as key growth driver | By Marius Zaharia and Anshuman Daga SINGAPORE Reuters Singapore lender DBS Group is expanding its wealth management business and expects the segment will account for as much as a fifth of its revenues in a few years as it capitalizes on a trend of Asia growing richer its CEO Piyush Gupta said Southeast Asia s largest bank by assets which has broken into the ranks of the top five private banks in Asia helped by medium sized acquisitions will look for more bolt on purchases to grow its wealth business Gupta told Reuters in an interview ahead of a Reuters Newsmaker on Thursday DBS s wealth management business has doubled in the last five years and is now around 15 percent of its revenue Our ambition in the next few years is to get it to 20 percent of the bank Gupta said DBS Group s emphasis on wealth management comes as Asia Pacific has become the fastest growing wealth region in the world in recent years with nearly 5 million individuals estimated to have 1 million in liquid assets But it is also a very competitive business in Asia led by global players such as UBS and Citigroup NYSE C Several smaller Western players have retreated or are in the process of pulling back from Asian markets due to the poor economies of scale creating opportunities for DBS and smaller rival Oversea Chinese Banking Corp to scoop up assets DBS in which state investor Temasek Holdings TEM UL owns a nearly 30 percent stake will look at opportunities for such bolt on acquisitions as assets in the 10 billion to 20 billion range are coming to the market Gupta said The DBS CEO however said he did not expect any of the big players to leave the market any time soon Income from DBS wealth management unit jumped 19 percent to S 1 7 billion 1 2 billion in 2016 The bank s high net worth assets under management AUM will grow to 85 billion and total wealth AUM to 137 billion after it consolidates assets bought from Australia and New Zealand Banking Group last year Under Gupta 57 who took over the reins in 2009 DBS has more than doubled its group profits and turned around its underperforming Hong Kong unit But while DBS has diversified its business franchise to focus more on transactional banking and wealth management the bank still earned about 70 percent to 80 percent of its profits from Singapore in recent years highlighting its dependency on its home market At the Reuters Newsmaker event Gupta said his goal is for Singapore s share to fall to 50 percent over the next decade as the city state s economy grows at subdued rates of 2 3 percent His ambition is to grow DBS presence in China India and Indonesia he said DBS s core strategy is to grow organically and digitalize he said adding he does not believe acquisitions at scale are the way to go for the bank Trying to acquire a large bank might be playing yesterday s game as opposed to playing tomorrow s game Gupta said IN THE SADDLE Gupta said the downturn in the oil and gas industry was showing signs of stalling and the impact to Singapore banks would be less In the short term I think for most of the banking sector the worst was seen in 2016 I am beginning to see some level of activity pick up that should put some more life into this industry he said adding that renewed investments were helping the sector Earlier this month DBS reported a 9 percent fall in quarterly profit and booked higher provisions for bad loans hobbled by debt payment woes in the city state s oil services sector OCBC said parts of its portfolio would remain stressed due to the struggling industry In terms of succession planning at DBS Gupta said a slate of internal candidates have been identified but he had no plan to move on
In Singapore the official retirement age is 62 And as you know the government encourages people to stay till 67 so I have a reasonable runway Gupta said |
C | Dollar gains as U S March rate hike seen more likely | By Karen Brettell NEW YORK Reuters The dollar gained to seven week highs against a basket of currencies on Thursday after hawkish comments by a Federal Reserve official late on Wednesday encouraged investors to expect a near term interest rate hike Fed Governor Lael Brainard said an improving global economy and a solid U S recovery mean it will be appropriate soon for the Federal Reserve to raise rates adding an important voice to the chorus of officials signaling rates may rise as soon as mid March Those remarks come after New York Fed President William Dudley and San Francisco Fed President John Williams rattled investors on Tuesday with more aggressive than expected language about raising rates We ve had this great run of data in the U S and the expectation on a March rate move has gone up said Steven Englander global head of foreign exchange strategy at Citigroup NYSE C in New York Futures traders are now pricing in a 78 percent chance of a Fed hike in March up from 66 percent on Wednesday and from 35 percent on Tuesday according to the CME Group s FedWatch Tool Fed Chair Janet Yellen and Vice Chair Stanley Fischer are both due to speak on Friday The dollar rose 0 38 percent against a basket of six major currencies DXY to 102 17 its highest since Jan 11 The greenback was last up 0 64 percent against the Japanese yen at 114 43 the highest since Feb 15 and gained 0 41 percent against the euro to 1 0503 The dollar has strengthened even as many analysts see limited further gains for the currency due to worries about the impact of higher rates and a stronger dollar on global growth High yielding emerging market currencies including the South Korean won South African rand and Brazilian real have also performed strongly this year despite the rise in Treasury yields Ten year U S bond yields US10YT RR have failed to hold over 2 50 percent for any prolonged period despite weakening dramatically since Donald Trump won the U S election in November A sustained move higher however could weigh on emerging market currencies said Citi s Englander
