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[Markets] Late in the day, the Dow and Nasdaq are on track for their worst day in 4 weeks Late in the day, the Dow and Nasdaq are on track for their worst day in 4 weeks Published:7/25/2019 2:50:20 PM
[Markets] "The Downturn Could Be Particularly Brutal" - 'First' Fed Cuts Are Not Bullish

Authored by Kevin Ludolph via Crescat Capital,

Crescat Capital Quarterly Investor Letter Q2

We believe there is an opportunity to capitalize on a material downturn in the business cycle based on the composite of timing and imbalance indicators in Crescat’s 16-factor macro model.

US Equity Markets

The downturn could be particularly brutal for US stocks because we are record late in a fading economic expansion and at historical high valuations relative to underlying fundamentals across a broad composite of eight measures that we follow at Crescat.

We hear two opposing valuation arguments from bulls today:

1. P/E ratios are reasonable; and

2. Valuations remain attractive relative to interest rates.

Let’s address them both.

First off, P/Es often appear reasonable at business cycle peaks because that’s when earnings are their strongest. For instance, back in mid-1929, prior to the stock market crash and Great Depression, S&P 500 real earnings per share (on a GAAP standard) had been growing at a unsustainably high 20% year-over-year rate, almost as high as the fleeting 21% growth we just had in 2018. Similarly, profit margins are cyclical. They top out at the peak of an expansion, making P/Es appear artificially low. US corporate profit margins in 2018 were the highest they have been since 1929. P/Es are always a potential value trap at the peak of a cycle. But today, P/Es are not even that cheap. Going all the way back to 1871, today we would have potentially the second highest P/E ratio ever for the S&P 500 at a market top prior to a recession, worse than 1929 and the housing bubble.

Tackling the second bull argument that low interest rates justify today’s high valuations, the flaw in this thinking is just as pronounced. The reality is that stocks have never been this expensive for how low the 10-year Treasury yield is today. It’s true that all else equal, low interest rates justify higher valuations. However, the lowest interest rates historically haven’t corresponded to the highest P/E markets because extremely depressed yields also signal fundamental problems in the economy. Ultra-low rate environments are often marked by highly leveraged economies where future growth is likely to be weak. Growth must also be discounted in the valuation formula.

While many US equity indices have marginally broken out to new highs recently, they have done so in the face of weakening market internals. Equity indices are being propped up by a narrowing group of leaders. The deteriorating breadth is most evident in the NASDAQ Composite, home to today’s leading growth stocks. While the overall index has reached record levels, the number of declining stocks has significantly outpaced the number of advancing stocks since last September. The collapsing internals point to an exhausted bull market.

Stocks are also rising in defiance of extremely low volume. On July 16th, the SPDR S&P 500 ETF (SPY) had its lowest daily volume in almost 2 years. In a 15-daily average terms, volume is now as low as it was at the peak of the housing bubble and prior to the last two selloffs in 2018. Unusual calmness and breadth deterioration are not a good set up for record overvalued stocks.

The following chart is yet another illustration of how this recent rally in equities is running on empty, and again lacking substance. On July 15th, S&P 500 reached record levels, but only three sectors were at all-time highs. Market breadth today is faltering just as much as it did ahead of the last two recessions. In 2015, this was also the case, but back then only 20% of the yield curve was inverted. Now it’s close to 60%!

As we previously said, the unemployment rate has been one the most reliable contrarian indicators throughout history. It reaches a cyclical low prior to every recession since the 1970s. The year-over-year change, however, is what tends to confirm the turning points in the economy. Most of the times this rate shifted to positive, a market downturn followed. In this business cycle, the YoY change likely bottomed in late 2014 and it has now been flirting with the positive camp since then. However, other labor market indicators are already showing signs of weakening economic conditions. The Conference Board’s Jobs Hard to Get Index is one of them. It has recently spiked and is yet another classic late-cycle development in the economy.

Consumer surveys are also critical to identify the stage of the economy we are in today. It’s another great contrarian indicator as strong consumer confidence has an uncanny relationship with market tops. We’ve noted this before, but since the 1960s, every time the Conference Board index surpassed the 135 level, it coincided with the peak of the economic cycle. The same source also reports two components of this survey that differentiate between consumer’s present situation and future expectations. As John Hussman originally pointed out, the spread between these two sub-indices tends to reach an extreme prior to a recession. That’s usually caused by consumers’ future expectations starting to fall first. The University of Michigan also publishes a survey on consumer sentiment. That compared with the Conference Board index forms another important indicator. All previous declines from cyclical highs in the spread between these two indices led to recessions. This time, the spread is plunging after reaching record levels.

Crescat’s robust calculation of percentage of inversions in the US yield curve remains at recession-signaling levels. Over 55% of all 44 spreads are now inverted, being just as much as it was at the peak of the tech and housing bubbles. Nevertheless, another important development in credit markets occurred in the first week of July. As show below, the US 30-year yield dropped below the upper bound of the federal funds rate (FFR) for the first time since the global financial crisis. It’s one more bearish signal that adds to Crescat’s fire hose of cycle-ending macro data. The same warning occurred ahead of the GFC, tech bust, Asian crisis, S&L crisis, and 1980’s double dip recessions. The only false signal was in 1986, but one could argue that it did ultimately lead to the 1987 crash. Above all, as of July 2nd, we had the entire US Treasury curve below the Fed overnight rate. Perhaps the bond market is trying to tell us something.

Cracks in the market are spreading and it could be pointing to a market meltdown. Copper, for instance, is now diverging from the S&P 500 by over 35% since September of 2017. Last time this separation reached similar extremes was at the September 2018 market peak. Dr. Copper is reputed to have a Ph.D. in economics because of its ability to help predict turning points in the global economy. Because of copper’s widespread applications — from homes and factories to electronics and power generation and transmission — strengthening or weakening demand for the red metal can be a leading indicator for the economy at large. The decline of the industrial metal itself doesn’t necessarily tell us enough to call for a downturn in the economic cycle. However, its deterioration versus other risk assets in combination with a litany of macro indicators adds conviction to our overall bearish thesis.

The US is the only equity market in the world to make new highs recently in US dollar terms. Every other G-20 index already peaked a long time ago, a troubling divergence. We believe the US stock market is likely to be the one to catch up to the downside.

The US market is fundamentally and technically overvalued to an extreme. But, how much should we expect it to be down in a coming bear market? Just to get to mean historical valuations, it could be a 50% plunge. The problem is, a 50% decline would equate to the highest ever valuation at the depth of a bear market and recession in the US, so it could be a best-case scenario. That is how over-valued the US equity market is today! The downside in the market today is perhaps easiest to visualize in a logged version of the longest running US stock index, the Dow Jones Industrial Average.

Conventional wisdom is that the first Fed rate cut is bullish, but this was not true with the last two business cycles as we clearly show in the chart below. It will likely not be true in this one either because we are record late into the expansion at historic high valuations. It’s true that all else equal, monetary easing is fundamentally bullish for stocks and the economy, while tightening is bearish. The problem is that central bank policy works with a lag. The delayed reaction to Fed interest rate policy is why our macro model uses the 24-month trailing rate-of-change in the federal funds rate as one of our factors to forecast the economy and the stock market.

The interest rate hikes and quantitative tightening of the last three years, are the substantial bearish macro drivers that have only now started to transmit into economic weakening in the US. Meanwhile, the Fed has also just acknowledged the deterioration in the overall global economy. We think the truth of the economic weakening matters more than the hope from imminent Fed easing. Only at the depths of the recession, when everyone else is panicking and dumping stocks that are already down substantially, should we get excited about Fed easing transmitting to a new bull market.

The Fed’s polices of near-zero interest rates and quantitative easing since the global financial crisis have created enormous asset bubbles in stocks and corporate credit. Investors’ speculative behavior is a natural reaction to cheap money and has played an integral role in inflating these bubbles. Just as asset prices rise in a positive feedback loop of easy credit, investor speculative behavior, consumer and business spending, so they decline in the opposite self-reinforcing fashion: credit defaults, credit tightness, investor risk aversion, and business and consumer retrenchment. Such is the natural ebb and flow of the business cycle.

The property market in the US is also richly valued, in our view, though home prices are not as frothy relative to income and household debt as they were in the housing bubble. The big housing bubbles in the world today by these measures are in China, Hong Kong, Canada, and Australia.

Because the US dollar is the largest fiat reserve currency, the Fed’s past accommodative policies has allowed other countries to pursue their own easy money schemes and accumulate record levels of debt. Across the globe, these levels are higher on average than they were prior to all major credit busts of the last 30 years.


We have written extensively about China’s currency and credit bubble in past letters. China was responsible for over 60% of global GDP growth since the global financial crisis. The country’s massive investments in non-productive infrastructure assets was financed on credit and created high GDP growth but failed to add wealth or debt-servicing capacity. China has created an enormous currency and credit bubble in the process. The problem is that its central planners accomplished this incredible economic growth through an unsustainable growth in fractional reserve bank credit. Since 2008, China’s banking system assets have grown 400% to USD 40 trillion!

This insane level of expansion for a large economy was made possible because China’s communist leaders mandated high lending growth from its state-owned banks. At same time, they ignored the true write-down of non-performing loans.

As a result, we believe the value of China’s banking system today is grossly mismarked. The Chinese financial system in our view is a Ponzi scheme poised to unravel and is likely to be a major contributor to the coming global economic downturn. The Chinese citizens are the primary creditors who could be on the line, but the rest of the world that has invested in China will almost certainly suffer with them.

We believe the Chinese government will be forced to print money to recapitalize its banks and bail out its citizens to attempt to quell social unrest. The massive monetary dilution could lead to a currency crisis which is the lesson of almost every emerging market credit bubble in history from Latin America to Asia. Currency crisis is also the ultimate consequence of economic failure of centrally planned communism as we have learned from the Soviet Union to Venezuela.

Our outlook for both the Chinese yuan and Hong Kong dollar is extremely bearish and we are positioned accordingly in our global macro fund. The warning signs of the coming Chinese crisis are everywhere from the Trump administration’s year-long hardball on Chinese trade, to the recent Chinese government seizure of failed Baoshang Bank, to the current mass anti-Chinese Communist Party protests in Hong Kong.

Precious Metals

Precious metals are one of the few pockets of this market offering tremendous value to hedge against extreme monetary policies, bursting asset bubbles, and record global leverage. We see this opportunity playing out across gold, silver and related mining stocks. Gold is the ultimate form of money with a long history of storing value for investors and outperforming risk assets during market downturns. In our view, a new wave of global fiat currency debasement polices is now in its early stages. Gold should become a core asset for those who believe in this macro development, but it is still widely under-owned today.

With the Fed shifting back to easing mode as the global economy is faltering, new fuel has ignited a precious metals fire. It is still very early in the game in our analysis. Rate cuts point to a new trend of declining real yields to drive precious metals higher even before inflation returns. Below we show seven-year trends in real rates and gold that have just reversed.

Credit markets tend to serve as a bellwether for stocks and the economy, and rising yield curve inversions happen to be great times to buy gold and sell stocks. For instance, 3 and 5-year yields have recently dipped below Fed funds rate for the first time since the global financial crisis and the tech bust. As history has shown, this is bullish for the gold-to-S&P 500 ratio.

Another way to see how incredibly undervalued precious metals are relative to other risk assets is by looking at the relative performance. The commodities-to-S&P 500 ratio has just reached a fresh 50-year low. The last times we had such historic imbalances we were at the peak of the 2000 tech and the 1972 “Nifty Fifty” stock bubbles. If one uses a simpler version of this relationship, using the Dow Jones Industrial Average index, the ratio is well below the cyclical 1929 lows that lead to the Great Depression.

Silver, a more speculative version of gold, also looks historically cheap. One way to see this is by comparing it against the total return for broad US stocks. The Russell 3000-to-silver ratio is still near all-time highs. This puts into perspective the incredible opportunity likely ahead of us today and how truly early and undervalued it is. In technical terms, look at the double top formation after a retest of peak tech bubble levels.

We also feel very strongly that gold and silver mining stocks are undervalued as the current macro set up seems largely optimistic for precious metals. This entire industry has been through and eight-year bear market with some of these stocks down by over 80% since 2011.

Published:7/25/2019 11:47:31 AM
[Markets] The Dow Is Climbing as the ECB Turns Dovish, and Facebook’s Earnings Shine Stocks are mixed Thursday morning, with Dow Jones Industrial Average futures adding 0.4%, S&P 500 futures up 0.2%, and the Nasdaq Composite slipping 0.1% ahead of the open. Published:7/25/2019 8:47:37 AM
[Markets] Stocks Open Lower; Dow Jones Stock 3M Soars, Facebook Stock In Buy Zone 3M hoisted Dow Jones futures in early trade, as Nasdaq futures traded lower. Facebook stock was in a buy zone, rising after its Q2 report. Published:7/25/2019 8:47:36 AM
[Markets] Dow Jones Futures Lead Mixed Premarket; 3M Soars, Facebook Stock In Buy Zone 3M hoisted Dow Jones futures in early trade, as Nasdaq futures traded lower. Facebook stock was in a buy zone, rising after its Q2 report. Published:7/25/2019 8:17:59 AM
[Markets] US Futures Flat, Global Stock Rally Fizzles Ahead Of ECB Announcement

S&P futures struggled for direction on Thursday, with Nasdaq futs down following a plunge in Tesla following dismal guidance, even as European stock were modestly higher ahead of what many expect will be an easing signal by the ECB as a bevy of earnings reports again pointed to a slowing global economy, while holding up in the face of already reduced expectations.

The S&P 500 and Nasdaq hit a new all-time high once again on Wednesday after Texas Instruments hinted that a global slowdown in microchip demand would not be as long as feared, which countered bleak earnings from bellwether companies Boeing and Caterpillar.

The mood was more subdued on Thursday, when Tesla stock tumbled 12.3% and pressured Nasdaq futures after the electric carmaker pushed back its profit timeline once again after missing its quarterly financial targets. On the other hand, 3M rose 4.5% after the manufacturing conglomerate reiterated its full-year earnings forecast despite slowing growth in high-profile markets such as China. Facebook gained 1%, after the social media giant reported quarterly revenue that beat estimates, but said new rules and product changes aimed at protecting user privacy would slow its revenue growth into next year. Ford Motor dropped 4.6% after the automaker reported a lower-than-expected profit, weighed down by charges to restructure its units in Europe and South America, and gave a disappointing full-year earnings forecast.

Two weeks into the second-quarter earnings season, Reuters reports that about 77% of the 138 S&P 500 companies that have reported so far have topped earnings estimates. Overall earnings are now expected to fall 0.1%, compared with a prior estimate of a rise of about 1%.

Meanwhile, hopes that key central banks would take monetary measures to impede the impact of a protracted U.S.-China trade war has helped Wall Street’s main indexes hit record highs this month; moments ago Turkey became the latest country to join the easing bandwagon when its central bank cut rates by a whopping 425bps to 19.75%, in line with Erdogan's demands.

In Europe, the Stoxx Europe 600 pared some of its earlier gains, with health care shares the top performers after earnings for AstraZeneca and Roche beat estimates. AEX (-0.1%) lagged peers, pressured by Unilever (-0.8%) post-earnings. Meanwhile, France’s CAC 40 (+0.5%) benefited from its largest weighted stock LVMH (+1.5%) which rose after the company posted a 20% Y/Y LFL sales increase in leather goods and fashions. Sectors are mixed with outperformance in Pharma names as heavyweight Roche (+1.3%) raised its 2019 revenue growth outlook. On the flip side, energy names lag on the back of the decline in oil prices yesterday. Individual movers include UK-listed Cobham (+34.7%) was bolstered to the top of the Stoxx 600 as the Co. is expected to be acquired for GBP 4.0bln including debt. Other interesting movers on the back of earnings, with Nokia (+6.3%), AstraZeneca (+5.6%), Kion (+4.6%) all at the top of the pan-European index. On the downside, JC Decaux (-5.2%) slid on the back of disappointing numbers whilst SMI-listed Clariant (-9.9%) fell to the foot of the Stoxx 600 after the Co. suspended talks with Sabic over the proposed JV.

Earlier in the session, Asian stocks advanced, heading for a third day of gains though Korean stocks declined for a second day, after U.S. equities climbed to record highs. Communications and technology were among the best-performing sectors. Most markets in the region were up, with the Philippines leading gains. The Topix added 0.2%, supported by chemical firms, as investors gauged a raft of mixed corporate results. Shin-Etsu Chemical Co. and Advantest Corp. jumped after reporting first-quarter operating profits above estimates. The Shanghai Composite Index rose 0.5%, with banks and Kweichow Moutai Co. among the biggest boosts. Beijing gave the green light for some companies to buy U.S. soybeans free of retaliatory import tariffs in a goodwill gesture amid trade negotiations with Washington. India’s Sensex gained 0.3%, set to end a five-day losing streak, as investors sought out value with equities near a two-month low. Most Nifty companies that have reported earnings so far have either met or exceeded analyst estimates.

In Rates, Germany’s 30-year bond yield fell to a record on deteriorating business confidence:

  • German Ifo Business Climate New (Jul) 95.7 vs. Exp. 97.1 (Prev. 97.4, Rev. 97.5).
  • German Ifo Current Conditions New (Jul) 99.4 vs. Exp. 100.4 (Prev. 100.8, Rev. 101.1)
  • German Ifo Expectations New (Jul) 92.2 vs. Exp. 94.0 (Prev. 94.2, 94.0)

Ifo economists said that the German economy faces a turbulent time ahead. He sees a slightly positive growth rate in H2, although recession is spreading in all important sectors of German industry. Business Climate has deteriorated in key sectors except for the auto industry.

In FX, the euro fell for a fifth day and Treasuries gained along with European government bonds as the market braced for an easing signal from the European Central Bank’s latest meeting. The dollar was little changed, with the yen gaining ground and the Aussie dollar falling to a two-week low after the RBA said policy makers are prepared to lower interest rates again. The pound steadied as new U.K. Prime Minister Boris Johnson picked a pro-Brexit government team. The Turkish Lira first tumbled, then surged after the CBRT cut rates by more than expected 425bps to 19.75%, its biggest rate cut on record.

In geopolitics, North Korea fired 2 projectiles which flew 430km but did not reach Japan’s exclusive economic zone. Following news of the launch, South Korea Defence Ministry spokesperson urged North Korea to stop acts which are not helpful in easing military tensions, while Japanese PM Abe suggested the North Korea missile launch poses no threat.

Expected data include durable goods orders and wholesale inventories. Amazon, American Airlines, Alphabet, Intel, Starbucks, and T-Mobile are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures little changed at 3,022.50
  • STOXX Europe 600 up 0.2% to 392.51
  • MXAP up 0.2% to 161.31
  • MXAPJ up 0.3% to 530.23
  • Nikkei up 0.2% to 21,756.55
  • Topix up 0.2% to 1,577.85
  • Hang Seng Index up 0.3% to 28,594.30
  • Shanghai Composite up 0.5% to 2,937.36
  • Sensex up 0.1% to 37,884.49
  • Australia S&P/ASX 200 up 0.6% to 6,818.03
  • Kospi down 0.4% to 2,074.48
  • German 10Y yield fell 1.4 bps to -0.392%
  • Euro down 0.07% to $1.1132
  • Italian 10Y yield fell 10.7 bps to 1.143%
  • Spanish 10Y yield fell 3.1 bps to 0.316%
  • Brent futures up 0.7% to $63.62/bbl
  • Gold spot up 1% to $1,427.32
  • U.S. Dollar Index little changed at 97.76

Top Overnight News from Bloomberg

  • Boris Johnson executed a brutal clear-out of more than half of his predecessor’s top team, installing supporters in key roles as the new prime minister signaled his intent to deliver Brexit in 98 days. Sajid Javid picked to steer the British economy through Brexit
  • The European Central Bank is set to signal that it is once again preparing to step in to support the euro zone. On the eve of the seventh anniversary of President Mario Draghi’s landmark “whatever it takes” speech, policy makers will decide how to confront an economic slowdown amid risks from U.S. protectionism to Brexit
  • German companies’ business outlook tumbled to the lowest in a decade, adding to signs that Europe’s largest economy is getting dangerously close to a recession
  • Treasury Secretary Steven Mnuchin said a strong dollar is good for the U.S. economy in the long term and that he wouldn’t advocate for a weak-dollar policy in the near future
  • North Korea launched at least two short-range missiles into the sea east of the Korean Peninsula, stepping up pressure on the U.S. as it tries to resume nuclear disarmament talks with Pyongyang
  • Former Federal Reserve Chairman Alan Greenspan endorsed the idea that the U.S. central bank should be open to an insurance interest-rate cut, to counter risks to the economic outlook, even if the probability of the worst happening was relatively low
  • Oil held its biggest loss in a week as signs that growth is slowing in major economies overshadowed the longest run of declines in U.S. crude stockpiles since the start of 2018

Asian equity markets mostly traded with cautious gains after a similar performance on Wall St where strength in financials and tech fuelled the S&P 500 and Nasdaq to all-time record highs, although the DJIA underperformed on disappointing blue-chip earnings. ASX 200 (+0.6%) and Nikkei 225 (+0.2%) were higher but with gains capped by weakness in mining related sectors and with Tokyo trade also contained by an uneventful currency after source reports suggested a lack of consensus within the BoJ regarding additional easing measures at next week’s meeting. Elsewhere, the KOSPI (-0.4%) underperformed after North Korea conducted a short-range missile launch and with earnings also heavily in focus, while Hang Seng (+0.3%) and Shanghai Comp. (+0.5%) were choppy as another substantial liquidity drain by the PBoC was counterbalanced by trade optimism after suggestions that next week's US-China trade meeting is to be held in Shanghai to allow the possibility of President Xi joining in and that the meeting will be followed up by talks in Washington. Finally, 10yr JGBs were relatively flat as they mirrored the rangebound trade in T-notes and with demand also dampened by the indecisive gains in the region, although prices later found mild support after the 2yr auction which attracted a higher b/c and narrower tail in price.

Top Asian News

  • Digger Giant Warns of ‘Dark Turn’ as Chinese Sales Start to Ebb
  • Hong Kong Names Eddie Yue as Next Monetary Authority Chief
  • More Chances to Get Rich Quick in China’s New Stock Venue
  • China’s Embattled Jinzhou Bank Courts Investors as Bonds Tumble

European equities are directionless with large-cap earnings dictating the state of play of thus far. AEX (-0.1%) lags its peers, pressured by Unilever (-0.8%) post-earnings. Meanwhile, France’s CAC 40 (+0.5%) is benefitting from its largest weighted stock LVMH (+1.5%) which rose after the Co. posted a 20% Y/Y LFL sales increase in leather goods and fashions. Sectors are mixed with outperformance in Pharma names as heavyweight Roche (+1.3%) raised its 2019 revenue growth outlook. On the flip side, energy names lag on the back of the decline in oil prices yesterday. Individual movers include UK-listed Cobham (+34.7%) was bolstered to the top of the Stoxx 600 as the Co. is expected to be acquired for GBP 4.0bln including debt. Other interesting movers on the back of earnings, with Nokia (+6.3%), AstraZeneca (+5.6%), Kion (+4.6%) all at the top of the pan-European index. On the downside, JC Decaux (-5.2%) slid on the back of disappointing numbers whilst SMI-listed Clariant (-9.9%) fell to the foot of the Stoxx 600 after the Co. suspended talks with Sabic over the proposed JV. Over in the States, Facebook (+1.2% pre-market) reported last night with miss on top line and a beat on bottom line. The Co. also noted that EPS would have been higher excluding the FTC legal fees of USD 5bln over privacy violations. Meanwhile, Tesla (-10.8% pre-market) missed on top and bottom line. Looking ahead, around 10% of the S&P 500 is reporting today, whilst DJIA component 3M is also on the docket, with a 4.5% weighting in the index.

Top European News

  • German Business Confidence Deteriorates as Factory Slump Deepens
  • Merkel Leaves Europe’s Sputtering Engine to Ride Out the Storm
  • ECB Is Set to Signal Rate Cut as Economy Slows: Decision Day Guide
  • ABB Beats Estimates as Activist-Driven Overhaul Bears Fruit
  • Wizz Air Jumps on Raised Growth Target at Expense of Rivals

In FX, EUR/TRY are not the biggest currency movers, but both certainly prone to big reactions and price action depending on Central Bank policy decisions as the ECB and CBRT both deliver verdicts today. Market pricing for the former is extremely tight between no change and -10 bp, even though the ‘consensus’ leans towards a tweak in guidance for easing in September rather than any adjustments this time, with the probability roughly 50-50. However, the latter is unanimously expected to lower its benchmark and the uncertainty rests on how much given a gaping range of forecasts, from -100 bp to -500 bp, while some observers also suggest that a loud -800 bp call exists. In the run up, the single currency and Turkish Lira are on the defensive, with Eur/Usd teetering above ytd lows in a 1.1145-23 range and capped by yet another bleak German survey in the form of Ifo that missed consensus across the board and compounded by a gloomy statement from the institute noting the spread of recession through all key industrial sectors. Meanwhile, Usd/Try is pivoting 5.7100 and also acknowledging a deterioration in manufacturing sentiment and a decline in cap u.

  • NZD/AUD - Dovish rate vibes are undermining the Kiwi and Aussie as well, with Westpac recalibrating its RBNZ outlook to match the RBA by pencilling in 2 more 25 bp eases from 1 previously. Nzd/Usd has retreated from 0.6700+ in response, but the Aud/Nzd cross remains anchored near 1.0400 as Aud/Usd slips a bit further from 0.7000 to 0.6965 in wake of comments from RBA Governor Lowe indicating further OCR reductions if demand disappoints and acknowledging that inflation will take time to hit target.
  • JPY/CAD/GBP/CHF - All narrowly mixed vs a solid Greenback, as the DXY continues to test a key Fib retracement level at 97.776 within a tight 97.778-679 band, with the Yen still stuck around 108.00 and embroiled in decent option expiries (1.7bn from 107.75 to 107.80 and 1.5 bn between 107.90-108.00) vs technical resistance at 108.31 (also a Fib). Meanwhile, the Loonie hugs 1.3128-44 ahead of Canadian wage data, Cable retains a recovery tone within 1.2450-1.2500 and the Franc remains underpinned around 0.9850 vs the Buck and over 1.1000 against the Euro, expecting the SNB to match or counteract any ECB moves.
  • ZAR - The Rand is underperforming after a stark warning from Moody’s that the latest state aid for Eskom will put further strain on the Government’s finances and threaten SA’s rating, with Usd/Zar nudging the top of 13.9750-8600 range.

In commodities, WTI and Brent futures are marginally firmer, albeit it seems to be more of a consolidation from yesterday’s DoE-induced decline and on the news that Kuwait and Saudi officials discussed resuming production from the neutral zone which had previously provided around 500k bpd of supply. WTI and Brent currently reside around the 56.00/bbl and 63.50/bbl levels with the former eyeing its 50 DMA at 56.87/bbl ahead of its 200 DMA at 57.11/bbl (with the psychological 57/bbl level in-between). News flow for the complex has been light thus far with traders eyeing the ECB’s latest monetary policy decision (full preview available in the Research Suite) for the next possible catalyst. Elsewhere, gold prices are relatively steady above the 1400/oz mark with Central Bank decisions very much in focus. Elsewhere copper is little changed amid the cautious/tentative risk tone whilst Shanghai lead climbed over 1% overnight amid revived supply concerns due to maintenance activity in China.

US Event Calendar


  • 8:30am: Durable Goods Orders, est. 0.7%, prior -1.3%; Durables Ex Transportation, est. 0.2%, prior 0.4%
  • 8:30am: Cap Goods Orders Nondef Ex Air, est. 0.2%, prior 0.5%; Cap Goods Ship Nondef Ex Air, est. -0.2%, prior 0.6%
  • 8:30am: Advance Goods Trade Balance, est. $72.5b deficit, prior $74.5b deficit
  • 8:30am: Wholesale Inventories MoM, est. 0.5%, prior 0.4%; Retail Inventories MoM, est. 0.2%, prior 0.5%
  • 8:30am: Initial Jobless Claims, est. 218,000, prior 216,000; Continuing Claims, est. 1.69m, prior 1.69m
  • 9:45am: Bloomberg Consumer Comfort, prior 64.7
  • 11am: Kansas City Fed Manf. Activity, est. 2.8, prior 0

DB's Jim Reid concludes the overnight wrap

Welcome to ECB day, and a meeting where we should move closer to what is likely to be a round of global policy easing in the months ahead. Mr Draghi paved the way at Sintra last month where he laid the foundations to make further policy easing feel less conditional. Our economists, in their preview note last week ( link ), believe that September is the natural occasion for the big decisions and details but expect some preparation today. They expect the "or lower" easing bias to be reintroduced into rates guidance and that this will be the prelude to a 10bp deposit rate cut and tiering in September. They also expect a further 10bp cut in December. They also believe we will see upgraded forward guidance used to underline the ECB's "absolute commitment" to the price stability mandate. If the Council is unable to strengthen forward guidance sufficiently, a new wave of net asset purchases may be required in the not too distant future. If so, the team would not be surprised by new QE of EUR30bn per month for a minimum 9-12 months split equally between public and private assets and with a commitment to relax the limits if necessary.

Ahead of this, fixed income rallied across Europe yesterday as the European preliminary PMIs for July showed the manufacturing sector continuing to disappoint - something the ECB will have to acknowledge. The manufacturing PMI for the Eurozone fell to its lowest in over six years at 46.4 (vs 47.6 last month), the German figure fell to a seven-year low of 43.1 (vs. 45.0) and France recorded a flat 50.0 (vs. 51.9) reading. The services readings also fell, but were mostly in line with expectations, with the Eurozone figure at 53.5 (vs. 53.6 last month), Germany at 55.4 (vs. 55.8) and France at 52.2 (vs. 52.9). In response, ten-year bund yields closed down –2.3bps with the previous on the run hitting a fresh all-time low of -0.423%. BTPs fell -10.9bps to a fresh one-year low on news that auctions had been cancelled, while Greek ten-year yields fell -5.7bps to close below 2% for the first time ever. That takes their yield to -6.2bps lower than US treasuries, their lowest level versus the US benchmark since October 2007. Treasuries joined the European rally with 10-year yields ending -3.8bps lower at 2.043%.

Despite the rally for rates and the tepid manufacturing surveys, equities mostly rallied yesterday. The S&P 500 gained +0.47% to 3019.6, a new all-time high. The DOW (-0.29%) again lagged as Boeing (-3.12%) and Caterpillar (-4.48%) dragged on the index after their earnings reports. Boeing saw a net loss of -$2.94bn in the second quarter, paired with a -35% yoy drop in revenues, as the company continues to suffer from the grounding of the 737 MAX. Caterpillar is viewed as a global macro bellwether, and overall its guidance was soft, saying they expect profits “to be at the lower end” of their full-year outlook range. Digging into their results showed healthy sales growth in North America (+11%) and Latin America (+9%), but weakness in Europe, Africa, and the Middle East (-6% combined) and in Asia (-7%), which is consistent with the general trend of US macro outperformance.

Away from industrials, tech was also in focus yesterday. The NASDAQ and Philly semiconductor indexes advanced +0.85% and +3.10%, respectively, both to new record highs. The sector benefited from positive sentiment post Texas Instrument’s (+7.44%) strong earnings report from Tuesday night, plus further strong guidance from Taiwan Semiconductor Manufacturing co, the world’s biggest chipmaker. Facebook (+0.80% after hours) posted strong revenue and active users figures, which ended up trumping new regulatory headwinds for the company. Facebook announced that the Federal Trade Commission has opened an antitrust investigation of the company, which comes after Facebook said earlier that it had agreed to pay a $5bn settlement and accept new privacy restrictions on its social media platform, to address a separate investigation.

This morning in Asia markets are largely trading up with exception of the Kospi which is -0.60%. The Nikkei (+0.36%), Hang Seng (+0.26%) and Shanghai Comp (+0.29%) are all up. The Australian dollar is trading down -0.07% after the country’s central bank chief Philip Lowe said that he’s ready to ease policy further if his recent back-to-back cuts fail to revive economic growth and flagged “an extended period” of low interest rates. Elsewhere, futures on the S&P 500 are trading flat while those on the Nasdaq are down -0.26%. In terms of overnight data releases, South Korea’s preliminary Q2 GDP printed at +2.1% yoy (vs. +1.9% yoy expected and +1.7% yoy last quarter). In details it showed that private-sector investment shaved 0.5pp off quarterly growth, meaning government investment drove the expansion and underlines the fragility of the rebound in growth.

In other overnight news, India is considering an option to raise $10bn from its first sovereign foreign currency bond offering with bonds likely to be denominated in either the Japanese yen or euros to take advantage of lower yields. The proposed offering could come to markets in October. Elsewhere, North Korea launched at least two short-range missiles into the sea east of the Korean Peninsula, stepping up pressure on the US as it tries to resume nuclear disarmament talks with Pyongyang and bringing geopolitical risks back into some focus.

Back to yesterday and in the UK, Boris Johnson was appointed by the Queen as the prime minister yesterday, facing perhaps the most difficult set of circumstances of any incoming PM for decades. On the steps of Downing Street, Johnson struck an aggressive tone on Brexit, reiterating that the decision of the referendum in 2016 must be respected. He said he wanted to reach a “new deal” with the EU, with the backstop removed, and see the country leave on the October 31 deadline “no ifs or buts”. Johnson also said that he would prepare for a no-deal outcome and that “the doubters, the doomsters, the gloomsters are going to get it wrong again.” In a letter to the incoming Prime Minister, European Council President Donald Tusk said pointedly that “I look forward to meeting you to discuss – in detail – our cooperation.”

Johnson began assembling his cabinet after his appointment, and the clear signal is that committed supporters of Brexit are in the key positions, and also those who support his pledge to leave the EU without a deal if necessary by October 31. Former DB employee Sajid Javid was appointed as Chancellor of the Exchequer, while Dominic Raab was made foreign secretary. In terms of the market reaction, sterling was unaffected by Johnson’s speech, although it strengthened +0.33% against the dollar before Johnson’s meeting with the Queen.

Without a general election, Johnson faces much the same constraints as his predecessor, in that his party lacks a majority in the House of Commons and relies on the DUP’s 10 MPs in order to win key votes. With an upcoming parliamentary by-election next week in Wales, where pro-EU Liberal Democrats are favourites to take the seat off the Conservatives (per the Independent), that could shrink even further. So the honeymoon won’t last long.

In terms of other data released yesterday, the flash PMIs from the US also saw an increasing divergence between manufacturing and services, repeating the theme seen in Europe. The manufacturing reading fell to a flat 50.0 (vs. 50.6 last month), its lowest level since 2009, while the services reading rose to 52.2 (vs 51.5 last month). Elsewhere, the new home sales data disappointed, with the 646k reading for June below the 658k expected, while the previous month’s reading was revised down by 22k. In France, the Insee’s business climate indicator fell by one point to 105 in July (vs. 106 expected). The business climate indicators for both the manufacturing and services indicators also fell by one point, to 101 and 106 respectively, while the employment climate reading rose by one point to 107.

In terms of the day ahead, the aforementioned ECB policy decision and press conference will be the highlight, (along with Prime Minister Johnson’s first appearance as PM in the House of Commons). Looking at data releases, we have US durable goods orders, wholesale inventories, and weekly initial jobless claims. There’ll also be the Kansas City Fed’s manufacturing index, the German Ifo Survey, and the latest CBI data from the UK. Elsewhere, Amazon and Alphabet will be announcing earnings.