If the numbers come in strong enough and the Fed comments come in strong enough to break the range the question would be whether the optimism on emerging currencies would really be justified he said |
C | Wall Street eases dollar up on March Fed rate hike bets | By Sinead Carew NEW YORK Reuters Wall Street fell as investors took a breather on Thursday after a record day while the dollar strengthened on positive U S data and growing expectations the Federal Reserve will raise interest rates this month Federal Reserve Governor Lael Brainard said late on Wednesday that an improving global economy and a solid U S recovery meant it would be appropriate soon to raise rates The comments followed hawkish statements from two central bankers earlier in the week Fed Chair Janet Yellen is due to speak on the economic outlook in Chicago on Friday On top of this data showed the number of Americans filing for unemployment benefits fell to near a 44 year low last week pointing to further tightening of the labor market We ve had this great run of data in the U S and the expectation on a March rate move has gone up Steven Englander global head of foreign exchange strategy at Citigroup NYSE C in New York Federal fund futures prices suggest markets now see a 75 percent chance of a 25 basis point hike in March up from 66 percent on Wednesday and from 35 percent on Tuesday according to CME Group s FedWatch tool At 10 38 a m ET the Dow Jones Industrial Average DJI was down 17 21 points or 0 08 percent to 21 098 34 the S P 500 SPX had lost 6 98 points or 0 29 percent to 2 388 98 and the Nasdaq Composite IXIC had dropped 19 73 points or 0 33 percent to 5 884 30 The FTSEurofirst 300 FTEU3 index rose 0 12 percent but MSCI s global stocks index MIWD00000PUS was down 0 2 percent after touching another intraday record high MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS fell 0 05 percent while Japan s Nikkei N225 closed up 0 9 percent after hitting a 14 month high as a weaker yen helped exporters The dollar index DXY which measures the greenback against a basket of six major currencies was up 0 3 percent at seven week highs The dollar has strengthened even as many analysts see limited further gains for the currency due to worries about the impact of higher rates and a stronger dollar on global growth The greenback was last up 0 64 percent against the Japanese yen at 114 43 the highest since Feb 15 while the euro fell 0 3 percent to 1 0516 In fixed income markets U S Treasury yields pushed higher on the prospect of higher rates U S 2 year yields extended their climb and hit their highest since Aug 2009 of 1 32 percent while 3 year yield hit a nearly 11 week high of 1 598 percent The 10 yr yield hit a 2 week high of 2 49 percent Oil prices fell for a third consecutive day after a record build up in U S crude inventories and data showing Russian oil production was unchanged last month Brent crude LCOc1 fell 1 6 percent to 55 46 a barrel while U S crude was down 1 6 percent at 52 97
The dollar put metals prices under pressure Copper fell 1 3 percent to 5 941 a tonne while gold fell 0 6 percent to 1 240 66 an ounce |
C | Citigroup sees 10 percent plus rise in quarterly markets revenue | NEW YORK Reuters Citigroup NYSE C expects first quarter trading revenue will be up by a low double digit percentage from a year earlier Chief Financial Officer John Gerspach said on Tuesday
Gerspach speaking at an investor conference said markets revenue is doing well in both fixed income and equity trading The company plans to report results for the quarter ending this month on April 13 |
C | China s Tencent seeks 2 billion loan amid investment drive Basis Point | HONG KONG Reuters Chinese tech giant Tencent Holdings is in talks with banks to raise up to 2 billion in new debt funding Basis Point reported citing three people familiar with the financing plans amid a flurry of fund raising by China s internet giants Tencent is looking to raise a bullet loan with a five year maturity Basis Point a Thomson Reuters publication reported Citigroup NYSE C was coordinating the financing while at least six Chinese and foreign banks in Hong Kong planned to join Tencent best known for its WeChat mobile app has been on an investment drive in a wide array of sectors such as gaming entertainment cloud computing and online financing as it vies with rivals Alibaba NYSE BABA Group Holding and Baidu Tencent raised 7 94 billion in two syndicated loans in the past nine months Basis Point said including 3 5 billion in October to back a deal for a majority stake in Finnish mobile game developer Supercell Oy
Tencent did not respond to requests for comment when contacted by Reuters Citigroup declined to comment |
C | All Eyes On Draghi Trump s Tariffs | ECB Meeting What to expect
Following a two day Governing Council meeting the European Central Bank will give its policy decision on Thursday at 12 45 GMT Market participants will be paying particular attention to President Draghi s views on the eurozone economy and inflation expectations at his post meeting press conference Whilst the central bank is not expected to make any changes to current policy the ECB is expected to tweak the forward guidance
Draghi to drop easing bias
Given the solid recovery in the eurozone economy across 2017 it is becoming increasingly difficult for the ECB to stick with its easing bias in the forward guidance After no tweaks were made in January on Thursday Draghi is expected to drop the ECB s pledge to increase its asset purchases if necessary from the statement Any further broader revision of the forward guidance is not expected until the summer
However don t be fooled into thinking this will be a straight out hawkish meeting In order to counteract the hawkish tweak to the forward guidance we expect Draghi to portray an overall cautious tone to prevent where possible any strong unwanted increase in the value of the euro
Draghi and Euro strength