Published:7/25/2019 6:46:48 AM
[Markets] Dow matches profit expectations but sales fall more than forecast Dow Inc. reported Thursday a second-quarter profit that matched expectation but sales that fell short, citing price declines in polyethylene, siloxanes and isocyanates and lower sales of hydrocarbon co-products. The stock was still inactive in premarket trading. Net income fell to $75 million, or 10 cents a share, from $1.33 billion, or $1.78 a share, in the year-ago period. Excluding non-recurring items, core EPS fell to 86 cents from $1.41, but matched the FactSet consensus. Net sales fell to $11.01 from pro forma sales of $12.85 billion a year ago, to miss the FactSet consensus of $11.29 billion. Volume declined 3%, primarily because of higher ethane feedstock usage and lower hydrocarbon sales. Year ago pro forma results reflect the separation from DowDuPont Inc., which was completed on April 1. The chemical company said given that the pace of global economic growth has slowed, and that buying patterns remain cautious because of ongoing trade and geopolitical uncertainties, it will reduce planned capital expenditures to $2.0 billion from $2.5 billion. The stock has lost 4.6% over the past three months, while the Dow Jones Industrial Average has gained 3.1%. Published:7/25/2019 6:14:21 AM
[Markets] 3M's stock surges after profit and sales fall less than expected, guidance maintained Shares of 3M Co. surged 3.4% in premarket trading Thursday, after the consumer, health care and industrial products company reported a second-quarter profit and sales that fell less than expected, while maintaining its full-year outlook. Net income fell to $1.13 billion, or $1.92 a share, from $1.86 billion, or $3.07 a share, in the year-ago period. Excluding non-recurring items, adjusted EPS declined to $2.20 from $3.07, but was above the FactSet consensus of $2.05. Sales declined 2.6% to $8.17 billion but beat the FactSet consensus of $8.05 billion. Among 3M's business segments, health care sales 5.8% rose above expectations, transportation and electronics sales fell 2.9% but topped expectations, consumer sales declined 0.5% roughly in line with expectations and safety and industrial sales dropped 9.0% to be just shy of expectations. For 2019, 3M cut its net EPS guidance to $8.25 to $8.75 from $8.53 to $9.03 to reflect a charge for the deconsolidation of its Venezuelan subsidiary, but maintained its adjusted EPS outlook of $9.25 to $9.75 and its return on invested capital guidance of 20% to 22%. "Our execution was strong in the face of continued slow growth conditions in key end markets, as we effectively managed costs and improved cash flow," said Chief Executive Mike Roman. The stock has lost 5.9% over the past three months while the Dow Jones Industrial Average has gained 3.1%. Published:7/25/2019 5:54:58 AM
[Markets] The Dow Lost 79 Points Because Boeing and Caterpillar Earnings Came Up Short The three major U.S. stock indexes closed with mixed results on Wednesday. The Dow Jones Industrial Average was dragged lower by downbeat earnings news from Boeing and Caterpillar. Published:7/24/2019 5:02:56 PM
[Markets] S&P 500, Nasdaq stock indexes close at new record but Dow hit by Boeing The S&P 500 and Nasdaq Composite stock indexes closed at new record highs on Wednesday despite mixed earnings and economic data and news of anti-trust investigations into leading U.S. technology stocks, but the Dow closed lower. Published:7/24/2019 3:56:00 PM
[Markets] This Index Crushes Dow Jones, Nasdaq Up; Will These Growth Stocks Join Breakouts? Caterpillar and Boeing reflected global trade problems among stocks in the Dow Jones Industrial Average. Chip and small caps gave a bullish display. Published:7/24/2019 3:27:09 PM
[Markets] Dow Lags As Boeing Dives, But Nasdaq Hits New High As Chips Soar Soaring chip stocks boosted the Nasdaq in today's stock market, but Boeing and Caterpillar dragged the Dow Jones Industrial Average into the red. Published:7/24/2019 2:26:32 PM
[Markets] Snap Is Soaring, UPS Is Jumping, but the Dow Is Sliding Lower U.S. stock indexes were mixed after the Justice Department began an antitrust probe into big tech companies, as Boeing and Caterpillar sink the Dow. Snap and UPS stocks were climbing after releasing earnings. Published:7/24/2019 11:56:57 AM
[Markets] ECB Rate Cut Odds Jump After "Dismal" PMIs

Stock bulls got some unexpected "good" news this morning following the latest dismal manufacturing survey data out of the Eurozone. As we noted earlier, Eurozone manufacturing PMI was the worst in six years, with the German Mfg component printing the worst number in seven years, caused by "an accelerated drop in export orders—the most marked in over a decade” per Markit, while French data saw both Services and Manu numbers miss consensus as well.

Why is this good news for stocks? Because as Nomura's Charlie McElligott writes this morning, the case for imminent ECB “easing” - which may be announced as soon as tomorrow - grows, with a 10bps cut probability rising as much as 51% for tomorrow according to EONIAs...

... with two full cuts priced-in, and causing a “volatility pause” in Bund futures trading, with lower Bund yields tumbling back to just shy of all time lows at -0.39%...

... and feeding into an initial EURUSD dip to 1.1127, just shy of two year lows.

Meanwhile, stocks were happy with the DAX rising to session highs, and just shy of 1 year highs, on this escalating likelihood of an imminent ECB policy rate cut/enhanced easing package, according to McElligott (for a full "menu" of what the ECB may announce tomorrow, see this post).

Putting the latest data, and market reaction in context, the Nomura strategist repeats that his best-case “Dovish Surprise” scenario for global risk-assets at tomorrow’s ECB meeting would be a

  1. 10bps cut with
  2. announced tiering of deposits (+++ EU Banks), something which is critical as otherwise EU banks face dramatic losses as explained last night
  3. enhanced fwd guidance,
  4. resumption of QE in Sep

Yet while McElligott concedes that "that is a lot to deliver on short notice" at this point the manufacturing slowdown in the Eurozone  - especially in Germany and France - and speculation of an imminent recession so real now "that it risks dragging Services with it, which could trigger an actual recession." As such, the Nomura strategist is confident that the market will "see through" any ECB disappointment tomorrow as purely “delaying the inevitable” and continue pricing-in an aggressive easing package.

Of course, this being McElligott, he quickly looks at the quant factor that are behind the latest move in European stocks and finds that EuroStoxx dynamics “under the hood” once again highlight the Growth Scare/Duration Bid story, "with “Cyclicals” as the three worst performing sectors (Energy, Financials, Materials) while the best performing sectors on the session are the Duration-sensitive “Slow-flation Risk Barbell Longs” of 1) Defensives / Min Vol / Bond Proxies (Utilities, REITS) and 2) Secular Growers (Technology, Comm Services and Cons Disc)." Which is to be expected considering the resumption of the plunge in yields.

However, as Nomura observes, there is one potential offset to the aforementioned dynamic in US equities today that could “soften the blow” for “Value” factor market-neutral: namely the pressure exerted on tech/growth stock, i.e., the prominent “Growth Longs” (also known as “Value Shorts,” because they’re expensive) which are likely to be under with regard to this US DoJ antitrust probe into the Tech giants, although it now appears that the early weakness in the Nasdaq has fizzled and instead the market is more focused on Boeing and CAT which have dragged the Dow lower.

One final point from McElligott: "Gold continues to hold very firm in light of the evidence pointing to likely escalation of “beggar thy neighbor” global FX depreciation wars, $1426.50 last—as we continue seeing macro fund interest in upside expressions across GDX/GLD."

Published:7/24/2019 9:54:49 AM
[Markets] Global Stocks Slump As German Manufacturing Craters, Tech Spooked By DOJ Probe

S&P futures reversed a two-day rally, dropping alongside European stocks, led by the tech sector after the DOJ announced it was launching a broad, anti-trust review of the mega-tech (FANG) names, while weaker-than-expected composite PMIs in the Eurozone weighed on equities and sent bond yields to new all time lows, with manufacturing readings in Germany and France standing out. The dollar slumped while cable spiked one day after BoJo was elected as the next prime minister.

Weaker-than-expected composite PMIs in Germany and France weighed on equities and lifted bond prices, with manufacturing readings in Germany and France standing out, as the recession in Germany’s manufacturing sector worsened in July with the performance of goods producers dropping to the lowest level in seven years while French business growth slowed unexpectedly, the latest PMIs showed.

Trade tensions, weaker demand abroad and the travails of the car industry have built up over the past year to take a toll on the engine of Europe’s economy. They’ve dragged manufacturing into its deepest slump in seven years, and some of the nation’s biggest corporate names from BASF SE to Daimler AG and Continental AG have had to come to terms with a new reality for business. As one of the world’s biggest exporters, Germany is paying a high price for the the slowdown in global trade. The economy is forecast to grow the least in six years in 2019, the Bundesbank sees no sign of an export recovery and some are even saying there’s a risk of recession.

Beyond manufacturing, Germany’s image has also been dented by the troubles at Deutsche Bank AG, which is cutting thousands of jobs, and warned Wednesday that its trading slump deepened sending its stock sharply lower.

Downbeat earnings as well as the weaker-than-expected Eurozone manufacturing surveys took European shares and the euro a leg lower, with the single currency hitting two-month lows. Following strentgh in Asia, MSCI’S All-Country World index extended its previous day’s gains by a whisker, rising 0.02%. Sentiment was boosted by a Bloomberg report that U.S. Trade Representative Robert Lighthizer would travel to Shanghai next week for meetings with Chinese officials.

“While the resumption of trade talks appears to mitigate any near-term deterioration in US-China tensions, prudent investors will not get carried away, seeing as a meaningful deal still seems a long way off,” said Han Tan, market analyst at FXTM.

Asian stocks climbed for a second day, led by communications firms, as U.S. officials prepare to travel to China next week for trade negotiations. Markets in the region were mixed, with China and Australia advancing and India retreating. The Shanghai Composite Index rose 0.8% for its biggest gain in three weeks, as large insurers and banks offered strong support. The Topix added 0.4%, driven by Toyota Motor and Sony. SoftBank gained 1% following a report that it’s close to announcing the launch of a new technology investment vehicle modeled on its giant $100 billion Vision Fund. The Bank of Japan may lower its inflation forecast for this fiscal year and downgrade some of its economic growth projections. India’s Sensex slipped 0.2%, with Reliance Industries and Larsen & Toubro among the biggest drags, as investors judged bad debt risks at some financial companies.

With the latest PMIs confirming Europe is on the edge of recession, the ECB is thought likely to at least offer a nod to easier policy at its meeting on Thursday. Meanwhile, in the US, futures remain 100% priced for a rate cut of 25 basis points from the Federal Reserve next week, and even imply an 18% chance of 50 basis points. The prospect of widespread central bank largesse helped take the sting out of a downgrade to the IMF’s global growth forecasts.

“There are two conflicting catalysts for stock traders right now: on one hand, central banks around the world are about to embark on an easing initiative...,” said Konstantinos Anthis, head of research at ADSS. “On the other though, the slowdown in growth on a global scale and various geopolitical factors keep weighing down on corporate profitability, asking questions on whether equities have peaked.”

In FX, the euro declined for a fourth day after manufacturing gauges in Europe came in weaker than forecast. The common currency hit a two-month lows at $1.1127, falling further after the weak PMIs. It also hit a near seven-month trough against the yen at 120.19 though it recovered from a two-year low versus the Swiss franc.  The Australian dollar tumbled after a domestic bank that has correctly called previous policy decisions flagged two more rate cuts. The pound reversed losses before Boris Johnson was set to be appointed U.K. prime minister, with a cabinet reshuffle expected later Wednesday, with investors unclear as to whether he will lead the country to a no-deal EU exit or find a compromise.

“We believe that in the short term the market is overstating the risk of a no deal,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “While a no-deal Brexit remains possible over the longer term, our view is that the most likely path in the short term is for a further extension to the UK’s 31 October exit day, either due to a change in stance from PM Johnson, or in the case of a general election.”

In rates, fears of a European recession sent investors toward the safety of German bunds, with Treasury and gilt yields also sliding lower in unison.  European bond yields lower across the curves, also dragging down UST yields, with BTPs and Bonos outperforming.

Expected data include PMI readings, mortgage applications and new home sales. AT&T, Boeing, Caterpillar, UPS, Facebook, Ford, and Tesla are among companies reporting earnings

Market Snapshot

  • S&P 500 futures down 0.3% to 2,998.25
  • STOXX Europe 600 down 0.1% to 391.14
  • MXAP up 0.2% to 160.97
  • MXAPJ down 0.03% to 528.60
  • Nikkei up 0.4% to 21,709.57
  • Topix up 0.4% to 1,575.09
  • Hang Seng Index up 0.2% to 28,524.04
  • Shanghai Composite up 0.8% to 2,923.28
  • Sensex down 0.3% to 37,881.58
  • Australia S&P/ASX 200 up 0.8% to 6,776.67
  • Kospi down 0.9% to 2,082.30
  • German 10Y yield fell 2.6 bps to -0.381%
  • Euro down 0.1% to $1.1137
  • Italian 10Y yield fell 5.0 bps to 1.25%
  • Spanish 10Y yield fell 3.1 bps to 0.363%
  • Brent futures up 0.4% to $64.11/bbl
  • Gold spot up 0.4% to $1,423.97
  • U.S. Dollar Index little changed at 97.71

Top Overnight News from Bloomberg

  • European Central Bank policy makers have plenty of reasons to wait until September before committing to more stimulus; in the run-up to their meeting, Governing Council members have said that additional support measures are available, if needed, to boost the euro zone’s ailing economy
  • U.S. Trade Representative Robert Lighthizer and senior U.S. officials are set to travel to China next Monday for the first high-level, face-to-face trade negotiations between the world’s two biggest economies since talks broke down in May
  • Boris Johnson will formally take office as U.K. prime minister Wednesday and seek to build a government that will bring his Conservative Party together and deliver Brexit The new leader will give hardline Brexiteer Priti Patel a cabinet role and promote politicians of all stripes to try to reflect modern Britain, according to a person familiar with his plans
  • U.K. businesses urges Johnson to soften “hugely worrying” Brexit stance
  • China’s central bank governor said the country’s current interest rates are at an appropriate level, and policy will reflect domestic considerations
  • Bank of Japan will probably lower its inflation forecast for this fiscal year and may also downgrade some of its economic growth projections at its meeting next week, according to people familiar
  • Oil rallied as plans for a meeting between the U.S. and China offered a hint of progress in the trade war dividing the world’s two biggest economies
  • Speaker Nancy Pelosi says the House will have the votes to pass the budget, debt limit deal

Asian equity markets traded mostly higher with sentiment lifted by US-China trade hopes after reports US Trade Representative Lighthizer will lead a small team of negotiators to China next Monday for trade discussions. This underpinned major indices on Wall St. with outperformance seen in the trade sensitive sectors such as materials and industrials, although futures pared some of the gains after-market on news the DoJ is to open a broad antitrust review on the large tech firms. Nonetheless, ASX 200 (+0.8%) and Nikkei 225 (+0.4%) were higher with broad strength seen in Australia aside from the mining sector, while gains in Tokyo were capped amid a downturn among JPY-crosses. Hang Seng (+0.3%) and Shanghai Comp. (+0.8%) showed a strong performance on the trade optimism which was also helped by US Commerce Secretary Ross who said he will deal with Huawei waiver applications within the next few weeks, while China was also said to be looking to make more agricultural purchases as a goodwill gesture. Finally, 10yr JGBs were uneventful with demand sapped following similar uninspiring trade in USTs amid the positive risk tone and with the BoJ also absent from the market today.

Top Asian News

  • World’s Top Toymaker Joins Companies Leaving China’s Factories
  • Japan May Soon Gain A Powerful Trade Weapon Against South Korea
  • Hong Kong’s NWS Is Said to Mull Sale of Public Transport Assets
  • Malaysia’s PE Fund Said to Weigh Options for Oil Tanker Operator

Major European bourses are marginally lower [Eurostoxx 50 -0.2%] following on from a relatively flat open as overall downbeat flash PMIs from Europe weighted on the region. UK’s FTSE 100 (-1.0%) lags its peers amid unfavourable currency action coupled with underperformance in heavyweight mining names following a barrage of broker downgrades. As such, Rio Tinto (-4.0%), BHP (-3.4%) and Anglo American (-3.1%) all rest at the foot of the index. Sectors are mixed with defensive sectors supported due to the current cautious risk tone. In terms of individual movers, ASM (+7.3%), ITV (+6.1%) and Akzo Nobel (+4.1%) shares are all fuelled by earnings and trade at the top of the Stoxx 600. On the flip side, Deutsche Bank (-3.7%) shares plumbed the depths post-earning after the German lender reported a larger than expected net loss and cut its FY 19 revenue guidance.

Top European News

  • Euro Area’s Economic Struggles Persist as Industry Slump Deepens
  • Dovish ECB Renders More Czech Rate Hikes Pointless for Michl
  • Paris Scorches in Historic Drought as Heatwave Fries Europe
  • Repsol Announces Buyback Plan as Oil Earnings Kick Off

In FX, dollar bulls have gleaned even more encouragement from unfolding US-China trade developments given that face-to-face talks look set to resume early next week, and Beijing offers to buy more agricultural goods as a good will gesture in response. Moreover, the Dollar continues to proffer from the demise of others and increasingly constructive technical impulses with the DXY eclipsing a Fib retracement level and inching closer towards the psychological 98.000 mark.

  • AUD/NZD - The Aussie has given up 0.7000+ status and is now threatening to slide below 0.6975 in wake of slowdowns in all CBA PMI readings overnight and yet another dovish RBA policy call looking for 2 further cuts in the OCR (Westpac this time eyeing moves in October and February 2020). All this ahead of comments from RBA Lowe in the early hours on Thursday and in contrast to the Kiwi that is keeping in contact with 0.6700 after a wider than forecast NZ trade balance, albeit due to a bigger miss on the import side vs exports.
  • EUR/CHF/CAD - The single currency has also been undermined by PMI surveys, and in particular the manufacturing prints showing France on the 50 threshold and Germany sinking deeper into contraction. With Eurozone M3 also softer than expected, rate cut odds have now tipped in favour of 10 bp for tomorrow’s ECB meeting and Eur/Usd is losing sight of decent option expiry interest at 1.1150 (1 bn) as a result, but holding above the ytd base and 1.1100 where big barriers lie. Meanwhile, the Franc has retreated further vs the Buck within a 0.9850-75 band, but remains above 1.1000 against the Euro pending Thursday’s ECB policy pronouncements and the SNB’s response, but the Loonie has clawed back some lost ground vs its US counterpart to meander between 1.3129-47 compared to 1.3164 or so at one stage on Tuesday.
  • GBP/JPY - Relative outperformers and bucking the overall trend, as the Pound maintains its recovery momentum following confirmation that Boris Johnson will take over the reins from Theresa May as Tory Party head. Cable has extended its rebound from near 1.2400 to 1.2480+ awaiting the official unveiling of the new PM and his Cabinet line up, with Eur/Gbp down towards 0.8925 and early July mtd lows. Similarly, the Yen is still displaying resilience in the face of overall Usd strength and upbeat risk sentiment despite ongoing geopolitical tensions, with a reluctance to stray too far from 108.00 where massive expiries roll off (4.3 bn) and technical resistance capping the upside (108.31 Fib).
  • EM - The Rand remains in the spotlight amidst comments from SARB Governor Kganyago underlining post-rate cut guidance for limited additional monetary stimulus and CPI data that was slightly firmer than anticipated in m/m terms. Usd/Zar is hovering just below 13.9500 as the Central Bank head highlights the fact that neutral rates have risen due to risk premia of late and this makes it tougher for further easing.

In commodities, WTI and Brent futures are taking a breather from last night’s geopolitical-induced gains in which the benchmarks reclaimed USD 57/bbl and USD 64/bbl to the upside on reports that UK approached EU nations to join a European-led mission for safe shipping via the Strait of Hormuz. Furthermore, reports of a US delegation heading to China on Monday exacerbated upside in the complex on sentiment. Meanwhile, the mammoth drawdown in API crude stocks (-10.96mln vs. Exp. -4.0mln) added further fuel to the upside for oil, although the immediate jolt was quickly faded due to bearish components of the release including a surprise build in gasoline inventories, it’s worth noting that this week’s inventory data also captures the late effects of Storm Barry. Elsewhere, spot gold in is crawling higher as the yellow metal consolidates following its recent decline from 6yr highs. Copper prices are marginally lower amid the cautious risk tone, albeit remain above USD 2.70/lb, while Dalian Iron ore extended losses amid slowing demand in the wake of output restrictions on steel producers in China’s top steel-making city Tangshan.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -1.1%
  • 9:45am: Markit US Manufacturing PMI, est. 51, prior 50.6; Services PMI, est. 51.8, prior 51.5
  • 10am: New Home Sales, est. 658,000, prior 626,000; est. 5.11%, prior -7.8%

DB's Jim Reid concludes the overnight wrap

I’ve been promised the hottest night of my life this week. For the avoidance of doubt, meteorologists have suggested that this week will likely see the hottest overnight temperatures on record here in the UK and the hottest July day on record and possibly a new overall record. I must admit the more I read about climate change the more worried I get. However all I will say is that since we moved house three months ago we must have eaten outside in the evening 90% of the time I’ve been around. It’s been absolutely fantastic. Not even a swarm of flying ants could stop us last night. The only thing missing was a glass of Rose. Interestingly flying ants have been so prevalent over the last week in the South of England that they’ve appeared on weather radars and some forecasters initially mistook them for a band of rain!

As well as potentially being the hottest day ever tomorrow, it’s possible we’ll also start the latest round of global monetary stimulus or at least get new dovish forward guidance from the ECB. Given we’re on the eve of such an event and given that we have seen a big rally in global assets as a prelude, I found it interesting to read DB’s Binky Chadha’s latest asset allocation piece yesterday (see link here). In it he showed that since the 1950s, the Fed has embarked on 19 easing cycles, including the unconventional easing measures adopted during the course of this economic recovery. However of these, 9 or almost half, saw the economy eventually slip into recession. The episodes that ended in recession saw the ISM continue to weaken, eventually bottoming - 8 months after the Fed began cutting - at low levels (median 36). In these recession episodes, the S&P 500 saw a full bear market, typically falling -27% from peak to trough, with a bulk of the decline occurring after the Fed had started easing. Indeed, on average, the S&P 500 did not bottom until 5 months after the Fed started cutting. The distinguishing characteristic of the episodes that did not end in recessions was that after a moderate further decline in growth (to a median ISM 48), on average within 2-3 months after the Fed began easing, growth rebounded quickly. The equity market typically fell -7% after the Fed began easing, but bottomed quickly with growth. The S&P 500 ended above the pre-easing level within 6 months each and every time, rising a robust 12% on average. So my take on this is that history suggests a much higher probability of an imminent recession than markets do and also that we’re at quite a binary moment for markets as the Fed (and other central banks) embark on a fresh easing cycle. See the piece for much more detail.

In terms of markets yesterday, the focus was a further rally for equities across the world, with the S&P 500 closing +0.69% higher and above the 3000 level for only the fourth time in history. Elsewhere, the DOW and NASDAQ advanced +0.65% and +0.58%. After US markets closed, the Justice Department said it is investigating tech firms for antitrust violations, which caused the Nasdaq to retrace a bit more than half of its gains from yesterday, with futures down -0.18% overnight. Shares of Amazon (-0.95%), Alphabet (-0.96%) and Facebook (-1.54%) declined c.1% in after-hours trading. Prior to that, indexes were supported by strong earnings reports, as well as positive news on the trade front after Europe went home. USTR Lighthizer and other senior officials will reportedly travel to China on Monday for face-to-face talks, likely staying through Wednesday. European equities rallied as well before this news, with the STOXX 600 up +0.98% and the DAX trading +1.64%.

The positive trade news has also supported the Asian session overnight with Chinese markets leading advances – the CSI (+1.03%), Shanghai Comp (+1.01%) and Shenzhen Comp (+1.39%) are all up over 1%. The Nikkei (+0.46%) and Hang Seng (+0.93%) are also up while the Kospi is down -0.25%. Elsewhere, futures on the S&P 500 are trading largely unchanged while crude oil prices (WTI +0.41%, Brent +0.27%) are up for the fourth day in a row on a report from the American Petroleum Institute which showed a 10.96 million barrel decline in US crude stockpiles last week. In terms of overnight data releases Japan’s preliminary July manufacturing PMI came in at 49.6 (vs. 49.3 last month) while the services PMI stood at +52.3 (vs. 51.9 last month) bringing the composite PMI print to 51.2 (vs. 50.8 last month).

Ahead of tomorrow’s ECB meeting the next test will be the rest of today’s flash global PMIs. The last few months have seen some stabilisation in the data with the manufacturing PMI for the Euro Area hitting 47.6 in June (vs. 47.7, 47.9 and 47.5 in the three months prior). The consensus expects a 47.7 reading for July. As for the services reading the consensus expects a 53.3 print which compares to 53.6 last month. We should note that we'll also get country level PMI data for Germany, France, and also the US.

Turning back to the earnings reports from yesterday, Coca-Cola (+6.07%) and United Technologies (+1.50%) led gains. Coca-Cola shares climbed to a record high after their results showed a strong increase in demand, with full-year revenue growth estimated to grow 5%, up 1pp from the previous guidance. Demand from China has been a key driver of that growth, with sales volumes up 7% in Asia’s largest economy. United Technologies also raised their guidance, citing strong jet engine sales. After hours, Texas Instruments (+7.01%) and Snap (+9.10%) rallied strongly, as the former raised its guidance and the latter increased its daily user count to 203 million, compared to consensus estimates for 192 million.

The risk-on sentiment bled over into fixed income markets, where 10-year treasury yields rose +2.6bps. Two-year yields rose +2.5bps, leaving the 2y10y curve roughly flat. Earlier in the session, European yields rallied with bund yields down -0.9bps to -0.355%. BTPs outperformed, gaining -5.1bps. In the UK, gilt yields fell -1.6bps and the Treasury sold new 10-year notes at their second lowest ever yield at 0.789%, above only the September 2016 auction. In credit, HY spreads tightened -3.6bps and -4.7bps in Europe and the US. This morning we have published an update of our analysis looking at relative value between the EUR and USD HY markets. EUR HY has generally outperformed since February and within the note we assess whether USD HY is now starting to look relatively more attractive ( link here).

As widely expected, Boris Johnson was elected the leader of the Conservative Party yesterday, and as such will become the new UK PM this afternoon. While journals stretching to the moon and back have been written on the Brexit implications, less has been written on the wider economic policy mix of the incoming government. DB’s Oli Harvey wrote on this yesterday (see link here) and thinks that if the new administration survives or wins an election we could have a sizeable departure from the post 2010 regime. Indications are that Borisnomics may represent a significant relaxing of fiscal policy leading to materially higher borrowing and hence issuance. At the same time, we think there is at least some possibility the Bank of England's mandate could be adapted to provide the bank more flexibility over inflation. This policy move is likely to be more extreme in a hard Brexit scenario but fiscal policy is likely going to take the strain in all reasonable scenarios. Oli thinks the best trades are forward steepeners such as 2s10s 2 year forward. As I’ve repeatedly suggested the UK could start the helicopter money experiment (on a hard Brexit) that I think is likely across the globe in the years ahead.

Elsewhere in the UK, there was some attention paid to two BoE speakers, Saunders and Haldane, who both leaned dovishly. Saunders is possibly the biggest hawk on the MPC, but he said that the economy looks weak and “is clearly not overheating,” suggesting potential support for policy easing. Similarly, Haldane said that uncertainty is high and “the case for holding rates until the road becomes clearer is strong.” Considering that he had previously argued for higher rates before the June policy meeting, this was a decidedly dovish shift as well. At the same time, the UK’s CBI manufacturing orders index fell to -34, its lowest level in over 9 years and far worse than the expected -15. The cocktail of dovish signals and weak data pushed the pound -0.31% weaker versus the dollar.

Away from markets, the IMF updated its World Economic Outlook and cut its forecast for global growth by -0.1pp for both 2019 and 2020, to 3.2% and 3.5%, respectively. The update described growth as “sluggish” and “subdued” and also noted that risks are tilted to the downside, emphasizing trade tension uncertainties. Nevertheless, the forecast for the US rose +0.3pp to 2.6% for this year, while Europe’s stayed steady at 1.3%. The forecast for China was revised down -0.1pp, to 6.2%, while India’s was trimmed -0.3pp to 7.0%. The IMF also revised down its forecast for 2019’s growth in world trade volumes by c.1pp, to 2.5%.

To wrap up yesterday’s economic data, in the US it was mostly disappointing, with the Richmond Fed manufacturing index down to -12 versus expectations for a positive print of 5. That contrasts with the recent rebound in surveys from the Philadelphia and New York Feds, giving a cloudier picture ahead of today’s flash PMI. Existing home sales slowed further in June to 5.27mn, weaker than expected, while the FHFA house price index rose only 0.1%, the weakest pace since early 2017 and fourth weakest since 2012. In Europe, consumer confidence improved slightly to -6.6 from -7.2.

Turning to the day ahead, the July flash PMIs in Europe and the US will be the main data focus. Away from that, July confidence indicators are due in France, June M3 money supply data due for the Euro Area and June new home sales data due in the US. Earnings highlights include Boeing, Caterpillar, Ford, Facebook and AT&T. Former Special Counsel Mueller will testify before the House Judiciary and Intelligence committees on Russian election interference.

Published:7/24/2019 6:54:34 AM
[Uncategorized] Elizabeth Warren’s erroneous claim to have tried to help women with breast implant claims when she represented Dow Chemical My appearance on Tucker Carlson Tonight discussing the investigations by Legal Insurrection and the Washington Post disputing Warren's claim to have tried to help women with breast implant claims when in fact she represented Dow Chemical which was fighting any liability. Published:7/23/2019 9:51:50 PM
[Markets] Dow Jones Futures: Facebook, Amazon, Google Fall On Big Tech Antitrust Probe; Chipotle, Snap, Texas Instruments Soar Dow Jones futures: Amazon, Facebook, Google and Apple fell as the DOJ said will probe Big Tech online dominance. Chipotle Mexican Grill, Snap and Texas Instruments soared on earnings. Published:7/23/2019 4:52:42 PM
[Markets] Dow ends just shy of record as stocks rise on news of resumption of face-to-face China trade talks U.S. stocks closed solidly higher Tuesday, and the Dow narrowly missed a closing record, as investors appeared to react positively to reports that the U.S. and China would hold face-to-face talks for the first time since May. The Dow Jones Industrial Average closed 177 points, or 0.7%, higher at 27,350 (on a preliminary basis), just off its July 15 closing record at 27,359.16. The S&P 500 index ended 0.7% higher at 3,005, marking its best finish since July 3, according to FactSet data. Meanwhile, the Nasdaq Composite Index wrapped up the session with a 0.6% gain to reach 8,251. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to China for meetings with China's Vice Premier Liu He, following their collapse in May, the Wall Street Journal reported. Better-than-expected earnings from Dow components, Coca-Cola and United Technologies reported before the market opened also helped stocks rise, marking a second straight day of gains. Published:7/23/2019 3:20:58 PM
[Markets] Stocks are rallying Tuesday afternoon, sending the Dow toward a new record high Stocks are rallying Tuesday afternoon, sending the Dow toward a new record high Published:7/23/2019 2:19:35 PM
[Markets] US STOCKS-Wall Street approaches record high on earnings optimism The S&P 500 and Nasdaq approached record highs on Tuesday, lifted by upbeat quarterly reports from Coca-Cola and United Technologies, while a debt ceiling and budget deal between President Donald Trump and Congress also buoyed sentiment. Fellow Dow component United Technologies Corp gained 1.2% after raising its full-year profit and sales outlook. The two-year federal spending between Trump and U.S. congressional leaders would avert a feared government default later this year, but add to rising budget deficits. Published:7/23/2019 1:51:11 PM
[Markets] US STOCKS-Wall Street gains on robust Coca-Cola, United Tech earnings U.S. stocks rose on Tuesday boosted by better-than-expected earnings and forecast raises from blue-chip companies including Coca-Cola and United Technologies, soothing concerns over the pace of economic growth. Coca-Cola Co shares rose 4.9%, the most among stocks listed on the Dow Jones index, after the fizzy drink maker beat quarterly earnings expectations and raised its full year organic revenue forecast. Its gains pushed the consumer staples sector 0.9% higher, the biggest gainer among the major S&P sectors. Published:7/23/2019 9:18:18 AM
[Markets] Dow's earnings reporters adding a net 25 points to index's price The three Dow Jones Industrial Average components that reported second-quarter earnings Tuesday are adding about a net 25 points to the index's price, with two stocks gaining and one stock declining. The Dow was up 116 points. The biggest contributor to the Dow's price was United Technologies Corp.'s stock , which rose $2.65, or 2.0% in morning trade, to add about 18 points to the Dow, after better-than-expected results and raised outlook. Coca-Cola Co. shares climbed $1.79, or 3.5%, to add about 12 points to the Dow, after earnings and revenue beats. Meanwhile, Travelers Companies Inc. shares fell 75 cents, or 0.5%, to shave about 5 points off the Dow, after a profit miss. Published:7/23/2019 8:49:06 AM
[Markets] United Technologies stock gains after earnings beat, raised outlook Shares of United Technologies Corp. are up 2.7% in premarket trading Tuesday after the company beat earnings expectations for the second quarter and increased its full-year outlook. The company reported net income of $1.9 billion, or $2.20 a share, down from $2.05 billion, or $2.56 a share, a year earlier. On an adjusted basis, the company also posted earnings per share of $2.20, up from $1.97 a year prior. Analysts surveyed by FactSet had been modeling $2.05 in adjusted EPS. United Technologies saw second-quarter sales of $19.63 billion, up from $16.71 billion a year earlier. Analysts had been projecting $19.55 billion in net sales. The company now projects full-year adjusted EPS of $7.90 to $8.05, up from a prior range of $7.80 to $8.00. United Technologies also projects that organic sales will rise by 4 to 5 percent for the full year. Its earlier forecast was for 3 to 5 percent. Its shares have climbed 25% so far this year, as the Dow Jones Industrial Average has increased 16%. Published:7/23/2019 6:20:52 AM
[Markets] Dow Jones Up, These Chip Stocks Give Nasdaq Oomph; 4 Big Cap Stocks To Watch Now The Dow Jones Industrial Average lagged the Nasdaq composite as the latter got a bigger boost from chip stocks. Data storage and telecom shares rose. Published:7/22/2019 3:48:28 PM
[Markets] Semis Soar, Small Caps Sink, Silver Surges

Seemed appropriate...


Chinese stocks were not pretty. Despite STAR soaring, ChiNext tumbled along with Shenzhen as it appears liquidity moved to the new index...


European markets (except Spain) managed to cling to gains on the day thanks to 4 notable impulses...


Nasdaq dramatically outperformed led by semis. Small Caps were the biggest losers. Dow ended unchanged (Boeing down vs Apple up)

NOTE - Trannies and Small Caps notably decoupled at around 1400ET only to see a mysteriously large buy program strike at 1500ET


Small Caps continue to dramatically diverge from big caps (and mega cap tech)...


Small Caps also closed below their 100DMA...


Volume was low - around 20% below average...


There were two 'failed' attempts at yet another short-squeeze today...


Semis soared on the day following Goldman's upgrade on Micron...


But while Semis spiked, FANG stocks were flat...


Bonds and stocks remain in their own - buy all the things - worlds...


Treasury yields traded in a narrow range today, with yields down across the curve led by the belly...


10Y Yield dropped to 2.02% intraday but the yield curve (3m10Y) remains inverted (41st day in a row)...


The odds of a 50bps cut next week has dropped to 18%...


The T-Bill curve remains kinked around potential debt ceiling X-date...


The dollar index managed very modest gains, holding above last week's Williams' speech plunge levels..


Cryptos were mixed over the weekend with Bitcoin Cash holding gains but ETH and BTC lower after a leg lower this morning...


Bitcoin continues to hover between $10,000 and $11,000...


Dr.Copper is lagging as silver resurges...


Oil prices managed some gains today as Iran tensions resurfaced in the narratives...


Silver continues to rise...


Silver has outperformed gold for six straight days (longest streak since June 2018), erasing most of the relative gains for the year...


Finally, don't forget, it's different this time...

Except it's all about liquidity, stupid...

Published:7/22/2019 3:25:14 PM
[Markets] US STOCKS-Wall Street edges higher ahead of major earnings, central bank meetings U.S. stocks eked out small gains on Monday as investors were wary of making big bets ahead of key central bank meetings on interest rates and waited for earnings from marquee companies including Facebook and Amazon due later this week. Shares of Boeing Co fell 1.13% and pressured the blue-chip Dow index after rating agency Fitch revised its outlook on the planemaker to "negative" from "stable," while the tech-heavy Nasdaq was lifted by chipmakers. "Markets are trading sideways because there are not a lot of earnings out today, with the exception of Halliburton, but it is going to be a very big earnings week," said Tom Martin, senior portfolio manager at GlobAlt Investments in Atlanta. Published:7/22/2019 12:43:05 PM
[Markets] Boeing Drops, Drags Dow To Session Lows After Fitch Puts Single-A Rating In Danger Of Downgrade

With the ongoing debacle over the 737 MAX seemingly getting worse by the day, a potentially far more ominous development hit today when rating agency Fitch warned that it may downgrade Boeing as the grounding of the ill-fated airplane stretches into the 5th month.

Citing regulatory uncertainty around the return to service of Boeing's workhorse jet and the “growing logistical challenge” of getting parked planes back in the air, Fitch said Boeing's credit rating was threatened as its cut its credit outlook for the aerospace giant while confirming its single-A, the sixth-highest investment-grade rating, and adding that there’s also a risk that the company will have to make costlier concessions to airlines.

The challenge for Boeing is not just how to get the grounded planes in the air; in the longer term, Fitch said the Max’s grounding presents a significant public-relations challenge that will remain a risk for “Boeing’s reputation and brand” into next year and beyond.