Euro strength hasn t been as much of a concern in the lead up to this meeting compared to the January meeting The euro has dipped around 2 over recent weeks although this hasn t been the case on a trade weighted basis where the euro continues to hover around a three year high However in recent sessions the euro has rallied hard versus the dollar as trade war concerns have weighed on the greenback Whilst increased euro strength is an added challenge for the ECB in trying to achieve its aim of 2 inflation we expect Draghi to stick to his usual game of skirting the issue We don t expect any change from his usual line that the ECB does not target exchange rates
Inflation forecasts
Draghi will update the market with inflation forecasts in the post meeting press conference We are not expecting any significant changes to current forecasts Eurozone inflation hit a 14 month low in February highlighting that sluggish inflation remains a key challenge for the central bank as it fails to pick up towards the ECB s 2 target
Concerns are edging higher that the eurozone s recovery is stalling at the beginning of 2018 as the Citigroup NYSE C economic surprises index drops into negative territory and to its lowest level since 2016 This reflects economic releasees coming in below consensus forecast With the recovery stalling inflation may struggle to tick higher
A word on trade wars
If Draghi takes a swipe at Washington over the growing fears of a trade war it wouldn t be the first time just think back to Washington talking down the dollar Trade war fears and the resignation of Trump s economic advisor Gary Cohn have weighed on the dollar in recent sessions boosting the euro A continuation of this trend of a stronger euro will further hinder the ECB s aim of bringing inflation towards target potentially pushing monetary policy normalisation further into the future
Potential market reaction
EUR USD is currently sitting at a two week high at 1 2430 thanks to downward pressure on the dollar The removal of the easing bias in the forward guidance is likely to result in a boost to treasury yields which will push the euro higher potentially to the psychological level of 1 25 before the targeting the three year high at 1 2555
On the downside should Draghi fail to adjust the forward guidance or should he be heavy handed on the cautious tone the euro could sell off towards a strong support line seen at 1 2360 |
JPM | How To Punish Bank Felons | What exactly does it mean for a big Wall Street bank to plead guilty to a serious crime Right now practically nothing
But it will if California s Santa Cruz County has any say
First some background
Five giant banks including Wall Street behemoths JPMorgan Chase NYSE JPM and Citicorp NYSE C recently pleaded guilty to criminal felony charges that they rigged the world s foreign currency market for their own profit
This wasn t a small heist We re talking hundreds of billions of dollars worth of transactions every day
The banks altered currency prices long enough for the banks to make winning bets before the prices snapped back to what they should have been
Attorney General Loretta Lynch a brazen display of collusion that harmed countless consumers investors and institutions around the globe from pension funds to major corporations and including the banks own customers
The penalty The banks have agreed to pay 5 5 billion That may sound like a big chunk of change but for a giant bank it s the cost of doing business In fact the banks are likely to deduct the fines from their taxes as business costs
The banks sound contrite After all they can t have the public believe they re outright crooks
It s an embarrassment to our firm and stands in stark contrast to Citi s values says Citigroup CEO Michael Corbat
Values Citigroup s main value is to make as much money as possible Corbat himself raked in last year
JPMorgan CEO Jamie Dimon calls it a great disappointment to us and says we demand and expect better of our people
Expect better If recent history is any guide think of the bank s notorious London Whale a few years ago and before that the wild bets leading to the 2008 bailout JPMorgan expects exactly this kind of behavior from its people
Which helped Dimon rake in last year as well as a 7 4 million cash bonus
When real people plead guilty to felonies they go to jail But big banks aren t people despite what the five Republican appointees to the Supreme Court say
The executives who run these banks aren t going to jail either Apologists say it s not fair to jail bank executives because they don t know what their rogue traders are up to
Yet ex convicts often suffer consequences beyond jail terms
In many states they lose their right to vote They can t run for office or otherwise participate in the political process
So why not take away the right of these convicted banks to participate in the political process at least for some years That would stop JPMorgan s Dimon from lobbying Congress to roll back the Dodd Frank act as he s been doing almost non stop
Why not also take away their right to pour money into politics Wall Street banks have been among the biggest contributors to political campaigns If they re convicted of a felony they should be barred from making any political contributions for at least ten years
Real ex convicts also have difficulty finding jobs That s because rightly or wrongly many people don t want to hire them
A strong case can be made that employers shouldn t pay attention to criminal convictions of real people who need a fresh start especially a job
But giant banks that have committed felonies are something different Why shouldn t depositors and investors consider their past convictions
Which brings us to Santa Cruz County
The county s board of supervisors just voted not to do business for five years with any of the five banks felons
The county won t use the banks investment services or buy their commercial paper and will pull its money out of the banks to the extent it can
We have a sacred obligation to protect the public s tax dollars and these banks can t be trusted Santa Cruz County should not be involved with those who rigged the world s biggest financial markets supervisor Ryan Coonerty
The banks will hardly notice Santa Cruz County s portfolio is valued at about 650 million
But what if every county city and state in America followed Santa Cruz County s example and held the big banks accountable for their felonies
What if all of us taxpayers said in effect we re not going to hire these convicted felons to handle our public finances We don t trust them
That would hit these banks directly They d lose our business Which might even cause them to clean up their acts
There s hope Supervisor Coonerty says he ll be contacting other local jurisdictions across the country urging them to do what Santa Cruz County is doing |
JPM | Are HFTs Responsible For Low Market Volatility | I received a number of thoughtful responses from last post about falling equity volatility see Will the quants blow up the markets again One of the themes that was repeated several times in the comments pointed to HFT algos as a possible culprit for the low volatility regime On the surface the HFT explanation does make sense HFTs are supposed to provide liquidity to the market during normal markets and the current market regime is normal reported that a study on HFT behavior based on Norway s SWF trading activity and found that in aggregate HFT algos were providing liquidity to orders and not front running them emphasis added
High frequency traders are more prone to first go against the flow of orders by large institutions according to a study based on trade data provided by investors including Norway s 890 billion wealth fund The study found that HFTs lean against the order in the first hour and then turn around and go with the flow in the case of multi hour trades the study by University of Amsterdam professors Vincent van Kervel and Albert J Menkveld released Thursday showed Trading costs are 39 percent lower when the HFTs lean against the order by one standard deviation and 64 percent higher when they go with it they said The results are inconsistent with front running in the sense of HFTs who detect a large long lasting order right from the start and trade along with it van Kervel and Menkveld said We speculate that HFTs eventually feel the imbalance caused by it In response they trade out of their position as they understand that leaning against such order as a market maker requires a long lasting inventory position HFTs prefer to be flat at the end of the day
How fat are the tails Another way of thinking about market volatility is to see if stock returns have fat tails One statistical measure is kurtosis which is explained this way
Having discussed the shape of a normal distribution we can talk about kurtosis and what it means to have fat tails and peakedness The total area under a curve is by definition equal to one With that in mind think about what having fatter tails might mean If you were to think of a curve having three parts all imaginary the peak the shoulder or the middle part and the tails you can imagine what happens if you stretch the peak up That reduces variance and probably sucks in mass from the shoulders But in order to keep the variance the same the tails rise higher increasing variance and also providing fatter tails Fat tails would imply there is more area under the tails which means something else has to reduce elsewhere which means that the shoulders shrink making the peak taller In order to compare kurtosis between two curves both must have the same variance At the risk of being repetitive note that the variance has an impact on the shape of a curve in that the greater the variance the more spread out the curve is When we say that kurtosis is relevant only when comparing to another curve with identical variance it means that kurtosis measures something other than variance
For the non geeks here is how you interpret kurtosis A standard normal distribution has a kurtosis of 0 and fat tailed distributions have positive kurtosis Here is a chart of the rolling one year kurtosis of daily SPX returns going back to 1990 First the median kurtosis is 1 34 indicating that stock returns have fatter tails than a typical normal distribution and option traders using the Black Scholes model which is based on a normal distribution know that fact well As well kurtosis has been falling since 2011 indicating that the tails are getting thinner This is not unusual as there has been episodes in the past when kurtosis has been even lower than they are today
If HFTs are coming into the market and providing liquidity by buying the dips and selling the rips at a micro level then we should expect kurtosis to fall An HFT Bataan death march The hypothesis that HFT algos were the cause of the low volatility environment is intuitively attractive from a data standpoint but illogical from a business viewpoint That s because HFT profitability has been tanking for the last several years This story from 2013 two years ago show how HFT industry profitability has cratered over the years
According to Rosenblatt in 2009 the entire HFT industry made around 5 billion trading stocks Last year it made closer to 1 billion By comparison JPMorgan Chase NYSE JPM earned more than six times that in the first quarter of this year The profits have collapsed says Mark Gorton the founder of Tower Research Capital one of the largest and fastest high frequency trading firms The easy money s gone We re doing more things better than ever before and making less money doing it The margins on trades have gotten to the point where it s not even paying the bills for a lot of firms says Raj Fernando chief executive officer and founder of Chopper Trading a large firm in Chicago that uses high frequency strategies No one s laughing while running to the bank now that s for sure A number of high frequency shops have shut down in the past year According to Fernando many asked Chopper to buy them before going out of business He declined in every instance
This slide from an in 2014 tells the same story annotations in purple are mine