“Fitch also expects there will be a lingering operating-margin impact for several years after the 737 Max returns to service,” the ratings company said.

Boeing is currently rated A2 by Moody and A by S&P, which both have stable outlooks on the company, although we expect these to be cut soon now that Fitch has broken the seal. S&P said last week that Boeing’s announcement that it will be taking a $5.6 billion pretax charge to compensate for the grounding of the 737 Max wouldn’t affect the company’s credit ratings. But S&P warned that more damaging effects to Boeing’s financials or a “substantial loss” in market share to the 737 could warrant a downgrade.

While Boeing’s bonds were unchanged after Fitch’s report, BA stock dropped and since Boeing is the most important Dow member, the industrial average quickly slumped to session lows.


Published:7/22/2019 10:14:27 AM
[Markets] U.S. stocks open slightly higher as Dow faces earnings season's busiest week U.S. stock indexes on Monday kicked off the week with slight gains as investors prepped for a barrage of earnings, including a third of the S&P 500 index and the Dow Jones Industrial Average . The Dow opened up 0.1% at 27,180, a gain of 30 points, the S&P 500 index advanced 0.2% at 2,983, while the Nasdaq Composite Index kicked off Monday trade 0.4% higher at 8,176. All three benchmarks finished Friday's session with weekly losses. There are 144 S&P 500 components expected to report corporate results this week and 10 of the Dow's 30 components, representing the busiest week for the blue-chip index and the second-busiest week for the S&P 500. Published:7/22/2019 8:43:06 AM
[Markets] Nasdaq, Chips Leads Stock Futures Higher; Disney Stock Lifts Dow Jones Industrial Index The Nasdaq led stock futures higher Monday as three chip stock upgrades sweetened early trade. Disney led the Dow Jones industrial index. Published:7/22/2019 7:43:31 AM
[Markets] DaVita's stock rallies after profit outlook raised Shares of DaVita Inc. rallied 4.2% in premarket trading Monday, after the dialysis services company raised its profit outlook, as it looks to update investors ahead of the expected modified "Dutch auction" to buy back up to $1.2 billion worth of its shares. The company said it now expects second-quarter operating income of $460 million to $465 million, which is above the FactSet consensus of $398 million. DaVita also expects second-quarter non-acquired treatment growth of 2.1% and revenue per treatment to increase by about $1.60 from the first quarter to $350. For 2019, the company raised its adjusted operating income guidance to $1.64 billion to $1.70 billion from $1.54 billion to $1.64 billion. Separately, the company said the auction for its shares will be at a price per share of "not less than $53.50 nor greater than $61.50." The stock closed Friday at $56.05. It has gained 9.7% over the past three months, while the SPDR Health Care Select Sector ETF has advanced 6.7% and the Dow Jones Industrial Average has tacked on 2.4%. Published:7/22/2019 7:13:51 AM
[Markets] Global Markets Rebound Ahead Of Earnings And News Deluge

US equity futures followed European stocks higher, following a mixed session in Asia as investors looked ahead to a busy week of corporate earnings in which 145 S&P 500 and 10 of the Dow 30 companies are due to report. Oil gained amid tensions in the Persian Gulf, while the dollar continued to rise amid concerns the Fed may disappoint with a smaller than expected rate cut.

Europe's STOXX 600 index gained 0.1%, while Germany's DAX and France's CAC rose 0.3% and Britain's FTSE jumped 0.5% as traders reversed the wave of selling observed earlier in the Asian session. Energy and mining shares lead gains after crude oil prices jumped at least $1 per barrel, on concern that Iran’s seizure of a British tanker last week may lead to disruptions in the Middle East. European losses were led by real estate stocks which would benefit from lower interest rates and defensive sectors such as utilities and telecoms ahead of a big week for earnings.

“Sentiment about company earnings potential appears to be mixed at best, with some evidence that we might be seeing a bit of a pickup in economic data, after a slow first half of the year,” said Michael Hewson at CMC Markets. “The pickup in U.S. economic data last week, as well as contradictory commentary from Fed officials, appears to be muddying the waters for investors about the possible reaction function of the U.S. Federal Reserve at the end of this month and whether we can expect to see a 25 basis point or 50 basis point rate cut.”

The MSCI world index dipped 0.2% in early trading, pulling away from the near-year-and-a-half high reached earlier in June after most Asian stocks fell, led by health care and financials, as optimism for aggressive monetary easing dwindled and as the earnings season accelerated. Most regional markets fell, with Hong Kong and China leading losses. The Topix retreated 0.5%, driven by Asahi Group Holdings, Daiichi Sankyo Co. and Nintendo Co., after Japanese Prime Minister Shinzo Abe claimed victory in Sunday’s upper house election. Hong Kong’s Hang Seng Index extended declines in the afternoon even as Chief Executive Carrie Lam condemned political protesters and their aggressors, promising to investigate violent attacks.

Momentum looked better on Wall Street, where S&P500 Emini futures pointed to a 0.3% higher open.

Global stocks rose toward the end of last week after dovish comments by New York Fed President John Williams boosted expectations the world’s top central bank would lower rates by 50 basis points at its July 30-31 meeting. However, they gave back those gains after the New York Fed walked back Williams’ comments by saying his speech was not about upcoming policy action.

Hopes for a larger cut were curtailed even more after the Wall Street Journal reported late on Friday that the Fed was likely to cut rates by 25 bps this month, and may trim further in the future given global growth and trade uncertainties.

In FX, the dollar inched higher and U.S. Treasury yields held steady on the greater likelihood of a shallower rate cut. The dollar index gained to 97.169 against a basket of six major currencies after rising 0.4% on Friday. The euro was little changed at $1.1217 after shedding 0.5% on Friday. The New Zealand dollar leads currency gains; the pound was the biggest loser, falling from the European open as Johnson’s expected victory is predicted to spur at least two more resignations from the Conservative cabinet, further increasing the uncertainty over Britain’s departure from the EU

In rates, the benchmark 10-year Treasury yield lingered at 2.0429%. German bunds gained to support Treasuries, while Italian bonds slipped.

“The market is still exaggerating the most likely scale of Fed rate cuts, in our view, by pricing in close to 100bps of easing over the next 12 months,” according to Mark Haefele, chief investment officer at UBS Global Wealth Management. “It remains possible that the market will be disappointed by the pace of Fed easing, in our view. As a result, we are tactically short U.S. two-year government bonds, and focus on carry strategies rather than aggressively increasing equity exposure."

Meanwhile in Brexit news, EU countries are reportedly secretly wooing PM candidate Boris Johnson and signalled an intention to work out a deal to avoid a no-deal disaster. In related news, EU is to prepare an aid package for Ireland to soften no-deal Brexit. US President Trump said he spoke with UK PM candidate Johnson and looks forward to working with him and thinks he will work out Brexit, while there were also reports that Trump expressed concerns with France’s Macron regarding the proposed digital services tax.

Investors are set for a busy week ahead as earnings season ramps up and Thursday sees a monetary policy announcement from the European Central Bank. The Fed meanwhile is in a blackout period ahead of next week’s interest rate decision. Also, trade may come back into the picture soon, with face-to-face negotiations potentially resuming between the top Chinese and U.S. trade negotiators, according to Chinese state media. China Global Times Editor tweeted the Chinese side sees a face-to-face meeting with the US as not far away and expects "actions" may happen soon which would be a sign of goodwill from both sides. In related news, China is reportedly mulling a plan to boost US soybean purchases.

Expected data include the Chicago Fed National Activity Index. Halliburton, Lennox, and Whirlpool are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.3% to 2,984.75
  • STOXX Europe 600 up 0.2% to 387.82
  • MXAP down 0.5% to 160.11
  • MXAPJ down 0.5% to 527.33
  • Nikkei down 0.2% to 21,416.79
  • Topix down 0.5% to 1,556.37
  • Hang Seng Index down 1.4% to 28,371.26
  • Shanghai Composite down 1.3% to 2,886.97
  • Sensex down 0.9% to 38,012.94
  • Australia S&P/ASX 200 down 0.1% to 6,691.24
  • Kospi down 0.05% to 2,093.34
  • German 10Y yield fell 0.7 bps to -0.331%
  • Euro down 0.02% to $1.1219
  • Italian 10Y yield rose 4.9 bps to 1.252%
  • Spanish 10Y yield unchanged at 0.387%
  • Brent futures up 2.4% to $63.94/bbl
  • Gold spot little changed to $1,425.58
  • U.S. Dollar Index little changed 97.20

Top Overnight News from Bloomberg

  • Face-to-face negotiations between the top Chinese and U.S. trade negotiators could happen soon, according to Chinese state media, after Chinese companies asked U.S. exporters about buying agricultural products and also applied for exemptions from China’s retaliatory tariffs on the goods, state-run Xinhua News Agency reported Sunday
  • A night of protests and clashes in Hong Kong -- including tear gas volleys and roving groups of masked men attacking protesters -- prompted the strongest warnings yet from the Chinese government and fanned fears of escalating violence
  • Oil extended gains as tensions in the Persian Gulf remained elevated after Iran seized a British tanker, and Libyan production fell after an unidentified group reportedly shut the country’s largest field
  • Prime Minister Theresa May will lead a meeting of the UK government’s emergency committee on Monday to discuss the security of shipping in the Persian Gulf after Iran seized a British oil tanker in the Strait of Hormuz last week
  • Japanese Prime Minister Shinzo Abe’s ruling coalition won their sixth straight national election victory in Sunday’s upper house election, but fell short of the supermajority needed to launch a bid to change the pacifist constitution
  • U.S. President Donald Trump will meet with a group of senators this week to discuss possible sanctions against Turkey, the Wall Street Journal reported
  • Theresa May’s successor must move beyond Brexit to restore economic confidence and spur investment, the Confederation of British Industry said as it launched a “business manifesto” for the new government.
  • Some Chinese companies are applying for tariff exemptions as they make inquiries about buying U.S. agricultural products, more than a week after Donald Trump complained that China hasn’t increased its purchases of American farm products
  • Italy’s fractious populist coalition lurches into a make-or-break week as Matteo Salvini decides whether to try to force snap elections while Prime Minister Giuseppe Conte struggles to salvage the government

Asian equity markets traded mostly lower with the region cautious amid dampened hopes for a more aggressive Fed rate cut and geopolitical concerns after Iran seized 2 UK tankers. ASX 200 (-0.1%) and Nikkei 225 (-0.2%) were both subdued at the open although strength in commodity-related stocks briefly spurred a rebound in Australia, while the Japanese benchmark failed to take advantage of a weaker currency as participants reflected on the Upper House election results in which PM Abe’s ruling coalition won a majority of seats but failed to retain the supermajority needed to push ahead with revising the constitution. Elsewhere, Shanghai Comp. (-1.3%) and Hang Seng (-1.5%) declined despite continued liquidity efforts by the PBoC and more constructive language regarding US-China trade talks, with a rotation of funds seen into China’s new Nasdaq-style tech board known as the STAR Market which launched today and saw all of its 25 stocks surge by an average 126% in early trade and with some higher by more than 200%. Finally, 10yr JGBs were steady with only minimal support seen from the lacklustre tone in stocks and BoJ presence for JPY 1.265tln of JGBs mostly in 1yr-10yr maturities.

Top Asian News

  • RBI Easing Is More Than India’s Rate Cuts Suggest, Das Says
  • New Thai Government to Pursue Policies Championed by Junta
  • India Faces ‘Silent Fiscal Crisis’ on Tax Gap, Modi Adviser Says

Major European indices are relatively flat [Eurostoxx 50 +0.1%], albeit near highs of the day following on from a cautious Asia-Pac trade. Sectors are mixed with outperformance seen in the energy sector amid the price action in the complex. In terms of individual movers, Philips (+4.0%) shares rose on the back of optimistic earnings whilst Julius Baer (+2.7%) shares are supported by an 8% in assets under management.

Top European News

  • Italy’s Populists Near Crunch Time, With Salvini Playing God
  • Brexit Nightmare Looms for U.K. Lawyers Forced Out of EU Courts
  • U.K.’s Hammond to Quit If Boris Johnson Wins Race to Succeed May
  • Philips Profit Shows How Plant Rejig Offers Trade War Remedy

In FX, the DXY index has consolidated recovery gains above the 97.000 handle within a relatively tight 97.126-247 range following the final official Fed rhetoric ahead of the pre-FOMC backout period from Bullard who reiterated his preference for a 25 bp cut instead of anything larger. Meanwhile, WSJ sources chimed in with similar ‘guidance’ as recent economic developments do not suggest an imminent downturn that would warrant bolder action, although more easy could be flagged after July, and current market pricing reflects the latest commentary with less than 20% chance of a 50 bp ease.

  • NZD/CAD/AUD - The non-US Dollars are outperforming or at least holding up better than G10 peers, with the Kiwi leading the way on favourable cross-winds as Aud/Nzd retreats through 1.0400 and Nzd/Usd holds nearer last week’s peaks than Aud/Usd between 0.6782-58 and 0.7047-32 respective bands. From a fundamental perspective, the Aussie may glean fresh direction from RBA Assistant Governor Kent later, while the Loonie will be watching Canadian wholesale trade alongside crude prices that are currently supportive and nudging Usd/Cad down through 1.3050 within 1.3068-41 parameters.
  • GBP/JPY/CHF/EUR - All on the backfoot vs the Greenback, and the Pound in particular awaiting the Tory leadership result that is widely expected to see Brexit hard-liner Boris Johnson appointed as new PM and fresh Cabinet faces before the whole process of negotiating with the EU really starts again. Cable is back below 1.2500 and from a chart standpoint looking more bearish as it slips beneath last Friday’s 1.2476 base. Next up would be July 18’s 1.2429 session low, but Sterling is keeping its head just above 0.9000 vs the Euro that is only just maintaining 1.1200+ status vs the Buck ahead of preliminary PMIs on Wednesday and the ECB on Thursday. Note, the probability of a 10 bp reduction in the depo rate is 50%, while some are also looking for the QE taps to be reopened, albeit not this month. Elsewhere, the Franc is hovering just below 0.9800 and 1.0100 vs the single currency, wary that any ECB stimulus or more pronounced safe-haven gains will be countered by the SNB in some shape or form. Similarly, with this month’s BoJ policy meeting looming on the eve of the FOMC the Yen is erring towards the side of caution closer to 108.00 compared to recent highs and unlikely at this stage to arouse decent option interest sitting from 107.50 to 107.35 in 2.3 bn).
  • EM - The Lira has Central Bank action to look forward to as well, but US sanctions may be back on the radar to undermine sentiment given reports that President Trump is scheduling a meeting with Republican Senators to discuss options. Meanwhile, the consensus range is suitably wide for the CBRT as estimates cover a whopping 100-500 bp easing, and Usd/Try is near the top of a 5.6925-6490 at present.

In commodities, WTI and Brent futures are on the rise as sentiment in the complex is underpinned amid late-Friday reports that the IRGC seized a UK tanker in the Strait of Hormuz due to an alleged violation of maritime law. Meanwhile, UK Chancellor Hammond noted that the UK has been working closely with US and EU partners regarding a response to Iran’s actions. Energy markets are particularly sensitive to developments in the Strait of Hormuz, given that a fifth of the world’s oil exports passes through the corridor everyday whilst  geopolitical tensions intensifies in the area. WTI and Brent futures have tested 57/bbl and 64/bbl to the upside as a result, albeit failed to convincingly breach the levels. Also of note; on Friday Libya’s NOC announced a force majeure at its El-Sharara (300k BPD) oilfield, although this has now been lifted, according to a statement. Elsewhere, spot gold remains within a narrow range amid an uneventful USD and heading into a key meeting for the ECB, in which markets are pricing in a 50% chance of a 10bps cut to its Deposit rate. Meanwhile, copper prices are marginally softer amid the overall cautious risk tone whilst Dalian iron ore prices declined as port inventory across China rose to over 1-month highs.

US Event Calendar

  • 8:30am: Chicago Fed Nat Activity Index, est. 0.1, prior 0
  • 11am: BoJ’s Kuroda Speaks at IMF in Washington

DB's Jim Reid concludes the overnight wrap

Happy Monday. I hope you had a good weekend. Mine was slightly ruined by a late cancellation for a round of golf by a friend who pulled a hamstring on Friday in a Father’s race at a school sports day. That’s the type of middle age thing that now happens to my circle of friends. He was a very good runner in his day and I can imagine him being very competitive about it and overdoing things. The good news for me as I approach such events in the years ahead is that I was always absolutely dreadful at running with no turn of speed so I have no ambition in such events and will gladly sit them out. However if they start a Father’s cycle race, golf tournament or cricket game I’m bound to overdo it, try to prove I’m the best dad and get an injury! Thank goodness this is unlikely.

The race to be the most dovish central bank hots up this week with the much anticipated ECB meeting on Thursday. The Fed is now in a public appearance blackout period and after a jumbled messaging on rate cuts from them towards the end of last week (more later) markets will continue to speculate in the background on the 25bps vs 50bps debate for the FOMC in 9 days time. 25bps remains the overwhelming favourite but the market stubbornly refuses to minimise the probability of 50bps. Before we preview the ECB, this week is also important for Wednesday’s flash global PMIs, Q2 US GDP (Friday), a new UK PM announced (Tuesday), and 145 S&P 500 companies reporting as earnings season hits its first peak week.

At Sintra last month Draghi laid the foundations to make further policy easing feel less conditional. Our economists, in their preview note last week ( link ), believe that September is the natural occasion for the big decisions and details however some preparation is anticipated this week. They expect the "or lower" easing bias to be reintroduced into rates guidance and that this will be the prelude to a 10bp deposit rate cut and tiering in September. They also expect a further 10bp cut in December. They also believe we will see upgraded forward guidance used to underline the ECB's "absolute commitment" to the price stability mandate. If the Council is unable to strengthen forward guidance sufficiently, a new wave of net asset purchases may be required. If so, the team would not be surprised by new QE of EUR30bn per month for a minimum 9-12 months split equally between public and private assets and with a commitment to relax the limits if necessary.

Before this, the July global flash PMIs come out on Wednesday with most of the attention on Europe. The last few months have seen some stabilisation in the data with the manufacturing PMI for the Euro Area hitting 47.6 in June (vs. 47.7, 47.9 and 47.5 in the three months prior). The consensus expects a 47.8 reading for July. As for the services reading the consensus expects a 53.5 print which compares to 53.6 last month. We should note that we'll also get country level PMI data for Germany, France and also Japan and the US.

Meanwhile, earnings season continues to rev up this week with 145 S&P 500 companies due to report. The highlights include Harley Davidson, Coca-Cola, United Technologies and Visa tomorrow, Boeing, Caterpillar, Ford, Facebook and AT&T on Wednesday, Amazon, Google and Intel on Thursday, and McDonalds and Twitter on Friday. With 15% of the S&P 500 having reported results, earnings are coming in around +4.9% better than consensus forecasts, which is above the historical average of 3.5%. US bank results have been mostly strong so far, though they did note pressure on their NIMs as rates fall. Outside of the Netflix subscriber numbers shock (stock -15.58% on the week), another negative release came from CSX, the shipping firm (-10.52% on the week), who reported soft guidance amid expectations for stagnant revenue this year.

As for the rest of the data this week, the advance Q2 GDP reading in the US on Friday will be in the spotlight with the consensus expecting a +1.8% reading following +3.1% in Q1. In Europe the only other data worth flagging is the July IFO survey in Germany on Thursday and perhaps the CBI survey data for July in the UK tomorrow and Thursday. This will be the latest check on Brexit Britain’s recent data reversal. The new UK PM this week will have a lot of political headwinds to face with Chancellor Hammond saying over the weekend that he will immediate resign if the overwhelming favourite Boris Johnson gets the job. The weekend press in the UK was also full of further speculation that Tory remainers will do all they can to limit the chances of Mr Johnson leaving the EU without a deal. A fascinating three and a bit months ahead for the UK.

Elsewhere the IMF’s latest World Economic Outlook update on Tuesday will get a lot of headlines as will former Special Counsel Mueller testifying before the House Judiciary and Intelligence committees on Russian election interference on Wednesday. The full day by day week ahead is at the end today as usual.

Asian markets have started the week on a cautious note with the Nikkei (-0.30%), Hang Seng (-0.77%), Shanghai Comp (-0.57%) and Kospi (-0.17%) all down. However, most indices are off their intraday lows. In terms of news flow there is a story that Chinese companies have asked US exporters about buying agricultural products and also applying for exemptions from China’s retaliatory tariffs on the goods (per state-run Xinhua News Agency). This perhaps shows that China is trying to buy more US goods in the negotiation period. Elsewhere, in a separate commentary from Taoran Notes, a blog run by the state-owned Economic Daily newspaper, it was suggested that the US and China have been “cautiously showing each other sincerity and goodwill” recently and may meet for discussions soon. Meanwhile, Hu Xijin, the editor-in-chief of the Chinese state newspaper Global Times also tweeted that “Based on what I know, Chinese importers have started arrangement of purchasing US agricultural products. This is a prominent part from Chinese side as the two countries have signalled goodwill to each other recently. It also indicates China-US trade consultations will restart soon.”

Elsewhere, futures on the S&P 500 are trading flattish while WTI oil prices are up another +0.84% as tensions in the Persian Gulf remain elevated after Iran seized a British tanker, and Libyan production fell after an unidentified group reportedly shut the country’s largest field.

In other news, China’s commerce ministry said in a statement that it will conduct an anti-dumping probe into stainless steel billet and hot-rolled stainless steel plate (coil) imports from the EU, Japan and Indonesia while adding that it will collect anti-dumping duties (duty rate to be between 18.1%-103.1%) on stainless steel products imports from EU, Japan, South Korea and Indonesia for five years starting from July 23.

Before the week ahead a quick recap of the last week. Attention continued to focus on the Fed, as investors weighed the odds of a 25 versus 50 basis point rate cut at the upcoming 31 July meeting. Last week, a few hawkish members of the committee, Kansas City’s George and Dallas’s Kaplan, both signalled that they may support a rate cut. At the same time, some of the committee’s more dovish members signalled support for a cut, but not an immediate 50bps move, i.e. Chicago’s Evans and St. Louis’s Bullard. The Fed’s leadership, Chair Powell and Vice Chair Clarida, both spoke but neither gave a firm policy signal either way. Markets gyrated after NY Fed President Williams spoke on Thursday, where he argued in favour of quick and aggressive action to pre-empt a downturn. Markets moved to price in around a 72% chance of a 50bps move this month in the aftermath. However, there were major signs that the Fed was uncomfortable with this pricing, as the NY Fed walked back William’s comments, saying they were not about policy. A WSJ article on Friday, similarly emphasized support for a 25bps move but not 50bps. Meanwhile the Fed’s Rosengern (a voter this year) said in an interview with CNBC on Friday that no interest rate cut is warranted at this stage, given the positive data that’s rolled in since mid-June. He said, “The economy’s doing actually quite well. We’re not really having an economic slowdown,” while adding, “as long as the economy’s doing well, if that continues we don’t need accommodation.” Markets ended the week pricing in around a 24% chance of a larger 50bps rate cut.

The Fed news drove action in markets all last week, with 10-year treasuries rallying -6.7bps (+3.1bps Friday) and two-year yields down -2.9bps (+6.2bps Friday). Rates rallied early in the week on dovishly-perceived Fedspeak, but subsequently rebounded higher when the Fed walked back its signal. This caused the 2y10y curve to flatten -4.2bps (-3.6bps Friday) to 23.1bps. The moves were similar in Europe, where German yields fell -11.4bps (-1.4bps Friday). The euro weakened -0.43% versus the dollar (-0.50% Friday), as US macro data outperformed, highlighted by a very strong retail sales report. In contrast, European data was soft, with the ZEW survey deteriorating.

European equities outperformed a touch, with the Stoxx 600 rising +0.10% (+0.12% Friday). The S&P 500 retreated -1.23% (-0.62% Friday), with the NASDAQ performing similarly down -1.41% (-0.50% Friday). So a softer week for risk ahead of a big fortnight for central banks on both sides of the Atlantic.

Published:7/22/2019 6:44:42 AM
[Uncategorized] WaPo confirms: As lawyer, Elizabeth Warren worked to limit Dow Chemical’s liability to breast implant victims Warren's legal work for Dow Chemical, first exposed by Legal Insurrection during the 2012 Senate campaign, was not to help the women, as Warren claims: "Warren’s expertise was used by a company fighting in court to limit its liability and payments to the women." Published:7/21/2019 8:41:08 PM
[Markets] Forget the Fed — stock-market investors brace for Dow’s busiest week of earnings One-third of the 30 components of the Dow Jones Industrial Average and roughly the same for the S&P 500 index are due to report in the coming week Published:7/20/2019 8:02:18 AM
[World] Market Snapshot: Forget the Fed — stock-market investors brace for Dow’s busiest week of earnings One-third of the 30 components of the Dow Jones Industrial Average and roughly the same for the S&P 500 index are due to report in the coming week
Published:7/20/2019 7:31:16 AM
[Markets] Stock Market Gauges Barely Budge as Fed Decision Looms The most significant macro-level directional drivers in recent months—trade policy and central-bank moves—appeared to be baked into the major indexes. The largest one-day move in either direction was a 0.74% drop for the Nasdaq Composite on Friday, while the Dow Jones Industrial Average never closed more than 0.42% away from its opening level. The market is certain that the Federal Reserve will cut interest rates at the end of the month, with the only remaining debate over whether it will be 0.25 or 0.50 of a percentage point from the current target range of 2.25% to 2.50%. Published:7/19/2019 10:29:23 PM
[Markets] GLOBAL MARKETS-Stocks up on Fed rate cut hopes, Microsoft results; dollar bounces A gauge of global stocks climbed on Friday as investors looked for a strongly dovish U.S. Federal Reserve at its next meeting and as early returns on earnings season have come in better than anticipated. On Wall Street, a gain of 1.06% in Microsoft helped lift the Dow and kept the S&P 500 and Nasdaq slightly afloat as quarterly results topped expectations, powered by its cloud business. Stocks received some modest follow-through to the plus side following Thursday's late rally after two influential Federal Reserve officials - New York Fed President John Williams and Fed Board of Governors Vice Chair Richard Clarida - laid out the case for quick action by the central bank to support the U.S. economy. Published:7/19/2019 1:56:05 PM
[Markets] Dow Jones Leads Upside; Will These 4 Big Growth Stocks Beat The S&P 500 In July? The Dow Jones Industrial Average is showing mettle, cutting its weekly losses. Cloud security firm CrowdStrike broke out. Growth stocks show healthy action. Published:7/19/2019 1:01:34 PM
[Markets] Walmart reorganizes leadership team to following integration Walmart Inc. is reorganizing some of its leadership team in the wake of the decision to absorb into its digital business. In the memo sent to associates, which was also sent to MarketWatch, Greg Smith has been named to head the combined supply chain team, which will bring together supply chain heads for grocery, e-commerce, fleet operations, and other business functions. Nate Faust, who had been leading the e-commerce fulfillment process, will help with this transition and then leave the company. Michael Dastugue has been named Walmart U.S. chief financial officer and Steve Schmitt, who is currently the CFO for Sam's Club, has been named U.S. e-commerce CFO. Brandi Joplin, currently chief audit executive, will take on the role of Sam's Club CFO and Todd Sears, currently assistant controller, will become chief audit executive. Ashley Buchanan has been named U.S. e-commerce chief merchandising officer. And Jeff Shotts, who is currently the e-commerce CFO, will now lead the U.S. marketplace business, reporting to Marc Lore. There are now openings for chief experience and strategy officer, chief product officer, and leader of the customer care team. Walmart stock has rallied more than 23% for the year to date while the Dow Jones Industrial Average is up 17% for the period. Read: Walmart CEO McMillon says the retailer has been playing ‘catch up’ in e-commerce Published:7/19/2019 12:26:17 PM
[Markets] MSG Networks stock sinks after J.P. Morgan cuts rating and target to a Street low Shares of MSG Networks Inc. sank 3.6% toward a 13-month low in midday trading Friday, after J.P. Morgan analyst Alexia Quadrani downgraded the sports entertainment network operator on the expectation that affiliate revenue growth will decelerate as industry trends worsen. Quadrani cut her rating to underweight, after being at neutral since at least November 2016, and lowered her stock price target to $19 from $23. That makes Quadrani the most bearish of the 10 analysts surveyed by FactSet that cover MSGN. Quadrani said the growth in virtual multichannel television programming distributors (MVPDs) is accelerating the trend in cord cutting, which is an "ongoing challenge" for MSGN. She said its carriage agreement with one of its largest affiliates, Altice, expires at the end of the year, could remain an overhang for the stock on concerns the MVPD will seek lower carriage minimums. "We view the risk/reward for shares through year-end as skewed to the downside given worsening trends for legacy video subscribers, which could lead to lower consensus estimates and further multiple contraction," Quadrani wrote in a note to clients. The stock, on track for the lowest close since June 2018, has tumbled 17.4% year to date while the Dow Jones Industrial Average has gained 17.0%. Published:7/19/2019 11:25:05 AM
[Markets] Microsoft hits all-time intraday high as it joins Boeing in pacing Dow advance Microsoft hits all-time intraday high as it joins Boeing in pacing Dow advance Published:7/19/2019 9:35:07 AM
[Markets] The Dow Is Up as J.C. Penney Stock Sinks and Microsoft Gains Stocks look to close the week on a strong note, with Dow Jones Industrial Average, S&P 500, and Nasdaq futures all rising Friday morning. Published:7/19/2019 8:06:19 AM
[Markets] The Calm Before The Storm

Authored by Pater Tenebrarum via,

Intra-Market Divergences Galore 

US big cap stocks have rallied to new highs in recent months, but just as in the rally from the low of the February 2018 mini-panic to the September/October 2018 peak, sizable divergences between different indexes have emerged in the process. New highs in the big cap indexes (DJIA, SPX, NDX) are once again not confirmed by small caps (RUT), the broad market (NYA) and a number of sub-sectors (such as the DJTA which is included in the chart below; according to Dow Theory, the DJTA must confirm moves in the DJIA to validate its trend).

From the top: weekly charts of DJIA, SPX, NDX, RUT, NYA and DJTA. The recent new highs in the three large cap indexes have not been confirmed by small caps and the broad market. Note also the sizable RSI/price divergence in the DJIA (which is mirrored by SPX and NDX) – this is a sign of faltering momentum that is often seen ahead of trend changes.

We last discussed a “lengthy non-confirmation” in mid-September 2018 (see “US Equities – Approaching an Inflection Point”). Everything we said about the phenomenon at the time applies to the current case as well. In fact, it could well be argued that the current spate of non-confirmations is even more ominous as they are stretching over a time period of approximately 18 months by now (the broad market represented by the NYSE Index has yet to overcome its January 2018 peak).

US big caps are diverging from European and Japanese stocks as well, which have failed to reach new highs in the recent rally. It is also noteworthy that stocks and junk bonds have studiously ignored weakening macro-economic data in recent months – the rationale is apparently that an impending easing of monetary policy by Fed and ECB is more important than the economy’s poor performance and the prospect of lackluster earnings. The idea seems to be that a resumption of monetary pumping will immediately arrest and reverse recent economic trends, which is quite a leap of faith.

More non-confirmations: S&P 500 Index vs. FEZ (Euro Stoxx 50 ETF) and the Nikkei 225 (all weekly).

Government bonds and gold have rallied strongly as well this year, and while these markets also reflect rate cut expectations, they normally don’t move in the same direction as stocks for very long. It is a good bet that something will eventually give. Considering the recent yield curve inversion, investors buying stocks and corporate bonds are probably too sanguine about what lies ahead.

The Roaring 20s vs. Today

In April we briefly discussed parallels between the current time period and the late 1920s (see “A Trip Down Memory Lane”). What prompted us to look into this was the fact that the sharp correction in the (normally) seasonally strong October-December period last year was actually a spitting image of the late 1928 correction. As it turned out, this was far from the only similarity between the two eras.

Incidentally, market participants ignored a weakening real economy in the final stretch of the 1920s bull market as well: economic data deteriorated noticeably in the course of 1929, but that did nothing to curb the stock market’s advance – at least initially.

Two women studying the ticker tape in a stock broker’s office in St. Paul, Minnesota in 1929.

Below is a long term chart comparison as a supplement to the charts we showed in April. Interestingly, there is quite a strong resemblance between the stock market patterns of the 1914-1930 and 1997-2019 periods. The cyclical bull and bear markets of the two eras differ slightly in terms of extent and duration, but the basic patterns look remarkably similar.

It should be noted to this that chart pattern similarities are not unusual per se –   all liquid markets exhibit self-similar fractal patterning – both across different time frames and over different historical periods. At some point, these patterns will always diverge – particularly self-similarity between historical periods is usually quite limited.

It is fairly easy to find close correlations over time periods of one year or less, and more often than not they have no predictive value. Nevertheless, we find these long term pattern similarities quite interesting:

Booms and busts in the stock market from 1997 to 2019 and from 1914 to 1930. It is of course possible that the “acceleration phase” of the current bull market still has further to go, but the increase in market volatility, weak money supply growth, historically high valuations and the divergences discussed further above all suggest that a trend change is probably not too far off.


The divergences between the different indexes at the very least represent a heads-up that another correction is likely to begin fairly soon. In view of the increase in market volatility since the January 2018 peak, the next downturn will probably be quite a doozy again.

Published:7/19/2019 8:06:19 AM
[Markets] Stock Futures Angle Up; Microsoft, Boeing Hoist Dow Jones; CrowdStrike, Skechers Eye Breakouts Dow Jones stocks Microsoft and Boeing boosted stock futures Friday, as CrowdSrike and Skechers positioned for opening bell breakouts. Published:7/19/2019 7:24:32 AM
[Markets] Fed Hints At Rapid Return To ZIRP, Sends Everything Soaring As Dollar Plunges

NYFed Williams basically implied ZIRP is coming back and soon and that sent the market's expectations for July rate cuts soaring (50bps now at 65%!)...

2019 rate-change expectations now back above 50bps...

Piling on, Fed's Clarida added that research suggests acting preemptively when rates are low.

Gold, Bonds, & Stocks soared as the dollar dumped...

Seriously!! At record high stock prices!!!!

And all of that silliness sent stocks soaring... The Dow scrambled back to unchanged at the bell


With Nasdaq ripping back from its Netlfix-ing (even if NFLX didn't budge - NFLX lost "A Deutsche Bank" in market cap today)...


S&P 500 desperately pushed higher to try and regain 3,000...


Trannies were tempestuous this week but remain entirely decoupled from global growth...


FANG Stocks (thanks to NFLX) reversed as expected at serious resistance...


IG and HY credit have notably decoupled...


Stocks and bonds remain drastically decoupled...


Treasury yields tumbled after Fed's Williams comments..

10Y Yield is heading back towards 2.0%...


The (3m10Y) yield curve was steepening intraday (heading back towards 0) until Williams spoke...


Debt Ceiling Anxiety is building fast in the Bills curve...


The Dollar collapsed after Fed's Williams ZIRP comments...


Yuan spiked...


USDJPY plunged to near 1-month lows, decoupling from stocks...


After more ugliness overnight, Cryptos surged today...


With Bitcoin blasting back above $10k...


Silver extended its huge week as crude crashed...


Gold surged on Williams comments...


Silver spiked over 2%...


Silver continues to outperform gold (off 26 year lows relative to the yellow metal)...


WTI continued its rapid decline, accelerating further on Iran nuclear deal headlines...


HY Energy credit has widened dramatically...


Oil's slide has been largely ignored by stocks...


Finally, what do you want to hold here? Stocks or Silver?


And as far as the ridiculous spike in Philly Fed (the biggest jump in a decade), Gluskin-Sheff's David Rosenberg clarifies:

Trade accordingly...

And before we leave, is noone else somewhat worried about what exactly it is that The Fed is panicking about that prompts them to jawbone the odds of a 50bps rate cut this aggressively with stocks at record highs?