Given how industry margins has fallen over the years and the reports of diminishing HFT profitability came out in 2013 it would be illogical for the industry to engage in a further arms race to drive down volatility further Such an act would amount to a Bataan death march for HFT Based on this analysis HFT algos may have contributed to the decline in equity volatility since 2011 but I cannot conclude that they were the main culprits The mystery of equity market volatility compression still remains a mystery
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 |
JPM | IForex Daily July 06 2014 | Greek voters said no on Sunday declining further austerity measures and leaving European leaders to decide on whether the country will remain in the euro or not Sixty one percent of voters backed Prime Minister Alexis Tsipras s rejection of further spending cuts and tax increases in a referendum that s also taken the country to the brink of financial collapse Tsipras described the result as a great victory and said Athens would return to the negotiating table on Monday with a strengthened hand The result send the first shock waves to the markets with a drop in the euro to a four week low against the dollar while DAX futures opened with a huge gap of more than 350 points to the downside Asian stocks hit a six month low with Japan s Nikkei falling by 2 4 percent while U S equity futures dropped 1 3 percent German Chancellor Angela Merkel and French President Francois Hollande called for an emergency leaders summit on Tuesday The two leaders will first meet Monday in Paris to discuss Europe s next move The result turns the tables on Merkel and Greece s other creditors who must now decide if a financial rescue of the region s most indebted country is still possible Elsewhere in China over the weekend it was reported that the country is establishing a market stabilization fund aimed at fighting off the recent stock selloff For Monday Germany is to release data on factory orders while in the U S the Institute of Supply Management is to release data on service sector activity
EUR USD
The euro posted a sharp drop on Monday after the Greek referendum resulted in a rejection of the proposed bailout terms from international creditors raising concerns regarding the country s financial system its future in the euro zone and the reactions from other indebted members of the bloc Reports suggested that as many as 60 of voters rejected the terms with Greek Prime Minister Alexis Tsipras saying that the no vote has provided the country a stronger hand to continue negotiating with creditors German Chancellor Angela Merkel and French President Francois Hollande called for an emergency leaders summit on Tuesday The two leaders will first meet Monday in Paris at 6 30 p m to discuss Europe s next move For Monday Germany is to release data on factory orders while in the U S the Institute of Supply Management is to release data on service sector activity
Pivot 1 1085
Support 1 098 1 095 1 09
Resistance 1 1085 1 112 1 1155
Scenario 1 Short positions below 1 1085 with targets 1 098 1 095 in extension Scenario 2 Above 1 1085 look for further upside with 1 112 1 1155 as targets Comment As long as 1 1085 is resistance look for further downside
GOLD
Gold prices rose slightly in Asia on Monday after Greek voters rejected the bailout terms from international creditors and as the European leaders are preparing to tackle any upcoming market turbulence extreme reactions and contagion effects Asian policymakers in China and Japan are also preparing for any fallout from the Greek No vote at the weekend as Greece s Prime Minister Alexis Tsipras said Sunday he wanted a quick deal with its creditors and to restore banking sector operations to avert a humanitarian crisis For today a meeting between German Chancellor Angela Merkel and French President Francois Hollande will be in focus as they meet Monday in Paris to discuss Europe s next move Elsewhere the Institute of Supply Management in the U S is to release data on service sector activity
Pivot 1163
Support 1163 1156 3 1153
Resistance 1175 1180 5 1185
Scenario 1 Long positions above 1163 with targets 1175 1180 5 in extension Scenario 2 Below 1163 look for further downside with 1156 3 1153 as targets Comment The RSI lacks downward momentum
OIL
Oil prices fell sharply on Monday after Greek voters rejected the bailout terms proposed by creditors while China took emergency measures to prevent a stock market crash raising concerns about poor demand for the fuel The result of the Greek referendum added strong pressures on the euro against the dollar on Monday affecting oil demand as the fuel will be more expensive for holders of other currencies In China brokerages and fund managers agreed to buy massive amounts of stocks to support markets This turmoil in Chinese financial markets combined with the recent rise in U S drilling rigs and a potential increase in Iranian oil supply continue to pressure the markets as investors attention is shifted towards an emergency leaders summit on Tuesday
Pivot 56 8
Support 54 4 53 7 52 6
Resistance 56 8 57 95 58 4
Scenario 1 Short positions below 56 8 with targets 54 4 53 7 in extension Scenario 2 Above 56 8 look for further upside with 57 95 58 4 as targets Comment As long as 56 8 is resistance likely decline to 54 4
DAX
DAX futures took a big hit after Greece voted No to harsh bailout conditions posting a drop of more than 350 points Markets are now waiting for the response of the European Central Bank s and are on watch for any signs of contagion Economists at U S banking giant JPMorgan NYSE JPM stated that Although the situation is fluid at this point Greek exit from the euro appears more likely than not Many banks said the central bank may also have to issue a statement on anti contagion measures perhaps holding out the possibility of expanding its quantitative easing program in order to calm wider markets Deutsche Bank XETRA DBKGn said it was prepared for any market volatility Investors attention is shifted towards a meeting between Hollande and Merkel on Monday and on an emergency leaders summit on Tuesday
Pivot 10800
Support 10800 10370 10000
Resistance 11600 11900 12390
Scenario 1 Long positions above 10800 with targets 11600 11900 in extension Scenario 2 Below 10800 look for further downside with 10370 10000 as targets Comment The RSI is mixed |
JPM | Gold And Silver Spot Prices Increasingly Detached from Reality | An insolvent Greece has defaulted On June 30th officials missed repayment of billions in lMF loans and declared a banking holiday Predictably many Greek citizens responded to the crisis and bought gold coins So did a lot of people here in the U S and around the world You just wouldn t know it by looking at spot prices
The regular disconnect between the futures markets where spot prices are set and the physical markets reveals a growing problem The link between the spot price and physical demand is thin at best That is why the base price for gold coins in an Athens coin shop can get cheaper but the all in cost of buying the coins goes up as the line of buyers grows
The availability of metals in a retail form is one cause But the disconnect also has to do with the mechanism for setting the spot price the futures markets
The exchanges are supposed to be a meeting place for rational buyers and sellers evaluating fundamentals and making decisions about what is a fair price But in reality the exchanges are dominated by major banks and brokerages employing high frequency trading computers derivatives and other tools to manufacture a price
These powerful market players aren t trading physical metal and they care very little about the fundamentals that motivate the rest of us They trade paper contracts a claim for future delivery of physical metal that s supposed to be in an exchange vault But the number of contracts swapped in a single day can represent more physical metal than world mines will produce in a year So the claim could be all but worthless the minute holders start asking for delivery
Wall Street invented high frequency trading a few years back These algorithms now generate a huge portion of daily trading volume Computers with special access can see and front run the trades of human investors The topic has gotten some coverage in the financial media and many investors are aware
Fewer are familiar with developments in the derivative markets for gold and silver futures These markets primarily for options further detach the underlying spot price from physical reality A put or call option is twice removed from the bullion bars they are supposed to represent and the leverage used is exponential Instead of buying a futures contract directly options traders buy the right to buy or sell a futures contract And this further multiplies the potential number of claims against actual metal in exchange vaults
These options significantly influence on the underlying spot price Heavy buying of call options at a higher strike price will tend to drive spot prices upward while lots of short selling or buying of put options will drag spot prices down
Citigroup NYSE C Is Making a HUGE Bet on Price Moves in Precious Metals
Right now Citigroup is loading up on options for precious metals Zero Hedge reports the bank now has 50 billion in total exposure more than ten times what it had at the beginning of the year Investors have to guess about Citi s intent with regards to price they report only on the size not the composition of their options exposure We don t know whether they are betting on higher or lower prices
Perhaps the bank is betting on a move either way The bank could be using either a straddle or a strangle strategy involving the purchase of both put and call options to capture a big move in either direction This technique limits the downside to the cost of the options that expire worthless on the wrong side a price move while providing for potentially unlimited gains on the options in the right position
Some speculate that Citi is betting neither on higher nor lower prices that the bank simply wants to see prices hold inside a range The strategy would be to take huge positions both long and short in order to dilute the influence that smaller trades might have in one direction or the other We consider this strategy less likely It implies Citi spent a fortune on put and call options they intend to expire worthless
One thing is for sure Citigroup has almost nothing in common with a worried Greek standing out front of the local coin shop Greeks are switching cash for gold coins because of the growing certainty their government will confiscate a portion of what they have on deposit and then replace the remainder with newly re issued drachmas worth far less People around the world concerned about events in Europe are turning to physical gold and silver But those folks aren t setting spot prices
But Citigroup is betting big time Right along with JPMorgan Chase NYSE JPM and the other major players in the futures markets
The ounces of metal printed on futures contracts dwarf the actual number in exchange vaults High frequency trading and concentration in derivatives positions makes the connection between the paper price and the physical supply and demand even more tenuous Just ask any coin shop owner from Athens
Premiums on gold and silver coins in Greece have jumped significantly as buyers and sellers struggle to find a more realistic equilibrium price Investors should expect the same here in the U S if demand holds up while spot prices languish |
JPM | JPM Looks To Shatter Expectations | JPMorgan Chase Co NYSE JPM is set to report second quarter earnings Tuesday before the market opens The Estimize EPS consensus is set at 1 47 2 cents higher than Wall Street s expectations Revenue expectations of 24 6 billion also surpass the Street s expectations marginally These numbers would put both JPMorgan s year over year earnings and revenue growth at less than 1 The company s stock is up 4 83 year to date down from its late June high of 11 46
For the last two quarters JPMorgan s earnings have surprised both Wall Street and the Estimize consensus by over 14 Going back further than the past 2 quarters JPMorgan has consistently delivered earnings surprises