Published:7/18/2019 3:19:50 PM
[Markets] Stocks snap losing skid as Fed official hints that central bank may lower rates aggressively U.S. equity benchmarks finished the session mostly higher Thursday after Federal Reserve Bank of New York President John Williams said the central bank needs to act quickly to quash signs of economic weakness. His comments, made late in the afternoon at a research conference in New York, helped to deliver a jolt to equity markets and drive bond yields and the dollar firmly lower. The Dow Jones Industrial Average , however lagged behind its peers, weighed by declines in UnitedHealth Group Inc. and Boeing Co. . The blue-chip index closed virtually unchanged on the day at 27,222, while the S&P 500 index climbed 0.4% to end at 2,995, and the Nasdaq Composite Index closed 0.3% higher at 8,207. in a world where interest rates are lower than they have been historically, central banks must confront any sign of weakness quickly and aggressively. Published:7/18/2019 3:19:50 PM
[Markets] Dow Jones Up, Big Blue Breaks Out; These Growth Stocks, Indexes Ignore Netflix Drop The Dow Jones Industrial Average is declining mildly after solid gains the past two weeks. Overall selling has picked up some, but IBM staged a breakout. Published:7/18/2019 2:21:42 PM
[Markets] Dow Jones Heads For Weekly Loss; These Growth Stocks, Indexes Ignore Netflix Drop The Dow Jones Industrial Average is declining mildly after solid gains the past two weeks. Overall selling has picked up some, but IBM staged a breakout. Published:7/18/2019 12:56:24 PM
[Markets] Dow Jones, Nasdaq Lead Stock Market Toward Third Loss In A Row Dow Jones component IBM led the blue chips with a 4% gain. Big Blue reported better than expected earnings in the second quarter. Published:7/18/2019 11:39:43 AM
[Markets] Dow industrials down 130 points as Thursday stock-market declines steepen Dow industrials down 130 points as Thursday stock-market declines steepen Published:7/18/2019 10:54:42 AM
[Markets] For the Dow early Thursday, IBM and UnitedHealth are equal, opposing forces For the Dow early Thursday, IBM and UnitedHealth are equal, opposing forces Published:7/18/2019 9:50:05 AM
[Markets] Stocks Stumble As Netflix Drags On Nasdaq; Dow Jones Stock Apple Upgraded Novartis and eBay grabbed early leads Thursday as Netflix slammed the Nasdaq, even as an analyst upgrade lifted Dow Jones stock Apple toward a buy point. Published:7/18/2019 8:47:45 AM
[Markets] Stock Futures Dip As Netflix Drags On Nasdaq; Apple Upgraded Novartis and eBay grabbed early leads Thursday as Netflix pulled Nasdaq stock futures lower, while S&P; 500 and Dow Jones futures posted mild declines. Published:7/18/2019 8:19:43 AM
[Markets] European Stocks, US Futures Rebound After ECB Said To Revamp Inflation Goal

Global stocks stumbled early in the session in the aftermath of the dismal Netflix earnings which saw the first drop in US subs following the company's price hike (suggesting US consumers are far less price inelastic than many had suspected), and following a bevy of European earnings misses, but then staged a sharp rebound after a Bloomberg report that the ECB was seeking to imitate the Fed and was potential revamp of their inflation goal.

The news, which suggested that the ECB was set to ease even more than the market had priced in, slammed the EUR, sending the EURUSD to session lows just above 1.12...

... while Europe’s Stoxx 600 erased a drop of as much as 0.7%, trading little changed, with defensive sectors including health-care and utility shares among the best performers and tech shares remain biggest losers. The rebound was strongest in the export-heavy DAX, which sharply pared losses, narrowing its loss to 0.5% from as much as 1.4%.

According to Bloomberg, similar to the Fed's own "symmetric" approach to inflation, the ECB was studying a potential revamp of its inflation goal, in a move that could "embolden policy makers to pursue monetary stimulus for longer. " As the report noted, the staff are informally analyzing the institution’s policy approach, including the question of whether the current target of consumer-price growth “below, but close to, 2%” is still appropriate for the post-crisis era, which is ironic: after all, the ECB has been unable to hit 2% for years, and now the implication hopes to hit 3%

President Mario Draghi favors a “symmetrical” approach, meaning flexibility to be either above or below a specific 2% goal, the officials said, asking not to be identified as the work so far is confidential and preliminary. That would allow the ECB to keep inflation elevated for a while after a period of weakness to ensure price growth is entrenched.

Governing Council members were given a presentation last week on symmetrical approaches to the current target. Changing the goal itself would probably require a formal review, the officials said. An ECB spokesman declined to comment.

The ECB "trial balloon" promptly papered over several big earnings misses in Europe, most notably after SAP, Europe’s most valuable tech stock by market cap, reported poor results, with U.K. fashion retailer Asos and Nordea Bank also reporting poor earnings.

“We’re in a trade war, you’re seeing the impact on corporate earnings, you’re seeing the central banks forced to scramble to react to that,” Bob Michele, CIO of JPMorgan Asset Management told Bloomberg TV.

The weak start to the Q2 earnings season may spill over into the outlook for the remainder of the year, threatening equity markets’ stellar rally this year. “We are probably in the middle of analysts downgrading Q3 company earnings expectations,” said Sunil Krishnan, head of multi-asset funds at Aviva Investors.

Europe's latest monetary boost - which is certain to infuriate Trump as it is another indication of just how the ECB manipulate the common currency by jawboning also helped push US futures off session lows and back to unchanged, despite yesterday's shock report from Netflix which slammed the Nasdaq and pushed tech stocks sharply lower at least until Draghi's verbal intervention.

Earlier in the session, Asian stocks dropped for a third day, led by industrial and energy firms, as investors assessed trade tensions and the increasingly gloomy Q2 earnings season. Most markets in the region were down, with Japan and China leading declines. The Topix closed 2.1% lower, dragged by electronics makers and chemical firms, as Japanese exports fell for a seventh month, slumping 6.7% in June, while manufacturers’ confidence fell to a three-year low in July on the back of the trade tensions and slowing China growth.

Japan Export Value, Import Value, and Trade Balance

Canon dropped 4% following a Nikkei report that the company may cut its profit outlook. The Shanghai Composite Index fell 1%, with Kweichow Moutai and PetroChina among the biggest drags. The liquor giant declined 1.7% after reporting its slowest first-half revenue growth since 2016. India’s Sensex retreated 0.4%, driven by Reliance Industries and Tata Consultancy Services. Yes Bank tumbled as much as 20% after the lender’s profit missed estimates amid rising bad loans.

In global macro, with less than two weeks before the Fed's policy meeting at which investors expect an interest-rate cut, the central bank’s anecdotal Beige Book report yesterday suggested the outlook was far better than it was in April and the labor market remains tight, even as companies are still struggling to pass on higher wages and tariff-related costs to customers, keeping inflation subdued, and the start of earnings season hasn’t improved sentiment.

Additionally, after Korea's recent GDP shock...


... investors betting on rate cuts by the BOK were proven right on Thursday, as central banks in South Korea and Indonesia lowered benchmarks. Ironically, both countries’ currencies strengthened modestly and the Kospi slumped, suggesting the move was seen as a "policy error" by the market. That’s after similar moves by central banks in Malaysia, India and the Philippines.

Meanwhile, trade war sentiment worsened overnight after a WSJ report that progress toward a U.S.-China trade deal has stalled as the Trump administration works out how to address Beijing’s demands that it ease restrictions on Huawei Technologies.

“It’s still about the U.S. and China dispute,” Christophe Barraud, chief economist and strategist at Market Securities. “The trade war is creating uncertainty, weighed on capex, and clearly on trade flows. There are also problems with guidance, especially in the transportation sector. The fact is that one of the key stories of this year is global trade flows contraction,” he said.

In rates, Eurozone government bond yields slipped back toward record lows on Thursday as economic indicators and corporate earnings deepened gloom on the global economy and increased bets on interest-rate cuts by major central banks. 10Y Treasury yields moved within 1bp of 2.045%.

In FX, the euro was the big mover, sliding sharply lower just after 6am when the ECB inflation revamp report hit; the yen initially strengthened amid reports of fresh trade tensions between Japan and South Korea however it later gave up all gains thanks to the plunge in the Euro; Sterling was a shade higher at $1.244, off its lowest since April 2017 touched on Wednesday amid growing risks of Britain leaving the European Union in a no-deal Brexit. After trading lower, the dollar also spiked thanks to the plunge in the euro.

Oil prices were mixed, with WTI modestly lower after data showed U.S. stockpiles of gasoline and other products rising sharply last week, suggesting weak demand. Brent futures were up 6 cents, or 0.1%, at $63.71 a barrel.

Expected data include jobless claims and the Leading Index. Blackstone, Danaher, Honeywell, Morgan Stanley, Philip Morris, and Microsoft are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,981.75
  • STOXX Europe 600 down 0.5% to 385.64
  • MXAP down 0.8% to 159.11
  • MXAPJ down 0.3% to 526.13
  • Nikkei down 2% to 21,046.24
  • Topix down 2.1% to 1,534.27
  • Hang Seng Index down 0.5% to 28,461.66
  • Shanghai Composite down 1% to 2,901.18
  • Sensex down 0.4% to 39,042.90
  • Australia S&P/ASX 200 down 0.4% to 6,649.12
  • Kospi down 0.3% to 2,066.55
  • German 10Y yield fell 1.2 bps to -0.302%
  • Euro up 0.1% to $1.1238
  • Italian 10Y yield fell 1.7 bps to 1.242%
  • Spanish 10Y yield fell 1.8 bps to 0.429%
  • Brent futures up 0.4% to $63.91/bbl
  • Gold spot down 0.4% to $1,420.66
  • U.S. Dollar Index down 0.2% to 97.08

Top Headline News

  • Slow progress on key initial demands from Presidents Donald Trump and Xi Jinping is raising doubts about whether the U.S. and China will actually return to the negotiating table to overcome their much deeper differences. Reaching a comprehensive trade deal as Trump gears up for re-election next year increasingly seems like a remote possibility, according to people familiar with the matter, who spoke on the condition of anonymity
  • Group of Seven finance officials meeting near Paris confronted an outlook of slowing growth that has already prompted monetary authorities to shift stance and prepare for stimulus
  • Iran is capable of shutting the Strait of Hormuz -- a crucial choke-point for oil flows -- but doesn’t want to do it, the country’s foreign minister said
  • U.K. lawmakers are gearing up for a knife-edge vote on a measure to prevent the next prime minister suspending Parliament to pursue a no-deal Brexit. As pro-EU ministers weigh up how they will vote, the government’s fiscal watchdog published new forecasts of the economic damage a chaotic exit would bring
  • Boris Johnson, the favorite to succeed Theresa May as British prime minister, said a trade deal won’t be reached with the U.S. soon after Brexit, predicting discussions will be “tough” and “robust”

Asian equity markets traded negatively as the risk-averse tone rolled over from Wall St where all major indices declined for a 2nd consecutive day amid mixed earnings, in which the S&P 500 gave back the 3k level and with futures pressured after-market following disappointing Netflix results which missed on revenue, as well as global subscriber growth and posted its first ever decline in net US subscribers. ASX 200 (-0.4%) and Nikkei 225 (-2.0%) were lower in which the energy sector led the declines in Australia after further pressure in oil prices and reduced quarterly revenue from Santos and Woodside Petroleum, while the Japanese benchmark underperformed from a double whammy of a stronger currency and wider than expected decline in Exports. Hang Seng (-0.5%) and Shanghai Comp. (-1.0%) were dragged lower by weakness in the blue-chip oil names and amid ongoing trade uncertainty with US-China talks said to have stalled as the Trump administration determines how to respond to Beijing’s demands of easing restrictions on Huawei. Finally, 10yr JGBs were higher as they tracked the upside in T-notes with prices underpinned by safe-haven demand and following a continued decline in exports. 

Top Asian News

  • Japan LNG Imports Hit Post-Fukushima Low as Reactors Restart
  • China Investor Beating 98% of Peers Bets on Hong Kong Stocks
  • SoftBank’s Son Shines a Spotlight on His Vision Fund Proteges
  • Indonesia Pledges More Rate Cuts as It Moves to Spur Growth

Major European bourses are now mixed after the region pared opening losses [Eurostoxx 50 -0.2%] amid reports ECB staff are looking at a revision to the inflation target.. Sectors are mixed with heavy underperformance in the IT sector (-1.4%) as EU’s largest tech stock SAP (-6.0%) posted disappointing earnings in which all major metrics, including cloud revenue, fell short of estimates. Furthermore, the IT sector could also be feeling some pressure amid comments from TSMC post-earnings as the chip-giant expects a global semiconductor contraction this year. On the flip side, healthcare names (+1.5%) outperform as pharma heavyweight Novartis (+5.0%) rose to the top of the Stoxx 600 amid guidance upgrades in which FY 19 operating guidance was raised to “double digits to mid-teens” from “high single digits” and net sales guidance is now expected to be in the “mid to high single digits” compared to a prior view of “mid-single digits”.  Subsequently, shares in Roche (+1.3%) moved higher in tandem and thus Switzerland’s SMI (+0.9%) outperforms vs. its EU peers. In terms of individual movers, Germany’s Hochtief (-9.8%) fell to the foot of the pan-European index as its Asia-Pac division reported a decline in revenues, whilst easyJet (+4.8%) and Ubisoft shares are supported on the back of earnings. Looking ahead, British American Tobacco (+3.9%) and Imperial Brands (+1.2%) are awaiting numbers from US competitor Philip Morris.

Top European News

  • U.K. Retail Sales Unexpectedly Jump, Reversing Two-Month Drop
  • Nordea Sinks After Signaling It Will Cut Shareholder Rewards
  • Vodafone Wins Conditional EU Approval for Liberty Global Deal
  • Deutsche Bank Considers Subletting Zig Zag Offices in London

In FX, the Pound had already extended its rebound from midweek lows (and a fresh sub-1.2400 ytd trough vs the Usd) on a combination of positive sounding EU remarks about the Irish backstop, technical buying and short covering, but got an additional boost via UK retail sales data that confounded expectations for a 3rd consecutive monthly decline in consumption. For the record, the ONS reported a 1% rise in sales vs consensus for a 0.3% fall on the back of non-food items and 2nd hand goods, and Cable climbed towards 1.2500 in response, while Eur/Gbp retreated further from circa 0.9050 at one stage on Wednesday to 0.9000 before Sterling momentum waned somewhat ahead of a vote in Parliament on a bill to prevent its suspension and force through no Brexit deal.

  • AUD/NZD - The Aussie is the current G10 outperformer, and also partly due to bullish macro news, albeit not quite so apparent from the headline Aussie payrolls tally released overnight. However, internals were encouraging as permanent placements rose 21.1k (vs +10k forecast for full and part-time jobs combined) and underemployment eased. Aud/Usd subsequently reclaimed the 0.7000 handle and is back above the 100 DMA (0.7018) eyeing this week’s prior high just shy of 0.7050, but still below 1.0450 against the Kiwi that is benefiting from ongoing Greenback weakness. Indeed, Nzd/Usd is holding firm within a 0.6730-46 range as the DXY only just keeps its head above 97.000 following yesterday’s US housing data misses.
  • JPY/CHF/EUR - The Yen and Franc are back in demand on safe-haven grounds as US-China trade angst intensifies after the latest stall in negotiations on Huawei concessions, with Usd/Jpy down through 108.00 and seemingly capped ahead of more decent option expiries at or above the big figure (1.5 bn up to 108.15 and 1 bn from 108.30 to 108.50). Similarly, Usd/Chf has pulled back from around 0.9900 and Eur/Chf is under 1.1100 even though the single currency remains heavy on attempts to clear 1.1250 vs the Dollar and embroiled in tightly stacked expiries. Indeed, some 7 bn roll off between 1.1190 and 1.1275, as Eur/Usd breaks below a tight range to retest 1.1200 amidst reports that the ECB staff are looking at a revision to the inflation target.
  • EM - The Rand is also in a bind vs the Buck, with Usd/Zar straddling 14.0000 ahead of the SARB policy verdict that is expected to deliver a 25 bp cut in line with BoK and BI moves in the run up.

In commodities, WTI and Brent futures are marginally firmer following yesterday’s decline in the complex with prices currently above 57/bbl and 64/bbl respectively. Comments from Iranian Revolutionary Guard aided the benchmarks climb over the round figures, which stated they have stopped a foreign oil tanker in Lark Island in the Gulf. On the OPEC+ front, Russia’s Energy Minister acknowledged that Russian production will be increased to levels agreed in the accord. Meanwhile, gold prices are marginally softer and little influenced by the declining Buck as investors lock in profits following the yellow metal’s recent surge. Elsewhere, copper prices are little changed above the 2.7/lb whilst Dalian iron ore continued to decline as market participants reassess the base metal’s outlook given the rising shipments to China from Australia coupled with the Dalian Commodity Exchange’s higher transaction fees in all iron ore futures contracts.

US Event Calendar

  • 8:30am: Philadelphia Fed Business Outlook, est. 5, prior 0.3
  • 8:30am: Initial Jobless Claims, est. 215,500, prior 209,000; Continuing Claims, est. 1.7m, prior 1.72m
  • 9:30am: Fed’s Bostic Speaks to Clarksville Chamber in Tennessee
  • 9:45am: Bloomberg Consumer Comfort, prior 63.8;
  • 10am: Leading Index, est. 0.1%, prior 0.0%
  •  2:15pm: Fed’s Williams Speaks on Monetary Policy

DB's Jim Reid concludes the overnight wrap

Whether it’s investors waiting on the sidelines for the FOMC meeting in under two weeks, a reluctance to break past recent record highs, or just a general lack of newsflow to get excited about, risk assets are certainly lacking a bit of inspiration at the moment. The S&P 500 closed down -0.65% last night and below the 3k level again while there were similar declines for the DOW (-0.42%) and NASDAQ (-0.46%).

Earnings were the main focus with a big slide for freight transport operator CSX (-10.27%) front and centre. That was the biggest decline since 2008 after the company forecast weaker sales for 2019 with the company CEO calling the present economic backdrop “one of the most puzzling I have experienced in my career”. On aggregate yesterday though earnings were still better than expected and the same can be said for Bank of America which gained +0.93% on the back of gains in the retail division. That offset declines in trading revenue – a similar trend to the other US banks that have reported so far.

Late last night we also got results from some of the high profile tech names, with IBM and eBay both beating estimates. However the big move came for Netflix which dropped as much as -13% in late trading after its report revealed that the company had lost 130k US-based subscribers, most likely as a result of recent price hikes. Competition in the streaming sector is heating up, with Disney and Apple set to launch their own services later this year, followed by Comcast and AT&T next year. S&P 500 and NASDAQ futures are down -0.23% and -0.46%, respectively, this morning.

On a related note, yesterday we published a US credit strategy note looking ahead to earnings season and highlighting the USD BBB- potential fallen angels names to look out for. A couple of stats that stood out include there being $768bn of BBB- bonds which are 1-3 downgrade notches away from HY and of that, $144bn of bonds where the number of notches of downgrade required is less than or equal to the number of rating agencies that have a negative watch or outlook. That’s 19% of the BBB- universe. See the link here for the full report .

Back to markets, where the risk off moves led to a decent bid for bond markets with 10y Treasuries finishing -5.7bps lower in yield and the 2s10s curve flattening -2.1bps. The Fed released its beige book of anecdotal economic commentary, which showed broadly steady growth over the last several weeks. The labour market continued to improve, albeit at a slower pace, and price inflation moderated. Separately, Kansas City Fed President George, considered the most hawkish member of the committee, gave a somewhat surprisingly dovish speech. She emphasized demographic trends and noted that the natural rate of unemployment may be lower than thought, which would make rate cuts less risky from an inflation standpoint. Treasuries continued their rally throughout the Fedspeak. Speaking of safe havens doing well, Gold (+1.45%) tested the recent highs again yesterday while Silver jumped +2.63% for the biggest daily gain since January.

This morning in Asia equity markets are trading lower, with the Nikkei (-1.60%) leading the declines as data overnight showed Japanese exports fell -6.7% yoy (vs. -5.4% expected), the seventh consecutive monthly fall. A report in the Nikkei suggesting that Canon is expected to profit warn next week is also doing some damage. In Korea the equity moves are smaller however, with the Kospi down -0.33% after the central bank unexpectedly cut interest rates by 25bps overnight to 1.5%, the first rate cut since 2016. The Bank of Korea also cut their growth forecast for the country to +2.2% this year, down from +2.5% previously. Following the decision, the Korean won has actually strengthened against other major currencies this morning, and is currently +0.31% against the US dollar. Elsewhere, the Hang Seng (-0.46%) and the Shanghai Comp (-0.65%) are also lower.

Also worth flagging are a couple of trade stories out overnight in the WSJ and SCMP which are perhaps adding to the slightly damper mood in markets. The suggestion from both are that US-China trade talks have stalled or are stalling and that China appears less willing to compromise. The WSJ story in particular suggests that China is waiting to see what the US does on Huawei before making any commitments.

Moving on. In Europe yesterday it was also a decent for bond markets where 10y Bunds rallied -4.5bps to close at -0.294% despite euro area core inflation getting revised 7bps higher to 1.12% yoy and the headline index revised up 0.1pp to 1.3%. Elsewhere, the STOXX 600 faded to close -0.37% after the US session kicked into gear, with the auto sector (-1.45%) lagging. Euro area new car registrations fell -7.8% yoy, for the worst June since 2015. Other cyclical sectors fared poorly as well, including a -1.74% drop for European Banks and -2.07% fall by the oil and gas sector. The latter was catching up to Tuesday evening’s descent in oil prices. That was compounded by a further -1.07% decline in crude yesterday, after US data showed a smaller-than-expected drawdown in stockpiles.

Before turning to the remainder of yesterday’s economic data, it’s worth highlighting updated forecasts from our US econ team. They still expect the Fed to cut rates three times this year, by 25bps each, and the see core PCE inflation staying below-target at 1.8% by the end of the year. The only major change to the forecast is slightly higher growth due to the recent firming in consumer spending, as our team now sees Q2 growth 0.3pp higher at 1.8%, taking the full year forecast up 0.1pp to 2.0% Q4/Q4.

Finally, yesterday’s economic data in the US including the latest housing numbers and which were fairly underwhelming. Housing starts fell -0.9% mom in June (vs. -0.7% expected) while permits plummeted -6.1% mom (vs. +0.1% expected), although the latter does tend to be quite volatile. In the UK there were no surprises in the June inflation numbers. Core CPI rose one-tenth to +1.8% yoy as expected while headline CPI was unchanged at +2.0% yoy, also as expected.

To the day ahead now, which this morning includes the June retail sales report in the UK, before US data releases include jobless claims, July Philly Fed business outlook and June leading index. Away from that it’s the turn of the Fed’s Bostic and Williams to speak this afternoon and this evening, respectively, while the last of the big US banks in Morgan Stanley is due to report earnings. Microsoft is the other notable company reporting.

Published:7/18/2019 6:48:14 AM
[Markets] The Dollar, Not Crypto, Is A National Security Issue

Authored by Peter Earle via The American Institute for Economic Research,

U.S. Treasury Secretary Steve Mnuchin piled on to comments made recently by President Donald Trump by calling cryptocurrencies a “national security issue.” Bitcoin and crypto proponents more broadly have long wondered if (and how) the government of the United States would recognize the slow but steady encroachment of decentralized assets, and it appears to have begun. Facebook’s announcement of the Libra project on June 18, 2019, will likely prove the point on countless future historical timelines at which the U.S. government began a slow, ultimately ineffectiveassault upon the cryptocurrency realm.

Everything that Mnuchin attributed to Bitcoin - for one thing, that it has been used in concert with such “illicit activity [as] cyber crime, tax evasion, extortion... illicit drugs, and human trafficking" - can be said, and to degrees an order of magnitude or more larger, about the U.S. dollar. It’s an argument suitable for children. 

All of this is extremely bullish for Bitcoin and the entire cryptocurrency complex. A bipartisan political salvo against crypto assets will undoubtedly accelerate the pace of innovation as well as increasing the value proposition, and ultimately the market price, of assets that ensure privacy. Higher prices will draw more crypto developers into the market and direct more resources at capturing market share, which means — as in any market — that consumers are the ultimate beneficiaries.

Mnuchin isn’t wrong, though. There is a tremendous risk to American national security where currencies are considered: the dollar. Those who habitually cite its reserve-currency status as a reason not to worry are making an argument that stands on increasingly precarious foundations: since 2010, the U.N. and other groups have cited the dollar’s downward slide in value, urging the adoption of an alternate system of reserves. Earlier this year, the Russian government shifted $100 billion in reserves out of the dollar, into the Chinese yuan. Oil futures denominated in the yuan have been trading for just over one year now, and are steadily gaining liquidity. 

The theoretical framework by which the issuer of the reserve currency is at its most secure holds that it is or should be a creditor nation with a current account surplus, but the U.S. is a debtornation with a current account deficit. More importantly, many have pointed out that the volume of trade is a necessary foundation of reserve status, yet the current administration has both a vocal and policy affinity for interfering with international commerce; the president has famously referred to himself as a “Tariff Man.”

In August 2011 - when the U.S. had a quaint $14 trillion in debt - a crisis over the debt ceiling caused Standard & Poor’s to reduce the credit rating on debt issued by the Treasury. The reduction of the credit rating was tiny, but the knock-on effects were legion. The Dow Jones Industrial Average fell over 2,000 points in the days surrounding the negotiations; within two weeks, a number of Persian Gulf states renewed discussions about diversifying away from the U.S. dollar.

When the pound sterling lost its reserve-currency status to the U.S. dollar, the process took decades: it was an “accumulation of blows” rather than a coup de grace. This is the only realistic way in which such a shift could happen; otherwise, the costs of transacting would suddenly change radically. When the dollar became competitive with the pound, the switch was relatively painless. As the economies of both the Eurozone and China grow, the prospect that either the euro or the yuan — or, more likely, that the similarly disruptive formation of baskets of currencies that include the dollar, albeit in far smaller amounts than are currently held — will take over the dollar’s role becomes increasingly realistic. 

Add to this a 20-year war in Afghanistan with no end in sight, a U.S. military presence in over 150 countries worldwide, a mounting willingness to rattle sabers in regions far from domestic shores, and the increasing evidence that the Federal Reserve is not only not independent but highly susceptible to short-term political influence, and the decline of faith in the U.S. dollar becomes understandable. More so when one considers how many thousands of lives, and trillions of dollars, wouldn’t have been squandered under a commodity-backed or cryptocurrency-based monetary system: because it couldn’t have been. 

Mnuchin would be well advised to leave market forces to work in their inexorable march toward increasingly sound, more functional iterations of cryptocurrencies and other decentralized digital assets, and to shift his attention toward the countless political factors that are eradicating the last vestiges of faith and credit in the dollar. If the current path is maintained (and quite possibly even if it isn’t), the future belongs to truly “dependable and reliable” monetary media: cryptocurrencies and precious metals. 

Published:7/17/2019 5:44:45 PM
[Markets] Dow Jones Futures: Netflix Dives On Subscriber Miss As IBM, eBay Eye Buy Zones Dow Jones futures: Netflix dived late after subscriber growth badly missed views. IBM stock and eBay stock signaled possible moves into buy zones on earnings. Published:7/17/2019 5:14:07 PM
[Markets] Stocks book back-to-back losses; Dow transports tumble 3.6% as CSX shares plunge U.S. stocks finished lower Wednesday, extending losses into the close of trade, adding to a drop spurred by President Trump's downbeat comments on China trade negotiations. A report from the Federal Reserve's Beige Book, also reinforced fears that trade worries remain a top concern, even as the economy continues to chug along. The Dow Jones Industrial Average closed down 115 points, or about 0.4% to 27,220. The S&P 500 lost about 20 points, or 0.7%, to close at 2,984. The Nasdaq fell more nearly 40 points, or 0.5%, touching 8,185. Investors digested another round of corporate earnings, including better-than-expected results from Bank of America Corp. . Government data on the pace of new-home construction was weaker than economists had expected. Separately, the Dow Jones Transportation Average finished down 3.6% weighed by rail transport-services company CSX Corp. whose CEO said that the current economic environment was the most 'puzzling' of his career. Published:7/17/2019 3:22:07 PM
[Markets] Dow Jones Still Outperforms Small Caps; Will This Warren Buffett-Backed Growth Stock Break Out? The Dow Jones Industrial Average continues to keep the bears at bay. Brazil-based StoneCo is making a solid rebound in recent weeks. Published:7/17/2019 12:48:29 PM
[Markets] Martin Armstrong Warns Epstein Case Could Shake Global Confidence

Via Greg Hunter’s,

Legendary geopolitical and financial analyst Martin Armstrong says America’s economy is like being “the prettiest ugly sister in the family” of nations.

So, if the U.S. economy is so good, why the rush to cut interest rates? Armstrong explains,

It’s really the world economy which is in serious trouble. You really have to look closely and pay attention to the words (Fed Head) Powell said. The economy is strong, unemployment is fine. Why would you cut interest rates when the stock market is making record highs? Powell said basically because it was things happening outside the country.

The Fed, as I have said before, has become the central bank for the world... This is the problem, and Europe is a complete basket case. They don’t get it, and they keep trying to hold onto their power and punish anyone who disagrees with them...Why is the U.S. economy so good? Why is the Dow at a record high? China is in trouble. Europe is in trouble. Japan is a basket case. The capital is coming here.”

Back in February, Armstrong pointed out in an interview on,

“Gold has been rallying right along with the U.S. stock market. This is what I’ve said all along. Eventually, towards the end, they have to align. Why? Because at that stage of the game, it’s us against government. So, tangible assets rise.”

Armstrong says gold catching a bid well above $1,400 per ounce is the beginning of people losing faith in governments around the world. Armstrong says, “What makes gold go up? That’s when the confidence in government declines,"

"...and we are no talking about just the gold bugs. We are talking about the average person on the street. They have to reach that point where they question what is going on in government. We are getting close to that. Gallup put out, and I put it on our blog, that 35% of Americans now say that government is the number one problem. When we reach about 45%, things are going to get a lot hairier...

When gold is not on a gold standard, and it’s a commodity like everything else, then basically gold goes up against the currency and so does the stock market. So, you have the stock market at highs, and you have gold that caught a bid.”

On the U.S., dollar Armstrong says, “The U.S. wants a lower dollar, and the dollar is being pushed higher."

"People don’t get this. They say, ‘oh, the dollar has got to crash.’ If the dollar crashes, Trump is having a great day on trade and etcetera. You take the dollar up, and that is what puts pressure on world trade. . . . If the dollar goes down, they are licking their lips and say this is fantastic because they will sell more stuff. When the dollar goes up, that is when you start getting trade friction...

The dollar going up is the only thing that is going to break the system. A lower dollar is not going to break it. It is only going to prolong it.

On Jeffery Epstein and his criminal sexual spider web of underage girls and the global elites, Armstrong says, “It’s an issue of confidence..."

"Could it contribute to the confidence and the faith in government? Yes. It depends on what these prosecutors want to do. Are they going to try to implicate President Clinton with it, or are they just going to try to hush it up as they usually do? You have the Deep State, and it’s really, really deep, and people don’t realize how bad this stuff is...

If you start taking down more and more political leaders, then you are going to start to undermine the confidence in the establishment. That’s what our computers have been showing.

Armstrong says, “Look for inflation to pick up starting in 2020.”

Join Greg Hunter as he goes One-on-One with renowned economic and political cycle analyst Martin Armstrong.

*  *  *

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Published:7/17/2019 12:48:29 PM
[Markets] The Dow Is Down Because Earnings Are Casting Doubts on the Economy The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite were all down Wednesday after a batch of lackluster earnings raised concerns about the health of industrial portions of the economy. Published:7/17/2019 11:42:54 AM
[Markets] Stocks Open Mixed; Caterpillar, JPMorgan Dow Jones: Qualcomm Stock Soars Stocks were mixed Wednesday, as ASML and Qualcomm stock led, while losses from Caterpillar and JPMorgan held back the Dow Jones industrials. Published:7/17/2019 8:49:44 AM
[Markets] Bank of America's stock falls after profit beats but revenue comes up a bit short Shares of Bank of America Corp. dropped 0.7% in premarket trading Wednesday, after the bank reported a second-quarter profit that beat expectations but revenue that came up a bit short. Net income rose to $7.11 billion, or 74 or cents a share, from $6.47 billion, or 63 cents a share, in the same period a year ago. The FactSet consensus for earnings per share was 71 cents. Total revenue increased 2.4% to $23.08 billion, just below the FactSet consensus of $23.11 billion, while net interest income rose 3.1% to $12.19 billion but missed expectations of $12.36 billion. Consumer banking revenue grew 5.2% to $9.72 billion, while the range of two analysts surveyed by FactSet was $9.61 billion to $9.64 billion. Global markets revenue fell 2.5% to $4.15 billion, as sales and trading revenue declined 6% to $3.2 billion. Elsewhere, global banking revenue declined 0.8% to $4.98 billion and global wealth and investment management revenue increased 3.3% to $4.90 billion. The stock has run up 17.7% year to date through Tuesday, while the SPDR Financial Select Sector ETF has climbed 17.9% and the Dow Jones Industrial Average has hiked up 17.2%. Published:7/17/2019 6:14:53 AM
[Markets] Dow Jones Overcomes Apple Drop; These IPO Stocks Aim At New Buy Points The Dow Jones Industrial Average is holding firm after last week's bullish gains. Apple is cooling off after a new breakout attempt. IPOs are rallying. Published:7/16/2019 12:46:13 PM
[Markets] J.P. Morgan cuts NII outlook as rate outlook swings to 3 cuts from zero in 3 months J.P. Morgan Chase & Co. lowered its full-year outlook on net interest income, as the banking giant now assumes the Federal Reserve will cut interest rates up to three times this year. Chief Financial Officer Jennifer Piepszak said on the post-earnings conference call that net interest income is now expected to be $57.5 billion, according to a transcript provided by FactSet, compared with the FactSet consensus of $57.9 billion. In the first-quarter conference call, then-CFO Marianne Lake said NII was expected to be "$58-plus-billion," when the it was assumed that there would be zero interest rate cuts. The stock was last down 0.4% in premarket trading, but has been up as much as 1.3% and down as much as 2.1% after earnings were reported. It has climbed 16.7% year to date through Monday, while the Dow Jones Industrial Average has climbed 17.3%. Published:7/16/2019 8:37:14 AM
[Markets] The Dow Ends Flat Because It’s Earnings Season and Everyone’s Treading Lightly The three main U.S. stock indexes all made marginal gains on Monday. Two had set new records last week, with the S&P 500 topping 3,000, and the Dow Jones Industrial Average breaching 27,000. Published:7/15/2019 5:05:18 PM
[Markets] Dow, Nasdaq post record close as stocks edge higher Dow, Nasdaq post record close as stocks edge higher Published:7/15/2019 3:32:09 PM
[Markets] "It’s Time To Say Goodbye To The Rally In Everything"

Authored by Wes Goodman, Bloomberg macro commentator

It was nice while it lasted but the “Rally in Everything” inspired by the dovish Federal Reserve is likely coming to an end -- thanks to the dovish Federal Reserve.

U.S. bonds and stocks have climbed together for most of 2019 as expectations for Fed easing led yields lower and underpinned equities.

Chair Jerome Powell threw a wrench in the works last week by actually putting the central bank on a path toward cutting interest rates.

It may be counter-intuitive, but a likely rate cut this month means long-term Treasuries are vulnerable. That’s because what the central bank ultimately wants is faster inflation, which will eat into demand for long-duration assets.

St. Louis Fed President James Bullard, who showed foresight by voting for a reduction in June, summed it up by saying he would like “to make modest moves to try to re-center inflation and inflation expectations at our 2% target."

The 10- year TIPS break-even rates, the bond market’s measure of inflation expectations, are starting to reverse a two-month decline. Up to about 1.77% Friday from 1.62% in mid-June, they still have a way to go to get to 2%.

The June CPI report last week also seemed to vindicate Powell’s earlier assessment that some of the recent slowdown in inflation was transitory -- the core rate of 2.1% matched the highest this year.

The Fed will likely be easing at a time when the broader economy, though slowing, is still chugging along. As Atlanta Fed President Raphael Bostic said “the aggregate numbers look pretty good."

Long bonds, those most sensitive to inflation, are already suffering. A 30-year Treasury sale last week was a flop and yields rose to the highest since May. Meanwhile, the S&P 500 and Dow Jones Industrial Average both set record highs last week.

Stocks and bonds are beginning to move out of sync -- look for the decoupling to continue.

Published:7/15/2019 9:02:42 AM
[Markets] Boeing Stock Is Slipping as the Dow Keeps Chugging Ahead STOCKSTOWATCHTODAY BLOG Gathering Strength. Stocks are in line to start the week off strong, with Dow Jones Industrial Average futures, S&P 500 futures, and Nasdaq Composite futures all 0.2% higher ahead of the open. Published:7/15/2019 8:30:22 AM
[Markets] Stock Futures Rise; Boeing Hampers Dow Jones, Citigroup Earnings Beat CrowdStrike and Amazon stock led stock futures higher early Monday, as investors cheered Citigroup's Q2 report and banks led the Dow Jones. Published:7/15/2019 8:01:24 AM
[Markets] Bull Versus Bear: S&P 3,300 Or 2,200 Next?

Authored by Lance Roberts via,

Monday and Tuesday were indeed a bit sloppy, as shown below, but “fireworks” started on Wednesday as Jerome Powell said everything possible to ensure Wall Street a “rate cut” in July without actually saying so.

As we will discuss in a moment, almost 18-months after I originally discussed it, the market finally cleared the psychological level of 3000.

That is the good news.

The “not-so-good” news is the market continues to rally into a more extreme overbought condition with a rather extreme deviation above the 200-dma. Also, the negative-divergences in indicators which suggest further upside to the current rally may be limited. In particular, the divergence between small-cap and large-cap performance is typical of periods leading to corrections.

Also, since the September peak in the market, every other major index is lagging the performance of the S&P 500 index which suggests a narrower rally.

With that said, the markets are on a “buy signal,” which suggests further upside is likely in the near-term. This is why we continue to maintain our long-equity bias for now.

However, once we get past the end of the month, and assuming the Fed does indeed cut rates and no “trade deal” with China, the markets will return their focus to economics and earnings. As we said last week, such continues to suggest the August/September time frame for a larger corrective cycle is still in play.

Bonds Retreat

My colleague Patrick Hill asked me to address the retreat in bond prices over the last week or so. While many are assigning a variety of reasons for the recent reversal in rates including a resurgence on inflationary pressures, Central Bank demands, to a lack of buying by foreigners, I think the reason is much more simplistic.

Ever since rates spiked up to 3.25% at the beginning of 2018, we have repeatedly been discussing why rates would fall, and economic weakness and deflation would be the driver. Such has indeed been the case, and our long-bets on bonds have paid off nicely.

However, bonds are also a “safety” trade in times of uncertainty. The rotation from “risk” to “safety” has been THE trade since September of last year and rates, as I have discussed over the last several weeks, had become “egregiously” overbought. A correction was inevitable as money began chasing equities on hopes of a Fed rate cut. 

However, as shown below, we need to keep the recent reversal in the context of the broader move. It is kind of hard to spot.

This sell-off in bonds WILL provide another terrific buying opportunity most likely by the end of July. Look for rates to retrace back to previous resistance between 2.4% to 2.6%. Also, it is advisable to increase the duration of bond holdings for the yield curve steepening, which will occur as the economy slips closer to the recession.

That is how we are playing it.

So, let’s talk about S&P 3300!

The Case For 3300

It only took eighteen-months longer than expected, but the markets finally reached 3000 on the S&P 500 index this past week.

“What do you mean ‘expected?’ You are always bearish.” 

I am just going to save our “reading impaired” individuals some time by reminding them of what I wrote in January of 2018:

“While the record-breaking pace is certainly breathtaking, it should not be surprising as we discussed in the June 9th, 2017 edition of the weekly newsletter.

Let me state this VERY clearly. The bullish bias is alive and well, and a move to 2500 to 3000 on the S&P 500 is viable.All that will be needed is some piece of legislative agenda from the current administrationwhich provides a positive surprise. However, without a sharp improvement in the underlying fundamental and economic backdrop soon, the risk of something going ‘wrong’ is rising markedly. The chart below shows the Fibonacci run to 3000 if ‘everything goes right.’”

Of course, that piece of legislative agenda was ‘tax reform.’

With investors now betting on a sharp rise in earnings to reduce the current levels of overvaluation, the seems to be little in the way of the next major milestones for 30,000 for the Dow and 3000 for the S&P 500.”

In March, we followed up that post stating:

“Since that time, tax cuts/reform have been passed, earnings estim+tes have exploded higher, and corporate stock buybacks have surged to record levels while wage growth has remained non-existent for the bottom 80% of workers.

Not surprisingly, with those tailwinds, the market has pushed sharply higher towards our original target of 3000.”

As we know now, the market wound up following our mid-2017 accelerated projection trend.

So, here we are 18-months later, and the market finally hit 3000.

What is interesting, however, is the advance to 3000 incorporated both the original bull and bear projections.

The 20% slide from the September highs came on concerns the Fed was tightening too aggressively as Trump’s “trade war” took a bite out of economic growth and profitability. The subsequent rally back, which brutally reminded investors what “volatility” is, was based on “hope” that Trump would find a resolution with China and the Fed would cut rates.

Neither has happened yet, but the markets remain hopeful.

“But you missed out on the whole rally because you have been all in cash.”

Again, for those that cannot read more than 280-characters at a time:

“Portfolios have remained allocated toward equities, although we did shift to more defensive holdings earlier this year. We had also been aggressive buyers of bonds at 3% and higher on the 10-year bond which has added to portfolio performance this year. “

The Bull & Bear Case

As we face down the last half of 2019, we can once again run some projections on the bull and bear case going into 2021, as shown in the chart below:

Let us break down both potential pathways into the “bull” and “bear” case.

The Bull Case For 3300

  • Momentum

  • Stock Buybacks

  • Fed Rate Cuts

  • Stoppage of QT

  • Trade Deal

Price momentum has been in control of the markets over the last several months. Given that “an object in motion, tends to stay in motion,” momentum is a hard thing to stop without a bigger event triggering a reversal in investor attitudes.

While Fed rate cuts, and stopping QT, will be seen as “accommodative” to asset prices, the “efficacy” of monetary policy has likely reached its limits. We have a decent understanding this is likely the case given that nearly 100% of all “net new equity purchases” have come from share buybacks in recent years. As I wrote last week

“So, how is it that stocks remain near record highs? The primary culprit, as discussed previously, remains corporate buybacks which remain the primary source of market support in 2019. This is especially the case after US banks announced $129 bn in buybacks over the next 4-quarters.

Buybacks, according to BofA, are on pace for a record at $43B so far this year versus just $75B for the entirety of 2018. This suggests a record of over $1 trillion in S&P 500 buybacks for 2019.”

“Trade Deal” will also be helpful as it will take the pressure off of bottom-line corporate earnings. As J.P. Morgan’s chief equity strategist Dubravko Lakos-Bujas recently told MarketWatch:

“If you have a trade deal, and if the trade deal coincides with one or two rate cuts from the Fed, we see an upside scenario of 3,200-3,300.”

Yep, the same number we came up with.

However, as investors, we must also analyze what could go wrong and derail our investment strategy. Unfortunately, the “bearish” case has “sharper teeth” to it. (Yes, pun intended.)

The Bear Case Against 3300

  • Earnings Deterioration

  • Recession

  • No Trade Deal/Higher Tariffs

  • Credit Related Event (Junk Bonds)

  • Mean Reversion

  • Volatility / Loss Of Confidence

Earnings have already deteriorated markedly since 2018, as I discussed previously.

“However, the red dashed line denotes an 11% reduction to those estimates due to a ‘trade war’ where an across-the-board tariff of 10% on all US imports and exports would lower 2018 EPS for S&P 500 companies and, thus, completely offset the positive fiscal stimulus from tax reform.

Surprise! As of the end of the Q4-2018 reporting period, guess where we are? Exactly 11% lower than where we started which, as stated then, has effectively wiped out all the benefit from the tax cuts.”

Since then, 2019 earnings have been downgraded substantially. As Ian Harnett, chief investment strategist at Absolute Strategy Research recently noted:

“We do not think insurance cuts will be enough, we think earnings growth is not going to be 7% this year, it is going to be -5%, and maybe even -10. We are looking at these recession risk models rising, credit impulse numbers in the states are weak, that tends to bring unemployment up and tends to bring equity markets down.”

Given there has been no “trade deal” as of yet, the increase in tariffs in June to 25% have yet to show up in reports just yet, and global growth slowing, there is an elevated risk of an “earnings recession” currently.

There is also just the simple issue that markets are very extended above their long-term trends, as shown in the chart below. A geopolitical event, a shift in expectations, or an acceleration in economic weakness in the U.S. could spark a mean-reverting event which would be quite the norm of what we have seen in recent years.

Then there are the tail-risks of a credit-related event caused by a dollar funding shortage, a banking crisis (Deutsche Bank), or a geopolitical event, or a surge in defaults on “leveraged loans” which are twice the size of the “sub-prime” bonds liked to the “financial crisis.”  (Read more here)

Just remember, bull-runs are a one-way trip. 

Most likely, this is the final run-up before the next bear market sets in. However, where the “top” is eventually found is the big unknown question. We can only make calculated guesses.

Currently, the “math” suggests there are just 200 points of upside to our next target, but there is roughly 800-points of downside.

Be careful how you bet; these are odds that Vegas would love to give you.

I know. I know.

It is easy to get wrapped up in the bullish advance. However, it is worth remembering that making up a loss of capital is not only hard to do, but the “time” lost cannot.

The point is while the media, and bulk of the commentary continue, to “urge you to ride the bull,” they are not going to tell you when to get off.

Moreover, when the ride does come to an end, the media will ask first “why no one saw it coming?”

Then they will ask “why YOU did not see it coming when it so obvious.” 

In the end, being right, or wrong, does not affect the media as they are not managing your money. Nor are they held responsible for consistently poor advice. However, being right, or wrong, has a very big effect on you.

Let me repeat for all of those who continue to insist I am bearish and somehow am missing out on the “bull market” advance:

“While our portfolios remain long currently, we do so with hedges and stops in place, a thorough methodology of analysis, and a strict investment discipline we follow to mitigate the risk of long-biased exposure. In other words, whenever the market does turn, we will sell and move to cash.”

If you are going to “ride this bull,” make sure you do it with a strategy in place for when, not if, you get thrown.

Published:7/14/2019 9:26:13 AM
[Markets] The Four Dimensions Of The Fake Money Order

Authored by EconomicPrism's MN Gordon, annotated by Acting-Man's Pater Tenebrarum,

A Good Story with Minor Imperfections

If you don’t know where you are going, any road will get you there, is a quote that’s oft misattributed to Lewis Carrol. The fact that there is ambiguity about who is behind this quote on ambiguity seems fitting. For our purposes today, the spirit of the quote is what we are after. We think it may help elucidate the strange and confusing world of fake money in which we all travel.

Consumer price index, y/y rate of change – the Fed is not satisfied with the speed at which monetary debasement raises everybody’s cost of living lately. And no, they don’t think said speed should be lowered. [PT]

For example, the monetary policy outlook immediately following last month’s FOMC meeting was as clear as a flawless (FL grade) diamond. The principal message, if you recall, was that inflation was muted and the Fed, after suffering an overt beating from President Trump, would soon be shaving basis points off the federal funds rate. You could darn near take it to the bank.

Wall Street took the news and acted upon it with conviction.  Investors piled into stocks and bonds without pausing to take a closer look for imperfections.  Why worry when fortune favors the bold?

From June 19 through Wednesday July 3, everything held up according to plan.  The S&P 500 rallied 2.5 percent to close at a new all-time high of 2,995. The yield on the 10-Year Treasury note, over this period, dropped 13 basis points, as mindless buyers positioned to front run the Fed.

But then, in the form of Friday’s job’s report, several feathers of imperfection were identified.  According to the Bureau of Labor Statistics, the U.S. economy added 224,000 jobs in June. This far exceeded the consensus estimates of 160,000 new jobs.  As this week began, doubt and hesitation crept into the market.  What to make of it?

Powell Stays on Point

To begin, in today’s fake money world, clear thinking and honest appraisal are handicaps for investors.  What is really important is the inverse relationship between the economy and the stock market.  Good economic reports are bad for stocks.  Conversely, bad economic reports are good for stocks.

S&P 500 Index performance vs. US macroeconomic data surprises – this is the biggest disconnect ever observed. [PT]

According to the prevailing logic, with unemployment below 4 percent, real GDP growth at an annual rate of 3.1 percent, and stocks at all-time highs, the Fed shouldn’t be cutting rates.  Instead, it should be raising rates.  But if the Fed raises rates, there will be less cheap credit to speculate on stocks with.  Therefore, stocks will go down.

So how can the Fed possibly cut rates later this month when the economy’s headline numbers appear so doggone good?  This question, and many others, greeted Fed Chairman Jay Powell this week during his two-day semiannual testimony on monetary policy to the House Financial Services Committee and the Senate Banking Committee.

Powell – that is, the post pivot dovish Powell – stayed on point. Specifically, he did what he needed to do to propel stocks to what Irving Fisher once called a “permanently high plateau.”  He told Chairman Crapo and other committee members that the economy is soft, but not too soft.  And that the Fed will use its policy tools to, somehow, boost the economy.

Of course, Wall Street was tickled pink.  First, the S&P 500 hit a new all-time high over 3,000.  Then, the Dow Jones Industrial Average eclipsed 27,000 for the first time ever. These milestones were toppled in such rapid succession that Art Cashin hardly had a chance to change hats.

Cashin did find time to don an SPX 3,000 hat – coincident with Powell’s first day of testimony. Powell reassured everyone that the rate cut was still on, regardless of the stronger than expected payrolls report. [PT]

The Four Dimensions of the Fake Money Order

The stock market is no longer about pricing anticipated future earnings or business profits.  It is merely about front running the Fed’s applications of cheap credit. That is why weak economic reports, which provide cover for more monetary stimulus, are bullish.

Fake money has taken us to this strange and confusing place.  By fake money, we mean legal tender that is conjured at will by central planners. Fake money includes the dollar, euro, yen, yuan, pound, peso, loonie, toonie, and practically all other world currencies.

Remember, if you don’t know where you are going, any road will get you there.  Alas, the fake money order has taken us to the four dimensions of debasement, distortion, disfiguration, and destruction. How each dimension progresses to the next is somewhat ambiguous.  Though it generally advances as follows…

The dollar is debased through centrally planned and coordinated applications of monetary and fiscal stimulus. These stimulus applications distort financial markets to where the S&P 500 is at 3,000, the DJIA is at 27,000, there is $13 trillion in subzero yielding debt, and shacks sell for a million bucks.

Going “parabolic” – in a stunning display of collective insanity, the amount of outstanding government debt with negative yields to maturity hits a new record high of $13 trillion in what appears to be an unseemly hurry. Buying debt securities with a negative yield is a trade that relies  100% on the greater fool theory to be profitable. So far there is evidently no shortage of greater fools, so the theory works – for now. Our wild guess is that this absurdity is not destined for a happy end. [PT]

They disfigure the economy through mass applications of concrete to the landscape, unwarranted building booms, glass skyscrapers with polished concrete floors and urban industrial pendant lighting, demolition of cars that aren’t really clunkers, and other disfigurements undertaken to support a cheap credit induced false demand.

Lastly, is the fourth dimension of destruction. This is when the books are reckoned via hyperinflation, debt deflation, wide-ranging bankruptcy, or any combination thereof.

The fourth dimension is also when government’s become extremely intolerable as they try anything and everything to hold onto their power. This week, no doubt, advanced us further toward this unpleasant end.

Published:7/13/2019 1:45:43 PM
[Markets] Dow Jones Romps 410 Points For The Week As S&P, Nasdaq Hit New Highs The Dow Jones industrials powered ahead in the stock market today as it scored a second straight record high to send its weekly gain past 400 points. Published:7/12/2019 3:47:14 PM
[Markets] All of the important Dow milestones in one chart It took only eight trading sessions for the Dow to sprint from the 25,000 level to 26,000 in January of 2018. Over 500 days and exactly 372 trading sessions later, the index notched its next 1,000-point milestone. Published:7/12/2019 3:13:13 PM
[Markets] Stocks Surge To Record Highs As Payrolls & Powell Spark Bond Bloodbath

Chinese, European, and US Small caps all lost ground on the week... could be worse though, you could be a bond or bund-holder...


Chinese stocks ended the week lower but the losses were all on Monday...

Hang Seng's China index tumbled into a death-cross...


Only Italy managed gains on the week in Europe with Germany's DAX tumbling...

And while German stocks tumbled, German bunds collapsed (worst yielding spike since June 2017)...


Even Small Caps ramped into the green for the week today, but ended red. The Dow and Nasdaq led the week though...

The Dow, Nasdaq, and S&P all closing at the high of the day and at record highs...

S&P gapped open above 3000 and held for the first close above that level...


Not a meltup...


Cyclical stocks melted up today, outperforming defensives that had dominated the week until then...


S&P Tech Sector topped 20x Fwd P/E today - its highest since Nov 2007...


JNJ tumbled on DoJ criminal probe headlines..


For the first time in 7 weeks, the aggregate return from holding the long-bond and the S&P was negative...

Credit and equity protection costs diverged notably the last few days as VIX collapsed to a 12 handle and credit spreads widened...


Treasury yields exploded higher this week (except 2Y) and including the Friday spike from payrolls, 30Y is up almost 18bps...


With 30Y spiking up to 7-week highs...


The yield curve steepened dramatically this week...


But we note that each time the 3m10Y curve tried to get back above zero (un-invert), it failed...


The dollar is down 3 days in a row to end the week (post-Powell) after surging post-Payrolls...


Meanwhile, FX vols have collapsed. USDJPY im;lied vol is at a record low...

So much for surging economic policy uncertainty

Cryptos were mixed this week with Bitcoin gaining over 5% and the rest of the larger alt-coins losing ground... (but rallying on the day after Trump's comments)


Big gains for commodities this week with oil prices up large and silver very modestly outperforming gold...


WTI ended the week back above $60 but hit a wall of resistance at the longer term downtrend...


Gold held above $1400 on the week but has gone nowhere for almost a month...


Finally, we offer the following from BofA:

"...we anticipate an "overshoot" in credit & equity prices in coming months, followed by an overshoot in gold (US$ devaluation) before big H2 top in asset prices (as bond bubble pops & policy impotence visible)."

And then?

Published:7/12/2019 3:13:13 PM
[Markets] 3M stock price target cut at UBS, as company has some 'proving out' to do 3M Co.'s stock price target was cut Friday to $182 from $201 by UBS analyst Damian Karas, who cited recent comments from the industrial, health-care and consumer products company about restructuring and continued deceleration in macro economic data. The cut comes about two weeks before 3M is scheduled to report second-quarter results, ahead of the July 25 open. Karas kept his rating at neutral. He said he believes 3M has some "proving out" to do: "After five guide-downs in five quarters, it is our view that investors will be hesitant to put new money to work in 3M until growth stabilizes and earnings again hit targets. The Q2 FactSet earnings-per-share consensus is $2.05, but that is down from a $2.64 consensus at the end of the first quarter. Meanwhile, the stock rallied 2.3% in afternoon trading, but has tumbled 20.4% over the past three months, while the Dow Jones Industrial Average has gained 3.3%. Published:7/12/2019 2:43:23 PM
[Markets] Dow Jones Leads Again, As Small Caps Try To End Lagging Action Dow Jones stocks led stock market late morning trade Friday as the blue chip index gained 130-plus points. Small caps in the S&P; 600 were trying to end a fifth session of underperformance. Published:7/12/2019 11:44:31 AM
[Markets] US STOCKS-S&P 500, Dow hit new highs on rate cut optimism The S&P 500 and the Dow Jones Industrial Average hit record highs on Friday, as the indexes continued a strong run for the week on raised expectations of an interest rate cut this month. "He (Powell) has said everything he can, short of saying flat out that we are going to cut interest rates," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas. Published:7/12/2019 10:12:45 AM
[Markets] S&P 500 and Dow open at new record highs Friday supported by prospect of Fed interest rate cuts U.S. stocks opened at new record highs Friday helped by Federal Reserve Chairman Jerome Powell's testimony to Congress this week which bolstered investor expectations for an interest-rate cut at the end of the month. The Dow Jones Industrial Average was up 70 points at 27,156 while the S&P 500 gained 4.30 points to 3,004 and Nasdaq was 16 points higher at 8,212. On Thursday the Dow closed 27,000 for the first time and the S&P 500 also pushed up further record territory. The Nasdaq Composite scored a record close on Wednesday. Meanwhile, weak data overnight from both Singapore and China sent another warning shot to the world economy on the impact of trade tensions. An unexpected rise in American producer prices for June reported early Friday did little to alter investor sentiment toward the Federal Reserve's next policy move. Published:7/12/2019 8:42:10 AM
[Markets] Extreme weather could be an “outsized and unnoticed” force for stock markets, analyst says Extreme weather has beset the United States and Europe, with record heat waves in France and Spain, massive flooding and tornadoes in the American Midwest and an impending tropical storm barreling towards New Orleans’ already flooded streets. U.S. corporations have begun to take notice of the threats of the growing incidence of extreme weather to their businesses, but according to Michael Arone, chief investment strategist at State Street Global advisors, investors should be attune to the economy-wide effects of these disasters too. “Extreme weather is having an effect on economic growth,” Arone said in an interview with MarketWatch, even though it has had “little effect on markets,” as the S&P 500 (SPX) Dow Jones Industrial Average (DJIA)  and the Nasdaq Composite index (COMP)  have all reached record highs in the month of July. Published:7/12/2019 6:11:16 AM
[Markets] One of these key economic gauges isn’t telling the truth Dow Transports and the Baltic Dry Index are sending conflicting messages about the market, writes Mark Hulbert. Published:7/12/2019 4:45:49 AM
[Markets] Mark Hulbert: One of these key economic gauges isn’t telling the truth Dow Transports and the Baltic Dry Index are sending conflicting messages about the market, writes Mark Hulbert.
Published:7/12/2019 4:45:49 AM
[Markets] Asia Markets: Asian shares largely rise after Wall Street sets new records Shares in Asia trade mostly higher Friday after a turbulent day on Wall Street ended with the Dow Jones Industrial Average closing above 27,000 for the first time.
Published:7/12/2019 12:39:22 AM
[Markets] Trump Slams Cryptos, Libra; Praises Dollar As World's "Most Dominant Currency"

A day full of paradoxes just added one more.

Moments ago, amid his early evening tweetstorm (which so far is tiny compared to the furious tweeting he unleashed this morning), Trump who earlier in the day conquered the stock market, tweeting "Dow just hit 27,000 for first time EVER!" (once again not realizing that by owning the Fed's biggest asset bubble in history, he will also own the coming crash), the stock market president decided to shift his focus to currencies, and not just any currencies, but cryptos (and, well, Libra which only pretends to be), saying on twitter that "I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air", seemingly unaware that the value of any currency is based on precisely the very same thing.

Trump went on, explaining that " Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity", which coming from a former real estate developer means a lot.

Picking up where Congress left off its Libracoin hearings with the Fed Chair over the past two days, Trump then decided to slam the latest entrant in the digital (because it isn't crypto) currency world: "Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability."

Gradually, the object of Trump's evening ire emerged: not so much Cryptos, as Facebook's audacious attempt to become a central bank without a sovereign, when Trump slammed Zuckerberg's company: "If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International."

Trump then concluded by directly contradicting all his recent efforts that have been geared at devaluing the dollar - after all, just today, Goldman, BofA and SocGen all predicted that the US would intervene to devalue the dollar- by imposing the greenback as the "most dominant currency in the world", which apparently is more important when one is engaged in a pissing match over who has the "biggest" currency, than Trump's ongoing demands that the Fed cut rates so that said dominant currency can lose much of its value: "We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!"

We wonder how long it will take for the Trump advisors who wrote the actual tweet, to figure out that if Trump wants a new Plaza Accord - and he does - he should be praising, not slamming both cryptos and Libra...

... and that if Trump really wants to cripple China, he should be encouraging the development, distribution and growth of the one mechanism that will allow $30 trillion in Chinese deposits to escape the country's capital controls firewall, resulting in China's prompt reserve depletion and financial meltdown.

For those wondering, the price of cryptos following Trump's tweet is unchanged.

Published:7/11/2019 8:10:14 PM
[Markets] The Dow Jumped 228 Points Because Sometimes the Fed Isn’t the Most Important Thing The Dow Jones Industrial Average and S&P 500 both closed higher, with the Dow hitting the 27,000 mark for the first time. Shares of pharmacy-benefit managers jumped. Published:7/11/2019 4:42:33 PM
[Markets] NewsWatch: The Dow components that drove the blue-chip stock index to a 27,000 milestone Which company deserves the most credit for the Dow Jones Industrial Average’s run to a milestone at 27,000 since last posting a finish at or above a round-number milestone at 26,000 back on Jan. 17?
Published:7/11/2019 4:09:16 PM
[Markets] US STOCKS-S&P 500, Dow climb as health insurers, financials gain The Dow and S&P 500 rose on Thursday to close at record highs as health insurers gained after the Trump administration scrapped a plan designed to rein in prescription drug prices, while financial shares climbed with bond yields. A 5.5% gain in UnitedHealth Group Inc helped the Dow close above 27,000 points for the first time. Published:7/11/2019 4:09:16 PM
[Markets] Shares of Twitter fall as the micro-blogging site experiences an unexplained outage Social-media site Twitter Inc. was down Thursday afternoon, and its shares also were sliding. Users attempting to access the platform were receiving a message saying that "something is technically wrong." A spokesperson for Twitter confirmed the outage but didn't provide further details. "We are currently investigating issues people are having accessing Twitter. We'll keep you updated on what's happening here," the spokesperson said. Shares of Twitter were down 0.8% on Thursday while the broader market was mostly rising, with the Dow Jones Industrial Average on track to close at a record and the S&P 500 index set to also close near all-time highs. The technology sector, however, was showing some signs of weakness, with the Nasdaq Composite Index down 0.1% at 8,195, lagging behind its peer equity benchmarks. Published:7/11/2019 3:10:13 PM
[Markets] Dow industrials close above 27,000 for the first time Dow industrials close above 27,000 for the first time Published:7/11/2019 3:10:13 PM
[Markets] Disastrous Bond Auction Sparks Rate-Rout Selloff In Stocks

Bond bulls just had a 'Cliffhanger' moment...

Payrolls, Powell, and Panic at the Auction have sparked the biggest bond bloodbath since Trump was elected in Nov 2016...

And as bond yields exploded higher, something odd happened... stocks dumped too...

Suggesting Risk-Parity funds forced to delever/rebalance as the bond legs blow up.

30Y Yields exploded to 6-week highs...


The Dow managed to hold gains (thanks to United Health jumping on Trump's backdown) and S&P limped back into the green but Nasdag ended red. Small Caps were worst on the day with Trannies best...

NOTE - around 1300ET, Trump tweeted about China disappointment and sparked selling.

Trannies and Small Caps remain red on the week.

Dow topped 27k for the first time...

And President Trump loved it...

The S&P closed at 2999.89!! As one veteran trader noted "this is all gamma trap!"


Defensive stocks were pummeled (interestingly catching down to unch for the week with Cyclicals)...


Bonds weren't the only bloodbath of the day; Bed, Bath, & Beyond was battered...

UnitedHealth surged on the White House backpedal...


Chinese stocks have gone nowhere since Monday's dump...


European markets continued to diverge dramatically with Germany slammed and Italy bid...

Banks and the yield curve...


Treasury yields exploded higher on the day with the long-end dramatically underperforming...


The yield curve (3m10Y) remains inverted... just...


The dollar ended marginally lower after scrambling up to unch after a weak overnight session...


Cryptos were down modestly on the day with Bitcoin the only major that remains green on the week...


With Bitcoin unable to scramble back above $12k for now...


Commodities rolled over today as the dollar recovered


Silver marginally outperformed gold today...


But gold held above $1400..


Finally, we note the following from Strategas:

"nearly all of the incremental news on China since the G-20 has been negative. There is no trade meeting set; China is questioning what the US said was agreed to .. The China hardliners seem to be taking over and trying to wait Trump out past the 2020 election."

And this tweet from China's current twitter mouthpiece:

"Congrats to American investors. But watch your President and don’t let him trigger recession with the trade war."

As we have noted numerous times, it's not the economy, or trade, or earnings, or sentiment... it's central bank liquidity, stupid!

Published:7/11/2019 3:10:13 PM
[World] Market Extra: The Dow components that drove the blue-chip stock index to a 27,000 milestone Which company deserves the most credit for the Dow Jones Industrial Average’s run to a milestone at 27,000 since last posting a finish at or above a round-number milestone at 26,000 back on Jan. 17?
Published:7/11/2019 3:10:13 PM
[Markets] US STOCKS-S&P 500 near flat as healthcare in spotlight The S&P 500 was little changed in afternoon trading on Thursday, with healthcare stocks mixed after the Trump administration withdrew a rule that would kill rebates. Shares of pharmacy benefit managers gained as the news meant these companies would continue to benefit from after-market discounts from drugmakers. A 5.3% gain in UnitedHealth Group Inc helped the Dow break above 27,000 points for the first time. Published:7/11/2019 2:36:38 PM
[Markets] S&P 500 pares gains as investors dump real estate, utilities stocks Stock market investors rotated out of stocks in the utilities and real estate sectors, which are typically seen as defensive in nature, in favor of more cyclical sectors like information technology and financials. The S&P 500 index erased a 0.3% gain to trade flat Thursday afternoon, while the Nasdaq Composite index lost 15 points, or 0.2% to 8,187. The Dow Jones Industrial Average , meanwhile rose 162 points, or 0.6%. Helping to suppress the S&P were steep selloffs in the real estate sector, which fell 1.7%, per the Real Estate Select Sector SPDR fund , as long-term interest rates rose in response to a weak bond auction. Utilities stocks, also seen as safer 'bond proxy' were the second worst-performing sector, down 0.7%, as seen in the Utilities Select Sector SPDR fund . The yield on the 30-year U.S. Treasury bond rose more than 6 basis points to 2.635%, while the 10-year U.S. Treasury note spiked 6 basis points to 2.212%. Published:7/11/2019 2:07:06 PM
[Markets] The S&P 500 Is Dropping Drops After Treasury Yields Spiked Following an ‘Ugly’ Auction The S&P 500 and the Nasdaq Composite have sunk into negative territory, while the Dow Jones Industrial Average has given back a chunk of its gains after lackluster demand at a Treasury auction caused bond yields to spike. Published:7/11/2019 1:36:59 PM
[Markets] Dow Jones Stretches Gain To 2,392 Points From June 3 Low; This Blue-Chip Stock Breaks Out The Dow Jones Industrial Average cracked 27,000 and made new highs, thanks in large part to a big gain by UnitedHealth. A peer broke out. Pfizer fell. Published:7/11/2019 12:39:47 PM
[Markets] Dow industrials expand Thursday's gain to 200 points Dow industrials expand Thursday's gain to 200 points Published:7/11/2019 11:58:22 AM
[Markets] Dow Jones Leads Market Indexes, As Half Of Medical Sector Advances The Dow Jones rose 0.7%, while the large cap S&P; 500 and the Nasdaq added 0.2% and 0.1%. Small caps in the Russell 2000 fell 0.7%. Volume fell. Published:7/11/2019 11:12:01 AM
[Markets] Dow reclaims 27,000 level intraday, with S&P back in striking distance of 3,000 Dow reclaims 27,000 level intraday, with S&P back in striking distance of 3,000 Published:7/11/2019 10:35:39 AM
[Markets] President Trump touts stock market as Dow surpasses 27,000 The Dow Jones Industrial Average is on the brink of claiming a thousand-point milestone for the first time since January of 2018. Published:7/11/2019 10:35:39 AM
[Markets] Dow on verge of ending longest period without a milestone since Trump’s election The Dow Jones Industrial Average is on the brink of traversing a thousand-point milestone for the first time since January of 2018. Published:7/11/2019 9:05:24 AM
[Markets] Healthcare Stocks Lead Futures Higher; Delta Stock Gets 737 Max Boost UnitedHealth led the Dow Jones, Walgreens topped the Nasdaq 100, while Cigna topped the S&P; 500 early Thursday as healthcare stocks rallied. Published:7/11/2019 8:38:43 AM
[Markets] Blain: "When Markets Grasp That Lower Rates Won't Be Supported By Growth, Get Your Hard Hats Ready"

Blain's Morning Porridge, submitted by Bill Blain

“The Sky is not the limit – there are footprints on the Moon.”

So many choices for this morning’s quote. The classic Armstrong “One Step” was too obvious. I did think about “To infinity and beyond”. But the one I chose is perhaps the best. Points if you can name who said it. Only four of the 12 men who walked on the Moon are still with us. It was a long time ago, but last night my wife, son and I were out to dinner in the West End. As we walked back past the Lego Store inn Leicester Square – look what was in the window! I’m going back to buy it later today!  

It took me back 50 years - July 11 1969. I was in the back garden in Fox Covert, Edinburgh, staring excited at the moon, asking Dad where the spaceship was. He tried to explain how far away it was and since it was only the size of a car, I’d not be able to see it. It was a terribly exciting day – the BBC showed the film of HG Well’s First Men on the Moon. Then came the iconic music; Also Sprach Zarathustra, which defined the whole Apollo era. Patrick Moore and James Burke explained what was going on. James Burke is still making sense today! We waited and waited and then the words. At some point I must have fallen asleep because I woke up in bed with my Action man lying on the floor in his (Gemini) spacesuit.

It would be a terrible pity if we don’t go back to the Moon. Does it make commercial sense for us to go further? I’d like to think so, but the scale, the sheer immensity of space, the rules of orbital gravity and radiation mean we’re not going to travel to Jupiter in a few hours any time soon. A few years perhaps, and few years to come back with what? Minerals, raw materials? Or maybe not – 200 years ago it took a year to get to Australia and back. Today I’ve been there and back in a week. It took Magellan’s fleet 3 years to circumnavigate the globe – 18 men out of 270 made it.  

Back to the present…

The big theme this morning is Jerome Powell’s comments y’day – 25-50 bp ease from the Fed looks nailed on for later this month. We’re expecting similar directional guidance from the ECB and Bank of England today. The markets will breathe a sigh of relief – and party on. The Fed dismissed the strong jobs report, reckons inflation is easy, and is willing to pander to Trump ease rates to counter signs of a slowing global economy and ongoing trade risks.  Dollar took a bit of a spanking – but that’s another thing El Presidente will love.

Yesterday I was talking about how Boeing might be the canary in the coal mine that crushes the on-going stock optimism. Folk generally agreed with my analysis the company management has made serious mistakes that aren’t reflected in a lower stock price, and that price has been artificially held up by dint of the plane-maker being the largest component of the Dow-Jones. Everyone has to hold Boeing to match the index – that could change dramatically if the market shifts and everyone wants to go short!

Another new factor my chums in aviation finance have noted is potential stress in the aircraft finance market when the Boeing 737 Max finally gets recertified. We reckon there are about 150 undelivered unpaid MAXes sitting at Boeing – including some parked in the employee car parking spaces!! They cost about $2000 each per month – and nots just the parking tickets! They are adding about 10 planes each week. When the aircraft are recertified Boeing will be in rush to deliver – but financing what could be up 370 new aircraft in November (if that is when they get permission to fly) could be a nightmare. It could be a shock to markets. (And I’m trying to think how we arb it! A chat with Boeing might be on the cards – if some of the big funds wants to lend me $10 bln I can promise a very asset based secured attractive return!)

Boeing is a crisis because of the mistakes its management have made. (And they won’t like me saying it.)

Potentially even more dangerous for Markets is BASF, the German Chemical giant. Earlier this week it missed expected numbers massively and has shocked complacent markets. BASF confirms the genuine damage US / China trade has had on the global economy. This is a company that has seen its stock whapped, and EBITDA expected to plummet down 30%, because of the global economy rather than management cluster-failure. If it’s happened at BASF, it is going to happen elsewhere else. BASF is down 21% since April and crashed 7.5% on the news before wobbling back up a bit y’day.

All this should get investors thinking about what’s really going on in the corridors of power. We’ve got Central Banks around the world being overly accommodative, pumping money into Financial Assets on the hope and a prayer of avoiding a massive and destabilising stock market crash. If it happens global sentiment will be crushed, and you can bet the next stage will be folk talking about over-indebted Sovereigns and slide in bonds as well. I’ve been warning for so long about the scale of bubbles in Financial Assets – bonds and stocks – I’m beginning to bore even myself.

The first reality is BASF. It shows corporate earnings in a global supply-chain based economy are critical. If the next couple of weeks US Earnings confirm spreading pain, then the optimism to buy the FED crack-ease is going to flop.

The second reality is China. Forget what anyone is telling you about the USA being the most important Economy. Its not. Its been China and its’ associated growth that’s been driving global growth for the last 10 years. When the Chinese economy was growing 7-8% annually, it was a rising tide lifting all boats.

Now the Chinese are transforming their economy. The plan is a consumer led and consumption based  happy state-loving economy – and it sure has problems. Which country doesn’t? But its also engaged in a cut-throat political/trade war with its biggest market – The USA. Look at the news of China graduates now struggling to find good jobs, the clampdown on conspicuous consumption by the wealthy, unsold houses, a domestic debt crisis, companies defaulting. Welcome to a China we recognise from our own experience.

China Growth is likely to slow to more like 4% as it continues to mature. And if China is 4%, the shocking global reality is global growth is much much lower than the Central Bank geniuses expected. They’ve been juicing asset markets for the last 8 years with lower-for-longer rates and QE – with the effect of creating massive asset bubbles in both. They’ve been hoping rising growth (fuelled by China) will justify the levels financial assets have reached. But it won’t – global growth is slowing because China is maturing. Which means financial assets are, and will remain, a bubble.