JPMorgan operates as one of the largest global financial services and banking institutions It offers services in wealth management asset management private banking private equity and investment banking Recently the company tapped its general counsel Stephen Cutler to become the new vice chairman The role was previous held by Jimmy Lee who unexpectedly passed away last month
On July 8 JPMorgan was fined 136M due to its deceptive debt collection tactics The bank was caught selling credit card debt for accounts that were inaccurate discharged in bankruptcy or just not collectible Also recently both Stephen Cutler and COO Matthew Zames sold a combined 22 875 shares on April 15 possibly indicating that the time has come to take a profit
Historically the company has experienced huge price shocks following earnings releases This comes as no surprise as JPMorgan s beta coefficient or volatility is currently at 1 714 It has climbed to its all time high from 1 14 in 2011
After crushing both Wall Street s and the Estimize consensus on April 14 of this year JPMorgan experienced a 9 3 increase in price until mid June Similarly after missing expectations by a wide margin on January 14th of this year the stock s price was pummeled by 5 This earnings release will be no different and the stock price could drastically shift if JPMorgan reports a big earnings surprise Make sure to pay close attention before the market opens on Tuesday as JPMorgan looks to beat expectations |
MS | Morgan Stanley renews U S oil storage deal ahead of trading unit sale | By Jarrett Renshaw NEW YORK Reuters Morgan Stanley NYSE MS s commodities group has renewed a refined product storage deal with TransMontaigne Partners L P seven months early as the Wall Street bank plans to sell its physical oil business In a statement on Wednesday TransMontaigne said Morgan Stanley Capital Group extended its lease agreements for about 2 7 million barrels of refined product storage in Mississippi The move came about seven months before the contract was about to expire The new agreement for the terminals located in Collins Purvis Mississippi will be effective Jan 1 2016 TransMontaingne said Morgan Stanley declined to comment The news comes as the bank continues to seek a buyer for its physical oil business after a deal to sell it to Russian oil company Rosneft fell apart last year Last week it reshuffled the leadership of the physical oil trading business naming Thomas Simpson and Fabrizio Zichichi as co heads and replacing Michael Brennan
Morgan Stanley will still act as a middleman for clients who want to trade physical commodities but the bank no longer wants to own operate or store products itself |
MS | Citi JPMorgan target market share gains in equities | By Lionel Laurent LONDON Reuters U S banks Citigroup NYSE C and JPMorgan Chase NYSE JPM expect to gain market share in equities this year executives told Reuters pointing to technology investment and new hires as financial market trading picks up The comments echo a more optimistic stance from trading desks at global investment banks after a bumper quarter boosted by the European Central Bank s announcement of a bond buying scheme to spur growth They also contrast with last year s more lackluster picture of stock trading particularly in Europe with tepid volume growth and increased regulatory scrutiny squeezing commissions and stoking fears of more cutbacks We are not pulling back in equities quite the opposite said Tim Gately Citi s head of equities for Europe Middle East and Africa EMEA in an interview We continuously invest in technology have made a number of senior hires and expect to grow our market and wallet share in 2015 Citi which said in the fourth quarter it would take actions to turn around its underperforming EMEA equities franchise is making a push for a bigger share of spending from top clients and hedge funds Gately added The bank has named Murray Roos as London based global head of sales for equities and prime finance and Emmanuel Girod as global head of exotics trading Larger rival JPMorgan also expects to gain market share according to Michael Wilson head of EMEA equity sales at the bank thanks to a dedicated hedge fund sales team better client targeting and new global equity products MORE TARGETED At a time of tighter balance sheet rules and cost cuts banks in general are taking a more targeted approach to client lists when allocating resources We are targeting market share gains primarily via cross selling and so prime brokerage specialist services for hedge funds is a big opportunity We are also ready to be there for clients should rivals pull back said JPMorgan s Wilson We are investing and hiring within specialist sales execution and technology Growing in cash equities is a multi year objective for JPMorgan but the bank is already reaping some success from client segments including hedge funds Some have warned however that the optimism in equities may be more a case of market bullishness than a new dawn for highly automated high return but volume dependent stock trading Some banking sources said they still expected some smaller players to cut back or exit equities given competitive pressures Yet first quarter equities revenue grew at double digit percentage rates for a number of U S banks including Morgan Stanley NYSE MS and JPMorgan though Citi bucked the trend with a 1 percent decline The pick up was also broadly felt in Europe with Germany s Deutsche Bank XETRA DBKGn unveiling a plan to invest in its small but growing equities trading division
Trading conditions are set to stay positive said Gately thanks to near zero yields in much of the bond market which made equities more attractive The first quarter was not just a blip for the industry he said |
MS | Prepare for triple taper tantrum in 2016 says Morgan Stanley | By Jamie McGeever LONDON Reuters Investors spooked by the taper tantrum of 2013 when global markets took fright at the U S Federal Reserve s first hint that it might taper its monetary expansion policy take note 2016 could be the year of the triple taper tantrum That s the prediction of analysts at Morgan Stanley NYSE MS who argue that the Fed European Central Bank and Bank of Japan might all taper their super loose monetary policies next year if growth and inflation across the three regions pick up enough The world s three biggest central banks are at different stages of post crisis management so it s a bold call But it shows just how much markets have turned since the start of the year when deflation was their worst fear What is unknown is whether the economic situation will pan out as we see it said Manoj Pradhan global economist at Morgan Stanley in London and co author of the report We ve had a few surprises recently but the trajectory of monetary policy and growth is leading in that direction The Fed has stopped its bond buying program and its next move will almost certainly be a rate increase The ECB has just begun a 1 trillion euro quantitative easing program which is set to run to September 2016 The BOJ s QE program has paused but could resume at any stage If growth and inflation pick up in the euro zone and Japan however the ECB and BOJ will not need to provide further monetary stimulus Pradhan says the triple taper tantrum is likely to pan out as follows The Fed divests its mortgage backed securities portfolio in the first half of 2016 and both the ECB and BOJ run down their QE programs in the second half of 2016 None of these are yet on investor screens in a manner that affects their investment decisions if our conversations are anything to go by Pradhan said In late May 2013 then Fed chair Ben Bernanke dropped the strongest hint to date that the Fed would begin winding down its bond purchases The yield on the 10 year Treasury note started rising from around 1 4 percent Bernanke appeared to back off from those comments a month later sparking more market volatility particularly Treasuries The 10 year yield rose to 1 80 percent fell then climbed back above 2 percent that September That pales against the gyrations across all bond markets this week Suddenly spooked by near zero or even negative yields and a 50 percent rise in oil prices since January investors have dumped German bonds in a manner not seen for decades The yield rose to a high of just under 80 basis points on Thursday from only five basis points in mid April Bund volatility soared to its highest since German reunification and bond prices were on course for the biggest fall since then
The 10 year Treasury yield hit a five month high above 2 30 percent marking a rise of 50 basis points in only a month |
MS | Fit Bit files 100 million IPO with SEC | Investing com Fit Bit Inc a San Francisco based manufacturer of wireless enabled wearable devices known as activity trackers sent filings with the SEC on Thursday to declare its intention to become a publicly traded company
Fit Bit whose number of paid active users soared from 600 000 in 2012 to 9 5 million in the first quarter of 2015 is seeking to raise up to 100 million according to SEC filings
The fitness tracking company is coming off a stellar quarter when it sold 3 9 million devices for the three month period that ended on March 31 up from 1 6 million during the same period in 2014 Last year Fit Bit posted revenue of 745 4 million for fiscal year 2014 nearly tripling its revenue from the previous year The company also posted a yearly net income 131 8 million for the first time in four years up from a net loss of 51 6 million the previous year
Our success depends on our ability to anticipate and satisfy consumer preferences in a timely manner All of our products are subject to changing consumer preferences that cannot be predicted with certainty Fit Bit officials wrote in the regulatory filing Consumers may decide not to purchase our products and services as their preferences could shift rapidly to different types of connected health and fitness devices or away from these types of products and services altogether and our future success depends in part on our ability to anticipate and respond to shifts in consumer preferences
A plethora of the Fit Bit models The One Flex Charge Charge HR and Surge measure a user s traveling distance steps taken and number of calories burned during a given workout The Surge which is sold for an average retail price of 249 99 boasts eight sensors with a GPS and a heart monitor
The deal is expected to be underwritten by Morgan Stanley NYSE MS Bank of America Merrill Lynch NYSE BAC Deutsche Bank XETRA DBKGn Securities and Barclays LONDON BARC among others Fit Bit said in the filing |
JPM | SEC names JPMorgan s Redfearn as director of trading markets | WASHINGTON Reuters The U S Securities and Exchange Commission said on Wednesday it had named JPMorgan Chase N JPM executive Brett Redfearn as director of the agency s trading and markets division The job is one of the last major positions new SEC Chairman Jay Clayton still had to fill The unit oversees securities exchanges and markets broker dealers clearing agencies derivatives and the Financial Industry Regulatory Authority Redfearn had been serving as global head of market structure for JPMorgan s corporate and investment bank He started his career at the American Stock Exchange where he ran business strategy and equity order flow During his career Redfearn has served on the boards of Bats Global Markets and the Chicago Stock Exchange among others the SEC said As head of trading and markets Redfearn is expected to play a central role in potential tweaks to market structure rules such as exchange order types tick sizes and how exchanges are regulated which were identified by the U S Treasury last month as areas that should be reviewed by the SEC
Jamie Selway head of execution services at agency brokerage Investment Technology Group ITG N ITG had previously been the front runner for the trading and markets role but he dropped out of the running in September |
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