When the market finally grasps the fact lower interest rates are not going to be supported by growth, that’s when you really want your hard hat handy.

Published:7/11/2019 8:05:57 AM
[Markets] Kennametal to close facilities in Germany, Pennsylvania as part of restructuring Kennametal Inc. announced Thursday a restructuring that will include closing facilities in Germany and Pennsylvania over the next two years. The company expects to record charges of $60 million to $75 million through fiscal 2020 and 2021 for the restructuring, which is aimed at delivering annualized savings of $35 million to $40 million. As part of the restructuring, the materials science and wear-resistant solutions company will close its manufacturing facilities in Essen and Lichtenau and its distribution center in Neunkirchen, all in Germany, and a manufacturing facility in Irwin, Penn. The number of jobs that will be affected was not disclosed. "We recognize the effect on our employees and will work closely with their representatives to support them throughout this transition," said Chief Executive Christopher Rossi. The stock, which was still inactive in premarket trading, has lost 15.9% over the past three months while the Dow Jones Industrial Average has gained 3.6%. Published:7/11/2019 6:08:28 AM
[Markets] US STOCKS-Wall Street touches new highs after comments by Fed's Powell U.S. stocks ended higher and the S&P 500 index briefly crossed the 3,000-point mark for the first time on Wednesday as remarks by Federal Reserve Chairman Jerome Powell reassured investors about the potential for an interest rate cut later this month. The Dow also hit an intraday record and the Nasdaq closed at an all-time high following the release of prepared remarks for Powell's testimony before the U.S. House of Representatives Financial Services Committee. Published:7/10/2019 4:31:03 PM
[Markets] Top Dow Jones Stock Breaks Out As Market Indexes Hit New Highs The Dow Jones industrials, S&P; 500 and Nasdaq hit new highs, fueled by Fed chief Jerome Powell's dovish remarks, before settling to close off their highs. Published:7/10/2019 3:31:52 PM
[Markets] Dow Jones Expands Gain To 2,303 Points From June Low; Will This FANG Stock Break Out? The Dow Jones Industrials hit an all-time high of 26,983, jumping more than 2,300 points, or 9.3%, from a June 3 low. IBD noted a key market turn June 7. Published:7/10/2019 1:00:51 PM
[Markets] S&P 500 hits 3,000 as Powell's comments raise rate cut bets The Nasdaq and the Dow Jones Industrials also hit all-time highs after Powell said the central bank stands ready to "act as appropriate" to support record U.S. economic growth. Gains of near 1% each in, Apple Inc and Facebook Inc also lifted the Nasdaq and the S&P. Published:7/10/2019 11:33:54 AM
[Markets] Blain: Is Boeing About To Trigger The Next Market Crash

Blain's morning porridge, submitted by Bill Blain

All eyes on what Powell tells Washington today, but a number of Porridge Readers called to tell me I’m wrong about summer risks! They think my expectation for a long worried nervous but stable summer before markets are bailed out by accommodative central banks in late Q3 is way too optimistic.

A number feel markets are ripe for a sudden and painful rollover in bonds and stocks – and much sooner than I think. What they did agree with was my assessment the likely trigger for a market shock will be a “no-see-em”, something so obviously hidden in plain sight it catches us completely and painfully by the short and curlies. And “Plane” sight might be a good way to put it. I’m wondering if Boeing might be the trigger! (See what I did there..?)

Hang on? We all know the next market collapse isn’t booked till October? Well maybe not. What if someone tries to start the market apocalypse early? That would shock the many market participants who think the perception of a Global Central Bank put means there is nothing to worry about. Complacency is a terrible thing.

Smart bond gurus are shouting bubble! Although US junk bonds have not tightened as much as treasuries through the last uptick, they are still at incredibly tight spreads. European sub-investment grade is rallying in the expectation a tide of new ECB investment grade purchases will lift all boats. Yet, with yields so low as to completely discourage any dealer inventory (which is too high a capital cost anyway), liquidity has never been so thin. As I say in my new book, The Fifth Horseman – How to destroy to Global Economy, (yes, I am going to plug it remorselessly), “Taking higher risk and less liquidity for lower returns is not a winning strategy.” (That is so good I’m adding it to my list of Blain’s Market Mantras.)

If the bond market is finally waking up to the bubble then we’re in trouble. All it took to fire the last crisis were concerns about sub-prime mortgages and a liquidity shut-down. What happens this time if we get a tri-fecta of junk bonds and covenant-lite CDOs, a resumed sovereign debt crisis, and overleveraged zombie corporates sinking the whole bond market? Ouch. That’s going to hurt. I confidently predict the current problems of funds that have had to gate because of illiquidity will be as nothing compared to what may come.

This morning I read Greek bonds yield less than US treasuries! Italy got €17 bln demand for a 50-year bond, basically because investors want convexity and think the ECB is going to ease. (And they want to repeat the spectacular returns garnered by the Austrian Century bond.) Italy has caught a bid because, apparently, the ECB is not going to sanction the country over its breach of GDP/Debt fiscal rules, and the appointment of Christine Lagarde as new ECB president means “do-what-ever-it-takes-for-ever” is nailed on. Even Czech bonds are in negative territory.. It all sounds far too good.

And what about Stocks – surely they will remain insanely optimistic on the back of central bank easing? That’s why they have been hitting new records. UBS is on the wires this morning warning the new US Earnings season that starts on Monday could be a big disappointment. Every 3 months, regular as a bowl of All Bran) some investment bank warns Earnings will disappoint. Maybe this time they will.  UBS say “the bad news is good news” dynamic is set to end. Earnings growth expectations have slumped to 3% from 20% last year. They say “rate-cut rallies” often prove short-lived.

At the start of this morning’s Porridge I said Boeing might be the trigger that unravels the current market complacency.  Why?

Many readers may not be aware Boeing is the largest component stock of the Dow Jones - 11.6% weighting in the index. That means its potential for unbalancing sentiment across the market is huge. Boeing stock is down 20.5% since it hit a high in early March, and down 17% since the second Boeing B-737 Max Air Ethiopia crash on March 10th. Since that crash, despite increasingly negative new flow and rising legal and regulatory pressure, Boeing is only down 6.5%. That’s pretty stable for a company that could be in serious trouble from a host of demand issues (ie not selling many planes,) regulation, legal (lots of people going to sue), cash, a loss of confidence, and a growing perceptions the company lost sight of safety in search of profit.

I am concerned the market is underestimating just how bad things could go for Boeing, and when it does, the whole equity market will knee-jerk aggressively, triggering pain across all stocks. I noticed yesterday the number of negative posts and comments on Boeing has risen dramatically in recent days. The crunch might be coming.

Let’s consider Boeing’s issues.

Despite the assurances from company HQ in Chicago, it looks increasingly unlikely it will get the B-737 Max back in the air this year. Boeing has just announced its H1 deliveries in 2019 are down 54%. It has only delivered 90 new aircraft this year. Yet, it is producing 42 new B-737 Max’s each month, and is having to store them on airport parking lots! It isn’t getting paid for these aircraft, but it still has supply chain commitments to meet. Boeing is haemorrhaging cash to build an aircraft no-one can fly – not a great strategy.

Why is it taking so long to get the B-737 Max back in the air? Part of the problem is fixing the problem to a level pilots, airlines and importantly, passengers are happy. Quick work arounds – Boeing’s initial response - are not acceptable. The second problem is a belated regulatory kickback by the US Federal Aviation Authority. They are running scared – under weak leadership they’d let Boeing self-regulate itself for years. Now the agency is playing catch-up and it doesn’t help Boeing has been caught out on a host of other certification issues across its whole production since the 2 Max crashes. Even though Donald Trump is now tweeting about his support for Boeing and new orders being imminent from his good friends in Qatar, the FAA is not going to rush to approve any MAX fix.

Boeing is trying to rush deliveries of other aircraft types to buyers to make up for the B-737 Max cash slack. But there have been problems with B-787 Dreamliners built at its state of the art Charleston factory – “shoddy production and weak oversight” said the New York Times.  At least one airline is said to be refusing to accept aircraft built outside Seattle. The US Airforce stopped deliveries of new KC-46 Tankers for a while when they found engineers had left hammers and other tools in wing and control spaces – a clear indication of “safety standards gotten too lax” said Defense News! 

Part of Boeing’s problem is its decision not to design new aircraft, but to upgrade old ones. The venerable B-737 is nearly as old as me, first flown in the early 1960s. It made commercial sense for Boeing to keep upgrading and upscaling the design because it kept the factories delivering and they could tell regulators it was just an upgrade not a new design saving billions on testing and training. It’s now clear the Boeing 737 Max was compromised to save money. 2 of them crashed killing 346 people. Someone has calculated 1 in 8 million aircraft passengers die in accidents. It’s about 1 in 300,000 on the B-737 Max. So much for Boeing and Safety.

This has massive implications for Boeing. Its next big upgrade is the B-777X, an “upgrade” of the old B-777. It will be lighter and more efficient for operators, and a new experience for passengers. But, there is now no-way it’s going to get a fast-track path to airline service as a “upgrade”. It’s going to be tested, stressed and pilots trained. Forget next year deliveries. We are looking at years down the road before any of us fly it. Boeing must rue the day they didn’t go with completely new design – which would have been hugely expensive and killed the stock performance of recent years, but would have left Boeing dominating the larger aircraft space and reaping the kinds of returns it could have made on the Dreamliner. It would have been a far more valuable company long-term.

Now the B-787 Dreamliner is tarnished with the botched Boeing brush. The winner is the relatively new Airbus 350 which can do exactly what the Dreamliner does in terms of efficiency and passenger experience. It can also do the B-777’s job. Airbus wins by default.. but what does a beaten Boeing mean for markets?

Crashing minor chords.

Published:7/10/2019 9:38:38 AM
[Markets] Amazon's stock surges above $2,000 for first time in 9 months Shares of Inc. surged 1.2% in morning trading Wednesday, as they rose a 7-day win streak to trade above the $2,000 mark for the first time 9 months. The rally comes less than a week before the start of the Amazon Prime Day sales event, which runs from July 15 to July 16. 7th-straight gain would be the longest such streak since the 7-day stretch ending Sept. 4, 2018. The last time the stock traded above $2,000 intraday was Oct. 2, and the last close above that level was Oct. 1. Meanwhile, the e-commerce and cloud giant's stock was still below the Sept. 4, 2018 record close of $2,039.51, while the Nasdaq Composite , S&P 500 and Dow Jones Industrial Average have all reached all-time intraday highs. The current gain has lifted its market capitalization to $990.3 billion. Based on 492,331,776 shares outstanding as of April 17, according to Amazon's latest 10-Q filing with the SEC, a close at or above $2,031.15 would give Amazon a market cap of $1 trillion. Published:7/10/2019 9:38:38 AM
[Markets] S&P 500 hits round-number milestone at 3000 for the first time in history The S&P 500 intraday Wednesday surged above a closely watched milestone at 3,000 for the first time ever as investors were heartened by prepared remarks from Federal Reserve Chairman Jerome Powell ahead of his seminannual testimony in front of Congress. Investors read the central bank boss's comments as suggesting that the Fed would maintain policies in place that have been accommodative to equity benchmarks rallying toward records. The S&P 500 index touched an intraday peak of 3,002.89 early Wednesday, which marks its first milestone in about 460 sessions since hitting 2,500, according to Dow Jones Market Data. Although the number isn't technically significant, investors tend to watch round-number milestones for their psychological importance. Breaking above key levels can be bullish for overall market sentiment. Most recently, the S&P 500 was gaining 0.7% at 3,000.89. Meanwhile, the Dow Jones Industrial Average was approaching a round-number level at 27,000, adding 185 points to reach 26,969, while the Nasdaq Composite Index advanced 1% to 8,225. Published:7/10/2019 9:08:54 AM
[Markets] Banks should shine among S&P 500 stocks this earnings season DEEP DIVE Surprise: Analysts expect banks to be one of the brighter areas of the stock market during an overall dismal earnings season. As second-quarter earnings season begins, recent economic news has been good and the Dow Jones Industrial Average (DJIA) and S&P 500 index (SPX) are near recent records. Published:7/10/2019 7:37:55 AM
[Markets] Global Markets Extend Drop As Traders Await Powell

With yesterday's late ramp failing to push the Dow into the green, the Industrial Average is set to open lower for the 4th day - it's longest stretch of losses since March - as global stocks treaded water on Wednesday amid depressed volumes while Treasury yields rose around the globe and the dollar was steady, as investors waited to hear whether the world’s most powerful central banker would confirm or confound expectations for a U.S. rate cut this month. As a reminder, all eyes are on Powell today, as he kicks off two days of testimony in Congress, with traders hoping for further signals on the direction of Fed rates as markets price in a quarter-point reduction in July.

The MSCI index of world stocks was little changed after three days of losses, although Europe’s subdued start reflected pre-event caution rather than how the day would pan out. U.S. futures traded slightly lower, alongside European shares, as investors awaited Fed Chair Powell’s speech later today.

Europe’s Stoxx 600 index resumed a decline, down 0.3%, after briefly trimming losses following news that the European Commission cut its euro-area economic outlook, strengthening the case for more monetary stimulus as bad news tried desperately to be good news. This failed with a bang after French industrial production was substantially stronger than expected by consensus of 0.2%, with total output rising 2.1%, making the case for more easing weaker and hitting stocks.  Defensive sectors are among worst performers after leading the recent rally as bond yields continued to rebound. Real estate, food-and-beverage shares and utilities fell the most, while banks and energy shares rose. London's FTSE edged up 0.2% and France also rose after better-than-expected French industrial data, while Germany's Dax lagged with a loss of 0.4%.

Earlier in the session, Asian stocks edged up, led by technology and communications; markets in the region were mixed, with Taiwan advancing and India retreating. Japan’s Topix fell 0.5% for a third day of losses, as Recruit Holdings, Fanuc and Nintendo weighed on the gauge. Machine tool makers declined after a trade group reported that orders slumped the most in almost a decade. The Shanghai Composite Index declined 0.4%, with PetroChina and Industrial & Commercial Bank among the biggest drags while Chinese blue chips barely budged as data showed inflation remained subdued.  China’s factories barely escaped deflation in June while consumer prices gained. The S&P BSE Sensex Index dropped 0.3%, driven by Larsen & Toubro, Axis Bank and Tata Consultancy Services. U.S. President Donald Trump criticized India’s decision to impose higher tariffs on a slew of American goods.

While few expect fireworks, there is the possibility that Powell will surprise to the hawkish side today after last week's stellar jobs report. Still, a worrying lack of inflation - as measured by the BLS if not real-world inflation which keeps rising - is one reason investors are counting on Powell to sound suitably dovish when he testifies to Congress on Wednesday. Futures still fully price in a 25-basis-point cut at the Fed’s July 30-31 meeting, but they no longer suggest a half-point move. They had implied a 25% probability of an aggressive cut before an upbeat U.S. jobs report on Friday.

“I think the market seems to be veering toward a less dovish message from Powell than was the prevalent a couple of weeks ago,” said BoNY Mellon strategist Neil Mellor, who still thought the Fed would cut by 25 basis points this month — the first U.S. cut since the financial crisis — but whether it keeps going was much less clear. "The real interest is what happens thereafter,” Mellor said. “If we are talking about a stronger dollar, then we have to bear in mind comments from President Donald Trump last week, who said, ‘Well, perhaps we should start manipulating the dollar.’"

Overnight, Atlanta Fed President Raphael Bostic said the central bank was debating the risks and benefits of letting the U.S. economy run “a little hotter.” Meanwhile, U.S. and Chinese trade officials held “constructive” talks on trade by phone on Tuesday, White House economic adviser Larry Kudlow said.

Oil and treasury yields jumped, as the cooling in rate fever saw bonds give back a little of their rally. Yields on two-year Treasuries rose to 1.917% from their recent low of 1.696% and Europe’s benchmark yields up around five basis points.  The Italian market is outperforming after the country obtained strong demand for its bonds.

That in turn has helped the dollar index against a basket of currencies rebound to 97.500 from a June low of 95.843. The dollar also gained to 108.92 yen though the brighter French data helped the euro gain to $1.1225 still down from its $1.1412 level of just a couple of weeks ago.  The Mexican peso began to recover after sliding on Tuesday when Finance Minister Carlos Urzua suddenly resigned, citing "extremism" in economic policy. The Canadian dollar was on the defensive before a Bank of Canada meeting, in case policymakers tried to slow the currency's recent rally.

Elsewhere, gold fell 0.3% to $1,393.68 per ounce as the dollar gained, while Bitcoin rose back over $13,000.

Oil prices rose on Middle East tensions and news that U.S. stockpiles fell for a fourth week in a row. Brent crude futures gained 64 cents to $64.80. U.S. crude was up 82 cents to $58.65 a barrel. MSC Industrial and Bed Bath & Beyond are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.2% to 2,977.50
  • STOXX Europe 600 down 0.2% to 387.30
  • MXAP up 0.1% to 159.01
  • MXAPJ up 0.4% to 522.16
  • Nikkei down 0.2% to 21,533.48
  • Topix down 0.2% to 1,571.32
  • Hang Seng Index up 0.3% to 28,204.69
  • Shanghai Composite down 0.4% to 2,915.30
  • Sensex down 0.3% to 38,598.04
  • Australia S&P/ASX 200 up 0.4% to 6,689.79
  • Kospi up 0.3% to 2,058.78
  • German 10Y yield rose 5.3 bps to -0.301%
  • Euro up 0.1% to $1.1224
  • Italian 10Y yield fell 5.1 bps to 1.378%
  • Spanish 10Y yield rose 1.9 bps to 0.439%
  • Brent futures up 1.8% to $65.29/bbl
  • Gold spot down 0.3% to $1,393.15
  • U.S. Dollar Index down 0.1% to 97.40

Top Overnight News from Bloomberg

  • President Trump has grown concerned that the strengthening U.S. dollar is a threat to his economic agenda and has asked aides to cast about for ways to weaken the greenback, according to people familiar with the matter
  • Jerome Powell is likely to leave Fed rate cuts firmly on the table when he appears before Congress this week, even though the latest U.S. jobs report dialed down the urgency to ease borrowing costs.
  • Looking at Italy’s debt market, you’d be forgiven for thinking that the embattled nation’s problems were firmly behind it. Bonds had their best week in more than six years, and yields are at the lowest since 2016, prompting the government to lock in bargains by issuing 50-year debt on Tuesday
  • U.K. MPs narrowly passed a measure aimed at stopping the next Prime Minister forcing the country out of the European Union without an agreement, against their wishes
  • U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke on the phone with their Chinese counterparts, marking the first high-level contact after their presidents agreed to resume trade talks
  • China’s factories barely escaped deflation in June while consumer prices gained
  • Oil jumped as a report showing a reduction in U.S. crude inventories tightened a supply outlook that’s being threatened by rising tension in the Middle East
  • Members of Britain’s Parliament delivered a sharp warning to the country’s next prime minister after narrowly passing a dramatic result Tuesday: they will not allow him to pursue a no- deal Brexit without a fight
  • French industrial output surged in May, indicating the euro area’s second-largest economy resisted the region’s broader manufacturing downturn. Industrial production jumped 4% from a year earlier, the strongest increase since 2017, beating even the most optimistic prediction in a Bloomberg poll of economists
  • The U.K. economy rebounded in May as car factories resumed work following Brexit-related shutdowns. GDP rose 0.3% after a decline in the previous month, the Office for National Statistics said Wednesday

Asian equity markets traded somewhat mixed following a similar lead from Wall St. as participants await fresh clues on Fed policy from the upcoming Fed Chair Powell congressional testimony and FOMC minutes release. ASX 200 (+0.4%) was led higher by outperformance in the tech sector and as financials rebounded from yesterday’s capital buffer pressure with the Big 4 also helped after S&P provided more favourable outlooks on their credit ratings, while Nikkei 225 (-0.1%) was indecisive with sentiment at the whim of a choppy currency. Elsewhere, Hang Seng (+0.3%) and Shanghai Comp. (-0.4%) lacked firm direction with initial upside seen after reports USTR Lighthizer and Treasury Secretary Mnuchin conducted a phone call with China Vice Premier Liu He which was said to have gone well and was constructive. However, the mainland briefly gave back the gains following liquidity outflows and as participants digested mixed inflation data in which PPI printed flat Y/Y which was softer than expected and lacked growth for the 1st time in nearly 3 years. Finally, 10yr JGBs were lower as they tracked the downside in T-notes and amid a lack of BoJ presence in the market today.

Top Asian News

  • Feud Atop Asia’s Biggest Budget Carrier Starts Getting Ugly
  • Thailand Is Taking Steps to Curb Inflows Amid Baht’s Rally

European indices are tentative this morning [Euro Stoxx 50 U/C], taking a similar stance to their Asia-Pac counterparts in awaiting testimony from Fed’s Powell later in the session. Once again, the Dax (-0.4%) is underperforming its peers, though not to the same extent as in the prior session, as BASF (-0.7%) continues to weigh after yesterdays profit warning as does Bayer (-1.0%) after the Co. state they are continuing, and on track with exiting the animal health business. Sectors are mixed with the notable outperformers being Energy names, in-line with the broader complex following yesterdays larger then expected API draw, while the Financial sector is also benefitting from some consolidation in Deutsche Bank after the Co’s restructuring plans were unveiled over the weekend (+2.1%), with other banking names being lifted as well this morning. As such, the FTSE MIB (+0.5%) is leading the bourses this morning with gains in the index stemming from strong Italian banking names this morning. Elsewhere, European semiconductors have benefitted from Taiwan Semiconductor’s strong monthly sales with the likes of Infineon (+2.0%), and STMicroelectronics (+2.2%) benefitting.

Top European News

  • Atlantia Said to Consider Taking 35-40% Stake in Alitalia: Sole
  • U.K. Economy Returns to Growth in May as Car Production Gains
  • Superdry Plunges After Warning of Sales Drop in Reset Year
  • Italy’s Wondrous Bonds Cover Up Budget Challenges Still Ahead

In FX, the Dollar is somewhat softer vs G10 counterparts on balance as the clock ticks down to the first semi-annual testimony from Fed Chair Powell and minutes to June’s FOMC policy meeting that in theory should be relatively redundant barring any major revelations that supplement or contradict the tone of his text and Q&A. The DXY just dipped under 97.350 and close to technical support around 97.312 (55 DMA) having held below/respected daily chart resistance at 97.680 yesterday.

  • CHF/GBP/EUR - The major outperformers, albeit marginal, with Usd/Chf drifting back down towards 0.9900 and the Franc also outpacing the Euro within a 1.1140-20 range despite some rare Eurozone data beats via French and Italian ip that have underpinned the single currency in Usd terms, but not threatened stops said to be in place on a break of 1.1240 or the 55 DMA (1.1233). Meanwhile, the Pound has rebounded a bit more firmly from another test of early 2019 ‘flash crash’ lows against the Buck and 0.9000+ vs the Euro in the wake of a raft of UK data, as firmer than forecast 3 month rolling and y/y GDP prints appear to have overshadowed misses in other metrics. Cable is nudging back up towards 1.2500, but could be capped by some option expiry interest spanning 1.2495 and the big figure.
  • CAD/NZD - The Loonie has bounced from recent lows vs its US peer against the backdrop of firm oil prices, but more in anticipation that the BoC will retain a hawkish stance or bias in comparison to the Fed chair. Usd/Cad has eased back towards 1.3100 with options indicating a 75 pip break-even for the policy pronouncements that coincide with Powell’s presentation, although his text will be released at 13.30BST and for previews of both events see the Ransquawk Research Suite. Elsewhere, the Kiwi has staged an even more impressive recovery from what looks to have been a stop-driven plunge overnight through 0.6600 vs the Greenback to circa 0.6570, and the allure of mega expiries at 0.6610 may well be the catalyst as 2.4 bn rolls off at the NY cut.
  • AUD/JPY/NOK - All on the defensive, as the Aussie only just survived a test of 0.6900 with the aid of cross-winds from the aforementioned Kiwi nosedive and Aud/Nzd reclaiming 1.0500+ status before reversing again, while the Yen got to within 2 pips of 109.00, but is now off worst levels as offers at the big figure remained untouched and hefty expiry interest (1.7 bn at the strike) also kept the headline pair in check. The Norwegian Krona weakened in wake of softer than expected inflation data, but Eur/Nok pulled up just shy of a key chart level in the form of the 100 DMA at 9.7147.

In commodities, WTI and Brent are firmer on the day and currently just below session highs, with WTI remaining around the USD 59.00/bbl level after the complex benefitted from the larger than expected headline API draw last night at -8.129mln vs. Exp. -3.1mln, with participants now looking to today’s EIA release for confirmation of this. An additional factor for this mornings upside is the ongoing weather situation in the Gulf of Mexico, where the NHC are currently stating that there is a 90% chance of a cyclone forming within the next 48 hours; as such multiple production platforms have begun evacuating workers and shutting production. As a reference point, the Gulf of Mexico accounts for around 15% of the US’s total production. Gold (-0.2%) remains capped below the USD 1400/oz level and has thus-far failed to benefit from the mild dollar weakness as participants await Fed Chair Powell’s testimony and the FOMC minutes later in the session. Elsewhere, a Brazilian court has ruled that Vale must remedy all damages from January’s dam collapse, with no monetary value being set as the judge did not believe it is yet possible to quantify the compensation figure.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -0.1%
  • 8:30am: Powell Testimony to House Financial Services Panel Released
  • 10am: Wholesale Inventories MoM, est. 0.4%, prior 0.4%; Wholesale Trade Sales MoM, est. 0.3%, prior -0.4%
  • 10am: Fed’s Powell Testifies Before House Financial Services Panel
  • 1:30pm: Fed’s Bullard To Speak at Washington University in St. Louis
  • 2pm: FOMC Meeting Minutes

DB's Jim Reid concludes the overnight wrap

Thanks for all your emails and calls yesterday about the future of research at DB after some difficult decisions were announced over the weekend about the firm’s direction. We want to reiterate that DB Research will remain at the forefront of the firm. As well as FIC, Macro, QIS, Data Science, and Thematic research, DB is still committed to providing extensive and top-quality Company Research coverage in Europe and the US. DB will combine Equity Research and Research Sales into a newly formed Company Research and Advisory Group to strengthen ongoing connectivity with institutional clients. So if you are a consumer of any of our research and have any questions, please let me know and we can try to answer them.

While a mild dose of risk aversion has returned to markets this week the reality is that it’s been very quiet for newsflow with investors mostly waiting for today’s main event. Indeed Fed Chair Powell is due to make his semi-annual monetary policy testimony before the House Financial Services Committee at 3pm BST this afternoon (10am EDT). As our US economists highlighted in their preview here , in the past the testimony had largely adhered to the outcomes of the latest FOMC meetings and on that we’re due to receive the latest FOMC minutes after Powell’s testimony. Our colleagues expect Powell to reiterate the relatively upbeat assessment of the labour market but if questioned more closely about the underlying details, they would not be surprised if Powell were to sound a mild note of caution about the recent downshift in hours worked. As for inflation, they expect Powell to reiterate the same concerns the FOMC highlighted at the last meeting, namely wage growth and weaker global growth holding down inflation around the world.

Friday’s employment report saw the market re-price back towards a 25bps cut at the meeting later this month (currently 27bps priced in) and it does feel like it would take a very big dovish surprise from Powell today to change that from here. However the Q&A with Congress in particular will warrant a close watch all the same. Yesterday, we got comments from Philadelphia Fed President Harker which were, at the margin, hawkish. He said that “there’s no immediate need to move rates in either direction at this point” and noted that trimmed-mean measures of inflation are at or near target. Harker is near the centre of the committee, so his hesitation to endorse a cut is significant.

Back to markets where yesterday the S&P 500 (+0.13%) squeaked out a positive gain despite trading in the red for the most of the session. The DOW (-0.08%) retreated slightly, largely due to poor performance by MMM (-2.06%), which has a large share in the index. There was better news for tech stocks, with the NASDAQ (+0.54%) retracing some of its recent underperformance to close higher. Again though, volumes were around 20% below the usual daily average. In Europe the STOXX 600 (-0.51%) also ended in the red while there was a sharper loss for the DAX (-0.85%) primarily as a result of a profit warning from BASF. Bond markets were also quiet with 10y Treasuries (+1.4bps) and Bunds (+1.2bps) both a whisker higher in yield – the latter unaffected by the ECB’s Lane reiterating that “substantial accommodation is still required.” BTPs (-5.2bps) were stronger after Italy’s reopening of its 50-year bond. As for credit, HY spreads in the US were +2bps wider while in commodities oil (+0.59%) was a shade higher. EM assets fell again, with FX and equities down -0.15% and -0.30%, but there were outsized moves in Mexican assets after Finance Minister Urzua resigned, citing dissent on economic policy issues. The peso weakened -1.15% versus the dollar and Mexico’s benchmark equity index slid -1.75%.

Overnight, Bloomberg has reported that US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke on the phone with their Chinese counterparts Vice Premier Liu He and Commerce Minister Zhong Shan, yesterday. China’s Ministry of Commerce confirmed the conversation in a brief statement this morning, saying the two sides “exchanged opinions on implementing the consensus reached in Osaka” by Presidents Xi Jinping and Donald Trump. Meanwhile, the White House economic adviser Larry Kudlow said that the discussions were “constructive,” and added that officials are planning more meetings but that no details have been confirmed while saying, “hopefully we can pick up where we left off but I don’t know that”. He also said that the US government would ease restrictions on Huawei by relaxing the licensing requirements and added that Xi had agreed with Trump to scale up purchases of US products, including soybeans and wheat, along with possibly energy as part of a “good-faith” move to show how open China is to resolving trade differences. Elsewhere, Kellyanne Conway, counsellor to President Trump, said yesterday before the news reports started pouring in about the phone call, that US officials will continue to speak with their Chinese counterparts on trade issues and perhaps make a trip there "shortly."

This morning in Asia markets are largely trading higher with the Hang Seng (+0.32%) and Kospi (+0.61%) leading the gains while the Nikkei (-0.04%) and Shanghai Comp (-0.02%) are trading flattish in directionless trading. Elsewhere, futures on the S&P 500 are broadly unchanged while WTI crude oil prices are up +1.31% as the American Petroleum Institute report showed a continued draw-down in US crude stockpiles while tensions in the Middle East continued to rise as Iran’s chief of staff for armed forces vowed yesterday to respond to Britain’s seizure of the tanker, highlighting the risks to shipping in a waterway that about a third of all seaborne petroleum travels through. In terms of data we’ve also had the latest inflation numbers out of China where June CPI printed in line with expectations at 2.7% while PPI was unchanged yoy against expectations of a +0.2% rise yoy.

In other overnight news, Turkey’s President Erdogan said that there is need for a “complete revision” at the country’s central bank by saying that “the central bank is the most important linchpin in the finance leg of economy. Unless we make a complete revision there and put it on a strong foundation, we may face serious troubles there.” He justified firing the previous central bank governor by saying that Turkey paid a “heavy price” for Cetinkaya’s mistakes, which included a failure to communicate with markets and his inability to inspire confidence while adding, “This became intolerable, after which we made an assessment of it with our friends led by the Treasury and Finance Minister, and then we came to the conclusion that making a change here would be beneficial.” The Turkish lira is trading broadly unchanged at 5.7339.

Back to yesterday where we did get some Brexit related news. The first was Labour’s Corbyn confirming that the Labour Party would back a new referendum on any exit deal and also campaign to stay in the EU rather than leave on terms negotiated by the Conservatives. However they still feel they can get a better Brexit deal and their position is still not clear if we were to see a general election. Later on in the day, parliament voted 294-293 in favour of the measure requiring the Government to give fortnightly updates on power-sharing in NI to parliament this autumn. That will in theory make it more challenging for the next Prime Minister to force a no-deal Brexit by suspending Parliament. It’s difficult to say how much that changes the dynamics, but it feels likeSeptember/October will have the ability to see a constitutional crisis here in the UK. Sterling fell to an intraday low of $1.244 yesterday which was the weakest since April 2017 and this morning is hovering at $1.2454.

Over on the continent, the German newspaper Sueddeutsche Zeitung reported that Chancellor Merkel plans to announce a new investment plan to channel billions of euros into the country’s less developed regions. The unconfirmed plans would be the biggest in decades and would reportedly focus on digital infrastructure, public transport, and job creation. It remains to be seen how such a plan would be financed, and given previous false dawns regarding German fiscal expansion, it may be worth waiting for official confirmation.

Finally, there was a small amount of data out yesterday. In the US the June NFIB small business optimism reading declined 1.7pts to 103.3 but did still come in a little bit better than the consensus of 103.1. Later on the May JOLTS reported showed that job openings slowed slightly in May to 7.32m after expectations were for a rise. That said, since we know that employment data improved in June so this is fairly stale now.

To the day ahead now where the obvious highlight is Fed Chair Powell’s testimony this afternoon. Outside of that we’ve also got scheduled comments from the Fed’s George as we go to print right now and Bullard this evening. The FOMC minutes this evening are the other highlight. As for data releases, May industrial production prints are due in France, Italy and the UK this morning along with the May GDP reading for the latter. In the US the May wholesale inventories print is the only release of note. Elsewhere the BoC meeting is due this afternoon while the BoE’s Tenreyro is also due to speak.

Published:7/10/2019 6:47:47 AM
[Markets] The Dow Slipped 23 Points Because Nothing Matters Until the Fed’s Powell Talks The Dow Jones Industrial Averageclosed lower for a third day, while the S&P 500 and Nasdaq Composite finished in positive territory on Tuesday. The U.S. and China resumed trade talks over the phone. (CSCO) (ticker: CSCO) announced a deal to buy optical networking semiconductor company (ACIA) (ACIA). Published:7/9/2019 4:45:27 PM
[Markets] Despite Late-Day Panic-Buying, Dow Suffers Longest Losing Streak In 4 Months

A 'sad' day...

China went nowhere...


Weak day in Europe...


US Stocks briefly popped (S&P into the green) on China trade talk headlines (around 1400ET) but that did not last but - as usual - a buying panic arrived at around 1530ET lifting everything on no news, desperate to get the Dow green, but failed...

For a sense of that late-day idiocy in context...

What a fucking joke!

This is the Dow's 3rd down day in a row - its worst streak of losses since March...

Defensives once again dominated the price action...


Boeing swings intraday prompted the Dow's volatility as Qatar headlines spiked (on Trump hope) and then dumped (on reality) shares...


The analog remains...


Treasury yields were higher across the curve with the short-end continuing to underperform (but 30Y remains lower on the week)...


10Y Yields could not break above Friday's spike highs...


The Dollar extended its recent gains, erasing all losses since the FOMC statement...


The peso plunged today as the mexican finmin unexpectedly quit...


Cable tumbled back below 1.25, its lowest since April 2017...


Bitcoin pushed back above $12500...


Cryptos did get hit late on however...


Silver outperformed gold for the second day in a row, copper was crushed...


Gold/Silver slipped...


Spot gold tested back up to $1400 once again...but was unable to hold it...


Finally, anyone who “can’t see the recession” coming to the U.S. isn’t looking at a key indicator, according to David Rosenberg, Gluskin Sheff & Associates Inc.’s chief economist and strategist. As Bloomberg reports, Rosenberg featured a gauge compiled by the Federal Reserve Bank of New York in a Twitter post Monday.

The monthly indicator is based on the gap between yields on three-month Treasury bills and 10-year notes, and shows recession probabilities over 12 months. The latest reading was 32.9%, a 12-year high. Adding insult to injury was the OECD leading indicator is now the lowest since the global economy was trying its utmost to climb out of the Great Recession in late summer 2009.

Published:7/9/2019 3:17:39 PM
[Markets] Dow Jones Lags Nasdaq; After 453% Rally, Will This Growth Stock Break Out Again? The Dow Jones Industrial Average showed a minor loss while fiber optic, chip and business software firms rallied. Square is forming a new base. Published:7/9/2019 12:45:22 PM
[Markets] US STOCKS-Wall St drifts lower as trade concerns weigh, big rate cut hopes fade The S&P 500 and the Dow Industrials edged lower on Tuesday, as investors worried over warnings of a hit to earnings from the U.S.-China trade dispute and reined in hopes of a steep interest rate cut this month. In the latest indication of the trade war hurting businesses, German chemicals giant BASF forecast a 30% fall in its adjusted annual profit, triggering a 1.20% drop in shares of U.S. chemical companies. The industrial conglomerate's shares fell 2.6% and pulled down the S&P industrial sector 0.56%. Published:7/9/2019 12:23:29 PM
[Markets] US STOCKS-Wall St edges lower as trade concerns weigh, big rate cut hopes fade The S&P 500 and the Dow Industrials were on track to fall for the third straight session on Tuesday, as investors worried over warnings of a hit to earnings from the U.S.-China trade dispute and reined in hopes of a steep interest rate cut this month. The industrial conglomerate's shares fell 2.4% and pulled down the S&P industrial sector 0.57%. Published:7/9/2019 11:16:41 AM
[Markets] Apple's services business could reaccelerate in the second half of the year, says Morgan Stanley Morgan Stanley's Katy Huberty wrote Tuesday that she's seeing "early sign of services growth re-acceleration" for Apple Inc. , a trend she expects could power the stock in the coming months. She sees easier App Store comparisons in the second half of the calendar year, as well as a potential reacceleration in services revenue, as key catalysts for Apple shares. She wrote that the consensus forecast models a services deceleration for the September quarter and throughout fiscal 2020, which starts in October. In contrast, Huberty sees services revenue climbing 18% to 20% over the next 18 months, an acceleration from the March quarter. She has an overweight rating and $231 target on Apple shares, which are up 27% so far this year, as the Dow Jones Industrial Average has risen 14%. Published:7/9/2019 10:15:33 AM
[Markets] 3M is sharpest decliner as Dow suffers 135-point skid early Tuesday 3M is sharpest decliner as Dow suffers 135-point skid early Tuesday Published:7/9/2019 9:15:24 AM
[Markets] Dow Jones Paces Weak Start; Netflix Stock Surges, Cisco Snaps Up Acacia The Dow Jones industrials led a weak start Tuesday, as Virgin Galactic moved toward an IPO and Netflix stock jumped toward a new buy point. Published:7/9/2019 8:51:08 AM
[Markets] Nasdaq, Dow Jones Futures Back Off; Virgin Galactic Gets An IPO Booster Verizon and Dow weighed on Dow Jones futures early Tuesday, as Virgin Galactic moved toward an IPO and Netflix stock approached a new buy point. Published:7/9/2019 8:18:13 AM
[Markets] Acacia Communications' stock rockets after $2.6 billion Cisco buyout deal Shares of Acacia Communications Inc. rocketed 40% toward a more than 2-year high in premarket trading Tuesday, after the optical networking products company announced an agreement to be bought by Cisco Systems Inc. in a deal valued at $2.6 billion. Cisco's stock slipped 0.9% ahead of the open. Under terms of the agreement, Cisco will pay $70 in cash for each Acacia share outstanding, a 46% premium to Monday's closing price of $48.06. The deal is expected to close during the second half of Cisco's fiscal 2020. "With the explosion of bandwidth in the multi-cloud era, optical interconnect technologies are becoming increasingly strategic," said David Goeckeler, general manager of Cisco's networking and security business. "The acquisition of Acacia will allow us to build on the strength of our switching, routing and optical networking portfolio to address our customers' most demanding requirements." Acacia's stock has dropped 17% over the past three months, while Cisco shares have gained 1.8% and the Dow Jones Industrial Average has advanced 2.5%. Published:7/9/2019 7:20:18 AM
[Markets] Dow industrials end down over 100 points as Apple weighs on tech Dow industrials end down over 100 points as Apple weighs on tech Published:7/8/2019 3:36:24 PM
[Markets] iDowngrade Sparks Tech-Stock Slide As Dollar, Gold, Bonds Flatline

Jay Powell rehearsing his testimony to Congress...

The biggest market news, on a slow news day ahead of Powell's testimony to Congress, was the downgrade of AAPL - which for once actually sparked some selling (down over 2% and back below $200)...

Apple fell after Rosenblatt Securities downgraded the iPhone maker to sell. That brought the total number of bearish analysts up to five among the 57 ratings tracked by Bloomberg, the highest number since at least 1997.

This weighed down Nasdaq immediately...

On the day, The Dow (weighed down by Boeing) and S&P outperformed the major US peers but all major US equity indices were down...

NOTE - the machines tried to ignite momentum off the opening lows but, for once, it failed.

Defensive stocks dominated trading today (just as they did on Friday)...


It was ugly overnight in China...


And European stocks were lower on the day...


Weakness in Europe was not helped by the collapse of Deutsche Bank after its massive restructuring...


US equities erased all those ridiculous rebound gains and caught back down to bonds, gold, and the dollar...


Most of the Treasury curve was modestly higher in yield today but the longer-end outperformed...


NOTE - yields spiked a little in the last hour as a CBO report on minimum wage hikes hit...


2s30s continues to flatten hard, now below the pre-FOMC levels...


And Debt Ceiling anxiety is starting to impact the T-Bill curve...


Before we leave bond-land completely, here's a fun fact - Greek 10Y bond yields fell below US 10Y yields today for the first time since Oct 2007...


The dollar inched higher on the day but remains well off Friday's spike highs...


The Turkish Lira tumbled after Erdogan fired the central bank chief...


Big positive jolt overnight in cryptos pulled them all green from Friday with Bitcoin and Ethereum leading...


Bitcoin tagged $12,000 this morning but couldn't quite hold it, for now...

And Ethereum broke back above $300


Silver surprised with some outperformance as copper and gold dipped...oil dropped notably into the NYMEX close...


Gold fell back below $1400...


The Gold/Silver ration pulled back very modestly from 93x once again...


WTI snapped back below $58 as the NYMEX settle loomed...


Finally, in case you're fed up with hearing about how awesome the economy is BUT we still need an "insurance cut" - here's Gluskin-Sheff's David Rosenberg to explain just how bad it actually is...

But, of course, we know fun-durr-mentals don't matter anymore...

Powell better deliver or this entire ponzi will collapse.

Published:7/8/2019 3:07:29 PM
[Markets] Airline stocks the only bright spot in transport sector The Dow Jones Transportation Average slumped 98 points, or 0.9%, with 15 of 20 components trading higher, with all 5 gainers the shares of airline companies. The biggest gainer was Delta Air Lines Inc.'s stock , which rose 1.0% in afternoon trading. Cowen analyst Helane Becker reiterated her bullish outperform rating on Delta, saying her research indicates the air carrier is tracking toward the high end of earnings-per-share expectations, due to strong demand, pricing, moderate fuel costs and cost controls. Delta is scheduled to report second-quarter results on Thursday. Of the Dow transports other 5 airline components, shares of JetBlue Airways Corp. rose 0.8%, Alaska Air Group Inc. gained 0.4%, American Airlines Group Inc. edged up 0.2% and United Airlines Holdings Inc. tacked on 0.1%, while Southwest Airlines Co. shares slipped less than 0.1%. The NYSE Arca Airline Index gained 0.1%, while the Dow Jones Industrial Average fell 121 points, or 0.5%. Published:7/8/2019 12:38:34 PM
[Markets] Apple, Intel, 3M, Boeing biggest losers as Dow rings up 160-point decline Apple, Intel, 3M, Boeing biggest losers as Dow rings up 160-point decline Published:7/8/2019 9:07:30 AM
[Markets] Stocks Open Lower; Symantec Jumps, Apple Growth Seen 'Deteriorating' Symantec and IPO CrowdStrike were early leaders Monday, but stocks fell with Apple, Boeing and Intel dropping to the bottom of the Dow Jones industrials. Published:7/8/2019 9:07:30 AM
[Markets] "Good" News On Jobs Sparks Selling In Stocks, Bonds, & Gold; Dollar Surged

Trade-Truce 'good' news was good news for stocks, 'bad' news in macro data this week was good for stocks, and jobs 'good' news today was bad news for stocks (initially)...

But only stocks rebounded from the hawkish-tilt from the payrolls print


The Truce-Boost fizzled out in China...


European stocks faded to end the week but remain notably higher post-trade-truce...


On the week, Trannies barely managed to hold on to post-trade-truce gains, while Nasdaq surged followed by the S&P and Dow...

Volume was well below average (though somewhat expected given the holiday)

But on the day, good news on jobs was initially dumped and then pumped back to unchanged... once it ran out of ammo, stocks faded into the close...Small Caps were the only major US index in the green on the day...


Defensive stocks dominated cyclicals on the week...


VIX mini-flash-crashed on the payrolls print, spiked higher then faded from the european close...


Treasury yields screamed higher today, erasing the week's bond price gains and erasing yield's drop since The FOMC for the short-end...


As good-ish jobs data ruined the Fed's 50bps rate-cut party, crashing the odds to just 2.5%!...


The spike in yields stalled at critical resistance once again...


And the yield curve collapsed, erasing the post-FOMC steepening...


3m10Y spreads are inverted for the 30 straight days...


The Dollar index had the best week since February, spiking today after the good payrolls data...



The Dollar spike stalled at critical resistance...


Yuan gave up all its trade truce gains and ended at the lows of the range...


As the dollar rallied, cryptos stumbled with Bitcoin and Ripple down 8% on the week (and Litecoin unch)...


Bitcoin remains above $11,000...


Commodities were all lower on the week not helped by the dollar strength...


Gold suffered its first losing week in seven weeks, but ended back above $1400...


Ugly week for oil after OPEC's deal and the trade-truce...


Finally, we note the recent collapse in UK, China, and US macro data...

As bonds agree with the data, but stocks only know one thing...

Until it all ends badly...

Published:7/5/2019 3:22:40 PM
[Markets] Bank stocks, bond yields rise after better-than-expected jobs report Financial stocks were the only one of 11 S&P 500 sectors showing gains Friday morning, after a better-than-expected jobs report led to a rise in bond yields, due to greater optimism toward the health of the U.S. economy. Financial stocks, as measured by the Financial Select Sector SPDR Fund added 0.3%, while the Dow Jones Industrial Average , S&P 500 index and Nasdaq Composite index were all down more than 0.5%. Top performers Friday morning include Goldman Sachs Group Inc. , JP Morgan Chase & Co. , Citizens Financial Group Inc. and Regions Financial Corp. . The yield on the 10-year U.S. Treasury note rose 10 basis points to 2.051% after the Labor Department said Friday morning that the U.S. economy added 224,000 new jobs in June, above economists expectations of 170,000, per a MarketWatch poll. The report showed job gains in every sector of the economy, while wage growth held steady at 3.1% year-over-year. Published:7/5/2019 9:16:05 AM
[Markets] Dow sustains triple-digit loss as jobs data cast new doubt on rate-cut prospect Dow sustains triple-digit loss as jobs data cast new doubt on rate-cut prospect Published:7/5/2019 8:47:40 AM
[Markets] The ‘Dinos of the Dow’ Are Beating the Stock Market We recently identified seven iconic U.S. companies that, at one point, fell on hard times. But these stocks have proved in 2019 that they are far from extinct, handily beating the Dow Jones Industrial Average. Published:7/5/2019 5:46:07 AM
[Markets] Rabobank: "Houston, We Have A Problem - Here Come The Fireworks"

Submitted by Michael Every of RaboBank

It’s 4 July – and, yes, there are fireworks.

Firstly, US equity markets are at a new record high. Up, up, and up they go into the firmament. At the same time, US bond yields go down, down, and down. In fact, the entire US curve is now inverted, standing below the level of Fed Funds. As such, the Fed MUST act this month, surely. In which case, hooray, stocks can keep going up, up, and up! Indeed, “We’ll get to 30,000 on the Dow if we pass USMCA, we cut interest rates and we move forward with the Trump-growth agenda,” said Trump economic advisor and China hawk Navarro in an interview with Bloomberg Television.

But Houston, we have a problem. Not only is there no point in spending good money on “Dow 27,000!”, “Dow 28,000!”, and “Dow 29,000!” baseball caps if so, missing out on lots of potential production, but WHY are the Fed cutting rates? Does that reason presage something good for corporate earnings vs. multiple extensions and cheaper buybacks? How many times in recent decades have we seen the bond market and the stock market sending these duelling signals? And how many times have stocks been right relative to bonds, with a lag?

But we had more coloured gunpowder to gaze up at in awe. US President Trump warmed up for the big party today by tweeting: “China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games - as they have for many years!”

That’s as open an attempt to jaw-bone the USD lower as one will ever see - and perhaps a threat to do more than jawbone. Yet Houston, we have a dollar problem. The Fed is about to cut rates, showing they don’t know what they are doing. The US fiscal deficit is enormous and growing. The US is insulting trade partners around the world, apparently threatening a boycott of US Treasuries. The president is both publicly belittling the Fed more than I do, openly introducing doves to its board, and speaks of open currency manipulation. There is open chatter of de-dollarization even the mainstream financial media.


Yes, it is off its recent highs vs. AUD, CNH, etc.; yes, some EM have seen some recovery too; and, yes, JPY continues to grind higher. But when you look at the staggering blows the USD is taking, and see that it only takes a half-step back, stop and think what the potential surprise upside movement is should the next phase of the global fireworks kick in.

For example, now that Iran has officially announced that from Sunday it will begin enriching uranium to any level it sees fit above the agreed limits set in the 2015 nuclear deal: in response Trump has replied: “Be careful with the threats, Iran. They can come back to bite you like nobody has been bitten before.” The only way to interpret that as ‘risk on’: is to (1) believe Trump is bluffing again; (2) believe the Iranians are bluffing; or (3) believe that central banks will just cut rates more anyway so regardless of what happens it’s all good.

Actually, rumours are flying round that there are more biting US sanctions in the work targeting the Iranian Supreme Leader’s own businesses. If so, we continue to raise the stakes in this dangerous poker game without either side calling. However, while that game is being played, global observers won’t want to be leaving too many USD on the table…which is one of the reasons the greenback just won’t go down.

Of course, it’s more than Houston who has a problem. Europe is seeing the equivalent of a box of cheap indoor fireworks unleashed to celebrate the arrival of a new ECB president. Markets are so enthusiastic about the growth outlook under Lagarde that they are happy to lose 78bp to lend money to Germany for 2 years and nearly 40bp to lend to it for 10 years. Then again, they will also now lend to Italy--who does not control its own currency and is run by increasingly-popular populists--for 10 years at 1.58%, nearly 40bp lower than they will lend to the US. You don’t like that deal? How about lending to Austria for 100 years at around 1%? The same Austria who 100 years ago was just emerging from the wreckage of the Austro-Hungarian Empire and WW1, underlining how much can happen in a century. And against that backdrop European stocks still aren’t at record highs yet. Is that an opportunity or a threat?

Meanwhile in China overnight SHIBOR is now down to 0.88%, lower than during what was a kind-of-but-officially-not Chinese recession in 2015. So no shortage of liquidity at big banks – but not so much for smaller banks or the private firms and SMEs who continue to struggle for credit. That’s as both official and Caixin PMIs sit below 50 for manufacturing, indicating the pressures being felt across the economy above and beyond the trade war.

Sorry, but when one looks at what looks like a fresh global easing cycle from already ridiculously low levels of rates, and trade wars underway, and open calls to FX wars too, and fears of hot wars in several places, one really has to rain on this particular 4 July parade.

Published:7/4/2019 12:18:26 PM
[Markets] S&P Futures Celebrate July 4th Above 3,000 As Global Yields Tumble

With the US closed for Trump Military Parade Day (also known as the 4th of July), and global markets drifting merrily in virtually non-existant volumes, stocks are where we left them at the close on Wednesday, with US futures celebrating not only today's holiday but also the longest economic expansion in history in style - with the S&P, Dow Nasdaq all at all time highs, and the Emini just above 3,000.

Meanwhile, around the globe government bonds holding near all time lows on Thursday on the hope that economic data deteriorates further, and that a recession, or worse, forces the Fed and other central banks to unleash ZIRP, NIRP and more QE, has pushed world stocks to new 18-month highs.

With US markets closed, there was little action elsewhere: European bourses were flat, with Europe's Stoxx 600 unchanged amid thin volumes. Earlier in the session, Asian stocks advanced, following a jump in U.S. equities, on appetite for riskier assets and bets on global easing. Most markets in the region advanced, with Japan and Vietnam leading gains. Utilities and technology were among the top-performing sectors. The Topix gauge rose 0.7%, driven by SoftBank Group and Toyota Motor, as campaigning starts for Japan’s upper house election. The Shanghai Composite Index dropped 0.3%, with Jiangsu Hengrui Medicine and Foshan Haitian Flavouring among the biggest drags. U.S.-China trade talks will resume with phone calls in the coming week, said Larry Kudlow.

Perhaps the session's most notable move was the German 10-year Bund yield falling below -0.4%, dropping as low as -0.49%, piercing the rate set by the ECB's -0.40% deposit rate for the first time — a sign that markets are expecting more rate cuts out of the ECB.

Other benchmark debt yields also held near record lows in the wake of their recent rally. U.S. 10-year Treasury notes had hit their lowest since November 2016 on Wednesday, pushed down by bets that the European Central Bank’s next head will maintain a dovish policy stance to buoy the euro zone economy. Italian 10-year bond yields stayed close to their lowest since late 2016 after the European Commission dropped its threat to discipline Rome over its public finances, pushing the country’s main bourse to a new two-month peak.

“For central banks, everyone is expecting dovish moves, not only for U.S. but also for Europe and even Japan,” Christophe Barraud, chief economist at Market Securities in Paris, told Reujters. “Everybody is a optimistic for quick central bank moves.”

The fall in U.S. Treasuries came after a barrage of economic data disappointments out of the US, capped by the ADP report showing that U.S. companies added fewer jobs than expected in June, raising concerns the labor market is softening even as the current U.S. economic expansion marked a record run last month. Meanwhile, the Citi US Econ surprise index is trading near the lowest levels observed since the financial crisis.

There was continued weakness in the dollar after President Donald Trump on Wednesday repeated his call for the United States to devalue the USD, and match efforts by China and Europe to manipulate currencies and pump money into their economies.

In FX, continued expectations for rate cuts by the Fed saw the dollar drift away from recent highs amid light flows as most pairs stay range bound. Weaker-than-forecast private U.S. employment data on Wednesday spurred concern that Friday’s jobs data could follow suit and boost the case for lower interest rates. That said, currencies were by and large quiet in early European trade. The euro traded at $1.1284, a touch higher than its two-week low of $1.1268 touched on Wednesday. FX strategists cited by Reuters, said that although the drop in U.S. Treasury yields overnight was negative for the dollar, softness in other currencies was lending some support.

“We are seeing some euro weakness and some dollar weakness, and the two are cancelling each other out,” said Thu Lan Nguyen, FX strategist at Commerzbank. “What is happening in U.S. and euro zone monetary policy will also determine what happens in smaller countries,” she added.

In commodity markets, oil fell on data showing a smaller-than-expected decline in U.S. crude stockpiles and worries about the global economy. Brent crude futures, the international benchmark for oil prices, were flat at $63.84 per barrel by 1109 GMT.

After taking a breather today, US investors will now focus on Friday’s U.S. non-farm payrolls, which economists expect to have sharply rebounded to 160,000 in June compared with 75,000 in May; the number will be closely watched for clues on the Federal Reserve’s next move due in just 4 weeks.

“Friday’s data is important to the extent that it will calibrate expectations for what the Fed could deliver later this month,” said Ned Rumpeltin, European head of FX strategy at Toronto-Dominion Bank in London. “It is more about confirming the market’s current bias rather than setting fresh expectations.”


Published:7/4/2019 7:08:15 AM
[Markets] U.S.-China Trade Talks Resume With Phone Calls Jul.03 -- U.S. and Chinese officials will talk by phone in the coming week as they seek to resolve a growing trade war between the two countries, said Larry Kudlow, President Donald Trump’s chief economic adviser. Separately, White House trade adviser Peter Navarro said the Dow Jones Industrial Average will reach a record-high if the Federal Reserve lowers interest rates and Congress approves Trump’s new U.S.-Mexico-Canada trade pact. Josh Wingrove reports on "Daybreak Daybreak: Australia." Published:7/3/2019 7:06:08 PM
[Markets] Dow, S&P, Nasdaq all close shortened session at record heights Dow, S&P, Nasdaq all close shortened session at record heights Published:7/3/2019 1:05:06 PM
[Markets] Defensive Stocks Surge Ahead Of Payrolls As Entire Treasury Curve Is Now Inverted

An early cash market close today ahead of the Fourth, but that never stopped the algos from melting stocks up just a little further...


Chinese stocks were weak overnight but remain green on the week...


European stocks soared, led by Italy (EU backing off debt fines), as perhaps the reality of uber-dove Lagarde hits home...


Europe's bond markets went further into full retard mode with Italian yields collapsing and trading inside of UST 30Y yields (nope, no risk there)


US equities surged again because why not...Nasdaq extending its winning ways, up 2.5% post-trade-truce...

RECORD HIGHS for S&P, Dow, and Nasdaq


On the back of a major bid for defensives (5th day in a row)...


Another nice big short-squeeze helped things once again...


Every effort was made to ramp the S&P to 3,000 as VIX was monkeyhammered back to a 12 handle...


Bonds and Stocks remain dramatically decoupled...


Treasury yields slipped further on the day (except 2Y was unch)...


10Y Yields hit a 1.93 handle overnight!!


2s30s has erased all of the steepening post-FOMC...


And this has pushed 10Y Yields back in line with S&P forward dividend yield expectations...


And perhaps of most note, 30Y yields are now below the Fed Funds rate meaning the entire UST curve is now inverted...

Probably nothing!


The dollar limped lower but remains higher on the week...


Yuan went nowhere on the day but remains weaker against the dollar since the trade truce...


Commodities were all marginally higher on the day but mixed on the week...


WTI pushed up and test $57 early on then chopped around after the inventory data. This is the worst post-OPEC reaction since 2014...


Gold leaked lower after its overnight spike, but remained higher on the day...


Gold and the dollar decoupled today...


So to sum up - stocks are at record highs (led by a huge surge in defensives), bond yields are at cycle lows (inverted entirely across the curve and back in line with stock dividend yields), and bullion and bitcoin are bid - not exactly bullish eh?

Finally, "you are here"...

And in case you wondered, Goldman's proprietary indicators shows that "monetary policy" remains the main driver of risk appetite and expectations are now very bullish.

Happy Birthday America.

Published:7/3/2019 12:07:34 PM
[Markets] Market Extra: The Dow seen snapping its longest period without a record in about 4 years A period of underperformance for the Dow Jones Industrial Average was poised to end on Wednesday.
Published:7/3/2019 11:35:53 AM
[Markets] Dow falls to session lows as gold, bond prices see midday surge U.S. stock indexes on Tuesday traded at their lowest level of the session as so-called havens caught a midday bid. The Dow Jones Industrial Average was down 74 points, or 0.3%, at 26,643, the S&P 500 index retreated 0.3% at 2,956, while the Nasdaq Composite Index was trading 0.4% lower at 8,063. All three equity benchmarks were trading at or near Tuesday's nadir, with prices for gold at $1,407, and the 10-year Treasury note yield at 1.98% all moving sharply. To be sure, the benchmarks were still within striking distance of all-time highs even with the leg lower in afternoon trade. The stock market's post-G-20 rally, which resulted in a Sino-American trade detente have mostly faded. Published:7/2/2019 12:00:36 PM
[Markets] Rabobank: "There Are Lots Of Comparisons One Can Make To The 1930s At The Moment, None Flattering"

Submitted by Michael Every of Rabobank

Yesterday’s 1 July handover day celebrations in Hong Kong did not go as smoothly at all. After rain had forced the flag-raising ceremony indoors for the first time, early clashes between police and protestors were a harbinger of what was to follow. While hundreds of thousands peacefully marched, thousands of very young protesters literally tore their way through to occupy and graffiti the Legislative Council (LegCo): they blacked out the Hong Kong symbol above Chief Executive Carrie Lam’s chair; briefly lay the British colonial flag on her desk; insisted Lam resign and the Extradition Bill be scrapped, not paused; and left a banner demanding full democracy.

This raises the stakes in all manner of ways. Lam is refusing to move on any front; the silent majority might be sympathetic to the goal but are far from happy with the recent disorder; Beijing is no doubt furious; pro-China protests and groups are already emerging on the streets too, suggesting clashes may occur at some point; and journalists who spoke with the teenagers in LegCo report many profess to be desperate enough to die for their cause. In short, the situation is far from good – for Hong Kong, for markets,…and perhaps for the HKD if one looks further out(?) Don’t forget that the US will be watching closely what happens in terms of HK’s autonomy and its legal recognition of the territory.

At the same time, Iran announced, and the IEAE confirmed, it had exceeded the 300kg uranium-enriching limit set in the 2015 nuclear deal. While Tehran can still step back from this, they are demanding Europe act on circumventing US sanctions on it forthwith to do so. That action will almost certainly trigger a sharp US reaction. The military option is obviously there but is not one US President Trump favours. Yet the razor-sharp tools of tariffs and sanctions and SWIFT and the USD are all available and already being used: would the US really fire them at the EU? (It is already threatening USD4bn more tariffs over the Airbus case.)

Not coincidentally, the head of Mossad gave a rare public speech in which he stated ”I say to you, with certainty, based on the best sources of both Israeli and Western espionage, that Iran is behind these attacks. They were approved by Iranian leadership and carried out, in large part, by the Islamic Revolutionary Guard Corps and its proxies….There is nothing innocent in Iran’s actions in general and in its nuclear project in particular. All claims that the enriched uranium is for research or power are a total lie.” US Secretary of State Pompeo likewise tweeted: “Iran's regime has taken new steps to advance its nuclear ambitions. Once again, the regime uses its nuclear program to extort the international community and threaten regional security. The world’s top sponsor of terrorism can never be allowed to enrich uranium at any level.” Moreover, the White House has made clear that maximum pressure tactics will continue, and that it no longer believes Iran should have the ability to enrich any uranium at all. In short, the situation is far from good.

For its part, Europe is still tied up in k/nots over who gets what key job and nobody can agree on anything, it seems. France’s President summed up the situation rather brutally: “We have to review all the consequences of such a failure. Our credibility is profoundly stained with meetings that are too long that yield nothing. We give an image of a Europe that is not serious.” Well, quite. If only the EU had serious leadership like Boris Johnson and his “I can confirm he owns more than one pair of socks” official statement; or Jeremy Hunt, who miraculously has billions of pounds to spend if he becomes PM – or not, says his soon-to-be ex-Chancellor Hammond. In short, the situation is far from good.

Meanwhile, against this backdrop this is now the longest US economic expansion in its entire history; the S&P is at a record high; and the Dow just had the best June since 1938.

All I can say is that there are lots of other comparisons one can make with the late 1930s at the moment, and none of them are flattering. None of them suggest a Risk On stance is the right way to go either.

Published:7/2/2019 8:27:23 AM
[Markets] Trade Truce Euphoria Fizzles As Markets Hit A Wall, Futures Slide

This may be the shortest post-G-20 "trade truce rally" yet, because one day after global markets jumped, with the S&P hitting record highs even though nothing material was announced in the aftermath of US-China trade talks, the rally fizzled and global stocks eked out only meager gains, while US equity futures dropped in the red, following a fresh escalation in the US trade conflict with the EU, and amid renewed worries the global economy was faltering after data showed manufacturing activity slowed last month, snuffing appetite for risk.

The MSCI All Country World Index was barely higher in early trading, up for a fourth straight day, although should the US open in the red, the rally will likely end. On Monday, stocks rallied enthusiastically after the US postponed imposing another round of tariffs on Chinese products and the two countries agreed to continue negotiations on trade.

But just one day later, skepticism of further gains emerged after discouraging manufacturing surveys in the past 24 hours and a threat of additional US tariffs on European goods. “It’s clear that the tariffs already in place will continue to take a toll on global and domestic growth and with Trump now turning his attention on Europe, the early bullish bias seems to ease again,” said Konstantinos Anthis, head of research at ADSS.

As reported last night, the U.S. Trade Rep's office released a list of additional products - including olives, Italian cheese and Scotch whiskey - that could be subject to tariffs, on top of products worth $21 billion that were announced in April. The new U.S. tariff threats against Europe also point to a worrisome prospect of a broadening trade dispute, said Michael McCarthy, chief markets strategist at CMC Markets in Sydney, in a note to clients.

“The problem is the widening of the dispute. Europe, the U.S. and China account for almost two thirds of global GDP,” he said. “An ongoing disruption to trade between these three major economies, prosecuted for domestic political purposes, could sink global growth.”

Despite being the subject of Lightlizer's latest wrath, the European Stoxx 600 index managed a modest 0.2% advance, although Airbus dropped 1% as the United States stepped up pressure in the long-running dispute over aircraft subsidies. The euro climbed after Bloomberg reported ECB policy makers don’t see a need to rush into a July rate cut.

European bonds advanced alongside U.S. notes, and the yield on two-year Italian debt dropped below zero for the first time since the coalition government was formed in May 2018.


Earlier in the session Asian shares gained for a second day led by communications and utilities, as Washington and Beijing prepare for a new round of trade negotiations, with the MSCI index of Asia-Pacific shares ex-Japan adding 0.28%, helped by a 1.23% gain in Hong Kong shares as investors caught up to Monday’s global rally. Markets in Hong Kong had been closed on for a holiday. Most markets in the region edged higher after Trump said new trade talks with China is underway, ending a stalemate between the two countries amid escalating tariffs. The Topix gauge rose 0.3% for its best two-day advance since February, with technology firms among the biggest boosts; Japan’s Nikkei finished up 0.11%. The Shanghai Composite Index fluctuated and closed flat, as China Shipbuilding Industry jumped on restructuring talks, countering declines in Kweichow Moutai. The S&P/ASX 200 index pared earlier gains to close 0.1% higher after Australia executed its first back-to-back rate cuts in seven years. The S&P BSE Sensex Index edged up 0.1%, driven by Housing Development Finance and Infosys

Australian shares were flat, pulling back from earlier gains after the Reserve Bank of Australia cut its benchmark interest rate by 25 basis points to a record low 1.0%, as expected, which curiously sent the AUD sharply higher. However, the RBA left limited room for more cuts, raising the possibility of unconventional policy easing.

In FX, the dollar fell against most G-10 peers, paring Monday’s rally, which was the best in more than two months. The Australian dollar led gains, climbing after the central bank cut rates as expected - its first back-to-back rate cuts in seven years - and said further policy adjustments depended on growth and inflation data. The euro rose above $1.13 after ECB policy makers were said to be not ready to rush into additional monetary stimulus at this month’s meeting.  The safe-haven yen strengthened against the dollar, which fell 0.2% to 108.24 yen per dollar, and the euro was flat at $1.1288. Most Asian currencies dropped, with the won leading declines.

In debt markets, Italian government bonds rallied after Italy cut its 2019 budget deficit target to avoid European Union disciplinary action, potentially easing another major concern for markets.

In commodity markets, oil gained as OPEC agreed to extend supply cuts until next March, although prices were pressured by worries demand may ease amid hints of a slowdown in the global economy. Treasuries climbed amid mixed trading in global stocks.

In commodities, oil fluctuated as investors weighed OPEC’s extension of output cuts into 2020. Spot gold added over half a percent to $1,392.11 per ounce. Bitcoin crashed, tumbling below $10,000 after rising to $13,000 less than a week ago.

No major economic data is expected today. Acuity Brands and Simply Good Foods are reporting earnings, while Ford, Tesla, and other carmakers release their U.S. monthly sales.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,963.50
  • STOXX Europe 600 up 0.09% to 388.22
  • MXAP up 0.3% to 162.04
  • MXAPJ up 0.3% to 532.45
  • Nikkei up 0.1% to 21,754.27
  • Topix up 0.3% to 1,589.84
  • Hang Seng Index up 1.2% to 28,875.56
  • Shanghai Composite down 0.03% to 3,043.94
  • Sensex up 0.2% to 39,778.57
  • Australia S&P/ASX 200 up 0.08% to 6,653.21
  • Kospi down 0.4% to 2,122.02
  • German 10Y yield fell 0.3 bps to -0.36%
  • Euro up 0.04% to $1.1291
  • Italian 10Y yield fell 13.3 bps to 1.607%
  • Spanish 10Y yield fell 1.9 bps to 0.317%
  • Brent futures down 0.3% to $64.88/bbl
  • Gold spot up 0.6% to $1,393.11
  • U.S. Dollar Index down 0.1% to 96.79

Top Overnight News from Bloomberg

  • While ECB Governing Council members agree that they could act on July 25 if the outlook deteriorates, they are said to be currently leaning toward the following meeting when they’ll have updated economic forecasts to back up their decision. The council might tweak its policy language this month to signal more stimulus is imminent
  • The U.S. added more European Union products to a list of goods it could hit with retaliatory tariffs in a long-running trans-Atlantic subsidy dispute between Boeing Co. and Airbus SE. The Trade Representative’s office in Washington on Monday published a list of $4 billion worth of EU goods to target
  • China will scrap ownership limit for securities, futures and life insurance companies by 2020, one year ahead of the original plan of 2021, Premier Li Keqiang says at the World Economic Forum in Dalian. China will keep yuan at a reasonable and equilibrium level and won’t resort to competitive depreciation
  • Jeremy Hunt said he would "100% not" suspend Parliament to force through a no-deal Brexit, drawing a dividing line with Boris Johnson as the two men entered the last days of campaigning before Tory activists start voting for the U.K.’s next prime minister.
  • OPEC will extend production cuts into 2020, attempting to buoy oil prices as the world’s leading exporters fret about the outlook for global demand growth and the relentless rise in output from America’s shale fields. Oil edged lower as investors weighed troubling economic data from around the world against OPEC’s extension of output cuts into 2020.
  • Iran said it had exceeded limits set on its enriched-uranium stockpile, a move that risks the collapse of the 2015 nuclear accord and raises concerns that a standoff with the U.S. could lead to military action
  • Italy’s populist government lowered its 2019 budget deficit goal to 2% in a bid to comply with European Union rules and avoid sanctions for failing to rein in debt. Market relief drove Italian bonds higher
  • Australia’s central bank governor signaled he’ll stand pat in coming months to observe the impact of back-to-back interest rate cuts, while standing ready to resume easing should the outlook at home or abroad take a turn for the worse
  • London bankers are bracing for thousands of job cuts. Nomura Holdings Inc., Japan’s biggest brokerage, let go of 30 people in April. HSBC Holdings Plc and Deutsche Bank AG are cutting jobs. In an atmosphere that may be the gloomiest since the financial crisis, some are jumping before they’re pushed

Asian equity markets traded indecisive as the euphoria from the US-China trade truce began to wane and with the region looking ahead to this week’s key risk events. ASX 200 (U/C) was underpinned by strength in mining names and amid a widely anticipated back-to-back rate cut from the RBA, while Nikkei 225 (+0.1%) was choppy and largely reflected the price action in the domestic currency. Elsewhere, Hang Seng (+1.2%) and Shanghai Comp. (U/C) were mixed with the mainland dampened after another liquidity drain by the PBoC, while Hong Kong outperformed as it played catch up on return from the extended weekend and amid declines in money market rates, with casino stocks among the biggest gainers following the strong growth in Macau gaming revenue. Finally, 10yr JGBs were subdued by the indecisive risk tone and after mixed results at the 10yr JGB auction failed to spur prices.

Top Asia News

  • Credit Suisse Hires UBS Veteran as Asia Head of Equity Research

Major European indices are mixed and overall largely unchanged [Euro Stoxx 50 U/C] as sentiment deteriorated overnight with the notable development being that the US Trade Representative Office has proposed increasing tariffs on EU products as a result of the aircraft subsidies; with a proposed USD 4.0bln of additional tariffs being added.  The tariffs would be on-top of the USD 21bln worth of tariffs announced by the USTR in April, with the products in question encompassing a vast range including whisky, iron tubes and cheese; a public hearing on these additions is scheduled for August 5th. Airbus (-0.9%) are afflicted on these additions as they are at the center of the European aircraft subsidies. Similarly, sectors are mixed with utilities and consumer staples outperforming on the day. In terms of this mornings notable movers, Adidas (-0.4%) opened lower after a downgrade at HSBC. Separately, but still within the Dax (-0.2%), Deutsche Bank (-0.7%) have slipped into negative territory as the broader index deteriorates on the back of negative comments from the VDMA this morning; however, the Co. did open around 1.1% higher on reports that they are considering lowering their capital buffer in order to fund the Co’s overhaul. Finally, Casino (+2.0%) are higher after selling 8 stores.

Top European News

  • Italy Cuts 2019 Deficit Goal to 2% in Bid to Avoid EU Procedure
  • Salvini Seizes Economic Reins to Take on EU in Budget Battle
  • U.K. Construction Posts Worst Month Since 2009 on Brexit Worries
  • Polish Banks Warn of $16 Billion Risk From EU Ruling, Puls Says

In FX, the Aussie has staged another strong rebound from fleeting overnight lows as bears quickly seized the opportunity to book profits in wake of the RBA’s decision to cut the OCR by another 25 bp, and other short positions were covered/squeezed on the accompanying statement suggesting no rush to ease again at the next policy meeting. Subsequently, comments from Governor Lowe appear to affirm a wait-and-see stance given back-to-back moves and Aud/Usd is inching closer to 0.7000 from 0.6958 lows, while Aud/Nzd has rebounded from sub-1.0450 towards 1.0500, with the Kiwi independently hampered by a further deterioration in NZIER business sentiment and ASB’s call for 2 more RNBZ rate reductions. Consequently, Nzd/Usd is hovering closer to the bottom of a 0.6657-80 range and eyeing the latest GDT auction next.

  • GBP/EUR - The Pound has tumbled to the base of the G10 pile on the back of June’s UK construction PMI that confounded expectations for a modest recovery and slumped even deeper into contraction at 43.1, much worse than the manufacturing miss on Monday. Moreover, components like housing and new orders were bleak, as the former fell below zero for the first time in 17 months and the latter weakened the most in over a decade. Cable is clinging to 1.2600 and Eur/Gbp is edging up towards 0.8960 as the single currency rebounds further from daily chart support vs the Dollar ahead of a Fib (circa 1.1277 and 1.1259 respectively) on ECB sourced reports downplaying July rate cut speculation. However, Eur/Usd faded around 1.1320 and could be drawn back towards decent option expiry interest between 1.1295-1.1300 (1 bn), especially after considerably weaker than forecast German retail sales data and some bleak numbers/outlooks from the likes of the DIHK and VDMA.
  • JPY - The Yen retains a relatively firm underlying bid on safe-haven grounds as the initial post-G20 euphoria dissipates and attention shifts back to the global slowdown and geopolitical factors, like the ongoing US-Iran spat. Hence, Usd/Jpy remains capped around 108.50 and the 30 DMA (108.55), but also confined on the downside at 108.00 given a generally firm Greenback as the DXY has bounced further from recent lows and back over the 200 DMA (96.690) into a loftier 96.624-879 band.
  • RBA lowered the Cash Rate by 25bps to a record low 1.00% as expected and stated that it cut rates to support employment growth, as well as provide greater confidence on inflation. RBA noted that the economy can sustain a lower rate of unemployment and that employment growth remains strong, while it added that the outlook for the global economy remains reasonable and that there are signs house prices are stabilizing in Sydney and Melbourne. (Newswires)

In commodities, the oil complex is somewhat subdued as the G20-driven positive sentiment waned. Brent (-0.4%) and WTI (-0.4%) have failed to find much support this morning on OPEC agreeing to extend the oil output cut by 9-months; with the OPEC+ meeting commencing today and the press conference expected at around 12:00 BST. In terms of recent commentary sources indicate that Russian Energy Minister Novak has given his support to the extension, with the deal to be signed soon. Nonetheless, markets will remain on guard for any dissent at today’s meeting from the non-OPEC members, with the joint verdict on an extension not expected until the OPEC+ press conference. From a technical perspective for WTI, PVM highlight that USD 59.07/bbl and USD 58.57/bbl are the two ‘pivot points’ to keep an eye on. Looking ahead, aside from the OPEC+ meeting we have the API report which last week posted a headline draw of -7.55mln BPD. Gold (+0.5%) has reverted back towards the USD 1400/oz level after yesterday’s G20-induced decline; with today’s reversion stemming from a decidedly less-positive market sentiment than yesterday. However, the USD 1400/oz level remains elusive for the yellow metal this morning, for reference session high is currently just over USD 1397/oz. In contrast to yesterday’s gains, copper has remained largely negative throughout the session as risk sentiment turning negative is weighing on the red metal.

US Event Calendar

  • Wards Total Vehicle Sales, est. 17m, prior 17.3m
  • 6:35am: Fed’s Williams Speaks on Global Economic and Policy Outlook
  • 11am: Fed’s Mester to Speak on Economy in London

DB's Jim Reid concludes the overnight wrap

Before the weekend we sent birthday party invites out to Maisie’s new classmates for September when she starts full time nursery. Yesterday we got over 10 acceptances from parents we don’t know yet and it makes me very worried that this is going to start an endless cycle of party invites that I’m going to increasingly find it hard to plan my weekends around. So my question to parents out there with more experience is what’s the best I can get away with in terms of party/round of golf ratio? Is 1:10 a bit optimistic? Maybe I’ll request to home school the twins to avoid the next round of this in a year or so’s time. My wife has promised a children’s entertainer but without booking one yet. So all recommendations as to what will go down well with 4 year olds are very welcome!

It wasn’t a full on risk party yesterday as markets shifted between optimism over the weekend developments on the trade war and renewed macro concerns yesterday, but ultimately the S&P 500 still closed +0.76% at a fresh all-time high. That was below its opening level of +1.23%, but is nevertheless just 35pts from the psychologically significant 3,000 level. Sentiment did fade from the early highs possibly as the aftermath of the Trump/Xi talks was light on details after deeper inspection. Indeed, China has not actually confirmed any details and markets are a little confused as to what happens next. Also the offshore yuan, a very trade war-exposed asset, has actually reversed all of its rally from Sunday night.

The NASDAQ and DOW also traded down from their opening highs of +1.80% and +1.09% to end the day at +1.06% and +0.44%, respectively. Semiconductor stocks rallied +2.65%, boosted by the trade headlines and the apparent de-escalation against Huawei, while energy stocks lagged at +0.10% as oil prices declined after the OPEC meeting (more below). European bourses also peaked at their open but held onto decent gains by the close, with the STOXX 600 rising +0.78% and DAX +0.99%. The DAX is also up +20.61% from the December lows now which means it’s entered a bull market if that’s your definition of one!

Overnight one of the main stories has been the US Trade Representative’s office publishing a list of $4 bn worth of EU goods that the US could hit with duties as retaliation for European aircraft subsides, particularly to Airbus. It adds to a list of EU products valued at $21 bn that the USTR published in April, according to the release. The USTR said a public hearing on the proposed additional $4 billion worth of products will be held on August 5th and added that, “the final list will take into account the report of the WTO Arbitrator on the appropriate level of countermeasures to be authorized by the WTO.” As a reminder, the WTO has found that the EU subsidies violate international trade rules and it’s expected to decide this summer on the amount of countermeasures the US can impose. Staying with trade, President Trump said that a new round of trade talks with China is already underway as negotiators are speaking on the phone.

This morning in Asia markets are trading mixed with the Nikkei (+0.09%) up while the Shanghai Comp (-0.06%) and Kospi (-0.27%) are down. The Hang Seng is up +1.35% as Hong Kong’s market reopened after a holiday to catch up with yesterday’s move in markets. Elsewhere, futures on the S&P 500 are up +0.12%.

In other news, China’s Premier Li Keqiang said in a speech at the WEF this morning that China will scrap ownership limits for securities firms, futures businesses and life insurance companies by 2020, one year ahead of the original target of 2021. The rule change would mean foreign entities could wholly own firms in those sectors. Li also said that China is working on deeper tax cuts for businesses and it should reach CNY 2tn while adding that China remains concerned about prohibitive financing costs for smaller and medium sized businesses and will work towards the need for more monetary and fiscal support for these companies.

Back to yesterday and credit also had a good day with HY spreads 7bps tighter in the US and -6bps tighter in Europe. EM performed well with the MSCI EM equity index climbing +1.19% and EM FX +0.15%. In bonds, the big move was BTPs which rallied -13.5bps and closed at 1.967% after catching a bid with the wider risk on move, though they were also helped by unconfirmed reports that the European Commission will not recommend an excessive deficit procedure against the country as was possible as early as today (per Bloomberg). Clemente De Lucia has a writeup on the current state of play available here . The rally pushed BTP yields below 2% for the first time since May last year and with Bunds ‘only’ -3.0bps lower (albeit to a new low of -0.357%) – the BTP-Bund spread is now at 232bps and the lowest since last September. The global stock of negative yielding debt is now at $12.83tn with yesterday’s moves in rates and remains close to recent all time high of $13.01tn.

Meanwhile Treasuries were quiet all things considered, with 10y yields rising +2.4bps and back above Italian yields. Two-year yields rose +3.2bps, as markets continued to price out the odds of a 50bps cut at the Fed’s meeting later this month. The current odds are now just 20%, from 44% last week. That caused the 2st10s curve to flatten -0.7bps. In commodities, oil prices slipped -2.40% after OPEC announced an extension of its production cuts through next March but failed to reach an agreement on deeper cuts. There were also unconfirmed reports of disagreements within the cartel as well, which caused the meeting’s press conference to be delayed and sent a negative signal about future cooperation.

Moving onto the data, the general risk on came despite what was a pretty weak set of PMIs across the globe yesterday. In fact, over Sunday and Monday we counted 35 different manufacturing PMIs of which 19 came in below 50 and a worrying 27 dropped month on month. The hope will be that a trade truce can stabilise things but there’s obviously concern that the damage has already been done and will need firmer resolution to reverse it.

Notwithstanding these numbers it was the ISM manufacturing in the US which was most anticipated and to be fair the reading was better than expected at 51.7 (vs. 51.0 consensus) even if it was down -0.4pts from May. Less positive was the new orders component which dropped -2.7pts to 50.0 – the lowest since December 2015 – although employment rather encouragingly rose 0.8pts to 54.5. A few moving parts but it’s hard to ignore the fact that this was still the lowest headline ISM manufacturing reading since October 2016.

Just coming back to the final manufacturing PMIs in Europe, the Eurozone reading was revised down -0.2pts to 47.6 from the flash print and was -0.1pts lower than May. Germany (45.0 vs. 45.4 flash) and to a lesser extent France (51.9 vs. 52.0 flash) also saw downward revisions while the biggest miss was reserved for Spain (47.9 vs. 49.5 expected) which fell -2.2pts from May and also hit the lowest level since April 2013. Italy (48.4 vs. 48.7 expected) also disappointed with output and new orders falling for the eleventh consecutive month too. That also marks the ninth successive sub-50 reading. Of the 13 EU countries that reported manufacturing PMIs yesterday, only 5 posted a reading of greater than 50 with Hungary (54.4) leading the way.

Indeed the weakness includes the UK where the manufacturing PMI slumped to 48.0 last month versus expectations for a 49.5 reading. That is also a drop of-1.4pts from May and the lowest reading since February 2013. The details showed that output fell and new orders remained in negative territory too. In fact most of the sub-indices were lower with the associated text noting that “the stranglehold of sustained Brexit-related uncertainty and disruption also weighed heavily on business confidence and employment, as optimism ebbed to one of its lowest levels in the survey history”. Our UK economists noted that current levels are now consistent with prior BoE easing so this will likely increase the scrutiny of the BoE maintaining a tightening bias in the communication. We should also note that consumer credit data for May also slipped yesterday to £0.8bn. Sterling fell -0.46% yesterday while 10y Gilts ended -1.9bps lower.

As for the remaining US data, the final June manufacturing PMI was revised up +0.5pts to 50.6 which actually means it was up 0.1pts from May. Finally construction spending in May was confirmed as falling -0.8% mom, though the April figure was revised up 0.4pp.

In other news, the ECB’s new chief economists Lane made fairly dovish comments during a speech in Helsinki. This was notable as the market is still fairly new to Lane. He said that “the effectiveness of the policy toolkit means that we can add further monetary accommodation if it is required to deliver our objective” and that “it is essential that a central bank shows consistency in its monetary policy decisions by proactively responding to shocks that might delay convergence to the target or move inflation dynamics in an adverse direction”.

Meanwhile, the ECB’s Knot, one of the more hawkish members on the Governing Council, said that it is “indisputable” that inflation is too low in the euro area. He went on to say that it’s “important to underline the Governing Council stands ready to act decisively" if necessary. This contrasts with his remarks from earlier this year, where he said that price appreciation in the Dutch housing market was “exuberant” and advocated for “doing something about this.”

To the day ahead now, where this morning we’ll get the May retail sales data in Germany, June construction PMI in the UK and May PPI reading for the Euro Area. In the US the only data due is the June vehicle sales numbers. Away from the data we’ve also got scheduled comments due from the Fed’s Williams at 11.35am BST and the Fed’s Mester at 4pm BST. The ECB’s Knot and BoE’s Carney are also due to speak today. The other event is the OPEC+ meeting in Vienna where a press conference is expected at the end, however with output cuts being extended it’s unlikely that we’ll get much new news.


Published:7/2/2019 6:59:02 AM
[Markets] The Dow Just Hit a New High. It’s Time to Talk About a Recession. The Dow might have traded at a new high, but it doesn’t look like it will be able to close at one. With economic data weakening, the chances of recession are growing. Published:7/1/2019 2:23:27 PM
[Markets] Stocks Rise but Off Earlier Highs, Nasdaq Gets Lift From Chipmakers The Dow Jones Industrial Average traded higher Monday after President Donald Trump said he would ease export restrictions on U.S. companies doing business with China's Huawei Technologies. was climbing following the easing of export restrictions on Huawei. Nvidia is Real Money's Stock of the Day. Published:7/1/2019 12:30:31 PM
[Markets] Stocks Rise as Chipmakers Gain, S&P 500 Hits Intraday Record High The Dow Jones Industrial Average traded higher Monday after President Donald Trump said he would ease export restrictions on U.S. companies doing business with China's Huawei Technologies. was climbing following the easing of export restrictions on Huawei. Nvidia is Real Money's Stock of the Day. Published:7/1/2019 12:03:45 PM
[Markets] US STOCKS-S&P 500 set to open at record high as U.S.-China restart trade talks The S&P 500 was on track to hit a record high at the open on Monday, fueled by a revival in trade talks between the United Stated and China and a reprieve to Chinese telecoms company Huawei. The S&P 500 e-minis and the Dow e-minis hit record highs earlier, as risk appetite was boosted by the truce that was agreed to at the G20 summit. Published:7/1/2019 8:27:31 AM
[Markets] Stock Futures: Chips Lead On China Trade War Truce, Dow Jones Soars 250 Points Inphi and Caterpillar stock eyed early breakouts Monday as a China trade war truce sent chips, China names and Dow Jones stock futures sharply higher. Published:7/1/2019 7:23:52 AM
[Markets] All 30 Dow stocks are rising, led by Intel and Apple stocks All 30 of the Dow Jones Industrial Average's components are gaining ground in premarket trading Monday, as a truce in the U.S.-China trade war helped spark a broad stock market rally. Dow futures ran up 252 points. Among the Dow's biggest gainers, shares of Intel Corp. hiked up 2.7%, Apple Inc. rose 2.6% and Caterpillar Inc. climbed 1.9%. The rally in Dow futures puts the Dow on track to open above the Dow's Oct. 3, 2018 record close of 26,828.39. Published:7/1/2019 6:59:12 AM
[Markets] All 30 Dow components on the rise early Monday, led by shares of Apple and Intel All 30 Dow components on the rise early Monday, led by shares of Apple and Intel Published:7/1/2019 6:59:12 AM
[Markets] E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Holding 26684 Puts Market in Position to Challenge All-Time High Based on the early price action, the direction of the September E-mini Dow Jones Industrial Average the rest of the session is likely to be determined by trader reaction to the short-term Fibonacci level at 26740. Published:7/1/2019 12:24:59 AM
[Markets] Stocks, Oil, & Yuan Surge After Trump-Xi and Russia-Saudi "Deals"

Despite nothing being achieved in Osaka apart from a resumption of more-of-the-same trade talks (and a fold by Trump), markets are decided 'risk-on' as they open this evening.

Treasuries are being dumped along with gold (because everything is awesome right?) and stocks and yuan are surging.

Dow is up over 250 points...

The biggest reaction for now is in Yuan, spiking to 8-week highs...

As a reminder, this is not news - but do not tell the algos...

S&P 3,000 here we come at tomorrow's open!?

However, is good "trade" news bad news for stocks as odds of a July rate-cut drop?

In case you wondered, you are here...

Additionally, reported agreements between Russia and Saudi Arabia to extend the OPEC production cuts has spiked oil prices as they open this evening...

Oil producers from the OPEC+ alliance are moving toward extending their supply cuts for nine months into the first quarter of 2020, as they grapple with surging U.S. shale output and weakening growth in demand.

Since Russia and Saudi Arabia reached a deal on the margins of the Group of 20 summit on Saturday to roll over the curbs by six to nine months, other nations have voiced their support for an extension into next year.

“The longer the horizon, the stronger the certainty to the market,” OPEC Secretary-General Mohammad Barkindo said in Vienna on Sunday after meeting with Khalid Al-Falih, the Saudi oil minister. “It will be more certain to look beyond 2019. I think most of the forecasts that we are seeing now and most of the analysis are gradually shifting to 2020.”

Russian President Vladimir Putin - after meeting with Saudi Crown Prince Mohammed Bin Salman - opened the door to 2020 by mooting longer curbs.

Published:6/30/2019 5:24:19 PM
[Markets] The "Art Of The Deal" Vs. The "Art Of War"

Authored by Lance Roberts via,

On Thursday and Friday, the markets mustered a “Pre-G20 rally” in anticipation of a positive outcome from the meeting between President Trump and Xi. I will discuss the outcome of this meeting in just a moment. 

The good news is that June was one of the best performing months for the Dow Jones Industrial Average over the past 80-years.  

That certainly was an impressive rally if you bought into the markets on June 1st. 

Unfortunately, what the headlines don’t tell you is that the “strongest June rally in the last 80 years” failed to recover the losses from one of the worst May months on record as well. 

In other words, most investors simply recovered previous losses.

However, as noted, the rally was something we had expected and discussed repeatedly in this weekly missive. 

“In the very short-term, the markets are oversold on many different measures. This is an ideal setup for a reflexive rally back to overhead resistance.”

The question now is “how much more rally is there to go?”

As we noted in last Tuesday’s update:

“Steve Deppe also made an important observation Twitter that when the S&P 500 has gained at least 2% in a week and finished at a new weekly high — the case on Friday — the S&P was lower six weeks later 70% of the time.”

Much like an engine, markets operate on “fuel.” In other words, when there is a lot of “pent up” demand for equities, prices rise as demand is filled, and buyers are willing to pay higher prices to “get in.” The opposite is also true.

Also, prices are also confined by long-term moving averages. These moving averages, act like gravity, so when prices deviate by more than 5% from the long-term averages, reversions tend to occur. 

As shown in the chart below, the market is currently very overbought, little pent-up demand, and is more than 6% above its 200-dma.

Interestingly, this was exactly the same analysis we ran in May when we suggested taking profits then. To wit:

“From a portfolio management standpoint, the reality is that markets are very extended currently and a decline over the next couple of months is highly likely. While it is quite likely the year will end on a positive, particularly after last year’s loss, taking some profits now, rebalancing risks, and using the coming correction to add exposure as needed will yield a better result than chasing markets now.”

Since May:

  • The economic backdrop has weakened materially.

  • Earnings expectations continue to fall. .

  • While asset prices are near record highs, corporate profits are the same level as in 2014.

  • The Fed has NOT cut rates yet and is still reducing their balance sheet.

  • Global economic growth continues to weaken. 

  • Existing tariffs are continuing to work their way through the system

  • Recession risks have risen markedly in recent months. 

In other words, the supportive backdrop for equity investors is hinged on the “hope” of the Fed cutting rates and a resolution to the “trade war.” 

Monday is that start of Q3 for money managers so a rally is expected that could well push markets to new highs temporarily. 

This is why we remain long equities currently, we are hedged with an overweight position in cash, are maintaining our fixed income exposure and have recently added plays to participate with a “steepening”yield curve. 

However, there are bigger risks still at play and worth watching.

Art Of The Deal Versus The Art Of War

This weekend, all eyes are focused on the meeting between President Trump and President Xi Jinping. If this were a pay-per-view event, it might well rival the “Silva vs. Franklin” matchup at UFC 147 for total viewership. (That’s a joke, it was one of the lowest viewed PPV ever for the UFC)

Kidding aside, there was a tremendous amount of “hope” currently built into the market for a “trade war truce” this weekend. However, as we suggested previously, the most likely outcome was a truce…but no deal.  

That is exactly what happened. As noted by CNBC:

“Both sides confirmed in separate comments that they did not plan to levy any new tariffs against each other’s products at the present time. For one, Chinese state-run press agency Xinhua described the meeting result as the presidents agreeing ‘to restart trade consultations between their countries on the basis of equality and mutual respect.’

Speaking after the bilateral, Trump said it had gone as well as it could have, and that negotiations with China would continue. ‘We are right back on track,’ the president said.”

While the markets will likely react positively next week to the news that “talks will continue,” the impact of existing tariffs from both the U.S. and China continue to weigh on domestic firms and consumers. 

More importantly, while the continued “jawboning” may keep “hope alive” for investors temporarily, these two countries have been “talking” for over a year with little real progress to show for it outside of superficial agreements. 

Importantly, we have noted that Trump would eventually “cave” into the pressure from the impact of the “trade war” he started.

This was evident in this weekend’s agreement:

By agreeing to continue talks without imposing more tariffs on China, China gains ample running room to continue to adjust for current tariffs to lessen their impact. More importantly, Trump gave up a major bargaining chip – Huawei.

“One of the things I will allow, however, is — a lot of people are surprised we send and we sell to Huawei a tremendous amount of product that goes into a lot of the various things that they make— and I said that that’s OK, that we will keep selling that product.”

No, a lot of people weren’t surprised, just Trump as there has been pressure applied by U.S. technology firms to lift the ban on Huawei. While he may have appeased his corporate campaign donors for now, Trump gave up one of the more important “pain points” on China’s economy. 

This gives China much needed room to run.

Let’s review what we said a couple of months ago as to why their will ultimately be no deal. 

“The problem, is that China knows time is short for the President and subsequently there is ‘no rush’ to conclude a ‘trade deal’ for several reasons:

  1. China is playing a very long game. Short-term economic pain can be met with ever-increasing levels of government stimulus. The U.S. has no such mechanism currently, but explains why both Trump and Vice-President Pence have been suggesting the Fed restarts QE and cuts rates by 1%. (Update: Trump says the U.S. should have Mario Draghi at the helm of U.S. monetary policy.)

  2. The pressure is on the Trump Administration to conclude a “deal,” not on China. Trump needs a deal done before the 2020 election cycle AND he needs the markets and economy to be strong. If the markets and economy weaken because of tariffs, which are a tax on domestic consumers and corporate profits, as they did in 2018, the risk off electoral losses rise. China knows this and are willing to ‘wait it out’ to get a better deal.

  3. As I have stated before, China is not going to jeopardize its 50 to 100-year economic growth plan on a current President who will be out of office within the next 5-years at most. It is unlikely, the next President will take the same hard line approach on China that President Trump has, so agreeing to something that is unlikely to be supported in the future is unlikely. It is also why many parts of the trade deal already negotiated don’t take effect until after Trump is out of office when those agreements are unlikely to be enforced. 

In the meantime, as noted in #3 above, corporate profits continued to come under pressure. As noted previously, corporate profits have declined over the last two quarters and are at the same level as in 2014 with the stock market higher by almost 60%.  

But, if you think China is going to acquiesce any time soon to Trump’s demands, you haven’t been paying attention. China has launched a national call in their press to unify support behind China’s refusal to give into Trump’s demands. To wit:

“Lying behind the trade feud is America’s intention to stifle China’s development. The U.S. wants to be a permanent leader in the world, and there is no way for China to avoid the ‘storm’ through compromise.

History proves that compromise only leads to further dilemmas. During previous trade tensions between the U.S. and Japan, Japan made concessions. As a result, its political stability and economic development were adversely affected, with structural reform being suspended and hi-tech companies being severely damaged.

China, with a population of 1.4 billion, is the world’s largest manufacturing base. Industrial upgrading and hi-tech innovation are crucial to China’s economic development. China needs to leave more resources to its descendants by protecting the environment, and reaping the dividends of further opening-up. These are the core interests of China, and it will never give them up.

The only way for a country to win a war is through development, not compromise. To achieve development, China will open its door wider to the world and fight to the end.”

These are Xi Jinping’s mandates, dictated directly from his party, for the meeting with the United States president in Osaka.

The only possible outcome for Trump was exactly what happened. Nothing. Just an agreement to talk more.

While Trump may be following his “Art Of The Deal” tactics, Xi is clearly operating on the foundation of Sun Tzu’s “The Art Of War.”


“If your enemy is secure at all points, be prepared for him. If he is in superior strength, evade him. If your opponent is temperamental, seek to irritate him. Pretend to be weak, that he may grow arrogant. If he is taking his ease, give him no rest. If his forces are united, separate them. If sovereign and subject are in accord, put division between them. Attack him where he is unprepared, appear where you are not expected.

China has been attacking the “rust-belt” states, which are crucial to Trump’s 2020 re-election, states with specifically targeted tariffs. As noted  by MarketWatch:

“China has lashed back with tariffs on $110 billion in American goods, focusing on agricultural products in a direct and painful shot at Trump supporters in the U.S. farm belt.”

While Trump is operating from a view that was a ghost-written, former best-seller, in the U.S. popular press, Xi is operating from a centuries-old blueprint for victory in battle. 

China clearly won this round, and the pressure is now squarely on Trump to get a deal done before the 2020 election. 

That isn’t likely going to happen.

Warning Signs

While markets remain solely focused on the outcome of the G-20 meeting and expectations the Fed will cut rates at the July meeting (which is not assured by any means) warning signs of potential risk continue to mount. 

One of the more important indicators we have discussed previously is the reversal of yield curve inversions. My colleague Albert Edwards confirmed that analysis this past week:

“However, while the inversion was certainly a memorable event, the question on everyone’s lips is how do risk assets perform once the curve flattens and/or inverts. According to backtests from Goldman, since the mid-1980s, significant stock drawdowns (i.e. market crashes) began only when term slope started steepening after being inverted.

In other words, as we noted then, “Curve Inversion Is Bad, But It’s The Steepening After That Kills.”

Fast forward to today, when in his latest bearish missive, SocGen’s permabear Albert Edwards picks up where we left off, and in a note titled “the final recession shoe has now fallen”, he notes that while inversion of the US yield curve is seen as a reliable precursor to US recessions, “it has a long and variable lead time”, and instead “a far more immediate and present danger of recession occurs when after inversion, a rapid steepening occurs.”

Sound familiar?

In any case, as we first commented in early 2019, Edwards notes that this subsequent steepening “usually informs investors the cycle is over and it is time to flee for the hills.

Well, for those who haven’t figured out the punchline yet, rapid curve steepening is now occurring, and as Edwards gleefully concludes, this ‘suggests recession may indeed either be imminent or else it has already arrived.'”

Another concern we have also discussed previously is the issue with margin debt. 

While the consolidation of the market over the last 18-months has led to a slight reduction in the amount of outstanding margin debt, there has been very little overall deleveraging of the market.

The chart below analyzes margin debt in the larger context that includes free cash accounts and credit balances in margin accounts. The chart below is based on nominal data, not adjusted for inflation and has retained the NYSE data through November 2017 and switched to the FINRA data moving forward.

It is important to understand that leverage is a “double-edged sword.” 

When markets are rising, the leverage adds to the “buying power” of investors lifting asset prices higher. However, it also works in reverse, but more like an explosion rather than a slow burn. 

However, as Jesse Felder noted this past week:

“The latest margin debt figures were released last week and they show leveraged investors continue to delever. In fact, margin debt is now falling at an annual rate of 15%, a level of derisking that has always been accompanied by a minimum 20% decline in the S&P 500 over the past half century.

This makes this latest episode of derisking fairly unique. There have only been a couple of other precedents in which stocks rose or were flat year-over-year while margin debt fell at at least a 15% rate: May of 1969 (margin debt down 15%/stocks up 10%) and June of 1973 (margin debt down 18%/stocks flat). January of 2001 (margin debt down 20%/stocks down 1%) also comes very close.”

It is worth noting that those three previous periods on slightly preceded much more meaningful declines.

  • The 1969 event gave way to a near 40% decline in 1970-1971

  • 1973 preceded the 1974 “black bear” market which eclipsed a 50% decline in total.

  • Of course, January 2001 was the precursor to the “” crash which also entailed a 50% decline. 

Are you seeing a pattern here?

While the current contraction in margin debt is somewhat unique, it may only be the case temporarily. As shown in the chart below (I have inverted margin debt to the S&P 500) the amount of contraction needed to reverse the leverage in the market will require a similar 50% decline in asset prices as seen previously.

Yes, this time could absolutely be different.

But from a portfolio management perspective, it probably isn’t the best “bet” to make.

Published:6/30/2019 10:49:58 AM
[Markets] How Beijing Uses Fake Money To Cannibalize The US Transit Market

Authored by EconomicPrism's MN Gordon, annotated by Acting-Man's Pater Tenebrarum,

A Distorted Landscape

One of the more remarkable achievements of fake money creation is that it distorts and disfigures the world in odd and uncanny ways.  Dow (not quite) 27,000.  Million dollar shacks.  Over $13 trillion in subzero-yielding debt. You name it.  Any and every disfiguration is possible with enough fake money.

The global stock of outstanding government bonds with negative yields-to-maturity reaches a new record high of more than $13 trillion – this is insanity writ large. [PT]

However, when it comes to the full range of ways fake money distorts the economic landscape, asset price inflation is merely a cheap facade. The real, mega-disfigurations pile up in the arena of international trade.  What’s more, they extend well beyond a gaping trade imbalance.

Currency wars, competitive devaluations, and the race to the bottom are all hazards formed out of the confluence of fake money, foreign exchange markets, and international trade.  So, too, the impetus for tit for tat trade tariffs and trade wars ties back to the deceit and deception of fake money.  Still, these facets aren’t the half of it.

To better understand what exactly fake money has wrought, a brief detour is in order. You see, a world under the influence of fake money is a strange and curious place. The clearest path between two points is not always a straight line.

Thus, before we get to how Beijing is using fake money to cannibalize the U.S. transit market, we deviate to the fake capitalism of the technology sector. This may be an old and tired story.  But it offers important context for understanding the world at large…

Benevolent Investors

The 21st century has brought forth many absurdities. But none is perhaps greater than the popular delusion that profits don’t matter.  That growth is somehow the sole determinant factor of a stock’s value.

This goes counter to our antiquated conception of capitalism.  We still believe that current and future profits are critical to the growth of a company.  Yet, according to the voting machine of the market, and the bubble economy of the technology sector, profits mean diddly squat.  Technology investors even have a decade of rising portfolios to prove it.

Take Spotify, for instance.  During the first quarter of 2019, the music streaming service delivered revenue of $1.5 billion.  But, to do so, they produced earnings of negative $142 million.

Spotify since its IPO – yet another profitless wonder of the modern-day version of the tech bubble. This is highly reminiscent of the late 1990s, when the initial wave of dotcom companies that had come to the market was valued on the basis of “eyeballs”. A few of these lottery tickets had phenomenal growth and eventually made investors rich, but the vast majority of them simply went under when the NDX suffered an 80% wipe-out from 2000 – 2002. [PT]

Nonetheless, investors piled into Spotify like it was gushing cash.  Year to date, its share price is up 25 percent.  Mind you, this is for a company with trailing twelve month earnings per share of a negative $7.63.  Somehow, the company has a market capitalization over $26 billion.

Naturally, we are suspicious of the business model. You cannot make up for negative earnings with greater volume. But in the bubble economy of the technology sector this is of little concern to investors.

What matters to technology investors is that the business has the appearance of innovative growth. Hence, Spotify, and many other technology companies, exist solely off the benevolence of investors.

Without question, this is old news.  But it is important to revisit it.  For in being rewarded for their losses, Wall Street’s most popular technology companies are able to cannibalize their competitors and control niche markets.

An hourly chart of UBER since its IPO – the stock recently reached a new post-IPO high. Wall Street just loves giant loss-making companies these days – UBER is losing money hand over fist and its survival is predicated on investors continuing to fund its losses for a long time to come. We imagine that maintaining this business model would become quite difficult should interest rates ever rise again (not an impossibility). [PT]

How Beijing Uses Fake Money to Cannibalize the U.S. Transit Market

Perhaps the greatest innovation of the technology sector has been the great lengths it has gone to destroy capital.  No doubt, many unique and creative endeavors have been undertaken to this end.  The opportunities are limitless.

For example, the technology sector business model is currently being exploited by the Communist Party of China to the detriment of the economic and security interests of U.S. citizens. 

Adding insult to injury, this is taking place on the U.S. taxpayer’s dime.

Specifically, Chinese state owned enterprises (SOE), like China Railway Rolling Stock Corporation (CRRC), have been booking large metropolitan taxpayer funded transit contracts in cities across the US.  For clarification, a Chinese SOE is a Chinese company backed by the Communist Party of China.  The Alliance for American Manufacturing offers the particulars:

“CRRC already has won contracts to build rail transit in Boston, Philadelphia, Los Angeles and Chicago — and did so by significantly underbidding its rivals.  In Philadelphia, for example, CRRC outbid its next closest competitor, Canadian company Bombardier, by $34 million.  Its bid was $47.2 million lower than South Korea’s Hyundai Rotem, which already had a manufacturing presence in the city.

“CRRC can underbid its competitors so significantly because China’s goal isn’t to make money from individual transit contracts, as a company operating in a free market would. Rather, it wants to dominate the entire global transit industry, and is working to do so by entering and quickly dominating markets in other countries, including in the United States.”

CRRC, weekly – the 5-year price chart of this giant Chinese SOE is fatally reminiscent of the chart of the South Seas Company from 1720 to 1725. Nevertheless, CRRC has in the meantime become the largest rolling stock manufacturer in the world, eclipsing former market leaders like Siemens and Alstom. [PT]

Similar to technology sector businesses, which operate at a loss and cannibalize competitors, CRRC and other Chinese SOEs can operate at a loss and cannibalize the U.S. transit market.  But instead of benevolent investors backstopping them, Chinese SOEs are backstopped with fake money from Beijing.

From what we gather, Senate Minority Leader Chuck Schumer is on the case – calling for a federal probe into CRRC’s efforts to design New York City subway train cars.  But this misses the point entirely.

So long as fake money is accepted for goods and services, the extreme distortions and disfigurations will continue.  Beijing’s use of fake money to cannibalize the U.S. transit market is merely the logical progression of a degraded condition.

Published:6/29/2019 2:15:42 PM
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[Markets] Powell Pivot Prompts Dow's Greatest June Gains In 81 Years

Well that was a month... and good luck if you're long (or short) into this weekend's headline horrors...

Global Bond and Stock Markets added $4.5 trillion to global wealth in June


Powell Pivot, Fed Fold, or Complete Capitulation by Cowardly PolicyMakers...

Catching down to the market's demands...

And everything was up in the first half of the year (via BofA):

H1 Scores on the doors: global stocks 15.5%, commodities 16.2%, HY corporate bonds 9.3%, IG corporate bonds 7.7%, government bonds 4.9%, cash 1.2%, US dollar 0.0%.

H1 return winners: #1 Bitcoin +194%, #2 iron ore 67%, #3 Russian equities 33%, #4 WTI oil 31%, #5 tech stocks 23%.

H1 return losers: #1 natural gas -22%, #2 Turkish lira -8%, #3 biotech stocks -2%, #4 US dollar 0.0%, #5 T-Bills 1%.

H1 flow winners: #1 Corp IG $136bn, #2 Govt bonds $34bn, #3 EM debt $27bn, #4 Munis $21bn, #5 Corp HY $15bn.

H1 flow losers: #1 EU equities -$71bn, #2 US equities -$41bn, #3 bank loans -$18bn, #4 financials -$10bn, #5 TIPS -$8bn.

H1 in a nutshell: asset prices rose as bearish positioning coincided with a bullish monetary policy pivot; interest rate expectations collapsed offsetting lower EPS expectations; lower credit spreads & volatility meant higher stock prices; investors went down-in-quality in credit, and stuck with growth stocks.

Global stocks (MSCI World) just had their greatest June performance in history...


The Dow just had its best June since 1938...

Additionally, the S&P saw its best June since 1955...


Chinese stocks are up 20% in the first six months of the year, the best six-month run since June 2015...

June was also a big month but dominated by the mid-month ECB/FED/BoJ fold...


European stocks saw their best monthly performance since Dec 2016 (Thanks to Draghi and Powell mid-month)...


And best first half of the year since 1998...


June was - as noted above - was almost unprecedented for US stocks...

NOTE - look at how tightly clustered US major equity index returns are for such a wild month.

On the week, Trannies and Small Caps surged - on a huge short squeeze - but Dow, S&P, and Nasdaq all lost ground...

NOT - big spike at the close on a $4bn MOC to buy program - did pensions really wait until the last 10mins of the quarter to rebalance?


"Most Shorted" Stocks have exploded higher in the last two days, echoing the first two days of the month - this is the biggest monthly squeeze since January...


VIX was lower on the month BUT as stocks rallied since June 6th, VIX has been flat...


Credit markets dramatically compressed in June - decoupling from equity risk...


But credit and equity are notably divergent in this bounce...


Bond vol has dramatically decoupled from equity vol too...